SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
Commission File Number: 0-19989
FM Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
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
---
On September 30, 1996, there were issued and outstanding 14,285,770
shares of the registrant's Common Stock, par value $0.01 per share.
1
FM PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 6
Report of Independent Public Accountants 7
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8
Part II. Other Information 10
Signature 11
Exhibit Index E-1
2
FM PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FM PROPERTIES INC.
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
---------- ----------
(In Thousands)
ASSETS
Current assets:
Cash and short-term investments $ 1,789 $ 2,282
Accounts receivable and other 2,403 4,616
Income tax receivable 526 2,693
---------- ----------
Total current assets 4,718 9,591
Real estate and facilities 123,219 180,040
Other assets 6,398 5,172
---------- ----------
Total assets $ 134,335 $ 194,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 2,726 $ 8,100
Current portion of long-term debt 63,940 -
---------- ----------
Total current liabilities 66,666 8,100
Long-term debt, less current portion - 121,294
Other liabilities 7,080 5,886
Stockholders' equity 60,589 59,523
---------- ----------
Total liabilities and
stockholders' equity $ 134,335 $ 194,803
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FM PROPERTIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues $ 34,461 $ 25,497 $ 72,054 $ 41,882
Costs and expenses:
Cost of sales,
including
depreciation and
amortization 31,866 25,607 66,624 42,650
General and
administrative
expenses 558 872 1,869 3,680
---------- ---------- ---------- ----------
Total costs and
expenses 32,424 26,479 68,493 46,330
---------- ---------- ---------- ----------
Operating income
(loss) 2,037 (982) 3,561 (4,448)
Interest
expense, net (1,193) (226) (3,085) (492)
Other income, net 90 3 64 7
---------- ---------- ---------- ----------
Income (loss)
before income
tax benefit 934 (1,205) 540 (4,933)
Income tax benefit 526 - 526 -
---------- ---------- ---------- ----------
Net income (loss) $ 1,460 $ (1,205) $ 1,066 $ (4,933)
========== ========== ========== ==========
Net income (loss)
per share $.10 $(.08) $.07 $(.35)
==== ===== ==== =====
Average shares
outstanding 14,395 14,286 14,364 14,286
====== ====== ====== ======
The accompanying notes are an integral part of these financial
statements.
4
FM PROPERTIES INC.
STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
------------------------
1996 1995
---------- ----------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 1,066 $ (4,933)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,465 1,842
Cost of real estate sales 59,974 37,700
(Increase) decrease in working capital:
Accounts receivable and other 2,222 2,758
Accounts payable and accrued
liabilities (3,216) (1,883)
Other (30) 4,176
---------- ----------
Net cash provided by operating
activities 61,481 39,660
---------- ----------
Cash flow from investing activities:
Real estate and facilities (4,620) (22,129)
---------- ----------
Net cash used in investing
activities (4,620) (22,129)
---------- ----------
Cash flow from financing activities:
Proceeds of debt 70,000 8,000
Repayment of debt (127,354) (24,331)
---------- ----------
Net cash used in financing
activities (57,354) (16,331)
---------- ----------
Net increase (decrease) in cash
and short-term investments (493) 1,200
Cash and short-term investments
at beginning of year 2,282 1,200
---------- ----------
Cash and short-term investments
at end of period $ 1,789 $ 2,400
========== ==========
The accompanying notes are an integral part of these financial
statements.
5
FM PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. INTEREST COSTS
Interest expense excludes capitalized interest of $0.4 million and
$2.9 million in the third quarter of 1996 and 1995, respectively, and
$2.7 million and $9.1 million for the first nine months of 1996 and
1995, respectively.
2. INCOME TAXES
During the third quarter of 1996, a $0.5 million tax benefit was
recognized from the carryback of the current year's estimated tax loss
to recoup taxes paid in previous years.
--------------------
Remarks
The information furnished herein should be read in conjunction with FM
Properties Inc. financial statements contained in its 1995 Annual
Report to stockholders included in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the
results for the period. All such adjustments are, in the opinion of
management, of a normal recurring nature.
6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of FM Properties Inc.:
We have reviewed the accompanying condensed consolidated balance sheet
of FM Properties Inc. (the Company), a Delaware Corporation, as of
September 30, 1996, and the related condensed statements of operations
for the three-month and nine-month periods ended September 30, 1996
and 1995, and the condensed statements of cash flow for the nine-month
periods ended September 30, 1996 and 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of FM Properties Inc. as of
December 31, 1995, and the related statements of operations,
stockholders' equity and cash flow for the year then ended (not
presented herein), and in our report dated January 23, 1996, based on
our audit, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1995, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 22, 1996
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
OVERVIEW
FM Properties Inc. (FMPO) operates through its 99.8 percent ownership
of FM Properties Operating Co. (the Partnership), with 0.2 percent
owned by Freeport-McMoRan Inc. (FTX) which serves as the managing
general partner.
Throughout 1996, FMPO has capitalized on the enhanced sales
opportunities at its Austin, Texas property holdings brought about by
the positive legislative and judicial developments which occurred
during 1995. FMPO's third-quarter 1996 revenues from its Austin area
properties totaled $25.9 million, including the sale of the Barton
Creek Country Club and Conference Resort for $25.0 million and the
sale of a 24 acre undeveloped tract for $0.7 million. Several
additional tracts within the Barton Creek Development are currently
under contract and are scheduled to close during the remainder of 1996
and early 1997. In addition to the sales in the Austin area, third-
quarter 1996 revenues also include the sale of 22 acres of undeveloped
commercial property, located in the Dallas area, for $5.7 million.
The sale of undeveloped tracts to sub-developers is an integral part
of FMPO's business strategy. These transactions provide funds to
reduce debt, lower future carrying and development costs and establish
values for FMPO's remaining properties.
The State Court of Appeals in Austin recently overturned the
favorable District Court ruling which invalidated the _SOS_ ordinance
in Austin; however, the appeals court upheld the lower court's
favorable holding with respect to the interpretation of certain
grandfather rights for platted land. A decision will be made in the
near future with respect to an appeal of the case. This ruling is not
expected to adversely affect any of FMPO's property holdings. The
City of Austin's regulatory authority was, in effect, superseded by
Texas state legislation enacted during 1995.
Included in this legislation was the creation of the Southwest
Travis County Water District (District) which encompasses the land
owned by Circle C Land Corp. (Circle C), a wholly owned subsidiary.
In October 1996, the City of Austin filed a petition for declaratory
judgment asserting that the legislation that created the District is
unconstitutional. The District has indicated that it intends to
defend itself against the City's claim. None of FMPO's land other
than the land owned by Circle C is included in the District.
During the third quarter of 1996, FMPO reached an agreement to
sell the remaining assets of Circle C for $34.0 million. The
remaining assets of Circle C consist of approximately 1,000 acres of
undeveloped commercial and multi-family property within the Circle C
Ranch development near Austin, Texas. FMPO received a $1.0 million
non-refundable cash deposit, with the balance of the purchase price to
be received $30.0 million in cash and $3.0 million in a secured note
at closing which is scheduled for the first quarter of 1997. The
completion of this sale is however, subject to the ability of the
purchaser to secure financing which may be affected by the recent
litigation discussed in the preceding paragraph.
RESULTS OF OPERATIONS
Third Quarter Nine Months
--------------- --------------
1996 1995 1996 1995
------ ------ ----- -----
(In Millions)
Revenues:
Developed
properties $28.1 $21.0 $40.4 $32.4
Undeveloped
properties and
other 6.4 4.5 31.7 9.5
--- --- ---- ---
Total revenues 34.5 25.5 72.1 41.9
---- ---- ---- ----
Operating income
(loss) 2.0 (1.0) 3.6 (4.4)
Net income (loss) 1.5 (1.2) 1.1 (4.9)
Revenues from developed properties for the 1996 periods include
$25.0 million from the sale of the Barton Creek Country Club and
Conference Resort, as well as $3.1 million and $15.4 million from the
sale of 57 and 339 single-family homesites during the third-quarter
and nine-month periods of 1996, respectively. Revenues from developed
properties for the 1995 periods consisted of $15.8 million from the
sale of the Circle C residential properties, as well as $5.2 million
and $16.6 million from the sale of 101 and 343 single-family homesites
during the third-quarter and nine-month periods of 1995, respectively.
8
Revenues from undeveloped properties for the third-quarter and nine-
month periods of 1996 represented the sale of 46 and 649 undeveloped
acres, respectively, compared with the sale of 101 and 303 undeveloped
acres for the year-ago periods.
General and administrative expenses declined to $0.6 million and
$1.9 million for the third-quarter and nine-month periods of 1996,
respectively, compared with $0.9 million and $3.7 million for the 1995
periods, continuing to reflect the benefit of steps taken in the third
quarter of 1995 to reduce costs.
Interest expense for the 1996 periods increased because of
reduced capitalized interest, partially offset by lower average debt
levels and interest rates.
During the third quarter of 1996, FMPO recognized a $0.5 million
tax benefit for the carryback of the current year's estimated tax loss
to recoup federal income taxes paid in previous years.
FMPO's current business strategy includes the sale of larger
undeveloped tracts of land. These transactions by their nature can
cause significant variations in FMPO's revenues and operating income
during a particular accounting period. As a result, significant
fluctuations in FMPO's future operating results can be expected in any
given quarter which may cause future operating losses to be incurred.
Consequently, past operating results are not necessarily indicative of
trends in profitability.
CAPITAL RESOURCES AND LIQUIDITY
During the first nine months of 1996, FMPO generated operating cash
flow of $61.5 million which, after funding capital additions, enabled
FMPO to reduce its debt from the beginning of the year by $57.4
million. With the cash proceeds from future property sales, including
the potential sale of the remaining Circle C properties (see above),
the Partnership may be able to reduce its debt further prior to its
1997 principal payment requirements ($29.1 million due February 1997
and $34.8 million due June 1997). These reductions are dependent on
the future cash flow from the Partnership's assets, which is subject
to numerous economic and other factors, including factors beyond
FMPO's control. FMPO is presently engaged in negotiations with its
commercial banks and is seeking to extend the maturities of its debt.
There can be no assurance that the Partnership will generate cash flow
or obtain funds sufficient to make required interest and principal
payments.
FMPO continues to seek a permanent financial restructuring, which
may include obtaining a new bank credit facility or issuing new debt
or equity investments. An objective in arranging new financing for
FMPO will be to eliminate the guarantees of its debt by FTX and
Freeport-McMoRan Copper & Gold Inc. While FMPO believes any new
financing will be beneficial to the long-term interests of its
shareholders, an elimination of the guarantees would be expected to
increase financing costs significantly. The extent of any
refinancing, including any need to sell properties in connection
therewith, will determine the future net cash flow available to FMPO
to recover its investment in real estate assets.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
9
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(b) During the quarter for which this report is filed, the
registrant filed two Current Reports on Form 8-K, dated August 22,
1996 and September 12, 1996, reporting information under Item 5.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FM PROPERTIES INC.
By: /s/ William J. Blackwell
------------------------
William J. Blackwell
Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 8, 1996
11
FM PROPERTIES INC.
EXHIBIT INDEX
-------------
Sequentially
Numbered
Number Description Page
- ------ ----------- ----
10.1 Purchase and Sale Agreement between FM
Properties Operating Co. and Barton Creek
Resort & Clubs, Inc. executed August 21, 1996.
10.2 Purchase and Sale Agreement between Circle C
Land Corp. and Phoenix Holdings, Ltd. dated
May 30, 1996, the first addendum to the purchase
and sale agreement dated May 30, 1996 and the
second addendum to the purchase and sale
agreement dated September 10, 1996.
27.1 Financial Data Schedule
E-1