FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] 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 0-8639
CONSOLIDATED CAPITAL GROWTH FUND
(Exact name of small business issuer as specified in its charter)
California 94-2382571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL GROWTH FUND
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 1,490
Receivables and deposits 650
Restricted escrows 828
Other assets 592
Investment properties:
Land $ 4,610
Buildings and related personal property 39,219
43,829
Less accumulated depreciation (25,756) 18,073
$ 21,633
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 227
Tenant security deposit liabilities 276
Accrued property taxes 322
Other liabilities 407
Mortgage notes payable 30,690
Partners' Deficit
General partner $ (4,781)
Limited partners (49,196 units
issued and outstanding) (5,508) (10,289)
$ 21,633
See Accompanying Notes to Financial Statements
b)
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 2,810 $ 2,636 $ 5,514 $ 5,239
Other income 164 193 303 349
Total revenues 2,974 2,829 5,817 5,588
Expenses:
Operating 1,020 1,093 2,234 2,244
General and administrative 175 80 249 176
Depreciation 528 514 1,051 1,023
Interest 559 559 1,117 1,117
Property taxes 152 154 305 308
Total expenses 2,434 2,400 4,956 4,868
Net income $ 540 $ 429 $ 861 $ 720
Net income allocated to
general partner (1%) $ 5 $ 4 $ 9 $ 7
Net income allocated to
limited partners (99%) 535 425 852 713
$ 540 $ 429 $ 861 $ 720
Net income per limited
partnership unit $ 10.87 $ 8.64 $ 17.32 $ 14.49
Distribution per limited
partnership unit $ 15.61 $ -- $ 15.61 $ 15.65
See Accompanying Notes to Financial Statements
c)
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 49,196 $ 1 $49,196 $ 49,197
Partners' deficit
at December 31, 1998 49,196 $(4,782) $(5,592) $(10,374)
Distribution to partners -- (8) (768) (776)
Net income for the six months
ended June 30, 1999 -- 9 852 861
Partners' deficit
at June 30, 1999 49,196 $(4,781) $(5,508) $(10,289)
See Accompanying Notes to Financial Statements
d)
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 861 $ 720
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,051 1,023
Amortization of loan costs 39 39
Bad debt 56 62
Change in accounts:
Receivables and deposits (73) (29)
Other assets (90) 45
Accounts payable 63 127
Tenant security deposit liabilities (35) 14
Accrued property taxes 147 145
Other liabilities (16) 18
Net cash provided by operating activities 2,003 2,164
Cash flows from investing activities:
Property improvements and replacements (522) (415)
Net deposits to restricted escrows (183) (1)
Net cash used in investing activities (705) (416)
Cash flows used in financing activities:
Distributions to partners (776) (895)
Net increase in cash and cash equivalents 522 853
Cash and cash equivalents at beginning of period 968 2,493
Cash and cash equivalents at end of period $ 1,490 $ 3,346
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,078 $ 1,078
See Accompanying Notes to Financial Statements
e)
CONSOLIDATED CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Consolidated Capital Growth
Fund (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1999, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1999. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the year ended December 31,
1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust ("AIMCO"), with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the six months
ended June 30, 1999 and 1998, respectively. Such fees are included in operating
expense on the Statements of Operations and are reflected in the following
table. The Partnership Agreement provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of partnership activities. The General Partner and its
affiliates received reimbursements and fees as reflected in the following table:
Six Months Ended
June 30,
1999 1998
(in thousands)
Property management fees $295 $283
Reimbursements for services of affiliates (included
in operating and general and administrative 107 102
expense) (1)
Partnership management fees (included in general
and administrative expense) (2) 69 --
(1) Included in "Reimbursements for services of affiliates" for the six months
ended June 30, 1999 and 1998, is approximately $8,000 and $1,000,
respectively, in reimbursements for construction oversight costs.
(2) The Partnership Agreement provides for a fee equal to 9% of the total
distributions made to the limited partners from "cash available for
distribution" to the limited partners (as defined in the Agreement) to be
paid to the General Partner for executive and administrative management
services.
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $295,000 and $283,000 for the
six months ended June 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $107,000 and $102,000 for the
six months ended June 30, 1999 and 1998, respectively.
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,224.71 (24.85% of the
total outstanding units) units of limited partnership in the Partnership for a
purchase price of $310 per unit. The offer expired on July 14, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 604.50 units. As a result, AIMCO
and its affiliates currently own 22,858.15 units of limited partnership interest
in the Partnership representing 46.46% of the total outstanding units. It is
possible that AIMCO or its affiliate will make one or more additional offers to
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO.
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenue:
The Partnership has one reportable segment: residential properties. The
Registrant's residential property segment consists of four apartment complexes
located in Florida, Kentucky (2), and North Carolina. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below. The "Other" column includes partnership administration
related items and income and expense not allocated to reportable segments.
1999 Residential Other Totals
Rental income $ 5,514 $ -- $ 5,514
Other income 288 15 303
Interest expense 1,117 -- 1,117
Depreciation 1,051 -- 1,051
General and administrative expense -- 249 249
Segment profit (loss) 1,095 (234) 861
Total assets 21,569 64 21,633
Capital expenditures for
investment properties 522 -- 522
1998 Residential Other Totals
Rental income $ 5,239 $ -- $ 5,239
Other income 295 54 349
Interest expense 1,117 -- 1,117
Depreciation 1,023 -- 1,023
General and administrative expense -- 176 176
Segment profit (loss) 842 (122) 720
Total assets 21,101 3,183 24,284
Capital expenditures for
investment properties 415 -- 415
NOTE E - LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of four apartment complexes.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Breckinridge Square
Louisville, Kentucky 95% 92%
Churchill Park
Louisville, Kentucky 97% 91%
The Lakes
Raleigh, North Carolina 92% 89%
Tahoe Springs
Miami, Florida 94% 94%
The General Partner attributes the increase in occupancy at Breckinridge Square,
Churchill Park and The Lakes Apartments to aggressive and effective marketing
campaigns during the last part of 1998 and into 1999. The increase in occupancy
at Breckinridge Square and Churchill Park is also attributable to improved
conditions in the apartment industry in the Louisville area.
Results of Operations
The Partnership's net income for the three and six months ended June 30, 1999
was approximately $540,000 and $861,000 as compared to approximately $429,000
and $720,000 for the three and six months ended June 30, 1998. The increase in
net income is due primarily to an increase in total revenue which was partially
offset by an increase in total expenses. Total revenue increased due to an
increase in rental income which was partially offset by a decrease in other
income. The increase in rental income is primarily attributable to an increase
in average rental rates at all four of the Partnership's properties, and the
increase in occupancy at Breckinridge Square, Churchill Park and The Lakes
Apartments as discussed above.
Total expenses increased primarily due to an increase in general and
administrative expenses and to a lesser extent, an increase in depreciation
expense. The increase in general and administrative expense and depreciation
expense were partially offset by a decrease in operating expense. Operating
expense decreased primarily due to a decrease in insurance expense at all four
properties due to a change in the hazard insurance policy carrier. The decrease
in operating expense is partially offset by an increase in advertising costs
incurred to increase occupancy at Breckinridge Square, Churchill Park, and The
Lakes Apartments. Also included in operating expense for the six months ended
June 30, 1999 is net insurance proceeds which were received relating to a fire
at The Lakes Apartments during December 1998. The insurance proceeds were
received by the Partnership in January 1999. The insurance proceeds received
approximated the costs incurred. The increase in depreciation expense resulted
from an increase in capital improvements performed at all the investment
properties during the past two years to improve the overall appearance and
quality of the properties.
General and administrative expenses increased for the six months ended June 30,
1999 due to Partnership management fees paid as a result of the May 1999
distribution from operations, as required by the Partnership Agreement.
Included in general and administrative expenses at both June 30, 1999 and 1998
are management reimbursements to the General Partner allowed under the
Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
The Partnership had cash and cash equivalents of approximately $1,490,000 at
June 30, 1999, compared to approximately $3,346,000 at June 30, 1998. The
increase in cash and cash equivalents of approximately $522,000 for the six
months ended June 30, 1999 from the Partnership's year end is primarily due to
approximately $2,003,000 of cash provided by operating activities, which was
partially offset by approximately $776,000 of cash used in financing activities
and approximately $705,000 of cash used in investing activities. Cash used in
financing activities consisted of partner distributions. Cash used in investing
activities consisted primarily of property improvements and replacements and, to
a lesser extent, net deposits to escrow accounts maintained by the mortgage
lender. The Partnership invests its working capital reserves in money market
accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements for each of the Registrant's properties are detailed below.
Breckinridge Square
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$280,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $401,000
for 1999 at this property which includes certain of the required improvements
and consist of interior and exterior building improvements. During the six
months ended June 30, 1999, the Partnership spent approximately $93,000 on
capital improvements consisting primarily of structural and HVAC repairs and
floor covering and appliance replacements.
Churchill Park
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$280,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $226,000
for 1999 at this property which includes certain of the required improvements
and consist of electrical upgrades along with parking lot and sidewalk repairs.
During the six months ended June 30, 1999, the Partnership spent approximately
$135,000 on capital improvements consisting primarily of floor covering and
appliance replacement and HVAC and swimming pool repairs. Both the HVAC and
swimming pool repairs are fully completed as of June 30, 1999.
The Lakes
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$279,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $587,000
planned for 1999 at this property which includes certain of the required
improvements and consist of electrical, HVAC and plumbing upgrades and roof
repairs. During the six months ended June 30, 1999, the Partnership spent
approximately $150,000 on capital improvements consisting primarily of floor
covering and appliance replacement and HVAC repairs.
Tahoe Springs
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$279,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $313,000
planned for 1999 at this property which includes certain of the required
improvements and consist of improved exterior lighting, parking lot and
stairwell repairs and landscape upgrades including new pool fencing. During the
six months ended June 30, 1999, the Partnership spent approximately $144,000 on
capital improvements consisting primarily of parking lot repair, landscaping,
and floor covering replacement. The parking lot repairs are substantially
complete at June 30, 1999.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately 30,690,000 requires monthly interest only
payments. These notes require balloon payments on November 1, 2003, and December
1, 2005. The General Partner will attempt to refinance such indebtedness and/or
sell the properties prior to such maturity date. If the properties cannot be
refinanced or sold for a sufficient amount, the Partnership may risk losing such
properties through foreclosure.
A cash distribution of approximately $776,000 ($768,000 of which was paid to the
limited partners, $15.61 per limited partnership unit) was paid from operations
during the six months ended June 30, 1999. During the six months ended June 30,
1998, the Partnership distributed approximately $895,000 ($770,000 of which was
paid to the limited partners, $15.65 per limited partnership unit) from surplus
cash to the limited partners. Payments were made by the Partnership to the
Georgia Department of Revenue and the North Carolina Department of Revenue for
withholding taxes related to income generated by the Partnership's investment
properties located in these states. These payments were treated as
distributions to the partners and are included in the distribution amounts
above. The Partnership's distribution policy is reviewed on a semi-annual basis.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after planned capital improvement expenditures, to permit further distributions
to its partners in 1999 or subsequent periods.
Tender Offer
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,224.71 (24.85% of the
total outstanding units) units of limited partnership in the Partnership for a
purchase price of $310 per unit. The offer expired on July 14, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 604.50 units. As a result, AIMCO
and its affiliates currently own 22,858.15 units of limited partnership interest
in the Partnership representing 46.46% of the total outstanding units. It is
possible that AIMCO or its affiliate will make one or more additional offers to
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL GROWTH FUND
By: CONCAP EQUITIES, INC.
the General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President - Finance and
Administration
Date: