SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 was required 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 Six Months Ended June 30, 1995 and
1994. (Unaudited) 3
Consolidated StatementS of Income for
the Three Months Ended June 30, 1995 and
1994. (Unaudited) 4
Consolidated Balance Sheets at June 30, 1995
(Unaudited) and December 31, 1994. 5
Consolidated Statement of Changes in
Partners' Capital for the Six
Months Ended June 30, 1995.
(Unaudited) 8
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 1995 and 1994.
(Unaudited) 9
Consolidated Statements of Cash Flow for the
Three Months Ended June 30, 1995 and 1994.
(Unaudited) 10
Notes to Consolidated Financial Statements. 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Month Periods Ended June 30, 1995 and 1994. 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 2. Material Modifications of Rights of Registrant's 39
Securities
Item 3. Defaults Upon Senior Securities 39
Item 4. Submission of Matters to a Vote of Security Holders 39
Item 5. Other Information 39
Item 6. Exhibits and Reports on Form 8-K 39
Signatures 40
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1995 1994
----------- ------------
REVENUES:
Community development - land sales $ 9,686 $ 16,719
Homebuilding - home sales 5,846 10,005
Revenues from investment properties -
Equity in earnings from partnerships
and development fees 1,330 4,255
Apartment rental revenues 2,314 2,158
Management and other fees, substantially all
from related entities 2,276 1,876
Interest and other income 213 187
---------- ----------
Total revenues 21,665 35,200
---------- ----------
EXPENSES:
Cost of land sales 5,024 10,671
Cost of home sales 5,423 9,073
Selling and marketing 733 680
General and administrative 4,893 3,903
Rental apartment expenses 2,194 2,173
Depreciation and amortization 265 307
Interest expense 1,020 1,093
---------- ----------
Total expenses 19,552 27,900
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 2,113 7,300
---------- ----------
PROVISION FOR INCOME TAXES 557 2,835
---------- ----------
INCOME BEFORE MINORITY INTERESTS 1,556 4,465
Minority interest 165 700
---------- ----------
NET INCOME $ 1,391 $ 3,765
========== ==========
NET INCOME
GENERAL PARTNERS $ 14 $ 38
LIMITED PARTNERS 1,377 3,727
---------- ----------
$ 1,391 $ 3,765
========== ==========
NET INCOME PER UNIT $ .13 $ .37
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,253 10,085
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1995 1994
----------- ------------
REVENUES:
Community development - land sales $ 4,986 $ 14,676
Homebuilding - home sales 2,911 5,056
Revenues from investment properties -
Equity in earnings from partnerships
and development fees 636 797
Apartment rental revenues 1,167 1,107
Management and other fees, substantially all
from related entities 934 907
Interest and other income 116 88
---------- ----------
Total revenues 10,750 22,631
---------- ----------
EXPENSES:
Cost of land sales 2,249 9,445
Cost of home sales 2,678 4,784
Selling and marketing 355 396
General and administrative 2,569 1,954
Rental apartment expenses 1,099 1,053
Depreciation and amortization 133 162
Interest expense 530 628
---------- ----------
Total expenses 9,613 18,422
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 1,137 4,209
---------- ----------
PROVISION FOR INCOME TAXES 150 1,815
---------- ----------
INCOME BEFORE MINORITY INTERESTS 987 2,394
Minority interest (84) 722
---------- ----------
NET INCOME $ 1,071 $ 1,672
========== ==========
NET INCOME
GENERAL PARTNERS $ 11 $ 17
LIMITED PARTNERS 1,060 1,655
---------- ----------
$ 1,071 $ 1,672
========== ==========
NET INCOME PER UNIT $ .10 $ .16
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,088
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
June 30, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
Cash $ 1,271 $ 1,120
Restricted cash 5,519 5,713
-------- --------
6,790 6,833
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
St. Charles, Maryland 25,477 26,426
Puerto Rico 24,897 26,103
Other United States locations 16,443 16,014
Notes receivable on lot sales, net of
reserves of $300 and $286
as of June 30, 1995 and
December 31, 1994, respectively 4,118 1,256
Other 1,285 262
-------- --------
72,220 70,061
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 3,201 4,384
Mortgages receivable 229 222
Receivables on home sales 20 271
Other 76 121
-------- --------
3,526 4,998
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment in residential rental
partnerships 10,513 9,976
Investment properties, net of accumulated
depreciation and amortization of
$5,077 and $4,746 as of June 30,
1995 and December 31, 1994, respectively 24,307 24,499
Other receivables, net of reserves of
$503 and $1,071 as of June 30,
1995 and December 31, 1994, respectively 1,545 1,133
-------- --------
36,365 35,608
-------- --------
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S (continued)
June 30, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
OTHER ASSETS
Property, plant and equipment, less
accumulated depreciation of $2,102
and $1,948 as of June 30, 1995 and
December 31, 1994, respectively 1,558 1,588
Costs in excess of net assets acquired,
less accumulated amortization of
$811 and $735 as of June 30,
1995 and December 31, 1994, respectively 2,223 2,299
Deferred costs regarding waste technology
and other 2,547 2,126
-------- --------
6,328 6,013
-------- --------
Total assets $125,229 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
1995 1994
----------- ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued
liabilities $ 3,279 $ 3,521
Mortgages and notes payable 322 370
Accrued income tax liability 5,023 4,553
-------- --------
8,624 8,444
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 36,792 36,661
Non-recourse debt 3,805 4,268
Accounts payable, accrued liabilities
and deferred income 3,560 2,728
-------- --------
44,157 43,657
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 1,405 2,398
Accounts payable and accrued liabilities 2,872 2,506
-------- --------
4,277 4,904
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,383 1,559
Non-recourse debt 22,712 22,771
Accounts payable and accrued liabilities 1,809 1,473
-------- --------
25,904 25,803
-------- --------
Total liabilities 82,962 82,808
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,336 4,322
Limited partners' capital-10,257 and
10,215 Units issued and outstanding as of
June 30, 1995 and December 31, 1994,
respectively 37,931 36,383
-------- --------
Total partners' capital 42,267 40,705
-------- --------
Total liabilities and partners' capital $125,229 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>8
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
1995
----
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
Net income for the three months
ended June 30, 1995 11 1,060 1,071
------- ------- -------
Balances, June 30, 1995 $ 4,336 $37,931 $42,267
======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>9
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,391 $ 3,765
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 265 307
Investment properties 331 313
Provision for income taxes 557 2,835
Equity in earnings of partnerships (764) (932)
Increase in sponsor and developer fees
from partnerships (182) (162)
(Increase) decrease in
Receivables (2,869) 355
Homebuilding assets 1,479 492
Community development assets 703 7,679
Restricted cash 194 (5,905)
Increase (decrease) in accounts payable,
accrued liabilities and deferred income 868 (840)
------- -------
Net cash provided by operating activities 1,973 7,907
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in assets related
to investment properties 135 4,668
Net (acquisitions) dispositions of other assets (579) 289
------- -------
Net cash (used in) provided by investing activities (444) 4,957
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA -- 613
Cash proceeds from debt financing 7,951 2,238
Payment of debt (9,500) (15,598)
Employee Unit options exercised 171 69
Cash distributions to partners -- (504)
------- -------
Net cash used in financing activities (1,378) (13,182)
------- -------
NET INCREASE(DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 151 (318)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 1,120 2,009
------- -------
CASH AND SHORT-TERM INVESTMENTS, JUNE 30, 1995 $ 1,271 $ 1,691
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>10
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,071 $ 1,672
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 133 144
Investment properties 165 156
Provision for income taxes 150 1,815
Equity in earnings of partnerships (450) (265)
Increase in sponsor and developer fees
from partnerships (91) (81)
Decrease (increase) in
Receivables 29 40
Homebuilding assets 614 103
Community development assets (1,020) 7,524
Restricted cash 66 (6,376)
Increase in accounts payable and accrued liabilities 962 815
------- -------
Net cash provided by operating activities 1,629 5,547
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in assets related
to investment properties (256) (853)
Net (acquisitions)dispositions of other assets (535) 480
------- -------
Net cash used in investing activities (791) (373)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA -- 344
Cash proceeds from debt financing 4,770 1,186
Payment of debt (5,428) (6,166)
Employee Unit options exercised -- 67
Cash distributions to partners -- (504)
------- -------
Net cash used in financing activities (658) (5,073)
------- -------
NET INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 180 101
CASH AND SHORT-TERM INVESTMENTS, MARCH 31, 1995 1,091 1,590
------- -------
CASH AND SHORT-TERM INVESTMENTS, JUNE 30, 1995 $ 1,271 $ 1,691
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>11
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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's management 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 and six month periods ended
June 30, 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
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. 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. In addition, under the terms of IGC's loans, most of the cash
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. Given these factors, the
Company's ability to generate cash for overhead, development and other uses is
limited. 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. As further discussed in Note 5,
pending legal proceedings may also adversely affect the Company's liquidity,
including the timing and/or terms of any financings.
In response to the decline in the real estate markets and the decline in
the availability of financing, the Company developed a financial restructuring
plan in June 1992. Since commencing the plan, the Company has successfully
restructured all loans targeted by the plan and has reduced recourse bank debt
by $31.2 million from $69.1 million at the start of the restructuring plan to
$37.9 million at June 30, 1995. During the second quarter, the Company did not
meet all of the conditions required to qualify for an automatic extension of
<PAGE>12
the NationsBank loans creating an event of default. The Company has an
agreement in principal with NationsBank to extend the maturity of the loans
until May 1998. Under the proposed agreement, the extension of the maturity
beyond November 30, 1995 is contingent upon a mandatory principal curtailment
of $2.2 million which the Company anticipates will come from the financing of
the first phase of Fairway Village in St. Charles, Maryland. As of June 30,
1995, NationsBank loans totalled $13.0 million. Additionally, a loan which had
a balance of $4.3 million at June 30, 1995, which is being curtailed with the
proceeds from the sale of residential lots, matures in September of 1995. This
loan is expected to be further 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.
A potential source of liquidity in late 1995 includes cash from four
projects 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 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, which
could significantly reduce the proceeds available to the Company. If this
occurs, management will 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 four 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 to five 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 $19.8 million at June
30, 1995.
A LIHPRHA application was filed for a fifth project in Puerto Rico in
November 1994. The timetable for completing the LIHPRHA processing is
approximately two years. However, if proposed legislation is enacted,
management may withdraw the application.
In addition to its tradition sources of liquidity, the Company is
currently investigating opportunities in the capital markets for longer term
debt or possible equity financings.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of June 30, 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
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.
<PAGE>13
The following table summarizes IGC's investment in residential rental
partnerships:
June 30, December 31,
1995 1994
----------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $3,596 and $3,778 at
June 30, 1995 and December 31, 1994,
respectively $3,209 $ 3,368
Investment in partnerships 7,304 6,608
------- -------
$10,513 $ 9,976
======= =======
The combined condensed statements of income (loss) for the three and six
month periods ended June 30, 1995 and 1994, are shown below for the
partnerships owning residential rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 (1) 1994 (1) 1995 (1) 1994 (1)
-------- -------- -------- --------
(In thousands) (In thousands)
Revenues $10,251 $ 9,825 $20,425 $20,989
------- ------- ------- -------
Operating expenses
Depreciation 1,606 1,691 3,207 3,223
Other 8,489 8,315 16,872 16,981
------- ------- ------- -------
10,095 10,006 20,079 20,204
------- ------- ------- -------
Net income (loss) $ 156 $ (181) $ 346 $ 785
======= ======= ======= =======
(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 and six month periods ended June 30, 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 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.
<PAGE>14
(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 June 30, 1995 and 68% by IGC and
its consolidated subsidiaries at December 31, 1994.
Equus was initially formed as a general partnership between IGC and IBC to
hold their interests in HDA and to hold all of the stock of ventures related to
horse racing. Through a series of transactions completed in August 1994, Equus
was restructured as a limited partnership between IGC and one of its wholly-
owned subsidiaries, 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.
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
was declared effective by the SEC on January 10, 1995. The distribution of
Equus Units ("Distribution") took place on February 6, 1995 when IGC
distributed 5,128,372 Equus Units to IGC Unitholders and the Units became
listed on NASDAQ. 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 for the three and six months
ended June 30, 1995 were reduced by $451,000 and $585,000, respectively, and
net income was increased by $12,000 and decreased by $19,000, respectively, for
these periods. IGC's equity in earnings of HDA and resultant net income were
also reduced by approximately $350,000 for the three and six month periods
ended June 30, 1995 due to the Distribution of Equus.
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, becomes the subject of a bankruptcy petition which is not
discharged, 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 canceled.
<PAGE>15
At June 30, 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.
(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 June 30, December 31,
Description by Lender Date Rate 1995 1994
------------------------- -------------- -------- ------------ ------------
(In thousands)
Non-recourse debt:
Community Development
Administration (12) 12-29-24 6.85% $4,415 $ 4,438
Community Development
Administration (10) 10-01-27 9.575% 6,376 6,390
Community Development
Administration (10) 10-01-28 9.875% 11,921 11,943
Supra & Co. (14) None Prime 944 1,514
+ 2.5%
Supra & Co. (14) 08-02-09 Prime 2,372 2,372
+ 1.5% (2)
Supra & Co. (14) 08-02-09 None (2) 489 382
------- -------
Total non-recourse 26,517 27,039
------- -------
Recourse debt:
Citibank (11) Demand (1) 1,383 1,559
Citibank (8) 11-05-95 (5) 2,406 --
NationsBank (6,8,13,16) 05-31-95 Prime 608 608
+ 1.5%
NationsBank (6,8,13,16) 05-31-95 Prime 5,006 5,146
+ 1.5%
NationsBank (6,8,13,16) 05-01-95 Prime 7,384 7,719
+ 1%
Purchase money Various from 9%-12% 1,959 2,081
mortgages (6) 09-24-95 to
04-01-98
Washington Savings (6,7) 12-27-95 8% 1,187 1,153
Signet Bank (7,13) 09-01-95 Prime 4,286 6,533
+ 2%
Wachovia Bank & Trust 11-30-95 Prime 269 337
(6,8) + .5%
FDIC (6,8,13) 09-30-96 Prime 6,785 8,995
+ 1%
1st National Bank of 12-29-97 Prime 460 460
St. Mary's (7) + 1.5%
1st National Bank of 09-21-95 9% 55 120
St. Mary's (7)
Banco Central Hispano 04-30-96 (4) 809 --
(17,18)
<PAGE>16
Stated Outstanding Balance at:
Maturity Interest June 30, December 31,
Description by Lender Date Rate 1995 1994
------------------------- -------------- -------- ------------ ------------
(In thousands)
Banco Central
Hispano (6,18) 12-31-97 (3) 3,675 3,875
Banco Central 12-31-97 Prime 2,100 1,300
Hispano (6,18) + 1%
Wachovia Bank & Trust Various from 7-1/2% 89 91
(8) 04-26-00 to
10-25-00
Riggs National Bank (6) 06-15-96 Prime 659 --
+ 1%
Various (6,8,9,15) Various from Various 782 1,011
03-27-95 to
02-28-98 ------- -------
Total recourse 39,902 40,988
------- -------
Total debt $66,419 $68,027
======= =======
Balance Sheet Classification
----------------------------
Mortgages and notes payable - Recourse debt $ 322 $ 370
Related to community development -
Recourse debt 36,792 36,661
Non-recourse debt 3,805 4,268
Related to homebuilding projects - Recourse debt 1,405 2,398
Related to investment properties -
Recourse debt 1,383 1,559
Non-recourse debt 22,712 22,771
------- -------
Total debt $66,419 $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 June 30, 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 June 30, 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 June 30, 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 June 30, 1995, the interest rate was 10%.
(5) This loan bears interest at a rate of 2.5% over the Eurodollar rate. At
June 30, 1995 the interest rate was 8.48%
(6) These facilities are collateralized by land and improvements.
(7) These facilities are collateralized by land and housing.
(8) These facilities are collateralized by receivables.
(9) These facilities are collateralized by land and building.
(10) These facilities are FHA mortgages on apartment projects.
<PAGE>17
(11) This loan is collateralized by a letter of credit.
(12) This facility is a mortgage on an apartment project insured by the
Maryland Housing Fund.
(13) These facilities are collateralized by investments in partnerships.
(14) This entity is a minority partner in LDA.
(15) These facilities are collateralized by vehicles.
(16) These facilities are cross-collateralized and cross-defaulted. IGC did
not satisfy the conditions for the automatic extension contained in the
NationsBank debt agreements and, as a result, has defaulted on all three
NationsBank loans. Subsequent to June 30, 1995, a forbearance agreement
was executed with NationsBank which provided the Company with a
reinstatement of their extension privileges provided that accrued
interest on the loans was brought current within 30 days and required
principal payments are made by August 31, 1995. IGC has made the
required interest payments and expects to make the required principal
payment by August 31, 1995.
(17) This facility was 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.
(18) These loans were repaid in August when the Company refinanced the
property which secures the loans with the Firstbank Puerto Rico loans
discussed below.
In August, 1995, IGC obtained a $17,425,000 term loan and a $5,500,000
construction loan revolving to $10,000,000 from Firstbank Puerto Rico.
The loans are secured by land and improvements in the Parque Escorial and
Parque El Comandante developments and bear interest at a rate of prime
plus 1-1/2%. The term loan requires mandatory principal reductions of
$6,000,000 in 1995, $7,010,000 in 1996 and matures on December 31, 1997.
The construction loan will be paid from the sales proceeds of residential
parcels.
<PAGE>18
(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% 1% -- --
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 -- -- -- --
Equus Gaming Company L.P. -- -- 1% --
(a) An affiliate of IBC holds notes receivable that are secured by the
existing general partners' interest in the partnership.
<PAGE>19
Transactions between the above entities and IGC are described in the
following tables.
REVENUE FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1995
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $ 35 $ -- $35 $(35) $ --
Coachman's (a) 106 172 278 -- 278
Santa Maria 39 -- 39 -- 39
El Monte 48 -- 48 -- 48
Rolling Hills (b,j) 389 -- 389 -- 389
Village Lake (a) 39 -- 39 -- 39
Capital Park 119 -- 119 -- 119
SVA 29 -- 29 -- 29
SVOBA 3 -- 3 -- 3
IBC 15 17 32 -- 32
---- ---- ------ ----- ----
$822 $189 $1,011 $ (35) $976
==== ==== ====== ===== ====
REVENUE FOR THE THREE MONTH PERIOD ENDED
JUNE 30, 1995
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $ 19 $ -- $ 19 $(19) $ --
Coachman's (a) 7 6 13 -- 13
Santa Maria 19 -- 19 -- 19
El Monte 24 -- 24 -- 24
Rolling Hills (b,j) 24 -- 24 -- 24
Village Lake (a) 7 -- 7 -- 7
Capital Park 42 -- 42 -- 42
SVA 12 -- 12 -- 12
SVOBA -- -- -- -- --
IBC 7 9 16 -- 16
---- ---- ---- ----- ----
$161 $ 15 $176 $ (19) $157
==== ==== ==== ===== ====
<PAGE>20
RECEIVABLES AT JUNE 30, 1995
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (d) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (g,h) $311 $31 $ -- $ -- $342 $(311) $ 31
Coachman's (e,i) 6 116 -- 6 128 (12) 116
Santa Maria 1 -- -- -- 1 -- 1
El Monte -- 6 -- -- 6 -- 6
Rolling Hills (j) 329 2 -- -- 331 -- 331
Village Lake 38 1 -- -- 39 -- 39
Capital Park 26 10 -- -- 36 -- 36
SVA (f) 4 1 -- -- 5 -- 5
SVOBA 1 -- -- -- 1 -- 1
IBC (h,i) 2 8 302 17 329 -- 329
---- ---- ---- ---- ------ ----- ----
$718 $175 $302 $ 23 $1,218 $(323) $895
==== ==== ==== ==== ====== ===== ====
REVENUE FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1994
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $37 $ -- $ 37 $(29) $ 8
Coachman's (a) 12 9 21 (21) --
Santa Maria 29 -- 29 -- 29
El Monte 49 -- 49 -- 49
Rolling Hills (b) 47 -- 47 (39) 8
Village Lake (a) 5 -- 5 (5) --
Capital Park 134 -- 134 -- 134
SVA 29 76 105 (75) 30
SVOBA 5 -- 5 -- 5
IBC 14 42 56 (11) 45
---- ---- ---- ---- ----
$361 $ 127 $488 $(180) $308
==== ==== ==== ==== ====
<PAGE>21
REVENUE FOR THE THREE MONTH PERIOD ENDED
JUNE 30, 1994
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management
Fees Interest Total Reserved Recognized
---------- -------- ----- -------- ----------
Chastleton (a,c) $ 19 $ -- $ 19 $(17) $ 2
Coachman's (a) 7 5 12 (12) --
Santa Maria 15 -- 15 -- 15
El Monte 24 -- 24 -- 24
Rolling Hills (b) 24 -- 24 (25) (1)
Village Lake (a) (2) -- (2) 2 --
Capital Park 73 -- 73 1 74
SVA 13 38 51 (35) 16
SVOBA 3 -- 3 -- 3
IBC 6 21 27 (6) 21
---- ---- ---- ---- ----
$182 $ 64 $246 $(92) $154
==== ==== ==== ==== ====
RECEIVABLES AT DECEMBER 31, 1994
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (d) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (g,h) $277 $ 30 $ -- $ -- $ 307 $ (277) $ 30
Coachman's (e) 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 (f) 3 -- -- -- 3 (3) --
SVOBA 1 -- -- -- 1 -- 1
IBC (h,i) 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>22
(d) Working capital loans include operating advances and reimbursements due
for common expenses.
(e) IBC has the funding obligation for operating deficits. IGC equally shares
the general and limited partnership interest with IBC, since IGC funded
these deficits.
(f) 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.
(g) IBC has the funding obligation for operating deficits.
(h) 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.
(i) 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 for 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 six
months of 1995.
(j) 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 reserves related to this receivable aggregating $335,000 were reversed
during the first six months 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
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) and the lease expires in the year 2001. During the
three and six month periods ended June 30, 1995 and 1994, IGC's rent for its
share of the leases was $48,000 and $44,000, respectively, and $95,000 and
$93,000, 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. Management fees earned for
services provided to HDA in the first six months of 1995 and 1994 were $132,000
and $128,000 respectively. Management fees for the three month periods ended
June 30, 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 three and six
months ended June 30, 1995, IGC received $50,000 and $100,000, respectively, in
connection with such services.
<PAGE>23
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. The
Doral Building is owned by a 99% owned subsidiary of IBC. Rental expense for
the executive office and certain other property in Puerto Rico leased from
affiliates was $110,000 and $103,000 for the six months ended June 30, 1995 and
1994, respectively. Rental expense for the three month periods ended June 30,
1995 and 1994 was $44,000 and $52,000, 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 three and six month periods
ended June 30, 1995 was $6,000 and $16,000, respectively.
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 this transaction
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. Interest income recognized in connection with this
note during the six months ended June 30, 1995 totalled $75,000.
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 the resolution of a land swap with the owner of an adjacent
property. 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
<PAGE>24
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
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 third 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 and six
month periods ended June 30, 1995 do not include any provisions for obligations
which may result in connection with this matter.
<PAGE>25
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 six months 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 margins 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 increasingly competitive
conditions and cost factors, the Company downsized their homebuilding
operations during the second quarter of 1995. These downsizing efforts
included a reduction of administrative staff levels and the closing of
unprofitable sales centers. The costs incurred in connection with these
efforts were not significant and have been included in the Company's operating
results for the three and six month periods ended June 30, 1995. This is
expected to permit the Company to increase its focus on its more profitable
land sale operations while continuing limited homebuilding activities in
geographic areas with the greatest profit potential.
The following discussion and analysis covers changes in the results of
operations for the three and six month periods ended June 30, 1995 as compared
to the results for the three and six month periods ended June 30, 1994.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Net income. The Company's net income for the six months ended June 30,
1995 totalled $1.4 million versus $3.8 million during the comparable period in
1994. Factors giving rise to the changes in net income during the respective
periods are further described below.
Revenues. Revenues for the six months ended June 30, 1995 decreased 38%
to $21.7 million from $35.2 million in the prior year comparable period due
<PAGE>26
primarily to declines in land and home sales, and to a decline in equity in
earnings from partnerships and development fees. Partially offsetting the
declines in these categories of revenues were increases in apartment rental
revenues, management and other fees and interest and other income.
Land sales decreased to $9.7 million for the six months ended June 30,
1995 from $16.7 million for this same period in 1994. The decrease in 1995 is
primarily attributable to the settlement of a shopping center site in Puerto
Rico during the first six months of 1994 with no similar sales of this
magnitude occurring in the first six months of 1995. Also contributing to this
decline was a decline in lot sales in the Montclair and Westbury developments
during the first six months of 1995. Somewhat offsetting these declines were
increases in commercial and residential land sales in St. Charles.
Land sales for the first six months of 1995 are summarized as follows:
Six Months Ended
June 30,
----------------------
1995 1994
---- ----
(In thousands)
Commercial and business parks
St. Charles (11 acres in 1995, 8 acres in 1994) $3,508 $ 799
Puerto Rico (5 acres in 1995, 62 acres in 1994) 3,330 12,000
Residential
St. Charles
Developed single-family lots
(71 in 1995, 57 in 1994) 2,848 2,683
Montclair
Developed townhome lots (9 in 1994) -- 335
Semi-developed multi-family lots (44 in 1994) -- 485
Westbury developed single-family lots (10 in 1994) -- 263
Undeveloped land - St. Charles -- 31
Recognition of deferred income - Puerto Rico -- 123
------ -------
$9,686 $16,719
====== =======
Average residential lot sales price
St. Charles
Developed single-family lots $ 40 $ 47
Montclair
Developed townhome lots -- 37
Semi-developed multi-family lots -- 11
Westbury developed single-family lots -- 26
<PAGE>27
Home sales decreased 42% to $5.8 million for the six months ended June 30,
1995 from $10.0 million for same period of 1994. Home sales activity for the
six months ended June 30, 1995 and 1994 is summarized as follows:
Six Months Ended June 30,
-----------------------------------------------------
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) $ 89 41 82 $ 81 72 132
Tract Homebuilding
Division
St. Charles, MD 151 14 8 148 26 20
Lexington Park, MD 80 1 -- 81 2 --
Montclair, VA -- -- -- 118 1 --
---- --- --- ---- --- ---
$ 104 56 90 $ 99 101 152
=== === === ===
The decline in home sales during the first six months of 1995 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 residential lot sales, the Company has
placed increased emphasis on lot sales to third parties versus their use in the
Company's homebuilding operations. This has resulted in increased competition
in St. Charles and has been a factor in the decline in IGC's homebuilding
activities and sales in this area.
Revenues from investment properties, management fees and other income
decreased to $6.1 million for the six months ended June 30, 1995 from $8.5
million for the same period of 1994. The changes giving rise to this overall
decline are summarized below:
Six Months Ended
June 30,
-----------------------------
1995 1994
---- ----
(In thousands)
Revenues from investment properties-
Equity in earnings from partnerships
and development fees $ 1,330 $4,255
Apartment rental revenues 2,314 2,158
Management and other fees 2,276 1,876
Interest and other income 213 187
------ ------
$6,133 $8,476
====== ======
<PAGE>28
Revenues from investment in partnerships decreased to $1.3 million for the
six month period ended June 30, 1995 from $4.3 million for the same period in
1994. This decrease was due primarily to IGC's receipt and recognition as
revenue of distributions from a Puerto Rico partnership owning four apartment
projects that were refinanced during the first six months of 1994. No similar
distributions were received during the first six months of 1995.
Apartment rental revenues increased $156,000 or 7% during the first six
months of 1995 as compared to this same period during 1994. This increase was
attributable to an increase in the monthly rental rates for the consolidated
apartment projects and to a decline in their overall vacancy levels.
Revenues from management fees increased $400,000 or 21% during the first
six months of 1995 in comparison with the same period of the prior year. This
was due primarily to the recognition during the first six months of 1995 of
management fees related to prior periods. Prior to 1995, doubt as to the
collectibility of these fees existed and as a result, the fees were reserved.
However, during the first six months 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 revenue was $100,000 received from Equus during the first six
months of 1995 for management and administrative support services. As
discussed in Note 4 to the June 30, 1995 consolidated financial statements, IGC
has continued to provide management and administrative support services to
Equus following the distribution of Equus Units to IGC Unitholders.
Interest and other income increased $26,000 or 14% during the six months
ended June 30, 1995 in comparison with this same period in 1994. This increase
consisted primarily of interest earned on notes receivable from land sales and
resulted from an increase in notes receivable during the first six months of
1995.
<PAGE>29
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profit margins from community development increased to 48% from 36%
due primarily to the increased percent of total sales attributable to
commercial sales in St. Charles that typically produce the highest gross profit
margins, and to the lack of lot sales in the Montclair and Westbury communities
during 1995 which decreased the overall gross margin in the comparable period
of the prior year. Somewhat offsetting the increase in gross margins resulting
from these factors was a decline in gross margins attributable to an increase
in period costs as a percentage of total sales revenues during the 1995 period.
Gross profits from community development are summarized as follows:
Six Months Ended June 30, 1995
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands, except % amounts)
Commercial and business parks
St. Charles $3,508 $1,104 $2,404 69%
Puerto Rico 3,330 1,809 1,521 46%
Residential
St. Charles
Developed single-family lots 2,848 1,779 1,069 38%
Period costs 332 (332)
------ ------ ------
$9,686 $5,024 $4,662 48%
====== ====== ======
Six Months Ended June 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands, except % amounts)
Commercial and business parks
St. Charles $ 799 $ 253 $ 546 68%
Puerto Rico 12,000 7,581 4,419 37%
Residential lots
St. Charles
Developed single-family lots 2,683 1,528 1,155 43%
Montclair
Developed townhome lots 335 304 31 9%
Semi-developed townhome lots 485 440 45 9%
Westbury developed single-family lots 263 254 9 3%
Undeveloped land - St. Charles 31 -- 31 100%
Recognition of deferred income
Puerto Rico 123 20 103 84%
Period costs 291 (291)
------- ------- ------
$16,719 $10,671 $6,048 36%
======= ======= ======
<PAGE>30
Gross profits from homebuilding operations for the six months ended June
30, 1995 and 1994 are summarized as follows:
Six Months Ended June 30,
------------------------------------
1995 1994
--------------- --------------
Gross Gross
Profit Profit
Margins Margins
------- -------
(In thousands, except % amounts)
Home sales $ 5,846 $ 10,005
Cost of sales 5,423 9,073
------ ------
Gross profits $ 423 7% $ 932 9%
====== ======
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. In spite of the Company's restructuring efforts with
respect to its homebuilding operations during the first six months of 1995, the
gross profit margin on home sales declined to 7% from 9% during the comparable
period of 1994. The lower margins in 1995 are primarily due to a reduction in
the volume of units settled during the first six months of 1995 which has
resulted in an increase in carrying costs on a per unit basis.
Other Expenses. Other expenses for the six months ended June 30, 1995 and
1994 were as follows:
1995 1994
---------- ----------
Selling and marketing $ 733 $ 680
General and administrative 4,893 3,903
Rental apartment expense 2,194 2,173
Depreciation and amortization 265 307
Interest expense 1,020 1,093
------ ------
$9,105 $8,156
====== ======
Selling and marketing expenses increased $53,000 or 8% during the first
six months 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 $990,000 or 25% during the
first six months of 1995 as compared to the first six months of 1994. This
increase was attributable primarily to an increase in legal fees of $462,000,
and to an increase in salaries, benefits and other employee related costs of
<PAGE>31
$277,000. The increase in legal fees during the first six months of 1995 was
due primarily to the Company's increased involvement in legal proceedings
during this period as further discussed in Note 7 to the June 30, 1995
consolidated financial statements. The increase in salaries and benefit costs
was due to an approximately 4% general salary and wage increase which was
effective January 1, 1995.
Rental apartment expenses for the first six months of 1995 remained
relatively consistent with those for the comparable period of 1994 increasing
by only $21,000 or less than 1%.
Depreciation and amortization expense declined $42,000 or 14% during the
first six months of 1995 as compared to this same period in 1994. This decrease
was due to certain fixed assets, financing fees and similar assets becoming
fully amortized or depreciated during 1994 or the first six months of 1995.
Interest expense decreased $73,000 or approximately 7% during the six
months ended June 30, 1995 versus the comparable period of 1994. This decrease
was attributable primarily to a decline in the Company's outstanding debt
during the six months ended June 30, 1995.
Provision for Income Tax. The provision for Puerto Rico income taxes
during the six months ended June 30, 1995 decreased to $557,000 compared to
$2.8 million during the first six months of 1994. This decrease was due
primarily to the recognition of taxable income in 1994, resulting from
distributions received from partnerships in Puerto Rico that refinanced their
apartment projects, and from profits on the sale of a shopping center site. No
taxable income of a similar magnitude was generated by the Company during the
first six months of 1995.
Minority Interest. The minority partner interest decreased $535,000 or
76% from $700,000 to $165,000 during the six months ended June 30, 1995. This
decrease was due primarily to the sale in 1994 of a shopping center site in
Puerto Rico in which the minority partner received a 20% interest in net
income. No sales of this magnitude were recognized in connection with the
Company's land operations in Puerto Rico during the first six months of 1995.
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Net Income. Net income for the three months ended June 30, 1995 totaled
$1.1 million versus $1.7 million for the three months ended June 30, 1994.
Factors giving rise to the changes in net income during these periods are
further described below.
Revenues. Revenues for the three months ended June 30, 1995 decreased
$11.9 million or 52% from $22.6 million in the comparable prior period due
primarily to declines in land and home sales. Somewhat offsetting these
declines were increases in apartment rental revenues, management and other fees
and interest and other income.
Land sales decreased to $5.0 million for the three months ended June 30,
1995 from $14.7 million for the same period in 1994. During the second quarter
of 1994, the Company sold a shopping center site in Puerto Rico for $12.0
million. No similar sales of this magnitude were made by the Company during
the second quarter of 1995. Also contributing to the decline in land sales
revenue was the lack of residential lot sales in the Montclair and Westbury
communities and a decline in the average sales price of residential lots sold
<PAGE>32
in St. Charles. Land sales for the three month periods ended June 30, 1995 and
1994 are summarized as follows:
Three Months Ended
June 30,
----------------------
1995 1994
---- ----
(In thousands)
Commercial and business parks
St. Charles (10 acres in 1995, 1 acre in 1994) $3,380 $ 175
Puerto Rico (2 acres in 1995, 62 acres in 1994) 65 12,000
Residential
St. Charles
Developed single-family lots
(40 in 1995, 41 in 1994) 1,541 1,924
Montclair
Developed townhome lots (9 in 1994) -- 335
Westbury developed single-family lots (8 in 1994) -- 211
Undeveloped land - St. Charles 31
------ -------
$4,986 $14,676
====== =======
Average residential lot sales price
St. Charles
Developed single-family lots $ 39 $ 47
Montclair
Developed townhome lots -- 37
Westbury developed single-family lots -- 26
Home sales decreased 42% to $2.9 million for the three months ended June
30, 1995 from $5.1 million for same period of 1994. Home sales activity during
these periods is summarized as follows:
Three Months Ended June 30,
-----------------------------------------------------
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) $ 84 19 82 $ 86 32 132
Tract Homebuilding
Division
St. Charles, MD 153 8 8 145 14 20
Lexington Park, MD 80 1 -- 81 2 --
Montclair, VA -- -- -- 118 1 --
---- --- --- ---- --- ---
$104 28 90 $103 49 152
=== === === ===
<PAGE>33
The decline in home sales is due to a general 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 to third parties in St. Charles. Due to the more favorable
profit margins generated by such sales, the Company has placed increased
emphasis on sales to other builders versus using the lots in the Company's
homebuilding operations. As a result, competition in St. Charles has increased
resulting in a decline in the Company's homebuilding activities and sales in
this area.
Revenues from investment properties, management fees and other income
totaled approximately $2.9 million for the three months ended June 30, 1995 and
1994. The following is a summary of such revenues for the three month periods
ended June 30, 1995 and 1994:
Three Months Ended
June 30,
-----------------------------
1995 1994
---- ----
(In thousands)
Revenues from investment properties-
Equity in earnings from partnerships
and development fees $ 636 $ 797
Apartment rental revenues 1,167 1,107
Management and other fees 934 907
Interest and other income 116 88
------ ------
$2,853 $2,899
====== ======
Equity in earnings from partnerships and development fees decreased
$161,000 or 20% during the three months ended June 30, 1995 versus this same
period in 1994. During the second quarter of 1994, the Company received
distributions from a partnership owning apartment projects in Puerto Rico,
which were recognized as revenue. No similar distributions were received
during the comparable period of 1995.
Apartment rental revenues increased $60,000 or 5% during the three months
ended June 30, 1995 as compared to this same period during 1994. This increase
was due to both an increase in the rental rates of the consolidated apartment
projects and to a decline in their overall vacancy levels.
Management and other fees increased $27,000 or 3% during the three months
ended June 30, 1995 as compared to this same period in 1994. This increase was
due primarily to the receipt of $50,000 from Equus during the second quarter of
1995 for management and administrative support services. No similar fees were
received during the comparable period in 1994.
Interest and other income increased $28,000 or 32% during the three month
period ended June 30, 1995 versus the comparable period in 1994. This increase
consisted primarily of interest earned on notes receivable from land sales and
resulted from an increase in the balance of notes receivable during the three
months ended June 30, 1995.
<PAGE>34
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profits from community development increased to 55% for the three
month period ended June 30, 1995 from 36% for the same period in 1994. This
increase was due primarily to the increased percentage of land sales
attributable to U.S. commercial and business park land sales that produce the
highest gross profit margins, offset by reduced gross profit margins from the
St. Charles residential lot sales and an increase in period costs as a
percentage of total sales revenues. The residential margins are lower in the
1995 period due to sales of lots that were originally financed by a
participating mortgage. Gross profits from community development are
summarized as follows:
Three Months Ended June 30, 1995
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Commercial and business parks
St. Charles $3,380 $1,060 $2,320 69%
Puerto Rico 65 48 17 26%
Residential
St. Charles
Developed single-family lots 1,541 953 588 38%
Period costs 188 (188)
------ ------ ------
$4,986 $2,249 $2,737 55%
====== ====== ======
Three Months Ended June 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Commercial and business parks
St. Charles $ 175 $ 57 $ 118 67%
Puerto Rico 12,000 7,581 4,419 37%
Residential lots
St. Charles
Developed single-family lots 1,924 1,132 792 41%
Montclair
Developed townhome lots 335 304 31 9%
Westbury developed single-family lots 211 203 8 4%
Undeveloped land - St. Charles 31 -- 31 100%
Period costs -- 168 (168) --
------- ------ ------
$14,676 $9,445 $5,231 36%
======= ====== ======
<PAGE>35
Gross profits from homebuilding operations for the three months ended June
30, 1995 and 1994 are summarized as follows:
Three Months Ended June 30,
------------------------------------
1995 1994
--------------- --------------
Gross Gross
Profit Profit
Margins Margins
------- -------
(In thousands, except % amounts)
Home sales $2,911 $5,056
Cost of sales 2,678 4,784
------ ------
Gross profits $ 233 8% $ 272 5%
====== ======
The improved gross profit margins during the three months ended June 30,
1995 are attributable primarily to the restructuring efforts undertaken by the
Company with respect to its homebuilding operations during the second quarter
of 1995. These restructuring activities included a reduction of administrative
staff levels and the elimination of certain unprofitable sales center
locations. As a result of these efforts, overhead costs associated with the
homebuilding division's activities were reduced significantly. Also
contributing to the lower margins in 1994 were warranty costs incurred in
connection with a closed project in Puerto Rico.
Other Expenses. Other expenses for the three months ended June 30, 1995
and 1994 were as follows:
1995 1994
---------- ----------
Selling and marketing $ 355 $ 396
General and administrative 2,569 1,954
Rental apartment expense 1,099 1,053
Depreciation and amortization 133 162
Interest expense 530 628
------ ------
$4,686 $4,193
====== ======
Selling and marketing expenses decreased $41,000 or 10% during the three
months ended June 30, 1995 as compared to this same period in 1994. This
decrease was attributable primarily to a decline in the homebuilding division's
selling and marketing activities which resulted from a restructuring and
downsizing of this division's activities during the second quarter of 1995.
General and administrative expenses increased $615,000 or 31% during the
second quarter of 1995 as compared to this same period in 1994. This increase
was attributable to an increase in legal fees of $408,000, an increase in
salaries, employee benefits and related costs of $37,000, and an increase in
office administrative expenses of $37,000. The increase in legal fees during
the three month period ended June 30, 1995 was due primarily to the Company's
increased involvement in legal proceedings during this period as further
discussed in Note 7 to the June 30, 1995 consolidated financial statements.
<PAGE>36
The increase in salaries, benefits and related employee costs was due to an
approximately 4% general wage increase which was effective January 1, 1995.
Rental apartment expenses increased $46,000 or 4% during the second
quarter of 1995 as compared to this same period in 1994 due to increased repair
and maintenance expenses associated with the consolidated apartment projects
during the second quarter of 1995.
Depreciation and amortization decreased $29,000 or 18% during the three
months ended June 30, 1995 as compared to the three month period ended June 30,
1994. This decrease was due to certain fixed assets, financing fees and similar
assets becoming fully depreciated or amortized during 1994 and the first six
months of 1995.
Interest expense decreased $98,000 or 16% during the three months ended
June 30, 1995 versus this same period in 1994. This decrease was due primarily
to a reduction in the Company's outstanding debt obligations during the 1995
period.
Provision for Income Tax. The provision for income taxes during the three
months ended June 30, 1995 decreased to $150,000 compared to $1.8 million for
the three months ended June 30, 1994. The 1994 provision was higher due to
taxable income resulting primarily from the profit earned on the sale of a
shopping center site located in Puerto Rico. No taxable income of similar
magnitude was generated during the comparable period of 1995.
Minority Interest. The minority partner's interest decreased $806,000
from $722,000 to $(84,000) during the three months ended June 30, 1995 in
comparison with this same period in 1994. This was due to the minority
partner's 20% interest in the profit related to the sale of a shopping center
site in Puerto Rico during the second quarter of 1994. No similar sales of this
magnitude occurred during the second 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. 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. In addition, under the terms of IGC's loans, most of the cash
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. Given these factors, the
Company's ability to generate cash for overhead, development and other uses is
limited. 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. As further discussed in Note 5,
pending legal proceedings may also adversely affect the Company's liquidity,
including the timing and/or terms of any financings.
In response to the decline in the real estate markets and the decline in
the availability of financing, the Company developed a financial restructuring
plan in June 1992. Since commencing the plan, the Company has successfully
restructured all loans targeted by the plan and has reduced recourse bank debt
by $31.2 million from $69.1 million at the start of the restructuring plan to
<PAGE>37
$37.9 million at June 30, 1995. During the second quarter, the Company did not
meet all of the conditions required to qualify for an automatic extension of
the NationsBank loans creating an event of default. The Company has an
agreement in principal with NationsBank to extend the maturity of the loans
until May 1998. Under the proposed agreement, the extension of the maturity
beyond November 30, 1995 is contingent upon a mandatory principal curtailment
of $2.2 million which the Company anticipates will come from the financing of
the first phase of Fairway Village in St. Charles, Maryland. As of June 30,
1995, NationsBank loans totalled $13.0 million. Additionally, a loan which had
a balance of $4.3 million at June 30, 1995, which is being curtailed with the
proceeds from the sale of residential lots, matures in September of 1995. This
loan is expected to be further 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.
A potential source of liquidity in late 1995 includes cash from four
projects 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 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, which
could significantly reduce the proceeds available to the Company. If this
occurs, management will 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 four 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 to five 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 $19.8 million at June
30, 1995.
A LIHPRHA application was filed for a fifth project in Puerto Rico in
November 1994. The timetable for completing the LIHPRHA processing is
approximately two years. However, if proposed legislation is enacted,
management may withdraw the application.
In addition to its tradition sources of liquidity, the Company is
currently investigating opportunities in the capital markets for longer term
debt or possible equity financings.
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
<PAGE>38
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
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 third 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
IGC did not satisfy the conditions for the automatic extension contained
in the NationsBank debt agreements and, as a result, has defaulted on all three
NationsBank loans which had outstanding balances totalling $13.0 million at
June 30, 1995. Subsequent to June 30, 1995, a forbearance agreement was
<PAGE>39
executed with NationsBank which provided the Company with a reinstatement of
their extension privileges provided that accrued interest on the loans is
brought current within 30 days and required principal payments are made by
August 31, 1995. IGC has made the required interest payments and expects to
make the required principal payment by August 31, 1995.
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.
Exhibit
No. Description of Exhibit Reference
------- ----------------------------------------- --------------------------
10(a) Amendment to employment agreement between Filed herewith
Interstate General Company L.P. and
Edwin L. Kelly dated May 20, 1994
10(b) Fifth Amendment to Interstate General Filed herewith
Company L.P. Retirement Plan dated
June 5, 1995
(b) None.
<PAGE>
<PAGE>40
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: August 14, 1995 By: /s/ James J. Wilson
--------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: August 14, 1995 By: /s/ John E. Hans
--------------- -----------------------------
John E. Hans
Senior Vice President and
Chief Financial Officer
<PAGE>
<PAGE>41
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------
10(a) Amendment to employment agreement between Interstate General
Company L.P. and Edwin L. Kelly dated May 20, 1994.
10(b) Fifth Amendment to Interstate General Company L.P. Retirement
Plan dated June 5, 1995.
<PAGE>1
Exhibit 10(a)
AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN
INTERSTATE GENERAL COMPANY L.P. AND EDWIN L. KELLY
DATED MAY 20, 1994
The agreement between Interstate General Company L.P. (the "Company"), a
Delaware limited partnership, and Edwin L. Kelly (the "Executive") dated May
20, 1994 is hereby amended as follows:
- Each reference to the Executive as "President of American Family
Homes, Inc. ("AFH")" is hereby changed to "Vice Chairman of American
Family Homes and Senior Vice President of the Company". In addition,
each reference to "AFH" in the agreement is changed to "the Company".
- The Executive's "Summary of Delegation of Authority and Job
Description" which is attached as Exhibit A to the agreement is
updated to reflect the revised authority limits currently on file in
the Company's Human Resources Department as such document may from
time to time be updated.
In witness hereof, the parties have executed this amendment on April 1, 1995.
Interstate General Company L.P. Interstate General Company L.P.
By: Interstate General By: Interstate General
Management Corporation, Management Corporation,
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory G. Kreizenbeck By: /s/ James J. Wilson
--------------------------- ----------------------------
Gregory G. Kreizenbeck James J. Wilson
Edwin L. Kelly
/s/ Edwin L. Kelly
---------------------------------
<PAGE>1
Exhibit 10(b)
FIFTH AMENDMENT TO
INTERSTATE GENERAL COMPANY, L.P. RETIREMENT PLAN
WHEREAS, The Interstate General Company desires to amend its Retirement Plan;
and
WHEREAS, Section 9.1 of Article IX of the Plan allows the Employer to amend the
Plan, which amendment may be retroactive if necessary;
WHEREAS, Provisions 1, 3, 6, 7 and 8 are effective January 1, 1989 and
Provisions 2, 4 and 5 are effective January 1, 1994;
NOW, THEREFORE, The Plan is amended as follows:
1. Section 1.23 of Article I is amended by deleting the last sentence and
inserting the following in lieu thereof:
Compensation that may be taken into account in determining
contributions on behalf of any employee is limited to no more than
$200,000 (as adjusted) in Plan Years beginning before January 1,
1994, and to no more than $150,000 (as adjusted) in Plan Years
beginning or after January 1, 1994.
2. Section 1.26 of Article I is deleted in its entirety.
3. Section 3.1 of Article III is amended by deleting the first sentence and
inserting the following in lieu thereof:
At the discretion of the Plan Administrator, each Participant may
direct the Employer to contribute an amount of the Participant's Plan
Year Compensation on his behalf of a whole percentage not to exceed
ten percent (10%) of his Plan Year Compensation to the extent that
the election to defer Plan Year Compensation may be made only with
respect to an amount which the employee could otherwise elect to
receive in cash and which is not currently available to the employee.
4. Section 3.6 of Article III is amended by deleting it in its entirety and
inserting the following in lieu thereof:
3.6 Profit Sharing Contributions. The Employer may contribute each Plan
Year such an amount as the Employer in its sole discretion may deem
appropriate, from zero percent (0%) up to fifteen (15%) of the
aggregate Plan Year Compensation paid to all Participants.
For purposes of this Section 3.6 and Section 3.7, the terms
"Participant" and "Participants" shall not include any Employee
described in subsection (e) of Section 2.1.
5. Section 3.7 of Article III is amended by deleting it in its entirety and
inserting the following in lieu thereof:
3.7 Allocation of Profit Sharing Contributions.
The Profit Sharing Contribution shall be allocated to each
Participant who is actively employed by the employer on the last day
of the Plan Year as follows:
<PAGE>2
First, on the basis of the Plan Year compensation to a maximum
of two percent (2%) of such Plan Year Compensation.
Second, to the extent the Profit Sharing Contribution has not
been fully allocated under the first allocation, on the basis of
Plan Year Compensation in excess of the Social Security Wage
Base for the current calendar year to a maximum of one and seven
tenths percent (1.7%) of such Plan Year Compensation in excess
of the Social Security Wage Base for the current calendar year.
Third, to the extent the Profit Sharing Contribution has not
been fully allocated under the first and second allocation, the
remaining Profit Sharing Contribution, if any, shall be
determined by multiplying such remaining contribution by the
ratio of such Participant's Plan Year Compensation to the total
Plan Year Compensation of all Participants, but excluding the
Plan Year Compensation of all Participants ineligible to receive
an allocation for the Plan Year.
6. Section 6.2 of Article VI is amended by adding the following sentence to
the end of the second paragraph:
In no event shall the Account, where the benefit, (taking into
account benefits derived from both employer and employee
contributions) is in excess of $3,500, be distributed prior to the
Participant's Normal Retirement Date without the written consent of
the Participant.
7. Article VII is amended by adding Section 7.3 as follows:
7.3 Direct Rollover
(a) This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following definitions shall
apply:
(1) An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to
the extent such distribution is required under Code Section
401(a)(9); and the portion of any distribution that is not
incredible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
<PAGE>3
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity
plan described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(3) A distributee includes an Employee or Former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in Code Section 414(p), are distributee's with
regard to the interest of the spouse or former spouse.
(4) A direct rollover is a payment by the Plan to the eligible
retirement plan specified by the distributee.
8. Section 10.6(a) of Article X is amended by deleting it in its entirety and
inserting the following in lieu thereof:
(a) An officer of the Employer having annual compensation greater
than one half (1/2) times the dollar amount in effect under Code
Section 415(b)(1)(a).
Dated: June 5, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 6,790<F1>
<SECURITIES> 0
<RECEIVABLES> 6,715
<ALLOWANCES> 803
<INVENTORY> 70,018
<CURRENT-ASSETS> 0
<PP&E> 3,660
<DEPRECIATION> 2,102
<TOTAL-ASSETS> 125,229
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 42,267
<TOTAL-LIABILITY-AND-EQUITY> 125,229
<SALES> 15,532
<TOTAL-REVENUES> 21,665
<CGS> 10,447
<TOTAL-COSTS> 13,374
<OTHER-EXPENSES> 5,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,020
<INCOME-PRETAX> 2,113
<INCOME-TAX> 557
<INCOME-CONTINUING> 1,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,391
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<FN>
<F1>Balance includes $5,519 of restricted cash.
</FN>
</TABLE>
