SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 1-9393
Interstate General Company L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1488756
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Smallwood Village Center
St. Charles, Maryland 20602
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(301) 843-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant to file such report(s), and (2) has been subject
to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
10,256,785 Class A Units
------------------------
<PAGE>2
INTERSTATE GENERAL COMPANY L.P.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION Page
Number
Item 1. Consolidated Financial Statements ------
Consolidated Statements of Income for
the Three Months Ended March 31, 1997 and
1996. (Unaudited) 3
Consolidated Balance Sheets as of March 31, 1997
(Unaudited) and December 31, 1996 (Audited). 4
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1997 and 1996.
(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited). 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1997 and 1996. 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Material Modifications of Rights of Registrant's 17
Securities
Item 3. Default upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per unit amounts)
(Unaudited)
1997 1996
---------- ----------
REVENUES
Community development - land sales $ 1,449 $ 3,306
Homebuilding - home sales 1,874 2,724
Equity in earnings from partnerships
and developer fees 417 15,328
Rental property revenues 2,158 1,120
Management and other fees, substantially
all from related entities 1,343 2,209
Interest and other income 146 197
---------- ----------
Total revenues 7,387 24,884
---------- ----------
EXPENSES
Cost of land sales 943 2,695
Cost of home sales 1,785 2,689
Selling and marketing 244 335
General and administrative 1,661 2,636
Interest expense 922 1,738
Rental properties operating expense 835 432
Depreciation and amortization 577 280
Write-off of deferred project costs 5 122
---------- ----------
Total expenses 6,972 10,927
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 415 13,957
PROVISION FOR INCOME TAXES 112 4,823
---------- ----------
INCOME BEFORE MINORITY INTEREST 303 9,134
MINORITY INTEREST 48 72
---------- ----------
NET INCOME $ 255 $ 9,062
========== ==========
NET INCOME PER UNIT .02 $ .87
========== ==========
NET INCOME
General Partners $ 3 $ 91
Limited Partners 252 8,971
---------- ----------
$ 255 $ 9,062
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
March 31, December 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,114 $ 2,212
Restricted 1,114 988
-------- --------
2,228 3,200
ASSETS RELATED TO COMMUNITY DEVELOPMENT -------- --------
Land and development costs
Puerto Rico 33,942 34,034
St. Charles, Maryland 26,677 26,980
Other United States locations 16,457 16,256
Notes receivable on lot sales and other 5,523 5,815
-------- --------
82,599 83,085
ASSETS RELATED TO INVESTMENT PROPERTIES -------- --------
Operating properties, net of accumulated
depreciation of $20,965 and $20,658, as of
March 31, 1997 and December 31, 1996,
respectively 39,055 39,219
Investment in unconsolidated rental property
partnerships 11,775 11,723
Other receivables, net of reserves of
$42 and $121 as of March 31, 1997
and December 31, 1996, respectively 1,532 1,290
-------- --------
52,362 52,232
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 1,692 2,016
Investment in joint venture 478 275
Receivables and other 185 200
-------- --------
2,355 2,491
OTHER ASSETS -------- --------
Goodwill, less accumulated amortization of
$1,077 and $1,039 as of March 31, 1997
and December 31, 1996, respectively 1,957 1,995
Deferred costs regarding waste technology and
other projects, receivables and other, net of
reserves of $97 and $69 as of March 31, 1997 and
December 31, 1996 4,419 4,336
Property, plant and equipment, less accumulated
depreciation of $2,511 and $2,425 as of March
31, 1997 and December 31, 1996, respectively 1,157 1,229
-------- --------
7,533 7,560
-------- --------
Total assets $147,077 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1997 1996
----------- ------------
(Unaudited) (Audited)
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 32,538 $ 34,077
Non-recourse debt 2,212 2,153
Accounts payable, accrued liabilities
and deferred income 5,059 4,829
-------- --------
39,809 41,059
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,098 1,139
Non-recourse debt 39,409 39,508
Accounts payable and accrued liabilities 3,429 3,359
-------- --------
43,936 44,006
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 284 502
Accounts payable, accrued liabilities
and deferred income 2,375 2,544
-------- --------
2,659 3,046
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 3,933 $ 4,078
Mortgages and notes payable 468 473
Accrued income tax liability - current 3,946 3,979
Accrued income tax liability - deferred 5,477 5,333
-------- --------
13,824 13,863
-------- --------
Total liabilities 100,228 101,974
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,381 4,378
Limited partners' capital-10,257 Units
issued and outstanding as of
March 31, 1997 and December 31, 1996 42,468 42,216
-------- --------
Total partners' capital 46,849 46,594
-------- --------
Total liabilities and partners' capital $147,077 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1997 1996
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 255 $9,062
Adjustments to reconcile net income
to net cash provided by
(used by) operating activities:
Depreciation and amortization 577 280
Provision for deferred income taxes 144 (5)
Equity in earnings from unconsolidated
partnerships and developer fees (417) (15,328)
Distributions from unconsolidated partnerships 331 279
Cost of sales-community development
and homebuilding 2,728 5,384
Development and construction expenditures (2,210) (3,717)
Equity in loss from homebuilding joint venture 21 --
Write-off of deferred project cost 5 122
Changes in notes and accounts receivable 115 (370)
Changes in accounts payable, accrued
liabilities and deferred income (47) 6,317
------- --------
Net cash provided by operating activities 1,502 2,024
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in assets related to unconsolidated
rental property partnerships 34 (688)
Change in restricted cash (126) 589
(Additions to) rental operating properties, net (145) (102)
(Acquisitions) of other assets, net (296) (126)
Contributions to homebuilding joint venture (224) --
------- --------
Net cash (used in) investing activities (757) (327)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from debt financing 1,289 3,021
Payment of debt (3,132) (6,018)
-------- -------
Net cash (used in) financing activities (1,843) (2,997)
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,098) (1,300)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,212 3,476
-------- -------
CASH AND CASH EQUIVALENTS, MARCH 31, $ 1,114 $ 2,176
======== =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 1996 financial statements have been reclassified to conform to the 1997
presentation. The operating results for the three months ended March 31,
1997 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, warrants to purchase Units and
Unit Appreciation Rights do not have a material dilutive effect on the
calculation of earnings per Unit and therefore are not presented.
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, 1996.
(2) FINANCING AND CASH MANAGEMENT MATTERS
Because of the terms of its debt agreements, substantially all of the
cash generated by the Company goes to pay down recourse debt, see
Consolidated Statements of Cash Flow, and as a result the Company's
liquidity is restricted. In order to enhance its results of operations and
cash flow, the Company has refinanced certain assets, negotiated additional
financings, reduced expenses and developed a restructuring plan.
In April 1997, the Company financed two substantially debt-free
apartment projects owned by non-consolidated partnerships. These
financings provided the Company approximately $5,000,000 which was utilized
to meet debt obligations, a portion of the tax payment due and other
financial commitments. Management has agreed to remit the remaining
balance of the tax payment of $1,838,000 by June 15, 1997. The Company
negotiated a letter of intent for up to a $20,000,000 loan that will
refinance substantially all of the U.S. recourse bank debt. This loan will
also provide funds for past due trade payables, future development and
working capital. In addition, the release prices for land sales will be
reduced under the new loan, resulting in increased cash available for
operating needs. In the event the $20,000,000 loan closing is delayed or
does not occur, the Company believes its ongoing operations, including
asset sales and additional financings, will be sufficient to meet its
existing debt, taxes and other operating obligations.
The Company has development projects in various phases. Substantially
all of the projects currently under construction have sufficient
<PAGE>8
development loans in place to complete the construction. The Company
intends to finance new construction with new development loans and working
capital.
Management is currently planning to restructure the Company and
simultaneously raise new capital, the proceeds of which would be used to
pay down the Company's community development bank debt and provide working
capital for ongoing community development needs. Management hopes to
accomplish this restructuring, discussed further in the Registrant's 1996
Form 10-K, during 1997.
(3) INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
Housing Partnerships
The following information summarizes financial data and principal
activities of unconsolidated housing partnerships which the Company
accounts for under the equity method. The information is presented to show
the effect of the sale of four apartment projects and the elimination of
four apartment projects that are currently included in the Company's
consolidated financial statements (in thousands).
Partnership Status
---------------------------------------
Equity Equity Properties
Method at Method to Sold
March 31, March 31, March 15,
1997 1996 1996 Total
--------- --------- ---------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
March 31, 1997 $140,576 $ -- $ -- $140,576
December 31, 1996 141,107 -- -- 141,107
Total Non-Recourse Debt
March 31, 1997 135,470 -- -- 135,470
December 31, 1996 136,468 -- -- 136,468
Total Other Liabilities
March 31, 1997 24,299 -- -- 24,299
December 31, 1996 23,678 -- -- 23,678
Total Equity
March 31, 1997 (19,193) -- -- (19,193)
December 31, 1996 (19,038) -- -- (19,038)
Company's Investment
March 31, 1997 11,391 -- -- 11,391
December 31, 1996 11,425 -- -- 11,425
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended March 31, 1997 8,217 -- -- 8,217
Three Months Ended March 31, 1996 8,110 1,018 1,103 10,231
Net Income (Loss)
Three Months Ended March 31, 1997 151 -- -- 151
Three Months Ended March 31, 1996 (167) 135 109 77
Company's recognition of equity in
earnings and developer fees
Three Months Ended March 31, 1997 417 -- -- 417
Three Months Ended March 31, 1996 498 265 -- 763
<PAGE>9
Partnership Status
---------------------------------------
Equity Equity Properties
Method at Method to Sold
March 31, March 31, March 15,
1997 1996 1996 Total
--------- --------- ---------- -----
SUMMARY OF OPERATING CASH FLOWS:
Cash flows from operating activities
Three Months Ended March 31, 1997 440 -- -- 440
Three Months Ended March 31, 1996 1,047 220 387 1,654
Company's share of cash flows
from operating activities
Three Months Ended March 31, 1997 301 -- -- 301
Three Months Ended March 31, 1996 297 134 170 601
Operating cash distributions
Three Months Ended March 31, 1997 331 -- -- 331
Three Months Ended March 31, 1996 125 154 -- 279
SUMMARY OF 1996 SALES TRANSACTION:
Three Months Ended March 31, 1996
Gain on Sale $ -- $ -- $39,934 $39,934
Company's Equity and Earnings
Recognition -- -- 14,566 14,566
Total Distribution of Sales
Proceeds -- -- 36,235 36,235
Company's Share of
Sales Proceeds Distribution -- -- 15,165 15,165
Equity method at March 31, 1997: The unconsolidated rental properties
partnerships as of March 31, 1997 include 19 partnerships owning 4,563
rental units in 22 apartment complexes. The Company holds a general
partner interest in these partnerships and generally shares in zero to 5%
of 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.
Lakeside Apartments was placed in service in 1996. The remaining
complexes owned by Alturas Del Senorial Associates Limited Partnership,
Bannister Associates Limited Partnership, Bayamon Gardens Associates
Limited Partnership, Brookside Gardens, Carolina Associates Limited
Partnership, Chastleton Apartments Associates, Coachman's Limited
Partnership, Colinas de San Juan Associates Limited Partnership, Crossland
Associates Limited Partnership, Essex Apartments Associates, Huntington
Associates Limited Partnership, Jardines de Caparra Associates Limited
Partnership, Monserrate Associates Limited Partnership, Monte de Oro
Associates Limited Partnership, New Center Associates Limited Partnership,
San Anton Associates Limited Partnership, Turabo Limited Dividend
Partnership and Valle del Sol Limited Partnership were placed in service
prior to 1995.
<PAGE>10
Equity method to March 31, 1996: On April 1, 1996, the Company
acquired a controlling interest in four partnerships owning 596 rental
units, Wakefield Third Age L.P., Wakefield Terrace Associates L.P., Palmer
Apartments L.P. and Headen House Associates L.P. Effective April 1, 1996,
the results of operations and balance sheets of these partnerships are
consolidated in the accompanying financial statements.
Properties sold March 15, 1996: In March 1996, the Company completed
the sale of four Puerto Rico apartment properties. The four properties,
Las Americas I, Las Americas II, Las Lomas and Monacillos, totaling 918
units were purchased by non-profit organizations with financing provided by
HUD through capital grants authorized by the Low Income Housing
Preservation and Resident Homeownership Act ("LIHPRHA"). The Company
retained the management contract for these properties.
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. During 1996, it purchased 98 lots.
The profit on these lots are deferred until sold by Escorial Builders to a
third party. The Company's share of the losses and its investment are
included with the Company's homebuilding operations in the accompanying
financial statement. The table summarizes Escorial Builders' financial
information (in thousands):
Total Total Total Company's
Assets Liabilities Equity Investment
------ ----------- ------ ----------
Summary of Financial Position:
March 31, 1997 $8,721 $7,771 $950 $478
December 31, 1996 5,586 5,047 539 275
Total Net Company's Share
Revenues (Loss) of Net (Loss)
-------- ------ ---------------
Summary of Operations:
March 31, 1997 $-- $(47) $(24)
March 31, 1996 -- (1) (--)
Company's Share of
--------------------------
Cash Flows Cash Flows
From From Operating
Operating Operating Cash
Activities Activities Distributions
---------- ---------- -------------
Summary of Operating Cash Flows:
March 31, 1997 $(3,445) $(1,722) $--
March 31, 1996 (1,606) (803) --
<PAGE>11
(4) DEBT AND EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
Debt
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of IGC
(in thousands):
Outstanding
Maturity Interest ----------------------
Dates Rates March 31, December 31,
From/To From/To 1997 1996
-------- --------- --------- ------------
Related to community development:
Recourse debt Demand/ 9.25%/ $32,538 $34,077
04-30-99 10.5%
Non-recourse debt 08-02-09 P+1.5% 2,212 2,153
Related to investment properties:
Recourse debt Demand 7.05%/ 1,098 1,139
7.35%
Non-recourse debt 10-01-19/ 6.85%/ 39,409 39,508
10-01-28 9.875%
Related to homebuilding projects:
Recourse debt 06-05-97/ 9.0%/ 284 502
10-21-97 9.75%
General:
Recourse debt Demand/ 7.4%/ 468 473
11-03-00 10.99% ------- -------
Total debt $76,009 $77,852
======= =======
*P = Prime lending interest rate.
As of March 31, 1997, the $32,538,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $8,729,000 of this
amount is further secured by investments in apartment rental partnerships.
As of March 31, 1997, recourse investment property debt is secured by
a letter of credit issued to the Company pursuant to the terms of a sales
contract. The non-recourse investment properties debt is collateralized by
apartment projects and secured by FHA or the Maryland Housing Fund.
Mortgage notes payable of $7,336,000 have stated interest rates of 7.5% and
7.75%. After deducting interest payments provided by HUD, the effective
interest rate over the life of the loan is 1%.
The homebuilding debt is secured by substantially all of the
homebuilding assets.
<PAGE>12
(5) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of the Company
have ownership interests in various entities that conducted business with
IGC during the last three years. IBC and these officers, and directors and
their ownership or relationship with the entities engaged in business with
IGC are reflected below:
Partner, Officer or
Director Ownership or Relationship
- ------------------------- --------------------------------------------
IBC, general partner Partner of Chastleton Apartments Associates
("Chastleton"), Coachmans Limited Partnership
("Coachmans"), El Monte Properties S.E. ("El
Monte"), G.L. Limited Partnership ("Rolling
Hills"), Smallwood Village Associates
("SVA"), Smallwood Village Office Building
Associates ("SVOBA"), Village Lake L.P.
("Village Lake"), Equus Gaming Company L.P.
("Equus"); owner of Equus Management Company
("EMC"), Darby Station Limited Partnership
James J. Wilson ("JJW"), Shareholder of Wilson Securities Corporation,
Chief Executive Officer ("WSC"); Officer and Director of CP Capitol
and Chairman of the Board Corporation ("CP"), owned by WSC, holder of
of IGC's managing general notes receivable that are secured by the
partner existing general partners' interest in
Capital Park
James M. Wilson ("JMW"), Shareholder, Officer and Director of IBC,
Chief Financial Officer and Advanced Power Systems, Inc. ("APS") and WSC,
Director of IGC's managing Partner of SVOBA; Officer of CP
general partner
Thomas B. Wilson ("TBW"), Shareholder, Officer and Director of IBC,
Director of IGC's managing APS and WSC
general partner
Jorge Colon-Nevares, Partner of Twenty First Century Homes S.E.
Director of IGC's managing ("Twenty First Century"); owner of Compri
general partner Caribe Development Corp. ("Compri")
<PAGE>13
Management Services
The management services provided to the related parties described
above are summarized below (in thousands):
REVENUE FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
Management Decrease
Related Fees and (Increase) Total
Party Interest in Reserve Recognized
------------- ---------- ---------- ----------
1997:
Chastleton IBC $ 19 $ 18 $ 37
Coachman's IBC 7 (7) --
Santa Maria WSC 12 -- 12
El Monte IBC 26 -- 26
Rolling Hills IBC 22 (22) --
Village Lake IBC 6 (6) --
Capital Park JJW, JMW 37 -- 37
----- ----- -----
$ 129 $ (17) $ 112
===== ===== =====
1996:
Chastleton IBC $ 18 $ (18) $ --
Coachman's IBC 12 (12) --
Santa Maria WSC 13 -- 13
El Monte IBC 26 -- 26
Rolling Hills IBC 23 -- 23
Village Lake IBC 6 -- 6
Capital Park JJW, JMW 67 -- 67
SVA and SVOBA IBC, JMW, TBW 14 -- 14
IBC JMW, TBW 15 -- 15
----- ----- ------
$ 194 $ (30) $ 164
===== ===== ======
OUTSTANDING RECEIVABLE AT (b)
--------------------------------------------------------------
March 31, 1997 December 31, 1996
------------------------------ ------------------------------
Receivable (a) Reserve Balance Receivable (a) Reserve Balance
-------------- ------- ------- -------------- ------- -------
Chastleton $ 24 $ (19) $ 5 $ 47 $ (36) $ 11
Coachman's 26 (22) 4 26 (15) 11
Santa Maria -- -- -- 46 -- 46
El Monte 38 -- 38 40 -- 40
Rolling Hills 92 (75) 17 65 (53) 12
Village Lake 33 (22) 11 27 (16) 11
Capital Park 22 -- 22 23 -- 23
SVA 11 -- 11 2 -- 2
------ ----- ------ ------ ----- ------
$ 246 $(138) $ 108 $ 276 $(120) $ 156
====== ===== ====== ====== ===== ======
(a) The outstanding receivable balances include unpaid management
fees, operating advances, reimbursement due for common
expenses, and interest on those balances.
(b) The aggregate maximum outstanding balance due from these
entities for management and related services at any one time
during the first quarter of 1997 and during 1996 was $156 and
$1,025, respectively.
<PAGE>14
Office Space Rent
IGC rents executive office space and other property from affiliates
both in the United States and Puerto Rico pursuant to leases that expire
through 2001. Rental expense, net of sublease income, for the three months
ended March 31, 1997 and 1996 was $78,000 and $92,000, respectively.
In management's opinion, all leases with affiliated persons are on
terms at least as favorable to IGC as that generally available from
unaffiliated persons for comparable property.
Land and Other Sales
The outstanding balance of the two notes receivable for land sales to
Compri as of March 31, 1997 and December 31, 1996 were $3,441,000 and
$3,544,000, respectively.
The outstanding note receivable balance for land sales to Darby
Station as of March 31, 1997 and December 31, 1996 was $1,200,000.
Operations Distributed to Unitholders
The Company's 99% limited partnership interest in Equus was
distributed to its unitholders in February 1995 (the "Equus Distribution").
Since that time through April 1996, the Company continued to manage and
provided certain reimbursable administrative services and support to Equus.
The outstanding receivable balance for these services provided Equus Gaming
Company L.P. pursuant to a Master Support and Service Agreement as of March
31, 1997 and December 31, 1996 were $226,000 and $416,000, respectively.
Other
As of March 31, 1997 and December 31, 1996, IGC owed IBC $48,000 and
$54,000 of unpaid minority interest distributions. During the first
quarter of 1997, IGC paid APS the $39,000 collected on a receivable that
was previously sold to APS.
The outstanding balance due from IBC, related to the pass through of
taxable gains, was $881,000 as of March 31, 1997 and December 31, 1996.
(6) COMPANY RESTRUCTURING
Management, together with its advisors, is continuing to develop the
restructuring plan described in the Registrant's 1996 Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 1997 and 1996
General. Historically, the Company's financial results have been
significantly affected by the cyclical nature of the real estate industry.
Accordingly, the Company's historical financial statements may not be
indicative of future results. For further information about certain
factors which may affect future income and cash flow, see "Additional
Prospective Information" below.
<PAGE>15
Community Development Operations. Community development land sales
revenue decreased 56% to $1,449,000 during the first quarter of 1997
compared to the first quarter of 1996 primarily due to a decrease of
residential lot sales in Puerto Rico. Since these lots are sold to
homebuilders in bulk, there are fewer sales transactions. The timing of
these sales cause fluctuations when comparing quarterly results. The U.S.
residential lot sales volume has continued to be unfavorably impacted by
the competitive market conditions and the failure to start new development
in the next village, Fairway.
Even though the sales revenues were down, the gross margin during the
first quarter 1997 increased to 35% compared to 19% in the 1996 period.
This increase is primarily due to the mix of sales. Commercial land sales
produce the highest prices but require less development than the business
park and residential land. Commercial sales as a percent of land sales
revenue were 33% and 0% for the first quarter 1997 and 1996, respectively.
The residential lot sales in Puerto Rico produce a lower margin than those
in the U.S. primarily due to a higher land acquisition cost. During the
first three months of 1997 and 1996, Puerto Rico residential lot sales as a
percent of land sales revenue were 0% and 72%, respectively.
Homebuilding Operations. Revenues from home sales have continued to
decline as the Company phased out its tract homebuilding and competition
increased. The number of tract homes sold decreased 77% while the number
of semi-custom homes sold remained consistent during the first quarter of
1997 as compared to the first quarter of 1996. The gross profit margins
increased to 5% during the first quarter of 1997 as compared to 1% in the
comparable 1996 period. The Company, through a close out program, sold 13
tract homes at book value during the first quarter 1996, which contributed
to the lower gross margins during that period.
Rental Property Revenues and Operating Results. Rental property
revenues and operating expense include the results of operations of three
consolidated apartment projects for the first quarter of 1997 and 1996 and
four additional partnerships for the first quarter 1997. These four
partnerships became majority-owned in April 1996 through acquisitions of
additional limited partnership units.
Equity in Earnings from Partnerships and Developer Fees. Equity in
earnings decreased to $417,000 during the first quarter of 1997 from
$15,328,000 during the first quarter of 1996. This decrease was primarily
due to the $14,600,000 earned on the LIHPRHA sale during the 1996 period
and the elimination of the equity in earnings in the four partnerships
consolidated during the 1997 period.
Management and Other Fees. Management and other fees decreased 39% in
the first quarter of 1997 compared to 1996. This was due primarily to
$1,362,000 of special management fees earned in the first quarter of 1996
from the LIHPRHA transaction and the elimination of $76,000 of fees earned
during the first quarter 1997 from the four partnerships consolidated as of
April 1, 1996.
Interest Expense. Interest expense decreased $816,000 during the
first quarter of 1997 compared to the same period in 1996. The $500,000 of
loan fees incurred during the first quarter of 1996 contributed to this
decrease. In addition, the amount of debt associated with assets not under
development was lower during the 1997 period as compared to the same period
in 1996.
<PAGE>16
General and Administrative Expense. General and administrative
expenses decreased by $975,000 in the first quarter of 1997 compared to the
same period in 1996 as a result of management's continued focus on cost
efficiency and the reduction of these expenses.
Liquidity and Capital Resources
See Note 2 on page 7 of this Form 10-Q.
Additional Prospective Information
The following discussion contains statements that may be considered
forward looking that involve a number of risks and uncertainties as
discussed herein and in the Company's SEC reports. Therefore, actual
results could differ materially.
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
overbuilt markets, can adversely impact both commercial and residential
development activity, including the demand for housing.
The Company's homebuilding and community development sales continue to
be greatly influenced by consumer confidence, housing demand, prevailing
market interest rates, movements in such rates and expectations about
future rates. Even though the rates have remained fairly stable and an
adequate supply is available to the entry-level homebuyer, the economic
uncertainties associated with the federal budget and government furloughs
during 1995 and 1996 came at a time when supplies and competition were high
in the Washington, D.C. market. As a result, the local market's
inventories remain high and profit margins continue to decline.
The housing markets in St. Mary's and Charles County are anticipated
to be favorably impacted by the expansion of the Patuxent River Naval Air
Warfare Center in St. Mary's County. This expansion will create 13,000
jobs within the next few years. Management anticipates the light
industrial and business park land sales to increase after the absorption of
the excess inventory in the region. Currently, the Company has seen
increased interest in its U.S. commercial land. The Puerto Rico
residential and commercial market has remained stable.
Traditionally, the Company has realized the value of its land assets
by selling parcels in fee simple transactions, by taking back notes or
through option agreements on residential lots in which lot prices escalate
at predetermined rates. On occasion, it also has participated in joint
ventures by contributing land at its appraised value in exchange for a
combination of cash at settlement and/or a percentage of the partnership's
cash flow. As a result of its restructuring as disclosed above in
Liquidity and Capital Resources, the Company may find joint ventures as the
best strategy to maximize long-term returns, especially on its commercial
land.
<PAGE>17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the legal proceeding described
in the Registrant's 1996 Form 10-K.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
None.
<PAGE>18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
-------------------------------
(Registrant)
By: Interstate General Management
Corporation
Managing General Partner
Dated: May 15, 1997 By: /s/ James J. Wilson
----------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Dated: May 15, 1997 By: /s/ J. Michael Wilson
----------------- -----------------------------
J. Michael Wilson
Vice Chairman, Chief Financial
Officer and Director
Dated: May 15, 1997 By: /s/ Cynthia L. Hedrick
----------------- -----------------------------
Cynthia L. Hedrick
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,228<F1>
<SECURITIES> 0
<RECEIVABLES> 8,597
<ALLOWANCES> (139)
<INVENTORY> 78,768
<CURRENT-ASSETS> 0
<PP&E> 3,668
<DEPRECIATION> 2,510
<TOTAL-ASSETS> 147,077
<CURRENT-LIABILITIES> 0
<BONDS> 73,329
0
0
<COMMON> 0
<OTHER-SE> 46,849
<TOTAL-LIABILITY-AND-EQUITY> 147,077
<SALES> 3,323
<TOTAL-REVENUES> 7,387
<CGS> 2,729
<TOTAL-COSTS> 2,972
<OTHER-EXPENSES> 3,995
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> 367
<INCOME-TAX> 112
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Balance includes $1,114 of restricted cash.
</FN>
</TABLE>
