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 SEPTEMBER 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.
10,331,785 Class A Units
------------------------
<PAGE>
Item 1 of the report on Form 10-Q of Interstate General Company L.P.
dated November 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 September 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 NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1997 1996
---------- -----------
REVENUES
Community development - land sales
to non-affiliates $ 4,529 $ 4,358
to affiliates 3,000 5,678
Homebuilding - home sales 5,510 8,002
Equity in earnings from partnerships and
developer fees 988 16,268
Investment in gaming properties 549 4
Rental property revenues 6,540 5,380
Management and other fees, substantially
all from related entities 3,038 4,001
Interest and other income 640 750
---------- ----------
Total revenues 24,794 44,441
---------- ----------
EXPENSES
Cost of land sales 4,873 7,538
Cost of home sales 5,457 7,540
Selling and marketing 906 1,015
General and administrative 5,079 5,960
Interest expense 2,683 4,037
Rental properties operating expense 2,784 2,379
Depreciation and amortization 1,582 1,204
Wetlands litigation expenses 68 750
Write-off of deferred project costs 6 329
Spin-off costs 300 --
---------- ----------
Total expenses 23,738 30,752
---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 1,056 13,689
PROVISION FOR INCOME TAXES 558 4,773
---------- ----------
INCOME BEFORE MINORITY INTEREST 498 8,916
MINORITY INTEREST (129) (393)
---------- ----------
NET INCOME $ 369 $ 8,523
========== ==========
NET INCOME PER UNIT $ .04 $ .83
========== ==========
NET INCOME
General Partners $ 4 $ 85
Limited Partners 365 8,438
---------- ----------
$ 369 $ 8,523
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,274 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1997 1996
---------- -----------
REVENUES
Community development - land sales
to non-affiliates $ 1,910 $ 10
to affiliates -- --
Homebuilding - home sales 1,798 2,286
Equity in earnings from partnerships and
developer fees 305 509
Investment in gaming properties -- 4
Rental property revenues 2,240 2,139
Management and other fees, substantially
all from related entities 769 731
Interest and other income 152 219
---------- ----------
Total revenues 7,174 5,898
---------- ----------
EXPENSES
Cost of land sales 1,318 269
Cost of home sales 1,845 2,166
Selling and marketing 335 324
General and administrative 1,547 1,978
Interest expense 866 1,069
Rental properties operating expense 1,016 979
Depreciation and amortization 493 522
Wetlands litigation expenses -- 100
Write-off of deferred project costs -- 112
Spin-off costs 300 --
---------- ----------
Total expenses 7,720 7,519
---------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST (546) (1,621)
PROVISION FOR INCOME TAXES 446 (670)
---------- ----------
LOSS BEFORE MINORITY INTEREST (992) (951)
MINORITY INTEREST (116) 82
---------- ----------
NET LOSS $ (1,108) $ (869)
========== ==========
NET LOSS PER UNIT $ (.11) $ (.08)
========== ==========
NET LOSS
General Partners $ (11) $ (9)
Limited Partners (1,097) (860)
---------- ----------
$ (1,108) $ (869)
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,274 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
September 30, December 31,
1997 1996
------------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,508 $ 2,212
Restricted cash 738 988
-------- --------
3,246 3,200
ASSETS RELATED TO COMMUNITY DEVELOPMENT -------- --------
Land and development costs
Puerto Rico 35,033 34,034
St. Charles, Maryland 27,267 26,980
Other United States locations 14,478 16,256
Notes receivable on lot sales and other,
substantially all due from affiliates 7,153 5,815
-------- --------
83,931 83,085
ASSETS RELATED TO INVESTMENT PROPERTIES -------- --------
Operating properties, net of accumulated
depreciation of $21,467 and $20,658 as
of September 30, 1997 and December 31,
1996, respectively 38,374 39,219
Investment in unconsolidated rental property
partnerships 8,309 11,723
Other receivables, net of reserves of
$34 and $121 as of September 30,
1997 and December 31, 1996, respectively 744 1,290
-------- --------
47,427 52,232
ASSETS RELATED TO HOMEBUILDING -------- --------
Homebuilding construction and land 1,939 2,016
Investment in joint venture 454 275
Receivables and other 163 200
-------- --------
2,556 2,491
OTHER ASSETS -------- --------
Goodwill, less accumulated amortization of
$1,154 and $1,039 as of September 30, 1997
and December 31, 1996, respectively 1,881 1,995
Deferred costs regarding waste technology and
other projects, receivables and other, net of
reserves of $31 and $69 as of September 30,
1997 and December 31, 1996 8,869 4,336
Property, plant and equipment, less accumulated
depreciation of $2,440 and $2,425 as of
September 30, 1997 and December 31, 1996,
respectively 1,136 1,229
-------- --------
11,886 7,560
-------- --------
Total assets $149,046 $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
September 30, December 31,
1997 1996
------------- ------------
(Unaudited) (Audited)
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 38,055 $ 34,077
Non-recourse debt 2,302 2,153
Accounts payable, accrued liabilities
and deferred income 5,051 4,829
-------- --------
45,408 41,059
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 968 1,139
Non-recourse debt 39,206 39,508
Accounts payable and accrued liabilities 3,443 3,202
-------- --------
43,617 43,849
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 56 502
Accounts payable, accrued liabilities
and deferred income 2,667 2,544
-------- --------
2,723 3,046
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 3,434 4,078
Notes payable and capital leases 649 630
Accrued income tax liability - current 1,360 3,979
Accrued income tax liability - deferred 4,892 5,333
-------- --------
10,335 14,020
-------- --------
Total liabilities 102,083 101,974
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,382 4,378
Limited partners' capital-10,257 Units
issued and outstanding as of September
30, 1997 and December 31, 1996 42,581 42,216
-------- --------
Total partners' capital 46,963 46,594
-------- --------
Total liabilities and partners' capital $149,046 $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 NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 369 $ 8,523
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation and amortization 1,582 1,204
Provision for deferred income taxes (441) 311
Equity in earnings from gaming properties (549) (4)
Equity in earnings from unconsolidated
partnerships and developer fees (988) (16,268)
Distributions from unconsolidated partnerships 5,142 15,603
Cost of sales-community development
and homebuilding 10,330 15,078
Development and construction expenditures (9,761) (14,841)
Equity in loss from homebuilding joint venture 66 48
Write-off of deferred project cost 6 329
Changes in notes and accounts receivable, due
from affiliates changed $(363) and $(1,276) (755) (1,718)
Changes in accounts payable, accrued liabilities
and deferred income (2,128) 4,397
------- -------
Net cash provided by operating activities 2,873 12,662
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in assets related to unconsolidated
rental property partnerships (740) 101
Change in restricted cash 250 741
(Additions to) rental operating properties, net (396) (439)
Payment of Fines (see Note 6) (3,212) --
(Acquisitions) of other assets, net (1,461) (456)
Contributions to homebuilding joint venture (245) (90)
------- -------
Net cash (used in) investing activities (5,804) (143)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 19,332 13,243
Payment of debt (16,105) (25,948)
Distributions to Unitholders -- (1,140)
------- -------
Net cash provided by (used in) financing activities 3,227 (13,845)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 296 (1,326)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,212 3,476
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 2,508 $ 2,150
======= =======
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 SEPTEMBER 30,
(In thousands)
(Unaudited)
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,108) $ (869)
Adjustments to reconcile net loss to net cash
provided by (used by) operating activities:
Depreciation and amortization 493 492
Provision for deferred income taxes 554 247
Equity in earnings from gaming properties -- (4)
Equity in earnings from unconsolidated
partnerships and developer fees (305) (510)
Distributions from unconsolidated partnerships 175 758
Cost of sales-community development
and homebuilding 3,163 2,515
Development and construction expenditures (2,997) (5,053)
Equity in loss from homebuilding joint venture 18 29
Write-off of deferred project cost -- 112
Changes in notes and accounts receivable, due
from affiliates changed $(46) and $642 (24) 640
Changes in accounts payable, accrued liabilities
and deferred income (1,668) (317)
------- -------
Net cash (used in) operating activities (1,699) (1,960)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in assets related to unconsolidated
rental property partnerships 1 (459)
Change in restricted cash 162 191
(Additions to) rental operating properties, net (46) 89
Payment of Fines (see Note 6) (2,962) --
(Acquisitions) of other assets, net (1,625) 24
Contributions to homebuilding joint venture (20) (6)
------- -------
Net cash (used in) investing activities (4,490) (161)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 16,011 1,880
Payment of debt (8,889) (2,016)
Distributions to Unitholders -- (518)
------- -------
Net cash provided by (used in) financing activities 7,122 (654)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 933 (2,775)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,575 4,925
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 2,508 $ 2,150
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September
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 goes to pay down recourse debt 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 and other financial commitments. In September
1997, the Company closed a $20,000,000 loan that refinanced substantially
all of the U.S. recourse bank debt. This loan provided funds for past due
trade payables, future development and working capital. In addition, the
release prices for land sales under the new loan are lower than under the
loans that were refinanced, permitting the Company to retain larger portion
of land sales proceeds to fund operating needs. The Company believes its
ongoing operations, including asset sales and additional financings, will
be sufficient to meet its existing debt and other operating obligations.
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.
<PAGE>
(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).
Activity
Prior to Activity
Consolida- Prior to
Comparable tion of Sale of
Partnership Four Part- Four Part-
Results nerships nerships Total
------------ --------- --------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
September 30, 1997 $139,065 $-- $-- $139,065
December 31, 1996 141,107 -- -- 141,107
Total Non-Recourse Debt
September 30, 1997 (a) 144,891 -- -- 144,891
December 31, 1996 136,468 -- -- 136,468
Total Other Liabilities
September 30, 1997 24,358 -- -- 24,358
December 31, 1996 23,678 -- -- 23,678
Total Equity
September 30, 1997 (a) (30,184) -- -- (30,184)
December 31, 1996 (19,038) -- -- (19,038)
Company's Investment
September 30, 1997 (a) 7,711 -- -- 7,711
December 31, 1996 11,425 -- -- 11,425
SUMMARY OF OPERATIONS:
Total Revenue Three Months Ended:
September 30, 1997 (a) 7,940 -- -- 7,940
September 30, 1996 8,157 -- -- 8,157
Total Revenue Nine Months Ended:
September 30, 1997 (a) 24,238 -- -- 24,238
September 30, 1996 24,442 1,018 1,103 26,563
Net Income (Loss) Three Months Ended:
September 30, 1997 (a) (375) -- -- (375)
September 30, 1996 553 -- -- 553
Net Income (Loss) Nine Months Ended:
September 30, 1997 (a) (616) -- -- (616)
September 30, 1996 567 135 109 811
Company's recognition of equity in
earnings and developer fees
Three Months Ended:
September 30, 1997 (a) 305 -- -- 305
September 30, 1996 406 3 -- 409
Nine Months Ended:
September 30, 1997 988 -- -- 988
September 30, 1996 1,359 270 -- 1,629
<PAGE>
Activity
Prior to Activity
Consolida- Prior to
Comparable tion of Sale of
Partnership Four Part- Four Part-
Results nerships nerships Total
------------ --------- --------- -----
SUMMARY OF OPERATING CASH FLOWS:
Cash flows from operating activities
Three Months Ended:
September 30, 1997 1,185 -- -- 1,185
September 30, 1996 1,191 -- -- 1,191
Nine Months Ended:
September 30, 1997 3,996 -- -- 3,996
September 30, 1996 4,934 220 387 5,541
Company's share of cash flows
from operating activities
Three Months Ended:
Sepember 30, 1997 412 -- -- 412
September 30, 1996 498 -- -- 498
Nine Months Ended:
September 30, 1997 1,586 -- -- 1,586
September 30, 1996 1,856 134 170 2,160
Operating cash distributions
Three Months Ended:
September 30, 1997 478 294 -- 772
September 30, 1996 491 236 -- 727
Nine Months Ended:
September 30, 1997 (a) 10,627 523 -- 11,150
September 30, 1997 883 590 -- 1,473
Company's share of operating
cash distributions
Three Months Ended:
September 30, 1997 179 -- -- 179
September 30, 1996 214 -- -- 214
Nine Months Ended:
September 30, 1997 (a) 5,146 -- -- 514
September 30, 1996 367 154 -- 521
SUMMARY OF 1996 SALES TRANSACTION:
Nine Months Ended September 30, 1996
Gain on Sale -- -- 39,934 39,934
Company's Equity and Earnings
Recognition -- -- 14,639 14,639
Total Distribution of Sales
Proceeds -- -- 36,118 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
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.
<PAGE>
Comparable Partnership Results: The unconsolidated rental properties
partnerships as of September 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.
Activity Prior to Consolidation of Four Partnerships: 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.
Activity Prior to Sale of Four Partnerships: 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 contracts 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 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:
September 30, 1997 $12,854 $11,971 $883 $454
December 31, 1996 5,586 5,047 539 275
<PAGE>
Total Net Company's Share
Revenues (Loss) of Net (Loss)
-------- ------ ---------------
Summary of Operations:
September 30, 1997 $ 2 $(136) $(68)
September 30, 1996 -- (97) (48)
Company's Share of
--------------------------
Cash Flows Cash Flows
From From Operating
Operating Operating Cash
Activities Activities Distributions
---------- ---------- -------------
Summary of Operating Cash Flows:
September 30, 1997 $(7,642) $(3,821) $ --
September 30, 1996 (3,395) (1,698) --
(4) DEBT
Debt
The Company's outstanding debt is collateralized primarily by land,
land improvements, homebuilding construction in process, receivables,
investments in partnerships, and rental properties. The following table
summarizes the indebtedness of IGC (in thousands):
Outstanding
Maturity Interest --------------------------
Dates Rates September 30, December 31,
From/To From/To 1997 1996
-------- --------- ------------- ------------
Related to community
development:
Recourse debt Demand/ 9.0%/ $38,055 $34,077
07-31-04 P+2.5%
Non-recourse debt 08-02-09 P+1.5% 2,302 2,153
Related to investment
properties:
Recourse debt Demand 7.35% 968 1,139
Non-recourse debt 10-01-19/ 6.85%/ 39,206 39,508
10-01-28 8.50%
Related to homebuilding
projects:
Recourse debt Demand/ 9.0%/ 56 502
12-21-97 9.5%
General:
Recourse debt Demand/ 7.4%/ 649 630
02-01-01 12.00% ------- -------
Total debt $81,236 $78,009
======= =======
*P = Prime lending interest rate.
<PAGE>
As of September 30, 1997, the $38,055,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $14,719,000 of this
amount is further secured by investments in apartment rental partnerships.
As of September 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 and the Company's share of excess cash flow distributions
from two Puerto Rico apartment projects. The non-recourse investment
properties debt is collateralized by apartment projects and secured by FHA
or the Maryland Housing Fund. Mortgage notes payable of $7,276,000 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>
(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>
Management Services
The management services provided to the related parties described
above are summarized below (in thousands):
REVENUE FOR THE NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30,
---------------------------------------------------------
Three
Nine Months Months
---------------------------------------------- ----------
Management Decrease
Related Fees and (Increase) Total Total
Party Interest in Reserve Recognized Recognized
------------- ---------- ---------- ---------- ----------
1997:
Chastleton (c) IBC $ 57 $ 18 $ 75 $ 1
Coachman's (c) IBC 20 8 28 --
Santa Maria WSC 52 -- 52 15
El Monte IBC 77 -- 77 26
Rolling Hills (c) IBC 69 29 98 --
Village Lake (c) IBC 19 10 29 1
Capital Park JJW, JMW 112 -- 112 38
----- ----- ----- -----
$ 406 $ 65 $ 471 $ 81
===== ===== ===== =====
1996:
Chastleton IBC $ 55 $327 $382 $ 1
Coachman's IBC 25 29 54 --
Santa Maria WSC 46 -- 46 5
El Monte IBC 74 -- 74 19
Rolling Hills IBC 67 -- 67 22
Village Lake IBC 18 (10) 8 --
Capital Park JJW, JMW 159 -- 159 30
SVA ---- 22 -- 22 1
SVOBA IBC, JMW, TBW 3 -- 3 --
IBC JMW, TBW 20 -- 20 --
----- ----- ------ -----
$ 489 $ 346 $ 835 $ 78
===== ===== ====== =====
OUTSTANDING RECEIVABLE AT (b)
--------------------------------------------------------------
September 30, 1997 December 31, 1996
------------------------------ ------------------------------
Receivable (a) Reserve Balance Receivable (a) Reserve Balance
-------------- ------- ------- -------------- ------- -------
Chastleton (c) $ 58 $ (19) $ 39 $ 47 $ (36) $ 11
Coachman's (c) 8 (7) 1 26 (15) 11
Santa Maria 1 -- 1 46 -- 46
El Monte 8 -- 8 40 -- 40
Rolling Hills (c) 53 -- 53 65 (53) 12
Village Lake (c) 17 (6) 11 27 (16) 11
Capital Park 15 -- 15 23 -- 23
SVA 18 -- 18 2 -- 2
------ ----- ------ ------ ----- ------
$ 178 $ (32) $ 146 $ 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 nine months of 1997 and during 1996 was
$297,000 and $1,025,000, 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 nine months
ended September, 1997 and 1996 was $246,000 and $268,000, 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 September 30, 1997 and December 31, 1996 were $3,218,000 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 $1,311,000. As payment for this
parcel, the Company received a 20% downpayment and the purchaser assumed a
note payable for the balance.
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
September 30, 1997 and December 31, 1996 were $0 and $416,000,
respectively.
<PAGE>
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 $549,000 negative basis of its investment in Equus
and issued the 75,000 Units.
Other
As of September 30, 1997 and December 31, 1996, IGC owed IBC $14,000
and $54,000 of unpaid minority interest distributions. During the first
nine months of 1997, IGC paid APS the $54,000 collected on a receivable
that was previously sold to APS.
As of September 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 September 30, 1997 and
December 31, 1996, the outstanding balance due from ECOC was $290,000 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.
During the third quarter of 1997, IBC was substituted as the guarantor
of a $4,569,000 letter of credit issued on behalf of Chastleton Apartments
Associates L.P. This letter of credit is collateralized by certain assets
owned by IBC, IBC affiliates and the Company. The Company's assets
included in the collateral consist of rights to distributions from three
Puerto Rico housing partnerships and a $4,636,000 note receivable from
Brandywine Investment Associates Limited Partnership.
On November 11, 1997, the Board of Directors approved the formation of
a trust for the purpose of holding Caribe Waste Technologies, Inc. ("CWT")
shares separate from IGC control and from the possibility of the CWT shares
being returned to IGC. The trust is intended to be a grantor trust so that
it will not be taxed as a separate entity but will be treated as a pass-
through entity with profits and losses flowing through IGC to its
Unitholders. Two IGMC directors and one IGC officer serve as Trustees. As
of September 30, 1997 and December 31, 1996, IGC had invested $1,161,000
and $869,000 in CWT's operations.
(6) STATUS OF FINES
Pending the decision of the Court of Appeals on the wetlands
violations conviction, the Company complied with the lower court's decision
and paid the $3,000,000 fine plus accrued interest totalling $3,212,000.
This amount is included in Other Assets in the accompanying financial
statements.
<PAGE>
If the wetlands conviction is overturned, IGC would receive a full
refund of the $3,000,000 in fines, and any conservation easements
encumbering the Wetlands Properties would be removed. Appeals were filed
with the U.S. Court of Appeals for the Fourth Circuit ("Appeals Court"),
and Mr. Wilson's prison sentence was stayed pending the outcome of the
appeals. The Appeals Court heard the oral arguments on March 3, 1997, and
a ruling is expected during the fourth quarter of 1997. Management
believes that IGC, SCA and Mr. Wilson have numerous and legitimate grounds
for the appeal. The appeal may result in the conviction being upheld,
overturned or remanded to the District Court for retrial. In the event
that the criminal conviction is overturned as a result of the appeal, the
U.S. Department of Justice may appeal such decision of the Appeals Court to
the United States Supreme Court. In addition, the U.S. Attorney may refile
at any time the civil action relating to the Wetlands Properties that was
dismissed without prejudice by the District Court. Any determination in a
civil action adverse to IGC may result in the imposition of fines and
substantial remediation costs on IGC.
On October 23, 1997, the District Court denied a motion by IGC and SCA
to stay, pending resolution of IGC's and SCA's appeal, the restoration and
mitigation obligations with respect to the Towne Center South land and an
additional parcel. IGC and SCA have appealed this decision to the Appeals
Court.
(7) 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 RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
For the Nine Months Ended September 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 25% to $7,529,000
during the nine months ended September 30, 1997, as compared to $10,036,000
during the nine months ended September 30, 1996. The decrease is
attributed to a decrease in 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 causes fluctuations when comparing
quarterly results. In addition, the U.S. 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.
<PAGE>
The gross profit margin during the first nine months ended September
30, 1997, increased to 35% as compared to 25% in the same period of 1996.
This increase is due primarily to the sales mix. 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 none of the
sales were U.S. commercial parcels. During the comparable 1997 period,
there were no lot sales at book value and 26% of the sales were commercial
parcels. The U.S. commercial sales historically have produced the highest
gross profits due to their high sales prices and relatively low development
costs. In addition, during the 1997 period, 41% of the sales revenue, or
$3,070,000, was generated by undeveloped bulk parcels with low acquisition
costs that resulted in an average gross profit margin of 44%.
Homebuilding Operations:
Revenues from home sales decreased 31% to $5,510,000, during the nine
months ended September 30, 1997, from $8,002,000 during the nine months
ended September 30, 1996. The number of homes sold decreased 32%, to 52
sales as compared to 76 sales in the first nine months ended September 30,
1996. These reductions were primarily due to the phase out of the tract
homebuilding operations and increased competition in the homebuilding
market.
The gross profit margins decreased to 1% during the nine months ended
September 30, 1997, as compared to 6% during the same period in 1996.
During the nine months ended September 30, 1997, the Company closed seven
homes that incurred additional costs to cure non-reoccurring construction
problems.
Rental Property Revenues and Operating Results:
Rental properties revenues, net of operating expenses, increased 25%
to $3,756,000 during the nine months ended September 30, 1997, as compared
to $3,001,000 during the same period in 1996. Rental property revenues and
operating expenses include the results of operations of the three
consolidated apartment projects for the first three months of 1996 and
seven partnerships for the second and third quarter of 1996 and the first,
second and third 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 Developers Fees:
Equity in earnings decreased $15,280,000 to $988,000 during the nine
months ended September 30, 1997, from $16,268,000 during the nine months
ended September 30, 1996. This decrease was primarily due to the
$14,639,000 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.
<PAGE>
Management and Other Fees:
Management and other fees decreased 24% to $3,038,000 in the first
nine months ending September 30, 1997, as compared to $4,001,000 in the
first nine months ending September 30, 1997. This decrease was due
primarily to special management fees of $1,362,000 earned in the first
quarter of 1996 from the LIHPRHA transaction, offset in part by $619,000
earned from the refinancing of two apartment complexes in the first nine
months of 1997.
Interest Expense:
Interest expense decreased $1,354,000 to $2,683,000 during the nine
months ended September 30, 1997, as compared to $4,037,000 during the same
period in 1996. This decrease is primarily attributable to the $500,000 in
loan fees incurred during the first nine months of 1996 and a decrease in
the average outstanding debt.
General and Administrative Expense:
General and administrative expenses decreased $881,000 to $5,079,000
in the nine months ended September 30, 1997, from $5,960,000 in the same
period in 1996, as a result of management's continued focus on cost
efficiency. Specifically, management experienced reductions in legal fees
of $171,000 and salaries and benefits of $961,000. These reductions in
spending were offset by approximately $263,000 in bad debt expense in the
nine months ended September 30, 1997 as a discount on the Compri notes.
The notes were renegotiated as discussed in Note 5.
For the Three Months Ended September 30, 1997 and 1996
Community Development Operations:
Community development land sales revenue increased to $1,910,000
during the three months ended September 30, 1997, from $10,000, during the
three months ended September 30, 1996. This increase is primarily due to
a commercial sale in Puerto Rico for $1,500,000.
The gross profit margin during the three month period ended
September 30, 1997 increased to 31%, $592,000, as compared to $(259,000) in
the same period of 1996. This increase is due primarily to the 39% gross
margin earned from the third quarter 1997 commercial sale compared to a
sales volume during the third quarter of 1996 that was less than the period
costs incurred during that quarter.
Homebuilding Operations:
Revenues from home sales decreased 21% to $1,798,000 during the three
months ended September 30, 1997, as compared to $2,286,000 during the three
months ended September 30, 1996. The number of homes sold decreased 24%,
to 16 from 21 in the three months ended September 30, 1996. These
reductions were primarily due to the phase out of the tract homebuilding
operations.
<PAGE>
The gross profit margins decreased to (3)%, or $(47,000) during the
three months ended September 30, 1997, as compared to 5% or $120,000 during
the same period in 1996. This decrease was primarily attributable to a 24%
decrease in sales volume as discussed above and only a 10% decrease in
overhead.
Rental Property Revenues and Operating Results:
Rental properties revenues, net of operating expenses, increased 6% to
$1,224,000 during the three months ended September 30, 1997, as compared to
$1,160,000 during the same period in 1996. The increase can be attributed
to reduced vacancies during the 1997 period.
Equity in Earnings from Partnerships and Developers Fees:
Equity in earnings decreased $204,000 to $305,000 during the three
months ended September 30, 1997, from $509,000 during the three months
ended September 30, 1996. This decrease can be attributed to the reduction
of equity earned from the two properties in the process of being converted
to condominiums.
Management and Other Fees:
Management and other fees increased 5%, to $769,000, in the three
month period ending September 30, 1997, as compared to $731,000 in the
three month period ending September 30, 1996. This increase was due
primarily to the special management fees earned from the supervision of the
condominium conversion during the 1997 period.
Interest Expense:
Interest expense decreased $203,000 to $866,000 during the three
months ended September 30, 1997, as compared to $1,069,000 during the same
period in 1996. This decrease is primarily attributable to the reduced
average outstanding loan balances during the third quarter of 1997 as
compared to the same quarter in 1996.
General and Administrative Expense:
General and administrative expenses decreased by $431,000 to
$1,547,000 in the three months ended September 30, 1997, from $1,978,000 in
the same period in 1996. This decrease was due primarily to reduction in
salaries and benefits of $327,000 and as a result of management's continued
focus on cost efficiency.
Liquidity and Capital Resources
See Note 2 on page 9 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.
<PAGE>
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. In addition, Management is negotiating
certain commercial sales contracts it hopes to finalize before the end of
1997 that will result in 1998 closings.
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. The joint ventures may develop land for sale or lease. 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
