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 March 31, 1999
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Commission file number 033-80104
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GRANITE DEVELOPMENT PARTNERS, L.P.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1754061
- ------------------------------------------------------ ---------------------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
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
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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>
PART I. FINANCIAL INFORMATION
- -------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
<CAPTION>
March 31, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
LAND $ 1,737,233 $ 1,772,580
LAND IMPROVEMENTS 1,906,363 1,431,273
--------------- ---------------
3,643,596 3,203,853
MORTGAGE NOTES RECEIVABLE 2,936,880 2,955,344
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 33,552,490 33,662,431
OTHER ASSETS:
Cash 155,043 1,430,607
Interest receivable 10,203,725 9,629,531
Other 25,500 25,500
Administrative fee receivable 190,000 175,000
--------------- ---------------
10,574,268 11,260,638
--------------- ---------------
$ 50,707,234 $ 51,082,266
=============== ===============
LIABILITIES, PARTNERS' SPECIAL
UNITS & PARTNERS' DEFICIT
- ------------------------------
SENIOR NOTES PAYABLE $ 36,000,000 $ 36,000,000
MORTGAGE NOTES PAYABLE 741,659 776,659
LOAN PAYABLE - SUNRISE - 2,395,951
LOAN PAYABLE - EATON 5,320,180 878,462
OTHER LIABILITIES:
Accounts payable 489,210 962,805
Accrued fees, partners 120,941 1,264,257
Accrued interest 1,669,487 924,057
Accrued real estate taxes 71,029 99,953
Deposits 46,179 3,579
Deferred income 6,875,482 6,379,262
-------------- ---------------
9,272,328 9,633,913
PARTNERS' EQUITY (DEFICIT)
Partners' special units 9,000,000 9,000,000
Partners' deficit (9,626,933) (7,602,719)
-------------- ---------------
(626,933) 1,397,281
-------------- ---------------
$ 50,707,234 $ 51,082,266
============== ===============
<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
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Sales of developed property $ 290,000 $ 1,225,000
Cost of sales (207,403) (771,328)
----------- ------------
82,597 453,672
Interest 213,323 99,286
Commission 4,673 55,180
Other 35,274 74,753
----------- ------------
335,867 682,891
----------- ------------
EXPENSES
Interest 1,086,940 1,039,445
Fees, partners 59,911 136,667
Real estate taxes 22,570 39,669
Operating and other 40,080 39,301
Amortization - 154,440
----------- ------------
1,209,501 1,409,522
----------- ------------
(873,634) (726,631)
Loss from joint ventures (78,410) (103,114)
----------- ------------
NET LOSS $ (952,044) $ (829,745)
=========== ============
<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, 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 income - 225,883 - 225,883
-------- ------------- ------------ -------------
Balance at December 31, 1998 - (11,334,770) 3,732,051 (7,602,719)
Distribution of interest on
special units - (1,072,170) - (1,072,170)
Net loss for the three months
ended March 31, 1999
(unaudited) - (238,011) (714,033) (952,044)
-------- ------------- ------------ -------------
Balance at March 31, 1999
(unaudited) $ - $(12,644,951) $ 3,018,018 $ (9,626,933)
======== ============= ============ =============
<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>
Three Months Ended
March 31,
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net loss $ (952,044) $ (829,745)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization - 154,440
Loss from joint ventures 78,410 103,114
Changes in operating assets and liabilities:
(Increase) decrease in land and land improvements (439,743) 356,811
Increase in restricted cash equivalents - (5,736)
Decrease in mortgage notes receivable 18,464 1,164,366
Increase in interest receivable (574,194) (221,952)
Decrease in other assets - 55,000
Increase in administration fee receivable (15,000) (15,000)
Decrease in accounts payable (473,595) (174,927)
Decrease in accrued fees, partner (1,143,316) (1,338,861)
Increase in accrued interest 745,430 610,473
Decrease in accrued real estate taxes (28,924) (992)
Increase (decrease) in deposits 42,600 (2,797,045)
Increase in deferred income 496,220 460,537
----------- ------------
Net cash used in operating activities (2,245,692) (2,479,517)
----------- ------------
Cash Flow from Investing Activities:
Investments in and advances to affililiates 31,531 -
----------- ------------
Net cash provided by investing activities 31,531 -
----------- ------------
Cash Flow from Financing Activities:
Repayment of loan payable - Sunrise (2,395,951) (921,768)
Proceeds from loan payable - Eaton 5,302,008 1,590,757
Repayment of loan payable - Eaton (860,290) -
Distribution of interest on special units (1,072,170) -
Repayment of mortgage notes payable (35,000) (35,000)
----------- ------------
Net cash provided by financing activities 938,597 633,989
----------- ------------
Decrease in cash (1,275,564) (1,845,528)
Cash at beginning of the period 1,430,607 2,253,410
----------- ------------
Cash at end of the period $ 155,043 $ 407,882
=========== ============
<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>
Three Months Ended
Supplemental Disclosure of Cash Flow Information March 31,
-------------------------------
Cash paid during the period for: 1999 1998
----------- ------------
<S> <C> <C>
Interest $ 341,510 $ 428,972
Real estate taxes $ 51,494 $ 40,661
<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 December 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
three months ended March 31, 1999 were of a normal recurring nature. Results of
operations for the three month period ended March 31, 1999 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.
The Partnership has adopted SOP 98-5, "Reporting On the Costs of Start-Up
Activities." This statement requires that start-up costs and organization costs
be expensed as incurred. The adoption of SOP 98-5 did not have a material effect
on the Partnership's earnings or financial position.
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 - WARRANTS
In connection with the issuance of the Senior Notes, the Partnership sold
pro-rata to the purchasers of the Senior Notes 36,000 warrants at $27.78 to
purchase limited partnership units. Each warrant represented the right to
purchase one limited partnership unit at an exercise price of $83.33. On
December 3, 1996, all 36,000 warrants were exercised.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE D - 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 the interest will be paid pari-passu with the
interest on the Senior Notes.
Interest earned on the partners' special units amounted to $243,675 for the
three months ended March 31, 1999. During the period ended March 31, 1999,
$1,072,170 of the interest earned was distributed to FC-Granite, the holder of
the partners' special units. Total interest earned and unpaid of $159,742 and
$988,237 as of March 31, 1999 and December 31, 1998, respectively, will be
distributed pari-passu with the interest on the Senior Notes when funds are
available.
NOTE E - MORTGAGE NOTES PAYABLE
The Partnership enters into various mortgage notes payable to purchase certain
properties. Amounts outstanding under the terms of these agreements are $741,659
at March 31, 1999 and $776,659 at December 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 December 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 (7.75% at March
31, 1999) and matures on November 21, 2000. As of March 31, 1999, the
outstanding balance related to this loan was $621,659. 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 March 31, 1999, the outstanding balance related to this loan was $120,000.
The loan was established for the funding of the Fairfax development.
NOTE F - 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.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE F- TRANSACTIONS WITH AFFILIATES (continued)
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 three months ended March 31, 1999 and 1998,
were $38,161 and $44,791, respectively. Fees outstanding as of December 31,
1998, were $196,493. The Partnership paid administrative fees of $198,496 during
the period ended March 31, 1999. Total outstanding fees of $36,158 as of March
31, 1999, 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 three months ended March 31, 1999 and 1998 were $11,600 and $49,000,
respectively. The Partnership paid development fees of $535,856 during the
period ended March 31, 1999. Development fees payable as of March 31, 1999 were
and $45,217, and will be paid when funds are available.
In addition, accrued real estate commissions due to FC-Granite were $10,150 and
$42,875 for the three months ended March 31, 1999 and 1998, respectively. The
Partnership paid real estate commissions of $468,874 during the period ended
March 31, 1999. Commissions outstanding as of March 31, 1999 were $39,566, 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 three months ended March 31, 1999 and 1998,
were $15,000. Total fees due the Partnership as of March 31, 1999 are $190,000.
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 $4,673 and $55,180
during the three months ended March 31, 1999 and 1998, respectively.
During the three months ended March 31, 1999, the Partnership repaid Sunrise
$2,395,951 of funds loaned for expenditures at the Silver Canyon project. During
the same period, Eaton Estate Partnership loaned the Partnership $5,302,008 to
fund additional development expenditures. Funds advanced bear interest at 10%,
$90,668 at March 31, 1999, and will be paid back when excess 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 G - 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 March 31, 1999 and December 31, 1998, were $4,624,172 and
$4,739,668, respectively, and in Eaton Estate Partnership at March 31, 1999 and
December 31, 1998, were $2,491,749 and $2,454,662 respectively.
The Partnership has advanced $26,634,129 at March 31, 1999 and $26,665,660 at
December 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% (7.75% at March 31, 1999). Funds advanced to Eaton Estate
Partnership bear interest at prime plus three percent (3%). Total interest
earned on the advances amounted to $659,317 and $587,355 for the three months
ended March 31, 1999 and 1998, 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
three month periods ended March 31, 1999 and 1998, were $244,073 and $67,638,
respectively.
The Partnership entered into a loan agreement with GMAC, to fund development
expenditures of the property. GMAC has agreed, in accordance with the loan
agreement, to make loans to the Partnership in an aggregate amount not to exceed
$30,000,000. The loan bears interest at one and three-fourths percent above the
prime rate (7.75% at March 31, 1999). The outstanding balance due as of December
31, 1998 was $350,972. Interest on the outstanding principal balance is due and
payable monthly in arrears. The loan was due on June 7, 1998. The Partnership
had an agreement with Residential Funding Corporation to postpone the final
payment of the balance due until alternative financing was secured. In January,
1999, the Partnership obtained new financing from Ohio Savings Bank of
Cleveland, Ohio (OSB). OSB has agreed, in accordance with the loan agreement, to
make loans to the Partnership in an aggregate amount not to exceed $12,000,000.
The loan agreement contains two debt service coverage ratios, which requires the
partnership to maintain a certain level of net worth. The loan bears interest at
1% above prime rate (7.75% at March 31, 1999). This development loan replaces
the GMAC loan which was paid in full on January 6, 1999.
For the three months ended March 31, 1999, the Silver Canyon Partnership
generated net loss of $346,489. Of this amount, $115,497 has been recorded
by the Partnership under the equity method. For the three months ended March
31, 1999, the Eaton Estate Partnership generated a net income of $123,622.
Of this amount, $37,087 has been recorded by the Partnership under the equity
method.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE H - JOINT VENTURE STATEMENT OF OPERATIONS
Shown below is the statement of operations for the Silver Canyon Partnership:
<TABLE>
Three months ended
March 31,
----------------------------------
1999 1998
------------- ------------
<CAPTION>
<S> <C> <C>
REVENUES
Operating income $ 204,103 $ 746,515
EXPENSES
Fees, partners 20,000 30,000
Commissions 160,275 536,473
Legal and professional 37,964 219,511
Travel and entertainment 4,241 8,891
Operating and other 274,981 137,039
Depreciation and amortization 53,131 68,447
------------- ------------
Subtotal 550,592 1,000,361
------------- ------------
NET LOSS $ (346,489) $ (253,846)
============= ============
</TABLE>
NOTE I - LITIGATION
The Partnership is involved in two separate instances of litigation claims
related to its operations. 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 related to this litigation are approximately
$400,000. The Partnership has recorded an accrual of $100,000 relating to this
litigation. However, the Partnership and other defendants deny that any
commission has been earned by the Plaintiff and legal counsel of the Partnership
have filed a motion for summary judgement and are awaiting the courts ruling.
The Partnership owns a 33.3% 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
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE I - LITIGATION (continued)
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 Seven Hills homeowners do
have a right to play on the golf course, providing they pay a greens fee of $300
per round. An additional hearing on damages has been scheduled for October,
1999. The owner of the golf course has filed a cross-claim against the
Partnership, Silver Canyon, and the other entities in the damage claim. It is
anticipated that the present owner of the golf course will appeal the ruling
granting play rights to Seven Hills homeowners after the hearing on damages. 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. 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.
<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
December 31, 1998 contained in the Annual Report on Form 10-K.
Results of Operations
The Partnership recorded sales of $290,000 for the three month period ended
March 31, 1999 versus $1,225,000 for the three month period ended March 31,
1998. The Partnership sold 5 lots located in The Ledges subdivision in
Twinsburg, Ohio for a total of $290,000. The Eaton Estate Partnership, a joint
venture of the Partnership accounted for under the equity method, reported no
sales for the three months ended March 31, 1999 and 1998 but did have interest
income for the three months ended March 31, 1999 of $136,492. The Silver Canyon
Partnership reported sales of $1,300,000 for the three months ended March 31,
1999 versus $4,619,632 for the three months ended March 31, 1998.
As of March 31, 1999, the following significant sales were under contract:
five lots of the Cambridge Park development in North Royalton, Ohio for
$270,000; and two lots in The Ledges subdivision in Twinsburg, Ohio for
$116,000.
Interest income totaled $213,323 for the three months ended March 31, 1999
versus $99,286 for the three months ended March 31, 1998. 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 increase
in interest income is mainly due to the recognition of deferred interest income
of $143,327 related to Silver Canyon sales.
Other income totaled $35,274 and $74,753 for the three month period ended
March 31, 1999 and 1998, respectively. Other income is mainly comprised of
deferred development fee income from Silver Canyon Partnership Canyon
Partnership sales.
For the three months ended March 31, 1999 and 1998, the Partnership reported
net losses of $952,044 and $829,745, respectively. The increase in net loss is
primarily the result of a decrease in sales of developed property to $290,000
for the three month period ended March 31, 1999 from $1,225,000 for the three
month period ended March 31, 1998. This decrease was partially offset by a
decrease in cost of sales to $207,403 for the three month period ended March 31,
1999 from $771,328 for the three month period ended March 31, 1998; an increase
in interest income to $213,323 for the three month period ended March 31, 1999
from $99,286 for the three month period ended March 31, 1998; and no
amortization expense for the three month period ended March 31, 1999 versus
$154,440 for the three month period ended March 31, 1998.
<PAGE>
Financial Condition and Liquidity
Net cash used in operating activities was $2,245,692 for the three months
ended March 31, 1999 versus $2,479,517 for the three months ended March 31,
1998. The decrease in net cash used by operating activities is primarily the
result of an increase in customer deposits of $42,600 for the three months ended
March 31, 1999 versus a decrease of $2,797,045 for the three months ended March
31, 1998. This was partially offset by a decrease in mortgage notes receivables
of $18,464 for the three months ended March 31, 1999 versus a decrease
$1,164,366 for the three months ended March 31, 1998; an increase in land and
land improvements of $439,743 for the three months ended March 31, 1999 versus a
decrease of $356,811 for the three months ended March 31, 1998; and an increase
in interest receivable of $574,194 for the three months ended March 31, 1999
versus an increase of $221,952 for the three months ended March 31, 1998.
Net cash provided by investing activities was $31,531 for the three months
ended March 31, 1999 and consists of payments made by the defaulting partner for
the "Shortfall Loan" made by the Partnership to Silver Canyon Partnership in
fiscal year 1998. On September 28, 1998, Silver Canyon Partnership issued a
Capital Call to its three partners in the amount of $552,095 each. One of the
partners, Silver Canyon Corporation, failed to pay its Capital Call of $552,095
and was therefore in default. Pursuant to the terms of the Partnership
Agreement, each of the other two partners, Granite Silver Development Partner,
L.P. ("Granite") and American Nevada Seven Hills Limited Partnership ("ANC")
elected to make "Shortfall Loans", each in the amount of $276,047 to the
partnership. Such loans bear interest at the rate of 25% per annum and are
payable from all distributions, fees or compensation which may otherwise be due
to the defaulting partner.
Net cash provided by financing activities was $938,597 for the three month
period ended March 31, 1999 versus net cash provided by of $633,989 for the
three month period ended March 31, 1998. The net cash provided during the three
month period ended March 31, 1999 was primarily the result of funds advanced
from Eaton Estate Partnership of $5,302,008 to fund development expenditures, to
pay back the $2,395,951 loan from Sunrise Land Company, and to pay interest on
partners' special units of $1,072,170. The net cash provided during the three
month period ended March 31, 1998 was the result of funds borrowed from Eaton
Estate Partnership of $1,590,757 for development expenditures and for the
repayment of the loan payable to Sunrise Land Company of $921,768. 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 claims
related to its operations. 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 related to this litigation are approximately
$400,000. The Partnership has recorded an accrual of $100,000 relating to this
litigation. However, the Partnership and other defendants deny that any
commission has been earned by the Plaintiff and legal counsel of the Partnership
have filed a motion for summary judgement and are awaiting the courts ruling.
<PAGE>
The Partnership owns a 33.3% 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 Seven Hills homeowners do
have a right to play on the golf course, providing they pay a greens fee of $300
per round. An additional hearing on damages has been scheduled for October,
1999. The owner of the golf course has filed a cross-claim against the
Partnership, Silver Canyon, and the other entities in the damage claim. It is
anticipated that the present owner of the golf course will appeal the ruling
granting play rights to Seven Hills homeowners after the hearing on damages. 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. 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.
YEAR 2000
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
results. 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 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 2nd quarter 1999. The responses have not always been
definitive and reliance, in some cases, must be made on the MD&A discussions in
the quarterly and yearly filings of certain vendors and partners where
appropriate.
The Partnership has also promptly responded to requests for its own Year
2000 readiness and will update those responses quarterly by providing a copy of
the most current SEC MD&A discussion related to the Year 2000.
The Partnership is actively testing its systems for Year 2000 compliance.
Software has been acquired to review systems, which have been written in Year
2000 compliant code, but may be generating non-compliant dates or logic. Testing
has discovered some Year 2000 issues, which have been corrected. Specifically,
certain data communications equipment was not compliant and has been replaced.
The project cost accounting software, originally documented by the vendor as
compliant, is not compliant. The Partnership escalated the upgrade to the next
version and that software is now compliant. The general ledger system had
generated some historical data with dates that might not be compliant and these
were corrected. Finally, the Partnership discovered a possible issue with one of
the automated software scheduling systems, which will be upgraded. The
Partnership expects to complete the testing phase by the end of the 2nd quarter
1999 and does not foresee any major difficulties in becoming Year 2000
compliant.
IV. COSTS
At the end of 1997, the Partnership completed the migration of the 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, Year 2000 compliant software or software
with planned upgrades to be compliant was installed. We avoided the costly
process of converting our internally developed systems into Year 2000 code.
Through testing, it has been 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. The Partnership does not foresee any
major additional costs and does not feel that the costs incurred will have a
material impact on operations.
<PAGE>
V. RISKS/CONTINGENCY PLANS
Since the major hardware, software and embedded systems are or will be
compliant, the Partnership does not foresee any major risks. The Partnership has
identified concerns in each area and the contingency plan to respond to each
concern. Related to hardware, the most likely worst case scenario would be if a
specific computer or server would not be compatible. In that case, the
Partnership would use other hardware, provided by our business
continuity/disaster recovery program, that is compliant and available and
regenerate data from the backup systems. Related to software, the most likely
worst case scenario would be if the automated scheduling routines would not
properly schedule beyond the Year 2000. Each of these automated scheduling
systems has a manual function, which has been tested, and the Partnership is
confident that the scheduling software can be reset to perform properly in the
Year 2000 and beyond. Related to the embedded systems, the Partnership's primary
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 there will be 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, the Partnership is 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.
The Year 2000 plan is aimed at identifying and correcting all issues upon
which the Partnership has direct control or indirect control through its vendors
and business partners.
The Partnership feels that the successful completion of the Year 2000
program will minimize the effect on 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.
<PAGE>
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 I of the March 31, 1999 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 March 31, 1999.
<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: 05/17/99 /s/ Robert F. Monchein
- --------------------------------- ----------------------------------
Robert F. Monchein
President
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
DATE: 05/17/99 /s/ Mark A. Ternes
- --------------------------------- ----------------------------------
Mark A. Ternes
Controller
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
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