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 March 31, 1997
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 March 31, 1997, 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 3
Statements of Cash Flow 3
Notes to Financial Statements 4
Remarks 5
Report of Independent Public Accountants 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Part II. Other Information 9
Signature 10
Exhibit Index E-1
2
FM PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31,
1997 1996
---------- ----------
(In Thousands)
ASSETS
Current assets:
Accounts receivable and other $ 132 $ 56
Income tax receivable 503 503
Amounts receivable from the
Partnership 4,265 4,371
---------- ----------
Total current assets 4,900 4,930
Investment in the Partnership
(Note 1) 58,057 56,055
---------- ----------
Total assets $ 62,957 $ 60,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 1,386 $ 1,386
Stockholders' equity 61,571 59,599
---------- ----------
Total liabilities and
stockholders' equity $ 62,957 $ 60,985
========== ==========
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
-----------------------------
1997 1996
----------- ------------
(In Thousands,Except Per Share Amounts)
Income (loss) from the Partnership
(Note 1) $ 2,002 $ (865)
General and administrative expenses (30) (29)
---------- ----------
Operating income (loss) 1,972 (894)
Income tax (provision) benefit - -
---------- ----------
Net income (loss) $ 1,972 $ (894)
========== ==========
Net income (loss) per share $.14 $(.06)
==== =====
Average shares outstanding 14,435 14,286
====== ======
FM PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Three Months Ended March 31,
-----------------------------
1997 1996
----------- -------------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 1,972 $ (894)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Excess of equity in (income)
losses of the Partnership over
distributions received (2,002) 865
Decrease in working capital 30 29
---------- ----------
Net cash provided by operating
activities - -
Cash flow from investing activities - -
Cash flow from financing activities - -
---------- ----------
Net increase in cash and cash
equivalents - -
Cash and cash equivalents at
beginning of year - -
---------- ----------
Cash and cash equivalents at
end of period $ - $ -
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FM PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
FM Properties Inc. (FMPO) operates through its 99.8 percent interest
in FM Properties Operating Co. (the Partnership), with 0.2 percent
owned by the Managing General Partner, Freeport-McMoRan Inc. (FTX).
FTX guarantees the Partnership's debt. Because of the rights that FTX
retains in connection with its guarantee of the Partnership's debt,
FMPO reflects its interest in the Partnership under the equity basis
of accounting. However, if the FTX guarantee is eliminated, FMPO will
have the authority to remove FTX as the Managing General Partner and
FTX's rights with respect to the Partnership and FMPO would be
eliminated. FMPO has no significant operations or source of funds
other than its interest in the Partnership. The Partnership's
financial statements follow:
BALANCE SHEETS
March 31, December 31,
1997 1996
----------- -----------
ASSETS (In Thousands)
Current assets:
Cash and cash equivalents $ 6,403 $ 2,108
Accounts receivable and other 5,412 4,133
---------- ----------
Total current assets 11,815 6,241
Real estate and facilities, net 108,848 118,029
Other assets 6,539 5,922
---------- ----------
Total assets $ 127,202 $ 130,192
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
liabilities $ 3,754 $ 5,754
Amounts due to FMPO 4,265 4,371
Short-term debt 54,290 -
---------- ----------
Total current liabilities 62,309 10,125
Long-term debt - 58,325
Other liabilities 6,719 5,574
Partners' capital 58,174 56,168
---------- ----------
Total liabilities and partners'
capital $ 127,202 $ 130,192
========== ==========
STATEMENTS OF OPERATIONS
Three Months Ended March 31,
---------------------------
1997 1996
---------- ------------
(In Thousands)
Revenues $ 15,070 $ 13,829
Costs and expenses:
Cost of sales 11,783 13,313
General and administrative expenses 767 606
---------- ----------
Total costs and expenses 12,550 13,919
---------- ----------
Operating income (loss) 2,520 (90)
Interest expense, net (536) (734)
Other income (expense), net 22 (41)
---------- ----------
Net income (loss) $ 2,006 $ (865)
========== ==========
4
STATEMENTS OF CASH FLOW
Three Months Ended
March 31,
-----------------------
1997 1996
---------- ----------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 2,006 $ (865)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cost of real estate sales and
depreciation and amortization 11,895 12,128
Increase in working capital:
Accounts receivable and other (1,896) (1,615)
Accounts payable and accrued
liabilities (961) (3,553)
---------- ----------
Net cash provided by operating
activities 11,044 6,095
---------- ----------
Cash flow from investing activities:
Real estate and facilities (a) (2,714) (2,606)
---------- ----------
Net cash used in investing
activities (2,714) (2,606)
---------- ----------
Cash flow from financing activities:
Proceeds from debt - 1,000
Repayment of debt (4,035) (6,000)
---------- ----------
Net cash used in financing
activities (4,035) (5,000)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 4,295 (1,511)
Cash and cash equivalents at
beginning of year 2,108 2,282
---------- ----------
Cash and cash equivalents at
end of period $ 6,403 $ 771
========== ==========
a. Includes capitalized interest of $0.5 million in the 1997 period
and $1.6 million in the 1996 period.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (FAS 128), "Earnings Per Share", which simplifies
the computation of earnings per share. FAS 128 is effective for
financial statements issued for periods ending after December 15, 1997
and requires restatement for all prior period earnings per share data
presented. Earnings per share calculated in accordance with FAS 128
would be unchanged for the periods presented.
--------------------
Remarks
The information furnished herein should be read in conjunction with
FMPO's financial statements contained in its 1996 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 periods. All such adjustments are, in the opinion of
management, of a normal recurring nature.
5
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
March 31, 1997, and the related condensed statements of operations and
cash flow for the three-month periods ended March 31, 1997 and 1996.
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, 1996, 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 21, 1997, 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, 1996, 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
April 22, 1997
6
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 interest
in FM Properties Operating Co. (the Partnership), with 0.2 percent
owned by the Managing General Partner, Freeport-McMoRan Inc. (FTX).
The Partnership's most significant investments are located near
Austin, Texas and include approximately 3,300 acres of primarily
undeveloped land in and around the Barton Creek Community and
approximately 1,000 acres of undeveloped commercial and multi-family
property in the Circle C development. The Partnership is also engaged
in the development and marketing of real estate in the Dallas, Houston
and San Antonio, Texas areas.
FTX guarantees the Partnership's debt. Because of the rights
that FTX retains in connection with its guarantee of the Partnership's
debt, FMPO reflects its interest in the Partnership under the equity
basis of accounting. However, if the FTX guarantee is eliminated,
FMPO will have the authority to remove FTX as the Managing General
Partner and FTX's rights with respect to the Partnership and FMPO
would be eliminated.
RESULTS OF OPERATIONS
First Quarter
------------------------
1997 1996
---------- ----------
(In Thousands)
Income (loss) from the Partnership $ 2,002 $ (865)
Operating income (loss) 1,972 (894)
Net income (loss) 1,972 (894)
FMPO has no significant operations or source of funds other than
its interest in the Partnership. Accordingly, the following
discussion and analysis addresses the results of operations and the
capital resources and liquidity of the Partnership. The
Partnership's summary operating results follow:
First Quarter
------------------------
1997 1996
---------- ----------
(In Thousands)
Revenues:
Developed properties $ 3,839 $ 4,277
Undeveloped properties and other 11,231 9,552
---------- ----------
Total revenues 15,070 13,829
---------- ----------
Operating income (loss) 2,520 (90)
Net income (loss) 2,006 (865)
Revenues from developed properties during the 1997 quarter
represented the sale of 61 single-family homesites located in the
Austin and Dallas, Texas areas. First-quarter 1997 revenues from
undeveloped properties represented two separate sales of undeveloped
tracts within the Barton Creek development totaling 98 acres for $5.2
million, the sale of a 21 acre undeveloped commercial tract in the
Dallas area for $5.8 million and the sale of 7 undeveloped acres in
the Austin area for approximately $0.2 million. First-quarter 1996
revenues included the sale of 76 single-family homesites and the sale
of 156 acres of undeveloped commercial and multi-family tracts.
In January 1997, an investor group was unable to complete the
previously announced agreement for the purchase of FMPO's Circle C
assets for $34.0 million and the agreement expired. The Partnership
retained a $1.0 million non-refundable cash deposit and has no further
obligation to the investor group. FMPO is proceeding with developing
and marketing the Circle C properties.
Interest costs incurred by the Partnership totaled $1.0 million
in the first quarter of 1997 compared with $2.3 million during the
first quarter of 1996, decreasing because of lower average debt levels
and interest rates.
FMPO's business strategy includes the sale of larger undeveloped
tracts of land. These transactions by their nature result in
significant variations in operating results between accounting
periods, which may result in future operating losses. Consequently,
past operating results are not necessarily indicative of future trends
in profitability. The Partnership continues to develop lots in
Austin, Dallas and Houston and evaluate the development of income
producing properties on certain of its tracts which it believes have
the potential to add significant value to the Partnership.
7
CAPITAL RESOURCES AND LIQUIDITY
During the first three months of 1997, the Partnership generated
operating cash flow of $11.0 million which, after funding capital
additions, enabled the Partnership to reduce its debt from the
beginning of the year by $4.0 million to $54.3 million. In addition,
the Partnership's cash balance at March 31, 1997 increased by $4.3
million because of a large sale which closed at quarter's end. This
cash balance was used to further reduce debt in the second quarter of
1997.
The Partnership amended its credit agreements in late 1996,
extending maturities until February 1998, lowering interest rates and
eliminating the debt guarantee of Freeport-McMoRan Copper & Gold Inc.,
leaving FTX as the sole guarantor. The future performance and the
financial viability of FMPO are dependent on the future cash flows
from the Partnership's assets. These cash flows will be significantly
affected by future real estate values and interest rate levels. 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. An objective in arranging new financing will be to
eliminate FTX's guarantee of the Partnership's debt. If the FTX
guarantee were eliminated, FMPO would have the authority to remove FTX
as Managing General Partner of the Partnership and dissolve the
Partnership, thereby enabling FMPO to manage its business without the
current restrictions imposed by its contractual relationship with FTX.
A new financing that would allow FMPO to establish itself as a stand-
alone company by eliminating the FTX guarantee may increase FMPO's
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 the Partnership.
During 1996, the State Court of Appeals overturned the favorable
1995 District Court ruling which invalidated the City of Austin "SOS"
ordinance; however, the appeals court upheld the lower court's
favorable ruling with respect to the interpretation of certain
grandfathered rights for previously platted land. A significant
portion of the Partnership's Austin area properties was previously
platted and is expected to benefit from these grandfathered rights.
An application for Writ of Error was filed with the Texas Supreme
Court in January 1997. An unfavorable final judgment is not expected
to adversely affect the Partnership's property holdings because of its
grandfathered rights and because the Partnership's property was
removed from the jurisdiction of the City pursuant to the water
quality protection zone at Barton Creek and the Southwest Travis
County Water District (the District) at Circle C, both of which were
authorized by Texas state legislation enacted in 1995.
In October 1996, the City filed a petition for declaratory
judgment asserting that the legislation that created the District is
unconstitutional. The District is defending itself against the City's
claim. Approximately 1,000 acres owned by Circle C are included in
the District. None of the Partnership's other properties are in the
District.
During February 1997, FMPO filed a petition for declaratory
judgment against Phoenix Holdings, Ltd. in order to secure its
ownership of certain Municipal Utility District receivables that
pertain to existing infrastructure which serves the Circle C
development. A favorable outcome would result in significant refunds
of prior capital expenditures to the Partnership over the next several
years.
In April 1997, the U.S. Department of Interior (DOI) listed the
Barton Springs Salamander as an endangered species after a federal
court overturned a March 1997 decision by the DOI not to list the
Barton Springs salamander based on a conservation agreement between
the State of Texas and federal agencies. The listing of the Barton
Springs salamander does not affect the Partnership's Barton Creek and
Lantana properties because of its 10A permit obtained in 1995. The
Partnership's Circle C properties could, however, be affected,
although the extent of any impact cannot be determined at this time.
Management's discussion and analysis contains certain forward-
looking statements. Important factors that might cause future results
to differ from these projections are described in more detail under
the heading "Cautionary Statement" in FMPO's Form 10-K for the year
ended December 31, 1996.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
8
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) No reports on Form 8-K were filed by the registrant during
the quarter for which this report is filed.
9
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
Vice President & Controller
(authorized signatory and
Principal Accounting Officer)
Date: May 1, 1997
10
FM PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
- --------
2.1 Distribution Agreement dated as of June 10, 1992 among FTX,
the Company and the Partnership. Incorporated by reference to Exhibit
2.1 to the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1992 (the "1992 Form 10-K").
3.1 Amended and Restated Certificate of Incorporation of the
Company. Incorporated by reference to Exhibit 3.1 to the 1992 Form
10-K.
3.2 By-laws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 to the 1992 Form 10-K.
4.1 The Company's Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated by reference
to Exhibit 4.1 to the 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between the
Company and Mellon Securities Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 4.2 to the 1992 Form 10-K.
4.3 Amended and Restated Credit Agreement dated as of December
20, 1996 (the "Credit Agreement") among FTX, the Partnership, certain
banks, and The Chase Manhattan Bank, as Administrative Agent, FTX
Collateral Agent and Documentation Agent. Incorporated by reference
to Exhibit 4.3 to the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1996 (the "1996 Form 10-K").
4.4 Second Amended and Restated Note Agreement dated as of June
30, 1995, among FTX, FCX, the Partnership, Chemical Bank, and Hibernia
National Bank, individually and as agent. Incorporated by reference
to Exhibit 4.4 to the Quarterly Report on Form 10-Q of FTX for the
quarter ended September 30, 1995.
4.5 First Amendment to Second Amended and Restated Note
Agreement dated as of December 31, 1995, among FTX, FCX, the
Partnership, Chemical Bank and Hibernia National Bank, individually
and as agent. Incorporated by reference to Exhibit 10.18 to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31, 1995.
4.6 Second Amendment to Second Amended and Restated Note
Agreement dated as of December 20, 1996, among FTX, the Partnership,
The Chase Manhattan Bank and Hibernia National Bank, individually and
as agent. Incorporated by reference to Exhibit 4.6 to the 1996 Form
10-K.
4.7 Credit Agreement dated as of December 20, 1996, between FTX
and the Partnership. Incorporated by reference to Exhibit 4.7 to the
1996 Form 10-K.
4.8 Amended and Restated Credit Agreement dated as of December
20, 1996 between Circle C Land Corp. ("Circle C") and Texas Commerce
Bank National Association ("TCB"). Incorporated by reference to
Exhibit 4.8 to the 1996 Form 10-K.
27.1 Financial Data Schedule
11
5
0000885508
FM PROPERTIES INC.
1,000
3-MOS 3-MOS
DEC-31-1997 DEC-31-1996
MAR-31-1997 MAR-31-1996
0 0
0 0
0 0
0 0
0 0
4,900 2,759
0 0
0 0
62,957 60,004
0 0
0 0
0 0
0 0
143 143
61,248 58,486
62,957 60,004
0 0
0 0
0 0
0 0
0 0
0 0
0 0
1,972 (894)
0 0
1,972 (894)
0 0
0 0
0 0
1,972 (894)
.14 (.06)
0 0
