SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 1-9393
INTERSTATE GENERAL COMPANY L.P.
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(Exact name of registrant as specified in its charter)
Delaware 52-1488756
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 Smallwood Village Center
St. Charles, Maryland 20602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 843-8600
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Units representing assignment of American Stock Exchange
beneficial ownership of Class A limited
partnership interest and evidenced by Pacific Stock Exchange
beneficial assignment certificates ("Units")
Securities registered pursuant to Section 12(g) of the Act:
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 11, 1997 the aggregate market value of the Units held by
non-affiliates of the registrant based on the closing price reported on the
American Stock Exchange was $17,089,107
Class A Units Outstanding at April 11, 1997: 10,256,785 Class A Units
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Item
N/A
2
INTERSTATE GENERAL COMPANY L.P.
1996 Form 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote
of Security Holders 18
PART II
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Item 5. Market Prices and Distribution on Units 19
Item 6. Selected Financial and Operating Data 19
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 64
PART III
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Item 10. Directors and Executive Officers
of the Registrant 65
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain
Unitholders and Management 72
Item 13. Certain Relationships and Related
Transactions 73
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 73
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PART I
ITEM 1. BUSINESS
Company Profile
Interstate General Company L.P. (the "Company" or "IGC") was formed as
a Delaware limited partnership in 1986. Directly and through predecessors,
the Company has been engaged in business since 1957. IGC has traded
publicly as a master limited partnership since February 1987 on the
American Stock Exchange and Pacific Stock Exchange. Company Management and
the Board of Directors of the Company's Managing General Partner are
presently undertaking steps to restructure IGC as a real estate investment
trust during 1997.
IGC is a diversified real estate organization specializing in
Community Development, Investment Apartment Properties, Asset Management
Services and Homebuilding. The Company owns and participates in these
operations directly and through the following subsidiaries: Interstate
General Properties, S.E. ("IGP"); St. Charles Associates Limited
Partnership ("SCA"); Land Development Associates, S.E. ("LDA"); and
American Family Homes, Inc. ("AFH"). IGC's assets and operations are
concentrated primarily in the metropolitan areas of Washington, D.C. and
San Juan, Puerto Rico. Additionally, its homebuilding operations are
active in Virginia, North Carolina and South Carolina. Through its wholly
owned subsidiary Interstate Waste Technologies, Inc. ("IWT"), the Company
is involved in the pre-development of municipal waste treatment facilities.
IGC's headquarters are located in St. Charles, Maryland. IGP, its
wholly owned Puerto Rico subsidiary, is based in Hato Rey. AFH has a
central office in Charlotte, North Carolina, and IWT has an office in
Malvern, Pennsylvania.
The following summarizes the business operations of IGC and its
subsidiaries:
A. Community Development
IGC has extensive experience in developing master planned communities.
The Company and its predecessors have developed land for more than 12,000
housing units, principally in its flagship planned community of St.
Charles, Maryland. The Company's successful formula involves actively
managing the development process. Management utilizes established
consulting firms, including land planners, engineers, architects and
contractors, to assist in obtaining necessary government approvals and
provide infrastructure requirements.
IGC's master planned communities combine a variety of land uses with a
spectrum of housing styles and types, including single-family homes,
townhomes, condominiums and rental apartments, designed to meet the needs
and desires of the marketplace. Land uses include schools, recreation,
shopping, commercial, industrial, lakes, parks and open space. The Company
primarily develops sites for sale to third-parties, but it also realizes
land values through joint ventures and its own portfolio of investment
apartment properties.
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The Company currently controls land assets of approximately 7,000
acres, principally in two planned communities that have the necessary
zoning and infrastructure approvals from local government. This represents
approximately 12,000 housing units and some 800 acres designated for
retail, commercial, office and industrial use. Most of these land assets
are located in St. Charles, Maryland, a 9,100-acre planned community which
is approximately half-way to build-out; and Parque Escorial, a 432-acre
planned community in Carolina, Puerto Rico. The Company, either directly
or through partnerships in which it is general partner, also holds
approximately 540 acres in Puerto Rico for mixed use, and 1,600 acres at
several locations in the Washington, D.C. metropolitan area, including
Prince William County, Virginia; and Charles County, Prince George's County
and St. Mary's County in Maryland.
St. Charles. Located approximately 20 miles southeast of Washington,
D.C., St. Charles encompasses approximately 14 square miles in Charles
County, Maryland. The master plan for this comprehensive planned unit
development was originally approved under Docket 90 by Charles County
government in 1972 and has been subsequently amended as needed. The master
plan contemplates the construction of more than 24,000 housing units and
the development of 1,300 acres for commercial, office and light industrial
use. Today, the community has approximately 35,000 residents, 12,000
housing units, 6,000 jobs and 4.2 million square feet of commercial, office
and light industrial space. Additionally, there are eight public schools,
six neighborhood recreation centers, 15 lakes and miles of paved
hiking/biking paths. Specific plans for St. Charles neighborhoods and site
plans for business parcels are subject to approval by the Charles County
Planning Commission. The community is divided by U.S. Route 301 and some
of its business park land is accessed by Conrail train tracks.
St. Charles is planned for five villages: Smallwood, Westlake,
Fairway, Piney Reach and Wooded Glen. IGC has substantially completed two
of the villages: Smallwood and Westlake. Development on the third--
Fairway Village--is expected to begin in 1997. Fairway surrounds an
existing 18-hole public golf course. The village will include two
neighborhoods totaling some 3,300 housing units, or about a 10-year supply
of building lots based on historical build-out rates. The development of
Fairway Village includes the construction of the final portion of a cross-
county connector highway that will bisect the village and link U.S. Route
301 with State Route 5, a major access road to Southern Maryland.
St. Charles also contains approximately 200 acres of available
commercial property surrounding the St. Charles Towne Center, a one-
million-square-foot regional mall. Opened in 1990, the center's average
sales per square foot consistently ranks among the top 10 percent of all
retail centers managed by Simon DeBartolo, the nation's leading
owner/manager of shopping centers. In 1996, the mall attracted
approximately 12 million shoppers.
In addition to its proximity to the nation's capital, St. Charles is
strategically situated to benefit from the positive effects on the Southern
Maryland economy due to the relocation of approximately 6,000 jobs to the
Patuxent River Naval Air Warfare Center in Lexington Park, Maryland.
Southern Maryland officials expect this expansion to create a total of
13,000 new jobs between 1995-2000.
Government Approvals. The St. Charles master plan has been
incorporated in Charles County's comprehensive zoning plan. In addition,
5
the Charles County government has agreed to provide sufficient water and
sewer connections for the balance of the housing units to be developed in
St. Charles. Specific development plans for each village in St. Charles is
subject to approval of the County Planning Commission. Such approvals have
previously been received for the villages of Smallwood, Westlake and
Fairway. Approvals have not yet been sought on the final two villages.
Competition. Competition among residential communities in Charles
County is intense. Currently, there are approximately 30 subdivisions
competing for new home buyers within five miles of St. Charles. This is
the result of several major national and regional homebuilders having been
attracted by the growing marketplace. Charles County residential building
permits have increased from 962 in 1993, 964 in 1994, 965 in 1995, and
1,090 in 1996. In this very price sensitive market, IGC management has
positioned St. Charles to provide among the lowest priced building lots and
homes while offering more amenities than the competition. Home sales are
traditionally influenced by seasonal factors, bringing stronger demand
during the spring and fall.
Environmental Impact. Management believes that the St. Charles master
plan can be completed without material adverse environmental impact and in
compliance with government regulations. In 1977, a comprehensive
environmental impact statement for the St. Charles master plan was prepared
by the federal government and considered at federal, state and local
levels. The Company believes it has abided by those approved standards
(see Item 3. Legal Proceedings). However, development plans can be delayed
while plans are reviewed by appropriate local, state and federal agencies
and delineations of environmentally sensitive areas are determined.
Parque Escorial. This planned community totals 432 acres and is
located at the intersection of two major highways, six miles from the San
Juan central business district. The original master plan was approved in
October 1992, and has been periodically amended. The plan contemplates the
construction of 2,900 dwelling units and 120 acres for commercial, light
industrial and office use. Through its Puerto Rico subsidiary, the Company
is managing general partner with an 80 percent interest in the partnership
that owns and is developing Parque Escorial.
Development began in 1994 following the sale of 61 acres of commercial
land to Wal-Mart. In 1995, the retailer completed the first phase of a
planned 480,000 square foot shopping center by opening Wal-Mart and Sam's
Club stores totaling 240,000 square feet. Since that time, approximately
12 acres of commercial land have been sold for prices reaching $1 million
per acre. There are six acres of commercial property remaining to sell and
management is seeking approval to rezone an additional six acres for
commercial use.
Residential development began in 1996 after homebuilders settled land
contracts for 516 housing units, 216 of which will be built and sold
through a 50/50 joint venture between the Company and a prominent local
builder. All of the units in this first phase will be "walk-up"
condominiums, and the first units are expected to be settled during the
second quarter of 1997.
In June 1997, management expects to complete the construction of an
overpass of 65th Infantry Highway, providing easy access to the community
from Highway 3 at the main entrance.
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Government Approvals. The Community's master plan has approval while
specific site plans are subject to planning commission review and approval.
Management has secured agreements with the Puerto Rico Aqueduct and Sewer
Authority to provide for adequate water and sewer capacity for the
community.
Competition. The scarcity of developable land in the San Juan
metropolitan area creates a favorable market for home sales at Parque
Escorial. Competition for home sales is expected primarily from small-
scale condominium projects in areas considered to be less desirable than
Parque Escorial. Furthermore, it is one of only two master planned
communities currently planned or under development in the San Juan
metropolitan area. The other is the 500-acre Encantada, which is marketed
toward higher income homebuyers. Parque Escorial's home prices appeal
primarily to entry level purchasers. Another contrast is that Encantada's
developer is building all the homes in the community, while Parque Escorial
features three separate homebuilders in Phase I, providing more selections
for the consumer.
Environmental Impact. Management believes that the Parque Escorial
master plan can be completed without material adverse environmental impact
and in compliance with government regulations. All of the necessary
agencies have endorsed Parque Escorial's environmental impact statement.
Wal-Mart has provided mitigation for 11.87 acres of wetlands impacted by
their development of the shopping center site and other land.
Other Communities. In addition to St. Charles and Parque Escorial,
the Company has one site for community development in Puerto Rico and five
sites in the Washington, D.C. metropolitan area.
IGC owns the remaining parcels of residential land in the planned
community of Montclair, located in Prince William County, Virginia,
approximately 28 miles southwest of Washington, D.C. The Company has 87
townhome lots in its land inventory, and has a letter of understanding to
sell its remaining 53 single-family lots to a third-party homebuilder.
The Company is developing the 170-acre planned community of Westbury
in Lexington Park, Maryland. The community is located in St. Mary's
County, about one mile from the Patuxent River Naval Air Warfare Center,
which is currently expanding its employment base. In March 1997, the
Company entered into a contract to sell the remaining 52 townhome lots to a
third-party homebuilder. Development of the community's final phase,
consisting of approximately 300 single-family home lots, began in March
1997.
In Prince George's County, Maryland, IGC is the general partner in a
partnership that owns a 277-acre tract approximately 12 miles southeast of
Washington, D.C. This Brandywine property has preliminary plan approval
from the county for approximately 1,000 housing units and approximately
400,000 square feet of commercial and office space.
The Company owns two sites in Charles County, Maryland, Middletown
Road (374 acres) and Pomfret (812 acres), which are in the planning
process.
In Puerto Rico, the Company is general partner in a partnership that
owns approximately 540 acres surrounding the El Comandante Race Track in
Canovanas, approximately 12 miles east of San Juan. Management is
currently marketing portions of the land to entertainment developers.
7
B. Investment Apartment Properties
Since 1959, IGC and its predecessors have developed and owned
residential rental apartment properties, first in Puerto Rico and then in
Maryland, Virginia and Washington, D.C. IGC currently is general partner
in 29 partnerships that own a total of 5,695 apartment units. In addition
to a general partnership interest, IGC holds certain limited partnership
interests in six of these partnerships. In seven of these partnerships
(1,132 units), the Company holds greater than a 50 percent interest, so the
accounts and operations are consolidated with those of the Company. The
remaining 22 partnerships (4,563 units) are recorded under the equity
method of accounting.
As general partner, IGC typically recognizes zero to 5% of profits and
losses of the partnerships until the limited partners have recovered their
capital investments and the partnerships have accumulated earnings.
Thereafter, IGC generally recognizes its full percentage of the
partnerships' profits and losses.
Typically, IGC manages the development process as follows: locates the
land, conducts a feasibility study, forms a partnership to acquire the
land, arranges for construction and permanent financing, and provides cost
and completion guarantees. For apartment properties developed prior to the
1986 tax law changes, limited partners were admitted to the partnerships
through syndication at the time the project financings were closed. Since
that time, the apartment properties completed have admitted a financing
partner or partners as needed.
Each of the apartment partnerships are financed by non-recourse
mortgages. The U.S. Department of Housing and Urban Development ("HUD")
provides rent subsidies for residents in 4,453 of the 5,695 apartment
units. HUD also provides mortgage insurance and, in some cases, interest
subsidies to the partnerships. Additionally, 110 units are leased pursuant
to HUD's Low Income Housing Tax Credit ("LIHTC") program, and other units
are subject to income guidelines set by the Maryland Community Development
Administration.
HUD subsidies are provided principally under Sections 8 and 236 of the
National Housing Act. Under Section 8, the government pays to the
apartment partnerships the difference between market rental rates
(determined in accordance with government procedures) and the amounts that
the government deems the residents are able to afford. Under Section 236,
the government provides interest subsidies directly to the apartment
partnerships through a reduction in the properties' mortgage interest rate
and with a corresponding reduction in resident rental rates. In order to
comply with the requirements of Section 8 and Section 236, residents are
screened by IGC for eligibility under HUD guidelines. Subsidies are
provided according to the terms of long-term contracts between the federal
government and the partnerships.
Cash flow from operations is subject to guidelines and limits
established by the partnerships' regulatory agreements with HUD, and the
housing agencies in Maryland, Virginia, Puerto Rico or Washington, D.C.
("State Financing Agencies"). The regulatory agreements also define that
if the cash from operations generated by a apartment property has exceeded
the allowable cash distributions, the surplus must be deposited into
restricted escrow accounts held by the mortgagee and controlled by HUD or
the State Financing Agency. Funds in these restricted escrow accounts may
8
be used for maintenance and capital improvements with the approval of HUD
and/or the State Finance Agency.
As the general partner, the Company actively pursues the maximum
earning potential of its investment apartment properties. Management
explores various options, including refinancing, property sale and
condominium conversion, in order to maximize equity value and cash flow.
The following are recent examples of this management in action:
In March 1996 the Company sold four properties in Puerto Rico
totaling 918 units to non-profit organizations for $52,660,000.
IGC received approximately $16 million of cash distributions,
repayment of receivables and fees. The sale was accomplished
under the guidelines of HUD's Low Income Housing Preservation and
Resident Homeownership Act ("LIHPRHA"). IGC will continue to
manage these properties.
In December 1996, IGC completed approximately $27 million in
refinancings on three market-rate apartment properties in St.
Charles, which will result in a cumulative savings to the three
partnerships of approximately $500,000 annually. The refinancings
reduced 9.9% non-recourse mortgage debt to a composite rate of
6.8% on Fox Chase Apartments and New Forest Apartments, in which
IGC owns a 99.9% interest. Coachman's Landing, in which IGC owns
a 50 % interest, reduced its non-recourse mortgage debt from 9.5%
to 7.9%.
The Company has begun the conversion to condominiums of two
apartment properties in Puerto Rico--Monte de Oro and New Center-
-totaling 392 units. Management expects to settle the first
sales in 1998 and have all units sold by 1999. IGC has a record
of success in this conversion procedure, having previously
converted 1,800 units in Puerto Rico.
The Company's growth strategy is to seek opportunities to develop and
build new apartment properties within its planned communities in St.
Charles, where it owns and/or manages every apartment property (1,976
units). Under the LIHTC program, the Company built a 56-unit apartment
property in 1994 and a 54-unit building in 1996, both of which are for
senior citizens and located in St. Charles. The Company expects to build
approximately 800 apartment units in the Fairway Village portion of St.
Charles as that village is developed over the next 10-12 years. The St.
Charles zoning charter allows for 25% of all housing units to be rental
apartments.
Government Regulations. Changes in government regulations can
significantly affect the status of the Company's existing U.S. and Puerto
Rico apartment properties and its development of future projects.
The federal government has virtually eliminated subsidy programs for
new construction of low and moderate income housing by profit-motivated
developers such as IGC. As a result, the Company developed only six new
apartment properties between 1981-1993, all of which offer market rate
rents. The Company utilized the LIHTC program to build 110 units in St.
Charles from 1994-1996.
The subsidy contracts for IGC's investment apartment properties are
scheduled to expire between 1997-2019. HUD has stated that it does not
9
plan to renew subsidy contracts and is seeking Congressional authority to
convert expired contracts to resident-based vouchers. This would allow
residents to choose where they wish to live. This can potentially impact
the income stream of certain properties. IGC actively maintains its
properties to maintain their values and retain residents.
HUD also is exploring a program known as "portfolio re-engineering" or
"mark-to-market." This would assist owners of Section 8 and HUD-insured
properties that could not meet loan obligations under the proposed
resident-based voucher system. IGC will monitor the progress of this
proposal and its impact on the properties in which it owns partnership
interests.
Upon the termination or cancellation of any existing subsidy
contracts, IGC may choose to convert those apartment units for sale as
condominiums. Substantially all of its units were designed for this
potential.
Competition. IGC's investment properties that receive rent subsidies
are not subject to the market conditions that affect occupancy at
properties with market rate rents. These subsidized properties average
approximately 99% occupancy rates year round. The Company's apartments in
St. Charles and Washington, D.C. that have market rate rents are impacted
by the supply and demand for competing rental apartments in the area, as
well as the local housing market. When for sale housing becomes more
affordable due to lower mortgage interest rates or softening home prices,
this can adversely impact the performance of rental apartments.
Conversely, when mortgage interest rates rise or home prices increase, the
market for rental units may benefit.
Valuation. The value of IGC residual interest as a general partner is
dependent upon, among other things, the properties being well maintained.
Therefore, replacements and maintenance are completed in a timely manner.
Emphasis is placed on preventative maintenance and resident relations. In
Puerto Rico, resident relation specialists perform regular social work
activities, and provide special programs for the elderly and summer
athletic program for the children. In St. Charles, the residents have
complimentary access to neighborhood recreation centers, which provide
swimming pools, playgrounds and clubhouse facilities. Through the
combination of active property management, maintenance and social work
programs, IGC seeks to provide quality housing for its residents while
keeping the buildings and grounds in excellent condition for possible
future sale or condominium conversion.
As of December 31, 1996, management estimated IGC's residual interest
in its 29 apartment properties at $49.1 million. The residual interest was
based on IGC's receivables and expected share of cash flow distributions in
accordance with the priorities determined in the partnership agreements,
assuming the properties are sold at their estimated fair market value based
on appraisals and third party fair value assessments of $244.7 million.
This interest, consisting of investments in partnerships, working capital
loans, and long-term receivables, and the assets and liabilities of the
seven consolidated apartment partnerships, were carried on the Company's
books at approximately $7.8 million at December 31, 1996.
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C. Asset Management Services
IGC earns management fees from management of 8,139 rental apartments,
including 5,695 units owned by partnerships in which IGC is the general
partner. (Fees from 1,132 of these units are consolidated in IGC's
financial statements.) IGC manages but does not have an ownership interest
in 2,440 apartment units, 590 of which are owned by affiliates of the
Company. IGC also earns fees by managing approximately 500,000 square feet
of office and commercial space, all of which is owned by affiliates of the
Company.
For the apartment properties in which IGC is general partner,
management fees are based on a percentage of rents, ranging from 2.25% to
10.95%. These contracts are for periods of one or two years and are
customarily renewed. Although HUD and State Finance Agencies have the
right to cancel these contracts with or without cause, no IGC contracts
have ever been canceled. Fees for managing other apartment properties
range from 2.5% to 4.5% of rents, and fees for managing commercial and
industrial properties are typically 3.5% of gross rents.
D. Homebuilding
American Family Homes, Inc. ("AFH") is a wholly owned subsidiary of
IGC that builds semi-custom homes for homebuyers who own land or who
contract to purchase land from a third-party. AFH's operations are based
out of seven offices in Virginia, North Carolina and South Carolina.
Historically, the Company has built single-family homes and townhomes
on lots developed within its community development operations. Due to slim
profit margins, IGC has closed its homebuilding activities in the U.S.
planned communities of St. Charles, Montclair and Westbury.
At Parque Escorial in Puerto Rico, the Company has formed a joint
venture--Escorial Builders S.E.--with Metropolitan Builders, and has
acquired lots on which to build 216 "walk-up" condominium units. Sales
began in 1996 with the first settlements scheduled to occur during the 1997
second quarter.
Competition. The housing industry is cyclical and is influenced by
various economic factors and seasonality. These variables include, for
example, consumer confidence, interest rates, property and federal taxes,
demographics and mortgage finance options. As a result, the Company's
homebuilding operations could be affected by unanticipated changes in new
home demand resulting from the above factors.
For AFH, the homebuilding industry is highly competitive in the mid-
Atlantic region. In addition to a wide variety of builders, there is an
abundant supply of resale homes and rental housing. AFH creates its own
niche in the market by offering the convenience and flexibility to build a
home in the location of the customer's choice, usually in a rural area.
However, these buyers represent a modest segment of the market and are
generally served by low-volume local builders, who have lower overhead.
In the San Juan metropolitan area, there is a steady market for "walk-
up" condominiums in the entry-level price range. There are only two
planned communities with new construction, and Parque Escorial is the only
one offering products priced for first-time buyers. Escorial Builders is
one of three builders addressing this segment of the market in Parque
Escorial.
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Environmental Impact. Management believes that the Company's
homebuilding operations are in compliance with government regulations.
E. Interstate Waste Technologies, Inc.
In 1990, IGC formed a wholly owned corporation, Interstate Waste
Technologies, Inc. ("IWT"), to develop innovative solutions for the
disposal of municipal waste and to pursue waste disposal contracts with
municipalities. Three individuals representing IWT have filed for patent
protection for a process which converts sludge into three useful and
salable products: methanol, sulfur and an aggregate material. Issuance of
patents is pending and there is no assurance that patents for this process
will be issued.
Following a Request for Proposals ("RFP") and thorough screening
process, IWT was selected by the City of Bridgeport, Connecticut in
February 1994 as its preferred vendor for a regional sludge management
facility. IWT and Bridgeport executed a host community agreement in June
1994, affirming the city's willingness to allow the sludge management
facility to be built within the municipality. Since that time, IWT
management has been pursuing long-term sludge disposal service agreements
with other municipalities in the region to make construction of the
facility economically viable. IWT management then will negotiate a sludge
disposal service agreement with Bridgeport's wastewater authority.
In early 1997, IWT management held a new round of discussions with
municipal and commonwealth government officials in Puerto Rico in an effort
to reach an agreement to build a Solid Waste Recycling facility. The
facility, which would treat 2,640 tons of solid waste daily, was formally
proposed to the commonwealth's Solid Waste Management Authority in March
1995.
Competition. There is tremendous competition for municipal waste
disposal contracts throughout the United States with a variety of methods
and a range of costs available. Major international corporations are in
competition for contracts, including Wheelabrator and BFI. IWT's success
in winning an RFP in Bridgeport is encouraging. IWT can provide a
competitive price for its processes that are among the most environmentally
friendly because they create reusable materials and are relatively benign
to the ecology.
Environmental Impact. Management believes that the proposed IWT
facilities can be completed without material adverse environmental impact
and in compliance with government regulations. The approvals and permits
required under the U.S. Clean Air Act and U.S. Clean Water Act are many and
will require substantial time and effort.
General
Employees. IGC had 294 full-time employees as of December 31, 1996,
including 135 based in the United States and 159 in Puerto Rico, other than
executive officers. Employees performing non-supervisory services through
the Company's property management operations receive salaries funded by the
owner partnerships.
Significant Customers. Other than the LIHPRHA transaction, no single
customer accounted for more than 10% of IGC's revenues during the year
ended December 31, 1996.
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Company Restructuring
A. Restructuring Objectives
The Company's current operations have been severely restricted due to
the Wetlands Litigation and the terms and conditions of the Company's bank
debt. Also, there are certain investments of the company, such as IWT and
AFH, that have operating losses and substantial current capital needs. In
addition, the Company, as a master limited partnership, is not an
attractive investment for most pension funds, retirement funds and mutual
funds, thereby restricting the Company's access to these substantial
sources of capital. In order to address these issues, management, together
with is advisors, is continuing to develop a restructuring plan originally
announced in December 1996. The current modified plan seeks to achieve the
following objectives:
1. To restructure the Company and thereby convert IGC
Units into shares of a new Maryland real estate
investment trust, American Community Properties Trust
("ACPT").
2. To eliminate from ACPT's operating results the expenses
of the Wetlands Litigation and operating and capital
expenses of IWT and AFH while preserving for ACPT
shareholders the value of these entities and land
affected by the Wetlands Litigation. (ACPT will cede
ownership of, and management and financing
responsibility for, these assets to entities controlled
by the Wilson family that will manage these assets for
the benefit of and/or eventual return to ACPT
shareholders.)
3. To raise approximately $40,000,000 in new capital
through a securities offering by ACPT to pay down
community development bank debt and provide working
capital for community development.
4. To make ACPT an attractive investment for pension funds
and mutual funds by structuring ownership of ACPT's
underlying assets so that ACPT's sources of income will
be exclusively corporate (including REIT) dividends.
5. To roll-up into ACPT subsidiaries the limited partner
interests that the Company does not now own in various
apartment partnerships.
This plan is in addition to certain pending debt refinancings (see
Item 7. Liquidity and Capital Resources).
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B. Pro Forma Financial Highlights of ACPT (Unaudited)
The following represents the pro forma results of operations for the
year ended December 31, 1996 related to management's restructuring plan
assuming objectives 1 and 2 above were completed as of January 1, 1996.
These results do not include the costs of structuring ACPT's ownership of
assets in corporate form, any capital markets transaction by ACPT, or the
planned acquisition of the unaffiliated limited partners' interest in IGC's
apartment investments.
Historical Pro Forma Pro Forma
1996 Adjustments 1996
---------- ----------- ---------
Revenue:
Community development-land sales $14,717 $ 905 (a) $15,622
Homebuilding-home sales 9,640 (9,640) (a) --
Revenues from investment properties
Equity in earnings from partnerships
and developer fees-noncash 1,859 -- 1,859
Cash distributions from partnerships 14,750 -- 14,750
Rental property revenues 7,577 -- 7,577
Management and other fees 4,816 -- 4,816
Interest and other income 1,015 (33) (a) 982
------- ------- -------
Total revenues 54,374 (8,768) 45,606
------- ------- -------
Expenses:
Cost of land sales 10,610 686 (a) 11,296
Cost of home sales 9,347 (9,347) (a) --
Selling and marketing 1,320 (1,094) (a) 226
General and administrative 7,338 (524)(a,b) 6,814
Interest expense 4,265 (74)(a,b) 4,191
Rental properties operating expense 3,694 -- 3,694
Depreciation and amortization 1,548 (168) (a) 1,380
Wetlands litigation expenses 973 (973) (c) --
Write-off of deferred project costs 562 (241) (b) 321
------- ------- -------
Total expenses 39,657 (11,735) 27,922
------- ------- -------
Income Before Provision for Income
Taxes and Minority Interest 14,717 2,967 17,684
Provision for Income Taxes 3,634 -- 3,634
Minority Interest (306) -- (306)
------- ------- -------
Income Before Extraordinary Item 10,777 2,967 13,744
Extraordinary Item-Early
Extinguishment of Debt 932 -- 932
------- ------- -------
Net Income $ 9,845 $ 2,967 $12,812
======= ======= =======
(a) Pro forma adjustments related to AFH's home sales, cost of home
sales, selling, interest and general and administrative costs.
(b) Pro forma adjustments related to IWT.
(c) Expense related to Wetlands Litigation.
14
C. Restructuring Approvals
Upon approval by a committee of outside directors of the final
detailed restructuring plan (including evaluation by the committee and its
financial advisors of the fairness of all asset transfers to Wilson family
entities), management intends to submit the plan to Unitholders for
approval. Completion of the plan will be conditioned upon receiving
approval by a majority in interest of the Unitholders and a majority in
interest of the Units not controlled by the Wilson family held by
Unitholders that vote on the transaction. The restructuring also will
require approval of certain creditors and government agencies. In
addition, the terms and conditions of any transaction to raise capital in
ACPT will be subject to uncertainties of the capital markets. Because of
the significance of the approval process and uncertainties of the capital
markets, there is no assurance that the proposed restructuring will be
completed or completed under the terms and conditions presented here.
Management, however, is moving forward with this planned restructuring and
hopes to accomplish all or a portion of the objectives outlined above in
the third quarter of 1997.
ITEM 2. PROPERTIES
IGC owns real property located in Charles County, Maryland; Prince
George's County, Maryland; St. Mary's County, Maryland; Prince William
County, Virginia; North Carolina; South Carolina, Virginia and Puerto Rico.
15
As of December 31, 1996, the Company's community development land
holdings consisted of the following:
Charles County, Maryland
Finished inventory-
Residential lots 60
Commercial, office or light industrial acres 809
Under construction-
Residential lots 98
Pre-construction
Residential lots 3,346
Held for future development acres 4,265
St. Mary's County, Maryland
Finished inventory-
Residential lots 53
Pre-construction
Residential lots 300
Prince George's County, Maryland
Held for future development acres 277
Prince William County, Virginia
Finished inventory-
Residential lots 140
Carolina, Puerto Rico
Finished inventory-
Commercial, office or light industrial acres 12
Under construction-
Residential lots 602
Pre-construction
Residential lots --
Commercial, office or light industrial acres 20
Held for future development acres 186
Canovanas, Puerto Rico
Held for future development acres 539
As of December 31, 1996, the Company's homebuilding inventory
consisted of the following:
Maryland
Finished homes 2
Home under construction 3
Virginia
Homes under construction-customer owns lot 11
North Carolina
Homes under construction-customer owns lot 12
South Carolina
Homes under construction 4
Puerto Rico-through a non-consolidated
joint venture
Homes under construction 98
16
The following table lists the apartment projects in which IGC has an
ownership interest ($ in thousands):
Expira-
Year of tion
No. of Completion 12/31/96 Occupancy of
Apt. or Project at Subsidy
Units Acquisition Cost 12/31/96 Contracts
------ ----------- -------- --------- ---------
Apartment Projects Owned by
Partnerships Accounted
for Under the Equity
Method of Accounting:
Puerto Rico
San Anton (1) 184 1974 $ 4,573 99% 2001
Monte de Oro (1) 196 1977 6,625 98% 1997
New Center (1) 196 1978 6,660 100% 1998
Monserrate I (1) 304 1979 11,352 97% 1999
Alturas del Senorial (1) 124 1979 4,661 98% 1999
Monserrate II (1) 304 1980 12,194 100% 2020
Torre de las Cumbres (1) 155 1979 6,585 100% 2020
De Diego (1) 198 1980 7,489 97% 2020
Santa Juana (1) 198 1980 7,420 95% 2020
Jardines de Caparra (1) 198 1980 7,307 98% 2000
Colinas de San Juan (1) 300 1981 11,994 99% 2001
Bayamon Gardens (1) 280 1981 13,559 100% 2011
Vistas del Turabo (1) 96 1983 3,351 100% 2021
Valle del Sol (1) 312 1983 15,211 98% 2003
St. Charles, MD
Bannister (1,2) 208 1976 5,044 94% 1998
Crossland (6) 96 1978 3,321 79% N/A
Huntington (1) 204 1980 10,419 99% 2000
Coachman's Landing (6) 104 1989 6,962 83% N/A
Brookside Gardens (7) 56 1994 2,686 82% N/A
Lakeside Apartments (7) 54 1996 4,134 12% N/A
Essex, Richmond, VA (1) 496 1982 19,155 98% 2001
Chastleton, Washington, DC (5) 300 1986 27,568 95% N/A
----- --------
4,563 198,270
Apartment Projects Owned by
Partnerships whose Operations,
Assets and Liabilities are
Consolidated with those of
IGC (St. Charles, MD):
Lancaster (Hunters Run) (3) 104 1985 4,926 87% N/A
Fox Chase (8) 176 1987 7,861 90% N/A
New Forest (8) 256 1988 13,920 93% N/A
Palmer (4) 152 1980 5,691 82% 1999,
2000
Wakefield Third Age
(Brookmont) (1,2) 104 1979 3,097 98% 1998
Wakefield Terrace (1,2) 204 1979 6,404 91% 1998
Headen (1) 136 1980 5,944 97% 2000
----- --------
5,695 $246,113
===== ========
17
(1) Receives subsidies under Section 8 of the National Housing Act.
(2) Receives interest subsidies under Section 236 of the National
Housing Act.
(3) Not subsidized, but 51% of the units are subject to income
guidelines set by the Maryland Community Development
Administration ("MCDA").
(4) 56 units are subsidized and 96 units are not subsidized, but
51% of the non-subsidized units are subject to income
guidelines MCDA.
(5) Not subsidized, but 60 units are set aside for low to moderate
income tenants under provisions set by the District of Columbia
Housing Finance Agency ("DCHFA").
(6) Not subsidized.
(7) Not subsidized, but all units are set aside for low to moderate
income tenants under provisions set by the Low Income Housing
Tax Credit ("LIHTC") program.
(8) Not subsidized, but 20% of the units are subject to income
guidelines set by Sections 4a and 103b of the Internal Revenue
Code of 1954.
ITEM 3. LEGAL PROCEEDINGS
In 1994, the Company filed two claims against Charles County,
Maryland and its County Commissioners in the Maryland Tax Court, a state
administrative agency, seeking compensation for school sites that it
previously had deeded to the County. The actions seek to enforce an
agreement settling litigation between the parties that was entered into in
1989 and to claim rights pursuant to Charles County law. Under the terms
of the settlement agreement, the County agreed to credit the Company for
school sites contributed and to repay to the Company any excess school
impact fees paid. The Company seeks $5,500,000, equal to the fair market
value of the school sites. The Company's claims have not yet been decided
by the Tax Court.
In a separate proceeding, the Company filed suit in 1990 against
Charles County and its County Commissioners in the Circuit Court for
Charles County to enforce another provision of the 1989 settlement
agreement. The Company claims that the County has failed to conduct an
appropriate water and sewer connection fee study as the basis on which to
set such fees for the St. Charles Communities. On June 22, 1992, judgment
was rendered in favor of the Company, which was affirmed in 1995 by the
Court of Special Appeals of Maryland. The judgment requires the County to
conduct the appropriate water and sewer connection fee study. The County
has indicated that it is now in the course of conducting a water and sewer
connection fee study. The adequacy of the study will be subject to review
by the Company and, if necessary, the courts.
In 1994, the U.S. Attorney for the District of Maryland ("U.S.
Attorney") commenced a federal grand jury investigation regarding actions
by IGC in developing certain parcels in St. Charles, Maryland. The parcels
were identified by the U.S. Army Corps of Engineers (the "Corps") as
wetlands within its regulatory jurisdiction. In October 1995, the grand
jury issued an indictment charging IGC, SCA and IGC's Chairman, James J.
Wilson, with four felony and four misdemeanor counts of violations of
Section 404 (wetlands) of the U.S. Clean Water Act. The charges related to
discharge of fill materials into wetlands within the Corps' regulatory
jurisdiction without a permit. The violations were charged to have
occurred on four parcels totaling approximately 50 acres out of the
18
approximately 4,400 acres IGC had developed in St. Charles. At the same
time, the U.S. Attorney filed a civil action charging nine separate civil
violations of the U.S. Clean Water Act. On February 29, 1996, IGC, SCA and
Mr. Wilson were convicted on the four felony counts. On June 17, 1996, Mr.
Wilson was sentenced to 21 months imprisonment, one year of supervised
release and a $1,000,000 fine. IGC and SCA were jointly fined $3,000,000,
placed on probation for five years and ordered to implement a wetlands
restoration and mitigation plan, which the Company's engineers estimate
would cost $2,000,000. The civil action was dismissed without prejudice.
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 second quarter of 1997.
Management believes the Company and Mr. Wilson have numerous substantial
grounds for the appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
IGC did not submit to its partners or Unitholders any matters for a
vote during the fourth quarter of the year ended December 31, 1996.
19
PART II
ITEM 5. MARKET PRICES AND DISTRIBUTIONS ON UNITS
The IGC Units are traded on the American and the Pacific Stock
Exchanges. The following table sets forth, for the periods indicated, the
high and low sales prices per IGC Unit as reported in the consolidated
transaction reporting system, and cash distributions paid to unitholders
during these periods. IGC Units commenced public trading on February 19,
1987.
Cash Distributions Price Range of IGC Units
------------------ ------------------------
Total Per Unit High Low
----- -------- ----------- ---------
1996 Quarter:
Fourth $ -- $ -- $3-1/2 $2-5/16
Third 514 .05 3 2-3/8
Second 615 .06 3-7/8 2-3/4
First -- -- 4 3
1995 Quarter:
Fourth $ -- $ -- $4-1/8 $2-15/16
Third -- -- 4-3/4 3-1/2
Second -- -- 4-3/8 3-1/4
First -- -- 7-1/2 3-1/4
As of the close of business on April 11, 1997, there were 291
Unitholders of record. As of April 11, 1997, the closing price reported by
the American Stock Exchange was $3.375 per unit.
IGC is required by its Third Amended and Restated Limited Partnership
Agreement, as amended, to make cash distributions to limited partners of
not less than 55% of taxable income calculated for public IGC Unitholders
as of the date of IGC's initial public offering. During the years ended
December 31, 1996 and 1995, IGC had taxable losses of $640,000 and
$1,446,000, respectively, or $.05 and $.14, respectively, per unit.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth combined financial data and operating
data for IGC. The following selected income statement and balance sheet
data have been extracted from the audited financial statements of IGC for
each of the years in the five-year period ended December 31, 1996. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations.") This information should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and
related footnotes.
20
SELECTED FINANCIAL AND OPERATING DATA
Years Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per unit amounts)
Income Statement Data
Revenues
Land sales $14,717 $14,824 $22,296 $13,809 $ 3,359
Home sales 9,640 10,826 20,265 21,884 30,761
Investment in gaming
properties 4 (78) 7,288 2,358 591
Equity in earnings from
partnerships and
development fees 16,605 2,647 4,941 3,279 2,122
Apartment rental revenues 7,577 4,642 4,538 2,113 --
Management and other fees 4,816 3,894 3,507 4,493 4,016
Interest and other income 1,015 945 687 1,395 1,786
------- ------- ------- ------- -------
Total revenues 54,374 37,700 63,522 49,331 42,635
Provision for wetlands
litigation expenses 973 4,107 498 -- --
Provision for restructuring -- -- -- -- 15,795
Other expenses 39,922 35,108 52,872 42,973 41,316
Income taxes 3,634 1,452 3,511 (835)(2) 471
Net income (loss) 9,845(1)(2,967) 6,641 7,193 (2) (14,947)
Net income (loss) per unit .95(1) (.29) .65 .71 (2) (1.47)
Cash distributions per unit .11 -- .10 -- --
Years Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Balance Sheet Data (In thousands)
Assets related to
community development $ 81,892 $ 79,558 $ 70,061$ 78,876 $ 82,686
Assets related to
investment properties 53,891 36,722 35,608 42,707 23,516
Assets related to home
building projects 2,491 3,819 4,998 7,566 8,637
Total assets 148,568 132,093 123,513 140,314 125,523
Debt related to community
development
Recourse 34,077 47,841 36,661 50,137 55,596
Non-recourse 2,153 2,034 4,268 2,762 10,866
Debt related to investment
properties
Recourse 1,139 1,322 1,559 1,857 7,313
Non-recourse 39,508 22,650 22,771 22,457 --
Debt related to homebuilding
Recourse 502 981 2,398 3,320 7,538
Total liabilities 101,974 94,184 82,808 108,069 100,481
Partners' equity 46,594 37,909 40,705 32,245 25,042
21
(1) Includes a $932,000 or $.09 per Unit reduction for the
extraordinary item-early extinguishment of debt. See Note 4 of
the Company's consolidated financial statements included in
Item 8.
(2) Includes a $1,500,000 or $.15 per Unit benefit for the
cumulative effect of a change in accounting principle to
reflect the adoption of SFAS No. 109 "Accounting for Income
Taxes".
Years Ended December 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Operating Data
Community Development
Residential lots sold 523 134 228 295 80
Residential lots used by
Company's homebuilding operations 27 25 44 91 120
Residential lots transferred to
Company's rental property operations -- 54 -- 56 --
Commercial and business park
acres sold 5 20 76 12 1
Undeveloped acres sold -- 2 20 27 46
Homebuilding, all locations
Contracts for sale, net of
cancellations 117 108 134 232 288
Number of homes sold 94 190 200 216 288
Backlog at end of period 115 92 86 152 136
Rental apartment units
managed at end of period 8,139 8,085 8,085 8,029 7,907
Units under construction -- 54 -- 56 --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Years Ended December 31, 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
remained stable in 1996 and 1995, at approximately $14,800,000 in each
year. However, in 1995, land sales revenues decreased by 34% compared to
1994 due primarily to the sale of a shopping center site in Puerto Rico in
1994. Even though the sales revenue decreased in 1995, the per acre
commercial sales price in 1995 increased over 1994 prices. These
variations are due to the mix of commercial acres versus industrial and
other business use land sales and the size and location of the property.
22
The average sales price of the residential lots sold in St. Charles has
slowly decreased over the last three years as the remaining lots in the
second village which are smaller and less desirable than the prime lots are
sold. The U.S. residential lot sales volume has continued to be
unfavorably impacted by the competitive market conditions. Excess new and
resale home inventory levels throughout the industry have reduced the need
for homebuilders to purchase additional lots. The effect of this decline
in U.S. residential lot sales was offset by the addition of residential lot
sales in Puerto Rico.
The gross profit margins for 1996, 1995 and 1994 were 28%, 49% and
34%, respectively. The increase in gross profit margins in 1995 is due
primarily to the change in the mix of sales discussed above. Commercial
land sales produce the highest prices but require less development than the
business park and residential land. Commercial sales as a percent of land
sales revenue were 44%, 66% and 57% for 1996, 1995 and 1994, respectively.
Homebuilding Operations. Revenues from home sales have continued to
decline as the Company phased out its tract homebuilding and competition
increased. The average sales price of the tract homes sold decreased 20%
and the sales price of the semi-custom homes sold increased 4% during 1996
as compared to 1995. The combined 8% drop in the number of homes sold
during 1996 compared to 1995 contributed to the decline in revenues.
During 1995 as compared to 1994, the average sales prices increased a
modest 4%, but the 49% decrease in the number of homes sold as a result of
increased competition, geographical shift of market and changes in
operations created the decrease in revenues during that period.
The gross profit margins were 3%, 9% and 9% during 1996, 1995 and
1994, respectively. The decrease in 1996 as compared to 1995 is primarily
due to the decrease in sales prices discussed above.
Rental Property Revenues and Operating Results. Rental property
revenues and operating expense include the results of operations of three
consolidated apartment projects for the entire years 1996, 1995 and 1994
and four additional partnerships for the period April 1, 1996 through
December 31, 1996; the four partnerships consolidated in April became
majority-owned through acquisitions of additional limited partnership
units.
Equity in Earnings from Partnerships and Developer Fees. Equity in
earnings from partnerships have fluctuated in the past three years due to
distributions received from non-consolidated partnerships that were either
sold or refinanced. In 1996, the Company received $15,165,000 of cash
distributions when four properties were sold and in 1994 the Company
received $4,807,000 of cash distributions when a property was refinanced.
There were no similar transactions in 1995.
Management and Other Fees. Management and other fees increased 24% in
1996 compared to 1995. This was due primarily to $1,362,000 of special
management fees earned in 1996 from the LIHPRHA transaction offset by the
elimination of $153,000 of fees earned from the four partnerships
consolidated as of April 1, 1996, a negotiated reduction of $100,000 per
year effective June 1, 1996 on one of the management contracts, and
$197,000 of additional deferred management fees that were recognized in
1995.
23
Management and other fees increased 11% from 1994 to 1995 due to the
recognition in income of reserves on fees earned from the management of
certain apartment projects from a prior period but not determined to be
collectible until 1995.
Interest Expense. Interest expense decreased $257,000 during 1996
compared to 1995 and increased by $199,000 in 1995 compared to 1994. The
decrease in 1996 was due to reduction of non-rental property loan balances
offset in part by the addition of four fully consolidated partnerships
effective April 1, 1996. The increase in 1995 was due to higher interest
rates and costs associated with obtaining new debt and refinancing existing
debt.
General and Administrative Expense. General and administrative
expenses decreased by $435,000 in 1996 compared to 1995, and by $645,000 in
1995 compared to 1994. This is a result of management's continued focus on
cost efficiency and the reduction of these expenses, as well as the
recovery of 1994 stock appreciation rights expense in 1996 and 1995 due to
a decline in the market price of the units.
Liquidity and Capital Resources
Because of the terms of its debt agreements, substantially all of the
cash generated by the Company goes to pay down recourse debt, see Item 8.
Consolidated Statements of Cash Flow, and as a result the Company's
liquidity is restricted. The Company has tax payments due in April 1997
for which it does not expect to remit timely payment in full. 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. The Company
negotiated a letter of intent for up to a $20,000,000 loan that will
refinance substantially all of the U.S. recourse bank debt. This loan will
also provide funds for past due trade payables, future development and
working capital. In addition, the release prices for land sales will be
reduced under the new loan, resulting in increased cash available for
operating needs. In the event the $20,000,000 loan closing is delayed or
does not occur, the Company believes its ongoing operations, including
asset sales and additional financings, will be sufficient to meet its
existing debt, taxes and other operating obligations.
The Company has development projects in various phases. Substantially
all of the projects currently under construction have sufficient
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 herewith in Note 10,
during 1997.
24
Additional Prospective Information
The following discussion contains statements that may be considered
forward looking that involve a number of risks and uncertainties as
discussed herein and in the Company's SEC reports. Therefore, actual
results could differ materially.
The real estate industry is cyclical, and is especially sensitive to
fluctuations in economic activity and movements in interest rates.
Residential lot sales and sales of new homes are affected by market
conditions for rental properties and by the condition of the resale market
for used homes, including foreclosed homes in certain cities as well as the
competitive supply of other new homes for sale. An oversupply of rental
real estate depresses rents and reduces incentives for renters to purchase
homes. An oversupply of resale units depresses prices and reduces the
margins available to builders on sales of new homes. In addition, the
slowing of the economy and its impact on consumer spending, particularly in
overbuilt markets, can adversely impact both commercial and residential
development activity, including the demand for housing.
The Company's homebuilding and community development sales continue to
be greatly influenced by consumer confidence, housing demand, prevailing
market interest rates, movements in such rates and expectations about
future rates. Even though the rates have remained fairly stable and an
adequate supply is available to the entry-level homebuyer, the economic
uncertainties associated with the federal budget and government furloughs
during 1995 and 1996 came at a time when supplies and competition were high
in the Washington, D.C. market. As a result, the area's inventory remains
high and profit margins continue to decline.
The housing markets in St. Mary's and Charles County are anticipated
to be favorably impacted by the expansion of the Patuxent River Naval Air
Warfare Center in St. Mary's County. This expansion is expected to
generate 13,000 jobs in St. Mary's County within the next few years.
Management anticipates the light industrial and business park land sales to
increase after the absorption of the excess inventory in the region.
Currently, the Company has seen increased interest in its U.S. commercial
land. The Puerto Rico residential and commercial market has remained
stable.
Traditionally, the Company has realized the value of its land assets
by selling parcels in fee simple transactions, by taking back notes or
through option agreements on residential lots in which lot prices escalate
at predetermined rates. On occasion, it also has participated in joint
ventures by contributing land at its appraised value in exchange for a
combination of cash at settlement and/or a percentage of the partnership's
cash flow. As a result of its restructuring as disclosed above in
Liquidity and Capital Resources, the Company may find joint ventures as the
best strategy to maximize long-term returns, especially on its commercial
land.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Interstate General Company L.P.:
We have audited the accompanying consolidated balance sheets of
Interstate General Company L.P. (a Delaware limited partnership) and
subsidiaries ("the Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income (loss), changes in partners'
capital and cash flows for each of the three years ended December 31, 1996.
These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Interstate General Company L.P. as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years
ended December 31, 1996, in conformity with generally accepted accounting
principles.
The Company has been required to utilize substantially all of its cash
flow to meet contractual amounts due under its lending agreements. The
Company has tax payments due in April 1997 for which it does not expect to
remit timely payment in full. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial statement
schedule included on pages 53 through 63 of the Form 10-K is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
April 11, 1997
26
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- -------- --------
REVENUES
Community development-land sales $ 14,717 $ 14,824 $ 22,296
Homebuilding-home sales 9,640 10,826 20,265
Revenues from investment properties
Investment in gaming properties 4 (78) 7,288
Equity in earnings from partnerships
and developer fees 16,605 2,647 4,941
Rental property revenues 7,577 4,642 4,538
Management and other fees, substantially
all from related entities 4,816 3,894 3,507
Interest and other income 1,015 945 687
-------- -------- --------
Total revenues 54,374 37,700 63,522
-------- -------- --------
EXPENSES
Cost of land sales 10,610 7,611 14,764
Cost of home sales 9,347 9,829 18,438
Selling and marketing 1,320 1,465 1,514
General and administrative 7,338 7,773 8,418
Interest expense 4,265 4,522 4,323
Rental properties operating expense 3,694 1,695 1,724
Depreciation and amortization 1,548 1,196 1,250
Wetlands litigation expenses 973 4,107 498
Write-off of deferred project costs 562 506 1,761
-------- -------- --------
Total expenses 39,657 38,704 52,690
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 14,717 (1,004) 10,832
PROVISION FOR INCOME TAXES 3,634 1,452 3,511
-------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST 11,083 (2,456) 7,321
MINORITY INTEREST (306) (511) (680)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 10,777 (2,967) 6,641
EXTRAORDINARY ITEM-EARLY
EXTINGUISHMENT OF DEBT 932 -- --
-------- -------- --------
NET INCOME (LOSS) $ 9,845 $ (2,967) $ 6,641
======== ======== ========
NET INCOME (LOSS) PER UNIT
Income (loss) before extraordinary
item $ 1.04 $ (.29) $ .65
Extraordinary item $ (.09) $ -- $ --
-------- -------- --------
Net income (loss) $ .95 $ (.29) $ .65
======== ======== ========
The accompanying notes are an integral part
of these consolidated statements.
27
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (continued)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- -------- --------
NET INCOME (LOSS)
General Partners $ 98 $ (30) $ 66
Limited Partners 9,747 (2,937) 6,575
-------- -------- --------
$ 9,845 $ (2,967) $ 6,641
======== ======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,255 10,126
======== ======== ========
The accompanying notes are an integral part
of these consolidated statements.
28
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
DECEMBER 31,
------------------
1996 1995
-------- --------
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,212 $ 3,476
Restricted 988 2,125
-------- --------
3,200 5,601
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 34,034 33,088
St. Charles, Maryland 26,980 26,287
Other United States locations 16,256 17,061
Notes receivable on lot sales and other 4,622 3,122
-------- --------
81,892 79,558
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Operating properties, net of accumulated
depreciation of $20,658 and $5,124, as of
December 31, 1996 and 1995, respectively 39,219 23,348
Investment in unconsolidated rental property
partnerships, net of deferred income of $2,643 and
$3,414 as of December 31, 1996 and 1995, respectively 11,723 10,922
Other receivables, net of reserves of $121 and $384
as of December 31, 1996 and 1995, respectively 2,949 2,452
-------- --------
53,891 36,722
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 2,016 3,254
Investment in joint venture 275 250
Receivables and other 200 315
-------- --------
2,491 3,819
-------- --------
OTHER ASSETS
Goodwill, less accumulated amortization of $1,039
and $888 as of December 31, 1996 and 1995,
respectively 1,995 2,147
Deferred costs regarding waste technology
and other projects, receivables and other 3,870 2,975
Property, plant and equipment, less accumulated
depreciation of $2,425 and $2,216 as of
December 31, 1996 and 1995, respectively 1,229 1,271
-------- --------
7,094 6,393
-------- --------
Total assets $148,568 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
29
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 34,077 $ 47,841
Non-recourse debt 2,153 2,034
Accounts payable, accrued liabilities
and deferred income 4,829 3,752
-------- --------
41,059 53,627
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,139 1,322
Non-recourse debt 39,508 22,650
Accounts payable and accrued liabilities 3,359 1,670
-------- --------
44,006 25,642
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 502 981
Accounts payable and accrued liabilities 2,544 2,746
-------- --------
3,046 3,727
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 4,078 5,719
Mortgages and notes payable 473 301
Accrued income tax liability - current 3,979 464
Accrued income tax liability - deferred 5,333 4,704
-------- --------
13,863 11,188
-------- --------
Total liabilities 101,974 94,184
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,378 4,292
Limited partners' capital-10,257
Units issued and outstanding as
of December 31, 1996 and 1995 42,216 33,617
-------- --------
Total partners' capital 46,594 37,909
-------- --------
Total liabilities and partners' capital $148,568 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
30
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(In thousands)
General Limited
Partners' Partners'
Capital Capital Total
-------- -------- -----
BALANCES, December 31, 1993 $ 155 $32,090 $32,245
Net income for the year 66 6,575 6,641
Employee Unit options exercised -- 531 531
Cash distributions to partners (10) (1,010) (1,020)
Capital contribution 4,129 -- 4,129
Assets transferred at general
partner's basis (18) (1,803) (1,821)
------- ------- -------
BALANCES, December 31, 1994 4,322 36,383 40,705
Net loss for the year (30) (2,937) (2,967)
Employee and director Unit
options exercised -- 171 171
------- ------- -------
BALANCES, December 31, 1995 4,292 33,617 37,909
Net income for the year 98 9,747 9,845
Exchange of assets between the
Company and general partner (1) (19) (20)
Cash distributions to partners (11) (1,129) (1,140)
------- ------- -------
BALANCES, December 31, 1996 $ 4,378 $42,216 $46,594
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
31
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 9,845 $ (2,967) $6,641
Adjustments to reconcile net income
(loss) to net cash provided by
(used by) operating activities:
Extraordinary item 932 -- --
Depreciation and amortization 1,548 1,196 1,250
Provision for deferred income taxes 629 729 1,486
Equity in (earnings) loss from
gaming properties (4) 78 (7,288)
Equity in earnings from unconsolidated
partnerships and developer fees (16,605) (2,647) (4,941)
Distributions from
unconsolidated partnerships 15,666 1,216 7,076
Cost of sales-community development
and homebuilding 19,957 17,440 33,202
Development and construction
expenditures (19,553) (22,703) (22,752)
Equity in loss from homebuilding
joint venture 75 -- --
Write-off of deferred project cost 562 506 1,761
Changes in notes and accounts
receivable (2,767) (2,624) 2,410
Changes in accounts payable,
accrued liabilities and deferred
income 4,065 2,033 (1,010)
------- -------- -------
Net cash provided by (used in)
operating activities 14,350 (7,743) 17,835
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in assets related to unconsolidated
rental property partnerships (312) 762 311
Change in restricted cash 1,137 3,588 (3,126)
(Additions to) dispositions of rental
operating properties (826) 177 46
(Acquisitions) of other assets, net (503) (1,402) (54)
Contributions to homebuilding joint venture (100) (250) --
Acquisition of rental property partnership
interests -- (170) (170)
------- -------- -------
Net cash (used in) provided by
investing activities (604) 2,705 (2,993)
------- -------- -------
The accompanying notes are an integral part
of these consolidated statements.
32
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from debt financing 34,381 34,643 7,750
Payment of debt (48,251) (27,420) (22,992)
Cash distributions to partners (1,140) -- (1,020)
Exercise of employee and director
options -- 171 531
------- -------- -------
Net cash (used in) provided by
financing activities (15,010) 7,394 (15,731)
------- -------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,264) 2,356 (889)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 3,476 1,120 2,009
------- -------- -------
CASH AND CASH EQUIVALENTS END OF YEAR $ 2,212 $ 3,476 $ 1,120
======= ======== =======
SUPPLEMENTAL DISCLOSURES
Interest paid $ 4,940 $ 5,936 $ 6,557
Income taxes paid 371 2,250 337
Non-cash transactions
Land received in exchange for
land sold -- 134 --
Distribution of notes receivable
from partners -- -- 10,654
Deed in lieu of payment of
purchase money mortgage -- -- 670
Partnership interests received in
satisfaction of accounts and notes
receivable from general partner 69 -- 626
Accounts and notes receivable, net
of reserves, satisfied via transfer
of partnership interests from
general partner 69 -- 2,446
Capital contribution by
general partner -- -- 4,129
Assets transferred to general partner 49 -- --
The accompanying notes are an integral part
of these consolidated statements.
33
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
On September 26, 1986, Interstate General Company L.P. ("IGC" or "the
Company"), a Delaware limited partnership, was formed, and on December 31,
1986, acquired substantially all of the community development,
homebuilding, investment properties and management services businesses of
Interstate General Business Corporation, Interstate St. Charles, Inc. and a
trust for the benefit of the stockholders of Interstate General Business
Corporation. The Company's 1% general partner interest is shared by the
managing general partner, Interstate General Management Corporation, and
Interstate Business Corporation ("IGMC" and "IBC", respectively, referred
to collectively as the "General Partner"). The Company is primarily
engaged in the business of community development, ownership, development
and management of apartment rental properties and homebuilding.
Consolidation and Presentation
The accompanying consolidated financial statements include the
accounts of Interstate General Company L.P. and its majority owned
partnerships and subsidiaries, after eliminating intercompany transactions.
All of the entities included in the consolidated financial statements are
hereinafter referred to collectively as the "Company" or "IGC". As of
December 31, 1996, the consolidated group includes Interstate General
Company L.P., Interstate General Properties Limited Partnership S.E., St.
Charles Associates Limited Partnership, Land Development Associates S.E.,
American Family Homes, Inc., Interstate Waste Technologies Inc., Lancaster
Apartments Limited Partnership, New Forest Apartments Partnership, Fox
Chase Apartments General Partnership, Palmer Apartments Associates Limited
Partnership, Headen House Associates Limited Partnership, Wakefield Terrace
Associates Limited Partnership, Wakefield Third Age Associates Limited
Partnership and various inactive entities. The Company's investments in
its non-majority owned partnerships are recorded using the equity method of
accounting. However, the recognition of losses is limited to the amount of
direct or implied financial support.
Sales and Profit Recognition and Cost Capitalization
Sales revenues and profits from community development and homebuilding
are recognized at closing only when sufficient down payments have been
obtained, possession and other attributes of ownership have been
transferred to the buyer, and IGC has no significant continuing
involvement.
The costs of acquiring and developing land and homebuilding
construction are allocated to these assets and charged to cost of sales as
the related inventories are sold. IGC's interest costs related to
homebuilding and land assets are allocated to these assets based on their
development stage and relative book value. The portion of interest
allocated to land, finished building lots and homebuilding construction
during the development and construction period is capitalized. Remaining
interest costs are expensed. IGC carries land, development and
homebuilding costs at the lower of cost or net realizable value.
34
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of advertising costs,
which include costs of printed materials, signs, displays, general
marketing costs and costs associated with model homes. Advertising costs
are expensed as incurred except for capitalized model home costs which are
depreciated over their estimated useful lives.
Management Fees
IGC records management fees in the period in which services are
rendered. Management fees received from consolidated entities are shown as
a reduction in rental apartment expense.
Deferred Project Costs
Pre-construction costs are capitalized. Upon completion of
construction, the deferred charges are amortized as a component of the
buildings depreciation charge. Deferred project costs determined to be
unrecoverable are written off.
Depreciation and Amortization
Buildings are depreciated over 35 to 40 years using the straight-line
method or the double declining method with a mid-life switch to straight-
line. Furniture, fixtures and equipment are depreciated over five to seven
years using the straight-line method. Deferred expenses are amortized over
the period of estimated benefit using the straight-line method.
Depreciation and amortization of intangible assets, pre-operating
costs and similar deferrals totalled $505,000, $519,000 and $388,000 for
the years ended December 31, 1996, 1995 and 1994.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, unrestricted deposits
with financial institutions and short-term investments with original
maturities of three months or less.
Income Taxes
IGC is not subject to U.S. income taxes under current law. Its
partners are taxed directly on their share of IGC's income without regard
to distributions, and the partners may generally deduct their share of
losses. The corporate subsidiaries of IGC are subject to tax at the
applicable corporate rates. Furthermore, IGC is subject to Puerto Rico
income tax on its Puerto Rico source income and District of Columbia income
tax on its District of Columbia source income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
35
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standard
("SFAS") No. 123, "Accounting for Stock-Based Compensation" during 1996.
The Company has elected to continue to measure compensation costs using
Accounting Principles Board Opinion No. 25," Accounting for Stock Issued to
Employees" and therefore the adoption of this statement did not have any
effect on the financial results of the Company.
Impairment of Long Lived Assets
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long Lived Assets to be Disposed of" which
requires impairment losses to be recorded on long lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of
SFAS No. 121 had no effect on the financial results of the Company.
Reclassifications
Certain amounts presented for 1995 in the Consolidated Balance Sheet
and for 1995 and 1994 in the Consolidated Statements of Income and Cash
Flows have been reclassified to conform with the 1996 presentation.
(2) FINANCING AND CASH MANAGEMENT MATTERS
Because of the terms of its debt agreements, substantially all of the
cash generated by the Company goes to pay down recourse debt, see
Consolidated Statements of Cash Flow, and as a result the Company's
liquidity is restricted. The Company has tax payments due in April 1997
for which it does not expect to remit timely payment in full. 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. The Company
negotiated a letter of intent for up to a $20,000,000 loan that will
refinance substantially all of the U.S. recourse bank debt. This loan will
also provide funds for past due trade payables, future development and
working capital. In addition, the release prices for land sales will be
reduced under the new loan, resulting in increased cash available for
operating needs. In the event the $20,000,000 loan closing is delayed or
does not occur, the Company believes its ongoing operations, including
asset sales and additional financings, will be sufficient to meet its
existing debt, taxes and other operating obligations.
The Company has development projects in various phases. Substantially
all of the projects currently under construction have sufficient
development loans in place to complete the construction. The Company
intends to finance new construction with new development loans and working
capital.
36
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 herewith in Note 10,
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
December 31, March 31, March 15,
1996 1996 1996 Total
------------ --------- ---------- -----
SUMMARY FINANCIAL POSITION:
AS OF DECEMBER 31:
Total Assets
1996 $141,107 $ -- $ -- $141,107
1995 146,376 8,368 11,886 166,630
Total Non-Recourse Debt
1996 136,468 -- -- 136,468
1995 138,068 16,764 14,631 169,463
Total Other Liabilities
1996 23,678 -- -- 23,678
1995 21,332 1,290 2,814 25,436
Total Equity
1996 (19,039) -- -- (19,039)
1995 (18,926) (9,686) (5,559) (34,171)
Company's Investment
1996 11,425 -- -- 11,425
1995 10,477 111 454 11,042
SUMMARY OF OPERATIONS:
Total Revenue
1996 32,791 1,018 1,103 34,912
1995 32,378 3,988 4,470 40,836
1994 32,779 4,029 4,264 41,072
Net Income (Loss)
1996 (184) 135 109 60
1995 108 539 299 946
1994 656 727 72 1,455
Company's recognition of
equity in earnings and
developer fees
1996 1,823 145 -- 1,968
1995 2,131 507 8 2,646
1994 4,602 318 (1) 4,919
37
Partnership Status
-------------------------------------------
Equity Equity Properties
Method at Method to Sold
December 31, March 31, March 15,
1996 1996 1996 Total
------------ --------- ----------- -----
SUMMARY OF OPERATING CASH FLOWS:
Cash flows from operating
activities
1996 6,887 220 387 7,494
1995 6,972 1,114 853 8,939
1994 5,631 1,294 645 7,570
Company's share of cash flows
from operating activities
1996 2,611 134 170 2,915
1995 2,672 712 387 3,771
1994 2,180 750 287 3,217
Operating cash distributions
1996 347 154 -- 501
1995 736 480 -- 1,216
1994 6,753 323 -- 7,076
SUMMARY OF 1996 SALES TRANSACTION:
Gain on Sale $ -- $ -- $39,934 $39,934
Company's Equity and Earnings
Recognition -- -- 13,128 13,128
Total Distribution of Sales
Proceeds -- -- 36,235 36,235
Company's Share of
Sales Proceeds Distribution -- -- 15,165 15,165
Equity method at December 31, 1996: The unconsolidated rental
properties partnerships as of December 31, 1996 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 and Brookside
Gardens in 1994. The remaining complexes owned by Alturas Del Senorial
Associates Limited Partnership, Bannister Associates Limited Partnership,
Bayamon Gardens Associates Limited Partnership, 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 1994.
38
Equity method to March 31, 1996: On April 1, 1996, the Company
acquired a controlling interest in four partnerships owning 596 rental
units, Wakefield Third Age L.P., Wakefield Terrace Associates L.P., Palmer
Apartments L.P. and Headen House Associates L.P. Effective April 1, 1996,
the results of operations and balance sheets of these partnerships are
consolidated in the accompanying financial statements.
Properties sold March 15, 1996: In March 1996, the Company completed
the sale of four Puerto Rico apartment properties. The four properties,
Las Americas I, Las Americas II, Las Lomas and Monacillos, totaling 918
units were purchased by non-profit organizations with financing provided by
HUD through capital grants authorized by the Low Income Housing
Preservation and Resident Homeownership Act ("LIHPRHA"). The Company
retained the management contract for these properties.
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. During 1996, it purchased 98 lots.
The profit on these lots are deferred until sold by Escorial Builders to a
third party. The Company's share of the losses and its investment are
included with the Company's homebuilding operations in the accompanying
financial statement. The table summarizes Escorial Builders' financial
information (in thousands):
Total Total Total Company's
Assets Liabilities Equity Investment
------ ----------- ------ ----------
Summary of Financial Position:
December 31, 1996 $5,586 $5,047 $539 $275
December 31, 1995 613 113 500 250
Total Net Company's Share
Revenues (Loss) of Net (Loss)
-------- ------ ---------------
Summary of Operations:
1996 $-- $(151) $(75)
1995 -- -- --
Company's Share of
--------------------------
Cash Flows Cash Flows
From From Operating
Operating Operating Cash
Activities Activities Distributions
---------- ---------- -------------
Summary of Operating Cash Flows:
1996 $(4,361) $(2,181) $ --
1995 (324) (162) --
39
(4) DEBT AND EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
Debt
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of IGC
at December 31, 1996 and 1995 (in thousands):
Outstanding
Maturity Interest December 31,
Dates Rates ---------------
From/To From/To 1996 1995
-------- --------- ------- -------
Related to community development:
Recourse debt 10-01-96/ P+1.0%/ $34,077 $47,841
04-30-99 10.5%
Non-recourse debt 08-02-09 P+1.5% 2,153 2,034
Related to investment properties:
Recourse debt Demand 7.05%/ 1,139 1,322
7.35%
Non-recourse debt 10-01-19/ 6.85%/ 39,508 22,650
10-01-28 9.875%
Related to homebuilding projects:
Recourse debt 11-16-96/ 9.0%/ 502 981
10-21-97 P+1.5%
General:
Recourse debt 12-31-96/ 7.4%/ 473 301
11-03-00 10.9% ------- -------
Total debt $77,852 $75,129
======= =======
*P = Prime lending interest rate.
As of December 31, 1996, the $34,077,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $8,873,000 of this
amount is further secured by investments in apartment rental partnerships.
As of December 31, 1996, a $2,000,000 principal payment on $8,873,000 of
debt was past due. This event of default was cured in April 1997.
As of December 31, 1996, 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 $7,366,000 have stated interest
rates of 7.5% and 7.75%. After deducting interest payments provided by
HUD, the effective interest rate over the life of the loan is 1%.
The homebuilding debt is secured by substantially all of the
homebuilding assets.
The Company's loans contain various financial and technical provisions
of which the Company is currently in compliance. At December 31, 1996 and
1995, the carrying value of the Company's debt approximates fair value.
40
The stated maturities (assuming no accelerations) of the Company's
indebtedness at December 31, 1996 are as follows (in thousands):
1997 $26,411
1998 9,194
1999 1,716
2000 702
2001 577
Thereafter 39,252
-------
$77,852
=======
The interest costs incurred during 1996, 1995 and 1994 were accounted
for as follows (in thousands):
1996 1995 1994
------ ------- -------
Expensed $4,269 $4,620 $4,369
Capitalized 3,930 3,213 2,770
------ ------ ------
$8,199 $7,833 $7,139
====== ====== ======
Extraordinary Item - Early Extinguishment of Debt
On December 23, 1996, the Company completed the restructuring of two
non-recourse mortgages that will provide an interest savings of
approximately $12,000,000 over the life of the loan. The new mortgage
notes payable of $18,700,000 bear average annual interest rate over the
life of the loans at approximately 6.8% compared to approximately 9.7% for
the old loans. Prepayment fees of $932,000 were paid to the prior lender
and charged as an extraordinary item in the accompanying financial
statements. The loans are secured by the rental properties owned by two
consolidated partnerships.
(5) COMMITMENTS AND CONTINGENT LIABILITIES
On February 29, 1996, IGC, SCA and James J. Wilson were convicted on
four felony counts of violations of Section 404 of the U.S. Clean Water Act
relating to discharge without a permit of fill material into wetlands
within the U.S. Army Corps of Engineers' regulatory jurisdiction. The nine
civil violations of the U.S. Clean Water Act filed by the U.S. Attorney
were dismissed without prejudice. The Company was fined $3,000,000, placed
on probation for five years and ordered to implement a wetlands restoration
and mitigation plan proposed by the government. The Company provided a
bond for these fees secured by its ownership interest in six partnerships
that own rental properties. Mr. Wilson was fined $1,000,000 and sentenced
to 21 months imprisonment and one year of supervised release. Appeals were
filed and Mr. Wilson's sentence was stayed pending appeal by the Court of
Appeals. Oral arguments were heard before the Court of Appeals on March 3,
1997. Management and its legal counsel do not believe that it is probable
that the Company will be required to pay the fine imposed by the trial
court. At December 31, 1996, the Company has accrued the necessary costs
for wetlands litigation.
In the normal course of business, the Company is involved in various
types of pending or unasserted claims. In the opinion of management, these
41
will not have a material impact on the financial condition or future
operations of the Company.
The Company is guarantor of $6,747,000 of letters of credit and surety
bonds for land development completion and homebuilding warranties. IGC
also is guarantor of a $4,569,000 letter of credit securing bonds issued on
behalf of Chastleton Apartments Associates L.P.
In addition to the letters of credit, IGC shares the general partner
interests in two investment property partnerships with IBC which are
currently experiencing negative cash flow. Under the terms of the
partnership agreements, IBC is the primary obligor for funding operating
advances. However, should IBC fail to fulfill its funding obligations, IGC
is obligated as a general partner to provide financial support. This
obligation involves varying degrees of financial exposure in excess of
amounts recognized in the consolidated financial statements.
(6) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of the Company
have ownership interests in various entities that conducted business with
IGC during the last three years. IBC and these officers, and directors and
their ownership or relationship with the entities engaged in business with
IGC are reflected below:
Partner, Officer or
Director Ownership or Relationship
- ------------------------- --------------------------------------------
IBC, general partner Partner of Chastleton Apartments Associates
("Chastleton"), Coachmans Limited Partnership
("Coachmans"), El Monte Properties S.E. ("El
Monte"), G.L. Limited Partnership ("Rolling
Hills"), Smallwood Village Associates
("SVA"), Smallwood Village Office Building
Associates ("SVOBA"), Village Lake L.P.
("Village Lake"), Equus Gaming Company L.P.
("Equus"); owner of Equus Management Company
("EMC"), Darby Station Limited Partnership
James J. Wilson ("JJW"), Shareholder of Wilson Securities Corporation,
Chief Executive Officer ("WSC"); Officer and Director of CP Capitol
and Chairman of the Board Corporation ("CP"), owned by WSC, holder of
of IGC's managing general notes receivable that are secured by the
partner existing general partners' interest in
Capital Park
James M. Wilson ("JMW"), Shareholder, Officer and Director of IBC,
Chief Financial Officer and Advanced Power Systems, Inc. ("APS") and WSC,
Director of IGC's managing Partner of SVOBA; Officer of CP
general partner
Thomas B. Wilson ("TBW"), Shareholder, Officer and Director of IBC,
Director of IGC's managing APS and WSC
general partner
Jorge Colon-Nevares, Partner of Twenty First Century Homes S.E.
Director of IGC's managing ("Twenty First Century"); owner of Compri
general partner Caribe Development Corp. ("Compri")
42
Management Services
The management services provided to the related parties described
above are summarized below (in thousands):
REVENUE FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
Management Decrease
Related Fees and (Increase) Total
Party Interest in Reserve Recognized
------------- ---------- ---------- ----------
1996:
Chastleton (b) IBC $ 74 $ 310 $ 384
Coachman's (b) IBC 32 22 54
Santa Maria WSC 113 -- 113
El Monte IBC 109 -- 109
Rolling Hills IBC 90 (53) 37
Village Lake IBC 24 (16) 8
Capital Park JJW, JMW 193 -- 193
SVA and SVOBA IBC, JMW, TBW 25 -- 25
IBC JMW, TBW 19 -- 19
----- ----- -----
$ 679 $ 263 $ 942
===== ===== =====
1995:
Chastleton IBC $ 73 $ (71) $ 2
Coachman's IBC 49 279 328
Santa Maria WSC 67 -- 67
El Monte IBC 100 -- 100
Rolling Hills IBC 83 352 435
Village Lake IBC 25 26 51
Capital Park JJW, JMW 239 -- 239
SVA and SVOBA IBC, JMW, TBW 61 3 64
IBC JMW, TBW 63 -- 63
----- ----- ------
$ 760 $ 589 $1,349
===== ===== ======
1994:
Chastleton IBC $ 75 $ (67) $ 8
Coachman's IBC 44 (44) --
Santa Maria WSC 60 -- 60
El Monte IBC 99 -- 99
Rolling Hills IBC 101 (53) 48
Village Lake IBC 18 68 86
Capital Park JJW, JMW 282 -- 282
SVA and SVOBA IBC, JMW, TBW 65 -- 65
IBC JMW, TBW 54 -- 54
----- ----- -----
$ 798 $ (96) $ 702
===== ===== =====
43
OUTSTANDING RECEIVABLE AT DECEMBER 31, (c)
----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
Receivable Receivable
(a) Reserve Balance (a) Reserve Balance
---------- ------- ------- ---------- ------- -------
Chastleton (b) $ 47 $ (36) $ 11 $ 380 $ (347) $ 33
Coachman's (b) 26 (15) 11 154 (37) 117
Santa Maria 46 -- 46 -- -- --
El Monte 40 -- 40 28 -- 28
Rolling Hills (b) 65 (53) 12 283 -- 283
Village Lake (b) 27 (16) 11 51 -- 51
Capital Park 23 -- 23 28 -- 28
SVA 2 -- 2 5 -- 5
------ ----- ------ ------ ----- ------
$ 276 $(120) $ 156 $ 929 $(384) $ 545
====== ===== ====== ====== ===== ======
(a) The outstanding receivable balances include unpaid management
fees, operating advances, reimbursement due for common
expenses, and interest on those balances.
(b) On April 1, 1996, IBC transferred its remaining 1.1% limited
partnership interest in four housing partnerships to IGC for
its market value of $69 as partial satisfaction of a note
receivable. The balance of this note receivable and other
receivables were purchased by APS for a cash payment of $1,279.
The collection of the majority of these receivables had
previously been questionable and $413 had been reserved. This
transaction resulted in income recognition of these reserves
during the second quarter of 1996.
(c) The aggregate maximum outstanding balance due from these
entities for management and related services at any one time
during 1996 and 1995 was $1,025 and $1,199, respectively.
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 years ended
December 31, 1996, 1995 and 1994 was $361,000, $408,000 and $418,000,
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
In March 1995, the Company sold two parcels in the Parque Escorial
development in Puerto Rico to Compri for use in its operations. The terms
of sale provided for a sales price of $3,453,000, of which $693,000 was
paid in cash, and the remainder of which was satisfied by a note in the
amount of $2,760,000. The note is collateralized by the land parcels and
commencing January 1, 1997 bears interest at a rate of 10% per annum.
Monthly payments of $27,000 commenced May 1, 1995 with a balloon payment
44
due at maturity on April 1, 1998. During 1996, two parcels totalling 7,395
square meters were released from the mortgage and the monthly payments were
reduced to $12,000 in exchange for $1,198,000 of principal payments.
Concurrent with the transaction described above, the Company executed
a $3,397,000 contract of sale with Compri for three other land parcels. In
April 1996, Compri made a 20% cash payment and the remainder was satisfied
by an interest bearing note collateralized by the land parcels. The note
bears interest at a rate of 10% per annum commencing upon the earlier of
completion of certain infrastructure improvements, Compri commences
development or sells a portion of the land, and is payable in thirty-five
monthly installments of $27,000, with a balloon payment due at maturity on
April 1, 1999.
In June 1996, the Company sold Twenty First Century two parcels of
land in the residential area of Parque Escorial Development for $2,720,000.
In 1996, the Company sold two parcels of land for an aggregate of
approximately $3,400,000, one each to IBC and Darby Station; the sale to
IBC was for cash and the one to Darby Station resulted in the Company
receiving a 20% cash down payment and a note for $1,200,000. The
transactions were done on an arms-length basis and resulted in aggregate
profits of approximately $2,100,000.
As of December 31, 1995, a note receivable due from IBC generated from
a prior year land sale had a $335,000 outstanding balance that was paid in
full during 1996.
Operations Distributed to Unitholders
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. The impact of this transaction
was not material to the Company's financial statements as of December 31,
1996.
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
pursuant to a Master Support and Services Agreement. The outstanding
receivable balance for these services as of December 31, 1996 and 1995 were
$416,000 and $225,000, respectively.
During 1994, 1995 and 1996 a series of transactions occurred prior to
the Equus Distribution. Among these transactions, notes receivable
totalling $10,600,000 were distributed from HDA to the Company and IBC
during 1994. The Company recognized income equal to the $6,500,000
distribution received. IBC contributed to the Company the $4,100,000 note
receivable it received from HDA.
45
The accompanying financial statements reflect the write-off of
$1,800,000 of deferred project costs in 1994 for an unsuccessful attempt to
obtain the license to own and operate a thoroughbred racing and wagering
facility in Virginia.
Other
During 1994, the Company earned interest income of $154,000 from a
note receivable due from SVA.
James J. Wilson, as a general partner of IGP, is entitled to priority
distributions made by each housing partnership in which IGP is the general
partner. If IGP receives a distribution which represents 1% or less of a
partnership's total distribution, Mr. Wilson receives the entire
distribution. If IGP receives a distribution which represents more than 1%
of a partnership's total distribution, Mr. Wilson receives the first 1% of
such total.
As of December 31, 1996, IGC owed IBC $54,000 of unpaid minority
interest distributions and owed APS $39,000 from the collection of accounts
receivable that were purchased by APS.
During 1996, the sale of four properties in Puerto Rico triggered a
taxable gain, a portion of which is passed through to the predecessor of
IGC that contributed those assets. IGC's partnership agreement provides
for (1) an allocation to that predecessor of the income tax payable in
Puerto Rico on such portion of the gain and (2) a reduction from its cash
distributions in an amount equivalent to the Puerto Rico income tax
specifically allocated to the predecessor. In accordance with these
provisions, the Company has recorded a receivable from IBC of $881,000 and
will recover the amount from future distributions payable by the Company.
As of December 31, 1996, an outstanding balance of $881,000 is due from
IBC.
(7) OPTIONS, APPRECIATION RIGHTS, WARRANTS AND PER UNIT DATA
IGC maintains Unit incentive plans for directors (the "Directors
Plan") and employees (the "Employees Plan"). These plans were amended in
1994 and 1995 to allow for the issuance of Unit Appreciation Rights and
other incentive awards. The Directors Plan is for directors of the
managing general partner who are not officers or employees of the Company
or of any General Partner or affiliate of the Company. The Employees Plan
is for employees of IGC, including employees who are Directors of any
general partner of IGC or of any affiliate of IGC. Under the terms of the
plans, directors and employees may be granted options, incentive rights or
other Unit based awards as determined by a committee of the Directors of
the managing general partner, which excludes directors who are eligible to
participate in that particular plan ("Committee"). As of December 31,
1996, 155,000 IGC Units are reserved for issuance under the Director's Plan
and 1,070,025 Units are reserved for issuance under the Employees' Plan.
46
Options
As of December 31, 1996, all outstanding options are fully vested and
exercisable. Activity during 1996 and 1995 is summarized below:
Directors Employees
--------- ----------------------
Plan Plan
Exercise Exercise
Weighted Plan Price $4 Price $2.49
Average Exercise Expiring Expiring
Price Price $4 8-1-01 1-1-99
-------- -------- -------- -----------
Options outstanding,
December 31, 1994 $4.00 30,000 65,050 --
Awarded (1) 2.49 -- -- 12,600
Exercised 4.00 (30,000) (11,450) --
Cancelled (1) 4.00 -- (17,600) --
------- ------- -------
Options outstanding,
December 31, 1995 3.61 -- 36,000 12,600
Cancelled 3.64 -- (20,000) (6,200)
------- ------- --------
Options outstanding,
December 31, 1996 3.57 -- 16,000 6,400
======= ======= ========
(1) As a result of the Equus Distribution, as further discussed in
Note 6, the exercise price of options outstanding under the
Directors and Employees Plans which were exercisable, but not
exercised, prior to January 22, 1995 was reduced from $4.00 to
$2.49. Such reduction was calculated based on the percentage
decrease between the average closing price of the Company's
Units as reported by the American Stock Exchange for the twenty
trading days immediately preceding the ex-dividend date of
February 7, 1995, and the twenty trading days immediately
following the distribution date of February 6, 1995. The
exercise price of options that were not exercisable until after
January 22, 1995 was not adjusted. However, upon exercise, the
holders of such options will receive one Equus Unit for every
two IGC Units.
Appreciation Rights
Under the terms of the plans, directors and employees may be granted
"Unit Appreciation Rights" which entitle the holder to receive upon
exercise, an amount payable in cash, Class A Units of the Company, other
property or some combination thereof, as determined by the Committee. The
amount received upon exercise on or after January 20, 1995, is determined
based on the excess of the fair market value of the Company's Units on the
exercise date, plus 50% of the fair market value of Equus Units on the
exercise date, over the base price of the Unit Appreciation Right specified
in the individual rights agreements. Fair market value is defined in each
individual rights agreement but is generally the average of the closing
prices of Units on the principal exchange on which they are traded for the
20 trading days beginning ten trading days before the exercise date and
ending on the ninth day after the exercise date. No adjustment was made
for Unit Appreciation Rights exercised prior to January 20, 1995, since
47
prior to such date, the Company's market price still reflected the value of
the Company's interest in Equus.
During 1994, 363,800 Unit Appreciation Rights were awarded to
employees of the Company and none were exercised or cancelled. During
1995, 2,000 rights were exercised, 140,000 rights were repriced, and none
were cancelled. During 1996, 2,000 rights were exercised, 10,000 rights
were awarded, and 250,300 were cancelled. Compensation expense recognized
by the Company in connection with such awards totalled approximately
$264,000 in 1994. In 1996 and 1995, however, $94,000 and $164,000,
respectively, of the expense was recovered due to a decline in the market
price of the Units. No Unit Appreciation Rights have been issued in
connection with the Director's Unit Incentive Plan.
As of December 31, 1996, the dates that the 119,500 outstanding Unit
Appreciation Rights become exercisable and their expiration dates are as
follows:
Rights Expiring
------------------------------------
May 15, September 1, October 18,
Rights Exercisable at: 2004 2004 2004
- --------------------- ------- ------------ -----------
December 31, 1996 35,400 20,000 5,000
May 15, 1997 17,700
October 18, 1997 3,000
May 15, 1998 17,700
October 18, 1998 3,000
May 15, 1999 17,700
------- ------- -------
88,500 20,000 11,000
======= ======= =======
Warrants
In 1993, warrants to purchase 100,000 limited partnership Units were
issued to an investment banking firm in connection with a "highly confident
letter" relating to proposed Virginia race track financing. The warrants
had an exercise price of $5.30 per warrant and expire on September 30,
2003. The warrants were valued at $75,000 and such amounts were expensed
in 1995. Subsequent to the Equus Distribution, the $5.30 exercise price of
the warrants was reduced to $3.98, and the warrant holders were granted
50,000 limited partnership purchase warrants for Equus Units with an
exercise price of $2.68.
Per Unit Data
Net income (loss) per Unit for the three years ended December 31, 1996
is calculated using the 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.
(8) INCOME TAXES
As a U.S. Company doing business in Puerto Rico, IGC is subject to
Puerto Rico income tax on its Puerto Rico based income. The taxes
reflected below are a result of that liability.
48
The Company is not subject to U.S. taxes as a partnership. Therefore,
the calculation below for the provision for income taxes does not include
the income from U.S. operations which is not subject to income taxes. It
does include the Puerto Rico source income which is subject to income taxes
in Puerto Rico at the statutory rate of 29%. The following table
reconciles the effective rate solely attributable to Puerto Rico source
income:
December 31,
-------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
(In thousands, except amounts in %)
% of % of % of
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision for income
taxes at the statutory
income tax rate $3,634 29% $1,452 29.0% $5,149 29.0%
Reduction of provision
for partnership income
not taxable to Company -- -- -- -- (1,967)(11.1%)
Other items -- -- -- -- 329 1.8%
------ ---- ------ ----- ----- -----
$3,634 29% $1,452 29.0% $3,511 19.7%
====== ==== ====== ===== ===== =====
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
(In thousands)
Currently payable
United States $ -- $ -- $ --
Puerto Rico 3,005 723 2,025
Deferred 629 729 1,486
------ ------ ------
$3,634 $1,452 $3,511
====== ====== ======
Pursuant to IGC's partnership agreement, a portion of the gain
and the related tax from the sale of four apartment projects
was specifically allocated to the general partner. The Company
has recorded tax owed by the general partner as a reduction of
the provision for income taxes.
49
The components of deferred taxes payable include the following:
AT DECEMBER 31,
------------------------
1996 1995
----------- -----------
(In thousands)
Tax on amortization of deferred income related
to long-term receivables from partnerships
operating in Puerto Rico $ 499 $ 562
Tax on equity in earnings of partnerships
operating in Puerto Rico 2,337 2,135
Tax on land development costs capitalized for book
purposes but deducted currently for tax purposes 2,312 1,924
Tax on interest income, payable when collected 293 83
Tax on sale to related party deferred for book
purposes but currently taxable (108) --
------ ------
$5,333 $4,704
====== ======
50
The reconciliation between net income (loss) per books and net taxable
income (loss) is as follows:
December 31,
-------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
(In thousands, except per Unit amounts)
Per Per Per
Total Unit Total Unit Total Unit
------ ------ ------ ---- ----- ------
Net income (loss)
per books $ 9,845 .96 $(2,967) $(.29) $ 6,641 $ .66
Built-in gain allocable
to Predecessors:
Current (3,554) (.35) (1,369) (.13) (1,747) (.17)
Deferred (415) (.04) (364) (.04) (323) (.03)
Difference in income or
losses from subsidiary
partnerships (4,968) (.48) 1,141 .11 (9,828) (.97)
Losses from corporation
subsidiaries not
deductible by the
partnership 269 .03 2,002 .20 2,221 .22
Capitalization of general
and administrative
expenses under the
Uniform Capitalization
Rules (246) (.02) 315 .03 18 --
Differences in deferred
income (1,431) (.14) 349 .03 417 .04
Difference in cost of sales
due to interest related to
the acquisition of land,
deducted for tax purposes 513 .05 505 .05 1,663 .16
Deferred income taxes 629 .06 729 .07 1,486 .15
Losses from restructuring (3,742) (.36) (245) (.02) (1,691) (.17)
Differences in wetland
litigation costs (1,323) (.13) 2,000 .19 -- --
Other book to tax
reconciling items, none
of which is individually
significant 3,783 .37 (650) (.06) (606) (.06)
------ ---- ------- ------ ------- -----
Net taxable income (loss)
per partnership
federal return (640) (.05) $(1,446) $ (.14) $(1,749) $(.17)
====== ==== ======= ====== ======= ======
Deferred income taxes reflect the "temporary differences" between
amounts of assets and liabilities for financial reporting purposes as
determined in accordance with SFAS No. 109 and such amounts as measured by
tax laws.
51
IGC has been grandfathered and will continue to be through 1997 as a
non-tax paying public partnership. Such grandfathering was based on
guidelines outlined in the Omnibus Budget Reconciliation Act of 1987
allowing publicly traded partnerships existing as of December 17, 1987 not
to be taxed as corporation as long as a substantial new line of business is
not added. As of December 31, 1996, IGC continues to comply with this
requirement. Beginning in 1998, IGC will be taxed as a corporation unless
at least 90% of IGC's gross income is derived from qualifying "passive
type" sources such as interest, dividends and real property income. IGC
plans to restructure (see Note 10) prior to 1998, thus reducing the amount
of income taxable in 1998.
(9) QUARTERLY SUMMARY (UNAUDITED)
IGC's quarterly results are summarized as follows:
Year Ended December 31, 1996
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $24,884 $13,792 $ 5,765 $9,933 $54,374
Income (loss) before
extraordinary item,
taxes and minority
interest 13,957 1,353 (1,621) 1,028 14,717
Income (loss) before
extraordinary item 9,062 330 (869) 2,254 10,777
Net income (loss) 9,062 330 (869) 1,322 9,845
Per Unit:
Net income (loss) before
extraordinary item .87 .03 (.08) .22 1.04
Net income (loss) .87 .03 (.08) .13 .95
Year Ended December 31, 1995
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $10,860 $10,721 $ 7,246 $ 8,873 $37,700
Income (loss) before taxes
and minority interest 976 1,137 (2,311) (806) (1,004)
Net income (loss) 320 1,071 (2,498) (1,860) (2,967)
Per Unit:
Net income (loss) .03 .10 (.24) (.18) (.29)
(10) COMPANY RESTRUCTURING
The Company's current operations have been severely restricted due to
the Wetlands Litigation and the terms and conditions of the Company's bank
debt. Also, there are certain investments of the company, such as IWT and
AFH, that have operating losses and substantial current capital needs. In
52
addition, the Company, as a master limited partnership, is not an
attractive investment for most pension funds, retirement funds and mutual
funds, thereby restricting the Company's access to these substantial
sources of capital. In order to address these issues, management, together
with is advisors, is continuing to develop a restructuring plan originally
announced in December 1996. The current modified plan seeks to achieve the
following objectives:
1. To restructure the Company and thereby convert IGC
Units into shares of a new Maryland real estate
investment trust, American Community Properties Trust
("ACPT").
2. To eliminate from ACPT's operating results the expenses
of the Wetlands Litigation and operating and capital
expenses of IWT and AFH while preserving for ACPT
shareholders the value of these entities and land
affected by the Wetlands Litigation. (ACPT will cede
ownership of, and management and financing
responsibility for, these assets to entities controlled
by the Wilson family that will manage these assets for
the benefit of and/or eventual return to ACPT
shareholders.)
3. To raise approximately $40,000,000 in new capital
through a securities offering by ACPT to pay down
community development bank debt and provide working
capital for community development.
4. To make ACPT an attractive investment for pension funds
and mutual funds by structuring ownership of ACPT's
underlying assets so that ACPT's sources of income will
be exclusively corporate (including REIT) dividends.
5. To roll-up into ACPT subsidiaries the limited partner
interests that the Company does not now own in various
apartment partnerships.
Upon approval by a committee of outside directors of the final
detailed restructuring plan (including evaluation by the committee and its
financial advisors of the fairness of all asset transfers to Wilson family
entities), management intends to submit the plan to Unitholders for
approval. Completion of the plan will be conditioned upon receiving
approval by a majority in interest of the Unitholders and a majority in
interest of the Units not controlled by the Wilson family held by
Unitholders that vote on the transaction. The restructuring also will
require approval of certain creditors and government agencies. In
addition, the terms and conditions of any transaction to raise capital in
ACPT will be subject to uncertainties of the capital markets. Because of
the significance of the approval process and uncertainties of the capital
markets, there is no assurance that the proposed restructuring will be
completed or completed under the terms and conditions presented here.
Management, however, is moving forward with this planned restructuring and
hopes to accomplish all or a portion of the objectives outlined above in
the third quarter of 1997.
53
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Bannister Apartments $ 3,691 $ 410 $ 4,180 $ 453
Garden Apartments
St. Charles, MD
Palmer Apartments 4,251 471 4,788 433
Garden Apartments
St. Charles, MD
Brookmont Apartments 2,343 162 2,677 259
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 1,474 156 2,487 43
Garden Shared Housing
St. Charles, MD
Headen Apartments 4,869 205 4,765 974
Garden Apartments
St. Charles, MD
Huntington Apartments 7,699 350 8,513 1,556
Garden Apartments
St. Charles, MD
Crossland Apartments 2,171 350 2,697 274
Garden Apartments
St. Charles, MD
Terrace Apartments 5,023 497 5,377 533
Garden Apartments
St. Charles, MD
Lakeside Apartments 18 440 3,649 45
Garden Apartments
St. Charles, MD
Lancaster Apartments 4,342 484 4,292 150
Garden Apartments
St. Charles, MD
Fox Chase Apartments 6,537 745 7,014 102
Garden Apartments
St. Charles, MD
54
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
New Forest Apartments 12,144 1,229 12,102 589
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 5,885 572 6,421 (31)
Garden Apartments
St. Charles, MD
Chastleton Apartments 14,182 2,630 23,624 1,314
High Rise Apartments
Washington, D.C.
Essex Village Apts. 16,114 2,667 21,381 (4,893)
Garden Apartments
Richmond, VA
Alturas Del Senorial 3,267 345 4,185 131
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 9,497 1,153 12,050 356
Highrise/Garden Apts.
Bayamon, PR
De Diego 6,472 601 6,718 170
Highrise Apts.
Rio Piedras, PR
Monserrate II 11,101 731 11,172 291
Highrise Apts.
Carolina, PR
Santa Juana 7,199 509 6,748 163
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 5,654 466 5,954 165
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 8,458 900 10,742 352
Highrise Apts.
Carolina, PR
55
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Jardines De Caparra 5,064 546 5,719 1,041
Garden Apartments
Bayamon, PR
Monserrate I 1,862 543 10,436 374
Highrise Apts.
Carolina, PR
Monte De Oro -- 562 5,217 846
Highrise Apts.
Rio Piedras, PR
New Center 588 589 5,702 369
Highrise Apts.
San Juan, PR
San Anton 2,973 313 3,525 734
Highrise Apts.
Carolina, PR
Valle Del Sol 11,053 992 14,017 203
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 1,971 354 2,508 489
Highrise Apts.
Caguas, PR
Office Condo 208 -- 284 --
East Whitiland Township
Pennsylvania
Fredericksburg, VA 190 158 95 5
Model Park 1 Model
Raleigh, NC -- -- 75 6
2 Models
----------- ---------- ----------- ---------
Total Properties $ 166,300 $ 20,130 $ 219,114 $ 7,496
=========== ========== =========== =========
56
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Bannister Apartments $ 410 $ 4,634 $ 5,044 $ 3,696
Garden Apartments
St. Charles, MD
Palmer Apartments 471 5,220 5,691 4,023
Garden Apartments
St. Charles, MD
Brookmont Apartments 162 2,935 3,097 2,294
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 156 2,530 2,686 207
Garden Shared Housing
St. Charles, MD
Headen Apartments 205 5,739 5,944 3,969
Garden Apartments
St. Charles, MD
Huntington Apartments 350 10,069 10,419 5,016
Garden Apartments
St. Charles, MD
Crossland Apartments 350 2,971 3,321 1,887
Garden Apartments
St. Charles, MD
Terrace Apartments 497 5,907 6,404 4,546
Garden Apartments
St. Charles, MD
Lakeside Apartments 440 3,694 4,134 30
Garden Apartments
St. Charles, MD
Lancaster Apartments 484 4,442 4,926 1,341
Garden Apartments
St. Charles, MD
Fox Chase Apartments 745 7,116 7,861 1,775
Garden Apartments
St. Charles, MD
57
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
New Forest Apartments 1,229 12,691 13,920 2,710
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 572 6,390 6,962 1,398
Garden Apartments
St. Charles, MD
Chastleton Apartments 2,630 24,938 27,568 6,783
High Rise Apartments
Washington, D.C.
Essex Village Apts. 2,667 16,488 19,155 14,722
Garden Apartments
Richmond, VA
Alturas Del Senorial 345 4,316 4,661 1,891
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 1,153 12,406 13,559 4,783
Highrise/Garden Apts.
Bayamon, PR
De Diego 601 6,888 7,489 2,946
Highrise Apts.
Rio Piedras, PR
Monserrate II 731 11,463 12,194 4,872
Highrise Apts.
Carolina, PR
Santa Juana 509 6,911 7,420 2,963
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 466 6,119 6,585 2,651
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 900 11,094 11,994 4,407
Highrise Apts.
Carolina, PR
58
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Jardines De Caparra 546 6,761 7,307 2,894
Garden Apartments
Bayamon, PR
Monserrate I 543 10,809 11,352 4,771
Highrise Apts.
Carolina, PR
Monte De Oro 562 6,063 6,625 2,961
Highrise Apts.
Rio Piedras, PR
New Center 589 6,071 6,660 2,868
Highrise Apts.
San Juan, PR
San Anton 313 4,260 4,573 2,125
Highrise Apts.
Carolina, PR
Valle Del Sol 992 14,219 15,211 4,924
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 354 2,997 3,351 1,057
Highrise Apts.
Caguas, PR
Office Condo -- 284 284 59
East Whitiland Township
Pennsylvania
Fredericksburg, VA 158 100 258 21
Model Park 1 Model
Raleigh, NC -- 81 81 19
2 Models
---------- ----------- ----------- ----------
Total Properties $ 20,130 $ 226,606 $ 246,736 $ 100,609
========== =========== =========== ==========
NOTE TO TOTAL CAPITALIZED COSTS:
THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES
FOR U.S. AND P.R. PROPERTIES IS $216,527
59
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ------------------
Bannister Apartments 11/30/76 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Palmer Apartments 3/31/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Brookmont Apartments 5/18/79 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Brookside Gardens Apartments 11/10/94 Bldg - 40 Yrs
Garden Shared Housing Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Headen Apartments 10/30/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Huntington Apartments 10/7/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Crossland Apartments 1/13/78 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Terrace Apartments 11/1/79 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Lakeside Apartments 7/1/96 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Lancaster Apartments 12/31/85 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Fox Chase Apartments 3/31/87 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
60
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES (continued)
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ---------------------
New Forest Apartments 6/28/88 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Coachman's Landing Apt. 9/5/89 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
St. Charles, MD
Chastleton Apartments 11/7/86 Bldg - 40 Yrs
High Rise Apartments Constructed Bldg Equip - 5/10 Yrs
Washington, D.C.
Essex Village Apts. 1/31/82 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
Richmond, VA
Alturas Del Senorial 11/17/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Rio Piedras, PR
Bayamon Gardens 7/6/81 Bldg - 40 Yrs
Highrise/Garden Apts. Constructed Bldg Equip - 5/7 Yrs
Bayamon, PR
De Diego 3/20/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Rio Piedras, PR
Monserrate II 1/30/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Carolina, PR
Santa Juana 2/8/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Caguas, PR
Torre De Las Cumbres 12/6/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Rio Piedras, PR
Colinas De San Juan 3/20/81 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Carolina, PR
61
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES (continued)
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ------------------
Jardines De Caparra 4/1/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5/7 Yrs
Bayamon, PR
Monserrate I 5/1/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Carolina, PR
Monte De Oro 12/1/77 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Rio Piedras, PR
New Center 3/15/78 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
San Juan, PR
San Anton 12/10/74 Bldg - 40 Yrs
Highrise Apts. Acquired Bldg Equip - 5/7 Yrs
Carolina, PR
Valle Del Sol 3/15/83 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5/7 Yrs
Bayamon, PR
Vistas Del Turabo 12/30/83 Bldg - 40 Yrs
Highrise Apts. Acquired Bldg Equip - 5/7 Yrs
Caguas, PR
Office Condo 5/14/90 31.5 Yrs
East Whitiland Township Acquired
Pennsylvania
Fredericksburg, VA 2/23/90 Bldg 5 - 40 Yrs
Model Park 1 Model Acquired
Raleigh, NC 2/23/90 Bldg 5 - 40 Yrs
Model Park 2 Models Acquired
62
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(In thousands)
Real Estate at December 31, 1995 $ 263,180
Additions for 1996:
Improvements 6,334
Land 440
-----------
Total Additions 6,774
-----------
Deductions for 1996:
Dispositions 305
Other, related to sale of four
LIHPRHA properties 22,912
-----------
Total Deductions 23,217
-----------
Real Estate at December 31, 1996 $ 246,737
===========
63
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(In thousands)
Accumulated depreciation at December 31, 1995 $ 106,900
Additions for 1996:
Depreciation expense 6,825
Deductions for 1996:
Dispositions 122
Other, related to sale of four
LIHPRHA properties 12,994
-----------
Total Deductions 13,116
-----------
Accumulated depreciation at December 31, 1996 $ 100,609
===========
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
65
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of IGC's managing general partner, Interstate
General Management Corporation ("IGMC"), is as follows:
Name Age Office
James J. Wilson 63 Chairman, Director and Chief
Executive Officer
J. Michael Wilson 31 Vice Chairman, Director,
Chief Financial Officer and Secretary
Thomas B. Wilson 34 Director
Edwin L. Kelly 55 Director, President and Chief
Operating Officer
Francisco Arrivi Cros 49 Director, Senior Vice President
Donald G. Blakeman 64 Director
Jorge Colon-Nevares 61 Director
Joel H. Cowan 60 Director
The following are the executive officers of IGC:
Name Age Office
James J. Wilson 63 Chairman and Chief Executive Officer
Edwin L. Kelly 55 President and Chief Operating Officer
J. Michael Wilson 31 Chief Financial Officer
Francisco Arrivi Cros 49 Senior Vice President
Paul A. Resnik 49 Senior Vice President
Carlos R. Rodriguez 51 Vice President
Term of Office. Directors of IGMC are elected annually in April by
action of the directors then holding office. Under the IGC Partnership
Agreement, IBC has the right to designate one-third of the directors of
IGMC as long as IBC continues as a General Partner of IGC. As practicable,
an additional one-third are to be persons who are neither affiliates of IGC
nor existing officers or employees of IGC, any General Partner or any of
their affiliates. The remaining directors are to be persons who are
officers of IGC. Messrs. Colon-Nevares and Cowan currently serve as the
unaffiliated directors. Messrs. James J., J. Michael and Thomas B. Wilson
serve as the IBC director designates. Messrs. Kelly and Arrivi serve as
directors representing IGC officers. Mr. Blakeman serves a director who
recently resigned as an IGC officer but who is President of a company in
which IGC is a general partner.
66
Relationships. James J. Wilson is the father of J. Michael and Thomas
B. Wilson.
James J. Wilson has been Chairman of the Board of IGMC since its
inception in 1986. He also served as its President from 1986-1996. He is
the founder of IGC and has been Chief Executive Officer of IGC and its
predecessors since its inception in 1957, and was President from 1957-1994.
He was named IGC Chairman in 1994. He is the founder of IBC and its
predecessors, and has served as IBC's Chairman of the Board and Chief
Executive Officer since 1957 and as President from 1957-1994. As stated in
Item I , Mr. Wilson, along with IGC and SCA, was convicted on four felony
counts of violating Section 404 (wetlands) of the U.S. Clean Water Act.
These convictions have been appealed and a ruling is expected during the
second quarter of 1997.
J. Michael Wilson has been a Director of IGMC since December 1996 and
was named its Vice Chairman, Chief Financial Officer and Secretary and
Chief Financial Officer of the Company in January 1997. He has been
President and Chief Operating Officer of IBC since 1994 and a Director
since 1991. He served as Vice President of IBC from 1991-1994. He has
been a Director of Wilson Securities Corporation since 1991, and President
since March 1996. He was Vice President of Wilson Securities Corporation
from 1991-1996. He has been Vice President of IWT since 1994.
Thomas B. Wilson has been a director of IGMC since December 1995. He
has been a Vice President of IBC since 1994. Since 1994, he has been
President of El Comandante Operating Company ("ECOC"), which leases El
Comandante race track in Puerto Rico from a subsidiary of Equus.
Edwin L. Kelly was named President and Chief Operating Officer of IGMC
and IGC in January 1997. He previously served as Senior Vice President and
Treasurer of IGC and Senior Vice President of IGMC since their formation in
1986. He has served in various executive positions with IGC and its
predecessor companies since 1974, including as a Director of IGMC from
1986-1995.
Donald G. Blakeman has been a Director of IGMC since its inception in
1986. He served as Executive Vice President of IGMC and IGC from 1986-1996
He was Secretary of IGMC from 1990-1995, and Assistant Secretary from 1995-
1996. He served in various executive positions with IGC and its
predecessor companies from 1968-1996. He was named President of Equus and
Equus Management Company ("EMC") in February 1996, and in connection with
those roles he resigned as an officer of IGC in August 1996. He has served
as a Director of EMC since its formation in 1994.
Jorge Colon-Nevares has been a Director of IGMC since 1989. He serves
as a Director of ECOC, which leases El Comandante Race Track in Puerto Rico
from a subsidiary of Equus. Since 1978, he has been President and Chief
Executive Officer of Wendco of Puerto Rico, Inc., the franchisee of Wendy's
for Puerto Rico. He is an officer and a Director of Multisystems
Restaurants, Inc. and Twenty First Century Restaurants, Inc., the
franchisee for Sizzler and T.G.I. Friday's in Puerto Rico. He is a
Director of the Foundation for the University of Puerto Rico and Chairman
of the Board Trustees for Universidad Central del Caribe School of
Medicine.
Joel H. Cowan has been a Director of IGMC since its formation in 1986.
He was a Director of IGC's predecessors from 1968-1986. He is President of
67
Cowan & Associates, a real estate investment company he has owned since
1976. Since 1984, he has been Chairman of the Habersham Group,
international business owned by him whose activities include real estate
development, trade and merchant banking. From 1993-1996, he was a Director
of Continental Airlines, Inc.
Francisco Arrivi Cros has been Senior Vice President of IGC since
1990, Senior Vice President and Assistant Secretary of IGMC since 1991 and
President of IGP since 1996. He was named as a director of IGMC in April
of 1997. He was Vice President of the Chase Manhattan Bank N.A. in Puerto
Rico from 1977-1990, and Manager of its Real Estate Finance Division from
1987-1990.
Paul A. Resnik has been Senior Vice President of IGC since 1993 and
Vice President of IGMC since 1989. He served as Vice President of IGC from
1987-1993.
Carlos R. Rodriguez has been Vice President of IGC since 1989.
68
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following information is furnished with
respect to the Chief Executive Officer and each of the other four most highly
compensated Executive Officers of the Company and two additional officers who
would have been among the four most highly compensated Executive Officers if
they had been employed at the end of 1996 (collectively, the "Executive
Officers").
Long-Term
Compensation
------------
Annual Compensation Awards
--------------------------------- ------------
Securities
Other Underlying
Annual Options/ All Other
Name & Principal Year Salary Bonus Compensation SAR's Compensation
Position ($) ($) ($) (2) # ($) (1)
---------------- ---- ------- ------ ------------ ---------- ------------
James J. Wilson 1996 499,075 -- -- -- 9,492
Chairman & Chief 1995 474,325 -- -- -- 9,552
Executive Officer 1994 440,240 -- -- -- 9,576
Gregory G. Kreizenbeck
Former President, 1996 179,600 -- 35,697 (3) -- 171,992
& Chief Operating 1995 287,700 -- 33,308 (3) 140,000 9,552
Officer 1994 227,804 -- -- 140,000 --
John E. Hans 1996 209,167 -- -- 10,000 124,067
Former Senior 1995 190,200 10,000 -- -- --
Vice President 1994 55,417 -- -- 40,000 --
and Chief Financial
Officer
Francisco Arrivi Cros
Senior Vice 1996 205,200 100,000 -- -- 9,492
President 1995 190,200 -- -- -- 9,552
1994 166,200 -- -- -- 9,924
Edwin L. Kelly 1996 197,367 -- -- -- 9,492
President & Chief 1995 181,908 -- -- -- 9,552
Operating Officer 1994 177,117 -- -- -- 9,576
Paul Resnik 1996 164,800 -- -- -- 9,492
Senior Vice 1995 159,033 -- -- -- 9,552
President 1994 133,144 -- -- -- 9,576
Carlos R. Rodriguez
Vice President 1996 127,200 -- -- -- 7,652
1995 120,200 -- -- -- 7,344
1994 104,200 -- -- -- 7,978
(1) Reflects IGC's contributions to Retirement Plan discussed
below. Greg Kreizenbeck's and Jack Hans' 1996 other income
include $162,500 and $114,575, respectively, of severance
69
compensation pursuant to the terms of their employment
contracts.
(2) Represents the difference between the price paid for shares of
the Company's stock obtained by exercising stock options and
the fair market value of the stock at the date of purchase.
(3) Represents perquisites and other personal benefits, consisting
primarily of $23,000 of reimbursed legal fees and $11,123 of
reimbursed relocating expenses in 1996 and $29,556 for
relocation expenses in 1995.
Employment Agreements. Mr. Wilson entered into an amended three-year
employment agreement with IGC commencing January 1, 1996. Mr. Wilson's
agreement provides for a base salary of $473,000, to be modified annually,
certain fringe benefits, and death or disability benefits. The agreement
may be terminated without cause upon a 90-day written notice, and provides
for a severance pay of base salary for the unexpired term of the contract.
Mr. Kreizenbeck entered into an amended three-year employment
agreement with IGC commencing January 1, 1996. Mr. Kreizenbeck's agreement
provided for a base salary of $287,500, to be modified annually, and
certain fringe benefits. Mr. Kreizenbeck resigned effective June 18, 1996
and was provided a severance package of six months base salary of $162,500.
Mr. Blakeman entered into an employment agreement with IGC commencing
December 31, 1986 for successive one-year terms, provided that neither
party could terminate the agreement without a 90-day written notice. He
provided services for both IGC and EMC. He resigned from IGC effective
August 1996, and was employed by EMC. The Company was reimbursed for
services rendered to EMC.
Mr. Hans entered into an employment agreement with IGC commencing
September 1, 1994 for successive one-year terms, provided that neither
party could terminate the agreement without a 60-day written notice. The
agreement provided for a base salary of $190,000, to be modified annually,
a one-time signing bonus of $10,000, certain fringe benefits, death or
disability benefits, and a severance package of one-year salary and
benefits. The agreement was terminated effective December 31, 1996 and Mr.
Hans was provided with severance pay of $114,600.
Mr. Kelly entered into an employment agreement with the Company
commencing April 1, 1994. The agreement can be terminated without cause
upon 90 days notice, and provides for a base salary of $173,000 per year,
certain fringe benefits and a severance package for 18 months salary.
Mr. Arrivi entered into a compensation agreement with IGC on
September 13, 1990. The agreement provided for a base salary of $149,000,
to be modified annually, a one-time signing bonus of $40,000, certain
fringe benefits, death or disability benefits, and a severance package of
one-year salary.
Directors. Directors of the Managing General Partner that do not
receive salaries from the Company receive directors' fees established by
the Board of Directors of the Managing General Partner. These directors
are compensated at a rate of $5,000 per quarter, $1,400 per meeting and out
of pocket travel reimbursements for meeting attendance. In 1996, the
directors' fees totaled $100,000 all of which were unpaid as of December
31, 1996.
70
IBC indemnifies the directors of the Managing General Partner against
any liability (including legal fees and expenses) arising out of their
serving in such capacities, except for liabilities arising out of the gross
negligence or willful misconduct of such directors.
Unit Options and Unit Appreciation Rights. IGC's employees,
including its directors and officers, are eligible to participate in the
Unit Incentive Plan (the "Employees Plan"). Under the Employees Plan, a
committee composed of the independent directors of IGMC (the "Committee")
awards Unit options ("Options") or Unit Appreciation Rights ("Rights") to
employees and officers on the basis of their performance. The Rights
entitle the holder to receive upon exercise, an amount payable in cash,
Class A units of the Company, other property or some combination thereof,
as determined by the Committee. The amount received upon exercise is
determined based on the excess of the fair market value of the Company's
Units on the exercise date, plus 50% of the fair market value of Equus
Units on the exercise date, over the base price of the Right specified in
the individual rights agreements. The 1996 activity under these plans for
the CEO and most highly compensated officers are summarized on the
following tables:
UNIT APPRECIATION RIGHTS GRANTED DURING 1996
Percent of
Total Unit
Number of Appreciation
Unit Rights Granted
Appreciation to Employees Base
Rights in 1996 Price Expiration
Granted (%) ($) Date
------------ ------------- ----- ----------
James J. Wilson -- -- -- --
Gregory G. Kreizenbeck (1) 140,000 100% 4.94 3-01-04
John E. Hans (2) 10,000 100% 3.03 --
Francisco Arrivi Cros -- -- -- --
Edwin L. Kelly -- -- -- --
Paul Resnik -- -- -- --
Carlos R. Rodriguez -- -- -- --
Potential Realizable Value at Assumed
Annual Rate of Unit Price Appreciation
for Unit Appreciation Rights Term
--------------------------------------
5% 10%
($) ($)
--------- ---------
James J. Wilson -- --
Gregory G. Kreizenbeck (1) 448,626 1,124,020
John E. Hans (2) 54,975 87,539
Francisco Arrivi Cros -- --
Edwin L. Kelly -- --
Paul Resnik -- --
Carlos R. Rodriguez -- --
(1) All of Mr. Kreizenbeck's incentive rights were forfeited 90
days after his June 1996 resignation. Prior to his
71
resignation, there were two amendments to his Unit Appreciation
Rights Agreement. On March 16, 1995, the base price of his
rights was increased to $6.33 and in January 1996 the base
price of his rights were decreased to $4.94.
(2) In 1997, Mr. Hans exercised 2,000 of these Rights during the 90
days after his resignation. The remaining 8,000 Rights were
forfeited.
AGGREGATED OPTION/UNIT APPRECIATION RIGHTS EXERCISES IN 1996
AND DECEMBER 31, 1996 OPTION/UNIT APPRECIATION RIGHTS VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-money
Options Options and
and Unit Unit
Appreciation Appreciation
Rights at Rights at
December 31, December 31,
1996 1996
------------------------------
Units Value Exercisable/ Exercisable/
Acquired On Realized Unexercisable Unexercisable
Name Exercise (#) ($) (#) ($)
- ------------------- ------------ -------- ------------- --------------
James J. Wilson -- -- --/-- --/--
Gregory G. Kreizenbeck -- -- --/-- --/--
John E. Hans -- -- 20,000/-- --/--
Francisco Arrivi Cros -- -- 10,000/15,000 --/--
Edwin L. Kelly -- -- 16,000/24,000 --/--
Paul Resnik -- -- --/-- --/--
Carlos R. Rodriguez -- -- 1,920/2,880 --/--
Long-Term Incentive Plan. IGC has established an incentive
compensation plan (the "Profit Sharing Plan") pursuant to which IGC awards
annual cash bonuses to officers and employees in reasonable amounts
reflecting their contributions to the Company. The persons to receive
bonuses and the amounts of such bonuses are approved by the unaffiliated
directors of IGMC. Under the Profit Sharing Plan, a portion of each bonus,
keyed by the compensation committee to a percentage of the employees'
salary, is contributed on behalf of the employee to the retirement plan
discussed below. No contributions were made to the Profit Sharing Plan
during 1996, 1995 or 1994.
Retirement Plan. IGC maintains a retirement plan (the "Retirement
Plan") for eligible employees of the Company. Employees are generally
eligible to participate when they complete one year of service.
Contributions to the Retirement Plan in 1996, 1995 and 1994 were in amounts
equal to 4% of base salaries and wages not in excess of the U.S. Social
Security taxable wage base, and 8% of salaries (limited to $150,000) that
exceeded that wage base. Additional contributions to the Retirement Plan
are made pursuant to the Profit Sharing Plan.
72
ITEM 12. SECURITY OWNERSHIP OF CERTAIN UNITHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the Units
that were beneficially owned on March 1, 1997 (i) by each person who is
known by the general partners to beneficially own more than 5% of the
outstanding units of the Company, (ii) by named executive officer of a
general partner, and (iii) by all executive officers of the Company and
directors of the general partners as a group. Except where noted, the
address for the beneficial owner is 222 Smallwood Village Center, St.
Charles, Maryland, 20602.
Beneficial Ownership (1)
------------------------
Number of
Name of Beneficial Owner IGC Units Percent
- ------------------------ ------------- -------
James J. Wilson (2) 30,679 .3
Edwin L. Kelly 111,214 1.08
Francisco Arrivi Cros (3) 10,000 .1
Paul Resnik 10,000 .1
Carlos Rodriguez (3) 6,000 .06
All executive officers of IGC
and directors of IGMC as a group
(10 persons) (3)(4) 1,005,828 9.79
Bessemer Interstate Corporation
245 Peachtree Center Avenue #804
Atlanta, GA 30303 522,208 5.08
Interstate Business Corporation
222 Smallwood Village Center
St. Charles, MD 20602 3,080,515 29.97
Wilson Securities Corporation
222 Smallwood Village Center
St. Charles, MD 20602 1,172,203 11.4
(1) The beneficial ownership of Units is determined on the basis of
Units directly and indirectly owned by executive officers of
IGC and directors of IGMC and Units to be issued to IGC
officers under options which are exercisable within the next 60
days.
(2) Includes 100 IGC Units (0%) held by his wife, Barbara A.
Wilson.
(3) Includes IGC Units subject to options exercisable under the IGC
Employees and Directors Plans of 10,000 and 6,000 for Francisco
Arrivi Cros and Carlos Rodriguez, respectively.
(4) Includes 42,700 IGC Units (.42%) attributable to Units held by
Wilson Family Limited Partnership, a partnership for which
James M. Wilson serves as a general partner.
73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information responding to this item appears in Note 6 to the
Company's Consolidated Financial Statements included in Item 8 of this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Interstate General Company
L.P. are contained herein:
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Changes in Partners' Capital for
the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for the years
ended December 31, 1996, 1995 and 1994
2. Financial Statement Schedules
The following financial statements schedules are contained
herein:
Report of Independent Public Accountants
Schedule III -- Real Estate and Accumulated Depreciation
74
3. Exhibits
Exhibits required by Securities and Exchange Commission Section 601
of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- ------- ----------------------------------------- ------------------------
3(a) Third Amended and Restated Agreement of Exhibit 3(a) to Amendment
Limited Partnership of Interstate General No. 3 to Registration
Company L.P. Statement No. 33-10636 on
Form S-1, filed February
11, 1987 (Form "S-1")
(b) First Amendment to Third Amended and Exhibit 3(b) to 1987 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(c) Second Amendment to Third Amended and Exhibit 3(c) to 1988 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(d) Amended and Restated Certificate of Exhibit 3(b) to Form S-1
Limited Partnership of Interstate
General Company L.P.
(e) Certificate of Incorporation of Exhibit 3(c) to Form S-1
Interstate General Management Corporation
(f) Bylaws of Interstate General Management Exhibits 3(d) and 3(1) to
Corporation, as amended Form S-1
(g) Certificate of Incorporation of Exhibit 3(g) to Form S-1
Interstate Business Corporation
(formerly Interstate St. Charles, Inc.)
as amended
(h) Bylaws of Interstate Business Corporation Exhibit 3(h) to Form S-1
(formerly Interstate St. Charles, Inc.)
as amended February 4, 1986
(i) Amendment to Bylaws of Interstate Exhibit 3(i) to 1988 10-K
General Management Corporation dated
November 10, 1988
4(a) Form of beneficial assignment Exhibit 4(a) to Form S-1
certificate representing Units
(b) Form of certificate evidencing limited Exhibit 4(b) to Form S-1
partnership interest
(c) Certificate of Incorporation of Exhibit 4(c) to Form S-1
Interstate Management Title Company
dated September 19, 1986
(d) Bylaws of Interstate Management Title Exhibit 4(d) to Form S-1
Company dated September 25, 1986
75
(e) Amendment to Certificate of Incorporation Exhibit 4(e) to Form S-1
of Interstate Management Title Company
dated December 31, 1986
10. Material Contracts
(a) Employment Agreement with James J. Wilson Exhibit 10(a) to Form S-1
(b) Employment Agreement with Exhibit 10(b) to Form S-1
Donald G. Blakeman
(c) Employment Agreement with Exhibit 10(a) to Form 10-Q
Gregory G. Kreizenbeck for the quarter ended
March 31, 1994
(d) First Amendment to Employment Agreement Exhibit 10(d) to 1994 10-K
with Gregory G. Kreizenbeck
(e) Amended and Restated Employment Agreement Exhibit 10(e) to 1995 10-K
between Interstate General Properties L.P.
and Gregory G. Kreizenbeck dated
January 15, 1996
(f) Severance Agreement between Interstate Exhibit 10(b) to Form 10-Q
General Company L.P. and Gregory G. for the quarter ended
Kreizenbeck dated August 16, 1996 September 30, 1996
(g) Employment Agreement with Exhibit 10(a) to Form 10-Q
John E. Hans for the quarter ended
September 30, 1994
(h) Modification to Employment Agreement Exhibit 10(a) to Form 10-Q
between Interstate General Company L.P. for the quarter ended
and John E. Hans dated April 16, 1996 March 31, 1996
(i) Employment Agreement with Exhibit 10(a) to Form 10-Q
Edwin L. Kelly for the quarter ended
June 30, 1994
(j) Amendment to Employment Agreement between Exhibit 10(a) to Form 10-Q
Interstate General Company L.P. and for the quarter ended
Edwin L. Kelly dated May 20, 1994 June 30, 1995
(k) Second Amendment to Employment Agreement Exhibit 10(b) to Form 10-Q
between Interstate General Company L.P. for the quarter ended
and Edwin L. Kelly dated May 20, 1994 June 30, 1996
(l) Third Amendment to Employment Agreement Filed herewith
between Interstate General Company L.P.
and Edwin L. Kelly dated May 20, 1994
(m) Employment Agreement with Exhibit 10(e) to 1993 10-K
Donald Drew
(n) Employment Agreement for Donald Drew Exhibit 10(eeee) to
dated December 14, 1993 1994 10-K
76
(o) Employment Agreement between Interstate Exhibit 10(j) to 1995 10-K
General Company L.P. and James J. Wilson
dated January 15, 1996
(p) Employment Agreement between Interstate Exhibit 10(a) to Form 10-Q
Waste Technologies, Inc. and Francis C. for the quarter ended
Campbell dated September 1, 1996 September 30, 1996
(q) Indemnity Agreement among Interstate Exhibit 10(f) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc. and each director and
officer of Interstate General
Management Corporation
(r) Unit Incentive Plan for Directors, Exhibit 10(i) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(s) Unit Incentive Plan for Employees, Exhibit 10(j) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(t) Amended and Restated Certificate and Exhibit 10(11) to Form S-1
Agreement of Limited Partnership of
St. Charles Associates Limited
Partnership dated March 14, 1985
(u) Amended and Restated Certificate and Exhibit 10(j) to Form S-1
Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated December 31, 1986
(v) Second Amended and Restated Certificate Exhibit 10(kk) to Form S-1
and Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(w) Fourth Amendment to Second Amendment Exhibit 10(lll) to
and Restated Certificate and Agreement 1991 10-K
of Interstate General Properties
Limited Partnership S.P., dated
June 29, 1981
(x) Fifth Amendment to Second Amendment and Exhibit 10(mmm) to
Restated Certificate and Agreement of 1991 10-K
Interstate General Properties Limited
Partnership S.P., dated June 29, 1981
(y) Third Amended and Restated Certificate Exhibit 10(kk) to
and Agreement of Limited Partnership of 1989 10-K
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(z) Partnership agreement for Fox Chase Exhibit 10(p) to Form S-1
Apartments General Partnership as
amended January 29, 1986
77
(aa) Amendment to Partnership Agreement for Exhibit 10(mm) to Form S-1
Fox Chase Apartments General Partnership
dated February 10, 1987
(bb) Withdrawal, Mutual Release and Exhibit 10(q) to 1993 10-K
Indemnification Agreement and Amendment
to Fox Chase General Partnership Agreement
dated August 20, 1993
(cc) Partnership agreement for Wakefield Third Exhibit 10(r) to Form S-1
Age Associates Limited Partnership dated
July 1, 1985
(dd) Partnership agreement for Wakefield Exhibit 10(t) to Form S-1
Terrace Associates Limited Partnership
dated July 1, 1985
(ee) Partnership agreement for Headen House Exhibit 10(v) to Form S-1
Associates Limited Partnership dated
July 1, 1985
(ff) Partnership agreement for Palmer Exhibit 10(w) to Form S-1
Apartments Associates Limited
Partnership dated July 1, 1985
(gg) Partnership agreement for Chastleton Exhibit 10(dd) to Form S-1
Apartments Associates dated May 1, 1986
(hh) Partnership agreement for New Forest Exhibit 10(ff) to Form S-1
Apartments General Partnership dated
November 18, 1986
(ii) First Amendment to the General Exhibit 10(ii) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
February 24, 1987
(jj) Second Amendment to the General Exhibit 10(hh) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
December 19, 1988
(kk) Withdrawal, Mutual Release and Exhibit 10(z) to 1993 10-K
Indemnification Agreement and Amendment
to New Forest Apartments General
Partnership Agreement dated
August 20, 1993
(ll) Limited Partnership Agreement and Exhibit 10(zz) to
Amended and Restated Limited Partnership 1988 10-K
Certificate of Coachman's Limited
Partnership dated June 2, 1988
(mm) Management Services Agreements between Exhibit 10(k) to Form S-1
Interstate General Properties Limited
Partnership and National General
Corporation (3 separate agreements)
78
(nn) Property Management Agreement between Exhibit 10(oo) to Form S-1
National General Corporation and
Interstate General Corporation and
Interstate General Properties Limited
Partnership as amended March 30, 1986
(oo) Property management agreement between Exhibit 10(n) to Form S-1
Smallwood Village Associates Limited
Partnership and Interstate General
Properties Limited Partnership as
contained in the Smallwood Village
Associates Limited Partnership Amended
and Restated Certificate and Agreement
of Limited Partnership dated July 1, 1985
(pp) Property management agreement between Exhibit 10(o) to Form S-1
Smallwood Village Office Building
Associates Limited Partnership and
Interstate General Properties and
Interstate General Properties Limited
Partnership as contained in the
Smallwood Village Office Building
Associates Amended and Restated Certificate
and Agreement of Limited Partnership
dated July 1, 1985
(qq) Management service agreement between Exhibit 10(jj) to
Interstate General Company L.P. and 1989 10-K
Coachman's Limited Partnership dated
May 2, 1988
(rr) Amendment to Management Service Exhibit 10(hh) to
Agreement between Interstate General 1993 10-K
Company L.P. and Coachman's Limited
Partnership dated January 1, 1993
(ss) Management Agreement by and between Exhibit 10(zzzz) to
Interstate Properties and Interstate 1992 10-K
St. Charles, Inc. (El Monte), dated
January 5, 1987
(tt) First Amendment to Management Agreement Exhibit 10(aaaaa) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated January 4, 1988
(uu) Second Amendment to Management Agreement Exhibit 10(bbbbb) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated December 31, 1992
(vv) Management Agreement by and between Exhibit 10(ccccc) to
Interstate General Properties and 1992 10-K
Interstate St. Charles, Inc. (Santa Maria
Shopping Center), dated January 5, 1987
79
(ww) First Amendment to Management Agreement Exhibit 10(ddddd) to
by and between Interstate General 1992 10-K
Properties Limited Partnership and
Interstate Business Corporation (Santa
Maria Shopping Center), dated
January 4, 1988
(xx) Second Amendment to Management Agreement Exhibit 10(eeeee) to
by and between Interstate General 1992 10-K
Properties Limited Partnership S.E. and
Interstate Business Corporation and
Santa Maria Associates S.E., dated
December 28, 1990
(yy) Two (2) Property management agreements Exhibit 10(aa) to Form S-1
between Interstate General Properties
Limited Partnership and Capitol Park
Associates as amended December 31, 1984
(zz) Lease for office space between Interstate Exhibit 10(r) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated May 21, 1981
(aaa) Lease for office space between Interstate Exhibit 10(m) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated June 15, 1981
(bbb) Lease Amendment to Lease for commercial Exhibit 10(c) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated October 1, 1991
(ccc) Lease Amendment II to Lease for commercial Exhibit 10(d) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(ddd) Store Lease between Interstate General Exhibit 10(fff) to
Business Corporation and Smallwood 1991 10-K
Village Associates Limited Partnership
dated April 1, 1988
(eee) Store Lease between Smallwood Village Exhibit 10(e) to Form 10-Q
Associates and Interstate General for the quarter ended
Company L.P. dated December 1, 1987 September 30, 1995
(fff) Lease Amendment to Store Lease between Exhibit 10(f) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. dated September 30, 1995
February 1, 1989
(ggg) Lease Amendment II to Store Lease Exhibit 10(g) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated December 1, 1992
80
(hhh) Lease Amendment III to Store Lease Exhibit 10(h) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 30, 1994
(iii) Lease Amendment IV to Store Lease Exhibit 10(i) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(jjj) Office Lease between Smallwood Village Exhibit 10(a) to Form 10-Q
Associates and Interstate General Company for the quarter ended
L.P. for Smallwood Village Center dated September 30, 1995
August 25, 1995
(kkk) Amendment to Office Lease between Exhibit 10(b) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. for September 30, 1995
Smallwood Village Center dated
September 5, 1995
(lll) Lease Agreement between Interstate Exhibit 10(fff) to
Business Corporation and American Family 1995 10-K
Homes for Office Building dated
June 28, 1994
(mmm) Fourth Amendment to Interstate General Exhibit 10(yyyy) to
Company L.P. Retirement Plan, dated 1992 10-K
July 1, 1992
(nnn) Fifth Amendment to Interstate General Exhibit 10(b) to Form 10-Q
Company L.P. Retirement Plan dated for the quarter ended
June 5, 1995 June 30, 1995
(ooo) Agreement Regarding Partnership Interest Exhibit 10(nn) to Form S-1
in Chastleton Apartment Associates
dated January, 1987
(ppp) Stockholders Agreement among Interstate Exhibit 10(pp) to Form S-1
and certain stockholders of Interstate
St. Charles, Inc. dated as of
December 1, 1986
(qqq) License Agreement between Interstate Exhibit 10(qq) to Form S-1
General Company L.P., Interstate
General Business Corporation and
Interstate St. Charles, Inc., dated
as of December 31, 1986
(rrr) Amendment to License Agreement between Exhibit 10(rr) to Form S-1
Interstate General Company L.P.,
Interstate General Business Corporation
and Interstate General Company L.P.,
dated as of February 9, 1987
(sss) Unitholders Agreement among Interstate Exhibit 10(ss) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc., and Interstate
Properties Trust dated as of
February 9, 1987
81
(ttt) Agreement dated March 15, 1990 among Exhibit 10(ddd) to
Interstate General Company L.P., 1990 10-K
Interstate Business Corporation and
Interstate General Properties
(uuu) Management service agreement between Exhibit 10(ee) to Form S-1
Interstate General Business Corporation Amendment Exhibit 10(ee)
and Chastleton Apartments Associates to 1989 10-K
as amended February 26, 1987
(vvv) Amendment to February 26, 1987 Exhibit 10(bbb) to
Management Service Agreement between 1993 10-K
Interstate General Business Corporation
and Chastleton Apartment Associates
dated January 1, 1993
(www) Property management agreement between Exhibit 10(z) to Form S-1
Interstate General Properties Limited Amendment Exhibit 10(z) to
Partnership and G.L. Limited Partnership 1989 10-K
as amended September 30, 1985 and as
amended March 1, 1989
(xxx) Amendment to Property Management Exhibit 10(ddd) to
Agreement between Interstate General 1993 10-K
Properties Limited Partnership and
G. L. Limited Partnership dated
January 1, 1993
(yyy) Second Amendment and Restatement of Exhibit 10(eee) to
Purchase Agreement by and between Land 1993 10-K
Development Associates S.E. and Wal-Mart
Puerto Rico, Inc., dated November 30, 1993
(zzz) Sale and Purchase Agreement between Exhibit 10(hhhhh) to
Interstate General Company L.P. and 1992 10-K
K. Hovnanian at Montclair, Inc., dated
September 30, 1992
(aaaa) First Amendment to Sale and Purchase Exhibit 10(ggg) to
Agreement by and between Interstate 1993 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
October 16, 1992
(bbbb) Second Amendment to Sale and Purchase Exhibit 10(hhh) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
August 18, 1994
(cccc) Third Amendment to Sale and Purchase Exhibit 10(iii) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
December 16, 1994
82
(dddd) Amended and Restated Lease Agreement Exhibit 10.8 to the
between Housing Development Associates Registration Statement on
S.E. and El Comandante Operating Company, S-4 of El Comandante
dated December 15, 1993 Capital Corp. and Housing
Development Associates
S.E. Registration
# 33-75284 (the "S-4")
(eeee) Third Amended and Restated Partnership Exhibit 3.3 to the S-4
Agreement for Housing Development
Associates, S.E. dated December 15, 1993
(ffff) Fourth Amended and Restated Partnership Exhibit 10(b) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated July 21, 1994 June 30, 1994
(gggg) Fifth Amended and Restated Partnership Exhibit 10(c) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated August 1, 1994 June 30, 1994
(hhhh) Sixth Amended and Restated Partnership Exhibit 2.2 to the Report
Agreement of Housing Development on Form 8-K of Equus
Associates, S.E. dated March 8, 1995 Gaming Company L.P. dated
March 23, 1995,
File No. 000-25306
(the "Equus 8-K")
(iiii) Seventh Amended and Restated Partnership Exhibit 10.37 to the
Agreement of Housing Development Report on Form 10-K of
Associates, S.E. dated February 7, 1996 Equus Gaming Company L.P.
dated April 1, 1996,
File No. 54-1719877
(jjjj) Conversion Agreement dated February 3, Exhibit 2.3 to the
1995 and First Amendment thereto dated Equus 8-K
March 6, 1995
(kkkk) Indenture dated December 15, 1993 among Exhibit 4.1 to the S-4
El Comandante Corp., Housing Development
Associates S.E. and Banco Popular De
Puerto Rico
(llll) Warrant Agreement between HDA Management Exhibit 10.3 to the S-4
Corporation, Housing Development
Associates S.E. and Banco Popular De
Puerto Rico as Warrant Agent dated
December 15, 1993
(mmmm) Limited Partnership Agreement of Equus Exhibit 10(d) to Form 10-Q
Gaming Company L.P. dated August 1, 1994 for the quarter ended
June 30, 1994
(nnnn) First Amendment to the Limited Exhibit 10(e) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
83
(oooo) Second Amendment to the Limited Exhibit 10(f) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
(pppp) Third Amendment to the Limited Exhibit 3.4 to
Partnership Agreement of Equus Gaming to Registration Statement
Company L.P. on Form S-11 of Equus
Gaming Company L.P.
Registration # 33-82750
(the "Equus S-11")
(qqqq) Amended and Restated Distribution Exhibit 2.1 to the Equus
Agreement dated November 22, 1994, S-11
between Equus Gaming Company L.P.
(the "Company") and Interstate General
Company L.P. ("IGC")
(rrrr) Registration Rights Agreement with Exhibit 10.4 to the S-4
respect to the Warrants dated
December 15, 1993, among HDAMC, HDA,
Oppenheimer & Co., Inc. and The
Argosy Securities Group L.P.
(ssss) Amended and Restated Management Exhibit 10.6 to the S-4
Agreement dated December 15, 1993,
between Interstate General Properties
Limited Partnership S.E. ("IGP") and
HDA
(tttt) Master Support and Services Agreement Exhibit 10.20 to the
dated December 9, 1994, between IGC Equus S-11
and Equus Gaming Company L.P.
(uuuu) Consulting Agreement dated December 15, Exhibit 10.21 to the
1993, between El Comandante Operating Equus S-11
Company and Interstate General
Properties Limited Partnership
(vvvv) First Supplemental Indenture dated Exhibit 10.27 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(wwww) Second Supplemental Indenture dated Exhibit 10.28 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(xxxx) Amended and Restated Registration Rights Exhibit 10.29 to the
Agreement with Respect to the Warrants Equus S-11
dated December 12, 1994, among HDAMC,
HDA, Oppenheimer & Co., Inc., the
Argosy Securities Group L.P. and Equus
Gaming Company L.P.
84
(yyyy) Agreement of Purchase and Sale between Exhibit 10(dddd) to
Interstate General Company L.P. and 1994 10-K
Interstate Business Corporation dated
December 30, 1994 for the Partnership
Interests in:
New Forest Apartments General Partnership
Headen House Associates Limited Partnership
Fox Chase Apartments General Partnership
Palmer Apartments Associates
Wakefield Terrace Associates
Wakefield Third Age Associates
(zzzz) Agreement of Purchase and Sale between Exhibit 10(a) to Form 10-Q
Interstate Business Corporation and for the quarter ended
Interstate General Company L.P. dated June 30, 1996
June 12, 1996 for the Partnership
Interests in:
Wakefield Terrace Associates
Wakefield Third Age Associates
Palmer Apartments Associates
Headen House Associates Limited Partnership
(aaaaa) Agreement of Purchase and Sale between Exhibit 10(c) to Form 10-Q
A.P.S. Associates Limited Partnership, for the quarter ended
Interstate General Company L.P. and June 30, 1996
St. Charles Associates L.P. dated
April 3, 1996
(bbbbb) Agreement between H&C Trading, LLC and Exhibit 10(d) to Form 10-Q
Interstate General Company L.P. dated for the quarter ended
August 6, 1996 June 30, 1996
(ccccc) Agreement of Sale between Land Development Exhibit 10(j) to Form 10-Q
Associates S.E. and Twenty First Century for the quarter ended
Homes S.E. dated September 8, 1995 September 30, 1995
(ddddd) Option Agreement between Land Development Exhibit 10(k) to Form 10-Q
Associates S.E. and Compri Caribe for the quarter ended
Hospitality Corp. dated March 31, 1995 September 30, 1995
(eeeee) Amendment to Option Agreement between Exhibit 10(l) to Form 10-Q
Land Development Associates S.E. and for the quarter ended
Compri Caribe Hospitality Corp. dated September 30, 1995
November 13, 1995
(fffff) Real Estate Sales Contract between Exhibit 10(c) to Form 10-Q
American Family Homes, Inc. and for the quarter ended
Interstate Business Corporation dated September 30, 1996
September 30, 1996
(ggggg) Real Estate Sales Contract between Filed herewith
American Family Homes, Inc. and
Darby Station Limited Partnership,
Interstate Business Corporation, General
Partner dated December 20, 1996
85
(hhhhh) Control Transfer Agreement dated Filed herewith
December 31, 1996 and Amendment to
Control Transfer Agreement dated
March 25, 1997 between Interstate
Business Corporation, Interstate
General Company L.P., Interstate
General Properties Limited Partnership
S.E., Housing Development Associates
S.E., Equus Management Company and
Equus Gaming Company L.P.
(iiiii) Compensation Agreement with Filed herewith
Francisco Arrivi dated September 13, 1990
21. List of Subsidiaries of Interstate Filed herewith
General Company L.P.
(b) Reports on Form 8-K
None
(c) Exhibits
See (a) 2, above.
(d) Financial Statement Schedules
See (a) 2, above.
86
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, there-unto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
By: Interstate General Management
Corporation
Managing General Partner
Dated: April 14, 1997 By: /s/ James J. Wilson
--------------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Dated: April 14, 1997 By: /s/ J. Michael Wilson
--------------------- -----------------------------
J. Michael Wilson
Vice Chairman, Chief Financial
Officer and Director
Dated: April 14, 1997 By: /s/ Cynthia L. Hedrick
--------------------- -----------------------------
Cynthia L. Hedrick
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ------------------------- ------
/s/ James J. Wilson April 14, 1997
- ---------------------- Chairman, Chief Executive ---------------
James J. Wilson Officer and Director
/s/ Edwin L. Kelly April 14, 1997
- ---------------------- President, Chief Operating ---------------
Edwin L. Kelly Officer and Director
/s/ J. Michael Wilson April 14, 1997
- ---------------------- Vice Chairman, Chief ---------------
J. Michael Wilson Financial Officer
and Director
- ---------------------- Senior Vice President ---------------
Francisco Arrivi Cros and Director
87
Signature Title Date
--------- ------------------------- ------
/s/ Donald G. Blakeman April 14, 1997
- ---------------------- Director ---------------
Donald G. Blakeman
/s/ Jorge Colon-Nevares April 14, 1997
- ---------------------- Director ---------------
Jorge Colon-Nevares
/s/ Joel H. Cowan April 14, 1997
- ---------------------- Director ---------------
Joel H. Cowan
/s/ Thomas B. Wilson April 14, 1997
- ---------------------- Director ---------------
Thomas B. Wilson
88
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10. Material contracts
(l) Third Amendment to Employment Agreement between Interstate
General Company L.P. and Edwin L. Kelly dated May 20, 1994
(ggggg) Real Estate Sales Contract between American Family Homes,
Inc. and Darby Station Limited Partnership, Interstate
Business Corporation, General Partner dated December 20,
1996
(hhhhh) Control Transfer Agreement dated December 31, 1996 and
Amendment to Control Transfer Agreement dated March 25, 1997
between Interstate Business Corporation, Interstate General
Company L.P., Interstate General Properties Limited
Partnership S.E., Housing Development Associates
S.E., Equus Management Company and
Equus Gaming Company L.P.
(iiiii) Compensation Agreement with Francisco Arrivi dated September
13, 1990
21. List of Subsidiaries of Interstate General Company L.P.
27. Financial Data Schedule