UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2006
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to _______
Commission File Number: 1-10520
HEARTLAND PARTNERS, L.P.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-3606475
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
53 WEST JACKSON BLVD., SUITE 1150, CHICAGO, ILLINOIS 60604
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(Address of Principal Executive Offices) (Zip Code)
312/834-0592
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
------ ------
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
[ ]Large accelerated filer [ ]Accelerated filer [X]Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
HEARTLAND PARTNERS, L.P.
JUNE 30, 2006
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.............................................3
ITEM 1. FINANCIAL STATEMENTS......................................3
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
AND BALANCE SHEET................................................3
CONSOLIDATED STATEMENT OF CHANGES OF NET ASSETS
IN LIQUIDATION AND STATEMENT OF OPERATIONS.......................4
CONSOLIDATED STATEMENTS OF CASH FLOWS.............................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..............................................29
ITEM 4. CONTROLS AND PROCEDURES..................................29
PART II. OTHER INFORMATION................................................31
ITEM 1. LEGAL PROCEEDINGS........................................31
ITEM 1A. RISK FACTORS.............................................31
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.................................................31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..........................31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......31
ITEM 5. OTHER INFORMATION........................................32
ITEM 6. EXHIBITS.................................................32
SIGNATURES.......................................................33
EXHIBIT INDEX....................................................34
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AND BALANCE SHEET
(dollars in thousands)
Statement of Balance Sheet
Net Assets in (Going Concern
Liquidation Basis)
June 30, December 31,
2006 2005
(unaudited)
------------- --------------
Assets:
Cash and cash equivalents $6,227 $1,160
Restricted cash 2,500 1,093
Accounts receivable (net of allowance of $354
at December 31, 2005) 17 33
Prepaid and other assets 44 137
------
Total 2,423
------
Land 59 383
Land held for sale -- 1,569
------ ------
Net properties 59 1,952
------ ------
Total assets $8,847 $4,375
====== ======
Liabilities:
Accounts payable and accrued expenses $ 708 $1,011
Allowance for claims and liabilities 5,362 2,128
Unearned rents and deferred income -- 812
------ ------
Total liabilities 6,070 3,951
------ ------
Partners' capital:
General Partner 4 --
Class A Limited Partners - 2,142 units
authorized and issued and 2,092 outstanding at
June 30, 2006 and December 31, 2005 2,773 424
------ ------
Total partners' capital (Net assets in 2,777 424
liquidation)
------ ------
Total liabilities and partners' capital $8,847 $4,375
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
3
HEARTLAND PARTNERS, L. P.
CONSOLIDATED STATEMENT OF CHANGES OF NET ASSETS
IN LIQUIDATION AND STATEMENT OF OPERATIONS
(dollars in thousands except per unit data)
(Unaudited)
For the For the
Three Months Ended June 30, Six Months Ended June 30,
2006 2005 2006 2005
------- ------- ------- -------
INCOME:
Property sales $ 2,850 $ 170 $ 5,700 $ 4,373
Settlement of Condemnation -- -- 3,250 --
------- ------- ------- -------
Total Income 2,850 170 8,950 4,373
Less: Cost of property sales 973 6 2,094 3,958
------- ------- ------- -------
GROSS PROFIT ON PROPERTY SALES 1,877 164 6,856 415
------- ------- ------- -------
OPERATING EXPENSES:
Selling expenses 184 85 444 372
General and administrative expenses 656 582 1,427 1,199
Bad debt expense -- -- -- 100
Real estate taxes 8 (22) 20 20
Depreciation -- 1 -- 2
Environmental expenses and other
charges (credits) 3,333 (699) 3,540 (399)
------- ------- ------- -------
TOTAL OPERATING EXPENSES 4,181 (53) 5,431 1,294
------- ------- ------- -------
OPERATING INCOME (LOSS) (2,304) 217 1,425 (879)
------- ------- ------- -------
OTHER INCOME AND (EXPENSES):
Rental Income-accounting basis change
adjustment 793 -- 793 --
Interest income 72 17 77 23
Rental income and earned rental lease income 19 34 56 83
Other income 5 9 6 66
Gain on sale of building and improvements -- 430 -- 430
Management fee -- (94) -- (197)
Bank fees (2) -- (4) --
------- ------- ------- -------
TOTAL OTHER INCOME (EXPENSE) 887 396 928 405
------- ------- ------- -------
NET INCOME (LOSS) $(1,417) $ 613 $ 2,353 $ (474)
======= ======= ======= =======
Net (loss) income allocated to General
Partner $ (14) $ -- $ 23 $--
======= ======= ======= =======
Net income (loss) allocated to
Class B Limited Partner $ -- $ 613 $ -- $ (474)
======= ======= ======= =======
Net (loss) income allocated to
Class A Limited Partners $(1,403) $ -- $ 2,330 $--
======= ======= ======= =======
Net (loss) income per Class A
Limited Partnership Unit $ (0.67) $ -- $ 1.11 $--
======= ======= ======= =======
Weighted average number of Class A Limited
Partnership Units outstanding 2,092 2,092 2,092 2,092
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
HEARTLAND PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Six Months
Ended June 30,
--------------------
2006 2005
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,353 $ (474)
Adjustments reconciling net income (loss) to net cash
provided by operating activities:
Unearned Rent Adjustment (793) --
Accrued Compensation Adjustment (232) --
Gain on Sale of Buildings and Improvements -- (430)
Depreciation -- 2
Bad debt expense -- 100
Net change in allowance for claims and liabilities 3,234 (1,773)
Net change in assets and liabilities:
Decrease in accounts receivable 16 427
Decrease in land held for sale 1,893 3,570
(Decrease) increase in accounts payable and accrued
expenses (71) 287
Net change in other assets and liabilities (38) 121
------- -------
Net cash provided by operating activities 6,474 1,830
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of buildings and improvements -- 549
------- -------
Net cash provided by investing activities -- 549
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in restricted cash (1,407) (2,500)
------- -------
Net decrease in cash from financing activities (1,407) (2,500)
------- -------
Net increase (decrease) in cash 5,067 (121)
Cash at beginning of period 1,160 1,450
------- -------
Cash at end of period $ 6,227 $ 1,329
======= =======
5
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
Six Months Ended June 30, 2006
(Unaudited)
These unaudited consolidated financial statements of Heartland Partners, L.P., a
Delaware limited partnership, and its subsidiaries (collectively, "Heartland" or
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the Company's 2005 Annual
Report on Form 10-K (the "2005 Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the notes included in the
2005 Form 10-K and present interim disclosures as required by the SEC. The
accompanying unaudited consolidated financial statements reflect, in the opinion
of management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring nature
other than as they relate to the change in accounting described in Note 2.
1. Organization
Organization and Purpose
Heartland was formed on October 6, 1988. Its partnership agreement provided
Heartland's existence would continue until December 31, 2065, unless extended or
dissolved pursuant to the provisions of Heartland's partnership agreement.
Heartland was originally organized to engage in the ownership, purchasing,
development, leasing, marketing, construction and sale of real estate
properties. On April 28, 2006, Heartland filed a petition to liquidate under
Chapter 11 of the federal bankruptcy laws.
Heartland is now attempting to dispose of its remaining real estate holdings.
The Company is additionally undertaking to resolve and pay or make provisions
for its remaining liabilities, most of which are actual or contingent
environmental liabilities. Heartland is also a party to litigation involving its
former chief executive officer. The amount and timing of future cash
distributions will depend on generation of cash from sales and claims,
resolution of liabilities and associated costs.
On April 20, 2006, Lawrence Adelson, Richard Brandstatter, George Lightbourn,
and Thomas F. Power, Jr. sold their stock in CMC/Heartland Partners Holdings
Corp., a Delaware corporation and sole general partner of Heartland (the
"General Partner" or "Holdings"), to LePetomane XIX, Inc., a company owned by
Jay Steinberg, for a total of $100. Richard Brandstatter, George Lightbourn and
Thomas F. Power, Jr. then resigned as directors of Holdings. On May 2, 2006,
LePetomane XIX sold its stock in Holdings to Mr. Adelson for $100.
As of June 30, 2006, Holdings, was owned by Lawrence Adelson, Chief Executive
Officer of CMC Heartland Partners. CMC Heartland Partners, a Delaware general
partnership ("CMC"), is an operating general partnership owned 99.99% by
Heartland and 0.01% by Holdings. Until November 14, 2005 the general partner was
HTI Interests, LLC ("HTI"). The general partner interest of HTI was transferred
6
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
to Holdings in connection with the Chapter 11 liquidation of HTI and the
resulting settlement.
The following table summarizes information for the remaining entity formed by
Heartland since its inception that currently hold real estate and other assets,
the date and purpose of its formation, development, location and ownership:
YEAR
COMPANY FORMED BUSINESS PURPOSE
Heartland Development 1993 General Partner of CMC Heartland Partners
Corporation(1) ("HDC") I, Limited Partnership
(1) Wholly owned by Heartland Partners, L.P.\.
Except as otherwise noted herein, references in this report to "Heartland" or
the "Company" include CMC and HDC.
2. Summary of Significant Accounting Policies
Liquidation Accounting
The Company began preparing for and filed to liquidate under Chapter 11 of the
Bankruptcy Code in April 2006. The Company has adopted the liquidation basis of
accounting effective April 1, 2006. Under the liquidation basis of accounting,
assets are stated at their estimated net realizable values and liabilities are
stated at their estimated settlement amounts, for which estimates will be
periodically reviewed and adjusted.
The valuation of assets at their net realizable value and liabilities at their
anticipated settlement amounts requires many estimates and assumptions. In
addition, there are substantial risks and uncertainties associated with carrying
out the dissolution and liquidation of the Company. The valuations presented in
the accompanying Statement of Net Assets in Liquidation represent estimates,
based on present facts and circumstances, of the net realizable value of assets
and costs associated with carrying out the dissolution and liquidation plan
based on the assumptions set forth below. The actual values and costs are
expected to differ from the amounts shown herein and could be greater of less
than the amounts recorded. Accordingly, it is not possible to predict the
aggregate amount that will ultimately be distributable to unitholders and no
assurance can be given that the amount to be received in liquidation will equal
or exceed the net assets in liquidation per unit in the accompanying Statement
of Net Assets in Liquidation or the price or prices at which the Class A Units
have generally traded or trade in the future.
There were two significant adjustments in the quarter as a result of adopting
the liquidation basis of accounting. At March 31, 2006, the Company had recorded
a liability in the amount of $793,000 for unearned rents and deferred income.
The Company had sold 10 and 20 year fiber optics easements and had received a
single payment at the beginning of the term of the easement. The Company was
recognizing income ratably over the life of the easements. Under
7
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
liquidation accounting the unrecognized amount was recognized as income and the
liability removed. No amounts are reimbursable to the easement purchasers. Also,
the $232,000 accrual for "phantom unit" compensation was reversed as this amount
is now not expected to be paid.
Consolidation
The consolidated financial statements include the accounts of Heartland
Partners, L.P.; CMC, its 99.99% owned operating partnership; and HDC, its
wholly-owned corporate subsidiary. All intercompany transactions have been
eliminated in consolidation.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are reasonable estimates of their fair values because of the
short maturity of these financial instruments.
Revenue Recognition
Land sales are recognized when the following conditions are met: persuasive
evidence of an agreement exists; risks of ownership have passed to the buyer;
the Company's price to the buyer is fixed and determinable; and collectibility
is reasonably assured.
Property
Properties and improvements were carried at their historical cost up until the
change to the liquidation basis of accounting. Depreciation was provided for
financial statement purposes over the estimated useful life of the respective
assets ranging from seven (7) years for office equipment and fixtures to forty
(40) years for building and improvements using the straight-line method.
For properties previously held for sale, an impairment loss was recognized when
the fair value of the property, less the estimated cost to sell, was less than
the carrying amount of the property. At June 30, 2006, all land held for sale
had been sold.
3. Real Estate Sale Activities
Property sales for the first half of 2006 were $5,700,000. The Company closed
the $2,850,000 sale of a 1.75-acre parcel of land, and associated air rights, in
Chicago, IL to Jewel, a supermarket company and the $2,850,000 sale of a 1.25
acres parcel in Chicago called Kinzie Station Parcel B.
Property sales during the six months ended June 30, 2005 totaled $4,373,000
which consisted primarily of the sale of 1.25 acres of land in Chicago, IL
(Kinzie Station Phase II) for $4,200,000 and various minor land held for sale
parcels.
At June 30, 2006 the Company had approximately 130 acres of land scattered over
8 states. This land is valued at its estimated net realizable value.
4. Related Party Transactions
8
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
Conflicts of Interest of General Partner and its Officers and Directors
The officers and directors of Holdings, and the officers of Heartland; including
Lawrence S. Adelson, President of Holdings and Chief Executive Officer of CMC
Heartland, do not devote their entire business time to the affairs of Heartland.
The Heartland Partnership Agreement provides that (i) whenever a conflict of
interest exists or arises between the General Partner or any of its affiliates,
on the one hand, and Heartland, or any unitholder of Heartland ("Unitholder") on
the other hand, or (ii) whenever the Heartland Partnership Agreement or any
other agreement contemplated therein provides that the General Partner shall act
in a manner which is, or provide terms which are, fair and reasonable to
Heartland, or any Unitholder, the General Partner shall resolve such conflict of
interest, take such action or provide such terms, considering in each case the
relative interests of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. Thus, unlike the strict
duty of a fiduciary who must act solely in the best interests of his
beneficiary, the Heartland Partnership Agreement permits the General Partner to
consider the interests of all parties to a conflict of interest, including the
General Partner. The Heartland Partnership Agreement also provides that, in
certain circumstances, the General Partner will act in its sole discretion, in
good faith or pursuant to other appropriate standards. The General Partner has
sole authority over the timing and amount of distributions as well as
dissolution of the partnership.
5. Legal Proceedings and Contingencies
At June 30, 2006 and December 31, 2005, Heartland's allowance for claims and
liabilities was approximately $5,362,000 and $2,128,000, respectively. The
increase in the allowance was due to the proposed settlement of environmental
claims in Montana, discussed below, and an increase in the reserve for off site
contamination in the area of the Lite Yard site in Minneapolis, Minnesota
partially offset by payments made by Heartland and Borax for remediation of
contamination at the Lite Yard site.
Edwin Jacobson Lawsuit
----------------------
On August 19, 2002, the former President and Chief Executive Officer of CMC,
Edwin Jacobson, filed two lawsuits against the Company, CMC and certain officers
and/or managers of the General Partner. One of the lawsuits alleges CMC breached
the terms of his employment contract and that the officers and/or board members
wrongfully interfered with his contract. Jacobson is seeking compensatory and
punitive damages (In the state court case Jacobson claimed damages of $1,000,000
in salary and $11,000,000 in incentive compensation. In the bankruptcy
proceeding he has claimed damages of $14,600,000). Jacobson asked the court to
enforce his contract and enjoin the Company from selling property or making
distributions to the Unitholders until the Company has appraised its properties
and paid him according to the terms of his employment contract. Jacobson's
second lawsuit was for defamation. On January 31, 2003, the Company filed
motions to dismiss the amended lawsuits. On May 29, 2003, the court dismissed,
with prejudice, the defamation lawsuit against the Company, CMC and certain
officers and/or managers of the General Partner. At the same time, the court
dismissed, with prejudice, Jacobson's motion to enjoin the Company from selling
its real estate properties. Jacobson also filed a motion for summary judgment on
9
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
his contract claims which the court denied. Jacobson filed a motion for
reconsideration that was denied on April 8, 2005. CMC has filed a counterclaim
alleging breach of fiduciary duty and a motion to dismiss the claim for tortious
interference with a contract. Jacobson filed a motion for summary judgment on
CMC's counterclaim alleging breach of fiduciary duty which was denied on April
8, 2005. On June 15, 2006, Jacobson's claims against Lawrence Adelson, Robert
Davis and John Torell, III were dismissed. Jacobson has filed an appeal of the
dismissals.
On February 28, 2003, the Company filed suit against Jacobson in Delaware state
court to collect a note from Jacobson to the Company in the amount of $332,000,
which includes $16,000 of interest that has not been recorded in the Company's
consolidated financial statements. On July 8, 2003, the Delaware Court stayed
that action pending resolution of Jacobson's action against the Company.
CMC is vigorously defending itself against Jacobson's lawsuit and, in the
opinion of management, has valid defenses against the remaining lawsuit relating
to the Company's alleged breach of Jacobson's employment contract. At this time,
the probability that a liability will be incurred and the amount of any
potential liability cannot be determined. However, this litigation may not be
resolved in the Company's favor, and the Company may incur significant costs
associated therewith. If the Company is required to pay substantial amounts with
respect to the Jacobson litigation, the Company may not be left with any cash or
other property to distribute to the Unitholders. The parties have agreed to
voluntary, non-binding mediation.
All of the judicial or administrative proceedings to which the Company is a
party have been stayed as a result of the Company's voluntary petition under
Chapter 11 of the Bankruptcy Code.
RACM
----
On July 30, 2003, the Company conveyed 142 acres of property in Milwaukee,
Wisconsin to RACM in consideration of $3.55 million in lieu of condemnation. The
Company reserved the right to appeal the fair market value of the property and
filed that appeal on April 6, 2004 in Milwaukee County, Wisconsin Circuit Court.
In January 2006, a settlement was reached with RACM agreeing to pay CMC an
additional $3,250,000. The settlement was received in March 2006.
Lite Yard
---------
CMC owned a 5 acre site in Minneapolis, Minnesota that is impacted with arsenic
and lead ("Lite Yard"). On April 29, 2004, a Response Action Plan for the site
was approved by the Minnesota Department of Agriculture. The Company filed suit
against US Borax Inc. ("Borax") on July 23, 2003 in the United States District
Court for the District of Minnesota for contribution. Borax, which discontinued
operations in 1968, is a former operator of a pesticide/herbicide facility on
the property. This matter was settled pursuant to a Confidential Settlement
Agreement and Release dated September 27, 2004 ("Settlement Agreement"), between
the Company and Borax. Pursuant to the Settlement Agreement, Borax has agreed to
pay a portion of the Company's past and future response costs at the site. At
June 30, 2006 and December 31, 2005, the Company's aggregate allowance for
claims and liabilities for this site was $4,000 and $20,000, respectively. The
Lite Yard property was sold to a third party in August 2005. The sale did not
affect the Company's environmental responsibility. The Company believes that
with the exception of amounts estimated to be less than $5,000 required to be
paid in connection with obtaining regulatory compliance confirmation, it has now
completed the environmental remediation of the Lite Yard.
10
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
On September 3, 2004, the United States Environmental Protection Agency
("USEPA") issued an order (the "Order") requiring the Company and Borax to
remediate arsenic in the soils of a nearby residential neighborhood on an
emergency basis. On January 24, 2005, USEPA issued a general notice letter (the
"Letter) to the Company and Borax requesting that the Company and Borax perform
a remedial investigation and feasibility study on the soils of the same nearby
residential neighborhood on a non-emergency basis for matters not covered by the
Order. Neither the Order nor the Letter are covered by the Settlement Agreement.
The Company offered USEPA $300,000 to settle the Company's obligations under the
Order and the Letter. USEPA has not yet responded to the Company's offer. The
Company believes, based on USEPA publications and a newspaper article, that
USEPA has provided $1,500,000 to $2,200,000 for past and future remediation
activities in the residential neighborhood. This amount does not necessarily
represent the entire cost of the cleanup being under taken by USEPA. The entire
cost could be higher or lower. USEPA could seek substantial penalties against
the Company in addition to remediation costs. The Company engaged an
environmental engineering consultant to review information available regarding
the possible scope and cost of USEPA activities. The consultant projected a
range of possible costs of $3,374,000 to $3,948,000. However, this estimate was
based on limited data available to the consultant. The Company has reserved
$1,432,000 in connection with the Order and the Letter. This reserve amount
takes into consideration the estimated range of possible costs and the
allocation of costs among the Company and Borax for the on-site remediation at
the Lite Yard.
Borax filed suit in federal court in Minneapolis, Minnesota seeking contribution
from CMC in connection with any liability arising out of arsenic in the nearby
residential area. CMC is opposing Borax's lawsuit and believes it has good
defenses. The matter is stayed as a result of the Company's Chapter 11 filing.
Miles City Yard
---------------
By letter dated June 10, 2004, the Montana Department of Environmental Quality
(the "DEQ") demanded that the Company perform a remedial investigation of a
railyard in Miles City, Montana previously owned and operated by the Chicago,
Milwaukee, St. Paul and Pacific Railroad ("Milwaukee Road"). The Company has,
for many years, been conducting a clean-up of a substantial diesel fuel release
at this site. On September 7, 2004, Trinity Railcar Repair, Inc. ("Trinity")
filed suit against the Company and CMC in Custer County, Montana state court,
for contribution under state environmental law, for indemnification under sale
agreements between the Company's predecessors-in-interest and Trinity's alleged
predecessors and for injunctive relief prohibiting the Company from dissolving
or making any distributions to its Unitholders. On September 14, 2004, Trinity
filed a motion for a preliminary injunction to prohibit the Company from
liquidating or making distributions to its Unitholders. On January 10, 2005, the
court held a hearing at which the Company's engineering witness testified that
the maximum cost of investigation and remediation could be as much as
$1,250,000. However, this estimate was not based on any direct investigation of
conditions at the site. On March 24, 2005, the court ordered the Company to
escrow cash, post a bond, or provide another guarantee, of $2,500,000 to cover
possible remediation and clean-up costs for the site. The court did not make a
determination as to the requirement for any remediation, the costs of
remediation or liability for any costs.
11
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
On November 6, 2006, the Company entered into a settlement agreement (the " DEQ
Settlement Agreement") with the DEQ and Trinity whereby the Company will a
receive a general release from Trinity with respect to Miles City and a general
release from the DEQ with respect to all claims related to property owned by the
Company or its predecessors within the exterior boundaries of the state of
Montana, including, but not limited to, Miles City. In exchange for the release,
the $2,500,000 letter of credit posted by the Company will be cancelled and
$2,500,000 in cash will be disbursed from the Heartland estate to Trinity, the
DEQ and the Montana Court. Trinity will also become the holder of an allowed,
general unsecured claim against the bankruptcy estate of Heartland in the amount
of $5,000,000; provided, however, that such claim shall be capped at $800,000
for distribution purposes. Trinity and the DEQ will also receive an aggregate
amount of $250,000 in connection with the DEQ Settlement Agreement. The DEQ
Settlement Agreement will not be effective until approved by the Bankruptcy
Court. In light of the settlement, the Company has reserved $3,550,000 for
Montana environmental claims including Miles City.
Bozeman
-------
In 2001, the Company sold a 14 acre property to the City of Bozeman, Montana
that was known to be contaminated with asbestos ore. As part of the sale, the
City of Bozeman released the Company from all environmental liability. The City
of Bozeman performed a clean-up of the north half of the property. In September
2003, the Company received a letter from the DEQ requesting an investigation of
possible asbestos ore on the south half of the property sold to the City of
Bozeman and a neighboring property. By letter dated November 3, 2004, the
Company was notified by the DEQ that the City of Bozeman, Montana had initiated
a proceeding under the Montana Controlled Allocation of Liability Act ("CALA")
with regard to the sold property. In the administrative proceeding, the DEQ will
allocate environmental liability among potentially liable parties. The Company
has projected that the total cost of the remediation already performed by the
City of Bozeman is approximately within a range from $912,000 to $920,000.
Additional studies by the City of Bozeman on the south half of the property
indicate that no further remediation will be required for the south half of the
property. The estimated range of costs for the neighboring property is $111,000
to $176,000. An adjoining property owner has filed a claim in the amount of
$1,730,000 in the bankruptcy proceeding. The Company believes it has valid
defenses to any CALA allocated liability for the clean-up of the north half of
the property and could assert a claim against the City of Bozeman for
liabilities for any clean-up of the south half of the property. The Company
believes the proposed DEQ Settlement Agreement settles its liability in
connection with this site, but this may be subject to dispute by third parties.
Other Environmental Matters
---------------------------
Under environmental laws, liability for hazardous substance contamination is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substance was
disposed or otherwise released. In most cases, this liability is imposed without
regard to fault. Currently, the Company has known environmental liabilities
associated with certain of its properties arising out of the activities of its
predecessor or certain of its predecessor's lessees and may have further
material environmental liabilities as yet unknown. The majority of the Company's
known environmental liabilities stem from the use of petroleum products, such as
12
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
motor oil and diesel fuel, in the operation of a railroad or in operations
conducted by its predecessor's lessees.
The DEQ asserted that the Company is liable for some or all of the investigation
and remediation of certain properties in Montana sold by its predecessor's
reorganization trustee prior to the consummation of its predecessor's
reorganization. The Company denied liability at certain of these sites based on
the reorganization bar of the Company's predecessor. Liability to DEQ for all of
these sites is covered by the proposed DEQ Settlement Agreement discussed above
in Section 5-Legal Proceedings and Contingencies.
At two separate sites, the Company has been notified that releases arising out
of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
In November 1995, the Company settled a claim with respect to the so-called
"Wheeler Pit" site near Janesville, Wisconsin. The Company's only outstanding
obligation under the settlement is to pay 32% of the monitoring costs for
twenty-five years beginning in 1997. At June 30, 2006, Heartland's allowance for
claims and liabilities for this site is $191,000. By letter dated April 6, 2005,
the lead PRP at this site offered to settle the Company's future obligations for
approximately $266,000. Additionally, the lead PRP at this site previously made
a demand for monitoring costs of $53,000 incurred through March of 2004. The
Company has not paid any amounts to the PRP in respect of monitoring costs for
this site to date.
In addition to the environmental matters set forth above, there may be other
properties (i) with environmental liabilities not yet known to the Company, (ii)
with potential environmental liabilities for which the Company has no reasonable
basis to estimate or (iii) that the Company believes the Company is not
reasonably likely to ultimately bear the liability, but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to its insurers, which issued policies to the
Milwaukee Road, of certain of the Company's environmental liabilities. Due to
the high deductibles on these policies, the Company has not yet demanded that
any insurer indemnify or defend the Company. Consequently, management has not
formed an opinion regarding the legal sufficiency of the Company's claims for
insurance coverage.
6. Compensation and Benefits
Effective January 1, 2002, the CMC Heartland Partners 2002 Incentive Plan ("2002
CMC Plan") was approved by the Company. The aggregate benefits payable under the
2002 CMC Plan shall be computed by multiplying 2% by the net proceeds from the
sale of certain land parcels for the period January 1, 2002 to December 31,
2004. Effective December 22, 2004, the 2002 CMC Plan was amended to extend to
the later of December 31, 2006, or the conclusion of litigation brought by the
Company against RACM for recovery of the fair value of 142 acres of property
previously conveyed to RACM. One current and two former officers of the Company
are eligible for benefits under the 2002 CMC Plan. Total compensation paid under
the 2002 CMC Plan was $115,000 for the six months ended June 30, 2006.
13
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
Approximately $55,000 was accrued but not paid in connection with the sale of
Kinzie Station Parcel B. That closing took place following the Chapter 11 filing
and the compensation is a claim against the estate. The 2002 CMC Plan also
provides compensation in the form of 30,000 "phantom units" which are the
economic, but not tax, equivalent of Class A Units. Under Mr. Adelson's
employment agreement he has 100,000 "phantom units" as well. The expense and
accrual previously recorded for these units has been reversed during the quarter
ended June 30, 2006 in light of the Company's shift to the liquidation basis of
accounting as that amount is now not expected to be paid.
In 2005, the Company entered into a separation and consulting agreement with Mr.
Harrison. Under the agreement, Mr. Harrison received $50,000 in addition to his
salary during the first half of 2006.
7. Liquidation of Heartland Partners, L.P.
The Company's management intends to sell to unrelated third parties the
remainder of its properties and dissolve the partnership.
GENERAL INFORMATION
On April 28, 2006 (the "Petition Date"), the Company and certain of its
affiliated entities (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (the "Bankruptcy Court"). The Debtors'
cases are being jointly administered under the caption "In re CMC Heartland
Partners, L. P., et al., at Case No. 06-B-04769." The Debtors are operating as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code. In general, as
debtors-in-possession, the Debtors are authorized under Chapter 11 to administer
their bankruptcy estates, but may not engage in transactions outside the
ordinary course of business without the prior approval of the Bankruptcy Court.
Through their bankruptcy proceedings, the Debtors intend to liquidate all
outstanding claims against the Debtors, including any environmental claims, and
to provide for a fair and equitable distribution of estate property to all
creditors.
The Automatic Stay. Subject to certain exceptions under the Bankruptcy
Code, the Debtors' Chapter 11 filings served to automatically stay the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property including any actions to recover on,
collect or secure a claim that arose prior to the Petition Date. Upon the
request of Trinity, the Bankruptcy Court modified the automatic stay in order
for Trinity to proceed to liquidate its claim in the Montana state court (see
Note 5-Legal Proceedings and Contingencies). In addition, the Debtors expect
that plaintiffs in the Jacobson and Borax lawsuits will seek to have the
automatic stay modified by the Bankruptcy Court in order to liquidate their
claims against the Debtors (see Note 5-Legal Proceedings and Contingencies). The
automatic stay has not been modified with respect to any of these creditors such
that they might be able to collect on any judgment and thus frustrate the
14
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
bankruptcy process and Debtors do not expect any such modification of the
automatic stay.
Appointment of Creditors Committee. The United States Trustee for the
Northern District of Illinois has not appointed an official committee of
unsecured creditors in the Debtors' cases.
Magnitude of Potential Claims. The Debtors have filed with the Bankruptcy
Court schedules and statements of financial affairs setting forth, among other
things, the assets and liabilities of the Debtors, subject to the assumptions
filed in connection therewith. All of the schedules will be subject to further
amendment or modification. Differences between amounts scheduled by the Debtors
and claims by creditors will be investigated and resolved in connection with the
claims resolution process. To that end, the Bankruptcy Court fixed July 31, 2006
as the last date for non-governmental creditors and interest holders to timely
file proofs of claim or interest and October 25, 2006 as the last day for
governmental units to timely file proofs of claim.
Based on the DEQ Settlement Agreement discussed above in Note 5-Legal
Proceedings and Contingencies, the Debtors have scheduled Trinity and DEQ with
liquidated, unsecured, non-priority claims related to the Miles City Montana
railyard and other Montana properties. Borax and USEPA have been scheduled with
significant claims in connection with the clean up of arsenic and other
materials in a neighborhood in Minneapolis, Minnesota near the Company's former
Lite Yard property. Edwin Jacobson has been scheduled with a contingent,
unliquidated, disputed, unsecured, non-priority claim of $14,600,000 in
connection with the termination of his employment contract.
Costs of Liquidation. The Company has incurred and will continue to incur
significant costs associated with its Chapter 11 proceedings. The Company
believes, however, that the proceedings will produce the best outcome for the
Company and its creditors. The Company has accrued $305,000 for costs in
connection with the liquidation. This represents an estimate of a low end of a
possible range of costs. Actual results may be different from this estimate.
Effect of Filing on Creditors and Unitholders. Under the priority scheme
established by the Bankruptcy Code, unless creditors agree otherwise,
pre-petition liabilities and post-petition liabilities must be satisfied in full
before Unitholders are entitled to receive any distribution or retain any
property under a plan of reorganization. The ultimate recovery to creditors
and/or Unitholders, if any, may not be determined until confirmation of a plan
or plans of liquidation and, in all likelihood, not until all of the Debtors'
assets are fully liquidated and all claims finally determined. No assurance can
be given as to what values, if any, will be ascribed in the Chapter 11
proceedings to each of these constituencies or what types or amounts of
distributions, if any, they may receive.
As discussed below, if the requirements of Section 1129(b) of the Bankruptcy
Code are met, a plan of liquidation can be confirmed notwithstanding its
rejection by the Unitholders and notwithstanding the fact that such Unitholders
15
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
do not receive or retain any property on account of their equity interests under
the plan. Because of such possibilities, the value of our liabilities and
securities, including our partnership units, is highly speculative. We urge that
appropriate caution be exercised with respect to existing and future investments
in any of the liabilities and/or securities of the Debtors.
LIABILITIES SUBJECT TO COMPROMISE
The following table summarizes the components of liabilities subject to
compromise included in our Consolidated Statement of Net Assets in Liquidation
and Balance Sheet as of June 30, 2006 and December 31, 2005, respectively:
JUNE 30, DECEMBER 31,
(in thousands) 2006 2005
Allowance for claims and liabilities $5,362 $2,128
--------------------------------------------------------------------------------
$5,362 $2,128
================================================================================
Liabilities subject to compromise refers to pre-petition obligations, which
may be impacted by the Chapter 11 reorganization process. These amounts
represent our current estimate of known or potential pre-petition obligations to
be resolved in connection with our Chapter 11 proceedings.
Differences between liabilities we have estimated and the claims filed, or
to be filed, will be investigated and resolved in connection with the claims
resolution process. We will continue to evaluate these liabilities throughout
the Chapter 11 process and adjust amounts as necessary. Such adjustments may be
material. In light of the expected number of creditors, the claims resolution
process may take considerable time to complete. Accordingly, the ultimate number
and amount of allowed claims is not presently known.
8. Subsequent Events
Subsequent to June 30, 2006 the Company entered into the DEQ Settlement
Agreement discussed above in Note 5-Legal Proceedings and Contingencies
described above.
On August 8, 2006, Debtors filed a plan and disclosure statement ("Liquidation
Plan") for which key points are summarized as follows:
Process for Plan of Liquidation. In addition to being voted on by holders of
impaired claims and equity interests, a plan of liquidation must satisfy certain
requirements of the Bankruptcy Code and must be approved, or confirmed, by the
Bankruptcy Court in order to become effective. A plan of liquidation will be
deemed accepted by holders of claims against and equity interests in the Debtors
if (1) at least one-half in number and two-thirds in dollar amount of claims
actually voting in each impaired class of claims have voted to accept the plan
and (2) at least two-thirds in amount of equity interests actually voting in
each impaired class of equity interests has voted to accept the plan.
Under certain circumstances set forth in Section 1129(b) of the Bankruptcy Code,
the Bankruptcy Court may confirm a plan even if such plan has not been accepted
16
Heartland Partners, L.P.
Notes to Consolidated Financial Statements for the
(Unaudited)
by all impaired classes of claims and equity interests. A class of claims or
equity interests that does not receive or retain any property under the plan on
account of such claims or interests is deemed to have voted to reject the plan.
The precise requirements and evidentiary showing for confirming a plan
notwithstanding its rejection by one or more impaired classes of claims or
equity interests depends upon a number of factors, including the status and
seniority of the claims or equity interests in the rejecting class (i.e.,
secured claims or unsecured claims, subordinated or senior claims, preferred or
Class A Units). Generally, with respect to equity interests, such as the Class A
Units , a plan may be "crammed down" even if the unitholders receive no recovery
if the proponent of the plan demonstrates that (1) no class junior to the Class
A Units is receiving or retaining property under the plan and (2) no class of
claims or interests senior to the Class A Units is being paid more than in full.
The Liquidation Plan was confirmed by the Bankruptcy Court on November 7, 2006.
Liquidating Trust. Under the Liquidation Plan, a liquidating trust ("Trust")
will be created. The assets of the Company will be transferred to the Trust. The
assets consist essentially of cash, the fiber optics agreement and approximately
130 acres of land scattered over 8 states. LePetomane XVIII, Inc. will be
appointed trustee of the Trust ("Trustee").
Claims against the Company basically consist of the environmental claims and the
Jacobson claim, both of which are described above in Note 5--Legal Proceedings
and Contingencies, and certain property tax claims. The value, if any, of the
environmental claims, particularly the Miles City and Lite Yard offsite claims,
and of the Jacobson claim will be settled either through negotiated settlement
or trial. After claims have been liquidated, all allowed claims will be paid in
full. If there are assets remaining after payment of claims and costs and
expenses, the assets will be distributed to Class A Unitholders as reflected on
the Company's books as of the date of transfer to the Liquidating Trust.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report includes forward-looking statements intended to qualify for the safe
harbor from liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements generally can be identified by
phrases such as Heartland or the Company, or its management "believes,"
"expects," "anticipates," "foresees," "forecasts," "estimates," or other words
or phrases of similar import. Similarly, statements in this report that describe
the Company's plans, outlook, objectives, intentions or goals are also
forward-looking statements. Forward-looking statements are not guarantees of
future performance. They involve risks and uncertainties that are difficult to
predict. The Company's actual future results, actions, performance or
achievement of results and the value of the partnership Units may differ
materially from what is forecast in any forward-looking statements. We caution
you not to put undue reliance on any forward-looking statement in these
documents. The Company does not undertake any obligation to update or publicly
release any revisions to forward-looking statements to reflect events,
circumstances or changes in expectations after the date of this report.
Chapter 11 Proceedings
On April 28, 2006, the Company and certain of its affiliated entities
(collectively, the "Debtors") filed voluntary petitions for relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (the "Bankruptcy Court"). The Debtors'
cases are being jointly administered under the caption "In re CMC Heartland
Partners, L. P., et al.," at Case No. 06-B-04769.
The Debtors are operating as "debtors-in-possession" under the jurisdiction of
the Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code. In general, as debtors-in-possession, the Debtors are
authorized under Chapter 11 to administer their bankruptcy estates, but may not
engage in transactions outside the ordinary course of business without the prior
approval of the Bankruptcy Court. Through their bankruptcy proceedings, the
Debtors intend to liquidate all outstanding claims against the Debtors,
including any environmental claims, and to provide for a fair and equitable
distribution of estate property to all creditors.
Risk Factors
Chapter 11 Bankruptcy
The Company filed for reorganization under Chapter 11 of the Bankruptcy Code on
April 28, 2006 and is subject to the risks and uncertainties associated with
Chapter 11 proceedings. Risks and uncertainties associated with the Company's
Chapter 11 proceedings include the following: (i) the actions and decisions of
the Company's creditors and other third parties with interests in the Company's
Chapter 11 proceedings may be inconsistent with those of Unitholders, (ii) the
18
ability of the Company to develop, prosecute, confirm and consummate a plan of
liquidation with respect to the Chapter 11 proceedings, (iii) the ability of the
Company to make distributions will depend on resolution of claims and
liabilities in the Chapter 11 proceedings, and (iv) the ultimate distribution,
if any, to Unitholders may not reflect the true value of the Units.
Because of the risks and uncertainties associated with the Company's Chapter 11
proceedings, the ultimate impact that events that occur during these proceedings
will have on the Company's business and financial condition cannot be accurately
predicted or quantified.
Real Estate Investment Risks; General Economic Conditions Affecting Real Estate
Industry
-------------------------------------------------------------------------------
The Company faces risks associated with local real estate conditions in areas
where the Company owns properties. These risks include, but are not limited to:
liability for environmental hazards; changes in general or local economic
conditions; changes in real estate and zoning laws; changes in income taxes,
real estate taxes, or federal or local taxes; floods, earthquakes, and other
acts of nature; and other factors beyond the Company's control. These risks
could adversely affect the Company's financial condition and ability to make
distributions to the Unitholders.
Owners of real estate are subject to various risks, many of which are outside
the control of the seller, including real estate market conditions, changing
demographic conditions, adverse weather conditions and natural disasters, such
as hurricanes and tornadoes, changes in government regulations or requirements
and increases in real estate taxes and other local government fees. The
occurrence of any of the foregoing could have a material adverse effect on the
financial condition of Heartland.
Pending Litigation
------------------
The Jacobson litigation described above in Note 5 to Notes to Consolidated
Financial Statements--Legal Proceedings and Contingencies may not be resolved in
the Company's favor, and the Company may incur significant costs associated
therewith. If the Company is required to pay substantial amounts with respect to
the Jacobson litigation, the Company may not be left with any cash or other
property to distribute to the Unitholders.
As set out above in Note 5 to Notes to Consolidated Financial Statements--Legal
Proceedings and Contingencies, Borax has sued the Company for contribution in
connection with possible liability for arsenic found in a residential
neighborhood near the Lite Yard in Minneapolis, Minnesota. The Company has
opposed the Borax motion. The matter is currently stayed by the Company's
bankruptcy filing.
Additionally, as discussed above in Note 5 to Notes to Consolidated Financial
Statements--Legal Proceedings and Contingencies, a state court in Montana issued
an order requiring the Company to escrow cash, post a bond, or provide another
guarantee, of $2,500,000 to cover possible remediation and clean-up costs on
land formerly owned by the Company, or its predecessor-in-interest, in Miles
City, Montana. The Company has entered into the DEQ Settlement Agreement
19
discussed above in Section 5-Legal Proceedings and Contingencies, to settle this
and other liabilities in the State of Montana.
Liquidation of Assets
---------------------
The Company has filed a voluntary petition for reorganization under Chapter 11
of the Bankruptcy Code. The Unitholders will not have control over the
divestiture of the Company's remaining assets or the liquidation process. The
Company cannot make any assurance that changes in its policies will serve fully
the interests of all Unitholders or that the Unitholders will receive any
liquidating distributions of cash or other property.
The Company is working to resolve its remaining liabilities which primarily
consist of environmental matters and Edwin Jacobson's claim against the Company.
The amount and timing of any future cash distributions will depend on generation
of cash from sales and claims and the resolution of liabilities. There can be no
assurance that the amounts available from internally generated funds, cash on
hand, and sale of the remaining assets of the Company will be sufficient to fund
Heartland's anticipated costs of liquidation and meet existing and future
liabilities.
Risks Related to the Class A Units
----------------------------------
In April 2006, the American Stock Exchange suspended trading of the Company's
Class A units. On June 13, 2006, the American Stock Exchange filed an
application with the SEC to delist the Class A units. The Company did not oppose
or appeal the application to delist the units and, as such, the Class A units
are no longer traded on a stock exchange.
Environmental Liabilities
-------------------------
Under various federal, state and local laws, ordinances, and regulations, the
owner or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances located on or in, or emanating
from, such property, as well as costs of investigation and property damages.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner or operator's ability
to sell or lease a property or borrow using the property as collateral. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result in
substantial costs to us or may result in the need to cease or alter operations
on the property and may reduce the value of the property or our ability to sell
it.
Environmental laws may impose liability on a previous owner or operator of a
property that owned or operated the property at a time when hazardous or toxic
substances were disposed on, or released from, the property. A conveyance of the
property, therefore, does not relieve the owner or operator from liability. The
Company cannot assure that environmental liability claims will not arise in the
future.
20
Heartland is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Heartland is in the process of assessing its
environmental exposure, including obligations and commitments for remediation of
contaminated sites and assessments of ranges and probabilities of recoveries
from other responsible parties. Because of the regulatory complexities and risk
of unidentified contaminants on its properties, the potential exists for
remediation costs to be materially different from the costs Heartland has
estimated. Some of the property owned by the Company consists of land formerly
used for railroad. Other properties were leased to tenants that used hazardous
materials in their businesses. Any contamination of that property may affect
adversely the Company's ability to sell such property.
SUMMARY OF SIGNIFICANT ACCOUNTING ESTIMATES
The Company's most significant accounting estimates relate to the net realizable
value of assets, potential environmental liabilities, and the Jacobson
litigation.
Net Realizable Value of Assets
------------------------------
For properties held for sale, an impairment loss is recognized when the fair
value of the property, less the estimated cost to sell, is less than the
carrying amount of the property. At June 30, 2006, all land held for sale had
been sold.
Potential Environmental Liabilities
Estimation of Amount of Reserve for Environmental Claims and Liabilities:
The Company evaluates the environmental liabilities associated with its
properties on a regular basis. The Company records an allowance, or reserve, for
known potential environmental claims and liabilities, including remediation,
legal and consulting fees, to the extent it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated. The
reserve amount does not include any estimated amounts for unknown claims and
liabilities. The Company estimates its reserve for known environmental claims
and liabilities independent from any claims the Company may have for recovery
against third parties, including from governmental sponsored clean-up funds. If
the Company cannot reasonably estimate the amount of an environmental claim or
liability, but (i) the Company's management is able to determine that the amount
of the liability is likely to fall within a range and (ii) no amount within that
range can be determined to be a better estimate than any other amount, then the
Company records the reserve at the minimum amount of the range. At June 30,
2006, the reserve for environmental claims and liabilities was $5,362,000, which
represents the minimum amount of the range of the Company's estimate of
environmental claims and liabilities. The upper range of the Company's
environmental claims and liabilities is estimated to be approximately $8,794,000
based on an estimate by outside consultants.
21
Actual Costs Likely to Exceed Amount of Reserve:
If the Company were to use a different approach than that described above, the
amount of the reserve could be materially higher. Additionally, the Company
believes it is likely that the actual amount of the Company's environmental
claims and liabilities, when fully resolved or provided for, will be higher than
the reserve amount because it is unlikely that, as a whole, such claims and
liabilities will be less expensive to resolve than the amount of the low end of
such range. Also, as noted above, the Company does not include in the amount of
the reserve any estimated amounts for unknown claims and liabilities. This means
that as new claims arise the amount of the reserve will generally need to be
increased. For example, as the Company incurs environmental remediation and
other costs for new environmental claims, the Company pays for, and records as
an operating expense, the amount of such costs and accrues an environmental
reserve if necessary. However, because new environmental claims arise
periodically, the amount of the Company's reserve for environmental claims and
liabilities has not historically declined, but rather has remained flat or
increased over time.
In connection with the liquidation of the Company under Chapter 11, the Company
will have to make a provision for all of its potential environmental
liabilities, including known liabilities and unknown liabilities that are likely
to arise or become known.
Factors and Properties Affecting the Amount of the Company's Environmental
Liabilities:
Under environmental laws, liability for hazardous substance contamination is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substance was
disposed or otherwise released. In most cases, this liability is imposed without
regard to fault. Currently, the Company has known environmental liabilities
associated with certain of its properties arising out of the activities of the
Milwaukee Road or certain of the Milwaukee Road's lessees and may have further
material environmental liabilities that are currently unknown. The majority of
the Company's known environmental liabilities stem from the use of petroleum
products, such as motor oil and diesel fuel, in the operation of a railroad or
in operations conducted by the Milwaukee Road's lessees.
From time to time contaminants are discovered on property the Company now owns.
Some of these may have resulted from the historical activities of the Milwaukee
Road. In other cases the property was leased to a tenant who released
contaminants onto the property. The Company's property may also be polluted by a
release or migration of contaminants onto the Company's property by unrelated
third parties. The Company has not investigated all of its properties and does
not know how many of them may be contaminated.
The Company's practice when it sells land is to sell the property "as is, where
is" without any representation or indemnification for environmental conditions.
There are cases in which the Company has had a claim arising out of alleged
contamination on sold property. In some, but not all, of these instances, the
Company has been successful in asserting that such liabilities were discharged
in the bankruptcy proceedings of the Milwaukee Road.
The Company may be responsible for certain liabilities that arise from the
historical operations of the Milwaukee Road railroad that have nothing to do
with the ownership of property. The Company has been, for example, named as a
"potentially liable party" or had claims asserted by private parties in
22
landfill-clean-up cases in which there is an allegation that the Milwaukee Road
generated or transported materials to the landfill. Additional claims may arise
in the future. In certain of these cases, the Company has asserted that such
liabilities were discharged in the bankruptcy proceedings of the Milwaukee Road.
At two separate sites, the Company has been notified that releases arising out
of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
Lite Yard
Lite Yard is a 5 acre site in Minneapolis, Minnesota, formerly owned by CMC,
that is impacted with arsenic and lead. On April 29, 2004, a Response Action
Plan for the site was approved by the Minnesota Department of Agriculture. The
Company filed suit against Borax on July 23, 2003, in the United States District
Court for the District of Minnesota for contribution. Borax, which discontinued
operations in 1968, is a former operator of a pesticide/herbicide facility on
the property. This matter was settled pursuant to the Settlement Agreement.
Pursuant to the Settlement Agreement, Borax has agreed to pay a portion of the
Company's past and future response costs at the site. At June 30, 2006 and
December 31, 2005, the Company's aggregate allowance for claims and liabilities
for this site was $4,000 and $20,000, respectively.
The Company sold the Lite Yard to a third party in August 2005. The sale did not
affect the Company's environmental responsibility. The company believes that
with the exception of amounts estimated to be less than $5,000 required to be
paid in connection with obtaining regulatory compliance confirmation, it has now
completed the environmental remediation of the Lite Yard.
On September 3, 2004, USEPA issued an order (the "Order") requiring the Company
and Borax to remediate arsenic in the soils of a nearby residential neighborhood
on an emergency basis. On January 24, 2005, USEPA issued a general notice letter
(the "Letter) to the Company and Borax requesting that the Company and Borax
perform a remedial investigation and feasibility study on the soils of the same
nearby residential neighborhood on a non-emergency basis for matters not covered
by the Order. Neither the Order nor the Letter is covered by the Settlement
Agreement.
The Company offered USEPA $300,000 to settle the Company's obligations under the
Order and the Letter. USEPA has not yet responded to the Company's offer. The
Company believes, based on USEPA publications and a newspaper article, that
USEPA has provided $1,500,000 to $2,200,000 for past and future remediation
activities in the residential neighborhood. This amount does not necessarily
represent the entire cost of the cleanup being undertaken by USEPA. The entire
cost could be higher or lower. USEPA could seek substantial penalties against
the Company in addition to remediation costs. The Company engaged an
environmental engineering consultant to review information available regarding
the possible scope and cost of USEPA activities. The consultant projected a
range of possible costs of $3,374,000 to $3,948,000. However, this estimate was
based on limited data available to the consultant. The Company has reserved
$1,432,000 in connection with the Order and the Letter. This reserve amount
23
takes into consideration the estimated range of possible costs and the
allocation of costs among PRPs for the on-site remediation at the Lite Yard.
Borax has filed suit in federal court in Minneapolis, Minnesota for seeking
contribution from CMC in connection with any liability arising out of arsenic in
the nearby residential area. CMC is opposing Borax's lawsuit and believes it has
good defenses. The matter is stayed as a result of the Company's Chapter 11
filing.
DEQ Settlement Agreement
The Company has entered into the DEQ Settlement Agreement discussed above in
Section 5-Legal Proceedings and Contingencies to resolve certain environmental
liabilities in the State of Montana. It is subject to approval by the Bankruptcy
Court. The Company has reserved $3,550,000 in connection with the DEQ Settlement
Agreement.
Other
The Canadian Pacific Railroad, formerly known as the Soo Line Railroad Company,
has asserted that the Company is liable for, among other things, the remediation
of releases of petroleum or other regulated materials at six different sites
located in Iowa, Minnesota and Wisconsin that Canadian Pacific acquired from the
Company. The Company has denied liability based on the underlying sale
agreement. The environmental claims are all currently being handled by Canadian
Pacific, and the Company understands that Canadian Pacific has paid settlements
on certain of these claims. Because Canadian Pacific has been handling these
matters exclusively, the Company has made no determination as to the merits of
the claims and is unable to determine their materiality.
In November 1995, the Company settled a claim with respect to the so-called
"Wheeler Pit" site near Janesville, Wisconsin. The Company's only outstanding
obligation under the settlement is to pay 32% of the monitoring costs for
twenty-five years beginning in 1997. At June 30, 2006, Heartland's allowance for
claims and liabilities for this site is $191,000. By letter dated April 6, 2005,
the lead PRP at this site offered to settle the Company's future obligations for
approximately $266,000. Additionally, the lead PRP at this site previously made
a demand for monitoring costs of $53,000 incurred through March of 2004. The
Company has not paid any amounts to the PRP in respect of monitoring costs for
this site to date.
In addition to the environmental matters set forth above, there may be other
properties (i) with environmental liabilities not yet known to the Company, (ii)
with potential environmental liabilities for which the Company has no reasonable
basis to estimate or (iii) that the Company believes it is not reasonably likely
to ultimately bear responsibility for the liability but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to insurers, which issued policies to the Milwaukee
Road of certain of the Company's environmental liabilities. Due to the high
deductibles on these policies, the Company has not yet demanded that any insurer
indemnify or defend the Company. Consequently, management has not formed an
opinion regarding the legal sufficiency of the Company's claims for insurance
coverage.
24
Edwin Jacobson, the former President and Chief Executive Officer of CMC, has
sued the Company claiming that it owes him additional salary and incentive
compensation based on the terms of his employment contract. In the court case he
has demanded $12,000,000 ($1,000,000 salary and $11,000,000 incentive
compensation) in damages. Jacobson filed a claim in the bankruptcy proceeding in
the amount of $14,600,000. The Company has denied Mr. Jacobson's claims and has
countersued to recover past payments made to him and to collect $332,000 in
principal and interest under a note from Jacobson to the Company (this matter is
explained in greater detail above in Note 5 to Notes to Consolidated Financial
Statements-Legal Proceedings and Contingencies). The Company offered to settle
the lawsuits in exchange for forgiving Jacobson's debt to the Company. When it
made the offer, the Company established an allowance against the note receivable
of $316,000. CMC has made no other provision for this potential liability.
Results of Operations
Operations for the three and six months ended June 30, 2006 resulted in a net
loss of $(1,417,000) and income of $2,353,000 or $(0.67) and $1.11 per Class A
Unit respectively. Operations for the three and six months ended June 30, 2005
resulted in net income of $613,000 and a net loss of ($476,000) or $0.00 and
$0.00 per Class A Unit, respectively.
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Property Sales. Property sales increased $2,680,000, or 1,576%, to $2,850,000
for the three months ended June 30, 2006 from $170,000 for the three months
ended June 30, 2005. Second quarter 2006 sales included the Company's remaining
acreage in Kinzie Station. During the second quarter of 2005, the Company closed
the sale of a Rockford, IL property.
Cost of Property Sales. Cost of property sales increased $967,000, or 16,117%,
to $973,000 for the three months ended June 30, 2006 from $6,000 for the three
months ended June 30, 2005. The increase was primarily the result of cost of
sales recognized in connection with the Kinzie Station North Parcel B sale
compared with those recognized in connection with the sale of the Rockford
property in 2005.
Gross Profit on Property Sales. Gross profit on property sales increased
$1,713,000 to $1,877,000 for the three months ended June 30, 2006 from $164,000
for the three months ended June 30, 2005. This increase was primarily the result
of higher sales in 2006.
Selling Expenses. Selling expenses increased $99,000 to $184,000 for the three
months ended June 30, 2006 from $85,000 for the three months ended June 30,
2005. This increase was primarily the result of higher consulting costs.
General and Administrative Expenses. General and administrative expenses
increased $74,000 to $656,000 for the three months ended June 30, 2006 from
$582,000 for the three months ended June 30, 2005. This was primarily due to
accruing for liquidation expense, offset by lower insurance costs, lower public
relations costs, lower board fee expense and lower banking costs.
25
Real Estate Taxes. Real estate taxes increased $30,000 to $8,000 for the three
months ended June 30, 2006 from ($22,000) for the three months ended June 30,
2005. Sales of land for which there were accrued real estate taxes in the second
quarter of 2005 created negative real estate taxes for that period.
Environmental Expenses and Other Charges. Environmental expenses and other
charges increased $4,032,000 to $3,333,000 for the three months ended June 30,
2006 from ($699,000) for the three months ended June 30, 2005. In the second
quarter of 2005, the Company received reimbursement from Borax for $238,000 the
Company had spent at the Lite Yard, settled a disputed bill from Exponent, and
the reserved amount for Bozeman, Montana was reduced based on additional studies
by the City of Bozeman. In 2006, the Company spent money on remediation and
increased its reserves for the Lite Yard Offsite and increased its reserve to
reflect the DEQ Settlement Agreement discussed above in Note 5 to Notes to
Consolidated Financial Statements -Legal Proceedings and Contingencies.
Interest Income. Interest income increased $55,000 to $72,000 for the three
months ended June 30, 2006 from $17,000 for the first quarter of 2005. The
increase was due to increased cash in 2006.
Rental Income-accounting basis change adjustment. This increased $793,000 in the
second quarter of 2006 compared to $0 in 2005. The Company recognized $793,000
of deferred rental income as rental income in the second quarter of 2006. The
Company had received prepaid rent from fiber optics easements and was
recognizing the income over the life of the easements. When the Company changed
its basis of accounting to the liquidation basis it recognized the remaining
balance into income in accordance with liquidation accounting.
Rental Income. Total rental income and earned rental lease income decreased
$15,000 to $19,000 for the three months ended June 30, 2006 from $34,000 for the
three months ended June 30, 2005.
Gain on Sale of Buildings and Improvements. Gain on sale of buildings and
improvements decreased by $430,000 to $0 for the three months ended June 30,
2006 from $430,000 for the three months ended June 30, 2005. The Company sold
its 4,000 square foot office space in Chicago, Illinois in 2005 for net proceeds
of $549,000 resulting in a net gain of $430,000 in 2005. The Company had no
sales of buildings and improvements in 2006.
Net Income. Net income decreased $2,030,000 to a loss of $(1,417,000) for the
three months ended June 30, 2006 from $613,000 for the three months ended June
30, 2005. This was primarily the result of reflecting the DEQ Settlement
Agreement, partially offset by increased sales and increased gross profit on the
Kinzie Station sale.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Property Sales. Property sales increased $1,327,000 to $5,700,000 for the six
months ended June 30, 2006 from $4,373,000 for the six months ended June 30,
2005. This increase was primarily the result of the sales of the last two
parcels of Kinzie Station for a total of $5,700,000 in the first half of 2006.
The Company recorded the $4,200,000 sale of Kinzie Station Phase II in 2005.
26
Settlement of Condemnation. Settlement of Condemnation increased $3,250,000 to
$3,250,000 in the first half of 2006 from $0 in the first half of 2005. The
Company received the RACM Settlement in the first half of 2006.
Cost of Property Sales. Cost of property sales decreased $1,864,000 to
$2,094,000 for the six months ended June 30, 2006 from $3,958,000 for the six
months ended June 30, 2005. This decrease was primarily the result of the high
costs of sale recognized in connection with the sale of Kinzie Station Phase II
in 2005. These included incentive payments to certain current and former
officers and payments due to METRA Rail. However, the most significant factor
was the total cost basis of Kinzie Station II of $3,565,000. These costs did not
affect net proceeds received on the sale because they were primarily costs from
previous planning, design and marketing of the property.
Gross Profit on Property Sales. Gross profit on property sales increased
$6,441,000 to $6,856,000 for the six months ended June 30, 2006 from $415,000
for the six months ended June 30, 2005. This increase was the result of
increased sales and the lower cost of sales for properties sold in 2006. The
Company received $3,250,000 from the RACM Settlement in 2006. There were no
costs of sale in connection with the settlement as all costs of sale had been
recognized upon the taking of the property by RACM in 2003.
Selling Expenses. Selling expenses increased $72,000 to $444,000 for the six
months ended June 30, 2006 from $372,000 for the six months ended June 30, 2005.
This increase was primarily the result of higher consulting costs.
General and Administrative Expenses. General and administrative expenses
increased $228,000 to $1,427,000 for the six months ended June 30, 2006 from
$1,199,000 for the six months ended June 30, 2005. This was primarily due to
accruing for liquidation costs, partially offset by lower insurance costs, lower
public relations costs, lower board fee expense, lower banking costs and the
elimination of a reserve for contingent executive compensation related to
"phantom units".
Bad Debt Expense. Bad debt expense decreased $100,000 to $0 for the six months
ended June 30, 2006 from $100,000 for the six months ended June 30, 2005. In
2005 the Company wrote off an additional $100,000 in connection with a
receivable due from Heartland Technology, Inc., an affiliate.
Environmental Expenses and Other Charges. Environmental expenses and other
charges increased $3,939,000 to $3,540,000 for the six months ended June 30,
2006 from ($399,000) for the six months ended June 30, 2005. In 2005 the Company
received reimbursement from Borax for $238,000 the Company had spent at the Lite
Yard, settled a disputed bill from Exponent and the reserved amount for Bozeman,
Montana was reduced based on additional studies by the City of Bozeman. In the
six months ended June 30, 2006, the Company increased its environmental reserve
for Lite Yard off site costs and recorded additional expense pursuant to the DEQ
Settlement Agreement discussed above in Section 5-Legal Proceedings and
Contingencies.
27
Interest Income. Interest income increased $54,000 to $77,000 for the six months
ended June 30, 2006 from $23,000 for the first half of 2005. The increase was
due to increased cash in 2006.
Rental Income-accounting basis change adjustment. This increased $793,000 in the
second quarter of 2006 compared to $0 in 2005. The Company recognized $793,000
of deferred rental income as rental income in the second quarter of 2006. The
Company had received prepaid rent from fiber optics easements and was
recognizing the income over the life of the easements. When the Company changed
its basis of accounting to liquidation basis it recognized the remaining balance
into income in accordance with liquidation accounting.
Rental Income. Total rental income and earned rental lease income decreased
$27,000 to $56,000 for the six months ended June 30, 2006 from $83,000 for the
six months ended June 30, 2005.
Other Income. Other income decreased $61,000 for the first six months of 2006
from $66,000 for the six months ended June 30, 2005. There was a sale of a fiber
optics easement in other income in 2005.
Gain on sale of Buildings and Improvements. Gain on Sale of Buildings and
Improvements decreased by $430,000 to $0 for the six months ended June 30, 2006
from $430,000 for the six months ended June 30, 2005. The Company sold its 4,000
square foot office space in Chicago, Illinois in 2005 for net proceeds of
$549,000 and a net gain of $430,000 in 2005 and had no sales of Buildings and
Improvements in 2006.
Net Income (Loss). Net income increased $2,827,000 to net income of $2,353,000
for the six months ended June 30, 2006 from net loss of $(474,000) for the six
months ended June 30, 2005. This was the result of higher revenues and higher
gross profit on property sales.
Liquidity and Capital Resources
The primary sources of cash for operating activities have been proceeds of
property sales, rental income and interest income. Unrestricted Cash was
$6,227,000 at June 30, 2006 and $1,160,000 at December 31, 2005.
Net cash provided by operating activities was $6,474,000 for the six months
ended June 30, 2006. Cash provided by operating activities increased by
$4,644,000 for the six months ended June 30, 2006. Cash was generated from the
sale of land in Kinzie Station and settlement of the RACM litigation. A mortgage
on Kinzie Station Parcel B was part of the collateral for a $2,500,000 letter of
credit for the Miles City Yard litigation. When Parcel B was sold, the Company
increased cash collateral for the letter of credit by $1,407,000.
28
No distributions were made during the first half of 2006. As of June 30, 2006,
the Unitholders' capital account balance was $5,784,000 and the General
Partner's capital account balance was $35,000.
Proceeds from property sales were $8,950,000 for the six months ended June 30,
2006. During the remainder of 2006, the Company does not expect proceeds from
property sales to be significant. The Company may also receive proceeds from the
sale of fiber optics easements across or along 83 miles of rail right of way
running from downtown Chicago, Illinois, west to Elgin, Illinois and northwest
to Fox Lake, Illinois.
The cost of property sales for the six months ended June 30, 2006 and 2005 was
$2,094,000, or 23% of sales proceeds.
On July 30, 2003, the Company conveyed 142 acres of property in Milwaukee,
Wisconsin to RACM in consideration of $3.55 million in lieu of condemnation. The
Company reserved the right to appeal the fair market value of the property and
filed that appeal on April 6, 2004, in Milwaukee County, Wisconsin Circuit
Court. The parties reached a settlement of the appeal in January 2006 and the
Company received $3,250,000 in March 2006.
The Company entered into the DEQ Settlement Agreement discussed above in Section
5-Legal Proceedings and Contingencies. Under the DEQ Settlement Agreement, the
Company's environmental liabilities to the State of Montana and Trinity
Industries will be resolved for a payment of up to $3,550,000. The DEQ
Settlement Agreement is subject to approval by the Bankruptcy Court.
Economic and Other Conditions
The real estate industry is highly cyclical and is affected by changes in local,
national, and global economic conditions and events, such as employment levels,
availability of financing, interest rates, consumer confidence and the demand
for housing and other types of construction. Sellers of real estate are subject
to various risks, many of which are outside the control of the seller, including
real estate market conditions, changing demographic conditions, adverse weather
conditions and natural disasters, such as hurricanes and tornadoes, changes in
government regulations or requirements, increases in real estate taxes and other
local government fees and availability and cost of land. The occurrence of any
of the foregoing could have a material adverse effect on the financial condition
and results of operations of Heartland.
Interest Rate Sensitivity
As of June 30, 2006, the Company did not have any financial instruments for
which there was significant exposure to interest rate changes.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Interest Rate Sensitivity." The Company is not subject to
significant foreign currency exchange rate risk, commodity price risk or other
relevant market price risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer has evaluated the Company's disclosure
controls and procedures as of the end of the period covered by this report and
believes that the Company's controls and procedures are adequate to ensure that
the information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is,
in fact, recorded, processed, summarized and reported. However, the Company did
not timely file its Form 10-Q for the first or second quarter of 2006.
Changes in Internal Control over Financial Reporting
Following the April 20, 2006 resignation of the Company's independent directors,
the Company does not have any independent directors and has an audit committee
comprised of a single, non-independent director.
30
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At June 30, 2006, Heartland's allowance for claims and liabilities was
approximately $5,362,000.
There have been no new legal proceedings instituted against the Company during
the six months ended June 30, 2006. Material developments in the legal
proceedings disclosed in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 since the filing thereof on March 31, 2006 include
the RACM Settlement in January 2006. These legal proceedings are discussed above
in Note 5 to Notes to Consolidated Financial Statements - Legal Proceedings and
Contingencies". In April 2006 the Company filed for liquidation under Chapter 11
of the federal bankruptcy laws. The Company entered into the DEQ Settlement
Agreement which, if approved by the Bankruptcy Court, will resolve certain
litigation with the Montana Department of Environmental Quality and Trinity
Industries.
ITEM 1A. RISK FACTORS
The Company filed for reorganization under Chapter 11 of the Bankruptcy Code on
April 28, 2006 and is subject to the risks and uncertainties associated with
Chapter 11 proceedings. Risks and uncertainties associated with the Company's
Chapter 11 proceedings include the following: (i) the actions and decisions of
the Company's creditors and other third parties with interests in the Company's
Chapter 11 proceedings may be inconsistent with those of Unitholders, (ii) the
ability of the Company to develop, prosecute, confirm and consummate a plan of
liquidation with respect to the Chapter 11 proceedings, (iii) the ability of the
Company to make distributions will depend on resolution of claims and
liabilities in the Chapter 11 proceedings, and (iv) the ultimate distribution,
if any, to Unitholders may not reflect the true value of the Units.
Because of the risks and uncertainties associated with the Company's Chapter 11
proceedings, the ultimate impact that events that occur during these proceedings
will have on the Company's business and financial condition cannot be accurately
predicted or quantified.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
31
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit No. Description
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Attached hereto.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND PARTNERS, L.P.
------------------------
(Registrant)
Date: November 14, 2006 By /s/ Lawrence S. Adelson
----------------------------
Lawrence S. Adelson
Chief Executive Officer
33
EXHIBIT INDEX
Exhibit No. Description
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
34