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, 1995, 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.
10,256,785 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, 1995 and
1994. (Unaudited) 3
Consolidated Balance Sheets as of March 31, 1995
(Unaudited) and December 31, 1994. 4
Consolidated Statements of Changes in
Partners' Capital for the Three
Months Ended March 31, 1995.
(Unaudited) 7
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1995 and 1994.
(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, 1995 and 1994. 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Material Modifications of Rights of Registrant's 33
Securities
Item 3. Default upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
<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)
1995 1994
----------- ------------
REVENUES:
Community development - land sales $ 4,700 $ 2,043
Homebuilding - home sales 2,935 4,949
Revenues from investment properties
Equity in earnings from partnerships
and development fees 694 3,458
Apartment rental revenues 1,147 1,051
Management and other fees, substantially
all from related entities 1,355 969
Interest and other income 97 99
---------- ----------
Total revenues 10,928 12,569
---------- ----------
EXPENSES:
Cost of land sales 2,775 1,226
Cost of home sales 2,745 4,289
Selling and marketing 378 284
General and administrative 2,337 1,949
Rental apartment expenses 1,095 1,120
Depreciation and amortization 132 145
Interest expense 490 465
---------- ----------
Total expenses 9,952 9,478
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 976 3,091
PROVISION FOR INCOME TAXES 407 1,020
---------- ----------
INCOME BEFORE MINORITY INTEREST 569 2,071
Minority Interest 249 (22)
---------- ----------
NET INCOME $ 320 $ 2,093
========== ==========
NET INCOME
GENERAL PARTNERS $ 3 $ 21
LIMITED PARTNERS 317 2,072
---------- ----------
$ 320 $ 2,093
========== ==========
NET INCOME PER UNIT $ .03 $ .21
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,249 10,082
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
March 31, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
including restricted cash of $5,585
and $5,713 at March 31, 1995 and
December 31, 1994, respectively $ 6,676 $ 6,833
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
St. Charles, Maryland 26,083 26,426
Puerto Rico 24,533 26,103
Other United States locations 16,210 16,014
Notes receivable on lot sales, net of
reserves of $101 and $94
as of March 31, 1995 and
December 31, 1994, respectively 4,146 1,256
Other 256 262
-------- --------
71,228 70,061
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 3,753 4,384
Mortgages receivable 230 222
Receivables on home sales 34 271
Other 124 121
-------- --------
4,141 4,998
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment in residential rental
partnerships 10,066 9,976
Investment properties, net of accumulated
depreciation and amortization of
$4,912 and $4,746 as of March 31,
1995 and December 31, 1994, respectively 24,401 24,499
Other receivables, net of reserves of
$445 and $1,071 as of March 31,
1995 and December 31, 1994, respectively 1,483 1,133
-------- --------
35,950 35,608
-------- --------
<PAGE>
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S (continued)
March 31, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
OTHER ASSETS
Property, plant and equipment, less
accumulated depreciation of $2,043
and $1,948 as of March 31, 1995 and
December 31, 1994, respectively 1,557 1,588
Costs in excess of net assets acquired,
less accumulated amortization of
$774 and $735 as of March 31,
1994 and December 31, 1994, respectively 2,261 2,299
Deferred costs regarding waste technology
and other 2,107 2,126
-------- --------
5,925 6,013
-------- --------
Total assets $123,920 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1995 1994
----------- ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued
liabilities $ 3,037 $ 3,521
Mortgages and notes payable 349 370
Accrued income tax liability 4,873 4,553
-------- --------
8,259 8,444
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 36,728 36,661
Non-recourse debt 4,049 4,268
Accounts payable, accrued liabilities
and deferred income 3,251 2,728
-------- --------
44,028 43,657
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 1,763 2,398
Accounts payable and accrued liabilities 2,460 2,506
-------- --------
4,223 4,904
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,476 1,559
Non-recourse debt 22,742 22,771
Accounts payable and accrued liabilities 1,996 1,473
-------- --------
26,214 25,803
-------- --------
Total liabilities 82,724 82,808
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,325 4,322
Limited partners' capital-10,257 and
10,215 Units issued and outstanding as of
March 31, 1995 and December 31, 1994,
respectively 36,871 36,383
-------- --------
Total partners' capital 41,196 40,705
-------- --------
Total liabilities and partners' capital $123,920 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
Balances, December 31, 1994 $ 4,322 $36,383 $40,705
Net income for the three
months ended March 31, 1995 3 317 320
Employee/Director Unit
options exercised -- 171 171
------- ------- -------
Balances, March 31, 1995 $ 4,325 $36,871 $41,196
======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>8
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 320 $ 2,093
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 132 163
Investment properties 166 157
Provision for income taxes 407 1,020
Equity in earnings of partnerships (314) (667)
Increase in sponsor and developer fees
from partnerships and other (91) (81)
(Increase) decrease in
Receivables (2,898) 315
Homebuilding assets 865 389
Community development assets 1,723 155
Restricted cash 128 471
Decrease in accounts payable,
accrued liabilities and deferred income (94) (1,655)
------- -------
Net cash provided by operating activities 344 2,360
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in assets related to investment properties 391 5,521
Additions to other assets (44) (191)
------- -------
Net cash provided by investing activities 347 5,330
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA -- 269
Cash proceeds from debt financing 3,181 1,052
Payment of debt (4,072) (9,432)
Employee/Director Unit options exercised 171 2
------- -------
Net cash used in financing activities (720) (8,109)
------- -------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (29) (419)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF QUARTER 1,120 2,009
------- -------
CASH AND SHORT-TERM INVESTMENTS, END OF QUARTER $ 1,091 $ 1,590
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>9
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(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 1994
financial statements have been reclassified to conform to the 1995
presentation. The operating results for the three months ended March 31, 1995
are not necessarily indicative of the results that may be expected for the
year. Net income per Unit is calculated based on weighted average Units
outstanding. Outstanding options and warrants to purchase Units and Unit
Appreciation Rights do not have a material dilutive effect on the calculation
of earnings per Unit.
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,
1994.
(2) FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and land sales, property management fees,
distributions from HDA and residential rental partnerships 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. Since
commencing the restructuring, the Company reduced bank borrowings by
approximately $30,000,000 and achieved a debt to equity ratio of one-to-one.
The Company also successfully restructured all loans originally targeted for
restructuring. 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 to meet debt service requirements. The Company did not meet all
of the conditions required to qualify for the automatic extension of the
NationsBank loan which has an outstanding balance of $7.6 million and a May 1,
1995 maturity date creating an event of default on all three NationsBank loans
with aggregate outstanding balances of $13.3 million. Management is
negotiating an extension for the three loans and is confident that NationsBank
will extend the loans. In addition, to any scheduled curtailments in 1995
resulting from this restructure, a $1,000,000 payment is due in September 1995
on another loan. These curtailments are expected to be made with proceeds from
the sale of commercial and business park land which secures the loans and
proceeds from new project financings. In addition to these scheduled
curtailments, a loan which had a balance at March 31, 1995 of approximately
<PAGE>10
$5,670,000 that is being curtailed with the proceeds from the sale of
residential lots, matures in September of 1995. This loan, if not fully paid,
is expected to be significantly reduced prior to its maturity date and it is
anticipated that the remaining balance will be extended, although there are no
contractual extensions on the loan. In addition, as discussed in Note 4, the
Company will no longer receive distributions from HDA, as a result of the
Company's distribution of Equus Gaming Company L.P. ("Equus") Units
representing a 99% limited partnership interest in Equus to IGC Unitholders in
February, 1995. Given these factors, the Company's ability to generate cash
for overhead, development and other uses is limited and it may become necessary
for the Company to negotiate with its lenders to reschedule future payments.
In addition, project financings will be necessary to fund the continued
development of land inventory to generate the necessary lot sales to meet the
Company's operating obligations. Pending legal proceedings may also adversely
affect the Company's liquidity, including the timing and/or terms of any
financing.
In addition to its traditional sources of liquidity, the Company is
currently investigating opportunities in the capital markets for longer term
debt or possible equity financings.
A potential source of liquidity in late 1995 includes cash from four
projects in Puerto Rico which applied in March of 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 under 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 event the
Company will endeavor to retain the right to manage the properties.
The decision to sell the projects under LIHPRHA is largely dependent on
the outcome of proposed legislation to be considered by Congress in 1995.
Management expects that the Clinton Administration will submit a bill to
Congress during 1995 which, if enacted, will dramatically impact subsidized
housing programs and which could significantly reduce the proceeds available to
the Company. If this occurs, management will need to reconsider its decision
to sell the projects under the LIHPRHA program. It is not possible at the
present time to predict the outcome of the proposed changes to the LIHPRHA
program. Should management decide not to sell the projects under the LIHPRHA
program, an alternative exit strategy would be to convert the projects to
condominiums and sell the individual units. If this alternative is pursued,
the conversion and subsequent sale of the units is expected to take
approximately three years. The Company's share of proceeds of any sales of the
projects have been assigned to the FDIC and NationsBank for repayment of debt
totalling approximately $22.2 million at March 31, 1995.
A LIHPRHA application was filed for a fifth project in Puerto Rico in
March 1994. The timetable for completing the LIHPRHA processing is
approximately two years. However, if proposed legislation is enacted,
management may withdraw the application.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of March 31, 1995, IGC manages and is a general partner in 29 real
estate partnerships which own 32 apartment projects in Puerto Rico, Maryland,
Virginia and Washington, D.C. IGC is also a limited partner in many of these
<PAGE>11
partnerships. The apartment projects are financed by non-recourse mortgages.
Of the 6,559 rental units in the various partnerships, the Federal Housing
Administration ("FHA") provides subsidies for low and moderate income tenants
in 5,371 units.
The following table summarizes IGC's investment in residential rental
partnerships:
March 31, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $3,687 and $3,778 at
March 31, 1995 and December 31, 1994,
respectively $ 2,991 $ 3,368
Investment in partnerships 7,075 6,608
------- -------
$10,066 $ 9,976
======= =======
The combined condensed statements of income and the combined condensed
statements of cash flow for the three month periods ended March 31, 1995 and
1994, and the combined condensed balance sheets as of March 31, 1995 and
December 31, 1994 are shown below for the partnerships owning residential
rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1995 (1) 1994 (1)
----------- -----------
(In thousands)
Revenues $10,174 $11,164
------- -------
Operating expenses
Depreciation 1,601 1,532
Other 8,383 8,666
------- -------
9,984 10,198
------- -------
Net income $ 190 $ 966
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase"), New Forest Apartments General Partnership ("New
Forest") and Lancaster Associates L.P. ("Lancaster") are excluded
from these statements. The operations of these partnerships are
consolidated in the Company's consolidated statements of income for
the three month periods ended March 31, 1995 and 1994.
<PAGE>12
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
March 31, December 31,
1995 (1) 1994 (1)
----------- -----------
(In thousands)
Rental apartments, at cost $239,295 $244,169
Accumulated depreciation (96,647) (81,772)
-------- --------
142,648 162,397
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 6,516 6,286
Replacement reserves and escrows 8,983 10,209
-------- --------
Total restricted cash and marketable securities 15,499 16,495
Cash and certificates of deposit 5,870 4,264
-------- --------
Total cash and marketable securities 21,369 20,759
-------- --------
Other assets 4,340 4,284
-------- --------
Total assets $168,357 $187,440
======== ========
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1995 (1) 1994 (1)
----------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $171,822 $172,561
Loans and interest payable to the Company 19,508 19,390
Other liabilities 3,950 3,633
-------- --------
Total liabilities 195,280 195,584
-------- --------
Partners' capital
Capital contributions, net of distributions (1,590) 236
Accumulated deficit (25,333) (8,380)
-------- --------
Total partners' capital (26,923) (8,144)
-------- --------
Total liabilities and partners' capital $168,357 $187,440
======== ========
(1) The assets, liabilities and partners' capital of Fox Chase, New
Forest and Lancaster are excluded as they are consolidated in the
Company's March 31, 1995 and December 31, 1994 financial statements.
<PAGE>13
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1995 (1) 1994 (1)
----------- -----------
(In thousands)
Revenues $10,174 $11,164
------- -------
Cash expenditures
Total expenses 9,984 10,198
Less - Depreciation (1,601) (1,532)
Other non-cash expenses (87) (151)
------- -------
8,296 8,515
Mortgage principal 870 471
Capital additions 288 165
------- -------
Total cash expenditures 9,454 9,151
------- -------
Cash flow before distributions $ 720 $ 2,013
======= =======
(1) The cash flow activities for Fox Chase, New Forest and Lancaster are
excluded from these statements. The cash flow activities for these
entities are reflected in IGC's Consolidated Statements of Cash Flow
for the three month periods ended March 31, 1995 and 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. Most
of the partnership agreements provide that IGC, as general partner, receive a
zero to 5% interest in profits, losses and cash flow from operations until such
time as the limited partners have received distributions equal to their capital
contributions. Thereafter, IGC, as general partner, generally shares in 50% of
cash distributions from operations. During 1994, seven partnerships were
released from these restrictions as part of mortgage refinancings.
(4) INVESTMENT IN REAL ESTATE VENTURES RELATING TO HORSE RACING
Housing Development Associates, S.E. ("HDA"), a limited partnership that
owns the only thoroughbred race track in Puerto Rico, was owned 1% by IGC and
82% by Equus Gaming Company L.P. ("Equus") at March 31, 1995 and 68% by IGC and
its consolidated subsidiaries at December 31, 1994.
Equus was formed on September 17, 1993 as a general partnership between
IGC and IBC to hold their interests in HDA and to hold all of the stock of
Virginia Jockey Club, Inc. ("VJC"). VJC was formed in April of 1993 to apply
<PAGE>14
for licenses from the Commonwealth of Virginia to construct, own and operate
Virginia's first thoroughbred racing and pari-mutuel wagering facility.
Through a series of transactions completed in August 1994, Equus was
restructured as a limited partnership between IGC and a wholly-owned subsidiary
of IGC, Equus Management Company ("EMC"), for the purpose of holding all of
IGC's ownership interests in real estate assets employed in thoroughbred racing
and related wagering businesses.
In connection with the August 1994 restructuring of Equus as a limited
partnership, HDA's partnership agreement was amended to permit IBC to transfer
its entire 26.35% HDA interest in profits and capital to Equus and to permit
IGC to transfer a 40.65% profits interest to Equus. A transfer of 50% of the
profits and capital interests in HDA within any 12-month period would result in
a termination of HDA as a partnership for federal tax purposes. IGC retained a
1% profits interest and 41.65% capital interest in HDA and Equus has replaced
IGC as managing partner of HDA. Equus then admitted IGC's wholly-owned
subsidiary, EMC, as a partner with a .99% general partnership and .01% limited
partnership interest and IBC contributed to IGC its 38.75% interest in Equus.
These transactions resulted in IGC and EMC owning the entire partnership
interest in Equus and Equus owning 67% of the profits interests and 26.35% of
the capital interests in HDA.
A Registration Statement was filed with the Securities and Exchange
Commission ("SEC") for the distribution of Equus limited partnership units
("Equus Units") representing a 99% limited partnership interest in Equus, and
arrangements were made to list Equus Units on NASDAQ. The Registration
Statement was declared effective by the SEC on January 10, 1995 and the
distribution of the Equus Units ("Distribution") took place on February 6, 1995
when IGC distributed 5,128,372 Equus Units to IGC Unitholders. The
Distribution was made on the basis of one Equus Unit for every two IGC Units
outstanding on the record date of January 25, 1995. As a result of the
Distribution, IGC's total revenues and net income for the quarter ended March
31, 1995 were reduced by $134,000 and increased by $31,000, respectively.
IGC, through EMC, continues to manage Equus following the Distribution.
Certain directors and officers of EMC, including EMC's chief executive officer,
also continue to serve as officers and directors of IGC's managing general
partner, IGMC. IGC and EMC together have retained a 1% general partnership
interest in Equus.
For a transitional period following completion of the Distribution, IGC
will provide certain administrative services and support to Equus pursuant to a
Master Support and Services Agreement (the "Support Agreement"). Equus will
reimburse IGC for costs incurred in providing these services. An IGC
subsidiary, Interstate General Properties Limited Partnership S.E., will
continue to provide management services to HDA pursuant to an existing
management agreement.
Prior to the Distribution, during the first quarter of 1995, IGC agreed to
transfer to Equus all but 1% of its remaining capital interest in HDA for no
additional consideration. The transfer is required to take place on February
7, 1996, unless prior to that date HDA dissolves, liquidates or adopts a plan
of liquidation, or sells or enters into a definitive agreement to sell the Race
Track. If any of the foregoing occurs before February 7, 1996, IGC's
obligation to transfer the capital interest will be cancelled.
<PAGE>
<PAGE>15
At March 31, 1995, the Company's financial statements reflect the equity
method of accounting for its investment in Equus, including its investments in
HDA and VJC. Because IGC is the 1% general partner of Equus, it has the
ability to exercise significant influence over Equus' operating and financial
policies and the equity method is considered appropriate. At December 31,
1994, IGC's investment in Equus was consolidated in the Company's financial
statements, since IGC owned a majority interest in Equus at this date.
The Company's financial statements reflect the equity method of accounting
for its investment in HDA at March 31 and December 31, 1994. HDA is a special
partnership under Puerto Rico law and partners of such partnerships are not
liable for losses in excess of their investment. Due to the costs related to
the refinancing of HDA debt in 1993 and HDA cash distributions, the partners'
capital account was in a deficit position throughout 1994. As a result, the
Company could not recognize equity in earnings of HDA until the accumulated
deficit was eliminated by future earnings and IGC did not recognize earnings
from HDA during the three month period ended March 31, 1994.
<PAGE>
<PAGE>16
(5) DEBT
The Company's outstanding debt is collateralized primarily by land,
housing and other land improvements, receivables, and investments in
partnerships. The following table summarizes the indebtedness of IGC:
Stated Outstanding Balance at:
Maturity Interest March 31, December 31,
Description by Lender Date Rate 1995 1994
- ------------------------- -------------- -------- ------------ ------------
(In thousands)
Non-recourse debt:
Community Development
Administration (11) 12-29-24 6.85% $ 4,427 $ 4,438
Community Development
Administration (9) 10-01-27 9.575% 6,383 6,390
Community Development
Administration (9) 10-01-28 9.875% 11,932 11,943
Supra & Co. (13) None Prime 1,242 1,514
+ 2.5%
Supra & Co. (13) 08-02-09 Prime 2,372 2,372
+ 1.5% (2)
Supra & Co. (13) 08-02-09 None (2) 435 382
------- -------
Total non-recourse 26,791 27,039
------- -------
Recourse debt:
Citibank (10) Demand (1) 1,476 1,559
NationsBank (5,7,12,16) 05-31-95 Prime 608 608
+ 1.5%
NationsBank (5,7,12,16) 05-31-95 Prime 5,006 5,146
+ 1.5%
NationsBank (5,7,12,16) 05-01-95 Prime 7,640 7,719
+ 1%
Purchase money Various from 9%-12% 1,959 2,081
mortgages (5,15) 09-24-95 to
04-01-98
Washington Savings (5,6) 12-27-95 8% 897 1,153
Signet Bank (6,12) 09-01-95 Prime 5,670 6,533
+ 2%
Wachovia Bank & Trust 11-30-95 Prime 299 337
(5,7) + .5%
FDIC (5,7,12) 09-30-96 Prime 8,899 8,995
+ 1%
1st National Bank of 12-29-97 Prime 460 460
St. Mary's (6) + 1.5%
1st National Bank of 09-21-95 9% 120 120
St. Mary's (6)
Banco Central Hispano Demand (4) 642 --
(17)
Banco Central
Hispano (5) 12-31-97 (3) 5,724 5,175
Wachovia Bank & Trust Various from 7-1/2% 90 91
(7) 04-26-00 to
10-25-00
<PAGE>
<PAGE>17
Stated Outstanding Balance at:
Maturity Interest March 31, December 31,
Description by Lender Date Rate 1995 1994
- ------------------------- -------------- -------- ------------ ------------
Various (5,7,8,14) Various from Various 826 1,011
03-27-95 to
02-28-98
------- -------
Total recourse 40,316 40,988
------- -------
Total debt $67,107 $68,027
======= =======
Balance Sheet Classification
- ----------------------------
Mortgages and notes payable - Recourse debt $ 349 $ 370
Related to community development -
Recourse debt 36,728 36,661
Non-recourse debt 4,049 4,268
Related to homebuilding projects - Recourse debt 1,763 2,398
Related to investment properties -
Recourse debt 1,476 1,559
Non-recourse debt 22,742 22,771
------- -------
Total debt $67,107 $68,027
======= =======
(1) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 7.96% and 6.70% at March 31, 1995
and December 31, 1994, respectively.
(2) On August 2, 1994, HDA distributed a receivable from Land Development
Associates S.E. ("LDA") to Supra & Co. which included principal and
accrued interest. The accrued interest was distributed as a non-interest
bearing note. The interest bearing note has an interest rate of prime
plus 1.5% with a floor of 6% and a ceiling of 9%. At March 31, 1995 and
December 31, 1994 the interest rate was 9.0%.
(3) Interest rate is 936 rate plus 3%, with minimum of 6% and maximum of 9%.
The rate at March 31, 1995 and December 31, 1994 was 9% and 8.57%,
respectively.
(4) Each advance made under this line of credit will bear interest at 1% over
Citibank prime rate. At March 31, 1995, the interest rate was 10%.
(5) These facilities are collateralized by land and improvements.
(6) These facilities are collateralized by land and housing.
(7) These facilities are collateralized by receivables.
(8) These facilities are collateralized by land and building.
(9) These facilities are FHA mortgages on apartment projects.
(10) This loan is collateralized by a letter of credit.
(11) This facility is a mortgage on an apartment project insured by the
Maryland Housing Fund.
(12) These facilities are collateralized by investments in partnerships.
(13) This entity is a minority partner in LDA.
(14) These facilities are collateralized by vehicles.
(15) A $73,000 payment on a purchase money mortgage with an outstanding
balance of $375,000 is past due. The Company is preparing a request for
an extension of this payment which, if accepted, will cure this event of
default.
<PAGE>18
(16) These facilities are cross-collateralized and cross-defaulted. An event
of default has occurred with respect to these loans, as one of the loans
matured on May 1, 1995, and the outstanding loan balance has not been
satisfied.
(17) This facility is collateralized by the Company's 80% partnership interest
in LDA and by assignment of 70% of net cash distributions from LDA or any
other receivable from LDA to the Company.
(6) RELATED PARTY TRANSACTIONS
James J. Wilson, Chief Executive Officer of the Company has an ownership
interest in various entities to which IGC provides management services. These
entities and their relationships to IGC are as follows:
IBC or Affiliate IGC
-------------------- --------------------
Limited Limited
and Limited and Limited
General Liability General Liability
Partner Partner Partner Partner
------- ----------- ------- -----------
Chastleton .99% -- .01% --
Coachman's Land
("Coachman's") 1% 49% 1% 49%
Santa Maria Associates,
S.E. ("Santa Maria") -- 99% -- 1%
El Monte Properties, S.E.
("El Monte") -- 99% -- 1%
Rolling Hills Associates,
Limited Partnership
("Rolling Hills") 1% 49% -- --
Village Lake Associates
Limited Partnership
("Village Lake") 99% -- -- --
Capital Park Associates
("Capital Park") (a)
Smallwood Village Associates,
Limited Partnership ("SVA") 1% 51% -- --
Smallwood Village Office
Building Associates Limited
Partnership ("SVOBA") 25% -- -- --
IBC, General Partner of IGC -- -- -- --
(a) An affiliate of IBC holds notes receivable that are secured by the
existing general partners' interest in the partnership.
<PAGE>
<PAGE>19
Transactions between the above entities and IGC are described in the
following tables.
REVENUE FOR THE QUARTER ENDED MARCH 31, 1995
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $ 16 $ -- $16 $(16) $ --
Coachman's (a,j) 99 166 265 -- 265
Santa Maria 20 -- 20 -- 20
El Monte 24 -- 24 -- 24
Rolling Hills (b,k) 365 -- 365 -- 365
Village Lake (a) 32 -- 32 -- 32
Capital Park 77 -- 77 -- 77
SVA 17 -- 17 -- 17
SVOBA 3 -- 3 -- 3
IBC 8 8 16 -- 16
---- ---- ---- ----- ----
$661 $174 $835 $ (16) $819
==== ==== ==== ===== ====
RECEIVABLES AT MARCH 31, 1995
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (e) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (h) $293 $30 $ -- $ -- $323 $(293) $ 30
Coachman's (f,j) -- 116 -- -- 116 -- 116
Santa Maria 7 -- -- -- 7 -- 7
El Monte 31 (34) -- -- (3) -- (3)
Rolling Hills (k) 335 2 -- -- 337 -- 337
Village Lake 32 1 -- -- 33 -- 33
Capital Park 36 3 -- -- 39 -- 39
SVA (g) 2 1 -- -- 3 -- 3
SVOBA 1 -- -- -- 1 -- 1
IBC (d,i,j) 2 6 302 8 318 -- 318
---- ---- ---- ---- ------ ----- ----
$739 $125 $302 $ 8 $1,174 $(293) $881
==== ==== ==== ==== ====== ===== ====
<PAGE>
<PAGE>20
REVENUE FOR THE QUARTER ENDED MARCH 31, 1994
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $18 $ -- $ 18 $(12) $ 6
Coachman's (a) 5 4 9 (9) --
Santa Maria 14 -- 14 -- 14
El Monte 25 -- 25 -- 25
Rolling Hills (b) 23 -- 23 (14) 9
Village Lake (a) 7 -- 7 (7) --
Capital Park 61 -- 61 (1) 60
SVA 16 38 54 (40) 14
SVOBA 2 -- 2 -- 2
IBC 8 21 29 (5) 24
---- ---- ---- ---- ----
$179 $ 63 $242 $(88) $154
==== ==== ==== ==== ====
RECEIVABLES AT DECEMBER 31, 1994
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (e) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (h) $277 $ 30 $ -- $ -- $ 307 $ (277) $ 30
Coachman's (f) 93 211 -- 160 464 (315) 149
Santa Maria 4 -- -- -- 4 -- 4
El Monte 13 -- -- -- 13 -- 13
Rolling Hills 352 3 -- -- 355 (352) 3
Village Lake 26 1 -- -- 27 (26) 1
Capital Park 18 7 -- -- 25 -- 25
SVA (g) 3 -- -- -- 3 (3) --
SVOBA 1 -- -- -- 1 -- 1
IBC (d,i,j) 2 -- 302 -- 304 -- 304
---- ---- ---- ---- ------ ----- ----
$789 $252 $302 $160 $1,503 $(973) $530
==== ==== ==== ==== ====== ===== ====
(a) The management fee was reduced from 5% to 2.5% until the project has
positive cash flow.
(b) The management fee was reduced from 4.5% to 2.5% until the project has
positive operating cash flow.
(c) Management agreed that it would defer all management fees until Chastleton
had sufficient cash flow to fund operations and to subordinate 50% of its
management fee until IBC has recovered its operating advances.
<PAGE>21
(d) During 1990, IBC purchased IGC's general partner interest in and notes
receivable from Chastleton. The unpaid portion of this purchase was
satisfied on December 30, 1994.
(e) Working capital loans include operating advances and reimbursements due
for common expenses.
(f) IBC has the funding obligation for operating deficits. IGC equally shares
the general and limited partnership interest with IBC, since IGC funded
these deficits.
(g) During 1990, in satisfaction of outstanding advances of $1.7 million due
IGC from IBC, IBC transferred to IGC a $3.8 million note receivable due
from SVA. This note was purchased back by IBC on December 30, 1994.
(h) IBC has the funding obligation for operating deficits.
(i) IGC is contingently liable under $4.6 million of letters of credit issued
by NationsBank collateralized by land, which secure additional bonds
issued for Chastleton.
(j) During 1989, IBC purchased 5.01 acres of commercial land. IGC accepted a
note receivable for 80% of the $1,092,000 purchase price. The note is
collateralized by IBC's ownership interest in Santa Maria and Village
Lake. On December 23, 1994, Lakeside, a wholly owned subsidiary of the
Company purchased the remaining 1.23 acres of this land from IBC for the
development of rental units for senior citizens, for its appraised value
of $440,000. Lakeside paid $88,000 to IBC and issued a note payable for
the remaining $352,000. The note is payable upon the earlier of final
closing of permanent financing of the rental project or December 31, 1996.
During the first quarter of 1995, IBC assigned the note receivable due
from Lakeside to IGC in satisfaction of past due receivables from
Coachman's. The collection of the majority of the Coachman's receivables
had previously been questionable and $335,000 had been reserved. This
transaction resulted in income recognition of $328,000 of management fees,
working capital loan recoveries and accrued interest during the first
quarter of 1995.
(k) The performance of this project has improved and the project is now
producing positive cash flow. During the first quarter of 1995, partial
payments were made of past due management fees owed to the Company. The
collection of the remaining receivable balance is now considered probable
and the reserves related to this receivable were reversed during the first
quarter of 1995.
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 three months ended March 31, 1995 and 1994, IGC's rent for its share
of the leases was $48,000 and $44,000, respectively.
IGC provides management services to HDA pursuant to a management agreement
which has a term ending in December 2004. The management agreement provides
for an annual fee of $250,000, adjusted by the percentage increase in the
Consumer Price Index ("CPI") over the prior year. The HDA management fees
earned in the first three months of 1995 and 1994 were $66,000 and $64,000,
respectively.
IGC provides administrative support services to Equus Gaming Company L.P.
pursuant to a Master Support and Services Agreement. During the first quarter
of 1995, IGC received $50,000 in connection with such services.
<PAGE>22
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 increases in the
CPI and pro-rata share of operating expenses in years two through five. Rental
expense for the executive office and certain other property in Puerto Rico
leased from affiliates was $66,000 and $51,000 for the three months ended March
31, 1995 and 1994, respectively.
American Family Homes, a wholly owned subsidiary of IGC, leases 3000
square feet of commercial space from IBC which is used for one of its sales
centers. The lease has a term of two years and expires on January 31, 1997.
Rent expense associated with this lease during the first quarter of 1995 was
approximately $10,000.
James J. Wilson, as a general partner of IGP, is entitled to priority
distributions made by each housing partnership in which IGP is the general
partner. If IGP receives a distribution which represents 1% or less of a
partnership's total distribution, Mr. Wilson receives the entire distribution.
If IGP receives a distribution which represents more than 1% of a partnership's
total distribution, Mr. Wilson receives the first 1% of such total.
On March 31, 1995, IGC sold two parcels in the Parque Escorial development
in Puerto Rico to Compri Caribe Development Corp. ("Compri"), a corporation
wholly owned by Jorge Colon Nevares, a director of the Company's managing
general partner for use in its operations. The terms of sale provided for a
sales price of $3,453,000, of which $693,000 was paid in cash, and the
remainder of which was satisfied by a note in the amount of $2,760,000. The
note is collateralized by the land parcels and bears interest at a rate of 10%
per annum commencing at the earlier of infrastructure completion or December
15, 1995. Monthly payments of principal and interest totalling $27,000 are due
monthly commencing May 1, 1995 with a balloon payment due at maturity on April
1, 1998.
Concurrent with the transaction described above, the Company executed a
contract of sale with Compri for three other land parcels in the Parque
Escorial development. The terms of the agreement provide for a base purchase
price of $3,397,000, subject to monthly escalations of one percent per month
for each month that transpires from the earlier of infrastructure completion or
December 15, 1995, and the date that settlement of the sale occurs. The
closing of the transaction is to take place at the earlier of March 31, 1996 or
30 days following completion of certain infrastructure and other improvements
described in the sales agreement. A 20% cash payment is due at closing, with
the remainder to be satisfied by an interest bearing note collateralized by the
land parcels. The note is to bear interest at a fixed rate of prime plus one
percent at the closing date, and is payable in thirty-five monthly installments
of principal and interest of $27,000, with a balloon payment due at maturity.
(7) COMMITMENTS AND CONTINGENCIES
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
<PAGE>23
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 has convened a grand jury and is now conducting an investigation
of the Company's wetlands practices in St. Charles including the Site. A
representative of the U.S. Attorney has advised the Company that the
investigation is expected to be completed during the second quarter at which
time the U.S. Attorney will determine whether to charge the Company with a
violation of the Clean Water Act or other laws. Management believes the
Company has complied with applicable laws and regulations governing wetlands
practices, and therefore intends to defend vigorously if charged by the U.S.
Attorney with any violation relating to wetlands practices. Nonetheless, the
Company is not presently in a position to determine whether it will be charged
with a violation of any laws, or if charged, what the outcome will be. The
accompanying consolidated financial statements as of and for the three months
ended March 31, 1995, do not include any provisions for obligations which may
result in connection with this matter.
<PAGE>
<PAGE>24
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. Residential
lot sales and 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 to builders 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
both commercial and residential development activity, including the demand for
housing.
The Company's community development and homebuilding sales are greatly
influenced by consumer confidence, housing demand, prevailing market interest
rates, movements in such rates and expectations about future rates as well as
the existing supply of commercial and residential properties. The Company
anticipates increased land sales with the addition of the new Puerto Rico
planned community, Parque Escorial, to its available inventory. In addition,
lots in the third St. Charles Village, Fairway, are scheduled to be available
for sale early in 1996. In spite of the relatively favorable interest rate
environment during the first quarter of 1995, the general market conditions in
the areas where IGC's Semi-Custom Homebuilding Division operates softened. In
St. Charles, the Company's recent focus has been on lot sales to other builders
due to the more favorable gross margin provided by such sales. As a result,
competition from other builders has increased resulting in a decline in the
Company's homebuilding operations in this market area. Due to these
competitive conditions and cost factors, the Company expects to downsize their
homebuilding operations during the second and third quarters. This will permit
the Company to increase its focus on the more profitable land sale operations
while continuing limited homebuilding in geographic areas of greatest profit
potential.
The following discussion and analysis covers changes in the results of
operations for the three months ended March 31, 1995 as compared to the results
for the three months ended March 31, 1994.
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
The Company's net income for the three months ended March 31, 1995
totalled $320,000 versus net income of $2.1 million for the three months ended
March 31, 1994. Factors giving rise to changes in the Company's operating
results during these periods are further described below.
Revenues. Revenues for the three months ended March 31, 1995 decreased
13% to $10.9 million from $12.6 million in the prior year comparable period.
This was due primarily to a decrease in equity in earnings from partnerships
and development fees, and a decrease in revenues from home sales. Partially
offsetting the declines in these categories were increases in revenues from
land sales, management and other fees and apartment rental revenues.
<PAGE>
<PAGE>25
Land sales increased $2.7 million or over 130% to $4.7 million for the
three months ended March 31, 1995 from $2 million for the same period in 1994.
The increase in 1995 is primarily attributable to the sale of two commercial
parcels in the Parque Escorial Development in Puerto Rico during the first
quarter of 1995. Also contributing to the increase in revenues from land sales
was an increase in residential lot sales in St. Charles, Maryland. Somewhat
offsetting these increases were declines in St. Charles commercial and business
park land sales, declines in residential lot sales in the Montclair and
Westbury developments and a decline in the average single-family lot size and
price in St. Charles. The decline in commercial and business park land sales
in St. Charles is attributable primarily to the cyclical nature of commercial
development. The decline in residential lot sales in Montclair is attributable
to increased competition in this market area as well as to a softening of
market conditions. The decline in residential lot sales in Westbury is due to
a decline in market demand and to the depletion of the Company's inventory of
residential single-family lots in this development. The Company is currently
in the process of converting 34 townhome lots in the Westbury development into
14 additional single-family lots which will be used in the Company's
homebuilding operations. This conversion is being completed due to the higher
demand for single-family lots in this market area.
Land sales for the three months ended March 31, 1995 and 1994 are
summarized as follows:
Three Months Ended
March 31,
----------------------
1995 1994
---- ----
(In thousands)
Commercial and business parks
St. Charles (1 acre in 1995, 7 acres in 1994) $ 128 $ 624
Puerto Rico (3 acres in 1995) 3,265 --
Residential
St. Charles
Developed single-family lots
(31 in 1995, 16 in 1994) 1,307 759
Montclair
Semi-developed multi-family lots (44 in 1994) -- 485
Westbury developed single-family lots (2 in 1994) -- 52
Recognition of deferred income - Puerto Rico -- 123
------ ------
$4,700 $2,043
====== ======
Average residential lot sales price
St. Charles
Developed single-family lots $ 42 $ 47
Montclair
Semi-developed multi-family lots -- 11
Westbury developed single-family lots -- 26
<PAGE>
<PAGE>26
Home sales decreased $2.0 million or 41% to $2.9 million for the three
months ended March 31, 1995 from $4.9 million for same period of 1994. This
decrease was attributable primarily to a decline in the volume of units sold in
the first quarter of 1995 as compared to this same period in 1994. This
decrease in units sold is summarized as follows:
Three Months Ended March 31,
-----------------------------------------------------
1995 1994
------------------------- ------------------------
Average Average
Sales Units Sales Units
Prices Closed Backlog Prices Closed Backlog
------- ------ ------- ------ ------ -------
(In thousands) (In thousands)
Home Sales
Semi-Custom
Homebuilding Division
(excludes lots) $ 93 22 89 $ 78 40 139
Tract Homebuilding
Division
St. Charles, MD 149 6 8 153 12 27
Lexington Park, MD -- -- -- -- -- 1
Montclair, VA -- -- -- -- -- 1
---- --- --- ---- --- ---
$105 28 97 $ 95 52 168
=== === === ===
The decline in home sales is due to a softening of market conditions in
the areas where the Company's Semi-Custom Homebuilding Division operates. Also
contributing to the decline is an increased focus by the Company on lot sales
in St. Charles. Due to the more favorable profit margins generated by lot
sales, the Company has placed increasing emphasis on lot sales to third party
builders, versus using the lots in the Company's homebuilding division. This
has resulted in increased competition in St. Charles and has been a factor in
the decline in IGC's home sales in this market area.
Revenues from investment properties, management and other fees and
interest and other income totalled $3.3 million for the three months ended
March 31, 1995 as compared to $5.6 million for the same period of 1994. The
changes from period to period are summarized below:
Three Months Ended
March 31,
-----------------------------
1995 1994
---- ----
(In thousands)
Revenues from investment properties-
Equity in earnings from partnerships
and development fees $ 694 $3,458
Apartment rental revenues 1,147 1,051
Management and other fees 1,355 969
Interest and other income 97 99
------ ------
$3,293 $5,577
====== ======
<PAGE>27
Equity in earnings from partnerships and development fees decreased $2.8
million or 80% during the first quarter of 1995 as compared to this same period
in 1994. During the first quarter of 1994, the Company received distributions
which were recognized as revenue, from four Puerto Rico apartment projects that
were refinanced. The revenue from these distributions in 1994 is the principal
reason that equity in earnings from partnerships decreased during the three
months ended March 31, 1995 as no similar distributions in connection with
refinancings were received during the first quarter of 1995.
Apartment rental revenues increased $96,000 or 9% during the first quarter
of 1995 as compared to this same period during the prior year. This was due to
both an increase in rental rates for the consolidated apartment projects and to
a decline in their overall vacancy rates during the first quarter of 1995 in
comparison with the same period in 1994.
Management and other fee revenues increased $386,000 or 40% during the
first three months of 1995 as compared to this same period in 1994. This was
due primarily to the recognition during the first quarter of 1995 of management
fees related to prior periods. Prior to 1995, doubt as to the collectibility
of these management fees existed and as a result, the fees were reserved.
However, during the first quarter of 1995, the performance of the two multi-
family projects from which the fees were due continued to improve indicating
that collection of the fees is probable and that recognition of the prior
year's fees as revenue is appropriate. In addition, IBC assigned a note
receivable from a wholly owned subsidiary of the Company, to IGC in
satisfaction of past due management fees from a multi-family project for which
IBC is responsible for deficit funding. Also contributing to the increase in
management fee revenues was $50,000 received from Equus during the first
quarter of 1995 for administrative support services. As discussed in Note 4 to
the March 31, 1995 consolidated financial statements, IGC has continued to
provide administrative support services to Equus following the Distribution to
IGC Unitholders.
Interest and other income for the three months ended March 31, 1995 was
comparable with that for the three months ended March 31, 1994.
<PAGE>
<PAGE>28
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profits from community development increased to 41% from 40% due
primarily to a reduction of period costs as a percentage of total land sales.
Gross profits before period costs were 45% during the first quarter of 1995
compared to 48% during the first quarter of 1994. Gross profits from community
development are summarized as follows:
Three Months Ended March 31, 1995
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Commercial and business parks
St. Charles $ 128 $ 44 $ 84 66%
Puerto Rico 3,265 1,728 1,537 47%
Residential
St. Charles
Developed single-family lots 1,307 826 481 37%
Period costs -- 177 (177) --
------ ------ ------
$4,700 $2,775 $1,925 41%
====== ====== ======
Three Months Ended March 31, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands, except % amounts)
Commercial and business parks
St. Charles $ 624 $ 181 $ 443 71%
Residential lots
St. Charles
Developed single-family lots 759 384 375 49%
Montclair
Semi-developed multi-family lots 485 431 54 11%
Westbury developed single-family lots 52 50 2 4%
Puerto Rico
Recognition of deferred income 123 20 103 84%
Period costs -- 160 (160) --
------ ------ ------
$2,043 $1,226 $ 817 40%
====== ====== ======
<PAGE>
<PAGE>29
Gross profits from homebuilding operations for the three months ended
March 31, 1995 and 1994 are summarized as follows:
Three Months Ended March 31,
------------------------------------
1995 1994
--------------- --------------
Gross Gross
Profit Profit
Margins Margins
------- -------
(In thousands, except % amounts)
Home sales $2,935 $4,949
Cost of sales 2,745 4,289
------ ------
Gross profits $ 190 6% $ 660 13%
====== ======
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 1995 are primarily due to a
reduction in the volume of units settled in the first quarter of 1995 which
resulted in an increase in carrying costs on a per unit basis.
Selling and Marketing, General and Administrative, Rental Apartment
Expenses, Depreciation and Amortization and Interest Expense. These expenses
for the three months ended March 31, 1995 and 1994 were as follows:
1995 1994
---------- ----------
(In thousands)
Selling and marketing $ 378 $ 284
General and administrative 2,337 1,949
Rental apartment expenses 1,095 1,120
Depreciation and amortization 132 145
Interest expense 490 465
------ ------
$4,432 $3,963
====== ======
Selling and marketing expense increased $94,000 or 33% during the first
quarter of 1995 as compared to this same period in 1994. This increase was
attributable to increased advertising costs associated with the Company's
community development and homebuilding activities and to increased overhead
costs associated with model homes and sales centers maintained by the Company's
homebuilding division.
General and administrative expenses increased $388,000 or 20% during the
first three months of 1995 as compared to the first three months of 1994. This
increase was attributable to an increase in legal fees of $28,000, an increase
in consulting fees of $108,000, an increase in salaries and benefit costs of
$191,000, an increase in travel and entertainment expenses of $37,000 and an
<PAGE>30
increase in office rent of $16,000. The increase in legal fees during the
first quarter of 1995 was due primarily to the Company's increased involvement
in legal proceedings during the first quarter of 1995 as further described in
Note 7 to the March 31, 1995 consolidated financial statements. The increase
in consulting fees was due to the payment of consulting fees to former
executives of the Company during the first quarter of 1995; no similar fees
were incurred during the comparable period of 1994. The increase in salaries
and benefits costs was due in part to an approximately 4% general salaries and
wage increase which was effective January 1, 1995. Also contributing to this
increase was an increase in staff levels in the Company's homebuilding
operations and to the upgrade of certain staff positions in the United States
operations. The increase in travel and entertainment expenses was attributable
to the expansion of the Company's operating activities into new geographic
areas in the United States and Puerto Rico during the first quarter of 1995.
Rental apartment expense decreased $25,000 or 2% during the first quarter
of 1995 as compared to the same period in 1994. This decrease was due
primarily to reduced interest expense associated with Lancaster Apartments,
which resulted from a refinancing of this project's debt in December of 1994.
As a result of the refinancing, the interest rate on the project's debt was
reduced from 10.3% to 6.85%.
Depreciation and amortization expense declined $13,000 or 9% during the
first quarter of 1995 as compared to the first quarter of 1994, due to certain
fixed assets, financing fees and similar assets becoming fully depreciated or
amortized during 1994 and the first quarter of 1995.
Interest expense increased $25,000 or 5% during the first quarter of 1995
compared to the same period in 1994. Much of IGC's debt bears interest at
rates which vary in relation to market interest rates. A rise in general
market interest rates was the principal reason for the increase in IGC's
interest expense during the first quarter of 1995, as compared to that for the
first quarter of 1994.
Provision for Income Tax. The provision for Puerto Rico income taxes
decreased to $407,000 for the first quarter of 1995 as compared to $1 million
in the first quarter of 1994. In the first quarter of 1994, the Company had
higher taxable income resulting from distributions received from a partnership
in Puerto Rico that refinanced four apartment projects. No taxable income of
this magnitude was recognized by the Company's Puerto Rico operations during
the first quarter of 1995, resulting in a decline in the Company's tax
provision.
Minority Interest. The minority partner's interest increased by $271,000
during the first quarter of 1995 in comparison with the same period of the
prior year. This increase was due primarily to the minority partner's 20%
interest in the profit recognized on the sale of two commercial parcels in the
Parque Escorial development in Puerto Rico during the first quarter of 1995.
FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and land sales, property management fees,
distributions from HDA and residential rental partnerships 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. Since
commencing the restructuring, the Company reduced bank borrowings by
<PAGE>31
approximately $30,000,000 and achieved a debt to equity ratio of one-to-one.
The Company also successfully restructured all loans originally targeted for
restructuring. 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 to meet debt service requirements. The Company did not meet all
of the conditions required to qualify for the automatic extension of the
NationsBank loan which has an outstanding balance of $7.6 million and a May 1,
1995 maturity date creating an event of default on all three NationsBank loans
with aggregate outstanding balances of $13.3 million. Management is
negotiating an extension for the three loans and is confident that NationsBank
will extend the loans. In addition, to any scheduled curtailments in 1995
resulting from this restructure, a $1,000,000 payment is due in September 1995
on another loan. These curtailments are expected to be made with proceeds from
the sale of commercial and business park land which secures the loans and
proceeds from new project financings. In addition to these scheduled
curtailments, a loan which had a balance at March 31, 1995 of approximately
$5,670,000 that is being curtailed with the proceeds from the sale of
residential lots, matures in September of 1995. This loan, if not fully paid,
is expected to be significantly reduced prior to its maturity date and it is
anticipated that the remaining balance will be extended, although there are no
contractual extensions on the loan. In addition, as discussed in Note 4, the
Company will no longer receive distributions from HDA, as a result of the
Company's distribution of Equus Gaming Company L.P. ("Equus") Units
representing a 99% limited partnership interest in Equus to IGC Unitholders in
February, 1995. Given these factors, the Company's ability to generate cash
for overhead, development and other uses is limited and it may become necessary
for the Company to negotiate with its lenders to reschedule future payments.
In addition, project financings will be necessary to fund the continued
development of land inventory to generate the necessary lot sales to meet the
Company's operating obligations. Pending legal proceedings may also adversely
affect the Company's liquidity, including the timing and/or terms of any
financing.
In addition to its traditional sources of liquidity, the Company is
currently investigating opportunities in the capital markets for longer term
debt or possible equity financings.
A potential source of liquidity in late 1995 includes cash from four
projects in Puerto Rico which applied in March of 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 under 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 event the
Company will endeavor to retain the right to manage the properties.
The decision to sell the projects under LIHPRHA is largely dependent on
the outcome of proposed legislation to be considered by Congress in 1995.
Management expects that the Clinton Administration will submit a bill to
Congress during 1995 which, if enacted, will dramatically impact subsidized
housing programs and which could significantly reduce the proceeds available to
the Company. If this occurs, management will need to reconsider its decision
to sell the projects under the LIHPRHA program. It is not possible at the
present time to predict the outcome of the proposed changes to the LIHPRHA
program. Should management decide not to sell the projects under the LIHPRHA
<PAGE>32
program, an alternative exit strategy would be to convert the projects to
condominiums and sell the individual units. If this alternative is pursued,
the conversion and subsequent sale of the units is expected to take
approximately three years. The Company's share of proceeds of any sales of the
projects have been assigned to the FDIC and NationsBank for repayment of debt
totalling approximately $22.2 million at March 31, 1995.
A LIHPRHA application was filed for a fifth project in Puerto Rico in
March 1994. The timetable for completing the LIHPRHA processing is
approximately two years. However, if proposed legislation is enacted,
management may withdraw the application.
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. In February 1994, the Circuit Court 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 appealed that decision to
the Court of Special Appeals of Maryland, which affirmed the Circuit Court's
decision. The Company has appealed that decision to the Court of Appeals of
Maryland, where it is now pending, and also has 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
provision of the same 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 as the
basis on which to set fees for St Charles. The County has appealed the
judgment to the Court of Special Appeals of Maryland, where the case is now
pending.
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 has convened a grand jury and is now conducting an investigation
<PAGE>33
of the Company's wetlands practices in St. Charles including the Site. A
representative of the U.S. Attorney has advised the Company that the
investigation is expected to be completed during the second quarter at which
time the U.S. Attorney will determine whether to charge the Company with a
violation of the Clean Water Act or other laws. Management believes the
Company has complied with applicable laws and regulations governing wetlands
practices, and therefore intends to defend vigorously if charged by the U.S.
Attorney with any violation relating to wetlands practices. Nonetheless, the
Company is not presently in a position to determine whether it will be charged
with a violation of any laws, or if charged, what the outcome will be.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
An event of default has occurred with respect to three loans aggregating
$13.3 million with NationsBank. The Company did not meet the requirements
needed for the May 1, 1995 automatic extension of a loan with an outstanding
balance of $7.6 million creating an event of default.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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.
None.
b. Reports on Form 8-K
Form 8-K filed April 3, 1995 reporting the Distribution of Equus
Gaming Company L.P. ("Equus") limited partnership Units,
representing a 99% limited partnership interest in Equus to the
Registrant's Unitholders. The Form 8-K included proforma
financial information for the Registrant as of December 31, 1994
and for the year then ended reflecting the distribution of Equus
Units to IGC Unitholders.
<PAGE>
<PAGE>34
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 15, 1995 By: /s/ James J. Wilson
----------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: May 15, 1995 By: /s/ John E. Hans
----------------- -----------------------------
John E. Hans
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,676<F1>
<SECURITIES> 0
<RECEIVABLES> 6,439
<ALLOWANCES> 546
<INVENTORY> 70,579
<CURRENT-ASSETS> 0
<PP&E> 3,600
<DEPRECIATION> 2,043
<TOTAL-ASSETS> 123,920
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0
0
<OTHER-SE> 41,196
<TOTAL-LIABILITY-AND-EQUITY> 123,920
<SALES> 7,635
<TOTAL-REVENUES> 10,928
<CGS> 5,520
<TOTAL-COSTS> 6,993
<OTHER-EXPENSES> 2,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 490
<INCOME-PRETAX> 976
<INCOME-TAX> 407
<INCOME-CONTINUING> 320
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