FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from_________to_________
Commission file number 0-16010
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3004963
(State or other jurisdiction of (IRS Employer
incorporation or organization) (Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 2,163
Receivables and deposits, net of allowance of $129 245
Restricted escrows 227
Other assets 417
Investment properties:
Land $ 1,571
Buildings and related personal property 12,282
13,853
Less accumulated depreciation (6,921) 6,932
$ 9,984
Liabilities and Partners' (Deficit) Capital
Accounts payable $ 24
Tenant security deposit liabilities 74
Accrued property taxes 77
Other liabilities 91
Mortgage note payable 2,325
Partners' (Deficit) Capital
General partner $ (172)
Corporate limited partner on behalf
of the Unitholders - (128,810 units
issued and outstanding) 7,565 7,393
$ 9,984
See Accompanying Notes to Financial Statements
b)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 622 $ 549 $ 1,217 $ 1,135
Other income 29 80 62 144
Casualty gain -- 107 -- 215
Total revenues 651 736 1,279 1,494
Expenses:
Operating 196 211 419 444
General and administrative 87 74 154 139
Depreciation 177 135 312 264
Interest 46 46 92 92
Property taxes 40 42 44 85
Total expenses 546 508 1,021 1,024
Net income $ 105 $ 228 $ 258 $ 470
Net income allocated to
general partner (1%) $ 1 $ 2 $ 3 $ 5
Net income allocated to
limited partners (99%) 104 226 255 465
$ 105 $ 228 $ 258 $ 470
Net income per Unit of
Depositary Receipt $ .81 $ 1.75 $ 1.98 $ 3.61
Distributions per Unit of
Depositary Receipt $ -- $ -- $ -- $ 7.69
See Accompanying Notes to Financial Statements
c)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Unitholders
Units of
Units of Depositary
Depositary General Receipt
Receipt Partner (Note A) Total
Original capital contributions 129,266 $ 1 $ 32,317 $ 32,318
Partners' (deficit) capital
at December 31, 1998 128,810 $ (175) $ 7,310 $ 7,135
Net income for the six months
ended June 30, 1999 -- 3 255 258
Partners' (deficit) capital at
June 30, 1999 128,810 $ (172) $ 7,565 $ 7,393
See Accompanying Notes to Financial Statements
d)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 258 $ 470
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 312 264
Amortization of lease commissions and loan
costs 40 31
Casualty gain -- (215)
Change in accounts:
Receivables and deposits (67) (77)
Other assets (10) (19)
Accounts payable 10 (286)
Tenant security deposit liabilities 2 --
Accrued property taxes 28 85
Other liabilities (7) 10
Net cash provided by operating activities 566 263
Cash flows from investing activities:
Property improvements and replacements (133) (431)
Net deposits to restricted escrows (13) (34)
Lease commissions paid (11) (93)
Net insurance proceeds from casualty -- 254
Net cash used in investing activities (157) (304)
Cash flows used in financing activities:
Distribution to partners -- (1,000)
Net increase (decrease) in cash and cash equivalents 409 (1,041)
Cash and cash equivalents at beginning of period 1,754 2,770
Cash and cash equivalents at end of period $ 2,163 $ 1,729
Supplemental disclosure of cash flow information:
Cash paid for interest $ 85 $ 85
See Accompanying Notes to Financial Statements
e)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Johnstown/Consolidated Income
Partners (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1999. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the fiscal year ended December 31, 1998.
Certain reclassifications have been made to the 1998 balances to conform to the
1999 presentation.
Units of Depositary Receipt
Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"),
an affiliate of the General Partner, serves as a depositary of certain units of
depositary receipt ("Units"). The Units represent economic rights attributable
to the limited partnership interests in the Partnership and entitle the
unitholders thereof ("Unitholders") to certain economic benefits, allocations
and distributions of the Partnership. For this reason, partners' (deficit)
capital is herein represented as an interest of the Unitholder.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities,
as provided for in the Partnership Agreement. The Partnership Agreement
provides for (i) certain payments to affiliates for services and (ii)
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following transactions with the General Partner and its
affiliates were incurred during the six months ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Asset management fees (included in
general and administrative expense) $ 47 $ 46
Property management fees (included
in operating expenses) 50 58
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses, and investment
properties) 21 60
The Partnership Agreement provides that the Partnership shall pay in monthly
installments to the General Partner, or an affiliate, a yearly asset management
fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans
outstanding at the end of the month preceding the installment payment; (ii) 1/8
of 1% of the market value of guaranteed mortgage-backed securities as of the end
of the Partnership quarter immediately preceding the installment payment; and
(iii) 5/8 of 1% of the purchase price of the properties plus improvements for
managing the Partnership's assets. In the event the property was not owned at
the beginning or end of the year, such fee shall be pro-rated for the short-year
period of ownership. Under this provision, fees of approximately $47,000 and
$46,000 were paid to the General Partner and its affiliates for the six months
ended June 30, 1999 and 1998, respectively.
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Partnership's
residential property for providing property management services. The
Partnership paid to such affiliates approximately $27,000 and $25,000 for the
six months ended June 30, 1999 and 1998, respectively. For the six months ended
June 30, 1999 and 1998, affiliates of the General Partner were entitled to
receive varying percentages of gross receipts from the Partnership's Florida #11
Mini-Warehouse commercial property for providing property management services.
The Partnership paid to such affiliates approximately $23,000 and $22,000 for
the six months ended June 30, 1999 and 1998, respectively. Effective October
1, 1998 (the effective date of the Insignia Merger) these services for the
Phoenix Business Campus commercial property were provided by an unrelated party.
For the six months ended June 30, 1998, the Partnership paid approximately
$11,000 to an affiliate of the Managing General Partner for providing property
management services for Phoenix Business Campus.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $21,000 and $60,000 for the
six months ended June 30, 1999 and 1998, respectively. Included in these
expenses for the six months ended June 30, 1998, is approximately $13,000 in
reimbursements for construction oversight costs. No construction oversight
costs were paid during the six months ended June 30, 1999.
The Partnership paid leasing commissions of approximately $78,000 to an
affiliate of the General Partner during the six months ended June 30, 1998. No
leasing commissions were paid to affiliates during the six months ended June 30,
1999. Leasing commissions are capitalized and amortized over the lives of the
respective leases. Unamortized leasing commissions are included in other
assets.
On December 19, 1997, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 39,000 units of the outstanding units of
limited partnership interest in the Partnership, at $68.00 per Unit, net to the
seller in cash. During February 1998, the tender offer was completed and the
Purchaser acquired 13,985.5 units of limited partnership interest (10.86%) in
the Partnership at $68.00 per Unit.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 44,521.76 (34.56% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $86.00 per unit. The offer expired on July 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 7,214 units. As a
result, AIMCO and its affiliates currently own 37,183.50 units of limited
partnership interest in the Partnership representing 28.87% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
NOTE D - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital for contingencies of not less than 5% of Net Invested Capital as defined
in the Partnership Agreement. In the event expenditures are made from these
reserves, operating revenues shall be allocated to such reserves to the extent
necessary to maintain the foregoing level. Reserves, including cash and cash
equivalents and tenant security deposits, totaling approximately $2,237,000 at
June 30, 1999, exceeded the Partnership's reserve requirement of approximately
$1,338,500.
NOTE E - DISTRIBUTIONS
During the six months ended June 30, 1999, no distributions were declared or
paid. In March of 1998, the Partnership paid a distribution attributable to cash
flow from operations of approximately $1,000,000. Subsequent to June 30, 1999,
a distribution from operations of approximately $575,000 was declared by the
Partnership.
NOTE F - SEGMENT INFORMATION
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of one apartment complex located in Independence, Missouri. The Partnership
rents apartment units to tenants for terms that are typically twelve months or
less. The commercial property segment consists of an office building located in
Atlanta, Georgia, and a self-storage mini-warehouse located in Davie, Florida.
The office building leases space to a mortgage lender, construction company,
travel agency, computer software company and various other businesses at terms
ranging from 12 months to 5 years. The self-storage mini-warehouse leases its
space to individual and commercial customers for terms that are typically twelve
months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
The Partnership's reportable segments consist of investment properties that
offer different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to reportable
segments.
1999 Residential Commercial Other Totals
Rental income $ 515 $ 702 $ -- $ 1,217
Other income 19 19 24 62
Interest expense 92 -- -- 92
Depreciation 121 191 -- 312
General and administrative expense -- -- 154 154
Segment profit (loss) 81 307 (130) 258
Total assets 2,148 6,743 1,093 9,984
Capital expenditures for
investment properties 59 74 -- 133
1998 Residential Commercial Other Totals
Rental income $ 472 $ 663 $ -- $ 1,135
Other income 25 63 56 144
Interest expense 92 -- -- 92
Depreciation 84 180 -- 264
General and administrative expense -- -- 139 139
Casualty gain 215 -- -- 215
Segment profit (loss) 286 267 (83) 470
Total assets 2,173 6,315 1,127 9,615
Capital expenditures for
investment properties 363 68 -- 431
NOTE G - LEGAL PROCEEDINGS
In March 1998, the Managing General Partner was named in a legal action entitled
Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior
Court of the State of California for the County of San Mateo. The plaintiffs
named as defendants, among others, the General Partner and several of their
affiliated partnerships and corporate entities. The complaint purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging the acquisition by Insignia Financial
Group, Inc. ("Insignia") and entities which were, at the time, affiliates of
Insignia ("Insignia Affiliates") of interests in certain general partner
entities, past tender offers by Insignia Affiliates to acquire limited
partnership units, the management of partnerships by Insignia Affiliates as well
as a recently announced agreement between Insignia and Apartment Investment and
Management Company. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
General Partner filed a motion seeking dismissal of the action. In lieu of
responding to the motion, plaintiffs have recently filed an amended complaint.
The General Partner filed demurrers to the amended complaint which were heard
during February 1999. No ruling on such demurrers has been received. The
General Partner does not anticipate that costs associated with this case, if
any, will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of one apartment complex and two
commercial properties. The following table sets forth the average occupancy of
the properties for each of the six months ended June 30, 1999 and 1998:
Average Occupancy
1999 1998
Cedar Brooke Apartments
Independence, Missouri 97% 95%
Florida #11 Mini-Warehouse
Davie, Florida 96% 96%
Phoenix Business Campus
College Park, Georgia 84% 71%
The General Partner attributes the increase in occupancy at Phoenix Business
Campus to the addition of several tenants in the third quarter of 1998 and the
first quarter of 1999.
Results of Operations
The Partnership's net income for the six months ended June 30, 1999, was
approximately $258,000 versus net income of approximately $470,000 for the six
months ended June 30, 1998. The Partnership reported net income for the three
months ended June 30, 1999, of approximately $105,000 as compared to net income
of approximately $228,000 for the corresponding period of 1998. The decrease in
net income for the six months ended June 30, 1999, is primarily attributable to
an overall decrease in total revenues slightly offset by an overall decrease in
total expenses. The decrease in net income for the three months ended June 30,
1999 is primarily attributable to a decrease in total revenues and an increase
in total expenses. The decrease in overall revenues for both the three and six
months periods is attributable to a decrease in interest income due to lower
average cash balances held in interest-bearing accounts for such periods in 1999
as compared to the same periods of 1998 and to the fact that there was
recognition of a casualty gain in 1998 and no such gain was recognized in 1999.
The decrease in revenues was partially offset by an increase in rental income as
a result of an increase in average rental rates at all of the Partnership's
investment properties, as well as an increase in the average occupancy rate at
both Cedar Brooke Apartments and Phoenix Business Campus. The slight decrease
in overall expenses for the six months ended June 30, 1999 is the result of
decreases in property tax and operating expense which was almost entirely offset
by an increase in depreciation and general and administrative expenses. The
increase in total expenses for the three months ended June 30, 1999 was the
result of increases in depreciation and general and administrative expenses
which were offset by a decrease primarily in operating expense. The decrease in
property tax expense is the result of refunds received during the first quarter
of 1999 on behalf of the Phoenix Business Center property for 1997 and 1998
taxes. Operating expense decreased due to decreases in insurance and
maintenance expenses. Insurance expense decreased at all of the investment
properties due to a change in insurance carriers during the current year which
resulted in lower premiums. Maintenance expense decreased due to exterior
building improvements made at Cedar Brook Apartments during 1998. The increase
in depreciation expense was caused by the addition of depreciation on a
significant amount of fixed assets placed into service over the past twelve
months.
General and administrative expense increased as a result of an increase in legal
costs associated with the settlement of a litigation case against the
Partnership during the first six months of 1999 as disclosed previously in prior
quarters. Included in general and administrative expense for the six months
ended June 30, 1999 and 1998, are reimbursements to the General Partner allowed
under the Partnership Agreement associated with its management of the
Partnership. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1999, the Partnership held cash and cash equivalents of
approximately $2,163,000 compared to approximately $1,729,000 at June 30, 1998.
The net increase in cash and cash equivalents for the six months ended June 30,
1999, from the Partnership's year ended December 31, 1998, was approximately
$409,000. This increase is due to approximately $566,000 of cash provided by
operating activities, which was partially offset by approximately $157,000 of
cash used in investing activities. Cash used in investing activities consisted
primarily of property improvements and replacements and, to a lesser extent, net
deposits to escrow accounts maintained by the mortgage lender and the payment of
lease commissions. The Partnership invests its working capital reserves in money
market accounts.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital
as defined in the Partnership Agreement. In the event expenditures are made
from these reserves, operating revenue shall be allocated to such reserves to
the extent necessary to maintain the foregoing level. Reserves, including cash
and cash equivalents and tenant security deposits, totaling approximately
$2,237,000 at June 30, 1999, exceeded the Partnership's reserve requirement of
approximately $1,338,500.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Partnership, and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements planned for each of the Partnership's properties are detailed
below.
Cedar Brooke Apartments
During the six months ended June 30, 1999, the Partnership expended
approximately $59,000 for capital improvements at Cedar Brooke Apartments
consisting primarily of cabinet, carpet, landscaping, and appliance replacement.
These improvements were funded from replacement reserves and operating cash
flow. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the General
Partner on interior improvements, it is estimated that the property requires
approximately $205,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $348,000 for 1999 at this property which include certain of the
required improvements and consist of heating system upgrades, landscaping,
flooring and roof replacements and other building improvements.
Florida #11 Mini-Warehouse
During the six months ended June 30, 1999, the Partnership expended
approximately $3,000 for capital improvements at the property, consisting of
floor covering, appliances, and building improvements. These improvements were
funded from operating cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the General Partner on interior improvements, it is estimated that the
property requires approximately $205,000 of capital improvements over the next
few years. The General Partner is still in the process of finalizing budgeted
capital improvements for 1999.
Phoenix Business Campus
During the six months ended June 30, 1999, the Partnership completed
approximately $71,000 of tenant improvements at Phoenix Business Campus. These
improvements were funded from operating cash flow. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $174,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $62,000 for 1999 at this
property which include certain of the required improvements and consist of
tenant improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's assets are currently thought to be sufficient for any near-
term needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness on Cedar Brooke Apartments of $2,325,000, which carries a stated
interest rate of 7.33% (interest only), matures in 2003. The General Partner
will attempt to refinance such indebtedness and/or sell the property prior to
such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing such property through
foreclosure.
There were no distributions declared or paid during the six months ended June
30, 1999. During the six months ended June 30, 1998, a cash distribution from
operations of approximately $1,000,000 (of which $990,000 was paid to limited
partners or $7.69 per unit of depositary receipt) was paid to the partners.
Subsequent to June 30, 1999, a distribution from operations of approximately
$575,000 (of which $569,250 will be paid to limited partners or $4.42 per unit
of depositary receipt) was declared by the Partnership. The Partnership's
distribution policy will be reviewed on a quarterly basis. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of working capital reserves, and the timing of debt maturities,
refinancings and/or property sales. There can be no assurance, however, that
the Partnership will generate sufficient funds from operations after required
capital expenditures and required working capital reserves to permit further
distributions to its partners in 1999 or subsequent periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 44,521.76 (34.56% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $86.00 per unit. The offer expired on July 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 7,214 units. As a
result, AIMCO and its affiliates currently own 37,183.50 units of limited
partnership interest in the Partnership representing 28.87% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, the Managing General Partner was named in a legal action entitled
Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior
Court of the State of California for the County of San Mateo. The plaintiffs
named as defendants, among others, the General Partner and several of their
affiliated partnerships and corporate entities. The complaint purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging the acquisition by Insignia Financial
Group, Inc. ("Insignia") and entities which were, at the time, affiliates of
Insignia ("Insignia Affiliates") of interests in certain general partner
entities, past tender offers by Insignia Affiliates to acquire limited
partnership units, the management of partnerships by Insignia Affiliates as well
as a recently announced agreement between Insignia and Apartment Investment and
Management Company. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
General Partner filed a motion seeking dismissal of the action. In lieu of
responding to the motion, plaintiffs have recently filed an amended complaint.
The General Partner filed demurrers to the amended complaint which were heard
during February 1999. No ruling on such demurrers has been received. The
General Partner does not anticipate that costs associated with this case, if
any, will be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Partnership caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
By: CONCAP EQUITIES, INC.
General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Johnstown/Consolidated Income Partners 1999 Second Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000787621
<NAME> JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,163
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,853
<DEPRECIATION> (6,921)
<TOTAL-ASSETS> 9,984
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,325
0
0
<COMMON> 0
<OTHER-SE> 7,393
<TOTAL-LIABILITY-AND-EQUITY> 9,984
<SALES> 0
<TOTAL-REVENUES> 1,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258
<EPS-BASIC> 1.98<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
