SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1997 Commission file number 0-19245
ARVIDA/JMB PARTNERS, L.P.-II
(Exact name of registrant as specified in its charter)
Delaware 58-1809884
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Avenue., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/440-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such a shorter period that
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities. . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 17
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -----------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 247,698 181,623
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 756,815 955,077
Trade and other accounts receivable (net of allowance
for doubtful accounts of $62,690 at March 31, 1997
and $76,289 at December 31, 1996) . . . . . . . . . . . . . . . . . 31,041 103,650
Real estate inventories . . . . . . . . . . . . . . . . . . . . . . . 57,598 57,598
Property and equipment held for sale or disposition . . . . . . . . . 2,701,441 2,701,441
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . 755,415 850,528
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,550,008 4,849,917
============ ============
<PAGE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
------------- -----------
Liabilities:
Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,395 10,222
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 132,707 129,281
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,212 33,700
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 34,088,179 30,605,394
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . 7,623,430 7,621,046
Notes and mortgages payable (in default) . . . . . . . . . . . . . . 78,769,410 78,871,459
------------ ------------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 120,669,333 117,271,102
------------ ------------
Partners' capital accounts (deficits):
General Partner and Associate Limited Partner:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . (8,720,336) (8,448,354)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . (246,771) (246,771)
------------ ------------
(8,965,107) (8,693,125)
------------ ------------
Limited partners:
Capital contributions, net of offering costs . . . . . . . . . . . 209,753,671 209,753,671
Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . . (307,686,715) (304,260,557)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . (9,221,174) (9,221,174)
------------ ------------
(107,154,218) (103,728,060)
------------ ------------
Total partners' deficits . . . . . . . . . . . . . . . . . . . (116,119,325) (112,421,185)
------------ ------------
Total liabilities and partners' deficits . . . . . . . . . . . $ 4,550,008 4,849,917
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues:
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 140,810
Homesites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 646,050
Operating properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 218,623 1,686,344
Brokerage and other operations. . . . . . . . . . . . . . . . . . . . . . -- 336,171
----------- ----------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . 218,623 2,809,375
Cost of revenues:
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 147,279
Homesites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 558,537
Operating properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 108,388 1,378,222
Brokerage and other operations. . . . . . . . . . . . . . . . . . . . . . -- 293,264
----------- ----------
Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . 108,388 2,377,302
Gross operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 110,235 432,073
Selling, general and administrative expenses. . . . . . . . . . . . . . . . (195,726) (383,237)
----------- ----------
Net operating loss. . . . . . . . . . . . . . . . . . . . . . . . (85,491) 48,836
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,476 9,124
Interest and real estate taxes. . . . . . . . . . . . . . . . . . . . . . . (3,624,125) (5,072,760)
----------- ----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,698,140) (5,014,800)
=========== ==========
Net loss per Limited
Partnership Interest. . . . . . . . . . . . . . . . . . . . . . $ (14.63) (15.61)
=========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,698,140) (5,014,800)
Charges to net loss not requiring cash:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 9,683 30,857
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . (13,456) 5,642
Changes in:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,262 942,439
Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . 86,065 17,996
Real estate inventories:
Additions to real estate inventories. . . . . . . . . . . . . . . . . . -- (232,701)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 705,816
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 85,430 46,536
Accounts payable, accrued expenses and other liabilities. . . . . . . . . 3,486,211 4,301,568
Deposits and unearned income. . . . . . . . . . . . . . . . . . . . . . . 15,512 (157,046)
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . 2,384 27,131
------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . 171,951 673,438
------------ -----------
Financing activities:
Payments of notes and mortgages payable . . . . . . . . . . . . . . . . . (102,049) (1,464,505)
Proceeds from (repayments of) bank overdrafts . . . . . . . . . . . . . . (3,827) 381,814
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . (105,876) (1,082,691)
------------ -----------
Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . 66,075 (409,253)
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . 181,623 1,387,313
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . $ 247,698 978,060
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other
interest, net of amounts capitalized. . . . . . . . . . . . . . . . . . $ -- --
============ ===========
Non-cash investing and financing activities . . . . . . . . . . . . . . . $ -- --
============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1996,
which are included in the Partnership's 1996 Annual Report on Form 10-K
(File No. 0-19245) filed on March 31, 1997, as certain footnote disclosures
which would substantially duplicate those contained in such audited
financial statements have been omitted from this report. Capitalized terms
used but not defined in this quarterly report have the same meanings as in
the Partnership's 1996 Annual Report.
GENERAL
Capitalized Interest and Real Estate Taxes
Interest of $2,270,840 and $2,914,357 was incurred for the three
months ended March 31, 1997 and 1996, respectively, none of which was
capitalized. There were no interest payments made during the three month
periods ended March 31, 1997 and 1996. The Partnership has not made the
required monthly interest payments on its credit facility since September
1994.
Real estate taxes of $1,353,285 and $2,158,403 were incurred for the
three months ended March 31, 1997 and 1996, respectively, none of which
were capitalized. Real estate tax payments of $0 and $360,642 were made
during the three months ended March 31, 1997 and 1996, respectively. The
preceding analysis of real estate taxes does not include real estate taxes
incurred or paid with respect to the Partnership's club facilities and
other operating properties as these taxes are included in cost of revenues
for operating properties.
Property and Equipment and Other Assets
No depreciation expense was incurred for the three month periods ended
March 31, 1997 and 1996. Reference is made to the "Impact of Recently
Issued Accounting Standards" note for a discussion of the Partnership's
implementation of the Financial Accounting Standards Board's Statement No.
121 ("FASB No. 121"). Amortization of other assets of $9,683 and $30,857
was incurred for the three months ended March 31, 1997 and 1996,
respectively.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Restricted cash at March 31, 1997 and December 31, 1996 consists of
the amount remaining from the original $3 million which was deposited into
a restricted collateral account in March 1995 pursuant to an agreement
between the Partnership and its lender.
NOTES AND MORTGAGES PAYABLE (IN DEFAULT)
The Partnership's credit facilities consist of a $52.5 million term
loan, a $67.5 million term loan, a revolving line of credit of
approximately $14.3 million and approximately $4.3 million of outstanding
letters of credit securing performance obligations of the Partnership.
There is also a $5 million letter of credit facility which secures
performance obligations of the Partnership. At March 31, 1997,
approximately $11.3 million, $56.0 million and $11.5 million was
outstanding under the $52.5 million term loan, the $67.5 million term loan
and the revolving line of credit facility, respectively.
<PAGE>
For the three month period ended March 31, 1997, the effective
interest rate for the combined term loans and the revolving line of credit
facility was approximately 11.5% per annum. The Partnership has not made
the required interest payments on its credit facilities since September
1994. The amount of interest which remains payable at March 31, 1997
totals approximately $19.0 million.
In March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, the Partnership proposed
a plan for the orderly disposition of its remaining assets. The
Forbearance Agreements were amended in October 1995 and again in September
1996 to provide for, among other things, extensions of the time frame for
the orderly deposition of the Partnership's assets. In conjunction with
the September 1996 amendment, the Partnership's lender agreed to forgive,
waive and cancel a portion of the unpaid interest on the Partnership's
credit facilities in the aggregate amount of $20 million, of which $2
million was allocated to interest on the revolving line of credit and $18
million was allocated to one of the term loans. The Partnership and its
lender are in the process of negotiating the terms of another amendment to
the March 1995 Forbearance Agreements which includes, among other things,
an extension of the existing plan whereby the Partnership would sell its
remaining assets by no later than June 30, 1997. The amendment also
includes the forgiveness, by the Partnership's lender, of any remaining
outstanding principal balance and accrued interest on the Partnership's
credit facilities, upon the satisfaction of certain specified conditions
including, among other things, the sale of the Partnership's remaining real
estate assets at specified minimum prices, the payment of the net proceeds
from such sales to the Partnership's lender, and the assignment of any
other net assets of the Partnership to the lender. Such forgiveness of
principal and interest would result in an extraordinary gain for financial
reporting purposes.
Proceeds from the sales of the Partnership's assets and other
collateral securing the credit facilities, net of brokerage commissions and
certain other customary selling expenses, are to be delivered to the lender
to be applied against the outstanding principal balances on both of the
term loans. Through March 31, 1997, the Partnership has remitted proceeds
totaling approximately $40.3 million from sales made after becoming subject
to this requirement in September 1994.
During October 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega property. The sale was
originally expected to close during 1996 and was subsequently extended to
April 1997. However, the buyer defaulted under the terms of the contract
without the sale of the property being consummated. The Partnership is
currently marketing the property for sale.
Although there can be no assurance, the Partnership is currently
working to dispose of all of its remaining assets during 1997. The
Partnership's ability to dispose of all of its assets during 1997 is
dependent upon, among other things, the Partnership entering into a new
contract and closing on the sale of its Talega Property, as well as the
Heathrow venture contracting for the sale, and closing the sale of the
shopping plaza in the Heathrow Community, by the end of the year. It is
expected that any proceeds from the sale or other disposition of such
assets, in excess of the costs of sale and general and administrative
expenses attributable thereto, will be paid to the lender or other
creditors of the Partnership. In addition, the Partnership is currently
involved in certain litigation, as discussed in Part II. Item 1. Legal
Proceedings in this report, to which reference is hereby made. Upon
completion of the sale of the Partnership's remaining assets, the
Partnership expects to terminate. However, the termination of the
Partnership could be delayed until resolution (or other acceptable
treatment) of the pending litigation. The Holders of Interests should not
expect to receive any future distributions from the Partnership.
<PAGE>
The possibility still remains that the lender may pursue its remedies
under the credit facilities, including realizing upon substantially all of
the Partnership's remaining assets, which are collateral security for the
credit facilities. These issues raise substantial doubt about the
Partnership's ability to continue as a going concern. If the Partnership
is unable to continue as a going concern, it may be forced to dispose of
its Properties in a manner that would realize less than would be realized
under its current plan for an orderly disposition. If this were to occur,
any proceeds received could be less than the current carrying values of the
Properties, resulting in the recognition of additional losses by the
Partnership. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
TRANSACTIONS WITH AFFILIATES
The General Partner of the Partnership or its affiliates may be
reimbursed for their direct expenses or out-of-pocket expenses relating to
the administration of the Partnership and its assets. For the three months
ended March 31, 1997, there were no reimbursements due the General Partner
of the Partnership or its affiliates for such direct or out-of-pocket
expenditures. The total of such reimbursements for the three months ended
March 31, 1996 was approximately $2,400.
In addition, the General Partner and its affiliates are entitled to
reimbursements for salaries and salary-related costs relating to the
administration of the Partnership and the operation of the Partnership's
Properties. No reimbursements were due the General Partner or its
affiliates for the three months ended March 31, 1997. The total of such
costs for the three months ended March 31, 1996 was approximately $13,500.
The Partnership also reimburses affiliates of the General Partner for
certain general and administrative costs including, and without limitation,
salary and salary-related costs. The Partnership was obligated to
reimburse one of its affiliates approximately $0 and $5,800 for the three
month periods ended March 31, 1997 and 1996, respectively, for costs
incurred by the affiliate on behalf of the Partnership, none of which was
outstanding at March 31, 1997.
Prior to June 1996, the Partnership and Arvida/JMB Partners, L.P. (a
publicly-held limited partnership affiliated with the General Partner,
"Arvida/JMB-I") each employed project-related and administrative personnel
who performed services on behalf of both partnerships. In addition,
certain out-of-pocket expenditures related to such services and other
general and administrative expenditures were incurred and charged to each
partnership as appropriate. The Partnership reimbursed or received
reimbursements from Arvida/JMB-I for such costs (including salary and
salary-related costs). Subsequent to June 1996, the Partnership no longer
employed any project-related or administrative personnel and incurred no
costs on behalf of Arvida/JMB-I. For the three month period ended March
31, 1997, the Partnership was obligated to reimburse Arvida/JMB-I
approximately $31,100. At March 31, 1997, approximately $19,400 was
unpaid, $11,100 of which was paid as of May 13, 1997. The Partnership was
not entitled to any reimbursement from Arvida/JMB-I for the three month
period ended March 31, 1997. For the three months ended March 31, 1996,
the Partnership was obligated to reimburse Arvida/JMB-I approximately
$589,200 and the Partnership was entitled to receive reimbursements from
Arvida/JMB-I of approximately $68,300.
<PAGE>
Arvida Company ("Arvida"), pursuant to an agreement with the
Partnership, provides development, construction, management and other
personnel and services to the Partnership for all of its projects and
operations. Pursuant to such agreement, the Partnership reimburses Arvida
for all of its salary and salary-related costs incurred in connection with
work performed on behalf of the Partnership. The total of such costs for
the three month periods ended March 31, 1997 and 1996 were approximately
$20,400 and $105,500, respectively. At March 31, 1997, approximately
$2,300 was unpaid, all of which was paid as of May 13, 1997.
Pursuant to a requirement under the Partnership's credit facilities, a
portion of the reimbursements paid to Arvida and Arvida/JMB-I as well as
portions of the Partnership's insurance and loan refinancing costs incurred
in 1992 and 1993, have been funded on the Partnership's behalf by advances
from the General Partner. Such advances, which do not bear interest,
totalled approximately $4,609,400 at March 31, 1997. The repayment of such
advances is subordinated to the receipt by the Holders of Interests of
certain levels of return, and therefore is not expected to be made. In
addition, the Partnership was entitled to receive approximately $12,900
from an affiliate of the General Partner for salary and salary-related
costs incurred by the Partnership on behalf of such affiliate of the
General Partner, all of which was outstanding as of March 31, 1997 and
none of which was paid as of May 13, 1997.
Prior to the sale during June 1996 of the remaining land within the
Heathrow Community, the Partnership incurred certain general and
administrative expenses, including insurance premiums, which were paid by
the Partnership on behalf of its affiliated homeowners associations. The
Partnership receives reimbursements from the affiliates for such costs.
For the three months ended March 31, 1996, the Partnership was entitled to
receive approximately $5,200 from such affiliates. There were no amounts
due the Partnership for the three month period ended March 31, 1997.
Prior to the sale during June 1996 of the remaining land within the
Heathrow Community, Arvida provided development management services to the
Heathrow joint venture. The cumulative amount of such deferred management
fees as of March 31, 1997 was approximately $3,005,200. Such deferred fees
do not bear interest and remain payable. The ultimate payment of these
management fees is not expected to be made as it is subordinated to certain
levels of return to the Holders of Interests.
In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partner have deferred a portion of their distributions of
net cash flow from the Partnership totalling approximately $247,000. This
amount, which does not bear interest, is not expected to be paid.
COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations,
including the Partnership's obligations with respect to the Santa Margarita
Water District, the Partnership is contingently liable under standby
letters of credit and bonds at March 31, 1997 for approximately $2,590,500
and $428,000, respectively.
<PAGE>
The Partnership has been named a defendant in a lawsuit filed in the
Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County,
Florida entitled Land Investment I, Ltd., Heathrow Land & Development
Corporation, Heathrow Shopping Center Associates, and Paulucci Investments
v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida
Company and JMB Realty Corporation. The complaint, as amended, includes
counts for breach of the management agreement, fraud in the inducement and
conspiracy to commit fraud in the inducement, breach of the partnership
agreement and constructive trust in connection with the purchase and
management of the Heathrow development. Plaintiffs seek, among other
things, unspecified compensatory damages, punitive damages, attorneys fees,
costs, and such other relief as the Court deems appropriate. The
Partnership believes that the lawsuit is without merit and intends to
vigorously defend itself in this matter.
The Partnership has been advised by Merrill Lynch, Pierce, Fenner &
Smith, Incorporated ("Merrill Lynch") that various investors of the
Partnership have sought to compel Merrill Lynch to arbitrate claims brought
by certain investors of the Partnership, and has been named as a respondent
in various arbitrations, representing approximately 11% of the total
Interests outstanding. These claimants have sought and are seeking to
arbitrate claims involving unspecified damages based on Merrill Lynch's
alleged violations of applicable state and/or federal securities laws and
alleged violations of the rules of the National Association of Securities
Dealers, Inc., together with pendent state law claims. The Partnership
believes that Merrill Lynch has resolved some of these claims through
litigation and otherwise, and that Merrill Lynch is defending other claims.
Merrill Lynch has asked the Partnership and its General Partner to confirm
an obligation of the Partnership and its General Partner to indemnify
Merrill Lynch in these claims against all loss, liability, claim, damage
and expense, including without limitation attorney's fees and expenses,
under the terms of a certain Agency Agreement dated October 23, 1989
("Agency Agreement") with the Partnership relating to the sale of Interests
through Merrill Lynch on behalf of the Partnership. The Agency Agreement
generally provides that the Partnership and its General Partner shall
indemnify Merrill Lynch against losses occasioned by an actual or alleged
misstatement or omission of material facts in the Partnership's offering
material used in connection with the sale of Interests and suffered by
Merrill Lynch in performing its duties under the Agency Agreement, under
certain specified conditions. The Agency Agreement also generally
provides, under certain conditions, that Merrill Lynch shall indemnify the
Partnership and its General Partner for losses suffered by the Partnership
and occasioned by certain specified conduct by Merrill Lynch in the course
of Merrill Lynch's solicitation of subscriptions for, and sale of,
Interests. The Partnership is unable to determine the ultimate investment
of investors who have filed arbitration claims as to which Merrill Lynch
might seek indemnification in the future. At this time, and based upon the
information presently available about the arbitration statements of claims
filed by some of these investors, the Partnership and its General Partner
believe that they have meritorious defenses to demands for indemnification
made by Merrill Lynch and intend to vigorously pursue such defenses.
Although there can be no assurance regarding the outcome of the claims for
indemnification, at this time, based on information presently available
about such arbitration statements of claims, the Partnership and its
General Partner do not believe that the demands for indemnification by
Merrill Lynch will have a material adverse effect on the financial
condition of the Partnership.
In addition, the Partnership could potentially be liable for certain
amounts incidental to other matters, the amount of which could be
substantial.
<PAGE>
TAX-EXEMPT BOND FINANCING
In connection with the development of Talega (which was suspended
during 1990), the Partnership has utilized bond financing to construct
certain on-site and off-site water and sewer infrastructure improvements
which the Partnership would otherwise be obligated to finance and construct
as a condition to obtain certain approvals for the project. The principal
amount of bonds issued was $62 million, and all of the proceeds from the
offering have been utilized. As of March 31, 1997, $56,970,000 of the
bonds were outstanding. The Partnership has not made any of the required
payments to the District for assessments to pay principal and interest on
the bonds or standby charges and operating expenses of the District since
July 1994, when the District drew down an $11.4 million letter of credit
which served as additional collateral securing payments of assessments
attributable to principal and interest due on the bonds.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Partnership adopted FASB No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
effective January 1, 1996. In accordance with FASB No. 121, the
Partnership discontinued recording depreciation as all of its assets held
for disposal. In addition, in conjunction with the application of this
statement, the Partnership reversed the depreciation expense previously
recorded in 1996 during the fourth quarter of 1996. The Partnership
requires no impairment losses or other adjustments to be recorded as of
March 31, 1997 as a result of the application of this statement. Operating
results for properties held for sale or disposition are reflected as
operating properties revenues and cost of revenues on the accompanying
consolidated statements of operations for the three month periods ended
March 31, 1997 and 1996.
ADJUSTMENTS
In the opinion of the General Partner, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been
made to the accompanying consolidated financial statements as of March 31,
1997 and December 31, 1996 and for the three month periods ended March 31,
1997 and 1996 (assuming the Partnership continues as a going concern).
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the notes to the accompanying consolidated
financial statements ("Notes") contained in this report for additional
information concerning certain of the Partnership's investments.
As discussed below, there is substantial doubt about the Partnership's
ability to continue as a going concern.
At March 31, 1997 and December 31, 1996, the Partnership had cash and
cash equivalents of approximately $247,700 and $181,600, respectively.
Bank overdrafts representing checks in transit of approximately $6,400 and
$10,200 at March 31, 1997 and December 31, 1996, respectively, were repaid
from cash on hand in April 1997 and January 1997, respectively. Remaining
cash and cash equivalents were available for working capital requirements.
The Partnership had suspended cash distributions to its Partners in late
1990 due to, among other things, deteriorating market conditions. The
Partnership has been unable to reinstate distributions due to its financial
condition and the operations of its Properties, which are also discussed
more fully below. In addition, the Partnership is currently in default of
the terms of its credit facilities and a default has been asserted with
respect to assessments and charges relating to tax exempt bond financing
and the operations of the Santa Margarita Water District. The source of
the Partnership's liquidity is dependent upon its lender continuing to
forbear from exercising its remedies under the Partnership's credit
facility agreements and permitting the Partnership to use funds in a
restricted cash collateral account and certain sales proceeds to finance
the Partnership's limited operations, as more fully discussed in Part II -
Item 3. (Defaults upon Senior Securities).
During June 1996, the Heathrow joint venture, in which the Partnership
is the managing general partner, closed on the sale of the remaining land,
the country club and certain related assets within the Partnership's
Heathrow Community. This sale is the primary cause for various significant
changes on the accompanying consolidated statements of operations for the
three month period ended March 31, 1997 as compared to the same period in
1996.
In March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, the Partnership proposed
a plan for the orderly disposition of its remaining assets. The
Forbearance Agreements were amended in October 1995 and again in September
1996 to provide for, among other things, extensions of the time frame for
the orderly disposition of the Partnership's assets. In conjunction with
the September 1996 amendment, the Partnership's lender agreed to forgive,
waive and cancel a portion of the unpaid interest on the Partnership's
credit facilities in the aggregate amount of $20 million, of which $2
million was allocated to interest on the revolving line of credit and $18
million was allocated to one of the term loans. The Partnership and its
lender are in the process of negotiating the terms of another amendment to
the March 1995 Forbearance Agreements which includes, among other things,
an extension of the existing plan whereby the Partnership would sell its
remaining assets by no later than June 30, 1997. The amendment also
includes the forgiveness, by the Partnership's lender, of any remaining
outstanding principal balance and accrued interest on the Partnership's
credit facilities, upon the satisfaction of certain specified conditions
including, among other things, the sale of the Partnership's remaining real
estate assets at specified minimum prices, the payment of the net proceeds
<PAGE>
from such sales to the Partnership's lender, and the assignment of any
other net assets of the Partnership to the lender. Such forgiveness of
principal and interest would result in an extraordinary gain for financial
reporting purposes.
During October 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega property. The sale was
originally expected to close during 1996 and was subsequently extended to
April 1997. However, the buyer defaulted under the terms of the contract
without the sale of the property being consummated. The Partnership is
currently marketing the property for sale.
Although there can be no assurance, the Partnership is currently
working to dispose of all of its remaining assets during 1997. The
Partnership's ability to dispose of all of its assets during 1997 is
dependent upon, among other things, the Partnership entering into a new
contract and closing on the sale of its Talega Property by the end of the
year, as well as the Heathrow venture contracting for the sale, and closing
the sale, of the shopping plaza in the Heathrow Community. It is expected
that any proceeds from the sale or other disposition of such assets, in
excess of the costs of sale and general and administrative expenses
attributable thereto, will be paid to the lender or other creditors of the
Partnership. In addition, the Partnership is currently involved in certain
litigation, as discussed in Part II. Item 1. Legal Proceedings in this
report, to which reference is hereby made. Upon completion of the sale of
the Partnership's remaining assets, the Partnership expects to terminate.
However, termination of the Partnership could be delayed until resolution
(or other acceptable treatment) of the pending litigation. Holders of
Interests should not expect to receive any future distributions from the
Partnership.
The possibility still remains that the lender may pursue its remedies
under the credit facilities, including realizing upon substantially all of
the Partnership's remaining assets, which are collateral security for the
credit facilities. These issues raise substantial doubt about the
Partnership's ability to continue as a going concern. If the Partnership
is unable to continue as a going concern, it may be forced to dispose of
its Properties in a manner that would realize less than would be realized
under its current plan for an orderly disposition. If this were to occur,
any proceeds received could be less than the current carrying values of the
Properties, resulting in the recognition of additional losses by the
Partnership. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
RESULTS OF OPERATIONS
The results of operations for the three months ended March 31, 1997
and March 31, 1996 reflect the reduced activity of the Partnership due to
its financial condition and the prohibition placed on the Partnership by
its lender regarding the construction of new homes and the development of
homesites within Heathrow.
The significant decline in revenues generated by the Partnership for
the three month period ended March 31, 1997 as compared to the same period
in 1996 is due to the sale in June 1996 of the Partnership's remaining
land, cable operations and country club in its Heathrow community.
Operating revenues and cost of revenues for the three month period ended
March 31, 1997 are attributable to the operations of the shopping plaza in
the Heathrow community.
Selling, general and administrative expenses decreased during the
three month period ended March 31, 1997 as compared to the same period in
1996 due to the limited activities of the Partnership.
<PAGE>
Interest and real estate taxes declined due to a reduction in the debt
outstanding during the three month period ended March 31, 1997 as compared
to the same period in 1996. In addition, real estate taxes declined due to
the Heathrow sale discussed above, as well as a decline in the taxes
attributable to the Partnership's Talega Property.
As of March 31, 1997, the Partnership's remaining assets include the
Talega property, the shopping plaza in Heathrow and three homesites in the
Eagle Watch Community. Although there can be no assurance, the Partnership
is currently working to dispose of all its remaining assets during 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership has been named a defendant in a lawsuit filed in the
Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County,
Florida entitled Land Investment I, Ltd., Heathrow Land & Development
Corporation, Heathrow Shopping Center Associates, and Paulucci Investments
v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida
Company and JMB Realty Corporation. The complaint, as amended, includes
counts for breach of the management agreement, fraud in the inducement and
conspiracy to commit fraud in the inducement, breach of the partnership
agreement and constructive trust in connection with the purchase and
management of the Heathrow development. Plaintiffs seek, among other
things, unspecified compensatory damages, punitive damages, attorneys fees,
costs, and such other relief as the Court deems appropriate. The
Partnership believes that the lawsuit is without merit and intends to
vigorously defend itself in this matter.
The Partnership is not subject to any other material pending legal
proceedings, other than ordinary litigation incidental to the business of
the Partnership. However, reference is made to Notes for a discussion of
certain claims asserted by Merrill Lynch for indemnification by the
Partnership and the General Partner in connection with claims for
arbitration filed by certain investors in the Partnership.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Partnership's $67.5 million term loan has a certain loan-to-value
covenant relative to the Partnership's Talega Property. Based upon an
independent appraisal of Talega which was prepared on behalf of the
Partnership's lender, the Partnership has not been in compliance with this
covenant. On March 4, 1994, pursuant to the terms of this loan-to-value
covenant, the Partnership received a notice of default from its lender.
The Partnership was required to make a term loan payment, including
accrued interest, of approximately $59 million in order to cure this
default. The Partnership did not have the funds to make such payment. In
addition, the Partnership's credit facilities matured on December 30, 1994.
However, the Partnership did not have the funds to pay off the balances
outstanding under the credit facilities. The Partnership has not made the
required interest payments on its credit facilities since September 1994.
The aggregate amount outstanding, including principal and all accrued and
unpaid interest, on the Partnership's term loans and revolving line of
credit at March 31, 1997 is approximately $78.8 million. In addition, as
of March 31, 1997, the Partnership is liable under standby letters of
credit for approximately $2,590,500. To date, the Partnership's lender has
not pursued all of its remedies under the credit facility agreements
relative to these defaults, which could include, among other things, the
lender realizing upon its security interest in the Partnership's
Properties. In March 1995, the Partnership and its lender entered into
Forbearance Agreements which were subsequently modified on October 31, 1995
and September 24, 1996. Upon the execution of the September 24, 1996
amended agreements, the Partnership's lender agreed to forgive, waive and
cancel a portion of the unpaid interest on the Partnership's credit
facilities in the aggregate amount of $20 million, of which $2 million was
allocated to interest on the revolving line of credit and $18 million was
allocated to one of the term loans. The Partnership and its lender are in
the process of negotiating the terms of another amendment to the March 1995
Forbearance Agreements which include, among other things, an extension of
the existing plan whereby the Partnership would sell its remaining assets
by no later than June 30, 1997. It is expected that any proceeds from the
sale or other disposition of such assets, in excess of the costs and
general and administrative expenses attributable thereto, will be paid to
the lender or other creditors of the Partnership. Reference is made to
Part I. Financial Information and Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations for a further
discussion of the Partnership's liquidity and capital resources.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Amended and Restated Agreement of Limited Partnership
incorporated herein by reference.*
4.1. Assignment Agreement by and among the Partnership, the General
Partner, the Initial Limited Partner and the Holders of Interests
incorporated herein by reference.*
4.2. Amended and Restated Credit Agreement dated June 23, 1992
between Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of
America National Trust and Savings Association is incorporated herein by
reference.**
4.3. Various mortgages and other security interests dated April 30,
1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere,
Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes
properties which secure loans under the Amended and Restated Credit
Agreement referred to in Exhibit 4.2 are incorporated herein by
reference.**
4.4. Revolving Loan and Letter of Credit Facility Credit Agreement
dated June 23, 1992 between Arvida/JMB Partners, L.P.-II and Continental
Bank N.A. and Bank of America National Trust and Savings Association is
incorporated herein by reference.**
4.5. Various mortgages and other security interests dated June 23,
1992 related to Arvida/JMB Partners, L.P.-II's Heathrow, Talega, Wesmere,
Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and SouthRidge Lakes
properties which secure loans under the Revolving Loan and Letter of Credit
Facility Credit Agreement referred to in Exhibit 4.4 are incorporated
herein by reference.**
4.6. Interim Bank Letter Agreement dated March 25, 1992 between
Arvida/JMB Partners, L.P.-II and Continental Bank N.A., Bank of America
National Trust and Savings Association, and Unibank is incorporated herein
by reference.**
4.7. Promissory Note effective July 1, 1992 between Arvida/JMB
Partners, L.P.-II and Arvida/JMB Managers-II, Inc. is herein incorporated
by reference. ****
4.8. Forbearance and Modification Agreement (Credit Agreement)
dated March 21, 1995 by and among Arvida/JMB Partners, L.P.-II, Heathrow
Development Associates, Ltd., Eagle Watch Partners, Bank of America
Illinois and Bank of America National Trust and Savings Association is
incorporated herein by reference. *****
4.9. Forbearance and Modification Agreement (Amended and Restated
Credit Agreement) dated March 21, 1995 by and among Arvida/JMB Partners,
L.P.-II, Heathrow Development Associates, Ltd., Eagle Watch Partners, Bank
of America Illinois and Bank of America National Trust and Savings
Association is incorporated herein by reference. *****
4.10. Letter dated September 20, 1994 from the Partnership to Bank
of America regarding the Partnership's acknowledgement that all proceeds
from the sale of Collateral shall be delivered immediately to Co-Lenders is
herein incorporated by reference to Exhibit 4.9 to the Partnership's Report
on Form 10-Q (File No. 0-19245) filed on November 11, 1994.
<PAGE>
4.11. Letter Agreement dated October 31, 1995 supplementing
Forbearance Agreements with Lenders is herein incorporated by
reference.******
4.12. Amendment of Forbearance and Modification Agreement dated
September 24, 1996 is herein incorporated by reference to the Partnership's
Report for September 30, 1996 on Form 10-Q (File No. 0-19245) dated
November 9, 1996.
10.1. Management, Advisory and Supervisory Agreement between the
Partnership and Arvida Company is herein incorporated by reference.**
10.2. First Amended and Restated Limited Partnership Agreement of
Heathrow Development Associates, Ltd. and Assignment of Partnership
Interests dated January 17, 1990 are herein incorporated by reference.**
10.3. Amended and Restated Heathrow Management Agreement dated
January 17, 1990 is herein incorporated by reference.**
10.4. Eagle Watch Partners General Partnership Agreement dated
December 27, 1989 is herein incorporated by reference.**
10.5. Letter of Credit Agreement dated July 27, 1990 between
Arvida/JMB Partners, L.P.-II and Santa Margarita Water District regarding
collateral for Tax-Exempt Bond Financing is herein incorporated by
reference.**
10.6. Agreement for the Payment of the Diemer Intertie Sublease
Payments, Principal and Interest of Bonds of Improvement District No. 7 and
Annual Budget Deficits Between Arvida/JMB Partners, L.P.-II and Santa
Margarita Water District dated January 15, 1990 is herein incorporated by
reference.*
10.7. Stipulation and Settlement dated October 19, 1993 and Final
Judgement and Order dated March 31, 1994 pertaining to the class action
lawsuit is incorporated herein by reference.****
10.8. Agreement for Purchase and Sale dated August 14, 1995 by and
between Arvida/JMB Partners, L.P.-II and Heritage Development South, Inc.
for the sale of certain real property within the Wesmere Community is
incorporated herein by reference.******
10.9. Agreement for Sale and Purchase of Real Property dated March
22, 1996 among Heathrow Development Associates, Ltd., Heathrow Cable
Limited Partnership and Associates and Country Club, L.P. and 4/46A
Corporation for the sale of the remaining land and certain related assets
within the Heathrow Community is incorporated herein by reference to
Exhibit 10.15 to the Partnership's report for March 31, 1996 on Form 10-Q
(File No. 0-19245) filed with the Securities and Exchange Commission dated
May 10, 1996.
27. Financial Data Schedule
* Previously filed with the Securities and Exchange Commission as
Exhibit 3., 4.1 and 10.11 to the Partnership's Form 10-K (File No. 0-19245)
filed on April 12, 1993 and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as
Exhibits 4.3, 4.4, 4.5, 4.6, 4.7, 10.1, 10.7, 10.8, 10.9 and 10.10,
respectively, to the Partnership's Form 10-K Report (File No. 0-19245)
filed on April 13, 1992 and are herein incorporated by reference.
*** Previously filed with the Securities and Exchange Commission as
Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6 to the Partnership's Form 10-K
Report (File No. 0-19245) under the Securities Act of 1934 filed on March
28, 1990 and incorporated herein by reference.
<PAGE>
**** Previously filed with the Securities and Exchange Commission as
Exhibits 4.8, 10.12 and 10.13, respectively, to the Partnership's Form 10-K
(File No. 0-19245) filed on April 13, 1994 and incorporated herein by
reference.
***** Previously filed with the Securities and Exchange Commission as
Exhibits 4.9 and 4.10, respectively, to the Partnership's Form 10-Q (File
No. 0-19245) filed on November 9, 1995 and incorporated herein by
reference.
****** Previously filed with the Securities and Exchange Commission as
Exhibits 4.12, 10.14 and 10.15, respectively, to the Partnership's Form 10-
K Report (File No. 0-19245) under the Securities Act of 1934 filed on March
25, 1996 and incorporated herein by reference.
(b) No reports on Form 8-K have been filed during the quarter
ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ARVIDA/JMB PARTNERS, L.P.-II
BY: Arvida/JMB Managers-II, Inc.
(The General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Vice President
Date: May 9, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: May 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,004,513
<SECURITIES> 0
<RECEIVABLES> 93,731
<ALLOWANCES> 62,690
<INVENTORY> 57,598
<CURRENT-ASSETS> 0
<PP&E> 2,701,441
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,550,008
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<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (116,119,325)
<TOTAL-LIABILITY-AND-EQUITY> 4,550,008
<SALES> 0
<TOTAL-REVENUES> 218,623
<CGS> 108,388
<TOTAL-COSTS> 108,388
<OTHER-EXPENSES> 3,808,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,698,140)
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<NET-INCOME> (3,698,140)
<EPS-PRIMARY> (14.63)
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</TABLE>
