March 31, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
RE: GRANITE DEVELOPMENT PARTNERS, L.P.
COMMISSION FILE #033-80104
CIK #0000925171
Dear Sir or Madam:
Granite Development Partners, L.P. filed its form 10-Q for the third quarter
ended October 31, 1998 on Tuesday, December 15, 1998 via EDGAR.
The third quarter ended October 31, 1998 has been restated to reflect the
correction of the computation of cost of sales in the Silver Canyon Partnership.
This error was identified during the fourth quarter of 1998.
The restatement relates to the allocation of certain net development costs to
land sales. These adjustments to cost of sales had the affect of reducing cost
of sales and increasing net income for the third quarter of 1998 by $668,850.
The restatement is described in Note L.
The Silver Canyon Partnership operating income for the nine months ended October
31, 1998 was originally reported at $2,064,998; the correct amount is
$3,093,998. Correspondingly, net loss was originally reported as $883,911; the
correct amount is net income of $145,089.
The correction is also reflected on the Granite Development Partners, L.P.
Statement of Operations. For the nine months ended October 31, 1998, loss from
joint ventures was reported as $120,064, and net loss was originally reported as
$2,842,101; the correct amount for income from joint ventures is $548,786 and
the correct amount for net loss is $2,173,251. For the three months ended
October 31, 1998, loss from joint ventures was originally reported as $36,759
and net loss was originally reported as $1,242,592; the correct amount for
income from joint ventures is $632,091 and the correct amount for net loss is
$573,742.
On the Granite Development Partners, L.P. Balance Sheets, Investments in and
Advances to joint ventures was originally reported as $31,872,334 and total
assets was originally reported as $50,164,066. The correct amounts for
Investments in and Advances to joint ventures and total assets are $32,541,184
and $50,832,916, respectively. Partners' Deficit was originally reported as
$10,670,703 and total liabilities and equity was originally reported as
$50,164,066. The correct amounts for Partner's Deficit and Total Liabilities and
Equity are $11,339,553 and $50,832,916, respectively.
On the Granite Development Partners, L.P. Statement of Changes in Partners'
Deficit, net loss for the nine months ended October 31, 1998 (unaudited) was
originally reported as $710,525 for FC-Granite, Inc. and $2,131,576 for Limited
Partners, totaling $2,842,101. The balance at October 31, 1998 (unaudited) was
originally reported as $(12,271,178) for FC-Granite, Inc. and $1,600,475 for
Limited Partners, totaling $(10,670,703). The correct amounts for the nine
months ended October 31, 1998 (unaudited) are $543,313 for FC-Granite, Inc. and
$1,629,938 for Limited Partners, totaling $2,173,251. The correct amounts for
the balance at October 31, 1998 (unaudited) are $(12,103,966) for FC-Granite,
Inc. and $2,102,113 for Limited Partners, totaling $(10,001,853).
The correction is also reflected on the Granite Development Partners, L.P.
Statement of Cash Flows for the nine months ended October 31, 1998. Net loss was
originally reported as $2,842,101; the correct amount is $2,173,251. Net loss
from joint ventures was originally reported as $120,064; the correct amount is
income from joint ventures of $548,786.
The correct Silver Canyon Partnership Statement of Operations for October
31,1998, and corrected Statement of Operations, Balance Sheets, Statement of
Changes and Partners' Deficit, Statement of Cash Flows and FDS schedule for
Granite Development Partners, L.P. for October 31, 1998 will be filed under Form
10Q/A.
Very truly yours,
Mark A. Ternes
Controller
F.C. Granite, Inc.
Terminal Tower
50 Public Square, Suite 1250
Cleveland, Ohio 44113
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-
SECURITIES EXCHANGE ACT OF 1934
For the transition period from FEBRUARY 1, 1998 to DECEMBER 31, 1998
---------------- -----------------
Commission file number 0330-080104
-----------
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 Identification No.)
or organization)
1250 Terminal Tower 50 Public Square Cleveland, Ohio 44113
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 216-416-6060
------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. ( )
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Business
- - ---------------------
Granite Development Partners, L.P. ("Partnership"), a Delaware limited
partnership, was formed on November 15, 1993 for the purpose of investing in,
acquiring, owning, developing, selling and otherwise disposing of undeveloped
and developed land acquired by the Partnership (the "Partnership Properties").
The Partnership also may act as a joint venture partner with respect to the
acquisition, ownership, development, sale or disposition of certain properties
(also the "Partnership Properties"). The Partnership will terminate on December
31, 2013 or upon disposition of assets or certain other events. Effective
December 16, 1998, the Partnership has decided to change its fiscal year end
from January 31 to December 31.
The majority of the acquisition and development expenses of the
Partnership occurred in the first two years of operation. In order to offset
this large outflow of cash and allow the Partnership to make interest payments
on the senior notes, a number of mature properties have been included in the
Partnership Properties portfolio. The Partnership expects sales of all its
properties to be complete by the year 2003, at which time the Partnership is
expected to dissolve and terminate.
Silver Canyon, a Nevada limited partnership originally owned 55% by the
Partnership and 45% by Silver Canyon Corporation ("SCC"), is owner and developer
of an approximately 1,300 acre master planned community located outside Las
Vegas, Nevada. On January 30, 1996, the Partnership sold 21 2/3% interest in
Silver Canyon (the "Partnership Interest") to American Nevada Seven Hills
Limited Partnership ("ANC"), a Nevada limited partnership and subsidiary of
American Nevada Corporation, a Nevada corporation, for $2,990,000. In addition,
SCC sold 11 2/3% of its partnership interest in Silver Canyon (the "SCC
Interest") to ANC for $1,610,000. After giving effect to the transfer of the
Partnership Interest and the SCC Interest, the Partnership, SCC and ANC each own
an equal 33 1/3% interest in Silver Canyon.
Investment Objectives and Policies
The principal investment objectives of the Partnership are the
preservation of Limited Partners' capital and appreciation of such capital
through sales of land at increased values. There is no assurance that these
investment objectives will be achieved. The Partnership has invested in
undeveloped land or in partnerships or joint ventures that hold interests in
such land on an all-cash basis and intends to realize appreciation of such land
upon resale. The Partnership Properties, the majority of which will be developed
as residential tracts, have been acquired and developed with the proceeds from
the sale of the senior notes and the warrants exercisable for Partnership Units
and the proceeds from the sale of Partnership Properties allocated to such
acquisition and development in the future. The Partnership Properties acquired
are in various stages of development ranging from fully developed and ready for
sale to third parties, to projects with sales not expected to be completed for
another three or four years. Larger projects, such as Silver Canyon, are not
expected to fully mature for another four to five years. The Partnership expects
sales of all Partnership Properties to be completed by the year 2003, at which
time the Partnership will dissolve and terminate.
<PAGE>
The Partnership will develop each of the properties it acquires at a rate
which will approximate the absorption rate in the relevant real estate market.
Once development is completed, the properties will be marketed and sold. Upon
completion of the sale of all of the Partnership Properties, all proceeds will
be returned to the senior note holders and the Partnership will be dissolved and
terminated.
Formation of the Partnership
All of the Partnership Properties will be acquired, owned, developed and
sold by the Partnership or a joint venture in which the Partnership or a
wholly-owned subsidiary of the Partnership is a joint venture partner. The
formation of the Partnership was designed to facilitate development of
Partnership Properties under the control of a single entity, the Partnership,
with greater access to the public and private capital markets and to enhance the
potential for future growth.
Competition
Competition in this segment is dominated by price, location and
availability of properties.
Item 2. Properties
The following properties remain in the Partnership property portfolio as
of December 31, 1998:
NAME DESCRIPTION
Day Drive Located in Parma, Ohio. Approximately nine (9) acres
commercially zoned property remain.
Drake Estates Located in Strongsville, Ohio. One acre zoned general
business remain.
Cambridge Park Located in North Royalton, Ohio. Consists of thirty-six (36)
one-half acre single family lots of which seven lots remain.
North Olmsted Located in North Olmsted, Ohio. Approximately 3.5 acres
Industrial improved industrial property.
Park
Royal Valley Located in North Royalton, Ohio. Consists of three (3)
one-quarter acre lots within a 237 acre planned residential
community.
Solon Estates Located in Solon, Ohio. Consists of 250 acres zoned for
(Thornbury) one (1) acre single family lots and cluster homesites.
Silver Canyon Located in Henderson, Nevada. A 1,293 acre master planned
residential community currently under development.
Consists of 3,400 lots of which 2,317 lots are sold.
Eaton Estates Located in Sagamore Hills, Ohio. Consists of a 593 acre
property zoned for a planned unit development and 43 acres
of land zoned for single family lots. Seven single family
lots and a 208 apartment site remains.
SSK Parcels Located in Twinsburg, Ohio. Consists of 133 acres of
unimproved land being developed into a 174 lot single family
development of which 48 lots remain unsold.
Music Street Located in Newbury Township, Geauga County, Ohio. Consists
of thirty (30) three (3)acre lots of which seven lots
remain.
Fairfax Meadows Located in Medina, Ohio. Consists of 73 acres zoned for 142
single family residential sublots of which 98 lots remain.
<PAGE>
Item 3. Legal Proceedings
- - --------------------------
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 at December 31, 1998, 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.
Silver Canyon Partnership, a Nevada Limited Partnership, owned 33.3% by
the Partnership, is the owner and developer of an approximately 1,300 acre
master planned community located in Henderson, Nevada. The property is being
developed in conjunction with a golf course. In August 1997, a class-action
lawsuit was filed by the current homeowners in Seven Hills against the Silver
Canyon Partnership, the golf course developers and the 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the eleven
months ended December 31, 1998.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- - --------------------------------------------------------------------------------
The securities offered of Granite Development Partners, L.P., were 36,000
warrants, each of which entitled the holder thereof to purchase one unit of
limited partnership interest of the Partnership, at an exercise price of $111.11
per Partnership Unit and up to 36,000 Partnership Units issuable upon exercise
of the warrants. The warrants were exercisable at any time prior to December 3,
1996. On December 3, 1996, all 36,000 warrants were exercised.
The securities are not traded on a public market.
Item 6. Selected Financial Data
- - --------------------------------
<TABLE>
Fiscal Fiscal Fiscal Fiscal Fiscal
1998* 1997** 1996*** 1995**** 1994*****
----------- -------------- ------------ ------------ -------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating Results
Gross Sales $ 8,417,447 $ 5,709,083 $ 12,367,374 $ 7,035,769 $ 8,506,100
Net Income (Loss) $ 225,883 $ (357,213) $ 966,815 $ (158,487) $(3,903,155)
December 31, January 31, January 31, January 31, January 31,
1998 1998 1997 1996 1995
----------- -------------- ------------ ------------ -------------
Financial Position
Total assets $51,082,266 $48,015,304 $ 50,492,484 $49,013,469 $41,084,314
Land and land
improvements $ 3,203,853 $ 6,360,771 $ 6,948,665 $12,278,824 $13,415,890
Restricted cash
equivalents $ - $ 481,287 $ 4,602,891 $ 1,308,453 $ 4,039,263
Investments in and
advances to joint
ventures $ 33,662,431 $29,748,165 $ 25,866,537 $22,686,561 $16,694,226
Long-term debt,
including mortgage
debt $ 36,776,659 $37,242,514 $ 36,910,472 $41,110,025 $37,348,370
<FN>
* Fiscal 1998 results are for the eleven months ended December 31, 1998
** Fiscal 1997 results are for the year ended January 31, 1998
*** Fiscal 1996 results are for the year ended January 31, 1997
**** Fiscal 1995 results are for the year ended January 31, 1996
***** Fiscal 1994 results are for the year ended January 31, 1995
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - -------------------------------------------------------------------------------
Results of Operations
The results of operations discussed below reflect the change in the Partnership
year-end from January 31 to December 31. This change in year-end was to make
consistent the Partnership's tax year with the fiscal year to make the
Partnership's fiscal year end consistent with its two major joint ventures,
Eaton Estates Partnership and Silver Canyon Partnership. Silver Canyon also
changed its fiscal year-end from January 31 to December 31 concurrently with the
Partnership. The Partnership's results of operations for the eleven months ended
December 31, 1998, and the years ended January 31, 1998, 1997, and 1996 include
the Financial Results, accounted for on the equity basis, of Eaton Estate
Partnership for the fiscal years ended December 31, 1998, 1997, 1996, and 1995,
respectively, and Silver Canyon Partnership for the eleven months ended December
31, 1998 and the fiscal years ended January 31, 1998, 1997 and 1996,
respectively. The results of Eaton Estates reflects twelve months of operation,
which is consistent with prior periods presented.
Sales of developed property for the eleven months ended December 31,
1998 totaled $8,417,447 versus $5,709,083 for the year ended January 31,
1998. The following significant sales occurred in fiscal 1998: 1) 87 lots
in The Ledges development Phases 1 and 2 for $5,088,947; 2) 8 lots in River
Oaks for $960,000; 3) 18 lots in Cambridge Park for $938,000; 4) 20 lots in
Fairfax for $794,000.
Sales of developed property for the year ended January 31, 1998 totaled
$5,709,083 versus $12,367,374 for the year ended January 31, 1997. The following
significant sales occurred in fiscal 1997: 1) 17 lots in The Ledges development
phase 1A for $952,000; 2) 10 lots in the Ledges phase 2A for $555,000; 3) a 6.11
acre parcel of Drake Estates in Strongsville for $366,792; 4) 7 single family
sublots in Cambridge Park for $348,250; and 5) 6 lots in the Ledges development
for $336,000. The decrease in sales from January 31, 1998 to January 31, 1997
was largely due to the sale of the 194th Street parcel for $7,927,770 in fiscal
1996. This significant transaction represented the last of the North Miami Beach
parcels.
Sales of developed property for the year ended January 31, 1997 totaled
$12,367,374 versus $7,035,769 for the year ended January 31, 1996. The following
significant sales occurred in fiscal 1996: 1) the 6.3 acre oceanfront portion of
194th Street in Miami Beach, Florida for $7,927,770; 2) the remaining 1.5 acres
of 194th Street for $601,600; 3) two cluster sites in the West Grove development
for a total of $1,552,947; and 4) four single family sublots in the River Oaks
subdivision in Ohio for $460,000. The increase in sales for fiscal 1996 versus
fiscal 1995 is mainly the result of the sale of the 194th Street property
located in Miami Beach, Florida.
Eaton Estate Partnership, a joint venture of the Partnership accounted for
under the equity method, reported sales of $8,429,232, $7,257,167, $9,328,118
and $9,224,344 for the years ended December 31, 1998, January 31, 1998, 1997,
1996, respectively. The level of sales activity is expected to decrease in 1999
as there is a limited amount of land remaining to be developed and sold.
The Silver Canyon Partnership, a joint venture of the Partnership
accounted for under the equity method, reported sales of $31,791,859 for the
eleven months ended December 31, 1998 versus sales of $23,911,279, $15,028,556
and $2,941,692 for the years ended January 31, 1998, 1997 and 1996,
respectively. The level of sales activity is expected to remain strong in fiscal
1999.
<PAGE>
As of December 31, 1998, the following significant sales were under
contract: five lots of The Ledges subdivision located in Twinsburg, Ohio for
$290,000 and 515 lots within the Silver Canyon development in Henderson, Nevada
for $18,366,221. None of the contracts are guaranteed to close.
Interest income totaled $1,452,474 for the eleven months ended December
31, 1998 versus $1,150,137 for the year ended January 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 (see footnote
A.) The increase in interest income in fiscal 1998 is mainly attributable to the
recognition of deferred interest income of $1,508,044 related to the funds
advanced to the Silver Canyon Partnership.
Interest income totaled $1,150,137 for the year ended January 31, 1998
versus $1,165,599 for the year ended January 31, 1997. The decrease in interest
income in fiscal 1997 is mainly attributable to the paydown of notes receivable.
Interest income totaled $1,165,599 for the year ended January 31, 1997
versus $383,508 for the year ended January 31, 1996. The increase in interest
income in fiscal 1996 is due to the increase in the outstanding balance of
mortgage notes receivable and the recognition of deferred interest income of
$644,104 related to the funds advanced to the Silver Canyon Partnership.
Other income totaled $359,984 for the eleven months ended December 31,
1998 versus $352,173 for the year ended January 31, 1998. Commissions of
$504,182 and $453,965 were recorded for the eleven months ended December 31,
1998 and for the year ended January 31, 1998, respectively. Other income is
mainly comprised of deferred development fees and management fees related to the
Silver Canyon Partnership. Development fees of $317,962 and $290,685 were
recorded for the eleven months ended December 31, 1998 and for the year ended
January 31, 1998, respectively.
Other income totaled $352,173 for the year ended January 31, 1998 versus
$189,904 for the year ended January 31, 1997. Commissions of $453,965 and
$192,588 were recorded for the years ended January 31, 1998 and 1997,
respectively. The Partnership recognized development fee income of $290,685 and
$126,990 for the years ended January 31, 1998 and 1997, respectively. The
increase in commissions and the recognition of development fees is directly
correlated to the increase in sales activity related to the Silver Canyon
Partnership.
Other income totaled $189,904 for the year ended January 31, 1997 versus
$117,936 for the year ended January 31, 1996. Commissions of $192,588 and
$98,759 were recorded for the years ended January 31, 1997 and 1996,
respectively. The Partnership recognized development fee income of $126,990 and
$40,306 for the years ended January 31, 1997 and 1996, respectively.
<PAGE>
Interest expense totaled $3,953,210 for the eleven months ended December
31, 1998 versus $4,251,226 for the year ended January 31, 1998. Interest expense
is mainly comprised of interest accrued for Senior Notes, Special Units,
operating loans and mortgage notes payable. Interest expensed for Senior Notes
was $3,617,220 for the eleven months ended December 31, 1998 versus $3,952,950
for the year ended January 31, 1998.
Interest expense totaled $4,251,226 for the year ended January 31, 1998
versus $4,345,499 for the year ended January 31, 1997. Interest accrued for
Senior Notes was $3,952,950 and $3,898,800 for the years ended January 31, 1998
and January 31, 1997, respectively.
Interest expense totaled $4,345,499 for the year ended January 31, 1997
versus $4,446,764 for the year ended January 31, 1996. Interest accrued for
Senior Notes was $3,898,800 for both years ended January 31, 1997 and January
31, 1996.
Partner fees totaled $1,057,112 for the eleven months ended December 31,
1998, versus $746,638 for the year ended January 31, 1998. Partner fees are
comprised of development fees, administrative fees and commissions. Commissions
and development fees were $877,368 and $510,624 for the eleven months ended
December 31, 1998 and for the year ended January 31, 1998, respectively. The
increase in commissions and the recognition of development fees is related to
the increase in sales activity.
Partner fees totaled $746,638 for the year ended January 31, 1998 and
$1,445,192 for the year ended January 31, 1997. Commissions and development fees
were $510,624 and $1,088,070 for the years ended January 31, 1998 and 1997,
respectively. The decrease in commissions and the recognition of development
fees is directly correlated to the decrease in sales activity.
Operating and other expenses totaled $426,826 for the eleven months ended
December 31, 1998 versus $177,541 for the year ended January 31, 1998. Operating
and other expenses are mainly comprised of legal fees, other professional fees,
title fees and escrow fees. Other professional fees increased from $24,794 for
the year ended January 31, 1998 to $65,144 for the eleven months ended December
31, 1998. Marketing research increased from $10,570 for the year ended January
31, 1998 to $48,422 for the eleven months ended December 31, 1998. Title and
escrow fees increased from $54,369 for the year ended January 31, 1998 to
$85,694 for the eleven months ended December 31, 1998 . During the eleven months
ended December 31, 1998, an accrual of $100,000 was recorded for the maximum
damages relating to the litigation proceedings for the 194th Street property
located in Miami Beach, Florida.
Operating and other expenses totaled $177,541 for the year ended January
31, 1998 versus $515,445 for the year ended January 31, 1997. Legal and
professional fees decreased from $277,532 at January 31, 1997 to $95,059 at
January 31, 1998. Title and escrow fees decreased from $139,112 at January 31,
1997 to $54,369 at January 31, 1998.
Income from Joint Ventures was $1,393,985 for the eleven months ended
December 31, 1998 versus $1,663,201 for the year ended January 31, 1998. Income
from Joint Ventures consists of income from Silver Canyon Partnership an Eaton
Estate Partnership, both being recorded by the Partnership under the equity
method. The decrease in joint venture in fiscal 1998 is mostly due to increases
in project costs and, therefore, cost of sales for the Silver Canyon
Partnership.
<PAGE>
The Partnership reported net income of $225,883 for the eleven months
ended December 31, 1998 versus a net loss of $357,213 for the year ended January
31, 1998. The increase in net income is mainly the result of net sales of
$2,479,013 for the eleven months ended December 31, 1998 versus $2,088,020 for
the year ended January 31, 1998 and an increase in interest income of $1,452,474
for the eleven months ended December 31, 1998 versus $1,150,137 for the year
ended January 31, 1998.
For the year ended January 31, 1998, the Partnership reported net loss of
$357,213 versus a net income of $966,815 for the year ended January 31, 1997.
The decrease in net income is the result of a decrease in land sales revenue.
For the year ended January 31, 1997, the Partnership reported net income
of $966,815 versus net loss of $158,487 for the year ended January 31, 1996. The
increase in net income resulted from an increase in land sales revenues. While
revenues from land sales increased from fiscal 1995 to fiscal 1996, the
Partnership earned a lower margin on fiscal 1996 sales. Sales of land and
related earnings vary from period to period, depending upon management's
decisions regarding the disposition of undeveloped land parcels. Included in
fiscal 1995 were sales of residential tracts of land where the buyer invested
large development costs instead of the Partnership. Fiscal 1995 revenues from
sales are not indicative of results for subsequent years. The increase in net
income can also be attributed to the increase in interest and other income, and
a decrease in operating expenses.
Financial Condition and Liquidity
The net cash provided by operating activities was $2,032,572 for the
eleven months ended December 31, 1998 versus cash provided of $3,901,203 for the
year ended January 31, 1998. The decrease is mainly the result of a decrease in
restricted cash equivalents of $481,287 for the eleven months ended December 31,
1998 versus $4,121,604 for the year ended January 31, 1998 which is partially
offset by an increase in unpaid partner fees of $1,057,112 for the eleven months
ended December 31, 1998 versus a decrease of $728,651 for the year ended January
31, 1998.
The net cash provided by operating activities was $3,901,203 for the year
ended January 31, 1998 versus cash provided of $765,988 for fiscal 1996. The
increase in net cash provided by operating activities is mainly attributable to
a decrease in mortgage notes receivable and a decrease in restricted cash
equivalents.
The net cash provided by operating activities was $765,988 for the year
ended January 31, 1997 versus cash provided of $1,696,727 for the year ended
January 31, 1996. The decrease in net cash provided by operating activities is
mainly the result of an increase in restricted cash equivalents.
Net cash used in investing activities was $2,520,281 and $2,218,427 for
the eleven months ended December 31, 1998 and for the year ended January 31,
1998, respectively. The increase in funds used was mainly due to an increase in
funds advanced for development expenditures at the Silver Canyon property,
partially offset by a $750,000 cash distribution from Eaton Estate Partnership.
<PAGE>
Net cash used in investing activities was $2,218,427 for the year ended
January 31, 1998 versus $1,173,703 for the year ended January 31, 1997. The
increase in funds used was mainly the result of an increase in funds advanced
for the Silver Canyon property.
Net cash used in investing activities was $1,173,703 for the year ended
January 31, 1997 versus $3,070,945 for the year ended January 31, 1996. The
decrease in funds used is attributable to the decrease in funds advanced for
development expenditures at the Silver Canyon property offset by the proceeds of
$2,990,000 received in fiscal 1995 from the sale of a portion of the
Partnership's interest in the Silver Canyon Partnership.
Net cash provided by financing activities was $1,694,158 for the eleven
months ended December 31, 1998 versus net cash used in financing activities of
$1,745,606 for the year ended January 31, 1998. The net cash provided was due to
funds loaned from Sunrise Land Company $2,395,951 which was partially offset by
repayments of mortgage notes payable of $465,855.
Net cash used in financing activities for the year ended January 31, 1998,
was $1,745,606 versus net cash used of $2,940,875 for the year ended January 31,
1997. The net cash used was mainly attributable to the paydown of the loan from
Sunrise Land Company of $921,768, partially offset by proceeds from mortgage
notes payable of $922,472.
Net cash used in financing activities was $2,940,875 for the year ended
January 31, 1997 versus net cash provided by financing activities of $4,457,722
for the year ended January 31, 1996. The net cash used during fiscal 1996 was
the result of the repayment of mortgage notes payable of $4,953,515 and the
distribution of $1,914,202 of interest earned on the special units to the
general partner offset by proceeds received of $2,999,880 from the exercise of
the 36,000 warrants by the limited partners.
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 at December 31, 1998, 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.
Silver Canyon Partnership, a Nevada Limited Partnership, owned 33.3% by
the Partnership, is the owner and developer of an approximately 1,300 acre
master planned community located in Henderson, Nevada. The property is being
developed in conjunction with a golf course. In August 1997, a class-action
lawsuit was filed by the current homeowners in Seven Hills against the Silver
Canyon Partnership, the golf course developers and the 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.
<PAGE>
The Partnership intends to finance the acquisition and development of the
majority of the Partnership properties as residential tracts for eventual
resale; however, certain properties have been acquired and developed for
commercial or industrial uses. Pursuant to the Partnership's business plan each
of the targeted Partnership properties have been acquired and will be developed
and marketed for sale. All net proceeds raised from the sales of properties,
after the payment of development and partnership expenses, will be returned to
the senior note holders and partners pursuant to the partnership agreement once
all of the properties have been sold. Management believes that the Partnership
will have adequate funds available throughout fiscal 1999 to fund development
expenditures and to pay the semi-annual interest payments on the senior notes.
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 1st 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
confidant 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 it's
vendors and business partners.
The Partnership feels that the successful completion of the Year 2000
program will minimize the effect on operations.
Information Relating to Forward-Looking Statements
This Annual 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>
Item 7A. Quantitive and Qualitative Disclosures About Market Risk
- - ------------------------------------------------------------------
The Partnership's primary market risk exposure is interest rate risk. At
December 31, 1998, the Partnership had $776,659 of variable rate debt.
Management has and will continue to manage interest rate risk by maintaining a
conservative ratio of fixed rate, long-term debt to total debt to insure that
variable rate exposure is kept at an acceptable level.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For debt
obligation's, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
Expected Maturity Date
--------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------------ --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Fixed:
- - ------
Senior notes $ - $ - $ - $ - $ 36,000,000
Weighted average interest rate 10.83% 10.83% 10.83% 10.83% 10.83%
------------------ --------------- --------------- --------------- --------------
Total fixed rate debt $ - $ - $ - $ - $ 36,000,000
Variable:
- - ---------
Variable rate mortgage debt $ 260,000 $ 140,000 $ 376,659 $ - $ -
------------------ --------------- --------------- --------------- --------------
Total variable rate debt $ 260,000 $ 140,000 $ 376,659 $ - $ -
------------------ --------------- --------------- --------------- --------------
$ 260,000 $ 140,000 $ 376,659 $ - $ 36,000,000
================== =============== =============== =============== ==============
Fair Market
Total Value
------------------ ---------------
Fixed:
- - ------
Senior notes $ 36,000,000 $ 36,000,000
Weighted average interest rate 10.83% -
------------------ ---------------
Total fixed rate debt $ 36,000,000 $ 36,000,000
Variable:
- - ---------
Variable rate mortgage debt $ 776,659 $ 776,659
------------------ ---------------
Total variable rate debt $ 776,659 $ 776,659
------------------ ---------------
$ 36,776,659 $ 36,776,659
================== ===============
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
- - ----------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Granite Development Partners, L.P.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' equity and of cash flows present fairly, in all
material respect, the financial position of Granite Development Partners, L.P.
(A Delaware Limited Partnership) as of December 31, 1998, January 31, 1998, and
January 31, 1997, and the results of its operations and its cash flows for the
eleven months ended December 31, 1998, and for each of the years ended January
31, 1998, 1997, and 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion of these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers, LLP
-------------------------------
PricewaterhouseCoopers, LLP
Cleveland, Ohio
March 31, 1999
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
<CAPTION>
December 31, January 31, January 31,
----------- ----------- -----------
1998 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
LAND $ 1,772,580 $ 3,081,890 $ 4,472,219
LAND IMPROVEMENTS 1,431,273 3,278,881 2,476,446
----------- ----------- -----------
3,203,853 6,360,771 6,948,665
RESTRICTED CASH EQUIVALENTS - 481,287 4,602,891
MORTGAGE NOTES RECEIVABLE 2,955,344 3,149,565 6,323,446
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 33,662,431 29,748,165 25,866,537
OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of $2,280,601 at
December 31, 1998, $1,906,317 at
January 31, 1998 and $1,446,575 at
January 31, 1997 - 374,284 826,126
Organization costs, net of accumulated
amortization of $748,117 at
December 31, 1998, $668,805
at January 31, 1998 and $449,697
at January 31, 1997 - 79,312 298,420
Cash 1,430,607 224,158 286,988
Interest receivable 9,629,531 7,397,262 5,207,019
Other 25,500 80,500 55,000
Commission receivable - - 17,392
Administrative fee receivable 175,000 120,000 60,000
----------- ----------- -----------
11,260,638 8,275,516 6,750,945
----------- ----------- -----------
$51,082,266 $48,015,304 $50,492,484
=========== =========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS (continued)
<CAPTION>
December 31, January 31, January 31,
------------- ------------- ------------
1998 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
LIABILITIES
PARTNERS' SPECIAL UNITS
& PARTNERS' DEFICIT
SENIOR NOTES PAYABLE $ 36,000,000 $ 36,000,000 $ 36,000,000
MORTGAGE NOTES PAYABLE 776,659 1,242,514 910,472
LOAN PAYABLE - SUNRISE 2,395,951 - 921,768
LOAN PAYABLE - EATON 878,462 1,114,400 -
OTHER LIABILITIES
Accounts payable 962,805 463,373 48,632
Accrued fees, partners 1,264,257 207,145 935,796
Accrued interest 924,057 975,845 1,009,139
Accrued real estate taxes 99,953 143,899 134,913
Deposits 3,579 819,077 3,199,100
Deferred income 6,379,262 5,877,653 4,656,074
------------- ------------- ------------
9,633,913 8,486,992 9,983,654
PARTNERS' EQUITY (DEFICIT)
Partners' special units 9,000,000 9,000,000 9,000,000
Partners' deficit (7,602,719) (7,828,602) (6,323,410)
------------- ------------- ------------
1,397,281 1,171,398 2,676,590
------------- ------------- ------------
$ 51,082,266 $ 48,015,304 $ 50,492,484
============= ============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
<CAPTION>
For the 11 months For the year For the year For the year
ended ended ended ended
December 31, January 31, January 31, January 31,
1998 1998 1997 1996
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Sales of developed property $ 8,417,447 $ 5,709,083 $ 12,367,374 $ 7,035,769
Cost of sales (5,938,434) (3,621,063) (7,736,755) (2,992,237)
------------ ----------- ------------- ------------
2,479,013 2,088,020 4,630,619 4,043,532
Interest 1,452,474 1,150,137 1,165,599 383,508
Commission 504,182 453,965 192,588 98,759
Other 359,984 352,173 189,904 117,936
------------ ----------- ------------- ------------
4,795,653 4,044,295 6,178,710 4,643,735
------------ ----------- ------------- ------------
EXPENSES
Interest 3,953,210 4,251,226 4,345,499 4,446,764
Fees, partners 1,057,112 746,638 1,445,192 1,696,385
Real estate taxes 73,012 210,453 276,309 393,695
Operating and other 426,826 177,541 515,445 572,913
Amortization 453,595 678,851 635,723 613,855
------------ ----------- ------------- ------------
5,963,755 6,064,709 7,218,168 7,723,612
------------ ----------- ------------- ------------
(1,168,102) (2,020,414) (1,039,458) (3,079,877)
Gain on sale of partnership interest - - - 2,144,190
Income from joint ventures 1,393,985 1,663,201 2,006,273 777,200
------------ ----------- ------------- ------------
NET INCOME (LOSS) $ 225,883 $ (357,213) $ 966,815 $ (158,487)
============ =========== ============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENT 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 income for the eleven months - 225,883 - 225,883
--------- ------------- ----------- ------------
Balance at December 31, 1998 $ - $ (11,334,770) $ 3,732,051 $ (7,602,719)
========= ============= =========== ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOW
<CAPTION>
For the 11 months For the year For the year For the year
ended ended ended ended
December 31 January 31, January 31, January 31,
1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flow from Operating Activities
Net income (loss) $ 225,883 $ (357,213) $ 966,815 $ (158,487)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization 453,595 678,851 635,723 613,855
Income from joint ventures (1,393,985) (1,663,201) (2,006,273) (777,200)
Gain on sale of partnership interest - - - (2,144,190)
Changes in operating assets and liabilities:
Decrease in land and land improvements 3,156,919 587,894 5,330,159 1,137,066
Decrease (increase) in restricted cash equivalents 481,287 4,121,604 (3,294,438) 2,730,810
Decrease (increase) in mortgage notes receivable 194,221 3,173,881 (1,910,357) (1,746,626)
Increase in organization costs - - - (50,586)
Increase in interest receivable (2,232,269) (2,190,243) (2,259,325) (1,985,517)
Decrease (increase) in other assets 55,000 (25,500) (55,000) -
Decrease in development fee receivable - - - 402,133
Decrease (increase) in commission receivable - 17,392 (17,392) -
(Increase) decrease in administrative fee receivable (55,000) (60,000) (60,000) 81,250
Increase (decrease) in accounts payable 499,432 414,741 (85,303) 33,754
Increase (decrease) in accrued fees, partners 1,057,112 (728,651) 762,576 -
(Decrease) increase in accrued interest (51,788) (33,294) 38,023 65,576
(Decrease) increase in accrued real estate taxes (43,946) 8,986 (146,972) 208,318
(Decrease) increase in deposits (815,498) (1,265,623) 1,580,586 1,116,514
Increase in deferred income 501,609 1,221,579 1,287,166 2,170,057
------------------ ----------- ------------ ------------
Net cash provided by operating activities 2,032,572 3,901,203 765,988 1,696,727
------------------ ----------- ------------ ------------
Cash Flow from Investing Activities
Proceeds from sale of partnership interest - - - 2,990,000
Distribution from affiliates 750,000 642,600 93,530 -
Investments in and advances to affiliates (3,270,281) (2,861,027) (1,267,233) (6,060,945)
------------------ ------------ ------------ ------------
Net cash used in investing activities (2,520,281) (2,218,427) (1,173,703) (3,070,945)
------------------ ------------ ------------ ------------
Cash Flow from Financing Activities
Proceeds from exercise of warrants - - 2,999,880 -
Proceeds from loan payable - Sunrise 2,395,951 - 190,000 731,768
Repayment of loan payable - Sunrise - (921,768) - -
Proceeds from loan payable - Eaton 2,580,890 - - -
Repayment of loan payable - Eaton (2,816,828) - - -
Distribution of interest on special units - (1,147,980) (1,914,202) -
Proceeds from mortgage notes payable - 922,472 753,962 4,480,000
Repayment of mortgage notes payable (465,855) (590,430) (4,953,515) (718,345)
Increase in mortgage procurement cost - (7,900) (17,000) (35,701)
------------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 1,694,158 (1,745,606) (2,940,875) 4,457,722
------------------ ------------ ------------ ------------
Increase (decrease) in cash 1,206,449 (62,830) (3,348,590) 3,083,504
Cash at beginning of the period 224,158 286,988 3,635,578 552,074
------------------ ------------ ------------ ------------
Cash at end of the period $ 1,430,607 $ 224,158 $ 286,988 $ 3,635,578
================== ============ ============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOW (continued)
<CAPTION>
For the 11 months For the year For the year For the year
ended ended ended ended
December 31, January 31, January 31, January 31,
1998 1998 1997 1996
---------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 4,004,998 $ 4,284,520 $ 4,307,476 $ 4,381,188
Real estate taxes $ 116,958 $ 201,467 $ 423,281 $ 185,377
Supplemental Disclosure of Non-Cash Activities:
Exercise of warrants
$ - $ - $ 1,000,080 $ -
</TABLE>
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- - ------------
Granite Development Partners, L.P., a Delaware Limited Partnership ("the
Partnership"), was formed on November 15, 1993 to acquire, develop, market and
sell partnership properties, located principally in Ohio and Nevada, and may
include acting as a joint venture partner with respect to certain properties.
The Partnership will terminate on December 31, 2013 or earlier upon disposition
of assets. Effective December 16, 1998, the Partnership has decided to change
its fiscal year end from January 31 to December 31 (See Note K).
The results of operations discussed below reflect the change in the Partnership
year end from January 31 to December 31. This change in year end was to make
consistent the Partnership's tax year with the fiscal year end and to make the
Partnership's fiscal year end consistent with its two major joint ventures,
Eaton Estates Partnership and Silver Canyon Partnership. The Partnership's
results of operations for the eleven months ended December 31, 1998, and the
years ended January 31, 1998, 1997, and 1996 include the Financial Results,
accounted for on the equity basis, of Eaton Estate Partnership for the fiscal
years ended December 31, 1998, 1997, 1996, and 1995, respectively. The results
of Eaton Estates reflects twelve months of operations, which is consistent with
prior periods presented.
The sole general partners is FC-Granite, Inc., an Ohio corporation
("FC-Granite"). FC-Granite has made an initial capital contribution of $300.
FC-Granite is a wholly-owned subsidiary of Sunrise Land Company ("Sunrise"), the
land division subsidiary of Forest City Enterprises, Inc. ("Forest City").
Sunrise made an initial capital contribution of $100 and acted as the original
limited partner until the outstanding warrants to acquire limited partnership
interests were exercised on December 3, 1996. When the first warrant was
exercised, Sunrise withdrew as the original limited partner. FC-Granite owns a
25% interest and the limited partners own a 75% interest in the Partnership.
On December 3, 1996, FC-Granite exercised 9,000 warrants to purchase limited
partnership units, representing a 25% ownership of the limited partnership
units.
FC-Granite contributed properties with assigned values of $7,234,482 and
$2,765,518 of cash related to properties originally intended to be contributed
by FC-Granite but were sold prior to the formation of the Partnership in
exchange for $10,000,000 special units valued at $1,111.11 per special unit. The
historical cost basis of the contributed properties was $4,097,400. Until the
senior notes payable are paid in full, $9,000,000 of the special units bear
interest at 10.83% and will be paid pari-passu with interest on the senior notes
payable and have accordingly been treated as partners' special units and the
remaining $1,000,000 has been reflected as a capital contribution. The
difference of $3,137,082 between the partners' special units of $10,000,000 and
the historical cost basis of the contributed properties of $4,097,400 and
contributed cash of $2,765,518 is reflected as a reduction of partners' equity
for FC-Granite. The properties have been presented at their historical cost
basis because of the affiliated ownership and common management of Sunrise,
FC-Granite and the Partnership.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Sunrise has withdrawn from the Partnership upon the exercising of the warrants
in fiscal 1996. With this change in the Partnership structure, all profits will
be allocated to FC-Granite, the general partner, until all prior year losses
initially allocated to FC-Granite are recovered. As of December 31, 1998,
$3,731,856 in losses allocated to FC-Granite under the old Partnership's
structure have not been recovered. Once FC-Granite recoups the full allocation
of losses from prior years as noted above, profits and losses of the Partnership
will be allocated in accordance with the Partnership agreement. The agreement
states that FC-Granite owns a 25% interest and the limited partners own a 75%
interest in the Partnership.
Land Sales
- - ----------
The Partnership follows the provisions of Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", for reporting the
disposition of properties.
Land and Land Improvements
- - --------------------------
Land and land improvements are recorded at cost. Upon sales, costs will be
reported in cost of sales using the specific identification method. Land held
for sale is recorded at the lower of carrying amount or fair value less cost to
sell.
Restricted Cash Equivalents
- - ---------------------------
In accordance with the partnership agreement, the net proceeds of the senior
notes payable and warrants will be restricted to fund the development of
partnership properties and joint ventures. The Partnership considers short-term
commercial paper with maturities of three months or less as cash equivalents.
Investments In Joint Ventures
- - -----------------------------
The Partnership has invested in two joint ventures which have been accounted for
under the equity method. These investments are recorded initially at cost and
subsequently adjusted for net equity in income (loss) and cash contributions and
distributions.
The advances to the ventures represent loans which are to be repaid within the
next three years.
Mortgage Procurement Costs
- - --------------------------
Mortgage procurement costs are being amortized over the life of the debt.
Organization Costs
- - ------------------
Costs incurred in connection with the organization of the Partnership are
deferred and amortized over five years using the straight-line method.
Income Taxes
- - ------------
No provision or benefit for income taxes is included in the financial
statements. Income taxes, if any, are the responsibility of the individual
partners.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Estimates
- - ---------
The Partnership is required to make estimates and assumptions when preparing its
financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Deferred Income
- - ---------------
Deferred income consists of fees and interest due from the joint ventures
accounted for under the equity method. The deferred income will be recognized as
the fees and interest capitalized on the joint ventures is recognized as cost of
sales by the joint ventures.
Fair Value of Financial Instruments
- - -----------------------------------
The Partnership's financial instruments consists principally of cash, restricted
cash, mortgage notes receivable, accounts receivable, accounts payable and
accrued expenses in which the fair value of these financial instruments
approximates the carrying value. The Partnership determined the estimated fair
value of its debt by aggregating the various types (i.e. fixed rate versus
variable rate debt) and discounting future cash payments at interest rates that
the Partnership believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the
Partnership's total debt.
Reclassifications
- - -----------------
Certain amounts in the year ended January 31, 1998 have been reclassified to
conform to the current year's presentation.
Change in Fiscal Year End
- - -------------------------
On December 16, 1998, the Partnership announced a change in fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.
Business Segment Information
- - ----------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 131- Disclosure about Segments of an Enterprise and Related
Information. SFAS 131 establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
the products and services, geographic areas and major customers. The sole
business of the Partnership is to acquire, develop, market and sell Partnership
properties. The Partnership evaluates operating results and allocates resources
on a property-by-property basis. The Partnership does not distinguish or group
its operations on a geographic basis. Accordingly, the
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Partnership believes it has a single reportable segment for SFAS 131 purposes.
Further, all operations are within the United States. Therefore, no additional
disclosure relating to the adoption of SFAS 131 is considered necessary.
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.
Additionally, the Partnership may defer two interest payments if minimum working
capital, as defined, falls below $5,000,000. During the period interest payments
are deferred, interest shall accrue at 12.83% and shall remain at that level
until all deferred interest and interest thereon has been paid.
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.
NOTE D - PARTNERS' SPECIAL UNITS
Until the senior notes payable 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 incurred on the partners' special units for the
eleven months ended December 31, 1998, and for the years ended January 31, 1998
and 1997, totaled $904,305, $974,700 and $985,530, respectively. Interest
incurred from November 15, 1993 (inception) through January 31, 1996, totaled
$2,136,218. During the years ended January 31, 1998, 1997 and 1995,
respectively, $1,147,980, $1,914,202 and $963,870 of the interest earned was
distributed to FC-Granite, the holder of the partners' special units. As of the
eleven months ended December 31, 1998, $988,237 of the interest earned on the
special units is undistributed and will be distributed pari-passu with the
interest on the Senior Notes when funds are available.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE E - MORTGAGE NOTES PAYABLE
The Partnership has outstanding mortgage notes payable aggregating $776,659,
$1,242,514 and $910,472 at December 31, 1998 and January 31, 1998 and 1997,
respectively. The proceeds of these mortgage loans was used to purchase certain
properties. Amounts borrowed of $656,659 and $120,000 at December 31, 1998, bear
interest at a rate of 8.25% and 8% per annum, respectively. Amounts borrowed of
$831,659, $322,080, and $88,775 at January 31, 1998, bear interest at a rate of
9%, 8.5%, and 8% per annum, respectively. Amounts borrowed of $597,510 at
January 31, 1997, bear interest at a rate of 8% per annum. 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.
Aggregate annual principal payments for the next three years are: 1999 -
$260,000; 2000 - $140,000; 2001 - $376,659.
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 (7.75% at
December 31, 1998) and matures on November 21, 2000. As of December 31, 1998,
the outstanding balance related to this loan was $656,659. The loan was
established for the funding of the Thornbury development.
During the year ended January 31, 1997, the Partnership entered into a
construction loan agreement collateralized by a promissory note in an amount not
to exceed $1,600,000. The note bears interest at the prime rate and matured on
August 1, 1998. Outstanding balances were $-0- and $88,775 at December 31, 1998
and January 31, 1998, respectively. The loan was retired in the fourth quarter
of 1998. The loan was established for the funding of the Fairfax Meadows
development.
NOTE F - TRANSACTIONS WITH AFFILIATES
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 eleven months ended December 31, 1998 and
for the years ended January 31, 1998, 1997 and 1996 were $179,744, $236,014,
$357,122, and $853,097, respectively. The Partnership paid administrative fees
of $431,513, $212,664 and $853,097 during the years ended January 31, 1998, 1997
and 1996, respectively.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - TRANSACTIONS WITH AFFILIATES (continued)
Pursuant to a management agreement, Sunrise is paid a semi-annual development
fee equal to 4% of gross sales of the Partnership and the joint venture, Eaton
Estate, as compensation for its services in managing the development of the
partnership properties. Total development fees accrued for the eleven months
ended December 31, 1998 and for the years ended January 31, 1998, 1997 and 1996
were $467,929, $272,333, $580,304, and $449,754 respectively. The Partnership
paid development fees of $556,792, $250,641 and $449,754, respectively, during
the years ended January 31, 1998, 1997 and 1996, respectively.
In addition, real estate commissions equal to 3.5% of gross sales, payable to
FC-Granite accrued for the eleven months ended December 31, 1998, and for the
years ended January 31, 1998, 1997 and 1996, were $409,439, $238,291, $507,766
and $393,534, respectively. Real estate commissions paid during the years ended
January 31, 1998, 1997 and 1996, were $487,194, $219,311 and $393,534,
respectively.
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.
Total fees of $55,000 were accrued for the year eleven months December 31, 1998
and total fees of $60,000 were accrued for each of the years ended January 31,
1998 and 1997.
In addition, the Partnership is to receive a commission equal to 1.67% of gross
sales, as defined in the Amended and Restated Silver Canyon Partnership
agreement, as compensation for its services in conducting marketing and sales
duties and authorization of sales contracts. Commissions of $504,182, $453,965,
$192,588, and $98,759 were earned during the eleven months ended December 31,
1998, and for the years ended January 31, 1998, 1997 and 1996, respectively.
The Partnership has advanced $26,665,660 at December 31, 1998, $23,395,379 at
January 31, 1998 and $20,710,431 at January 31, 1997 to the Silver Canyon
Partnership (see Note H).
Interest earned on the advances were $2,327,615, $2,422,265, $2,058,260 and
$1,883,707 for the eleven months ended December 31, 1998, and for the years
ended January 31, 1998, 1997 and 1996 respectively, and was recorded as deferred
income. During the eleven months ended December 31, 1998, and for the years
ended January 31, 1998, 1997 and 1996, $1,508,044, $750,624, $644,104, and
$87,084 of the deferred income has been recognized as interest income.
FC-Granite purchased $9,000,000 of the Senior Notes and 9,000 of the warrants.
As of January 31, 1995, FC-Granite sold $9,000,000 of the Senior Notes to other
investors. During the year ended January 31, 1997, FC-Granite exercised the
9,000 warrants.
During the eleven months ended December 31, 1998, Sunrise loaned the Partnership
$2,395,951 to fund additional development expenditures at the Silver Canyon
project. Total interest of
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - TRANSACTIONS WITH AFFILIATES (continued)
$154,054 at a fixed rate of 10% has been accrued during the eleven months ended
December 31, 1998.
During the eleven months ended December 31, 1998, Eaton Estate Partnership
loaned the Partnership $2,580,890 to fund additional development expenditures at
the Silver Canyon project. Total interest of $143,830 at a fixed rate of 10% has
been accrued during the eleven months ended December 31, 1998.
Included in restricted cash equivalents and deposits at January 31, 1998 and
1997 is $481,287 and $3,124,950, respectively, which represents sales proceeds
invested on behalf of Eaton Estate Partnership in short-term commercial paper.
The funds, together with interest earned, were returned to the Eaton Estate
Partnership during the eleven months ended December 31, 1998.
NOTE G - GAIN ON SALE OF PARTNERSHIP INTEREST
Silver Canyon, a Nevada limited partnership, was originally owned 55% by the
Partnership and 45% by Silver Canyon Corporation ("SCC"). On January 30, 1996,
the Partnership sold 21 2/3% interest in Silver Canyon (the "Partnership
Interest") to American Nevada Seven Hills Limited Partnership, a Nevada limited
partnership and subsidiary of American Nevada Corporation, a Nevada corporation
("ANC"), for $2,990,000. The Partnership recorded a gain of $2,144,190 on the
sale of the Partnership Interest during the year ended January 31, 1996.
NOTE H - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
Through January 30, 1996, the Partnership had a 55% interest in Silver Canyon
Partnership. On January 30, 1996, the Partnership sold 21 2/3% of its
Partnership interest in the Silver Canyon Partnership to ANC. Prior to the sale,
the Partnership's investment in Silver Canyon Partnership at January 31, 1996
and 1995, was $2,147,055 and $1,808,461, respectively. Subsequent to the sale,
the Partnership's investment in Silver Canyon Partnership at January 31, 1996
was $1,301,245. Pursuant to the Amended and Restated Partnership Agreement,
subsequent to the sale the Partnership has a 33 1/3% interest in Silver Canyon
Partnership. The Partnership's investment in Silver Canyon Partnership at
December 31, 1998 and January 31, 1998 and 1997 was $4,740,318, $4,003,748 and
$2,929,217, respectively.
In addition, the Partnership has a 30% interest in Eaton Estate Partnership. The
Partnership's investment in Eaton Estate Partnership at December 31, 1998, and
January 31, 1998 and 1997, was $2,454,662, $2,546,597 and $2,332,049,
respectively. The Partnership has also received a distribution of $750,000 from
Eaton Estates.
The Partnership has also advanced $26,665,660 at December 31, 1998,
$23,395,379 at January 31, 1998 and $20,710,431 at January 31, 1997 to the
Silver Canyon Partnership. Pursuant to the Amended and Restated Partnership
Agreement for the Silver Canyon Partnership, the
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE H - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)
Partnership's original obligation to make loans to Silver Canyon Partnership was
capped at $19,443,198. The agreement also provides that the Partnership is to
provide up to two-thirds of $9,000,000 as additional loans as funds are
required. 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 December 31,
1998). Shown below is summarized financial information relative to the joint
ventures, Silver Canyon Partnership and Eaton Estate Partnership.
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1998 1998 1997
--------------- ------------ -------------
<S> <C> <C> <C>
Balance Sheet
- - -------------
Assets, primarily $ 72,781,623 $65,400,486 $ 63,987,341
undeveloped land
Liabilities, primarily 56,054,962 $49,499,560 49,202,632
long-term debt --------------- ----------- -------------
Partners' equity 16,726,661 15,900,926 14,784,709
Less: Outside partners'
equity 9,532,331 9,350,581 9,523,443
--------------- ----------- -------------
Investment in Joint $ 7,194,330 $ 6,550,345 $ 5,261,266
Ventures =============== =========== =============
Operating Results
- - -----------------
Revenues 8,175,060 7,848,137 7,094,772
Expenses 4,849,325 4,232,777 3,238,009
--------------- ----------- -------------
Net Income $ 3,325,735 $ 3,615,360 $ 3,856,763
=============== =========== =============
</TABLE>
For the eleven months ended December 31, 1998, the Silver Canyon Partnership
generated income of $1,132,184 of which $735,920 has been recorded by the
Partnership under the equity method. For the year ended January 31, 1998, the
Silver Canyon Partnership generated income of $1,653,124, of which $1,074,531
has been recorded by the Partnership under the equity method. For the year ended
January 31, 1997, the Silver Canyon Partnership income of $2,595,760, of which
$1,627,972 has been recorded by the Partnership under the equity method.
For the year ended December 31, 1998, the Eaton Estate Partnership generated
income of $2,193,551 of which $658,065 has been recorded by the Partnership
under the equity method. For the year ended January 31, 1998, the Eaton Estate
Partnership generated income of $1,962,236 primarily from the proceeds from
sales of developed property offset by real estate taxes, commissions, interest
and other miscellaneous expenses, of which $588,671, has been recorded by the
Partnership under the equity method. For the year ended January 31, 1997, the
Eaton Estate Partnership generated income of $1,261,003 of which $378,301 has
been recorded by the Partnership under the equity method.
NOTE I - PARTICIPATION IN CASH FLOWS
Once the senior notes payable and partners' special units have been paid in full
and the capital accounts of the general and limited partners have been repaid,
FC-Granite will receive distributions of 25% of available cash, as defined. No
amounts are due under the terms of this participation.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE J - 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 at December 31, 1998, 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
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.
NOTE K - CHANGE IN YEAR END
In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
<TABLE>
The following table presents certain financial information for the eleven months
ended December 31, 1998 and 1997, respectively:
<CAPTION>
NOTE K - CHANGE IN YEAR END (continued)
Eleven months ended
December 31,
----------------------------------
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
REVENUES
Operating income $4,795,653 $3,694,333
EXPENSES
Interest 3,953,210 3,823,488
Fees, partners 1,057,112 539,733
Real estate taxes 73,012 197,712
Operating and other 426,826 158,037
Amortization 453,595 627,151
------------- -------------
Subtotal 5,963,755 5,346,121
------------- -------------
INCOME FROM JOINT VENTURES 1,394,635 981,250
------------- -------------
NET INCOME (LOSS) $ 226,533 $ (670,538)
============= =============
</TABLE>
NOTE L - RESTATEMENT OF THIRD QUARTER - UNAUDITED
The third quarter ended October 31, 1998 has been restated to reflect the
correction of the computation of cost of sales in the Silver Canyon Partnership.
This error was identified during the fourth quarter of 1998.
The restatement relates to the allocation of certain net development costs to
land sales. These adjustments to cost of sales had the affect of reducing cost
of sales and increasing net income for the third quarter of 1998 by $668,850.
The following table summarizes the impact to the amounts previously reported:
<TABLE>
UNAUDITED
----------------------------------------------------------------
For the For the nine
three months For the months ended For the nine
ended three October 31, months ended
October 31, months ended 1998 October 31,
1998 as October 31, as previously 1998
previously 1998 reported as restated
reported as restated
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total Partners'
Equity $(1,242,592) $ (573,742) $(1,670,703) $(1,001,853)
Income from
Joint Ventures $ (36,759) $ 632,091 $ (120,064) $ 548,786
Net Income $(1,242,592) $ (573,742) $(2,842,101) $(2,173,251)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
To the Partners of
Silver Canyon Partnership
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' equity and of cash flows present fairly, in all
material respect, the financial position of Silver Canyon Partnership (A Nevada
General Partnership) as of December 31, 1998, January 31, 1998, and January 31,
1997, and the results of its operations and its cash flows for the eleven month
period ended December 31, 1998, and for each of the years ended January 31,
1998, 1997, and 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers, LLP
-------------------------------
PricewaterhouseCoopers, LLP
Cleveland, Ohio
March 31, 1999
<PAGE>
<TABLE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
BALANCE SHEETS
<CAPTION>
December 31, January 31, January 31,
------------- ------------ -------------
1998 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
LAND $ 14,230,638 $18,354,050 $ 21,202,006
LAND IMPROVEMENTS 44,505,628 32,650,268 30,007,910
------------- ------------ -------------
58,736,266 51,004,318 51,209,916
RESTRICTED CASH 157,111 1,465,311 189,666
MORTGAGE NOTES RECEIVABLE 963,032 963,032 963,032
OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of $442,793 at December 31, 1998,
$387,328 at January 31, 1998 and $220,931 at
January 31, 1997 - 55,465 221,862
Organization costs, net of accumulated amortization
amortization of $144,577 at December 31, 1998,
$110,366 at January 31, 1998 and $73,312
January 31, 1997 49,159 93,817 152,850
Fixed assets, net of accumulated depreciation
of $10,973 at December 31, 1998, $8,738
at January 31, 1998 and $6,096 at January 31, 1997 3,362 5,597 8,239
Cash 974,322 1,604,418 302,081
Accounts receivable 3,208,392 - -
Funds in escrow 583,218 1,002,007 1,311,087
Other assets - 143,756 137,689
------------- ------------ -------------
4,818,453 2,905,060 2,133,808
------------- ------------ -------------
$64,674,862 $ 56,337,721 $ 54,496,422
============= ============ =============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
BALANCE SHEETS (continued)
<CAPTION>
December 31, January 31, January 31,
------------- ------------- ------------
1998 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
LIABILITIES AND
PARTNERS' EQUITY
LOAN PAYABLE - GMAC $ 350,972 $ 5,751,820 $14,672,880
LOAN PAYABLE - GRANITE 26,665,660 23,395,379 20,710,431
LOAN PAYABLE - ANC 5,476,514 3,427,393 2,140,336
OTHER LIABILITIES
Accounts payable, trade 5,331,990 3,767,765 3,290,935
Accounts payable, management fee 205,000 150,000 326,667
Accrued interest payable 10,254,842 7,559,778 5,099,891
Accrued development fees, partners 2,557,055 1,484,805 666,013
Accrued commissions - - 78,109
Accrued expenses - - 107,960
Accrued salaries 132,946 132,946 211,551
Accrued real estate taxes 4,123 - 33,063
Deposits 4,180,866 1,936,125 430,000
Deferred income 400,000 750,000 400,000
------------- ------------- ------------
23,066,822 15,781,419 10,644,189
ADVANCE TO PARTNER (580,000) (580,000) (580,000)
PARTNERS' EQUITY 9,693,894 8,561,710 6,908,586
------------- ------------- ------------
9,113,894 7,981,710 6,328,586
------------- ------------- ------------
$ 64,673,862 $ 56,337,721 $ 54,496,422
============= ============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENTS OF OPERATIONS
<CAPTION>
For the 11 months For the year For the year For the year
ended ended ended ended
December 31, January 31, January 31, January 31,
1998 1998 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Sales of developed property $31,791,859 $ 23,911,279 $ 15,028,556 $ 2,941,692
Grading revenue - - 210,426 87,637
Cost of sales (26,599,980) (18,957,867) (10,693,499) (1,768,314)
------------ ------------- ------------- ------------
5,191,879 4,953,412 4,545,483 1,261,015
Other (46,778) 194,290 180,373 132,033
------------ ------------- ------------- ------------
5,145,101 5,147,702 4,725,856 1,393,048
------------ ------------- ------------- ------------
EXPENSES
Interest expense - - - 221
Fees, partners 110,000 120,000 120,000 75,000
Commissions 2,909,047 2,546,330 1,054,765 126,976
Salaries and benefits - - 78,605 35,893
Legal and professional 410,404 72,126 132,131 95,842
Travel and entertainment 36,303 53,679 56,398 106,703
Operating and other 455,252 496,351 502,164 231,215
Depreciation and amortization 91,911 206,092 186,033 105,573
------------ ------------- ------------- ------------
4,012,917 3,494,578 2,130,096 777,423
------------ ------------- ------------- ------------
NET INCOME $ 1,132,184 $ 1,653,124 $ 2,595,760 $ 615,625
============ ============= ============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<CAPTION>
Granite
Silver
Silver Development American
Canyon Partners, Nevada
Corporation L.P. Corporation Total
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 31, 1995 $1,888,740 $ 1,808,461 $ - $ 3,697,201
Net income 277,031 338,594 - 615,625
----------- ------------- ------------ ------------
Subtotal 2,165,771 2,147,055 - 4,312,826
Purchase of partnership
interest by ANC (561,496) (845,810) 1,407,306 -
----------- ------------- ------------ ------------
Subtotal 1,604,275 1,301,245 1,407,306 4,312,826
Advance to Partner (580,000) - - (580,000)
----------- ------------- ------------ ------------
Balance at January 31, 1996 1,024,275 1,301,245 1,407,306 3,732,826
Net income 905,397 1,627,972 62,391 2,595,760
----------- ------------- ------------ ------------
Balance at January 31, 1997 1,929,672 2,929,217 1,469,697 6,328,586
Net income 578,593 1,074,531 - 1,653,124
----------- ------------- ------------ ------------
Balance at January 31, 1998 2,508,265 4,003,748 1,469,697 7,981,710
Net income for the eleven months 396,264 735,920 - 1,132,184
----------- ------------- ------------ ------------
Balance at December 31, 1998 $2,904,529 $ 4,739,668 $ 1,469,697 $ 9,113,894
=========== ============= ============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENTS OF CASH FLOW
<CAPTION>
For the 11 months For the year For the year For the year
ended ended ended ended
December 31, January 31, January 31, January 31,
1998 1998 1997 1996
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Cash Flow from Operating Activities
Net income $1,132,184 $1,653,124 $2,595,760 $615,625
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 91,911 206,092 186,033 105,573
Write off of organization costs 10,447 21,980 28,988 -
Changes in operating assets and liabilities:
(Increase) decrease in land and land
improvements (7,730,948) 205,598 (143,831) (15,537,736)
Decrease (increase) in mortgage notes receivable - - 574,749 (1,537,781)
Decrease (increase) in restricted cash 1,308,200 (1,275,645) 30,269 (219,935)
Increase in accounts receivable (3,208,392) - - -
Increase in organization costs - - - (64,623)
Decrease in accounts receivable - - - 43,048
Decrease (increase) in funds in escrow 418,789 309,080 (641,087) (670,000)
Decrease (increase) in other assets 143,756 (6,067) (89,305) (46,198)
Increase (decrease) in accounts
payable - trade 1,564,225 476,830 1,842,905 (2,442,159)
Increase (decrease) in accounts
payable - management fee 55,000 (176,667) 326,667 (81,250)
Increase in accrued interest 2,695,064 2,459,887 2,165,975 2,033,293
Increase (decrease) in accrued
development fees, partners 1,072,250 818,792 666,013 (402,133)
(Decrease) increase in accrued commissions - (78,109) 78,109 -
(Decrease) increase in accrued expenses - (107,960) 107,960 -
(Decrease) increase in accrued salaries - (78,605) 78,605 132,946
Increase (decrease) in accrued real estate taxes 4,123 (33,063) (36,161) (87,188)
Increase (decrease) in deposits 2,244,741 1,506,125 (175,000) 605,000
(Decrease) increase in deferred income (350,000) 350,000 400,000 -
---------- ------------ ---------- ----------
Net cash provided by (used in)
operating activities (548,650) 6,251,392 7,996,649 (17,553,518)
---------- ------------ ---------- ----------
Cash Flow from Financing Activities:
Repayment of mortgage loans payable - - - (10,071,290)
Repayment of notes payable - - - (3,191,074)
Proceeds from loan payable - GMAC 13,400,345 13,020,447 12,849,355 24,185,691
Repayment of loan payable - GMAC (18,801,193) (21,941,507)(22,362,166) -
Proceeds from loan payable - GRANITE 3,270,281 2,684,948 1,267,233 6,058,962
Proceeds from loan payable - ANC 2,049,121 1,287,057 490,336 1,650,000
Increase in mortgage procurement costs - - (112,793) (330,000)
Advance to partner - - - (580,000)
---------- ------------ ---------- ----------
Net cash (used in) provided by financing
activities (81,446) (4,949,055) (7,868,035) 17,722,289
Increase in cash (630,096) 1,302,337 128,614 168,771
Cash at beginning of the period 1,604,418 302,081 173,467 4,696
---------- ------------ ---------- ----------
Cash at end of the period $ 974,322 $ 1,604,418 $ 302,081 $ 173,467
========== ============ ========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $666,318 $1,460,278 $2,345,627 $1,778,518
Real estate taxes $343,680 $178,847 $166,876 $248,445
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- - ------------
Silver Canyon Partnership ("the Partnership"), was formed on January 7, 1994 to
acquire, own, plan, develop, operate, improve, ease, manage, sell, finance and
refinance and otherwise deal with Partnership properties located in Henderson,
Nevada. The Partnership will terminate on December 31, 2013 or earlier upon
disposition of assets.
The original partners include Granite Silver Development Partners, L.P., a
Delaware Limited Partnership ("Granite"), and Silver Canyon Corporation, a
Nevada Corporation ("SCC"). SCC made an initial capital contribution of land
with an assigned value agreed upon by the partners of $4,500,000. As of January
31, 1995, Granite made a total initial cash capital contribution of $2,250,000.
The cash from Granite's contribution was distributed to SCC. Through January 30,
1996, Granite owned a 55% interest and SCC owned a 45% interest in the
Partnership. On January 30, 1996, Granite sold to American Nevada Corporation
("ANC") a 21 2/3% partnership interest in the Partnership. SCC sold to ANC a 11
2/3% partnership interest in the Partnership. Upon the execution of the Amended
and Restated Partnership Agreement, ANC acquired interests in the Partnership
representing in the aggregate a 33 1/3% interest.
Profits, losses and distributions are allocated to the partners as provided in
the Amended and Restated Partnership Agreement.
Land Sales
- - ----------
The Partnership follows the provisions of Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", for reporting the
disposition of properties.
Land and Land Improvements
- - --------------------------
Land and land improvements are recorded at cost. Upon sale, costs will be
reported in cost of sales on the basis of the relative sales value of each
parcel. Land held for sale is recorded at the lower of carrying amount or fair
value less cost to sell.
Restricted Cash
- - ---------------
Pursuant to the loan agreement with General Motors Acceptance Corporation
Residential Funding Corporation ("GMAC"), a restricted cash account was
established to pay qualified project expenditures as determined by GMAC.
Mortgage Procurement Costs
- - --------------------------
Mortgage procurement costs are being amortized over the life of the debt.
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Organization Costs
- - ------------------
Costs incurred in connection with the organization of the Partnership are
deferred and amortized over five years using the straight-line method.
Fixed Assets
- - ------------
Fixed assets are recorded at cost. Depreciation is provided on a straight-line
basis over the estimated useful lives of owned assets.
Income Taxes
- - ------------
No provision or benefit for income taxes is included in the financial
statements. Income taxes, if any, are the responsibility of the individual
partners.
Estimates
- - ---------
The Partnership is required to make estimates and assumptions when preparing its
financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Deferred Income
- - ---------------
Deferred income consists of revenue from sales recorded on an option basis. The
deferred income related to sales recorded on an option basis will be recognized
when the last option pertaining to the sale of a parcel is exercised.
Fair Value of Financial Instruments
- - -----------------------------------
The Partnership's financial instruments consists principally of cash, restricted
cash, mortgage notes receivable, accounts receivable, accounts payable and
accrued expenses in which the fair value of these financial instruments
approximate the carrying value. The Partnership determined the estimated fair
value of its debt by aggregating the various types (i.e. fixed rate versus
variable rate debt) and discounting future cash payments at interest rates that
the Partnership believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the
Partnership's total debt.
Change in Fiscal Year End
- - -------------------------
In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE B - LOAN PAYABLE - GMAC
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 December 31, 1998). Interest on the outstanding principal
balance is due and payable monthly in arrears. The loan was due on June 7, 1998.
The loan was extended to September 15, 1998. The Partnership has an agreement
with Residential Funding Corporation to postpone the final payment of the
balance due until new financing is secured. The outstanding balance due as of
December 31, 1998 was $350,972. 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 bears interest at 1% above
prime rate (7.75% at December 31, 1998). Effective January 28, 1999, the
Partnership refinanced the loan. (See Note F).
NOTE C - TRANSACTIONS WITH AFFILIATES
Granite, SCC, and ANC are reimbursed for all direct costs of operations of the
Partnership's affairs and development activities.
Pursuant to the Amended and Restated Silver Canyon Partnership Agreement,
Granite is to receive a monthly administrative fee in the amount of $5,000 per
month. Total fees of $55,000 were accrued for the eleven months ended December
31, 1998 and total fees of $60,000 were accrued for each of the years ended
January 31, 1998 and January 31, 1997.
Granite was paid a monthly administrative fee of $6,250 as compensation for its
services in administering the business of the Partnership through January 31,
1996. Total administrative fees incurred and paid for the year ended January 31,
1996 were $75,000.
Pursuant to the Amended and Restated Silver Canyon Partnership agreement, SCC is
to receive a monthly fee of $5,000 per month for the coordination of the
construction and operation of the golf course. Total fees of $55,000 were
accrued for the eleven months ended December 31, 1998 and total fees of $60,000
were accrued for each of the years ended January 31, 1998 and January 31, 1997.
Pursuant to the Amended and Restated Partnership Agreement, as of January 31,
1996, American Nevada Corporation ("ANC") will be paid a fee equal to 4% of all
project costs, as defined, incurred on behalf of the Partnership, as
compensation for its services in managing the development of the Partnership
Properties. Total development fees incurred for the eleven months ended December
31, 1998, and the years ended January 31, 1998 and January 31, 1997 were
$2,382,055, $1,364,805, and $606,013 respectively.
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE C - TRANSACTIONS WITH AFFILIATES (continued)
Development fees incurred are capitalized to land held for development and
written off through cost of sales as sales of developed properties occur.
In addition, ANC shall be paid a fee equal to 4.5% of gross production sales and
6.5% of gross estate sales as compensation for its services in conducting
marketing and sales duties and authorization of sales contracts. Total fees
earned and paid to ANC for the eleven months ended December 31, 1998, and the
years January 31, 1998 and January 31, 1997 were $1,531,546, $1,317,755 and
$695,337, respectively. Also, in consideration of substantial pre-marketing
activities undertaken by SCC and other marketing activities performed by
Granite, each is to be paid a marketing fee of one percent of gross sales. For
the eleven months ended December 31, 1998, marketing fees earned by and paid to
SCC and Granite were $353,890 and $504,182, respectively. For the year ended
January 31, 1998, marketing fees earned by and paid to SCC and Granite were
$361,541 and $453,965, respectively. For the year ended January 31, 1997,
marketing fees earned and paid to SCC and Granite were $166,840 and $192,588,
respectively.
Granite has advanced $26,665,660 at December 31, 1998, $23,395,379 at January
31, 1998 and $20,710,431 at January 31, 1997 to the Partnership. Pursuant to the
Amended and Restated Partnership Agreement for the Silver Canyon Partnership,
Granite's original obligation to make loans to Silver Canyon Partnership was
capped at the current level of funding at January 31, 1996. The agreement also
provides that Granite is to provide up to two-thirds of $9,000,000 as additional
loans as funds are required. Pursuant to the agreement, Granite loaned the
Partnership an additional $3,270,280, $2,684,948 and $1,267,233 during the
eleven months ended December 31, 1998, and the years ended January 31, 1998 and
1997, respectively. 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
December 31, 1998). In accordance with the Amended and Restated Partnership
Agreement, the loans have no maturity date and will be repaid through the
distribution of cash flow. Total interest incurred on the loans amounted to
$2,327,615, $2,239,532, $2,058,260, and $1,883,707 for the eleven months ended
December 31, 1998 and the years ended January 31, 1998, 1997, and 1996,
respectively.
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.
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE C - TRANSACTIONS WITH AFFILIATES (continued)
Pursuant to the Amended and Restated Partnership Agreement, the Partnership
advanced to SCC $580,000 on January 31, 1996. The advance is non-interest
bearing and will be repaid from future cash flow distributions. Accordingly, the
advance has been reflected as a reduction of the partners' equity.
In addition, pursuant to the Amended and Restated Partnership Agreement, ANC
loaned to the Partnership $1,650,000 as of January 31, 1996. The loan bears
interest at one and three-fourths percent above the prime rate and will be
repaid through the distribution of cash flow. The agreement also provides that
ANC is to provide up to one-third of $9,000,000 as additional loans as funds are
required. Pursuant to the agreement, ANC loaned the Partnership an additional
$2,049,121, $1,287,057 and $490,336 during the years ended December 31, 1998
and, January 31, 1998 and 1997, respectively.
NOTE D - CAPITALIZED INTEREST AND REAL ESTATE TAXES
Interest expense and real estate tax expense allocated to land held for
development is capitalized. For the eleven months ended December 31, 1998, and
for the years ended January 31, 1998 and 1997, total interest charges were
$3,397,733, $3,920,165 and $4,511,602 of which $3,397,733, $3,920,165 and
$4,511,60 were capitalized respectively . For the eleven months ended December
31, 1998 and for the years ended January 31, 1998 and 1997, total real estate
taxes were $347,803, $145,784 and $104,601, respectively, of which $347,803,
was capitalized at December 31, 1998, $145,784 was capitalized at January 31,
1998 and $104,601 was capitalized at January 31, 1997.
NOTE E - LITIGATION
In August 1997, a class-action lawsuit was filed by the current homeowners in
Seven Hills against the Partnership, 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. 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>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - CHANGE IN YEAR END
In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.
The following table presents certain financial information for the eleven months
ended December 31, 1998 and 1997, respectively:
<TABLE>
Eleven months ended
December 31,
----------------------------------
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
REVENUES
Operating income $5,145,101 $4,952,437
EXPENSES
Fees, partners 110,000 110,000
Commissions 2,909,047 2,381,683
Legal and professional 410,404 33,406
Travel and entertainment 36,303 50,636
Operating and other 455,252 456,277
Depreciation and amortization 91,911 188,875
------------- ------------
Subtotal 4,012,917 3,220,877
------------- ------------
NET INCOME $1,132,184 $1,731,560
============= ============
</TABLE>
NOTE G - ACCOUNTS RECEIVABLE
On December 31, 1998, two land sales took place which resulted in an increase in
accounts receivable. Net proceeds from one of the land sales were remitted to
GMAC, resulting in an overpayment to GMAC of $2,208,392. The funds were returned
to the Partnership on January 15, 1999. The other transaction involves a
$1,000,000 land sale receivable which is due to the Partnership by July, 1999.
<PAGE>
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE H - SUBSEQUENT EVENT
On January 28, 1999, the Partnership entered into a Development Loan agreement
with Ohio Savings Bank of Cleveland (OSB). The loan, which is to be in the form
of a revolving line of credit, is not to exceed the maximum principal amount of
twelve million dollars and the maximum loan proceeds disbursed during the term
of the loan shall not exceed $35,858,758. Amounts borrowed bear interest at a
rate of one percent above the prime rate. The loan will mature on January 28,
2001. The loan agreement contains two debt service coverage ratios, which
requires the Partnership to maintain a certain level of net worth. Had the loan
agreement been outstanding at December 31, 1998, the Partnership would have been
in compliance with the covenants. This development loan replaces the GMAC loan
which was paid off in full on January 6, 1999.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- - -----------------------------------------------------------------------------
None
PART III
Item 10. Directors and Executive Officers of the General Partner of the
Registrant
- - -------------------------------------------------------------------------------
The following table sets forth the names of the officers and directors of
the General Partner:
NAME OFFICE
Robert F. Monchein President
Samuel H. Miller Vice President, Director
Thomas G. Smith Secretary
Nathan Shafran Treasurer
Albert B. Ratner Director
Charles A. Ratner Director
Robert F. Monchein, age 54, is the President of the General Partner and
Sunrise. Mr. Monchein joined Forest City in 1979 and assumed the office of
President of Sunrise in 1983.
Samuel H. Miller, age 77, is the Vice President of the General Partner
and Sunrise. Mr. Miller is also a director of the General Partner and
Sunrise. Mr. Miller joined Forest City in 1945 and assumed the office of
Vice President of Sunrise in 1986.
Thomas G. Smith, age 58, is the Secretary of the General Partner. Mr.
Smith joined Forest City in 1985 as Senior Vice President and Chief Financial
Officer.
Nathan Shafran, age 85, is the Treasurer of the General Partner. Mr.
Shafran joined Forest City in 1939 and is currently Vice Chairman of the
Board of Directors.
Albert B. Ratner, age 71, is a Director of the General Partner and
Sunrise. Mr. Ratner joined Forest City in 1951 and has served as Chief
Executive Officer and Vice Chairman of the Board since 1993. Mr. Ratner is
also a director of American Greetings Corporation.
Charles A. Ratner, age 57, is a Director of the General Partner. Mr.
Ratner joined Forest City in 1966 and has served as its President and Chief
Operating Officer since 1993.
<PAGE>
Item 11. Executive Compensation
- - --------------------------------
The officers and directors of the General Partner are neither employed by
nor compensated by the Partnership. All compensation paid to affiliates of the
General Partner are defined in a management agreement between the Partnership
and Sunrise Land Company, an affiliate of the General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- - ------------------------------------------------------------------------
None
Item 13. Certain Relationship and Related Transactions
- - -------------------------------------------------------
There are certain family relationship among the executive officers of
Forest City, Sunrise and the General Partner. Charles A. Ratner is the brother
of James A. Ratner and Ronald A. Ratner, and the cousin of Albert B.
Ratner.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- - --------------------------------------------------------------------------
(a) (1) The following financial statements of Granite Development
Partners, L.P. and the report of the independent accountants are
included in Part II, Item 8:
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 1998, January 31, 1998 and 1997.
Statements of Operations for the eleven months ended December
31, 1998, and for the years ended January 31, 1998, 1997, and
1996. Statements of Changes in Partners' Deficit for the
eleven months ended December 31, 1998 and for the years ended
January 31, 1998, 1997, and 1996. Statements of Cash Flows for
the eleven months ended December 31, 1998 and for the years
ended January 31, 1998, 1997, and 1996. Notes to the Financial
Statements
(a) (2) The following financial statements of Silver Canyon Partnership
and the report of the independent accountants are included:
Report of Independent Accountants
<PAGE>
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(continued)
Financial Statements:
Balance Sheets - December 31, 1998 and January 31, 1998 and
1997. Statements of Operations for the eleven months ended
December 31, 1998 and for the years ended January 31, 1998,
1997, and 1996. Statements of Changes in Partners' Equity for
the eleven months ended December 31, 1998 and for the years
ended January 31, 1998, 1997, and 1996. Statements of Cash
Flows for the eleven months ended December 31, 1998 and for
the years ended January 31, 1998, 1997, and 1996. Notes to
Financial Statements.
(a) (3) The following financial statement schedules are included in Part
IV, Item 14(d):
Schedule III - Real Estate and Accumulated Depreciation
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(a) (4) Exhibits:
No. 3.1 Summary of the Partnership Agreement of Limited
Partnership adopted November 15, 1993 was filed with the
Registration Statement on Form S-11 filed with the
Commission on November 4, 1994 and is hereby
incorporated by reference.
No. 4.1 The Prospectus for the S-11 offering of 36,000
warrants and partnership units and the Prospectus for
the S-4 Offer to Exchange Senior Notes was filed with
the Commission on November 4, 1994 and is hereby
incorporated by reference.
No. 5.1 The Prospectus for the Post-Effective Amendment No. 1
to the Registration Statement on Form S-11 was filed
with the Commission on September 6, 1996 and is
hereby incorporated by reference.
(b) Reports on Form 8-K
A current report on Form 8-K dated December 16, 1998, was filed to
report the company's change is fiscal year-end.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 1999 /s/ Robert F. Monchein
-------------- ----------------------
Robert F. Monchein
President
FC-Granite, Inc., the general partner of
Granite Development Partners, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer: President, FC-Granite, Inc. Date: March 31, 1999
/s/ Robert F. Monchein the general partner of Granite
- - --------------------------- Development Partners, L.P.
Robert F. Monchein
Principal Financial and Controller, FC-Granite, Inc., Date: March 31, 1999
Accounting Officer the general partner of Granite
/s/ Mark A. Ternes Development Partners, L.P.
- - ------------------
Mark A. Ternes
/s/ Samuel H. Miller Vice President, Director Date: March 31, 1999
- - --------------------
Samuel H. Miller
/s/ Thomas G. Smith Secretary Date: March 31, 1999
- - -------------------
Thomas G. Smith
/s/ Nathan Shafran Treasurer Date: March 31, 1999
- - ------------------
Nathan Shafran
Director Date: March 31, 1999
- - --------------------
Albert B. Ratner
Director Date: March 31, 1999
- - ---------------------
Charles A. Ratner
<PAGE>
<TABLE>
Granite Development Partners, L.P.
Schedule I I I - Real Estate Owned
<CAPTION>
Cost capitalized
Amount of Initial cost subsequent to acquisition
encumbrance to Company ---------------------------
at December 31, ---------------------------- Carrying
Description of property 1998 Land Improvements Improvements Costs
- - ----------------------- --------------- ------------ ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Undeveloped land, North Miami Beach, Florida $ - $ 9,712,620 $ -
Developed and undeveloped land, Kirtland and
Kirtland Hills, Ohio 1,660,876 -
Undeveloped commercial land, Strongsville, Ohio 617,957 5,590
Undeveloped commercial land, Parma, Ohio 554,664 4,026
Undeveloped land, Middleburg Heights, Ohio 718,683 -
Undeveloped land, North Royalton, Ohio 232,049 239,512
Undeveloped land, Solon, Ohio 656,659 464,825 656,218
Undeveloped commercial land, North Olmsted, Ohio 305,923 24,091
Developed land, North Royalton, Ohio 160,397 660
Undeveloped land, Twinsburg, Ohio 1,179,875 234,085
Undeveloped land, Olmsted Falls, Ohio 1,102,526 -
Undeveloped land, Newbury Township, Ohio 460,842 117,854
Undeveloped land, Medina, Ohio 120,000 42,545 149,237
Undeveloped land, Medina, Ohio 131,382 -
Senior Notes Payable 36,000,000 -
------------------ ------------- ------------- -------------- ------------
$ 36,776,659 $ 17,345,164 $ - $ 1,431,273 $ -
================== ============= ============= ============== ============
Gross amount at which
carried at close of
December 31, 1998
---------------------------------------------
Description of property Land Improvements Total (A)
- - ----------------------- ------------ ------------ -----------
Undeveloped land, North Miami Beach, Florida $ - $ - $ -
Developed and undeveloped land, Kirtland and
Kirtland Hills, Ohio - - -
Undeveloped commercial land, Strongsville, Ohio 34,653 5,590 40,243
Undeveloped commercial land, Parma, Ohio 51,216 4,026 55,242
Undeveloped land, Middleburg Heights, Ohio - - -
Undeveloped land, North Royalton, Ohio 60,893 239,512 300,405
Undeveloped land, Solon, Ohio 549,317 656,218 1,205,535
Undeveloped commercial land, North Olmsted, Ohio 76,148 24,091 100,239
Developed land, North Royalton, Ohio 65,671 660 66,331
Undeveloped land, Twinsburg, Ohio 311,946 234,085 546,031
Undeveloped land, Olmsted Falls, Ohio - 117,854 -
Undeveloped land, Newbury Township, Ohio 143,222 149,237 261,076
Undeveloped land, Medina, Ohio 479,514 - 628,751
Undeveloped land, Medina, Ohio - - -
Senior Notes Payable -
------------------ ------------- -------------
$ 1,772,580 $ 1,431,273 $ 3,203,853
================== ============= =============
<FN>
(A) Land held by the unconsolidated joint ventures, included in Note H to the
financial statements, also encumbered by the senior notes payable totals $14,469,704.
(B) Reconciliations of total real estate carrying value are as follows:
</FN>
December 31, January 31,
1998 1998
------------------ -------------
Balance at beginning of period $ 6,360,771 $ 6,948,665
Additions during period -
Improvements 2,673,290 2,994,636
Other acquisition - -
------------------ -------------
9,034,061 9,943,301
Deductions during period -
Cost of real estate sold (5,830,208) (3,582,530)
------------------ -------------
Balance at end of period $ 3,203,853 $ 6,360,771
================== =============
</TABLE>
<PAGE>
<TABLE>
Silver Canyon Partnership
Schedule I I I - Real Estate Owned
<CAPTION>
Amount of Initial cost Cost capitalized
encumbrance to Company subsequent to acquisition
at December 31, ------------------------------- ------------------------------
Description of property 1998 Land Improvements Improvements Carrying Costs
- - ----------------------- ---------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Developed land, Henderson, Nevada $ 350,972 $ 23,323,784 $ 44,505,628
---------------- --------------- -------------- -------------- -------------
$ 350,972 $ 23,323,784 $ - $ 44,505,628 $ -
================ =============== ============== ============== =============
Gross amount at which
carried at close of
December 31, 1998
---------------------------------------------------
Description of property Land Improvements Total (A)
- - ----------------------- ---------------- --------------- --------------
Developed land, Henderson, Nevada $ 14,230,638 $ 44,505,628 $ 58,736,266
---------------- --------------- --------------
$ 14,230,638 $ 44,505,628 $ 58,736,266
================ =============== ==============
(A) Reconciliations of total real estate carrying value are as follows:
December 31, January 31,
1998 1998
---------------- ---------------
Balance at beginning of period $ 51,004,318 $ 51,209,916
Additions during period -
Improvements 32,701,498 16,803,009
Other acquisition - -
---------------- ---------------
83,705,816 68,012,925
Deductions during period -
Cost of real estate sold (24,969,550) (17,008,607)
---------------- ---------------
Balance at end of period $ 58,736,266 $ 51,004,318
================ ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1430607
<SECURITIES> 0
<RECEIVABLES> 2955344
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3203853
<DEPRECIATION> 0
<TOTAL-ASSETS> 51082266
<CURRENT-LIABILITIES> 0
<BONDS> 36776659
<COMMON> 0
0
0
<OTHER-SE> 1397281
<TOTAL-LIABILITY-AND-EQUITY> 51082266
<SALES> 0
<TOTAL-REVENUES> 4795653
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2010545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3953210
<INCOME-PRETAX> 225883
<INCOME-TAX> 0
<INCOME-CONTINUING> 225883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225883
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
