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, 1998 Commission File Number 1-9393
INTERSTATE GENERAL COMPANY L.P.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1488756
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5160 Parkstone Drive, Suite 110
Chantilly, Virginia 20151
- ------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 263-1191
----------------------
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
------- -------
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 24, 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 $11,563,791.
Class A Units Outstanding at March 24, 1999: 2,055,785 Class A Units
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Item
N/A
INTERSTATE GENERAL COMPANY L.P.
1998 Form 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 8
PART II
-------
Item 5. Market Prices and Distribution on Units 9
Item 6. Selected Financial and Operating Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
Item 7a. Qualitative and Quantitative Disclosures
Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 59
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant 60
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain
Unitholders and Management 64
Item 13. Certain Relationships and Related
Transactions 65
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 66
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's headquarters
are located in Chantilly, Virginia. IGC has traded publicly as a master
limited partnership since February 1987 on the American Stock Exchange
("AMEX") and Pacific Stock Exchange ("PSE"). During 1998, the Company's
management and the Board of Directors of the Company's Managing General
Partner restructured IGC and transferred the primary real estate operations
to a real estate investment trust, American Community Properties Trust
("ACPT") and distributed, as a dividend, the common shares of ACPT to its
unitholders (the "Distribution").
The purpose of the Distribution was to create an attractive investment
vehicle for the principal real estate assets and operations of IGC that
will not be burdened with the operating losses of American Family Homes,
LLC ("AFH") and the capital needs of Interstate Waste Technology Inc.
("IWT") and Caribe Waste Technology Inc. ("CWT") or with the wetlands
litigation. In addition, ACPT, as a type of business trust whose principal
income is dividends, should be a more attractive investment for pension
funds and mutual funds than is IGC as a master limited partnership.
IGC continues to own certain assets including the Towne Center land in
St. Charles, Maryland, which has been the subject of the wetlands
litigation, certain single family home lots in the Dorchester neighborhood
in St. Charles, certain land in Pomfret, Maryland and St. Mary's County,
Maryland, a 50% interest in a partnership that owns land in Brandywine,
Maryland, all of the shares of AFH, rights to collect the principal balance
of a note in the amount of $7.5 million payable by a subsidiary of ACPT, as
well as fractional interests in Chastleton Apartment Associates Limited
Partnership and Coachman's Limited Partnership. IGC conditionally has
agreed to transfer to American Land 14 acres of commercial land in St.
Charles, having an appraised gross retail value as of December 31, 1996 of
$4,214,000 and a book value of $995,000 at December 31, 1998, if and when
IGC settles the wetlands litigation on terms approved by the Board of
Directors of Interstate General Management Corporation ("IGMC"), provided
that transfer of the land will not cause the IGC Units to be delisted from
AMEX or the PSE. If IGC is unable to settle the wetlands litigation on
satisfactory terms or IGC does not receive confirmation of the continued
listing of IGC units, IGC will retain this commercial land.
All of the common stock of IWT and CWT (excluding shares issued as
incentive compensation for employees) are held in a trust (the "CWT Trust")
for the benefit of IGC Unitholders.
The following summarizes the business operations and segments of IGC:
A. Community/Land Development
IGC has extensive experience in developing planned communities.
Historically, the Company and its predecessors have developed land for more
than 13,000 housing units.
The Company currently holds 109 acres in Towne Center South, St.
Charles, Maryland. The property is zoned for commercial, retail, and
office development. The Company plans to begin development of 80 acres if
and when the wetlands litigation is settled.
Also in Charles County, the Company plans to develop an 812 acre
property, known as Pomfret, as an age-qualified adult community consisting
of 2,000 single family housing units and a golf course.
In addition, the Company has developed the 170 acre planned community
of Westbury, located in Lexinton Park, Maryland. The community is located
in St. Mary's County, approximately one mile from the Patuxent River Naval
Air Warfare Center. Westbury's final phase, consisting of approximately
250 single-family home lots, is currently under construction. In March
1997, the Company entered into a contract to sell the remaining 52 townhome
lots to a third-party home builder of which 30 remain to be purchased at
December 31, 1998.
In Prince George's County, Maryland, the Company is proceeding with
the development of Phase One of the 277 acre mixed-use project known as
Brandywine. IGC obtained building permits for the first 30 single family
homes in December 1998. Construction is expected to begin in mid 1999.
Environmental Impact. Management believes that all current land
development plans can be completed without a material adverse environmental
impact and in compliance with government regulations.
Competition. The Company is subject to market competition on its
commercial land sales. However, the Company believes it can compete
successfully by offering well located land that can be developed at a
reasonable cost.
D. Homebuilding
American Family Homes, LLC ("AFH", formerly American Family Homes,
Inc.) is a wholly owned subsidiary of IGC that builds semi-custom homes for
homebuyers who own land or have land under contract. AFH operates based
out of seven offices in Virginia, North Carolina and South Carolina.
Environmental Impact. Management believes that the Company's
homebuilding operations are in compliance with governmental regulations.
Competition. The housing industry is cyclical and is influenced by
various economic factors and seasonality. These variables include, for
example, consumer confidence, interest rate fluctuations, property and
federal taxes, demographics and mortgage finance options. The Company's
homebuilding operations could be affected by any one or more of these
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. There are three major
competitors in the Carolinas, and two major competitors in Virginia. 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.
C. Investment in Waste Technologies
In 1990, IGC formed a wholly owned subsidiary, Interstate Waste
Technologies, Inc. ("IWT"), to develop innovative solutions for the
disposal of municipal waste and to pursue waste disposal contracts with
municipalities.
In 1996, a second subsidiary, Caribe Waste Technologies, Inc. ("CWT"),
was formed in Puerto Rico. CWT is an entity established to perform waste
disposal projects in the Caribbean.
In December 1998, CWT entered into a host community and sponsor
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., an unrelated third party. To provide
waste for the facility, CWT management is pursuing long-term solid waste
disposal service agreements with municipalities in Puerto Rico. 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 for 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, and a revised proposal in
August, 1998. Recently, a representative of the Island government has
asked for a further revision to the proposal. CWT management is preparing
a reply.
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 qualified to receive an RFP. CWT management responded to
the RFP on August 3, 1998. Thereafter, the procurement was canceled at
approximately the time a new governor was elected. CWT is seeking to learn
whether there will be a new procurement or negotiations will resume with
the existing bidders.
Environmental Impact. Management believes that the proposed IWT and
CWT facilities can be completed without a 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.
Competition. There is intense competition for municipal waste
disposal contracts throughout the United States, as well as
internationally. The competition uses a variety of methods and there are a
range of costs available. Management feels IWT and CWT can provide a
competitive price for its superior facilities.
General
Employees. IGC has 40 full-time employees as of December 31, 1998.
All employees are based in the United States.
Significant Customers. No single customer accounted for more than 10%
of IGC's revenues during the year ended December 31, 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 and Virginia.
As of December 31, 1998, the Company's community development land
holdings consisted of the following:
Charles County, Maryland
Finished inventory-
Residential lots 16
Commercial, office or light industrial acres 109
Pre-development acres 812
St. Mary's County, Maryland
Finished inventory-
Residential lots 30
Pre-development
Residential lots 246
Prince George's County, Maryland
Pre-development acres 277
Prince William County, Virginia
Finished inventory-
Residential lots 87
As of December 31, 1998, the Company's homebuilding inventory
consisted of the following:
Virginia
Homes under construction 16
North Carolina
Homes under construction 16
South Carolina
Homes under construction 14
ITEM 3. LEGAL PROCEEDINGS
As reported in Registrant's 10-K for the period ending December 31,
1997, convictions in the Wetlands litigation in the United States District
Court for the District of Maryland were reversed by the United States Court
of Appeals for the Fourth Circuit and the case remanded to the District
Court for a new trial.
Counsel for Registrant is currently engaged in negotiations with the
U.S. Attorney's office on a possible disposition of the Wetlands litigation
that would require payment of a fine by Registrant, a portion of which will
be abated by a contribution of approximately 2 acres of land in Towne
Center South zoned for commercial development, remediation of two parcels,
totaling approximately 73 acres, in St. Charles and Registrant's
undertaking an environmental compliance program. Registrant would also
plead guilty to a single felony count. All other criminal charges in the
indictment against Registrant and its president, James J. Wilson, would be
dropped. The foregoing settlement proposal has not been agreed upon by
either Registrant or the U.S. Government, and there are a number of issues
that are still under discussion. If agreement is reached, the disposition
must be approved by the court. Management believes that the cost of such a
settlement, not including cost of remediation, would not be materially
greater than the amount ($1.1 million) currently reserved by IGC for the
Wetlands litigation. If such a settlement is reached, a portion of the
land in St. Charles presently encumbered by the Wetlands litigation would
become available for development.
St. Charles has been zoned as a planned unit development that allows
construction of approximately 24,730 housing units and 1,390 acres of
commercial and industrial development. Charles County has agreed to
provide sufficient sewer and water connections for all housing units
remaining to be developed in St. Charles. IGC and St. Charles Associates
Limited Partnership ("SCA") are involved in litigation with the County
regarding (1) the level of sewer and water fees that may be imposed and (2)
the level of school construction impact fees that may be imposed. In
addition, IGC and SCA are asserting claims against the County for repayment
of excessive sewer and water fees and school construction impact fees paid
by them in the past.
The sewer and water litigation is entitled St. Charles Associates
Limited Partnership, et al. v. County Commissioners of Charles County, et
al., No. 89-720, Circuit Court for Charles County, Maryland. That
litigation was filed in June 1989 and is continuing. The litigation
originally sought a court ruling that the County was not entitled to impose
sewer and water fees at the then-existing level upon residential units in
the St. Charles Communities. That aspect of the litigation was settled by
a Settlement Agreement dated November 1989, which was confirmed in a
Consent Decree entered in March 1990. Subsequent aspects of the litigation
have resulted from disputes over the interpretation of the Settlement
Agreement and Consent Decree. The principal issues that are presently
being contested between the County, IGC and SCA are (1) whether a study
procured by the County in 1996 justifies the level of sewer and water
connection fees which it imposes upon the St. Charles Communities; (2)
whether SCA and IGC are entitled to an injunction against future excessive
sewer and water fees; and (3) to what degree SCA and IGC are entitled to
recover what they regard as excessive sewer and water fees they have paid
in the past. The Circuit Court has ruled in SCA and IGC's favor that the
County's 1996 study did not comply with the applicable restrictions and
that SCA and IGC are entitled to an injunction against future excessive
sewer and water fees. The Court further ruled that SCA and IGC must pursue
claims for excess sewer and water fees paid in the past in Maryland's Tax
Court. The Court's rulings are on appeal to Maryland's Court of Special
Appeals. As a result of the Distribution, St. Charles Community LLC has
been added as an additional party to that appeal. SCA and IGC have
commenced an action in Maryland Tax Court, which is a State administrative
agency, to recover what they regard as excessive sewer and water fees that
have been paid in the past. That case is titled St. Charles Associates
Limited Partnership, et al. v. Charles County, et al., No. 1205, and was
filed in February 1997.
SCA's and IGC's claims for the refund of excessive school impact fees
paid to the County in the past are being pursued in the Maryland Tax Court
as well, in actions entitled St. Charles Associates Limited Partnership, et
al. v. County Commissioners of Charles County, et al., Case Nos. 961 (filed
March 1994), 1038 (filed October 1994), and 98-MI-0083 (filed February 6,
1998). In those cases SCA and IGC are seeking both repayment of past
excessive school impact fees paid to the County and a ruling as to the
nature of their rights to credits against school impact fees for school
sites that they have donated to the County. On December 15, 1998, the
Circuit Court for Charles County, on appeal from a ruling of the Tax Court,
ruled that certain of SCA's and IGC's refund claims had not been filed on a
timely basis. SCA and IGC have appealed that ruling to Maryland's Court of
Special Appeals.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
IGC held a special meeting of its unitholders in August 1998 to vote
on the restructuring of IGC and simultaneous spinoff of Amercian Community
Properties Trust.
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
(in thousands) Per Unit High Low
------------- -------- ----------- ---------
1998 Quarter:
Fourth (a) $ -- $ -- $4-5/8 $11/16
Third -- -- 5 4
Second 209 .02 5-1/8 4
First -- -- 5-1/2 4-1/16
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
(a) The unit price is based on the Company after the Distribution and a
one-for-five reverse unit split ("Reverse Split").
On October 5, 1998, in conjunction with the Distribution of assets,
the Company issued ACPT shares to its unit holders. On that date, each
unit holder received one share of ACPT for every two units of IGC owned.
As of the close of business on March 24, 1999, there were 247
Unitholders of record. As of March 24, 1999, the closing price reported by
the American Stock Exchange was $5.625 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, 1998 and 1997, IGC had taxable (loss) income of $(5,736,000)
and $330,000, respectively, or $(2.79) and $.04, respectively, per unit.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth combined financial 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, 1998. (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,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per unit amounts)
Income Statement Data
Revenues
Land sales (a) $13,446 $13,357 $14,717 $14,824 $22,296
Home sales 7,379 7,805 9,715 10,826 20,265
Equity in earnings
from gaming properties 549 -- 4 (78) 7,288
Equity in earnings from
partnerships and
development fees 1,149 1,494 16,530 2,647 4,941
Rental property revenues 6,693 8,737 7,577 4,642 4,538
Management and other fees 2,518 3,775 4,816 3,894 3,507
Interest and other income 1,214 1,044 1,015 945 687
------- ------- ------- ------- -------
Total revenues 32,948 36,212 54,374 37,700 63,522
Wetlands litigation expenses 26 1,772 973 4,107 498
Other expenses 31,664 37,419 39,922 35,108 52,872
Income taxes 740 606 3,634 1,452 3,511
Net income (loss) 518 (3,585) 9,845 (1)(2,967) 6,641
Basic net income (loss)
per unit .25 (1.74) 4.80 (1) (1.45) 3.25
Cash distributions per unit .10 -- .55 -- .50
(a) Includes sales to
affiliates 1,179 3,367 9,086 3,233 --
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet Data (In thousands)
Assets related to
community development $23,669 $82,509 $83,085 $79,558 $70,061
Assets related to
rental properties 46 47,291 52,698 36,722 35,608
Assets related to
home building 2,719 2,573 2,491 3,819 4,998
Total assets 40,264 145,038 148,568 132,093 123,513
Debt related to community
development
Recourse 2,633 35,176 34,077 47,841 36,661
Non-recourse -- 2,295 2,153 2,034 4,268
Debt related to rental
properties
Recourse -- 969 1,139 1,322 1,559
Non-recourse -- 39,101 39,508 22,650 22,771
Debt related to homebuilding
Recourse 740 159 502 981 2,398
Total liabilities 12,873 101,750 101,974 94,184 82,808
Partners' capital 27,391 43,288 46,594 37,909 40,705
(1) Includes a $932,000 or $.45 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.
Years Ended December 31,
-----------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating Data
Community Development
Residential lots sold 417 250 523 134 228
Residential lots used by
Company's homebuilding operations -- 5 27 25 44
Residential lots used in joint
venture operations 102 21 -- -- --
Residential lots transferred to
Company's rental property operations -- -- -- 54 --
Commercial and business park
acres sold 39 17 5 20 76
Undeveloped acres sold -- 381 -- 2 20
Homebuilding, all locations
Contracts for sale, net of
cancellations 46 73 67 133 134
Number of homes sold 67 112 156 190 200
Backlog at end of period 92 58 68 92 86
Rental apartment units
managed at end of period -- 8,139 8,139 8,085 8,085
Units under construction -- -- -- 54 --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Effective October 5, 1998, the Company distributed the majority of its
real estate development business to ACPT. As a result, the Company's
historical results of operations for 1998 are not readily comparable with
the results of operations for 1997. Accordingly, the unaudited pro forma
results for 1998 and 1997 have also been presented as if the Distribution
had been completed on January 1, 1997. This information is provided for
purposes of completing the Management's Discussion and Analysis and should
be read in conjunction with the Company's consolidated financial statements
and notes thereto included in Part II, Item 8 which show the historical
operations of the Company.
INTERSTATE GENERAL COMPANY L.P.
PRO FORMA CONSOLIDATED STATEMENTS OF LOSS
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
-------- --------
REVENUES
Community development-land sales 492 297
Homebuilding-home sales 7,379 7,805
Equity in earnings from partnerships
and developer fees 146 146
Equity in earnings from
gaming properties 549 --
Interest and other income 1,388 817
-------- --------
Total revenues 9,954 9,065
-------- --------
EXPENSES
Cost of land sales 810 645
Cost of home sales 6,695 7,463
Selling and marketing 1,233 1,105
General and administrative 839 427
Interest expense 252 59
Depreciation and amortization 99 278
Wetlands litigation expenses 26 1,772
Write-off of deferred project costs 1,191 --
Write-off of goodwill -- 1,843
-------- --------
Total expenses 11,145 13,592
-------- --------
LOSS BEFORE PROVISION
FOR INCOME TAXES (1,191) (4,527)
PROVISION FOR INCOME TAXES 158 136
-------- --------
LOSS BEFORE MINORITY INTEREST (1,349) (4,663)
MINORITY INTEREST 44 --
-------- --------
NET LOSS $ (1,305) $ (4,663)
======== ========
Pro forma for the year December 31, 1998 versus 1997
Community Development Operations
Community development land sales revenue increased 66% to $492,000
during the pro forma twelve months ended December 31, 1998, compared to
sales of $297,000 during the pro forma twelve months ended December 31,
1997. The 1998 pro forma period reflects sales of approximately 15 single
family home lots as well as a commercial site with a sales price of
$90,000, while the 1997 pro forma period reflects only sales of
approximately 22 townhome lots. The Company had negative margins on land
sales primarily due to a lack of volume on land sales not covering related
period costs being included in cost of sales.
Homebuilding Operations
Revenues from home sales decreased 6% to $7,379,000 for the pro forma
twelve month period ending December 31, 1998, as compared to $7,805,000
during the pro forma twelve month period ending December 31, 1997. The 1997
revenues were a result of 69 scatter-site sales as well as 5 tract sales,
while the 1998 revenues were a result of only 67 scatter-site sales.
Although the revenues from home sales decreased, the gross profit margin
increased to 9% in 1998, as compared to 4% for the same period of 1997 due
to increases in sales prices.
Equity in Earnings from Gaming Properties
Equity in earnings from gaming properties increased from $0 during the
pro forma twelve month period ended December 31, 1997 to $549,000 for the
same pro forma period for 1998. The increase is due to the recognition of
equity in gaming properties after recovering a negative basis.
Interest and Other Income
Interest and other income increased 70% to $1,388,000 for the pro
forma twelve months period ending December 31, 1998 as compared to $817,000
during the pro forma twelve months period ending December 31, 1997. The
increase is primarily due to the gain on sale of equity securities.
General and Administrative Expense
General and administrative expenses increased 97% from $427,000 during
the pro forma twelve months ending December 31, 1997 to $839,000 during the
same pro forma period for 1998. This increase is result of additional
salaries and office expenses incurred upon opening the new corporate
headquarters in Chantilly, Virginia.
Interest Expense
Interest expense increased 327% to $252,000 in the pro forma twelve
months ending December 31, 1998, as compared to $59,000 for the same pro
forma period in 1997. The increase is primarily due to an increase in the
pro forma debt outstanding during 1998.
Provision for Wetlands Litigation Expense
Expenses related to the Wetlands litigation as discussed in Item 3,
decreased to $26,000 in 1998 from $1,772,000 in 1997. 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 Deferred Project Cost
In 1998, management wrote off $1,191,000 of deferred project costs
related to the waste technology project in Bridgeport, Connecticut. The
construction of the project became economically unfeasible due to the
decision of municipalities surrounding Bridgeport to have waste materials
disposed of through land fill operations.
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 AFH.
There was no similar transaction for 1998.
Historic for the year ended December 31, 1997 versus 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 32% 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 4% 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.
Liquidity and Capital Resources
Cash and Cash equivalents were $33,000 and $2,273,000 respectively at
December 31, 1998 and December 31, 1997. This decrease was attributable to
$15,233,000 and $4,523,000 used in investing and financing activities
respectively, partially offset by net cash provided by operating
activiites. Cash flows from Operating Activities increased approximately
$7,800,000 in 1998 over 1997 principally due to an increase in net income
from 1997 as well as the return of approximately $3,000,000 in fines to the
Company as a result of its successful appeal of the wetlands litigation.
Cash flows used in investing activities increased by approximately
$5,000,000 due principally to increased development costs expended for the
land assets distributed to ACPT. Cash flows used in financing activities
were approximately $5,100,000 higher in 1998 than in 1997 due primarily to
the acquisition for cash of a minority interest in a subsidiary of ACPT
prior to the Distribution date as well as payments on debt in excess of
borrowings for land development and sales activity.
IGC historically has met its liquidity requirements principally from
cashflow 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. As a result of the
distribution and the development status of the land assets that the company
retained, IGC expects to meet its liquidity requirements principally from
land sales as well as bank and other financing facilities. The Company's
principal demands for liquidity are expected to be the continued funding of
development costs for IWT, ongoing debt service for existing bank loans,
land development costs for the Company's land assets, operating cash needs
for AFH, payables and normal operating costs. AFH historically has had
cash needs in excess of those generated through operations and has
substantial vendor payables. Management is currently engaged in a
reorganization to minimize the cash needs of the business in order to make
it profitable and cash flow positive.
Management believes the Company's real estate assets have substantial
value and their development will be financed on a conventional project
finance basis. IGC will also look to the payment in part of a $6.5 million
note from Interstate General Properties Limited Partnership S.E., now a
subsidiary of ACPT The Company's liquidity needs are dependent on
obtaining additional sources of capital and while management believes those
sources of capital are available there are assurances that these funds will
be generated.
Debt Summary
As of December 31, 1998, assets with a book value of $13,222,000 were
encumbered by $4,095,000 of recourse debt. The significant terms of IGC's
recourse debt financing arrangements are shown below (dollars in
thousands):
Balance
Maximum Interest Maturity Outstanding
Description Borrowings Rate Date 12/31/98
------------ ---------- -------- -------- -----------
1st Nat'l Bank of St. Mary's (a) $ 460 P+1.5% 12/29/99 $ 149
1st Nat'l Bank of St. Mary's (a) 1,250 P+1.5% 3/21/00 1,042
1st Nat'l Bank of St. Mary's (b) 300 P+1.5% 3/30/99 300
Washington Savings Bank (c) 850 9.25% 4/1/99 152
Winston Corp Bank & Trust (d) 1,000 10.00% 10/28/99 732
Chevy Chase (e) 500 P+1% 1/7/00 500
Other miscellaneous 2,504 Various Various 1,220
------- -------
$ 6,864 $ 4,095
======= =======
(a) The two notes require monthly interest payments. Principal
curtailments are made from sales of individual lots in the
amount of $13,500 and $23,000 respectively.
(b) Note is for operating use. This note was paid in full in
January, 1999.
(c) The note requires monthly interest payments. Principal
payments are made by partial lot releases in the amount of
$38,650.
(d) The note requires monthly interest payments of $6,103. The
note is currently held by Chevy Chase FSB.
(e) The note is divided into two parts, a letter of credit and a
promissory note in the amount of $200,000 and $300,000
respectively. The note requires monthly interest payments.
The note is collateralized by undeveloped land located in
Prince George's County, Maryland.
Year 2000
The year 2000 "Y2K" issue exists because many computer systems and
applications and other electronically controlled systems and equipment
currently use two-digit fields to designate a year. As the century date
occurs, date sensitive systems with this deficiency may recognize the year
2000 as 1900 or not at all. This inability to recognize or properly treat
the year 2000 can cause the systems to process critical financial and
operations information incorrectly.
IGC has assessed and continues to assess the impact of the Y2K issue
on its reporting systems and operations.
Current IGC State of Readiness. The systems and applications that can
critically affect IGC's operations due to the Y2K issue are its financial
reporting systems. These systems include one accounting application, one
time and attendance application and the computer network system which they
are installed on and the telephone, security, elevator, HVAC, and other
like systems installed at IGC. Of secondary importance are those
administrative systems and equipment not directly involved in revenue
production but can still minimally impact IGC operations.
The financial application employed by IGC is currently certified by
the respective publisher to be Y2K compliant. Active testing to verify the
Y2K compliance of the Company's financial system will be conducted in the
second quarter of 1999. "Dummy" companies will be setup in the critical
systems with dates forwarded to beyond 2000 for these tests.
The Company relies on a time and attendance system for payroll
processing. The payroll system utilizes the services of a third party
provider and is certified Y2K compliant.
The hardware component of IGC's financial system consists of industry
standard PC operating systems, servers, desktop computers, and networking
hardware. These systems have been evaluated and tested for Y2K compliance.
The administrative applications (word processing, spreadsheet,
messaging, etc) utilized by IGC have been certified by the various
publishers to be Y2K compliant.
Third Party Impact on Company Operations. Of the administrative
procedures, only the payroll processing is performed by a third party
vendor. A statement of Y2K compliance has been obtained from the vendor in
question and IGC considers Y2K exposure with payroll processing to be
minimal.
Costs to Achieve Y2K Compliance. Because of IGC's almost exclusive
use of "off the shelf" applications and hardware and that the Company
maintains service maintenance agreements on all critical business systems,
costs to achieve Y2K compliance have been nominal. Y2K upgrades for a
majority of the Company's financial system has been included with standard
system updates as part of the normal maintenance procedures.
IGC does not separately track the internal costs incurred for the Y2K
project, these costs are principally related payroll costs for the
Company's information systems department. The cost for the financial
departments to perform the scheduled tests of the accounting system for Y2K
compliance has not been ascertained, though it is expected that these costs
will be nominal.
Risks of IGC's Y2K Issues. The failure of IGC's financial system for
more than a few days would create a hardship on Company's operations.
Failure of the accounting system will affect the companies general ledger,
accounts payable, accounts receivable and reporting functions.
IGC had not obtained insurance specific to Y2K liability issues. IGC
has determined that current policies will cover damages due to the
Company's systems Y2K non-compliance.
IGC's Contingency Plan. IGC is currently evaluating it's various Y2K
failure scenarios and developing contingency plans to ensure continued
Company operations.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks relating to its operations result primarily
from changes in the prime interest rate. It is management's goal to
minimize the impact of variable rate debt by pursuing equity and long-term
fixed rate financings and refinancings of current fixed rate debt at lower
rates when favorable market conditions exist. The following table provides
information about the Company's financial instruments that are sensitive to
changes in interest rates. The table presents the Company's debt
obligations, principal repayments, related weighted average interest rates
by expected maturity dates and fair values. The Company has no derivative
financial instruments.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(In thousands)
Fair Value
December 31,
1999 2000 2001 2002 2003 Thereafter Total 1998
---- ---- ---- ---- ---- ---------- ----- ------------
Long-term debt, including current portions:
Fixed rate debt - principal $ 1,080 $ 274 $ 10 $ 2 $ -- $ -- $ 1,366 $ 1,364
Fixed rate debt - interest 102 11 -- -- -- -- 113
Average interest rate 9.93% 9.00% 0.00% 0.00 %0.00 % 0.00 % 9.47 % 9.25%
Variable rate debt - principal 1,193 1,536 -- -- -- -- 2,729 2,729
Variable rate debt - interest 223 41 -- -- -- -- 264
Average interest rate 9.20% 9.12% 0.00% 0.00% 0.00% 0.00% 9.16% 9.16%
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, 1998 and 1997, and the
related consolidated statements of income (loss), changes in partners'
capital and cash flows for each of the three years ended December 31, 1998.
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 the 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. and subsidiaries as of December 31, 1998
and 1997, and the results of their operations and their cash flows for each
of the three years ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The financial
statement schedule included on pages 54 through 58 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 consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects
in relation to the basic consolidated financial statements taken as a
whole.
Arthur Andersen LLP
Washington, D.C.
March 26, 1999
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
REVENUES
Community development-land sales
Non-affiliates $ 12,267 $ 9,990 $ 5,631
Affiliates 1,179 3,367 9,086
Homebuilding-home sales 7,379 7,805 9,715
Rental property revenues 6,693 8,737 7,577
Equity in earnings from partnerships
and developer fees 1,149 1,494 16,530
Equity in earnings from
gaming properties 549 -- 4
Management and other fees, substantially
all from related entities 2,518 3,775 4,816
Interest and other income 1,214 1,044 1,015
-------- -------- --------
Total revenues 32,948 36,212 54,374
-------- -------- --------
EXPENSES
Cost of land sales 8,189 8,881 10,610
Cost of home sales 6,696 7,486 9,347
Selling and marketing 1,287 1,232 1,320
General and administrative 5,127 7,034 7,338
Interest expense 2,630 3,609 4,265
Rental properties operating expense 2,748 3,597 3,245
Depreciation and amortization 1,519 2,128 1,997
Wetlands litigation expenses 26 1,772 973
Write-off of deferred project costs 1,191 6 562
Write-off of goodwill -- 1,843 --
Spin-off costs 1,831 1,164 --
-------- -------- --------
Total expenses 31,244 38,752 39,657
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 1,704 (2,540) 14,717
PROVISION FOR INCOME TAXES 740 606 3,634
-------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST 964 (3,146) 11,083
MINORITY INTEREST (446) (439) (306)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 518 (3,585) 10,777
EXTRAORDINARY ITEM-EARLY
EXTINGUISHMENT OF DEBT -- -- 932
-------- -------- --------
NET INCOME (LOSS) $ 518 $ (3,585) $ 9,845
======== ======== ========
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (continued)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
BASIC NET INCOME (LOSS) PER UNIT
Income (loss) before extraordinary
item $ .25 $ (1.74) $ 5.25
Extraordinary item -- -- (.45)
-------- -------- --------
Net income (loss) $ .25 $ (1.74) $ 4.80
======== ======== ========
NET INCOME (LOSS)
General Partners $ 5 $ (36) $ 98
Limited Partners 513 (3,549) 9,747
-------- -------- --------
$ 518 $ (3,585) $ 9,845
======== ======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING 2,044 2,058 2,051
======== ======== ========
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,
------------------
1998 1997
-------- --------
CASH AND CASH EQUIVALENTS
Unrestricted $ 33 $ 2,273
Restricted 125 508
-------- --------
158 2,781
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico -- 32,918
St. Charles, Maryland 6,387 28,417
Other United States locations 16,573 14,698
Notes receivable on lot sales and other 709 6,476
-------- --------
23,669 82,509
-------- --------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net of accumulated
depreciation of $21,392, as of
December 31, 1997 -- 37,829
Investment in unconsolidated rental property
partnerships, net of deferred income of $2,193
as of December 31, 1997 -- 8,657
Other receivables, net of reserves of $0 and $223
as of December 31, 1998 and 1997, respectively 46 805
-------- --------
46 47,291
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 2,597 1,914
Investment in joint venture -- 591
Receivables and other 122 68
-------- --------
2,719 2,573
-------- --------
RECEIVABLES & OTHER ASSETS
Receivables 9,593 --
Deferred costs regarding waste technology
and other projects, receivables and other 3,470 8,797
Property, plant and equipment, less accumulated
depreciation of $717 and $2,460 as of
December 31, 1998 and 1997, respectively 609 1,087
-------- --------
13,672 9,884
-------- --------
Total assets $40,264 $145,038
======== ========
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,
---------------------------
1998 1997
------------ ------------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 2,633 $ 35,176
Non-recourse debt -- 2,295
Accounts payable, accrued liabilities
and deferred income 386 5,245
-------- --------
3,019 42,716
-------- --------
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt -- 969
Non-recourse debt -- 39,101
Accounts payable and accrued liabilities 888 3,331
-------- --------
888 43,401
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 740 159
Accounts payable and accrued liabilities 2,709 2,501
-------- --------
3,449 2,660
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 2,607 6,330
Notes payable and capital leases 722 615
Accrued income tax liability - current 2,188 1,541
Accrued income tax liability - deferred -- 4,487
-------- --------
5,517 12,973
-------- --------
Total liabilities 12,873 101,750
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,166 4,345
Limited partners' capital-2,044 and 2,066
Units issued and outstanding as
of December 31, 1998 and 1997, respectively 23,225 38,943
-------- --------
Total partners' capital 27,391 43,288
-------- --------
Total liabilities and partners' capital $ 40,264 $145,038
======== ========
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, 1998, 1997 and 1996
(In thousands)
General Limited
Partners' Partners'
Capital Capital Total
-------- -------- -----
BALANCES, December 31, 1995 4,292 33,617 37,909
Net income 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 (36) (3,549) (3,585)
Issuance of warrants 3 276 279
------- ------- -------
BALANCES, December 31, 1997 $ 4,345 $38,943 $43,288
Net income 5 513 518
Cash Distributions (22) (207) (229)
Issuance of Warrants 3 265 268
Distribution of ACPT
shares to unitholders (165) (16,289) (16,454)
-------- ------- --------
BALANCES, December 31, 1998 $ 4,166 $23,225 $ 27,391
======== ======= ========
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 518 $(3,585) $ 9,845
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary item -- -- 932
Depreciation and amortization 1,519 2,128 1,997
(Benefit) provision for deferred
income taxes 294 (847) 629
Equity in earnings from gaming properties (549) -- (4)
Equity in earnings from unconsolidated
partnerships and developer fees (788) (1,402) (16,605)
Distributions from unconsolidated
partnerships 1,912 5,155 15,666
Cost of sales-community development
and homebuilding 14,885 16,367 19,957
Homebuilding construction expenditures (7,379) (7,384) (8,109)
Equity in loss from homebuilding joint
venture (385) (92) 75
Write-off of deferred project cost 1,191 6 562
Write-off of goodwill -- 1,843 --
Collection/(payment) of fines 3,212 (3,212) --
Changes in other accounts receivable,
and accounts payable 3,086 739 1,270
------- ------- -------
Net cash provided by operating activities 17,516 9,716 26,215
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for
future sales (12,197) (7,644) (11,444)
Change in assets related to unconsolidated
rental property partnerships 157 (687) (312)
Change in restricted cash (2,083) 480 1,137
(Additions to) disposals of rental operating
properties, net (780) (308) (1,275)
Acquisitions of other assets, net (330) (1,857) (503)
Contributions to homebuilding joint venture -- (224) (100)
------- ------- -------
Net cash used in investing activities (15,233) (10,240) (12,497)
------- ------- -------
The accompanying notes are an integral part
of these consolidated statements.
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 13,878 21,206 34,441
Payment of debt (15,340) (20,900) (48,283)
Distributions to Unitholders (229) -- (1,140)
Issuance of warrants 268 279 --
Purchase of minority interest in subsidiary (3,100) -- --
------- ------- -------
Net cash (used in) provided by financing
activities (4,523) 585 (14,982)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (2,240) 61 (1,264)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,273 2,212 3,476
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 33 $ 2,273 $ 2,212
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 292 $ 5,878 $ 4,940
Income taxes paid -- 3,828 371
Non-cash transactions
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
Assets transferred to ACPT 16,454 -- --
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, 1998, 1997 AND 1996
(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").
On October 5, 1998, IGC transferred its principal real estate
operations to American Community Properties Trust ("ACPT"), and
subsequently distributed all of the common shares of ACPT to the partners
and unitholders of IGC (the "Distribution"). The purpose of the
restructuring was to create an attractive investment vehicle for the
principal real estate assets and operations of IGC that would not be
burdened with the operating losses of Amercian Family Homes, LLC ("AFH")
and the capital needs of Interstate Waste Technologies, Inc. ("IWT"), and
Caribe Waste Technologies ("CWT"), or with the Wetlands litigation
discussed below.
After the restructuring, IGC continues to own certain assets that, in
management's view, do not fit ACPT's business plan. These assets include
the Towne Center land in St. Charles, Maryland, which has been the subject
of wetlands litigation, certain single family home lots in the Dorchester
neighborhood, also in St. Charles, Maryland, certain land in Pomfret,
Maryland and in St. Mary's County, Maryland, a 50% interest in a
partnership that owns land in Brandywine, Maryland, all of the shares of
AFH, rights to collect the principal balance of a note in the amount of
$6.77 million payable by a subsidiary of ACPT, as well as fractional
interests in Chastleton Apartment Associates, Coachman's Limited
Partnership, Headen House Associates Limited Partnerhsip, Palmer Apartments
Associates Limited Partnership, Wakefield Terrace Associates Limited
Partnership and Wakefield Third Age Associates Limited Partnerhsip. IGC
retained a portion of the general partner interests in the latter four
partnerships because a complete transfer would have terminated each
respective partnership agreement, IGC intends to transfer the remaining
interest in these partnerships to ACPT in 1999. Until such time as the
partnership interest have been transferred, all beneficial interest related
to these partnerships have been assigned to ACPT.
All of the common stock of IWT and CWT (excluding shares issued as
incentive compensation for employees) is held in a trust (the "CWT Trust")
for the benefit of the IGC Unitholders. IGC capitalized these entities
with $1 million cash, residential lots in the Montclair development in
Prince William County, Virginia, and a note receivable from a third party
in the amount of $1.06 million.
On October 19, 1998, IGC implemented a one-for-five reverse unit split
with respect to the IGC Units (the "Reverse Split"). The purpose of the
Reverse Split was to increase the post-Distribution trading price of IGC
units.
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, 1998, the consolidated group includes Interstate
General Company L.P., St. Charles Associates Limited Partnership, American
Family Homes, LLC., St. Charles Operating LLC, Interstate Waste
Technologies Inc., Caribe Waste Technologies, Inc., 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.
The accompanying consolidated financial statements reflect the
consolidated operations of IGC. No adjustments have been made to these
statements to remove, for periods prior to the distribution, any of the
activities transferred to ACPT.
Sales and Profit Recognition and Cost Capitalization
Sales revenues and profits from community development and homebuilding
activities are recognized at closing only when sufficient down payments
have been obtained, possession and other attributes of ownership have been
transferred to the buyer, and IGC has no significant continuing
involvement.
The costs of acquiring and developing land and homebuilding
construction are allocated to these assets and charged to cost of sales as
the related inventories are sold. IGC's interest costs related to
homebuilding and land assets are allocated to these assets based on their
development stage and relative book value. The portion of interest
allocated to land, finished building lots and homebuilding construction
during the development and construction period is capitalized. Remaining
interest costs are expensed. IGC carries land, development and
homebuilding costs at the lower of cost or net realizable value.
Quarterly, IGC evaluates the carrying value of its long-lived assets
in accordance with Statement of Financial Accounting Standard ("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
assets' 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.
Comprehensive Income
IGC has no items that would be considered comprehensive income that
would require separate reporting in the accompanying consolidated
statements of 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,
---------------------
1998 1997 1996
---- ---- ----
Weighted average units outstanding-basic 2,044 2,058 2,051
Effect of dilutive equivalent units 1 N/A 3
------ ------ ------
Weighted average units outstanding-diluted 2,045 2,058 2,054
====== ====== ======
The effect of dilutive equivalent units is not applicable in 1997
because the Company recorded a net loss for that year. Potentially
dilutive options and warrants are described in Note 7.
Impact of Recently Issued Accounting Standards
During 1998, IGC adopted the provisions of Statement of Financial
Accounting Standard ("SFAS") No. 131 "Disclosures About Segments of an
Enterprise and Related Information". Due to the adoption of SFAS No. 131,
IGC is required to report financial and descriptive information about its
reportable operating segments. This statement requires that a public
business enterprise report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. Reconciliations of
total segment revenues, total segment profit and loss, total segment
assets, and other amounts disclosed for segments to corresponding amounts
in the enterprise's general-purpose financial statements are also required.
In addition, SFAS No. 131 requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information
and those used in the enterprise's general-purpose financial statements,
and changes in the measurement of segment amounts from period to period.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial postition and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liabiltiy or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure to a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. This statement
is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Although currently IGC has no derivative instruments, this
statement would apply to derivative instruments acquired in future periods.
Reclassifications
Certain amounts presented for 1997 in the Consolidated Balance Sheet
and for 1997 and 1996 in the Consolidated Statements of Income and Cash
Flows have been reclassified to conform with the 1998 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,
------------------
1998 1997
---- ----
Total assets $ 33,695 $ 138,782
Total non-recourse debt 42,373 144,595
Total other liabilities 17,423 24,917
Total equity (26,101) (30,730)
Company's investment (874) 8,657
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
---------------------------
1998 1997 1996
---- ---- ----
Total revenue $ 30,246 $ 32,063 $ 34,912
Net (loss) income (1,494) (1,120) 60
Company's recognition of equity
in earnings and developer fees 560 1,402 1,968
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
---------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities $ 3,615 $ 3,746 $ 7,494
Company's share of cash flows from
operating activities 309 1,099 2,915
Operating cash distributions 5,854 10,648 1,620
Company's share of operating cash
distributions 1,911 5,155 501
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
Prior to the distribution of ACPT, the company had interests in 19
partnerships owning 4,563 rental units in 22 apartment complexes. At
December 31, 1998, IGC had interests in 6 partnerships owning 1,000 rental
units in 6 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 receive cash distributions equal to their capital
contributions. Pursuant to the partnership agreements, the general
partners 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.
The properties that the Company held interests in at December 31,
1998, Chastleton Apartments Associates, Coachman's Limited Partnership,
Headen House Associates Limited Partnership, Palmer Apartments Associates
Limited Partnership, Wakefield Terrace Associates Limited Partnership and
Wakefield Third Age Associates Limited Partnership, were placed in service
prior to 1995. As part of the prior reorganization, the Company will
transfer its interest in all of the partnerships except Chastleton
Apartments Associates and a 1% general partner interest in Coachman's
Limited Partnership to ACPT during 1999.
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.
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 were consolidated in the accompanying financial
statements through the distribution date. 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. The
remaining interest after the distribution date is accounted for under the
equity method.
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 held a 50% joint venture interest in Escorial Builders
S.E. until October 5, 1998 at which time it was transferred to ACPT.
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 Company has
continued to disclose this information for comparative purposes and because
of its share of earnings and cash flows during 1998 prior to the
Distribution. The following tables summarize Escorial Builders' financial
information (in thousands):
SUMMARY OF FINANCIAL POSITION: AS OF DECEMBER 31,
------------------
1998 1997
---- ----
Total assets $ 9,396 $ 13,719
Total liabilities 7,107 12,536
Total equity 2,289 1,183
Company's investment -- 591
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
---------------------------
1998 1997 1996
---- ---- ----
Total revenue $ 12,324 $ 2,491 $ --
Net income (loss) 1,107 183 (151)
Company's recognition of equity
in earnings 385 92 (75)
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
---------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities $ 5,043 $(7,326) $ (4,361)
Company's share of cash flows from
operating activities 1,900 (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 and investments in partnerships.
The following table summarizes the indebtedness of IGC at December 31, 1998
and 1997 (in thousands):
Outstanding
Maturity Interest December 31,
Dates Rates* ----------------
From/To From/To 1998 1997
-------- -------- ------- -------
Related to community development:
Recourse debt 04-01-99/ P+1%/ $ 2,633 $35,176
03-21-00 10.0%
Non-recourse debt -- 2,295
Related to rental properties:
Recourse debt -- 969
Non-recourse debt -- 39,101
Related to homebuilding projects:
Recourse debt Demand/ P+1%/ 740 159
08-03-99 P+1.5%
General:
Recourse debt 03-30-99/ P+1.25%/ 722 615
03-05-02 10.99% ------- -------
Total debt $4,095 $78,315
======= =======
*P = Prime lending interest rate.
As of December 31, 1998, the $2,633,000 of recourse debt related to
community development assets is fully collateralized by $12,784,000 of the
community development assets.
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 1998 on its variable rate debt
was 9.789%.
The stated maturities (assuming no accelerations) of the Company's
indebtedness at December 31, 1998 are as follows (in thousands):
1999 22,273
2000 1,811
2001 9
2002 2
Thereafter --
-------
$4,095
=======
The interest costs incurred during 1998, 1997 and 1996 were accounted
for as follows (in thousands):
1998 1997 1996
------ ------- -------
Expensed $2,804 $3,685 $4,269
Capitalized 25 2,931 3,930
------ ------ ------
$2,829 $6,616 $8,199
====== ====== ======
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 respective rental properties.
(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.
IGC's counsel is currently engaged in negotiations with the U.S.
Attorney's office on a possible disposition of the Wetlands litigation that
would require payment of a fine by IGC, a portion of which will be abated
by a contribution of approximately 2 acres of land in Towne Center South
zoned for commercial development, remediation of two parcels, totaling
approximately 73 acres, in St. Charles and IGC's undertaking an
environmental compliance program. IGC would also plead guilty to a single
felony count. All other criminal charges in the indictment against the
Company and its president, James J. Wilson, would be dropped. The
foregoing settlement proposal has not been agreed upon by either IGC or the
U.S. Government, and there are number of issues that are still under
discussion. If agreement is reached, the disposition must be approved by
the court. Management believes that the cost of such a settlement, not
including cost of remediation, would not be materially greater than the
amount ($1.1 million) currently reserved by IGC for the Wetlands
litigation. If such a settlement is reached, a portion of the land in St.
Charles presently encumbered by the Wetlands litigation would become
available for development.
Lead Based Paint Allegations
Subsequent to year end, American Rental Management Company ("ARMC"), a
subsidiary of ACPT, Chastleton Apartments Associates (a housing partnership
in which IGC is the general partner) and Capital Apartments Associates (an
apartment project managed by ARMC) received notification from the U.S.
Department of Justice (the "Department") that they were in violation of the
Residential Lead-Based Paint Housing Reduction Act of 1992 (the "Act").
This allegation was based on the finding by the Department of Housing and
Urban Development ("HUD") that these apartments had failed to make
disclosures of lead-based paint required by the Act. The Act also
authorizes HUD to assess administrative civil penalties, and these
penalties were estimated by the Department in March 1999 to be
approximately $5,492,000. This original notification was addressed to
ARMC, the managing agent at the time. However, the alleged violations
occurred during IGC's tenure as management agent. ARMC and IGC have
requested that ARMC be released from any liability and IGC substituted as
the real party in interest. IGC has agreed with ACPT to accept the
responsibility for any penalties that might be assessed against ARMC. As
the general partner of Chastleton Apartments Associates, IGC is liable for
any obligations of Chastleton and in such capacity would be liable if
Chastleton was unable to pay any fines levied against it. The Company is
actively trying to settle this matter, however there can be no assurance it
will be successful.
Guarantees
The Company is guarantor of $1,477,241 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 Limited Partnership. This
letter of credit is collateralized by certain assets owned by IBC, IBC
affiliates, ACPT and the Company. The Company's assets included in the
collateral consist of rights to a $4,636,000 note receivable from
Brandywine Investment Associates Limited Partnership. IBC is obligated to
obtain the release of IGC and ACPT as a guarantor of the forgoing letter of
credit.
In addition to the letters of credit, IGC shares the general partner
interests in two rental partnerships with IBC, both of which have
experienced cash flow problems in the past. Under the terms of the
partnership agreement, 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.
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:
1998 1997 1996
------ ------ ------
INCOME STATEMENT IMPACT
Community Development - Land Sales
Affiliate of a former director Cash and note sale (A1) $ -- $ -- $2,984
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, former director Cash and note sale (A2) -- 3,000 --
Homebuilding Joint Venture 1,179 367 --
------ ------ ------
$1,179 $3,367 $9,086
====== ====== ======
Cost of Land Sales
Affiliate of a former director $ -- $ -- $1,759
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, former director (A2) -- 1,689 --
Homebuilding Joint Venture 936 303 --
------ ------ ------
$936 $1,992 $5,301
====== ====== ======
Investment in Gaming Properties 549 -- --
====== ====== ======
Management and Other Fees
Unconsolidated subsidiaries $ 1,795 $2,790 $3,993
Affiliate of IBC, general partner of IGC (B1,2,3) 183 343 248
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, and James
J. Wilson, director 118 148 193
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, James J. Wilson,
director, and an Affiliate of IBC, general
partner of IGC 62 68 113
IBC, general partner of IGC -- -- 12
------ ------ ------
$2,158 $3,349 $4,559
====== ====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 42 $ 49 $ 55
Affiliate of a former director 97 263 429
Affiliate of IBC, general partner of IGC 39 120 --
IBC, general partner of IGC -- -- 8
Affiliate of Thomas B. Wilson, director -- 16 17
LDA, Affiliate of ACPT 227 213 242
------ ------ ------
$ 405 $ 661 $ 751
====== ====== ======
1998 1997 1996
---- ---- ----
General and Administrative Expense
Affiliate of IBC, general partner of IGC (D1) $ 246 $ 339 $ 361
Reserve additions and other write-offs-
Affiliate of a former director (A1) -- 388 319
Affiliate of IBC, general partner of IGC (59) 117 69
Unconsolidated subsidiaries 8 213 84
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)
Reimbursement to IBC for IGC's share
of J. Michael Wilson's salary 68 14 --
------ ------ ------
$263 $ 1,154 $ 717
====== ====== ======
Interest Expense 8 -- --
====== ====== ======
<CAPTION
Increase Increase
Balance (Decrease) Balance (Decrease)
December 31, in Reserves December 31, in Reserves
1998 1998 1997 1997
--------- ------------- ------------ ------------
BALANCE SHEET IMPACT:
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $ 9 $ -- $ 552 $ 111
Affiliate of IBC, general partner
of IGC (B1,2,3) -- -- 51 (9)
Affiliate of James Michael Wilson,
director and James J. Wilson,
director -- -- 20 --
------ ----- ------ -----
$ 9 $ -- $ 623 $ 102
====== ===== ====== =====
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, matured
April 1, 1998 (A1) $ -- $ -- $ 980 $ --
Affiliate of a former director, Interest 10%
secured by land payments per month
$27,000, matures
April 1, 1999 (A1) -- -- 2,088 388
Affiliate of IBC, general partner Interest P+1.5%
of IGC, secured by land matured
June 29, 1998 (A2) -- -- 2,520 --
------ ----- ------ -----
$ -- $ -- $5,588 $ 388
====== ===== ====== =====
Other Assets
Receivables - All unsecured
IBC, general partner of IGC Payable from IGC
distributions (D2) $ 5 $ -- $ 681 $ --
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
director -- -- 12 --
IBC, general partner of IGC demand -- -- (39) --
------ ----- ------ -----
$ 5 $ -- $ 654 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Accounts payable
Whitman, Requardt (D3) $ 7 $ -- $ 121 $ --
====== ===== ====== =====
Increase Increase
Balance (Decrease) Balance (Decrease)
December 31, in Reserves December 31, in Reserves
1998 1998 1997 1997
------------ ----------- ------------- ----------
Other Liabilities
Advances, IBC, General partner of IGC $ 383 $ -- $ -- $ --
Accounts payable to ACPT for accounting
support services (D4) 57 -- -- --
------ ----- ------ -----
$ 440 -- -- --
====== ===== ====== =====
(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 at various times 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
which was subsequently recovered through 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 the same terms
provided to other clients.
(4) During the transition period after the Distribution, the Company
received land development, accounting, tax, human resources,
payroll processing, and other miscellaneous administrative support
services from ACPT. After the transition period, ACPT has agreed
to provide human resources, payroll processing and tax services to
IGC on a cost reimbursement basis.
(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.
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 February 1994, IWT was selected by the City of Bridgeport,
Connecticut as its preferred vendor for a regional sludge management
facility and executed a host community agreement. IWT pursued contracts for
waste with surrounding communities but was unable to secure any due to
decisions by the communities to pursue disposal of waste by means of land
fill operations. Therefore IWT wrote-off all costs that were capitalized
specifically to the Bridgeport project at December 31, 1998. The total
amount of deferred costs written-off related to the Bridgeport project was
approximately $1,191,000.
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.
In 1996, CWT proposed to build a solid waste facility on 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, and a revised proposal in August, 1998. Recently, a
representative of the island government has asked for a further revision to
the proposal. CWT management is preparing a revised proposal.
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
responded to the RFP on August 3, 1998. Thereafter, the procurement was
canceled at approximately the time a new governor was elected. CWT is
seeking to learn whether there will be a new procurement or negotiations
will resume with the existing bidders.
At December 31, 1998 and 1997, deferred costs regarding waste
technology, net of reserves or direct write-offs, were $3,326,000 and
$3,024,000, 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 (due to the Distribution, the employees may be
current employees of ACPT), 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,
1998, 249,505 IGC Units are reserved for issuance under both the Director's
and Employees' Plan.
Options
As of December 31, 1998, all outstanding options are fully vested and
exercisable however, 1,280 options expired on January 1, 1999. The
remaining 2,000 options expire on August 1, 2001 and bear an exercise price
of $3.71 per unit.
Plan Exercise Plan Exercise
Weighted Price $3.71 Price $2.31
Average Expiring Expiring
Price 8/1/01 1/1/99
-------- -------------- -----------------
Options outstanding,
December 31, 1996 $3.31 3,200 1,280
------- --------
Options outstanding,
December 31, 1997 3.31 3,200 1,280
Forfeited 3.16 (1,200) --
------- --------
Options outstanding,
October 5, 1998 3.16 2,000 1,280
------- --------
Options outstanding,
December 31, 1998 3.16 2,000 1,280
======= ========
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.
The number of stock appreciation rights outstanding which were
exercisable, but not exercised prior to October 19, 1998, were reduced as a
result of a 1 for 5 reverse unit split. During 1998, 800 rights were
exercised while no rights were either forfeited or cancelled. Compensation
expense recognized by the Company in connection with such awards totaled
approximately $8,000 and $76,000 in 1998 and 1997, respectively. However,
in 1996, $94,000 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 Incentive Plan.
As of December 31, 1998, the dates that the 39,360 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, 1998 12,928 200 2,600 2,000
May 15, 1999 3,232
June 19, 1999 2,600
August 13, 1999 2,000
June 19, 2000 2,600
August 13, 2000 2,000
June 19, 2001 2,600
August 13, 2001 2,000
June 19, 2002 2,600
August 13, 2002 2,000
------ ------ ------ ------
16,160 200 13,000 10,000
====== ====== ====== ======
Warrants
In 1993, warrants to purchase 20,000 IGC 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
warrant agreement requires, in the event of a distribution of units, the
number of warrants would be adjusted so the warrant holder would receive
units in the distributed entity. Therefore, the warrant holder upon
exercise of the warrants would be entitled to shares of ACPT. At the time
of exercise, IGC would be required to purchase the ACPT shares on the open
market at the existing trading price. As there is no way to estimate
whether the warrants would be exercised or when, no adjustments have been
made to the accompanying financial statements for the contingency related
to the purchase of the shares.
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. Due to the Distribution, these warrants have been
replaced with warrants to purchase ACPT shares.
(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 1998, 1997 and 1996 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 1998, 1997 and 1996 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 $208,000, $467,000 and $407,000 for the years ended December 31, 1998,
1997 and 1996, 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 1998, 1997 or 1996.
(9) INCOME TAXES
As a U.S. Company doing business in Puerto Rico, IGC was subject to
Puerto Rico income tax on its Puerto Rico source income. The taxes
reflected below are a result of that liability.
In conjunction with the Distribution the liability to pay income taxes
by IGC for liabilities incurred prior to the Distribution date were assumed
by ACPT. Accordingly the Company recorded a provision for income taxes
through the Distribution date for all taxable income prior to October 5,
1998 and has recorded a receivable from ACPT to reflect the obligation of
ACPT to pay those taxes.
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 Company did not reflect a
tax provision in the fourth quarter as it had no Puerto Rico source income.
The following table reconciles the effective rate solely attributable to
Puerto Rico source income:
December 31,
-------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
(In thousands, except amounts in %)
% of % of % of
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision for income
taxes at the statutory
income tax rate $ 740 29% $ 606 29% $3,634 29%
------ ---- ------ --- ----- ---
$ 740 29% $606 29% $3,634 29%
====== ==== ====== === ====== ===
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------
(In thousands)
Currently payable
United States $ -- $ -- $ --
Puerto Rico 918 1,453 3,005
Deferred (178) (847) 629
------ ------ ------
$ 740 $606 $3,634 (a)
====== ====== ======
(a) 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.
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.
Deferred taxes payable for 1998 were eliminated in the Distribution to
ACPT.
The components of deferred taxes payable for 1997 include the following:
AT DECEMBER 31,
-----------------
1997
-----------
(In thousands)
Tax on amortization of deferred income related
to long-term receivables from partnerships
operating in Puerto Rico $ 556
Tax on equity in earnings of partnerships
operating in Puerto Rico 1,232
Tax on land development costs capitalized for book
purposes but deducted currently for tax purposes 2,465
Tax on interest income, payable when collected 367
Tax on sale to related party deferred for book
purposes but currently taxable (133)
------
$4,487
======
The reconciliation between net (loss) income per books and net taxable
income (loss) is as follows:
December 31,
-------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
(In thousands, except per Unit amounts)
Per Per Per
Total Unit Total Unit Total Unit
------ ------ ------ ---- ----- ------
Net (loss) income
per books $ 518 $ .25 $ (3,585) (1.74) $ 9,845 $ 4.80
Built-in gain allocable
to Predecessors:
Current (3,761) (1.83) (464) (.25) (3,554) (1.75)
Deferred (359) (.17) (529) (.25) (415) (.20)
Difference in income or
losses from subsidiary
partnerships (1,650) (.80) (430) (.20) (4,968) (2.40)
Differences in treatment
of corporate subsidiaries (3,912) (1.90) 18 -- 269 .15
Capitalization of general
and administrative
expenses under the
Uniform Capitalization
Rules 247 .12 49 -- (246) (.10)
Differences in deferred
income (87) (.04) 175 .10 (1,431) (.70)
Difference in cost of sales
due to interest related to
the acquisition of land,
deducted for tax purposes 399 .19 390 .20 513 .25
Deferred income taxes (178) (.09) (847) (.40) 629 .30
Losses from restructuring (211) (.10) (225) (.10) (3,742) (1.80)
Differences in wetland
litigation costs (529) (.26) 860 .40 (1,323) (.65)
Gain on contribution
of assets and liabilities
to corporations (spin-off) 3,000 1.46 -- -- -- --
Other book to tax
reconciling items, none
of which is individually
significant 787 .38 4,918 2.40 3,783 1.85
------ ---- ------- ------ ------- -----
Net taxable income (loss)
per partnership
federal return $(5,736)$(2.79) $ 330 $ .16 $ (640)$ (.25)
====== ==== ======= ====== ======= ======
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.
However, beginning in 1998, IGC could 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 was in
compliance with these requirements at December 31, 1998.
As of December 31, 1998, IGC continues to qualify as a non-tax paying
public partnership. 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. Due to the
restructure IGC plans to continue complying with the 90% test in the
forseeable future. As discussed above, if IGC is not in compliance with
the 90% test in any given taxable year, it will be taxed as a corporation
at statuatory 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, 1998 and 1997, the fair value of long-term debt
instruments were $4,093,000 and $74,253,000, respectively.
(11) QUARTERLY SUMMARY (UNAUDITED)
IGC's quarterly results are summarized as follows:
Year Ended December 31, 1998
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $ 11,958 $11,563 $ 7,057 $ 2,370 $32,948
Income (loss) before
taxes and minority
interest 1,580 1,924 (293) (1,507) 1,704
Net income (loss) 1,047 1,492 (514) (1,507) 518
Basic net income per Unit .50 .72 (.25) (.72) .25
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) .12 .87 (.39) (2.34) (1.74)
Basic earnings per Unit
as revised:
Net income (loss) .12 .60 (.54) (1.92) (1.74)
(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.
(12) SEGMENT INFORMATION
IGC has four reportable segments: AFH, IWT/CWT, U.S. land and other,
and Puerto Rico. U.S. land and other operations include investment in
rental properties, community development, and management services. The
Puerto Rico operations include investment in rental properties, investment
in commercial properties, community development, management services, and
homebuilding through a joint venture.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The following
present the segment information for the years ended December 31, 1998, 1997
and 1996 (in thousands):
Land and Inter-
AFH IWT/CWT Other Puerto Rico Segment Total
---- ------- --------- ----------- ------- -----
1998:
Total Revenues 7,482 -- 15,304 12,168 (2,006) 32,948
Interest income 103 -- 1,681 504 (1,242) 1,046
Interest expense 33 19 2,285 683 (390) 2,630
Depreciation
and amortization 9 10 1,390 110 -- 1,519
Income taxes -- -- -- 740 -- 740
(Loss) Income before income
taxes and minority interest (929) (1,253) 2,185 2,186 (485) 1,704
Net (loss) income (929) (1,253) 1,445 1,740 (485) 518
Total assets 6,697 3,701 39,611 -- (9,745) 40,264
Additions to long lived assets -- -- 5,150 5,015 -- 10,165
1997:
Total revenue 10,716 -- 15,746 10,941 (1,191) 36,212
Interest income 201 -- 776 945 (1,191) 731
Interest expense (19) 20 3,099 1,195 (686) 3,609
Depreciation
and amortization 114 12 1,857 145 -- 2,128
Income taxes -- -- -- 606 -- 606
Income (loss) before income
taxes and minority interest 237 (17) (4,059) 1,769 (470) (2,540)
Net income (loss) 237 (17) (4,212) 877 (470) (3,585)
Total assets 6,524 4,223 104,576 49,791 (20,076) 145,038
Additions to long lived assets -- -- 5,327 2,946 -- 8,273
1996:
Total revenue 12,807 9 17,783 26,112 (2,337) 54,374
Interest income 25 -- 962 323 (404) 906
Interest expense 49 24 3,750 1,489 (1,047) 4,265
Depreciation
and amortization 4 13 1,384 596 -- 1,997
Income taxes -- -- -- 3,634 -- 3,634
Income (loss) before income
taxes, minority interest
and extraordinary item 716 (266) 67 14,916 (716) 14,717
Income (loss) before
extraordinary item 716 (266) (603) 11,646 (716) 10,777
Net income (loss) 716 (266) (1,535) 11,646 (716) 9,845
Total assets 4,007 1,394 107,487 52,672 (16,992) 148,568
Additions to long lived assets -- -- 4,103 6,962 -- 11,065
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Palmer Apartments 4,116 471 4,788 499
Garden Apartments
St. Charles, MD
Brookmont Apartments 2,262 162 2,677 342
Garden Apartments
St. Charles, MD
Headen Apartments 4,780 205 4,765 1,103
Garden Apartments
St. Charles, MD
Terrace Apartments 4,851 497 5,377 575
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 5,806 572 6,421 24
Garden Apartments
St. Charles, MD
Chastleton Apartments 16,287 2,630 23,624 1,059
High Rise Apartments
Washington, D.C.
Office Condo 199 -- 284 --
East Whitiland Township
Pennsylvania
Fredericksburg, VA 169 158 95 5
Model Park 1 Model
Raleigh, NC -- -- 75 6
2 Models
----------- ---------- ----------- ---------
Total Properties $ 38,470 $ 4,695 $ 48,106 $ 3,613
=========== ========== =========== =========
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Palmer Apartments 471 5,287 5,758 4,242
Garden Apartments
St. Charles, MD
Brookmont Apartments 162 3,019 3,181 2,404
Garden Apartments
St. Charles, MD
Headen Apartments 205 5,868 6,073 4,222
Garden Apartments
St. Charles, MD
Terrace Apartments 497 5,952 6,449 4,738
Garden Apartments
St. Charles, MD
Coachman's Landing Apt. 572 6,445 7,017 1,565
Garden Apartments
St. Charles, MD
Chastleton Apartments 2,630 24,683 27,313 7,419
High Rise Apartments
Washington, D.C.
Office Condo -- 284 284 77
East Whitiland Township
Pennsylvania
Fredericksburg, VA 158 100 258 26
Model Park 1 Model
Raleigh, NC -- 81 81 24
2 Models
---------- ----------- ----------- ----------
Total Properties $ 4,695 $ 51,719 $ 56,414 $ 24,717
========== =========== =========== ==========
NOTE TO TOTAL CAPITALIZED COSTS:
THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES
FOR U.S. AND P.R. PROPERTIES IS $ 51,626
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ------------------
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
Headen Apartments 10/30/80 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
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.
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, 1998
(In thousands)
Real Estate at December 31, 1996 $ 246,552
Additions for 1997:
Improvements 1,919
-----------
Deductions for 1997:
Dispositions 2,051
-----------
Real Estate at December 31, 1997 $ 246,420
===========
Additions for 1998:
Improvements 556
-----------
Deductions for 1998:
Distribution to ACPT 190,562
-----------
Real Estate at December 31, 1998 $ 56,414
===========
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(In thousands)
Accumulated depreciation at December 31, 1996 $ 100,422
Additions for 1997:
Depreciation expense 6,408
-----------
Deductions for 1997:
Dispositions 1,944
-----------
Accumulated depreciation at December 31, 1997 $ 104,886
===========
Additions for 1998:
Depreciation expense 1,460
-----------
Deductions for 1998:
Distribution to ACPT 81,629
-----------
Accumulated depreciation at December 31, 1998 $ 24,717
===========
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 65 Chairman, Director and Chief
Executive Officer
Mark Augenblick 52 Director
Donald G. Blakeman 66 Director
Thomas J. Shafer 69 Director
The following are the executive officers of IGC:
Name Age Office
James J. Wilson 65 Chairman and Chief Executive Officer
Mark Augenblick 52 Vice Chairman and President
Benjamin L. Poole 38 Vice-President and Chief Financial
Officer
Francis C. Campbell 58 President, IWT and CWT (wholly owned
subsidiaries of IGC)
Larry F. Liddle 55 Vice-President, IWT and CWT (wholly
owned subsidiaries of IGC)
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 and Shafer currently serve as the
unaffiliated directors. Messr. James J. Wilson serves as the IBC director
designate.
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.
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.
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.
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.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following information is furnished with
respect to the Chief Executive Officer and each of the other three 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 (3)
Chairman & Chief 1998 500,200 -- -- -- 10,064
Executive Officer 1997 498,391 -- -- -- 10,184
1996 499,075 -- -- -- 9,492
Mark Augenblick
Vice-Chairman & 1998 292,508 -- -- -- 0,000
President 1997 -- -- -- -- 0,000
1996 -- -- -- -- 0,000
Benjamin L. Poole (4)
Vice Presidnet & 1998 5,256 -- -- -- 0,000
Chief Financial 1997 -- -- -- -- 0,000
Officer 1996 -- -- -- -- 0,000
Francis Campbell (4)
President 1998 156,450 -- -- -- 9,764
IWT/CWT 1997 150,200 -- -- -- 9,384
1996 132,492 -- -- -- 8,075
Larry Liddle (4)
Vice President 1998 102,700 -- -- -- 5,464
IWT/CWT 1997 103,013 -- -- -- 5,609
1996 86,700 -- -- -- 4,412
Edwin L. Kelly (5)
President & Chief 1998 211,458 -- -- -- 10,064
Operatin Officer 1997 223,827 -- -- -- 10,184
1996 197,367 -- -- -- 9,492
Francisco Arrivi Cros (5)
Senior Vice 1998 211,538 -- -- -- 10,064
President 1997 227,244 100,000 -- -- 9,420
1996 190,200 -- -- -- 9,492
(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) Mr. Wilson entered into a consulting agreement with American
Rental Management Company (a subsidiary of ACPT) providing for
an annual consulting fee of $500,000 per year for a two year
period, then $200,000 per year for an eight year period. Mr.
Wilson's consulting fee is paid directly to IGC who, in turn,
pays Mr. Wilson.
(4) With respect to the above referenced officers, Form 3's were
not filed on a timely basis.
(5) The above referenced individuals were employees of the Company
through September 30, 1998.
Employment Agreements. Mr. Augenblick entered into a four year
employment agreement with the Company commencing March 23, 1998. The
agreement provides for a base salary of $400,000, annual directors' fees
totalling $50,000, shares in Interstate Waste Technologies and Caribe Waste
Technologies, a financing bonus and completion bonus based on the number
and size of waste facilities developed, certain fringe benefits, death or
disability benefits and severance pay for the unexpired term of the
contract.
Mr. Poole entered into a three year employment agreement with the
Company commencing December 7, 1998. The agreement provides for a base
salary of $200,000, a one-time transition payment of $20,000, certain
fringe benefits, death or disability benefits, and severance pay for the
unexpired term of the contract.
Mr. Campbell entered into a one year employment agreement with the
Company commencing October 1, 1998. The agreement provides for a base
salary of $175,000, a financing bonus and completion bonus based on the
number and size of waste facilities developed, certain fringe benefits,
death or disability benefits, and severance pay for the unexpired term of
the contract.
Mr. Liddle entered into a one year employment agreement with the
Company commencing October 1, 1998. The agreement provides for a base
salary of $110,000, a financing bonus and completion bonus based on the
number and size of waste facilities developed, certain fringe benefits,
death or disability benefits, and severance pay for the unexpired term of
the contract.
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.
During 1998, the directors' fees totaled $42,067 of which $39,200 were
unpaid as of December 31, 1998.
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 (may
include current employees of ACPT), 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. There were no unit appreciation rights granted during
1998.
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 1998, 1997 or 1996.
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 1998, 1997 and 1996 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) 6,135 .3
Mark Augenblick -- --
Benjamin L. Poole -- --
Francis C. Campbell -- --
Larry Liddle -- --
Donald G. Blakeman -- --
All executive officers of IGC
and directors of IGMC as a group 6,135 .3
Bessemer Interstate Corporation
245 Peachtree Center Avenue #804
Atlanta, GA 30303 104,442 5.08
Interstate Business Corporation
222 Smallwood Village Center
St. Charles, MD 20602 616,103 29.97
Wilson Securities Corporation
222 Smallwood Village Center
St. Charles, MD 20602 315,296 15.34
(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.
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, 1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Changes in Partners' Capital for
the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements for the years
ended December 31, 1998, 1997 and 1996
2. Financial Statement Schedules
The following financial statements schedules are contained
herein:
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 Exhibit 10(g) to 1997 10-K
General Company L.P. and Mark Augenblick
dated March 11, 1998
(h) Employment Agreement between Interstate Exhibit 10(h) to 1998 10-K
General Company L.P. and Benjamin L. Poole
dated December 7, 1999
(i) Employment Agreement between Interstate Exhibit 10(i) to 1998 10-K
General Company L.P. and Larry F. Liddle
dated October 1, 1998
(j) Employment Agreement between Interstate Exhibit 10(i) to 1998 10-K
General Company L.P. and Francis Campbell
dated October 1, 1998
(k) 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
(l) Unit Incentive Plan for Directors, Exhibit 10(i) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(m) Unit Incentive Plan for Employees, Exhibit 10(j) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(n) 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
(o) 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
(p) 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
(q) Third Amendment to Second Amended and Exhibit 10(kk) to
Restated Certificate and Agreement of 1989 10-K
Interstate General Properties Limited
Partnership dated February 16, 1990
(r) 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
(s) 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
(t) Sixth Amendment to Second Amended and Exhibit 10(a) to Form 10-Q
Restated Certificate and Agreement of for the quarter ended
Limited Partnership of Interstate March 31, 1998
General Properties Limited Partnership
S.E. dated as of April 1, 1998
(u) Partnership agreement for Fox Chase Exhibit 10(p) to Form S-1
Apartments General Partnership as
amended January 29, 1986
(v) Amendment to Partnership Agreement for Exhibit 10(mm) to Form S-1
Fox Chase Apartments General Partnership
dated February 10, 1987
(w) 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
(x) Partnership agreement for Wakefield Third Exhibit 10(r) to Form S-1
Age Associates Limited Partnership dated
July 1, 1985
(y) Partnership agreement for Wakefield Exhibit 10(t) to Form S-1
Terrace Associates Limited Partnership
dated July 1, 1985
(z) Partnership agreement for Headen House Exhibit 10(v) to Form S-1
Associates Limited Partnership dated
July 1, 1985
(aa) Partnership agreement for Palmer Exhibit 10(w) to Form S-1
Apartments Associates Limited
Partnership dated July 1, 1985
(bb) Partnership agreement for Chastleton Exhibit 10(dd) to Form S-1
Apartments Associates dated May 1, 1986
(cc) Partnership agreement for New Forest Exhibit 10(ff) to Form S-1
Apartments General Partnership dated
November 18, 1986
(dd) First Amendment to the General Exhibit 10(ii) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
February 24, 1987
(ee) Second Amendment to the General Exhibit 10(hh) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
December 19, 1988
(ff) 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
(gg) 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
(hh) Management Services Agreements between Exhibit 10(k) to Form S-1
Interstate General Properties Limited
Partnership and National General
Corporation (3 separate agreements)
(ii) 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
(jj) 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
(kk) 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
(ll) 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
(mm) 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
(nn) 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
(oo) 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
(pp) 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
(qq) 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
(rr) 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
(ss) 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
(tt) 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
(uu) 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
(vv) 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
(ww) Store Lease between Interstate General Exhibit 10(fff) to
Business Corporation and Smallwood 1991 10-K
Village Associates Limited Partnership
dated April 1, 1988
(xx) 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
(yy) 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
(zz) 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
(aaa) 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
(bbb) 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
(ccc) 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
(ddd) 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
(eee) Fourth Amendment to Interstate General Exhibit 10(yyyy) to
Company L.P. Retirement Plan, dated 1992 10-K
July 1, 1992
(fff) 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
(ggg) Agreement Regarding Partnership Interest Exhibit 10(nn) to Form S-1
in Chastleton Apartment Associates
dated January, 1987
(hhh) 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
(iii) 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
(jjj) 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
(kkk) 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
(lll) 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
(mmm) 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
(nnn) 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
(ooo) 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
(ppp) 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
(qqq) 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
(rrr) 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
(sss) 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
(ttt) 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
(uuu) 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")
(vvv) 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.
(www) 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
(xxx) 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.
(yyy) 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
(zzz) 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.
(aaaa) 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
(bbbb) 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
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, there-unto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
By: Interstate General Management
Corporation
Managing General Partner
Dated: April 1, 1999 By: /s/ James J. Wilson
--------------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Dated: April 1, 1999 By: /s/ Mark Augenglick
--------------------- -----------------------------
Mark Augenblick
Vice Chairman, President
and Director
Dated: April 1, 1999 By: /s/ Benjamin L. Poole
--------------------- -----------------------------
Benjamin L. Poole
Vice President and Chief
Financial Officer
Dated: April 1, 1999 By: /s/ Paula S. Biggs
--------------------- -----------------------------
Paula S. Biggs
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ------------------------- ------
/s/ James J. Wilson April 1, 1999
- ------------------------- Chairman, Chief Executive ---------------
James J. Wilson Officer and Director
/s/ Mark Augenblick April 1, 1999
- ------------------------- President, Vice Chairman ---------------
Mark Augenblick and Director
/s/ Benjamin L. Poole April 1, 1999
- ------------------------- Vice President and Chief ---------------
Benjamin L. Poole Financial Officer
/s/ Paula S. Biggs April 1, 1999
- ------------------------- Treasurer ---------------
Paula S. Biggs
Signature Title Date
--------- ------------------------- ------
/s/ Donald G. Blakeman April 1, 1999
- ---------------------- Director ---------------
Donald G. Blakeman
/s/ Thomas J. Shafer April 1, 1999
- ---------------------- Director ---------------
Thomas J. Shafer
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10. Material contracts
(h) Employment Agreement between Interstate General Company L.P.
and Benjamin L. Poole dated December 7, 1998.
(i) Employment Agreement between Interstate General Company L.P.
and Larry F. Liddle dated October 1, 1998.
(j) Employment Agreement between Interstate General Company L.P.
and Francis Campbell dated October 1, 1998.
21. List of Subsidiaries of Interstate General Company L.P.
27. Financial Data Schedule