ITEM 1. BUSINESS.
General
The Marina Limited Partnership (the "Partnership") was organized as an Indiana limited partnership under the laws of the State of Indiana on October 7, 1986 for the purpose of reorganizing the business of The Marina Corporation (the "Company"). The Company was reorganized into a publicly traded limited partnership in order to eliminate the "double" federal income tax on its future earnings and distributions. The Partnership is the successor-issuer to the Company. On December 29, 1986, the shareholders of the Company approved the plan to reorganize the Company into the Partnership. On December 30, 1986, pursuant to the plan of reorganization, all of the assets and liabilities of the Company were transferred to the Partnership in exchange for a number of units of interest ("Units") in the Partnership equal to the number of outstanding shares of the Company's Common Stock, and the Company distributed the Units to or for the benefit of its shareholders. Units represent either general partner interests ("General Partner Units") or limited partner interests ("Limited Partner Units"). See Item 5, "Market for Partnership's Common Equity and Related Security Holder Matters." Following the distribution of the Units, the Company was dissolved.
Effective as of the close of business on December 19, 1997, the Partnership requested that the Limited Partner Units cease being listed on The NASDAQ SmallCap tier of The NASDAQ Stock Market. After that date, transfers of Limited Partner Units are recognized by the Partnership only if they are made through the matching service that has been established by the Partnership. The Partnership determined that these actions were necessary to ensure it would continue to be treated as a partnership for federal income tax purposes. See "Taxation of Interests in Publicly Traded Partnerships" below.
The Partnership's principal executive offices are located at 11691 Fall Creek Road, Indianapolis, Indiana 46256, and its telephone number is 317/845-0270. The affairs of the Partnership are managed by its general partner, The Marina II Corporation (the "General Partner"), an Indiana corporation. The General Partner's principal executive offices and telephone number are the same as those of the Partnership.
Investment Real Estate
On December 31, 1998, the Partnership owned approximately 359 acres of investment real estate. Approximately 277 acres of this investment real estate are adjacent to Geist Lake, and approximately 82 acres are adjacent to Morse Lake. Substantially all of the properties consist of partially wooded, gently rolling land adjacent to the lakes. Homes and homesite sales revenue accounted for 37 percent of the Partnership's revenues for 1998, 31 percent for 1997, and 44 percent for 1996. Gains on sale of investment land accounted for 4 percent of the Partnership's revenues for 1998, 7 percent for 1997, and 1 percent for 1996.
Geist Lake. Geist Lake is an artificially created reservoir located within 15 to 20 miles driving distance of the downtown business district of Indianapolis, Indiana. On December 31, 1998, the Partnership's investment real estate at Geist Lake consisted of approximately 277 acres, which are zoned either for single-family residential use, multi-family residential use, commercial use, recreational use, or agricultural use. Approximately 18 acres of the land at Geist Lake is being used for Geist Marina and Marina Village. See "Marine Operations" and "Investment Real Estate -- Commercial Development" below.
Morse Lake. Morse Lake is an artificially created reservoir located within 25 to 30 miles driving distance of the downtown business district of Indianapolis, Indiana. On December 31, 1998, the Partnership's investment properties at Morse Lake consisted of approximately 82 acres zoned for single-family residential, commercial, and agricultural use. Approximately 18 acres of the land at Morse Lake is being used for the Morse Marina. See "Marine Operations" below.
Residential Development. Bridgewater, located near Geist Marina, was the Partnership's first single-family project. It includes 81 homesites, of which development is substantially complete. The Partnership sold two waterfront homesites from Bridgewater in 1998. Homesite revenue from these sales was $270,000. Homesite inventory in Bridgewater at December 31, 1998 consists of eight waterfront homesites.
The Partnership sold three homesites in 1998 from Cambridge, a single-family residential development located at Geist Lake. In 1998, homesite revenue from such Cambridge sales was $197,000. The Marina I L.P., a joint venture, sold 28 homesites from Cambridge in 1998. See "Marina I" below. At December 31, 1998, the Partnership had eight homesites remaining to be sold, of which six are waterfront, while Marina I had 68 homesites remaining to be sold, of which 24 are waterfront. Marina I developed 18 homesites which were finished in early 1999. When complete, Cambridge will include more than 400 homesites of which 305 have been developed. Most of the homesites owned entirely by the Partnership have been sold so that future homesite sales will be primarily from Marina I.
The Partnership substantially completed development of Morse Overlook in 1996, an upscale single-family homesite project located at Morse Lake. In 1998, the Partnership completed development of an additional seven waterfront homesites. Morse Overlook now includes 50 homesites, of which 27 are waterfront. In 1998, the Partnership sold 11 homesites from Morse Overlook of which nine were waterfront homesites. These sales generated homesite revenue of $1,800,000. At December 31, 1998, the Partnership had 34 homesites in inventory of which 13 were waterfront.
During 1998, the Partnership completed development of Sail Place, a new residential development at Geist Lake which includes 30 homesites. The Partnership intends to build specially designed homes with smaller homesites and a unique package of services to appeal to a more mature customer. The Partnership intends to build all of the homes in Sail Place to better control placement and the design of each home. The Partnership spent approximately $746,000 for the development of Sail Place in 1997 and an additional $298,000 in 1998. The Partnership spent $363,000 in 1997 and an additional $410,000 in 1998 for construction of three speculative homes at Sail Place.
The Partnership's current land ownership and the land owned by Marina I will take a number of years to develop and sell under reasonable market conditions. However, due to a sand and gravel mining project in Geist Lake by Irving Materials, Inc. ("Irving"), the availability of some of the land for residential development by Marina I may be delayed for six years or more. The Partnership may acquire additional land for development during this period to properly balance the mix of off-water homesites to waterfront homesites and to continue development until the balance of the Irving land is available. The Partnership expects to have a sufficient inventory of homesites for 1999. See "Investment Real Estate -- Marina I," below.
Homesite Financing Arrangements. The Partnership sells residential homesites for cash or contract. The Partnership finances homesite purchases, and requires a minimum down payment of 10% of the price of the homesite. The balance of the contract price, plus interest, is payable over seven years, although typically most contracts are paid in full within two years. When a homesite is sold to an individual purchaser on contract, a warranty deed is conveyed to the purchaser, and the purchasers execute an installment promissory note and a purchase money real estate mortgage to the Partnership. However, when a homesite is sold to a builder pursuant to the terms of a builder contract, the warranty deed conveying title of the homesite is not executed until the builder contract has been paid in full. In 1998, 1997 and 1996, interest rates on homesites sold on contract were 9% the first year, 10% in the second year, and 12% for the remainder.
Marketing. The Partnership has a builder support program with limited financial incentives for builders who build in the Partnership's residential projects. The portion of the homesite sales price, which may be refundable under builder programs if the home remains on the market for four to eight months after completion, is deferred until the refund period expires. There was no deferral for the builder support program at December 31, 1998. There were no payments made to builders under the builder support program in 1998.
Investment Property. The Partnership continues to acquire and sell commercial investment land near Geist and Morse Lakes. During 1998, the Partnership sold two parcels of land for a total of $605,000. Most of the commercial land near Geist Lake has been sold.
Marina Village. The Partnership began operating a 21,000 square foot retail and office development known as Marina Village in 1995. This building includes 15,000 square feet of retail space for and 6,000 square feet of office space, all of which has been leased except for 2,000 square feet which is the office of the Partnership. The Partnership realized $289,400 in rental income from Marina Village in 1998. The Partnership has completed the new Geist Marina building (see "Marine Operations" below). The waterfront land previously occupied by the service buildings is now available for other uses.
Marina I. The Partnership is the general partner of The Marina I L.P., an Indiana limited partnership ("Marina I"), and Irving Materials, Inc. ("Irving") is the sole limited partner. Marina I has a right to receive and develop more than 150 acres of Irving land in the vicinity of Geist Lake. Irving continues to mine and extract sand and gravel from the remaining property, and it contributes parcels of the land to Marina I when it has completed the extraction. Marina I owns 73 acres of land held for development and has 52 finished homesites available. The Partnership is responsible for developing and selling the property for residential use.
The Partnership, as general partner, and Irving, as limited partner, received $545,000 and $555,000, respectively, in distributions during 1998. Additionally, the Partnership recognized $1,072,000 in equity earnings from Marina I for the 28 homesites sold in Cambridge and other related activities in 1998. See "Investment Real Estate -- Residential Development" above.
Flatfork Creek Utility. The Partnership and Irving are each 50 percent shareholders of Flatfork Creek Utility, Inc., an Indiana corporation (the "Corporation.") The Corporation was formed to complete the construction of and operate the wastewater treatment plant and interceptor sewer lines to service land in the northeast Geist area. Construction of the interceptor sewer line and the first phase of the wastewater treatment plant was completed in 1994. The first phase of the plant will serve approximately 430 homes. The Corporation is subject to regulation by the Indiana Utility Regulatory Commission. The Corporation recorded a $162,000 net loss for 1998, of which the Partnership accounted for its 50% share as a decrease in its investment in the Corporation. The Corporation expects minor operating losses for the next several years. During 1998, the Corporation retired a $1,567,000 bank loan which was outstanding at December 31, 1997 from the proceeds of a $1,350,000 demand note borrowing from the Partnership with the remainder paid from the Corporation's internal funds.
Dockside Cafe. The Partnership sold its limited partnership interest in Dockside Cafe L.P., an Indiana limited partnership ("Dockside Cafe"), which operates the Blue Heron restaurant in Marina Village at Geist Lake and Carrigan Crossing at Morse Lake. The Partnership received $120,000 in cash for such interest. In addition, the Partnership received $61,000 in net distributions from Dockside Cafe in 1998. The Partnership leases the restaurant buildings to Dockside Cafe, and realized $231,000 in rental income in 1998.
Marine Operations
The Partnership owns two marinas located at Geist and Morse Lakes. The marinas consist of approximately 1,200 boat docks, three public access boat launching ramps, and several storage and other buildings. The operating season for the marinas depends upon weather conditions, but is typically from the middle of April through the middle of October. The Partnership spent approximately $270,000 in 1997 and an additional $200,000 in 1998 for construction of a new marine building at the Geist Marina, which includes a boat sales area, an area for marine supplies and four service bays.
Marine operations accounted for 42 percent of the Partnership's revenues in 1998, 43 percent in 1997, and 41 percent in 1996. The principal sources of revenues are from the rental of boat docks, boat launching fees, boat sales, service repair work and, to a lesser extent, from winter boat storage, and the sale of gasoline, boating supplies, boat docks and lifts, food items and miscellaneous services.
The marine operations are affected by inclement weather, which tends to discourage boating and reduce revenues. Also, because Geist and Morse Lakes are reservoirs for the Indianapolis area water supply, the levels of the lakes may fall during drought periods, making boating hazardous and reducing recreational use.
Recreational Facilities
In March 1995, the Partnership purchased recreational facilities at Geist Lake for $425,000 from The New Shorewood Limited Partnership ("Shorewood"), the successor to The Shorewood Corporation. The recreational facilities include a clubhouse and three pools. The operating season for the pools begins on Memorial Day weekend and extends to Labor Day weekend, but the clubhouse is available for rental throughout the year. The Partnership's residential developments have access to these recreational facilities, as do residents of Shorewood developments at Geist Lake.
Future Operations
The General Partner expects that the Partnership will continue to: (1) sell investment real estate from time to time depending on market conditions and other factors; (2) pursue development activities, including the building of homes on the Partnership's real estate; (3) seek to enhance the value of the Partnership's investment real estate by making certain improvements and by acquiring additional surrounding real estate; (4) acquire additional real estate for investment; and (5) operate the marine business. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Competition
Investment Real Estate. Although there are numerous real estate properties in the Indianapolis metropolitan area available for development of homesites, there are only a limited number of water-oriented properties. The Partnership believes that, of those water-oriented properties that are or will be economically suitable for development of homesites, the Partnership's properties are among those with the greatest long-term development potential, primarily because of the character of the lakes to which the Partnership's properties are adjacent and the extent and types of development at such lakes. There are, however, water-oriented properties owned by other developers that are available for development of homesites that are equally desirable. There is a new residential project currently under development by a local developer at the north end of Geist Lake which will include approximately 300 homesites, of which approximately 40 will be waterfront homesites. Competition in commercial development has become more significant due to the increased zoning of land for commercial use in the area of Geist Lake.
Marine Operations. The Geist Marina provides the only boat docks, gas pumps and launching ramps on Geist Lake available to the general public. At Morse Lake, the Town of Cicero operates boat docks and gas pumps in competition with the Morse Marina.
There are numerous marine dealers in the Indianapolis market and therefore competition is significant in the boat sales and service area.
Regulation
The Partnership's real estate is subject to governmental regulations, particularly zoning regulations, restrictions on construction in flood plains, wetlands protection, and restrictions on water and septic systems. To the extent applicable, any developer of the property must comply with such regulations, as well as the Federal Interstate Land Sales Full Disclosure Act, water pollution and water quality control regulations, and other miscellaneous regulatory requirements. The Partnership cannot predict the cost or effect of future regulations on the development potential of its real estate.
Employees
The Partnership has approximately 35 full-time employees (most of whom are primarily engaged in marine operations) and a number of part-time employees who work on a seasonal basis. The General Partner is responsible for the management of the Partnership's affairs. There are three officers of the General Partner, all of whom devote their full-time duties to activities of the General Partner and the Partnership.
Taxation Of Interests In Publicly Traded Partnerships
Until the close of business on December 19, 1997, the Partnership was a publicly traded partnership (PTP) under the definitions set forth in Internal Revenue Code Section 7704. Section 7704 provides that a PTP will be treated by the Internal Revenue Service as a corporation, and thus be subject to double taxation instead of the usual "pass-through taxation" of a partnership, unless the PTP meets certain income requirements, which are discussed below. The Partnership was not subject to these requirements until January 1, 1998 because it was a PTP at the time Section 7704 was adopted and, therefore, was exempted from the application of Section 7704 through 1997 as long as it did not engage in a substantial new line of business.
A PTP is treated as a corporation for federal income tax purposes unless 90 percent or more of the partnership's gross income for each tax year is "passive-type income." In general, income from the Partnership's real estate activities qualifies as passive-type income, while income from the operation of the two marinas and the recreational facilities and from the Partnership's interests in Flatfork Creek Utility, Inc. and Dockside Cafe L.P. does not qualify as passive-type income. The General Partner believed that, unless actions were taken during 1997 to cease being classified as a PTP, it was likely the Partnership would be taxed as a corporation commencing January 1, 1998 because it was expected that less than 90 percent of the Partnership's gross income would be passive-type income.
The General Partner believed it was desirable to continue to be treated as a partnership for federal income tax purposes. As a result, the Partnership elected to de-list from NASDAQ effective as of the close of business on December 19, 1997, in order to avoid continuing to be classified as a PTP. After that date, transfers of Limited Partner Units are recognized by the Partnership only if they are made through the matching service established by the Partnership. The only exceptions to this restriction are certain transfers among family members and transfers by reason of death.
In order to ensure that the Partnership will continue to be treated as a partnership for federal income tax purposes, the matching service will strictly follow rules and regulations created by the Internal Revenue Service. To buy or sell under the matching service, a person will need to contact the Partnership's office and express an interest to either (i) buy or sell at a certain price determined by the person (a "non-firm price quote"), or (ii) buy or sell without an accompanying price (a "non-binding indication of interest"). Neither a non-firm price quote nor a non-binding indication of interest commits a person to buy or sell. The Partnership will record the person's information on a quote sheet, including the number of units to be bought or sold if appropriate, and send that person a copy of the quote for confirmation. All information concerning quotes and indications of interest will be made known to inquiring partners and potential buyers.
If a person has expressed a desire to sell, the Partnership is required to wait at least 15 calendar days from the "contact date" (the date the Partnership receives written confirmation from the listing person that Limited Partner Units are available for sale) before information is made available to potential buyers or to the seller.
The closing of a sale may not occur less than 45 calendar days after the contact date. A seller may specify a time period after which the seller's information is removed from the list. In no event may the seller's information be made available to potential buyers after 120 days from the contact date. After the seller's information is removed from the matching service, the seller may not list with the matching service for at least 60 calendar days. A buyer may specify a time after which the buyer's information is removed from the list. The buyer's information will be deleted from the list after 120 days from the contact date, unless the buyer specifies a shorter time period. However, unlike a seller, a buyer may immediately enter another quote or indication of interest onto the list.
If a match or potential match is made, both the buyer and seller will be notified. Each such party will be notified of the other party's quote, and if no exact match is made, either party may submit a written offer, which will be conveyed to the other party. Once a match is reached between a buyer and seller, the Partnership will notify both parties and indicate a closing date in accordance with IRS rules and regulation. The seller will submit the certificates for the Limited Partner Units being sold on or before the closing date, and the buyer will submit a check, made out in the seller's name, to the Partnership or its transfer agent. The check will be forwarded to the seller and the transfer agent will prepare a new certificate in the buyer's name. In some circumstances, the Partnership may reserve the right to postpone closings immediately prior to the distribution to the partners.
The total number of Limited Partner Units that may be sold through the matching service in any calendar year is limited to 10% of all the outstanding units, which is presently 41,600 units. If that limit is reached, which seems unlikely given the past trading volume, the Partnership will halt sales through the matching service until the next year.
Because the matching service is a new system, the Partnership may refine the procedures for its operation over time. In addition, Congress or the IRS may adopt new laws, rules and regulations impacting the matching service's procedures that would require the Partnership to make changes to the procedures or adversely affect its ability to offer the matching service.
The Internal Revenue Code also provides that the passive-loss rule of Section 469 is to be applied separately for the tax attribute items of each PTP, and that a partner's share of net income from a PTP will generally not be treated as income from the passive activity but rather as portfolio income. In general, under these separate application rules, the income from the Partnership, while it was a PTP, may not offset losses from a partner's other passive activities.
Computer Systems and Year 2000 Issues
The Partnership is currently upgrading its computer systems to provide a more complete management information system, and accordingly will install software that is anticipated will properly recognize the Year 2000 to avoid system failures. It is anticipated that this upgrade will be complete by June 30, 1999. The cost of the Year 2000 compliance within this system change is not identifiable, but is not deemed material.
No estimate has been made by the Partnership as to any adverse impact that may result from the failure of the Partnership's vendors or suppliers to become Year 2000 compliant. If the Partnership or one or more of the third party vendors or suppliers fail to complete its Year 2000 program in a timely manner, there can be no assurance that such failure will not have a material adverse effect on the Partnership's operations or financial plan. The Partnership has not developed a Year 2000 contingency plan that would address Year 2000 related problems experienced by either the Partnership or one or more of its third party vendors or suppliers.
The foregoing discussion of Year 2000 issues include forward-looking statements reflecting the Partnership's current assessment with respect to its Year 2000 compliance efforts and the impact of Year 2000 issues on the Partnership's business and operations. Various factors could cause actual results to differ materially from those contemplated by such assessment and forward-looking statements, including many factors that are beyond the control of the Partnership. These factors include, but are not limited to, representations by vendors and customers, technological advancements, economic conditions and competitive considerations.
ITEM 2.
ITEM 2. PROPERTIES.
The Partnership's properties are substantially described in Item 1 of this Part I. See "Investment Real Estate" and "Marine Operations."
The Partnership has title to all of its real estate, substantially all of which has been covered by blanket title insurance commitments. All of the properties are subject to certain telephone, highway, pipeline and electric power line easements. The Morse and Geist Lake properties are also subject to the easements and restrictions of the Indianapolis Water Company ("IWC"), which owns the reservoirs for water supply purposes. In connection with the maintenance, protection and operation of its water supply reservoirs, IWC has retained a 20-foot easement around the shoreline of both reservoirs and has imposed restrictions on the adjacent land. IWC is permitted access to the lakes for all purposes reasonably necessary to their operation and maintenance as reservoirs, and certain uses of the land that could cause pollution of the lakes are prohibited. There are no mortgages on the Partnership's real estate properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There is no material proceeding in which any director, officer or affiliate of the Partnership, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Partnership. The Partnership is not involved in any administrative or judicial proceedings arising under any federal, state or local provisions which have been enacted or adopted to regulate the discharge of materials into the environment or otherwise relating to the protection of the environment other than those normally encountered as part of the development business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Partnership in the fourth quarter of 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS.
Effective as of the close of business on December 19, 1997 the Partnership requested that the Limited Partner Units cease being listed on The NASDAQ SmallCap Market tier of The NASDAQ Stock Market under the symbol MRNCZ. The following table sets forth for 1997 the representative high and low trade prices of the Partnership's Limited Partner Units as reported by NASDAQ through December 19, 1997. Such prices represent actual transactions. The table also sets forth for 1998 the representative high and low bid quotations of the Partnership's Limited Partner Units as reported through a matching service made available by the Partnership. Such bids represent non-binding indications of interest in buying and not a firm commitment to buy.
1997 1998 ---- ---- High Low High Low First Quarter Ended Trade Trade Bid Bid ------------------- ----- ----- --- --- March 31 .................... $28 1/8 $28 -- -- June 30 ..................... 33 28 $30 $28 September 30 ................ 33 1/2 27 30 30 December 31 ................. 33 29 1/8 31 1/2 30 1/2
There is no established public trading market for the Limited Partner Units. During the 60-day period that ended March 25, 1999, there was one bid to purchase at $31.50 per unit. The source of the bid quotation is through a matching service made available by the Partnership, and such bids represent non-binding indications of interest in buying and not a firm commitment to buy.
During 1998 there were 1,260 units traded through the matching service. In addition, the Partnership acquired and retired 468 units at a price of $36 per unit through an odd lot tender whereby an offer was made to acquire any and all units from partners that held less than 100 units in total. The Partnership is aware that additional units were traded outside of the matching service during 1998. In order to comply with the federal tax rules, the Partnership will not recognize a transfer conducted outside of the matching service unless such transfer meets a specified exception that will not endanger the Partnership's continued treatment as a partnership for federal income tax purposes (see Item 1 - - Taxation Of Interests In Publicly Traded Partnerships). In such cases, the Partnership may at its option recognize such transfers.
On March 25, 1999 there were approximately 411 record holders of Limited Partner Units of the Partnership.
On each of April 2,1998 and April 17, 1997, the Partnership made cash distributions of $3.50 and $3.25 respectively per unit. No other cash distributions were made during 1997 and 1998.
The General Partner intends to cause the Partnership to make cash distributions from its net cash flow as often as the General Partner, in its discretion, believes it to be feasible and prudent for the Partnership. Although the number, amount, and timing of cash distributions in any given year may vary substantially, it is currently anticipated that the Partnership will make cash distributions in an amount sufficient to cover the tax liability incurred by Partners from Partnership operations. The preceding discussion regarding cash distributions are forward looking statements. There can be no assurance as to the amount or timing of Partnership cash distributions, and the Partnership is not obligated to make any such distributions.
Pursuant to the reorganization of the Company into the Partnership, Units in the Partnership received by the Company (and subsequently distributed to the shareholders of the Company) were divided between General Partner Units and Limited Partner Units. The economic interests in the Partnership represented by a General Partner Unit and Limited Partner Unit are identical. General Partner Units are vested with the authority to manage the affairs of the Partnership. Limited Partner Units carry no management authority.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each of the years in the five-year period ended December 31, 1998 are derived from the financial statements of the Partnership, which have been audited by KPMG LLP, independent certified public accountants. The financial statements for the years ended December 31, 1998, 1997, and 1996, and the auditors' report thereon, are included in Part II, Item 8.
1)Earnings and cash distribution per unit have been calculated on the following basis:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is intended to address the significant factors affecting the Partnership's results of operations and financial condition. It is designed to provide a more comprehensive review of the operating results and financial position than could be obtained from an analysis of the financial statements alone. It should, however, be read in conjunction with the financial statements and related notes, and the Selected Financial Data, included elsewhere herein. Also see Item 1 - "Business" for additional discussion of operations.
General The Partnership's principal sources of revenue in 1998 were consistent with 1997, and included revenue from homes and homesite sales, marine operations, equity in earnings of investee companies, and interest and rental income.
The Partnership's primary sources of revenue were from homesite sales, which accounted for 37 percent in 1998 compared with 31 percent for 1997 and 44 percent in 1996, and marine operations, which accounted for 42 percent of the Partnership's revenues in 1998 as compared to 43 percent in 1997 and 41 percent in 1996. In addition, equity in earnings from investee companies accounted for 9 percent of revenue in 1998 as compared to 11 percent in 1997 and 5 percent in 1996.
Homesite Sales
The following table presents the total homesite sales as well as dispersion by community:
- ------------ ------------ ------------- ---------------- -------- Year Bridgewater Cambridge Morse Overlook Total - ------------ ------------ ------------- ---------------- -------- 1998 2 3 11 16 1997 7 13 1 21 1996 4 18 4 26 - ------------ ------------ -------------- --------------- --------
Home Sales
During 1998, the Partnership completed construction and sold six homes compared to none in the prior years.
Marina I L.P.
The Partnership is the general partner of Marina I which has also developed homesites in Cambridge. During 1998, Marina I sold 28 homesites from Cambridge as compared to 21 homesite sales in 1997 and 17 in 1996. Marina I recorded $104,600 in revenue during 1997 as its share from the Partnership's sale of a homesite that was partially owned by Marina I, as compared to $151,000 in 1996.
The Partnership's development or sales of investment real estate and residential homes and homesites are affected by several factors such as economic conditions, interest rates, zoning, environmental regulation, availability of utilities, population growth in the area, and competition.
Marine Operations
The principal sources of revenues for the marine business are the rental of boat docks, boat launching fees, boat sales, and service repair work. To a lesser extent, revenues are generated from winter boat storage, the sale of gasoline, boating accessories, boat docks, lifts, food items and miscellaneous services. Most docks at the Morse Marina and Geist Marina are rented for the April to October boating season. Annual dock rental payments are due prior to the beginning of the boating season resulting in the majority of cash being received during the first six months of the year; most expenses, however, occur during the peak boating months of the summer. Boat dock revenues are deferred when received and recognized as earned during the boating season. Winter boat storage generates revenues for the October to April storage season, and is recognized as earned during the storage season.
The Partnership's marine operations are affected by weather conditions, since inclement weather tends to discourage boating and reduce revenues. Also, because Geist and Morse Lakes are reservoirs for the Indianapolis area water supply, the levels of the lakes may fall during drought periods, making boating hazardous. Marine operations are also affected by economic conditions, including inflation. During recessionary periods, recreational boating decreases and revenues from the operation of the marinas decrease accordingly. Increases in the cost of boating caused by inflation also adversely affect the Partnership.
Liquidity and Capital Resources
The General Partner of the Partnership believes that current funds and funds generated by homes and homesite sales, marine operations, land sales, and bank loans will be sufficient to satisfy its working capital requirements through the end of 1999. On December 31, 1998, the Partnership had cash and cash equivalents, including short-term investments, of $5,961,000. On December 31, 1998, the Partnership did not have any significant contractual commitments for capital expenditures to be made during 1999. During 1998, the Partnership expended approximately $1,845,000 for home and homesite development costs. In addition, approximately $24,000 was spent for the Partnership's commercial properties, and $649,000 was expended for marina property and equipment.
On a long-term basis, major sources of liquidity are expected to be revenues from marine operations, sales of homes and homesites and investment land, distributions from investee companies, and if necessary, bank borrowings. The Partnership currently expects that funds from current reserves, operating cash flow and normal short-term lines of credit will be sufficient to satisfy future capital needs.
Results of Operations
1998 Compared to 1997. Net earnings increased by $66,000 in 1998 from 1997. This increase was primarily due to an increase in earnings after direct costs of $167,000 from marine operations, an increase in net rental income of $136,000 and an increase in equity earnings from investee companies of $40,000. Such increases were partially offset by a decrease in earnings from the sale of homesites of $71,000, a decrease in gains on the sale of investment land of $163,000 and an increase in other expenses of $42,000.
Earnings from homes and homesite sales were $1,297,000 in 1998, which compares to $1,368,000 in 1997. Earnings from homesite sales decreased in 1998 compared to 1997 due to a shift of homesite sales to Marina I. This reduction was partially offset by the sale of six completed homes improving earnings as compared to 1997.
The Partnership recognized $1,072,000 as its share of the earnings from Marina I in 1998, compared to $962,000 in 1997. Such increase results from homesite sales of $3,447,000 in 1998 as compared to $3,057,000 in 1997.
The decrease in the Partnership's income from homesite sales is substantially offset by the increase in equity income from Marina I. This is the result of the remaining Cambridge homesites being predominantly owned by Marina I rather than the Partnership; therefore, future homesite sales from Cambridge will be substantially from Marina I. The sales by Marina I are not reflected in homesite sales in the Partnership's Statement of Earnings, rather the Partnership's share of net earnings is included as equity in earnings on the Statement of Earnings.
During 1998, the Partnership sold commercial property held for investment at Geist and Morse Lakes for an aggregate $605,000, which resulted in a gain of $498,000 compared to a gain of $661,000 in 1997.
Earnings from marine operations increased in 1998 over 1997 as a result of an increase in revenues of $994,000. This results from substantially consistent increases in all significant areas of marine operations. Such increases are primarily attributable to volume increases stemming from a strong economic environment. The marine business is recreational in nature and a good economic climate results in more disposable income, some of which is directed to recreational goods and services.
The Partnership is a 50 percent owner in Flatfork Creek Utility, Inc. (See Item 1 "Business") As a result, the Partnership recognized a loss in 1998 of $81,000 compared with equity income of $20,000 in 1997. Flatfork expects minor operating losses for the next several years.
On April 2, 1998, the Partnership made a cash distribution to the partners of record on March 25, 1998, of $3.50 per unit of partnership interest, for a total of $2,363,000.
1997 Compared to 1996. Net earnings increased by $709,000 in 1997 from 1996. This increase was primarily due to increased equity earnings from Marina I of $510,000, an increase in earnings after direct costs of $240,000 from marine operations, and an increase in gains on the sale of investment land of $621,000. Such increases were partially offset by a decrease in earnings from the sale of homesites of $640,000.
Earnings from homesite sales were $1,368,000 in 1997, which compares to $2,008,000 in 1996. There was an increase in net earnings per homesite sale in 1997 as a result of the sale of a higher percentage of waterfront homesites.
The Partnership recognized $962,000 as its share of the earnings from Marina I in 1997, compared to $461,000 in 1996. Such increase is the result of an increase in homesite sales to $3,057,000 in 1997 as compared to $1,364,000 in 1996.
During 1997, the Partnership sold commercial property held for investment at Geist Crossing for an aggregate $1,307,000, which resulted in a gain of $661,000 compared to a gain of $40,000 in 1996.
Earnings from marine operations increased in 1997 over 1996 as a result of an increase in revenues of $634,000. This results from increases in all significant areas of marine operations.
The Partnership is a 50 percent owner in Flatfork Creek Utility, Inc. (See Item 1 "Business") As a result, the Partnership recognized equity income in 1997 of $20,000 compared with an equity loss of $90,000 in 1996. Flatfork expects minor operating losses for the next several years.
General and administrative expenses increased by $117,000 in 1997 compared to 1996. The principal increase relates to increases of $28,000 in property taxes, $48,000 in professional fees and $55,000 in employee costs. All other elements of general and administrative expense were generally consistent in 1997 with 1996.
On April 17, 1997, the Partnership made a cash distribution to the partners of record on April 3, 1997, of $3.25 per unit of partnership interest, for a total of $2,194,000.
From time to time, the Partnership may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Partnership notes that a variety of factors could cause the Partnership's actual results and experiences to differ materially from the anticipated results or other expectations expressed in the Partnership's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Partnership's business include the following: (i) the risk of adverse changes in the future level of demand for real estate by the Partnership's customers and prospective customers caused by regional or real estate-specific economic downturns, (ii) the potential for adverse changes in federal income tax laws or regulations that might prevent the Partnership from continuing to be taxed as a partnership for income tax purposes, and (iii) other risks detailed from time to time in the Partnership's filings with the Securities and Exchange Commission.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K, the Partnership is not required to provide information in response to this Item 7A because it satisfies the requirements for a "Small Business Issuer".
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following are the financial statements of the Partnership and The Marina I L.P. for the years ended December 31, 1998, 1997, and 1996, and the independent auditors' reports thereon. A list of the reports and financial statements appears in response to Item 14 of this report.
Independent Auditors' Report
The Partners The Marina Limited Partnership:
We have audited the accompanying balance sheets of The Marina Limited Partnership as of December 31, 1998 and 1997, and the related statements of earnings, partners' equity and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Marina Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP Indianapolis, Indiana February 19, 1999
THE MARINA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1998 and 1997
See accompanying notes to financial statements.
THE MARINA LIMITED PARTNERSHIP
Statements of Earnings
Years ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
THE MARINA LIMITED PARTNERSHIP
Statement of Partners' Equity
Years ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
THE MARINA LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
THE MARINA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) General
The Marina Limited Partnership became a publicly traded limited partnership on December 30, 1986, and the limited partner units are registered securities and currently represent approximately 62 percent of the total Partnership units. The remaining units are owned by Marina II Corporation, the general partner, which has the authority to manage the affairs of the Partnership. The economic interests in the Partnership represented by general partner units and limited partner units are identical. The general partner receives management fees equal to three percent of the Partnership's gross margin on marine operations, rental income and recreational facilities.
As a partnership, the allocated share of the Partnership's taxable income is includable in the income tax returns of the partners; accordingly, income taxes are not reflected in the Partnership's financial statements. The tax basis of assets and liabilities exceeds the book basis by $719,000 at December 31, 1998. In order to continue partnership tax treatment, it was necessary for the Partnership to restrict public trading of the limited partner units, and as of December 20, 1997, limited partner units were no longer publicly traded. Buyers and sellers are required to contact the Partnership to follow a prescribed process to buy or sell units.
The majority of the Partnership's activities and operations are located in the Geist Lake area northeast of Indianapolis, Indiana and in the Morse Lake area north of Indianapolis. Its primary activities are the development and sale of homes and homesites and the operation of marine facilities at Geist and Morse Lakes.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash balances, money market investments with maturities of less than three months, and U.S. Treasury bills with maturities of less than twelve months.
The Partnership maintains a separate trustee accounting of unclaimed limited partner unit distributions.
(c) Properties Held for Sale
Properties held for sale are carried at the lower of cost or estimated fair value less costs to sell. Costs include construction, excavation, engineering and other direct costs incurred to bring land to a fully-improved saleable condition. Land and land improvement costs are allocated to land sales and homesite projects using the relative sales value and the specific identification methods. Properties are classified as available for sale when marketing of the properties for sale is authorized by management.
In 1997, the Partnership began a homebuilding division with the acquisition of the assets of Chesapeake Building Corporation for a cash payment of $175,000. The former owner of Chesapeake is related to the president of the general partner. Homes are being built on land development sites owned by the Partnership, the Marina I L.P. and third parties.
Sales of homesites are for cash, on builder contract, or with purchase money mortgages. Sales which satisfy a down-payment requirement of 10% of the purchase price are recorded as revenue at the time of closing. Receivables from homesite sales are payable over seven years with interest at 9% the first year, 10% the second year and 12% thereafter. The portion of the sales price which may be refundable under builder programs is deferred until the refund period expires. Land sales are generally for cash. Costs of properties sold are determined by the relative sales value of the property to the total project.
At the time a homesite is sold, the Partnership accrues a fee payable to Flatfork Creek Utility, Inc. for the cost of certain utility hook-up charges which is included in the cost of the homesite sold.
Revenues from homes sales are recognized upon the closing of each residential unit when title is transferred to the homeowner.
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. The recreational facilities are adjacent to homesite developments at Geist Lake for which residents of the developments pay a fee for the use of the facilities. Commercial properties represent developed restaurant and other retail properties which are generally leased under short-term arrangements. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Since the recreational facilities and retail properties are only incidental minor operations, the results are shown on a net basis in the statements of earnings.
(e) Other Investments
The equity method is used to account for the Partnership's 50% general partner investment in The Marina I L.P. (Marina I), its 50% corporate investment in Flatfork Creek Utility, Inc., and until sold on December 31, 1998, its 40% limited partner investment in Dockside Cafe, L.P. The Partnership's share of the net earnings and losses of these businesses is included currently in earnings.
(f) Utility Refunds
When the Partnership's predecessor was formed in April 1982, it acquired rights under utility refund agreements which were not recorded at that time as future receipts could not be estimated. As such, utility refunds related to that period are recorded as capital contributions when received.
(g) Rental Income
All leases are classified as operating leases, and minimum rents are recognized monthly based on the terms of the lease. Percentage rents are recognized monthly based on reported sales.
(h) Marine Revenues
Revenues for rental and storage from the Marine operations are recognized on a straight-line basis over the term of the agreement.
(i) Financial Instruments
The carrying amounts of the receivables approximate their fair value as the interest rates are consistent with market rates. The carrying amounts of all other financial instruments approximate fair value because of the short-term maturity of these items.
(j) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Partnership routinely evaluates all of its real estate investments to assess whether any impairment is present, including recurring operating losses and significant adverse changes in legal factors or business climate that affect the recovery of recorded value. If any real estate investment is considered impaired, a loss would be provided to reduce the carrying value of the property to its estimated fair value.
(2) Property and Equipment
Property and equipment principally consisting of land, land improvements, marine and retail facilities, boat docks, and equipment used in the marine operations located on Morse and Geist Lakes are summarized at December 31 as follows:
1998 1997 -------------- ---------------
Land and land improvements $ 1,214,637 1,209,047 Buildings and equipment 8,516,290 7,848,440 ----------- ----------- 9,730,927 9,057,487 Accumulated depreciation (3,914,721) (3,447,219) ----------- -----------
$ 5,816,206 5,610,268 =========== ===========
(3) Land and Land Improvements
At December 31, land and land improvements consisted of the following:
1998 1997 --------- ---------
Unimproved land and residential land under development $619,025 620,158 Commercial sites 322,091 115,520 -------- --------
$941,116 735,678 ======== ========
In 1998, two parcels of commercial land were sold to unrelated parties. In 1997, a 13 acre parcel of farm land and a parcel of commercial land were sold to unrelated parties. Sales were for cash resulting in revenues and gains as follows:
1998 1997 1996 --------- ---------- --------
Revenue $ 605,000 1,307,055 44,250 Gain 497,853 661,164 39,981
(4) Other Investments
(a) Marina I
The Partnership is a general partner with Irving Materials, Inc. as limited partner in Marina I which develops homesites near Geist Lake. The Partnership's equity in the earnings of Marina I amounted to $1,071,502 in 1998, $971,752 in 1997 and $461,405 in 1996.
The following is a summary of balance sheet and operating information (in thousands) of Marina I as of December 31, 1998 and 1997 and for the years then ended:
1998 1997 --------- ----------
Cash and cash equivalents $ 1,593 553 Homes and homesites available for sale and land and land improvements 3,270 3,719 Receivables from homesite sales 860 652 Other assets 414 407 Liabilities (119) (222) ------- -------
Partners' equity $ 6,018 5,109 ======= =======
Homesite sales and other revenues 3,601 3,156 Cost of homesites sold and expenses 1,592 1,311 ------- -------
Net earnings $ 2,009 1,845 ======= =======
The Partnership pays various operational costs incurred for Marina I, which are reimbursed at actual or allocated amounts.
(b) Dockside Cafe
Through December 31, 1998, the Partnership was a limited partner in Dockside Cafe, L.P. which operates restaurants at the Geist and Morse Lake marinas. The Partnership constructed the restaurants and leases them to Dockside Cafe, L.P. The limited partner investment was sold to the general partner effective December 31, 1998. The Partnership continues to lease the restaurants.
(c) Flatfork Creek Utility, Inc.
In 1990, the Partnership acquired property to construct a wastewater treatment plant to serve homesites to be developed in the Geist Lake area by the Partnership, Marina I and other developers. In 1993, Flatfork Creek Utility, Inc. (the Corporation) was formed to own and operate the wastewater water treatment plant. The Partnership transferred $738,000 of assets and $424,000 of liabilities to the Corporation, as its sole shareholder. The Partnership then sold 50% of its interest in the Corporation to Irving Materials, Inc. for its book value of $157,000. The wastewater treatment plant became operational in November 1994. The Corporation is subject to regulation by the Indiana Utility Regulatory Commission.
To date, substantially all of the Corporation's customers are the Partnership, Marina I and the resident homeowners of homesites developed by the Partnership and Marina I. In January 1997, the Partnership and Marina I paid $196,812 and $590,436, respectively, as advance payments for future utility hook-ups. The Partnership recognized a loss of $81,451 in 1998, income of $20,482 in 1997 and a loss of $93,000 in 1996 as its share of the Corporation's results of operations.
The Partnership, along with Irving Materials, Inc., were guarantors of the Corporation's $2,500,000 loan, of which $1,566,954 was outstanding at December 31, 1997. In 1998, the Partnership advanced $1,350,000 to the Corporation. This advance, which bears interest of 6.6% and is due on demand, along with additional cash of the Corporation, was used to repay the loan.
(5) Notes Payable to Bank
The Partnership has a $2,000,000 unsecured line of credit which matures July 1, 1999 and bears interest at the bank's prime rate. There were no borrowings on the line of credit through December 31, 1998.
(6) Rental Income
The restaurant facility at the Geist Lake Marina is leased to Dockside Cafe, L.P. under an operating lease with monthly minimum rentals of $7,500 plus a percentage of sales over stated bases. Overage rents of $76,400, $69,600, and $90,000 for 1998, 1997 and 1996 sales, respectively, are included in rental income.
The restaurant facility at Morse Lake Marina is also leased to Dockside Cafe, L.P. under an operating lease with monthly minimum rentals of $5,000 plus a percentage of sales over stated bases. Overage rents of $5,100 for 1998 are included in rental income. No overage rents were received for 1997 and 1996.
During 1995, the Partnership began operating a 20,000 square foot retail and office development known as Marina Village. Included in rental income is $289,400, $210,600 and $149,700 for 1998, 1997 and 1996, respectively, from the retail and office tenants. At December 31, 1998, occupancy was 100% including 2,000 square feet which is the office of the Partnership. In addition to minimum rent, the leases require reimbursements of specified operating expenses.
The Partnership also leases certain real estate under short-term operating leases for which rental income amounted to $17,800, $15,200 and $6,200 in 1998, 1997 and 1996, respectively.
The minimum rent payments due under operating leases in effect at December 31, 1998 are summarized as follows:
Marina Restaurants Village Total ------------- ------------ ----------
1999 $ 150,000 245,100 395,100 2000 150,000 207,800 357,800 2001 150,000 72,100 222,100 2002 150,000 42,800 192,800 2003 150,000 -- 150,000 --------- --------- ---------
$ 750,000 567,800 1,317,800 ========= ========= =========
(7) Segment Information
The Partnership is engaged in two primary business segments, the development and sale of homes and homesites and marine operations at Geist and Morse Lakes. Summarized financial information by business segment for 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996 --------- --------- ----------
Revenues: Homes and homesites $ 4,222 2,733 3,387 Equity in earnings of homesite investee company 1,072 962 461 -------- -------- -------- 5,294 2,694 3,848 Marine operations 4,784 3,791 3,156 Other 1,319 1,417 687 -------- -------- --------
$ 11,397 8,903 7,691 ======== ======== ========
Operating income: Homes and Homesites sales, including equity in earnings of homesite investee company $ 2,370 2,330 2,469 Marine operations 1,280 1,113 873 Other 1,319 1,417 688 Administration (1,160) (1,118) (996) -------- -------- --------
$ 3,809 3,742 3,304 ======== ======== ========
Assets: Homes and homesites sales, including investment in homesite investee company $ 7,222 7,481 5,501 Marine operations 3,087 2,779 2,361 Cash 5,961 5,532 5,588 Other 5,373 4,246 5,000 -------- -------- --------
$ 21,643 20,038 18,450 ======== ======== ========
Independent Auditors' Report
The Partners The Marina I L. P.:
We have audited the accompanying balance sheets of The Marina I L. P. as of December 31, 1998 and 1997, and the related statements of earnings, partners' equity and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Marina I L. P. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP Indianapolis, Indiana February 19, 1999
THE MARINA I L.P.
Balance Sheets
December 31, 1998 and 1997
See accompanying notes to financial statements.
THE MARINA I L.P.
Statements of Earnings
Years ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
THE MARINA I L.P.
Statements of Partners' Equity
Years ended December 31, 1998, 1997 and 1996
General Limited Total partner's partner's partners' equity equity equity ------------- -------------- -------------
Balance December 31, 1995 $ 1,820,668 2,071,430 3,892,098
Distributions to partners (397,630) (452,370) (850,000) Land contributed by partners -- 158,029 158,029 Net earnings 461,405 403,768 865,173 ----------- ----------- -----------
Balance December 31, 1996 1,884,443 2,180,857 4,065,300
Distributions to partners (495,132) (429,131) (924,263) Land contributed by partners -- 123,586 123,586 Net earnings 961,813 882,815 1,844,628 ----------- ----------- -----------
Balance December 31, 1997 2,351,124 2,758,127 5,109,251
Distributions to partners (545,463) (554,537) (1,100,000) Net earnings 1,071,502 937,614 2,009,116 ----------- ----------- -----------
Balance December 31, 1998 $ 2,877,163 3,141,204 6,018,367 =========== =========== ===========
See accompanying notes to financial statements.
THE MARINA I L.P.
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
THE MARINA I L. P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
Summary of Significant Accounting Policies
(a) General
The Marina I L. P. (Marina I) was formed by The Marina Limited Partnership (TMLP) and Irving Materials, Inc. (Irving) to develop residential homesite land near Geist Lake, northeast of Indianapolis, Indiana. Marina I is managed by Marina II Corporation, the general partner of TMLP. Certain expenses and costs incurred by Marina I are paid by TMLP and then reimbursed by Marina I based on actual or allocated amounts.
Contributions of land by Irving, the limited partner, are valued at amounts agreed upon by the partners which approximate the partner's tax basis. Earnings and distributions are allocated as follows:
o For earnings from homesite sales on land contributed by Irving, Irving is first allocated an amount equal to 20% of the gross sales price less its tax basis in the land contributed, and TMLP is allocated 5% of the gross sales price. Any remaining earnings are allocated 40% to Irving and 60% to TMLP.
o For earnings from all other homesite sales, TMLP is first allocated a "management fee" based on profits from the homesite sales, with the remainder allocated 50% to each partner.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash balances and money market investments with maturities of less than three months.
(c) Properties Held for Sale
Properties held for sale are carried at the lower of cost or estimated fair value less costs to sell. Costs include construction, excavation, engineering and other direct costs incurred to bring land to a fully-improved saleable condition. Land and land improvements are allocated to homesite sales using the relative sales value and the specific identification methods. Properties are classified as available for sale when marketing of the properties for sale is authorized by management.
Sales of residential homesites are for cash, on builder contract, or with purchase money mortgages. Sales which satisfy a down-payment requirement of 10% of the purchase price are recorded as revenue at the time of closing. Receivables from homesite sales are payable over seven years with interest at 9% the first year, 10% the second and 12% thereafter. The portion of the sales price which may be refundable under builder programs is deferred until the refund period expires. Costs of homesites sold are determined by the relative sales value of the homesite to the total project.
At the time a lot is sold, the Partnership accrues a fee payable to Flatfork Creek Utility, Inc. (whose partners are also TMLP and Irving) for the cost of certain utility hook-up charges which is included in cost of homesites sold. In January 1997, Marina I paid $590,436 to Flatfork Creek Utility, Inc. as advance payments for future utility hook-ups.
THE MARINA I L. P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
The Partnership routinely evaluates all of its real estate investments to assess whether any impairment indications are present, including significant adverse changes in legal factors or business climate that affect the recovery of recorded value. If any real estate investment is considered impaired, a loss is provided to reduce the carrying value of the property to its estimated fair value.
(d) Financial Instruments
The carrying amounts of the receivables approximate their fair value because the interest rates are consistent with market rates. The carrying amounts of all other financial instruments approximate fair value because of the short-term maturity of these items.
(e) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(f) Income Taxes
As a partnership, the allocated share of the taxable income of Marina I is includable in the income tax returns of the partners; accordingly, income taxes are not reflected in these financial statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There has been no change in the Partnership's independent certified public accountants within 24 months prior to, or subsequent to, the date of the most recent financial statements, nor has there been any disagreements with the accountants.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The following table presents certain information regarding the Directors and executive officers of the General Partner. Each person listed is a Director of the General Partner except for the Treasurer. Messrs. Rosenberg, Rosenberg II and Calabria are the executive officers of the General Partner. Unless otherwise indicated in a footnote, the principal occupation of each Director or executive officer has been the same for the last five years.
All Directors serve annual terms until their successors are elected and have qualified. The Directors are elected by the shareholders of the General Partner. Mr. Rosenberg has served as a Director of the Company or General Partner since 1982. Mr. Hunt was elected as a Director in 1996 and Mr. Rosenberg II in 1997. All other Directors were elected in 1984. All officers serve at the pleasure of the Board of Directors. Mr. Rosenberg is the father of Mr. Rosenberg II. There are no other family relationship between any of the executive officers and Directors of the General Partner.
SECTION 16(a): BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the General Partner's Directors, executive officers and persons who beneficially own more than 10 percent of the Partnership's Limited Partner Units to file with the Securities and Exchange Commission reports showing ownership of and changes in ownership of the Partnership's Limited Partner Units and other equity securities. On the basis of reports and representations submitted by the General Partner's Directors, executive officers, and greater-than-ten-percent owners, the Partnership believes that all required Section 16(a) filings for 1998 were timely made, except that the filing to report a purchase by one Director, Mr. Bruggeman, was inadvertently not filed on time.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation of Executive Officers
The following table sets forth aggregate compensation for each of the Partnership's executive officers whose total annual salary and bonus exceed $100,000, for services rendered to the Partnership in all capacities during the years ended December 31, 1998, 1997, and 1996.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary Bonus
Allen E. Rosenberg 1998 $200,000 $148,541 President, Director of 1997 200,000 180,667 The General Partner 1996 199,653 187,992
Allen E. Rosenberg II 1998 $110,000 $100,000 Vice President, Assistant Treasurer 1997 86,353 103,206 And Director of the General Partner 1996 18,000 55,000
Each Director except Messrs. Rosenberg and Rosenberg II receives a fee of $5,000 per year, plus $750 for each Board of Directors or Committee meeting attended. If, however, more than one meeting is held on the same day, a fee of $150 is paid for the subsequent meetings. In addition to the fees received as a Director, Mr. Hunt receives a quarterly retainer of $1,500 for providing consulting services to the Partnership.
Bonus Plans
Allen E. Rosenberg is compensated under a plan whereby three percent of the proceeds or other revenues from sales of the Partnership's investment land have been paid to him for his stewardship of the Partnership's land. The following payments were made pursuant to that plan:
Year Amount ---- ------ 1998 $18,150 1997 39,211 1996 1,328
In addition, five percent of the gross profit (net of development and selling costs) on the Partnership's individual homesite sales and five percent of the Partnership's share of the income from The Marina I L.P. are paid to Mr. Rosenberg. The following payments were made pursuant to that plan:
Year Amount ---- ------ 1998 $130,391 1997 141,455 1996 186,664
Allen E. Rosenberg II is compensated under a plan whereby 12 percent of the profit (before general and administrative expenses) will be paid to him for each residence built and sold at Sail Place. In addition, Mr. Rosenberg II will receive 50% of the net profit (before general and administrative expenses) on each custom home sold. Under this plan, $75,000 in 1997 and $100,000 in 1998 was paid to Mr. Rosenberg II as the minimum amounts payable under the plan. In January 1997, $28,206 was paid to Mr. Rosenberg II as a discretionary bonus for construction completed in 1996 on behalf of the Partnership.
Management Fees Paid to the General Partner
In addition to bonuses that may be paid from the proceeds of sales of the Partnership's land or other revenues (see " Bonus Plans" above), the General Partner is permitted to receive management fees from the Partnership. The General Partner received management fees of $97,000 in 1998, which is equal to three percent of the Partnership's gross margin on marine operations, recreational facilities, and rental income. The management fee is not paid on revenues from land sales and investment income.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership
The following table sets forth the number of Limited Partner Units of the Partnership beneficially owned by all Directors of the General Partner and by all Directors and officers of the General Partner as a group as of March 25, 1999.
Number of Percent Limited Partner Units Of Name Beneficially Owned Class
Patrick J. Bruggeman 15,600 3.7% Allen E. Rosenberg 4,940 1 1.2% Allen E. Rosenberg II 2,665 2 0.6% Stanley E. Hunt 1,000 0.2% All Directors and Officers of the General Partner as a Group (6 Persons) 24,205 3 5.8%
1. Includes 4,940 Units owned by Mr. Rosenberg's wife.
2. Includes 2,665 Units owned by Mr. Rosenberg II's spouse and children.
3. Includes 7,605 Units owned by spouses or others. Also includes Units described in the above notes.
The Partnership has concluded that Limited Partner Units do not constitute voting securities. Therefore, the Partnership does not report information on the number of Limited Partner Units beneficially owned by persons owning more than five percent of the Limited Partner Units.
Upon the reorganization of the Company into the Partnership in 1986, five of the seven members of the Board of Directors of the Company (the "Continuing Directors") received all the General Partner Units in the Partnership. See "General" under Item 1. The Partnership disclaims that the General Partner Units are securities. General Partner Units are vested with authority to manage the affairs of the Partnership. In exchange for the General Partner Units that they received in the reorganization, the Continuing Directors became the sole shareholders of the General Partner.
During 1997, The Board of Directors of the General Partner approved the conversion of 54,000 Limited Partner Units acquired in December 1997 by Mr. Rosenberg, and 2,764 Limited Partner Units owned by Mr. Rosenberg II, into a like number of General Partner Units. The Limited Partner Units were converted into General Partner Units in January 1998, which decreased the number of Limited Partner Units by 56,764 units, to 417,183 units, and increased the number of General Partner Units by 56,764 to 257,952 units.
As of March 25, 1999 the General Partner owns a 38.2 percent interest in the profits, losses, capital, and distributions of the Partnership, which percentage is equal to the General Partner percentage of the Common Stock of the Company owned directly by the Continuing Directors at the time the Company was reorganized into the Partnership plus the net Limited Partner Units subsequently acquired and converted into General Partner Units.
Three of the Continuing Directors, in addition to Mr. Hunt and Mr. Rosenberg II, are the current members of Board of Directors of the General Partner. The Directors of the General Partner manage and control the overall business and affairs of the General Partner and, consequently, those of the Partnership. The Directors of the General Partner are elected by the shareholders of the General Partner (unless there is a vacancy on the Board, in which case the remaining Board members may fill the vacancy) without the approval of the Limited Partners. Reflecting the additional conversion of Limited Partner Units in January 1998 by Mr. Rosenberg and Mr. Rosenberg II, ownership of the shares of the General Partner on March 25, 1999 is as set forth in the following table:
------------------------------------------- --------------------- Shareholder Percentage Ownership ------------------------------------------- ---------------------
Allen E. Rosenberg 47.9% Patrick J. Bruggeman 17.2% Allen E. Rosenberg II 16.0% Stanley E. Hunt 2.6% Lawrence Buell .8% Other children of Mr. Rosenberg 15.5% ------------------------------------------- ---------------------
Upon the withdrawal or removal of a General Partner, its participation in the General Partner Units will cease. Thereafter, the General Partner Units owned by the withdrawn or removed General Partner will change to Limited Partner Units.
Changes in Control
The Shareholders' Agreement (the "Shareholders' Agreement") dated December 2, 1986, among the shareholders of the General Partner, prescribes certain procedures for the sale or other transfer of shares of the General Partner and for the voting of certain shares, the operation of which may at a subsequent date result in a change of control of the General Partner and, consequently, a change of control of the Partnership. The Shareholders' Agreement is attached as an exhibit to the Partnership's 1993 Annual Report on Form 10-K, which is incorporated herein by this reference. The Shareholders' Agreement provides certain restrictions on transfer, rights of first refusal, and options to purchase with respect to shares of the General Partner. The Shareholders' Agreement also provides certain voting arrangements in the event of the death or disability of Allen E. Rosenberg, the majority shareholder of the General Partner.
The following is a brief summary of the Shareholders' Agreement. This summary is not intended to be complete and is qualified in all respects by the more detailed provisions of the Shareholders' Agreement.
In general, the Shareholders' Agreement provides that a shareholder may transfer all or part of his shares of the General Partner to a party who is not a party to the Shareholders' Agreement only upon prior written approval by the General Partner and subject to any limitations that may be imposed by the General Partner. If, for any reason, a shareholder who is also a Director, ceases to be a Director of the General Partner, the shareholder and his heirs, executors, administrators, successors, or assigns, subject to the rights of first refusal described below, has the right, but not the obligation, upon surrender of all of his shares of the General Partner, to cause the General Partner to (a) convert that portion of the General Partner Units attributable to all of such shareholder's shares into Limited Partner Units on the basis of one Limited Partner Unit for one General Partner Unit, (b) distribute such Limited Partner Units to the shareholder, and (c) cause the Partnership to register such Limited Partner Units under the Securities Act of 1933, as amended. Prior to such conversion of General Partner Units into Limited Partner Units, the shares of the General Partner the shareholder proposes to surrender in exchange for Limited Partner Units must first be offered to the remaining parties to the Shareholders' Agreement and the General Partner as provided in the Shareholders' Agreement. The exercise of any such rights of first refusal is contingent upon the exercise of rights of first refusal to purchase, in the aggregate, all shares held by the selling shareholder.
If a shareholder of the General Partner acquires, from time to time, Limited Partner Units, such Units shall be, at the option of the General Partner, changed to General Partner Units and contributed to the General Partner in return for additional shares of stock of the General Partner.
The Shareholders' Agreement also provides that, in the event of the death or disability of Allen E. Rosenberg, the majority shareholder of the General Partner, his shares of the General Partner will be voted by a committee consisting of four members, at least one of whom shall be a Director of the General Partner. The members of the voting committee are Stanley E. Hunt, David M. Manischewitz, Allen E. Rosenberg II, and John L. Woolling. Vacancies on the voting committee will be filled by Allen E. Rosenberg, or, in the event of his death or disability, by a majority of the remaining members of the voting committee.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The required information is inapplicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) Financial Statements:
The following financial statements of the Partnership and The Marina I L.P. appear in Part II, Item 8.
Independent Auditors' Report.
Balance Sheets -- December 31, 1998 and 1997.
Statements of Earnings -- Years Ended December 31, 1998, 1997, and 1996.
Statements of Partners' Equity -- Years Ended December 31, 1998, 1997 and 1996.
Statements of Cash Flows -- Years Ended December 31, 1998, 1997 and 1996.
Notes to Financial Statements.
(a)(2) Financial Statement Schedules:
All schedules for which provision is made in the applicable regulations of the Commission have been omitted as the schedules are not required under the related instructions, or the required information is inapplicable, or the information is set forth in the financial statements included elsewhere herein.
a)(3) Exhibits:
The exhibits filed as a part of this Annual Report on Form 10-K, all of which are hereby incorporated by reference except financial statements and schedules and Exhibits 3.1, 3.2, 4.1 and 99.3, are:
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1. Registration Statement on Form S-4 (Reg. No. 33-9367) filed by The Marina Limited Partnership on October 8, 1986.
2. Registration Statement on Form S-14 (Reg. No. 2-03600) filed by The Marina Corporation on October 3, 1984, as amended on November 13, 1984, and November 20, 1984.
3. Annual Report on Form 10-K filed by The Marina Limited Partnership for 1993.
(b) Reports on Form 8-K. No reports on Form 8-K were filed in the fourth quarter of 1998 by the Partnership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Marina Limited Partnership
Date: March 25, 1999 By: /s/ Allen E. Rosenberg --------------------------- Allen E. Rosenberg, President of The Marina II Corporation, the General Partner of The Marina Limited Partnership
Pursuant to the requirements of the Securities Exchange Act of 1934, this report had been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated.
Capacity With Signature The General Partner Date
- ------------------ Patrick J. Bruggeman Director
/s/Lawrence L. Buell Lawrence L. Buell Director March 25, 1999
/s/Stanley E. Hunt Stanley E. Hunt Director March 25, 1999
/s/Allen E. Rosenberg Director and President Allen E. Rosenberg (Principal Executive Officer) March 25, 1999
Director, /s/Allen E. Rosenberg II Vice President and Allen E. Rosenberg II Assistant Treasurer March 25, 1999
Vice President, /s/Donald J. Calabria Treasurer, and Secretary Donald J. Calabria (Principal Financial Officer) March 25, 1999