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 MARCH 31, 1994, 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 1-9393
Interstate General Company L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1488756
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Smallwood Village Center
St. Charles, Maryland 20602
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(301) 843-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------
(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 to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
10,083,960 Class A Units
------------------------
<PAGE>2
INTERSTATE GENERAL COMPANY L.P.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION Page
Number
Item 1. Consolidated Financial Statements ------
Consolidated Statements of Income for
the Three Months Ended March 31, 1994 and
1993. (Unaudited) 3
Consolidated Balance Sheets at March 31, 1994
(Unaudited) and December 31, 1993. 4
Consolidated Statements of Changes in
Partners' Capital for the Three
Months Ended March 31, 1994.
(Unaudited) 7
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1994 and 1993.
(Unaudited) 8
Notes to Consolidated Financial Statements. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1994 and 1993. 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 3. Default upon Senior Securities 30
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
<PAGE>
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
REVENUES:
Homebuilding - home sales $ 4,949 $ 4,540
Community development - lot sales 2,043 2,395
Revenues from investment properties -
Investment in partnerships 3,458 852
Equity in income (loss) of
Housing Development Associates S.E. -- 835
Apartment rental income 1,051 --
Management fees, substantially all
from related entities 969 1,043
Interest and other income 99 162
---------- ----------
Total revenues 12,569 9,827
---------- ----------
EXPENSES:
Cost of home sales 4,289 3,808
Cost of lot sales 1,226 1,874
Selling and marketing 284 240
General and administrative 1,927 2,112
Rental apartment expense 1,120 --
Depreciation and amortization 145 170
Interest expense 465 508
---------- ----------
Total expenses 9,456 8,712
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,113 1,115
PROVISION FOR INCOME TAXES 1,020 296
---------- ----------
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 2,093 819
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 1,500
---------- ----------
NET INCOME $ 2,093 $ 2,319
========== ==========
PER UNIT AMOUNTS--
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ .21 $ .08
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- .15
---------- ----------
NET INCOME PER UNIT $ .21 $ .23
========== ==========
NET INCOME
GENERAL PARTNERS $ 21 $ 23
LIMITED PARTNERS 2,072 2,296
---------- ----------
$ 2,093 $ 2,319
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,082 10,079
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
March 31, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
including restricted cash of $2,116
and $2,587 at March 31, 1994 and
December 31, 1993, respectively $ 3,706 $ 4,596
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
St. Charles, Maryland 26,385 26,683
Puerto Rico 31,909 31,389
Other United States locations 18,353 18,660
Notes receivable on lot sales, net of
reserves of $265 and $230
as of March 31, 1994 and
December 31, 1993, respectively 1,635 1,785
Other 272 359
-------- --------
78,554 78,876
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 6,383 6,645
Mortgages receivable 231 396
Receivables on home sales 69 405
Other 329 120
-------- --------
7,012 7,566
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment in residential rental
partnerships 10,020 14,953
Investment properties, net of accumulated
depreciation and amortization of
$4,263 and $4,106 as of March 31,
1994 and December 31, 1993, respectively 24,183 24,551
Other receivables, net of reserves of
$2,861 and $2,800 as of March 31,
1994 and December 31, 1993, respectively 2,492 2,610
Other 808 593
-------- --------
37,503 42,707
-------- --------
<PAGE>
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S (continued)
March 31, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
OTHER ASSETS
Property, plant and equipment, less
accumulated depreciation of $1,905
and $1,837 as of March 31, 1994 and
December 31, 1993, respectively 1,635 1,704
Costs in excess of net assets acquired,
less accumulated amortization of
$622 and $584 as of March 31,
1994 and December 31, 1993, respectively 2,412 2,450
Deferred costs regarding waste technology
and other 2,569 2,415
-------- --------
6,616 6,569
-------- --------
$133,391 $140,314
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1994 1993
------------ ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued
liabilities $ 3,104 $ 3,661
Mortgages and notes payable 438 428
Accrued income tax liability 2,399 1,379
-------- --------
5,941 5,468
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 42,018 50,137
Non-recourse debt 2,769 2,762
Loan payable to HDA 12,953 12,684
Accounts payable and accrued liabilities 2,414 2,553
Deferred income 171 199
-------- --------
60,325 68,335
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 3,083 3,320
Accounts payable and accrued liabilities 3,298 4,231
-------- --------
6,381 7,551
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,816 1,857
Non-recourse debt 22,429 22,457
Accounts payable, accrued liabilities
and deferred income 2,159 2,401
-------- --------
26,404 26,715
-------- --------
Total Liabilities 99,051 108,069
-------- --------
PARTNERS' CAPITAL
General partners' capital 176 155
Limited partners' capital-10,082,260 Units
issued and outstanding as of March 31, 1994
and 10,081,810 as of December 31, 1993 34,164 32,090
-------- --------
Total partners' capital 34,340 32,245
-------- --------
$133,391 $140,314
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
Balances, December 31, 1993 $ 155 $32,090 $32,245
Net income for the three
months ended March 31, 1994 21 2,072 2,093
Employee unit option exercised -- 2 2
------- ------- -------
Balances, March 31, 1994 $ 176 $34,164 $34,340
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
<PAGE>8
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,093 $2,319
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 163 170
Investment properties 157 --
Provision for income taxes 1,020 296
Equity in earnings of partnerships (667) (1,155)
Increase in sponsor and developer fees
from partnerships and other (81) (278)
Cumulative effect of accounting change -- (1,500)
(Decrease) increase in
Accounts payable and accrued liabilities (1,627) (110)
Deferred income (28) 416
Decrease (increase) in
Receivables 315 (455)
Homebuilding assets 389 456
Community development assets 155 (326)
Restricted cash 471 (156)
------- -------
Net cash provided (used) by operating activities 2,360 (323)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in assets related to investment properties 5,521 1,763
Additions to other assets (191) (156)
------- -------
Net cash provided by investing activities 5,330 1,607
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA 269 (60)
Cash proceeds from debt financing 1,052 1,587
Payment of debt (9,432) (3,295)
Employee Unit options exercised 2 --
------- -------
Net cash used in financing activities (8,109) (1,768)
------- -------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (419) (484)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 2,009 2,261
------- -------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 1,590 $ 1,779
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount capitalized) 1,374 271
Income taxes paid -- --
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>9
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(Unaudited)
(1) BASIS OF PRESENTATION AND PRINCIPLES OF ACCOUNTING
The accompanying consolidated financial statements are unaudited but
include all adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the results of
operations for the interim periods. Certain account balances in the 1993
financial statements have been reclassified to conform to the 1994
presentation. The operating results for the three months ended March 31, 1994
are not necessarily indicative of the results that may be expected for the
year. Net income per unit is calculated on weighted average units outstanding
and on 1% general partnership interest.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with Generally Accepted Accounting Principles ("GAAP")
have been condensed or omitted. While the Managing General Partner believes
that the disclosures presented are adequate to make the information not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes included in the
Partnership's Annual Report filed on Form 10-K for the year ended December 31,
1993.
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109) Accounting for Income Taxes, which
changes the method of accounting for income taxes under GAAP. The Company
recognized a cumulative benefit due to the change in accounting principle of
$1,500,000 or $.15 per unit, as of January 1, 1993. The benefit is included
under the caption "Cumulative Effect of Accounting Change" in the Consolidated
Statement of Income.
(2) FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and lot sales, property management fees, and
from bank financing providing funds for development and working capital. In
response to the decline in the real estate markets and the decline in the
availability of financing, the Company undertook a financial restructuring in
1992.
During 1994, the Company continued to make progress in completing the
objectives it set forth in its restructuring. New or amended loan agreements
have now been executed for all loans which required restructuring except for
two loans currently in default aggregating $7.0 million with Maryland National
Corporation ("MNC") now owned by NationsBank. The Company has received a
commitment letter from the bank granting a one year extension with two six
month renewals on each of these loans which will clear the event of default and
a closing of the restructured loan is expected to occur by June 30, 1994. The
commitment letter provides for minimum principal payments totaling $3.7 million
from December 1, 1994 to November 30, 1995 and cross-collateralization with the
other NationsBank loan. Payments made on one loan in excess of minimum
<PAGE>10
mandatory payments may be applied to the minimum mandatory payment of the other
loans. Management expects to meet these required payments through the sale or
refinancing of land held by MNC as collateral. The commitment also requires
additional collateral represented by a secondary collateral position on certain
commercial land and the Company's interest in partnerships which own rental
apartments. The approval of the FDIC, the first lienholder, is required for
MNC's secondary collateral position.
Under the terms of IGC's loans, most of the cash flow generated by U.S.
home and lot sales and distributions from partnerships, including distributions
from partnership refinancings, will be used to further reduce bank loans and
meet debt service requirements. Working capital for overhead and other cash
needs in 1994 is expected to be met through property management fees, and net
proceeds from the LDA land sale discussed below.
In March 1991, the Company's 80% owned subsidiary, Land Development
Associates, S.E. ("LDA"), sold a 61 acre parcel of land in the planned Parque
Escorial development to a major retailer who intends to develop a shopping
center ("LDA Land Sale"). The Company expects to close the $12 million sale by
June 30, 1994 and receive approximately $1.9 million from the sales proceeds
after setting aside amounts for infrastructure development and making land
release payments and distributions to LDA's 20% minority partner.
During the first quarter, IGC has generated cash flow from its operations
to meet its operating cash flow needs. If IGC's pending requests for
extensions and renewals of bank debt are granted, it continues to generate lot
sales consistent with or in excess of 1993 levels, the proceeds of financing
together with cash from operations and/or asset sales will, in the opinion of
IGC management, be adequate to meet IGC's liquidity requirements.
Additional potential sources of liquidity include cash that could be
generated from four partnerships in Puerto Rico which applied in March 1993 for
economic incentives under the 1990 Low-Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). Under LIHPRHA the partnerships have the option
of obtaining additional HUD insured financing and additional subsidy funds, and
distributing net refinancing proceeds to partners, or selling the projects to
non-profit organizations which would continue the projects in HUD's low income
housing program. Management believes that the economic benefit to the Company
and the partners will be greater from a sale of the projects, in which case the
Company will endeavor to retain the right to manage the properties. It is
anticipated that any closing pursuant to LIHPRHA will be accomplished in 1995
and the Company would expect to receive approximately $10.0 million net of
taxes. These distributions are assigned to the FDIC for debt of $9.6 million
and, as discussed above, MNC will be given a secondary assignment of the
distributions.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of March 31, 1994, IGC manages and is a general partner in 28 real
estate partnerships which own 31 apartment projects in Puerto Rico, Maryland,
Virginia and Washington, D.C. The apartment projects are financed by non-
recourse mortgages. Of the 6,503 rental units in the various partnerships, the
Federal Housing Administration ("FHA") provides subsidies for low and moderate
income tenants in 5,371 units.
<PAGE>
<PAGE>11
The following table summarizes IGC's investment in residential rental
partnerships:
March 31, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $4,020 and $4,101 at
March 31, 1994 and December 31, 1993,
respectively $ 2,743 $ 4,255
Other receivables, net of reserves of
$974 as of March 31, 1994 and $953
as of December 31, 1993 949 1,377
Investment in partnerships 6,328 9,321
------- -------
$10,020 $14,953
======= =======
The combined condensed statements of income and the combined condensed
statements of cash flow for the three month period ended March 31, 1994 and
1993, and the combined condensed balance sheets as of March 31, 1994 and
December 31, 1993 are shown below for the partnerships owning residential
rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $11,164 $11,290
------- -------
Operating expenses
Depreciation 1,532 1,723
Other 8,666 9,250
------- -------
10,198 10,973
------- -------
Net income $ 966 $ 317
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase") and New Forest Apartments General Partnership ("New
Forest") are included in these statements. The operations of these
partnerships are consolidated on the Company's statement of income
for the three months ended March 31, 1994.
<PAGE>
<PAGE>12
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
March 31, December 31,
1994 1993
----------- -----------
(In thousands)
Rental apartments, at cost $240,776 $240,554
Accumulated depreciation (77,001) (75,493)
-------- --------
163,775 165,061
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 5,851 18,781
Replacement reserves and escrows 10,048 10,320
-------- --------
Total restricted cash and marketable securities 15,899 29,101
Cash and certificates of deposit 4,258 18,862
-------- --------
Total cash and marketable securities 20,157 47,963
-------- --------
Other assets 4,025 4,084
-------- --------
Total assets $187,957 $217,108
======== ========
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1994 1993
----------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $173,736 $185,099
Loans and interest payable to the Company 18,344 19,660
Other liabilities 3,136 3,949
-------- --------
Total liabilities 195,216 208,708
-------- --------
Partners' capital
Capital contributions, net of distributions 1,283 17,908
Accumulated deficit (8,542) (9,508)
-------- --------
Total partners' capital (7,259) 8,400
-------- --------
Total liabilities and partners' capital $187,957 $217,108
======== ========
<PAGE>13
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $11,164 $11,290
------- -------
Cash expenditures
Total expenses 10,198 10,973
Less - Depreciation (1,532) (1,723)
Other non-cash expenses (151) (126)
------- -------
8,515 9,124
Mortgage principal 471 430
Capital additions 165 324
------- -------
Total cash expenditures 9,151 9,878
------- -------
Cash flow before distributions 2,013 $ 1,412
======= =======
(1) The cash flow activity for Fox Chase and New Forest are included in
these statements. These activities are reflected on IGC's
Consolidated Statement of Cash Flow for the three months ended March
31, 1994.
The FHA, Puerto Rico Housing Finance Corporation ("PRHFC"), State and
District of Columbia housing agencies and the partnership agreements require
that the accumulation of cash in the partnerships be sufficient to liquidate
all current liabilities before distributions to partners are permitted. During
1994, four partnerships owning seven apartment projects were released from
these restrictions as part of mortgage refinancings. Most of the partnership
agreements provide that IGC receive a zero to 5% interest in profits, losses
and cash flow from operations until such time as the limited partners have
received cash distributions equal to their capital contributions. Thereafter,
IGC generally shares in 50% of cash distributions from operations.
(4) INVESTMENT IN REAL ESTATE VENTURES RELATING TO HORSE RACING
HDA, a limited partnership 49% owned by IGC, 31% by IBC and 20% by a non-
affiliated company, owns the only thoroughbred race track in Puerto Rico. The
race track facilities are leased to ECOC, an effectively 29.4%-owned non-
consolidated affiliate of IGC.
<PAGE>
<PAGE>14
In December 1992, IGC announced plans to distribute to its public
unitholders all or a substantial portion of its interest in HDA (the "Proposed
Distribution"). The announcement also provided that the interests in HDA owned
by IGC and IBC would be distributed prorata to IGC unitholders. The Proposed
Distribution is subject to IGC's obtaining required regulatory approvals,
including the Racing Board, and consent of certain IGC creditors. In addition,
to provide limited liability for recipients of the distributed HDA interests,
IGC may transfer its interests in HDA to a newly formed intermediary entity and
then distribute to its unitholders interests in such intermediary entity.
In September 1993, IGC and IBC formed a general partnership, Equus Gaming
Company ("Equus") to hold their interests in HDA and to organize and to hold
the stock of Virginia Jockey Club, Inc. ("VJC"). IBC is the managing general
partner of Equus. IGC and IBC each contributed $100 and currently their
ownership interests are approximately 62% and 38%, respectively. In October
1993, VJC (100% owned by Equus) submitted an application to the Virginia State
Racing Commission to construct and operate a thoroughbred horse racing facility
in Virginia. IGC's Board of Directors has authorized IGC to provide funds to
cover VJC's costs. Deferred costs regarding VJC totalled $808,000 and $593,000
as of March 31, 1994 and December 31, 1993, respectively. Equus' partnership
agreement provides that in the event VJC obtains a Virginia racing license, in
lieu of the Proposed Distribution IBC and IGC will transfer their interests in
HDA to Equus. The transfer will be structured in a manner to avoid a
termination of HDA for federal income tax purposes. IGC and IBC would then
expect to convert Equus to a limited partnership or other form of limited
liability entity prior to IGC's distributing to its unitholders all or a
substantial portion of its interest in Equus. The transfer to Equus and the
subsequent Equus distribution would be subject to required regulatory
approvals, including the Racing Board, and consent of certain IGC creditors.
Equus, including its investments in VJC, is consolidated in the Company's
financial statements. The Company's financial statements reflect the equity
method of accounting for its investment in HDA. HDA is a special partnership
under Puerto Rico law and partners of such partnerships are not liable for
losses in excess of their capital investment. Due to the costs related to the
refinancing of HDA debt in 1993 and HDA cash distributions, the partners'
capital account is in a deficit position. Also, the Company has announced the
Proposed Distribution of its interest in HDA to its unitholders. As a result
of the deficit position of HDA and the Proposed Distribution, IGC did not
recognize earnings from HDA during the first quarter of 1994 and does not
expect to recognize any earnings in the future.
<PAGE>
<PAGE>15
HDA's condensed balance sheets as of March 31, 1994 and December 31, 1993
and the condensed statements of income for the three month period ended March
31, 1994 and 1993 are shown as follows:
HDA
CONDENSED BALANCE SHEET
(Unaudited)
March 31, December 31,
1994 1993
----------- -----------
(In thousands)
Assets
Cash $ 4,750 $ 1,886
Leased property, less accumulated
depreciation of $6,544 and
$6,157 at March 31, 1994 and
December 31, 1993, respectively 42,077 42,267
Receivables from LDA 12,939 12,690
Other assets 4,253 4,308
------- -------
$64,019 $61,151
======= =======
Liabilities and partners' deficit
Accounts payable and accrued liabilities $ 2,349 $ 669
Debt-third parties 65,996 65,960
------- -------
68,345 66,629
Partners' deficit (4,326) (5,478)
------- -------
$64,019 $61,151
======= =======
<PAGE>
<PAGE>16
HDA
CONDENSED STATEMENT OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1994 1993
----------- -----------
(In thousands)
Revenues
Rental income $ 3,508 $ 3,370
Equity in earnings of ECOC -- 531
Interest income 267 90
------- -------
3,775 3,991
------- -------
Expenses
General and administrative 92 199
Depreciation and amortization 387 439
Interest 2,143 1,414
------- -------
Total expenses 2,622 2,052
------- -------
Net income before provision
for income tax 1,153 1,939
Provision for income tax 1 129
------- -------
Income before extraordinary item $ 1,152 $ 1,810
======= =======
The race track facilities owned by HDA are leased to ECOC, an effectively
29.4%-owned non-consolidated affiliate of IGC. The lease agreement requires
ECOC to pay annual rent of the greater of 25% of the race track commissions
("Basic Rent") or $7.5 million with annual adjustments based on any increase in
the Consumer Price Index ("Minimum Basic Rent"). In addition, ECOC is
responsible for payment of all insurance, taxes and other costs to operate and
to maintain the race track, and HDA is responsible for capital improvements, if
any, up to certain specified limits.
In December 1993, the Lease Agreement was amended to modify the rent and
provide certain other covenants. The Basic Rent and Minimum Basic Rent under
the revised Lease Agreement is unchanged. In addition, ECOC is obligated to
pay additional fixed rent ("Fixed Rent") of $150,000 in 1994, $400,000 annually
in 1995 through 1998 and $1.3 million in 1999.
<PAGE>
<PAGE>17
(5) DEBT
The following notes are primarily collateralized by land, receivables, and
investments in partnerships. The following table summarizes the
indebtedness of IGC:
Stated
Maturity Interest March 31, December 31,
Description by Lender Date Rate 1994 1993
- - ------------------------- -------------- -------- ------------ ------------
(In thousands)
Non-recourse debt:
Purchase money Various from
mortgages (6) 10-01-94 to
05-03-97 (3) 9% $ 670 $ 670
Community Development
Administration (10) 06-01-16 10.3% 4,043 4,055
Community Development
Administration (10) 10-01-27 9.575% 6,411 6,417
Community Development
Administration (10) 10-01-28 9.875% 11,975 11,985
Supra & Co. (minority
partner in LDA) None (1) 2,099 2,092
-------- --------
Total non-recourse 25,198 25,219
-------- --------
Recourse debt:
Banco Popular de P.R. Paid Paid -- 5,420
Branch Banking & Paid Paid -- 56
Trust
Citibank (12) Demand (2) 1,816 1,857
MNC Financial (6) Demand (3,11) Prime 1,311 1,353
+ 1%
MNC Financial (6) Demand (3,11) Prime 5,646 6,013
+ 1%
Purchase money Various from 9%-12% 2,362 2,362
mortgages (6) 05-24-94 to
04-01-98 (11)
Washington Savings (6,7) Various from 7%-8% 685 656
06-22-94 to
12-27-95
1st National 06-30-94 (11) Prime 150 150
St. Mary's (7) + 1.5%
Signet Bank (7) 08-13-94 (5) Prime 10,415 11,508
+ 2%
Wachovia Bank & Trust 04-30-95 (11) Prime 348 347
(6,8) + .5%
NationsBank (6,8) 05-01-95 (11) Prime 7,785 7,774
+ 1%
FDIC (6,8,13) 09-30-96 (11) Prime 9,600 10,993
+ 1%
Banco Central
Hispano (6) 12-31-97 (4) 6,400 6,400
Wachovia Bank & Trust Various from Prime 94 95
(8) 04-26-00 to + 1%
10-25-00
<PAGE>
<PAGE>18
Stated
Maturity Interest March 31, December 31,
Description by Lender Date Rate 1994 1993
- - ------------------------- -------------- -------- ------------ ------------
Various (6,8,9) Various from Various 743 758
08-19-94 to
02-28-98
-------- --------
Total recourse 47,355 55,742
-------- --------
Total debt $ 72,553 $ 80,961
======== ========
Balance Sheet Classification
- - ----------------------------
Mortgage and notes payable - Recourse debt $ 438 $ 428
Related to community development -
Non-recourse debt 2,769 2,762
Recourse debt 42,018 50,137
Related to homebuilding projects - Recourse debt 3,083 3,320
Related to investment properties -
Recourse debt 1,816 1,857
Non-recourse debt 22,429 22,457
-------- --------
Total debt $ 72,553 $ 80,961
======== ========
(1) At March 31, 1994, the interest rate is 2.5% over the prime rate (8.75%).
On December 31, 1993, the interest rate was the 936 rate plus 3%
(6.321%).
(2) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 5.15% at March 31, 1994 and
December 31, 1993.
(3) Purchase money mortgages of $.7 million and two loans with MNC Financial
aggregating $7 million are currently due and are therefore considered in
payment default. IGC has received a commitment letter to extend and
restructure the MNC loans which will cure the payment default (see Note
2). The $1.3 million facility is accruing interest at prime plus 3%
while in default. The purchase money mortgages of $.7 million will be
satisfied by giving the note holder a deed in lieu of payment.
(4) Interest rate is 936 rate plus 3%, with minimum of 6% and maximum of 9%.
The rate at March 31, 1994 and December 31, 1993 was 6.39% and 6.55%,
respectively.
(5) The Company was in technical default on this loan as it has not met
certain minimum sales requirements as of March 31, 1994 and the bank has
agreed to formally waive this technial default.
(6) Collateralized with land and improvements.
(7) Collateralized with land and housing.
(8) Collateralized with receivables.
<PAGE>19
(9) Collateralized with land and building.
(10) These loans are FHA mortgages on apartment projects.
(11) These loans are in violation of affirmative and financial covenants as
the Company is delinquent with respect to real estate tax, vendor
payments and certain other restrictive covenants.
(12) Collateralized with a letter of credit.
(13) Collateralized by investments in partnerships.
(6) RELATED PARTY TRANSACTIONS
During the first three months in 1994 and 1993, IGC paid or accrued
$23,000 and $20,000, respectively, to reimburse the managing general partner
for director's meeting fees and expenses. At March 31, 1994 and December 31,
1993, $23,000 and $72,000, respectively, of directors fees were accrued and
unpaid.
IGC and IBC, an entity primarily owned by James J. Wilson (Chairman of the
Board of Directors for IGC's managing general partner) and his family, own the
general partnership interest in Chastleton, a partnership owning a rental
apartment project of 300 units in the District of Columbia. During the first
quarter of 1990, IBC assumed IGC's obligation to provide future funding of
operating advances, indemnified IGC against any liability resulting from
certain letters of credit and certain liabilities regarding Chastleton and
purchased from IGC for $1.9 million receivables of $2.1 million due from
Chastleton. This transaction in 1990 resulted in a gain to IGC of $884,000,
which was equal to the collection of reserves recorded in prior years by IGC.
Of the $1.9 million, IBC paid $300,000 to IGC in cash, $404,000 in mortgage
receivables and the balance by a demand note with an outstanding balance
including interest of $686,000 and $680,000 as of March 31, 1994 and December
31, 1993, respectively, which is secured by certain real estate parcels. At
March 31, 1994 and December 31, 1993, $322,000 and $317,000, respectively, of
this amount is reserved until paid. In addition, as part of IBC's purchase,
IGC and IBC agreed that IGC would continue to manage the project, and IGC
subordinated 50% of its management fees until IBC collects its working capital
advances to Chastleton.
In October 1992, IBC, as general partner of Chastleton, arranged the
refunding of certain tax-exempt housing bonds issued in 1985. The refunding of
the 1985 bonds provides lower cost long-term financing and cured a Chastleton
payment default on the mortgage that secured the 1985 bonds and defaults under
the HUD regulatory agreement. As part of this refinancing, IGC agreed to defer
collection of all of its management fees until Chastleton has sufficient cash
flow after debt service and other operating expenses to pay the fees. As of
January 1, 1993, the Board of Directors approved a reduction of Chastleton's
management fees from 5% to 2.5% while the project is operating at a cash flow
deficit. At March 31, 1994 and December 31, 1993, Chastleton owed
approximately $320,000 and $311,000, respectively of management fees and other
receivables, which $225,000 and $211,000, respectively, are reserved. IGC is
also contingently liable under $4.6 million in letters of credit issued by
NationsBank which secure additional bonds issued for Chastleton.
<PAGE>
<PAGE>20
IBC owned two commercial properties in Puerto Rico which it contributed to
two Puerto Rico special partnerships, Santa Maria Associates S.E. ("Santa
Maria") formed December 1990, and El Monte Properties S.E. (which owns a
shopping center and the Doral Building) formed December 1992, in exchange for
99% partnership interests in each. IGC is a 1% managing partner and provides
property management services under the same terms as previously provided to
IBC, including management fees which are 3.5% of rental income. During the
three months ended March 31, 1994 and 1993, property management fees for these
affiliates were approximately $39,000 and $40,000, respectively. During the
three months ended March 31, 1994 and 1993, IGC earned $-0- and $6,000,
respectively, from IBC for development fees for the Doral Building which was
under construction in Puerto Rico. IGC's Puerto Rico executive office has been
located in the Doral Building since November 1991 under a five-year lease
providing for a first-year payment of rent of approximately $187,000 and
certain escalations for CPI and pro-rata share of operating expenses in years
two through five. Rental expense for the executive office and certain other
property leased from affiliates in Puerto Rico was $51,000 during the three
months ended March 31, 1994 and 1993. All leases with affiliated persons are
on terms at least as favorable to IGC as that generally available from
unaffiliated persons for comparable property.
IGC has a property management agreement with Capitol Park Associates, a
third-party partnership that owns 937 apartment units in Washington, D.C. In
1984, this partnership purchased these apartment units from a company
controlled by James J. Wilson, certain other stockholders of IBC's predecessor
and third parties. IGC has the right to continue the property management
agreement until 1999, which provides for fees of 3.5% of annual gross rentals.
As of March 31, 1994 and 1993, IGC earned fees of approximately $61,000 and
$53,000, respectively. As of March 31, 1994, $24,000 of these fees, and other
reimbursements of allocated costs were owed by an entity controlled by Mr.
Wilson.
IGC and IBC formed Coachman's Limited Partnership, which owns a 104-unit
apartment complex in St. Charles, Maryland. IGC contributed its 99% interest
in the land and IBC contributed its 1% interest in the land and $218,000 in
cash. IBC is obligated to fund any operating deficits; however, IGC has
provided these funds. Both partners retain a 1% general partner and 49%
limited partner interest in the cash flows, and IGC provides management
services for this property. At March 31, 1994 and 1993, fees were $5,000 and
$5,000, respectively. At March 31, 1994, unpaid management fees and operating
deficit loans due IGC was $427,000 of which $282,000 is reserved.
IBC and its affiliates own certain U.S. commercial properties and
apartment projects in the U.S. for which IGC provides property management
services for fees of 2.5% to 4.5% of rental income. Effective January 1993,
the Board of Directors approved a reduction in the management fees for one of
these projects from 4.5% to 2.5% until the project has cash flow sufficient to
bring the unpaid fees up to date and pay the 4.5% fee. During the first three
months ended March 31, 1994 and 1993, property management fee income from these
affiliates was approximately $52,000 and $45,000, respectively. During the
first three months ended March 31, 1994 and 1993, IGC earned $-0- and $39,000,
respectively, from IBC for development fees for the Village Lake Apartment
project. As of March 31, 1994, $425,000 of management and development fees and
other allocated costs were unpaid by these affiliates of which $420,000 was
reserved.
<PAGE>
<PAGE>21
IGC and affiliates lease office space from Smallwood Village Associates
Limited Partnership ("SVA"), one of IBC's commercial properties in which IGC's
principal executive offices are located. A total of 23,400 square feet of
office space is leased by IGC and affiliates at approximately $282,000 per year
(subject to adjustment for inflation). The lease expires in the year 2001.
During the first three months ended March 31, 1994 and 1993, IGC's annual rent
for its share of the leases were $44,000 and $49,000, respectively.
As of September 30, 1991, IGC sold a 31% interest (38.75% of its ownership
interest) in HDA to IBC, reducing IGC's 80% partnership interest in HDA to 49%.
An unaffiliated partner holds the remaining 20% interest. The purchase price
consisted of $10,000 cash payment, a $121,000 note payable by IBC out of
distributions from HDA. In April 1994, $103,000 was collected, leaving a
balance of $17,000 on this note. As a result of this transaction which reduced
IGC's ownership interest to 49%, the assets and liabilities of HDA are no
longer consolidated with those of IGC.
IGC, as limited partner, and IBC, as general partner, have formed Equus
Gaming Company ("Equus), a general partnership that through its wholly-owned
subsidiary, Virginia Jockey Club, Inc. ("VJC"), has applied for a license to
construct and operate a thoroughbred racing facility in Virginia, and IGC
currently is funding all costs regarding VJC. Deferred costs regarding VJC as
of March 31, 1994 totaled approximately $808,000. Equus' partnership agreement
provides that in the event VJC obtains a Virginia racing license, in lieu of
the Proposed Distribution IBC and IGC will transfer their interest in HDA to
Equus. The transfer will be structured to avoid a termination of HDA for
federal income tax purposes. IGC and IBC expect to convert Equus to a limited
partnership or other form of limited liability entity prior to IGC's
distributing to its unitholders all or a substantial portion of its interests
in Equus. The transfer to Equus and the subsequent distribution would be
subject to required regulatory approvals, including the Racing Board, and
consent of certain IGC creditors.
IGC and IBC have also engaged in property sales and certain other related
party transactions. During 1989, IBC purchased 5.01 acres of commercial land
for the development of an apartment complex for the appraised value of $1
million ($218,000 cash down payment and a five-year note of $874,000 requiring
quarterly payments of $22,000 and a balloon payment of the balance on September
28, 1994). The outstanding balance of the note and interest as of March 31,
1994 was $703,000. This note was originally secured by the 5.01-acre site. In
1992, the Company pledged this note to a vendor as collateral for outstanding
payables. To permit the construction of the Village Lake Apartments to
proceed, the vendor and the Company's Board of Directors approved the release
of 3.78 of the 5.01 acres, without payment, in exchange for an assignment of
IBC's 99% interest in Village Lake L.P., Santa Maria and a mortgage on an
additional real estate parcel.
The Company and IBC entered into an agreement in 1990 pursuant to which
$1.7 million of the Company's outstanding advances to IBC in 1990 were
satisfied by the conveyance by IBC to the Company of approximately $3.8 million
in receivables from SVA, in which IBC is the sole general partner and a limited
partner, together with options to purchase IBC's 1% general and 51% limited
partnership interests in SVA. As SVA has been operating at a cash deficit
since inception, none of these receivables have been paid to IGC. Pursuant to
the agreement, in order to enhance the ultimate liquidity of the Company's
receivables from SVA, the Company has the right at any time after December 31,
1993 to require IBC to repurchase the receivables ("SVA Repurchase") for an
<PAGE>22
amount equal to $2 million plus interest from the date of the agreement. The
repurchase amount was $2.8 million at March 31, 1994, of which $948,000 is
reserved until collected. To date, the Company has not exercised the SVA
Repurchase.
The maximum amounts of outstanding receivables due IGC from IBC and other
Wilson related entities (which include WSC, Advanced Power Systems, Inc.,
Community Homes and certain apartment projects), and excluding SVA receivables
discussed in the previous paragraph, was $2.8 million during the year ended
December 31, 1993. The outstanding receivables from these parties at March 31,
1994 and December 31, 1993 were $2.6 million, of which $1.2 million were
reserved until collected.
IGC provides management services to HDA pursuant to a management agreement
which has a term of 15 years ending in December 2004. The management agreement
was amended in December 1993 upon closing of a HDA refinancing to reduce the
management fee to an annual fee of $250,000, adjusted beginning in 1994 by the
percentage increase in CPI over the prior year. Prior to such amendment IGC
received a management fee equal to 5% of the HDA's rental income. The HDA
management fees earned in the first three months of 1994 and 1993 were $64,000
and $169,000, respectively.
<PAGE>
<PAGE>23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The real estate industry is cyclical, and is especially sensitive to
fluctuations in economic activity and movements in interest rates. Sales of
new homes are affected by market conditions for rental properties and by the
condition of the resale market for used homes, including foreclosed homes in
certain cities as well as the competitive supply of other new homes for sale.
An oversupply of rental real estate depresses rents and reduces incentives for
renters to purchase homes. An oversupply of resale units depresses prices and
reduces the margins available on sales of new homes. In addition, the slowing
of the economy and its impact on consumer spending, particularly in over built
markets, can adversely impact construction activity and demand for housing.
However, entry level housing has traditionally not been as negatively
influenced since financing has been readily available to individuals with small
amounts of capital.
The Company's homebuilding and community development sales are greatly
influenced by consumer confidence, housing demand, prevailing market interest
rates, movements in such rates and expectations about future rates. Long-term
interest rates declined in 1993 to their lowest level in approximately 20 years
making entry-level housing more affordable to homebuyers. However, the
Company's home sales have decreased due to the reduction of its homebuilding
operations in certain locations outside St. Charles. In addition in 1993, in
St. Charles the focus was on lot sales to other builders which increased the
Company's competition in the field of homebuilding and resulted in a decrease
in the Company's St. Charles home sales.
The following discussion and analysis covers changes in the results of
operations for the three months ended March 31, 1994 as compared to the results
of the three months ended March 31, 1993.
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
Revenues. Revenues for the three months ended March 31, 1994 increased
29% to $12.6 million from $9.8 million in the prior comparable period primarily
due to increase in revenues from investment properties and the impact of the
consolidation of three apartment project partnerships reflected in the 1994
quarter.
<PAGE>
<PAGE>24
Lot sales decreased to $2 million for the three months ended March 31,
1994 from $2.4 million for the same period in 1993. The decrease in 1994 is
primarily attributable to a decrease in townhome lot sales, offset in part by
increases in commercial and industrial sales and single-family residential lot
sales. Lot sales are summarized as follows:
Three Months Ended
March 31,
----------------------
1994 1993
---- ----
(In thousands)
Industrial/Commercial lots
U.S. - Commercial $ 624 $ --
Puerto Rico
Recognition of deferred income 123 125
Residential lots
St. Charles
Single-family lots (16 in 1994, 13 in 1993) 759 590
Townhome lots (49 in 1993) -- 1,221
Montclair
Townhome lots (7 in 1993) -- 242
Condominium lots (44 in 1994) 485 --
Westbury single-family lots (2 in 1994 and 1993) 52 55
U.S. undeveloped land -- 162
------ ------
$2,043 $2,395
====== ======
Average residential lot sales price
St. Charles
Single-family lot $ 47 $ 45
Townhome lot -- 25
Montclair
Townhome lot -- 35
Condominium lot 11 --
Westbury lot 26 28
<PAGE>
<PAGE>25
Home sales increased 11% to $4.9 million for the three months ended March
31, 1994 from $4.5 million for same period of 1993. The increase is summarized
as follows:
Three Months Ended March 31,
---------------------------------------------------
1994 1993
----------------------- ------------------------
Average Average
Sales Units Sales Units
Prices Closed Backlog Prices Closed Backlog
------- ------ ------- ------- ------ -------
(In thousands)
Home Sales
Tract Homebuilding
Division
St. Charles, MD $153 12 27 $134 23 30
Lexington Park, MD -- -- 1 -- -- --
Montclair, VA -- -- 1 -- -- --
Scatter-Site
Homebuilding Division
(excludes lots) 78 40 139 76 19 118
--- --- --- ---
95 52 168 108 42 148
=== === === ===
Revenues from investment properties, management fees and other income
increased to $5.6 million for the three months ended March 31, 1994 from $2.9
million in the same period of 1993. These changes are summarized below:
Three Months Ended
March 31,
-----------------------------
1994 1993
---- ----
(In thousands)
Revenues from investment properties-
Investment in partnerships $3,458 $ 852
Equity in income of HDA -- 835
Management fees 969 1,043
Apartment rental income 1,051 --
Interest and other income 99 162
------ ------
$5,577 $2,892
====== ======
Revenues from investment in partnerships increased primarily due to
distributions received from a partnership owning four Puerto Rico apartment
projects that were refinanced. This partnership qualifies as a Puerto Rico
special partnership and, as such, partners are not liable for losses in excess
of their capital investment. Cash flow distributions received on this
investment reduced the carrying value to zero and additional distributions have
been recognized as revenue. The revenue from these distributions is the
principal reason the revenues from investment in partnerships during the three
months ended March 31, 1994 increased to $3.5 million from $.9 million for the
same period in 1993.
<PAGE>26
HDA is a special partnership under Puerto Rico law and partners of such
partnerships are not liable for losses in excess of their capital investment.
Due to the costs related to the refinancing of HDA debt in 1993 and HDA cash
distributions, the partners' capital account is in a deficit position. Also,
the Company has announced the Proposed Distribution of its interest in HDA to
its unitholders. As a result of the deficit position of HDA and the Proposed
Distribution, IGC did not recognize earnings from HDA during the first quarter
of 1994 and does not expect to recognize any earnings in the future. During
the first quarter of 1993, $.8 million of equity in earnings of HDA was
recorded.
During May 1993, the Company purchased from an unaffiliated party an
additional 20% limited partnership interest in Lancaster, increasing its
ownership to 60%. During August 1993, the partnership owning the New Forest
and Fox Chase Apartment complexes purchased the 50% partnership interests of an
unaffiliated party thereby increasing IGC's interest in these partnerships from
40% to 90%. Prior to these purchases, the Company accounted for these
interests under the equity method. The March 31, 1994 financial statements
include the operations of Lancaster, New Forest and Fox Chase.
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profits from community development increased to 40% from 22%
primarily due to (a) increased commercial lot sales which typically have a
higher gross margin than residential lot sales and (b) a reduction in period
costs. Gross profits from community development are summarized as follows:
Three Months Ended March 31, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
U.S. $ 624 $ 181 $ 443 71%
Puerto Rico
Recognition of deferred income 123 20 103 84%
U.S. Residential lots
St. Charles
Developed single-family lots 759 384 375 49%
Montclair
Condominium lots 485 431 54 11%
Westbury single-family lots 52 50 2 4%
U.S. undeveloped land
Period costs -- 160 (160) --
------ ------ ------
$2,043 $1,226 $ 817 40%
====== ====== ======
<PAGE>
<PAGE>27
Three Months Ended March 31, 1993
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
Puerto Rico
Recognition of deferred income 125 20 105 84%
U.S. Residential lots
St. Charles
Developed single-family lots 590 319 271 46%
Developed townhome lots 1,221 794 427 35%
Montclair
Townhome lots 242 235 7 3%
Condominium lots -- -- -- --
Westbury single-family lots 55 53 2 4%
U.S. undeveloped land 162 162 -- --
Period costs -- 291 (291) --
------ ------ ------
$2,395 $1,874 $ 521 22%
====== ====== ======
Gross profits from homebuilding operations for the three months ended
March 31, 1994 and 1993 are summarized as follows:
Three Months Ended March 31,
----------------------------------------
1994 1993
------------------- ------------------
Gross Gross
Profit Profit
Margins Margins
------- -------
Home sales $4,949 $ 4,540
Cost of sales excluding marketing 4,289 3,808
------ -------
Gross profits before selling and
marketing costs $ 660 13% $ 732 16%
====== =======
Gross profits as a percentage of homebuilding revenues for a particular
period are a function of various factors including pricing, efficiency of
homebuilding operations, financing costs (including costs of subsidizing
customer financing, if any) and differences in gross profit margins between the
homebuilding divisions. The lower margins in 1994 are primarily due to the mix
of sales, some price reductions and increased carrying costs on a per unit
basis.
<PAGE>28
General and Administrative Expenses, Depreciation and Amortization and
Interest Expense. These expenses for the three months ended March 31, 1994 and
1993 were as follows:
1994 1993
---------- ----------
General and administrative $1,927 $2,112
Depreciation and amortization 145 170
Interest expense 465 508
Rental apartment expense 1,120 --
------ ------
$3,657 $2,790
====== ======
General and administrative, depreciation and amortization and interest
expense during the 1994 and 1993 periods were generally comparable. Rental
apartment expense in 1994 includes the expenses of Lancaster, New Forest and
Fox Chase which were not consolidated in the 1993 period. The Company's share
of these partnership losses were previously accounted for on the equity method
(see Note 3).
Provision for Income Tax. The provision for income taxes increased to $1
million compared to $.3 million in the first three months of 1993 due to
taxable income resulting from distributions received from partnerships in
Puerto Rico that refinanced their apartment projects. In addition, the
implementation in 1993 of FSAS No. 109 generated a $1.5 million Puerto Rico
income tax credit.
Net Income. As a result of changes in revenue and expenses discussed
above, net income before the beneficial effect of accounting change for the
three months ended March 31, 1994 decreased to $2.1 million from $2.3 million
GOING CONCERN, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and lot sales, property management fees, and
from bank financing providing funds for development and working capital. In
response to the decline in the real estate markets and the decline in the
availability of financing, the Company undertook a financial restructuring in
1992.
During 1994, the Company continued to make progress in completing the
objectives it set forth in its restructuring. New or amended loan agreements
have now been executed for all loans which required restructuring except for
two loans currently in default aggregating $7.0 million with Maryland National
Corporation ("MNC") now owned by NationsBank. The Company has received a
commitment letter from the bank granting a one year extension with two six
month renewals on each of these loans which will clear the event of default and
a closing of the restructured loan is expected to occur by June 30, 1994. The
commitment letter provides for minimum principal payments totaling $3.7 million
from December 1, 1994 to November 30, 1995 and cross-collateralization with the
other NationsBank loan. Payments made on one loan in excess of minimum
mandatory payments may be applied to the minimum mandatory payment of the other
loans. Management expects to meet these required payments through the sale or
refinancing of land held by MNC as collateral. The commitment also requires
additional collateral represented by a secondary collateral position on certain
<PAGE>29
commercial land and the Company's interest in partnerships which own rental
apartments. The approval of the FDIC, the first lienholder, is required for
MNC's secondary collateral position.
Under the terms of IGC's loans, most of the cash flow generated by U.S.
home and lot sales and distributions from partnerships, including distributions
from partnership refinancings, will be used to further reduce bank loans and
meet debt service requirements. Working capital for overhead and other cash
needs in 1994 is expected to be met through property management fees, and net
proceeds from the LDA land sale discussed below.
In March 1991, the Company's 80% owned subsidiary, Land Development
Associates, S.E. ("LDA"), sold a 61 acre parcel of land in the planned Parque
Escorial development to a major retailer who intends to develop a shopping
center ("LDA Land Sale"). The Company expects to close the $12 million sale by
June 30, 1994 and receive approximately $1.9 million from the sales proceeds
after setting aside amounts for infrastructure development and making land
release payments and distributions to LDA's 20% minority partner.
During the first quarter, IGC has generated cash flow from its operations
to meet its operating cash flow needs. If IGC's pending requests for
extensions and renewals of bank debt are granted, it continues to generate lots
sales consistent with or in excess of 1993 levels, the proceeds of financing
together with cash from operations and/or asset sales will, in the opinion of
IGC management, be adequate to meet IGC's liquidity requirements.
Additional potential sources of liquidity include cash that could be
generated from four partnerships in Puerto Rico which applied in March 1993 for
economic incentives under the 1990 Low-Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). Under LIHPRHA the partnerships have the option
of obtaining additional HUD insured financing and additional subsidy funds, and
distributing net refinancing proceeds to partners, or selling the projects to
non-profit organizations which would continue the projects in HUD's low income
housing program. Management believes that the economic benefit to the Company
and the partners will be greater from a sale of the projects, in which case the
Company will endeavor to retain the right to manage the properties. It is
anticipated that any closing pursuant to LIHPRHA will be accomplished in 1995
and the Company would expect to receive approximately $10.0 million net of
taxes. These distributions are assigned to the FDIC for debt of $9.6 million
and, as discussed above, MNC will be given a secondary assignment of the
distributions.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 22, 1993, the Company filed suit against the County
Commissioners of Charles County, Maryland in the Circuit Court for Charles
County seeking compensation for a school site that it had deeded to the County
on June 26, 1990. The Company seeks a minimum of $3.2 million, equal to the
fair market value of the school site. The action seeks to enforce an agreement
settling litigation between the parties that was entered into in 1989. Under
the terms of that agreement, the County agreed to credit the Company for school
sites contributed and also agreed to refund to the Company any excess school
impact fees paid. The County Commissioners and IGC requested a partial summary
judgment and the hearing was held on September 17, 1993. The Court recently
granted the County's partial summary judgment motion and directed the Company
to file its suit for compensation in the Maryland Tax Court. The Company has
<PAGE>30
appealed that decision in the Court of Special Appeals of Maryland and filed
for relief in the Maryland Tax Court.
In a separate proceeding, the Company filed suit in 1990 against the
County Commissioners in the Circuit Court for Charles County to enforce a
related settlement agreement that required the County to conduct an appropriate
water and sewer connection fee study. On June 22, 1992, judgment was rendered
in favor of the Company. The judgment required the County to conduct the
appropriate water and sewer connection fee study and set fees for St. Charles
in accordance with that study. The County has appealed the judgment to the
Court of Special Appeals of Maryland, and has also sought reconsideration of
the judgment from the Circuit Court. On April 26, 1994, the Circuit Court for
Charles County, Maryland denied the County's Motion to Act On or Amend the
Judgment.
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five-acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site. The Company took the position that a prohibition of development on the
entire Site would constitute a governmental taking for which the Company would
be entitled to compensation. In November 1993, the Company believed it had an
agreement in principle with the Corps that would permit commercial development
of a portion of the Site. However, in early 1994, the Company became aware
that this matter had been referred to the U.S. Attorney for the District of
Maryland who is now conducting an investigation. The investigation is in a
preliminary stage and the Company is not in a position to determine whether it
will be charged with a violation of the Clean Water Act or other laws relating
to wetlands preservation or, if charged, what the outcome will be.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
The Company has two loans currently in default aggregating $7.0 million
with Maryland National Corporation ("MNC") now owned by NationsBank. The
Company has received a commitment letter from the bank granting a one year
extension with two six month renewals on each of these loans which will clear
the event of default and a closing of the restructured loan is expected to
occur by June 30, 1994. The commitment letter provides for minimum principal
payments totaling $3.7 million from December 1, 1994 to November 30, 1995 and
cross-collateralization with the other NationsBank loan. Payments made on one
loan in excess of minimum mandatory payments may be applied to the minimum
mandatory payment of the other loans. Management expects to meet these
required payments through the sale or refinancing of land held by MNC as
collateral. The commitment also requires additional collateral represented by
a secondary collateral position on certain commercial land and the Company's
interest in partnerships which own rental apartments. The approval of the
FDIC, the first lienholder, is required for MNC's secondary collateral
position.
The Company was in technical default on the Signet loans aggregating $10.4
million as it has not met certain minimum sales requirements as of March 31,
1994 and the bank has agreed to formally waive this technical default.
<PAGE>31
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Securities and Exchange Commission Section
601 of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- - ------- ----------------------------------------- --------------------------
10(a) Employment Agreement with Gregory G. Filed under cover SE
Kreizenbeck dated March 1, 1994
(b) None.
<PAGE>
<PAGE>32
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
-------------------------------
(Registrant)
By: Interstate General Management
Corporation
Managing General Partner
Dated: May 16, 1994 By: /s/ James J. Wilson
--------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: May 16, 1994 By: /s/ Donald G. Blakeman
--------------- -----------------------------
Donald G. Blakeman
Executive Vice President
<PAGE>
<PAGE>33
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
P10.a Employment Agreement with Gregory G. Kreizenbeck
