ITEM 1. BUSINESS
All references to "Notes" are to Notes to Consolidated Financial Statements contained in this report.
The registrant, Arvida/JMB Partners, L.P. (the "Partnership"), is a limited partnership formed in 1987 and currently governed under the Revised Uniform Limited Partnership Act of the State of Delaware. The Partnership was formed to own and develop substantially all of the assets of Arvida Corporation (the "Seller"), a subsidiary of The Walt Disney Company, which were acquired by the Partnership from the Seller on September 10, 1987. On September 16, 1987, the Partnership commenced an offering to the public of up to $400,000,000 in Limited Partnership Interests and assignee interests therein ("Interests") pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933 (No. 33-14091). A total of 400,000 Interests were sold to the public (at an offering price of $1,000 per Interest before discounts) and the holders of 400,000 Interests were admitted to the Partnership in October 1987. The offering terminated October 31, 1987. In addition, a holder (an affiliate of the dealer- manager of the public offering) of 4,000 Interests was admitted to the Partnership in October 1987. Subsequent to admittance to the Partnership, no Holder of Interests (a "Holder" or "Holder of Interests") has made any additional capital contribution. The Holders of Interests of the Partnership generally share in their portion of the benefits of ownership of the Partnership's real property investments and other assets according to the number of Interests held.
Pursuant to the Partnership Agreement, the Partnership may continue in existence until December 31, 2087; however, the General Partner shall elect to pursue one of the following courses of action on or before October 31, 1997: (i) to cause the Interests to be listed on a national exchange or to be reported by the National Association of Securities Dealers Automated Quotation System; (ii) to purchase, or cause JMB Realty Corporation or its affiliates to purchase all of the Interests at their then appraised fair market value (as determined by an independent nationally recognized investment banking firm or real estate advisory company); or (iii) to commence a liquidation phase in which all of the Partnership's remaining assets will be sold or disposed of by the end of the fifteenth year from the termination of the offering.
The assets of the Partnership consist principally of interests in land which is in the process of being developed into master-planned residential communities (the "Communities") and, to a lesser extent, commercial and industrial properties; mortgage notes and accounts receivable; construction, brokerage and other support businesses; real estate assets held for investment; certain club and recreational facilities; and a cable television business serving one of its Communities. The Partnership is principally engaged in the development of comprehensively planned resort and primary home Communities containing a diversified product mix designed for the middle and upper income segments of the various markets in which the Partnership operates.
The Partnership sells individual residential lots and parcels of partially developed and undeveloped land. The third-party builders and developers to whom the Partnership sells homesites and land parcels are generally smaller local builders who require project specific financing for their developments and whose operations are more susceptible to fluctuations in the availability and terms of financing. In addition, within the Communities, the Partnership constructs, or causes to be constructed, a variety of products, including single-family homes, town- houses and condominiums to be developed for sale, as well as related commercial and recreational facilities. The Communities are located primarily throughout the State of Florida, with Communities also located near Atlanta, Georgia; Highlands, North Carolina and, until March 1996, in Orange County, California. Additional undeveloped properties owned by the Partnership in or near its Communities are being considered for development
as commercial, office and industrial properties. The Partnership also owns or manages certain club and recreational facilities within certain of its Communities. Certain assets located in Florida were acquired by the Partnership from the Seller by purchasing a 99.9% interest in a joint venture partnership in which the General Partner acquired the remaining joint venture partnership interest. In addition, other assets are owned by various partnerships, the interests of which are held by certain indirect subsidiaries of the Partnership and by the Partnership.
Arvida Company ("Arvida"), an affiliate of the General Partner, provides certain development and management supervisory personnel to the Partnership for the supervision of all of its projects and operations, subject, in each case, to the overall control of the General Partner on behalf of the Partnership. The Partnership, directly or through certain subsidiaries, provides development and management services to the homeowners associations within the Communities. At December 31, 1996, one of the Partnership's Communities offered a cable television system to its residents, which system is owned and operated by an entity owned by the Partnership.
The business of the Partnership is cyclical in nature and certain aspects of the development of Community projects are to some degree seasonal. The Partnership does not expect that such seasonality will have a material impact on its business. A presentation of information about industry segments, geographic regions or raw materials is not applicable and would not be material to an understanding of the Partnership's business taken as a whole.
The Communities are in various stages of development. The remaining estimated build-out time for the Communities ranges from one to nine years.
The Partnership generally follows the practice with respect to Communities of (i) developing an overall master plan for the Community, (ii) creating a unifying architectural theme that is consistent with the Community's master plan, (iii) offering a variety of recreational facilities, (iv) imposing architectural standards and other property restrictions on residents and third-party developers, in order to enhance the long-term value of the Community, (v) establishing property owners' associations to maintain compliance with architectural, landscaping and other requirements and to provide for ownership and maintenance of certain facilities, and/or (vi) operating and controlling access to golf, tennis and other recreational facilities.
The Partnership's development approach, individually or by joint venture, is intended to enhance the value of real estate in successive phases. The first step in the development of a property is to design a Community master plan that addresses the appropriate land uses and product mix, including residential, recreational and, where appropriate, commercial and industrial uses. The Partnership then seeks to obtain the necessary regulatory and environmental approvals for the development of the Community in accordance with the master plan. This approval process is a major factor in determining the viability and prospects for profitability of the Partnership's development projects.
In addition, prior to or contemporaneously with zoning approval, the Partnership, if subject to the applicable filing requirements, must obtain "Development of Regional Impact" ("DRI") approval from the applicable local governmental agency after review and recommendations from the appropriate regional planning agency, with oversight by the Florida State Department of Community Affairs. Receipt of DRI approval is a prerequisite to obtaining zoning, platting, building permits or other approvals required to begin development or construction. Obtaining such approvals can involve substantial periods of time and expense and may result in the loss of desired densities, and approvals may need to be resubmitted if there is any subsequent deviation in current approved plans. The process may also require committing land for public use and payment of substantial impact fees. In addition, state laws generally provide further that a parcel of
land cannot be subdivided into distinct segments without having a plat filed and finalized with the local or municipal authority, which will, in general, require the approval of various local agencies, such as environmental and public works departments. In addition, the Partnership must secure the actual permits for development from applicable Federal (e.g., the Army Corps of Engineers and/or the Environmental Protection Agency with respect to coastal and wetlands developments, including dredging of waterways) and state or local agencies, including construction, dredging, grading, tree removal and water management and drainage district permits. The Partnership may, in the process of obtaining such permits or approvals for platting or construction activities, incur delays or additional expenses; however, such permits and approvals are customarily obtained in conjunction with the development process. Failure to obtain or maintain necessary approvals, or rejection of submitted plans, would result in an inability to develop the Community as originally planned and would cause the Partnership to reformulate development plans for resubmission, which might result in a failure to increase, or a loss of, market value of the property. The foregoing discussion and the discussion which follows are also generally applicable to the Partnership's commercial and industrial developments.
Upon receipt of all approvals and permits required to be obtained by the Partnership for a specific Community, other than actual approvals or permits for final platting and/or construction activities, the Partnership applies for the permits and other approvals necessary to undertake the construction of infrastructure, including roads, water and sewer lines and amenities such as lakes, clubhouses, golf courses, tennis courts and swimming pools. These expenditures for infrastructure and amenities are generally significant and are usually required early in the development of a Community project, although the Partnership will attempt, to the extent feasible, to develop Communities in a phased manner. See Note 12 for further discussion regarding Tax Increment Financing Entities and their involvement with infrastructure improvements.
Certain of the Florida Communities described below have applied for and have been designated as Planned Unit Development's ("PUD") by the local zoning authority (usually the governing body of the municipality or the county in which the Community is or will be located). Designation as a PUD generally establishes permitted densities (i.e., the number of residential units which may be constructed) with respect to the land covered thereby and, upon receipt, enables the developer to proceed in an orderly, planned fashion. Generally, such PUD approvals permit flexibility between single- unit and multi-unit products since the developer can plan Communities in either fashion as long as permitted densities are not exceeded. As a consequence, developments with PUD status are able to meet changing demand patterns in housing through such flexibility. It should be noted that some of the Communities, while not having received PUD approval, have obtained the necessary zoning approvals to create a planned community development with many of the benefits of PUD approval such as density shifting.
In developing the infrastructure and amenities of its Communities and building its own housing products, the Partnership may function as a general contractor although it may also from time to time hire firms for general contracting work. The Partnership generally follows the practice of hiring subcontractors, architects, engineers and other professionals on a project-by-project basis rather than maintaining in-house capabilities, principally to be able to select the subcontractors and consultants it believes are most suitable for a particular development project and to control fixed overhead costs. Although the General Partner does not expect the Partnership to be faced with any significant material or labor shortages, the construction industry in general has from time to time experienced serious difficulties in obtaining certain construction materials and in having available a sufficiently large and adequately trained work force.
The Partnership's strategy includes the ownership and development of certain commercial and industrial property not located in a Partnership Community. In addition, certain of the Partnership's Communities contain acreage zoned for commercial use, although, except for the Weston Community, such acreage is generally not substantial. On both of such types of properties, the Partnership, individually or with a joint venture partner, may build shopping centers, office buildings and other commercial buildings and may sell land to be so developed.
Certain of the Communities and operations are owned by the Partnership jointly with third parties. Such investments by the Partnership are generally in partnerships or ventures which own and operate a particular property in which the Partnership or an affiliate (either alone or with an affiliate of the General Partner) has an interest.
The principal assets in which interests have been acquired by the Partnership are described in more detail under Item 2
ITEM 2. PROPERTIES
The principal assets being developed or managed by the Partnership are described below. The acreage amounts set forth herein are approximations of the gross acreage of the Communities or other properties referred to or described and are not necessarily indicative of the net developable acreage currently owned by the Partnership or its joint ventures. All of the Partnership's properties are subject to mortgages to secure the repayment of the Partnership's indebtedness as discussed in detail in Note 8.
(a) Palm Beach County, Florida
The Partnership owned property in Broken Sound, a 970-acre Community located in Boca Raton. The Community offered a wide range of residential products built by the Partnership or third-party builders, all of which were sold and closed as of December 31, 1995.
(b) Broward County, Florida
The Partnership owns property in Weston, a 7,500-acre Community in its mid stage of development. The Community offers a complete range of housing products built by the Partnership or third-party builders, as well as tennis, swim and fitness facilities, two-18 hole golf courses and an equestrian center. In addition, the Partnership owns commercial land, most of which is currently undeveloped, located in the Weston Community. Reference is made to Note 12 for a discussion of the Partnership's use of certain tax-exempt financing in connection with the development of the Weston Community.
(c) Sarasota / Tampa, Florida
The Partnership owns property on Longboat Key which is a barrier island on Florida's west coast, approximately four miles from downtown Sarasota and seven miles from Sarasota/Bradenton airport. The property is in its mid stage of development. The Partnership also owns property in a Community in the Tampa area known as River Hills Country Club which is a 1,200-acre Community in its mid stage of development.
(d) Jacksonville, Florida
The Partnership owned property in two Communities in Ponte Vedra Beach, Florida, twenty-five miles from downtown Jacksonville, known as Sawgrass Country Club and The Players Club at Sawgrass. All units in these Communities were sold and closed as of December 31, 1996. The Partnership also owns property in a 730-acre Community known as the Jacksonville Golf and Country Club which is in its late stage of development.
(e) Atlanta, Georgia
The Partnership owns properties in the Atlanta, Georgia area known as Water's Edge and Dockside. Water's Edge is in its mid stage of development. All of the units in the Partnership's Dockside Community were sold and closed as of December 31, 1996.
(f) Highlands, North Carolina
The Partnership owns a 600-acre Community near Highlands, North Carolina known as The Cullasaja Club. The Community is in its mid stage of development.
(g) Other
As of December 31, 1995, the Partnership also owned a 20% joint venture interest in a 4,000-acre Community, known as Coto de Caza, located in Southern Orange County, California. During March 1996, the Partnership sold its interest in the Community to unaffiliated third parties for approximately $12 million. Reference is made to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 7 for further discussion of this joint venture.
The Partnership also owns, either directly or through joint venture interests, various commercial and industrial sites and buildings in Sarasota, Tampa, Ocala, Pompano Beach and Palm Beach County, Florida which are not located in its residential Communities. At December 31, 1996, the joint venture property in Pompano Beach was encumbered by mortgages in the aggregate principal amount of approximately $4.0 million. Reference is made to Note 11 for further discussion of this venture and its related indebtedness.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
(A) On June 24, 1996, a lawsuit entitled Irvin Weiss v. Arvida/JMB Managers, Inc., Neil G. Bluhm, Lehman Brothers Inc. and Arvida/JMB Partners, L.P. ("Weiss action") was filed in the County Department, Chancery Division of the Circuit Court of Cook County, Illinois. This lawsuit is a purported class action lawsuit on behalf of Irvin Weiss and all other Holders of Interests to bar (i) the General Partner and Mr. Bluhm from taking any action to chill tender offers from non-affiliates, (ii) the officers, directors and shareholders of the defendants from participating in any special committee on tender offers, (iii) Lehman Brothers Inc. from advising any such special committee, and (iv) defendants and their affiliates from making tender offers. On September 25, 1996, the claims of Irvin Weiss were voluntarily dismissed.
A second complaint was filed in the County Department, Chancery Division of the Circuit Court of Cook County, Illinois on July 1, 1996, and most recently amended on November 27, 1996 in connection with a court ruling dismissing certain allegations, in the matter of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury v. Arvida/JMB Managers, Inc., Neil G. Bluhm, Ira J. Schulman, Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, Judd D. Malkin, Lehman Brothers Inc., Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS Capital II, L.L.C., Barry Sternlicht, Walton Street Capital Acquisition Co. III and Whitehall Street Real Estate Limited Partnership VII, and Arvida/JMB Partners, L.P., nominal defendant ("Carlstrom action"). This complaint, as amended, is brought derivatively on behalf of the Partnership and individually on behalf of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury and a purported class of all other Holders of Interests (excluding the defendants, members of their immediate families, affiliates, subsidiaries, agents, partners, members of their current or former management or that of their affiliates, and any participant in the alleged conspiracy). The Carlstrom action challenged, among other things, the Partnership's proposed $160 million term loan from Starwood/Florida Funding, L.L.C. ("Starwood financing") and seeks, among other things, to bar defendants from taking any action to chill tender offers or offers for debt financing from non-affiliates; to cause defendants to put the issue of the Starwood financing to a vote of unitholders; to bar defendants from completing the Starwood financing; to disband the Special Committee and allow the Holders of Interests to vote on an "independent slate" of directors to compose a new special committee; and to cause the Partnership and director defendants to auction the Partnership. The complaint, as amended, alleges, among other things, that the General Partner breached its fiduciary duties owed plaintiffs and members of the purported class by failing to negotiate for the financing with other entities and entering into the Starwood financing in order to entrench itself and maintain its control over the Partnership. The complaint, as amended, also alleges that the terms of the Starwood financing are burdensome to the Partnership and allegedly will cause a waste of the Partnership's assets. The Carlstrom action has been consolidated with the Weiss action and is brought as a four-count complaint for breach of fiduciary duty on behalf of the class, breach of fiduciary duty on behalf of the Partnership, conspiracy and collusion to breach fiduciary duties on behalf of the class and the Partnership, and for an injunction on behalf of the class and the Partnership. In addition to the relief described above, plaintiffs in the complaint, as amended, on behalf of themselves and members of the purported class seek damages in a sum to be determined at trial, attorneys' fees and costs, and such other relief as the Court may deem just and proper. On December 13, 1996, the Court granted the plaintiffs' motion for preliminary injunction to stop the Starwood financing until a hearing on a permanent injunction. The Partnership, its General Partner, and members of the Special Committee have appealed the order granting the preliminary injunction. The appeal is pending in the Appellate Court of Illinois, First Judicial District, Case No. 97-0093. In the appeal, the Partnership, its General Partner, and members of the Special Committee, among other things, contend that the wrong legal standard was applied by the trial court in the hearing on plaintiffs' motion for preliminary injunction in requiring the Partnership
to prove the fairness of the Starwood financing. In addition, and alternatively, the Partnership contends that the adoption of the Starwood financing, which an independent investment banker opined was commercially reasonable and fair, satisfied the legal standard applied by the Court. The parties to the Carlstrom action engaged in mediation discussions supervised by the Court which began on March 5, 1997 and have been conducted on various dates thereafter. As of the date of this filing, the parties contemplate an appearance before the Court during the week of March 31, 1997, for purposes of presenting a proposed resolution of this matter for preliminary Court approval. If such mediation discussions do not result in a resolution of this matter, a hearing on a permanent injunction will be scheduled and the appeal process will continue. Due to the uncertainty of the outcome of this matter, the accompanying consolidated financial statements do not reflect any accruals related to the resolution of this litigation.
(B) On or about September 27, 1996, a lawsuit entitled Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital Associates L.P., individually and derivatively on behalf of Arvida/JMB Partners, L.P. v. Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C., Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB Partners, L.P., nominal defendant, was filed in the Court of Chancery of the State of Delaware in and for New Castle County, Civil Action No. 15238 ("Raleigh action"). The Raleigh action was filed as a verified complaint for declaratory and injunctive relief. Plaintiffs claimed that the defendants in entering into the financing commitment letter for the Starwood term financing violated, or aided and abetted, or participated in the violation of, fiduciary duties owed to the Partnership and the Holders of Interests, and put their personal interests ahead of the interests of the Partnership and the Holders of Interests. In the first claim for relief, plaintiffs sought a declaratory judgment that the terms of the Starwood financing be declared null, void and unenforceable. In the second claim for relief, plaintiffs asserted a claim, derivatively on behalf of the Partnership, alleging, among other things, that the financing commitment letter for the Starwood financing was not the product of a valid exercise of business judgment. In addition to the relief described above, plaintiffs sought to preliminarily and permanently enjoin any actions in furtherance of the financing commitment letter, an award of compensatory damages, interest, costs and disbursements, including reasonable attorneys' and experts' fees and such other relief as the Court might deem just and proper. The General Partner and the Partnership filed a motion to dismiss the Raleigh action which motion was granted on November 7, 1996. In granting the motion, the Court held that Raleigh was not a Limited Partner and did not have standing to file the derivative claims. The Court further determined that Raleigh did not have the right to vote. Plaintiffs asked the Court to reconsider its ruling, but the Court denied the request to change its ruling.
Plaintiffs appealed the November 7, 1996 dismissal order. On December 12, 1996, the Delaware Supreme Court reversed the trial court order on a procedural ground. The Delaware Supreme Court concluded that the trial court should not have considered matters outside of the pleadings in dismissing the Raleigh action without providing the plaintiffs some limited discovery. Accordingly, the Delaware Supreme Court remanded the case back to the trial court for further proceedings.
On December 16, 1996, the Partnership filed a counterclaim against Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh had no right to vote on Partnership matters. On January 28, 1997, the trial court granted plaintiffs leave to dismiss their own complaint concerning the Starwood financing, leaving the Partnership's counterclaim pending.
By letter dated January 10, 1997, Raleigh requested admission as a Substituted Limited Partner of the Partnership. The Partnership referred the request to the Special Committee of the Partnership. On February 11, 1997, the Special Committee denied the request. Thereafter, the Partnership supplemented its counterclaim, as amended, to seek a court declaration that Raleigh is not entitled to be admitted as a Substituted Limited Partner. On February 20, 1997, Raleigh filed a reply and counterclaim against the Partnership, the General Partner, and the Special Committee. The reply counterclaim seeks, among other things, a declaration that Raleigh has voting rights in the Partnership and that defendants' breached their fiduciary duties by failing to admit Raleigh as a Substituted Limited Partner. The reply counterclaim also seeks to enjoin the Partnership, the General Partner, and the Special Committee from refusing to admit Raleigh as a Substituted Limited Partner, an award of damages, interest, fees, and costs.
On or about February 28, 1997, Gladys Beasley, individually and as a representative of a class of persons similarly situated, filed an intervenor complaint for declaratory relief against the Partnership. In the intervenor complaint, plaintiff seeks a declaration that purchasers who obtained Interests in the Partnership in the public offering and subsequent Holders of Interests in the Partnership by assignment from original Holders have the same voting rights in the Partnership, among other things, to remove and replace the General Partner. In addition, plaintiff Gladys Beasley, seeks an order adjudging and decreeing that the intervenor action be properly maintained as a class, an award of her costs and expenses of the litigation, and such other relief as the Court deems appropriate.
The trial of all claims in the Delaware action is scheduled from April 7, 1997 through April 9, 1997.
(C) The Partnership was named a defendant in a number of homeowner lawsuits, certain of which purported to be class actions, that allegedly in part arose out of or related to Hurricane Andrew, which on August 24, 1992 resulted in damage to a former community development known as Country Walk.
The homeowner lawsuits alleged, among other things, that the damage suffered by the plaintiffs' homes and/or condominiums within Country Walk was beyond what could have been reasonably expected from the hurricane and/or was a result of the defendants' alleged defective design, construction, inspection and/or other improper conduct in connection with the development, construction and sales of such homes and condominiums, including alleged building code violations. The various plaintiffs sought varying and, in some cases, unspecified amounts of compensatory damages and other relief. In certain of the lawsuits injunctive relief and/or punitive damages were sought.
Several of these lawsuits alleged that the Partnership was liable, among other reasons, as a result of its own alleged acts of misconduct or as a result of the Partnership's alleged assumption of Arvida Corporation's liabilities in connection with the Partnership's purchase of Arvida Corporation's assets from The Walt Disney Company ("Disney") in 1987, which included certain assets related to the Country Walk development. Pursuant to the agreement to purchase such assets, the Partnership obtained indemnification by Disney for certain liabilities relating to facts or circumstances arising or occurring prior to the closing of the Partnership's purchase of the assets. Over 80% of the Arvida-built homes in Country Walk were built prior to the Partnership's ownership of the Community. Where appropriate, the Partnership has tendered or will tender each of the above-described lawsuits to Disney for defense and indemnification in whole or in part pursuant to the Partnership's indemnification rights. Where appropriate, the Partnership has also tendered these lawsuits to its various insurance carriers for defense and coverage. The Partnership is unable to determine at this time to what extent damages in these lawsuits, if any, against the Partnership, as well as the Partnership's cost of investigating and defending the lawsuits, will ultimately be recoverable by the Partnership either pursuant to its rights of indemnification by Disney or under contracts of insurance.
One of the Partnership's insurance carriers has been funding settlements of various litigation related to Hurricane Andrew. In some, but not all, instances the insurance carrier has provided the Partnership with written reservation of rights letters. The aggregate amount of the settlements funded to date by this carrier is approximately $8.0 million. The insurance carrier that funded these settlements pursuant to certain reservations of rights has stated its position that it has done so pursuant to various non-waiver agreements. The carrier's position was that these non-waiver agreements permitted the carrier to fund settlements without barring the carrier from raising insurance coverage issues or waiving such coverage issues. On May 23, 1995, the insurance carrier rescinded the various non-waiver agreements currently in effect regarding the remainder of the Hurricane Andrew litigation, allegedly without waiving any future coverage defenses, conditions, limitations, or rights. For this and other reasons, the extent to which the insurance carrier may recover any of these proceeds from the Partnership is uncertain. Therefore, the accompanying consolidated financial statements do not reflect any accruals related to this matter.
Currently, the Partnership is involved in two subrogation lawsuits. On April 19, 1993, a subrogation claim entitled Village Homes at Country Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this suit for the use and benefit of American Reliance Insurance Company ("American Reliance"). In this suit, as amended, plaintiffs seek to recover damages and pre- and post-judgment interest in connection with $10,873,000 American Reliance has allegedly paid, plus amounts it may have to pay in the future, to the condominium association at Country Walk in the wake of Hurricane Andrew. Disney is also a defendant in this suit. The Partnership believes that the amount of this claim that allegedly relates to units it sold is approximately $3,600,000. Plaintiffs also seek a declaratory judgement seeking to hold the Partnership and other defendants responsible for amounts American Reliance must pay in the future to its insured as additional damages beyond the $10,873,000 previously paid. The Partnership has filed motions directed to the complaint, as amended, and the litigation is in the discovery stage. The Partnership intends to vigorously defend itself. On or about May 10, 1996, a subrogation claim entitled Juarez et al v. Arvida Corporation et al was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County. Plaintiffs filed this suit for the use and benefit of American Reliance. In this suit, plaintiffs seek to recover damages, pre-and post-judgment interest, costs and any other relief the Court may deem just and proper in connection with $3,200,000 American Reliance allegedly paid on specified claims at Country Walk in the wake of Hurricane Andrew. Disney is also a defendant in this suit. The Partnership is advised that the amount of this claim that allegedly relates to units it sold is approximately $350,000. The Partnership intends to defend itself vigorously in this matter. The Partnership was also involved in a subrogation action brought by the Insurance Company of North America ("INA") arising out of a claim that INA allegedly paid on a single home in Country Walk. The Partnership has settled this claim for approximately $45,600 with the settlement being funded by the Partnership's insurance carrier. The Metropolitan Property and Casualty Company ("Metropolitan") has advised the Partnership of its intent to file a subrogation action allegedly in connection with an unspecified number of Arvida-built homes. Currently, Metropolitan has advised the Partnership of three claims, totalling approximately $505,000. The Partnership could be named in other subrogation actions, and in such event, the Partnership intends to vigorously defend itself in such actions.
(D) On or about October 16, 1995, a lawsuit was filed against the Partnership and others in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida, and amended on or about February 20, 1996, entitled Council of Villages, Inc. et al v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., Broken Sound Club, Inc., and Country Club Maintenance Association, Inc. ("Council of Villages Case"). The multi-count complaint, as amended, is brought as a class action, and individually, on behalf of various residents of the Broken Sound Community, and alleges that defendants engaged in various acts of misconduct in, among other things, the establishment, operation, management
and marketing of the Broken Sound golf course and recreational facilities, as well as the alleged improper failure to turn over such facilities to the Broken Sound homeowners on a timely basis. Plaintiffs seek, through various theories, including but not limited to breach of ordinance, breach of fiduciary duty, fraud, unjust enrichment and civil theft, damages in excess of $45 million, the appointment of a receiver for the Broken Sound Club, other unspecified compensatory damages, the right to seek punitive damages, treble damages, prejudgment interest, attorneys' fees and costs. The Partnership believes that the lawsuit is without merit and intends to vigorously defend itself in this matter.
(E) On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was filed against the Partnership and others in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is filed as a three-count complaint for dissolution of the Broken Sound Club, Inc. ("Club"), and seeks, among other things, the appointment of a custodian or receiver for the Club, a determination that certain acts be deemed wrongful, the return to the Club of in excess of $2.5 million in alleged "operating profits", an injunction against the charging of certain dues, an injunction requiring the Club to produce certain financial statements, and such other relief as the Court deems just, fair and proper. This action has been consolidated with the Council of Villages Case. The Partnership believes the lawsuit is without merit and intends to vigorously defend itself.
Other than as described above, the Partnership is not subject to any material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Partnership. Reference is made to Note 2 regarding certain other litigation involving the Partnership. Reference is also made to Note 11 for a discussion of certain claims by Merrill Lynch, Pierce Fenner & Smith, Inc. ("Merrill Lynch") for indemnification by the Partnership and the General Partner against losses and expenses suffered by Merrill Lynch relating to claims for arbitration asserted against it by certain investors in the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1995 and 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were 19,145 record Holders of the 404,000 Interests outstanding of the Partnership. There is no public market for Interests, and it is not anticipated that a public market for Interests will develop. Upon request, the General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any other economic aspects of the transaction, will be subject to negotiation by the investor. However, there are restrictions governing the transferability of these Interests as described in "Transferability of Partnership Interests" on pages A-31 to A-33 of the Partnership Agreement and limitations on the rights of assignees of Holders of Interests as described in Sections 3 and 4 of the Assignment Agreement, which are hereby incorporated by reference to Exhibit 99.1 to this report.
Reference is made to Item 1. Business for a discussion of the election to be made by October 1997 by the General Partner with respect to causing Interests to be listed on a national exchange or to be reported by the National Association of Securities Dealers Automated Quotation System, purchasing or causing an affiliate or affiliates to purchase all of the Interests at their then appraised fair market value, or commencing a liquidation of all of the Partnership's assets.
Reference is made to Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 and 1995, the Partnership had cash and cash equivalents of approximately $53,636,000 and $20,171,000, respectively. Bank overdrafts, which represent checks in transit, of approximately $3,973,000 at December 31, 1995 were repaid from cash on hand during January 1996. Remaining cash and cash equivalents were available for future debt service, working capital requirements and distributions to partners, subject to certain restrictions, as discussed below and in the Notes. The source of both short-term and long-term future liquidity is expected to be derived primarily from the sale of housing units, homesites and land parcels and through the Partnership's credit facility, or a refinancing of such credit facility, which is discussed below.
Due to the cyclical nature of its operations, a significant portion of the Partnership's cash flow from operations (before debt service and distributions) was generated from closings in the fourth quarter of 1996. However, many of the expenditures related to such closings were incurred prior to the fourth quarter. The increased closing activity in the latter part of 1996 is the primary cause for the increase in cash and cash equivalents at December 31, 1996 as compared to the cash balance reported in the Partnership's quarterly filing at September 30, 1996. In addition, each year numerous housing and homesite closings occur during the last business days in December. Receipts generated from such closings are sometimes not received by the Partnership until January of the following fiscal year. The amount of proceeds to be received from such closings are included in Trade and other accounts receivable on the accompanying consolidated balance sheets. Proceeds from such closings in January 1996 contributed to the increase in Cash and cash equivalents and the decrease in Trade and other accounts receivable at December 31, 1996 as compared to December 31, 1995 on the accompanying consolidated balance sheets. However, the primary cause for the increase in Cash and cash equivalents and the decrease in Trade and other accounts receivable at December 31, 1996 as compared to 1995 is the collection of receivables for units closed within the Partnership's condominium project on Longboat Key, Florida known as Arvida's Grand Bay, for which revenues were recognized under the percentage of completion method of accounting in 1995.
The Partnership was able to generate significant cash flow before debt service during 1996, 1995 and 1994. The Partnership utilized this cash flow to make scheduled and additional principal repayments on its outstanding debt, as required under the terms of the credit facility agreement, and to increase its cash reserves. Such payments were the primary reason for the decrease in Notes and mortgages payable, net at December 31, 1996 as compared to December 31, 1995. During February 1997, the Partnership made a distribution for 1996 of $24,240,000 to its Holders of Interests ($60 per Interest) and $1,346,651 to the General Partner and Associate Limited Partners, collectively. In addition, during the first quarter of 1997, the Partnership remitted each Holder of Interests' share of the 1996 North Carolina non-resident withholding tax on behalf of each of the Holders of Interests. Such payments, which totaled $15,369 (approximately $.04 per Interest), are deemed distributions to the Holders of Interests for 1997. The Partnership also remitted $469 to the North Carolina tax authorities during the first quarter of 1997 on behalf of the General Partners and Associate Limited Partners. Such payments are deemed distributions. During March 1996, the Partnership made a distribution for 1995 of $10,419,160 to its Holders of Interests ($25.79 per Interest) and $578,835 to the General Partner and Associate Limited Partners, collectively. In addition, during 1996, the Partnership remitted each Holder of Interests' share of the 1995 North Carolina non-resident withholding tax. Such payments, which totalled $25,476 (approximately $.06
per Interest), were deemed distributions to the Holders of Interests. Distributions totalling $1,416 were also paid during 1996 on behalf of the General Partner and Associate Limited Partners, collectively, a portion of which was also remitted to the North Carolina tax authorities on their behalf. In February 1995, the Partnership made a distribution for 1994 of $5,421,680 to its Holders of Interests of Interests ($13.42 per Interest) and $301,201 to the General Partner and Associate Limited Partners, collectively. In addition, during the first quarter of 1995, the Partnership remitted each Holder of Interests' share of the 1994 North Carolina non-resident withholding tax. Such payment, which totalled $26,784 ($.07 per Interest), was deemed a distribution to the Holders of Interests. A distribution of $1,488 was also paid at that time to the General Partner and Associate Limited Partners, collectively, a portion of which was also remitted to the North Carolina tax authorities on their behalf. As a result of certain restrictions on distributions contained in its credit facility agreement, the Partnership made distributions in amounts substantially less than the tax consequences attributable to the Federal taxable income allocable to each Holder of Interests multiplied by the maximum individual Federal income tax rate for the years ended December 31, 1995 and 1994.
At December 31, 1996, the Partnership's credit facility consists of a term loan in the original amount of $85,252,520, a revolving line of credit facility up to $20 million, an income property term loan in the original amount of $18,233,326 and a $15 million letter of credit facility. The term loan, the revolving line of credit and the letter of credit facility are secured by recorded mortgages on all otherwise unencumbered real property assets of the Partnership as well as an assignment of all mortgages receivable, equity memberships, certain joint venture interests or joint venture proceeds, and cash balances (with the exception of deposits held in escrow). The income property term loan is secured by the recorded first mortgage on a mixed-use center in Boca Raton, Florida. Another office building also located in Boca Raton, known as Mizner Place, which served as additional collateral for the income property term loan was sold in May 1995. All of the notes under the facility are cross- collateralized and cross-defaulted.
Under the term loan agreement, the Partnership made scheduled principal payments of $10 million in March 1994, February 1995 and February 1996 and $5 million principal payments in July 1995 and July 1996. In addition, the term loan agreement provides for additional principal repayments to be made upon the sale of certain assets as well as a specified percentage of annual cash flow, as defined. During the year ended December 31, 1996, the Partnership made such additional term loan payments totalling approximately $12.3 million. During January 1997, the Partnership paid off the remaining principal balance of $5,234,008 outstanding under the term loan. Under the income property term loan, principal payments of $0.1 million are required to be paid monthly until maturity. In addition to the scheduled monthly payments, in May 1995 the Partnership used the net proceeds of approximately $4 million from the sale of the Mizner Place office building to pay down the income property term loan. During March 1996, one of the Partnership's lenders purchased the other's participating interest in the Partnership's credit facilities. In addition, during March 1996, the successor lender renewed the Partnership's revolving line of credit, income property term loan and letter of credit facility through July 1997. The Partnership currently anticipates that it will seek an extension from its lender of its income property term loan upon maturity. In addition, the Partnership is currently in negotiations with another lender for a new credit facility. Such facility, if obtained, would, in part, replace the Partnership's existing revolving line of credit and letter of credit facilities. At December 31, 1996, all of the term and income property term loan proceeds had been borrowed with remaining outstanding balances of $5,234,008 and $11,566,746, respectively. The balances outstanding on the revolving line of credit and the letter of credit facilities at December 31, 1996 were $0 and $5,018,311, respectively.
During June and July of 1996, the Holders of Interests received unsolicited offers to purchase their Interests in the Partnership. The General Partner of the Partnership established a special committee (the "Special Committee") to review such offers and make a recommendation to the Holders of Interests with respect to the offers. In addition, the Partnership engaged Lehman Brothers Inc. ("Lehman") as a financial advisor to assist the Special Committee in evaluating and responding to the offers.
Lehman was asked to render its estimate of the present discounted value ("Estimated Liquidation Value") of an Interest based on the assumption that the Partnership commences an orderly liquidation in October 1997 and completes that liquidation by October 2002. Lehman arrived at an Estimated Liquidation Value as of July 2, 1996 ranging from $565 to $610 per Interest. This Estimated Liquidation Value relied upon the Partnership's estimate of the gross cash distributions that a Holder of Interests would receive through the assumed liquidation period, discounted to reflect the present value of such distributions. Based upon the estimate of the total gross distributions, the General Partner calculated that each Holder would receive total distributions from October 1996 through October 2002 in excess of $1,000 per Interest. Certain assumptions and other factors, including risk factors, that should be considered when analyzing the projected budgets which are the basis of such estimate of gross distributions can be found in the Partnership's Schedule 14D-9 dated July 3, 1996, as amended, and filed with the Securities and Exchange Commission.
Reference to such Schedule 14D-9 is hereby made for a discussion of such assumptions and other factors.
Following receipt of the Estimated Liquidation Value, the Special Committee determined that, with respect to the Holders of Interests who have the expectation of retaining their Interests through an anticipated orderly liquidation of the Partnership's assets by October 2002 and who have no current or anticipated need for liquidity, these offers were inadequate and not in the best interests of such Holders of Interests. The Special Committee recommended that such Holders reject these offers and not tender their Interests pursuant to these offers. With respect to all other Holders of Interests, the Special Committee expressed no opinion and remained neutral with respect to these offers.
One offer for Interests in the Partnership was made by Raleigh Capital Associates L.P. ("Raleigh") commencing in June 1996. Raleigh's offer was for up to 185,000 Interests, which represents approximately 46% of the outstanding Interests. Raleigh's offer had a final price of $461 per Interest and expired on August 1, 1996. Raleigh has reported that it acquired a total of 79,696 Interests pursuant to such offer, which represents approximately 19.7% of the total outstanding Interests.
Other offers were made by Walton Street Capital Acquisition Co. III, L.L.C. ("Walton") and Boreas Partners, L.P. ("Boreas"), each of which was also for up to approximately 46% of the outstanding Interests. However, each of the Walton and Boreas offers were withdrawn and no Interests were purchased pursuant to either such offer.
In September 1996, Smithtown Bay, LLC ("Smithtown") made an unsolicited offer for up to 4.9% of the total outstanding Interests at a purchase price of $480 per Interest. Smithtown's offer expired on September 30, 1996. Smithtown acquired less than 0.4% of the total outstanding Interests pursuant to such offer.
Lehman updated its Estimated Liquidation Value as of October 1, 1996 (the "Revised Estimated Liquidation Value"). In arriving at the Revised Estimated Liquidation Value, Lehman relied upon the Partnership's estimate of the gross cash distributions that the Holders would receive through the assumed liquidation period. These estimated gross distributions were then discounted to reflect the present value of such distributions as of October 1, 1996, which ranges from $595 to $640 per Interest, depending on the different discount rates used.
During September 1996, the Partnership and Starwood/Florida Funding, L.L.C. ("Starwood") entered into a commitment for a term loan to be made to the Partnership in the amount of $160 million. The Partnership had expected to use the proceeds from the term loan to paydown the remaining outstanding balance on the Partnership's existing term loan and to make a non-taxable distribution, including a non-taxable distribution of $350 per Interest to the Holders of Interests. However, during December 1996, the Partnership was enjoined from consummating this financing transaction with Starwood by the Circuit Court of Cook County Illinois, acting on a preliminary injunction motion by the Plaintiffs in the matter of Jack M. Carlstrom and Lynn M. Carlstrom v. Arvida/JMB Managers, Inc., et al. Pursuant to the terms of the commitment with Starwood, the Partnership is required to pay certain expenses of Starwood including, but not limited to, certain legal expenses due to the Court's decision to enjoin the Partnership from consummating this financing transaction. Reference is made to Subsection (A) of Item 3. Legal Proceedings for further discussion of this litigation.
In addition, during October 1996, Raleigh commenced another unsolicited offer to acquire up to 100,000 Interests, which represents approximately 24.8% of the outstanding Interests, in the Partnership at a purchase price of $500 per Interest. Such offer remains open as of the date of this report. Based on its analysis and its consultation with its advisors, the Special Committee determined that with respect to Holders of Interests who have the expectation of retaining their Interests through an anticipated orderly liquidation of the Partnership's assets by October 2002 and who have no current or anticipated need for liquidity, the Raleigh offer is inadequate and not in the best interest of such Holders. The Special Committee has recommended that such Holders reject the Raleigh offer and not tender their Interests pursuant to such offer. However, the Special Committee has recommended to those Holders of Interests who have a current need or desire for liquidity that such Holders tender their Interests in the offer. The Special Committee has changed its recommendation to Holders of Interests who have a current need or desire for liquidity from neutrality in light of several factors, including the likelihood that Raleigh will continue to block any of the General Partner's efforts to provide liquidity to the Holders. Also, once the offer expires, the price for Interests through privately negotiated sales and sales through intermediaries may be substantially less than the purchase price under the offer because there is no established market for the Interests.
The Partnership began incurring significant expenditures in connection with various tender offers for Interests during the third quarter of 1996 and may incur significant additional costs in the future in connection therewith.
During March 1996, the Partnership closed on the sale of its 20% joint venture interest in Coto de Caza, including the related promissory note for advances previously made to the joint venture, to unaffiliated third parties for a cash sales price of $12.0 million. The Partnership used $2.0 million of the sale proceeds to paydown its term loan. This sale is the primary cause for the decrease in Investments in and advances to joint ventures on the accompanying consolidated balance sheets at December 31, 1996 as compared to December 31, 1995. The General Partner believes that this sale was in the best interest of the Partnership given market conditions in Orange County, California at that time. As a result of this transaction, the Partnership has no future obligations with respect to Coto de Caza. This transaction resulted in gains of approximately $1.8 million and $1.1 million in 1996 for financial reporting and Federal income tax purposes, respectively.
During April 1996, the Partnership refinanced the loan on one of its retail properties located in its Weston Community with a different lender. The outstanding principal balance on such loan of approximately $8.0 million is included in Notes and mortgages payable at December 31, 1996. In addition, $3.0 million of subordinated debt attributable to the Cullasaja Joint Venture is included in Notes and mortgages payable at December 31, 1996.
The Partnership had a $24.0 million revolving construction line of credit for the buildings and certain amenities within the Partnership's condominium project on Longboat Key, Florida known as Arvida's Grand Bay. This line of credit bore interest at the lender's prime rate (8.25% at December 31, 1996) plus 1/2% per annum, and was scheduled to mature in January 1997. As of December 31, 1996, the Partnership had repaid the remaining outstanding principal balance under this line of credit. The Partnership currently anticipates that it will obtain a similar line of credit during 1997 for the remaining two buildings to be constructed within Arvida's Grand Bay.
During January 1996, the Partnership executed a note for a $7.5 million construction loan for the construction and development of a second retail shopping center located in its Weston Community. This note currently bears interest at the lender's prime rate (8.25% at December 31, 1996) plus 1/2% per annum and matures in July 1997. The Partnership currently anticipates that it will seek an extension of such note with the lender upon maturity. At December 31, 1996, approximately $6.5 million was outstanding under this loan. The proceeds from such loan were the primary source of the funds required to complete the shopping center. The construction of the shopping center was completed in November 1996. The construction and development of this project is the primary cause for the increase in Property and equipment on the accompanying consolidated balance sheets at December 31, 1996 as compared to December 31, 1995.
Reference is made to Note 11 for further discussion of certain claims by Merrill Lynch for indemnification by the Partnership and the General Partner against losses and expenses suffered by Merrill Lynch relating to claims for arbitration against it by certain investors of the Partnership.
Reference is also made to Note 11 regarding the terms of a loan agreement for a commercial/industrial joint venture in Pompano Beach, Florida in which the Partnership owns a 50% interest. The Partnership may also have certain continuing obligations relative to this joint venture as referred to in such Note.
Reference is made to Item 3. Legal Proceedings of this annual report for a discussion of several lawsuits, in which the Partnership is a defendant, allegedly arising out of or relating to Hurricane Andrew and certain property damage allegedly suffered by the plaintiffs at a previously developed community known as Country Walk.
RESULTS OF OPERATIONS
The results of operations for the years ended December 31, 1996, 1995 and 1994 are primarily attributable to the development and sale or operation of the Partnership's assets. See Note 1 for a discussion regarding the recognition of profit from sales of real estate.
For the year ended December 31, 1996, the Partnership (including its consolidated ventures and its unconsolidated ventures accounted for under the equity method) closed on the sale of 1,291 housing units, 294 homesite lots, and approximately 39 acres of developed and undeveloped residential or commercial/industrial land tracts. This compares to closings in 1995 of 1,283 housing units, 554 homesite lots, approximately 177 acres of developed and undeveloped residential or commercial/industrial land tracts,
as well as an office building located in downtown Boca Raton known as Mizner Place, and the Partnership's cable operations in the Broken Sound Community. Closings in 1994 were for 899 housing units, 608 homesite lots and approximately 12 acres of developed and undeveloped land tracts. Outstanding contracts ("backlog") as of December 31, 1996 were for 538 housing units, 31 homesites and approximately 24 acres of developed and undeveloped land tracts. This compares to a backlog as of December 31, 1995 of 875 housing units, 22 homesites and approximately 18 acres of developed and undeveloped land tracts. The backlog as of December 31, 1994 was for 897 housing units, 67 homesites, approximately 36 acres of developed and undeveloped land tracts as well as the Mizner Place office building.
The Partnership's Communities are in various stages of development, with estimated remaining build-outs ranging from one to nine years. The Weston Community, located in Broward County, Florida, is the Partnership's largest Community and is in its mid stage of development. Also in their mid stages of development are the River Hills Country Club in Tampa, Florida; the Water's Edge Community in Atlanta, Georgia; The Cullasaja Club, near Highlands, North Carolina and the Partnership's condominium project on Longboat Key, Florida known as Arvida's Grand Bay. The Partnership's Jacksonville Golf & Country Club Community in Florida is in its late stage of development. All of the remaining units in the Partnership's Sawgrass Country Club and Dockside Communities in Jacksonville, Florida and Atlanta, Georgia, respectively, closed during 1996. In addition, the Broken Sound Community, located in Boca Raton, Florida, had its final closings in 1995; however, the Partnership still has equity memberships in the Broken Sound Club to sell. Future revenues will be impacted to the extent that there are lower levels of inventories available for sale as the Partnership's remaining Communities approach or undertake their final phases.
Revenues from housing and homesite activities are recognized upon the closing of homes built by the Partnership and developed lots, respectively, within the Partnership's Communities. Historically, a substantial portion of the Partnership's housing revenues during the first six months of a given year are generated from the closing of units contracted in the prior year. Land and property revenues are generated from the closing of developed and undeveloped residential and/or commercial land tracts, the sale of operating properties as well as gross revenues earned from the sale of equity memberships in the clubs within the Partnership's Boca Raton and Jacksonville, Florida Communities, and its Community near Highlands, North Carolina.
Cost of revenues pertaining to the Partnership's housing sales reflect the cost of the acquired assets as well as development and construction expenditures, certain capitalized overhead costs, capitalized interest, real estate taxes and marketing, as well as disposition costs. The costs related to the Partnership's homesite sales reflect the cost of the acquired assets, related development expenditures, certain capitalized overhead costs, capitalized interest and real estate taxes, as well as disposition costs. Land and property costs reflect the cost of the acquired assets, certain development costs and related disposition costs, as well as the cost associated with the sale of equity memberships.
The decrease in housing revenues for 1996 as compared to 1995 is due primarily to the close out of the Partnership's Broken Sound Community in 1995, as well as the close out in 1996 of the remaining units in the Partnership's Sawgrass Country Club and Dockside Communities. Revenues generated at these three Communities decreased approximately $16.8 million as a direct result of the close out of these Communities. This reduction in revenues was partially offset by increased revenues generated at the Partnership's Weston Community due primarily to an increase in the number of townhomes sold in 1996 as compared to 1995. In addition, the Partnership generated more closings and revenues at its Water's Edge Community in Atlanta due to the introduction of several new housing products in 1995 which had their initial closings in 1996. For the year
ended December 31, 1995, the Partnership experienced a 43% net increase in the number of housing units closed as compared to 1994. Closings during 1995 exceeded those for 1994 at all of the Partnership's Communities, with the exception of the Broken Sound Community which had its final closings in May 1995. This increase in closing activity is the primary cause for the increase in housing revenues for 1995 as compared to 1994. Closings in the Partnership's Weston Community alone accounted for approximately 93% of the overall net increase in 1995's unit closings. This increase is primarily attributable to the substantial increase in the backlog of unclosed housing units at Weston at December 31, 1994 as compared to December 31, 1993. The increase in the number of closings in the Partnership's Jacksonville Communities for 1995 as compared to 1994 is also due primarily to an increase in the backlog of unclosed units in those Communities at the end of 1994 as compared to 1993. Also contributing to the favorable revenue variance is an increase in the amount of revenues recognized under the percentage of completion method in 1995 at Arvida's Grand Bay on Longboat Key, Florida. During 1995, the Partnership recognized revenues from two buildings at Arvida's Grand Bay as compared to one building in 1994.
The close-out of the Partnership's higher profit margin products within Broken Sound in 1995, is the cause for the decline in the gross operating profit margin from housing activities since 1994. In addition, South Florida building code changes, which have been in effect since September 1, 1994, have impacted construction requirements in Broward County. These building code changes have resulted in increased construction costs, not all of which have been passed through to the home purchasers at this time. As a result, the Partnership experienced some erosion in its gross operating profit margins from housing sales during 1996 and 1995 as compared to 1994.
The decrease in homesite revenues for 1996 as compared to 1995 is due primarily to fewer lot closings in Weston as a result of the close out of several of the lower priced products in that Community, as well as a slow down in sales of higher priced products. Also contributing to the decrease in revenues is the close out of lots in the Partnership's Sawgrass Country Club and Dockside Communities in 1995 and 1996, respectively. Homesite revenues decreased for the year ended December 31, 1995 as compared to 1994 due primarily to the close-out of lots in Sawgrass Country Club in 1995. Homesite revenues also decreased at Weston due to lower sales prices generated on the higher priced product sold in that Community.
The decrease in the gross operating profit margin from homesite activities for the year ended December 31, 1995 as compared to 1994 is due to the decreased closing activity within Sawgrass Country Club due to the close-out of the lots in this Community in 1995, as well as reduced margins from closings of the higher priced product in Weston resulting from decreased sales prices, as discussed above. Also contributing to the decrease in the gross operating profit margin are certain non-recurring adjustments made to cost of sales in 1994 to reflect reductions in development cost estimates for certain of the Partnership's products, primarily in the Weston Community. Development estimates at that time indicated lower costs to be incurred than were previously anticipated, therefore contributing to the higher gross operating profit margins in 1994.
The decrease in land and property revenues for 1996 as compared to 1995 is due to a lower volume of land and property sales closed in 1996. Revenues for 1996 were generated primarily from the sale of the Partnership's 20% joint venture interest in Coto de Caza as well as the related promissory note for advances previously made to the joint venture. Revenues for 1996 also include proceeds from closings of several developed commercial parcels in Weston totaling approximately 21 acres, the closing of an approximate 16 acre developed commercial parcel located in Palm Beach
County, Florida, and the closing of an approximate two acre undeveloped commercial parcel in Cobb County, Georgia. Significant revenues were generated in 1995 from the closings of approximately 86 acres of commercial land parcels throughout Palm Beach and Broward Counties in Florida. In addition to these commercial land parcels, the Partnership also closed on the sale of the cable operation in its Broken Sound Community and the Mizner Place office building located in downtown Boca Raton, Florida. Also included in 1995 revenues is the sale of approximately 82 acres of undeveloped land located near Sarasota, Florida, which was distributed to the Partnership by one of its unconsolidated joint ventures. These closings compare to approximately 12 acres of commercial and residential land parcels closed during 1994.
The gross operating profit margin from land and property sales was higher for 1995 as compared to 1996 and 1994 due primarily to the low cost basis of the land sales generated during 1995.
Operating properties represents activity from the Partnership's club and hotel operations, commercial properties and certain other operating assets. Revenues from operating properties increased in 1996 as compared to 1995 due primarily to an increase in the number of members and the associated dues collected at Weston Hills Country Club, as well as an increase in revenues generated by the cable operation in Weston due to an increased number of subscribers. Increased room revenues at the Partnership's hotel operation in Boca Raton, Florida, resulting from increased occupancy and room rates, also contributed to the favorable variance. These variances were partially offset by decreased revenues resulting from the May 1996 closing of a restaurant owned by the Partnership and located in its Weston Community, as well as decreased revenues associated with the sale of the Mizner Place office building in May 1995. The increase in revenues from operating properties in 1995 as compared to 1994 is due primarily to increased membership dues and fees generated at the Partnership's club operations in Weston. This favorable variance resulted from an increase in the number of club members as well as an increase in rates charged in 1995 as compared to 1994. The favorable revenue variance from the club operations was partially offset by decreased revenues from the Partnership's cable operation in Broken Sound as well as decreased revenues from Mizner Place due to the sale of these properties in 1995.
Brokerage and other operations represents activity from the sale of unaffiliated third-party builders' homes within the Partnership's Communities, activity from resale of real estate inside and outside the Partnership's Communities, proceeds from the Partnership's property management activities as well as fees earned from various management agreements with joint ventures. The decrease in revenues from brokerage and other operations for 1996 as compared to 1995 is due primarily to decreased resale brokerage activity resulting from the closing of certain of the Partnership's Palm Beach County sales offices. In addition, the Partnership sold its resale operation located in Longboat Key near Sarasota, Florida, to an unaffiliated third party purchaser in October 1996. This sale resulted in decreased revenues from that office in 1996 as compared to 1995. No land and property revenues were recognized as a result of this sale as such revenues are contingent upon future operations of the sales office. Also contributing to the decrease in revenues is a decrease in commissions earned from the sale of builders' homes within the Partnership's Broken Sound, Sawgrass Country Club and Dockside Communities due to the close out of products in those Communities. The decrease in revenues from brokerage and other operations for the year ended December 31, 1995 as compared to 1994 is due primarily to a decrease in the number of builder unit closings in the Partnership's Weston Community resulting from a slow down in sales of the higher priced product in that Community. Closings and revenues also decreased due to the late stage of development of the Partnership's Sawgrass Country Club Community and the closeout of its Broken Sound Community in 1995.
The gross operating profit margin from brokerage and other operations declined for the year ended December 31, 1995 as compared to 1994 due primarily to an adjustment recorded to cost of revenues in the first quarter of 1995 to properly reflect commissions paid in connection with the sales of builders' homes within the Partnership's Communities which had closed prior to December 31, 1994.
Selling, general and administrative expenses include all marketing costs, with the exception of those costs capitalized in conjunction with the construction of housing units, and project and general administrative costs. These expenses are net of the marketing fees received from third party builders. Despite the significant expenditures incurred in the third and fourth quarters of 1996 in connection with the various tender offers for Partnership Interests, selling, general and administrative expenses decreased for the year ended December 31, 1996 as compared to 1995. This favorable variance is due primarily to reduced marketing and project administrative costs incurred resulting from the close-out of the Partnership's Broken Sound, Sawgrass Country Club and Dockside Communities.
The increase in selling, general and administrative expenses for the year ended December 31, 1995 as compared to 1994 is primarily attributable to a decrease in marketing fees earned from builder unit closings within the Partnership's Communities, due to the lower volume of such closings as discussed above. The unfavorable variance also resulted from an increase in project administrative costs, primarily at the Partnership's Weston Community, related to the increased housing volume discussed above.
Writedowns to the carrying value of real estate inventories and other assets represent adjustments to the book values of the Partnership's projects based upon the analysis of each projects' estimated selling price in the ordinary course of business less estimated costs of completion, holding and disposal as compared to its recorded carrying value, or the estimated fair value of the asset held for disposition. Writedowns to the carrying value of real estate inventories and other assets for the year ended December 31, 1995 represents a writedown of approximately $8.5 million, recorded in September 1995, to the carrying value of the Partnership's investment in the Coto de Caza Joint Venture. The Partnership had been evaluating its plans for its interest in this joint venture and was considering a shorter holding period than originally anticipated. Therefore, the Partnership recorded this writedown to reflect the fair value of this investment held for disposition under market conditions at that time.
The increase in interest income since 1994 is due primarily to an increase in the average amounts invested in short-term financial instruments.
The decrease in Equity in earnings of unconsolidated ventures for 1996 as compared to 1995 resulted from the Partnership recording its share of income generated from a land sale by the commercial joint venture located in Ocala, Florida during the first quarter of 1995. No land sales were generated by the unconsolidated joint ventures in which the Partnership holds interests during 1996. The income recorded as a result of that land sale is also the primary cause for the increase in Equity in earnings of unconsolidated ventures for the year ended December 31, 1995 as compared to 1994.
Interest and real estate taxes decreased for 1996 as compared to 1995 due to a reduction in real estate taxes incurred for the year. Interest and real estate taxes decreased for the year ended December 31, 1995 as compared to 1994 due primarily to a decrease in the average amount of borrowings outstanding during the period, as well as a decrease in real estate taxes incurred, due primarily to the high volume of closings during 1995.
The Partnership adopted the Financial Accounting Standards Board Issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective January 1, 1995. As a result, an impairment loss of $2.2 million was recorded to the carrying value of its Cullasaja Community located near Highlands, North Carolina. This loss was recorded based upon an analysis of estimated discounted cash flows used to determine the Community's fair value. The fair value analysis estimates sell out of the remaining houses, homesites and equity memberships in the Community by the year 2000. This loss is reflected as the Cumulative effect due to change in accounting for long- lived assets on the accompanying Consolidated Statements of Operations for the year ended December 31, 1995. As a result of this adjustment, Cullasaja's carrying value is recorded at approximately $5.4 million and $7.1 million at December 31, 1996 and December 31, 1995, respectively. The Partnership requires no impairment losses or other adjustments to be recorded as of December 31, 1996 as a result of the application of this Statement.
INFLATION
Although the relatively low rates of inflation in recent years generally have not had a material effect on the Community development business, inflation in future periods can adversely affect the development of Communities generally because of its impact on interest rates. High interest rates not only increase the cost of borrowed funds to developers, but also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. Any increased costs of materials and labor resulting from high rates of inflation may, in certain circumstances, be passed through to purchasers of real properties through increases in sales prices, although such increases may reduce sales volume.
To the extent such cost increases are not passed through to purchasers, there would be a negative impact on the ultimate margins realized by the Partnership.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ARVIDA/JMB PARTNERS, L.P. (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
INDEX
Report of Independent Certified Public Accountants
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Partners' Capital Accounts for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULES NOT FILED:
All schedules have been omitted as the required information is inapplicable or immaterial, or the information is presented in the consolidated financial statements or related notes.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners of ARVIDA/JMB PARTNERS, L.P.
We have audited the accompanying consolidated balance sheets of Arvida/JMB Partners, L.P. and Consolidated Ventures as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' capital accounts, and cash flows for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arvida/JMB Partners, L.P. and Consolidated Ventures at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida February 21, 1997
ARVIDA/JMB PARTNERS, L.P. (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS AND BASIS OF ACCOUNTING
Operations
The assets of the Partnership consist principally of interests in land which is in the process of being developed into master-planned residential communities (the "Communities") and, to a lesser extent, commercial and industrial properties; mortgage notes and accounts receivable; construc- tion, brokerage and other support businesses; real estate assets held for investment; certain club and recreational facilities; and a cable television business serving one of its Communities. The Partnership's Communities contain a diversified product mix with both resort and primary homes designed for the middle and upper income segments of the various markets in which the Partnership operates.
The Partnership sells individual residential lots and parcels of partially developed and undeveloped land. The third-party builders and developers to whom the Partnership sells homesites and land parcels are generally smaller local builders who require project specific financing for their developments and whose operations are more susceptible to fluctuations in the availability and terms of financing. In addition, within the Communities, the Partnership constructs, or causes to be constructed, a variety of products, including single-family homes, town- houses and condominiums to be developed for sale, as well as related commercial and recreational facilities. The Communities are located primarily throughout the State of Florida, with Communities also located near Atlanta, Georgia; Highlands, North Carolina and, until March 1996, in Orange County, California. Additional undeveloped properties owned by the Partnership in or near its Communities are being considered for development as commercial, office and industrial properties. The Partnership also owns or manages certain club and recreational facilities within certain of its Communities.
Principles of Consolidation
The consolidated financial statements include the accounts of Arvida/JMB Partners, L.P. (the "Partnership") and its consolidated ventures (note 7). All material intercompany balances and transactions have been eliminated in consolidation. The equity method of accounting has been applied in the accompanying consolidated financial statements with respect to those investments where the Partnership's ownership interest is 50% or less, with the exception of the Partnership's investment in the Coto de Caza Joint Venture which was accounted for in accordance with the cost method of accounting until March 1996 when the Partnership sold its interest in the joint venture. Reference is made to note 7 for a discussion of the sale of the Partnership's interest in the Coto de Caza Joint Venture.
Recognition of Profit from Sales of Real Estate
For sales of real estate, profit is recognized in full when the collectability of the sales price is reasonably assured and the earnings process is virtually complete. When the sale does not meet the require- ments for recognition of income, profit is deferred until such requirements are met. For sales of residential units, profit is recognized at the time of closing or if certain criteria are met, on the percentage-of-completion method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported or disclosed in the financial statements and accompanying notes. Actual results could differ from those estimates.
Real Estate Inventories and Cost of Real Estate Revenues
Real estate inventories are carried at cost, including capitalized interest and property taxes. The total cost of land, land development and common costs are apportioned among the projects on the relative sales value method. Costs pertaining to the Partnership's housing, homesite, and land and property revenues reflect the cost of the acquired assets as well as development costs, construction costs, capitalized interest, capitalized real estate taxes and capitalized overheads. Certain marketing costs relating to housing projects, including exhibits and displays, and certain planning and other pre-development activities, excluding normal period expenses, are capitalized and charged to housing cost of revenues as related units are closed. A warranty reserve is provided as residential units are closed. This reserve is reduced by the cost of subsequent work performed.
Effective January 1, 1995, the Partnership adopted Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which was issued by the Financial Accounting Standards Board ("FASB") in March 1995. Reference is made to note 16 for a discussion regarding the implementation of this Statement.
Capitalized Interest and Real Estate Taxes
Interest and real estate taxes are capitalized to qualifying assets, principally real estate inventories. Such capitalized interest and real estate taxes are charged to cost of revenues as sales of real estate inventories are recognized. Interest, including the amortization of loan fees, of $4,672,972, $8,481,343 and $11,257,464 was incurred for the years ended December 31, 1996, 1995 and 1994, respectively, of which $4,672,972, $8,336,902 and $8,278,441 was capitalized for the years ended December 31, 1996, 1995 and 1994, respectively. Interest payments, including amounts capitalized, of $4,783,247, $7,937,153 and $12,116,899 were made for the years ended December 31, 1996, 1995 and 1994, respectively. The decrease in interest payments since 1994 is due primarily to a decrease in the average amounts of borrowings outstanding.
Real estate taxes of $5,824,715, $6,700,517 and $8,116,966 were incurred for the years ended December 31, 1996, 1995 and 1994, respectively, of which $3,144,609, $3,448,313 and $4,024,528 were capitalized for the years ended December 31, 1996, 1995 and 1994, respectively. Real estate tax payments of $5,773,005, $6,690,152 and $8,212,002 were made for the years ended December 31, 1996, 1995 and 1994, respectively. The preceding analysis of real estate taxes does not include real estate taxes incurred or paid with respect to the Partnership's club facilities and operating properties as these taxes are included in cost of revenues for operating properties.
Property and Equipment and Other Assets
Property and equipment are carried at cost less accumulated depreciation and are depreciated on the straight-line method over the estimated useful lives of the assets, which range from two to forty years. Provisions for value impairment are recorded with respect to such assets whenever the estimated future undiscounted cash flows from operations and projected sales proceeds are less than the net carrying value, as discussed in note 15. Expenditures for maintenance and repairs are charged to expense as incurred. Costs of major renewals and improvements which extend useful lives are capitalized.
Other assets are amortized on the straight-line method, which approximates the interest method, over the useful lives of the assets which range from one to five years. Amortization of other assets, excluding loan fees, of approximately $50,000, $180,000 and $175,000 was recorded for the years ended December 31, 1996, 1995 and 1994, respectively. Amortization of loan fees, which is included in interest expense, of approximately $288,000, $394,000 and $429,000 was recorded for the years ended December 31, 1996, 1995 and 1994, respectively.
Investments in and Advances to Joint Ventures, Net
In general, the equity method of accounting has been applied in the accompanying consolidated financial statements with respect to those investments for which the Partnership does not have majority control and where the Partnership's ownership interest is 50% or less. The cost method of accounting was applied in the accompanying consolidated financial statements with respect to the Coto de Caza Joint Venture until March 1996 when the Partnership sold its interest in the joint venture. Reference is made to note 7 for further discussion of this joint venture.
Investments in the remaining joint ventures are carried at the Partnership's proportionate share of the ventures' assets, net of their related liabilities and adjusted for any basis differences. Basis differences result from the purchase of interests at values which differ from the recorded cost of the Partnership's proportionate share of the joint ventures' net assets.
The Partnership periodically advances funds to the joint ventures in which it holds ownership interests when deemed necessary and economically justifiable. Such advances are generally interest bearing and are repayable to the Partnership from amounts earned through joint venture operations.
Equity Memberships
The amenities within certain of the Partnership's Boca Raton and Jacksonville, Florida Communities, as well as its Community near Highlands, North Carolina are conveyed to the respective homeowners through the sale of equity memberships. Equity membership revenues and related cost of revenues are included in land and property in the accompanying consolidated statements of operations.
Reference is made to note 16 for a discussion regarding the impairment of long-lived assets.
Partnership Records
The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying consolidated financial statements have been prepared from such records after making appropriate adjustments where applicable to reflect the Partnership's accounts in accordance with GAAP and to consolidate the accounts of the ventures as described above. Such GAAP and consolidation adjustments are not reflected on the records of the Partnership. The net effect of these items is summarized as follows:
Reference is made to note 14 for further discussion of the allocation of profits and losses to the General Partner, Associate Limited Partners and Holders of Interests.
The net income per Interest is based upon the average number of Interests outstanding during each period.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial statements to conform to the 1996 presentation.
Income Taxes
No provision for state or Federal income taxes has been made as the liability for such taxes is that of the partners rather than the Partnership. However, in certain instances, the Partnership has been required under applicable state law to remit directly to the state tax authorities amounts representing withholding on applicable taxable income allocated to the General Partner, Associate Limited Partners and Holders of Interests. In such regard, during the first quarter of 1997, the Partnership remitted each Holder of Interests' share of the 1996 North Carolina non-resident withholding tax to the state tax authorities on behalf of each of the Holder of Interests. Such payments, of approximately $.04 per Interest, are deemed distributions to the Holders Of Interests for 1997. In addition, the cash distributions per Interest made during the years ended December 31, 1996 and 1995 include $.06 and $.07, respectively, which represent each Holder of Interests' share of a North Carolina non- resident withholding tax which was paid directly to the state tax authorities on behalf of the Holders of Interests for the 1995 and 1994 tax years, respectively.
(2) INVESTMENT PROPERTIES
The Partnership's assets consist principally of interests in land which is in the process of being developed into master-planned residential Communities (the "Communities") and, to a lesser extent, commercial properties; mortgage notes and accounts receivable; construction, brokerage and other support activities; real estate assets held for investment; club and recreational facilities; and a cable television business serving its Weston Community.
The Partnership's Communities are in various stages of development, with estimated remaining build-outs ranging from one to nine years. The Weston Community, located in Broward County, Florida is the Partnership's largest Community and is in its mid stage of development. Also in their mid stages of development are the River Hills Country Club in Tampa, Florida; the Water's Edge Community in Atlanta, Georgia, The Cullasaja Club, near Highlands, North Carolina and the Partnership's condominium project on Longboat Key, Florida known as Arvida's Grand Bay. The Partnership's Jacksonville Golf & Country Club Community in Florida is in its late stage development. All of the remaining units in the Partnership's Sawgrass Country Club and Dockside Communities were sold and closed as of December 31, 1996. In addition, the Broken Sound Community, located in Boca Raton, Florida, had its final closings in 1995. Future revenues will be impacted to the extent that there are lower levels of inventories available for sale as these Communities approach or undertake their final phases.
On August 27, 1991, the General Partner, on behalf of the Partnership, initiated a lawsuit in the Circuit Court of Cook County (County Department, Chancery Division), Illinois against The Walt Disney Company ("Disney"). The litigation arises out of the Partnership's acquisition of substantially all of the real estate and other assets of Arvida Corporation, a subsidiary of Disney, in September 1987. In the complaint filed on its behalf, the Partnership alleges that under the terms of the contract with Disney for the acquisition, the purchase price of the assets was to be reduced by the amount of certain payments made prior to the closing (the "Closing") of the transaction out of funds of Arvida Corporation in order to satisfy certain obligations that were not assumed by the Partnership. The complaint also alleges that the contract entitles the Partnership to (i) reimbursement by Disney for amounts advanced by the Partnership to pay certain other claimed obligations of Arvida Corporation, including certain post-Closing adjustments, in connection with the acquisition and (ii) indemnification by Disney for additional costs and expenses incurred by the Partnership subsequent to the Closing in order to remedy certain environmental conditions that existed prior to the Closing. The complaint further alleges that the Partnership has made various demands on Disney for payment of these amounts and that Disney has refused to make such payments. The Partnership seeks declaratory judgments that the Partnership is entitled to a purchase price reduction from Disney and reimbursement or indemnification by Disney for amounts advanced or costs and expenses incurred by the Partnership for certain obligations of Arvida Corporation, together with interest on all such amounts and costs. During the second quarter of 1992, the Partnership received approximately $0.8 million in settlement of portions of this claim. There is no assurance as to what amounts, if any, the Partnership will recover as a result of the litigation with regard to the remaining open issues under the initially filed complaint. During July 1993, Disney filed an answer denying the substantive allegations of the Partnership's complaint and raising various affirmative defenses. The Partnership believes Disney's defenses are without merit and will continue to pursue its claims. In addition, Disney has filed a three count counterclaim in which it seeks among other things: a complete accounting of liabilities allegedly assumed but not discharged by the Partnership to ascertain whether certain funds, not to exceed $2.9 million, are due Disney in accordance with the purchase agreement; an unspecified amount of damages exceeding $500,000 allegedly representing workers compensation and warranty payments made by Disney, which Disney alleges are obligations of the Partnership; an accounting for funds disbursed from a claims pool in the amount of $3,000,000 established by the parties; and attorney fees and costs. The Partnership believes it has meritorious defenses to these counterclaims and will defend itself vigorously against them.
(3) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents may consist of U.S. Government obligations with original maturities of three months or less, money market demand accounts and repurchase agreements, the cost of which approximated market value. At December 31, 1996 and 1995, no funds were invested in treasury bills. Included in Restricted cash are amounts restricted under various escrow agreements. Credit risk associated with cash, cash equivalents and restricted cash is considered low due to the high quality of the financial institutions in which these assets are held.
(4) MORTGAGES RECEIVABLE
Mortgages receivable generally range in maturity from one to three years, certain of which are collateralized by liens on the property sold and bear interest with stated rates up to 10% per annum. All mortgages receivable with below market rates are discounted at the market rate prevailing at the date of issue or purchase. The resulting effective interest rates on mortgages receivable range from approximately 6% to 9% - per annum.
(5) REAL ESTATE INVENTORIES
Real estate inventories at December 31, 1996 and 1995 are summarized as follows:
1996 1995 ------------ ----------- Land held for future development or sale . . . . . . . . . . . . . $ 7,777,701 9,815,055 Community development inventory: Work in progress and land improvements . . . . . . . 135,441,247 165,914,109 Completed inventory . . . . . . . 31,419,506 23,643,635 ------------ -----------
Real estate inventories. . . . $174,638,454 199,372,799 ============ ===========
Reference is made to note 16 for a discussion regarding the impairment of long-lived assets.
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 are summarized as follows: 1996 1995 ------------ ----------
Land. . . . . . . . . . . . . . . . . $ 8,437,581 5,971,614 Land improvements . . . . . . . . . . 30,398,047 27,762,792 Buildings . . . . . . . . . . . . . . 56,800,858 50,663,162 Equipment and furniture . . . . . . . 23,292,495 23,111,070 Construction in progress. . . . . . . 539,275 1,847,685 ------------ ------------
Total. . . . . . . . . . . . . . 119,468,256 109,356,323 Accumulated depreciation . . . . (40,094,812) (37,513,792) ------------ ------------
Property and equipment, net. . . $ 79,373,444 71,842,531 ============ ============
Depreciation expense of approximately $5,558,000, $5,088,000 and $4,953,000 was incurred for the years ended December 31, 1996, 1995 and 1994, respectively.
Reference is made to note 16 for a discussion regarding the impairment of long-lived assets.
(7) INVESTMENTS IN AND ADVANCES TO JOINT VENTURES, NET
The Partnership has numerous investments in real estate joint ventures with ownership interests ranging from approximately 33% to 50%. The Partnership's joint venture interests accounted for under the equity method are as follows:
LOCATION OF NAME OF VENTURE % OF OWNERSHIP PROPERTY - --------------- -------------- ------------
Arvida Boose Joint Venture (a) 50 Florida
H.A.E. Joint Venture 33-1/3 Florida
Arvida Corporate Park Associates 50 Florida
Arvida Pompano Associates Joint Venture 50 Florida
Mizner Court Associates Joint Venture 50 Florida
Mizner Tower Associates Joint Venture 50 Florida
Ocala 202 Joint Venture 50 Florida
Tampa 301 Associates Joint Venture 50 Florida
Windmill Lake Estates Associates Joint Venture 50 Florida
Arvida/RBG I Joint Venture 40 Florida
Arvida/RBG II Joint Venture 40 Florida
(a) On December 31, 1996, the Partnership purchased its joint venture partner's 50% interest in the Arvida Boose Joint Venture for a purchase price of approximately $1.8 million. As a result of this transaction, the Partnership changed from the equity method of accounting to the consolidated method of accounting for the joint venture effective December 31, 1996. This transaction resulted in an approximate $0.9 million decrease in Investments in and advances to joint ventures, and an approximate $2.7 million increase to Real estate inventories on the accompanying consolidated balance sheets at December 31, 1996 as compared to December 31, 1995.
The following is combined summary information of joint ventures accounted for under the equity method.
The Partnership's share of net income (loss) is based upon its ownership interest in numerous investments in joint ventures which are accounted for in accordance with the equity method of accounting. Equity in earnings (losses) of unconsolidated ventures represents the Partnership's share of each venture's net income (loss), and may reflect a component of purchase price adjustments included in the Partnership's basis. Such adjustments are generally amortized to income in relation to the cost of revenue of the underlying real estate assets. These factors contribute to the differential in the Partnership's proportionate share of the net income (loss) of the joint ventures and its equity in earnings (losses) of unconsolidated ventures as well as to the basis differential between the Partnership's investments in joint ventures and its equity in underlying net assets, as shown above.
There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. In addition, under certain circumstances, either pursuant to the joint venture agreements or due to the Partnership's obligations as a general partner, the Partnership may be required to make additional cash advances or contributions to certain of the ventures.
During September 1995, the Partnership recorded an approximate $8.5 million writedown to the carrying value of its investment in the Coto de Caza Joint Venture. The Partnership had been evaluating its plans for its interest in this joint venture and was considering a shorter holding period than originally anticipated. Therefore, the Partnership recorded this writedown to reflect the fair value of this investment under market conditions at that time. This writedown is reflected in Writedowns of the carrying values of real estate inventories and other assets on the accompanying consolidated statements of operations for the year ended December 31, 1995. During March 1996, the Partnership closed on the sale of its 20% joint venture interest in Coto de Caza, including the related promissory note for advances previously made to the joint venture, to unaffiliated third parties for a cash sales price of $12.0 million. The Partnership used $2.0 of the sale proceeds to pay down its term loan. This sale is the primary cause for the decrease in Investments in and advances to joint ventures on the accompanying consolidated balance sheets at December 31, 1996 as compared to December 31, 1995. The General Partner believes that this sale was in the best interest of the Partnership given market conditions in Orange County, California at that time. As a result of this transaction, the Partnership has no future obligations with respect to Coto de Caza. This transaction resulted in gains of approximately $1.8 million and $1.1 million in 1996, for financial reporting and Federal income tax purposes, respectively.
During April 1995, the Partnership received a distribution of approximately 82 acres of undeveloped land near Sarasota, Florida from the Arvida Corporate Park Associates Joint Venture. This transaction is reflected as a non-cash investing and financing activity for the year ended December 31, 1995 on the accompanying consolidated statements of cash flows. The Partnership subsequently sold this land parcel to an unaffiliated third party during April 1995, the proceeds of which are included in Land and property revenues on the accompanying consolidated statements of operations for the year ended December 31, 1995.
The Partnership incurs certain general and administrative expenses which are paid by the Partnership on behalf of the joint ventures in which it holds interests. The Partnership receives reimbursements from the joint ventures for such costs. For the years ended December 31, 1996 and 1995, the Partnership was entitled to receive approximately $1,800 and $251,900, respectively, from certain of the joint ventures in which it holds interests. At December 31, 1996, approximately $10,400 was owed to the Partnership, which includes amounts owed from previous years, none of which was received as of February 21, 1997.
(8) NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable at December 31, 1996 and 1995 are summarized as follows:
1996 1995 ----------- ----------- Term loan credit facility of $85,252,250 bearing interest at approximately 8.2% and 8.4% per annum at December 31, 1996 and 1995, respectively (Retired in January 1997) (A). . . . . $ 5,234,008 32,531,048
Income property term loan of $18,233,326 bearing interest at approximately 8.0% and 8.5% per annum at December 31, 1996 and 1995, respectively (A) . . . . . . 11,566,746 12,766,746
Revolving line of credit of $20,000,000 at December 31, 1996 and 1995, respectively (A). . . . -- --
Other notes and mortgages payable (B) . . . . . . . . . . . . . 20,043,024 25,040,570 ----------- -----------
Total . . . . . . . . . . . . $36,843,778 70,338,364 =========== ===========
(A) At December 31, 1996, the Partnership's credit facility consists of a term loan in the original amount of $85,252,520, a revolving line of credit facility up to $20 million, an income property term loan in the original amount of $18,233,326 and a $15 million letter of credit facility.
The term loan, revolving line of credit and letter of credit facility are secured by recorded mortgages on all otherwise unencumbered real property assets of the Partnership, as well as an assignment of all mortgages receivable, equity memberships, certain joint venture interests or joint venture proceeds and cash balances (with the exception of deposits held in escrow). The income property term loan is secured by the recorded first mortgage on a mixed-use center in Boca Raton, Florida. Another office building known as Mizner Place, also located in Boca Raton, which served as additional collateral for the income property loan, was sold in May 1995, and the net sale proceeds of approximately $4 million were used to reduce the outstanding principal amount of the loan. All of the notes under the facility are cross-collateralized and cross-defaulted. At December 31, 1996, the term loan, the revolving line of credit and the income property term loan bear interest based, at the Partnership's option, on one of the lenders' prime rate plus 1.25% per annum or the relevant London Inter-Bank Offering Rate (LIBOR) plus 2.50% per annum. For the year ended December 31, 1996, the effective interest rate for the combined term loan, income property term loan and revolving line of credit facility was approximately 8.0% per annum.
Under the term loan agreement, the Partnership made scheduled principal payments of $10 million in March 1994, February 1995 and February 1996 and $5 million principal payments in July 1995 and July 1996. In addition, the term loan agreement provides for additional principal repayments based upon a specified percentage of available cash flow and upon the sale of certain assets. During the year ended December 31, 1996, the Partnership made such additional term loan payments totaling approximately $12.3 million. During January 1997, the Partnership paid off the remaining principal balance of $5,234,008 outstanding under the term loan. Under the income property term loan, principal payments of $0.1 million are required to be paid monthly until maturity. During March 1996, the Partnership's lenders reached an agreement with each other whereby one
of the lenders would purchase the other's participating interest in the Partnership's credit facilities. In addition, during March 1996, the successor lender agreed to renew the Partnership's revolving line of credit, income property term loan and letter of credit facility through July 1997. The Partnership currently anticipates that it will seek an extension from its lender of its income property term loan upon maturity. In addition, the Partnership is currently in negotiations with another lender for a new credit facility. Such facility, if obtained, would, in part, replace the Partnership's existing revolving line of credit and letter of credit facilities.
The credit agreement contains significant restrictions with respect to the payment of distributions, the maintenance of certain loan-to-value ratios, the use of proceeds from the sale of the Partnership's assets and advances to the Partnership's joint ventures.
Loan fees incurred in connection with the restructuring of the Partnership's credit facility have been capitalized and are being amortized over the lives of the loans included in the credit facility using the straight-line method, which approximates the interest method.
(B) Other notes and mortgages payable are collateralized by certain real estate inventories, property and equipment and certain investments with a net book value of approximately $25.8 million at December 31, 1996. These notes and mortgage notes have a weighted average annual effective interest rate of approximately 8.2% and 7.0% at December 31, 1996 and 1995, respectively, and mature in varying amounts through 2017.
During April 1996, the Partnership refinanced the loan on one of its retail properties located in its Weston Community with a different lender. The outstanding principal balance on such loan of approximately $8.0 million is included in Notes and mortgages payable at December 31, 1996. In addition, $3.0 million of subordinated debt attributable to the Cullasaja Joint Venture is included in Notes and mortgages payable at December 31, 1996.
The Partnership had a $24.0 million revolving construction line of credit for the buildings and certain amenities within the Partnership's condominium project on Longboat Key, Florida known as Arvida's Grand Bay. This line of credit bore interest at the lender's prime rate (8.25% at December 31, 1996) plus 1/2% per annum, and was scheduled to mature in January 1997. As of December 31, 1996, the Partnership had repaid the remaining outstanding principal balance under this line of credit. The Partnership currently anticipates that it will obtain a similar line of credit during 1997 for the remaining two buildings to be constructed within Arvida's Grand Bay.
During January 1996, the Partnership executed a note for a $7.5 million construction loan for the construction and development of a second retail shopping center located in its Weston Community. This note currently bears interest at the lender's prime rate (8.25% at December 31, 1996) plus 1/2% per annum, and matures in July 1997. At December 31, 1996, approximately $6.5 million was outstanding under this loan. The proceeds from such loan were the primary source of the funds required to complete the shopping center. Construction of the shopping center was completed in November 1996. The construction and development of this project is the primary cause for the increase in Property and equipment on the accompanying consolidated balance sheets at December 31, 1996 as compared to December 31, 1995.
Following is a schedule of the maturities of notes and mortgages payable at December 31, 1996.
1997 . . . . . . . . . . . . . . . . $19,156,362 1998 . . . . . . . . . . . . . . . . 493,549 1999 . . . . . . . . . . . . . . . . 239,945 2000 . . . . . . . . . . . . . . . . 6,436,554 2001 . . . . . . . . . . . . . . . . 7,453,177 Thereafter . . . . . . . . . . . . . 3,064,191 ----------- Total notes and mortgages payable. . . . . . . $36,843,778 ===========
(9) EQUITY MEMBERSHIPS
Equity memberships represent the accumulation of costs incurred in constructing club houses, golf courses, tennis courts and various other related assets, less amounts allocated to memberships sold. These amenities are conveyed to homeowners through the sale of equity memberships.
Reference is made to note 16 for a discussion regarding the impairment of long-lived assets.
(10) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the Partnership to affiliates of the General Partner as of December 31, 1996 and for the years ended December 31, 1996, 1995 and 1994 are as follows:
UNPAID AT DECEMBER 31, 1996 1995 1994 1996 -------- -------- -------- ------------ Property management fees (note 15) . . . . . $ 68,053 62,913 147,446 -- Insurance commissions . . 260,793 272,316 298,697 -- Reimbursement (at cost) for accounting services . . . . . . . . 45,408 73,326 63,633 32 Reimbursement (at cost) for portfolio manage- ment services. . . . . . 54,062 83,884 -- 12,976 Reimbursement (at cost) for legal services . . . 201,126 41,470 64,949 118,386 Reimbursement (at cost) for other administra- tive and out-of-pocket expenses . . . . . . . . 60,247 78,960 15,345 -- -------- -------- -------- ------- $689,689 612,869 590,070 131,394 ======== ======== ======== =======
The Partnership receives reimbursements from or reimburses other affiliates of the General Partner engaged in real estate activities for certain general and administrative costs including, and without limitation, salary and salary-related costs relating to work performed by employees of the Partnership and certain out-of-pocket expenditures incurred on behalf of such affiliates. For the year ended December 31, 1996, the amount of such costs incurred by the Partnership on behalf of these affiliates totaled approximately $281,600. Approximately $83,900 was outstanding at December 31, 1996, of which approximately $35,700 was received as of February 21, 1997. For the years ended December 31, 1995 and 1994, the Partnership was entitled to receive reimbursements of approximately $509,000 and $505,300, respectively.
In accordance with the Partnership Agreement, the General Partner and Associate Limited Partners have deferred a portion of their distributions of net cash flow from the Partnership totaling approximately $1,731,000 as of December 31, 1996. This amount does not bear interest and is expected to be paid in future periods, subject to certain restrictions contained in the Partnership's credit facility agreement.
Arvida Company ("Arvida"), pursuant to an agreement with the Partner- ship, provides development, construction, management and other personnel and services to the Partnership for all of its projects and operations. Pursuant to such agreement, the Partnership reimburses Arvida for all of its out-of-pocket expenditures (including salary and salary-related costs), subject to certain limitations. The total of such costs for the years ended December 31, 1996, 1995 and 1994 was approximately $5,931,300, $6,233,600 and $6,802,300, respectively, of which approximately $20,000 was unpaid as of December 31, 1996 and all of which was paid as of February 21, 1997.
The Partnership and Arvida/JMB Partners, L.P.-II (a publicly-held limited partnership affiliated with the General Partner) each employ project-related and administrative personnel who perform services on behalf of both partnerships. In addition, certain out-of-pocket expenditures related to such services and other general and administrative costs are incurred and charged to each partnership as appropriate. The Partnership receives reimbursements from or reimburses Arvida/JMB Partners, L.P.-II for such costs (including salary and salary-related costs). For the year ended December 31, 1996, the Partnership was entitled to receive approximately $1,255,500 from Arvida/JMB Partners, L.P.-II. At December 31, 1996, approximately $7,100 was outstanding, all of which was received as of February 21, 1997. In addition, for the year ended December 31, 1996, the Partnership was obligated to reimburse Arvida/JMB Partners, L.P.-II approximately $113,700. At December 31, 1996, approximately $21,100 was unpaid, all of which was paid as of February 21, 1997. The net reimbursements paid to the Partnership for the years ended December 31, 1995 and 1994 were approximately $2,416,100 and $2,491,100, respectively.
The Partnership pays for certain general and administrative costs on behalf of its clubs, homeowners associations and maintenance associations. The Partnership receives reimbursements from the affiliates for such costs.
For the year ended December 31, 1996, the Partnership was entitled to receive approximately $459,200 from its affiliates. At December 31, 1996, approximately $83,000 was owed to the Partnership, of which approximately $72,500 was received as of February 21, 1997. The reimbursements paid to the Partnership for the years ended December 31, 1995 and 1994 were approximately $350,700 and $594,200, respectively. In addition, the Partnership owes its equity clubs for certain costs incurred by the clubs which are obligations of the Partnership. For the year ended December 31, 1996, the Partnership was obligated to reimburse its equity clubs approximately $19,500. At December 31, 1996, approximately $15,800 was unpaid, none of which was paid as of February 21, 1997.
The Partnership, pursuant to an agreement, provides management and other personnel and services to one of its equity clubs. Pursuant to this agreement, the Partnership is entitled to receive a management fee for the services provided to the club. For the year ended December 31, 1996 and 1995, the Partnership was entitled to receive approximately $598,300 and $472,200. At December 31, 1996, approximately $100,100 was owed to the Partnership, none of which was received as of February 21, 1997.
The Partnership also funds certain capital expenditures and operating deficits of its equity clubs as well as operating deficits of its homeowners associations, as deemed necessary. The funding of operating deficits is expensed by the Partnership. Funding of capital expenditures is expected to be reimbursed from future cash flows generated by the equity clubs. At December 31, 1996, the Partnership was owed approximately $617,500 for such reimbursements, none of which was received as of February 21, 1997.
The Partnership periodically incurs salary and salary-related costs on behalf of an affiliate of the General Partner of the Partnership. The Partnership was entitled to receive approximately $399,000 for such costs for the year ended December 31, 1996. At December 31, 1996, approximately $169,000 was outstanding, none of which was received as of February 21, 1997.
Effective October 1, 1995, the General Partner of the Partnership engaged independent third parties to perform certain administrative services for the Partnership which were previously performed by, and partially reimbursed to, affiliates of the General Partners. Use of such third parties is not expected to have a material effect on the operations of the Partnership.
(11) COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations, the Partnership is contingently liable under standby letters of credit and bonds for approximately $5,018,300 and $7,397,100, respectively, at December 31, 1996. In addition, certain joint ventures in which the Partnership holds an interest are also contingently liable under bonds for approximately $1,020,000 at December 31, 1996.
The Partnership leases certain building space for its management offices, sales offices and other facilities, as well as certain equipment. The building and equipment leases expire over the next two to nine years. Minimum future rental commitments under non-cancelable operating leases having a remaining term in excess of one year as of December 31, 1996 are as follows:
1997. . . . . . . . . . . . . $1,364,535 1998. . . . . . . . . . . . . 1,217,057 1999. . . . . . . . . . . . . 633,614 2000. . . . . . . . . . . . . 442,772 2001. . . . . . . . . . . . . 243,450 Thereafter. . . . . . . . . . 57,693 ---------- $3,959,121 ==========
Rental expense of $1,949,770, $2,095,932 and $2,001,171 was incurred for the years ended December 31, 1996, 1995 and 1994, respectively.
On June 24, 1996, a lawsuit entitled Irvin Weiss v. Arvida/JMB Managers, Inc., Neil G. Bluhm, Lehman Brothers Inc. and Arvida/JMB Partners, L.P. ("Weiss action") was filed in the County Department, Chancery Division of the Circuit Court of Cook County, Illinois. This lawsuit is a purported class action lawsuit on behalf of Irvin Weiss and
all other Holders of Interests to bar (i) the General Partner and Mr. Bluhm from taking any action to chill tender offers from non-affiliates, (ii) the officers, directors and shareholders of the defendants from participating in any special committee on tender offers, (iii) Lehman Brothers Inc. from advising any such special committee, and (iv) defendants and their affiliates from making tender offers. On September 25, 1996, the claims of Irvin Weiss were voluntarily dismissed.
A second complaint was filed in the County Department, Chancery Division of the Circuit Court of Cook County, Illinois on July 1, 1996, and most recently amended on November 27, 1996 in connection with a court ruling dismissing certain allegations, in the matter of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury v. Arvida/JMB Managers, Inc., Neil G. Bluhm, Ira J. Schulman, Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, Judd D. Malkin, Lehman Brothers Inc., Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS Capital II, L.L.C., Barry Sternlicht, Walton Street Capital Acquisition Co. III and Whitehall Street Real Estate Limited Partnership VII, and Arvida/JMB Partners, L.P., nominal defendant ("Carlstrom action"). This complaint, as amended, is brought derivatively on behalf of the Partnership and individually on behalf of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury and a purported class of all other Holders of Interests (excluding the defendants, members of their immediate families, affiliates, subsidiaries, agents, partners, members of their current or former management or that of their affiliates, and any participant in the alleged conspiracy). The Carlstrom action challenged, amoung other things, the Partnership's proposed $160 million term loan from Starwood/Florida Funding, L.L.C. ("Starwood financing") and seeks, among other things, to bar defendants from taking any action to chill tender offers or offers for debt financing from non-affiliates; to cause defendants to put the issue of the Starwood financing to a vote of unitholders; to bar defendants from completing the Starwood financing; to disband the Special Committee and allow the Holders of Interests to vote on an "independent slate" of directors to compose a new special committee; and to cause the Partnership and director defendants to auction the Partnership. The complaint, as amended, alleges, among other things, that the General Partner breached its fiduciary duties owed plaintiffs and members of the purported class by failing to negotiate for the financing with other entities and entering into the Starwood financing in order to entrench itself and maintain its control over the Partnership. The complaint, as amended, also alleges that the terms of the Starwood financing are burdensome to the Partnership and allegedly will cause a waste of the Partnership's assets. The Carlstrom action has been consolidated with the Weiss action and is brought as a four-count complaint for breach of fiduciary duty on behalf of the class, breach of fiduciary duty on behalf of the Partnership, conspiracy and collusion to breach fiduciary duties on behalf of the class and the Partnership, and for an injunction on behalf of the class and the Partnership. In addition to the relief described above, plaintiffs in the complaint, as amended, on behalf of themselves and members of the purported class seek damages in a sum to be determined at trial, attorneys' fees and costs, and such other relief as the Court may deem just and proper. On December 13, 1996, the Court granted the plaintiffs' motion for preliminary injunction to stop the Starwood financing until a hearing on a permanent injunction. The Partnership, its General Partner, and members of the Special Committee have appealed the order granting the preliminary injunction. The appeal is pending in the Appellate Court of Illinois, First Judicial District, Case No. 97-0093. In the appeal, the Partnership, its General Partner, and members of the Special Committee, among other things, contend that the wrong legal standard was applied by the trial court in the hearing on plaintiffs' motion for preliminary injunction in requiring the Partnership to prove the fairness of the Starwood financing. In addition, and alternatively, the Partnership contends that the adoption of the Starwood financing, which an independent investment banker opined was commercially reasonable and fair, satisfied the legal standard applied by the Court. The parties to the Carlstrom action engaged in mediation discussions supervised by the Court which began on March 5, 1997 and have been conducted on various dates thereafter. As of the date of this filing, the
parties contemplate an appearance before the Court during the week of March 31, 1997, for purposes of presenting a proposed resolution of this matter for preliminary Court approval. If such mediation discussions do not result in a resolution of this matter, a hearing on a permanent injunction will be scheduled and the appeal process will continue. Due to the uncertainty of the outcome of this matter, the accompanying consolidated financial statements do not reflect any accruals related to the resolution of this litigation.
On or about September 27, 1996, a lawsuit entitled Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital Associates L.P., individually and derivatively on behalf of Arvida/JMB Partners, L.P. v. Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C., Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB Partners, L.P., nominal defendant, was filed in the Court of Chancery of the State of Delaware in and for New Castle County, Civil Action No. 15238 ("Raleigh action"). The Raleigh action was filed as a verified complaint for declaratory and injunctive relief. Plaintiffs claimed that the defendants in entering into the financing commitment letter for the Starwood term financing violated, or aided and abetted, or participated in the violation of, fiduciary duties owed to the Partnership and the Holders of Interests, and put their personal interests ahead of the interests of the Partnership and the Holders of Interests. In the first claim for relief, plaintiffs sought a declaratory judgment that the terms of the Starwood financing be declared null, void and unenforceable. In the second claim for relief, plaintiffs asserted a claim, derivatively on behalf of the Partnership, alleging, among other things, that the financing commitment letter for the Starwood financing was not the product of a valid exercise of business judgment. In addition to the relief described above, plaintiffs sought to preliminarily and permanently enjoin any actions in furtherance of the financing commitment letter, an award of compensatory damages, interest, costs and disbursements, including reasonable attorneys' and experts' fees and such other relief as the Court might deem just and proper. The General Partner and the Partnership filed a motion to dismiss the Raleigh action which motion was granted on November 7, 1996. In granting the motion, the Court held that Raleigh was not a Limited Partner and did not have standing to file the derivative claims. The Court further determined that Raleigh did not have the right to vote. Plaintiffs asked the Court to reconsider its ruling, but the Court denied the request to change its ruling.
Plaintiffs appealed the November 7, 1996 dismissal order. On December 12, 1996, the Delaware Supreme Court reversed the trial court order on a procedural ground. The Delaware Supreme Court concluded that the trial court should not have considered matters outside of the pleadings in dismissing the Raleigh action without providing the plaintiffs some limited discovery. Accordingly, the Delaware Supreme Court remanded the case back to the trial court for further proceedings.
On December 16, 1996, the Partnership filed a counterclaim against Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh had no right to vote on Partnership matters. On January 28, 1997, the trial court granted plaintiffs leave to dismiss their own complaint concerning the Starwood financing, leaving the Partnership's counterclaim pending.
By letter dated January 10, 1997, Raleigh requested admission as a Substituted Limited Partner of the Partnership. The Partnership referred the request to the Special Committee of the Partnership. On February 11, 1997, the Special Committee denied the request. Thereafter, the Partnership supplemented its counterclaim, as amended, to seek a court declaration that Raleigh is not entitled to be admitted as a Substituted Limited Partner. On February 20, 1997, Raleigh filed a reply and counterclaim against the Partnership, the General Partner, and the Special Committee. The reply counterclaim seeks, among other things, a declaration that Raleigh has voting rights in the Partners and that defendants breached
their fiduciary duties by failing to admit, Raleigh as a Substituted Limited Partner. The replay counterclaim also seeks to enjoin the Partnership, the General Partner, and the Special Committee from refusing to admit Raleigh as a Substituted Limited Partner, an aware of damages, interest, fees, and costs.
On or about February 28, 1997, Gladys Beasley, individually and as a representative of a class of persons similarly situated, filed an intervenor complaint for declaratory relief against the Partnership. In the intervenor complaint, plaintiff seeks a declaration that purchasers who obtained Interests in the Partnership in the public offering and subsequent Holders of Interests in the Partnership by assignment from original Holders have the same voting rights in the Partnership, among other things, to remove and replace the General Partner. In addition, plaintiff Gladys Beasley, seeks an order adjudging and decreeing that the intervenor action be properly maintained as a class, an award of her costs and expenses of the litigation, and such other relief as the Court deems appropriate.
The trial of all claims in the Delaware action is scheduled from April 7, 1997 through April 9, 1997.
The Partnership was named a defendant in a number of homeowner lawsuits, certain of which purported to be class actions, that allegedly in part arose out of or related to Hurricane Andrew, which on August 24, 1992 resulted in damage to a former community development known as Country Walk.
The homeowner lawsuits alleged, among other things, that the damage suffered by the plaintiffs' homes and/or condominiums within Country Walk was beyond what could have been reasonably expected from the hurricane and/or was a result of the defendants' alleged defective design, construction, inspection and/or other improper conduct in connection with the development, construction and sales of such homes and condominiums, including alleged building code violations. The various plaintiffs sought varying and, in some cases, unspecified amounts of compensatory damages and other relief. In certain of the lawsuits injunctive relief and/or punitive damages were sought.
Several of these lawsuits allege that the Partnership was liable, among other reasons, as a result of its own alleged acts of misconduct or as a result of the Partnership's alleged assumption of Arvida Corporation's liabilities in connection with the Partnership's purchase of Arvida Corporation's assets from Disney in 1987, which included certain assets related to the Country Walk development. Pursuant to the agreement to purchase such assets, the Partnership obtained indemnification by Disney for certain liabilities relating to facts or circumstances arising or occurring prior to the closing of the Partnership's purchase of the assets.
Over 80% of the Arvida-built homes in Country Walk were built prior to the Partnership's ownership of the Community. Where appropriate, the Partnership has tendered or will tender each of the above-described lawsuits to Disney for defense and indemnification in whole or in part pursuant to the Partnership's indemnification rights. Where appropriate, the Partnership has also tendered these lawsuits to its various insurance carriers for defense and coverage. The Partnership is unable to determine at this time to what extent damages in these lawsuits, if any, against the Partnership, as well as the Partnership's cost of investigating and defending the lawsuits, will ultimately be recoverable by the Partnership either pursuant to its rights of indemnification by Disney or under contracts of insurance.
One of the Partnership's insurance carriers has been funding settlements of various litigation related to Hurricane Andrew. In some, but not all, instances, the insurance carrier has provided the Partnership with written reservation of rights letters. The aggregate amount of the settlements funded to date by this carrier is approximately $8.0 million. The insurance carrier that funded these settlements pursuant to certain reservations of rights has stated its position that it has done so pursuant to various non-waiver agreements. The carrier's position was that these non-waiver agreements permitted the carrier to fund settlements without barring the carrier from raising insurance coverage issues or waiving such coverage issues. On May 23, 1995, the insurance carrier rescinded the various non-waiver agreements currently in effect regarding the remainder of the Hurricane Andrew litigation, allegedly without waiving any future coverage defenses, conditions, limitations, or rights. For this and other reasons, the extent to which the insurance carrier may recover any of these proceeds from the Partnership is uncertain. Therefore, the accompanying consolidated financial statements do not reflect any accruals related to this matter.
Currently, the Partnership is involved in two subrogation lawsuits. On April 19, 1993, a subrogation claim entitled Village Homes at Country Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this suit for the use and benefit of American Reliance Insurance Company ("American Reliance"). In this suit, as amended, plaintiffs seek to recover damages and pre- and post-judgment interest in connection with $10,873,000 American Reliance has allegedly paid, plus amounts it may have to pay in the future, to the condominium association at Country Walk in the wake of Hurricane Andrew. Disney is also a defendant in this suit. The Partnership believes that the amount of this claim that allegedly relates to units it sold is approximately $3,600,000. Plaintiffs also seek a declaratory judgement seeking to hold the Partnership and other defendants responsible for amounts American Reliance must pay in the future to its insured as additional damages beyond the $10,873,000 previously paid. The Partnership has filed motions directed to the complaint, as amended, and the litigation is in the discovery stage. The Partnership intends to vigorously defend itself. On or about May 10, 1996, a subrogation claim entitled Juarez et al v. Arvida Corporation et al. was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County. Plaintiffs filed this suit for the use and benefit of American Reliance. In this suit, plaintiffs seek to recover damages, pre-and post-judgment interest, costs and any other relief the Court may deem just and proper in connection with $3,200,000 American Reliance allegedly paid on specified claims at Country Walk in the wake of Hurricane Andrew. Disney is also a defendant in this suit. The Partnership is advised that the amount of this claim that allegedly relates to units it sold is approximately $350,000. The Partnership intends to defend itself vigorously in this matter. The Partnership is also involved in a subrogation action brought by the Insurance Company of North America ("INA") arising out of a claim that INA allegedly paid on a single home in Country Walk. The Partnership has settled this claim for approximately $45,600 with the settlement being funded by the Partnership's insurance carrier. The Metropolitan Property and Casualty Company ("Metropolitan") has advised the Partnership of its intent to file a subrogation action allegedly in connection with an unspecified number of Arvida-built homes. Currently, Metropolitan has advised the Partnership of three claims, totalling approximately $505,000. The Partnership could be named in other subrogation actions, and in such event, the Partnership intends to vigorously defend itself in such actions.
In addition, the Partnership has been advised by Merrill Lynch that various investors have sought to compel Merrill Lynch to arbitrate claims brought by certain investors of the Partnership representing approximately 5% of the total of approximately 404,000 Interests outstanding. Merrill Lynch has asked the Partnership and its General Partner to confirm an obligation of the Partnership and its General Partner to indemnify Merrill Lynch in these claims against all loss, liability, claim, damage and expense, including without limitation attorneys' fees and expenses, under the terms of a certain Agency Agreement dated September 15, 1987 ("Agency Agreement") with the Partnership relating to the sale of Interests through Merrill Lynch on behalf of the Partnership. These claimants have sought and are seeking to arbitrate claims involving unspecified damages against Merrill Lynch based on Merrill Lynch's alleged violation of applicable state and/or federal securities laws and alleged violations of the rules of the National Association of Securities Dealers, Inc., together with pendent state law claims. The Partnership believes that Merrill Lynch has resolved some of these claims through litigation and otherwise, and that Merrill Lynch is defending other claims. The Agency Agreement generally provides that the Partnership and its General Partner shall indemnify Merrill Lynch against losses occasioned by any actual or alleged misstatements or omissions of material facts in the Partnership's offering materials used in connection with the sale of Interests and suffered by Merrill Lynch in performing its duties under the Agency Agreement, under certain specified conditions. The Agency Agreement also generally provides, under certain conditions, that Merrill Lynch shall indemnify the Partnership and its General Partner for losses suffered by the Partnership and occasioned by certain specified conduct by Merrill Lynch in the course of Merrill Lynch's solicitation of subscriptions for, and sale of, Interests. The Partnership is unable to determine at this time the ultimate investment of investors who have filed arbitration claims as to which Merrill Lynch might seek indemnification in the future. At this time, and based upon the information presently available about the arbitration statements of claims filed by some of these investors, the Partnership and its General Partner believe that they have meritorious defenses to demands for indemnification made by Merrill Lynch and intend to vigorously pursue such defenses. Although there can be no assurance regarding the outcome of the claims for indemnification, at this time, based on information presently available about such arbitration statements of claims, the Partnership and its General Partner do not believe that the demands for indemnification by Merrill Lynch will have a material adverse effect on the financial condition of the Partnership.
On or about October 16, 1995, a lawsuit was filed against the Partnership and others in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida, and amended on or about February 20, 1996, entitled Council of Villages, Inc. et al v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., Broken Sound Club, Inc., and Country Club Maintenance Association, Inc. ("Council of Villages Case"). The multi-count complaint, as amended, is brought as a class action, and individually, on behalf of various residents of the Broken Sound Community, and alleges that defendants engaged in various acts of misconduct in, among other things, the establishment, operation, management and marketing of the Broken Sound golf course and recreational facilities, as well as the alleged improper failure to turn over such facilities to the Broken Sound homeowners on a timely basis. Plaintiffs seek, through various theories, including but not limited to breach of ordinance, breach of fiduciary duty, fraud, unjust enrichment and civil theft, damages in excess of $45 million, the appointment of a receiver for the Broken Sound Club, other unspecified compensatory damages, the right to seek punitive damages, treble damages, prejudgment interest, attorneys' fees and costs. The Partnership believes that the lawsuit is without merit and intends to vigorously defend itself in this matter.
On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was filed against the Partnership and others in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is filed as a three-count complaint for dissolution of the Broken Sound Club, Inc. ("Club"), and seeks, among other things, the appointment of a custodian or receiver for the Club, a determination that certain acts be deemed wrongful, the return to the Club of in excess of $2.5 million in alleged "operating profits", an injunction against the charging of certain dues, an injunction requiring the Club to produce certain financial statements, and such other relief as the Court deems just, fair and proper.
This action has been consolidated with the Council of Villages Case. The Partnership believes the lawsuit is without merit and intends to vigorously defend itself.
The Partnership is also a defendant in several actions brought against it arising in the normal course of business. It is the belief of the General Partner, based on knowledge of facts and advice of counsel, that the claims made against the Partnership in such actions will not result in any material adverse effect on the Partnership's consolidated financial position or results of operations.
The Partnership owns a 50% joint venture interest in 31 commercial/ industrial acres in Pompano Beach, Florida, which is encumbered by a mortgage loan in the principal amount of approximately $4 million at December 31, 1996. As a result of the Partnership's previous determination that the development of the land was no longer economically profitable, during April 1992, the Partnership and its joint venture partner each tendered payment in the amount of approximately $3.1 million to the lender for their respective shares of the guarantee payment required under the loan agreement and certain other holding costs, the majority of which reduced the outstanding mortgage loan to its current balance. The venture also intended at that time to convey title to the property to the lender; however, such conveyance is pending until resolution of certain general development obligations of the venture as well as certain environmental issues. The Partnership had been negotiating with the lender regarding the scope of the development work required to be done. Negotiations with the lender were unsuccessful, and the lender has filed a lawsuit with the Broward County Circuit Court in which the lender asserts, among other things, that the mortgage loan is with recourse to the joint venture partners as a result of the partners' failure to perform in accordance with the terms of the loan agreement. The lender is demanding payment of the outstanding loan balance plus interest thereon. The Partnership believes this claim is without merit and is vigorously defending the lawsuit. With respect to the environmental issues, the previous owner remains obligated to undertake the clean up pursuant to, among other things, a surviving obligation under the purchase and sale agreement. The clean-up began in July 1994, and the first phase of the remedial action plan was completed in October 1994. Further action plans are now being discussed with state environmental officials. If the previous owner is unable to fulfill all its obligations as they relate to this environmental issue, the venture and ultimately the Partnership may be obligated for such costs. Should this occur, the Partnership does not anticipate the cost of this clean-up to be material to its operations.
The Partnership may be responsible for funding certain other ancillary activities for related entities in the ordinary course of business which the Partnership does not currently believe will have any material adverse effect on its consolidated financial position or results of operations.
(12) TAX INCREMENT FINANCING ENTITIES
In connection with the development of the Partnership's Weston Community, bond financing is utilized to construct certain on-site and off- site infrastructure improvements, including major roadways, lakes, other waterways and pump stations, which the Partnership would otherwise be obligated to finance and construct as a condition to obtain certain approvals for the project. This bond financing is obtained by The Indian Trace Community Development District ("District"), a local government district operating in accordance with Chapter 190 of the Florida Statutes. Under this program, the Partnership is not obligated directly to repay the bonds. Rather, the bonds are expected to be fully serviced by special assessment taxes levied on the property, which effectively collateralizes the obligation to pay such assessments until land parcels are sold. At such point, the liability for the assessments related to parcels sold will be borne by the purchasers through a tax assessment on their property. These special assessment taxes are designed to cover debt service on the bonds, including principal and interest payments, as well as the operating and maintenance budgets of the District. The use of this type of bond financing is a common practice for major land developers in South Florida.
The District issued $64,660,000 of variable rate bonds in November 1989 and $31,305,000 of variable rate bonds in July 1991. These bonds mature in various years commencing in May 1991 through May 2011. In order to reduce the exposure of variable rate debt, the District pursued a new bond issuance. During March 1995, the District issued approximately $99 million of bonds at fixed rates of interest ranging from 4.0% to 8.25% per annum. These bonds mature in various years commencing May 1995 through May 2011. The proceeds from this offering were used to refund the outstanding 1989 and 1991 bonds described above, as well as to fund the issuance costs incurred in connection with this offering and deposits to certain reserve accounts for future bond debt service requirements. In addition, during December 1995, the District issued an additional $13,340,000 of fixed rate bonds. These bonds bear interest at 6.875% and mature in April 2010; however, mandatory principal redemptions commence in 1998 and continue through maturity. At December 31, 1996, the amount of bonds issued and outstanding totalled $100,170,000. For the twelve months ended December 31, 1996, the Partnership paid special assessments related to the bonds of approximately $3.4 million.
(13) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 ("SFAS 107") - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 requires the disclosure of the SFAS 107 values of all financial assets and liabilities for which it is practicable to estimate such values. Value is defined in SFAS 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of its financial instruments approximates SFAS 107 value at December 31, 1996 and 1995.
(14) PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement (and subject to Section 4.2F which allocates Profits, as defined, to the General Partner and Associate Limited Partners), profits or losses of the Partnership will be allocated as follows: (i) profits will be allocated such that the General Partner and the Associate Limited Partners will be allocated profits equal to the amount of cash flow distributed to them for such fiscal period with the remainder allocated to the Holders of Interests, except that in all events, the General Partner shall be allocated at least 1% of profits and (ii) losses will be allocated 1% to the General Partner, 1% to the Associate Limited Partners and 98% to the Holders of Interests.
In the event profits to be allocated in any given year do not equal or exceed cash distributed to the General Partner and the Associate Limited Partners for such year, the allocation of profits will be as follows: The General Partner and the Associate Limited Partners will be allocated profits equal to the amount of cash flow distributed to them for such year.
The Holders of Interests will be allocated losses such that the sum of amounts allocated to the General Partner, Associate Limited Partners, and Holders of Interests equals the profits for the given year.
For the years ended December 31, 1996 and 1995, the Partnership had net income for financial reporting and Federal income tax purposes. In accordance with Section 4.2A of the Partnership Agreement, the amount of net income allocated, collectively, to the General and Associated Limited Partners for financial reporting and tax purposes for the year ended December 31, 1996 was approximately $755,000 and $717,000, respectively. This allocation was based on cash distributions made during 1996 for 1995 to the Associate Limited Partners and an allocation of 1% of profits to the General Partner in accordance with Section 4.2A of the Partnership Agreement. In accordance with Section 4.2A of the Partnership Agreement, the amount of net income allocated, collectively, to the General and Associate Limited Partners for financial reporting and tax purposes for the year ended December 31, 1995 was approximately $666,000 and $673,000, respectively.
In general, and subject to certain limitations, the distribution of Cash Flow (as defined) after the initial admission date is allocated 90% to the Holders of Interests and 10% to the General Partner and the Associate Limited Partners (collectively) until the Holders of Interests have received cumulative distributions of Cash Flow equal to a 10% per annum return (non-compounded) on their Adjusted Capital Investments (as defined) plus the return of their Capital Investments; provided, however, that 4.7369% of the 10% amount otherwise distributable to the General Partner and Associate Limited Partners (collectively) will be deferred, and such amount will be paid to the Holders of Interests, until the Holders of Interests receive Cash Flow distributions equal to their Capital Investments. Any deferred amounts owed to the General Partner and Associate Limited Partners (collectively) will be distributable to them out of Cash Flow to the extent of one-half of Cash Flow otherwise distributable to the Holders of Interests at such time as the Holders of Interest have received total distributions of Cash Flow equal to their Capital Investments. Thereafter, all distributions of Cash Flow will be made 85% to the Holders of Interests and 15% to the General Partner and the Associate Limited Partners (collectively); provided, however, that the General Partner and the Associate Limited Partners (collectively) shall be entitled to receive an additional share of Cash Flow otherwise distributable to the Holders of Interests equal to the lesser of an amount equal to 2% of the cumulative gross selling prices of any interests in real property of the Partnership (subject to certain limitations) or 13% of the aggregate distributions of Cash Flow to all parties pursuant to this sentence.
Pursuant to the Partnership Agreement, the Partnership may continue in existence until December 31, 2087; however, the General Partner shall elect to pursue one of the following courses of action on or before October 31, 1997: (i) to cause the Interests to be listed on a national exchange or to be reported by the National Association of Securities Dealers Automated Quotation System; (ii) to purchase, or cause JMB Realty Corporation or its affiliates to purchase all of the Interests at their then appraised fair market value (as determined by an independent nationally recognized investment banking firm or real estate advisory company); or (iii) to commence a liquidation phase in which all of the Partnership's remaining assets will be sold or disposed of by the end of the fifteenth year from the termination of the offering.
(15) MANAGEMENT AGREEMENTS - OTHER THAN VENTURES
Certain of the Partnership's properties are managed by affiliates of the General Partner or their assignees for fees computed as a percentage of certain receipts of the properties. In December 1994, one of the affiliated property managers sold substantially all of its assets and assigned its interest in its management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. The successor to the affiliated property manager's assets is acting as the property manager of the office and retail components of the Partnership's mixed-use center known as Arvida Parkway Center after the sale and assignment of the management contracts on the same terms that existed prior to the sale. The successor to the affiliated property manager's assets also acted as the property manager of the Mizner Place office building until such property was sold by the Partnership in May 1995.
(16) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement requires impairment losses to be recorded on long- lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of, and requires that assets to be disposed of be reported in the balance sheet at the lower of their carrying amount or fair value less cost to sell. The Partnership adopted Statement 121 effective January 1, 1995 and, as a result, recorded an impairment loss of $2.2 million to the carrying value of its Cullasaja Community located near Highlands, North Carolina. This loss was recorded based upon an analysis of estimated discounted cash flows used to determine the Community's fair value at such time, and is reflected as the Cumulative effect due to change in accounting for long-lived assets on the accompanying consolidated statements of operations. This analysis estimated the sell out of the remaining houses, homesites and equity memberships in this Community by the year 2000. As a result of this adjustment, Cullasaja's carrying value is recorded at approximately $5.4 million and $7.1 million at December 31, 1996 and 1995, respectively. The Partnership requires no impairment losses or other adjustments to be recorded as of December 31, 1996 as a result of the application of this statement.
(17) SUBSEQUENT EVENTS
During February 1997, the Partnership made a distribution for 1996 of $24,240,000 to its Holders of Interests ($60 per Interest) and $1,346,651 to the General Partner and Associate Limited Partners, collectively.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes or disagreements with auditors during 1996 and 1995.
PART III
ITEM 10.
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Partnership is Arvida/JMB Managers, Inc., a Delaware corporation, of which all of the outstanding shares of stock are owned by Northbrook Corporation, a Delaware corporation, substantially all of the outstanding shares of which are owned by JMB Realty Corporation, a Delaware corporation ("JMB") and certain of its officers, directors and members of their families. Substantially all of the shares of JMB are owned by its officers, directors, members of their families and affiliates.
Arvida/JMB Managers, Inc. was substituted as general partner of the Partnership as a result of a merger on March 30, 1990 of an affiliated corporation that was the then general partner of the Partnership into Arvida/JMB Managers, Inc., which, as the surviving corporation of such merger, continues as General Partner. All references herein to "General Partner" include Arvida/JMB Managers, Inc. and its predecessor, as appropriate. The General Partner has responsibility for all aspects of the Partnership's operations. Arvida/JMB Associates, an Illinois general partnership, of which certain officers and affiliates of JMB are partners, and Arvida/JMB Limited Partnership, an Illinois limited partnership, of which Arvida/JMB Associates is the general partner, are the Associate Limited Partners of the Partnership. Various relationships of the Partner- ship to the General Partner and its affiliates are described under the caption "Conflicts of Interest" at pages 21-24 of the Prospectus, which description is hereby incorporated herein by reference to Exhibit 99.1 to this report.
The director and the executive and certain other officers of the General Partner of the Partnership are as follows:
SERVED IN NAME OFFICE OFFICE SINCE ---- ------ ------------
Judd D. Malkin Chairman 04/08/87 and Director 05/31/96 Neil G. Bluhm President 04/08/87 and Director 05/31/96 H. Rigel Barber Vice President 04/08/87 Gailen J. Hull Vice President 04/09/87 Howard Kogen Vice President and Treasurer 04/08/87 Gary Nickele Vice President and General Counsel 04/08/87 Burton E. Glazov Director 05/31/96 Stuart C. Nathan Director 05/31/96 A. Lee Sacks Director 05/31/96 John G. Schreiber Director 05/31/96 James D. Motta Vice President 04/09/87 John Grab Vice President 04/09/87
Effective May 31, 1996, the Board of Directors of the General Partner was expanded to provide for six directors. Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks and John G. Schreiber were elected to the Board of Directors of the General Partner, and Gary Nickele, who had been the sole director of the General Partner since December 1990, resigned as Director. In addition, the Board of Directors of the General Partner established a special committee, consisting of Messrs. Malkin, Glazov, Nathan, Sacks and Schreiber, to deal with all matters relating to tender offers for Interests as well as certain other matters.
As more fully discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, an affiliate of Mr. Bluhm, Walton Street Capital Acquisition Co., III, L.L.C. ("Walton"), commenced a tender offer (the "Walton Offer") for Interests in June 1996. Since expressing an interest in making the Walton Offer, Mr. Bluhm has not been involved in meetings of the Board of Directors (or its special committee) and has not been involved in decisions made with regard to the Partnership.
There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the General Partner to be held on August 12, 1997. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the General Partner to be held on August 12, 1997. There are no arrangements or understandings between or among any of said director or officers and any other person pursuant to which any director or officer was selected as such.
The foregoing director and certain of the officers are also officers and/or directors of various affiliated companies, including JMB, which is the corporate general partner of Carlyle Real Estate Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX ("Carlyle-IX"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVI ("Carlyle-XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle- XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle Income Plus-II") and the managing general partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income Properties, Ltd.-XII ("JMB Income-XII") and JMB Income Properties, Ltd.- XIII ("JMB-XIII"). JMB is also the sole general partner of the associate general partner of most of the foregoing partnerships. Most of the foregoing directors and officers are also officers and/or directors of various affiliated companies of JMB including Arvida/JMB Managers-II, Inc. (the general partner of Arvida/JMB Partners, L.P.-II ("Arvida-II")) and Income Growth Managers, Inc. (the corporate general partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). The directors and most of such officers are also partners, directly or indirectly, of certain partnerships (the "Associate Partnerships") which are associate general partners in the following real estate limited partnerships: Carlyle-VII, Carlyle-IX, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle- XVI, Carlyle-XVII, JMB Income-VI, JMB-VII, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB Income-XIII, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG. The foregoing directors and officers are partners, indirectly through other partnerships, of the Associate Limited Partners of the Partnership and of the associate limited partner of Arvida-II.
The business experience during the past five years of such directors and officers of the Corporate General Partner of the Partnership includes the following:
Judd D. Malkin (age 59) is Chairman of the Board of JMB, an officer and/or director of various JMB affiliates and a partner, directly or indirectly, of the Associate Partnerships. He is also an individual general partner of JMB Income Properties-IV and JMB Income Properties-V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc. ("USC, Inc."), an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 59) is President and a director of JMB, an officer and/or director of various JMB affiliates and a partner, directly or indirectly, of the Associate Partnerships. He is also an individual general partner of JMB Income Properties-IV and JMB Income Properties-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a director of USC, Inc. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 58) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December 1990. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Stuart C. Nathan (age 55) has been associated with JMB since July, 1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of sporting goods. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 63) (President and Director of JMB Insurance Agency, Inc.) has been associated with JMB since December, 1972.
John G. Schreiber (age 50) has been associated with JMB since December, 1970 and served as an Executive Vice President of JMB until December 1990. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Partners, an affiliate of the Blackstone Group, L.P. Since 1994, Mr. Schreiber has also served as a Trustee of Amli Residential Property Trust, a publicly-traded real estate investment trust that invests in multi-family properties. Mr. Schreiber is also director of USC, Inc. He is also director of a number of investment companies advised by T. Rowe Price Associates and its affiliates. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business.
H. Rigel Barber (age 47) is Chief Executive Officer and Executive Vice President of JMB, an officer of various JMB affiliates and a partner, directly or indirectly, of various Associate Partnerships. Mr. Barber has been associated with JMB since March, 1982. He received a J.D. Degree from the Northwestern Law School and is a member of the Bar of the State of Illinois.
Gailen J. Hull (age 48) is a Senior Vice President of JMB, an officer of various JMB affiliates and a partner, directly or indirectly, of various Associate Partnerships. Mr. Hull has been associated with JMB since March, 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant.
Howard Kogen (age 61) is Senior Vice President and Treasurer of JMB, an officer of various JMB affiliates and a partner, directly or indirectly, of various Associate Partnerships. Mr. Kogen has been associated with JMB since March, 1973. He is a Certified Public Accountant.
Gary Nickele (age 44) is Executive Vice President and General Counsel of JMB, an officer of various JMB affiliates and a partner, directly or indirectly, of various Associate Partnerships. Mr. Nickele has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois.
James D. Motta (age 41) has been President and Chief Executive Officer of Arvida since April 1, 1995. Prior thereto, he was Executive Vice President and Chief Operating Officer of Arvida (May, 1994 to March, 1995).
Prior thereto, he was President-Community Development Division of Arvida (August, 1993 - April, 1994), President-Southeast Division of Arvida (July, 1992 to July, 1993) and President-South Florida Division of Arvida (January, 1989 to July, 1992). Mr. Motta is also an officer or partner of various affiliates of Arvida.
John R. Grab (age 41) is Vice President and General Manager - Club/Hotel Operations of Arvida. Prior thereto, he was Vice President and Project General Manager - Weston Hills of Arvida (October 1990 to October 1993) and Vice President and Project General Manager - Jacksonville Golf & Country Club of Arvida (June 1988 to October 1990). He is a Certified Public Accountant. Mr. Grab is also an officer or partner of various affiliates of Arvida.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The officers and the director of the General Partner receive no direct remuneration in such capacities from the Partnership. The General Partner and the Associate Limited Partners are entitled to receive a share of cash distributions, when and as cash distributions are made to the Holders of Interests, and a share of profits or losses as described under the caption "Cash Distributions and Allocations of Profit and Losses" at pages 61 to 64 of the Prospectus and at pages A-9 to A-16 of the Partnership Agreement, which descriptions are incorporated herein by reference to Exhibit 99.1, to this report. Reference is also made to Notes 1 and 14 for a description of such distributions and allocations. The General Partner and the Associate Limited Partners, collectively, received a cash distribution in 1996 of $580,250. Under certain circumstances they will be entitled to approximately $1,731,000 which has been deferred through December 31, 1996.
Such payment is subject to certain restrictions contained in the Partnership Agreement and the Partnership's credit facility. Pursuant to the Partnership Agreement, the General Partner and Associate Limited Partners were allocated profits for tax purposes for 1996 of approximately $717,000. Reference is made to Note 14 for further discussion of this allocation.
The Partnership is permitted to engage in various transactions involving the General Partner and its affiliates, as described under the captions "Management of the Partnership" at pages 56 to 59, "Conflicts of Interest" at pages 21-24 of the Prospectus and "Rights, Powers and Duties of the General Partner" at pages A-16 to A-28 of the Partnership Agreement, which descriptions are hereby incorporated herein by reference to Exhibit 99.1 to this report. The relationships of the General Partner (and its director and executive officers and certain other officers) and its affiliates to the Partnership are set forth above in Item 10.
Arvida is reimbursed fully for all of its out-of-pocket expenditures (including salary and salary-related expenses) incurred while supervising the development and management of the Partnership's properties and other operations, subject to the limitation that such reimbursement may not exceed 5% of the aggregate gross revenues from the business of the Partnership. In 1996, such expenses were approximately $5,931,300, of which approximately $20,000 was unpaid as of December 31, 1996.
The Partnership and Arvida/JMB Partners, L.P.-II (a publicly-held limited partnership affiliated with the General Partner) each employ project related and administrative personnel who perform services on behalf of both partnerships. In addition, certain out-of-pocket expenditures related to such services and other general and administrative expenses are incurred and allocated to each partnership as appropriate. The Partnership receives reimbursements from or reimburses Arvida/JMB Partners, L.P.-II for such costs (including salary and salary-related expenses). The Partnership was entitled to receive approximately $1,255,500 from Arvida/JMB Partners, L.P.-II for such costs and services incurred in 1996, approximately $7,100 of which was outstanding as of December 31, 1996. In addition, the Partnership was obligated to reimburse Arvida/JMB Partners, L.P.-II approximately $113,700 for the year ended December 31, 1996, of which approximately $21,100 was unpaid at December 31, 1996.
The Partnership periodically incurs salary and salary-related costs on behalf of an affiliate of the General Partner of the Partnership. The Partnership was entitled to receive approximately $399,000 for such costs for the year ended December 31, 1996. At December 31, 1996, approximately $169,000 was outstanding.
JMB Insurance Agency, Inc., an affiliate of the General Partner, earned and received insurance brokerage commissions in 1996 of approximately $260,800 in connection with providing insurance coverage for certain of the properties of the Partnership, all of which was paid as of December 31, 1996. Such commissions are at rates set by insurance companies for the classes of coverage provided.
The General Partner of the Partnership or its affiliates are entitled to property management fees and may be reimbursed for their direct expenses or out-of-pocket expenses relating to the administration of the Partnership and the acquisition, development, ownership, supervision, and operation of the Partnership assets. In 1996, the General Partner of the Partnership or its affiliates were due reimbursement for such direct or other administrative and out-of-pocket expenses and property management fees in the amount of approximately $128,300, all of which was paid as of December 31, 1996. Additionally, the General Partner and its affiliates are entitled to reimbursements for legal, accounting and portfolio management services. Such costs for 1996 were approximately $300,600, of which approximately $131,400 was unpaid as of December 31, 1996.
The Partnership was also entitled to receive reimbursements from affiliates of the General Partner for certain general and administrative expenses including, and without limitation, salary and salary-related expenses relating to work performed by employees of the Partnership and certain out-of-pocket expenditures incurred on behalf of such affiliates. For the year ended December 31, 1996, the total of such costs totalled approximately $281,600. Approximately $83,900 was outstanding as of December 31, 1996.
Amounts payable do not bear interest.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following have reported beneficial ownership of more than 5% of the outstanding Interests of the Partnership.
NAME AND ADDRESS AMOUNT AND NATURE OF BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS - -------------- ---------- ----------------- --------
Limited Partnership Raleigh Capital 80,342 Interests 19.9% Interests and Associates, L.P. directly (1) Assignee Interests 100 Jericho Quadrangle therein Suite 214 Jericho, New York 11735-2717
Limited Partnership Raleigh GP Corp. 80,342 Interests 19.9% Interests and 100 Jericho Quandrangle indirectly (2) Assignee Interests Suite 214 therein Jericho, New York 11735-2717
Limited Partnership Rockland Partners, Inc. 80,347 Interests 19.9% Interests and c/o Tiger/Westbrook indirectly (3) Assignee Interests Real Estate Fund, L.P. therein 599 Lexington Avenue Suite 3800 New York, New York
Limited Partnership Zephyr Partners 80,342 Interests 19.9% Interests and 100 South Bedford Road indirectly (4) Assignee Interests Mount Kisco, New York therein 10549
(1) Reflects beneficial ownership of Interests held by Raleigh Capital Associates, L.P. ("Raleigh") for which Raleigh has shared dispositive power.
(2) Reflects beneficial ownership of Interests held by Raleigh (of which Raleigh GP Corp. is a general partner) for which Raleigh GP Corp. has shared dispositive power.
(3) Reflects beneficial ownership of (i) 5 Interests held by Rockland Partners, L.P. (of which Rockland Partners, Inc. is the general partner) for which Rockland Partners, Inc. has shared dispositive power, and (ii) 80,342 Interests held by Raleigh (of which Rockland Partners, Inc. is a general partner) for which Rockland Partners, Inc. has shared dispositive power.
(4) Reflects beneficial ownership of Interests held by Raleigh (of which Zephyr Partners is a general partner) for which Zephyr Partners has shared dispositive power.
Each of the persons listed in the above table has reported that it has shared voting power with respect to the Interests beneficially owned by it.
However, the Partnership and the General Partner do not believe that such Interests have voting rights associated with them. Reference is made to Subsection (B) under Item 3. Legal Proceedings for a discussion of pending litigation with respect to the Partnership's and the General Partner's position that the Interests held by Raleigh, as a subsequent transferee of the Interests, do not have voting rights associated with them.
(b) The General Partner and its executive officers and directors own the following Interests of the Partnership:
NAME OF AMOUNT AND NATURE BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS - -------------- ---------- ----------------- --------
Limited Partnership General Partner None -- Interests and and its executive Assignee Interests officers and therein directors as a group
- ---------------
No executive officer or director of the General Partner of the Partnership possesses a right to acquire beneficial ownership of Interests of the Partnership.
(c) In October 1996, Raleigh Capital Associates, L.P. ("Raleigh") filed preliminary proxy materials with the Securities and Exchange Commission in connection with a possible solicitation of consents for the removal and replacement of Arvida/JMB Managers, Inc. ("Managers") as the General Partner of the Partnership with an affiliate of Raleigh. Reference is made to Item 12(a) above for certain information concerning Raleigh and its general partners. The Partnership and the General Partner do not believe that the Interests held by Raleigh, as a subsequent transferee of the Interests, have voting rights associated with them. Reference is made to subsection (B) under Item 3 Legal Proceedings for a discussion of pending litigation involving this issue. As of the date of this report, Raleigh has not commenced a solicitation of consents to remove Managers.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the General Partner, the executive officers and directors of the General Partner and persons who own more than ten percent of the Interests to file an initial report of ownership or changes in ownership of Interests on Form 3, 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such persons are also required by SEC rules to furnish the Partnership with copies of all Section 16(a) forms they file. Timely filing of initial reports of ownership on Form 3 or Form 5 was not made on behalf of Messrs. Glazov, Nathan, Sacks and Schreiber.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with the General Partner, affiliates or their management other than those described in Items 10, 11 and 12 above.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements. (See Index to Financial Statements filed with this annual report on Form 10-K).
2. Exhibits.
3.1. Amended and Restated Agreement of Limited Partnership.**
3.2 Assignment Agreement by and among the General Partner, the Initial Limited Partner and the Partnership.**
4.1. Various mortgages and other security interests dated October 7, 1992 related to the assets of Arvida/JMB Partners, Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership which secure loans under the Amended and Restated Credit Agreement referred to in Exhibit 4.1 are herein incorporated by reference to Exhibit No. 4.7 the Partnership's Report on Form 10Q (File number 0-16976) dated November 11, 1992.
4.2. Second Amended and Restated Credit Agreement dated November 29, 1994, among Arvida/JMB Partners, L.P., Arvida/JMB Partners, Southeast Florida Holdings, Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership and Chemical Bank and Nationsbank of Florida, N.A. ***
4.3. Affirmation and Amendment of Security Documents dated November 29, 1994, among Arvida/JMB Partners, Arvida/JMB Partners, L.P., Southeast Florida Holdings, Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership and Chemical Bank. ***
4.4. Modification of Mortgage and Security Agreement and Other loan Documents dated November 29, 1994, among Arvida/JMB Partners, Weston Hills Country Club Limited Partnership and Chemical Bank. ***
4.5. Modification of First Mortgage and Security Agreement and Other Loan Documents dated November 29, 1994, among Arvida/JMB Partners, Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership and Chemical Bank. ***
4.6. Credit Agreement extension dated July 28, 1995 made by Arvida/JMB Partners, L.P., Arvida/JMB Partners, Southeast Florida Holdings, Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership and Chemical Bank is incorporated by reference to the Partnership's Report for June 30, 1995 on Form 10-Q (File No. 0-16976) dated August 9, 1995.
4.7. Letter Agreement dated January 17, 1996, among Arvida/JMB Partners, L.P., Arvida/JMB Partners, Southeast Florida Holdings, Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership and Chemical Bank and Nationsbank of Florida, N.A. regarding the release of a certain parcel from the lender's lien is incorporated by reference to Exhibit 4.15 to the Partnership's Form 10-K (File No. 0-16976) dated March 25, 1996.
4.8. Letter Agreement dated March 1, 1996 among Arvida/JMB Partners, Arvida/JMB Partners, L.P., Southeast Florida Holdings, Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited Partnership, Weston Hills Country Club Limited Partnership and Chemical Bank and Nationsbank of Florida, N.A. regarding the sale of the Partnership's interest in the Coto de Caza Joint Venture and the extension of the maturity date of the revolving line of credit facility and the income property term loan is incorporated by reference to Exhibit 4.16 to the Partnership's Form 10-K (File No. 0-16976) dated March 25, 1996.
4.9. Commitment for a Term Loan by and between Arvida/JMB Partners, L.P. and Starwood/Florida Funding, L.L.C. dated September 12, 1996 is incorporated by reference to Exhibit 4.1 to the Partnership's Form 8-K (Form No. 0-16976) dated September 12, 1996.
10.1. Agreement between the Partnership and The Walt Disney Company dated January 29, 1987 is hereby incorporated by reference to Exhibit 10.2 to the Partnership's Registration Statement on Form S-1 (File No. 33- 14091) under the Securities Act of 1933 filed on May 7, 1987.
10.2. Management, Advisory and Supervisory Agreement is hereby incorporated by reference to Exhibit 10.2 to the Partnership's Form 10-K (File No. 0-16976) dated March 27, 1991.
10.3. Letter Agreement, dated as of September 10, 1987, between the Partnership and The Walt Disney Company, together with exhibits and related documents.*
10.4. Joint Venture Agreement dated as of September 10, 1987, of Arvida/JMB Partners, a Florida general partnership. *
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
99.1. Pages 21-24, 56-59, 61-64, A-9 to A-28, A-31 to A-33, and B-2 of the Partnership's Prospectus dated September 16, 1987 are filed herewith.
* Previously filed with the Securities and Exchange Commission as Exhibits 10.4 and 10.5, respectively, to the Partnership's Registration Statement (as amended) on Form S-1 (File No. 33-14091) under the Securities Act of 1933 filed on September 11, 1987 and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as Exhibits 3 and 4, respectively, to the Partnership's Form 10- K Report (File No. 0-16976) filed on March 27, 1990 and hereby incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as Exhibits 4.10, 4.11, 4.12 and 4.13, respectively to the Partnership's Form 10-K Report (File No. 33-14091) under the Securities Act of 1993 filed on March 27, 1995 and incorporated herein by reference.
The Partnership agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to long-term indebtedness of the Partnership and its consolidated subsidiaries, the authorized principal amount of which is 10% or less than the total assets of the Partnership and its subsidiaries on a consolidated basis.
(b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the fiscal year 1996 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARVIDA/JMB PARTNERS, L.P.
BY: Arvida/JMB Managers, Inc. (The General Partner)
GAILEN J. HULL By: Gailen J. Hull Vice President Date: March 28, 1997
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.
JUDD D. MALKIN By: Judd D. Malkin, Chairman, Chief Financial Officer and Director Date: March 28, 1997
BURTON E. GLAZOV By: Burton E. Glazov, Director Date: March 28, 1997
GAILEN J. HULL By: Gailen J. Hull, Vice President (Principal Accounting Officer) Date: March 28, 1997
A. LEE SACKS By: A. Lee Sacks, Director Date: March 28, 1997
STUART C. NATHAN By: Stuart C. Nathan, Director Date: March 28, 1997