SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 24, 1996
FM Properties Inc.
Delaware 0-19989 72-1211572
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation or Number)
organization)
1615 Poydras Street
New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Item 5. Other Events.
------------------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
From time to time, FM Properties Inc. (the "Company") will
make written and oral forward-looking statements about matters
that involve risks and uncertainties that could cause actual
results to differ materially from projected results. Important
factors that could cause actual results to differ materially from
the anticipated results or other expectations expressed in the
Company's forward-looking statements include the following:
fluctuations in the performance of the real estate industry;
financing and leverage risks; recent operating results; the
availability and timing of receipt of necessary governmental
permits and approvals; environmental regulation; the effect of
competition; geographic concentration; dependence on the Texas
economy; natural risks; and other risks described from time to
time in the Company's filings with the Securities and Exchange
Commission.
Many of these factors are beyond the Company's ability to
control or predict. Investors are cautioned not to place undue
reliance upon forward-looking statements. The Company disclaims
any intent or obligation to update its forward-looking
statements, whether as a result of receiving new information, the
occurrence of future events or otherwise.
A more detailed discussion of certain of the foregoing
factors follows:
Performance of the Real Estate Industry
The real estate activities of the Company, which operates
through its 99.8% general partnership interest in FM Properties
Operating Co., a Delaware general partnership (the
"Partnership"), are subject to numerous factors outside of the
control of management, including local real estate market
conditions (both where its properties are located and in areas
where its potential customers reside), substantial existing and
potential competition, the cyclical nature of the real estate
business, general national economic conditions, fluctuations in
interest rates and mortgage availability and changes in
demographic conditions. Real estate markets have historically
been subject to strong periodic cycles driven by numerous factors
beyond the control of market participants.
Real estate investments are relatively illiquid and market
values may be adversely affected by these economic circumstances,
market fundamentals, competition and demographic conditions. Due
to the effect of these factors on real estate values, it is
difficult to predict with certainty the level of future sales or
sales prices that will be realized for individual assets.
Financing and Leverage
Although substantial reductions in the Company's debt have
been made recently, the Company remains highly leveraged. The
Company's future performance and financial viability are
dependent on future cash flows from the Partnership's assets, and
there can be no assurance that the Partnership will generate cash
flow or otherwise obtain funds sufficient to make required
interest and principal payments. Considering the anticipated
cash flows of the Partnership and the maturities of its debt, the
Partnership will be required, not later than February 1998, to
refinance its debt or sell additional assets to generate cash
then required for principal payments. The Company's ability to
refinance its debt at that time could be adversely effected by a
tightening of the credit markets.
Although all of the Company's outstanding bank debt is
currently guaranteed by Freeport-McMoRan Inc., a Delaware
corporation listed on the New York Stock Exchange, which also
serves as the Partnership's managing general partner ("FTX"),
until its maturity in February 1998, there is no commitment by
FTX to guarantee any such debt after February 1998, and there can
be no assurance that any such further guarantee will be provided.
The Company's real estate operations are also dependent upon
the availability and cost of mortgage financing for potential
customers, to the extent they finance their purchases, and for
buyers of the potential customers' existing residences.
Recent Operating Results
Until 1995, the Company incurred operating and net losses
and operating cash flow deficits in each year since inception
from the real estate activities conducted by the Partnership.
These losses have been funded by borrowings and the sale of the
Company's assets. The Company's current business strategy
includes the sale of larger undeveloped tracts of land. These
transactions by their nature can cause significant period to
period variations in the Company's revenues, operating income and
cash flow. As a result of this strategy, the Company has
recently generated positive operating income and cash flow,
although there can be no assurance that this trend will continue.
Regulatory Approval
Before the Company can develop a property, it must obtain a
variety of approvals from local and state governments with
respect to such matters as zoning, density, parking, subdivision,
architectural design and environmental issues. Because of the
discretionary nature of these approvals and the concerns often
raised by various government agencies and special interest groups
during the approval and development processes, the Company's
ability to develop properties and realize future income from its
projects could be delayed, reduced or prevented.
Environmental Regulation
Real estate development is subject to state and federal
regulations and to possible interruption or termination on
account of environmental considerations, including, without
limitation, air and water quality and protection of endangered
species and their habitats. Certain of the Barton Creek Project
property includes nesting territories for the Golden Cheek
Warbler, a federally listed endangered species. In February 1995
the Company received a permit from the U.S. Wildlife Service
pursuant to the Endangered Species Act (the "ESA"), which to date
has allowed the development of the Barton Creek Project, free of
restrictions under the ESA related to the maintenance of habitat
for the Golden Cheek Warbler.
The Company is making, and will continue to make,
expenditures with respect to its real estate development for the
protection of the environment. Increasing emphasis on
environmental matters may result in additional costs in the
future.
The Company is aware of certain abandoned waste disposal
sites related to its former oil and gas operations for which it
may receive notices as a "potentially responsible party" in the
future. The potentially responsible parties for the sites,
however, include many large and viable companies with
proportionate shares equal to or greater than the Company's
share. The Company believes that the Partnership's exposure for
these sites is not material and expects that any costs would be
minimal.
Effect of Competition
The Company's business is highly competitive. A large
number of companies and individuals are engaged in the real
estate business, and many of them possess financial resources
greater than those of the Company. In each of the Company's
markets it competes against local developers who are committed
primarily to particular markets and also against national
developers who acquire properties throughout the United States.
Geographic Concentration and Dependence on the Texas Economy
The Company's real estate activities are located entirely in
the Austin, Dallas, Houston and San Antonio, Texas areas.
Because of the Company's geographic concentration and limited
number of projects, its operations are more vulnerable to local
economic downturns and adverse project-specific risks than those
of larger, more diversified companies.
The performance of the Texas economy affects sales of the
Company's properties and consequently has an impact on the income
derived from the Company's real estate activities and the
underlying values of property owned by the Company. While the
Texas economy has remained healthy in recent years, there can be
no assurance that this trend will continue.
Natural Risks
The Company's performance may be adversely affected by
weather conditions that delay development or damage property.
SIGNATURE
------------------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
FM Properties Inc.
By: /s/ William J. Blackwell
--------------------------------------
William J. Blackwell
Vice President & Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: December 24, 1996
