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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10520
HEARTLAND PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3606475
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification no.)
547 West Jackson Boulevard, Chicago, Illinois 60661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/294-0440
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Limited Partnership Units American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [_] No [_]
The aggregate market value of the Registrant's Class A Limited Partnership Units
held by non-affiliates of the Registrant, computed by reference to the last
reported sales price of the Registrant's units on the American Stock Exchange as
of March 27, 2000, was approximately $39,565 million. On that date there were
2,142,438 units outstanding. For the purposes of this computation, it is
assumed that non-affiliates of the Registrant are all holders other than
directors and officers of Heartland Technology, Inc., the Registrant's General
Partner.
Exhibit index appears on Page 49.
1
Forward Looking Statements
We caution you that certain statements in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section, and elsewhere
in this Form 10-K, are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward - looking statements
are not guarantees of future performance. They involve risks, uncertainties and
other important factors, including the risks described in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
section, and elsewhere in this Form 10-K. The Company's actual future results,
performance or achievement of results and the value of your Units, may differ
materially from any such results, performance or achievement or value implied by
these statements. We caution you not to put undue reliance on any forward-
looking statements. In addition, we do not have any intention or obligation to
update the forward-looking statements in this document. The Company claims the
protections of the safe harbor for forward-looking statements contained in
Section 21E of the Securities Exchange Act of 1934.
PART I
ITEM 1. Business
Organization
Heartland Partners, L.P. ("Heartland" or the "Company"), a Delaware limited
partnership, was formed on October 6, 1988. Heartland's existence will continue
until December 31, 2065, unless extended or dissolved pursuant to the provisions
of Heartland's partnership agreement.
Heartland was organized to engage in the ownership, purchasing, development,
leasing, marketing, construction and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Heartland Technology, Inc. ("HTI"), formerly known as
Milwaukee Land Company ("MLC"). HTI is the general partner of Heartland (in
such capacity, the "General Partner"). In July 1993, Heartland Development
Corporation ("HDC"), a Delaware corporation, wholly-owned by Heartland and CMC,
formed CMC Heartland Partners I, Limited Partnership ("CMCI"), a Delaware
limited partnership, to undertake a planned housing development in Rosemount,
Minnesota ("Bloomfield or Rosemount"). CMC has a 100% membership interest in
CMC Heartland Partners II ("CMCII"), CMC Heartland Partners III ("CMCIII"), CMC
Heartland Partners IV ("CMCIV"), CMC Heartland Partners V ("CMCV"), CMC
Heartland Partners VI ("CMCVI"), CMC Heartland Partners VII ("CMCVII") and CMC
Heartland Partners VIII ("CMCVIII"). CMCII was formed to participate in the
Goose Island Industrial Park joint venture in Chicago, Illinois. CMCIII was
formed in 1997 to develop a portion of the Kinzie Station property in Chicago,
IL. CMC IV was formed in 1998 and is developing approximately 177 acres in Fife,
Washington. CMCV was formed in 1996 to acquire finished lots, sell and to
construct homes in Osprey Cove ("Osprey"), a master-planned residential
community in St. Marys, GA. CMCVII was formed in 1998 to acquire and engage in
sales, marketing and construction of homes in the Longleaf Country Club,
Southern Pines, NC ("Southern Pines or Longleaf"). CMCVI and CMCVIII were formed
at various times to acquire and hold future acquisitions. CMC also owns 100% of
the common stock of Lifestyle Communities, Ltd. ("LCL") which serves as the
exclusive sales agent in the St. Marys, Southern Pines and Kinzie Station
developments. LCL is also the general contractor in the St. Marys development.
CMC owns 100% of the stock of Lifestyle Construction Company, Inc. ("LCC") which
serves as the general contractor in North Carolina. Except as otherwise noted
herein, references herein to "Heartland" or the "Company" include CMC, HDC,
CMCI, CMCII, CMCIII, CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC.
Heartland's partnership agreement provides generally that Heartland's net income
(loss) will be allocated 1% to the General Partner, 98.5% to the Class A limited
partners (the "Unitholders") and 0.5% to the Class B limited partner. In
addition, the partnership agreement provides that certain items of deduction,
loss, income and gain may be specially allocated to the Class A Unitholders or
to the holder of the Class B Interest or the General Partner. Also, the
partnership
2
agreement provides that if an allocation of a net loss to a partner would cause
that partner to have a negative balance in its capital account at a time when
one or more partners would have a positive balance in their capital account such
net loss shall be allocated only among partners having positive balances in
their capital account.
The General Partner has the discretion to cause Heartland to make distributions
of Heartland's available cash in an amount equal to 98.5% to the Unitholders,
0.5% to the holder of the Class B Interest and 1% to the General Partner. There
can be no assurance as to the amount or timing of Heartland's cash distributions
or whether the General Partner will cause Heartland to make a cash distribution
if cash is available. On November 24, 1997, Heartland declared a cash
distribution in the amount of $1.6 million to Unitholders and Partners of record
on December 29, 1997, that was paid on January 7, 1998. On December 4, 1997,
Heartland's partnership agreement was amended to allow the General Partner in
its discretion to establish a record date for distributions of the last day of
any calendar month.
Real Estate Development Activities
At year end 1999, property designated for development consisted of 15 sites
comprising approximately 890 acres. The book value of this land is $10 million
or an average of $11,200 per acre. Heartland reviews these properties to
determine whether to hold, develop, joint venture or sell them. Heartland's
objective for these properties is to maximize unitholder value over a period of
years.
Kinzie Station
Heartland has a 3.88 acre site in the City of Chicago known as Kinzie Station.
Zoning approval for the construction of 381 dwelling units was received in 1997.
The construction on the first phase of the project started on October 1, 1998.
The first closings are expected to occur in the second quarter of the year 2000.
Kinzie Station
Phase I
Unit Detail
As of December 31, 1999
Total Number Sale Contracts
of Units To-Date
------------ --------------
Tower Building 163 108
Plaza 24 6
Townhomes 5 4
--- ---
Total 192 118
In addition to the 3.88 acre site, the Company owns approximately 11 acres of
land and 4 acres of air rights adjacent to Kinzie Station. This acreage is
currently zoned for industrial and manufacturing uses. In October 1999,
Heartland executed a sales contract to sell a part of this acreage to Home Depot
U.S.A., Inc. However, the Company retained certain air rights associated with
this property.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A ("CB"). The loan bears interest at
the prime rate plus 1% (9.5% at December 31, 1999). This loan is collateralized
by the real estate contained in the project. In conjunction with the loan, a
Construction Contract with the guaranteed maximum price of $24,710,000 which
increased to $24,972,282 due to subsequent change orders was entered into with a
general contractor. At December 31, 1999, $13,287,158 had been advanced by CB
to the Company.
3
On October 20, 1999, the Company executed loan documents with Bank One of
Illinois ("Bank One") for a loan of $5,250,000 to construct the Kinzie Station
Plaza building. The loan is for a term of 3 years and bears interest at the
prime rate (8.5% at December 31, 1999). The loan is collateralized by real
estate contained in the project. On September 7, 1999, a construction contract
with the guaranteed maximum price of $4,864,022 was entered into with a general
contractor. At December 31, 1999, $113,844 had been advanced by Bank One to the
Company.
Osprey Cove
Included in the aforementioned 890 acres are approximately 11 acres consisting
of 34 lots purchased for $1.3 million, or an average of $38,000 per lot at
Osprey Cove in St. Marys, GA. Osprey Cove is a master-planned residential
community with a wide range of natural and recreation amenities, which includes
a recreational complex, lakes, a boat dock and a boat launch. In December 1999,
the Company decided to cease operations at Osprey Cove.
The model homes and homes under construction will be completed and closed during
the first six months of the year 2000. The 25 lots owned by Heartland are being
marketed and will be sold and closed in the ordinary course of business. It is
anticipated it may take to the end of the year 2001 to sell all the lots.
As of December 31, 1999, 35 contracts have closed in Osprey; 20 in 1999, 13 in
1998, and 2 in 1997. In addition to selling its own units, CMC also sells homes
and lots for the developer of Osprey Cove, and Osprey Cove homeowners. For the
year ended December 31, 1999, CMC has sold 6 homes and 25 lots for those owners.
Osprey Cove
Unit Inventory Detail
As of December 31, 1999
Model Homes 1
Sold Homes under construction 4
Inventory homes under construction 4
Lots owned 25
-------
Total unit inventory 34
=======
On December 30, 1999, Heartland entered into a modification agreement to its
December 30, 1996, revolving line of credit agreement in the amount of
$3,000,000 for Osprey Cove to extend the maturity date to June 30, 2000. The
line of credit with Bank of America (formerly NationsBank, N.A.) ("B of A")
bears interest at the prime rate of B of A plus 1% (9.5% at December 31, 1999).
At maturity, all outstanding advances and any accrued interest must be paid. At
December 31, 1999, $1,513,730 has been advanced by B of A against the revolving
line of credit.
In the fourth quarter of 1999, First National Bank of St. Mary's ("FNB") in
Georgia made two loans totaling $588,374 to build two inventory homes in Osprey
Cove. The loan terms are for one year and bear interest at the prime rate plus
1% (9.5% at December 31,1999). At December 31, 1999, FNB had advanced $462,785
to the Company on the two loans.
Longleaf
The Company has signed a contract to be the exclusive homebuilder and marketer
for the Longleaf Country Club in Southern Pines, North Carolina. Under the
terms of the contract, CMC is entitled to sell and build up to 244 homes on lots
currently owned by Longleaf Associates Limited Partnership ("LALP"), an
affiliate of General Investment & Development, an unrelated party. Heartland
assumed the day to day operations on April 1, 1998. At December 31, 1999, the
Company owned 19 lots purchased for approximately $613,000, an average of
$32,300 per lot. These 19 lots comprising 6 acres of land, are also included in
the aforementioned 890 acres. Also, the Company is building 1 sold home on an
individual's own lot.
4
In Longleaf, the Company closed 13 homes in 1999. When the Company assumed day
to day operations of Longleaf in April 1998, there were a number of units under
construction which were owned by the developer, as well as resale units, on the
market. As of December 31, 1999, the Company has sold 27 units and 2 lots for
these owners since April 1, 1998.
Longleaf
Unit Inventory Detail
As of December 31, 1999
Model Homes 2
Sold Homes under construction 7
Inventory homes under construction 6
Lots owned 4
-------
Total unit inventory 19
=======
In December, 1998, the Company signed a commitment letter for a $3,000,000 line
of credit with B of A to finance the construction of homes in the Longleaf
community. B of A provided individual loans on each home as it is started. The
developer subordinated its lot to B of A's construction loan. The term of each
loan was one year and interest accrued at the B of A prime rate plus 1%. On
December 9, 1999, Heartland executed an agreement for a $5,000,000 revolving
credit line for the construction of homes in Longleaf with Bank One. The first
draw from Bank One on December 9, 1999 was used to purchase 22 lots (of which 3
closed in 1999) from LALP for $690,500 and repaid B of A all outstanding
principal and accrued interest. As new homes to be built are added to the
revolving credit line, the developer will subordinate its lot to Bank One's
revolving credit line. The revolving credit line is for a term of 1 year and
bears interest at the prime rate (8.5% at December 31, 1999). At December 31,
1999, $1,441,871 had been advanced by Bank One to the Company.
Bloomfield
Heartland has received approval for the development of the 226 acre site it owns
in Rosemount, Minnesota from the city of Rosemount. The development known as
Bloomfield was approved for 226 attached units and 241 detached single family
homes, on 192 acres with the remaining 34 acres reserved for future residential
development. The Company also owns 103 acres of land adjacent to this
development.
In Rosemount, unlike most areas in the country, the City is responsible for
constructing the infrastructure improvements. It receives reimbursement for its
costs by real estate tax assessments. The City of Rosemount has completed the
Phase I infrastructure. Phase I consists of 120 townhomes, 27 single-family
homes and 10 twinhomes. Phase II of Bloomfield has site plan approval from the
City of Rosemount for the construction of 20 twinhomes and 97 single-family
homes.
5
During 1999, 4 townhomes and 2 single-family detached homes were closed.
Rosemount
(Phase I)
Unit Inventory Detail
As of December 31, 1999
Model Homes 3
Sold Homes under construction 2
Inventory homes under construction 9
Townhome building foundation 6
Lots owned 131
---------
Total unit inventory 151
=========
In December 1999, Heartland decided to cease homebuilding operations in
Bloomfield. The sold and inventory homes under construction will be completed,
sold and closed in the ordinary course of business. The completed model homes
and the 6 townhome building foundation are currently being marketed and will be
sold (and closed) during the ordinary course of business. The remaining
developed lots and undeveloped acreage will also be sold. Heartland anticipates
that the sale of the home inventory and the townhome building foundation may
take place during the year 2000. However, the sale of the remaining lots and
acreage may take beyond the year 2001.
A contract on the aforementioned 103 adjacent acres was executed in January
2000 for $4,000,000 and is projected to close by September 30, 2000. While the
Company has no reason to believe the above-described sale will not close, the
contract contains contingencies typical of such contracts and there can be no
assurance the transaction will be completed.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan from
Bank One relating to the Bloomfield project. The loan has a two year term and
bears interest at the prime rate (8.5% at December 31, 1999). The outstanding
loan balance is $2,470,000 at December 31, 1999. As a condition of the loan,
$500,000 was placed in an interest reserve. In addition, Bank One is providing
a $1,750,000 development loan, letters of credit for $204,500 to the City of
Rosemount and a $4,000,000 revolving credit line for the construction of homes;
these credit facilities were executed on February 1, 1999. The loans bear
interest at the prime rate (8.5% at December 31, 1999). The loans mature on
January 31, 2001 and January 31, 2000, respectively. At December 31, 1999,
$506,033 had been advanced against the development loan and $1,175,006 against
the revolving line of credit. The Company believes no additional financing will
be needed for Phase I. The Company is currently in negotiations with Bank One to
extend the maturity date of the $4,000,000 revolving line of credit to
December 1, 2000. While the Company has no reason to believe the extension of
the credit facility will not be approved by Bank One, there can be no assurance
the contemplated extension will be given. The consolidated financial statements
do not contain any adjustments to reflect the ultimate outcome of this
uncertainty.
Other Development Activities
The Company executed a sales contract on March 24, 2000 to sell its Galewood
property located in Chicago, Illinois for $7.75 million to a group of investors.
This sale is projected to close by June 30, 2000. While the Company has
no reason to believe the above-described sale will not close, the contact
contains contingencies typical of such contracts and there can be no assurance
the transaction will be completed.
Heartland, along with Colliers, Bennett and Kahnweiler, a Chicago based real
estate company, and Wooton Construction, have formed a joint venture to develop
approximately 265,000 square feet of industrial space in the Goose Island
Industrial Park in Chicago, Illinois. As of December 31, 1999, the buildings
had been built and leases had been signed for all of the 265,000 square feet.
6
On December 1, 1998 the Fife property was annexed to the City of Fife,
Washington. A Local Improvement District (LID) has been approved in order to
support the improvement and extension of sewers and sewer capacity for the site.
The city of Fife has zoned the property for residential usage. Heartland has
prepared the preliminary site plan for the site. The Company has submitted the
site plan for approval, and expects it to be approved by the end of the year
2000.
The Company owns Kilbourn Station , a three story, 60,000 square foot office
building and railroad depot in Milwaukee, Wisconsin. Amtrak provides interstate
passenger rail service using the station. The Company has worked with the State
of Wisconsin, the Wisconsin Congressional Delegation and the Milwaukee County
Transit Company (which provides local bus service) on plans to improve Kilbourn
Station. The plans enhance the linkage of the building to Milwaukee's new
"Midwest Express" convention center and to planned local bus routes as well as
updating the design of its interior space. The State has authorized the
expenditure of approximately $2 million in state funds and the federal
government has authorized approximately $2 million of federal funds for the
improvement of the facility. The Company has made applications with the state
and federal governments to have the approximately $4 million in funds
appropriated for this facility. The appropriation of the funds should be
completed during the year 2000. The Company has started preliminary design work
on this project in the third quarter of 1999.
The real estate development business is highly competitive. Heartland is subject
to competition from a great number of real estate developers, including
developers with national operations, many of which have greater sales and
financial resources than Heartland.
Property Sales and Leasing Activities
Heartland's current inventory of land held for sale consists of 14,458 acres
located throughout 12 states. The book value of this inventory is approximately
$766,000. The majority of the land is former railroad rights-of-way, long,
narrow strips of land that varies between 50-200 feet wide. Some of Heartland's
sites located in small rural communities or outlying mid-cities are leased to
third parties for agricultural, industrial, retail and residential use. These
properties may be improved with the lessee's structures and include grain
elevators, storage sheds, parking lots and small retail service facilities.
The sale, management and leasing of the Company's non-development real estate
inventory is conducted by Heartland's Sales and Property Management Department.
The volume of Company's sales has slowed over the last five years due to the
less desirable characteristics of the remaining properties. The Company
anticipates that the sale of its remaining parcels may take beyond the year
2001.
The Company has a current active lease portfolio of approximately 160 leases.
Less than 1% of its total acreage is leased. The number of leases declines each
year as sales of properties are made to existing lessees. The majority of the
leases provide nominal rental income to Heartland. The leases generally require
the lessee to construct, maintain and remove any improvements, pay property
taxes, maintain insurance and maintain the condition of the property. The
majority of the leases are cancellable by either party upon thirty to sixty days
notice. Heartland's ability to terminate or modify certain of its leases is
restricted by applicable law and regulations.
Other Activities
At December 31, 1999, the allowance for claims and liabilities established by
Heartland for environmental and other contingent liabilities totaled
approximately $2.8 million. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Given the uncertainty inherent
in litigation, resolution of these matters could require funds greater or less
than the $2.8 million allowance for claims and liabilities.
Heartland engages outside counsel to defend it in connection with most of these
claims. Significant claims are summarized in Note 8 to the Consolidated
Financial Statements (See Item 8).
7
Regulation and Environmental Matters
For a discussion of regulation and environmental matters, see Notes 5 and 8 to
the Consolidated Financial Statements (See Item 8).
Employees
At December 31, 1999, Heartland employed 48 people.
Item 2. Properties
In addition to the 890 acres designated for development at December 31, 1999,
real estate holdings consisted of approximately 14,458 acres of scattered land
parcels. States in which large land holdings are located are Illinois, Iowa,
Minnesota, Montana, North Carolina, North Dakota, South Dakota, Washington, and
Wisconsin. The remaining acreage is located in Georgia, Idaho, Indiana, Michigan
and Missouri. Most of the properties are former railroad rights-of-way, located
in rural areas, comprising of long strips of land approximately 100 feet in
width. Also included are former station grounds and rail yards. The Company owns
certain air and fiber optics development rights in the Chicago, Illinois area.
Other than land classified under Real Estate Development Activities, the land is
typically unimproved. Some of the properties are improved with structures (such
as grain elevators and sheds) erected and owned by lessees. Other properties are
improved with Heartland-owned buildings that are of little or no value.
Improved properties of value to Heartland include a three-story office building
with 60,000 square feet of space in Milwaukee, Wisconsin and a two-story
warehouse/office building in northwestern Chicago used for the storage of
partnership records.
Heartland's headquarters occupy approximately 9,000 square feet of leased office
space located at 547 West Jackson Boulevard, Chicago, Illinois. The lease
provides for a base rent of $107,688 and is subject to operating expense and tax
escalations. The lease expired December 31, 1999, and was extended to May 31,
2000. At that time, the Company anticipates moving its headquarters to
commercial space it owns in the Kinzie Station development.
Item 3. Legal Proceedings
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United States
District Court for the Western District of Washington alleging that the Company
was liable under Washington state law for the cost of the Port's remediation of
a railyard sold in 1980 by the bankruptcy trustee for the Company's predecessor
to the Port's predecessor in interest.
On October 1, 1998, the Company entered into a Settlement Agreement with the
Port of Tacoma which calls for the Company to either pay the Port of Tacoma $1.1
million or transfer to the Port of Tacoma real estate to be agreed upon at a
later date. During the second quarter of 1999, the Company modified the
Settlement Agreement to provide that Heartland would (a) pay $1.1 million on or
before December 31, 2000, plus interest from January 1, 1999, or (b) convey real
property to be agreed upon at a later date.
8
The Company will not make a claim on its insurance carriers in this matter
because the settlement amount does not exceed the self insured retention under
the applicable insurance policies.
In July 1999, suit was filed against the Company in Minnesota District Court by
a buyer under an expired real estate sale contract originally entered into in
1995, and extended to June 30, 1999. The plaintiff in the suit is demanding
specific performance by conveyance to it of the vacant 5.95 acre parcel in
Minneapolis, Minnesota in consideration of $562,000.
The Company is a third party defendant in a suit filed in the United States
District Court for the Northern District of Illinois in which the plaintiff
railroad employee alleges that while he was riding the bottom step of a
locomotive a piece of rail attached to a frog struck the step, causing the step
to bend and injure the plaintiff's foot. The defendant/third party plaintiff
alleges that the Company negligently removed trackage so as to leave the rail
piece in place. The Company has not yet determined its exposure or tendered the
defense to its insurance carriers.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Unitholders of Heartland in the fourth
quarter ended December 31, 1999.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Units are listed and traded on the American Stock Exchange under the symbol
"HTL". The Units began trading on a "when issued" basis on June 20, 1990. The
following table sets forth the high and low sales prices per Unit by quarter for
the years ended December 31, 1999 and 1998.
1999 High Low
First quarter $16 5/8 $13 7/8
Second quarter 18 14 5/8
Third quarter 17 7/16 15 1/4
Fourth quarter 23 1/4 15 1/4
1998
First quarter $16 1/4 $15
Second quarter 17 3/4 15
Third quarter 18 3/4 15
Fourth quarter 17 12 1/8
Based on records maintained by Heartland's Unit transfer agent and registrar,
there were approximately 583 record holders of Heartland's Units as of March 9,
2000.
The amount of Heartland's cash available to be distributed to Unitholders, the
holder of the Class B Interest and the General Partner ("Available Cash Flow")
will be determined by the General Partner, in its sole discretion, after taking
into account all factors deemed relevant by the General Partner, including,
without limitation, general economic conditions and Heartland's financial
condition, results of operations and cash requirements, including (i) the
servicing and repayment of indebtedness, (ii) general and administrative
charges, including fees and expenses payable to HTI under management and other
arrangements, (iii) property and operating taxes, (iv) other costs and expenses,
including legal and accounting fees, and (v) reserves for future growth,
commitments and contingencies.
Heartland's Available Cash Flow will be derived from CMC, CMCI, CMCII, CMCIII,
CMCIV, CMCV, CMCVII and LCL. When available and appropriate, the General Partner
expects to cause Heartland to make distributions of Heartland's Available Cash
Flow in an amount equal to 98.5% to the Unitholders, 0.5% to the holder of the
Class B Interest, and 1% to the General Partner, although there can be no
assurance as to the amount or timing of Heartland's cash distributions or
whether the General Partner will cause Heartland to make a cash distribution if
cash is available. Future lenders to Heartland may impose restrictions on
Heartland's ability to make distributions. In addition, distributions may not be
made to Unitholders until Heartland has paid to HTI (or its assignee) all
accrued and unpaid management fees pursuant to the Management Agreement between
Heartland and HTI. On December 4, 1997, Heartland's partnership agreement was
amended to allow the General Partner in its discretion to establish a record
date for distributions of the last day of any calendar month.
10
Item 6. Selected Financial Data
Following is a summary of Heartland's selected financial data for the years
ended December 31, 1999, 1998, 1997, 1996, and 1995 (amounts in thousands except
per Unit data):
Operating Statement Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net operating (loss) $ (5,010) $ (6,998) $ (3,096) $ (733) $ (5,422)
Other income and (expense) 1,253 914 933 1,125 1,375
---------- ---------- ---------- --------- ---------
Net income (loss) $ (3,757) $ (6,084) $ (2,163) $ 388 $ (4,047)
========== ========== ========== ========= =========
Net income (loss) allocated to General
Partner and Class B Interest $ (3,757) $ (182) $ (33) $ 6 $ (61)
========== ========== ========== ========= =========
Net income (loss) allocated
to Class A units $ -- $ (5,902) $ (2,130) $ 382 $ (3,986)
========== ========== ========== ========= =========
Net income (loss) per Class A Unit $ -- $ (2.76) $ (0.99) $ 0.18 $ (1.86)
========== ========== ========== ========= =========
Distribution declared per Class A limited
partnership unit $ -- $ -- $ 0.75 $ 1.25 $ --
========== ========== ========== ========= =========
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
Balance Sheet Data 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net Properties $50,751 $28,052 $23,196 $21,051 $20,747
Total assets 57,256 33,231 26,838 28,040 27,841
Allowance for claims
and liabilities 2,804 2,762 2,169 2,660 2,492
Total liabilities 51,604 23,822 11,347 8,755 6,181
Partners' capital 5,652 9,409 15,491 19,285 21,660
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
We caution you that certain statements in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section are "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward - looking statements are not guarantees of future
performance. They involve risks, uncertainties and other important factors,
including the risks described in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section. The Company's actual
future results, performance or achievement of results and the value of your
Units, may differ materially from any such results, performance or achievement
or value implied by these statements. We caution you not to put undue reliance
on any forward-looking statements. In addition, we do not have any intention or
obligation to update the forward-looking statements in this document. The
Company claims the protections of the safe harbor for forward-looking statements
contained in Section 21E of the Securities Exchange Act of 1934.
Liquidity and Capital Resources
Cash flow for operating activities has been derived primarily from proceeds of
property sales, rental income, interest income and proceeds from sales of
securities. Cash and marketable securities at amortized cost were $4,412,000
(including $4,182,000 of restricted cash) at December 31, 1999, $3,828,000
(including $2,564,000 of restricted cash) at December 31, 1998 and $2,757,000
(including $724,000 of restricted cash) at December 31, 1997. The increase of
$584,000 from December 31, 1998 to December 31, 1999 was primarily due to the
increase in deposits from Kinzie Station sales. The increase of $1,071,000 from
December 31, 1997 to December 31, 1998 was due primarily to the four
11
parcels of land sold in December 1998 for total revenues of $2,165,000. Also,
there was a decrease of $3,235,000 from December 31, 1996 to December 31, 1997.
This is mainly attributable to the liquidation of marketable securities to make
the cash distribution of $2.7 million paid January 3, 1997 to unitholders of
record at December 31, 1996 and capital expenditures for land development and
construction costs at Osprey Cove, St. Marys, GA and Kinzie Station, Chicago,
IL. On January 7, 1998, Heartland distributed approximately $1,600,000 in cash
to unitholders of record on December 29, 1997. (see the Consolidated Statements
of Cash Flows).
Netcash used in operating activities was ($18,208,000) in 1999, compared to
($6,707,000) in 1998 and ($2,900,000) in 1997. The cash used in operating
activities for 1999 compared to 1998 increased ($11,501,000). This is primarily
due to the higher construction and selling costs paid in conjunction with
construction of the Kinzie Station Tower building and increased home building
activities of ($15.4 million). The cash used in operating activities for 1998
compared to 1997 increased ($3,807,000). This is primarily due to the higher
construction and selling costs paid in conjunction with increased home building
activities of ($3.3 million). (see the Consolidated Statements of Cash Flows).
Proceeds from property sales provided cash flow of $11,548,000 in 1999,
$6,231,000 in 1998 and $7,127,000 in 1997. Sales in 1999 consists of 20 units in
Osprey Cove for $4,975,000, 13 units in Longleaf for $2,989,000, 6 units in
Rosemount for $999,000 and a parcel of land in Milwaukee, WI for $1,100,000.
Sales in 1998 consists of 13 units in Osprey Cove for $3,141,000 and four
parcels of land; Dubuque, IA, $450,000, Minneapolis, MN, $900,000, Moses Lake,
WA $440,000 and St. Paul, MN, $375,000. These four sales totaled $2,165,000.
Significant property sales in 1997 consists of the $3,000,000 sale of the
Humboldt Yard property in Chicago, the sale of the final parcel of the Goose
Island property in Chicago for about $1,458,000 and a sale of a parcel at the
Menomonee Valley property of about $454,000. Also included in 1997 are the sales
of the first 2 units in Osprey Cove which amounted to $507,000
Portfolio income is derived principally from the investment of cash not required
for operating activities ("excess cash") in various U.S. Government and
corporate obligations. Portfolio income for 1999 was $123,000 compared to
$63,000 for 1998 and $62,000 for 1997.
Heartland has approximately 160 active leases on its real estate properties,
which generated $772,000 of revenue in 1999, $886,000 of revenue in 1998 and
$1,104,000 in 1997. The decrease in rental income between 1997 and 1998 is due
to two tenants who vacated their spaces in the Company's office building in
Milwaukee, WI. New leasing activity at the Milwaukee office building is pending
finalization of the receipt of Federal and State grants, which will be used for
the modernization and restoration of the facility.
As of December 31, 1999, Heartland had designated 15 sites, or approximately 890
acres with a book value of approximately $10,000,000, for development.
Capitalized expenditures at these sites were $32,247,000 in 1999, $9,157,000 in
1998 and $5,112,000 in 1997. At December 31, 1999, capitalized costs on
development properties including housing inventories totaled $37,024,000.
Expenditures which significantly increase the value and are directly identified
with a specific project are capitalized.
At December 31, 1999, land held for sale consists of 14,458 acres with a book
value of $766,000. It will be disposed of in an orderly fashion. It is
anticipated that it will take beyond the year 2001 to dispose of most of these
properties.
The cost of property sales for 1999 was $9,772,000 or 85% of sales proceeds,
$4,405,000 or 70% of sales proceeds for 1998 and $3,407,000 or 48% for 1997.
The increase in the cost of sale ratio from 1999 to 1998 is primarily due to the
low volume of homes closed in the home building operations. The indirect
overhead costs associated with producing the homes reduced the home building
gross profit significantly. The increase in the cost of sale ratio for 1998
compared to 1997 is due to the 13 home sales in Osprey Cove. The Osprey Cove
revenues represented 50% of total revenues.
It is not expected that future cost of sales ratios for real estate other than
development projects and home sales will change materially from ratios
experienced in 1997, as the balance of Heartland's real estate other than
development projects consists primarily of railroad properties acquired over the
past 150 years at values far lower than current fair values.
12
It is the Company's practice to evaluate environmental liabilities associated
with the Company's properties. Heartland monitors the potential exposure to
environmental costs on a regular basis and has recorded a liability in the
amount of $2.4 million at December 31, 1999 and 1998 for possible environmental
liabilities, including remediation, legal and consulting fees. A reserve is
established with regard to potential environmental liabilities when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. The amount of any liability is determined independently
from any claim for recovery. If the amount of the liability cannot be reasonably
estimated, but management is able to determine that the amount of the liability
is likely to fall within a range, and no amount within that range can be
determined to be the better estimate, then a reserve in the minimum amount of
the range is accrued.
In addition, Heartland has established an allowance for resolution of non-
environmental claims of $.4 million at December 31, 1999 and 1998.
Heartland does not at this time anticipate that these claims or assessments will
have a material effect on the Company's liquidity, financial position and
results of operations beyond the reserve which the Company has established for
such claims and assessments. In making this evaluation, the Company has assumed
that the Company will continue to be able to assert the bankruptcy bar arising
from the reorganization of its predecessor and that resolution of current
pending and threatened claims and assessments will be consistent with the
Company's experience with similar previously asserted claims and assessments.
While the timing of the payment in respect of environmental claims has not
significantly adversely effected the Company's cash flow or liquidity in the
past, management is not able to reasonably anticipate whether future payments
may or may not have a significant adverse effect in the future.
Heartland's management believes it will have sufficient funds available for
operating expenses, but anticipates the necessity of utilizing outside financing
to fund development projects. On May 14, 1997, CMC signed a line of credit
agreement in the amount of $5 million with LaSalle National Bank ("LNB"),
pursuant to which CMC granted LNB a first lien on certain parcels of land in
Chicago, IL and pursuant to which CMC pledged cash in the amount of $500,000 as
an interest reserve. The agreement terminated on May 1, 1998, but was extended
through June 30, 1998. On June 30, 1998, the loan was amended extending the
maturity date to April 30, 1999, and increasing the line to $8.5 million. The
Company has subsequently pledged additional cash in the amount of $350,000
bringing the total interest reserve to $850,000. On October 23, 1998, CMC
amended the loan temporarily increasing the line to $9,500,000 and reducing net
worth requirements to $8,500,000. The $1,000,000 temporary increase was paid
back in December 1998. In April of 1999, the Company extended the maturity of
the loan to April 29, 2000, increased the amount of the credit facility from
$8,500,000 to $11,500,000, increased the interest reserve from $850,000 to
$1,150,000, reduced the net worth requirement from $8,500,000 to $5,500,000 and
granted LNB a first lien on a property in Milwaukee, Wisconsin. In
November 1999, the Company increased the amount of the credit facility to
$13,300,000 and pledged as additional collateral its interest in the Goose
Island Joint Venture. Advances against the line of credit bear interest at the
prime rate of LNB plus 1.0% (9.5% at December 31, 1999). At December 31, 1999,
$11,800,000 had been advanced to the Company by LNB against the line of credit.
(See Note 4 to the Consolidated Financial Statements). On March 20, 2000, the
Company executed documents with LNB that increased the credit facility to
$15,300,000 and extended the maturity date of the loan to December 31, 2000.
Heartland also granted LNB a first lien on 177 acres, located in Fife,
Washington.
Results of Operations
For the year ended December 31, 1999, operations resulted in a net loss of
$3,757,000 or $0 per Class A Unit. Operations for the years ended December 31,
1998 and 1997 resulted in a net loss of $6,084,000 or $2.76 per Class A Unit and
a net loss of $2,163,000 or $0.99 per Class A Unit, respectively.
The net loss in 1999 compared to the net loss in 1998 decreased $2,327,000 due
to total operating expenses decreasing $2,038,000. The expense reduction took
place primarily in the environmental and general and administrative expenses.
13
The net loss in 1998 compared to the net loss in 1997 increased $3,921,000 due
to selling expenses increasing $1,380,000 related to Osprey Cove, Kinzie
Station, Longleaf and Rosemount, an increase in the environmental reserve
expense of $1,383,000 and a decrease in gross profit on property sales of
$1,894,000 offset by a decrease in real estate tax expense of $304,000.
Heartland has approximately 160 active leases on its real estate properties,
which generated $772,000 of revenue in 1999, $886,000 in 1998, and $1,104,000 in
1997. The decrease in rental income between 1997 and 1998 is due to two tenants
who vacated their spaces in the Company's office building in Milwaukee,
Wisconsin. New leasing activity in that building is pending modernization and
restoration of the facility.
Total operating expenses for 1999 were $6,786,000 compared to $8,824,000 for
1998 and $6,816,000 for 1997. The decrease of $2,038,000 in 1999 compared to
1998 is primarily due to decreased general and administrative expenses of
$460,000 and a decrease in environmental expenses of $1,083,000. The increase
of $2,008,000 in 1998 compared to 1997 is primarily due to increased selling
expense of $1,380,000 in Osprey Cove, Kinzie Station, Longleaf and Rosemount and
increases in the environmental reserve expense of $1,383,000 offset by a
decrease in property taxes of $304,000.
Economic and Other Conditions Generally
The real estate industry is highly cyclical and is affected by changes in
national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers are
subject to various risks, many of which are outside the control of the
developer, including real estate market conditions, changing demographic
conditions, adverse weather conditions and natural disasters, such as
hurricanes, tornadoes, delays in construction schedules, cost overruns, changes
in government regulations or requirements, increases in real estate taxes and
other local government fees and availability and cost of land, materials and
labor. The occurrence of any of the foregoing could have a material adverse
effect on the financial conditions of Heartland.
Access to Financing.
The real estate business is capital intensive and requires expenditures for land
and infrastructure development, housing construction and working capital.
Accordingly, Heartland anticipates incurring additional indebtedness to fund
their real estate development activities. As of December 31, 1999, Heartland's
total consolidated indebtedness was $32,770,000. There can be no assurance that
the amounts available from internally generated funds, cash on hand, Heartland's
existing credit facilities and sale of non-strategic assets will be sufficient
to fund Heartland's anticipated operations. Heartland may be required to seek
additional capital in the form of equity or debt financing from a variety of
potential sources, including additional bank financing and sales of debt or
equity securities. No assurance can be given that such financing will be
available or, if available, will be on terms favorable to Heartland. If
Heartland is not successful in obtaining sufficient capital to fund the
implementation of its business strategy and other expenditures, development
projects may be delayed or abandoned. Any such delay or abandonment could result
in a reduction in sales and would adversely affect Heartland's future results of
operations.
Period-to-Period Fluctuations.
Heartland's real estate projects are long-term in nature. Sales activity varies
from period to period, and the ultimate success of any development cannot always
be determined from results in any particular period or periods. Thus, the timing
and amount of revenues arising from capital expenditures are subject to
considerable uncertainty. The inability of Heartland to manage effectively their
cash flows from operations would have an adverse effect on their ability to
service debt, and to meet working capital requirements.
14
Interest Rate Sensitivity
The Company's total consolidated indebtedness at December 31, 1999, is
$32,770,000. The Company pays interest on its outstanding borrowings under
revolving credit facilities and fixed loan amounts at the prime rate plus 0.00%
to 1.00%. See Note 4 to the Consolidated Financial Statements. An adverse
change of 1.00% in the prime rate would increase the yearly interest incurred by
approximately $328,000.
Year 2000
As of December 31, 1999, the Company had completed its two-year technology plan,
which included initiatives to mitigate any material risks associated with the
year 2000 issues. This technology plan resulted in the re-design and
replacement of most of the Company's information systems and equipment
platforms.
The Company also identified areas other than these information systems for which
it might be at risk due to the year 2000, including telecommunications systems
and third party vendors. As of December 31, 1999, the Company had upgraded or
replaced all non-compliant telecommunications systems, identified risk issues
and installed upgrade software system-wide.
The Company incurred approximately $200,000 to complete this project.
Approximately $150,000 was capitalized for new systems, software and equipment
and approximately $50,000 was expensed.
Through March 30, 2000, the Company has not encountered any year 2000 related
issues which would have affected its operations in the areas described above. It
will continue to monitor its internal software and equipment over the next few
months to detect whether any such problems arise. No future significant
expenditures are expected related to year 2000 compliance.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of
Operations: Economic and Other Conditions and Interest Rate Sensitivity.
15
Item 8. Financial Statement and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Partners and Unitholders of Heartland Partners, L.P.
We have audited the accompanying consolidated balance sheets of Heartland
Partners, L.P. (the "Partnership") as of December 31, 1999 and 1998 and the
related consolidated statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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
Heartland Partners, L.P. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 17, 2000, except as to
the second paragraph of Note 12,
as to which the date is March 20, 2000
and except as to the third paragraph
of Note 12, as to which the date is
March 24, 2000.
16
HEARTLAND PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(amounts in thousands)
1999 1998
---- ----
ASSETS:
- ------
Cash............................................................................ $ 230 $ 1,115
Restricted cash................................................................. 4,182 2,564
Marketable securities (amortized cost of $149 in 1998).......................... -0- 149
Accounts receivable (net of allowance of $416 in 1999 and 1998)................. 373 353
Due from affiliate.............................................................. 1,093 442
Prepaid and other assets........................................................ 217 278
Investment in joint venture..................................................... 410 278
------- -------
Total....................................................................... 6,505 5,179
------- -------
Property:
Land, buildings and other....................................................... 4,049 3,563
Less accumulated depreciation.................................................. 1,065 931
------- -------
Net Land, buildings and other......................................................... 2,984 2,632
Land held for sale.............................................................. 766 930
Housing inventories............................................................. 34,263 13,978
Land held for development....................................................... 5,287 5,490
Capitalized predevelopment costs................................................ 7,451 5,022
------- -------
Net Properties................................................................. 50,751 28,052
------- -------
Total Assets.................................................................... $57,256 $33,231
======= =======
LIABILITIES:
- -----------
Notes payable................................................................... $32,770 $13,492
Accounts payable and accrued expenses........................................... 10,330 2,636
Management fee due affiliate.................................................... -- 283
Accrued real estate taxes....................................................... 893 1,075
Allowance for claims and liabilities............................................ 2,804 2,762
Unearned rents and deferred income.............................................. 1,733 1,862
Other liabilities............................................................... 3,074 1,712
------- -------
Total Liabilities........................................................... $51,604 $23,822
------- -------
PARTNERS' CAPITAL:
- -----------------
General Partner................................................................. -- --
Class A Limited Partners - 2,142 units authorized, issued and outstanding....... -- --
Class B Limited Partner......................................................... 5,652 9,409
------- -------
Total Partners' Capital..................................................... 5,652 9,409
------- -------
Total Liabilities and Partners' Capital......................................... $57,256 $33,231
======= =======
See accompanying notes to Consolidated Financial Statements
17
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1999, 1998, and 1997
(amounts in thousands)
Unrealized
Holding Gain
Class A Class B (Loss) on
General Limited Limited Marketable
Partner Partners Partner Securities Total
------- -------- ------- ---------- -----
Balances at January 1, 1997.......................... $ 66 $ 9,639 $ 9,582 $ (2) $19,285
Net loss............................................. (22) (2,130) (11) -- (2,163)
Distribution......................................... (16) (1,607) (8) -- (1,631)
------- ------- ------- ----------- -------
Balances at December 31, 1997........................ 28 5,902 9,563 (2) 15,491
Net Loss............................................. (28) (5,902) (154) -- (6,084)
Marketable securities fair value adjustment.......... -- -- -- 2 2
------- ------- ------- ----------- -------
Balances at December 31, 1998........................ $ -- $ -- 9,409 -- 9,409
Net loss............................................. -- -- (3,757) -- (3,757)
------- ------- ------- ----------- -------
Balances at December 31, 1999........................ $ -- $ -- $ 5,652 $ -- $ 5,652
======= ======= ======= =========== =======
See accompanying notes to Consolidated Financial Statements
18
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
(amounts in thousands, except for per unit data)
1999 1998 1997
---- ---- ----
Income:
- -------
Property sales........................................................ $ 11,548 $ 6,231 $ 7,127
Less: Cost of property sales.......................................... 9,772 4,405 3,407
---------- ---------- ----------
Gross profit on property sales........................................... 1,776 1,826 3,720
---------- ---------- ----------
Operating Expenses:
- -------------------
Selling expenses...................................................... 3,570 3,845 2,465
General and administrative expenses................................... 2,659 3,119 3,570
Real estate taxes..................................................... 179 399 703
Environmental expense................................................. 378 1,461 78
---------- ---------- ----------
Total operating expenses................................................. 6,786 8,824 6,816
---------- ---------- ----------
Net operating (loss)..................................................... (5,010) (6,998) (3,096)
Other Income and (Expense):
- ---------------------------
Portfolio income...................................................... 123 63 62
Rental income......................................................... 772 886 1,104
Other income.......................................................... 917 514 286
Depreciation.......................................................... (134) (124) (94)
Management fee........................................................ (425) (425) (425)
---------- ---------- ----------
Total other income and (expense)......................................... 1,253 914 933
---------- ---------- ----------
Net (loss)............................................................... $ (3,757) $ (6,084) $ (2,163)
========== ========== ==========
Net (loss) allocated to General Partner.................................. $ -- $ (28) $ (22)
========== ========== ==========
Net (loss) allocated to Class B limited partner.......................... $ (3,757) $ (154) $ (11)
========== ========== ==========
Net (loss) allocated to Class A limited partners......................... $ -- $ (5,902) $ (2,130)
========== ========== ==========
Net (loss) per Class A limited partnership unit.......................... $ -- $ (2.76) $ (0.99)
========== ========== ==========
Average number of Class A limited partnership units outstanding.......... 2,142 2,142 2,142
========== ========== ==========
Distributions declared per Class A limited partnership unit.............. $ -- $ -- $ 0.75
========== ========== ==========
See accompanying notes to Consolidated Financial Statements
19
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
(amounts in thousands)
1999 1998 1997
---- ---- ----
Cash Flow from Operating Activities:
- ------------------------------------
Net (loss)................................................................... $ (3,757) $ (6,084) $ (2,163)
Adjustments reconciling net (loss) to net cash used in operating
activities:
Bad debt expense.............................................................. -- 211 98
Depreciation.................................................................. 134 124 94
Accretion of discount on securities........................................... -- -- (21)
Loss (Gain) on sale of securities............................................. -- -- 3
Net change in allowance for claims and liabilities............................ 42 593 (491)
Net change in assets and liabilities:
Decrease (increase) in accounts receivable............................... (671) (313) 181
Increase in housing inventories.......................................... (20,285) (4,852) (3,486)
Decrease in land held for sale........................................... 164 233 123
Decrease in land held for development.................................... 203 790 158
(Increase) decrease in capitalized development costs..................... (2,429) (818) 1,369
Increase (decrease) in accounts payable and accrued liabilities.......... 7,694 1,895 476
(Decrease) increase in management fee due affiliate...................... (283) (142) --
Net change in other assets and liabilities............................... 980 1,656 759
---------- ---------- ----------
Net cash used in operating activities......................................... (18,208) (6,707) (2,900)
---------- ---------- ----------
Cash Flow from Investing Activities:
- -----------------------------------
Additions to land, buildings and other........................................ (486) (333) (645)
Net (purchases) sales and maturities of marketable securities................. 149 (6) 4,636
---------- ---------- ----------
Net cash (used in) provided by investing activities........................... (337) (339) 3,991
---------- ---------- ----------
Cash Flow from Financing Activities:
- -----------------------------------
Advances on notes payable, net................................................ 19,278 9,742 3,011
Increase in restricted cash................................................... (1,618) (1,840) (424)
Distribution paid to unitholders.............................................. -- (1,631) (2,719)
---------- ---------- ----------
Net cash provided by (used in) financing activities........................... 17,660 6,271 (132)
---------- ---------- ----------
Net (decrease) increase in cash............................................... (885) (775) 959
Cash at beginning of year..................................................... 1,115 1,890 931
---------- ---------- ----------
Cash at end of year........................................................... $ 230 $ 1,115 $ 1,890
========== ========== ==========
Supplemental Disclosure of Non Cash Operating Activities:
- --------------------------------------------------------
Net land held for development and capitalized development costs transferred
to housing inventories........................................................ $ -- $ 5,034 $ --
========== ========== ==========
See accompanying notes to Consolidated Financial Statements
20
Heartland Partners, L.P.
Notes to Consolidated Financial Statements
For the years ended December 31, 1999, 1998 and 1997
Organization
Heartland Partners, L.P. ("Heartland" or the "Company"), a Delaware limited
partnership, was formed on October 6, 1988. Heartland's existence will continue
until December 31, 2065, unless extended or dissolved pursuant to the provisions
of Heartland's partnership agreement.
Heartland was organized to engage in the ownership, purchasing, development,
leasing, marketing, construction and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Heartland Technology, Inc. ("HTI"), formerly known as
Milwaukee Land Company ("MLC"). HTI is the general partner of Heartland (in
such capacity, the "General Partner"). In July 1993, Heartland Development
Corporation ("HDC"), a Delaware corporation, wholly-owned by Heartland and CMC,
formed CMC Heartland Partners I, Limited Partnership ("CMCI"), a Delaware
limited partnership, to undertake a planned housing development in Rosemount,
Minnesota ("Bloomfield or Rosemount"). CMC has a 100% membership interest in
CMC Heartland Partners II ("CMCII"), CMC Heartland Partners III ("CMCIII"), CMC
Heartland Partners IV ("CMCIV"), CMC Heartland Partners V ("CMCV"), CMC
Heartland Partners VI ("CMCVI"), CMC Heartland Partners VII ("CMCVII") and CMC
Heartland Partners VIII ("CMCVIII"). CMCII was formed to participate in the
Goose Island Industrial Park joint venture in Chicago, Illinois. CMCIII was
formed in 1997 to develop a portion of the Kinzie Station property in Chicago,
IL. CMC IV was formed in 1998 and is developing approximately 177 acres in Fife,
Washington. CMCV was formed in 1996 to acquire finished lots, sell and to
construct homes in Osprey Cove ("Osprey"), a master-planned residential
community in St. Marys, GA. CMCVII was formed in 1998 to acquire and engage in
sales, marketing and construction of homes in the Longleaf Country Club,
Southern Pines, NC ("Southern Pines or Longleaf"). CMCVI and CMCVIII were formed
at various times to acquire and hold future acquisitions. CMC also owns 100% of
the common stock of Lifestyle Communities, Ltd. ("LCL") which serves as the
exclusive sales agent in the St. Marys, Southern Pines and Kinzie Station
developments. LCL is also the general contractor in the St. Marys development.
CMC owns 100% of the stock of Lifestyle Construction Company, Inc. ("LCC") which
serves as the general contractor in North Carolina. Except as otherwise noted
herein, references herein to "Heartland" or the "Company" include CMC, HDC,
CMCI, CMCII, CMCIII, CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC.
Heartland's partnership agreement provides generally that Heartland's net income
(loss) will be allocated 1% to the General Partner, 98.5% to the Class A limited
partners (the "Unitholders") and 0.5% to the Class B limited partner. In
addition, the partnership agreement provides that certain items of deduction,
loss, income and gain may be specially allocated to the Class A Unitholders or
to the holder of the Class B Interest or the General Partner. Also, the
partnership agreement provides that if an allocation of a net loss to a partner
would cause that partner to have a negative balance in its capital account at a
time when one or more partners would have a positive balance in their capital
account such net loss shall be allocated only among partners having positive
balances in their capital account.
The General Partner has the discretion to cause Heartland to make distributions
of Heartland's available cash in an amount equal to 98.5% to the Unitholders,
0.5% to the holder of the Class B Interest and 1% to the General Partner. There
can be no assurance as to the amount or timing of Heartland's cash distributions
or whether the General Partner will cause Heartland to make a cash distribution
if cash is available. On November 24, 1997, Heartland declared a cash
distribution in the amount of $1.6 million to Unitholders and Partners of record
on December 29, 1997, that was paid on January 7, 1998. On December 4, 1997,
Heartland's partnership agreement was amended to allow the General Partner in
its discretion to establish a record date for distributions of the last day of
any calendar month.
21
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
At December 31, 1999, land held for sale consisted of approximately 14,458 acres
of scattered land parcels. States in which large land holdings are located are
Illinois, Iowa, Minnesota, Montana, North Dakota, South Dakota, Washington, and
Wisconsin. The remaining acreage is located in Idaho, Indiana, Michigan and
Missouri.
Most of the properties are former railroad rights-of-way, located in rural
areas, comprised of long strips of land approximately 100 feet in width. Also
included are former station grounds and rail yards. Certain air rights and fiber
optics development rights are also owned.
The land is typically unimproved. Some of the properties are improved with
structures (such as grain elevators and sheds) erected and owned by lessees.
Other properties are improved with Heartland-owned buildings that are of little
or no value.
Improved properties of value to Heartland include a three-story office building
with 60,000 square feet of space in Milwaukee, Wisconsin and a two-story
warehouse/office building in northwestern Chicago used for the storage of
partnership records.
At December 31, 1999, property available for development, including housing
inventories, consisted of 15 sites comprising approximately 890 acres. The book
value of this land is $10 million or an average of $11,200 per acre. Heartland
reviews these properties to determine whether to hold, develop, either solely or
with a third party joint venturer, or sell them. Heartland's objective for
these properties is to maximize unitholder value over a period of years.
Heartland has a 3.88 acre site in Chicago, Illinois known as Kinzie Station
under development. Phase I consists of 163 units in a Tower Building, 24 units
in a Plaza Building and 5 Townhomes. CMC is also selling and building single
family homes in Osprey Cove located in St. Marys, Georgia, Longleaf Country Club
in Southern Pines, North Carolina and the Bloomfield community in Rosemount,
Minnesota. These sites are classified as housing inventories. Heartland has
decided to cease operations in Osprey Cove and Bloomfield. The homes and lot
inventories will be sold in the ordinary course of business.
2. Summary of Significant Accounting Policies
Consolidation
- -------------
The consolidated financial statements include the accounts of Heartland; CMC,
its 99.99% owned operating partnership; HDC, 100% owned by Heartland; CMCI, 1%
general partnership interest owned by HDC and 99% owned by CMC; CMCII, CMCIII,
CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC, each 100% owned by CMC. All
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
- -------------------
Revenues from housing and land sales are recognized in the period in which title
passes and cash is received.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
22
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Marketable Securities
- ---------------------
Management determines the appropriate classification of debt securities at the
time of purchase and re-evaluates such classification as of each balance sheet
date. Debt securities that the Company does not have the positive intent or
ability to hold to maturity, and all marketable equity securities are classified
as available-for-sale and are carried at fair value. All of Heartland's
marketable securities held at December 31, 1998 were classified as available-
for-sale. Unrealized holding gains and losses on securities classified as
available-for-sale are reported as a separate component of partner's capital.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in net securities gains (losses). Premiums and discounts
on marketable securities are amortized on a straight-line basis using the
maturity date of the security to determine the amortization period and such
amortization is included in interest income. The cost of securities sold is
based on the specific identification method.
Properties
- ----------
Properties are carried at their historical cost. Expenditures which
significantly improve the values or extend useful lives of the properties are
capitalized. Predevelopment costs including interest, financing fees, and real
estate taxes that are directly identified with a specific development project
are capitalized. Repairs and maintenance are charged to expense as incurred.
Depreciation is provided for financial statement purposes over the estimated
useful life of the respective assets ranging from 7 years for office equipment
and fixtures to 40 years for building and improvements primarily using the
straight-line method. Depreciation expense for the years ended December 31,
1999, 1998 and 1997 was $134,000, $124,000, $94,000, respectively.
Properties held for development, including capitalized predevelopment costs, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the particular development property may not be
recoverable. If these events or changes in circumstances are present, the
Company estimates the sum of the expected future cash flows (undiscounted) to
result from the development operations and eventual disposition of the
particular development property, and if less than the carrying amount of the
development property, the Company will recognize an impairment loss based on
discounted cash flows. Upon recognition of any impairment loss the Company would
measure that loss based on the amount by which the carrying amount of the
property exceeds the estimated fair value of the property.
For properties held for sale, an impairment loss is recognized when the fair
value of the property, less the estimated cost to sell, is less than the
carrying amount of the property.
Housing inventories, (including completed model homes), consisting of land, land
development, direct and indirect construction costs and related interest, are
recorded at cost which is not in excess of fair value. Land, land development,
and indirect costs are allocated to cost of sales on the basis of units sold in
relation to the total anticipated units in the related development project; such
allocation approximates the relative sales value method. Direct construction
costs are allocated to the specific units sold for purposes of determining costs
of sales. Selling and marketing costs, not including those costs incurred
related to furnishing and developing the models and sales office, are expensed
in the period incurred. Costs incurred in the construction of the model units
and related furnishings are capitalized at cost. The Company intends to offer
these units for sale at the completion of a project and, accordingly, no
amortization of direct construction costs is provided. Housing inventories are
reviewed for impairment whenever events or circumstances indicate the fair value
is less than the cost. If these events or changes in circumstances are present,
the Company then writes down the inventory to its fair value.
As of December 31, 1999 and 1998, management is not aware of any impairment
losses in the Company's real estate assets. Accordingly, no impairment losses
were recognized during any of the years presented.
23
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Housing inventories consisted of the following at December 31, 1999, and 1998:
1999 1998
---- ----
Land under development................................... $ 4,690 $ 4,568
Direct construction costs................................ 19,381 2,109
Capitalized project costs................................ 10,192 7,301
------- -------
$34,263 $13,978
======= =======
Interest, financing fees, and real estate taxes relating to land and
construction in progress are capitalized and, accordingly, are included in the
aggregate cost of housing inventories. These costs are amortized to cost of
sales on a per unit basis in relationship to the total units of the related
development based upon the total estimated budget to be incurred for the
development. This accounting treatment approximates the relative sales value
method. Additionally, the Company provides each home purchaser with a one-year
warranty covering the major components of the unit. The costs associated with
these warranties are immaterial and therefore, expensed as incurred.
Fair Value of Financial Instruments
- -----------------------------------
Management has considered fair value information relating to its financial
instruments at December 31, 1999. For cash and marketable securities, the
carrying amounts approximate fair value. For variable rate debt that reprices
frequently, fair values approximate carrying values. For all remaining financial
instruments, carrying value approximates fair value due to the relatively short
maturity of these instruments.
Income Taxes
- ------------
A publicly-traded partnership generally is not liable for Federal income taxes,
provided that for each taxable year at least 90% of its gross income consists of
certain passive types of income. In such case, each partner includes its
proportionate share of partnership income or loss in its own tax return.
Accordingly, no provision for income taxes is reflected in Heartland's financial
statements.
Heartland's assets are carried at historical cost. At December 31, 1999, the tax
basis of the properties and improvements for Federal income tax purposes was
greater than their carrying value for financial reporting purposes.
Segment Reporting
- -----------------
During the fourth quarter of 1998, Heartland adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("Statement No. 131"). Statement No. 131 superseded FASB
Statement of Financial Accounting Standards No. 14, Financial Reporting for
Segments of a Business Enterprise ("Statement No. 14"). Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect Heartland's results of operations or financial position.
24
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
The Company has two primary reportable business segments, which consist of land
sales and property development (See Note 11 to the Consolidated Financial
Statements).
Reclassification
- ----------------
Certain reclassifications have been made to the previously reported 1998 and
1997 statements in order to provide comparability with the 1999 statements.
These reclassifications have not changed the 1998 and 1997 results.
3. Restricted Cash
On May 14, 1997, CMC established a line of credit agreement in the amount of $5
million with LaSalle National Bank ("LNB") pursuant to which CMC pledged cash in
the amount of $500,000 as an interest reserve. During 1998, LNB increased the
line of credit to $8.5 million and extended the maturity date of the loan to
April 30, 1999, pursuant to which CMC pledged additional cash in the amount of
$350,000 as an interest reserve. In April 1999, LNB increased the credit
facility to $11,500,000 and extended the maturity date of the loan to April 29,
2000. At that time, CMC pledged an additional $300,000 as an interest reserve.
On November 30, 1998, CMCI executed an agreement for a $2,500,000 loan with Bank
One relating to the Bloomfield project pursuant to which CMCI has pledged
$500,000 in cash as an interest reserve. Restricted cash also includes
purchasers' earnest money escrow deposits of $2,522,000 and $1,204,000 at
December 31, 1999, and 1998, respectively and a $10,000 construction improvement
bond held by the Osprey Cove Homeowners Association. The total restricted cash
at December 31, 1999 and 1998 was $4,182,000 and $2,564,000, respectively.
4. Notes Payable
On May 14, 1997, CMC signed a line of credit agreement in the amount of $5
million with LaSalle National Bank ("LNB"), pursuant to which CMC granted LNB a
first lien on certain parcels of land in Chicago, IL which had a carrying value
of $6,065,000 and $5,278,000 as of December 31, 1999, and 1998, respectively.
Also, pursuant to the line of credit agreement, CMC pledged cash in the amount
of $500,000 as an interest reserve. The agreement terminated on May 1, 1998, but
was extended through June 30, 1998. On June 30, 1998, the loan was amended
extending the maturity date to April 30, 1999, and increasing the line to $8.5
million. The Company has subsequently pledged additional cash in the amount of
$350,000 bringing the total interest reserve to $850,000. On October 23, 1998,
CMC amended the loan temporarily increasing the line to $9,500,000 and reducing
net worth requirements to $8,500,000. The $1,000,000 temporary increase was
paid back in December 1998. In April of 1999, the Company extended the maturity
of the loan to April 29, 2000, increased the amount of the credit facility from
$8,500,000 to $11,500,000, reduced the net worth requirement form $8,500,000 to
$5,500,000 and granted LNB a first lien on a property in Milwaukee, Wisconsin
which had a carrying value of $3,035,000 at December 31, 1999.The Company has
subsequently pledged additional cash in the amount of $300,000 bringing the
total interest reserve to $1,150,000. In November 1999, the Company increased
the amount of the credit facility to $13,300,000 and pledged as additional
collateral its interest in the Goose Island Joint Venture which had a carrying
value of $410,000 as of December 31, 1999. Advances against the line of credit
bear interest at the prime rate of LNB plus 1.0% (9.5% at December 31, 1999). At
December 31, 1999, and 1998, $11,800,000 and $8,321,000 respectively, had been
advanced to the Company by LNB against the line of credit. On March 20, 2000 the
Company executed documents with LNB that increased the credit facility to
$15,300,000 and extended the maturity date of the loan to December 31, 2000.
Heartland also granted LNB a first lien on 177 acres, located in Fife,
Washington which had a carrying value of $3,891,000 at December 31, 1999.
On December 30, 1996, CMCV signed a revolving line of credit agreement in the
amount of $3 million with Bank of America ("B of A"), formerly NationsBank,
N.A., to acquire lots and construct houses in the Osprey Cove subdivision, St.
Marys, Georgia, pursuant to which CMC granted a first mortgage to B of A on
specific lots in said subdivision with
25
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
a carrying value of $1,803,000 and $5,138,000 at December 31, 1999, and 1998,
respectively. On December 30, 1999, Heartland entered into a modification
agreement to its December 30, 1996, revolving line of credit agreement in the
amount of $3 million for Osprey Cove to extend the maturity date to June 30,
2000. The line of credit with B of A bears interest at the prime rate of B of A
plus 1% (9.5% at December 31, 1999). At maturity, all outstanding advances and
any accrued interest must be paid. B of A had advanced against the revolving
line of credit at December 31, 1999, and 1998, $1,514,000 and $2,288,000,
respectively. Under the terms of the agreement, CMCV is required to maintain a
minimum net worth of $500,000 and a minimum leverage ratio not to exceed 4:1.
In the fourth quarter of 1999, First National Bank of St. Mary's ("FNB") in
Georgia made two loans totaling $588,374 to build two unsold homes in Osprey
Cove. The carrying value of these two homes is $557,000 at December 31, 1999.
The loan terms are for one year and bear interest at the prime rate plus 1%
(9.5% at December 31, 1999). At December 31, 1999, FNB had advanced $463,000 to
the Company on the two loans.
In December, 1998, the Company signed a commitment letter for a $3,000,000 line
of credit with B of A to construct homes in the Longleaf community. B of A
provided individual loans on each home as it is started. The developer
subordinated its lot to B of A's construction loan. The term of each loan was
one year and interest accrued at the B of A prime rate plus 1%. On December 9,
1999, Heartland executed an agreement for a $5,000,000 revolving credit line for
the construction of homes in Longleaf with Bank One of Illinois ("Bank One").
The first draw from Bank One on December 9, 1999 was used to purchase 22 lots
(of which 3 closed in 1999) from the developer for $690,500 and repaid B of A
all outstanding principal and accrued interest. As new homes to be built are
added to the revolving credit line, the developer will subordinate its lot to
Bank One's revolving credit line. The carrying value of the collateral at
December 31, 1999 is $1,815,000. The revolving credit line is for a term of 1
year and bears interest at the prime rate (8.5% at December 31, 1999). At
December 31, 1999, $1,441,000 had been advanced by Bank One to the Company. At
December 31, 1998, $383,000 had been advanced by B of A to the Company.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan from
Bank One relating to the Bloomfield project. The loan has a two year term and
bears interest at the prime rate (8.5% at December 31, 1999). The outstanding
loan balance is $2,470,000 at December 31, 1999. As a condition of the loan,
$500,000 was placed in an interest reserve. In addition, Bank One is providing
a $1,750,000 development loan, letters of credit for $204,500 to the City of
Rosemount and a $4,000,000 revolving credit line for the construction of homes;
these credit facilities were executed on February 1, 1999. The loans bear
interest at the prime rate (8.5% at December 31, 1999). The loans mature on
January 31, 2001 and January 31, 2000, respectively. At December 31, 1999,
$506,000 had been advanced against the development loan and $1,175,000 against
the revolving line of credit. The Company believes no additional financing will
be needed for Phase I. The carrying value of the collateral for these loans is
$4,302,000 at December 31, 1999. The Company is currently in negotiations with
Bank One to extend the maturity date of the $4,000,000 revolving line of credit
to December 1, 2000. While the Company has no reason to believe the extension
of the credit facility will not be approved by Bank One, there can be no
assurance the contemplated extension will be given. The consolidated financial
statements do not contain any adjustments to reflect the ultimate outcome of
this uncertainty.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A ("CB"). The loan bears interest at
the prime rate plus 1% (9.5% at December 31, 1999). This loan is collateralized
by the real estate contained in the project. In conjunction with the loan, a
Construction Contract with the guaranteed maximum price of $24,710,000 which
increased to $24,972,282 due to subsequent change orders was entered into with a
general contractor. At December 31, 1999 $13,287,000 had been advanced by CB to
the Company.
On October 20, 1999, the Company executed loan documents with Bank One for a
loan of $5,250,000 to construct the Kinzie Station Plaza building. The loan is
for a term of 3 years and bears interest at the prime rate (8.5% at December 31,
1999). The loan is collateralized by real estate contained in the project. On
September 7, 1999, a construction
26
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
contract with the guaranteed maximum price of $4,864,022 was entered into with a
general contractor. At December 31, 1999, $114,000 had been advanced by Bank One
to the Company.
During the years ended December 31, 1999, 1998, and 1997, the Company incurred
and paid interest on loans in the amount of $2,062,000, $802,000 and $189,000,
respectively, of which $2,062,000, $802,000 and $189,000 was capitalized.
5. Recognition and Measurement of Environmental Liabilities
It is Heartland's practice to evaluate environmental liabilities associated with
its properties on a regular basis. An allowance is provided with regard to
potential environmental liabilities, including remediation, legal and consulting
fees, when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated. The amount of any liability is
evaluated independently from any claim for recovery. If the amount of the
liability cannot be reasonably estimated but management is able to determine
that the amount of the liability is likely to fall within a range, and no amount
within that range can be determined to be the better estimate, then an allowance
in the minimum amount of the range is established. Environmental costs which are
incurred in connection with Heartland's development activities are expensed or
capitalized as appropriate. (See Note 8.)
Estimates which are used as the basis for allowances for the remediation of a
particular site are taken from evaluations of the range of potential costs for
that site made by independent consultants. These evaluations are estimates based
on professional experience but necessarily rely on certain significant
assumptions including the specific remediation standards and technologies which
may be required by an environmental agency as well as the availability and cost
of subcontractors and disposal alternatives.
There is not sufficient information to reasonably estimate all the environmental
liabilities of which management is aware. Accordingly, management is unable to
determine whether environmental liabilities which management is unable to
reasonably estimate will or will not have a material effect on Heartland's
results of operations or financial condition.
6. Related Party Transactions
CMC has a management agreement with HTI, pursuant to which CMC is required to
pay HTI an annual management fee in the amount of $425,000 until the year ended
December 31, 1999. In February 1998, CMC paid HTI the $425,000 1997 deferred
management fee. $142,000 of the 1998 management was paid in 1998. In 1999, the
balance of the 1998 fee of $283,000 was paid as well as 100% of the 1999 fee.
Under a management services agreement, HTI reimburses Heartland for reasonable
and necessary costs and expenses for services totaling $368,000 for the year
ended December 31, 1999, $300,000 for the year ended December 31, 1998 and
$228,000 for the year ended December 31, 1997. HTI owes CMC $1,093,000 as of
December 31, 1999, related to these expenses. Included in this amount owed CMC
is $56,000 of interest accrued on past due amounts owed during the year 1999.
Interest was computed using the prime rate plus 2 1/4% (10.75% at December 31,
1999).
7. Leases
Heartland is a lessor under numerous property lease arrangements with varying
lease terms. The majority of the leases are cancelable by either party upon
thirty to sixty days notice and provide nominal rental income to Heartland. The
leases generally require the lessee to construct, maintain and remove any
improvements, pay property taxes, maintain insurance and maintain the condition
of the property. Heartland has several major leases on buildings and land in
Chicago, Illinois and Milwaukee, Wisconsin which account for over half of
Heartland's annual rental income. The land,
27
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
buildings and other improvements had a net carrying value of $2,984,000 and
$2,632,000 at December 31, 1999 and 1998, respectively. These amounts are net of
depreciation and include corporate furniture and fixtures as well as other
buildings and improvements.
Heartland has one non-cancellable operating lease for $114,401 per year that
will continue as long as the lessee operates its railroad line.
Heartland leases its office premises as well as offices at certain development
sites and certain equipment under various operating leases. Future minimum lease
commitments under non-cancellable operating leases are as follows:
2000............................................................................... $194,000
2001............................................................................... 90,000
2002............................................................................... 50,000
2003............................................................................... 24,000
--------
Total............................................................................ $358,000
========
Rent expense for the years ended December 31, 1999, 1998, and 1997 was $213,000,
$294,000, and $133,000, respectively.
8. Legal Proceedings and Contingencies
At December 31, 1999, and 1998, Heartland's allowance for claims and liabilities
was approximately $2.8 million in each year. During the years ended December 31,
1999, 1998, and 1997, $378,000, $1,461,000 and $78,000, respectively, was
recorded in respect to environmental matters. Significant legal matters are
discussed below.
Soo Line Matters
- ----------------
The Soo Line Railroad Company (the "Soo") has asserted that the Company is
liable for certain occupational injury claims filed after the consummation of an
Asset Purchase Agreement and related agreements ("APA") by former employees now
employed by the Soo. The Company has denied liability for each of these claims
based on a prior settlement with the Soo. The Soo has also asserted that the
Company is liable for the remediation of releases of petroleum or other
regulated materials at six different sites acquired from the Company located in
Iowa, Minnesota and Wisconsin. The Company has denied liability based on the
APA.
The occupational and environmental claims are all currently being handled by the
Soo, and the Company understands the Soo has paid settlements on many of these
claims. As a result of Soo's exclusive handling of these matters, the Company
has made no determination as to the merits of the claims and is unable to
determine the materiality of these claims.
Tacoma, Washington
- ------------------
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United States
District Court for the Western District of Washington alleging that the Company
was liable under Washington state law for the cost of the Port's remediation of
a railyard sold in 1980 by the bankruptcy trustee for the Company's predecessor
to the Port's predecessor in interest.
On October 1, 1998, the Company entered into a Settlement Agreement with the
Port, subsequently modified effective June 1999, in which the Port released all
claims and the Company agreed either to (a) pay $1.1 million on or before
December 31, 2000, plus interest from January 1, 1999, or (b) to convey to the
Port real property to be agreed upon at
28
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
a later date. At December 31, 1999, and 1998, Heartland's allowance for claims
and liabilities for this site was $1,100,000 for each year.
The Company will not make a claim on its insurance carriers in this matter
because the settlement amount does not exceed the self insured retention under
the applicable insurance policies.
Wheeler Pit, Janesville, Wisconsin
- ----------------------------------
In November 1995 the Company settled an environmental claim with respect to the
Wheeler Pit site near Janesville, Wisconsin. The settlement calls for the
Company to pay General Motors $800,000 at $200,000 annually for four years, 32%
of the monitoring costs for twenty-five years beginning in 1997 and 32% of
governmental oversight costs; the oversight costs not to exceed $50,000.
Payments of $200,000 were made in 1995, 1996, 1997 and 1998. A payment of
$50,000 for past government oversight costs was made in October 1998. At
December 31, 1999, and 1998, Heartland's allowance for claims and liabilities
for this site was $189,000 and $184,000, respectively.
Miscellaneous Environmental Matters
- -----------------------------------
Under environmental laws, liability for hazardous substance contamination is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substance were
disposed or otherwise released. In most cases, this liability is imposed
without regard to fault. Currently, the Company has known environmental
liabilities associated with certain of its properties arising out of the
activities of its predecessor or certain of its predecessor's lessees and may
have further material environmental liabilities as yet unknown. The majority of
the Company's known environmental liabilities stem from the use of petroleum
products, such as motor oil and diesel fuel, in the operation of a railroad or
in operations conducted by its predecessor's lessees. The following is a summary
of material known environmental matters, in addition to those described above.
The Montana Department of Environmental Quality ("DEQ") has asserted that the
Company is liable for some or all of the investigation and remediation of
certain properties in Montana sold by its predecessor's reorganization trustee
prior to the consummation of its predecessor's reorganization. The Company has
denied liability at certain of these sites based on the reorganization bar of
the Company's predecessors. The Company's potential liability for the
investigation and remediation of these sites was discussed in detail at a
meeting with DEQ in April 1997. While DEQ has not formally changed its position,
DEQ has not elected to file suit. Management is not able to express an opinion
at this time whether the cost of the defense of this liability or the
environmental exposure in the event of the Company's liability will or will not
be material.
At twelve separate sites, the Company has been notified that releases arising
out of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
The Company has petroleum groundwater remediation projects or long term
monitoring programs at Austin, Minnesota, Farmington, Minnesota, and Miles City,
Montana. At December 31, 1999, and 1998, Heartland's aggregate allowance for
claims and liabilities for these sites were $32,000 and $41,000, respectively.
In December 1989, the Minnesota Pollution Control Agency ("MPCA") added a site
which includes the Company's Pig's Eye Yard site in St. Paul, Minnesota to its
Permanent List of Priorities based on historical records and an initial
investigation of soil and groundwater conditions adjacent to Pig's Eye Yard.
Portions of this site had been leased to the City of St. Paul for a landfill and
to the Metropolitan Waste Control Commission for disposal of incinerator ash.
The
29
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
site, which includes portions of the adjacent municipal wastewater treatment
plant, was placed on the Superfund Accelerated Clean Up Model list in 1993. No
potentially responsible parties ("PRPs") have been formally named at this site.
The Company sold its interest in this property to the City of St. Paul on April
30, 1999, with the City agreeing to indemnify the Company against certain
environmental liabilities.
The Company has an interest in property at Moses Lake, Washington previously
owned and used by the United States government as an Air Force base. A portion
of the Company's property is located over a well field which was placed on the
national priority list in October 1992. Sampling by the Army Corps of Engineers
has indicated the presence of various regulated materials, primarily in the
groundwater, which were most likely released as a result of military or other
third party operations. The Company has not been named as a PRP.
In July 1999, suit was filed against the Company in Minnesota District Court by
a buyer under an expired real estate sale contract originally entered into in
1995, and extended to June 30, 1999. The plaintiff in the suit is demanding
specific performance by conveyance to it of the vacant 5.95 acre parcel in
Minneapolis, Minnesota originally to be sold to the buyer for $562,000 pursuant
to the real estate contract. Environmental sampling in 1995 disclosed that the
parcel was impacted by releases of regulated materials from the 1960s operations
of a former lessee. The Company continues to investigate the environmental
condition of the property on a voluntary basis under the direction of the
Minnesota Department of Agriculture. At December 31, 1999 and 1998, Heartland's
aggregate allowance for claims and liabilities for the Moses Lake, Washington
and the 5.95 acre parcel in Minneapolis, Minnesota sites were $653,000 and
$524,000, respectively.
In addition to the environmental matters set forth above, there may be other
properties, i), with environmental liabilities not yet known to the Company, or
ii), with potential environmental liabilities for which the Company has no
reasonable basis to estimate or, iii), which the Company believes the Company is
not reasonably likely to ultimately bear the liability, but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to its insurers of certain of the Company's
environmental liabilities. Due to the high deductibles on these policies, the
Company has not yet demanded that any insurer indemnify or defend the Company.
Consequently, management has not formed an opinion regarding the legal
sufficiency of the Company's claims for insurance coverage.
The Company is also subject to other suits and claims which have arisen in the
ordinary course of business. In the opinion of management, reasonably possible
losses from these matters should not be material to the Company's results of
operations or financial condition.
9. Compensation and Benefits
Heartland sponsors a Group Savings Plan, which is a salary reduction plan
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
All full-time permanent employees of Heartland are eligible to participate in
the plan. A participating employee can authorize contributions to the plan in
the form of salary reductions of up to the maximum allowed by the Internal
Revenue Code in any plan year. In 1999 Heartland made matching contributions of
25% of each participant's contribution to the plan. Participating 1998
employees were fully vested with respect to salary reduction and Heartland's
contributions. For all future participants, they are fully vested with respect
to salary reduction immediately but the matching contribution vests at 20% per
year. Benefits are normally distributed upon retirement (on or after age 65),
death or termination of employment, but may be distributed prior to termination
of employment upon showing of financial hardship. Heartland contributed to the
plan approximately $58,000 in 1999, $80,000 in 1998, and $60,000 in 1997 on
behalf of all employees.
30
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
10. Marketable Securities
At December 31, 1998 and 1997 all marketable securities were classified as
available-for-sale. Proceeds from sale and maturities of debt securities during
1999, 1998, and 1997, were $149,000, $297,000, and $9,015,000, respectively.
Purchases of debt securities during 1998 and 1997 were $303,000 and $4,379,000,
respectively. The gain on sale of securities in 1997 was approximately $3,000.
Proceeds from sales in 1999 and 1998 approximated cost for all securities at the
date of sale.
31
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
11. Reportable Segments
The following tables set forth the reconciliation of net income and total assets
for Heartland's reportable segments for the years ended December 31, 1999, 1998
and 1997 (See Note 2 to the Consolidated Financial Statements).
Property
1999 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
Revenues:
- --------
Property sales $ 1,485 $ 10,063 $ 0 $ 11,548
Less: cost of property sales.......... 261 9,511 0 9,772
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,224 552 0 1,776
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 806 2,764 0 3,570
General and administrative expenses... 0 480 2,179 2,659
Real estate taxes..................... 164 15 0 179
Environmental Expense................. 94 284 0 378
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 1,064 3,543 2,179 6,786
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 160 (2,991) (2,179) (5,010)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 123 123
Rental income......................... 772 0 0 772
Other income.......................... 0 917 0 917
Depreciation.......................... 0 (89) (45) (134)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 772 828 (347) 1,253
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 932 $ (2,163) $ (2,526) $ (3,757)
================= ================= ================= =================
Properties, net of accumulated
Depreciation........................ $ 783 $ 49,171 $ 797 $ 50,751
================= ================= ================= =================
Total assets........................ $ 1,156 $ 52,650 $ 3,450 $ 57,256
================= ================= ================= =================
32
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Property
1998 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
Revenues:
- --------
Property sales $ 1,814 $ 4,417 $ 0 $ 6,231
Less: cost of property sales.......... 215 4,190 0 4,405
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,599 227 0 1,826
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 969 2,876 0 3,845
General and administrative expenses 0 327 2,792 3,119
Real estate taxes..................... 209 190 0 399
Environmental Expense................. 248 25 1,188 1,461
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 1,426 3,418 3,980 8,824
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 173 (3,191) (3,980) (6,998)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 63 63
Rental income......................... 886 0 0 886
Other income.......................... 0 514 0 514
Depreciation.......................... 0 (84) (40) (124)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 886 430 (402) 914
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 1,059 $ (2,761) $ (4,382) $ (6,084)
================= ================= ================= =================
Properties, net of accumulated
depreciation........................ $ 937 $ 26,296 $ 819 $ 28,052
================= ================= ================= =================
Total assets........................ $ 1,290 $ 29,403 $ 2,538 $ 33,231
================= ================= ================= =================
33
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Property
1997 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
Revenues:
- --------
Property sales $ 1,708 $ 5,419 $ 0 $ 7,127
Less: cost of property sales.......... 125 3,282 0 3,407
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,583 2,137 0 3,720
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 562 1,903 0 2,465
General and administrative expenses... 0 50 3,520 3,570
Real estate taxes..................... 182 521 0 703
Environmental Expense................. 0 78 0 78
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 744 2,552 3,520 6,816
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 839 (415) (3,520) (3,096)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 62 62
Rental income......................... 1,104 0 0 1,104
Other income.......................... 0 286 0 286
Depreciation.......................... 0 (67) (27) (94)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 1,104 219 (390) 933
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 1,943 $ (196) $ (3,910) $ (2,163)
================= ================= ================= =================
(1) The Land Sales business segment consists of approximately 14,458 acres of
land located throughout 12 states for sale as of December 31, 1999, and
related sales and marketing and general and administrative expenses.
(2) The Property Development business segment consists of approximately 890
acres representing 15 sites that Heartland is in the process of developing
or homebuilding communities in which the Company is currently acquiring
finished lots, selling and building homes. The related selling and
operating expenses are also reported for this business segment.
(3) The Corporate level consist of portfolio income from investments, salaries
and general and administrative expenses for the employees and occupied
office space in Chicago, Illinois.
34
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
12. Subsequent Events
In January 2000, the Company executed a sales contract on 103 acres located in
Rosemount, Minnesota for $4,000,000. This parcel of land is located adjacent to
the Company's 226 acre Bloomfield development. The sale is projected to close by
September 29, 2000. While the Company has no reason to believe the above-
described sale will not close, the contract contains contingencies typical of
such contracts and there can be no assurance the transaction will be completed.
On March 20, 2000, the Company executed documents with LNB that increased the
credit facility to $15,300,000 and extended the maturity date of the loan to
December 31, 2000. Heartland also granted LNB a first lien on 177 acres located
in Fife, Washington which had a carrying value of $3,891,000 at December 31,
1999.
On March 24, 2000, a sales contract was executed by the Company to sell its
Galewood property located in Chicago, Illinois for $7,750,000. The sale is
projected to close by June 30, 2000. While the Company has no reason to believe
the above-described sale will not close, the contract contains contingencies
typical of such contracts and there can be no assurance the transaction will be
completed.
35
SCHEDULE II
HEARTLAND PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1999, 1998 AND 1997
(amounts in thousands)
Additions
Balance at charged to Balance
Beginning costs and at end
Description Of year expenses Payments of year
----------- ------- -------- -------- -------
Year Ended December 31, 1999:
Allowance for claims and liabilities............... $2,762 $ 378 $(336) $2,804
====== ====== ===== ======
Year Ended December 31, 1998:
Allowance for claims and liabilities............... $2,169 $1,461 $(868) $2,762
====== ====== ===== ======
Year Ended December 31, 1997:
Allowance for claims and liabilities............... $2,660 $ 78 $(569) $2,169
====== ====== ===== ======
36
SCHEDULE III
HEARTLAND PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(amounts in thousands)
Description Cost Capitalized Gross Amount at Which
- ----------- Initial Cost to Subsequent Carried
Land, Buildings and Other Heartland to Acquisition (1) at Close of Period (1)
--------- ------------------ ----------------------
Building,
Buildings & Carrying Improvement and
Land Improvements Improvements (3) Costs(4) Land Carrying Costs Total
---- ------------ ---------------- -------- ---- ---------------- -----
Chicago, IL............... (6) $661 $ -- $ 142 $ 269 $661 $ 411 $1,072
Milwaukee, WI............. 61 816 177 149 61 1,142 1,203
Corporate and other....... (5) -- -- 1,774 -- -- 1,774 1,774
---- ------------ ---------- -------- ---- ------- ------
TOTAL $722 $ 816 $ 2,093 $ 418 $722 $ 3,327 $4,049
==== ============ ========== ======== ==== ======= ======
Life on
Which
Depreciation
In Latest
Description Date of Income
- ----------- Accumulated Completion of Date Statement
Land, Buildings and Other Depreciation Construction Acquired Is Computed
------------ -------------- --------- -----------
Chicago, IL (6) $ -- Various Various (2)
Milwaukee, WI 509 Various Various (2)
Corporate and other 556 Various Various (2)
------------
TOTAL $ 1,065
============
(1) See Attachment A to Schedule III for reconciliation of beginning of period
total to total at end of period.
(2) Reference is made to Note 2 to the Consolidated Financial Statements for
information related to depreciation.
(3) Improvements include all costs which increase the net realizable value of
the property except carrying costs.
(4) Carrying costs consists primarily of legal fees, real estate taxes and
interest.
(5) This amount includes furniture, equipment and other fixed assets that are
included in Land, buildings and other on the Consolidated Balance Sheet.
(6) Includes a parcel of land encumbered by a $11,800,000 short-term loan (See
Note 4 to the Consolidated Financial Statements).
37
HEARTLAND PARTNERS, L.P.
ATTACHMENT A TO SCHEDULE III
RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING
OF YEAR WITH TOTAL AT END OF YEAR
(IN THOUSANDS)
1999 1998 1997
---- ---- ----
Balance at January 1................................. $ 3,563 $ 3,230 $ 2,585
------------- ------------- -------------
Additions during year:
Other acquisitions.................................. 357 229 370
Improvements......................................... 129 104 415
------------- ------------- -------------
Total Additions..................................... 486 333 785
------------- ------------- -------------
Deductions during year:
Cost of real estate sold............................ -- -- 140
------------- ------------- -------------
Total deductions.................................. -- -- 140
------------- ------------- -------------
Balance at December 31............................... $ 4,049 $ 3,563 $ 3,230
============= ============= =============
Reconciliation Of Real Estate Accumulated Depreciation
At Beginning of Year with Total At End of Year
(In Thousands)
1999 1998 1997
---- ---- ----
Balance at January 1................................. $ 931 $ 807 $ 853
------------- ------------- -------------
Additions during year:
Charged to Expense................................. 134 124 94
------------- ------------- -------------
Total Additions.................................. 134 124 94
------------- ------------- -------------
Deductions during year:
Cost of real estate sold........................... --- --- 140
------------- ------------- -------------
Total deductions................................. --- --- 140
------------- ------------- -------------
Balance at December 31............................... $ 1,065 $ 931 $ 807
============= ============= =============
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
38
PART III
--------
Item 10. Directors and Executive Officers.
Heartland does not have a Board of Directors.
Set forth below is information for each director of HTI, the general partner of
Heartland, and each executive officer of HTI and Heartland. Directors of HTI are
not compensated by Heartland.
Name and Age Principal Occupation, Business
Experience and Directorships
Lawrence S. Adelson, 50........... Vice President and General Counsel of the Company since
June 1990; Vice President and General Counsel of HTI since
October 1988.
Richard P. Brandstatter, 44....... Vice President - Finance, Treasurer and Secretary of the
Company since August 1995; Vice President - Finance,
Treasurer and Secretary of HTI since February 1999.
Robert S. Davis, 85............... Director of HTI (Class I) (since October 1988); Member of
the compensation committee and chairman of the audit
committee of HTI; self-employed consultant (for more than
the past five years); Senior Vice President (1978-79), St.
Paul Companies (insurance), St. Paul, Minnesota.
Edwin Jacobson, 70................ President and Chief Executive Officer of the Company (since
September 1990); Director of HTI (Class III) (since
November 1985); Chairman of the executive committee and
member of the investment committee of HTI. Formerly
President (from February 1994-February 1997) and Chief
Executive Officer (from February 1994-July 1997) of Avatar
Holdings, Inc. (Real estate, water and wastewater utilities
operations).
Gordon H. Newman, 67.............. Director of HTI (Class I)(since February 1999). Senior
Vice President, General Counsel and Secretary of Sara Lee
Corporation; member of the Management Committee; Chief
Ethics Officer; responsible for recruitment of members of
board of directors and corporate governance policy (1975 -
1995).
John Torell III, 60............... Director of HTI (Class III) (since September 1997); Member
of the executive committee of HTI; Chairman (since 1990),
Torell Management, Inc. (financial advisory), New York, New
York; Chairman and Chief Executive Officer (1990-1994),
Fortune Bancorp (banking), Tampa, Florida; Chairman,
President and Chief Executive Officer (1998-1989), Calfed,
Inc. (banking), Los Angeles, California; President
(1982-1988), Manufacturers Hanover Corporation (banking),
New York, New York. Mr. Torell also serves as a director
of American Home Products Corporation, Paine Webber Group,
Inc., and
39
USWEB/Cks.
Ezra K. Zilkha, 74................ Director of HTI (Class II) (since October 1988); Chairman
of the Board of the Company; Member of the executive
committee and chairman of the compensation committee of
HTI; President and Director (since 1956), Zilkha & Sons,
Inc. (private investments), New York, New York. Mr. Zilkha
also serves as a director of the Newhall Land and Farming
Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires certain officers
and directors of the Company's General Partner, Heartland Technology, Inc., and
any persons who own more than ten-percent of the Units to file forms reporting
their initial beneficial ownership of Units and subsequent changes in that
ownership with the Securities and Exchange Commission and the American Stock
Exchange. Officers and directors of Heartland Technology, Inc. and greater than
ten-percent beneficial owners are also required to furnish the Company with
copies of all such Section 16(a) forms they file. Based solely on a review of
the copies of the forms furnished to the Company, or written representations
from certain reporting persons that no Forms 5 were required, the Company
believes that during the 1999 fiscal year all section 16(a) filing requirements
were complied with.
Item 11. Executive Compensation
The following information is furnished as to all compensation awarded to, earned
by or paid to the Chief Executive Officer of CMC and the three other executive
officers with 1999 compensation greater than $100,000.
Name And Annual Compensation All Other
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
Edwin Jacobson 1999 $275,000 $ --- $ 2,500
President and Chief 1998 275,000 --- 5,000
Executive Officer 1997 275,000 --- 4,750
Lawrence S. Adelson 1999 $ 82,500 $ --- $ 1,250
Vice President and 1998 65,300 --- 3,330
General Counsel 1997 84,400 18,750 3,560
Richard P. Brandstatter 1999 $ 90,000 $ --- $ 1,875
Vice President-Finance, 1998 110,500 --- 5,000
Treasurer and Secretary 1997 112,000 --- 4,750
Susan Tjarksen Roussos 1999 $190,400 $ --- $ 1,500
Vice President-Sales 1998 153,400 --- 1,575
and Marketing 1997 75,000 --- ---
"All other compensation" is comprised of CMC's contribution on behalf of the
officers to a salary reduction plan qualified under Sections 401(a) and (k) of
the Internal Revenue Code of 1986. Columns for "Other Annual
40
Compensation", "Restricted Stock Awards", "Options/SARS" and "Payout-LTIP
Payout" are omitted since there was no compensation awarded to, earned by or
paid to any of the above named executives required to be reported in such
columns in any fiscal year covered by the table.
Under a deferred salary arrangement available to all employees, Mr. Adelson
deferred $28,363 of his 1997 salary into 1998, $26,107 of his 1998 salary into
1999 and $16,665 of his 1999 salary into 2000.
A new employment agreement signed on December 20, 1999 with the President and
Chief Executive Officer of CMC provides for a base salary of $275,000 from
August 16, 1995 through May 30, 2002, all or a portion of which may be deferred
at the officer's election. The contract provides incentive compensation equal
to 10% of the value of all amounts distributed to the Unitholders and the holder
of the Class B Interest in excess of the "Capital Amount" as defined. The
Capital Amount approximates the average market value of the Units for the first
30 trading days after the distribution Date, subject to adjustment as set forth
in the contract. During or after the term of employment, incentive payments
will be made with respect to distributions by Heartland during Heartland's term
of existence, and if distributions are made subsequent to such Officer's death,
payments will be made to his designee or estate. The contract also provides
that in the event of a "change of control of Heartland" during or after the term
of employment, the officer shall receive a lump sum payment of $1,250,000.
Heartland does not maintain any pension, profit-sharing, bonus or similar plan
for its employees. Insurance benefit programs are non-discriminatory. CMC
sponsors a Group Savings Plan, which is a salary reduction plan qualified under
Sections 401(a) and (k) of the Internal Revenue Code of 1986. All full-time
permanent employees of CMC are eligible to participate in the plan. In 1997, a
participating employee could authorize contributions to the plan in the form of
salary reductions of up to $9,500. In 1998 and 1999, a participating employee
could authorize contributions to the plan in the form of salary reduction of up
to $10,000. In 1998, CMC made matching contributions of 50% of each
participant's contribution to the plan. In 1999, CMC made matching
contributions of 25% of each participant's contribution to the plan.
Participating 1998 employees were fully vested with respect to salary reduction
and CMC's contributions. For all future participants, they are fully vested
with respect to salary reduction immediately, but the matching contribution
vests at 20% per year. Benefits are normally distributed upon retirement (on or
after age 65), death or termination of employment, but may be distributed prior
to termination of employment upon a showing of financial hardship.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known by
Heartland to be beneficial owners of more than 5% of Heartland's outstanding
Units at March 9, 2000:
Number of
Name and Address of Beneficial Owner (i) Units Owned Percent
- ---------------------------------------- ----------- -------
Lehman Brothers Holdings, Inc. (ii)
American Express Tower
3 World Financial Center
New York, New York 10285..................................... 187,400 8.7%
Waveland Partners, L.P. (v)
333 West Wacker Drive, Suite 1600
Chicago, IL 60606............................................ 306,089 14.3%
41
Cowen & Company (iii)
Financial Square
New York, New York 10285..................................... 183,100 8.5%
Edwin Jacobson (iv)
547 W. Jackson
Chicago, Illinois 60661...................................... 138,000 6.4%
GEM Value Fund, L.P. (vi)
900 North Michigan Avenue, Suite 1900
Chicago, IL 60611............................................ 150,596 7.0%
(i) Nature of ownership is direct, except as otherwise indicated herein.
(ii) Based on a statement filed on Schedule 13G/A, filed on February 3, 1995,
Lehman Brothers Holdings Inc., through its subsidiary, Lehman Brothers
Inc., a registered broker/dealer, has sole voting and dispositive power
with respect to such Units.
(iii) Based on a statement filed on Schedule 13G/A, filed on February 12, 1998,
Cowen & Company, a registered broker/dealer and investment adviser, Cowen
Incorporated and Joseph Cohen have shared voting power of 132,900 Units,
and shared dispositive power of 183,100 Units.
(iv) Included in the table are 8,000 units held by Mr. Jacobson's wife as to
which Mr. Jacobson shares voting and dispositive power.
(v) Based on a statement filed on Form 13D Amended, as dated through December
17, 1999, Waveland Partners, L.P., Waveland Capital Management, L.P.,
Clincher Capital Corporation, Waveland Capital Management, L.L.C.,
Waveland Partners, Ltd. and Waveland International, Ltd. share voting and
dispositive power with respect to such Units.
(vi) Based on a statement filed on Form 13D Amended, as dated through December
17, 1999, GEM Value Fund, L.P. a private investment partnership, and GEM
Value Partners LLC, its General Partner, have shared voting and
dispositive power with respect to such units
Security Ownership of Management
Set forth below is certain information concerning the beneficial ownership of
Units by each current director of HTI, the General Partner of Heartland, by each
named executive officer of CMC and by all directors and executive officers of
HTI and all executive officers of CMC as a group, as of March 9, 2000:
Name of Beneficial
Owner and Number of Number of
Persons in Group (i) Units Owned Percent
- ------------------------------------------ ----------- -------
Lawrence S. Adelson --- ---%
Richard P. Brandstatter --- ---%
42
Robert S. Davis --- ---%
Edwin Jacobson (ii) 138,000 6.4%
Gordon H. Newman --- ---%
Susan Tjarksen Roussos --- ---%
John R. Torell III --- ---%
Ezra K. Zilkha (iii) 97,000 4.5%
All directors and executive officers
as a group (7 persons) 235,650 11.0%
(i) Nature of ownership is direct, except as otherwise indicated herein.
Unless shown, ownership is less than 1% of class.
(ii) Included in the table are 8,000 units held by Mr. Jacobson's wife as to
which Mr. Jacobson shares voting and dispositive power.
(iii) Included in the table are 1,500 Units held by Mr. Zilkha's wife as to
which Mr. Zilkha shares voting and dispositive power. Also included are
24,500 Units owned by Zilkha & Sons, Inc., with respect to which Mr.
Zilkha may be deemed to be the beneficial owner.
Item 13. Certain Relationships and Related Transactions
CMC has a management agreement with HTI, pursuant to which CMC is required to
pay HTI an annual management fee in the amount of $425,000 until the year ended
December 31, 1999. In February 1998, CMC paid HTI the $425,000 1997 deferred
management fee. $142,000 of the 1998 management was paid in 1998. In 1999, the
balance of the 1998 fee of $283,000 fee was paid as well as 100% of the 1999
fee.
Under a management services agreement, HTI reimburses Heartland for reasonable
and necessary costs and expenses for services totaling $368,000 for the year
ended December 31, 1999, $300,000 for the year ended December 31, 1998 and
$228,000 for the year ended December 31, 1997. HTI owes CMC $1,093,000 as of
December 31, 1999, related to these expenses. Included in this amount owed CMC
is $56,000 of interest accurred on past due amounts owed during the year 1999.
Interest was computed using the prime rate plus 2 1/4% (10.75% at December 31,
1999).
The officers of HTI and Heartland, including Edwin Jacobson, President and Chief
Executive Officer of HTI and Heartland, will not devote their entire business
time to the affairs of Heartland. The Heartland Partnership Agreement provides
that (i) whenever a conflict of interest exists or arises between the General
Partner or any of its affiliates, on the one hand, and Heartland, or any
Unitholder on the other hand, or (ii) whenever the Heartland Partnership
Agreement or any other agreement contemplated therein provides that the General
Partner shall act in a manner which is, or provide terms which are, fair and
reasonable to Heartland, or any Unitholder, the General Partner shall resolve
such conflict of interest, take such action or provide such terms, considering
in each case the relative interests of each party (including its own interest)
to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting practices or
principles. Thus, unlike the strict duty of a fiduciary who must act solely in
the best interests of his beneficiary, the Heartland Partnership Agreement
permits the General Partner to consider the interests of all parties to a
conflict of interest, including the General Partner (although it is not clear
under Delaware law that such provisions would be enforceable). The Heartland
Partnership Agreement also provides that, in certain circumstances, the General
Partner will act in its sole discretion, in good faith or pursuant to other
appropriate standards.
43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed or incorporated by reference as part of
this report:
1. Financial statements
--------------------
The financial statements of Heartland Partners, L.P. are included in Part II,
Item 8:
REPORT OF INDEPENDENT AUDITORS....................................................... 16
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998......................................................... 17
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1999, 1998, and 1997.............................. 18
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997............................... 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997.............................. 20
Notes to Consolidated Financial Statements........................................... 21
2. Financial statement schedules
-----------------------------
VALUATION AND QUALIFYING ACCOUNTS.................................................... 36
REAL ESTATE AND ACCUMULATED DEPRECIATION............................................. 37
Attachment A to Schedule III......................................................... 38
The financial statement schedules are not included in the Annual Report provided
to Unitholders. Other schedules are omitted because they are not required or not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
44
3. Exhibits
--------
3.1 Certificate of Limited Partnership, dated as of October 4, 1988,
incorporated by reference to Exhibit 3.1 to Heartland's Current
Report on Form 8-K dated January 5, 1998.
3.2 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference
to Exhibit 3.2 to Heartland's Current Report on Form 8-K dated
January 5, 1998.
3.3 Amendment, dated as of December 4, 1997, to the Amended and Restated
Agreement of Limited Partnership of Heartland Partners, L.P.,
incorporated by reference to Exhibit 3.3 to Heartland's Current
report on Form 8-K dated January 5, 1998.
4. Unit of Limited Partnership Interest in Heartland Partners, L.P.,
incorporated by reference to Exhibit 4 to Heartland's Annual Report
on Form 10-K for the year ended December 31, 1990.
10.1 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners
and Heartland Partners, L.P., incorporated by reference to Exhibit
10.1 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.2 Management Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Heartland Partners, L.P. and CMC Heartland
Partners, incorporated by reference to Exhibit 10.2 to Heartland's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.3 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners, L.P. and
Milwaukee Land Company, incorporated by reference to Exhibit 10.3 to
Heartland's Annual Report on Form 10-K for the year ended December
31, 1990.
10.4 Employment Agreement, dated July 1, 1990, by and between Edwin
Jacobson and CMC Heartland Partners, incorporated by reference to
Exhibit 10.4 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1990.*
10.5 First Amendment to Employment Agreement, dated July 1, 1993, by and
between Edwin Jacobson and CMC Heartland Partners incorporated by
reference to Exhibit 10.5 to Heartland's Annual Report on Form 10-K
for the year ended December 31, 1994.*
10.6 Second Amendment to Employment Agreement, dated as of July 1, 1995,
between CMC Heartland Partners and Edwin Jacobson, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995.*
10.7 Employment Agreement, dated July 2, 1995, between CMC Heartland
Partners and Edwin Jacobson, incorporated by reference to Exhibit
10.7 to Heartland's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.*
10.8 First Amendment to Employment Agreement, dated as of January 2, 1998,
between CMC
45
Heartland Partners and Edwin Jacobson, incorporated by reference to
Exhibit 10.8 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1997.*
10.9 Loan and Security Agreement dated March 15, 1996, between CMC
Heartland Partners and LaSalle National Bank, incorporated by
reference to Exhibit 10.1 to Heartland's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998.
10.10 Amendment to Loan and Security Agreement dated May 14, 1997, by and
between CMC Heartland Partners and LaSalle National Bank,
incorporated by reference to Exhibit 10.2 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.11 Amended and Restated Loan Security Agreement dated June 30, 1998
among CMC Heartland Partners, L.P. and LaSalle National Bank,
incorporated by reference to Exhibit 10.3 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.12 Option, Management and Marketing Agreement dated September 9, 1998
between CMC Heartland Partners VII, LLC and Longleaf Associates
Limited Partnership, incorporated by reference to Exhibit 10.4 to
Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.13 Settlement Agreement by and between the Port of Tacoma, CMC Real
Estate Corporation, Chicago Milwaukee Corporation, CMC Heartland
Partners, and Heartland Partners L.P. effective October 1, 1998,
incorporated by reference to Exhibit 10.5 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.14 Amendment to Amended and Restated Loan and Security Agreement dated
October 23, 1998 among CMC Heartland Partners and LaSalle National
Bank, incorporated by reference to Exhibit 10.6 to Heartland's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.15 Loan Agreement, between CMC Heartland Partners I, Limited
Partnership, a Delaware limited partnership, as Borrower and Bank
One, Illinois, NA, a national banking association, as Lender dated
November 30, 1998, incorporated by reference to Exhibit 10.15 to
Heartland's Annual Report Form 10-K for the year ended December 31,
1998.
10.16 Construction Loan Agreement dated January 6, 1999 between CMC
Heartland Partners III, LLC and Corus Bank, N.A., incorporated by
reference to Exhibit 10.16 to Heartland's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
10.17 The First Amendment of Mortgage and Other Loan documents dated
February 1, 1999 between CMC Heartland Partners I, Limited
Partnership and Bank One, Illinois, N.A., incorporated by reference
to Exhibit 10.17 to Heartland's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
46
10.18 Second Amendment to Amended and Restated Loan and Security Agreement
dated April 29, 1999 among CMC Heartland Partners, and Heartland
Partners, L.P. and LaSalle National Bank, incorporated by reference
to Exhibit 10.18 to Heartland's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1999.
10.19 Employment Agreement, dated December 20, 1999, between CMC Heartland
Partners and Edwin Jacobson (filed herewith).*
10.20 Construction Loan Agreement dated October 20, 1999 between CMC
Heartland Partners III, LLC, a Delaware limited liability company and
Bank One, Illinois, N.A., a national banking association (filed
herewith).
10.21 Third amendment to Amended and Restated Loan and Security Agreement
dated November 18, 1999 among CMC Heartland Partners, and Heartland
Partners, L.P. and LaSalle National Association, a national banking
association (filed herewith).
10.22 Construction Loan Agreement dated December 9, 1999 between CMC
Heartland Partners VII, LLC, a Delaware limited liability company and
Bank One, Illinois, N.A., a national banking association (filed
herewith).
21 Subsidiaries of Heartland Partners, L.P (filed herewith).
27 Financial Data Schedule (filed herewith).
* Management contract required to be filed as an exhibit pursuant to item 14
(c).
(b) Reports on Form 8-K
-------------------
No reports were filed by Heartland with the Securities and Exchange Commission
during the last quarter of 1999
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HEARTLAND PARTNERS, L.P.
------------------------
(Registrant)
By /s/ Edwin Jacobson
---------------------
Edwin Jacobson
President and Chief Executive Officer of
Heartland Technology, Inc., General
Partner (Principal Executive Officer)
By /s/Richard P. Brandstatter
-----------------------------
Richard P. Brandstatter
Vice President-Finance, Treasurer and
Secretary of Heartland Technology,
Inc., General Partner (Principal
Financial and Accounting Officer)
Date: March 30, 2000
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 capacity and on the dates indicated.
/s/ Robert S. Davis /s/ Edwin Jacobson
------------------- ------------------
Robert S. Davis Edwin Jacobson
(Director of Heartland Technology, Inc.) (Director of Heartland Technology, Inc.)
March 30, 2000 March 30, 2000
/s/ Gordon H. Newman /s/ Ezra K. Zilkha
--------------------- ------------------
Gordon H. Newman Ezra K. Zilkha
(Director of Heartland Technology, Inc.) (Director of Heartland Technology, Inc.)
March 30, 2000 March 30, 2000
/s/ John R. Torell III
----------------------
John R. Torell III
(Director of Heartland Technology, Inc.)
March 30, 2000
48
HEARTLAND PARTNERS, L.P.
INDEX TO EXHIBITS
Exhibit
Number Description Page Number
- ------ ----------- -----------
3.1 Certificate of Limited Partnership, dated as of October 4, 1988,
Incorporated by reference to Exhibit 3.1 to Heartland's Current Report
On Form 8-K dated January 5, 1998.
3.2 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference
to Exhibit 3.2 to Heartland's Current Report on Form 10-K for the year
ended December 31, 1990.
3.3 Amendment, dated as of December 4, 1997, to the Amended and Restated
Agreement of Limited Partnership of Heartland Partners, L.P.,
Incorporated by reference to Exhibit 3.3 to Heartland's Current report
On Form 8-K dated January 5, 1998.
4 Unit of Limited Partnership Interest in Heartland Partners, L.P.,
incorporated by reference to Exhibit 4 to Heartland's Annual Report on
Form 10-K for the year ended December 31, 1990.
10.1 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners
and Heartland Partners, L.P., incorporated by reference to Exhibit
10.1 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.2 Management Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Heartland Partners, L. P. and CMC Heartland
Partners, incorporated by reference to Exhibit 10.2 to Heartland's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.3 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners, L.P. and
Milwaukee Land Company, incorporated by reference to Exhibit 10.3 to
Heartland's Annual Report on Form 10-K for the year ended December 31,
1990.
10.4 Employment Agreement, dated July 1, 1990, by and between Edwin
Jacobson and CMC Heartland Partners, incorporated by reference to
Exhibit 10.4 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.5 First Amendment to Employment Agreement, dated July 1, 1993, by and
between Edwin Jacobson and CMC Heartland Partners incorporated by
49
Exhibit
Number Description Page Number
- ------ ----------- -----------
reference to Exhibit 10.5 to Heartland's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.6 Second Amendment to Employment Agreement, dated as of July 1, 1995
between CMC Heartland Partners and Edwin Jacobson, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
10.7 Employment Agreement, dated July 2, 1995, between CMC Heartland
Partners and Edwin Jacobson, incorporated by reference to Exhibit 10.7
to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.8 First Amendment to Employment Agreement, dated as of January 2, 1998
between CMC Heartland Partners and Edwin Jacobson, incorporated by reference to
Exhibit 10.8 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.9 Loan and Security Agreement dated March 15, 1996, between CMC Heartland
Partners and LaSalle National Bank, incorporated by reference to Exhibit 10.1
to Heartland's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998.
10.10 Amendment to Loan and Security Agreement dated May 14, 1997, by and between CMC
Heartland Partners and LaSalle National Bank, incorporated by reference to
Exhibit 10.2 to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.11 Amended and Restated Loan Security Agreement dated June 30, 1998 among CMC
Heartland Partners, L.P. and LaSalle National Bank, incorporated by reference
to Exhibit 10.3 to Heartland's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.12 Option, Management and Marketing Agreement dated September 9, 1998 between CMC
Heartland Partners VII, LLC and Longleaf Associates Limited Partnership,
incorporated by reference to Exhibit 10.4 to Heartland's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.
10.13 Settlement Agreement by and between the Port of Tacoma, CMC Real Estate
Corporation, Chicago Milwaukee Corporation, CMC Heartland Partners, and
Heartland Partners L.P. effective October 1, 1998, incorporated by reference to
Exhibit 10.5 to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.14 Amendment to Amended and Restated Loan and Security Agreement dated October 23,
1998 among CMC Heartland Partners and LaSalle National Bank, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
50
Exhibit
Number Description Page Number
- ------ ----------- -----------
10.15 Loan Agreement, between CMC Heartland Partners I, Limited Partnership, a
Delaware limited partnership, as Borrower and Bank One, Illinois, NA, a
national banking association, as Lender dated November 30, 1998, incorporated
by reference to Exhibit 10.15 to Heartland's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.16 Construction Loan Agreement dated January 6, 1999 between CMC Heartland
Partners III, LLC and Corus Bank, N.A, incorporated by reference to Exhibit
10.16 to Heartland's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
10.17 The First Amendment of Mortgage and Other Loan documents dated February 1, 1999
between CMC Heartland Partners I, Limited Partnership and Bank One, Illinois,
N.A., incorporated by reference to Exhibit 10.17 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
10.18 Second Amendment to Amended and Restated Loan and Security Agreement dated
April 29, 1999 among CMC Heartland Partners, and Heartland Partners, L.P. and
LaSalle National Bank, incorporated by reference to Exhibit 10.18 to
Heartland's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999.
10.19 Employment Agreement, dated December 20, 1999, between CMC Heartland Partners
and Edwin Jacobson (filed herewith).
10.20 Construction Loan Agreement dated October 20, 1999 between CMC Heartland
Partners III, LLC, a Delaware limited liability company and Bank One, Illinois,
N.A., a national banking association (filed herewith).
10.21 Third amendment to Amended and Restated Loan and Security Agreement dated
November 18, 1999 among CMC Heartland Partners, and Heartland Partners, L.P.
and LaSalle National Association, a national banking association (filed
herewith).
10.22 Construction Loan Agreement dated December 9, 1999 between CMC Heartland
Partners VII, LLC, a Delaware limited liability company and Bank One, Illinois,
N.A., a national banking association (filed herewith).
21 Subsidiaries of Heartland Partners, L.P. (filed herewith).
27 Financial Data Schedule (filed herewith).
51