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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
[ X ] For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0330-080104
GRANITE DEVELOPMENT PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 34-1754061
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1250 Terminal Tower 50 Public Square Cleveland, Ohio 44113
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(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 Agreement to this
form 10-K. ( )
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. PAGE
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<S> <C>
Item 1. Business 3
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 5
PART II.
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Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 5
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
7A. Quantitative and Qualitative Disclosure About Marketing Risk 15
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 48
PART III.
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Item 10. Directors and Executive Officers of the
General Partner of the Registrant 48
11. Executive Compensation 48
12. Security Ownership of Certain Beneficial Owners
and Management 48
13. Certain Relationships and Related Transactions 49
PART IV.
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Item 14. Exhibits, Financial Statement Schedules and Reports
on form 8-K 49
</TABLE>
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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 ("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 changed its fiscal year end from January 31
to December 31.
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.
The Partnership is the owner of Granite Silver Development Partners, L.P.
the managing partner in Silver Canyon Partnership. Silver Canyon Partnership
("SC Partnership"), a Nevada limited partnership originally owned 55% by the
Partnership and 45% by Silver Canyon Corporation ("SCC"), is owner and developer
of Seven Hills, 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 Partnership ("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
Partnership ("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 SC Partnership.
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 Seven Hills, are not
expected to fully mature for another four 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.
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, remaining proceeds
will be returned to the senior note holders and the Partnership will be
dissolved and terminated.
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FORMATION OF THE PARTNERSHIP
All of the Partnership Properties have now been acquired and are in
various stages of development. These properties are 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, 1999:
<TABLE>
<CAPTION>
NAME DESCRIPTION
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<S> <C>
Day Drive Located in Parma, Ohio. Approximately nine (9) acres commercially zoned property
remain.
North Olmsted Industrial Located in North Olmsted, Ohio. Approximately 3.5 acres improved industrial
Park property.
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 one (1) acre single family lots
(Thornbury) 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 2,702 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. Five unimproved lots
remain.
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 141 single family residential
sublots of which 73 lots remain.
</TABLE>
Item 3. Legal Proceedings
The Partnership is involved in various 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. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff. Legal counsel of the Partnership filed a
motion for summary judgement which was denied on March 29, 1999. Trial is
scheduled for sometime in the trial session which started November 8, 1999.
In Henderson, Nevada, SC Partnership is developing the Seven Hills project next
to a golf course. Five lawsuits have been filed relating to the right to play on
the golf course. A class action lawsuit that was filed by the current homeowners
in the Seven Hills project against SC Partnership and the golf course
developers, among others, was settled in November 1999.
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The owner of the golf course had filed a cross-claim against the Partnership, SC
Partnership, and other entities. This lawsuit was settled in March 2000.
Certain production homebuilding companies at Seven Hills had also filed suits.
SC Partnership settled with one of these production home building companies in
March 2000. The remaining two suits have been settled in principal, but the
settlement documents have not been executed.
Sales efforts are continuing at the Seven Hills development and we do not
believe that the lawsuits that have been settled will significantly hinder those
sales efforts. We have paid or accrued approximately $6,600,000 in litigation
and legal expenses during 1999 related to the above lawsuits. We believe that
this will be the extent of the impact of these lawsuits on the financial
performance of SC Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the twelve
months ended December 31, 1999.
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.
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Item 6. Selected Financial Data
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<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
1999* 1998** 1997*** 1996**** 1995*****
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Gross Sales $ 4,709,680 $ 8,417,447 $ 5,709,083 $12,367,374 $ 7,035,769
Net (Loss) Income $(17,731,283) $(1,215,059) $ (357,213) $ 966,815 $ (158,487)
December 31, December 31, January 31, January 31, January 31,
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total assets $28,689,141 $49,641,324 $48,015,304 $50,492,484 $49,013,469
Land and land
Improvements $ 2,394,946 $ 3,203,853 $ 6,360,771 $ 6,948,665 $12,278,824
Restricted cash
Equivalents $ -- $ -- $ 481,287 $ 4,602,891 $ 1,308,453
Investments in and
Advances to joint
Ventures $21,983,937 $32,221,489 $29,748,165 $25,866,537 $22,686,561
Long-term debt,
Including mortgage
Debt $36,528,961 $36,776,659 $37,242,514 $36,910,472 $41,110,025
</TABLE>
* Fiscal 1999 results are for the year ended December 31, 1999
** 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
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
On December 15, 1998, the Granite Development Partners, L.P.
("Partnership") changed its 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 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 is the owner of Granite Silver Development Partners, L.P. the
managing partner in Silver Canyon Partnership. Silver Canyon Partnership also
changed its fiscal year end from January 31 to December 31 concurrently with the
Partnership. The Partnership's results of operations for the year ended December
31, 1999, the eleven months ended December 31, 1998, and the year ended January
31, 1998 include the Financial Results, accounted for on the equity basis, of
Eaton Estate Partnership for the years ended December 31, 1999, 1998, and 1997,
respectively, and Silver Canyon Partnership for the year ended December 31,
1999, the eleven months ended December 31, 1998 and the fiscal year ended
January 31, 1998 respectively. The financial results of Eaton Estates
Partnership, reflects twelve months of operations for all periods presented.
For the fiscal year ended December 31, 1999 and the eleven months ended
December 31, 1998, the Partnership reported net losses of $17,731,283 and
$1,215,059 respectively. The increase in net loss is primarily the result of the
following: a net loss from joint ventures of $9,670,001 for the year ended
December 31, 1999 versus $46,957 for the eleven month period ended December 31,
1998; the forgiveness of $3,800,771 of previously recognized interest income;
the forgiveness of $1,455,981 of previously recognized commission income; and
the forgiveness of $220,000 of administrative fee income. The forgiveness of
previously recognized fees is the result of an agreement ("Agreement") between
American Nevada Seven Hills Limited Partnership ("ANC") and the Partnership,
partners in Silver Canyon Partnership ("SC Partnership"), which modified certain
terms of the Silver Canyon Partnership Agreement.
The loss from joint ventures resulted primarily from a write down of
inventory to the SC Partnership's project, Seven Hills, to its realizable value.
The net decrease in capital for the year ended December 31, 1999 from the SC
Partnership was $15,376,439.
During the second quarter of 1999, ANC, the partner in SC Partnership
responsible for the on-site improvements in the Seven Hills project, identified
costs that would be incurred in excess of budget to complete the project. SC
Partnership engaged in an extensive review of project costs. This review
revealed net cost overruns in excess of thirty million dollars. These excess
costs resulted primarily from an increase in the scope of landscape and
greenbelt improvements for the balance of the property, as well as unanticipated
increases in parcel development costs. As a result of these excess costs, ANC
and the Partnership entered into the Agreement. The intent of the Agreement is
to result in a more equitable sharing of the excess costs by ANC and the
Partnership to minimize the impact of the identified costs in excess of budget
to complete the Seven Hills project and to preserve cashflow available to meet
the Partnership's obligations.
SC Partnership reduced its remaining land inventory by the amount of
$21,006,068 as a result of the excess costs which reflects an estimated project
gross margin of zero. On the SC Partnership Statement of Operations for the year
ended December 31, 1999, this adjustment was partially offset by a reduction in
operating expenses as a result of the Agreement. The
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Agreement required certain commissions previously earned and paid to the
partners of SC Partnership, and expensed by SC Partnership, to be reapplied as
repayment of the partners of SC Partnership's loans and capital. Interest earned
and paid to partners on loans, and expensed by the SC Partnership, were treated
the same. To minimize the impact of the excess costs, the partners will forfeit
all future commissions and interest. The results of the Agreement totaled
$11,164,980 and have been reflected in the financial statements.
Excess costs at the SC Partnership reduced the projects gross margin to
zero and caused the reversal of $14,163,313 of gross margins.
The Agreement's impact on the Silver Canyon Partnership Agreement includes the
following provisions:
1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to the SC
Partnership. Amounts previously paid will be deemed return of capital.
2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled.
3. The Partnership will fund any future settlement for the outstanding lawsuits
but will receive a priority distribution to cover such capital contribution.
4. After the priority distribution in #3, ANC and the Partnership will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.
5. Thereafter, the Partnership will receive all distributions until it has
recovered its entire capital account. To the extent the Partnership does not
recover its entire capital account, ANC will negotiate in good faith as to
whether ANC should fund one-half of the outstanding lawsuit in #3.
6. After the Partnership has recovered its entire capital account, ANC and the
Partnership will share all remaining distributions pari passu.
The following table summarizes the favorable impact of the Agreement to SC
Partnership as of December 31, 1999:
<TABLE>
<S> <C>
Land inventory adjustment $ 5,054,279
Fees and commissions adjustment 6,110,701
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Total adjustments $11,164,980
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</TABLE>
The following table summarizes the impact of the Agreement to the SC
Partnership Agreement as it relates directly to the Partnership as of December
31, 1999:
<TABLE>
<S> <C>
Land inventory adjustment at ownership $ 4,263,313
Fees and commissions adjustment at ownership 1,675,982
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Subtotal $ 5,939,295
Forgiveness of capitalized income recognized (3,800,771)
Forgiveness of commission income (1,455,981)
Forgiveness of administration fee income (220,000)
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Subtotal $(5,476,752)
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Total $ (462,543)
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</TABLE>
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The general partner of the Partnership is FC-Granite, Inc., an Ohio
corporation ("FC-Granite"). FC-Granite is a wholly-owned subsidiary of Sunrise
Land Company ("Sunrise"). As a result of the SC Partnership excess
costs and their impact on the Partnership, FC-Granite and Sunrise have forgiven
certain unpaid expenses as of June 30, 1999 and will not charge the Partnership
in the future. The following table summarizes the forgiven expenses:
<TABLE>
<S> <C>
Administrative fees to FC-Granite $ 77,123
Real estate commissions to FC-Granite 59,295
Development fees to Sunrise 67,765
Interest to Sunrise 84,476
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$288,659
========
</TABLE>
Sales of developed property for the year ended December 31, 1999 totaled
$4,709,680 versus $8,417,447 for the year eleven months ended December 31, 1998.
The following significant sales occurred in fiscal 1999: 1) 54 lots in the
Ledges development for $3,235,680; 2) 20 lots in the Fairfax development for
$1,026,000; 3) 7 single family sublots in Cambridge Park for $368,000; and 4) a
0.77 acre parcel of Drake Estates in Strongsville for $80,000. The decrease in
sales for fiscal 1999 versus fiscal 1998 is a result of a decrease in the amount
of developed land available for resale.
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.
Eaton Estate Partnership, a joint venture of the Partnership accounted for
under the equity method, reported sales of $1,560,000, $8,429,232, and
$7,257,167, for the years ended December 31, 1999, 1998, and 1997, respectively.
The level of sales activity is expected to decrease in fiscal year 2000 as there
is a limited amount of land remaining to be developed and sold.
The SC Partnership, a joint venture of the Partnership accounted for under
the equity method, reported sales of $29,431,179 for the year ended December 31,
1999, versus sales of $31,791,859 for the eleven months ended December 31, 1998
and sales of $23,911,279, for the year ended January 31, 1998. The level of
sales activity is expected to remain strong in fiscal 2000.
As of December 31, 1999, the following significant sales were under
contract: four lots in the Fairfax subdivision in Medina, Ohio for $172,000 and
91 lots within the Silver Canyon development in Henderson, Nevada for
$3,497,526. These contracts closed during the first quarter of 2000.
Interest income totaled $954,398 for the year ended December 31, 1999
versus $1,452,474 for the eleven months ended December 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 SC Partnership was being deferred and recognized as sales
occur. The decrease in interest income in fiscal 1999 is mainly due to the
decrease in the recognition of deferred interest income related to SC
Partnership sales. As a
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result of the Agreement, interest of $3,800,771 earned in this year and in
previous years has been reapplied as repayment of partner loans and capital.
Interest income earned on funds advanced to the SC Partnership that was
previously deferred has been reversed in the year ending December 31, 1999.
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. The increase in
interest income in fiscal 1998 is mainly attributable to an increase in the
recognition of deferred interest income related to the funds advanced to the
Partnership of $1,508,044 for the eleven months ended December 31, 1998 versus
$750,624 for the year ended January 31, 1998. This was partially offset by a
decrease in interest on mortgage notes receivable of $345,149 over prior year.
Commission income of $189,448 and $504,182 was recorded for the year ended
December 31, 1999 and the eleven months ended December 31, 1998, respectively.
Commission income earned during this year and in prior years, from the SC
Partnership, in the amount of $1,455,981 which as forgiven in 1999, has been
reapplied as repayment of partner loans and capital. Commission income of
$453,965 was recorded for the year ended January 31, 1998.
Other income totaled $110,187 for the year ended December 31, 1999 versus
$359,984 for the eleven months ended December 31, 1998. Other income is mainly
comprised of deferred development fees and management fees related to the SC
Partnership. Development fee income earned during this year and in prior years
in the amount of $220,000, which was forgiven in 1999, has been reapplied as
repayment of partners loans and capital.
Other income totaled $359,984 for the eleven months ended December 31,
1998 versus $352,173 for the year ended January 31, 1998. Included in the income
are development fees of $317,962 and $290,685 for the eleven months ended
December 31, 1998 and for the year ended January 31, 1998, respectively.
The interest, commission, and development fee income in the amounts of
$3,800,771, $1,455,981, and $220,000 respectively, recorded through the
statement of operations in this year and prior years, was forgiven during the
period ended December 31, 1999. This total amount of $5,476,752 has been
recorded as loss from joint venture Agreement in the statement of operations.
Interest expense totaled $4,470,896 for the year ended December 31, 1999
versus $3,953,210 for the eleven months ended December 31, 1998. Interest
expense is mainly comprised of interest accrued for Senior Notes, special units,
operating loans and mortgage notes payable. Interest accrued for Senior Notes
was $3,952,950 for the year ended December 31, 1999 versus $3,617,220 for the
eleven months ended December 31, 1998.
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 accrued
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.
Partner fees totaled $143,154 and $1,057,112 for the year ended December
31, 1999 and the eleven months ended December 31, 1998, respectively. Partner
fees are comprised of development fees, administrative fees and commissions.
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Partner fees totaled $1,057,112 for the eleven months ended December 31,
1998, versus $746,638 for the year ended January 31, 1998. 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.
As a result of the SC Partnership excess costs and their impact on the
Partnership, FC-Granite has modified the administrative fee arrangement. The
administrative fee will not be earned and accrued beyond June 30, 1999 and the
unpaid accrued amount of $77,123 as of June 30, 1999 will be deemed paid by the
reapplication of part of the paid special units interest. Originally, FC-Granite
was to be paid a monthly administrative fee as compensation for its services in
administrating 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 six months ended June 30, 1999 and the
eleven months ended December 31, 1998 were $79,126 and $179,744, respectively.
Fees outstanding as of December 31, 1998 were $196,494. The Partnership paid
administrative fees of $198,497 during the period ended December 31, 1999.
As a result of the SC Partnership excess costs and their impact on the
Partnership, Sunrise has modified the development fee arrangement. The
development fee will not be earned and accrued beyond June 30, 1999 and the
unpaid accrued amount of $67,765 as of June 30, 1999 will be deemed paid by the
reapplication of part of the paid special units interest. Originally, Sunrise
was to be paid a semi-annual development fee equal to 4% of gross revenues as
compensation for its services in managing the development of the Partnership's
properties. Total development fees accrued for the six months ended June 30,
1999 and the eleven months ended December 31, 1998 were $34,148 and $467,929,
respectively. Fees outstanding as of December 31, 1998 were $569,473. The
Partnership paid development fees of $535,856 during the period ended December
31, 1999.
As a result of the SC Partnership excess costs and their impact on the
Partnership, FC-Granite has modified the real estate commissions arrangement.
The real estate commissions will not be earned and accrued beyond June 30, 1999
and the unpaid accrued amount of $59,295 as of June 30, 1999 will be deemed paid
by the reapplication of part of the paid special units interest. Total real
estate commissions accrued for the six months ended June 30, 1999 and the eleven
months ended December 31, 1998 were $29,880 and $409,439, respectively.
Commissions outstanding as of December 31, 1998 were $498,289. The Partnership
paid commissions of $468,874 for the first six months of 1999 prior to the
modification of the real estate commission arrangement.
During the year ended December 31, 1999, the Partnership repaid Sunrise
$2,395,951 of funds loaned for expenditures at the Seven Hills project as of
December 31, 1998 and subsequently borrowed additional funds totaling $5,748,800
of which $2,199,400 non-cash has been deemed paid by the reapplication of part
of the paid special units interest. During the same period, Eaton Estate
Partnership loaned the Partnership $5,281,792 to fund additional development
expenditures. Of this amount, $2,646,004 has been repaid. Funds advanced bear
interest at 10%, totaling $484,122 at December 31, 1999. Advances plus interest
will be repaid when excess funds are available.
Operating and other expenses totaled $344,635 for the year ended December
31, 1999 versus $426,826 for the eleven months ended December 31, 1998.
Operating and other expenses are mainly comprised of legal fees, other
professional fees, title and escrow fees, and office expenses. Legal and
professional fees decreased from $229,832 for the eleven months ended
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December 31, 1998 to $173,926 for the year ended December 31, 1999. Title and
escrow fees decreased from $85,694 for the eleven months ended December 31, 1998
to $43,259 for the year ended December 31, 1999. These decreases were partially
offset by an increase in office expense from $2,291 for the eleven months ended
December 31, 1998 to $14,955 for the year ended December 31, 1999.
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. 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 probable damages relating to the
litigation proceedings for the 194th Street property located in Miami Beach,
Florida.
Loss from Joint Ventures was $9,670,001 for the year ended December 31,
1999 versus $46,957 for the eleven months ended December 31, 1998. Loss from
Joint Ventures consists of loss from SC Partnership and income from Eaton Estate
Partnership, both being recorded by the Partnership under the equity method. The
increase in joint venture loss in fiscal 1999 is mostly due to increases in
project costs, and therefore, cost of sales for the SC Partnership.
Loss from Joint Ventures was $46,957 for the eleven months ended December
31, 1998 versus income of $1,663,201 for the year ended January 31, 1998. Loss
from Joint Ventures consists of loss from SC Partnership and income from Eaton
Estate Partnership, both being recorded by the Partnership under the equity
method. The decrease in joint venture income in fiscal 1998 is mostly due to
increases in project costs and, therefore, cost of sales for the SC Partnership.
Financial Condition and Liquidity
The net cash used in operating activities was $1,991,837 for the year
ended December 31, 1999 versus cash provided of $2,032,572 for the eleven months
ended December 31, 1998. The increase in net cash used in operating activities
is primarily the result of decrease in operating results of $2,584,530 for the
year ended December 31, 1999, versus $714,507 for the eleven months ended
December 31, 1998, a decrease in accounts payable of $643,523 for the year ended
December 31, 1999 versus an increase of $499,432 for the eleven months ended
December 31, 1998 and no change in restricted cash equivalents for the year
ended December 31, 1999 versus a decrease of $481,287 for the eleven months
ended December 31, 1998.
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.
Net cash used in investing activities was $888,430 for the year ended
December 31, 1999 versus $2,520,281 for the eleven months ended December 31,
1998. The decrease in funds used was mainly the result of a decrease in
investments in and advances to affiliates from $3,270,281
12
<PAGE> 13
for the eleven months ended December 31, 1998 to $1,424,144 for the year ended
December 31, 1999. The decrease in investments in and advances to affiliates
mostly consists of a decrease in Capital Calls of $1,670,280.
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 Seven Hills property,
partially offset by a $750,000 cash distribution from Eaton Estate Partnership.
Net cash provided by financing activities for the year ended December 31,
1999, was $4,668,805 versus $1,694,158 for the eleven months ended December 31,
1998. The net cash provided during the year ended December 31, 1999 was mainly
attributable to funds loaned from Eaton Estate Partnership of $5,281,792 to
repay the December 31, 1998 loan to Sunrise of $2,395,951 and to fund
development expenditures. Subsequently, the Partnership borrowed additional
funds from Sunrise of $5,748,800 to repay Eaton Estate Partnership $2,646,004
and to pay interest on partners' special units of $1,072,170.
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 $2,395,951, which was partially offset by repayments
of mortgage notes payable of $465,855.
The corporate parent of Sunrise has committed to fund any cash
contributions necessary for the Partnership to meet its obligations under the
2000 Business Plan of SC Partnership through March 31, 2001.
The Partnership is involved in various 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. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff. Legal counsel of the Partnership filed a
motion for summary judgement which was denied on March 29, 1999. Trial is
scheduled for sometime in the trial session which started November 8, 1999.
In Henderson, Nevada, SC Partnership is developing the Seven Hills project
next to a golf course. Five lawsuits have been filed relating to the right to
play on the golf course.
A class action lawsuit that was filed by the current homeowners in the
Seven Hills project against SC Partnership and the golf course developers, among
others, was settled in November 1999.
The owner of the golf course had filed a cross-claim against the
Partnership, SC Partnership, and other entities. This lawsuit was settled in
March 2000.
Certain production homebuilding companies at Seven Hills had also filed
suits. SC Partnership settled with one of these production home building
companies in March 2000. The remaining two suits have been settled in principal,
but the settlement documents have not been executed.
Sales efforts are continuing at the Seven Hills development and management
does not believe that the lawsuits that have been settled will significantly
hinder those sales efforts. Management has paid or
13
<PAGE> 14
accrued approximately $6,600,000 in litigation and legal expenses during 1999
related to the above lawsuits. Management believes that this will be the extent
of the impact of these lawsuits on the financial performance of SC Partnership.
YEAR 2000
The Partnership has completed its program to prepare its financial and
operating computer systems and embedded applications for the Year 2000. The
Partnership did not experience any malfunctions or errors. Based on operations
since January 1, 2000, the Partnership does not expect any significant impact to
its ongoing business as a result of the "Year 2000 issue." No problems were
detected through the leap year processing.
For business reasons unrelated to the Year 2000, the Partnership's
computer systems have been moved from the mainframe environment to a distributed
environment. Major processing systems were replaced with Year 2000-compliant
software.
The Partnership had identified concerns related to hardware, software and
embedded systems and developed a contingency plan to respond to each concern.
The Partnership had appropriate personnel, and outside contractors, on site
starting on the evening of December 31, 1999 and the ensuing weekend. The
Partnership completed the Year 2000 tasks and notified senior management of the
program completion.
Similar to other companies, the Partnership was highly dependent upon
systems in the public sector, such as utilities, mail, government agencies and
transportation systems. The Partnership did not experience any failure in these
areas. The Year 2000 plan was aimed at identifying and correcting all issues
upon which the Partnership had direct control or indirect control through its
vendors and business partners. The Partnership successfully completed its Year
2000 program with minimal 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.
14
<PAGE> 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership's primary market risk exposure is interest rate risk. At
December 31, 1999, the Partnership had $528,961 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 ensure 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
--------------------------------------------------------------
-------------------------------------------------------------- Fair Market
2000 2001 2002 2003 Total Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FIXED:
Senior notes $ -- $ -- $ -- $36,000,000 $36,000,000 $36,000,000
Weighted average interest rate 10.83% 10.83% 10.83% 10.83% 10.83% --
----------- ----------- ----------- ----------- ----------- -----------
$ -- $ -- $ -- $36,000,000 $36,000,000 $36,000,000
VARIABLE:
Variable rate mortgage debt $ 528,961 $ -- $ -- $ -- $ 528,961 $ 528,961
9.00% 9.00% 9.00%
----------- ----------- ----------- ----------- ----------- -----------
Total variable rate debt $ 528,961 $ -- $ -- $ -- $ 528,961 $ 528,961
----------- ----------- ----------- ----------- ----------- -----------
$ 528,961 $ -- $ -- $36,000,000 $36,528,961 $36,528,961
=========== =========== =========== =========== =========== ===========
</TABLE>
15
<PAGE> 16
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' deficit and cash flows present fairly, in all
material respects, the financial position of Granite Development Partners, L.P.
(A Delaware Limited Partnership) ("Partnership") at December 31, 1999 and
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1999, the eleven months ended December 31, 1998, and for
year ended January 31, 1998 in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 30, 2000
16
<PAGE> 17
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
----------- ------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
LAND $ 1,138,136 $ 1,772,580
LAND IMPROVEMENTS 1,256,810 1,431,273
----------- -----------
2,394,946 3,203,853
MORTGAGE NOTES RECEIVABLE 967,770 2,955,344
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 21,983,937 32,221,489
OTHER ASSETS
Cash 3,219,145 1,430,607
Interest receivable 97,139 9,629,531
Other 26,204 25,500
Administrative fee receivable -- 175,000
----------- -----------
3,342,488 11,260,638
----------- -----------
$28,689,141 $49,641,324
=========== ===========
</TABLE>
See notes to financial statements
17
<PAGE> 18
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31, December 31,
------------ ------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES
PARTNERS' SPECIAL UNITS
& PARTNERS' DEFICIT
SENIOR NOTES PAYABLE $ 36,000,000 $ 36,000,000
MORTGAGE NOTES PAYABLE 528,961 776,659
LOANS PAYABLE
Sunrise Land Company 3,549,400 2,395,951
Eaton Estate Partnership 3,514,286 878,462
------------ ------------
7,063,686 3,274,413
OTHER LIABILITIES
Accounts payable 319,282 962,805
Accrued fees, partners -- 1,264,257
Accrued interest 1,152,423 924,057
Accrued real estate taxes 64,319 99,953
Deposits 4,000 3,579
Deferred income -- 6,379,262
------------ ------------
1,540,024 9,633,913
PARTNERS' EQUITY (DEFICIT)
Partners' special units 9,000,000 9,000,000
Partners' deficit (25,443,530) (9,043,661)
------------ ------------
(16,443,530) (43,661)
------------ ------------
$ 28,689,141 $ 49,641,324
============ ============
</TABLE>
See notes to financial statements.
18
<PAGE> 19
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year For the eleven For the year
ended months ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Sales of developed property $ 4,709,680 $ 8,417,447 $ 5,709,083
Cost of sales (3,526,414) (5,938,434) (3,621,063)
------------ ----------- -----------
1,183,266 2,479,013 2,088,020
Interest 954,398 1,452,474 1,150,137
Commission 189,448 504,182 453,965
Other 110,187 359,984 352,173
------------ ----------- -----------
2,437,299 4,795,653 4,044,295
------------ ----------- -----------
EXPENSES
Interest 4,470,896 3,953,210 4,251,226
Fees, partners 143,154 1,057,112 746,638
Real estate taxes 63,144 73,012 210,453
Operating and other 344,635 426,826 177,541
Amortization -- 453,595 678,851
------------ ----------- -----------
5,021,829 5,963,755 6,064,709
------------ ----------- -----------
(2,584,530) (1,168,102) (2,020,414)
Loss from joint venture agreement (5,476,752) -- --
(Loss) income from joint ventures (9,670,001) (46,957) 1,663,201
------------ ----------- -----------
NET LOSS $(17,731,283) $(1,215,059) $ (357,213)
============ =========== ===========
</TABLE>
See notes to financial statements.
19
<PAGE> 20
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Sunrise FC-Granite Limited
Land Co. Inc. Partners Total
------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at January 31, 1997 -- (10,323,370) 3,999,960 (6,323,410)
Distribution of interest on special units -- (1,147,979) -- (1,147,979)
Net loss -- (89,304) (267,909) (357,213)
------- ------------ ----------- ------------
Balance at January 31, 1998 -- (11,560,653) 3,732,051 (7,828,602)
Net loss for the eleven months -- (303,765) (911,294) (1,215,059)
------- ------------ ----------- ------------
Balance at December 31, 1998 -- (11,864,418) 2,820,757 (9,043,661)
Cancellation of interest on special
Units -- 1,331,414 -- 1,331,414
Net loss -- (14,910,526) (2,820,757) (17,731,283)
------- ------------ ----------- ------------
Balance at December 31, 1999 $ -- $(25,443,530) $ -- $(25,443,530)
======= ============ =========== ============
</TABLE>
See notes to financial statements.
20
<PAGE> 21
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the year For the 11 months For the year
ended ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(17,731,283) $(1,215,059) $ (357,213)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Forgiveness of capitalized income recognized-
Silver Canyon Partnership 3,800,771 -- --
Forgiveness of commission income-
Silver Canyon Partnership 1,455,981 -- --
Forgiveness of administration fee income-
Silver Canyon Partnership 220,000 -- --
Amortization -- 453,595 678,851
Loss (income) from joint ventures 9,670,001 46,957 (1,663,201)
Changes in operating assets and liabilities:
Decrease in land and land improvements 808,907 3,156,919 587,894
Decrease in restricted cash equivalents -- 481,287 4,121,604
Decrease in mortgage notes receivable 1,987,574 194,221 3,173,881
Increase in interest receivable (1,812,791) (2,232,269) (2,190,243)
Decrease (increase) in other assets -- 55,000 (25,500)
Decrease in commission receivable -- -- 17,392
Increase in administrative fee receivable (45,000) (55,000) (60,000)
(Decrease) increase in accounts payable (643,523) 499,432 414,741
(Decrease) increase in accrued fees, partners (1,060,073) 1,057,112 (728,651)
Increase (decrease) in accrued interest 228,366 (51,788) (33,294)
(Decrease) increase in accrued real estate taxes (35,634) (43,946) 8,986
Decrease in deposits (283) (815,498) (1,265,623)
Increase in deferred income 1,165,150 501,609 1,221,579
------------ ----------- -----------
Net cash (used in) provided by operating activities (1,991,837) 2,032,572 3,901,203
------------ ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Distribution from affiliates 535,714 750,000 642,600
Investments in and advances to affiliates (1,424,144) (3,270,281) (2,861,027)
------------ ----------- -----------
Net cash used in investing activities (888,430) (2,520,281) (2,218,427)
------------ ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from loan payable - Sunrise Land Company 5,748,800 2,395,951 --
Repayment of loan payable - Sunrise Land Company (2,395,951) -- (921,768)
Proceeds from loan payable - Eaton Estate Partnership 5,281,792 2,580,890 --
Repayment of loan payable - Eaton Estate Partnership (2,646,004) (2,816,828) --
Distribution of interest on special units (1,072,170) -- (1,147,980)
Proceeds from mortgage notes payable -- -- 922,472
Repayment of mortgage notes payable (247,662) (465,855) (590,430)
Increase in mortgage procurement cost -- -- (7,900)
------------ ----------- -----------
Net cash provided by (used in) financing activities 4,668,805 1,694,158 (1,745,606)
------------ ----------- -----------
INCREASE (DECREASE) IN CASH 1,788,538 1,206,449 (62,830)
CASH AT BEGINNING OF THE PERIOD 1,430,607 224,158 286,988
------------ ----------- -----------
CASH AT END OF THE PERIOD $ 3,219,145 $ 1,430,607 $ 224,158
============ =========== ===========
</TABLE>
21
<PAGE> 22
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOW (continued)
<TABLE>
<CAPTION>
For the year For the 11 months For the year
ended ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Operating Expenses
Write off of deferred income $ (7,544,412) $ -- $ --
Write off of interest receivable $ 11,345,183 $ -- $ --
Financing Activities
Cancellation of interest on special units
applied to loan payable-
Sunrise Land Company $ (2,199,400) $ -- $ --
Cancellation of interest on special units
applied to Accrued Partners Fees $ (204,184) $ -- $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 4,242,530 $ 4,004,998 $ 4,284,520
Real estate taxes $ 98,778 $ 116,958 $ 201,467
</TABLE>
See notes to financial statements.
22
<PAGE> 23
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
("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 is the owner of Granite Silver Development Partners, L.P. the
managing partner in Silver Canyon Partnership ("SC Partnership"). 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.
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 and to make the
Partnership's fiscal year end consistent with its two major joint ventures,
Eaton Estate Partnership and SC Partnership which owns the Seven Hills project.
SC Partnership also changed it's fiscal year end from January 31 to December 31
concurrently with the Partnership. The Partnership's results of operations the
year ended December 31, 1999, for the eleven months ended December 31, 1998, and
the year ended January 31, 1998, include the Financial Results, accounted for on
the equity basis, of Eaton Estate Partnership for the fiscal years ended
December 31, 1999, 1998, and 1997, respectively, and SC Partnership for the year
ended December 31, 1999, the eleven months ended December 31, 1998 and the
fiscal year ended January 31, 1998. The Eaton Estate Partnership reflects twelve
months of operations, which is consistent with prior periods presented.
The sole general partner 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").
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
23
<PAGE> 24
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)
and the historical cost basis of the contributed properties 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.
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, 1999,
$3,958,389 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.
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.
During the second quarter of 1999, American Nevada Seven Hills Limited
Partnership ("ANC"), the partner in SC Partnership responsible for the onsite
improvements in the Seven Hills project, identified costs in excess of budget to
complete the project. Certain of these costs became known to ANC operating
personnel during the fourth quarter of 1998. Further information became known
during the second quarter of 1999. The second quarter 1999 Form 10Q has
been restated to include this additional information (See Note J). To minimize
the impact of these excess costs, ANC and the Partnership entered into an
agreement ("Agreement") which modified certain terms of the Silver Canyon
Partnership Agreement. The changes resulting from the Agreement are reflected in
this statement.
The Agreement's impact on the Silver Canyon Partnership Agreement includes the
following provisions:
1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to the SC
Partnership. Amounts previously paid will be deemed return of capital.
2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled (See Note I).
3. The Partnership will fund any future settlement for the outstanding lawsuit
(See Note I) but will receive a priority distribution to cover such capital
contribution.
24
<PAGE> 25
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)
4. After the priority distribution in #3, ANC and the Partnership will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.
5. Thereafter, the Partnership will receive all distributions until it has
recovered its entire capital account. To the extent the Partnership does not
recover its entire capital account, ANC will negotiate in good faith as to
whether ANC should fund one-half of the outstanding lawsuit in #3.
6. After the Partnership has recovered its entire capital account, ANC and the
Partnership will share all remaining distributions pari passu.
The following table summarizes the favorable impact of the Agreement to SC
Partnership as of December 31, 1999:
<TABLE>
<S> <C>
Land inventory adjustment $ 5,054,279
Fees and commissions adjustment 6,110,701
-----------
Total adjustments $11,164,980
===========
</TABLE>
The following table summarizes the impact of the Agreement to the Silver Canyon
Partnership Agreement as it relates directly to the Partnership as of December
31, 1999:
<TABLE>
<S> <C>
Land inventory adjustment at ownership $ 4,263,313
Fee and commissions adjustment at ownership 1,675,982
-----------
Subtotal $ 5,939,295
Forgiveness of capitalized income recognized (3,800,771)
Forgiveness of commission income (1,455,981)
Forgiveness of administration fee income (220,000)
-----------
Subtotal $(5,476,752)
-----------
Total $ 462,543
===========
</TABLE>
Also, as a result of the SC Partnership excess costs and their impact on the
Partnership, FC-Granite and Sunrise have forgiven certain unpaid expenses as of
June 30, 1999 and will not charge the Partnership in the future. The following
table summarizes the forgiven expenses:
<TABLE>
<S> <C>
Administrative fees to FC-Granite $ 77,123
Real estate commissions to FC-Granite 59,295
Development fees to Sunrise 67,765
Interest to Sunrise 84,476
--------
$288,659
========
</TABLE>
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.
25
<PAGE> 26
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)
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.
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), other capital
transactions, and cash contributions and distributions. The advances to the
ventures represent loans, which are to be repaid within the next three years.
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 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, mortgage
notes 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 eleven months ended December 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,
26
<PAGE> 27
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)
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 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.
Start-Up Costs
The Partnership has adopted SOP 98-5, "Reporting On the Costs of Start-Up
Activities." This statement requires that start-up costs and organization costs
be expensed as incurred. The adoption of SOP 98-5 did not have a material effect
on the Partnership's earnings or financial position.
NOTE B - SENIOR NOTES PAYABLE
The Partnership has issued unsecured senior notes payable ("Senior Notes")
limited to the aggregate principal amount of $36,000,000. The Senior Notes bear
interest at a fixed annual rate of 10.83%, payable semi-annually, and include a
negative pledge covenant relating to the assets and operations of the
Partnership, allowing only a collateralized working capital line not to exceed
$5,000,000 and subordinated indebtedness of $5,000,000. Commencing May 15, 1995
and until such time as the principal of the Senior Notes and interest thereon is
repaid in full, 100% of the cash flow of the Partnership, as defined, shall be
applied to repay the Senior Notes. The Senior Notes will mature on November 15,
2003, but are subject to earlier redemption.
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. The Partnership
has not deferred interest payments on the Senior Notes payable.
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.
27
<PAGE> 28
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE C - WARRANTS (continued)
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
Per the original Partnership Agreement, until the Senior Notes are paid in full,
$9,000,000 of the partners' special units bear interest at 10.83% and the
interest will be paid pari passu with the interest on the Senior Notes.
FC-Granite, the holder of the special units, has modified the interest
arrangement as a result of the SC Partnership excess costs and their impact on
the Partnership.
Interest earned on the partners' special units amounted to $739,148 for the year
ended December 31, 1999 and $904,305 for the eleven months ended December 31,
1998. During the year ended December 31, 1999, $1,072,170 of the interest was
distributed to FC-Granite.
FC-Granite has agreed to forfeit the $655,215 of unpaid interest on partners'
special units as of December 31, 1999. FC-Granite has further agreed to apply
$2,199,400 and $204,184 of previously paid interest on special units as a
repayment of principal on the loan payable to Sunrise and as a payment on
accrued partner fees, respectively. See transactions with affiliates (See Note
F).
NOTE E - MORTGAGE NOTES PAYABLE
During the year ended January 31, 1998, the Partnership entered into a
construction loan agreement collateralized by a first lien for the funding of
the Thornbury development. The loan amount is not to exceed $1,400,000 with a
maturity date of November 1, 2000. As of December 31, 1999 and December 31,
1998, the outstanding balances related to this loan were $528,961 and $656,659,
respectively. The principal amount outstanding bears interest at a rate of prime
(8.5% at December 31, 1999 and 7.75% at December 31, 1998) plus one-half of one
percent (1/2%).
As of December 31, 1998, the Partnership had outstanding other mortgage notes
payable in which the proceeds were used to fund construction of land
improvements. The amounts borrowed of $120,000 at December 31, 1998 bore
interest at 8% per annum. The $120,000 was paid during 1999.
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 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.
28
<PAGE> 29
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - TRANSACTIONS WITH AFFILIATES (continued)
As a result of the SC Partnership excess costs and their impact on the
Partnership, FC-Granite has modified the administrative fee arrangement. The
administrative fee will not be earned and accrued beyond June 30, 1999 and the
unpaid accrued amount of $77,123 as of June 30, 1999 was deemed paid by the
reapplication of part of the paid special units interest. Originally, FC-Granite
was to be paid a monthly administrative fee as compensation for its services in
administrating 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 six months ended June 30, 1999 and the
eleven months ended December 31, 1998 were $79,126 and $179,744, respectively.
Fees outstanding as of December 31, 1998 were $196,494. The Partnership paid
administrative fees of $198,497 during the year ended December 31, 1999.
As a result of the SC Partnership excess costs and their impact on the
Partnership, Sunrise has modified the development fee arrangement. The
development fee will not be earned and accrued beyond June 30, 1999 and the
unpaid accrued amount of $67,765 as of June 30, 1999 was deemed paid by the
reapplication of part of the paid special units interest. Originally, Sunrise
was to be paid a semi-annual development fee equal to 4% of gross revenues as
compensation for its services in managing the development of the Partnership's
properties. Total development fees accrued for the six months ended June 30,
1999 and the eleven months ended December 31, 1998 were $34,148 and $467,929,
respectively. Fees outstanding as of December 31, 1998 were $569,473. The
Partnership paid development fees of $535,856 during the year ended December 31,
1999.
As a result of the SC Partnership excess costs and their impact on the
Partnership, FC-Granite has modified the real estate commissions arrangement.
The real estate commissions will not be earned and accrued beyond June 30, 1999
and the unpaid accrued amount of $59,295 as of June 30, 1999 was deemed paid by
the reapplication of part of the paid special units interest. Total real estate
commissions accrued for the six months ended June 30, 1999 and the eleven months
ended December 31, 1998 were $29,880 and $409,439, respectively. Commissions
outstanding as of December 31, 1998 were $498,289. The Partnership paid
commissions of $468,874 during the year ended December 31, 1999.
Based on the Agreement, the Partnership's commission equal to 1.67% of SC
Partnership's gross sales as compensation for the Partnership's services in
conducting marketing and sales duties and authorization of sales contracts has
been reapplied as payments on the amounts the Partnership has loaned SC
Partnership. The Partnership earned $189,448 and $504,182 during the year ended
December 31, 1999 and the eleven months ended December 31, 1998, respectively.
The total amount of commissions earned from inception through December 31, 1999
totaling $1,455,981 have been reversed through the statement of operations as a
loss from joint venture Agreement and applied to the advances to joint ventures.
Based on the Agreement, the Partnership's monthly administrative fee from SC
Partnership in the amount of $5,000 per month has been waived. Fees that were to
be earned during the year ended December 31, 1999 and the eleven months ended
December 31, 1998 were $60,000 and $55,000, respectively. At December 31, 1999,
accrued administrative fees totaling $220,000
29
<PAGE> 30
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - TRANSACTIONS WITH AFFILIATES (continued)
have been reversed through the statement of operations as part of loss from
joint venture agreement.
During the year ended December 31, 1999, the Partnership repaid Sunrise
$2,395,951 of funds loaned for expenditures at the Seven Hills project as of
December 31, 1998 and subsequently borrowed additional funds totaling $5,748,800
of which $2,199,400 has been deemed paid by the reapplication of part of the
paid special units interest. During the same period, Eaton Estate Partnership
loaned the Partnership $5,281,828 to fund additional development expenditures.
Of this amount, $2,646,004 has been repaid. Funds advanced bear interest at 10%,
totaling $484,122 at December 31, 1999. Advances and interest will be repaid
when excess funds are available.
During the eleven months ended December 31, 1998, Sunrise loaned the Partnership
$2,395,591 to fund additional development expenditures at the Seven Hills
project. During the same period, Eaton Estate Partnership loaned the Partnership
$2,580,890 to fund additional development expenditures. The Partnership, during
this period, repaid Eaton Estate Partnership $2,816,828 of which $1,114,400 was
outstanding at January 31, 1998.
The Partnership has advanced $26,633,823 at December 31, 1999, and $26,665,660
at December 31, 1998 to the SC Partnership (See Note H).
The corporate parent of Sunrise has committed to fund any cash contributions
necessary for the Partnership to meet its obligations under the 2000 Business
Plan of SC Partnership through March 31, 2001.
NOTE G - GAIN ON SALE OF PARTNERSHIP INTEREST
Silver Canyon Partnership, 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 Partnership
("Partnership Interest") to 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 SC Partnership.
On January 30, 1996, the Partnership sold 21 2/3% of its Partnership interest in
the SC Partnership to ANC. Prior to the sale, the Partnership's investment in SC
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 SC
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 SC Partnership. The Partnership's investment in SC Partnership
at December 31, 1999 and December 31, 1998 was $(6,600,961) and $3,298,726,
respectively.
In addition, the Partnership has a 30% interest in Eaton Estate Partnership. The
Partnership's investment in Eaton Estate Partnership at December 31, 1999 and
December 31, 1998, was $2,148,635 and $2,454,662, respectively. During fiscal
year 1999, the Partnership has also received a distribution of $535,714 from
Eaton Estate Partnership.
30
<PAGE> 31
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)
The Partnership has also advanced $26,633,823 at December 31, 1999 and
$26,665,660 at December 31, 1998 to SC Partnership. Pursuant to the Amended and
Restated Partnership Agreement for SC Partnership, the Partnership's original
obligation to make loans to SC Partnership was capped at $19,443,198. The
agreement also provides that the Partnership is to provide up to up to
two-thirds of $9,000,000 as additional loans as funds are required. Based on the
Agreement, the above advances to SC Partnership shall not bear interest. All
accrued and unpaid interest will be waived. No interest payments have been made
historically. Originally, pursuant to the Amended and Restated Partnership
Agreement for SC Partnership, funds advanced to SC 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 (8.5% at December 31, 1999) plus
1-3/4 %. Total interest that would have been earned on the advances amounted to
$2,699,395 and $2,327,615 for the twelve months ended December 31, 1999 and the
eleven months ended December 31, 1998, respectively. Interest income was
deferred by the Partnership until the interest capitalized on the joint ventures
is recognized as cost of sales by the joint ventures. Interest recognized as
income for the twelve month period ended December 31, 1999 and the eleven month
period ended December 31, 1998 was $772,027 and $1,508,044, respectively. As a
result of the Agreement, interest of $3,800,771 earned this year and in previous
years has been reapplied as repayment of partner loans and capital.
Shown below is summarized financial information relative to the joint ventures,
SC Partnership and Eaton Estate Partnership.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Balance Sheet
Assets, primarily undeveloped land $ 33,381,429 $ 69,534,371
Liabilities, primarily long-term debt 37,572,518 56,054,962
------------ ------------
Partners' equity (4,191,089) 13,479,409
Less: Outside partners' equity 261,237 7,726,021
------------ ------------
Investment in Joint Ventures $ (4,452,326) $ 5,753,388
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the twelve For the eleven
months ended months ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Operating Results
Operating (loss) income $(16,484,811) $4,927,808
Expenses 9,951,084 4,849,325
------------ ----------
Net Income $(26,435,895) $ 78,483
============ ==========
</TABLE>
For the year ended December 31, 1999, the SC Partnership generated loss of
$27,201,519 and other capital transactions of $10,551,111 of which $ 9,899,688
has been recorded by the Partnership under the equity method. For the eleven
months ended December 31, 1998, the SC Partnership generated a loss of
$2,115,068 of which $705,022 had been recorded by the Partnership.
31
<PAGE> 32
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)
For the year ended December 31, 1999, the Eaton Estate Partnership generated
income of $765,624 of which $229,687 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.
Shown below is the statement of operations for the SC Partnership. The results
for the year ended December 31, 1999 are affected by three events.
- - - During the second quarter of 1999, ANC, the partner in charge of on-site
improvements of the Seven Hills project, identified cost overruns that
required adjustment of the remaining inventory to its realizable value.
- - - The Partnership settled certain lawsuits.
- - - To minimize the impact of these cost overruns, the Agreement forfeits
certain previously earned commissions, fees and interest on advances. The
effect of this Agreement is documented separately below as other capital
transactions.
<TABLE>
<CAPTION>
Twelve months ended Eleven months ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
REVENUES
Operating (loss) income $(17,457,081) $ 1,897,849
EXPENSES
Fees, partners 50,000 110,000
Commissions 1,953,057 2,909,047
Legal, professional and litigation costs 6,632,876 410,404
Travel and entertainment 49,422 36,303
Operating and other 989,674 455,252
Depreciation and amortization 69,409 91,911
------------ -----------
Subtotal 9,744,438 4,012,917
------------ -----------
NET LOSS $(27,201,519) $(2,115,068)
OTHER CAPITAL TRANSACTIONS RESULTING
FROM AGREEMENT
Land inventory adjustment $ 5,054,279 $ --
Fees and commissions adjustment 6,110,701 --
------------ -----------
11,164,980 --
Recharacterization of development fees (613,869) --
------------ -----------
Subtotal 10,551,111 --
------------ -----------
Net change in SC Partnership capital $(16,650,408) $(2,115,068)
============ ===========
</TABLE>
32
<PAGE> 33
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)
The Partnership recorded its proportionate share of the net change in the SC
Partnership capital after giving effect to the special allocations agreed to in
the Agreement to the SC Partnership agreement (See Note A).
The operating loss prior to the Agreement in the amount of $(17,457,081) results
from an adjustment of the land inventory to its estimated realizable value. The
adjustment in the amount of $17,758,816 was recorded in the second quarter 1999.
As a result of the Agreement, $5,054,279 of the land inventory adjustment
resulted from the partners of SC Partnership agreeing to reverse interest that
the partners had earned and the SC Partnership had capitalized to inventory.
Also as a result of the Agreement, certain fees and commissions previously
earned by the partners of SC Partnership and expensed by the SC Partnership were
reapplied from partnership expenses to repayment of certain partner loans and
capital. These previously paid items are as follows:
<TABLE>
<CAPTION>
Fees Commissions
---- -----------
<S> <C> <C>
American Nevada Seven Hills Limited Partnership $ 30,000 $4,224,719
Granite Silver Development Partners, L.P. 220,000 1,455,982
Silver Canyon Corporation 180,000 --
---------- ----------
$ 430,000 $5,680,701
========== ==========
</TABLE>
The Partnership recorded its proportionate share of the net change in the SC
Partnership capital after giving effect the special allocations agreed to in the
Agreement to the SC Partnership agreement (See Note A).
NOTE I - LITIGATION
The Partnership is involved in various 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. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff. Legal counsel of the Partnership filed a
motion for summary judgement which was denied on March 29, 1999. Trial is
scheduled for sometime in the trial session which started November 8, 1999.
In Henderson, Nevada, SC Partnership is developing the Seven Hills project next
to a golf course. Five lawsuits have been filed relating to the right to play on
the golf course.
33
<PAGE> 34
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE I - LITIGATION (continued)
A class action lawsuit that was filed by the current homeowners in the Seven
Hills project against SC Partnership and the golf course developers, among
others, was settled in November 1999.
The owner of the golf course had filed a cross-claim against the Partnership, SC
Partnership, and other entities. This lawsuit was settled in March 2000.
Certain production homebuilding companies at Seven Hills had also filed suits.
SC Partnership settled with one of these production home building companies in
March 2000. The remaining two suits have been settled in principal, but the
settlement documents have not been executed.
Sales efforts are continuing at the Seven Hills development and management does
not believe that the lawsuits that has been settled will significantly hinder
those sales efforts. Management has paid or accrued approximately $6,600,000 in
litigation and legal expenses during 1999 related to the above lawsuits.
Management believes that this will be the extent of the impact of these lawsuits
on the financial performance of SC Partnership.
NOTE J - RESTATEMENT OF THE SIX MONTHS ENDED JUNE 30, 1999
The six months ended June 30, 1999, has been restated to reflect the correction
of the computation of cost of sales in the SC Partnership. Certain costs became
known to operating personnel during the second quarter of 1999 but was not
included in the original computation of cost of sales. These excess costs were
identified during the third quarter of 1999.
The restatement results from the identification of costs in excess of those
budgeted to complete the project. These adjustments to cost of sales had the
effect of increasing loss from joint ventures and increasing net loss for the
six months ended June 30, 1999 by $6,196,394.
The second quarter ended June 30, 1999 has been restated to reflect the
corrections of the computation of deferred income recognized. The adjustment
decreases other income and increases net loss by $63,710.
The following table summarizes the impact of the amounts previously reported:
<TABLE>
<CAPTION>
---------------------- ----------------
For the For the
six months ended six months ended
June 30, 1999 June 30, 1999
as previously reported as restated
---------------------- ----------------
<S> <C> <C>
Total Partners' Equity $ (1,044,174) $ (8,745,220)
Income (loss) from Joint Ventures $ 50,587 $ (6,145,807)
Net (loss) $ (1,369,285) $ (7,629,389)
</TABLE>
34
<PAGE> 35
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 cash flows, present fairly, in all
material respects, the financial position of Silver Canyon Partnership (A Nevada
General Partnership) ("Partnership") as of December 31, 1999 and December 31,
1998, and the results of its operations and its cash flows for the year ended
December 31, 1999, the eleven month period ended December 31, 1998, and for the
year ended January 31, 1998 in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 30, 2000
35
<PAGE> 36
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
LAND $10,204,635 $14,230,638
LAND IMPROVEMENTS 7,220,056 41,257,376
----------- -----------
17,424,691 55,488,014
RESTRICTED CASH -- 157,111
MORTGAGE NOTES RECEIVABLE 525,000 963,032
OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of $18,496 in 1999 42,035 --
Organization costs, net of accumulated amortization of
$193,736 in 1999 and $144,577 in 1998 -- 49,159
Fixed assets, net of accumulated depreciation
of $12,728 in 1999 and $10,973 in 1998 1,607 3,362
Cash 7,505,486 974,322
Accounts receivable - affiliate 1,000,000 --
Accounts receivable 42,875 3,208,392
Funds in escrow 92,459 583,218
----------- -----------
8,684,462 4,818,453
----------- -----------
$26,634,153 $61,426,610
=========== ===========
</TABLE>
See notes to financial statements
36
<PAGE> 37
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31, December 31,
------------ -----------
1999 1998
------------ -----------
<S> <C> <C>
LIABILITIES AND
PARTNERS' EQUITY
LOANS PAYABLE
General Motors Acceptance Corporation $ -- $ 350,972
Ohio Savings Bank 1,987,180 --
Granite Silver Development Partners, L.P. 26,633,823 26,665,660
American Nevada Seven Hills Limited Partnership 1,284,704 5,476,514
Silver Canyon Corporation 141,326 --
------------ -----------
30,047,033 32,493,146
OTHER LIABILITIES
Accounts payable, trade 2,288,603 5,469,059
Accounts payable, management fee -- 205,000
Accrued interest payable 48,012 10,254,842
Accrued development fees, partners -- 2,557,055
Accrued expenses 3,059,000 --
Deposits 1,575,271 4,180,866
Deferred income 400,000 400,000
------------ -----------
7,370,886 23,066,822
PARTNERS' EQUITY (10,783,766) 5,866,642
------------ -----------
$ 26,634,153 $61,426,610
============ ===========
</TABLE>
See notes to financial statements.
37
<PAGE> 38
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year For the eleven For the year
ended months ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Sales of developed property $ 29,431,179 $ 31,791,859 $ 23,911,279
Cost of sales (47,189,995) (29,847,232) (18,957,867)
------------ ------------ ------------
(17,758,816) 1,944,627 4,953,412
Other 301,735 (46,778) 194,290
------------ ------------ ------------
(17,457,081) 1,897,849 5,147,702
------------ ------------ ------------
EXPENSES
Fees, partners 50,000 110,000 120,000
Commissions 1,953,057 2,909,047 2,546,330
Legal and professional 6,632,876 410,404 72,126
Travel and entertainment 49,422 36,303 53,679
Operating and other 989,674 455,252 496,351
Depreciation and amortization 69,409 91,911 206,092
------------ ------------ ------------
9,744,438 4,012,917 3,494,578
------------ ------------ ------------
NET (LOSS) INCOME $(27,201,519) $ (2,115,068) $ 1,653,124
OTHER CAPITAL TRANSACTIONS
Land inventory adjustment $ 5,054,279 $ -- $ --
Fees and commissions adjustment 6,110,701 -- --
------------ ------------ ------------
11,164,980 -- --
Recharacterization of development fees (613,869) -- --
------------ ------------ ------------
Subtotal 10,551,111 -- --
------------ ------------ ------------
Net change in partnership capital $(16,650,408) $ ( 2,115,068) $ 1,653,124
============ ============ ============
</TABLE>
See notes to financial statements.
38
<PAGE> 39
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
Granite American
Silver Nevada
Silver Development Seven Hills
Canyon Partners, Limited
Corporation L.P. Partnership Total
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
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 loss for the eleven months
(705,023) (705,022) (705,023) (2,115,068)
----------- ------------ ----------- ------------
Balance at December 31, 1998 1,803,242 3,298,726 764,674 5,866,642
Net loss (1,985,727) (15,838,982) (9,376,810) (27,201,519)
Land inventory adjustment 2,485 4,263,313 788,481 5,054,279
Fees and commissions adjustment 180,000 1,675,982 4,254,719 6,110,701
Recharacterization of development
fees -- -- (613,869) (613,869)
----------- ------------ ----------- ------------
Balance at December 31, 1999 $ -- $ (6,600,961) $(4,182,805) $(10,783,766)
=========== ============ =========== ============
</TABLE>
See notes to financial statements.
39
<PAGE> 40
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the year For the eleven For the year
ended months ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income $(27,201,519) $ (2,115,068) $ 1,653,124
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities
Depreciation and amortization 69,409 91,911 206,092
Write off of organization costs -- 10,447 21,980
Changes in operating assets and liabilities:
Decrease (increase) in land and land improvements 27,871,594 (4,483,696) 205,598
Decrease in mortgage notes receivable 438,032 -- --
Decrease (increase) in restricted cash 157,111 1,308,200 (1,275,645)
Decrease (increase) in accounts receivable 3,193,392 (3,208,392) --
Increase in accounts receivable - affiliate (1,000,000) -- --
Increase in interest receivable (27,875) -- --
Decrease in funds in escrow 490,759 418,789 309,080
Decrease (increase) in other assets -- 143,756 (6,067)
(Decrease) increase in accounts payable - trade (3,180,455) 1,568,348 365,162
Increase (decrease) in accounts payable - management fee 15,000 55,000 (176,667)
Increase in accrued interest 2,430,343 2,695,064 2,459,887
(Decrease) increase in accrued developments fees, partners (1,533,220) 1,072,250 818,792
Decrease in accrued commissions -- -- (78,109)
Increase (decrease) in accrued expenses 3,059,000 -- (107,960)
(Decrease) increase in deposits (2,605,595) 2,244,741 1,506,125
(Decrease) increase in deferred income -- (350,000) 350,000
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,175,976 (548,650) 6,251,392
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from loan payable-Ohio Savings Bank 28,821,964 -- --
Repayment of loan payable-Ohio Savings Bank (26,834,784) -- --
Proceeds from loan payable-General Motors Acceptance Corporation -- 13,400,345 13,020,447
Repayment of loan payable-General Motors Acceptance Corporation (350,972) (18,801,193) (21,941,507)
Proceeds from loan payable-American Nevada Seven Hills Limited
Partnership 1,600,000 2,049,121 1,287,057
Repayment of loan payable-American Nevada Seven Hills Limited
Partnership (385,960) -- --
Proceeds from loan payable-Granite Silver Development Partners, L.P. 1,600,000 3,270,281 2,684,948
Repayment of loan payable-Granite Silver Development Partners, L.P. (175,855) -- --
Proceeds from loan payable-Silver Canyon Corporation 141,326 -- --
Increase in mortgage procurement costs (60,531) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities 4,355,188 (81,446) (4,949,055)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 6,531,164 (630,096) 1,302,337
CASH AT BEGINNING OF THE PERIOD 974,322 1,604,418 302,081
------------ ------------ ------------
CASH AT END OF THE PERIOD $ 7,505,486 $ 974,322 $ 1,604,418
============ ============ ============
</TABLE>
40
<PAGE> 41
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
STATEMENTS OF CASH FLOW (continued)
<TABLE>
<CAPTION>
For the year For the eleven For the year
ended months ended ended
December 31, December 31, January 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Operating expenses
Write off interest payable $(12,637,173) $ -- $ --
Write off development fee payable $ (1,243,835) $ -- $ --
Financing activities
Cancellation of Commissions applied to loan payable-
American Nevada Seven Hills Limited Partnership $ 4,224,719 $ -- $ --
Cancellation of Development fee applied to loan payable-
American Nevada Seven Hills Limited Partnership $ 1,181,131 $ -- $ --
Cancellation of Development fee applied to Partners' Equity-
American Nevada Seven Hills Limited Partnership $ 613,869 $ -- $ --
Cancellation of Commissions applied to loan payable-
Granite Silver Development Partners, L.P. $ 1,455,982 $ -- $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 925,530 $ 666,318 $ 1,460,278
Real estate taxes $ 505,035 $ 343,680 $ 178,847
</TABLE>
See notes to financial statements.
41
<PAGE> 42
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Silver Canyon Partnership ("Partnership"), was formed on January 7, 1994 to
acquire, own, plan, develop, operate, improve, lease, 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 were Silver Canyon Corporation, a Nevada Corporation
("SCC") and Granite Silver Development Partners, L.P., a Delaware Limited
Partnership ("Granite") owned by Granite Development Partners, L.P. 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 Seven Hills Limited Partnership ("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.
During the second quarter of 1999, ANC, the partner responsible for the onsite
improvements in the Seven Hills project, identified costs in excess of budget to
complete the project. Certain of these costs became known to operating personnel
during the fourth quarter of 1998. Further information became known during the
second quarter of 1999. The second quarter 1999 Form 10Q has also been restated
to include this additional information (See Note F). To minimize the impact of
these excess costs, an agreement ("Agreement") between ANC and Granite was
entered into which modified certain terms of the Silver Canyon Partnership
Agreement. The changes resulting from the Agreement are reflected in this
statement.
The Agreement's impact on the Silver Canyon Partnership Agreement includes the
following provisions:
1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to Granite.
Amounts previously paid will be deemed return of capital.
2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled (See Note E).
3. Granite will fund any future settlement for the outstanding lawsuit (See Note
E) but will receive a priority distribution to cover such capital contribution.
4. After the priority distribution in #3, ANC and Granite will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.
42
<PAGE> 43
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Thereafter, Granite will receive all distributions until it has recovered its
entire capital account. To the extent Granite does not recover its entire
capital account, ANC will negotiate in good faith as to whether ANC should fund
one-half of the outstanding lawsuit in #3.
6. After Granite has recovered its entire capital account, ANC and Granite will
share all remaining distributions pari passu.
The following table summarizes the impact of the Agreement to Silver Canyon
Partnership as of December 31, 1999:
<TABLE>
<S> <C>
Land inventory adjustment $ 5,054,279
Fees and commissions adjustment 6,110,701
-----------
Total adjustments $11,164,980
===========
</TABLE>
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 to
which the costs relate.
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.
43
<PAGE> 44
SILVER CANYON PARTNERSHIP
(A Nevada General 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 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.
Reclassifications
Certain amounts in the year ended December 31, 1998 have been reclassified to
conform to the current year's presentation.
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.
NOTE B - LOAN PAYABLE
The Partnership entered into a loan agreement with GMAC to fund development
expenditures of the property. GMAC agreed, in accordance with the loan
agreement, to make loans to the Partnership in an aggregate amount not to exceed
$30,000,000. The outstanding balance due and payable as of December 31, 1998 was
$350,972. The loan was due June 7, 1998. The Partnership had an agreement with
GMAC to postpone the final payment of the balance due until alternative
financing was secured. In January 1999, the Partnership obtained financing from
Ohio Savings Bank. Ohio Savings Bank has agreed, in accordance with the loan
agreement, to make loans to the Partnership in an aggregate amount which
outstanding balance shall not exceed $12,000,000. Proceeds were used to repay
the GMAC loan on January 6, 1999. The loan bears interest at prime (8.5% at
December 31, 1999) plus 1%. The outstanding balance due and payable to Ohio
Savings Bank was $1,987,180 at December 31, 1999. The loan is due January 28,
2002.
44
<PAGE> 45
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE B - LOAN PAYABLE (continued)
The loan agreement contains two debt service coverage ratios, which requires the
Partnership to maintain a certain level of net worth, as defined. Ohio Savings
Bank has re-defined net worth for the purposes of the two debt service coverage
ratios to include the debt that the Partnership owes to Granite. Thus, the
Partnership is in compliance with the two debt service coverage ratios as of
December 31, 1999.
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.
Based on the Agreement, the monthly administrative fees in the amount of $5,000
per month payable to Granite has been waived. Fees that were to be earned during
the year ended December 31, 1999 and the eleven months ended December 31, 1998
were $60,000 and $55,000, respectively. At December 31, 1999 accrued
administrative fees totaling $220,000 have been reversed and presented as other
capital transactions on the statement of operations.
Based on the Agreement, the monthly golf course operation fees in the amount of
$5,000 per month payable to SCC have been waived. Fees that were to be earned
during the year ended December 31, 1999 and the eleven months ended December 31,
1998 were $5,000 and $55,000, respectively. At December 31, 1999 accrued
operation fees totaling $180,000 have been reversed and presented as other
capital transactions on the statement of operations.
Based on the Agreement, the development fees payable to ANC have been waived.
Fees that were to be earned during the year ended December 31, 1999 and the
eleven months ended December 31, 1998 were $349,617 and $928,591,
respectively. At December 31, 1999, accrued development fees totaling $613,869
have been reversed and presented as other capital transactions on the statements
of operations.
Granite has advanced $26,633,823 at December 31, 1999, and $26,665,660 at
December 31, 1998, to the Partnership. Granite loaned the Partnership $1,600,000
during the year ended December 31, 1999 and $3,270,280 during the eleven months
ended December 31, 1998. Based on the Agreement, the above advances to the
Partnership shall not bear interest. All accrued and unpaid interest was waived.
No interest payments have been made historically. Originally, pursuant to the
Amended and Restated Partnership Agreement for the Partnership, funds advanced
to the Partnership as of January 31, 1996 bear interest at ten percent (10%) and
funds advanced subsequent to January 31, 1996 bear interest at prime rate (8.5%
at December 31, 1999) plus 1 -3/4%. Total interest that would have been earned
on the advances amounted to $2,699,395 and $2,327,615 for the twelve months
ended December 31, 1999 and 1998, respectively.
On November 22, 1999, the Partnership issued a Capital Call to its three
partners in the amount of $1,066,667 each. One of the partners, SCC, failed to
pay its Capital Call of $1,066,667 and
45
<PAGE> 46
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE C - TRANSACTIONS WITH AFFILIATES (continued)
was therefore in default. Pursuant to the terms of the Partnership Agreement,
each of the other two partners, Granite and ANC elected to make "Shortfall
Loans", each in the amount of $533,334 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.
According to the terms of the Agreement, Granite has agreed to fund ANC's
portion of future capital calls without charging interest. In addition, Granite
would continue to make "Shortfall Loans" to SCC when necessary.
ANC loaned the Partnership $1,600,000 and $2,049,121 during the years ended
December 31, 1999 and the eleven months ended December 31, 1998, 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 year ended December 31, 1999, and for the
eleven months ended December 31, 1998, total interest charges were $3,355,873,
$3,397,733, of which $3,355,873, $3,397,733, were capitalized respectively. For
the year ended December 31, 1999, and for the eleven months ended December 31,
1998, total real estate taxes were $500,912, $347,803, respectively, of which
$500,912 was capitalized at December 31, 1999 and $347,803 was capitalized at
December 31, 1998.
NOTE E - LITIGATION
In Henderson, Nevada, the Partnership is developing the Seven Hills project next
to a golf course. Five lawsuits have been filed relating to the right to play on
the golf course.
A class action lawsuit that was filed by the current homeowners in the Seven
Hills project against the Partnership and the golf course developers, among
others, was settled in November 1999.
The owner of the golf course had filed a cross-claim against the Partnership,
Granite, and other entities. This lawsuit was settled in March 2000.
Certain production homebuilding companies at Seven Hills had also filed suits.
The Partnership settled with one of these production home building companies in
March 2000. The remaining two suits have been settled in principal, but the
settlement documents have not been executed.
Sales efforts are continuing at the Seven Hills development and management does
not believe that the lawsuits that have been settled will significantly hinder
those sales efforts. Management has paid or accrued approximately $6,600,000 in
litigation and legal expenses during 1999 related to the above lawsuits.
Management believes that this will be the extent of the impact of these lawsuits
on the financial performance of the Partnership.
46
<PAGE> 47
SILVER CANYON PARTNERSHIP
(A Nevada General Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE F - RESTATEMENT OF THE SIX MONTHS ENDED JUNE 30, 1999
The six months ended June 30, 1999, has been restated to reflect the correction
of the computation of cost of sales in the Partnership. Certain costs became
known to operating personnel during the second quarter of 1999 but was not
included in the original computation of cost of sales. These excess costs were
identified during the third quarter of 1999.
The restatement results from the identification of costs in excess of those
budgeted to complete the project. These adjustments to cost of sales had the
effect of increasing cost of sales and increasing net loss for the six months
ended June 30, 1999 by $14,163,373.
The following table summarizes the impact of the amounts previously reported:
<TABLE>
<CAPTION>
------------------- ----------------
For the For the
six months ended six months ended
June 30, 1999 as June 30, 1999 as
previously reported restated
------------------- ----------------
<S> <C> <C>
Cost of Sales $ 7,658,894 $ 21,822,267
Operating income (loss) $ 1,683,740 $(12,479,633)
Net loss $ (97,970) $(14,261,343)
</TABLE>
47
<PAGE> 48
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:
<TABLE>
<CAPTION>
NAME OFFICE
------ ------
<S> <C>
Robert F. Monchein President
Samuel H. Miller Vice President, Director
Thomas G. Smith Secretary
Albert B. Ratner Director
Charles A. Ratner Director
</TABLE>
Robert F. Monchein, age 55, 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 78, 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 is currently Co-Chairman of the Board of
Directors of Forest City.
Thomas G. Smith, age 59, is the Secretary of the General Partner. Mr.
Smith joined Forest City in 1985 as Senior Vice President and Chief Financial
Officer.
Albert B. Ratner, age 72, is a Director of the General Partner and
Sunrise. Mr. Ratner joined Forest City in 1951 and is currently Co-Chairman of
the Board of Directors of Forest City. Mr. Ratner is also a director of American
Greetings Corporation.
Charles A. Ratner, age 58, is a Director of the General Partner. Mr.
Ratner joined Forest City in 1966 and is serving as its President and Chief
Executive Officer.
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
48
<PAGE> 49
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, 1999 and December 31, 1998.
Statements of Operations for the year ended December 31, 1999,
the eleven months ended December 31, 1998, and for the year
ended January 31, 1998.
Statements of Changes in Partners' Deficit for the year ended
December 31, 1999, the eleven months ended December 31, 1998
and for the years ended January 31, 1998 and 1997.
Statements of Cash Flows for the year ended December 31, 1999,
the eleven months ended December 31, 1998 and for the year
ended January 31, 1998.
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
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(continued)
Financial Statements:
Balance Sheets - December 31, 1999 and December 31, 1998.
Statements of Operations for the year ended December 31, 1999,
the eleven months ended December 31, 1998, and for the year
ended January 31, 1998.
Statements of Changes in Partners' Deficit for the year ended
December 31, 1999, the eleven months ended December 31, 1998
and for the years ended January 31, 1998 and 1997.
Statements of Cash Flows for the year ended December 31, 1999,
the eleven months ended December 31, 1998 and for the year
ended January 31, 1998.
Notes to the Financial Statements
49
<PAGE> 50
(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 Agreement 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.
50
<PAGE> 51
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 30, 2000 /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.
<TABLE>
<S> <C> <C>
Principal Executive Officer: President, FC-Granite, Inc. Date: March 30, 2000
/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 30, 2000
Accounting Officer general partner of Granite --------------
/s/ Mark A. Ternes Development Partners, L.P.
- - ------------------
Mark A. Ternes
/s/ Samuel H. Miller Vice President, Director Date: March 30, 2000
- - -------------------- --------------
Samuel H. Miller
/s/ Thomas G. Smith Secretary Date: March 30, 2000
- - ------------------- --------------
Thomas G. Smith
/s/ Albert B. Ratner Director Date: March 30, 2000
- - -------------------- --------------
Albert B. Ratner
/s/ Charles A. Ratner Director Date: March 30, 2000
- - --------------------- --------------
Charles A. Ratner
</TABLE>
51
<PAGE> 52
Granite Development Partners, L.P.
Schedule I I I - Real Estate Owned
<TABLE>
<CAPTION>
Initial cost
Amount of to Company
encumbrance ---------------------------------
at December 31,
Description of property 1999 Land Improvements
- - ----------------------- ----------- ----------- ----------
<S> <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 --
Undeveloped commercial land, Parma, Ohio -- 554,664 --
Undeveloped land, Middleburg Heights, Ohio -- 718,683 --
Undeveloped land, North Royalton, Ohio -- 232,049 --
Undeveloped land, Solon, Ohio 528,961 464,825 --
Undeveloped commercial land, North Olmsted, Ohio -- 305,923 --
Developed land, North Royalton, Ohio -- 160,397 --
Undeveloped land, Twinsburg, Ohio -- 1,179,875 --
Undeveloped land, Olmsted Falls, Ohio -- 1,102,526 --
Undeveloped land, Newbury Township, Ohio -- 460,842 --
Undeveloped land, Medina, Ohio -- 42,545 --
Undeveloped land, Medina, Ohio -- 131,382 --
Senior Notes Payable 36,000,000 -- --
----------- ----------- ----------
$36,528,961 $17,345,164 $ --
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross amount at which
Cost capitalized carried at close of
subsequent to acquisition December 31, 1999
--------------------------- ------------------------------------------
Carrying
Improvements Costs Land Improvements Total (A)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Undeveloped land, North Miami Beach, Florida $ -- -- $ -- $ -- $ --
Developed and undeveloped land, Kirtland and
Kirtland Hills, Ohio -- -- -- -- --
Undeveloped commercial land, Strongsville, Ohio -- -- -- -- --
Undeveloped commercial land, Parma, Ohio 4,239 -- 51,216 4,239 55,455
Undeveloped land, Middleburg Heights, Ohio -- -- -- -- --
Undeveloped land, North Royalton, Ohio -- -- -- -- --
Undeveloped land, Solon, Ohio 784,919 -- 448,661 784,919 1,233,580
Undeveloped commercial land, North Olmsted, Ohio 24,183 -- 76,148 24,183 100,331
Developed land, North Royalton, Ohio 1,121 -- 65,671 1,121 66,792
Undeveloped land, Twinsburg, Ohio -- -- -- -- --
Undeveloped land, Olmsted Falls, Ohio -- -- -- -- --
Undeveloped land, Newbury Township, Ohio 117,898 -- 143,222 117,898 261,120
Undeveloped land, Medina, Ohio 324,450 -- 353,218 324,450 677,668
Undeveloped land, Medina, Ohio -- -- -- -- --
Senior Notes Payable -- -- -- -- --
---------- ---------- ---------- ---------- ----------
$1,256,810 $ -- $1,138,136 $1,256,810 $2,394,946
========== ========== ========== ========== ==========
</TABLE>
(A) Land held by the unconsolidated joint ventures, included in Note H to the
financial statements, also encumbered by the senior notes payable totals
$10,204,635.
(B) Reconciliations of total real estate carrying value are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 3,203,853 $ 6,360,771
Additions during period -
Improvements 2,707,507 2,673,290
Other acquisition -- --
----------- -----------
5,911,360 9,034,061
----------- -----------
Deductions during period -
Cost of real estate sold (3,516,414) (5,830,208)
----------- -----------
Balance at end of period $ 2,394,946 $ 3,203,853
=========== ===========
</TABLE>
<PAGE> 53
Silver Canyon Partnership
Schedule I I I - Real Estate Owned
<TABLE>
<CAPTION>
Initial cost
Amount of to Company
encumbrance ---------------------------------
at December 31,
Description of property 1999 Land Improvements
- - ----------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Developed land, Henderson, Nevada $ -- $23,323,784 --
----------- ----------- ----------
$ -- $23,323,784 $ --
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross amount at which
Cost capitalized carried at close of
subsequent to acquisition December 31, 1999
--------------------------- ------------------------------------------
Carrying
Improvements Costs Land Improvements Total (A)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Developed land, Henderson, Nevada $7,220,056 -- $10,204,635 $ 7,220,056 $17,424,691
---------- ----------- ----------- ----------- -----------
$7,220,056 $ -- $10,204,635 $ 7,220,056 $17,424,691
========== =========== =========== =========== ===========
</TABLE>
(A) Reconciliations of total real estate carrying value are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Balance at beginning of period $ 55,488,014 $ 51,004,318
Additions during period -
Improvements 20,003,724 32,701,498
Other acquisition -- --
------------ ------------
75,491,738 83,705,816
------------ ------------
Deductions during period -
Cost of real estate sold (58,067,047) (28,217,802)
------------ ------------
Balance at end of period $ 17,424,691 $ 55,488,014
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,219,145
<SECURITIES> 0
<RECEIVABLES> 967,770
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,394,946
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,689,141
<CURRENT-LIABILITIES> 0
<BONDS> 36,528,961
0
0
<COMMON> 0
<OTHER-SE> (16,443,530)
<TOTAL-LIABILITY-AND-EQUITY> 28,689,141
<SALES> 0
<TOTAL-REVENUES> 2,437,299
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 550,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,470,896
<INCOME-PRETAX> (17,731,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,731,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,731,283)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
