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, 1997 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 March 13, 1998 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 $21,648,628.
Class A Units Outstanding at March 13, 1998: 10,331,785 Class A Units
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Item
N/A
INTERSTATE GENERAL COMPANY L.P.
1997 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 16
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote
of Security Holders 20
PART II
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Item 5. Market Prices and Distribution on Units 21
Item 6. Selected Financial and Operating Data 21
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 23
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 76
PART III
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Item 10. Directors and Executive Officers
of the Registrant 77
Item 11. Executive Compensation 80
Item 12. Security Ownership of Certain
Unitholders and Management 83
Item 13. Certain Relationships and Related
Transactions 84
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 84
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. The Company's
management and the Board of Directors of the Company's Managing General
Partner are presently undertaking steps to restructure IGC and spin off the
primary real estate operations in a newly formed trust that will be taxed
as a partnership.
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"); St. Charles Community, LLC, ("SCC"); Land Development
Associates, S.E. ("LDA"); American Rental Management Company ("ARMC"); 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 subsidiaries, Interstate Waste Technologies, Inc. ("IWT") and Caribe
Waste Technologies, Inc. ("CWT"), the Company is involved in the pre-
development of municipal waste treatment facilities.
IGC's headquarters are located in St. Charles, Maryland. IGP, its
subsidiary, is based in San Juan, Puerto Rico. 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 13,000
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 rental
apartment properties.
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--commenced 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 unsold 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 1997, the mall attracted approximately 13 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,
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
are 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 964 in 1994, 965 in 1995, 1,090 in 1996 and
1,232 in 1997. 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 610,000 square foot shopping center by opening Wal-Mart and Sam's
Club stores totaling 240,000 square feet. The remaining 370,000 square
feet are presently under contract. Since that time, approximately 14 acres
of commercial land have been sold for prices reaching $1 million per acre.
There are nine 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 784 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 settlements commenced during the last quarter of 1997.
At present, 400 additional units are under contract for closing during the
second quarter of 1998.
In March 1998, 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.
Construction of the site improvements for a 27 acre office park
comprising 500,000 square feet began in February 1998. The Company,
through an 80% partnership that owns Parque Escorial, will be minority
partner in a Puerto Rico special partnership that was awarded the
construction of a 150,000 square feet office building for a quasi-
governmental agency. The agency will lease the building for 30 years,
after which it can buy the building for one dollar. The Company will make
a capital contribution to said partnership in the form of a parcel of seven
acres which will be the site of the building. In exchange, the 80% owned
partnership will receive an annual preferential distribution of $396,000
plus 30% of the net cash flow generated by the building. Construction of
the building is expected to commence during the second quarter of 1998.
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 sewer capacity for the community and
adequate water for the 1,400 residential units or their equivalency in
commercial and office space.
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 II, 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 four
sites in the Washington, D.C. metropolitan area.
IGC owns a parcel of residential land consisting of 77 townhome lots
in the planned community of Montclair, located in Prince William County,
Virginia, approximately 28 miles southwest of Washington, D.C.
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, of which 30 remain. Development of the
community's final phase, consisting of approximately 250 single-family home
lots, began in March 1997, with 36 lots currently under contract.
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 a site in Charles County, Maryland, Pomfret (812
acres), which is in the planning process.
In Puerto Rico, the partnership that owns Parque Escorial also 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 for an entertainment complex.
B. Rental 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 26 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 19 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. The
apartment properties completed since that time have admitted a financing
partner or partners as needed.
The apartment partnerships are primarily financed by non-recourse
mortgages. The U.S. Department of Housing and Urban Development ("HUD")
provides rent subsidies for residents in 4,257 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 those projects whose mortgage loans are still insured
by HUD, or financed through the housing agencies in Maryland, Virginia,
Puerto Rico or Washington, D.C. (the "State Financing Agencies") are
subject to guidelines and limits established by the apartment partnerships'
regulatory agreements with HUD and the State Financing Agencies. Certain
regulatory agreements also require that if the cash from operations
generated by certain apartment properties has exceeded the allowable cash
distributions, the surplus must be deposited into restricted escrow
accounts held by the mortgagee of the property and controlled by HUD or the
applicable State Financing Agency. Funds in these restricted escrow
accounts may 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 rental 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:
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 late 1999. IGC has a
record of success in this conversion procedure, having previously
converted 1,800 units in Puerto Rico.
In January 1998, IGC completed $10,000,000 in refinancings on two
subsidized apartment properties in Puerto Rico. These two
properties are scheduled to undergo conversion to condominiums
beginning in 2000. The refinancings allowed the partnerships to
retire the residual receipts funds and to facilitate the future
conversion process. The refinancings provided funds for the
partnerships to pay approximately $2,000,000 in notes and
distributions to the Company in 1998.
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 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. No new construction of apartment projects is
expected in Puerto Rico.
The subsidiary contract for one of the Puerto Rico properties expired
in 1997, and the property is currently being converted to condominiums.
The remaining subsidy contracts for IGC's investment apartment properties
are scheduled to expire between 1998-2021. HUD has stated that it does not
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 preserve 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 apartment units in Puerto Rico for
sale as condominiums. Substantially all of its units were designed for
this potential. However, because of the adverse tax consequences that
would result from the conversion of apartment properties in the U.S. into
condominiums, IGC anticipates that its U.S. apartment properties with
subsidy contracts would be offered at market rate rents upon expiration of
the applicable subsidy contracts.
Competition. IGC's rental 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.
C. Asset Management Services
IGC earns management fees from management of 8,650 rental apartments,
including 5,695 units owned by partnerships in which IGC is the general
partner. (Fees from 1,132 of these units are eliminated through
consolidation in IGC's financial statements.) IGC manages but does not
have an ownership interest in 2,955 apartment units, 590 of which are owned
by affiliates of the Company. IGC also earns fees by managing
approximately 200,000 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
10.41%. 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 8.25% 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. In
1997, management wrote off its remaining unamortized goodwill related to
the purchase of AFH, in conjunction with the Company's reorganization plan.
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. Twenty-
one homes sold in 1997 and an additional 104 are under option contract.
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
1997, management wrote off its remaining unamortized goodwill related to
the purchase of AFH, in conjunction with the Company's reorganization plan.
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.
Environmental Impact. Management believes that the Company's
homebuilding operations are in compliance with government regulations.
E. Investment in Waste Technologies
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 a 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 1996, a second corporation, Caribe Waste Technologies, Inc.
("CWT"), was formed in Puerto Rico. CWT is an entity established to
perform projects in the Caribbean.
In December 1997, CWT entered into a host community agreement with the
Municipality of Caguas, Puerto Rico. The agreement describes the basis on
which CWT will contract, develop and construct a 3,300 ton per day solid
waste facility using proprietary gasification technology from Thermoselect
S.A. To provide waste for the facility, CWT management is pursuing long-
term solid waste disposal service agreements with municipalities in Puerto
Rico and the Puerto Rico Solid Waste Management Authority. Other
organizations competing to build facilities for disposal of Puerto Rico's
solid waste include Montenay, a subsidiary of Compagnie Generale des Eaux,
Kvaerner, and SEMASS.
In 1996, CWT proposed a solid waste facility to the Island Government
of Saint Maarten, Netherlands Antilles. After an evaluation of proposals
from four companies by the Government and its Dutch technical consultants,
the Island Government entered into a Letter of Intent with CWT in October
1997. The Letter of Intent calls for CWT to submit a final proposal to the
Island Government, followed by a period of exclusive negotiation for a
solid waste disposal service agreement. CWT submitted its proposal for a
330 ton per day Thermoselect solid waste gasification facility to the
Island Government in March 1998. CWT management is preparing for
negotiations toward a solid waste service agreement.
In November 1997, the Government of the U.S. Virgin Islands ("GVI")
issued a Request for Qualification ("RFQ") for Integrated Comprehensive
Solid Waste Management Services. CWT responded in December 1997.
Following an evaluation of the submittals, the GVI notified CWT in February
1998 that CWT had been named to the list to receive an RFP. CWT management
intends to respond to the RFP.
Environmental Impact. Management believes that the proposed IWT and
CWT 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, U.S. Clean Water Act, and
corresponding foreign regulations are many and will require substantial
time and effort.
General
Employees. IGC had 272 full-time employees as of December 31, 1997,
including 134 based in the United States and 138 in Puerto Rico. Employees
performing non-supervisory services through the Company's property
management operations receive salaries funded by the owner partnerships.
Significant Customers. No single customer accounted for more than 10%
of IGC's revenues during the year ended December 31, 1997.
Company Restructuring
A. Restructuring Objectives
The Company's 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 AFH,
that have operating losses and capital needs, and investments such as IWT
and CWT, that have 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 is seeking to implement a
restructuring plan to achieve the following objectives:
1. To restructure the Company by transferring IGC's
principal real estate assets and operations to a new
Maryland trust, American Community Properties Trust
("ACPT") and distributing the shares in ACPT to the
Unitholders and general partners of IGC.
2. To eliminate from ACPT's operating results the expenses
of the Wetlands Litigation (see Item 3. Legal
Proceedings) and operating and capital expenses of IWT,
CWT and AFH.
3. To capitalize IGC with sufficient assets so that it can
meet its operating needs and remain a viable publicly
traded company.
4. To raise approximately $30,000,000 in new capital
through a securities offering by ACPT to pay down
community development bank debt and provide working
capital for community development.
5. 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 dividends.
B. Pro Forma Financial Highlights of ACPT (Unaudited)
The following represents the pro forma results of ACPT's operations
for the year ended December 31, 1997 and ACPT's pro forma balance sheet as
of December 31, 1997 related to management's restructuring plan assuming
objectives 1, 2 and 3 above were completed as of January 1, 1997. These
results do not include the costs of any capital markets transaction by
ACPT.
AMERICAN COMMUNITY PROPERTIES TRUST
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Less IGC Pro
IGC ification Reclass- Residual Forma
Historical Entries ified (c) ACPT
---------- --------- -------- -------- -----
Revenues:
Community development-
land sales $13,357 $105 (a) $13,462 $ 297 $13,165
Homebuilding-home sales 7,805 -- 7,805 7,805 --
Revenues from investment
properties
Equity in earnings
from partnerships
and developer fees 1,494 -- 1,494 (15) 1,509
Rental property revenues 8,737 -- 8,737 -- 8,737
Management and other fees 3,775 -- 3,775 -- 3,775
Interest and other income 1,044 716 (b) 1,760 816 944
------- ---- ------- ------- -------
Total revenues 36,212 821 37,033 8,903 28,130
------- ---- ------- ------- -------
Expenses:
Cost of land sales 8,881 258 (a,b) 9,139 646 8,493
Cost of home sales 7,486 (23) (a) 7,463 7,463 --
Selling and marketing 1,232 -- 1,232 1,105 127
General and administrative 7,034 -- 7,034 427 6,607
Interest expense 3,609 270 (b) 3,879 59 3,820
Rental properties operating
expense 3,597 -- 3,597 -- 3,597
Depreciation and amortization 2,128 -- 2,128 278 1,850
Wetlands litigation expenses 1,772 -- 1,772 1,772 --
Write-off of deferred project
costs 6 -- 6 -- 6
Write-off of goodwill 1,843 -- 1,843 1,843 --
Spin-off costs 1,164 -- 1,164 -- 1,164
------- ---- ------- ------- -------
Total expenses 38,752 505 39,257 13,593 25,664
------- ---- ------- ------- -------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (2,540) 316 (2,224) (4,690) 2,466
PROVISION FOR INCOME TAXES 606 -- 606 136 470
MINORITY INTEREST (439) -- (439) -- (439)
------- ---- ------- ------ ------
NET (LOSS) INCOME $(3,585) $316 $(3,269)($4,826) $1,557
======= ==== ======= ====== ======
AMERICAN COMMUNITY PROPERTIES TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Pro
IGC ification Reclass- Less Forma
Historical Entries ified IGC (c) ACPT
---------- --------- -------- -------- -------
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,273 $ -- $ 2,273 $ 146 $ 2,127
Restricted 508 -- 508 134 374
------- ----- -------- ------- --------
2,781 -- 2,781 280 2,501
------- ----- -------- ------- --------
ASSETS RELATED TO COMMUNITY
DEVELOPMENT
Land and development costs
Puerto Rico 32,918 1,350 (b) 34,268 -- 34,268
St. Charles, Maryland 28,417 -- 28,417 6,667 21,750
Other United States
locations 14,698 -- 14,698 14,698 --
Notes receivable on lot sales
and other, substantially
all due from affiliates 6,476 -- 6,476 847 5,629
------- ---- -------- ------- --------
82,509 1,350 83,859 22,212 61,647
------- ----- -------- ------- --------
ASSETS RELATED TO RENTAL
PROPERTIES
Operating properties, net 37,829 -- 37,829 -- 37,829
Investment in unconsolidated
rental property
partnerships 8,657 -- 8,657 -- 8,657
Other receivables, net 805 -- 805 184 621
------- ----- -------- ------- --------
47,291 -- 47,291 184 47,107
------- ----- -------- ------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction
and land 1,914 -- 1,914 1,914 --
Investment in joint venture 591 -- 591 -- 591
Receivables and other 68 -- 68 68 --
------- ----- -------- ------- --------
2,573 -- 2,573 1,982 591
------- ----- -------- ------- --------
OTHER ASSETS
Receivables, deferred costs
regarding waste technology
and other projects and
other 8,797 6,772 (b) 15,569 13,055 2,514
Property, plant and
equipment, net 1,087 -- 1,087 639 448
------- ----- -------- ------- --------
9,884 6,772 16,656 13,694 2,962
-------- ------ -------- ------- --------
TOTAL ASSETS $145,038 $8,122 $153,160 38,352 $114,808
======== ====== ======== ======= ========
AMERICAN COMMUNITY PROPERTIES TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Pro
IGC ification Reclass- Less Forma
Historical Entries ified IGC (c) ACPT
---------- --------- -------- -------- -------
LIABILITIES RELATED TO
COMMUNITY DEVELOPMENT
Recourse debt $ 35,176 $6,772 (b) $ 41,948 $ 2,164 $ 39,784
Non-recourse debt 2,295 -- 2,295 -- 2,295
Accounts payable, accrued
liabilities and deferred
income 5,245 -- 5,245 145 5,100
------- ----- -------- ------- --------
42,716 6,772 49,488 2,309 47,179
------- ----- -------- ------- --------
LIABILITIES RELATED TO
RENTAL PROPERTIES
Recourse debt 969 -- 969 -- 969
Non-recourse debt 39,101 -- 39,101 -- 39,101
Accounts payable and
accrued liabilities 3,331 -- 3,331 630 2,701
------- ----- -------- ------- --------
43,401 -- 43,401 630 42,771
------- ----- -------- ------- --------
LIABILITIES RELATED TO
HOMEBUILDING
Recourse debt 159 -- 159 159 --
Accounts payable, accrued
liabilities and deferred
income 2,501 -- 2,501 2,501 --
------- ----- -------- ------- --------
2,660 -- 2,660 2,660 --
------- ----- -------- ------- --------
OTHER LIABILITIES
Accounts payable and
accrued liabilities 6,330 -- 6,330 3,084 3,246
Notes payable and capital
leases 615 -- 615 442 173
Accrued income tax
liability-current 1,541 -- 1,541 2 1,539
Accrued income tax
liability-deferred 4,487 -- 4,487 367 4,120
------- ----- -------- ------- --------
12,973 -- 12,973 3,895 9,078
------- ----- -------- ------- --------
TOTAL LIABILITIES 101,750 6,772 108,522 9,494 99,028
-------- ------ -------- ------- --------
PARTNERS' CAPITAL 43,288 1,350 (b) 44,638 28,858 15,780
-------- ------ -------- ------- --------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $145,038 $8,122 $153,160 $38,352 $114,808
======== ====== ======== ======= ========
(a) Land sales occurred during 1997 as IGC's land business sold
lots to its homebuilding business. Gross profit on these
sales, historically eliminated in consolidation, has been
included in IGC and ACPT's historical results for these periods
based upon the estimated fair market value of the land (based
on comparable sales to third parties).
(b) As of and during the year ended December 31, 1997, an
intercompany note receivable and intercompany debt existed
between IGC and LDA. Interest income and expense and the note
receivable and payable amounts, historically eliminated in
consolidation, have been included above in IGC's Reclassified
historical results.
(c) Reflects the operations remaining in IGC after the restructure.
These operations include those of AFH, IWT, CWT and certain
other land sales and development.
C. Restructuring Approvals
A committee of the outside directors voted to proceed with the
distribution of ACPT and the filing of the preliminary proxy with the SEC.
Upon approval of the proxy materials by the SEC, 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 second quarter of 1998.
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.
As of December 31, 1997, the Company's community development land
holdings consisted of the following:
Charles County, Maryland
Finished inventory-
Residential lots 25
Commercial, office or light industrial acres 788
Under development-
Residential lots 70
Pre-development
Residential lots 3,346
Held for future development acres 3,835
St. Mary's County, Maryland
Finished inventory-
Residential lots 30
Pre-development
Residential lots 250
Prince George's County, Maryland
Held for future development acres 277
Prince William County, Virginia
Finished inventory-
Residential lots 87
Carolina, Puerto Rico
Finished inventory-
Residential lots 392
Commercial, office or light industrial acres 10
Under development-
Commercial, office or light industrial acres 20
Pre-development
Residential lots 872
Held for future development acres 133
Canovanas, Puerto Rico
Held for future development acres 539
As of December 31, 1997, the Company's homebuilding inventory
consisted of the following:
Virginia
Homes under construction-customers own lots 8
North Carolina
Homes under construction-customers own lots 17
South Carolina
Homes under construction 7
Puerto Rico-through a non-consolidated
joint venture
Homes under construction 195
The following table lists the apartment projects in which IGC has an
ownership interest ($ in thousands):
Expira-
Year of tion
No. of Completion 12/31/97 Occupancy of
Apt. or Project at Subsidy
Units Acquisition Cost 12/31/97 Contracts
------ ----------- -------- --------- ---------
Apartment Projects Owned by
Partnerships Accounted
for Under the Equity
Method of Accounting:
Puerto Rico
San Anton (1) 184 1974 $ 4,606 100% 2001
Monte de Oro (1,9) 196 1977 6,519 0% 1997
New Center (1,9) 196 1978 6,602 30% 1998
Monserrate I (1) 304 1979 11,443 99% 1999
Alturas del Senorial (1) 124 1979 4,669 100% 1999
Monserrate II (1) 304 1980 12,267 99% 2020
Torre de las Cumbres (1) 155 1979 6,582 99% 2020
De Diego (1) 198 1980 7,510 99% 2020
Santa Juana (1) 198 1980 7,476 100% 2020
Jardines de Caparra (1) 198 1980 7,368 100% 2000
Colinas de San Juan (1) 300 1981 12,044 99% 2001
Bayamon Gardens (1) 280 1981 13,593 99% 2011
Vistas del Turabo (1) 96 1983 3,358 100% 2021
Valle del Sol (1) 312 1983 15,279 99% 2003
St. Charles, MD
Bannister (1,2) 208 1976 5,040 96% 1998
Crossland (6) 96 1978 3,262 91% N/A
Huntington (1) 204 1980 10,283 93% 2000
Coachman's Landing (6) 104 1989 6,980 94% N/A
Brookside Gardens (7) 56 1994 2,687 82% N/A
Lakeside Apartments (7) 54 1996 4,169 96% N/A
Essex, Richmond, VA (1) 496 1982 19,215 97% 2001
Chastleton, Washington, DC (5) 300 1986 27,153 96% N/A
----- --------
4,563 198,105
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 4,945 93% N/A
Fox Chase (8) 176 1987 7,886 91% N/A
New Forest (8) 256 1988 13,752 88% N/A
Palmer (4) 152 1980 5,676 92% 1999,
2000
Wakefield Third Age
(Brookmont) (1,2) 104 1979 3,113 100% 1998
Wakefield Terrace (1,2) 204 1979 6,326 89% 1998
Headen (1) 136 1980 5,965 99% 2000
----- --------
5,695 $245,768
===== ========
(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.
(9) Project is undergoing conversion to condominiums.
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 as well as rights under 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 Tax Court remanded our claims to the County for a full
hearing.
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. This matter has been the
subject of extensive previous litigation and in 1992 the Circuit Court for
Charles County rendered a judgment in favor of the Company requiring the
County to conduct an appropriate study. That decision was affirmed in 1995
by the Court of Special Appeals of Maryland. The litigation filed by IGC
in 1997 seeks to enforce the prior court orders that require the County to
conduct the appropriate water and sewer connection fee study, to reduce the
connection fees paid prospectively in the St. Charles communities, and to
obtain repayment of excess fees paid in the past. The matter has not yet
been decided by the Circuit Court for Charles County.
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
"Wetlands Litigation"). 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 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 in the
U.S. District Court for the District of Maryland (the "District Court") 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 fined $2,000,000 and $1,000,000, respectively, placed on
probation for five years and ordered to implement a wetlands restoration
and mitigation plan, which IGC's engineers estimate would cost $2,000,000
to $3,000,000. IGC paid the aggregate $3,000,000 in fines on behalf of
itself and SCA and has completed $325,000 of restoration work. As a result
of the conviction, certain land in St. Charles was encumbered by an
obligation to impose a conservation easement.
On December 23, 1997 a three judge panel of the U.S. Court of Appeals
for the Fourth Circuit (the "Appeals Court") reversed the convictions of
IGC, SCA and Mr. Wilson and remanded the matter to the District Court for a
new trial. The U.S. Attorney filed a petition for rehearing with the three
judge panel which was denied. IGC received a full refund of the $3,000,000
in fines and was relieved of the obligation to impose conservation
easements.
In reversing the convictions, the Appeals Court voided regulations
that defined "waters of the United States" to include intrastate wetlands
that could affect interstate commerce. If the U.S. Attorney decides to
retry the case, it is expected that the U.S. Attorney will argue that the
subject properties are "waters of the United States" because they are
"adjacent" to "navigable waters" within the meaning of the Clean Water Act.
The courts have construed "adjacent" to mean "reasonably proximate" or
"closely related." The subject portions of IGC's properties are over nine
miles from the nearest "navigable waters."
The ultimate outcome of this litigation remains uncertain. The U.S.
Attorney may seek to retry the criminal case or recommence the civil case
that was previously dismissed.
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, 1997.
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
----- -------- ----------- ---------
1997 Quarter:
Fourth $ -- $ -- $5-3/8 $3-1/4
Third -- -- 4 2-7/8
Second -- -- 3-13/16 2-15/16
First -- -- 3-7/8 2-7/8
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
As of the close of business on March 13, 1998, there were 276
Unitholders of record. As of March 13, 1998, the closing price reported by
the American Stock Exchange was $4.187 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, 1997 and 1996, IGC had taxable income (losses) of $330,000 and
($640,000), respectively, or $.04 and $(.05), 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, 1997. (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.
SELECTED FINANCIAL AND OPERATING DATA
Years Ended December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per unit amounts)
Income Statement Data
Revenues
Land sales (a) $13,357 $14,717 $14,824 $22,296 $13,809
Home sales 7,805 9,715 10,826 20,265 21,884
Investment in gaming
properties -- 4 (78) 7,288 2,358
Equity in earnings from
partnerships and
development fees 1,494 16,530 2,647 4,941 3,279
Apartment rental revenues 8,737 7,577 4,642 4,538 2,113
Management and other fees 3,775 4,816 3,894 3,507 4,493
Interest and other income 1,044 1,015 945 687 1,395
------- ------- ------- ------- -------
Total revenues 36,212 54,374 37,700 63,522 49,331
Provision for wetlands
litigation expenses 1,772 973 4,107 498 --
Other expenses 37,419 39,922 35,108 52,872 42,973
Income taxes 606 3,634 1,452 3,511 (835)(2)
Net (loss) income (3,585) 9,845(1) (2,967) 6,641 7,193 (2)
Basic net (loss) income
per unit (.35) .95(1) (.29) .65 .71 (2)
Cash distributions per unit -- .11 -- .10 --
(a) Includes sales to
affiliates 3,000 9,086 3,233 -- --
Years Ended December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data (In thousands)
Assets related to
community development $82,509 $83,085 $79,558 $70,061 $78,876
Assets related to
rental properties 47,291 52,698 36,722 35,608 42,707
Assets related to home
building projects 2,573 2,491 3,819 4,998 7,566
Total assets 145,038 148,568 132,093 123,513 140,314
Debt related to community
development
Recourse 35,176 34,077 47,841 36,661 50,137
Non-recourse 2,295 2,153 2,034 4,268 2,762
Debt related to rental
properties
Recourse 969 1,139 1,322 1,559 1,857
Non-recourse 39,101 39,508 22,650 22,771 22,457
Debt related to homebuilding
Recourse 159 502 981 2,398 3,320
Total liabilities 101,750 101,974 94,184 82,808 108,069
Partners' equity 43,288 46,594 37,909 40,705 32,245
(1) Includes a $932,000 or $.09 per Unit reduction for the
extraordinary item-early extinguishment of debt. See Note 3 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,
-----------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operating Data
Community Development
Residential lots sold 250 523 134 228 295
Residential lots used by
Company's homebuilding operations 5 27 25 44 91
Residential lots used in joint
venture operations 21 -- -- -- --
Residential lots transferred to
Company's rental property operations -- -- 54 -- 56
Commercial and business park
acres sold 17 5 20 76 12
Undeveloped acres sold 381 -- 2 20 27
Homebuilding, all locations
Contracts for sale, net of
cancellations 73 67 133 134 232
Number of homes sold 112 156 190 200 216
Backlog at end of period 58 68 92 86 152
Rental apartment units
managed at end of period 8,139 8,139 8,085 8,085 8,029
Units under construction -- -- 54 -- 56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 the Years Ended December 31, 1997 and 1996.
Community Development Operations.
Community development land sales revenue decreased 10% to $13,357,000
during the twelve months ended December 31, 1997, compared to sales of
$14,717,000 during the twelve months ended December 31, 1996. The decrease
was attributable to a decrease in residential lot sales in Puerto Rico.
These lots are sold to homebuilders in bulk, and in 1997 there were fewer
sales transactions. In addition, the U.S. residential lot sales volume has
continued to be unfavorably impacted by the competitive market conditions
and the delay in development of the next village, Fairway. Even though the
sales were down, the gross profit margin during 1997 increased to 34%, as
compared to 28% in the same period of 1996. This increase was due
primarily to the sales mix. During 1997, 23% of the sales revenue was
generated by an undeveloped bulk parcel, which had a low acquisition price.
There were no similar sales during 1996.
Homebuilding Operations.
Revenues from home sales decreased 20% to $7,805,000 during the twelve
months ended December 31, 1997, as compared to $9,715,000 during the twelve
months ended December 31, 1996. The number of homes sold decreased 31%, to
74 from 107 in the twelve months ended December 31, 1996. These reductions
were primarily due to the phase out of the tract homebuilding operations.
The gross profit margins were 4% in both 1997 and 1996.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 25% to
$5,140,000 in the twelve months ended December 31, 1997, as compared to
$3,883,000 during the same period in 1996. As of April 1, 1996 four
additional partnerships were consolidated when they became majority owned
through an acquisition of additional limited partnership interests.
Equity in Earnings from Partnerships and Developer Fees.
During March 1996, IGC completed the sale of four Puerto Rico
apartment projects. The properties, totaling 918 rental units, were sold
under the 1990 Low Income Housing Preservation and Resident Homeownership
Act ("LIHPRHA"). Equity in earnings decreased $15,036,000, to $1,494,000
during the twelve months ended December 31, 1997, as compared to
$16,530,000 during the twelve months ended December 31, 1996. This decrease
was primarily due to the $14,637,000 earned on the sales of the four
properties during 1996, with no similar transaction in 1997.
Management and Other Fees.
Management and other fees decreased 22% to $3,774,000 in 1997, as
compared to $4,816,000 in 1996. This decrease was due primarily to
$1,362,000 of special management fees earned in 1996 from the LIHPRHA sales
and the elimination of the management fees from four partnerships
consolidated during the entire twelve months ended December 31, 1997,
offset in part by fees of $724,000 earned from the refinancing of two
apartment complexes in 1997.
Interest Expense.
Interest expense decreased $656,000 to $3,609,000 during 1997, as
compared to $4,265,000 in 1996. The decrease was primarily attributable to
$500,000 in late fees incurred in 1996 and a decrease in the average debt
outstanding during the 1997 period, offset in part by interest attributable
to the additional four properties consolidated April 1, 1996, as discussed
above.
General and Administrative Expense.
General and administrative expenses decreased 6% to $7,034,000 during
the twelve months ended December 31, 1997, as compared to $7,338,000 during
the same period of 1996. This decrease was a result of management's
continued focus on cost efficiency and the reduction of expenses.
Specifically management experienced reductions in legal fees of $133,000,
and salaries and benefits of $853,000, for the year ended December 31,
1997. These reductions in spending were offset by discounts on notes
receivable of $801,000. The notes receivable are due from an affiliate of
a former director, and did not bear interest until certain infrastructure
improvements were completed. Delays in those improvements caused a delay
in the commencement of interest charges, necessitating the additional
discounts.
Provision for Wetlands Litigation Expense.
Expenses related to the environmental legal proceedings discussed in
Item 3 increased to $1,772,000 in 1997 from $973,000 in 1996. The Company
established a reserve of $1,500,000 in 1997 to cover additional costs that
could be incurred in the event of a retrial.
Write-off of Goodwill.
In conjunction with the Company's reorganization plan, management
wrote off $1,843,000 of goodwill in 1997 related to the purchase of a
homebuilding company that builds homes on the purchasers' lots.
Spin-off Costs.
Costs of $1,164,000 related to the restructuring of the Company were
recognized as an expense in 1997.
For the Years Ended December 31, 1996 and 1995.
Community Development Operations.
Community development land sales remained stable in 1996 and 1995, at
approximately $14,800,000, in each year. The U.S. residential lot sales
volume was unfavorably impacted by competitive market conditions, however,
the effect of this decline was offset by increased 1996 residential lot
sales in Puerto Rico.
The gross profit margins for 1996 and 1995 were 28% and 49%,
respectively. The decline in gross profit margin was due primarily to the
change in the mix of sales. Commercial land sales produce the highest
gross margins since their sales prices are higher and they require less
development than the business park and residential land. Commercial sales
as a percentage of land sales revenue were 44% and 66% in 1996 and 1995,
respectively.
Homebuilding Operations.
Revenues from home sales declined as the Company phased out its tract
homebuilding operations and competition increased. Homebuilding sales
decreased 10% to $9,715,000 in 1996, as compared to $10,826,000 in 1995.
The average sales price of the tract homes decreased 20% and the average
sales price of the semi-custom homes increased 4% during 1996 as compared
to 1995. The combined 8% drop in the number of homes sold, 94 units sold
in 1996 versus 102 units sold in 1995, contributed to the decline in
revenue.
The gross profit margins for 1996 and 1995 were 4% and 9%,
respectively. The decrease was primarily attributable to the decrease in
the average sales price discussed above, and higher construction costs.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 24% to
$3,883,000 as compared to $2,947,000 in 1995. The increase in 1996 was due
to the consolidation of four additional partnerships for the period April
1, 1996 through December 31, 1996. These four partnerships became
majority-owned in April 1996 through acquisitions of additional limited
partnership interests.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased $13,883,000, to $16,530,000 in 1996 as
compared to $2,647,000 in the same period of 1995. This increase was
attributable to gains from the four LIHPRHA sales in March 1996.
Management and Other Fees.
Management and other fees increased $922,000, to $4,816,000 in 1996 as
compared to $3,894,000 in 1995. This increase was due primarily to
$1,362,000 of special management fees earned in 1996 from the LIHPRHA
sales, offset by the elimination during 1996 of $153,000 of management 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 an additional $197,000 of deferred management
fees recognized in 1995.
Interest Expense.
Interest expense decreased 6% to $4,265,000 in 1996, as compared to
$4,522,000 in 1995. The decrease was due to a reduction in non-rental
property loan balances offset in part by the addition of four fully
consolidated partnerships effective April 1, 1996.
General and Administrative Expense.
General and administrative expenses decreased 6% to $7,338,000 in
1996, as compared to $7,773,000 in 1995, due primarily to management's
continued focus on cost efficiency and the reduction of these expenses.
Provision for Wetlands Litigation Expenses.
Expenses related to the environmental legal proceedings discussed in
Item 3 decreased to $973,000 in 1996 from $4,107,000 in 1995. The Company
established a reserve of $2,500,000 in 1995 to cover the anticipated future
costs of the legal proceedings. The reserve was depleted in 1996, with
additional costs of $973,000 incurred during 1996.
Liquidity and Capital Resources
Cash and cash equivalents were $2,273,000 and $2,212,000 at December
31, 1997 and December 31, 1996, respectively. This increase was
attributable to $9,716,000 and $585,000 provided by operating and financing
activities, respectively, offset by $10,240,000 used in investing
activities. The cash inflow from operating activities was primarily
attributable to distributions from unconsolidated partnerships and land
sales. The cash provided by financing activities was attributable to the
closing of a $20,000,000 financing with Banc One. Loan proceeds were used
to retire debt, payment of various obligations and working capital. The
cash outflow for investing activities was primarily attributable to land
improvements put in place for future land sales and pre-construction costs
associated with future waste technology plants.
IGC has historically met its liquidity requirements principally from
cash flow generated from home and land sales, property management fees,
distributions from residential rental partnerships and from bank financing
providing funds for development and working capital.
Over the past several years, IGC's cash flows have been constrained
because of the terms of its existing debt agreements and the reluctance of
lenders to provide financing in the U.S. as a result of the Wetlands
Litigation (see Item 3. Legal Proceedings). As a result, substantially all
of the cash generated has been used to pay debt service requirements with
existing lenders. This resulted in limited opportunities for new
construction and development in the U.S.. The recently closed Banc One
financing provided funding to commence construction in Fairway Village, the
third village in St. Charles, and will allow IGC to retain a greater
portion of its U.S. land sales proceeds. IGC currently has other
development projects in various stages of completion. Substantially all of
the projects under construction have sufficient development loans in place
to complete the construction.
IGC's principal demands for liquidity are expected to be the continued
funding of its current debt service and operating costs, including
potential ongoing legal costs for the Wetlands Litigation as well as
capital for its waste technology investments. After the Restructuring,
management expects to obtain additional funding which can be used by ACPT
to fund new community development projects. Such sources of funding may
include, but are not limited to, excess operating cash flows, secured or
unsecured financings, private or public offerings of debt or equity
securities and proceeds from sales of properties. IGC's anticipated cash
provided by operations, new and existing financing facilities, and
extension or refinancing of $12,500,000 of loans that are due in 1998 are
expected to satisfy the Company's capital needs in 1998. However, there
are no assurances that these funds will be generated.
Debt Summary
As of December 31, 1997, substantially all of IGC's assets, with a
book value, $146,000,000 were encumbered by $36,000,000 of recourse debt
and $41,000,000 of non-recourse debt; $39,000,000 of the non-recourse debt
is attributable to the mortgages of consolidated rental property
partnerships. The significant terms of IGC's recourse debt financing
arrangements are shown below (dollars in thousands):
Balance
Maximum Interest Maturity Outstanding
Descriptions Borrowings Rate Date 12/31/97
------------ ---------- -------- -------- -----------
Banc One-term loan (a) $11,000 P+2.5% 7/31/04 $10,728
Banc One-development loan (a) 4,000 P+2.5% 7/31/04 1,020
Banc One-remediation loan (a) 5,000 P+2.5% 7/31/04 3,306
First Bank-term loan (b) 9,685 P+1.5% 8/31/98 8,399
First Bank-construction loan (b) 5,500 P+1.5% 6/30/98 3,348
Banco Popular (c) 4,000 P+1.5% 12/5/98 3,000
RG-Premier Bank (d) 1,560 P+1.5% 4/30/99 1,560
Citibank (e) 969 (e) demand 969
Banco Santander (f) 707 P+1% 4/15/98 707
Washington Savings Bank (g) 1,317 9.5% 9/30/99 757
Miscellaneous land and
development loans 2,165 Various Various 2,165
Other miscellaneous 346 Various Various 346
------- -------
$46,249 $36,305
======= =======
(a) The three notes are cross-collateralized by substantially all
of the U.S. land and the U.S. and Puerto Rico future cash
entitlements pursuant to its ownership interest in the housing
partnerships. Interest is paid monthly. The loan agreement
calls for a minimum of $2,000,000 principal curtailments in
1998, and $3,000,000 in each of the following six years. In
addition, IGC is to establish a $1,000,000 development reserve
during 1998. It is IGC's intention to meet the required
payments from land sales and proceeds from the refinancing of a
rental property. On each anniversary date, IGC is to pay an
additional fee, 1% in 1998 and 1999, increasing 1/2% in the
following four years, and grant an option to the lender to
purchase an additional 75,000 shares at a strike price to be
determined after the restructure. The loan agreement covenants
include restrictions on additional indebtedness of IGC and St.
Charles Community LLC. The loan agreement contains a cross
default provision for any amounts in excess of $1,000,000 past
due for 45 days after demand notification.
(b) The two notes are cross collateralized by the Puerto Rico land
assets. The interest is paid monthly from an interest reserve.
Principal payments are funded through the partial release
prices of the collateral. IGC expects to extend the maturity
date of these loans. The loan agreement covenants include
restrictions on distributions by LDA and additional
indebtedness of LDA and cross default provisions for other loan
payment defaults.
(c) The note was assumed in March 1998 by IBC in connection with
the sale of property to IBC.
(d) The note requires monthly principal payments of $27,000 and is
secured by three mortgage notes receivable totalling
$2,717,600. Interest is paid monthly by advances under the
loan agreement.
(e) The note requires monthly payments of interest calculated at
250 basis points over the cost of funds, 8.406% at December 31,
1997. The note was secured by a letter of credit that expired
in January 1998. Management is currently renegotiating the
terms of this loan.
(f) The loan is collateralized by a pledge of two mortgage notes
receivable totalling $2,760,000. Monthly principal payments of
$27,000 are required. Additional principal is paid from the
sale of residential parcels in Phase II of Parque Escorial.
(g) The note requires monthly payments of interest and is
collateralized by the land under development for 115 townhome
lots in St. Charles, Maryland. The loan is to be repaid from
the sale of townhome lots that are currently under an option
contract.
Year 2000
IGC has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications and other systems using
computer chips currently use two-digit fields to designate a year. As the
century date occurs, date sensitive systems may recognize the year 2000 as
1900 or not at all. This inability to recognize or properly treat the year
2000 may cause the systems to process critical financial and operations
information incorrectly.
IGC's reporting systems are Year 2000 compliant with the exception of
one module. The Company has engaged a programmer at a nominal cost to
bring this module into compliance. Management is continuing to review the
remaining operating systems and computer systems that affect the properties
the Company manages.
Forward-Looking Statements
Certain matters discussed and statements made within this Annual
Report on Form 10-K are forward-looking statements within the meaning of
the Private Litigation Reform Act of 1995 and as such may involve known and
unknown risks, uncertainties, and other factors that may cause the actual
results, performance or achievements of the company to be different from
any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Company believes the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will
be attained. These risks are detailed from time to time in the Company's
filings with the Securities and Exchange Commission or other public
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 and 1996, and the
related consolidated statements of (loss) income, changes in partners'
capital and cash flows for each of the three years ended December 31, 1997.
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years ended December 31, 1997, in conformity with generally accepted
accounting principles.
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 65 through 75 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.
March 25, 1998
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- --------
REVENUES
Community development-land sales
Non-affiliates $10,357 $ 5,631 $11,591
Affiliates 3,000 9,086 3,233
Homebuilding-home sales 7,805 9,715 10,826
Rental property revenues 8,737 7,577 4,642
Equity in earnings from partnerships
and developer fees 1,494 16,530 2,647
Equity in earnings (losses) from
gaming properties -- 4 (78)
Management and other fees, substantially
all from related entities 3,775 4,816 3,894
Interest and other income 1,044 1,015 945
-------- -------- --------
Total revenues 36,212 54,374 37,700
-------- -------- --------
EXPENSES
Cost of land sales 8,881 10,610 7,611
Cost of home sales 7,486 9,347 9,829
Selling and marketing 1,232 1,320 1,465
General and administrative 7,034 7,338 7,773
Interest expense 3,609 4,265 4,522
Rental properties operating expense 3,597 3,245 1,695
Depreciation and amortization 2,128 1,997 1,196
Wetlands litigation expenses 1,772 973 4,107
Write-off of deferred project costs 6 562 506
Write-off of goodwill 1,843 -- --
Spin-off costs 1,164 -- --
-------- -------- --------
Total expenses 38,752 39,657 38,704
-------- -------- --------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (2,540) 14,717 (1,004)
PROVISION FOR INCOME TAXES 606 3,634 1,452
-------- -------- --------
(LOSS) INCOME BEFORE MINORITY INTEREST (3,146) 11,083 (2,456)
MINORITY INTEREST (439) (306) (511)
-------- -------- --------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (3,585) 10,777 (2,967)
EXTRAORDINARY ITEM-EARLY
EXTINGUISHMENT OF DEBT -- 932 --
-------- -------- --------
NET (LOSS) INCOME $ (3,585) $ 9,845 $ (2,967)
======== ======== ========
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME (continued)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- --------
BASIC NET (LOSS) INCOME PER UNIT
(Loss) income before extraordinary
item $ (.35) $ 1.04 $ (.29)
Extraordinary item -- (.09) --
-------- -------- --------
Net (loss) income $ (.35) $ .95 $ (.29)
======== ======== ========
NET (LOSS) INCOME
General Partners $ (36) $ 98 $ (30)
Limited Partners (3,549) 9,747 (2,937)
-------- -------- --------
$ (3,585) $ 9,845 $ (2,967)
======== ======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,289 10,257 10,255
======== ======== ========
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
DECEMBER 31,
------------------
1997 1996
-------- --------
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,273 $ 2,212
Restricted 508 988
-------- --------
2,781 3,200
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 32,918 34,034
St. Charles, Maryland 28,417 26,980
Other United States locations 14,698 16,256
Notes receivable on lot sales and other 6,476 5,815
-------- --------
82,509 83,085
-------- --------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net of accumulated
depreciation of $21,392 and $20,658, as of
December 31, 1997 and 1996, respectively 37,829 39,219
Investment in unconsolidated rental property
partnerships, net of deferred income of $2,193 and
$2,643 as of December 31, 1997 and 1996, respectively 8,657 11,723
Other receivables, net of reserves of $223 and $121
as of December 31, 1997 and 1996, respectively 805 1,756
-------- --------
47,291 52,698
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 1,914 2,016
Investment in joint venture 591 275
Receivables and other 68 200
-------- --------
2,573 2,491
-------- --------
OTHER ASSETS
Goodwill, less accumulated amortization of $1,039
as of December 31, 1996 -- 1,995
Deferred costs regarding waste technology
and other projects, receivables and other 8,797 3,870
Property, plant and equipment, less accumulated
depreciation of $2,460 and $2,425 as of
December 31, 1997 and 1996, respectively 1,087 1,229
-------- --------
9,884 7,094
-------- --------
Total assets $145,038 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 35,176 $ 34,077
Non-recourse debt 2,295 2,153
Accounts payable, accrued liabilities
and deferred income 5,245 4,829
-------- --------
42,716 41,059
-------- --------
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt 969 1,139
Non-recourse debt 39,101 39,508
Accounts payable and accrued liabilities 3,331 3,256
-------- --------
43,401 43,903
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 159 502
Accounts payable and accrued liabilities 2,501 2,544
-------- --------
2,660 3,046
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 6,330 4,024
Notes payable and capital leases 615 630
Accrued income tax liability - current 1,541 3,979
Accrued income tax liability - deferred 4,487 5,333
-------- --------
12,973 13,966
-------- --------
Total liabilities 101,750 101,974
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,345 4,378
Limited partners' capital-10,332 and 10,257
Units issued and outstanding as
of December 31, 1997 and 1996, respectively 38,943 42,216
-------- --------
Total partners' capital 43,288 46,594
-------- --------
Total liabilities and partners' capital $145,038 $148,568
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In thousands)
General Limited
Partners' Partners'
Capital Capital Total
-------- -------- -----
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
Net loss for the year (36) (3,549) (3,585)
Issuance of warrants 3 276 279
------- ------- -------
BALANCES, December 31, 1997 $ 4,345 $38,943 $43,288
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(3,585) $ 9,845 $(2,967)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Extraordinary item -- 932 --
Depreciation and amortization 2,128 1,997 1,196
(Benefit) provision for deferred
income taxes (847) 629 729
Equity in earnings from gaming properties -- (4) 78
Equity in earnings from unconsolidated
partnerships and developer fees (1,402) (16,605) (2,647)
Distributions from unconsolidated
partnerships 5,155 15,666 1,216
Cost of sales-community development
and homebuilding 16,367 19,957 17,440
Homebuilding construction expenditures (7,384) (8,109) (8,699)
Equity in loss from homebuilding joint
venture (92) 75 --
Write-off of deferred project cost 6 562 506
Write-off of goodwill 1,843 -- --
Payment of fines (3,212) -- --
Changes in notes and accounts receivable,
due from affiliates changed $27,
$(2,535) and $(3,529) 423 (2,767) (2,624)
Changes in accounts payable, accrued
liabilities and deferred income 316 4,037 2,050
------- ------- -------
Net cash provided by operating activities 9,716 26,215 6,278
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for
future sales (7,644) (11,444) (14,004)
Change in assets related to unconsolidated
rental property partnerships (687) (312) 762
Change in restricted cash 480 1,137 3,588
(Additions to) disposals of rental operating
properties, net (308) (1,275) 177
Acquisitions of other assets, net (1,857) (503) (1,402)
Contributions to homebuilding joint venture (224) (100) (250)
Acquisition of rental property partnership
interest -- -- (170)
------- ------- -------
Net cash used in investing activities (10,240) (12,497) (11,299)
------- ------- -------
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 21,206 34,441 34,708
Payment of debt (20,900) (48,283) (27,502)
Distributions to Unitholders -- (1,140) --
Issuance of warrants 279 -- --
Exercise of employee options -- -- 171
------- ------- -------
Net cash provided by (used in) financing
activities 585 (14,982) 7,377
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 61 (1,264) 2,356
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,212 3,476 1,120
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,273 $ 2,212 $ 3,476
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 5,878 $ 4,940 $ 5,936
Income taxes paid 3,828 371 2,250
Non-cash transactions
Land received in exchange for
land sold -- -- 134
Partnership interests received in
satisfaction of accounts and notes
receivable from general partner -- 69 --
Accounts and notes receivable, net
of reserves, satisfied via transfer
of partnership interests from
general partner -- 69 --
Assets transferred to general partner -- 49 --
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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 all 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, 1997, 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., St. Charles Community LLC,
St. Charles Operating LLC, Interstate Waste Technologies Inc., Caribe Waste
Technologies, Inc., Lancaster Apartments Limited Partnership, New Forest
Apartments General 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
that it does not control 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 rental properties, land,
development and homebuilding costs at the lower of cost or net realizable
value.
Quarterly, IGC evaluates the carrying value of its long-lived assets
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." In cases where
management is holding for sale particular properties, the Company assesses
impairment based on whether the net realizable value (estimated sales price
less costs of disposal) of each individual property to be sold is less than
the net book value. A property is considered to be held for sale when the
Company has made the decision to dispose of the property. Otherwise, the
Company assesses impairment of its real estate properties based on whether
it is probable that undiscounted future cash flows from each individual
property will be less than its net book value. If a property is impaired,
its basis is adjusted to its fair market value.
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.
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. 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 of depreciation.
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.
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 (see Note 7).
Compensation expense related to Unit options issued to directors and
employees is recognized at the time the options are granted, in an amount
equal to the excess of the currently calculated trading value of the Units
over the option exercise price. Compensation expense related to Unit
Appreciation Rights is recognized quarterly, on a cumulative basis since
the issuance of the Rights, based on changes in Unit prices as compared to
the "strike" price of the Rights.
Earnings Per Unit
In the fourth quarter of 1997, IGC adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share." This statement
requires the computation and reporting of both "basic" and "diluted"
earnings per unit.
"Basic earnings per unit" is computed as net income multiplied by the
limited partner ownership interest, 99%, divided by the weighted average
units outstanding.
The following table provides a reconciliation between weighted average
units outstanding-basic and weighted average units outstanding-diluted.
Year Ended
December 31,
---------------------
1997 1996 1995
---- ---- ----
Weighted average units outstanding-basic 10,289 10,257 10,255
Effect of dilutive equivalent units N/A 17 N/A
------ ------ ------
Weighted average units outstanding-diluted 10,289 10,274 10,255
====== ====== ======
The effect of dilutive equivalent units is not applicable in 1997 and
1995 because the Company showed a net loss for those years. Potentially
dilutive options and warrants are described in Note 7.
Impact of Recently Issued Accounting Standards
During 1997, IGC adopted the provisions of SFAS No. 129 "Disclosure of
Information about Capital Structure." The adoption of SFAS No. 129 did not
have a material effect on IGC's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1997. The statement establishes standards for
reporting and display of comprehensive income and its components. IGC
plans to adopt SFAS No. 130 in 1998 and the impact is not expected to be
significant.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information",
which is effective for fiscal years beginning after December 15, 1997. IGC
plans to adopt SFAS No. 131 in 1998.
Reclassifications
Certain amounts presented for 1996 in the Consolidated Balance Sheet
and for 1996 and 1995 in the Consolidated Statements of Income and Cash
Flows have been reclassified to conform with the 1997 presentation.
(2) 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 (in thousands).
SUMMARY OF FINANCIAL POSITION: AS OF DECEMBER 31,
------------------
1997 1996
---- ----
Total assets $ 138,782 $ 141,107
Total non-recourse debt 144,595 136,468
Total other liabilities 24,917 23,678
Total equity (30,730) (19,039)
Company's investment 8,657 11,723
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
---------------------------
1997 1996 1995
---- ---- ----
Total revenue $ 32,063 $ 34,912 $ 40,836
Net (loss) income (1,120) 60 946
Company's recognition of equity
in earnings and developer fees 1,402 1,968 2,647
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
---------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities $ 3,746 $ 7,494 $ 8,939
Company's share of cash flows from
operating activities 1,099 2,915 3,771
Operating cash distributions 10,648 1,620 2,607
Company's share of operating cash
distributions 5,155 501 1,216
SUMMARY OF 1996 SALES TRANSACTION:
Gain on sale $ 39,934
Company's equity and earnings recognition 14,637
Total distribution of sales proceeds 36,235
Company's share of sales proceeds distribution 15,165
The unconsolidated rental properties partnerships as of December 31,
1997 include 19 partnerships owning 4,563 rental units in 22 apartment
complexes. The Company holds a general partner interest in these
partnerships and generally shares in zero to 5% of profits, losses and cash
flow from operations until such time as the limited partners have received
cash distributions equal to their capital contributions. Thereafter, IGC
generally shares in 50% of cash distributions from operations. Pursuant to
the partnership agreements, the general partners of the unconsolidated
partnerships are prohibited from selling or refinancing the apartment
complexes without majority limited partner approval. Due to the absence of
control and non-majority ownership, these partnerships are accounted for
under the equity method of accounting.
Lakeside Apartments was placed in service in 1996. The remaining
complexes owned by Alturas Del Senorial Associates Limited Partnership,
Bannister Associates Limited Partnership, Bayamon Gardens Associates
Limited Partnership, Brookside Gardens 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 Limited Partnership, Huntington Associates Limited Partnership,
Jardines de Caparra Associates Limited Partnership, Monserrate Associates
Limited Partnership, Monte de Oro Associates Limited Partnership, New
Center Associates Limited Partnership, San Anton Associates Limited
Partnership, Turabo Limited Dividend Partnership and Valle del Sol Limited
Partnership were placed in service prior to 1995.
During 1997, the rental complexes owned by Monte de Oro and New Center
were refinanced to provide distributions to their partners and funds to
convert the rental units into condominiums. Rental revenues significantly
decreased during 1997 as the units were vacated in preparation for
conversion. As a result, the combined net income for 1997 was $1,239,000
less than the 1996 net income and the cash flow from operations was
$2,789,000 less in 1997 than the 1996 cash flow from operations.
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. Prior to that time, they were accounted for under the equity
method of accounting and as such their operating results are included above
for the applicable periods.
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. The results of the sales transaction are
identified separate from operations in the table above. Prior to the sale,
the properties were accounted for using the equity method of accounting and
as such their results of operations are included above for the applicable
periods.
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. It purchased land to construct 118
units in 1997 and land to construct 98 units in 1996. The profit on these
lots are deferred until sold by Escorial Builders to a third party. The
following tables summarize Escorial Builders' financial information (in
thousands):
SUMMARY OF FINANCIAL POSITION: AS OF DECEMBER 31,
------------------
1997 1996
---- ----
Total assets $13,719 $ 5,586
Total liabilities 12,536 5,047
Total equity 1,183 539
Company's investment 591 275
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
---------------------------
1997 1996 1995
---- ---- ----
Total revenue $ 2,491 $ -- $ --
Net income (loss) 183 (151) --
Company's recognition of equity
in earnings 92 (75) --
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
---------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities $ (7,326) $(4,361) $ --
Company's share of cash flows from
operating activities (3,663) (2,181) --
Operating cash distributions -- -- --
Company's share of operating cash
distributions -- -- --
(3) 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, 1997 and 1996 (in thousands):
Outstanding
Maturity Interest December 31,
Dates Rates* ----------------
From/To From/To 1997 1996
-------- -------- ------- -------
Related to community development:
Recourse debt Demand/ P+2.5%/ $35,176 $34,077
07-31-04 10.0%
Non-recourse debt 08-02-09 P+1.5% 2,295 2,153
Related to investment properties:
Recourse debt Demand 7.35% 969 1,139
Non-recourse debt 10-01-19/ 6.85%/ 39,101 39,508
10-01-28 8.5%
Related to homebuilding projects:
Recourse debt Demand P+1% 159 502
General:
Recourse debt 12-31-96/ P+1.25%/ 615 630
08-01-02 12% ------- -------
Total debt $78,315 $78,009
======= =======
*P = Prime lending interest rate.
As of December 31, 1997, the $35,176,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $15,054,000 of this
amount is further secured by investments in apartment rental partnerships.
The Company's loan with Banc One, obtained during 1997, requires
additional interest payments on each annual anniversary date. The amount
due is 1% of the outstanding balance in 1998 and 1999, and increases 1/2%
each year thereafter, through 2003.
As of December 31, 1997, recourse investment property debt is secured
by a letter of credit issued to the Company pursuant to the terms of a
sales contract. The non-recourse investment properties debt is
collateralized by apartment projects and secured by FHA or the Maryland
Housing Fund. Mortgage notes payable of $7,244,000 have stated interest
rates of 7.5% and 7.75%; however, after deducting interest subsidies
provided by HUD, the effective interest rate over the life of the loans is
1%.
The homebuilding debt is secured by substantially all of the
homebuilding assets.
The Company's loans contain various financial, cross-default and
technical provisions of which the Company is currently in compliance.
IGC's weighted average interest rate during 1997 on its variable rate debt
was 10.06%.
The stated maturities (assuming no accelerations) of the Company's
indebtedness at December 31, 1997 are as follows (in thousands):
1998 $21,235
1999 6,264
2000 3,752
2001 3,601
2002 3,681
Thereafter 39,782
-------
$78,315
=======
The interest costs incurred during 1997, 1996 and 1995 were accounted
for as follows (in thousands):
1997 1996 1995
------ ------- -------
Expensed $3,685 $4,269 $4,620
Capitalized 2,931 3,930 3,213
------ ------ ------
$6,616 $8,199 $7,833
====== ====== ======
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 loans. The new mortgage
notes payable of $18,700,000 bear an 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.
(4) COMMITMENTS AND CONTINGENT LIABILITIES
Wetlands Litigation
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. 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. On December 23, 1997, the
United States Court of Appeals for the Fourth Circuit reversed the lower
court's decision and remanded the matter back to the lower court for
retrial. The Court of Appeals denied the United States Attorney's Petition
for Rehearing by the Court of Appeals, and IGC has received a full refund
of the $3,000,000 fines paid. The U.S. Attorney may seek to retry the
criminal case or recommence the civil case that was previously dismissed.
The Company established a $1,500,000 reserve for future legal expenses that
may arise if the case is retried.
Guarantees
The Company is guarantor of $8,794,000 of letters of credit and surety
bonds for land development completion and homebuilding warranties. IGC is
a guarantor of a $4,569,000 letter of credit securing bonds issued on
behalf of Chastleton Apartments Associates. This letter of credit is
collateralized by certain assets owned by IBC, IBC affiliates and the
Company. The Company's assets included in the collateral consist of rights
to distributions from three Puerto Rico housing partnerships and a
$4,636,000 note receivable from Brandywine Investment Associates Limited
Partnership.
In addition to the letters of credit, IGC shares the general partner
interests in two rental partnerships with IBC, one of which is currently
experiencing negative cash flow. Under the terms of the partnership agree-
ment, 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.
During 1997, two substantially debt free complexes owned by two
unconsolidated partnerships were refinanced to provide condominium
conversion construction funds and distributions to their owners. The
Company guaranteed these loans, which cannot exceed $23,200,000. In
January 1998, two additional residential rental properties, owned by
separate unconsolidated partnerships, were refinanced with Firstbank of
Puerto Rico. The Company guaranteed these loans which amount to
$10,000,000. The new mortgage loans mature concurrently with the housing
assistance payment contracts, at which time the Company expects to
refinance the outstanding balance of the debt, to provide condominium
conversion construction funds and distributions to their respective owners.
IGC entered into an agreement with IBC in 1995, whereby IGC
transferred its remaining interests in and control over Equus Management
Company ("EMC"), and Equus Gaming Company L.P. ("Equus") to IBC. The
agreement was amended in December 1997 to allow IGC to withdraw as a
general partner of Equus provided it granted a guarantee to EMC. IGC
agreed to guarantee $20,000,000 of EMC's liabilities in excess of assets
should Equus or EMC become insolvent.
Liquidity
IGC has historically met its liquidity requirements principally from
cash flow generated from home and land sales, property management fees,
distributions from residential rental partnerships and from bank financing
providing funds for development and working capital.
Over the past several years, IGC's cash flows have been constrained
because of the terms of its existing debt agreements and the reluctance of
lenders to provide financing in the U.S. as a result of the Wetlands
Litigation. As a result, substantially all of the cash generated has been
used to pay debt service requirements with existing lenders. This resulted
in limited opportunities for new construction and development in the U.S.
The recently closed Banc One financing provided funding to commence
construction in Fairway Village, the third village in St. Charles, and will
allow IGC to retain a greater portion of its U.S. land sales proceeds. IGC
currently has other development projects in various stages of completion.
Substantially all of the projects under construction have sufficient
development loans in place to complete the construction.
IGC's principal demands for liquidity are expected to be the continued
funding of its current debt service and operating costs, including
potential ongoing legal costs for the Wetlands Litigation as well as
capital for its waste technology investments. After the Restructuring,
management expects to obtain additional funding which can be used by ACPT
to fund new community development projects. Such sources of funding may
include, but are not limited to, excess operating cash flows, secured or
unsecured financings, private or public offerings of debt or equity
securities and proceeds from sales of properties. IGC's anticipated cash
provided by operations, new and existing debt financing facilities and
extension or modification of $12,500,000 of loans that are due in 1998, are
expected to satisfy the Company's capital needs. However, there are no
assurances that these funds will be generated.
Other
In the normal course of business, the Company is involved in various
types of pending or unasserted claims. In the opinion of management, these
will not have a material impact on the financial condition or future
operations of the Company.
(5) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of the Company
have ownership interests in various entities that conducted business with
IGC during the last three years. The financial impact of the related party
transactions on the accompanying financial statements are reflected below:
1997 1996 1995
------ ------ ------
INCOME STATEMENT IMPACT
Community Development - Land Sales
Affiliate of a former director Cash and note sale (A1) $ -- $2,984 $3,233
Affiliate of a former director Cash sale (A1) -- 2,720 --
IBC, general partner of IGC Cash sale -- 1,869 --
Affiliate of IBC, general partner of IGC Cash and note sale -- 1,513 --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director Cash and note sale (A2) 3,000 -- --
------ ------ ------
$3,000 $9,086 $3,233
====== ====== ======
Cost of Land Sales
Affiliate of a former director $ -- $1,759 $1,539
Affiliate of a former director -- 2,276 --
IBC, general partner of IGC -- 586 --
Affiliate of IBC, general partner of IGC -- 680 --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director (A2) 1,689 -- --
------ ------ ------
$1,689 $5,301 $1,539
====== ====== ======
Management and Other Fees
Unconsolidated subsidiaries $2,790 $3,993 $2,908
Affiliate of IBC, general partner of IGC (B1,2) 343 248 650
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, and James
J. Wilson, director 148 193 239
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, James J. Wilson,
director, and an Affiliate of IBC, general
partner of IGC 68 113 67
IBC, general partner of IGC -- 12 30
------ ------ ------
$3,349 $4,559 $3,894
====== ====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 49 $ 55 $ 336
Affiliate of a former director 263 429 197
Affiliate of IBC, general partner of IGC 120 -- --
IBC, general partner of IGC -- 8 33
Affiliate of Thomas B. Wilson, director 16 17 18
------ ------ ------
$ 448 $ 509 $ 584
====== ====== ======
General and Administrative Expense
Affiliate of IBC, general partner of IGC (D1) $ 339 $ 361 $ 369
Reserve additions and other write-offs-
Affiliate of a former director (A1) 388 319 32
Affiliate of IBC, general partner of IGC 117 69 --
Unconsolidated subsidiaries 213 84 108
Affiliate of Thomas B. Wilson, director 83 -- --
Reimbursement of administrative costs-
Affiliate of IBC, general partner of IGC, and
Thomas B. Wilson, director (C) -- (116) (273)
------ ------ ------
$1,140 $ 717 $ 236
====== ====== ======
Increase Increase
Balance (Decrease) Balance (Decrease)
December 31, in Reserves December 31, in Reserves
1997 1997 1996 1996
------------ ----------- ------------ -----------
BALANCE SHEET IMPACT:
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $ 552 $ 111 $ 783 $(314)
Affiliate of IBC, general partner
of IGC (B1,2) 51 (9) 65 69
Affiliate of James Michael Wilson,
director and James J. Wilson,
director 20 -- 64 --
------ ----- ------ -----
$ 623 $ 102 $ 912 $(245)
====== ===== ====== =====
Assets Related to Community Development
Notes receivable and accrued interest-
Affiliate of a former director, Interest 10%
secured by land payments per month
$27,000, matures
April 1, 1998 (A1) $ 980 $ -- $1,042 $ 222
Affiliate of a former director, Interest 10%
secured by land payments per month
$27,000, matures
April 1, 1999 (A1) 2,088 388 2,502 97
Affiliate of IBC, general partner Interest 8%
of IGC, secured by land matured December
15, 1997, paid -- -- 1,193 --
Affiliate of IBC, general partner Interest P+1.5%
of IGC, secured by land matures
June 29, 1998 (A2) 2,520 -- -- --
------ ----- ------ -----
$5,588 $ 388 $4,737 $ 319
====== ===== ====== =====
Other Assets
Receivables - All unsecured
IBC, general partner of IGC Payable from IGC
distributions (D2) $ 681 $ -- $ 881 $ --
Affiliate of Thomas B. Wilson, Payable from
director surplus cash -- -- 281 --
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
director 12 -- 495 --
IBC, general partner of IGC demand (39) -- (33) --
Affiliate of James Michael Wilson,
director, and Thomas B. Wilson,
director -- -- (39) --
------ ----- ------ -----
$ 654 $ -- $1,585 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Accounts payable
Whitman, Requardt (D3) $ 121 $ -- $ 324 $ --
====== ===== ====== =====
(A) Land Sales
IGC sells land to affiliates and non-affiliates with similar terms.
The sales prices to affiliates are based on third party appraisals, payable
in cash or a combination of a 20% cash down payment and a note for the
balance. The notes receivable are secured by deeds of trust on the land
sold, and bear an interest rate equal to those charged at that time for
land sales. The notes mature in one year or mature in five or less years
with annual amortizations. As circumstances dictate, the maturity dates
and repayment terms of the notes receivable due from affiliates or non-
affiliates have been modified. Any sales transactions that vary from these
terms are described below:
(1) The notes receivable due from an affiliate of a former director
did not bear interest until certain infrastructure improvements
were completed. This infrastructure was delayed and the interest
commencement dates modified. These delays created the additional
discounts reflected above.
(2) On June 30, 1997, IGC sold 374 acres to an affiliate of IBC for
$3,000,000 and recognized a profit of $1,311,000. As payment for
this parcel, IGC received a 20% down payment and assumption of a
note payable.
(B) Management and Other Services
IGC provides management and other support services to its
unconsolidated subsidiaries and other related entities in the normal course
of business. These fees are typically collected on a monthly basis, one
month in arrears. These receivables are unsecured and due upon demand.
Certain partnerships experiencing cash shortfalls have not paid timely. As
such, these receivable balances are reserved until satisfied or the
prospects of collectibility improves. Decreases to the reserves for other
than routine cash payments are discussed below:
(1) On April 1, 1996, IBC transferred its remaining 1.1% limited
partnership interest in four housing partnerships to IGC for its
market value of $69,000 as partial satisfaction of a note
receivable. The balance of this note receivable and other
receivables were purchased by an affiliate of James Michael Wilson
for a cash payment of $1,279,000. The collection of the majority
of these receivables was uncertain and $413,000 had been reserved.
This transaction resulted in income recognition of these reserves
during the second quarter of 1996.
(2) During the second quarter of 1997, an affiliate of IBC purchased
the management fees receivable of $190,000 due from Chastleton,
Coachman's, Rolling Hills, and Village Lake for a cash payment of
$190,000. The collection of these receivables had previously been
questionable and they had been fully reserved. This transaction
resulted in income recognition of $190,000.
(3) During the second quarter of 1997, IGC sold to IBC its 49% limited
partner interest and 99% of its 1% general partner interest in
Coachman's Limited Partnership. This transaction had no financial
effect on the Company's 1997 annual results of operation.
(C) Operations Distributed to Unitholders
The Company's 99% limited partnership interest in Equus was
distributed to its unitholders in February 1995 (the "Equus Distribution").
Since that time through April 1996, the Company continued to manage and
provided certain reimbursable administrative services and support to Equus
pursuant to a Master Support and Services Agreement.
Pursuant to the Transfer Control Agreement effective December 31, 1996
(the "Transfer Agreement"), IGC transferred its remaining interests in and
control over EMC and Equus (subject to NASDAQ's approval) to IBC. In
addition, the Transfer Agreement called for IGC to issue 75,000 IGC Units
to Equus to satisfy the outstanding employee option and incentive rights
for the employees who were transferred to EMC. The Transfer Agreement was
amended in December 1997 to allow IGC to withdraw as a general partner of
Equus provided it granted a guarantee to EMC. IGC agreed to guarantee
$20,000,000 of EMC's liabilities in excess of assets should Equus or EMC
become insolvent.
(D) Other
Other transactions with related parties are as follows:
(1) IGC rents executive office space and other property from
affiliates both in the United States and Puerto Rico pursuant to
leases that expire through 2005. In management's opinion, all
leases with affiliated persons are on terms generally available
from unaffiliated persons for comparable property.
(2) 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, IGC recorded a receivable from IBC of $881,000
and will recover the amount from future distributions due to IBC.
(3) Thomas J. Shafer became a director of IGMC in 1998 after his
retirement from Whitman, Requardt, where he was a Senior Partner.
Whitman, Requardt provides engineering services to IGC. In
management's opinion, services performed are on terms available to
other clients.
(4) 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.
(6) INVESTMENT IN WASTE TECHNOLOGIES
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 a 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 1996, a second corporation, Caribe Waste Technologies, Inc.
("CWT"), was formed in Puerto Rico. CWT is an entity established to
perform projects in the Caribbean.
In December 1997, CWT entered into a host community agreement with the
Municipality of Caguas, Puerto Rico. The agreement describes the basis on
which CWT will contract, develop and construct a 3,300 ton per day solid
waste facility using proprietary gasification technology from Thermoselect
S.A. To provide waste for the facility, CWT management is pursuing long-
term solid waste disposal service agreements with municipalities in Puerto
Rico and the Puerto Rico Solid Waste Management Authority. Other
organizations competing to build facilities for disposal of Puerto Rico's
solid waste include Montenay, a subsidiary of Compagnie Generale des Eaux,
Kvaerner, and SEMASS.
In 1996, CWT proposed to build a solid waste facility to the Island
Government of Saint Maarten, Netherlands Antilles. After an evaluation of
proposals from four companies by the Government and its Dutch technical
consultants, the Island Government entered into a Letter of Intent with CWT
in October 1997. The Letter of Intent calls for CWT to submit a final
proposal to the Island Government, followed by a period of exclusive
negotiation for a solid waste disposal service agreement. CWT submitted
its proposal for a 330 ton per day Thermoselect solid waste gasification
facility to the Island Government in March 1998. CWT management is
preparing for negotiations toward a solid waste service agreement.
In November 1997, the Government of the U.S. Virgin Islands ("GVI")
issued a Request for Qualification ("RFQ") for Integrated Comprehensive
Solid Waste Management Services. CWT responded in December 1997.
Following an evaluation of the submittals, the GVI notified CWT in February
1998 that CWT had been named to the list to receive an RFP. CWT management
intends to respond to the RFP.
At December 31, 1997 and 1996, deferred costs regarding waste
technology, net of reserves were $3,024,000 and $2,315,000, respectively.
(7) OPTIONS, APPRECIATION RIGHTS AND WARRANTS
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,
1997, 155,000 IGC Units are reserved for issuance under the Director's Plan
and 995,025 Units are reserved for issuance under the Employees' Plan.
Options
As of December 31, 1997, all outstanding options are fully vested and
exercisable. Activity during 1997, 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 (1)
-------- -------- -------- -----------
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
------- ------- --------
Options outstanding,
December 31, 1997 3.57 -- 16,000 6,400
======= ======= ========
(1) As a result of the Equus Distribution, as further discussed in
Note 5, 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
prior to such date, the Company's market price still reflected the value of
the Company's interest in Equus.
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. During
1997, 27,740 rights were exercised, 115,000 rights were awarded and 5,160
rights were cancelled. Compensation expense recognized by the Company in
connection with such awards totalled approximately $76,000 in 1997. In
1996 and 1995, however, $94,000 and $164,000, respectively, of prior
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, 1997, the dates that the 201,600 outstanding Unit
Appreciation Rights become exercisable and their expiration dates are as
follows:
Rights Expiring
---------------------------------------------
May 15, October 18, June 19, August 13,
Rights Exercisable at: 2004 2004 2007 2007
- --------------------- ------- ----------- -------- ----------
December 31, 1997 51,360
May 15, 1998 17,120
June 19, 1998 13,000
August 13, 1998 10,000
October 18, 1998 1,000
May 15, 1999 17,120
June 19, 1999 13,000
August 13, 1999 10,000
June 19, 2000 13,000
August 13, 2000 10,000
June 19, 2001 13,000
August 13, 2001 10,000
June 19, 2002 13,000
August 13, 2002 10,000
------ ------ ------ ------
85,600 1,000 65,000 50,000
====== ====== ====== ======
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.
Warrants to purchase 150,000 Class A Units of IGC were issued to Banc
One in 1997 as additional consideration for making their loan to the
Company in August 1997. These warrants have an exercise price of $3.0016
per warrant. These warrants were valued at $279,000, and such amount was
reserved during 1997, to be amortized over the term of the loan.
Additionally, for each year the loan remains outstanding, Banc One may
purchase an additional 75,000 Class A Units of IGC or any successor, or in
the event of the proposed restructuring, 75,000 Common Shares of the new
company. These future warrants will be exercised at the lesser of $3.0016
or the average price of the issued shares during the twenty trading days
immediately preceding the grant date. All warrants expire at the later of
five years after grant or four years after the loan has been paid in full.
(8) RETIREMENT AND PROFIT SHARING PLANS
IGC established a retirement plan (the "Retirement Plan") effective
January 1, 1988 for non-union employees of IGC. In 1992, the union
employees were added to the plan. Employees are eligible to participate in
the Retirement Plan when they have completed a minimum employment period of
generally one year. IGC's contributions to the Retirement Plan and U.S.
Social Security Plan for eligible employees were equal to 11.65% of basic
salaries and wages for 1997, 1996 and 1995 that were not in excess of the
U.S. Social Security taxable wage base, plus 8% of salaries which exceeded
the U.S. Social Security taxable wage base. Employees' salaries in excess
of $150,000 for 1997, 1996 and 1995 were excluded from the calculation of
contributions. Payments are also made to the Retirement Plan from IGC
contributions to a profit sharing plan, as described below, and from
voluntary contributions by employees. Contributions to the Retirement Plan
were $467,000, $407,000 and $349,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
In 1987, IGC established an incentive compensation plan (the "Profit
Sharing Plan") based on net income of the Company. No contributions were
made for 1997, 1996 or 1995.
(9) 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.
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,
-------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
(In thousands, except amounts in %)
% of % of % of
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision for income
taxes at the statutory
income tax rate $ 606 29% $3,634 29% $1,452 29%
Reduction of provision
for partnership income
not taxable to Company -- -- -- -- -- --
Other items -- -- -- -- -- --
------ ---- ------ --- ----- ---
$ 606 29% $3,634 29% $1,452 29%
====== ==== ====== === ====== ===
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ----------- -----------
(In thousands)
Currently payable
United States $ -- $ -- $ --
Puerto Rico 1,453 3,005 723
Deferred (847) 629 729
------ ------ ------
$ 606 $3,634 $1,452
====== ====== ======
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.
The components of deferred taxes payable include the following:
AT DECEMBER 31,
------------------------
1997 1996
----------- -----------
(In thousands)
Tax on amortization of deferred income related
to long-term receivables from partnerships
operating in Puerto Rico $ 556 $ 499
Tax on equity in earnings of partnerships
operating in Puerto Rico 1,232 2,337
Tax on land development costs capitalized for book
purposes but deducted currently for tax purposes 2,465 2,312
Tax on interest income, payable when collected 367 293
Tax on sale to related party deferred for book
purposes but currently taxable (133) (108)
------ ------
$4,487 $5,333
====== ======
The reconciliation between net (loss) income per books and net taxable
income (loss) is as follows:
December 31,
-------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
(In thousands, except per Unit amounts)
Per Per Per
Total Unit Total Unit Total Unit
------ ------ ------ ---- ----- ------
Net (loss) income
per books $(3,585) $(.35) $ 9,845 .96 $(2,967) $(.29)
Built-in gain allocable
to Predecessors:
Current (464) (.04) (3,554) (.35) (1,369) (.13)
Deferred (529) (.05) (415) (.04) (364) (.04)
Difference in income or
losses from subsidiary
partnerships (430) (.04) (4,968) (.48) 1,141 .11
Losses from corporation
subsidiaries not
deductible by the
partnership 18 -- 269 .03 2,002 .20
Capitalization of general
and administrative
expenses under the
Uniform Capitalization
Rules 49 -- (246) (.02) 315 .03
Differences in deferred
income 175 .02 (1,431) (.14) 349 .03
Difference in cost of sales
due to interest related to
the acquisition of land,
deducted for tax purposes 390 .04 513 .05 505 .05
Deferred income taxes (847) (.08) 629 .06 729 .07
Losses from restructuring (225) (.02) (3,742) (.36) (245) (.02)
Differences in wetland
litigation costs 860 .08 (1,323) (.13) 2,000 .19
Other book to tax
reconciling items, none
of which is individually
significant 4,918 .48 3,783 .37 (650) (.06)
------ ---- ------- ------ ------- -----
Net taxable income (loss)
per partnership
federal return $ 330 $.04 $ (640) $ (.05) $ 1,446 $ .14
====== ==== ======= ====== ======= ======
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.
IGC had been grandfathered 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
corporations as long as a substantial new line of business is not added.
As of December 31, 1997, IGC continues to comply with this requirement.
However, 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 must be
in compliance with this provision by December 31, 1998. As of March 25,
1998, IGC was not in compliance with this requirement. IGC plans to
restructure prior to the end of 1998 in order to ensure it will comply with
the 90% test. However, these measures have not yet been accomplished and
there is no assurance that such measures will be successful. As discussed
above, if IGC is not in compliance with the 90% test by December 31, 1998,
it will be taxed as a corporation at statutory corporate rates and those
taxes could be substantial.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The balance sheet carrying amounts of cash and cash equivalents,
receivables and other current assets approximate fair value due to the
short-term nature of these items. Fair value of long-term debt instruments
was determined by discounting future cash flows using IGC's current market
rates. As of December 31, 1997 and 1996, the fair value of long-term debt
instruments were $74,253,000 and $74,150,000, respectively.
(11) QUARTERLY SUMMARY (UNAUDITED)
IGC's quarterly results are summarized as follows:
Year Ended December 31, 1997
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $ 7,387 $10,809 $ 7,174 $10,842 $36,212
Income (loss) before
extraordinary item,
taxes and minority
interest 415 1,763 (246) (4,472) (2,540)
Net income (loss) as
previously reported 255 1,798 (808) (4,830) (3,585)
Adjustment for Coachman's
Landing (1) -- (576) -- 576 --
Adjustment for spin-off
costs (2) -- -- (300) 300 --
Net income (loss) as revised 255 1,222 (1,108) (3,954) (3,585)
Basic earnings per Unit
as previously reported:
Net income (loss) .02 .18 (.08) (.47) (.35)
Basic earnings per Unit
as revised:
Net income (loss) .02 .12 (.10) (.39) (.35)
(1) Adjustment made in the fourth quarter for Coachman's Landing is
to reverse gain recorded on sale of a portion of IGC's
investment in Coachman's Landing.
(2) Adjustment made in the fourth quarter for spin-off costs is to
expense spin-off costs which were capitalized as start-up costs
during the quarter.
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
Basic earnings per Unit:
Net income (loss) before
extraordinary item .87 .03 (.08) .22 1.04
Net income (loss) .87 .03 (.08) .13 .95
(12) COMPANY RESTRUCTURING
The Company's 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 AFH,
that have operating losses and capital needs, and investments such as IWT
and CWT that have 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 is seeking to implement a
restructuring plan to achieve the following objectives:
1. To restructure the Company by transferring IGC's
principal real estate assets and operations to a new
Maryland trust, American Community Properties Trust
("ACPT") and distributing the shares of ACPT to the
Unitholders and general partners of IGC.
2. To eliminate from ACPT's operating results the expenses
of the Wetlands Litigation and operating and capital
expenses of IWT, CWT and AFH.
3. To capitalize IGC with sufficient assets so that it can
meet its operating needs and remain a viable publicly
traded company.
4. To raise approximately $30,000,000 in new capital
through a securities offering by ACPT to pay down
community development bank debt and provide working
capital for community development.
5. 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 dividends.
The new business entities that are to be created pursuant to the
restructure have been formed. ACPT will act as a self-managed holding
company that will own all of the outstanding equity interests in American
Rental Management Company ("American Management"), American Land
Development US, Inc. ("American Land"), and Interstate General Properties
Group S.E. ("IGP Group") and all of the outstanding common stock of
American Rental Properties Trust ("American Rental"). American Management
has acquired IGC's United States property management services operations.
American Rental, through its subsidiary partnership, American Housing
Properties L.P., is currently seeking HUD approval for the acquisition of
IGC's partnership interests in United States investment apartment
properties.
A committee of the outside directors voted to proceed with the
distribution of ACPT and the filing of the preliminary proxy with the SEC.
Upon approval of the proxy material by the SEC, 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 second quarter of 1998.
The following represents the pro forma results of IGC's operations for
the year ended December 31, 1997 and IGC's pro forma balance sheet as of
December 31, 1997 related to management's restructuring plan assuming
objectives 1, 2 and 3 above were completed as of January 1, 1997. These
results do not include the costs of any capital markets transaction by
ACPT.
PRO FORMA CONSOLIDATED STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Pro
IGC ification Reclass- Less Forma
Historical Entries ified ACPT IGC (c)
---------- --------- -------- ------- -------
Revenues:
Community development-
land sales $13,357 $105 (a) $13,462 $13,165 $ 297
Homebuilding-home sales 7,805 -- 7,805 -- 7,805
Revenues from investment
properties
Equity in earnings
from partnerships
and developer fees 1,494 -- 1,494 1,509 (15)
Rental property revenues 8,737 -- 8,737 8,737 --
Management and other fees 3,775 -- 3,775 3,775 --
Interest and other income 1,044 716 (b) 1,760 944 816
------- ---- ------- ------- -------
Total revenues 36,212 821 37,033 28,130 8,903
------- ---- ------- ------- -------
Expenses:
Cost of land sales 8,881 258 (a,b) 9,139 8,493 646
Cost of home sales 7,486 (23) (a) 7,463 -- 7,463
Selling and marketing 1,232 -- 1,232 127 1,105
General and administrative 7,034 -- 7,034 6,607 427
Interest expense 3,609 270 (b) 3,879 3,820 59
Rental properties operating
expense 3,597 -- 3,597 3,597 --
Depreciation and amortization 2,128 -- 2,128 1,850 278
Wetlands litigation expenses 1,772 -- 1,772 -- 1,772
Write-off of deferred project
costs 6 -- 6 6 --
Write-off of goodwill 1,843 -- 1,843 -- 1,843
Spin-off costs 1,164 -- 1,164 1,164 --
------- ---- ------- ------- -------
Total expenses 38,752 505 39,257 25,664 13,593
------- ---- ------- ------- -------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (2,540) 316 (2,224) 2,466 (4,690)
PROVISION FOR INCOME TAXES 606 -- 606 470 136
MINORITY INTEREST (439) -- (439) (439) --
------- ---- ------- ------ -------
NET (LOSS) INCOME $(3,585) $316 $(3,269) $1,557 ($4,826)
======= ==== ======= ====== =======
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Pro
IGC ification Reclass- Less Forma
Historical Entries ified ACPT IGC (c)
---------- --------- -------- -------- -------
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,273 $ -- $ 2,273 $ 2,127 $ 146
Restricted 508 -- 508 374 134
------- ----- -------- -------- -------
2,781 -- 2,781 2,501 280
------- ----- -------- -------- -------
ASSETS RELATED TO COMMUNITY
DEVELOPMENT
Land and development costs
Puerto Rico 32,918 1,350 (b) 34,268 34,268 --
St. Charles, Maryland 28,417 -- 28,417 21,750 6,667
Other United States
locations 14,698 -- 14,698 -- 14,698
Notes receivable on lot sales
and other, substantially
all due from affiliates 6,476 -- 6,476 5,629 847
------- ---- -------- -------- -------
82,509 1,350 83,859 61,647 22,212
------- ----- -------- -------- -------
ASSETS RELATED TO RENTAL
PROPERTIES
Operating properties, net 37,829 -- 37,829 37,829 --
Investment in unconsolidated
rental property
partnerships 8,657 -- 8,657 8,657 --
Other receivables, net 805 -- 805 621 184
------- ----- -------- -------- -------
47,291 47,291 47,107 184
------- ----- -------- -------- -------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction
and land 1,914 -- 1,914 -- 1,914
Investment in joint venture 591 -- 591 591 --
Receivables and other 68 -- 68 -- 68
------- ----- -------- -------- -------
2,573 2,573 591 1,982
------- ----- -------- -------- -------
OTHER ASSETS
Receivables, deferred costs
regarding waste technology
and other projects and
other 8,797 6,772 (b) 15,569 2,514 13,055
Property, plant and
equipment, net 1,087 -- 1,087 448 639
------- ----- -------- -------- -------
9,884 6,772 16,656 2,962 13,694
-------- ------ -------- -------- -------
TOTAL ASSETS $145,038 $8,122 $153,160 $114,808 $38,352
======== ====== ======== ======== =======
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclass- IGC Pro
IGC ification Reclass- Less Forma
Historical Entries ified ACPT IGC (c)
---------- --------- -------- -------- -------
LIABILITIES RELATED TO
COMMUNITY DEVELOPMENT
Recourse debt $ 35,176 $6,772 (b) $ 41,948 $ 39,784 $ 2,164
Non-recourse debt 2,295 -- 2,295 2,295 --
Accounts payable, accrued
liabilities and deferred
income 5,245 -- 5,245 5,100 145
------- ----- -------- -------- -------
42,716 6,772 49,488 47,179 2,309
------- ----- -------- -------- -------
LIABILITIES RELATED TO
RENTAL PROPERTIES
Recourse debt 969 -- 969 969 --
Non-recourse debt 39,101 -- 39,101 39,101 --
Accounts payable and
accrued liabilities 3,331 -- 3,331 2,701 630
------- ----- -------- -------- -------
43,401 -- 43,401 42,771 630
------- ----- -------- -------- -------
LIABILITIES RELATED TO
HOMEBUILDING
Recourse debt 159 -- 159 -- 159
Accounts payable, accrued
liabilities and deferred
income 2,501 -- 2,501 -- 2,501
------- ----- -------- -------- -------
2,660 -- 2,660 -- 2,660
------- ----- -------- -------- -------
OTHER LIABILITIES
Accounts payable and
accrued liabilities 6,330 -- 6,330 3,246 3,084
Notes payable and capital
leases 615 -- 615 173 442
Accrued income tax
liability-current 1,541 -- 1,541 1,539 2
Accrued income tax
liability-deferred 4,487 -- 4,487 4,120 367
------- ----- -------- -------- -------
12,973 -- 12,973 9,078 3,895
------- ----- -------- -------- -------
TOTAL LIABILITIES 101,750 6,772 108,522 99,028 9,494
-------- ------ -------- -------- -------
PARTNERS' CAPITAL 43,288 1,350 (b) 44,638 15,780 28,858
-------- ------ -------- -------- -------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $145,038 $8,122 $153,160 $114,808 $38,352
======== ====== ======== ======== =======
(a) Land sales occurred during 1997 as IGC's land business sold
lots to its homebuilding business. Gross profit on these
sales, historically eliminated in consolidation, has been
included in IGC and ACPT's historical results for these periods
based upon the estimated fair market value of the land (based
on comparable sales to third parties).
(b) As of and during the year ended December 31, 1997, an
intercompany note receivable and intercompany debt existed
between IGC and LDA. Interest income and expense and the note
receivable and payable amounts, historically eliminated in
consolidation, have been included above in IGC's Reclassified
historical results.
(c) Reflects the operations and account balances remaining in IGC
after the restructure. These operations and account balances
include those of AFH, IWT, CWT and certain other land sales and
development.
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Bannister Apartments $ 3,625 $ 410 $ 4,180 $ 450
Garden Apartments
St. Charles, MD
Palmer Apartments 4,186 471 4,788 417
Garden Apartments
St. Charles, MD
Brookmont Apartments 2,304 162 2,677 274
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 873 156 2,487 44
Garden Shared Housing
St. Charles, MD
Headen Apartments 4,826 205 4,765 995
Garden Apartments
St. Charles, MD
Huntington Apartments 7,631 350 8,513 1,420
Garden Apartments
St. Charles, MD
Crossland Apartments 2,130 350 2,697 215
Garden Apartments
St. Charles, MD
Terrace Apartments 4,940 497 5,377 452
Garden Apartments
St. Charles, MD
Lakeside Apartments 2,239 440 3,649 80
Garden Apartments
St. Charles, MD
Lancaster Apartments 4,289 484 4,292 169
Garden Apartments
St. Charles, MD
Fox Chase Apartments 6,491 745 7,014 127
Garden Apartments
St. Charles, MD
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
New Forest Apartments 12,065 1,229 12,102 421
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 5,849 572 6,421 (13)
Garden Apartments
St. Charles, MD
Chastleton Apartments 16,474 2,630 23,624 928
High Rise Apartments
Washington, D.C.
Essex Village Apts. 15,896 2,667 21,381 (4,833)
Garden Apartments
Richmond, VA
Alturas Del Senorial 3,214 345 4,185 139
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 9,364 1,153 12,050 390
Highrise/Garden Apts.
Bayamon, PR
De Diego 6,413 601 6,718 191
Highrise Apts.
Rio Piedras, PR
Monserrate II 11,000 731 11,172 364
Highrise Apts.
Carolina, PR
Santa Juana 7,134 509 6,748 219
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 5,603 466 5,954 162
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 8,336 900 10,742 402
Highrise Apts.
Carolina, PR
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Jardines De Caparra 4,983 546 5,719 1,103
Garden Apartments
Bayamon, PR
Monserrate I 1,103 543 10,436 464
Highrise Apts.
Carolina, PR
Monte De Oro 5,672 562 5,217 740
Highrise Apts.
Rio Piedras, PR
New Center 5,940 589 5,702 311
Highrise Apts.
San Juan, PR
San Anton 2,890 313 3,525 768
Highrise Apts.
Carolina, PR
Valle Del Sol 10,967 992 14,017 270
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 2,261 354 2,508 496
Highrise Apts.
Caguas, PR
Office Condo 204 -- 284 --
East Whitiland Township
Pennsylvania
Fredericksburg, VA 169 158 95 5
Model Park 1 Model
Raleigh, NC -- -- 75 6
2 Models
----------- ---------- ----------- ---------
Total Properties $ 179,071 $ 20,130 $ 219,114 $ 7,176
=========== ========== =========== =========
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Bannister Apartments $ 410 $ 4,630 $ 5,040 $ 3,732
Garden Apartments
St. Charles, MD
Palmer Apartments 471 5,205 5,676 4,079
Garden Apartments
St. Charles, MD
Brookmont Apartments 162 2,951 3,113 2,318
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 156 2,531 2,687 303
Garden Shared Housing
St. Charles, MD
Headen Apartments 205 5,760 5,965 4,059
Garden Apartments
St. Charles, MD
Huntington Apartments 350 9,933 10,283 5,043
Garden Apartments
St. Charles, MD
Crossland Apartments 350 2,912 3,262 1,847
Garden Apartments
St. Charles, MD
Terrace Apartments 497 5,829 6,326 4,562
Garden Apartments
St. Charles, MD
Lakeside Apartments 440 3,729 4,169 125
Garden Apartments
St. Charles, MD
Lancaster Apartments 484 4,461 4,945 1,481
Garden Apartments
St. Charles, MD
Fox Chase Apartments 745 7,141 7,886 1,967
Garden Apartments
St. Charles, MD
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
New Forest Apartments 1,229 12,523 13,752 3,050
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 572 6,408 6,980 1,375
Garden Apartments
St. Charles, MD
Chastleton Apartments 2,630 24,552 27,182 6,735
High Rise Apartments
Washington, D.C.
Essex Village Apts. 2,667 16,548 19,215 14,778
Garden Apartments
Richmond, VA
Alturas Del Senorial 345 4,324 4,669 2,030
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 1,153 12,440 13,593 5,186
Highrise/Garden Apts.
Bayamon, PR
De Diego 601 6,909 7,510 3,147
Highrise Apts.
Rio Piedras, PR
Monserrate II 731 11,536 12,267 5,222
Highrise Apts.
Carolina, PR
Santa Juana 509 6,967 7,476 3,163
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 466 6,116 6,582 2,827
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 900 11,144 12,044 4,775
Highrise Apts.
Carolina, PR
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Jardines De Caparra 546 6,822 7,368 3,105
Garden Apartments
Bayamon, PR
Monserrate I 543 10,900 11,443 5,128
Highrise Apts.
Carolina, PR
Monte De Oro 562 5,957 6,519 2,936
Highrise Apts.
Rio Piedras, PR
New Center 589 6,013 6,602 2,980
Highrise Apts.
San Juan, PR
San Anton 313 4,293 4,606 2,346
Highrise Apts.
Carolina, PR
Valle Del Sol 992 14,287 15,279 5,333
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 354 3,004 3,358 1,141
Highrise Apts.
Caguas, PR
Office Condo -- 284 284 68
East Whitiland Township
Pennsylvania
Fredericksburg, VA 158 100 258 24
Model Park 1 Model
Raleigh, NC -- 81 81 21
2 Models
---------- ----------- ----------- ----------
Total Properties $ 20,130 $ 226,290 $ 246,420 $ 104,886
========== =========== =========== ==========
NOTE TO TOTAL CAPITALIZED COSTS:
THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES
FOR U.S. AND P.R. PROPERTIES IS $ 210,224
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
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
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
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
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
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
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(In thousands)
Real Estate at December 31, 1996 $ 246,552
Additions for 1997:
Improvements 1,919
Land --
-----------
Total Additions 1,919
-----------
Deductions for 1997:
Dispositions 2,051
-----------
Total Deductions 2,051
-----------
Real Estate at December 31, 1997 $ 246,420
===========
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(In thousands)
Accumulated depreciation at December 31, 1996 $ 100,422
Additions for 1997:
Depreciation expense 6,408
-----------
Total Additions $ 6,408
-----------
Deductions for 1997:
Dispositions 1,944
-----------
Total Deductions 1,944
-----------
Accumulated depreciation at December 31, 1997 $ 104,886
===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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 64 Chairman, Director and Chief
Executive Officer
J. Michael Wilson 32 Vice Chairman, Director,
Chief Financial Officer and Secretary
Thomas B. Wilson 35 Director
Edwin L. Kelly 56 Director, President and Chief
Operating Officer
Francisco Arrivi Cros 50 Director, Senior Vice President
Mark Augenblick 51 Director
Donald G. Blakeman 65 Director
Joel H. Cowan 61 Director
Thomas J. Shafer 68 Director
The following are the executive officers of IGC:
Name Age Office
James J. Wilson 64 Chairman and Chief Executive Officer
Mark Augenblick 51 Vice Chairman
Edwin L. Kelly 56 President and Chief Operating Officer
J. Michael Wilson 32 Chief Financial Officer
Francisco Arrivi Cros 50 Senior Vice President
Paul A. Resnik 50 Senior Vice President
Eduardo Cruz Ocasio 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. Blakeman, Shafer 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, Arrivi, and
Augenblick serve as directors representing IGC officers.
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.
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. Since
January 1, 1998, he is also Chairman, Chief Executive Officer and President
of Equus Gaming Company L.P. and Equus Management Company.
Mark Augenblick became a Director of IGMC and Vice Chairman of the
Company in March 1998. Prior to joining the Company, Mr. Augenblick was a
partner in the Washington, D.C. law firm, Shaw, Pittman, Potts &
Trowbridge.
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
1986-1998.
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
and Secretary of IGMC from 1990-1995. He served in various executive
positions with IGC and its predecessor companies from 1968-1996. He served
as President of Equus and Equus Management Company ("EMC") from February
1996 until his retirement in 1997. He has served as a Director of EMC
since its formation in 1994.
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
Cowan & Associates, a real estate investment company he has owned since
1976. Since 1984, he has been Chairman of the Habersham Group, an
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.
Thomas J. Shafer was appointed a Director of IGMC in January 1998. He
is a registered Professional Engineer specializing in real estate
evaluation and land development. Until his retirement in December 1997, he
was a partner of Whitman, Requardt and Associates, LLP, an engineering and
architectural firm, since 1976 and its managing partner since 1989. Mr.
Shafer serves on the Business Advisory Committee of Mayor Kurt Schmoke of
Baltimore and as the President and Chairman of the Board of the Charles
Village Community Benefits District and the Charles Village Community
Foundation, Inc. Mr. Shafer is a member of the Urban Land Institute, the
National Society of Professional Engineers and the American Water Works
Association. His firm has provided engineering services to IGC in
connection with the St. Charles development for thirty years.
Francisco Arrivi Cros has been Senior Vice President of IGC since
1990, Senior Vice President 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
Senior Vice President of IGMC since 1989. He served as Vice President of
IGC from 1987-1993.
Eduardo Cruz Ocasio has been Vice President of IGMC since June of
1997. He has also been Vice President of IGC since 1991. He has served in
various positions with IGC and its predecessor companies since 1971,
including Comptroller of IGP from 1977-1990.
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 (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 1997 498,391 -- -- -- 10,184
Chairman & Chief 1996 499,075 -- -- -- 9,492
Executive Officer 1995 474,325 -- -- -- 9,552
Francisco Arrivi Cros
Senior Vice 1997 227,244 -- -- 65,000 9,420
President 1996 205,200 100,000 -- -- 9,492
1995 190,200 -- -- -- 9,552
Edwin L. Kelly 1997 223,827 -- -- -- 10,184
President & Chief 1996 197,367 -- -- -- 9,492
Operating Officer 1995 181,908 -- -- -- 9,552
Paul Resnik 1997 168,781 -- -- 50,000 10,184
Senior Vice 1996 164,800 -- -- -- 9,492
President 1995 159,033 -- -- -- 9,552
Carlos R. Rodriguez (3)
Vice President 1997 133,717 -- -- -- 8,101
1996 127,200 -- -- -- 7,652
1995 120,200 -- -- -- 7,344
(1) Reflects IGC's contributions to Retirement Plan discussed
below.
(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) Effective January 1, 1998, Carlos R. Rodriguez became an
employee of Equus.
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. 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 or affiliates 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
1997, the directors' fees totaled $102,400 all of which were unpaid as of
December 31, 1997.
IBC indemnifies the directors of the Managing General Partner against
any liability (including legal fees and expenses) arising out of their
serving in such capacities, except for liabilities arising out of the gross
negligence or willful misconduct of such directors.
Unit Options and Unit Appreciation Rights. IGC's employees,
including its directors and officers, are eligible to participate in the
Unit Incentive Plan (the "Employees Plan"). Under the Employees Plan, a
committee composed of the independent directors of IGMC (the "Committee")
awards Unit options ("Options") or Unit Appreciation Rights ("Rights") to
employees and officers on the basis of their performance. The Rights
entitle the holder to receive upon exercise, an amount payable in cash,
Class A units of the Company, other property or some combination thereof,
as determined by the Committee. The amount received upon exercise is
determined based on the excess of the fair market value of the Company's
Units on the exercise date, (plus 50% of the fair market value of Equus
Units on the exercise date for Rights granted prior to 1995), over the base
price of the Right specified in the individual rights agreements. The 1997
activity under these plans for the CEO and most highly compensated officers
are summarized on the following tables:
UNIT APPRECIATION RIGHTS GRANTED DURING 1997
Percent of
Total Unit
Number of Appreciation
Unit Rights Granted
Appreciation to Employees Base
Rights in 1997 Price Expiration
Granted (%) ($) Date
------------ ------------- ----- ----------
James J. Wilson -- -- -- --
Francisco Arrivi Cros 65,000 57% 3.125 6/19/07
Edwin L. Kelly -- -- -- --
Paul Resnik 50,000 43% 3.125 8/13/07
Carlos R. Rodriguez -- -- -- --
Potential Realizable Value at Assumed
Annual Rate of Unit Price Appreciation
for Unit Appreciation Rights Term
--------------------------------------
5% 10%
($) ($)
--------- ---------
James J. Wilson -- --
Francisco Arrivi Cros 127,744 323,729
Edwin L. Kelly -- --
Paul Resnik 37,181 151,757
Carlos R. Rodriguez -- --
The Rights granted became exercisable evenly over a five year period
beginning on the grant date. However, in the event of a publicly announced
agreement to dispose of all or substantially all of the assets of the
Company, all Rights become immediately exercisable. The Rights are also
subject to appropriate adjustments to be determined in the event of any
subdivision, reorganization, consolidation or merger of the Company.
AGGREGATED OPTION/UNIT APPRECIATION RIGHTS EXERCISES IN 1997
AND DECEMBER 31, 1997 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,
1997 1997
------------------------------
Units Value Exercisable/ Exercisable/
Acquired On Realized Unexercisable Unexercisable
Name Exercise (#) ($) (#) ($)
- ------------------- ------------ -------- ------------- --------------
James J. Wilson -- -- --/-- --/--
Francisco Arrivi Cros -- -- 15,000/75,000 19,680/115,105
Edwin L. Kelly -- -- 24,000/16,000 31,488/20,992
Paul Resnik -- -- 0/50,000 0/78,450
Carlos R. Rodriguez -- -- 2,880/1,920 3,779/2,519
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 1997, 1996 or 1995.
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 1997, 1996 and 1995 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.
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, 1998 (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 officers 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 1.07
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
(12 persons) (3)(4) 973,828 9.41
Bessemer Interstate Corporation
245 Peachtree Center Avenue #804
Atlanta, GA 30303 522,208 5.05
Interstate Business Corporation
222 Smallwood Village Center
St. Charles, MD 20602 3,080,515 29.77
Wilson Securities Corporation
222 Smallwood Village Center
St. Charles, MD 20602 1,172,203 11.33
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information responding to this item appears in Note 5 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, 1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Changes in Partners' Capital for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements for the years
ended December 31, 1997, 1996 and 1995
2. Financial Statement Schedules
The following financial statements schedules are contained
herein:
Report of Independent Public Accountants
Schedule III -- Real Estate and Accumulated Depreciation
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
(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 Exhibit 10(a) to Form 10-Q
Edwin L. Kelly for the quarter ended
June 30, 1994
(b) 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
(c) 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
(d) Third Amendment to Employment Agreement Exhibit 10(l) to 1996 10-K
between Interstate General Company L.P.
and Edwin L. Kelly dated May 20, 1994
(e) Employment Agreement between Interstate Exhibit 10(j) to 1995 10-K
General Company L.P. and James J. Wilson
dated January 15, 1996
(f) 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
(g) Employment Agreement between Interstate Filed herewith
General Company L.P. and Mark Augenblick
dated March 11, 1998
(h) 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
(i) Unit Incentive Plan for Directors, Exhibit 10(i) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(j) Unit Incentive Plan for Employees, Exhibit 10(j) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(k) 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
(l) 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
(m) 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
(n) 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
(o) 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
(p) 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
(q) Partnership agreement for Fox Chase Exhibit 10(p) to Form S-1
Apartments General Partnership as
amended January 29, 1986
(r) Amendment to Partnership Agreement for Exhibit 10(mm) to Form S-1
Fox Chase Apartments General Partnership
dated February 10, 1987
(s) 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
(t) Partnership agreement for Wakefield Third Exhibit 10(r) to Form S-1
Age Associates Limited Partnership dated
July 1, 1985
(u) Partnership agreement for Wakefield Exhibit 10(t) to Form S-1
Terrace Associates Limited Partnership
dated July 1, 1985
(v) Partnership agreement for Headen House Exhibit 10(v) to Form S-1
Associates Limited Partnership dated
July 1, 1985
(w) Partnership agreement for Palmer Exhibit 10(w) to Form S-1
Apartments Associates Limited
Partnership dated July 1, 1985
(x) Partnership agreement for Chastleton Exhibit 10(dd) to Form S-1
Apartments Associates dated May 1, 1986
(y) Partnership agreement for New Forest Exhibit 10(ff) to Form S-1
Apartments General Partnership dated
November 18, 1986
(z) First Amendment to the General Exhibit 10(ii) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
February 24, 1987
(aa) Second Amendment to the General Exhibit 10(hh) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
December 19, 1988
(bb) 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
(cc) 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
(dd) Management Services Agreements between Exhibit 10(k) to Form S-1
Interstate General Properties Limited
Partnership and National General
Corporation (3 separate agreements)
(ee) 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
(ff) 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
(gg) 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
(hh) 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
(ii) 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
(jj) 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
(kk) 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
(ll) 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
(mm) 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
(nn) 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
(oo) 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
(pp) 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
(qq) 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
(rr) 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
(ss) Store Lease between Interstate General Exhibit 10(fff) to
Business Corporation and Smallwood 1991 10-K
Village Associates Limited Partnership
dated April 1, 1988
(tt) 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
(uu) 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
(vv) 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
(ww) 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
(xx) 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
(yy) 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
(zz) 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
(aaa) Fourth Amendment to Interstate General Exhibit 10(yyyy) to
Company L.P. Retirement Plan, dated 1992 10-K
July 1, 1992
(bbb) 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
(ccc) Agreement Regarding Partnership Interest Exhibit 10(nn) to Form S-1
in Chastleton Apartment Associates
dated January, 1987
(ddd) 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
(eee) 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
(fff) 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
(ggg) 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
(hhh) 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
(iii) 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
(jjj) 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
(kkk) 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
(lll) 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
(mmm) 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
(nnn) 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
(ooo) 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
(ppp) 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
(qqq) 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")
(rrr) 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.
(sss) 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
(ttt) 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.
(uuu) 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
(vvv) 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.
(www) 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
(xxx) 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
(yyy) 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
(zzz) 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
(aaaa) 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
(bbbb) 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
(cccc) 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
(dddd) 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
(eeee) Real Estate Sales Contract between Exhibit 10(ggggg) to 1996
American Family Homes, Inc. and 10-K
Darby Station Limited Partnership,
Interstate Business Corporation, General
Partner dated December 20, 1996
(ffff) Control Transfer Agreement dated Exhibit 10(hhhhh) to 1996
December 31, 1996 and Amendment to 10-K
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.
(gggg) Amendment to Control Transfer Agreement Filed herewith
dated December 19, 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.
(hhhh) Compensation Agreement with Exhibit 10(iiiii) to 1996
Francisco Arrivi dated September 13, 1990 10-K
(iiii) Real Estate Sales Contract between Exhibit 10(a) to Form 10-Q
American Family Homes, Inc. and Deer for the quarter ended
Valley Limited Liability Company dated June 30, 1997
June 30, 1997
(jjjj) Agreement of Purchase and Sale between Exhibit 10(b) to Form 10-Q
Interstate Business Corporation and for the quarter ended
Interstate General Company L.P. dated June 30, 1997
June 30, 1997 for the Partnership
Interest in Coachman's Limited Partnership
(kkkk) Amendment to Agreement of Purchase and Filed herewith
Sale between Interstate General Company
L.P. and Interstate Business Corporation
dated December 31, 1997 for the Partnership
Interest in Coachman's Limited Partnership
(llll) Agreement of Purchase and Sale between Exhibit 10(c) to Form 10-Q
A.P.S. Associates Limited Partnership for the quarter ended
and Interstate General Company L.P. June 30, 1997
dated June 30, 1997
(mmmm) Master Loan Agreement dated as of Exhibit 10(a) to Form 10-Q
August 1, 1997 by and among Interstate for the quarter ended
General Company L.P. and American Community September 30, 1997
Properties Trust, St. Charles Community,
LLC and Banc One Capital Partners IV, Ltd.
(nnnn) Agreement between Interstate General Filed herewith
Company L.P., Interstate General
Properties Limited Partnership S.E.,
Equus Gaming Company L.P., Equus Management
Company and Housing Development
Associates S.E. dated December 16, 1997
(oooo) Agreement to Retire Partnership Interest Filed herewith
of Interstate General Company L.P. in
Equus Gaming Company L.P. dated
December 30, 1997
(pppp) Guaranty dated December 30, 1997 between Filed herewith
Equus Management Company and Interstate
General Company L.P.
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.
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: March 31, 1998 By: /s/ James J. Wilson
--------------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Dated: March 31, 1998 By: /s/ J. Michael Wilson
--------------------- -----------------------------
J. Michael Wilson
Vice Chairman, Chief Financial
Officer and Director
Dated: March 31, 1998 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 March 31, 1998
- ------------------------- Chairman, Chief Executive ---------------
James J. Wilson Officer and Director
/s/ Edwin L. Kelly March 31, 1998
- ------------------------- President, Chief Operating ---------------
Edwin L. Kelly Officer and Director
/s/ J. Michael Wilson March 31, 1998
- ------------------------- Vice Chairman, Chief ---------------
J. Michael Wilson Financial Officer
and Director
/s/ Mark Augenblick March 31, 1998
- ------------------------- Vice Chairman and ---------------
Mark Augenblick Director
Signature Title Date
--------- ------------------------- ------
/s/ Francisco Arrivi Cros March 31, 1998
- ------------------------- Senior Vice President ---------------
Francisco Arrivi Cros and Director
/s/ Donald G. Blakeman March 31, 1998
- ---------------------- Director ---------------
Donald G. Blakeman
/s/ Thomas J. Shafer March 31, 1998
- ---------------------- Director ---------------
Thomas J. Shafer
/s/ Joel H. Cowan March 31, 1998
- ---------------------- Director ---------------
Joel H. Cowan
- ---------------------- Director ---------------
Thomas B. Wilson
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10. Material contracts
(g) Employment Agreement between Interstate General Company L.P.
and Mark Augenblick dated March 11, 1998.
(gggg) Amendment to Control Transfer Agreement dated December 19,
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.
(kkkk) Amendment to Agreement of Purchase and Sale between
Interstate General Company L.P. and Interstate Business
Corporation dated December 31, 1997 for the Partnership
Interest in Coachman's Limited Partnership
(nnnn) Agreement between Interstate General Company L.P.,
Interstate General Properties Limited Partnership S.E.,
Equus Gaming Company L.P., Equus Management Company and
Housing Development Associates S.E. dated December 16, 1997
(oooo) Agreement to Retire Partnership Interest of Interstate
General Company L.P. in Equus Gaming Company L.P. dated
December 30, 1997
(pppp) Guaranty dated December 30, 1997 between Equus Management
Company and Interstate General Company L.P.
21. List of Subsidiaries of Interstate General Company L.P.
27. Financial Data Schedule