SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 - Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
- --- For the quarterly period ended October 31, 1998
----------------
Commission file number 033-80104
---------
GRANITE DEVELOPMENT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 34-1754061
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1250 Terminal Tower 50 Public Square Cleveland, Ohio 44113
- ------------------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216-621-6060
------------
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 shorter period that the
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>
GRANITE DEVELOPMENT PARTNERS, L.P.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
October 31, 1998 (Unaudited) and January 31, 1998 3-4
Statements of Operations (Unaudited)-
Three months and Nine Months ended
October 31, 1998 and 1997 5
Statements of Changes in Partners' Deficit (Unaudited) 6
Statements of Cash Flows (Unaudited)-
Nine Months Ended October 31, 1998 and 1997 7-8
Notes to the Financial Statements (Unaudited) 9-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
- -------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
<CAPTION>
October 31, January 31,
1998 1998
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
LAND $ 2,584,458 $ 3,081,890
LAND IMPROVEMENTS 3,341,361 3,278,881
--------------- ----------------
5,925,819 6,360,771
RESTRICTED CASH EQUIVALENTS - 481,287
MORTGAGE NOTES RECEIVABLE 2,478,070 3,149,565
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 31,872,334 29,748,165
OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of $2,243,601 at October 31, 1998
and $1,906,318 at January 31, 1998 37,001 374,284
Organization costs, net of accumulated amortization
of $751,933 at October 31, 1998 and $672,621 at
at January 31, 1998 - 79,312
Cash 573,870 224,158
Interest receivable 9,086,472 7,397,262
Other 25,500 80,500
Administrative fee receivable 165,000 120,000
--------------- ----------------
9,887,843 8,275,516
--------------- ----------------
$ 50,164,066 $ 48,015,304
=============== ================
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS - (continued)
<CAPTION>
October 31, 1998 January 31, 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
LIABILITIES, PARTNERS' SPECIAL
UNITS & PARTNERS' DEFICIT
SENIOR NOTES PAYABLE $ 36,000,000 $ 36,000,000
MORTGAGE NOTES PAYABLE 811,447 1,242,514
LOAN PAYABLE - AFFILIATES 3,772,783 1,114,400
OTHER LIABILITIES
Accounts payable 767,969 463,373
Accrued fees, partners 748,259 207,145
Accrued interest 2,127,992 975,845
Accrued real estate taxes 190,082 143,899
Deposits 257,767 819,077
Deferred income 7,158,470 5,877,653
---------------- ----------------
11,250,539 8,486,992
PARTNERS' EQUITY (DEFICIT)
Partners' special units 9,000,000 9,000,000
Partners' deficit (10,670,703) (7,828,602)
---------------- ----------------
(1,670,703) 1,171,398
---------------- ----------------
$ 50,164,066 $ 48,015,304
================ ================
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Sales of developed property $ 775,500 $ 1,165,792 $ 3,152,520 $ 2,787,289
Cost of sales (705,377) (607,478) (2,262,447) (1,641,741)
------------ ------------ ------------- ------------
70,123 558,314 890,073 1,145,548
Interest (78,302) 25,000 176,482 507,146
Commission 183,194 65,619 312,546 119,896
Other 218,468 40,458 378,826 109,302
------------ ------------ ------------- ------------
393,483 689,391 1,757,927 1,881,892
------------ ------------ ------------- ------------
EXPENSES
Interest 1,114,214 1,102,508 3,197,334 3,144,689
Fees, partners 270,633 145,010 541,114 419,068
Real estate taxes 43,217 43,351 136,055 131,761
Operating and other 60,252 15,816 188,867 70,202
Amortization 111,000 165,136 416,594 523,752
------------ ------------ ------------- ------------
1,599,316 1,471,821 4,479,964 4,289,472
------------ ------------ ------------- ------------
(1,205,833) (782,430) (2,722,037) (2,407,580)
(Loss) income from joint ventures (36,759) 797,603 (120,064) 1,105,454
------------ ------------ ------------- ------------
NET LOSS $(1,242,592) $ 15,173 $ (2,842,101) $(1,302,126)
============ ============ ============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<CAPTION>
Sunrise FC-Granite Limited
Land Co. Inc. Partners Total
---------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at January 31, 1995 $ (38,932) $ (9,178,564) $ - $ (9,217,496)
Net loss (1,585) (156,902) - (158,487)
---------- -------------- ------------ -------------
Balance at January 31, 1996 (40,517) (9,335,466) - (9,375,983)
Capital contribution-
exercise of warrants - - 3,999,960 3,999,960
Withdrawal of original
limited partner 40,517 (40,517) - -
Distribution of interest on
special units - (1,914,202) - (1,914,202)
Net income - 966,815 - 966,815
---------- -------------- ------------ -------------
Balance at January 31, 1997 - (10,323,370) 3,999,960 (6,323,410)
Distribution of interest on
special units - (1,147,980) - (1,147,980)
Net loss - (89,303) (267,909) (357,212)
---------- -------------- ------------ -------------
Balance at January 31, 1998 - (11,560,653) 3,732,051 (7,828,602)
Net loss for the nine months
ended October 31, 1998
(unaudited) - (710,525) (2,131,576) (2,842,101)
---------- -------------- ------------ -------------
Balance at October 31, 1998
(unaudited) $ - $ (12,271,178) $ 1,600,475 $(10,670,703)
========== ============== ============ =============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
October 31,
-------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net loss $(2,842,101) $ (1,302,126)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization 416,595 523,752
Loss (income) from joint ventures 120,064 (1,105,454)
Changes in operating assets and liabilities:
Decrease (increase) in land and land improvements 434,952 (43,745)
Decrease in restricted cash equivalents 481,287 3,182,969
Decrease in mortgage notes receivable 671,495 2,591,487
Increase in interest receivable (1,689,210) (1,650,511)
Decrease (increase) in other assets 55,000 (25,500)
Decrease in commission receivable - 17,392
Increase in administration fee receivable (45,000) (45,000)
Increase in accounts payable 304,596 64,127
Increase in accrued fees, partner 541,114 419,307
Increase in accrued interest 1,152,147 1,061,989
Increase in accrued real estate taxes 46,183 26,885
Decrease in deposits (561,310) (2,229,039)
Increase in deferred income 1,280,817 1,410,956
----------- ------------
Net cash provided by operating activities 366,629 2,897,489
----------- ------------
Cash Flow from Investing Activities:
Distribution from affiliate 750,000 642,600
Investments in and advances to affiliates (2,994,233) (2,111,027)
----------- ------------
Net cash used in investing activities (2,244,233) (1,468,427)
----------- ------------
Cash Flow from Financing Activities:
Proceeds from loan payable - Affiliates 2,658,383 -
Repayment of mortgage notes payable (431,067) (468,117)
Increase in mortgage procurement costs - (7,900)
----------- ------------
Net cash provided by (used in) financing activities 2,227,316 (476,017)
----------- ------------
Increase in cash 349,712 953,045
Cash at beginning of the period 224,158 286,988
----------- ------------
Cash at end of the period $ 573,870 $ 1,240,033
=========== ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited) (continued)
<CAPTION>
Nine Months Ended
Supplemental Disclosure of Cash Flow Information October 31,
-------------------------------
Cash paid during the period for: 1998 1997
----------- ------------
<S> <C> <C>
Interest $ 2,045,187 $ 2,082,700
Real estate taxes $ 89,872 $ 104,876
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE A - FINANCIAL STATEMENT DISCLOSURES
Certain information and footnote disclosures, which are normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Partnership's January 31, 1998 Annual Report on Form
10K.
The financial statements have been prepared on a basis consistent with
accounting principles applied in the prior periods and reflect all adjustments
which are, in the opinion of management, necessary for a fair representation of
the results of the operations for the periods presented. All adjustments for the
nine months ended October 31, 1998 were of a normal recurring nature. Results of
operations for the nine month period ended October 31, 1998 are not necessarily
indicative of results of operations which may be expected for the full year.
Certain prior year's amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.
NOTE B - SENIOR NOTES PAYABLE
The Partnership has issued unsecured senior notes payable ("Senior Notes")
limited to the aggregate principal amount of $36,000,000. The Senior Notes bear
interest at a fixed annual rate of 10.83%, payable semi-annually, and include a
negative pledge covenant relating to the assets and operations of the
Partnership, allowing only a collateralized working capital line not to exceed
$5,000,000 and subordinated indebtedness of $5,000,000. Commencing May 15, 1995
and until such time as the principal of the Senior Notes and interest thereon is
repaid in full, 100% of the cash flow of the Partnership, as defined, shall be
applied to repay the Senior Notes. The Senior Notes will mature on November 15,
2003, but are subject to earlier redemption.
NOTE C - PARTNERS' SPECIAL UNITS
Until the senior notes are paid in full, $9,000,000 of the partners' special
units bear interest at 10.83% and will be paid pari-passu with interest on the
Senior Notes.
Interest earned on the partners' special units amounted to $739,148 for the nine
months ended October 31, 1998 and has not been distributed. Interest earned on
the partners' special units shall be reflected as a distribution when paid.
Total interest earned and unpaid of $823,080 and $83,933 as of October 31, 1998
and January 31, 1998, respectively, will be distributed pari-passu with the
interest on the Senior Notes when funds are available.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE D - MORTGAGE NOTES PAYABLE
The Partnership enters into various mortgage notes payable to purchase certain
properties. Amounts outstanding under the terms of these agreements are $811,447
at October 31, 1998 and $1,242,514 at January 31, 1998. The notes payable are
collateralized by mortgages on the properties. Principal and interest are
generally payable one year after the date of the notes payable.
During the year ended January 31, 1998, the Partnership entered into a
construction loan agreement collateralized by a first mortgage lien in an amount
not to exceed $1,400,000. The principal amount outstanding bears interest at a
rate one-half of one percent (1/2%) in excess of the prime rate (8% at October
31, 1998) and matures on November 21, 2000. As of October 31, 1998, the
outstanding balance related to this loan was $691,659. The loan was established
for the funding of the Thornbury development.
During the year ended January 31, 1996, the Partnership entered into a
development loan agreement in an amount of $480,000. The principal amount
outstanding bears interest at a rate of 8% and matures on October 16, 1999. As
of October 31, 1998, the outstanding balance related to this loan was $120,000.
The loan was established for the funding of the Fairfax development.
NOTE E - TRANSACTIONS WITH AFFILIATES
The sole general partner is FC-Granite, Inc., an Ohio corporation
("FC-Granite"). FC-Granite is a wholly-owned subsidiary of Sunrise Land Company
("Sunrise"), the land division subsidiary of Forest City Enterprises, Inc.
FC-Granite and Sunrise are reimbursed for all direct costs of operations of the
Partnership's affairs and development activities.
FC-Granite is paid a monthly administrative fee as compensation for its services
in administering the business of the Partnership which is equal to one-sixth of
1% of the book value of the partnership properties, as defined. Total
administrative fees accrued for the nine months ended October 31, 1998 and 1997,
were $148,823 and $180,466, respectively. Fees outstanding as of January 31,
1998, were $16,750. Total outstanding fees of $165,573 as of October 31, 1998,
will be paid when funds are available.
Pursuant to a management agreement, Sunrise is paid a semi-annual development
fee equal to 4% of gross revenues as compensation for its services in
managing the development of the partnership properties. Total development
fees accrued for the nine months ended October 31,
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE E - TRANSACTIONS WITH AFFILIATES (continued)
1998 and 1997 were $209,222 and $127,254, respectively. Development fees as of
January 31, 1998 and October 31, 1998 were $101,544 and $310,766, respectively,
and will be paid when funds are available.
In addition, accrued real estate commissions due to FC-Granite were $183,069 and
$111,348 for the nine months ended October 31, 1998 and 1997, respectively.
Commissions outstanding as of January 31, 1998 and October 31, 1998 were $88,851
and $271,920 respectively, and will be paid when funds are available.
Pursuant to the Amended and Restated Silver Canyon Partnership Agreement, the
Partnership is to receive a monthly administrative fee in the amount of $5,000
per month. Fees earned during the nine months ended October 31, 1998 and 1997,
were $45,000. Fees earned for the year ended January 31, 1998, were $120,000.
Total fees due the Partnership as of October 31, 1998 are $165,000.
In addition, the Partnership is to receive a commission equal to 1.67% of gross
sales as compensation for its services in conducting marketing and sales duties
and authorization of sales contracts. The Partnership earned $312,546 and
$119,896 during the nine months ended October 31, 1998 and 1997, respectively.
During the nine months ended October 31, 1998, Sunrise loaned the Partnership
$1,895,951 to fund additional development expenditures at the Silver Canyon
project. Funds advanced bear interest at 10%, $115,678 at October 31, 1998, and
will be paid back when excess funds are available. During the same period, Eaton
Estate Partnership loaned the Partnership $1,876,832 to fund additional
development expenditures. Funds advanced bear interest at 10%, $123,436 at
October 31, 1998, and will be paid back when excess funds are available.
Included in restricted cash equivalents and deposits at January 31, 1998 is
$481,287, which represents sales proceeds invested on behalf of Eaton Estate
Partnership in short-term commercial paper. The funds, together with interest
earned, will be returned to the Eaton Estate Partnership as funding of
development expenditures is needed.
NOTE F - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Partnership has a 33 1/3% interest in Silver Canyon Partnership and a 30%
interest in Eaton Estate Partnership. The Partnership's investments in Silver
Canyon Partnership at October 31, 1998 and January 31, 1998, were $3,709,111 and
$4,003,748, respectively, and in Eaton Estate
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE F - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)
Partnership at October 31, 1998 and January 31, 1998, were $2,721,170 and
$2,546,597, respectively.
The Partnership has advanced $26,389,612 at October 31, 1998 and $23,395,379 at
January 31, 1998 to the partnerships. Pursuant to the Amended and Restated
Partnership Agreement for Silver Canyon Partnership, funds advanced to Silver
Canyon Partnership as of January 31, 1996 bear interest at ten percent (10%) and
funds advanced subsequent to January 31, 1996 bear interest at the rate of prime
plus 1 3/4% (8% at October 31, 1998). Funds advanced to Eaton Estate Partnership
bear interest at prime plus three percent (3%). Total interest earned on the
advances amounted to $1,887,306 and $1,643,609 for the nine months ended October
31, 1998 and 1997, respectively. Interest income is deferred by the Partnership
until the interest capitalized on the joint ventures is recognized as cost of
sales by the joint ventures. Interest recognized as income for the nine month
period ended October 31, 1998 and 1997, was $274,773 and $169,220, respectively.
The Silver Canyon Partnership loan from Residential Funding Corp. (GMAC Loan)
had a due date of June 7, 1998. The loan was extended to September 15, 1998. The
Partnership has an agreement with Residential Funding Corporation to postpone
final payment of the balance due until new financing is secured. The outstanding
balance due as of October 31, 1998 was $4,357,267. The Partnership intends to
refinance the GMAC loan and has received a commitment letter for such
refinancing from Ohio Savings Bank of Cleveland, Ohio. The new loan is expected
to close in December 1998 or in January 1999. If, however, the Partnership is
unable to close the new loan for any reason, the Partnership has resources
together with back-up financing sources which are sufficient to pay the GMAC
loan in full.
For the nine months ended October 31, 1998, the Silver Canyon Partnership
generated net loss of $883,911. Of this amount, $294,637 has been recorded by
the Partnership under the equity method. For the nine months ended October 31,
1998, the Eaton Estate Partnership generated a net income of $581,911. Of this
amount, $174,573 has been recorded by the Partnership under the equity method.
The Eaton Estate Partnership made a cash distribution during the nine month
period ended October 31, 1998. The total distribution was $2,500,000, of which
the Partnership received its 30% share, or $750,000.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE G - JOINT VENTURE STATEMENT OF OPERATIONS
<TABLE>
Shown below is the statement of operations for the Silver Canyon Partnership:
<CAPTION>
Nine months ended
October 31,
----------------------------------
1998 1997
------------- ------------
<S> <C> <C>
REVENUES
Operating income $2,064,998 $3,015,175
EXPENSES
Fees, partners 90,000 90,000
Commissions 2,085,482 659,740
Legal and professional 331,862 16,164
Travel and entertainment 31,923 45,208
Operating and other 324,329 464,918
Depreciation and amortization 85,313 169,600
------------- ------------
Subtotal 2,948,909 1,445,630
------------- ------------
NET INCOME (LOSS) $(883,911) $1,569,545
============= ============
</TABLE>
NOTE H - LITIGATION
The Partnership is involved in two separate instances of litigation related to
its operations. The Partnership believes it has meritorious defenses to the
claims of both instances of litigation, and intends to defend against them both
vigorously. The Partnership and several affiliates are defendants in a
proceeding arising out of the October 1996 sale of the 194th Street property
located in Miami Beach, Florida. The plaintiff is a third-party broker seeking a
commission on the premise that the plaintiff initiated contact between the
ultimate buyer and the Partnership. In the opinion of management and legal
counsel the maximum damages based on the litigation proceedings is approximately
$400,000. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff and legal counsel on the Partnership is seeking
a summary judgment seeking dismissal of the case.
The Partnership owns a 33 1/3% interest in the Silver Canyon Partnership
("Silver Canyon"). Silver Canyon is developing the Seven Hills project, located
in Henderson, Nevada, in conjunction with a golf course. In August 1997, a
class-action lawsuit was filed by the current homeowners in Seven Hills against
Silver Canyon, the golf course developers and other entities.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE H - LITIGATION (continued)
In addition, a separate lawsuit was filed by some of the production homebuilding
companies at Seven Hills, against some of the same parties. Both suits seek a
commitment for the right of Seven Hills homeowners to play on the golf course,
as well as damages. Recently, the trial court determined that the Seven Hills
homeowners do have a right to play on the golf course. However, the trial court
has not as yet determined the amount of greens fees which may be charged or
other conditions of play. A separate hearing on these issues will be held soon.
An additional separate hearing on damages will be scheduled. It is anticipated
that the present owner of the golf course will appeal the ruling granting play
rights to Seven Hills homeowners. Sales efforts are continuing at the Seven
Hills development, and because these events are recent, it is not yet possible
to determine the extent of any impact on the Partnership's or Silver Canyon's
financial performance. The Partnership and Silver Canyon believe they have
meritorious defenses to these claims and intend to continue to defend against
them vigorously. Parties to the lawsuits are currently engaged in discovery
proceedings.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
The following discussion and analysis of Granite Development Partners, L.P.
should be read in conjunction with the audited financial statements as of
January 31, 1998 contained in the Annual Report on Form 10-K.
Results of Operations
The Partnership recorded sales of $3,152,520 for the nine month period ended
October 31, 1998 versus $2,787,289 for the nine month period ended October 31,
1997. The decrease in sales margins for the nine months ended October 31, 1998
versus 1997 is due to an increase in development expenditures for the Fairfax
Meadows subdivision in Medina, Ohio. The Partnership sold 23 lots located in
The Ledges subdivision in Twinsburg, Ohio for a total of $1,306,020, 12
lots in the North Boston subdivision in North Royalton, Ohio for a total of
$676,000 and 6 lots in the River Oaks subdivision located in Kirtland Hills,
Ohio for $720,000. The Eaton Estate Partnership, a joint venture of the
Partnership accounted for under the equity method, reported sales of $4,421,000
for the nine months ended October 31, 1998 and $1,485,000 for the nine month
period ended October 31, 1997. The Silver Canyon Partnership reported sales of
$19,755,297 for the nine months ended October 31, 1998 versus $7,029,725 for the
nine months ended October 31, 1997. The increase in sales corresponds with
the significant development increases over the last two years.
As of October 31, 1998, the following significant sales were under contract:
30 lots and 12 acres of the Eaton Estate development in Sagamore Hills, Ohio for
$1,661,500; and 247 lots and 77 acres of the Silver Canyon development in
Henderson, Nevada for $26,916,505. None of the contracts are guaranteed to
close.
Interest income totaled $176,482 for the nine months ended October 31, 1998
versus $507,146 for the nine months ended October 31, 1997. Interest income is
comprised of interest earned on notes receivable from the sales of developed
property, from funds advanced to the joint ventures and from the investment of
proceeds from sales in short-term commercial paper. Interest income earned on
funds advanced to the Silver Canyon Partnership is being deferred. The decrease
in interest income is mainly due to a lower average mortgage note receivable
balance.
Interest income totaled $176,482 for the nine months ended October 31, 1998
versus $254,784 for the six months ended July 31, 1998. The decrease in interest
income for the third quarter is a result of an adjustment for the interest
accrual for the mortgage notes receivable for Misty Lake.
Other income totaled $378,826 and $109,302 for the nine month period ended
October 31, 1998 and 1997, respectively. Other income is mainly comprised of
deferred development fee income from Silver Canyon Partnership Canyon
Partnership sales.
For the nine months ended October 31, 1998 and 1997, the Partnership
reported net losses of $2,842,101 and $1,302,126, respectively. The increase in
net loss is primarily the result of a net loss in income from joint ventures of
$120,064 for the nine month period ended October 31, 1998 versus a net income of
$1,105,454 for the nine month period ended October 31, 1997.
<PAGE>
Financial Condition and Liquidity
Net cash provided by operating activities was $366,629 for the nine months
ended October 31, 1998 versus $2,897,489 for the nine months ended October 31,
1997. The decrease in net cash provided by operating activities is primarily the
result of a decrease in restricted cash equivalents of $481,287 for the nine
months ended October 31, 1998 versus a decrease in restricted cash equivalents
of $3,182,969 for the nine months ended October 31, 1997. The decrease in
restricted cash equivalents was the result of funds distributed on behalf of the
Eaton Estate Partnership from its investment funds to its respective partners.
Contributing to a decrease in funds generated from results of operations in the
nine month period ended October 31, 1998 versus October 31, 1997, was an
increase in net loss of $1,539,975 for the Partnership. This was partially
offset by an decrease in customer deposits payable of $561,310 for the nine
months ended October 31, 1998 versus a decrease of $2,229,039 for the nine
months ended October 31, 1997.
Net cash used in investing activities was $2,244,233 and $1,468,427 for the
nine months ended October 31, 1998 and 1997, respectively. The increase in funds
advanced to the Silver Canyon Partnership is due to a shortfall of cash
available from sales proceeds from the joint venture. While a substantial amount
of the funds necessary to pay improvements for the Silver Canyon Partnership was
obtained through financing from the underground improvement loan with General
Motors Acceptance Corporation - Residential Funding Corporation (GMAC), any
shortfall of funds necessary to pay improvements is partially funded by the
Partnership.
Net cash provided by financing activities was $2,227,316 for the nine month
period ended October 31, 1998 versus net cash used of $476,017 for the nine
month period ended October 31, 1997. The net cash provided during the nine month
period ended October 31, 1998 was primarily the result of funds advanced from
Sunrise Land Company to the Partnership of $1,895,951 to fund additional
advances to Silver Canyon Partnership and funds advanced from Eaton Estate
Partnership of $762,432 to fund development expenditures. The net cash used
during the nine month period ended October 31, 1997, was the result of principal
payments on mortgage notes payable for a total of $468,117. The Partnership had
adequate funds available to make the semi-annual payment of interest on the
Senior Notes on November 15, 1998.
The Partnership is involved in two separate instances of litigation related
to its operations. The Partnership believes it has meritorious defenses to the
claims of both instances of litigation, and intends to defend against them both
vigorously. The Partnership and several affiliates are defendants in a
proceeding arising out of the October 1996 sale of the 194th Street property
located in Miami Beach, Florida. The plaintiff is a third-party broker seeking a
commission on the premise that the plaintiff initiated contact between the
ultimate buyer and the Partnership. In the opinion of management and legal
counsel the maximum damages based on the litigation proceedings is approximately
$400,000. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff and legal counsel on the Partnership is seeking
a summary judgment seeking dismissal of the case.
<PAGE>
The Partnership owns a 33 1/3% interest in the Silver Canyon Partnership
("Silver Canyon"). Silver Canyon is developing the Seven Hills project, located
in Henderson, Nevada, in conjunction with a golf course. In August 1997, a
class-action lawsuit was filed by the current homeowners in Seven Hills against
Silver Canyon, the golf course developers and other entities. In addition, a
separate lawsuit was filed by some of the production homebuilding companies at
Seven Hills, against some of the same parties. Both suits seek a commitment for
the right of Seven Hills homeowners to play on the golf course, as well as
damages. Recently, the trial court determined that the Seven Hills homeowners do
have a right to play on the golf course. However, the trial court has not as yet
determined the amount of greens fees which may be charged or other conditions of
play. A separate hearing on these issues will be held soon. An additional
separate hearing on damages will be scheduled. It is anticipated that the
present owner of the golf course will appeal the ruling granting play rights to
Seven Hills homeowners. Sales efforts are continuing at the Seven Hills
development, and because these events are recent, it is not yet possible to
determine the extent of any impact on the Partnership's or Silver Canyon's
financial performance. The Partnership and Silver Canyon believe they have
meritorious defenses to these claims and intend to continue to defend against
them vigorously.
Year 2000
I. BACKGROUND
The Partnership has undertaken a program to prepare the financial and
operating computer systems and ancillary embedded applications for the year
2000. All necessary modifications are expected to occur in a timely manner at a
cost which is not expected to be material to the Partnership's operating result.
During 1997, the Partnership completed the final phases of the replacement
of older mainframe systems. All major systems were replaced with newly purchased
year 2000 compliant software or software with definitive plans for upgrades to
year 2000 code.
II. PLAN
The Partnership's plan concentrates on testing the compliant systems and
identifying other systems, such as embedded or operational systems, that are not
part of the new software. The specific steps of the plan include:
* Capturing an inventory of all systems including:
* The new Year 2000 compliant software.
* Computer related hardware and peripherals.
* Internal systems that may have been developed utilizing the
compliant code.
* Embedded or operational systems, including our telephone,
heating and air conditioning systems, fire alarm systems,
security systems, and elevator systems.
* Obtaining compliance letters from all vendors in the inventory;
* Testing systems for compliance;
* Upgrading or replacing software and operational or embedded systems as
needed;
* Contacting our major business partners (suppliers, contractors,
utilities, financial institutions, etc.) to insure that they have an
active Year 2000 compliance program.
<PAGE>
III. STATUS
The Partnership has completed a software inventory and obtained compliance
letters from most vendors and considers its software assessment complete. The
Partnership is completing the inventory of embedded systems and is contacting
its vendors to determine their year 2000 readiness. This phase of the
assessment, originally planned for completion in the 3rd quarter 1998, will now
be completed in the 4th quarter 1998. The responses have not always been
definitive and we will now rely on the MD&A discussions in the quarterly and
yearly filings of our vendors and partners where appropriate.
We have also promptly responded to requests for our own Year 2000 readiness
and will update those responses quarterly by providing a copy of our most
current SEC MD&A discussion related to the Year 2000.
We are actively testing our systems for year 2000 compliance. We have
acquired software to review systems, which have been written in Year 2000
compliant code, but may be generating non-compliant dates or logic. Through the
3rd quarter 1998, our testing has discovered some year 2000 issues, which have
been corrected. Specifically, some of our data communications equipment was not
compliant and has been replaced. Our project cost accounting software,
originally documented by the vendor as compliant, is not compliant. We escalated
the upgrade to the next version and that software is now compliant. Our general
ledger system had generated some historical data with dates that might not be
compliant and these were corrected. Finally, we have discovered a possible issue
with one of our automated software scheduling systems, which we will be
upgrading. We expect to complete our testing phase by the end of the 4th quarter
1998 and do not foresee any major difficulties in becoming year 2000 compliant.
IV. COSTS
At the end of 1997 we completed the migration of our general ledger and
reporting system from the older mainframe environment. The intent of this
conversion was to move from the mainframe to newer technology and improve our
reporting systems. As a by-product we installed Year 2000 compliant software or
software with planned upgrades to be compliant. We avoided the costly process of
converting our internally developed systems into Year 2000 code. Through our
testing we have determined that some hardware will need replacing. Regardless of
the year 2000 issue, this hardware would have been upgraded in a normal
replacement cycle. Most all of the required software upgrades, are part of our
normal operating expenses and have not generated additional expense specifically
for year 2000 compliance. We do not foresee any major additional costs and do
not feel that the costs incurred will have a material impact on our operations.
<PAGE>
V. RISKS/CONTINGENCY PLANS
Since our major hardware, software and embedded systems are or will be
compliant we do not foresee any major risks. We have identified concerns in each
area and the contingency plan to respond to each concern. Related to hardware
our most likely worst case scenario would be if a specific computer or server
would not be compatible. In that case we would use other hardware, provided by
our business continuity/disaster recovery program, that is compliant and
available and regenerate data from our backup systems. Related to software, our
most likely worst case scenario would be if our automated scheduling routines
would not properly schedule beyond the year 2000. Each of these automated
scheduling systems has a manual function, which we have tested, and we are
confidant that we can reset the scheduling software to perform properly in the
year 2000 and beyond. Related to our embedded systems, our concern is that these
systems, despite testing, would not function properly as we move into the Year
2000. All of these systems have manual reset functions and Year 2000 date issues
can be corrected. Additionally we will have appropriate personnel and outside
contractors if necessary, on site starting the evening of December 31, 1999 and
the ensuing weekend to reset the functions if necessary.
VI. SUMMARY
Similar to other companies we are highly dependent upon systems in the public
sector, such as utilities, mail, and transportation systems. Failures in those
systems, upon which we have no control, could materially affect our operations.
The Partnership has well defined emergency plans in place, and these would be
activated if necessary.
Our Year 2000 plan is aimed at identifying and correcting all issues upon
which we have direct control or indirect control through our vendors and
business partners.
The company feels that the successful completion of our year 2000 program
will minimize the effect on our operations.
<PAGE>
Information Relating to Forward-Looking Statements
This Quarterly Report, together with other statements and information
publicly disseminated by the Partnership, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
reflect management's current views with respect to financial results related to
future events and are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial or otherwise, may
differ from the results discussed in the forward-looking statements. Risks and
other factors that might cause differences, some of which could be material,
include, but are not limited to, the effect of economic and market conditions on
a nation-wide basis as well as regionally in areas where the Partnership has a
geographic concentration of land; failure to consummate financing arrangements;
development risks, including lack of satisfactory financing, construction and
cost overruns; the level and volatility of interest rates; the rate of revenue
increases versus expenses increases; as well as other risks listed from time to
time in the Partnership's reports filed with the Securities and Exchange
Commission. The Partnership has no obligation to revise or update any
forward-looking statements as a result of future events or new information.
Readers are cautioned not to place undue reliance on such forward-looking
statements.
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings
The Partnership is involved in two separate instances of litigation related
to its operations. The disclosure required by this item is incorporated by
reference to Note H of the October 31, 1998 unaudited financial statements and
management's discussion and analysis of financial condition which appears in
Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none
(b) No reports on Form 8-K have been filed by the Registrant during the
quarter ended October 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Granite Development Partners, L.P.
----------------------------------
(Registrant)
DATE: 12/14/98 /s/ Robert F. Monchein
- ----------------------- ----------------------------------
Robert F. Monchein
President
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
DATE: 12/14/98 /s/ Mark A. Ternes
- ----------------------- ----------------------------------
Mark A. Ternes
Controller
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 573870
<SECURITIES> 0
<RECEIVABLES> 2478070
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5925819
<DEPRECIATION> 0
<TOTAL-ASSETS> 50164066
<CURRENT-LIABILITIES> 0
<BONDS> 36811447
<COMMON> 0
0
0
<OTHER-SE> (1670703)
<TOTAL-LIABILITY-AND-EQUITY> 50164066
<SALES> 0
<TOTAL-REVENUES> 890073
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1282630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3197334
<INCOME-PRETAX> (2842101)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2842101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2842101)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
