ITEM 1. BUSINESS
All references to "Notes" are to Notes to Financial Statements contained in this report.
On September 30, 2005, Arvida/JMB Partners, L.P. (the "Partnership") completed its liquidation by contributing all of its remaining assets to ALP Liquidating Trust (the "Liquidating Trust"), subject to all of the Partnership's obligations and liabilities. Arvida Company ("Arvida"), an affiliate of the former general partner of the Partnership, acts as Administrator (the "Administrator") of the Liquidating Trust.
In connection with its formation, the Liquidating Trust issued a total of 448,794 beneficial interest units to the partners of the Partnership ("Unit Holders"). In the liquidation, each partner in the Partnership received a beneficial interest in the Liquidating Trust for each interest the partner held in the Partnership. As a result, a partner's percentage interest in the Liquidating Trust remains the same as that person's percentage interest was in the Partnership immediately prior to its liquidation.
Upon completion of the liquidation of the Partnership, pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Liquidating Trust elected to become the successor issuer to the Partnership for reporting purposes under the Exchange Act and elect to report under the Exchange Act effective September 30, 2005. The Liquidating Trust has assumed all reports filed by the Partnership prior to liquidation of the Partnership under the Exchange Act. Throughout this report, references to the Liquidating Trust shall be deemed to include activities of the Partnership prior to September 30, 2005.
Upon the formation of the Liquidating Trust, the Liquidating Trust adopted the liquidation basis of accounting effective September 30, 2005. The preparation of consolidated financial statements using the liquidation basis of accounting requires us to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. Estimated costs to be incurred during liquidation includes an estimate of legal fees and costs of litigation, insurance costs and other administrative items through December 31, 2007. This date was extended from June 30, 2007 as it became evident that it was unlikely that the Liquidating Trust would wind up its affairs by that date. Reference is made to "Commitments and Contingencies" for a discussion of pending or threatened litigation. The Liquidating Trust is unable to reasonably estimate the outcome of its pending litigation or threatened litigation and is also unable to reasonably predict the estimated timetable to reach any such outcome. Estimated costs have been included through the earliest reasonable date that pending litigation could be resolved prior to trial. While the pending litigation may not be resolved prior to trial, and may require a period of time significantly beyond December 31, 2007, no one point in time provides for a better estimate than any other point in time. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis an evaluation will be made of assumptions, judgments and estimates and changes will be made, if deemed appropriate.
Until the ultimate completion of the liquidation, winding up and termination of the Liquidating Trust, it is currently anticipated that the Liquidating Trust will retain substantially all of its funds in reserve to provide for the payment of, the defense against, or other satisfaction or resolution of obligations, liabilities (including contingent liabilities) and current and possible future claims, including those for possible construction repairs, homeowner warranty claims, completion of work for certain homeowner associations and master associations and pending and possible future litigation and environmental matters. It is not possible at this time to estimate the amount of time or money that it will take to
effect the Liquidating Trust's liquidation, winding up and termination. That portion, if any, of the funds held in reserve that are not ultimately used to pay, defend or otherwise resolve or satisfy obligations, liabilities or claims are currently anticipated to be distributed to the Unit Holders in the Liquidating Trust at a later date and may not be distributed until the completion of the liquidation.
Various factors may affect the timing of completing the liquidation, winding up and termination of the Liquidating Trust and the amount of liquidating distributions of funds, if any, out of those retained in reserve. These factors include the time and expense to resolve all obligations, liabilities and claims, including contingent liabilities and claims that are not yet asserted but may be made in the future. Among other things, additional or unanticipated remedial construction or development costs, contingencies (including without limitation, contingencies relating to potential homeowner warranty or other homeowner or homeowners' association claims), delays in resolving pending or threatened litigation or other asserted claims, delays in satisfying conditions or obligations under permits obtained by the Partnership, currently unasserted claims that arise in the future and other factors could result in a reduction in future distributions to Unit Holders in the Liquidating Trust and could extend the time, and significantly increase the cost, to complete the liquidation, winding up and termination of the Liquidating Trust. While the Liquidating Trust intends to defend against asserted claims where appropriate, it is currently not possible to identify or assess any defenses or counterclaims that may be available to the Liquidating Trust, or the magnitude of any claims that may be asserted.
The current registrant, ALP Liquidating Trust was originally a limited partnership formed in 1987 and governed under the Revised Uniform Limited Partnership Act of the State of Delaware. The Partnership was formed to own and develop substantially all of the assets of Arvida Corporation (the "Seller"), a subsidiary of The Walt Disney Company, which were acquired by the Partnership from the Seller on September 10, 1987. On September 16, 1987, the Partnership commenced an offering to the public of up to $400,000,000 in Limited Partnership Interests and assignee interests therein ("Interests") pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933 (No. 33-14091). A total of 400,000 Interests were sold to the public (at an offering price of $1,000 per Interest before discounts) and the holders of 400,000 Interests were admitted to the Partnership in October 1987. The offering terminated October 31, 1987. In addition, a holder (an affiliate of the dealer- manager of the public offering) of 4,000 Interests was admitted to the Partnership in October 1987. Subsequent to admittance to the Partnership, no Holder of Interests (a "Holder" or "Holder of Interests") has made any additional capital contribution. The Holders of Interests of the Partnership generally share in their portion of the benefits of ownership of the Partnership's real property investments and other assets according to the number of Interests held.
Pursuant to Section 5.5J of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), on October 23, 1997, the Board of Directors of the General Partner met and approved a resolution selecting the option set forth in Section 5.5J(i)(c) of the Partnership Agreement for the Partnership to commence an orderly liquidation of its remaining assets that was to be completed by October 2002. In October 2002, the Partnership commenced a solicitation for consents to an amendment (the "Amendment") to the Partnership Agreement providing for an extension of the term of the Partnership's liquidation period to not later than October 31, 2005. In addition, under the terms of the Amendment, Arvida/JMB Managers, Inc., the General Partner of the Partnership, was authorized, in its sole discretion, to complete the liquidation of the Partnership by forming the Liquidating Trust and contributing any remaining Partnership assets to the Liquidating Trust subject to all outstanding obligations and liabilities of the Partnership. In November 2002, the Holders of a majority of the outstanding Interests gave their consent to the Amendment, which became effective October 29, 2002.
As noted above, under the terms of the Amendment, the General Partner was authorized, in its sole discretion, to complete the liquidation of the Partnership by forming a Liquidating Trust. The trustee or trustees of the Liquidating Trust could be an officer or officers of the General Partner or an affiliate of the General Partner. The remaining Partnership assets would be contributed to the Liquidating Trust subject to all outstanding obligations and liabilities of the Partnership. The General Partner, Associate Limited Partners and Holders of Interests would receive beneficial interests in the Liquidating Trust in proportion to their respective interests in the Partnership. Subsequently, after liquidating any remaining non-cash assets and providing for the payment or satisfaction of all such obligations and liabilities, the trustee(s) of the Liquidating Trust would distribute any remaining proceeds to the General Partner, Associate Limited Partners and Holders of Interests in proportion to their respective interests in the Liquidating Trust.
Prior to the commencement of the Partnership's orderly liquidation, the assets of the Partnership consisted principally of interests in land developed into master-planned residential communities (the "Communities"), and, to a lesser extent, commercial properties; accounts receivable; construction, brokerage and other support businesses; real estate assets held for investment and certain club and recreational facilities. The Partnership was principally engaged in the development of comprehensively planned resort and primary home Communities containing a diversified product mix designed for the middle and upper income segments of the various markets in which the Partnership operated. The Communities were located primarily throughout the State of Florida, with Communities also located near Atlanta, Georgia and Highlands, North Carolina. In addition, the Partnership, directly or through certain subsidiaries, provided development and management services to the homeowners associations within the Communities.
In 1996 the Partnership obtained, or caused to be obtained, certain permits from the United States Army Corps of Engineers (the "Corps"), the Florida Department of Environmental Protection ("FDEP") and the Broward County Department of Natural Resource Protection ("BCDNRP") in connection with the Partnership's development of approximately 1,166 acres in Increment III of the Weston Community, certain portions of which were environmentally sensitive and had been subject to protection as wetlands. The Partnership was named as a co-permittee along with the Indian Trace Development District (the predecessor to the City of Weston) on the permits issued by the Corps and BCDNRP, with the Indian Trace Development District named as sole permittee on the permit issued by FDEP. In order to obtain these permits, the Partnership developed a plan for mitigation of approximately 1,553 other acres of wetlands. The mitigation plan requires improvement of the function and value of the wetlands, including development of refuge habitat areas, and ongoing maintenance and monitoring of the same. In general, the permits require, among other things, the achievement in each of three consecutive years of specific amounts of wetlands functional value credits in the five parcels included in the mitigation area. Under an agreement entered into with the City of Weston (as the successor to the Indian Trace Development District, the original party to the agreement), in general, the Partnership contributed the land for the mitigation area and has been providing the technical expertise necessary to obtain the permits and implement their conditions to achieve the specified wetlands functional value credits for the mitigation area. Among other things, the City of Weston has agreed to assume perpetual maintenance of the mitigation area when success has been achieved.
During at least the 18 consecutive months ending in the Fall 2003, the most recent period for which information has been compiled, each of the five parcels in the mitigation area has achieved wetlands functional value credits equal to or in excess of the required amount for such parcel. (During the 12 months (the "Spring 2002 Period") preceding this 18-month period, the five parcels collectively, and most, but not all, of the five parcels individually, achieved wetlands functional value credits equal to or in excess of the required amounts.) In meetings and correspondence with the Partnership, the Corps has indicated to the Partnership that the mitigation area (including each of its parcels) has met in substantial respect to the requisite wetland functional value credits, that the mitigation is in substantial compliance with permit conditions and that such conditions appear to satisfy the requirements of the Corps permit. The Partnership is seeking to terminate its involvement with the BCDNRP by having undertaken, among other things, a "Melaleuca Sweep" designed to bring under control and eradicate melaleuca seedlings and other invasive exotic vegetation. The Partnership anticipates that given the completion of the "Melaleuca Sweep" and the anticipated re-issuance of the license/permit to the City of Weston or its designee, the responsibility for maintenance of the mitigation area by the Partnership will be terminated. The Partnership does not expect that the cost to complete the tasks described here will have a material adverse effect on the financial condition of the Partnership. The Partnership can give no assurance of the success, timing or possible expense of terminating its responsibility.
Pursuant to a management agreement with the Partnership, through December 31, 1997, Arvida provided development and management supervisory and advisory services and the personnel therefor to the Partnership for all of its projects and operations, subject, in each case, to the overall control of the General Partner on behalf of the Partnership. Arvida entered into a sub-management agreement with St. Joe/Arvida Company, LP (now known as St. Joe Towns & Resorts, LP - "Towns & Resorts LP"), effective January 1, 1998, whereby Towns & Resorts LP provides (and is reimbursed for) a substantial portion of the development and management supervisory and advisory services (and personnel with respect thereto) to the Partnership that Arvida would have otherwise provided pursuant to its management agreement with the Partnership. Affiliates of JMB Realty Corporation owned a minority interest in Towns & Resorts LP until July 2003, when they sold their minority interest to an affiliate of the St. Joe Company. Such sale did not involve the sale of any assets of the Partnership, the sale of the General Partner's interest in the Partnership, nor a change in the submanagement agreement for the services provided to the Partnership by Towns & Resorts LP. The St. Joe Company beneficially owns 23.7% of the outstanding beneficial interest units of the Liquidating Trust.
At February 1, 2007, the Liquidating Trust continues to have one employee.
The Liquidating Trust currently owns no patents, trademarks, licenses or franchises other than those trademarks and tradenames that relate directly to certain of its Communities. Towns & Resorts LP owns the Arvida name and service marks with respect to the Arvida name. The Liquidating Trust has a license agreement with Towns & Resorts LP to use the Arvida name.
The terms of transactions between the successor Liquidating Trust and the successor Administrator and its affiliates are set forth in Items 11 and 13 filed with this annual report to which reference is hereby made for a description of such terms and transactions.
ITEM 1A.
ITEM 1A. RISK FACTORS
The liquidation of ALP Liquidating Trust faces numerous risks, including those set forth below.
Reference is made to Item 1. Business and Item 3. Legal Proceedings for an item specific detailed discussion of some of the risk factors facing ALP Liquidating Trust.
Risk factors include the time and expense to resolve all obligations, liabilities and claims, including contingent liabilities and claims that are not yet asserted but may be made in the future. Among other things, additional or unanticipated remedial construction or development costs, contingencies (including without limitation, contingencies relating to potential homeowner warranty or other homeowner or homeowners' association claims), delays in resolving pending or threatened litigation or other asserted claims, delays in satisfying conditions or obligations under permits obtained by the Partnership, currently unasserted claims that arise in the future and other factors could result in a reduction in future distributions to Unit Holders in the Liquidating Trust and could extend the time, and significantly increase the cost, to complete the liquidation, winding up and termination of the Liquidating Trust. While the Liquidating Trust intends to defend against asserted claims where appropriate, it is currently not possible to identify or assess any defenses or counterclaims that may be available to the Liquidating Trust, or the magnitude of any claims that may be asserted.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2.
ITEM 2. PROPERTIES
The Liquidating Trust has no housing units or other material real estate assets. It continues to own a number of minor parcels that it will endeavor to sell or otherwise dispose of prior to liquidation, which are not expected to yield any material proceeds to the Liquidating Trust.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership accrues legal liabilities when it is probable that the future costs will be incurred and such costs can be reasonably estimated. Such accruals are based upon developments to date, the management's estimates of the outcome of these matters and its experience in contesting, litigating and settling other matters. Based on evaluation of the Partnership's litigation matters and discussions with internal and external legal counsel, management believes than an adverse outcome on one or more of the matters set forth below, against which no accrual for loss has been made at December 31, 2006 unless otherwise noted, is possible but not probable, and that the outcome with respect to one or more of these matters, if adverse, is reasonably likely to have a material adverse impact on the accompanying financial statements of the Liquidating Trust.
The Partnership was named a defendant in a purported class action entitled Lakes of the Meadow Village Homes Condominium Nos. One, Two, Three, Four, Five, Six, Seven, Eight and Nine Maintenance Associations, Inc., v. Arvida/JMB Partners, L.P. and Walt Disney World Company, Case No. 95-23003-CA-08, filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida ("Lakes of the Meadow" litigation). In the lawsuit, plaintiffs sought unspecified damages, attorneys' fees and costs, recission of specified releases, and all other relief that plaintiffs might be entitled to at equity or at law on behalf of the 460 building units they allegedly represented for, among other things, alleged damages discovered in the course of making Hurricane Andrew repairs. Plaintiffs alleged that Walt Disney World Company was responsible for liabilities that might arise in connection with approximately 80% of the buildings at the Lakes of the Meadow Village Homes and that the Partnership was potentially liable for the approximately 20% remaining amount of the buildings. In the three count amended complaint, plaintiffs alleged breach of building codes and breach of implied warranties. The Partnership tendered this matter to The Walt Disney Company (n/k/a Disney Enterprises, Inc., "Disney") pursuant to the Partnership's indemnification rights and filed a third-party complaint against it pursuant to the Partnership's rights of contractual indemnity. The Partnership answered the amended complaint and filed a cross-claim against Disney's affiliate, Walt Disney World Company, for common law indemnity and contribution. The Partnership completed settlements in this case with the condominium associations and their members during the second quarter of 2004.
The Partnership pursued claims for indemnity or contribution against Disney or its affiliates ("Disney cross-defendants") in connection with the Lakes of the Meadow condominium units that were constructed in whole or in part prior to September 10, 1987 (the date that the Partnership acquired the assets of Arvida Corporation from Disney) but were sold by the Partnership on or after that date. The Partnership's claims for indemnity and contribution were severed for separate proceedings and trial from the remaining case-in-chief in the Lakes of the Meadow litigation. The Disney cross-defendants answered the cross-claim denying liability and filed their own claims for indemnity and contribution. The claims of the Partnership and Disney in this matter shall be referred to hereinafter as the "Lakes Indemnity Matter."
The Partnership was a defendant in an insurance subrogation matter. On or about May 10, 1996, a subrogation claim entitled Juarez v. Arvida Corporation et al., Case No. 96-09372 CA13 was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. Plaintiffs filed this suit for the use and benefit of American Reliance Insurance Company ("American Reliance"). In this suit, plaintiffs sought to recover damages, pre-and post-judgment interest, costs and any other relief the court may deem just and proper in connection with $3,200,000 American Reliance allegedly paid on specified claims at Country Walk in the wake of Hurricane Andrew. The Walt Disney Company (n/k/a Disney Enterprises, Inc., "Disney") was also a defendant in this suit. The Partnership was informed that a settlement was reached between the Walt Disney Company and the plaintiffs in the Juarez matter and that Disney had been assigned the claims against the Partnership once held by the plaintiffs. Otherwise, the terms of the settlement have not been disclosed. The Partnership filed a motion to dismiss this action that was pending since 1996.
On October 26, 2006, the Partnership and Disney entered into a settlement agreement which resolved the Lakes Indemnity Matter and the claims that Disney was assigned in the Juarez matter. The cases have been dismissed. In connection with the settlement agreement, the Partnership received $3,000,000 from Disney or its insurers.
The Partnership, the General Partner and certain related parties as well as other unrelated parties have been named defendants in an action entitled Rothal v. Arvida/JMB Partners Ltd. et al., Case No. 03-10709 CACE 12, filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. In this suit that was originally filed on or about June 20, 2003, plaintiffs purport to bring a class action allegedly arising out of construction defects occurring during the development of Camellia Island in Weston, which has approximately 150 homes. On May 9, 2005, plaintiffs filed a nine count second amended complaint seeking unspecified general damages, special damages, statutory damages, prejudgment and post-judgment interest, costs, attorneys' fees, and such other relief as the court may deem just and proper. Plaintiffs complain, among other things, that the homes were not adequately built, that the homes were not built in conformity with the South Florida Building Code and plans on file with Broward County, Florida, that the roofs were not properly attached or were inadequate, that the truss systems and installation thereof were improper, and that the homes suffer from improper shutter storm protection systems. The Arvida defendants have filed their answer to the amended complaint. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. Due to, among other things, the early stage of the litigation, the Partnership is not able to determine what, if any, loss exposure that it may have for this matter. This case has been tendered to one of the Partnership's insurance carriers, Zurich American Insurance Company (together with its affiliates collectively, "Zurich"), for defense and indemnity. Zurich is providing a defense of this matter under a purported reservation of rights.
The Partnership has also engaged other counsel in connection with this lawsuit. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages, if any, which will be covered by its insurance.
The Partnership has been named a defendant in a purported class action entitled Osnovsky, individually and on behalf of others similarly situated, v. Arvida Company, Arvida/JMB Partners, and Arvida Realty Co., Inc., Case No. 05015925, filed on November 7, 2005, in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The Arvida defendants were served on March 1, 2006. Plaintiffs have filed a three count class action complaint for alleged violations of state building code, failure to disclose known defects in a residential real estate transaction, and negligence, all in connection with injuries allegedly sustained to their homes in the Ridges, a homeowners association in Weston that has about 1,500 units. Plaintiffs complain of alleged roofing defects in their homes, among other things. Plaintiffs seek unspecified damages and the opportunity to amend to add punitive damages. The complaint has been tendered to Arvida's carrier for defense and indemnity. In response to the tender, the Partnership received a purported reservation of right letter from the carrier. The Arvida defendants believe they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages, if any, which will be covered by the insurance.
The following lawsuits in large part allegedly arise out of landscaping issues at certain subdivisions in the Weston Community. These lawsuits are collectively referred to as the "landscape cases." In addition to the following landscaping cases, the General Partner has received letters from other homeowners' associations in the Weston Community complaining about their landscaping. These associations have not filed suit.
A case, The Ridges Maintenance Association, Inc. v. Arvida/JMB Partners, et al., Case No. 03-10189 (05) (the "Ridges Case"), was filed on or about June 6, 2003 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The defendants in this action include Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida Management Limited Partnership, CCL Consultants, Inc. ("CCL"), Bamboo Hammock Nursery, Inc. ("Bamboo Hammock"), and Lagasse Pool Construction, Co. ("Lagasse"). Plaintiff is alleged to be a homeowners' association representing the owners of approximately 1,500 homes and extensive common areas in the Ridges subdivision in Weston. In the seven-count amended complaint that was filed on September 16, 2005, plaintiff seeks unspecified compensatory damages, prejudgment interest, court costs and such other and further relief as the court might deem just and proper. In Count I, plaintiff seeks damages from the Arvida defendants for alleged negligent design, construction and/or maintenance of the landscaping and common elements that allegedly resulted in defects of the landscaping, sidewalks, irrigation systems, and community pool. With respect to the landscaping claims, the plaintiff claims that it evaluated the condition of the common areas after the turnover of the community in January 2000 and alleges that it discovered numerous construction, design and maintenance defects and deficiencies including, but not limited to, improper planting of inferior quality/grade of landscaping contrary to controlling government codes, shallow planting of landscaping, landscape planting in inappropriate areas, and the planting of landscaping that would uproot sidewalks. In Count II, plaintiff seeks damages from CCL, the alleged civil engineer for the community, in connection with the alleged negligent design, construction or maintenance of the common areas and elements. In Count III, plaintiff seeks damages from Bamboo Hammock, the alleged landscape engineer, architect, supplier, installer and/or designer, in connection with alleged defects in the landscaping resulting in damage to, among other things, the landscaping and sidewalks. In Count IV, plaintiff seeks damages from Lagasse for alleged defects in the community pool. In Count V, plaintiff seeks damages from Arvida/JMB Partners, a general partnership in which the Liquidating Trust owns a 99.9% interest, and Arvida/JMB Managers, Inc., the former General Partner of the Partnership, seeking to hold these entities vicariously responsible for the acts of CCL, Bamboo Hammock, and/or Lagasse. In Count VI, plaintiff seeks damages from the Arvida/JMB Partners
and Arvida/JMB Managers, Inc. for various breaches of fiduciary duty. In this count, plaintiff alleges that prior to the turnover of the community, these defendants engaged in acts that amounted to a breach of fiduciary duty to plaintiff in that they, among other things, (i) allegedly improperly executed an amendment to the declarations of covenant for their sole benefit and to the financial detriment of the plaintiff; (ii) allegedly engaged in acts that constituted a conflict of interest; (iii) allegedly failed to maintain appropriate care, custody and control over the financial affairs of the homeowners' association by failing to pay for common expenses; (iv) allegedly improperly transferred funds by and between plaintiff and a non-party, The Town Foundation, Inc., which transfers allegedly amounted to a violation of these defendants' obligations to fund operating deficits and a breach of fiduciary duty; and (v) allegedly transferred funds by and between various entities under their common control in violation of Florida statute and their fiduciary duty to plaintiff. Plaintiffs voluntarily withdrew Count VII. The Arvida defendants filed their answer to the amended complaint denying substantive liability and raising various defenses. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time.
A case entitled The Falls Maintenance Association, Inc. v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., CCL Consultants, Inc. and Stiles Corporation f/k/a Stiles Landscape Service Co., Case No. 0302577 (the "Falls Maintenance Case"), was filed on or about February 10, 2003, in the 17th Judicial Circuit in and for Broward County, Florida. Plaintiff is alleged to be the homeowners' association responsible for the maintenance, repair, and replacement of the common areas within the Falls subdivision in Weston, which contains approximately 600 homes. Plaintiff complains that on turnover of the Falls subdivision, it discovered numerous construction, design and maintenance defects and deficiencies including, but not limited to, the quality/grade of the landscaping, landscaping planted too shallow, landscaping planted too deep, landscaping planted in narrow swale areas, landscaping planted in shallow soil areas, poor fertility of road rock under locations where landscaping is planted and poor maintenance. Plaintiff has filed a six count complaint with five counts against Arvida/JMB Partners and Arvida/JMB Managers, Inc. for breach of implied warranty of merchantability, breach of implied warranty of fitness, breach of express warranty, fraudulent misrepresentation/concealment, and negligent design, construction and/or maintenance. Plaintiff seeks an unspecified amount of compensatory damages, interest, costs, and such other and further relief as is just and equitable. Arvida/JMB Partners and Arvida/JMB Managers, Inc. have filed an answer to the complaint denying substantive liability and raising various defenses. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time.
Due to, among other things, the early stages of litigation, the Partnership is not able to determine what, if any, loss exposure that it may have for the landscape cases, and the accompanying financial statements do not reflect any accruals related to the landscape cases. Each of the landscape cases has been tendered to Zurich for defense and indemnity. The Partnership has also engaged other counsel in connection with the landscape cases. The Partnership has received from Zurich letters purporting to reserve its rights in the Ridges and Falls Maintenance Cases. For this and other reasons, on September 26, 2005, Arvida/JMB Partners, L.P., Arvida/JMB Managers, Inc., and Arvida Management L.P. (collectively "Arvida") filed a complaint, as amended, for declaratory relief and damages against Zurich American Insurance Co., individually and as successor to Zurich Insurance co. (collectively "Zurich"), Case No. 0514346 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. In this complaint, Arvida seeks, among other things, a declaration of its rights under its policies, attorney fees and costs, and such other relief as the court deems appropriate. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages allegedly relating to the landscaping cases, if any, which will be covered by its insurance.
On October 22, 2003, a case entitled Weston Lakes Maintenance Association v. Arvida/JMB Partners and Arvida/JMB Managers, Inc., Case No. 0318490, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida Civil Division. In the four-count complaint, which was served on the Partnership in February 2004, plaintiff, Weston Lakes Maintenance Association, alleged that defendants negligently selected and installed inferior landscaping materials in the common areas and elements of the Weston Lakes subdivision, which contains approximately 570 homes. Plaintiff alleged that defendants' actions have caused higher than expected maintenance fees and that the landscaping was causing injury and damage to sidewalks and roadways that had to be repaired or replaced. Plaintiff alleged that an unspecified large sum of money would be required to replace the alleged substandard landscaping and that significant expense for remedial maintenance, repair and replacement of elements throughout the community would be incurred. The four-count complaint was for negligent construction and design of landscaping allegedly based on a violation of a Broward County ordinance regarding plant materials, common law negligence, breach of implied warranty of fitness, and breach of implied warranty of merchantability. Plaintiff sought a judgment in an unspecified amount and type of damages, attorney's fees and such other relief as the court might deem proper. This case was tendered to one of the Partnership's carriers for defense and indemnity. This matter was resolved for a payment of $50,000 to the plaintiff homeowners association plus legal fees and specified costs.
Other than as described above, the Partnership is not subject to any material legal proceedings, other than ordinary routine litigation incidental to the business of the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Unit Holders during 2006.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of January 1, 2007, there were 15,865 record holders of the 446,375 beneficial interest units outstanding in the Liquidating Trust. There is no public market for beneficial interest units. However, there are restrictions governing the transferability of these beneficial interest units set forth in the Liquidating Trust Agreement. In addition, no transfer will be effective until the first day of the next succeeding calendar quarter after the requisite transfer form satisfactory to the Administrator has been received by the Administrator. The transferee consequently will not be entitled to receive any cash distributions or any allocable share of profits or losses for tax purposes until such next succeeding calendar quarter. Cash distributions to a Unit Holder of beneficial interest units will be distributed to the person recognized as the Unit Holder of the beneficial interest units as of the last day of the quarterly period preceding the quarter in which such distribution is made.
Reference is made to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the retention of cash reserves to pay or resolve obligations and liabilities of, and claims asserted, and possible future cash distribution(s).
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the financial statements and the notes to the financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this report. The statement of changes in net assets in liquidation data for the year ended December 31, 2006 and the period from October 1, 2005 to December 31, 2005, the consolidated statement of operations data for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004 are derived from our audited consolidated financial statements included herein.
The consolidated statement of operations data for the years ended December 31, 2003 and 2002 are derived from our audited consolidated financial statements not included herein.
For the Period from October 1, 2005 to December 31, 2006 2005 ----------- ------------ STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION DATA (LIQUIDATION BASIS OF ACCOUNTING) Net assets in liquidation beginning of period . . . . . . . . $22,330,527 $22,545,846 Proceeds and revenues . . . . . . . . 11,651,616 164,617 Adjustment to estimated costs to be incurred through December 31, 2006 and June 30, 2007, respectively. . . . . . . . . 934,060 223,287 Costs incurred during liquidation period. . . . . . . . . (1,329,007) (603,223) Distributions to Unit Holders . . . . (11,215,252) -- ----------- ----------- Net assets in liquidation at end of period. . . . . . . . . . $22,371,944 $22,330,527 =========== ===========
Cash distribution per unit. . . . . . $ 25.00 -- =========== ===========
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. Words like "believes," "expects," "anticipates," "likely" and similar expressions used in this report are intended to identify forward- looking statements. These forward-looking statements give the Liquidating Trust's current estimates or expectations of future events, circumstances or results, including statements concerning possible future distributions and the amount of time and money that may be involved in completing the liquidation, winding up and termination of the Liquidating Trust. Any forward-looking statements made in this report are based upon the Liquidating Trust's understanding of facts and circumstances as they exist on the date of this report, and therefore such statements speak only as of that date. In addition, the forward-looking statements contained in this report are subject to risks, uncertainties and other factors that may cause the actual events or circumstances, or the results or performances of the Liquidating Trust, to be materially different from those estimated or expected, expressly or implicitly, in the forward-looking statements. In particular, but without limitation, the accuracy of statements concerning possible future distributions to the Unit Holders, or the timing, proceeds or costs associated with completion of a liquidation, winding up and termination may be adversely affected by, among other things, various factors discussed below.
Effective September 30, 2005, the Partnership completed its liquidation by contributing all of its remaining assets to the Liquidating Trust, subject to all of the Partnership's obligations and liabilities. Arvida Company, an affiliate of the general partner of the Partnership, acts as the Administrator of the Liquidating Trust.
The Liquidating Trust is a statutory trust formed under the laws of the State of Delaware. The purpose of the Liquidating Trust is to complete the liquidation and winding up of the business affairs of the Partnership. The liquidation, winding up and termination of the Liquidating Trust will be managed by Arvida Company, as administrator of the Liquidating Trust. In its capacity as such, the Administrator has the authority to exercise all of the powers granted to it under the Liquidating Trust Agreement, including selling or otherwise disposing of the remaining property of the Liquidating Trust, resolving litigation against the Liquidating Trust or its predecessor, preparing tax returns for the Liquidating Trust, making distributions to Unit Holders and retaining advisors to assist it in carrying out its powers. Wilmington Trust Company is the Delaware resident trustee of the Liquidating Trust. Both the Administrator and the Delaware resident trustee are entitled to fees for their services and/or reimbursement for the expenses they incur in connection with their activities under the Liquidating Trust Agreement. In addition, each of them will generally be indemnified for liabilities that arise as a result of the activities they provide under the Liquidating Trust Agreement unless such liabilities result from such person's own bad faith, fraud, willful misconduct or gross negligence. The Liquidating Trust will generally continue in existence until all claims, debts, liabilities and obligations of the Liquidating Trust and the Partnership have been paid or otherwise discharged.
In connection with its formation, the Liquidating Trust issued a total of 448,794 beneficial interest units to the partners of the Partnership. In the liquidation, each partner in the Partnership received a beneficial ("Unit Holders") interest in the Liquidating Trust for each interest the partner held in the Partnership. As a result, a partner's percentage interest in the Liquidating Trust remains the same as that person's percentage interest was in the Partnership immediately prior to its liquidation.
Upon completion of the liquidation of the Partnership, pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Liquidating Trust elected to become the successor issuer to the Partnership for reporting purposes under the Exchange Act and elected to report under the Exchange Act effective September 30, 2005. The Liquidating Trust has assumed all reports filed by the Partnership prior to liquidation of the Partnership under the Exchange Act.
Various factors may affect the timing of completing the liquidation, winding up and termination of the Liquidating Trust and the amount of liquidating distributions of funds, if any, out of those retained in reserve. These factors include the time and expense to resolve all obligations, liabilities and claims, including contingent liabilities and claims that are not yet asserted but may be made in the future. Among other things, additional or unanticipated remedial construction or development costs, contingencies (including, without limitation, contingencies relating to potential homeowner warranty or other homeowner or homeowners' association claims), delays in resolving pending or threatened litigation or other asserted claims, delays in satisfying conditions or obligations under permits obtained by the Partnership, currently unasserted claims that arise in the future and other factors could result in a reduction in future distributions to Unit Holders in the Liquidating Trust and could extend the time, and significantly increase the cost, to complete the liquidation, winding up and termination of the Liquidating Trust. While the Liquidating Trust intends to defend against asserted claims where appropriate, it is currently not possible to identify or assess any defenses or counterclaims that may be available to the Liquidating Trust, or the magnitude of any claims that may be asserted.
CRITICAL ACCOUNTING POLICIES
Upon the formation of the Liquidating Trust, the Liquidating Trust adopted the liquidation basis of accounting effective September 30, 2005. The preparation of financial statements using the liquidation basis of accounting requires us to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. Estimated costs to be incurred during liquidation includes an estimate of legal fees and costs of litigation, insurance costs and other administrative items through December 31, 2007. This date was extended from June 30, 2007 as it became evident that it was unlikely that the Liquidating Trust could wind up its affairs by that date. Reference is made to "Commitments and Contingencies" for a discussion of pending or threatened litigation. The Liquidating Trust is unable to reasonably estimate the outcome of its pending litigation or threatened litigation and is also unable to reasonably predict the estimated timetable to reach any such outcome. Estimated costs have been included through the earliest reasonable date that pending litigation could be resolved prior to trial. While the pending litigation may not be resolved prior to trial, and may require a period of time significantly beyond December 31, 2007, no one point in time provides for a better estimate than any other point in time. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis an evaluation will be made of assumptions, judgments and estimates and changes will be made, if deemed appropriate.
We believe that the assumptions, judgments and estimates involved in the accounting for estimated costs to be incurred during liquidation have the greatest potential impact on our financial statements, and therefore, we consider these estimates to be our critical accounting policies.
Prior to the formation of the Liquidating Trust and the adoption of the liquidation basis of accounting, the Partnership relied on certain estimates to determine the construction and land costs and resulting gross margins. The Partnership's land and construction costs were comprised of direct and allocated costs, including estimated costs for future warranties. Warranty reserves are established by charging cost of sales and recognizing a liability for the estimated warranty costs for each home that is closed. The Liquidating Trust monitors this reserve on a quarterly basis by evaluating the historical warranty experience and the reserve is adjusted as appropriate for current quantitative and qualitative factors. Actual future warranty costs could differ from the currently estimated amounts. Land, land development and other common costs were assigned to individual components based on specific identification or other allocation methods. Land and land development costs generally include interest incurred until development is substantially completed.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2006, 2005 and 2004, the Liquidating Trust had unrestricted cash and cash equivalents of approximately $27,010,000, $29,765,000 and $37,591,000, respectively. At February 28, 2007, the Liquidating Trust had unrestricted cash and cash equivalents of approximately $26,826,000. The decrease in cash and cash equivalents from December 31, 2006 to February 28, 2007 is primarily due to payments made for legal fees and other miscellaneous expenses. The source of both short- term and long-term future liquidity is expected to be derived from cash on hand since the Liquidating Trust has no continuing business operations.
At December 31, 2006, the Liquidating Trust was contingently liable under certain performance bonds for approximately $2,369,000.
As of December 31, 2006, net assets in liquidation totaled approximately $22,372,000, consisting of approximately $27,818,000 in total assets, which included approximately $27,010,000 in cash and cash equivalents and approximately $5,446,000 in total liabilities. The Liquidating Trust expects to use its capital resources to execute its liquidation and dissolution, and with remaining funds, if any, to be used to make liquidating distributions to Unit Holders.
On December 13, 2006, the Liquidating Trust made a distribution of $11,215,252 to its Unit Holders ($25 per unit), including $1,121,977 for units held by the Administrator and its affiliates.
On July 3, 2006, a general partnership substantially owned by the Liquidating Trust received from Interconn Ponte Vedra Company, LLC ("Interconn") $6,800,000 as compensation for the release of certain rights, reservations, restrictions and other covenants, and the continuation of certain licensed intellectual property rights, owned by Arvida/JMB Partners that related to real property located in the state of Florida that was originally sold in 1985 by Arvida Corporation, a predecessor in interest of an affiliate of the Trust. The rights released generally dealt with restrictions and other limitations on development activity beyond that contemplated in the 1985 transaction. The partnership agreed to the assignment by Interconn of its rights to use certain licensed service marks to the purchaser of the subject real property.
On October 26, 2006, the Partnership received $3,000,000 in connection with a settlement agreement which resolved certain matters. Reference is made to Note 6 Commitments and Contingencies in the Notes to the Financial Statements for a full description of the transaction.
RESULTS OF OPERATIONS (LIQUIDATION BASIS)
The following table presents financial data under the liquidation basis of accounting for the year ended December 31, 2006 and period of October 1, 2005 to December 31, 2005.
2006 2005 ----------- ----------- Net assets in liquidation on beginning of period . . . . . . . . . . . $22,330,527 22,545,846 Proceeds and revenues . . . . . . . . . 11,651,616 164,617 Adjustment to estimated costs to be incurred through December 31, 2007 and June 30, 2007, respectively. . . . . . . . . . . . . 934,060 223,287 Costs incurred during liquidation period. . . . . . . . . . . . . . . . (1,329,007) (603,223) Distributions to Unit Holders . . . . . (11,215,252) -- ----------- ----------- Net assets in liquidation at end of period . . . . . . . . . . . . . . $22,371,944 22,330,527 =========== ===========
In connection with the adoption of the liquidation basis of accounting on September 30, 2005, we accrued estimated costs to be incurred during liquidation. Included in estimated costs to be incurred during liquidation are future expenditures that, prior to the adoption of the liquidation basis of accounting, would generally have been included in general and administrative expenses in future periods. Future adjustments in estimated costs to be incurred in liquidation will be reflected as changes in net assets in liquidation. Prior to the adoption of the plan, selling, general and administrative expenses included all marketing costs, with the exception of those costs capitalized in conjunction with the construction of housing units, as well as project and general administrative costs. These expenses were net of the marketing fees received from third party builders.
RESULTS OF OPERATIONS (GOING CONCERN BASIS)
The results of operations for the period ended January 1, 2005 to September 30, 2005 and year ended December 31, 2004 are primarily attributable to the sale of the Partnership's assets during its continuing orderly liquidation.
For the period from January 1, 2005 to September 30, 2005 and the year ended December 31, 2004, the Liquidating Trust had no closings as all housing units were closed as of June 30, 2003.
Brokerage and other operating revenue for the period from January 1, 2005 to September 30, 2005 were generated from the sale of two small parcels of land in Boca Raton and in Weston, Florida, the carrying value of which was $0, and receipt of a payment to release a deed restriction related to property previously sold to the Partnership in Boca Raton, Florida. The brokerage and other operations revenue for 2004 is due primarily to the receipt of a payment for the release of a deed restriction.
For the period from January 1, 2005 to September 30, 2005 and for the year ended 2004, there were no housing revenues. The housing cost of revenues for the period from January 1, 2005 to September 30, 2005 resulted from increases in the Partnership's estimated remaining warranty costs. The gross operating profit margin for 2004 is due in part to the settlement of the claim relating to insurance coverage in a lawsuit involving the Lakes of the Meadows partially offset by an increase in estimated remaining warranty costs.
Selling, general and administrative expense for the period from January 1, 2005 to September 30, 2005 consisted primarily of legal fees, investor-related expenses and insurance.
Interest income increased for the period from January 1, 2005 to September 30, 2005 as compared to 2004 due primarily to the purchase of debt securities and money market funds which earned higher interest rates than the Partnership's previous cash investments.
In July 2005, Ocala Joint Venture closed on the sale of a 2.5 acre commercial parcel in Ocala, Florida, to an unaffiliated third party. The Partnership was a 50% owner in the joint venture. The gross sales price of the Ocala parcel was $400,000. Net cash proceeds received from the sale, after prorations and closing costs totaled approximately $375,000, of which the Partnership's share was approximately $187,500.
INFLATION
The relatively low rates of inflation in recent years generally have not had a material effect on the Community development business and inflation in future periods is not likely to adversely affect the Liquidating Trust since its assets consist primarily of cash and cash equivalents.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Liquidating Trust's only market rate exposure was interest rate risk related to marketable securities.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALP LIQUIDATING TRUST
INDEX
Report of Independent Registered Public Accounting Firm, December 31, 2006
Report of Independent Registered Public Accounting Firm, December 31, 2005
Statement of Net Assets in Liquidation as of December 31, 2006
Statement of Changes in Net Assets in Liquidation for the year ended December 31, 2006 and the period from October 1, 2005 to December 31, 2005
Consolidated Statements of Operations for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004
Consolidated Statements of Changes in Partners' Capital Accounts for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004
Consolidated Statements of Cash Flows for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004
Notes to Financial Statements
SCHEDULES NOT FILED:
All schedules have been omitted as the required information is inapplicable or immaterial, or the information is presented in the consolidated financial statements or related notes.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Trustees of ALP LIQUIDATING TRUST:
We have audited the accompanying statement of net assets in liquidation of ALP Liquidating Trust (Trust) as of December 31, 2006, and the related statement of changes in net assets in liquidation for the year ended. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets in liquidation of ALP Liquidating Trust at December 31, 2006, and the changes in their net assets in liquidation for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Chicago, Illinois March 30, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Trustees ALP LIQUIDATING TRUST:
We have audited the statement of net assets in liquidation as of December 31, 2005 and the related statement of changes in net assets in liquidation for the period from September 30, 2005 to December 31, 2005 of ALP Liquidating Trust (the Trust). In addition, we have audited the accompanying consolidated balance sheet of ALP Liquidating Trust and Consolidated Ventures (successor to Arvida/JMB Partners, L.P.) as of December 31, 2004, and the related consolidated statements of operations, changes in partners' capital accounts, and cash flows for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, a liquidating trust was formed on September 30, 2005 and the net assets of Arvida/JMB Partners, L.P. were contributed to the Trust. As a result, the Trust has changed its basis of accounting for the period subsequent to September 30, 2005 from the going-concern basis to liquidating basis.
In our opinion, the financial statements referred to above present fairly, in all material respects, the statement of net assets in liquidation as of December 31, 2005 and the changes in its net assets in liquidation for the period from September 30, 2005 to December 31, 2005 and the consolidated financial position of ALP Liquidating Trust and Consolidated Ventures at December 31, 2004, and the consolidated results of their operations and their cash flows for the period from January 1, 2005 to September 30, 2005 and for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP Certified Public Accountants
Miami, Florida March 24, 2006
PART II. FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS
ALP LIQUIDATING TRUST
STATEMENTS OF NET ASSETS IN LIQUIDATION
ASSETS ------
DECEMBER 31, DECEMBER 31, 2006 2005 ------------ ------------
Cash and cash equivalents . . . . . . . . $27,010,222 $29,765,135 Restricted cash . . . . . . . . . . . . . 671,812 664,159 Prepaid expenses and other assets . . . . 135,936 133,276 ----------- -----------
Total assets. . . . . . . . . . $27,817,970 $30,562,570 =========== ===========
LIABILITIES AND NET ASSETS IN LIQUIDATION -----------------------------------------
Estimated costs to be incurred through December 31, 2007 and June 30, 2007, respectively . . . . . . $ 3,660,000 $ 4,594,060 Other current liabilities and accrued expenses. . . . . . . . . . . . 1,786,026 3,637,983 ----------- ----------- Total liabilities . . . . . . . 5,446,026 8,232,043 ----------- -----------
Net assets in liquidation . . . $22,371,944 $22,330,527 =========== ===========
The accompanying notes are an integral part of these financial statements.
ALP LIQUIDATING TRUST
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE PERIOD FROM OCTOBER 1, 2005 TO DECEMBER 31, 2005
2006 2005 ------------ ------------
Basis at September 30, 2005 (transferred from Arvida/ JMB Partners, L.P.) . . . . . . . . . . $ -- $ 27,381,243
Liquidation basis adjustments: Adjust assets and liabilities to fair values. . . . . . . . . . . . -- (18,050) Estimated costs to be incurred through June 30, 2007 . . . . . . . . -- (4,817,347) ------------ ------------
Net assets in liquidation at beginning of period . . . . . . . . . . 22,330,527 22,545,846
Proceeds and revenues . . . . . . . . . . 11,651,616 164,617
Adjustment to estimated costs to be incurred through December 31, 2007 and June 30, 2007, respectively. . . . . . . . . . . . . . 934,060 223,287
Costs incurred during liquidation period. . . . . . . . . . . (1,329,007) (603,223)
Distributions to Unit Holders . . . . . . (11,215,252) -- ------------ ------------
Net assets in liquidation at end of period . . . . . . . . . . . . . $ 22,371,944 $ 22,330,527 ============ ============
Cash distribution per unit. . . . . . . . $ 25.00 $ -- ============ ============
The accompanying notes are an integral part of these financial statements.
ALP LIQUIDATING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 2005 TO SEPTEMBER 30, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004
(Going Concern Basis)
For the period from January 1, 2005 to September 30, 2005 2004 ------------ ------------
Revenues: Brokerage and other operations. . . . . $ 251,744 $ 187,150 ------------ ------------ Total revenues. . . . . . . . . . 251,744 187,150 ------------ ------------
Cost of revenues: Housing . . . . . . . . . . . . . . . . 390,500 (4,661,870) Operating properties. . . . . . . . . . -- 115,000 Brokerage and other operations. . . . . 1,589 49,689 ------------ ------------ Total cost of revenues. . . . . . 392,089 (4,497,181) ------------ ------------
Gross operating (loss) profit . . . . . . (140,345) 4,684,331
Selling, general and administrative expenses . . . . . . . . (1,856,997) (2,478,533) ------------ ------------
Net operating (loss) income . . . (1,997,342) 2,205,798
Interest income . . . . . . . . . . . . . 820,699 634,743 Equity in earnings (losses) of unconsolidated ventures . . . . . . . . 76,294 (37,307) Interest and real estate taxes, net of amounts capitalized. . . . . . . (5,260) (102,960) ------------ ------------
Net (loss) income from operations. . . . . . . . . . . $ (1,105,609) $ 2,700,274 ============ ============
ALP LIQUIDATING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 2005 TO SEPTEMBER 30, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004
(Going Concern Basis)
For the period from January 1, 2005 to September 30, 2005 2004 ------------ ------------
Allocation of net (loss) income: General Partner and Associate Limited Partners . . $ (22,112) $ 27,003 Limited Partners. . . . . . . . (1,083,497) 2,673,271 ------------ ------------ Total . . . . . . . . . . . $ (1,105,609) $ 2,700,274 ============ ============
Net (loss) income per Limited Partnership Interest. . . . . . . . . . . . $ (2.68) $ 6.62 ============ ============
Cash distribution per Limited Partnership Interest. . . . . . . . . . . . $ 55.00 $ -- ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
ALP LIQUIDATING TRUST (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
FOR THE PERIOD FROM JANUARY 1, 2005 TO SEPTEMBER 30, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004
For the period from January 1, 2005 to September 30, 2005 2004 ------------ ------------ Operating activities: Net (loss) income from continuing operations . . . . . . . . $ (1,105,609) $ 2,700,274 Charges (credits) to net (loss) income not requiring (providing) cash: Depreciation and amortization . . . . 7,639 15,890 Amortization of discount and realized losses on marketable securities . . . . . . . (236,194) (110,060) Equity in losses (earnings) of unconsolidated ventures. . . . . (76,294) 37,307 Joint venture distributions, net. . . 198,289 17,000 Loss on disposal of property and equipment . . . . . . . . . . . 3,889 -- Changes in: Restricted cash . . . . . . . . . . . 51,926 407,684 Trade and other accounts receivable. . . . . . . . . . . . . 1,576 290,395 Amounts due from (to) affiliates, net . . . . . . . . . . (10,519) 313,985 Prepaid expenses and other assets . . 2,569 103,781 Accounts payable, accrued expenses and other liabilities. . . (1,504,757) (11,445,556) ------------ ------------ Net cash used in operating activities. . . . . (2,667,485) (7,669,300) ------------ ------------
Investing activities: Acquisition of held-to-maturity debt securities . . . . . . . . . . . (41,689,622) (19,857,974) Proceeds from held-to-maturity debt securities . . . . . . . . . . . 51,900,000 -- Proceeds from sales of property and equipment. . . . . . . . -- 117,743 ------------ ------------
Net cash provided by (used in) investing activities. . . . . 10,210,378 (19,740,231) ------------ ------------
ALP LIQUIDATING TRUST (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
FOR THE PERIOD FROM JANUARY 1, 2005 TO SEPTEMBER 30, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004
For the period from January 1, 2005 to September 30, 2005 2004 ------------ ------------
Financing activities: Distributions to General Partner and Associate Limited Partners. . . . . . (2,468,858) -- Distributions to Limited Partners . . . (22,219,725) -- Minority interest distribution. . . . . -- (450,000) ------------ ------------ Net cash used in financing activities. . . . . (24,688,583) (450,000) ------------ ------------ Decrease in cash and cash equivalents. . . . . . . (17,145,690) (27,859,531)
Transfer of cash and cash equivalents as of September 30, 2005. . . . . . (20,444,896) --
Cash and cash equivalents, beginning of period . . . . . 37,590,586 65,450,117 ------------ ------------ Cash and cash equivalents, end of period . . . . . . . . $ -- $ 37,590,586 ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
ALP LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Operations
On September 30, 2005, Arvida/JMB Partners, L.P. (the "Partnership") completed its liquidation by contributing all of its remaining assets to ALP Liquidating Trust (the "Liquidating Trust"), subject to all of the Partnership's obligations and liabilities. Arvida Company, an affiliate of the former general partner of the Partnership, acts as Administrator (the "Administrator") of the Liquidating Trust.
In connection with its formation, the Liquidating Trust issued a total of 448,794 beneficial interest units to the partners of the Partnership ("Unit Holders"). In the liquidation, each partner in the Partnership received a beneficial interest in the Liquidating Trust for each interest the partner held in the Partnership. As a result, a partner's percentage interest in the Liquidating Trust remains the same as that person's percentage interest was in the Partnership immediately prior to its liquidation. As of the date of this report, there were 15,865 record holders of the beneficial interest units outstanding in the Liquidating Trust.
Upon completion of the liquidation of the Partnership, pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Liquidating Trust elected to become the successor issuer to the Partnership for reporting purposes under the Exchange Act and elected to report under the Exchange Act effective September 30, 2005. The Liquidating Trust has assumed all reports filed by the Partnership prior to liquidation of the Partnership under the Exchange Act. Throughout this report, references to the Liquidating Trust shall be deemed to include activities of the Partnership prior to September 30, 2005.
Basis of Presentation
Upon the formation of the Liquidating Trust, the Liquidating Trust adopted the liquidation basis of accounting effective September 30, 2005. The preparation of financial statements using the liquidation basis of accounting requires us to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. Estimated costs to be incurred during liquidation includes an estimate of legal fees and costs of litigation, insurance costs and other administrative items through December 31, 2007. This date was extended from June 30, 2007 as it became evident that it was unlikely that the Liquidating Trust could wind up its affairs by that date. Reference is made to "Commitments and Contingencies" for a discussion of pending or threatened litigation. The Liquidating Trust is unable to reasonably estimate the outcome of its pending litigation or threatened litigation and is also unable to reasonably predict the estimated timetable to reach any such outcome. Estimated costs have been included through the earliest reasonable date that pending litigation could be resolved prior to trial. While the pending litigation may not be resolved prior to trial, and may require a period of time significantly beyond December 31, 2007, no one point in time provides for a better estimate than any other point in time. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis an evaluation will be made of assumptions, judgments and estimates and changes will be made if deemed appropriate.
Until the ultimate completion of the liquidation, winding up and termination of the Liquidating Trust, it is currently anticipated that the Liquidating Trust will retain a significant portion of its funds in reserve to provide for the payment of, the defense against, or other satisfaction or resolution of obligations, liabilities (including contingent liabilities) and current and possible future claims, including those for possible construction repairs, homeowner warranty claims, completion of work for certain homeowner associations and master associations and pending and possible future litigation and environmental matters. It is not possible at this time to estimate the amount of time or money that it will take to effect the Liquidating Trust's liquidation, winding up and termination. That portion, if any, of the funds held in reserve that are not ultimately used to pay, defend or otherwise resolve or satisfy obligations, liabilities or claims are currently anticipated to be distributed to the Unit Holders in the Liquidating Trust at a later date and may not be distributed until the completion of the liquidation.
Various factors may affect the timing of completing the liquidation, winding up and termination of the Liquidating Trust and the amount of liquidating distributions of funds, if any, out of those retained in reserve. These factors include the time and expense to resolve all obligations, liabilities and claims, including contingent liabilities and claims that are not yet asserted but may be made in the future. Among other things, additional or unanticipated remedial construction or development costs, contingencies (including without limitation, contingencies relating to potential homeowner warranty or other homeowner or homeowners' association claims), delays in resolving pending or threatened litigation or other asserted claims, delays in satisfying conditions or obligations under permits obtained by the Partnership, currently unasserted claims that arise in the future and other factors could result in a reduction in future distributions to Unit Holders in the Liquidating Trust and could extend the time, and significantly increase the cost, to complete the liquidation, winding up and termination of the Liquidating Trust. While the Liquidating Trust intends to defend against asserted claims where appropriate, it is currently not possible to identify or assess any defenses or counterclaims that may be available to the Liquidating Trust, or the magnitude of any claims that may be asserted.
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 or disclosed in the financial statements and accompanying notes. Actual results could differ from those estimates.
Warranty Reserves
In the normal course of business, the Liquidating Trust will incur warranty related costs associated with the sales of homes which have previously closed. Warranty reserves are established by charging cost of revenues and recognizing a liability for the estimated warranty costs for each home that is closed. The Liquidating Trust monitors this reserve on a quarterly basis, at a minimum, by evaluating the historical warranty experience and the reserve is adjusted as appropriate for current quantitative and qualitative factors. Actual future warranty costs could differ from the currently estimated amounts.
For the year ended December 31, 2006 and the period from October 1, 2005 to September 30, 2005, changes in the warranty accrual consisted of the following:
October 1 - December 31, 2006 2005 ------------ ----------- Accrued warranty costs, beginning of period . . . . . . . $ 720,000 $ 790,000 Payments made . . . . . . . . . . . (90,000) (70,000) ----------- ----------- Accrued warranty costs, end of period . . . . . . . . . . $ 630,000 $ 720,000 =========== ===========
Accrued warranty costs are included in other current liabilities and accrued expenses on the accompanying statements of net assets in liquidation.
Other Current Liabilities and Accrued Expenses
Other current liabilities and accrued expenses include legal fees, warranty reserves, and other miscellaneous accruals.
Indemnification of Certain Persons
Under certain circumstances, the Liquidating Trust indemnifies the Administrator and certain other persons performing services on behalf of the Liquidating Trust for liability they may incur arising out of the indemnified persons' activities conducted on behalf of the Liquidating Trust. There is no limitation on the maximum potential payments under these indemnification obligations, and, due to the number and variety of events and circumstances under which these indemnification obligations could arise, the Liquidating Trust is not able to estimate such maximum potential payments. However, historically the Liquidating Trust has not made payments in material amounts under such indemnification obligations, and no amount has been accrued in the accompanying financial statements for these indemnification obligations of the Liquidating Trust.
Principles of Consolidation
The consolidated financial statements included the accounts of the Liquidating Trust and its consolidated ventures. All material intercompany balances and transactions have been eliminated in consolidation. The equity method of accounting has been applied in the accompanying consolidated financial statements with respect to those investments where the Liquidating Trust's ownership interest is 50% or less.
Income Taxes
No provision for state or Federal income taxes has been made as the liability for such taxes is that of the owners rather than the Liquidating Trust. However, in certain instances in the past, the Partnership was required under applicable state law to remit directly to the state tax authorities amounts representing withholding on applicable taxable income allocated to the General Partner, Associate Limited Partners and Holders of Interests. Such payments on behalf of the General Partner, Associate Limited Partners and Holders of Interests are deemed distributions to them.
(2) INVESTMENT PROPERTIES
In July 2005, Ocala Joint Venture closed on the sale of a 2.5 acre commercial parcel in Ocala, Florida, to an unaffiliated third party. The Partnership was a 50% owner in the joint venture. The gross sales price of the Ocala parcel was $400,000. Net cash proceeds received from the sale, after prorations and closing costs totaled approximately $375,000, of which the Partnership's share was approximately $187,500.
(3) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents may consist of U.S. Government obligations with original maturities of three months or less, money market demand accounts and repurchase agreements, the cost of which approximates market value. Included in Restricted cash are amounts restricted under various escrow agreements as well as cash which collateralizes certain performance bonds as discussed in note 6. Credit risk associated with cash, cash equivalents and restricted cash is considered low due to the high quality of the financial institutions in which these assets are held.
(4) MARKETABLE SECURITIES
The Partnership purchased investments during 2005 which generally matured between three months and eighteen months from the date of purchase.
The investments consisted of U.S. Government obligations. The Partnership intended to hold these obligations to maturity, and therefore, classified these investments as Held-to-maturity securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. On September 30, 2005, the Partnership transferred $10,000,000 of the only remaining marketable security to the Liquidating Trust. This investment matured during the fourth quarter of 2005.
(5) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses paid or payable by the Partnership to affiliates of the General Partner for the period January 1, 2005 through September 30, 2005 and for the year ended December 31, 2004 are as follows:
For the period from January 1, 2005 to September 30, 2005 2004 ------------ -------- Insurance commissions . . . . . . . . . . . . $ 12,662 $ 12,135 Reimbursement (at cost) for accounting services. . . . . . . . . . . . . . . . . . 52,508 93,847 Reimbursement (at cost) for treasury, legal and corporate services. . . . . . . . 272,128 458,019 -------- -------- $337,298 $564,001 ======== ========
The Liquidating Trust, as successor of the Partnership, incurred costs payable to the Administrator or its affiliates as follows:
For the period from October 1, 2005 to December 31, 2006 2005 -------- ------------
Insurance commissions . . . . . . . . . . . $ 766 $ 190 Reimbursement (at cost) for accounting services. . . . . . . . . . . . . . . . . -- 10,824 Reimbursement (at cost) for treasury, legal and corporate services. . . . . . . 288,969 95,264 -------- -------- $289,735 $106,278 ======== ========
Pursuant to a sub-management agreement between Arvida Company ("Arvida") and St. Joe/Arvida Company, L.P. (now known as St. Joe Towns & Resorts, LP - "Towns & Resorts LP"), effective January 1, 1998, Towns & Resorts LP provides (and is reimbursed for) a substantial portion of the development and management supervisory and advisory services (and personnel with respect thereto) to the Liquidating Trust that Arvida would otherwise have provided pursuant to its management agreement with the Liquidating Trust. Towns & Resorts LP is reimbursed for such services and personnel on the same basis as Arvida under the management agreement, and such reimbursements are made directly by the Liquidating Trust. The Liquidating Trust also receives reimbursement from Towns & Resorts LP for certain general and administrative costs including, and without limitation, salary and salary-related costs relating to work performed by employees of the Liquidating Trust on behalf of Towns & Resorts LP. Charges and related reimbursements between the Liquidating Trust and Towns & Resorts LP are determined on a consistent basis using various methodologies depending upon the nature of the services provided. Such charges, whether incurred directly by the Liquidating Trust or Towns & Resorts LP, may include salaries and salary related costs, as well as burdens for administrative and office overheads. Methodologies used to apportion costs between entities include, but are not limited to, charges based upon percentages of (i) time spent on each entity relative to total hours worked; (ii) cash expenditures by entity relative to total expenditures; and (iii) real estate sales and closings by entity relative to total sales and closings. Affiliates of JMB Realty Corporation owned a minority interest in Towns & Resorts LP until July 2003, when they sold their minority interest to an affiliate of The St. Joe Company. Affiliates of The St. Joe Company currently own all of the interests in Towns & Resorts LP.
For the period January 1, 2005 through September 30, 2005 and for the year ended December 31, 2004, the Liquidating Trust reimbursed Towns & Resorts LP or its affiliates approximately $118,000 and $2,487,000, respectively. For services provided to the Liquidating Trust by Towns & Resorts LP personnel pursuant to the sub-management agreement discussed above for the year ended December 31, 2006 and for the period October 1, 2005 through December 31, 2005, such costs were approximately $175,000 and $59,000, respectively. Such reimbursements included amounts owing in connection with the Liquidating Trust's achievement of certain profit and cash flow levels prior to 2003. For the period January 1, 2005 through September 30, 2005 and for the year ended December 31, 2004, the Liquidating Trust received approximately $31,300 and $73,600, respectively, from Towns & Resorts LP or its affiliates. For the year ended December 31, 2006 and for the period October 1, 2005 through December 31, 2005, the Liquidating Trust received approximately $0 and $5,200, respectively, from Towns & Resorts LP or its affiliates. The St. Joe Company beneficially owns 23.7% of the outstanding beneficial interest units of the Liquidating Trust.
The Partnership received reimbursement from Towns & Resorts LP and its affiliates for the use of certain equipment and property owned or leased by the Partnership. In addition, in July 2003, the Partnership assigned its rights as licensee in certain software licenses to The St. Joe Company in consideration of a payment for the assignment. The Partnership remains contingently liable to the software licensor for performance of the obligations under the software licenses and retains certain rights to use the software licenses.
In December 2006, the Administrator and its affiliates collectively, received cash distributions of $1,121,977.
In May 2005, the General Partner and Associate Limited Partners, collectively, received cash distributions in the aggregate amount of $1,346,650.
In January 2005, the General Partner and Associate Limited Partners, collectively, received cash distributions in the aggregate amount of $1,122,208.
During the third quarter of 2004, the Partnership sold the remaining furniture and equipment from its Boca Raton office to The St. Joe Company for $117,743. The sale price was based upon the appraised fair value of the furniture and equipment determined by an unaffiliated appraiser.
In December 2006, Arvida/JMB Partners which is a consolidated subsidiary of the Liquidating Trust, made a $6,800 minority interest distribution to Arvida Company (the successor of Arvida/JMB Managers) which is also the Administrator of the Liquidating Trust, related to Arvida Company's .1% general partner interest in Arvida/JMB Partners.
In May 2004, Arvida/JMB Partners, which was a consolidated subsidiary of the Partnership, made a $450,000 minority interest distribution to Arvida/JMB Managers, Inc. ("Managers"), which was also the General Partner of the Partnership, for previously deferred amounts distributable with respect to Managers's .1% general partner interest in Arvida/JMB Partners.
Amounts receivable from or payable to the Administrator, Towns & Resorts LP or their respective affiliates do not bear interest and are expected to be paid in future periods.
(6) COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations, the Liquidating Trust was contingently liable under performance bonds for approximately $2,369,000 at December 31, 2006 and December 31, 2005.
On August 29, 2002, the Partnership entered into an agreement with Towns & Resorts LP for the prospective assignment to and assumption by Towns & Resorts LP of the Partnership's rights and obligations under the lease for its offices (approximately 19,100 rentable square feet of space) in Boca Raton, Florida. The assignment and assumption was made effective January 1, 2004.
Rental expense of $91,200 and $168,975 was incurred for the period from January 1, 2005 through September 30, 2005 and for the year ended December 31, 2004, respectively. Rental expenses of $59,000 and $21,098 was incurred for the year ended December 31, 2006 and for the period from October 1, 2005 through December 31, 2005, respectively.
The Partnership accrues legal liabilities when it is probable that the future costs will be incurred and such costs can be reasonably estimated. Such accruals are based upon developments to date, the management's estimates of the outcome of these matters and its experience in contesting, litigating and settling other matters. Based on evaluation of the Partnership's litigation matters and discussions with internal and external legal counsel, management believes than an adverse outcome on one or more of the matters set forth below, against which no accrual for loss has been made at December 31, 2006 unless otherwise noted, is possible but not probable, and that the outcome with respect to one or more of these matters, if adverse, is reasonably likely to have a material adverse impact on the accompanying financial statements of the Liquidating Trust.
The Partnership was named a defendant in a purported class action entitled Lakes of the Meadow Village Homes Condominium Nos. One, Two, Three, Four, Five, Six, Seven, Eight and Nine Maintenance Associations, Inc., v. Arvida/JMB Partners, L.P. and Walt Disney World Company, Case No. 95-23003-CA-08, filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida ("Lakes of the Meadow" litigation). In the lawsuit, plaintiffs sought unspecified damages, attorneys' fees and costs, recission of specified releases, and all other relief that plaintiffs might be entitled to at equity or at law on behalf of the 460 building units they allegedly represented for, among other things, alleged damages discovered in the course of making Hurricane Andrew repairs. Plaintiffs alleged that Walt Disney World Company was responsible for liabilities that might arise in connection with approximately 80% of the buildings at the Lakes of the Meadow Village Homes and that the Partnership was potentially liable for the approximately 20% remaining amount of the buildings. In the three count amended complaint, plaintiffs alleged breach of building codes and breach of implied warranties. The Partnership tendered this matter to The Walt Disney Company (n/k/a Disney Enterprises, Inc., "Disney") pursuant to the Partnership's indemnification rights and filed a third-party complaint against it pursuant to the Partnership's rights of contractual indemnity. The Partnership answered the amended complaint and filed a cross-claim against Disney's affiliate, Walt Disney World Company, for common law indemnity and contribution. The Partnership completed settlements in this case with the condominium associations and their members during the second quarter of 2004.
The Partnership pursued claims for indemnity or contribution against Disney or its affiliates ("Disney cross-defendants") in connection with the Lakes of the Meadow condominium units that were constructed in whole or in part prior to September 10, 1987 (the date that the Partnership acquired the assets of Arvida Corporation from Disney) but were sold by the Partnership on or after that date. The Partnership's claims for indemnity and contribution were severed for separate proceedings and trial from the remaining case-in-chief in the Lakes of the Meadow litigation. The Disney cross-defendants answered the cross-claim denying liability and filed their own claims for indemnity and contribution. The claims of the Partnership and Disney in this matter shall be referred to hereinafter as the "Lakes Indemnity Matter."
The Partnership was a defendant in an insurance subrogation matter. On or about May 10, 1996, a subrogation claim entitled Juarez v. Arvida Corporation et al., Case No. 96-09372 CA13 was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. Plaintiffs filed this suit for the use and benefit of American Reliance Insurance Company ("American Reliance"). In this suit, plaintiffs sought to recover damages, pre-and post-judgment interest, costs and any other relief the court may deem just and proper in connection with $3,200,000 American Reliance allegedly paid on specified claims at Country Walk in the wake of Hurricane Andrew. The Walt Disney Company (n/k/a Disney Enterprises, Inc., "Disney") was also a defendant in this suit. The Partnership was informed that a settlement was reached between the Walt Disney Company and the plaintiffs in the Juarez matter and that Disney had been assigned the claims against the Partnership once held by the plaintiffs. Otherwise, the terms of the settlement have not been disclosed. The Partnership filed a motion to dismiss this action that was pending since 1996.
On October 26, 2006, the Partnership and Disney entered into a settlement agreement which resolved the Lakes Indemnity Matter and the claims that Disney was assigned in the Juarez matter. The cases have been dismissed. In connection with the settlement agreement, the Partnership received $3,000,000 from Disney or its insurers.
The Partnership, the General Partner and certain related parties as well as other unrelated parties have been named defendants in an action entitled Rothal v. Arvida/JMB Partners Ltd. et al., Case No. 03-10709 CACE 12, filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. In this suit that was originally filed on or about June 20, 2003, plaintiffs purport to bring a class action allegedly arising out of construction defects occurring during the development of Camellia Island in Weston, which has approximately 150 homes. On May 9, 2005, plaintiffs filed a nine count second amended complaint seeking unspecified general damages, special damages, statutory damages, prejudgment and post-judgment interest, costs, attorneys' fees, and such other relief as the court may deem just and proper. Plaintiffs complain, among other things, that the homes were not adequately built, that the homes were not built in conformity with the South Florida Building Code and plans on file with Broward County, Florida, that the roofs were not properly attached or were inadequate, that the truss systems and installation thereof were improper, and that the homes suffer from improper shutter storm protection systems. The Arvida defendants have filed their answer to the amended complaint. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. Due to, among other things, the early stage of the litigation, the Partnership is not able to determine what, if any, loss exposure that it may have for this matter. This case has been tendered to one of the Partnership's insurance carriers, Zurich American Insurance Company (together with its affiliates collectively, "Zurich"), for defense and indemnity. Zurich is providing a defense of this matter under a purported reservation of rights.
The Partnership has also engaged other counsel in connection with this lawsuit. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages, if any, which will be covered by its insurance.
The Partnership has been named a defendant in a purported class action entitled Osnovsky, individually and on behalf of others similarly situated, v. Arvida Company, Arvida/JMB Partners, and Arvida Realty Co., Inc., Case No. 05015925, filed on November 7, 2005, in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The Arvida defendants were served on March 1, 2006. Plaintiffs have filed a three count class action complaint for alleged violations of state building code, failure to disclose known defects in a residential real estate transaction, and negligence, all in connection with injuries allegedly sustained to their homes in the Ridges, a homeowners association in Weston that has about 1,500 units. Plaintiffs complain of alleged roofing defects in their homes, among other things. Plaintiffs seek unspecified damages and the opportunity to amend to add punitive damages. The complaint has been tendered to Arvida's carrier for defense and indemnity. In response to the tender, the Partnership received a purported reservation of right letter from the carrier. The Arvida defendants believe they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages, if any, which will be covered by the insurance.
The following lawsuits in large part allegedly arise out of landscaping issues at certain subdivisions in the Weston Community. These lawsuits are collectively referred to as the "landscape cases." In addition to the following landscaping cases, the General Partner has received letters from other homeowners' associations in the Weston Community complaining about their landscaping. These associations have not filed suit.
A case, The Ridges Maintenance Association, Inc. v. Arvida/JMB Partners, et al., Case No. 03-10189 (05) (the "Ridges Case"), was filed on or about June 6, 2003 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The defendants in this action include Arvida/JMB Partners, Arvida/JMB Managers, Inc., Arvida Management Limited Partnership, CCL Consultants, Inc. ("CCL"), Bamboo Hammock Nursery, Inc. ("Bamboo Hammock"), and Lagasse Pool Construction, Co. ("Lagasse"). Plaintiff is alleged to be a homeowners' association representing the owners of approximately 1,500 homes and extensive common areas in the Ridges subdivision in Weston. In the seven-count amended complaint that was filed on September 16, 2005, plaintiff seeks unspecified compensatory damages, prejudgment interest, court costs and such other and further relief as the court might deem just and proper. In Count I, plaintiff seeks damages from the Arvida defendants for alleged negligent design, construction and/or maintenance of the landscaping and common elements that allegedly resulted in defects of the landscaping, sidewalks, irrigation systems, and community pool. With respect to the landscaping claims, the plaintiff claims that it evaluated the condition of the common areas after the turnover of the community in January 2000 and alleges that it discovered numerous construction, design and maintenance defects and deficiencies including, but not limited to, improper planting of inferior quality/grade of landscaping contrary to controlling government codes, shallow planting of landscaping, landscape planting in inappropriate areas, and the planting of landscaping that would uproot sidewalks. In Count II, plaintiff seeks damages from CCL, the alleged civil engineer for the community, in connection with the alleged negligent design, construction or maintenance of the common areas and elements. In Count III, plaintiff seeks damages from Bamboo Hammock, the alleged landscape engineer, architect, supplier, installer and/or designer, in connection with alleged defects in the landscaping resulting in damage to, among other things, the landscaping and sidewalks. In Count IV, plaintiff seeks damages from Lagasse for alleged defects in the community pool. In Count V, plaintiff seeks damages from Arvida/JMB Partners, a general partnership in which the Liquidating Trust owns a 99.9% interest, and Arvida/JMB Managers, Inc., the former General Partner of the Partnership, seeking to hold these entities vicariously responsible for the acts of CCL, Bamboo Hammock, and/or Lagasse. In Count VI, plaintiff seeks damages from the Arvida/JMB Partners and Arvida/JMB Managers, Inc. for various breaches of fiduciary duty. In this count, plaintiff alleges that prior to the turnover of the community, these defendants engaged in acts that amounted to a breach of fiduciary duty to plaintiff in that they, among other things, (i) allegedly improperly executed an amendment to the declarations of covenant for their sole benefit and to the financial detriment of the plaintiff; (ii) allegedly engaged in acts that constituted a conflict of interest; (iii) allegedly failed to maintain appropriate care, custody and control over the financial affairs of the homeowners' association by failing to pay for common expenses; (iv) allegedly improperly transferred funds by and between plaintiff and a non-party, The Town Foundation, Inc., which transfers allegedly amounted to a violation of these defendants' obligations to fund operating deficits and a breach of fiduciary duty; and (v) allegedly transferred funds by and between various entities under their common control in violation of Florida statute and their fiduciary duty to plaintiff. Plaintiffs voluntarily withdrew Count VII. The Arvida defendants filed their answer to the amended complaint denying substantive liability and raising various defenses. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time.
A case entitled The Falls Maintenance Association, Inc. v. Arvida/JMB Partners, Arvida/JMB Managers, Inc., CCL Consultants, Inc. and Stiles Corporation f/k/a Stiles Landscape Service Co., Case No. 0302577 (the "Falls Maintenance Case"), was filed on or about February 10, 2003, in the 17th Judicial Circuit in and for Broward County, Florida. Plaintiff is alleged to be the homeowners' association responsible for the maintenance, repair, and replacement of the common areas within the Falls subdivision in Weston, which contains approximately 600 homes. Plaintiff complains that on turnover of the Falls subdivision, it discovered numerous construction, design and maintenance defects and deficiencies including, but not limited to, the quality/grade of the landscaping, landscaping planted too shallow, landscaping planted too deep, landscaping planted in narrow swale areas, landscaping planted in shallow soil areas, poor fertility of road rock under locations where landscaping is planted and poor maintenance. Plaintiff has filed a six count complaint with five counts against Arvida/JMB Partners and Arvida/JMB Managers, Inc. for breach of implied warranty of merchantability, breach of implied warranty of fitness, breach of express warranty, fraudulent misrepresentation/concealment, and negligent design, construction and/or maintenance. Plaintiff seeks an unspecified amount of compensatory damages, interest, costs, and such other and further relief as is just and equitable. Arvida/JMB Partners and Arvida/JMB Managers, Inc. have filed an answer to the complaint denying substantive liability and raising various defenses. The Arvida defendants believe that they have meritorious defenses and intend to vigorously defend themselves. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time.
Due to, among other things, the early stages of litigation, the Partnership is not able to determine what, if any, loss exposure that it may have for the landscape cases, and the accompanying financial statements do not reflect any accruals related to the landscape cases. Each of the landscape cases has been tendered to Zurich for defense and indemnity. The Partnership has also engaged other counsel in connection with the landscape cases. The Partnership has received from Zurich letters purporting to reserve its rights in the Ridges and Falls Maintenance Cases. For this and other reasons, on September 26, 2005, Arvida/JMB Partners, L.P., Arvida/JMB Managers, Inc., and Arvida Management L.P. (collectively "Arvida") filed a complaint, as amended, for declaratory relief and damages against Zurich American Insurance Co., individually and as successor to Zurich Insurance co. (collectively "Zurich"), Case No. 0514346 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. In this complaint, Arvida seeks, among other things, a declaration of its rights under its policies, attorney fees and costs, and such other relief as the court deems appropriate. The ultimate legal and financial liability of the Partnership, if any, in this matter cannot be estimated with certainty at this time. The Partnership is unable to determine the ultimate portion of the expenses, fees and damages allegedly relating to the landscaping cases, if any, which will be covered by its insurance.
On October 22, 2003, a case entitled Weston Lakes Maintenance Association v. Arvida/JMB Partners and Arvida/JMB Managers, Inc., Case No. 0318490, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida Civil Division. In the four-count complaint, which was served on the Partnership in February 2004, plaintiff, Weston Lakes Maintenance Association, alleged that defendants negligently selected and installed inferior landscaping materials in the common areas and elements of the Weston Lakes subdivision, which contains approximately 570 homes. Plaintiff alleged that defendants' actions have caused higher than expected maintenance fees and that the landscaping was causing injury and damage to sidewalks and roadways that had to be repaired or replaced. Plaintiff alleged that an unspecified large sum of money would be required to replace the alleged substandard landscaping and that significant expense for remedial maintenance, repair and replacement of elements throughout the
community would be incurred. The four-count complaint was for negligent construction and design of landscaping allegedly based on a violation of a Broward County ordinance regarding plant materials, common law negligence, breach of implied warranty of fitness, and breach of implied warranty of merchantability. Plaintiff sought a judgment in an unspecified amount and type of damages, attorney's fees and such other relief as the court might deem proper. This case was tendered to one of the Partnership's carriers for defense and indemnity. This matter was resolved for a payment of $50,000 to the plaintiff homeowners association plus legal fees and specified costs.
On July 3, 2006, a general partnership substantially owned by the Liquidating Trust received from Interconn Ponte Vedra Company, LLC ("Interconn") $6,800,000 as compensation for the release of certain rights, reservations, restrictions and other covenants, and the continuation of certain licensed intellectual property rights, owned by Arvida/JMB Partners that related to real property located in the state of Florida that was originally sold in 1985 by Arvida Corporation, a predecessor in interest of an affiliate of the Trust. The rights released generally dealt with restrictions and other limitations on development activity beyond that contemplated in the 1985 transaction. The partnership agreed to the assignment by Interconn of its rights to use certain licensed service marks to the purchaser of the subject real property.
Other than as described above, the Partnership is not subject to any material legal proceedings, other than ordinary routine litigation incidental to the business of the Partnership.
(7) PARTNERSHIP AGREEMENT
Prior to the formation of the Liquidating Trust, the Partnership Agreement (and subject to Section 4.2F which allocates Profits, as defined, to the General Partner and Associate Limited Partners), allocated profits or losses of the Partnership as follows: (i) profits were allocated such that the General Partner and the Associate Limited Partners were allocated profits equal to the amount of cash flow distributed to them for such fiscal period and the amount of cash flow anticipated to be distributed to them in future periods, with the remainder of the profits allocated to the Holders of Interests, except that in all events, the General Partner was allocated at least 1% of profits and (ii) losses were allocated 1% to the General Partner, 1% to the Associate Limited Partners and 98% to the Holders of Interests.
In the event profits allocated in any given year did not equal or exceed cash distributed to the General Partner and the Associate Limited Partners for such year, the allocation of profits was as follows: The General Partner and the Associate Limited Partners were allocated profits equal to the amount of cash flow distributed to them for such year. The Holders of Interests were allocated losses such that the sum of amounts allocated to the General Partner, Associate Limited Partners and Holders of Interests equaled the profits for the given year.
In general, the distribution of Cash Flow (as defined) was allocated 90% to the Holders of Interests and 10% to the General Partner and the Associate Limited Partners (collectively).
(8) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three Months Ended ----------------------------------------------------- March 31, June 30, September 30, December 31, 2004 2004 2004 2004 ----------- ---------- ------------- ------------ Total revenues. . . $ 130,784 14,298 12,193 29,875 Gross operating profit (loss) . . $ 106,798 (1,270) (224,674) 4,803,477 Net (loss) income. . . . . . $ (627,057) (482,846) (673,723) 4,483,900 Net (loss) income per Limited Partnership Interest. . . . . $ (1.52) (1.17) (1.63) 10.94
Three Months Ended ----------------------------------------------------- March 31, June 30, September 30, December 31, 2005 2005 2005 2005 ----------- ---------- ------------- ------------ Total revenues. . . $ 51,744 200,000 -- N/A Gross operating profit (loss) . . $ 51,531 (191,138) (738) N/A Net loss. . . . . . $ (362,285) (533,710) (209,614) N/A Net loss per Limited Partnership Interest. . . . . $ (.88) (1.29) (.51) N/A
Commencing with the fourth quarter 2005 information is presented in the Statement of Changes in Net Assets in Liquidation. Prior to the adoption of liquidation basis accounting, total revenues for first and second quarter 2005 represented the sale of two small parcels of land in Florida and the receipt for the release of a deed restriction. The fluctuations in gross operating profit (loss) during the first and second quarter 2005 is attributable to a change made in our estimated warranty costs during the second quarter.
Total gross operating profit and net income for the fourth quarter 2004 as compared to the previous quarterly periods for 2004 was affected by the settlement with U.S. Fire which was recorded as a reduction of housing cost of revenues in the accompanying consolidated statement of operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act") promulgated thereunder, the principal executive officer and the principal financial officer of the Liquidating Trust have evaluated the effectiveness of the Liquidating Trust's disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and the principal financial officer have concluded that the Liquidating Trust's disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in this report was recorded, processed, summarized and reported within the time period specified in the applicable rules and form of the Securities and Exchange Commission for this report.
PART III
ITEM 10.
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Administrator of the Trust is Arvida Company, an Illinois corporation, an affiliate of JMB Realty Corporation, a Delaware corporation ("JMB") that is in the business of real estate investment. Substantially all of the outstanding shares of stock of Arvida Company are owned by certain of JMB's past and present officers and directors, members of their families and their affiliates. The Administrator has responsibility for all aspects of the Trust's liquidations. Certain relationships of the Trust to the Administrator and its affiliates are described under the captions "Determinations by the Administrator," "Relationships of Affiliates to Liquidating Trust," "Remuneration of JMB, Arvida and Affiliates" and "Fiduciary Responsibility of the Administrator" in the section "Conflicts of Interest" at pages 21 and 23-24 of the Prospectus of the Partnership, dated September 16, 1987 and updated with the Liquidating Trust Agreement of ALP Liquidating Trust.
The Trust is subject to certain conflicts of interest arising out of its relationships with the Administrator, Towns & Resorts LP and their affiliates. Various services have been and, to some extent, will continue to be provided to the Trust by the Administrator, Towns & Resorts LP and their affiliates, including management supervisory and advisory services, insurance brokerage and administrative services such as legal, accounting and treasury services. In addition, the timing and amount of cash distributions and cash reserves and allocations of profits and losses for tax purposes, as well as the amount of expenses charged to the Trust for services, are or may be affected by determinations made by the Administrator. Because the Administrator and/or its affiliates have interests in the cash distributions and the profits or losses for tax purposes of the Trust or in the amount of payments or reimbursements made for services rendered to the Trust, the Administrator has a conflict of interest in making the determinations affecting these matters.
The director and executive officers of the Administrator of the Liquidating Trust are as follows:
SERVED IN NAME OFFICE OFFICE SINCE ---- ------ ------------
Gary Nickele Director and President 2005
Gailen J. Hull Vice President and Chief Financial Officer 2005
There is no family relationship among the foregoing director or officer. Mr. Nickele has been elected to serve a one-year term as director until the annual meeting of the Administrator to be held on or about August 9, 2007. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Administrator to be held on or about August 9, 2007. There are no arrangements or understandings between or among any of said director or officers and any other person pursuant to which the director or any officer was selected as such.
The foregoing director and officers are also officers and/or directors of JMB. The foregoing director and officer are also officers and/or directors of various affiliated companies of JMB.
The business experience during the past five years of the director and officer of the Administrator of the Liquidating Trust includes the following:
Gailen J. Hull (age 57), in addition to being a Vice President of Arvida/JMB Managers, Inc., has acted as the Chief Financial Officer of the Partnership since August 2002. He is also a Senior Vice President and, since August 2002, Chief Financial Officer of JMB and an officer of various JMB affiliates. Mr. Hull has been associated with JMB since March, 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant.
Gary Nickele (age 54) is Executive Vice President and General Counsel of JMB and an officer and/or director of various JMB affiliates. Prior to becoming President of Arvida/JMB Managers, Inc., in August 2002, Mr. Nickele had been a Vice President of that corporation since April 1987. He has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois.
The Trust is organized under the laws of the State of Delaware, and the rights of its trustees are governed by Liquidating Trust Agreement and Chapter 38 of Title 12 of the Delaware Code, 12 Del. c 8 3Ed, et. seq., as amended from time to time (as so amended, the "Trust Act"). Moreover, the beneficial interest units are not publicly traded. In view of these facts, as well as the limited business activity of the Trust, the Administrator has determined that it is not necessary for the Trust to have either an "audit committee financial expert" or a "code of ethics" as those terms are defined in the rules and regulations of the Securities and Exchange Commission.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The officers and the director of the Administrator receive no direct remuneration in such capacities from the Trust. The Administrator and the trustees are entitled to receive a share of cash distributions, when and as cash distributions are made. The Administrator, and its affiliates received cash distributions of $1,121,977 in 2006. Prior to the formation of the Liquidating Trust, the General Partner and Associate Limited Partners, collectively, received cash distributions in 2005 totaling $2,468,858. Pursuant to the Partnership Agreement, the General Partner and Associate Limited Partners were allocated net loss for Federal income tax purposes for 2005 of approximately $25,730. Reference is made to note 8 for further discussion of this allocation. Pursuant to the ALP Liquidating Trust Agreement, the Administrator and its affiliates were allocated net income for Federal income tax purposes for 2006 of approximately $934,000.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS
(a) The following have reported beneficial ownership of more than 5% of the outstanding Beneficial Interest Units of the Liquidating Trust.
NAME AND ADDRESS AMOUNT AND NATURE OF BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS - -------------- ---------------- ----------------- --------
Beneficial The St. Joe Company 106,200.4399 23.8% Interest Units Units (1)
Beneficial Alfred I. duPont 106,200.4399 23.8% Interest Units Testamentary Trust Units (2)
Beneficial The Nemours 106,200.4399 23.8% Interest Units Foundation Units (2)
Beneficial Winfred L. Thornton 106,200.4399 23.8% Interest Units Units (2)
Beneficial William T. 106,200.4399 23.8% Interest Units Thompson III Units (2)
Beneficial Hugh M. Durden 106,200.4399 23.8% Interest Units Units (2)
Beneficial John F. Porter III 106,200.4399 23.8% Interest Units Units (2)
Beneficial Herbert H. Peyton 106,200.4399 23.8% Interest Units Units (2)
(1) Reflects beneficial ownership of beneficial interest units held directly by The St. Joe Company. The address for The St. Joe Company is 1650 Prudential Drive, Suite 400, Jacksonville, Florida 32207. Wholly owned subsidiaries of The St. Joe Company are the partners, and collectively own all of the Trust's beneficial interest units, in Towns & Resorts LP.
(2) Reflects indirect beneficial ownership of beneficial interest units held directly by The St. Joe Company. Messrs. Thornton, Thompson, Durden, Porter and Peyton are trustees and directors of the Alfred I. duPont Testamentary Trust (the "Testamentary Trust") and The Nemours Foundation (the "Foundation"), respectively. As a result of the Testamentary Trust's and the Foundation's respective direct and beneficial ownerships of outstanding shares of common stock of The St. Joe Company, the Testamentary Trust, Foundation and Messrs. Thornton, Thompson, Durden, Porter and Peyton are or may be deemed to be indirect beneficial owners of 106,200.4399 Interests owned directly by The St. Joe Company. See note (1) above. The address for each of the Testamentary Trust, Foundation and Messrs. Thornton, Thompson, Durden, Porter and Peyton is 4600 Touchton Road, East Building 200, Suite 500, Jacksonville, Florida 32246.
(b) The Administrator and its executive officers and director beneficially own the following Interests of the Liquidating Trust:
NAME OF AMOUNT AND NATURE BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS - -------------- ---------- ----------------- --------
Beneficial Administrator None -- Interest Units and its executive officers and director as a group - --------------- No executive officer or director of the Administrator of the Liquidating Trust possesses a right to acquire beneficial interest units of the Liquidating Trust.
(c) There exists no arrangement, known to the Liquidating Trust, the operation of which may at a subsequent date result in a change in control of the Liquidating Trust.
(d) The Liquidating Trust has no compensation plans or individual compensation arrangements under which beneficial interest units of the Liquidating Trust are authorized for issuance to any person.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the original Partnership Agreement and subsequent Liquidating Trust Agreement, the Liquidating Trust is permitted to engage in various transactions involving the Administrator, Towns & Resorts LP and their respective affiliates. Such transactions involve conflicts of interest for the Administrator or its affiliates. Certain relationships of the Administrator (and its director and executive officer) and its affiliates to the Liquidating Trust are set forth above in Item 10.
In November 1997, Towns & Resorts LP acquired the major assets of Arvida, including the Arvida name and service marks with respect to the Arvida name. Pursuant to a license agreement with Arvida, the Liquidating Trust as successor to the Partnership has a non-exclusive right to use the Arvida name and service marks with respect to the Arvida name. In connection with the acquisition of Arvida's assets, Towns & Resorts LP was assigned Arvida's rights and obligations under such license agreement.
Towns & Resorts LP also entered into a sub-management agreement with Arvida, effective January 1, 1998, whereby Towns & Resorts LP provides a substantial portion of the development and management supervisory and advisory services (and the personnel therefor) to the Liquidating Trust that Arvida would otherwise provide pursuant to its management agreement with the Partnership. Towns & Resorts LP is reimbursed for such services and personnel on the same basis as Arvida under its management agreement, and such reimbursements are made directly to Towns & Resorts LP by the Liquidating Trust. The Liquidating Trust also receives reimbursement from Towns & Resorts LP for certain general and administrative costs including, and without limitation, salary and salary-related costs relating to work performed by employees of the Liquidating Trust on behalf of Towns & Resorts LP. Charges and related reimbursements between the Liquidating Trust and Towns & Resorts LP are determined on a consistent basis using various methodologies depending upon the nature of the services provided. Such charges, whether incurred directly by the Liquidating Trust or Towns & Resorts LP, may include salaries and salary-related costs, as well as burdens for administrative and office overheads. Methodologies used to apportion costs between entities include, but are not limited to, charges based upon percentages of (i) time spent on each entity relative to total hours worked; (ii) cash expenditures by entity relative to total expenditures; and (iii) real estate sales and closings by entity relative to total sales and closings. The total reimbursements made to Towns & Resorts LP during the period ended January 1, 2005 to September 30, 2005, was approximately $118,000. For the period ended January 1, 2005 to September 30, 2005, the Partnership received approximately $31,300 from Towns & Resorts LP or its affiliates. The Liquidating Trust as successor to the Partnership also made payments of $59,000 to Towns & Resorts LP or its affiliates for the period October 1, 2005 to December 31, 2005.
In August 2002, the Partnership entered into an agreement for the prospective assignment to and assumption by Towns & Resorts LP of the Partnership's rights and obligations under the lease for its offices (approximately 19,100 rentable square feet of space) in Boca Raton, Florida. The assignment and assumption was effective January 1, 2004. From and after the effective date, Towns & Resorts LP will charge to the Partnership and successor Liquidating Trust an allocable portion of the monthly base rent (which ranged from approximately $500 to $3,400 during 2006) operating expenses and tenant improvement costs, if any, incurred by Towns & Resorts LP pursuant to the lease. The allocation method for such costs is discussed in the preceding paragraph and is similar to the allocation method previously used by the Partnership to charge to Towns & Resorts LP a portion of the lease costs.
JMB Insurance Agency, Inc., an affiliate of the Administrator, earned and received insurance brokerage commissions in 2006 of approximately $770 in connection with providing insurance coverage for certain of the Liquidating Trust, all of which was paid as of December 31, 2006. Such commissions are at rates set by insurance companies for the classes of coverage provided.
The Administrator of the Liquidating Trust or its affiliates are entitled to reimbursement for their direct expenses or out-of-pocket expenses relating to the administration of the Liquidating Trust and the management of the Liquidating Trust assets. In 2006, the Administrator and its affiliates were entitled to reimbursements for legal, accounting and treasury services. Such costs for 2006 were approximately $289,000, of which approximately $88,000 were unpaid as of December 31, 2006.
Amounts payable to or by the Administrator, Towns & Resorts LP or their affiliates do not bear interest and are expected to be paid in future periods.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In 2006, the Liquidating Trust hired Altschuler, Melvoin and Glasser LLP (AM&G) to provide auditing and tax services for the Liquidating Trust. On December 5, 2006, the Liquidating Trust was notified that a majority of the partners of AM&G had become partners of McGladry & Pullen, LLP (M&P) and, as a consequence that AM&G was compelled to resign and would no longer be the auditor for the Liquidating Trust. M&P was subsequently appointed as the Liquidating Trust's new auditor. The Administrator approved the decision to change independent registered public accounting firms.
M&P audited the accompanying consolidated changes in net assets for the year ended December 31, 2006. The fees billed by M&P and AM&G for the year ended December 31, 2006 are as follows:
(1) AUDIT FEES
The aggregate fees billed for the year ended December 31, 2006 for professional services rendered for the audit of the Liquidating Trust's annual financial statements and review of the statements in the Liquidating Trust's Form 10-Q filings were approximately $63,000.
(2) AUDIT RELATED FEES
None
(3) ALL OTHER FEES
The aggregate fees billed for the year ended December 31, 2006 for professional services rendered for tax compliance and tax return preparation were approximately $25,000.
Prior to the hiring of AM&G, the principal auditor of the Liquidating Trust was Ernst & Young LLP (E&Y)
E&Y audited the accompanying consolidated financial statements for the year ended December 31, 2004 and the consolidated financial statements for period from January 1, 2005 to September 30, 2005. In addition, E&Y audited the consolidated statement of net assets in liquidation as of December 31, 2005 and the related consolidated statement of changes in net assets in liquidation for the period October 1, 2005 to December 31, 2005. The fees billed by E&Y for all professional services for each of those years were as follows:
(1) AUDIT FEES
The aggregate fees billed for each of the years ended December 31, 2005 and 2004 for professional services rendered by E&Y for the audit of the Partnership's annual financial statements and review of financial statements included in the Partnership's Form 10-Q filings were approximately $90,800 and $168,900, respectively.
(2) AUDIT-RELATED FEES
None
(3) TAX FEES
The aggregate fees billed for each of the years ended 2005 and 2004, for professional services rendered by E&Y for tax planning, tax compliance and tax return preparation were approximately $7,500 and $10,700, respectively.
(4) ALL OTHER FEES
None
The Trust has not adopted any pre-approval policies and procedures for its audit, audit-related and permitted non-audit services. All such services are approved by the sole director of the Administrator before the services are rendered.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements. (See Index to Financial Statements filed with this annual report on Form 10-K).
2. Exhibits.
3.1 Amended and Restated Agreement of Limited Partnership.*
3.2 Acknowledgment and Amendment of Partnership Agreement.*
3.3 Amendment to the Amended and Restated Agreement of Limited Partnership, effective October 29, 2002, is incorporated herein by reference to Exhibit 3.3 to the Partnership's Report for the year ended December 31, 2002 on Form 10-K (File No. 0-16976) dated March 24, 2003.
3.4 Assignment Agreement by and among the General Partner, the Initial Limited Partner and the Partnership.*
4.1 Liquidating Trust Agreement of ALP Liquidating Trust, dated as of September 30, 2005, by and among, Arvida/JMB Partners, L.P., Arvida Company, as Administrator, and Wilmington Trust Company, as Resident Trustee.
10.1 Agreement between the Partnership and The Walt Disney Company dated January 29, 1987 is incorporated herein by reference to Exhibit 10.1 to the Partnership's Report for the year ended December 31, 2002 on Form 10-K (File No. 0-16976) dated March 24, 2003.
10.2 Letter Agreement, dated as of September 10, 1987, between the Partnership and The Walt Disney Company, is incorporated herein by reference to Exhibit 10.2 to the Partnership's Report for the year ended December 31, 2002 on Form 10-K (File No. 0-16976) dated March 24, 2003.
10.3 Management, Advisory and Supervisory Agreement, including the License Agreement for the use of the Arvida name as exhibit A thereto, is incorporated herein by reference to Exhibit 10.3 to the Partnership's Report for the year ended December 31, 2002 on Form 10-K (File No. 0-16976) dated March 24, 2003.
10.4 Fourth Amended and Restated Agreement of Partnership of Arvida/JMB Partners, together with Amendment No. 1 thereto, is incorporated herein by reference to Exhibit 10.4 to the Partnership's Report for the year ended December 31, 2002 on Form 10-K (File No. 0-16976) dated March 24, 2003.
10.5 Information Systems Sharing Agreement dated November 6, 1997 between Arvida/JMB Partners, L.P. and Arvida Company is hereby incorporated herein by reference to Exhibit 10.15 to the Partnership's Report for the year ended December 31, 1997 on Form 10-K (File No. 0-16976) dated March 25, 1998.
10.6 Agreement dated July 3, 2006 by and between Arvida/JMB Partners, a Florida general partnership, successor in interest to Arvida Corporation, a Delaware corporation, and Interconn Ponte Vedra Company, LLC. is hereby incorporated herein by reference to the Trust's Report for July 3, 2006 on Form 8-K (File No. 0-16976) dated July 12, 2006.
10.7 Letters from Altschuler, Melvoin and Glasser LLP dated December 5, 2006 and December 7, 2006 is hereby incorporated herein by reference to the Trust's Report for December 5, 2006 on Form 8-K (File No. 0-16976) dated December 7, 2006.
31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, is filed herewith.
31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, is filed herewith.
32. Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1850, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith.
* Previously filed with the Securities and Exchange Commission as Exhibits 3.1, 3.2 and 3.3, respectively, to the Partnership's Form 10-Q/A Report (File No. 0-16976) filed on June 6, 2002, and incorporated herein by reference.
(b) Reports on Form 8-K:
On July 12, 2006, a current report on Form 8-K was filed with the Commission reporting under Item 5 (Other Events) as the Liquidating Trust entered into a Material Definitive Agreement.
On December 5, 2006, a current report on Form 8-K was filed with the Commission reporting under Item 4.01 (Changes in Registrant's Certifying Accountant) as the Liquidating Trust's decision to change independent auditors.
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.
ALP LIQUIDATING TRUST
BY: Arvida Company as Administrator
GAILEN J. HULL By: Gailen J. Hull Vice President Date: March 30, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
GAILEN J. HULL By: Gailen J. Hull, Vice President Principal Accounting Officer and Principal Financial Officer Date: March 30, 2007
GARY NICKELE By: Gary Nickele, President and Sole Director Principal Executive Officer Date: March 30, 2007
ALP LIQUIDATING TRUST
EXHIBIT INDEX
DOCUMENT SEQUENTIALLY EXHIBIT INCORPORATED NUMBERED NO. EXHIBIT BY REFERENCE PAGE - ------- ------- ------------ ------------
3.1. Amended and Restated Agreement of Limited Partnership. Yes
3.2 Acknowledgment and Amendment of Partnership Agreement. Yes
3.3 Amendment to the Amended and Restated Agreement of Limited Partnership, effective October 29, 2002. Yes
3.4. Assignment Agreement by and among the General Partner, the Initial Limited Partner and the Partnership. Yes
4.1 Liquidating Trust Agreement of ALP Liquidating Trust, dated as of September 30, 2005, by and among, Arvida/JMB Partners, L.P., Arvida Company, as Administrator, and Wilmington Trust Company, as Resident Trustee. Yes
10.1 Agreement between the Partnership and The Walt Disney Company dated January 29, 1987 Yes
10.2 Letter Agreement, dated as of September 10, 1987, between the Partnership and The Walt Disney Company Yes
10.3 Management, Advisory and Supervisory Agreement, including the License Agreement for the use of the Arvida name as exhibit A thereto Yes
10.4 Fourth Amended and Restated Agreement of Partnership of Arvida/JMB Partners, together with Amendment No. 1 thereto Yes
10.5 Information Systems Sharing Agreement dated November 6, 1997 between Arvida/JMB Partners, L.P. and Arvida Company Yes
10.6 Agreement dated July 3, 2006 by and between Arvida/JMB Partners, a Florida general partnership, successor in interest to Arvida Corporation, a Delaware corporation, and Interconn Ponte Vedra Company, LLC. Yes
10.7 Letters from Altschuler, Melvoin and Glasser LLP dated December 5, 2006 and December 7, 2006 Yes
DOCUMENT SEQUENTIALLY EXHIBIT INCORPORATED NUMBERED NO. EXHIBIT BY REFERENCE PAGE - ------- ------- ------------ ------------
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act, as amended. No
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act, as amended. No
32. Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. No