SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
(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, 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
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(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>
Item 1 of the report on Form 10-Q of Interstate General Company L.P.
dated August 14, 1997 is amended with respect to the consolidated financial
statements and the accompanying Notes 3 and 5 for the three and six months
ended June 30, 1997. The discussions of equity in earnings from
partnerships and developer fees in Item 2 were also amended.
<PAGE>
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1997 1996
---------- ----------
REVENUES
Community development - land sales
to non-affiliates $ 2,619 $ 4,154
to affiliates 3,000 6,006
Homebuilding - home sales 3,712 5,717
Equity in earnings from partnerships and
developer fees 683 15,758
Investment in gaming properties 549 --
Rental property revenues 4,300 3,241
Management and other fees, substantially
all from related entities 2,269 3,270
Interest and other income 488 531
---------- ----------
Total revenues 17,620 38,677
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $1,659 and $3,304 3,555 7,189
Cost of home sales 3,612 5,374
Selling and marketing 571 674
General and administrative 3,532 4,213
Interest expense 1,817 2,938
Rental properties operating expense 1,768 1,400
Depreciation and amortization 1,089 712
Wetlands litigation expenses 68 650
Write-off of deferred project costs 6 217
---------- ----------
Total expenses 16,018 23,367
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 1,602 15,310
PROVISION FOR INCOME TAXES 112 5,443
---------- ----------
INCOME BEFORE MINORITY INTEREST 1,490 9,867
MINORITY INTEREST 13 475
---------- ----------
NET INCOME $ 1,477 $ 9,392
========== ==========
NET INCOME PER UNIT $ .14 $ .91
========== ==========
NET INCOME
General Partners $ 15 $ 94
Limited Partners 1,462 9,298
---------- ----------
$ 1,477 $ 9,392
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1997 1996
---------- ----------
REVENUES
Community development - land sales
to non-affiliates $ 1,170 $ 848
to affiliates 3,000 6,006
Homebuilding - home sales 1,838 2,993
Equity in earnings from partnerships and
developer fees 266 430
Investment in gaming properties 549 --
Rental property revenues 2,142 2,120
Management and other fees, substantially
all from related entities 926 1,061
Interest and other income 342 334
---------- ----------
Total revenues 10,233 13,792
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $1,659 and $3,657 2,612 4,493
Cost of home sales 1,827 2,685
Selling and marketing 327 339
General and administrative 1,871 1,577
Interest expense 895 1,200
Rental properties operating expense 933 968
Depreciation and amortization 512 432
Wetlands litigation expenses 68 650
Write-off of deferred project costs 1 95
---------- ----------
Total expenses 9,046 12,439
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 1,187 1,353
PROVISION FOR INCOME TAXES -- 620
---------- ----------
INCOME BEFORE MINORITY INTEREST 1,187 733
MINORITY INTEREST (35) 403
---------- ----------
NET INCOME $ 1,222 $ 330
========== ==========
NET INCOME PER UNIT $ .12 $ .03
========== ==========
NET INCOME
General Partners $ 12 $ 3
Limited Partners 1,210 327
---------- ----------
$ 1,222 $ 330
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
June 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,575 $ 2,212
Restricted 900 988
-------- --------
2,475 3,200
ASSETS RELATED TO COMMUNITY DEVELOPMENT -------- --------
Land and development costs
Puerto Rico 35,468 34,034
St. Charles, Maryland 26,691 26,980
Other United States locations 15,146 16,256
Notes receivable on lot sales and other,
substantially all due from affiliates 6,606 5,815
-------- --------
83,911 83,085
ASSETS RELATED TO INVESTMENT PROPERTIES -------- --------
Operating properties, net of accumulated
depreciation of $21,164 and $20,658 as of June
30, 1997 and December 31, 1996, respectively 38,724 39,219
Investment in unconsolidated rental property
partnerships 8,180 11,723
Other receivables, net of reserves of
$4 and $121 as of June 30, 1997
and December 31, 1996, respectively 711 1,290
-------- --------
47,615 52,232
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 1,578 2,016
Investment in joint venture 452 275
Receivables and other 119 200
-------- --------
2,149 2,491
OTHER ASSETS -------- --------
Goodwill, less accumulated amortization of
$1,115 and $1,039 as of June 30, 1997
and December 31, 1996, respectively 1,919 1,995
Deferred costs regarding waste technology and
other projects, receivables and other, net of
reserves of $0 and $69 as of June 30,
1997 and December 31, 1996 4,914 4,336
Property, plant and equipment, less accumulated
depreciation of $2,593 and $2,425 as of June
30, 1997 and December 31, 1996, respectively 1,163 1,229
-------- --------
7,996 7,560
-------- --------
Total assets $144,146 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 30,652 $ 34,077
Non-recourse debt 2,258 2,153
Accounts payable, accrued liabilities
and deferred income 5,151 4,829
-------- --------
38,061 41,059
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,004 1,139
Non-recourse debt 39,308 39,508
Accounts payable and accrued liabilities 3,488 3,202
-------- --------
43,800 43,849
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 242 502
Accounts payable, accrued liabilities
and deferred income 2,271 2,544
-------- --------
2,513 3,046
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 3,627 4,078
Notes payable and capital leases 650 630
Accrued income tax liability - current 3,086 3,979
Accrued income tax liability - deferred 4,338 5,333
-------- --------
11,701 14,020
-------- --------
Total liabilities 96,075 101,974
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,393 4,378
Limited partners' capital-10,257 Units
issued and outstanding as of
June 30, 1997 and December 31, 1996 43,678 42,216
-------- --------
Total partners' capital 48,071 46,594
-------- --------
Total liabilities and partners' capital $144,146 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1997 1996
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,477 $ 9,392
Adjustments to reconcile net income
to net cash provided by
(used by) operating activities:
Depreciation and amortization 1,089 712
Provision for deferred income taxes (995) 64
Equity in earnings from gaming properties (549) --
Equity in earnings from unconsolidated
partnerships and developer fees (683) (15,758)
Distributions from unconsolidated partnerships 4,967 14,845
Cost of sales-community development
and homebuilding 7,167 12,563
Development and construction expenditures (6,764) (9,788)
Equity in loss from homebuilding joint venture 48 19
Write-off of deferred project cost 6 217
Changes in notes and accounts receivable, due
from affiliates changed $(313) and $(1,918) (731) (2,358)
Changes in accounts payable, accrued
liabilities and deferred income (460) 4,714
------- --------
Net cash provided by operating activities 4,572 14,622
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in assets related to unconsolidated
rental property partnerships (741) 560
Change in restricted cash 88 550
(Additions to) rental operating properties, net (350) (528)
(Acquisitions) of other assets, net (86) (480)
Contributions to homebuilding joint venture (225) (84)
------- --------
Net cash (used in) investing activities (1,314) 18
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from debt financing 3,321 11,363
Payment of debt (7,216) (23,932)
Distributions to Unitholders -- (622)
-------- -------
Net cash (used in) financing activities (3,895) (13,191)
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (637) 1,449
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,212 3,476
-------- -------
CASH AND CASH EQUIVALENTS, JUNE 30, $ 1,575 $ 4,925
======== =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1997 1996
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,222 $ 330
Adjustments to reconcile net income
to net cash provided by
(used by) operating activities:
Depreciation and amortization 512 432
Provision for deferred income taxes (1,139) 69
Equity in earnings from gaming properties (549) --
Equity in earnings from unconsolidated
partnerships and developer fees (266) (430)
Distributions from unconsolidated partnerships 4,636 14,567
Cost of sales-community development
and homebuilding 4,439 7,179
Development and construction expenditures (4,554) (6,071)
Equity in loss from homebuilding joint venture 27 19
Write-off of deferred project cost 1 95
Changes in notes and accounts receivable, due
from affiliates changed $(605) and $(1,580) (846) (1,989)
Changes in accounts payable, accrued
liabilities and deferred income (413) (1,603)
------- --------
Net cash provided by operating activities 3,070 12,598
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in assets related to unconsolidated
rental property partnerships (775) 1,247
Change in restricted cash 214 (39)
(Additions to) rental operating properties, net (205) (426)
(Dispositions) of other assets, net 210 (354)
Contributions to homebuilding joint venture (1) (84)
------- --------
Net cash (used in) investing activities (557) 344
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from debt financing 2,032 8,343
Payment of debt (4,084) (17,914)
Distribution to Unitholders -- (622)
-------- -------
Net cash (used in) financing activities (2,052) (10,193)
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 461 2,749
CASH AND CASH EQUIVALENTS, MARCH 31, 1,114 2,176
-------- -------
CASH AND CASH EQUIVALENTS, JUNE 30, $ 1,575 $ 4,925
======== =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six months ended June 30, 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 has gone to pay down recourse debt, see
Consolidated Statements of Cash Flow, and as a result the Company's
liquidity has been restricted. In order to enhance its results of
operations and cash flow, the Company has refinanced certain assets,
reduced expenses and developed a restructuring plan.
During August 1997, the Company closed in escrow a refinancing of
substantially all of the U.S. assets with a $20,000,000 loan with an
affiliate of Banc One. The loan will retire $6,400,000 of debt outstanding
to NationsBank, past due taxes and other obligations and will provide
development funds for the first section of Fairway Village. The loan terms
also set aside $5,000,000 for fines and remediation work should the
Company's appeal of its wetlands violations conviction be unsuccessful.
The release prices for land sales will be reduced under the new loan,
resulting in increased cash available for operating needs. The loan will
be released from escrow upon NationsBank releasing certain collateral that
currently secures the Company's indebtedness to NationsBank. The
NationsBank indebtedness includes a $4.2 million standby letter of credit
that secures the Chastleton Notes (described in Note 5) (the "Chastleton
L/C"). IBC has undertaken to replace the Chastleton L/C with a letter of
credit on which IGC will not be an obligor. IBC is negotiating the terms
of this transaction with NationsBank. IBC will bear all of the costs of
replacing the Chastleton L/C and releasing the collateral, except (i) costs
of repaying the Company's outstanding indebtedness to NationsBank, and (ii)
pending completion of the restructuring (described in Note 6), the Company
may post as collateral for the Chastleton L/C its partnership interests in
<PAGE>
three Puerto Rico apartment partnerships and in its interest in a
partnership that owns development land in Prince George's County, Maryland.
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. These financings have provided the Company with the
financial strength needed to retire old obligations and proceed with its
development plans.
The Company has development projects in various phases. Substantially
all of the projects currently under construction have sufficient
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
June 30, March 31, March 15,
1997 1996 1996 Total
--------- --------- ---------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
June 30, 1997 $140,155 $-- $-- $140,155
December 31, 1996 141,107 -- -- 141,107
Total Non-Recourse Debt
June 30, 1997 (a) 145,273 -- -- 145,273
December 31, 1996 136,468 -- -- 136,468
Total Other Liabilities
June 30, 1997 24,040 -- -- 24,040
December 31, 1996 23,678 -- -- 23,678
Total Equity
June 30, 1997 (a) (29,159) -- -- (29,159)
December 31, 1996 (19,038) -- -- (19,038)
Company's Investment
June 30, 1997 (a) 7,637 -- -- 7,637
December 31, 1996 11,425 -- -- 11,425
<PAGE>
Partnership Status
---------------------------------------
Equity Equity Properties
Method at Method to Sold
June 30, March 31, March 15,
1997 1996 1996 Total
--------- --------- ---------- -----
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended June 30, 1997 8,081 -- -- 8,081
Three Months Ended June 30, 1996 8,175 -- -- 8,175
Six Months Ended June 30, 1997 (a) 16,298 -- -- 16,298
Six Months Ended June 30, 1996 16,285 1,018 1,103 18,406
Net Income (Loss)
Three Months Ended June 30, 1997 (392) -- -- (392)
Three Months Ended June 30, 1996 181 -- -- 181
Six Months Ended June 30, 1997 (a) (241) -- -- (241)
Six Months Ended June 30, 1996 14 135 109 258
Company's recognition of equity in
earnings and developer fees
Three Months Ended June 30, 1997 266 -- -- 266
Three Months Ended June 30, 1996 455 2 -- 457
Six Months Ended June 30, 1997 683 -- -- 683
Six Months Ended June 30, 1996 953 267 -- 1,220
SUMMARY OF OPERATING CASH FLOWS:
Cash flows from operating activities
Three Months Ended June 30, 1997 2,371 -- -- 2,371
Three Months Ended June 30, 1996 2,696 -- -- 2,696
Six Months Ended June 30, 1997 2,811 -- -- 2,811
Six Months Ended June 30, 1996 3,743 220 387 4,350
Company's share of cash flows
from operating activities
Three Months Ended June 30, 1997 873 -- -- 873
Three Months Ended June 30, 1996 1,061 -- -- 1,061
Six Months Ended June 30, 1997 1,174 -- -- 1,174
Six Months Ended June 30, 1996 1,358 134 170 1,662
Company's share of operating
cash distributions
Three Months Ended June 30, 1997 4,636 -- -- 4,636
Three Months Ended June 30, 1996 28 -- -- 28
Six Months Ended June 30, 1997 4,967 -- -- 4,967
Six Months Ended June 30, 1996 153 154 -- 307
SUMMARY OF 1996 SALES TRANSACTION:
Six Months Ended June 30, 1996
Gain on Sale $ -- $ -- $39,934 $39,934
Company's Equity and Earnings
Recognition -- -- 14,538 14,538
Total Distribution of Sales
Proceeds -- -- 36,235 36,235
Company's Share of
Sales Proceeds Distribution -- -- 15,165 15,165
(a) Two substantially debt free complexes were refinanced to
provide condominium conversion construction funds and
distributions to their owners. The operating revenue, net
<PAGE>
income and cash flows are reduced while these units are under
construction. The Company will receive 50% of the profits
generated from the condominium sales and has guaranteed these
loans, which cannot exceed $23,200,000.
Equity method at June 30, 1997: The unconsolidated rental properties
partnerships as of June 30, 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.
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.
<PAGE>
<PAGE>
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 and 1997, it purchased
98 and 118 lots, respectively. The profit on these lots are deferred until
sold by Escorial Builders to a third party. The Company's share of the
losses generated from the pre-sales activity 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:
June 30, 1997 $10,828 $9,924 $904 $452
December 31, 1996 5,586 5,047 539 275
Total Net Company's Share
Revenues (Loss) of Net (Loss)
-------- ------ ---------------
Summary of Operations:
June 30, 1997 $ -- $(95) $(48)
June 30, 1996 -- (39) (19)
Company's Share of
--------------------------
Cash Flows Cash Flows
From From Operating
Operating Operating Cash
Activities Activities Distributions
---------- ---------- -------------
Summary of Operating Cash Flows:
June 30, 1997 $(5,630) $(2,815) $--
June 30, 1996 (2,465) (1,232) --
<PAGE>
<PAGE>
(4) 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 June 30, December 31,
From/To From/To 1997 1996
-------- --------- --------- ------------
Related to community development:
Recourse debt Demand/ 9.0%/ $30,652 $34,077
10-28-99 10.0%
Non-recourse debt 08-02-09 P+1.5% 2,258 2,153
Related to investment properties:
Recourse debt Demand 7.35%/ 1,004 1,139
Non-recourse debt 10-01-19/ 6.85%/ 39,308 39,508
10-01-28 8.500%
Related to homebuilding projects:
Recourse debt 08-19-97/ 9.0%/ 242 502
12-21-97 10.0%
General:
Recourse debt Demand/ 7.4%/ 650 630
02-01-01 12.00% ------- -------
Total debt $74,114 $78,009
======= =======
*P = Prime lending interest rate.
As of June 30, 1997, the $30,652,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $6,412,000 of this
amount is further secured by investments in apartment rental partnerships.
Principal and interest payments of $1,395,000 on $6,412,000 of debt
outstanding to NationsBank are past due (discussed in Note 4).
As of June 30, 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 $7,306,000 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 the construction in progress of
two homes.
<PAGE>
<PAGE>
(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
("Darby Station"); member of Deer Valley
Limited Liability Company ("Deer Valley")
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; manager of
general partner Deer Valley
Thomas B. Wilson ("TBW"), Shareholder, Officer and Director of IBC,
Director of IGC's managing APS and WSC; President and Chief Operating
general partner Officer of El Comandante Operating Company
("ECOC"); manager of Deer Valley
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>
<PAGE>
Management Services
The management services provided to the related parties described
above are summarized below (in thousands):
REVENUE FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30,
---------------------------------------------------------
Three
Six Months Months
---------------------------------------------- ----------
Management Decrease
Related Fees and (Increase) Total Total
Party Interest in Reserve Recognized Recognized
------------- ---------- ---------- ---------- ----------
1997:
Chastleton (c) IBC $ 38 $ 36 $ 74 $ 37
Coachman's (c) IBC 13 15 28 28
Santa Maria WSC 37 -- 37 25
El Monte IBC 51 -- 51 25
Rolling Hills (c) IBC 45 53 98 98
Village Lake (c) IBC 12 16 28 28
Capital Park JJW, JMW 74 -- 74 37
----- ----- ----- -----
$ 270 $ 120 $ 390 $ 278
===== ===== ===== =====
1996:
Chastleton IBC $ 36 $363 $399 $399
Coachman's IBC 18 42 60 60
Santa Maria WSC 41 -- 41 28
El Monte IBC 55 -- 55 29
Rolling Hills IBC 45 -- 45 23
Village Lake IBC 11 -- 11 5
Capital Park JJW, JMW 128 -- 128 61
SVA and SVOBA IBC, JMW, TBW 24 -- 24 10
IBC JMW, TBW 20 -- 20 5
----- ----- ------ -----
$ 378 $ 405 $ 783 $ 620
===== ===== ====== =====
OUTSTANDING RECEIVABLE AT (b)
--------------------------------------------------------------
June 30, 1997 December 31, 1996
------------------------------ ------------------------------
Receivable (a) Reserve Balance Receivable (a) Reserve Balance
-------------- ------- ------- -------------- ------- -------
Chastleton (c) $ 10 $ -- $ 10 $ 47 $ (36) $ 11
Coachman's (c) 4 -- 4 26 (15) 11
Santa Maria 10 -- 10 46 -- 46
El Monte 6 -- 6 40 -- 40
Rolling Hills (c) 24 -- 24 65 (53) 12
Village Lake (c) 12 -- 12 27 (16) 11
Capital Park 25 -- 25 23 -- 23
SVA 15 -- 15 2 -- 2
------ ----- ------ ------ ----- ------
$ 106 $ -- $ 106 $ 276 $(120) $ 156
====== ===== ====== ====== ===== ======
<PAGE>
(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 six months of 1997 and during 1996 was
$297,000 and $1,025, respectively.
(c) During the second quarter of 1997, an affiliate of IBC
purchased the management fees receivable due from Chastleton,
Coachman's, Rolling Hills, and Village Lake for a cash payment
of $190,000. The collection of these receivables had
previously been questionable and they had been fully reserved.
This transaction resulted in income recognition of $190,000.
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 six months
ended June, 1997 and 1996 was $66,000 and $64,000, 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 June 30, 1997 and December 31, 1996 were $3,245,000 and
$3,544,000, respectively. Certain offsite improvements were not completed
as scheduled, prompting a renegotiation of the notes' terms. The Company
agreed to postpone the commencement of interest on two of the notes until
this work is completed or Compri begins construction. During the second
quarter of 1997, the Company established an additional $263,000 discount on
these notes.
In the first six months of 1997, IGC collected the note receivable
balance for land sales to Darby Station that had an outstanding balance of
$1,200,000 at December 31, 1996.
On June 30, 1997, the Company sold 374 acres to Deer Valley for
$3,000,000 and recognized profit of $1,341,000. As payment for this
parcel, the Company received a 20% downpayment and a note receivable for
$2,400,000. Pursuant to the terms of the sales agreement, Deer Valley
agreed to assume the $3,000,000 loan that encumbered this property and
other parcels of land. Upon execution by the lender agreeing to release
the Company of its obligations with respect to this loan, the note
receivable from Deer Valley will be considered paid in full and the
downpayment refunded. Concurrently, IBC, Deer Valley's owner, will make a
$600,000 payment on an outstanding obligation due the Company.
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
<PAGE>
Company L.P. pursuant to a Master Support and Service Agreement as of June
30, 1997 and December 31, 1996 were $10,000 and $416,000, respectively.
Pursuant to the Transfer Control Agreement effective December 31, 1996
(the "Transfer Agreement"), IGC transferred its remaining interests in and
control over EMC, Equus and Housing Development Associates ("HDA") to IBC.
This included the transfer to IBC of the Company's general partner interest
in Equus, an obligation subject to the approval of Nasdaq Stock Market. In
addition, the Transfer Agreement calls for IGC to issue 75,000 IGC Units to
Equus to satisfy the outstanding employee option and incentive rights to
the employees that were transferred to EMC. As a result of this
transaction and payment of the amounts due IGC, the Company recognized
earnings equal to the negative basis of its investment in Equus.
Other
As of June 30, 1997 and December 31, 1996, IGC owed IBC $40,000 and
$54,000 of unpaid minority interest distributions. During the first six
months of 1997, IGC paid APS the $54,000 collected on a receivable that was
previously sold to APS.
As of June 30, 1997 and December 31, 1996, the outstanding balance due
from IBC related to the pass through of taxable gains was $681,000 and
$881,000, respectively.
In 1994, the Company acquired HDA's minority partner interest. As a
result of this transaction, the Company obtained a note receivable,
including accrued interest, due from ECOC. At June 30, 1997 and December
31, 1996, the outstanding balance due from ECOC was $285,000 and $277,000,
respectively.
During the second quarter of 1997, IGC sold to IBC its 49% limited
partner interest and 90% of its 1% general partner interest in Coachman's.
This transaction had no impact on the Company's results of operations.
(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 Six Months Ended June 30, 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.
Community Development Operations. Community development land sales
revenue decreased 45% to $5,619,000 during the first six months of 1997
compared to the first six months 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.
<PAGE>
residential lot sales volume has continued to be unfavorably impacted by
the competitive market conditions and the delay of new development in the
next village, Fairway.
Even though the sales revenues were down, the gross margin during the
first six months of 1997 increased to 37% compared to 29% in the 1996
period. This increase is primarily due to the mix of sales. U.S.
commercial land produce the highest sales prices but require less
development than the business park and residential land. During the 1996
period, 11% of the sales were lots sold at book value as the Company
continued its efforts to reduce its inventory in saturated market areas and
there were no commercial sales. During the comparable 1997 period, there
were no lot sales at book value and 9% of the sales were commercial
parcels. In addition, during the 1997 period, 53% of the sales revenue was
generated by an undeveloped bulk parcel with a low acquisition cost.
Homebuilding Operations. Revenues from home sales have continued to
decline as the Company phased out its tract homebuilding and competition
increased. The number of homes sold decreased 35% during the first six
months of 1997 as compared to the first six months of 1996 primarily due to
the phase out of its tract homebuilding operations. The gross profit
margins decreased to 3% during the first six months of 1997 as compared to
6% in the comparable 1996 period. During the six months ended June 30,
1997, the Company closed seven homes that incurred additional costs to cure
non-reoccurring construction problems.
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 three months of 1996 and
seven partnerships for the second quarter of 1996 and the first and second
quarter of 1997. The additional 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 $683,000 during the first six months of 1997 from
$15,758,000 during the first six months of 1996. This decrease was
primarily due to the $14,538,000 earned on the LIHPRHA sale during the 1996
period, the elimination of the equity in earnings in the four partnerships
consolidated during the 1997 period, and the reduction in earnings from two
projects beginning the condominium conversion process during 1997.
Management and Other Fees. Management and other fees decreased 31% in
the first six months of 1997 compared to 1996. This was due primarily to
special management fees of $1,362,000 earned in the first quarter of 1996
from the LIHPRHA transaction and $619,000 earned from the refinancing of
two apartment complexes in the first six months of 1997.
Interest Expense. Interest expense decreased $1,121,000 during the
first six months of 1997 compared to the same period in 1996. The $500,000
of loan fees incurred during the first six months of 1996 and a $7,874,000
decrease in outstanding debt 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.
General and Administrative Expense. General and administrative
expenses decreased by $681,000 in the first six months 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.
<PAGE>
Results of Operations for the Three Months Ended June 30, 1997 and 1996
Community Development Operations. Community development land sales
revenue decreased 39% to $4,170,000 during the three months ended June 30,
1997 compared to the same period in 1996 primarily due to a decrease in
residential lot sales in Puerto Rico as discussed above.
The gross profit margins increased during the three months ended June
30, 1997 to 37% compared to 34% in 1996 due to the mix of sales. The gross
profit margins on the residential and commercial land have remained stable.
Homebuilding Operations. Revenues from home sales decreased 39%
during the second quarter of 1997 compared to the same period in 1996. The
number of homes sold decreased 32% in the second three months of 1997
compared to 1996. These reductions were primarily due to the phase out of
the tract homebuilding operations. The gross profit margins decreased
during the second three months of 1997 to .6% compared to 10% earned during
the same period in 1996. During the six months ended June 30, 1997, the
Company incurred additional costs to cure non-reoccurring construction
problems on seven homes.
Rental Property Revenues and Operating Results. The rental properties
income increased 5% during the three months ended June 30, 1997 as compared
to the same period in 1996 primarily due to reduced vacancies during the
1997 period.
Equity in Earnings from Partnerships and Developer Fees. Equity in
earnings decreased $164,000 during the second three months of 1997 compared
to the same period in 1996. This decrease was primarily due to reduced
earnings from two projects beginning the condominium conversion process
during 1997, and a reduction in distributions recognized as income in 1997
over the same period in 1996.
Management and Other Fees. Management and other fees decreased 13% or
$136,000 in the second three month period ended June 30, 1997 as compared
to the 1996 period. During the 1996 period a greater amount of reserved
management fees were recovered than during the same period in 1997. The
termination of the management contracts for HDA and the commercial projects
owned by IBC also contributed to this decrease, which was offset in part by
special management fees earned from the supervision of the condominium
conversions during the 1997 period.
Interest Expense. Interest expense decreased $305,000 in the second
quarter of 1997 compared to the same period in 1996 primarily due to a
$7,874,000 decrease in outstanding debt from June 30, 1996 to June 30,
1997.
General and Administrative Expense. General and administrative
expenses increased $294,000 in the second three months of 1997 compared to
1996. This increase is primarily attributable to the increased discount
established on the Compri note receivable as discussed in Note 5 to the
accompanying financial statements.
Liquidity and Capital Resources
See Note 2 on page 9 of this Form 10-Q.
<PAGE>
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. In addition, Charles County was targeted
as a new growth area. New developers and homebuilders attracted to this
area built-up their inventories in anticipation of this growth. As a
result, the local market's inventories remain high and profit margins are
thin.
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 in its latest
Form 10-K, the Company may find joint ventures as the best strategy to
maximize long-term returns, especially on its commercial land.
<PAGE>
<PAGE>
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: April 13, 1998 By: /s/ Edwin L. Kelly
----------------- -----------------------------
Edwin L. Kelly
President and Chief Operating
Officer
