SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From .......... to ..........
Commission file number 0-19989
FM Properties Inc.
(Exact name of Registrant as specified in Charter)
DELAWARE 72-1211572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 Poydras Street
New Orleans, Louisiana 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 582-5300
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $0.01 per Share
Preferred Stock Purchase Rights
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 the 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 [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $28,422,000 on March
11, 1996.
On March 11, 1996, there were issued and outstanding 14,285,770
shares of Common Stock, par value $0.01 per share of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated March 29,
1996, submitted to the registrant's stockholders in connection with
its 1996 Annual Meeting to be held on May 2, 1996 are incorporated by
reference into Part III of this Report.
1
TABLE OF CONTENTS
Page
Part II 1
Item 6. Selected Financial Data 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1
Item 8. Financial Statements and Supplementary Data 6
Signatures S-1
Exhibits E-1
2
PART II
Item 6. Selected Financial Data.(1)
1995 1994 1993 1992
---------- ---------- -------- ----------
(In Thousands, Except Per Share Amounts)
Years Ended December 31:
Loss from the
Partnership $(571) $(118,741) $(24,057) $(16,747)
Operating loss (2,367) (122,869) (27,526) (18,170)
Net income (loss) 153 (86,290) (18,814) (12,114)
Net income (loss)
per share .01 (6.04) (1.32) (.85)
Average shares
outstanding 14,286 14,286 14,286 14,286
At December 31:
Investment in the
Partnership 56,401 56,972 193,415 217,472
Total assets 60,897 60,903 193,637 217,719
Stockholders' equity 59,523 59,370 145,660 164,474
(1) Reflects FM Properties Inc.'s investment in the Partnership under
the equity basis of accounting. See Note 1 to the financial
statements.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
CAPITAL RESOURCES AND LIQUIDITY
FMPO operates through its 99.8 percent interest in the Partnership,
with 0.2 percent owned by the Managing General Partner, FTX. The
Partnership's most significant investment is the Barton Creek
Community, approximately 3,600 acres of primarily undeveloped land
adjacent to the Barton Creek Country Club and Conference Center Resort
in Austin, Texas, and approximately 1,000 acres of undeveloped land
planned for commercial use, which is located within the Circle C
development in Austin, Texas.
FTX and Freeport-McMoRan Copper & Gold Inc. (FCX) guarantee the
Partnership's debt. During 1996, following discussions with the staff
of the Securities and Exchange Commission, FMPO determined that,
because of the rights that FTX retains in connection with its
guarantee of the Partnership's debt, it would be more appropriate to
reflect its interest in the Partnership under the equity basis of
accounting (prior year consolidated financial information has been
restated to reflect this presentation). However, if these guarantees
are 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 sources of funds other than its interest in the
Partnership.
For several years development of the Partnership's Austin
properties has been delayed principally because of disagreements with
the City of Austin (the City) over ordinances governing development
activities in the Barton Creek and Circle C areas. In 1995, FMPO's
development opportunities at its Austin properties were greatly
enhanced by several events at the Barton Creek and Circle C
Communities, significantly reducing future legal, planning,
engineering and development expenditures from prior actual cost
levels. These events were as follows:
* FMPO prevailed in its lawsuit against the City of Austin, which
was also found to have violated the Partnership's constitutional right
to substantive due process. The City has appealed this decision.
* Another lawsuit in Hays County (where a portion of Circle C is
located) found the City of Austin's water quality ordinance to be
invalid. The City has also appealed that decision.
3
* The Texas State Legislature passed several laws relating to water
quality and other regulatory issues that provide FMPO with the
opportunity to develop and market its Barton Creek and Circle C
properties free of the unreasonable and arbitrary land development
rules and interpretations of the City.
* The Texas Natural Resource Conservation Commission approved
FMPO's water quality plan for the Barton Creek Community Water Quality
Protection Zone, the first of its kind under a new state law.
At the beginning of 1995, the Partnership faced significant debt
maturities for 1996. However, during 1995 all debt maturities were
extended until 1997. As a result of the opportunity provided by a new
permitting environment at Barton Creek and the flexibility provided by
the refinancing, the Partnership has begun marketing tracts within
Barton Creek to sub-developers. Additionally, the Partnership has
intensified its ongoing marketing efforts to sell certain non-Barton
Creek assets, primarily its Dallas, Houston and San Antonio
properties. Although, this plan provides the Partnership with the
opportunity to achieve significant debt reductions, the ability of the
Partnership to make payments of principal and interest, and to comply
with the covenants relating to its debt, is largely dependent upon the
Partnership's future performance, which is subject to numerous
economic and other factors, including factors beyond its control.
FMPO incurred operating losses in each year since inception from the
real estate activities conducted by the Partnership. The
Partnership's 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 future 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 issuing new debt or equity investments, and believes that
the planned reduction of the Partnership's debt will significantly
improve its alternatives. An objective in arranging new financing for
FMPO will be to eliminate the guarantees of the Partnership's debt.
These debt guarantees were extended in connection with the lengthening
the Partnership's debt maturities; however, there are currently no
arrangements for any further guarantee extensions. 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 the Partnership.
Net cash provided by the Partnership's operating activities was
$47.5 million in 1995, $11.8 million in 1994 and $104.3 million in
1993. The 1995 period benefited from a sale by Circle C Land Corp.
(Circle C), a consolidated affiliate of the Partnership, of its
single-family residential real estate properties and related amenities
for $15.8 million. The 1993 period included the cash flow generated
by oil and gas operations and benefited from working capital
reductions as a result of the oil and gas property sales. Net cash
provided by (used in) the Partnership's investing activities totaled
$(35.2) million in 1995, $29.0 million in 1994 and $196.4 million in
1993. Real estate capital expenditures were $25.5 million in 1995
versus $54.8 million in 1994 which includes the land and bond
purchases discussed below. Near-term real estate development
expenditures are expected to be significantly reduced because of the
new legislation and change in development requirements discussed
above. Investing cash flows benefited from the receipt of proceeds
from the 1993 oil and gas property sales, the final proceeds of which
were received in 1994. These proceeds were partially offset by
payments to working and royalty interest owners for a natural gas
contract settlement received in 1993, the final $9.7 million payment
of which was made in October 1995. Financing activities of the
Partnership consist of a net reduction in borrowings totaling $11.2
million in 1995, $42.1 million in 1994 and $300.9 million in 1993. As
of January 26, 1996, $23.9 million of additional borrowings were
available under the Partnership's credit facility.
In late 1993, an opportunity was identified to provide the City
and the surrounding areas with 4,070 acres of habitat preserve and to
facilitate resolution of certain complex development issues at Barton
Creek which involved required permitting under the Endangered Species
Act (ESA) and resolution
4
of financial uncertainties associated with a
"road district" in which the Partnership owns property. In 1994, The
Nature Conservancy of Texas (TNCT) acquired 4,278 acres of land for
$8.0 million provided by the Partnership. The Partnership was
conveyed 208 acres while the remaining 4,070 acres were set aside for
parkland and permanent nature preserves owned and managed by TNCT.
The Partnership retained ESA habitat mitigation credits associated
with the areas set aside, and in February 1995, was issued a 10(a)
permit enabling it to fully develop the Barton Creek project under the
ESA. The Partnership also acquired substantially all of the
outstanding revenue bonds issued by a road district for a net
investment of $10.4 million and converted it into a special assessment
district enabling landowners within the road district, including the
Partnership, to develop or market their properties. The Partnership
also purchased 738 acres of land, known as the Lantana tract, south of
and adjacent to its Barton Creek development for $4.0 million.
RESULTS OF OPERATIONS
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Loss from the
Partnership $(571) $(118,741) $ (24,057)
Operating loss (2,367) (122,869) (27,526)
Net income
(loss)a 153 (86,290) (18,814)
a. Includes a $2.7 million tax benefit in 1995, $36.8 million in
1994 and $8.5 million in 1993.
As noted above, 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
of the Partnership. The Partnership's summary operating results
follow:
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Revenues $ 48,170 $ 40,435 $ 26,027
Operating loss (2,308) (119,611)b (14,253)c
Net loss (571)a (118,979)b (24,105)c
a. Includes a $2.6 million gain from a bankruptcy settlement with a
customer.
b. Includes a $115.0 million charge for write-down of real estate
assets.
c. Includes a $5.3 million charge for restructuring costs (Note 3)
and a $6.7 million loss from discontinued oil and gas operations.
Revenues in 1995 consist primarily of $15.8 million from the sale
of the Circle C residential properties, $19.2 million from the sale of
393 single-family homesites and $9.1 million primarily from the sale
of 340 undeveloped acres. Revenues in 1994 consist primarily of $27.3
million from the sale of 628 single-family homesites and 4 houses and
$11.3 million from the sale of 620 undeveloped acres. Revenues in
1993 consist primarily of $22.1 million from the sale of 513 single-
family homesites and 3 houses and $3.5 million from the sale of 129
undeveloped acres.
General and administrative expenses of the Partnership, combined
with those incurred by FMPO, were $4.2 million in 1995, $6.2 million
in 1994 and $10.5 million in 1993. The reduction in 1995 reflects the
initial results of a series of steps to reduce costs. These actions,
which include reducing personnel, legal and consulting costs, and the
costs of services provided by FTX (Note 3), were taken, to a
significant extent, in response to the reduced permitting, engineering
and administrative burden resulting from the recent legislative and
court developments discussed above. The reduction in 1994 reflects
the effect of the 1993 oil and gas property sales, which enabled the
Partnership to reduce its requirements for administrative services,
and FTX's 1993 administrative restructuring which reduced FMPO's
administrative costs. The 1993 restructuring process caused FTX to
incur certain one-time costs, $5.3
5
million of which was allocated to the Partnership pursuant to its
administrative services agreement with FTX.
FMPO's business strategy includes the sale of larger undeveloped
tracts of land. These transactions by their nature can cause
significant variations in operating results between accounting
periods, which may create future operating losses. Additionally, the
Partnership continues to consider opportunities to enter into
significant transactions involving is properties. Consequently, past
operating results are not necessarily indicative of future trends in
profitability.
ENVIRONMENTAL
Increasing emphasis on environmental matters is likely to result in
additional costs, which will be charged against FMPO's operations in
future periods when such costs can be estimated. Present and future
environmental laws and regulations applicable to the Partnership's
operations may require substantial capital expenditures, could
adversely affect the development of the Partnership's real estate
interests or may affect its operations in other ways that cannot now
be accurately predicted.
---------------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
6
REPORT OF MANAGEMENT
FM Properties Inc. (FMPO) is responsible for the preparation of the
financial statements and all other information contained in this
Annual Report. The financial statements have been prepared in
conformity with generally accepted accounting principles and include
amounts that are based on management's informed judgments and
estimates.
FMPO maintains a system of internal accounting controls designed
to provide reasonable assurance at reasonable costs that assets are
safeguarded against loss or unauthorized use, that transactions are
executed in accordance with management's authorization and that
transactions are recorded and summarized properly. The system is
tested and evaluated on a regular basis by FMPO's internal auditors,
Price Waterhouse LLP. In accordance with generally accepted auditing
standards, FMPO's independent public accountants, Arthur Andersen LLP,
have developed an overall understanding of our accounting and
financial controls and have conducted other tests as they consider
necessary to support their opinion on the financial statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing the
integrity and reliability of FMPO's accounting and financial reporting
practices and the effectiveness of its system of internal controls.
Arthur Andersen LLP and Price Waterhouse LLP meet regularly with, and
have access to, this committee, with and without management present,
to discuss the results of their audit work.
Richard C. Adkerson William H. Armstrong, III
Chairman of the Board, Executive Vice President and
President and Chief Executive Officer Chief Financial Officer
7
Item 8. Financial Statements and Supplementary Data.
FM PROPERTIES INC.
BALANCE SHEETS
December 31,
------------------------
1995 1994
---------- ----------
(In Thousands)
ASSETS
Current assets:
Accounts receivable and other $ 298 $ 23
Income tax receivable 2,693 3,908
Amounts receivable from the
Partnership 1,505 -
---------- ----------
Total current assets 4,496 3,931
Investment in the Partnership
(Note 2) 56,401 56,972
---------- ----------
Total assets $ 60,897 $ 60,903
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ - $ 175
Other liabilities 1,374 1,358
Stockholders' equity:
Preferred stock, par value $0.01,
50,000,000 shares
authorized and unissued - -
Common stock, par value $0.01,
150,000,000 shares authorized,
14,285,770 issued and outstanding 143 143
Capital in excess of par value of
common stock 176,445 176,445
Accumulated deficit (117,065) (117,218)
---------- ----------
59,523 59,370
---------- ----------
Total liabilities and
stockholders' equity $ 60,897 $ 60,903
========== ==========
The accompanying notes, including financial statements of the
Partnership, are an integral part of these financial statements.
8
FM PROPERTIES INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Loss from the Partnership $ (571) $ (118,741) $ (24,057)
General and administrative expenses (1,796) (4,128) (3,469)
---------- ---------- ----------
Operating loss (2,367) (122,869) (27,526)
Other income (expense), net (173) (202) 166
---------- ---------- ----------
Loss before income tax benefit (2,540) (123,071) (27,360)
Income tax benefit 2,693 36,781 8,546
---------- ---------- ----------
Net income (loss) $ 153 $ (86,290) $ (18,814)
========== ========== ==========
Net income (loss) per share $.01 $(6.04) $(1.32)
==== ====== ======
Average shares outstanding 14,286 14,286 14,286
====== ====== ======
The accompanying notes, including financial statements of the
Partnership, are an integral part of these financial statements.
9
FM PROPERTIES INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 153 $ (86,290) $ (18,814)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Deferred income taxes - (30,173) (16,868)
Excess of equity in losses of the
Partnership over distributions
received 571 136,443 24,105
(Increase) decrease in working
capital:
Accounts receivable and other (1,780) 201 (23)
Accounts payable and accrued
liabilities 16 (8,361) 6,300
Accrued income and other taxes 1,215 (11,645) 4,950
---------- ---------- ----------
Net cash provided by (used in)
operating activities 175 175 (350)
---------- ---------- ----------
Cash flow from investing activities - - -
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from debt - - 350
Repayment of debt (175) (175) -
---------- ---------- ----------
Net cash provided by (used in)
financing activities (175) (175) 350
---------- ---------- ----------
Net increase in cash and cash
equivalents - - -
Cash and cash equivalents at
beginning of year - - -
---------- ---------- ----------
Cash and cash equivalents at
end of year $ - $ - $ -
========== ========== ==========
Income taxes paid $ - $ 5,036 $ 3,374
========== ========== ==========
The accompanying notes, including financial statements of the
Partnership, are an integral part of these financial statements.
10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. The operations of FM Properties Inc. (FMPO) are
conducted through its investment in FM Properties Operating Co. (the
Partnership). At December 31, 1995, FMPO owned a 99.8 percent general
partnership interest in the Partnership and Freeport-McMoRan Inc.
(FTX), FMPO's former parent, owned a 0.2 percent general partnership
interest and served as Managing General Partner. FTX and Freeport-
McMoRan Copper & Gold Inc. (FCX) guarantee the Partnership's debt.
During 1996, following discussions with the staff of the Securities
and Exchange Commission, FMPO determined that, because of the rights
that FTX retains in connection with its guarantee of the Partnership's
debt, it would be more appropriate to reflect its interest in the
Partnership under the equity basis of accounting (prior year
consolidated financial information has been restated to reflect this
presentation). However, if these guarantees are 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.
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 reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. FM PROPERTIES OPERATING CO.
FMPO has no significant operations or source of funds other than its
interest in the Partnership. Therefore, the accompanying financial
statements of the Partnership should be read in conjunction with
FMPO's financial statements.
3. TRANSACTIONS WITH FTX AND EMPLOYEE BENEFITS
Management Services. FMPO has a limited number of employees.
Pursuant to the Partnership Agreement, FTX manages the affairs and
provides services necessary for the business and operations of the
Partnership. Effective July 1995, FMPO restructured its management
services agreement with FTX for specified services to an annual fee of
$0.5 million. Costs of services provided by FTX, included in general
and administrative expenses, totaled $1.7 million in 1995, $3.4
million in 1994 and $7.3 million in 1993 (excluding the restructuring
charge discussed below).
During 1993, the Partnership recognized restructuring expenses
totaling $5.3 million allocated from FTX. The charges consisted of
$2.5 million for personnel related costs, $1.9 million for downsizing
management information systems, $0.5 million for excess office space
and furniture and fixtures resulting from staff reductions and $0.4
million of other costs.
Stock Options. FMPO's stock option plan provides for the issuance of
up to 850,000 stock options and stock appreciation rights (SARs) at no
less than market value at time of grant. Generally, stock options
terminate 10 years from the date of grant. A summary of stock options
outstanding, including 200,000 SARs, follows:
1995 1994
------------------------- -----------------------
Average Average
Number of Option Number of Option
Options Price Options Price
---------- ---------- ---------- ------
Beginning of year 425,000 $3.60 425,000 $3.60
Granted 110,000 1.81 - -
---------- ----------
End of year 535,000 3.23 425,000 3.60
========== ==========
At December 31, 1995, stock options representing 225,000 shares
were exercisable at an average option price of $5.25 per share.
Options for 515,000 shares were available for new grants as of
December 31, 1995.
11
In October 1995 the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation," effective for FMPO at December 31, 1996. Under SFAS
123, companies can either record expense based on the fair value of
stock-based compensation upon issuance or elect to remain under the
current APB Opinion No. 25 method whereby no compensation cost is
recognized upon grant. Entities electing to remain with the
accounting in APB Opinion No. 25 must make disclosures as if SFAS 123
had been applied. FMPO anticipates it will continue to account for
its stock-based compensation plans under APB Opinion No. 25.
4. INCOME TAXES
Income taxes are recorded pursuant to SFAS 109. FMPO has provided a
valuation allowance equal to its deferred tax assets because of the
expectation of incurring tax losses for the near future. The
components of deferred taxes follow:
December 31,
------------------------
1995 1994
---------- ----------
Deferred tax asset: (In Thousands)
Alternative minimum tax credits $ 1,000 $ 736
Future deductible items 8,116 9,589
Valuation allowance (9,116) (10,325)
---------- ----------
$ - $ -
========== ==========
During the fourth quarter of 1995, FMPO recognized a $2.7 million
tax benefit for the carryback of the current year's tax loss to recoup
taxes paid in previous years. Income taxes credited to income follow:
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Current income taxes
Federal $ 2,693 $ 4,724 $ (5,879)
State - 1,885 (2,443)
---------- ---------- ----------
2,693 6,609 (8,322)
Deferred federal income taxes - 30,172 16,868
---------- ---------- ----------
$ 2,693 $ 36,781 $ 8,546
========== ========== ==========
Reconciliations of the differences between income taxes computed
at the federal statutory tax rate and income taxes recorded follow:
1995 1994 1993
------------------------ ------------------- ----------------
Amount Percent Amount Percent Amount Percent
---------- ---------- ---------- --------- ------- -------
(Dollars In Thousands)
Income tax
benefit
computed
at the
federal
statutory
income tax
rate $ 889 35% $43,158 35% $9,570 35%
Increase
(decrease)
attributable to:
Minimum tax
credit
utilized - - - - (1,364) (5)
Change in
valuation
allowance 1,209 48 (10,325) (8) - -
State and
other
taxes 595 23 3,948 3 340 1
---------- ---------- ---------- ---------- ------- -----
Income tax
benefit $ 2,693 106% $36,781 30% $8,546 31%
========== ========== ========== ========== ======== ======
The Partnership maintains capital accounts of FMPO and FTX that
are adjusted for income, gains, losses and deductions of the
Partnership, which are generally allocated 99.8 percent to FMPO and
0.2 percent to FTX. However, so long as the outstanding balance of
all Partnership liabilities guaranteed by or owed to FTX or any
affiliate exceeds the deficit balance, if any, in the capital account
of FTX, FMPO will be allocated losses until its capital account is
reduced to zero and all additional losses will be allocated entirely
to FTX until the deficit balance in FTX's capital account equals the
outstanding balance of all Partnership liabilities guaranteed by or
owed to FTX or any affiliate. After such point, all losses will be
12
allocated 99.8 percent to FMPO and 0.2 percent to FTX. Subsequent
income will be similarly allocated to the extent of any losses so
allocated after such point and then will be allocated entirely to FTX
until it has recouped losses allocated entirely to it.
5. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Income Net
(Loss) Operating Net Income
From The Income Income (Loss)
Partnership (Loss) (Loss) Per Share
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
1995
1st Quarter $ (2,131) $ (2,841) $ (2,840) $ (.20)
2nd Quarter (127) (911) (888) (.06)
3rd Quarter (1,019) (1,065) (1,205) (.08)
4th Quarter 2,706 2,450 5,086a .36a
---------- ---------- ----------
$ (571) $ (2,367) $ 153 .01
========== ========== ==========
1994
1st Quarter $ (1,764) $ (2,951) $ (2,251) $ (.16)
2nd Quarter 604 (193) (285) (.02)
3rd Quarter (1,604) (2,695) (1,822) (.13)
4th Quarter (115,977)b (117,030)b (81,932)b (5.74)b
---------- ---------- ----------
$ (118,741) $ (122,869) $ (86,290) (6.04)
========== ========== ==========
a. Includes a $2.6 million gain ($0.18 per share) from the
Partnership's bankruptcy settlement with a customer and a $2.7 million
tax benefit ($0.19 per share).
b. Includes a $115.0 million charge ($74.7 million to net income or
$5.23 per share) for write-down of the Partnership's in real estate
assets.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FM PROPERTIES INC.:
We have audited the accompanying balance sheets of FM Properties Inc.
(a Delaware Corporation) as of December 31, 1995 and 1994 (as
restated, see Note 1), and the related statements of operations and
cash flow for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements 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 financial statements referred to above
present fairly, in all material respects, the financial position of FM
Properties Inc. as of December 31, 1995 and 1994 and the results of
its operations and its cash flow for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 23, 1996
13
FM PROPERTIES OPERATING CO.
BALANCE SHEETS
December 31,
-----------------------
1995 1994
---------- ----------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2,282 $ 1,200
Accounts receivable and other 4,318 1,749
---------- ----------
Total current assets 6,600 2,949
Real estate and facilities, net 180,040 198,453
Other assets 5,165 9,032
---------- ----------
Total assets $ 191,805 $ 210,434
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
liabilities $ 8,100 $ 18,453
Amounts due to FMPO 1,505 -
Current portion of long-term debt - 3,300
---------- ----------
Total current liabilities 9,605 21,753
Long-term debt 121,294 128,600
Other liabilities 4,392 2,996
Partners' capital 56,514 57,085
---------- ----------
Total liabilities and partners'
capital $ 191,805 $ 210,434
========== ==========
STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Revenues $ 48,170 $ 40,435 $ 26,027
Costs and expenses:
Cost of sales 48,099 42,947 27,927
Write-down of investment in real
estate assets - 115,000 -
Provision for restructuring - - 5,277
General and administrative expenses 2,379 2,099 7,076
---------- ---------- ----------
Total costs and expenses 50,478 160,046 40,280
---------- ---------- ----------
Operating loss (2,308) (119,611) (14,253)
Interest expense, net (1,061) (628) (4,792)
Other income, net 2,798 1,260 1,688
---------- ---------- ----------
Loss from continuing operations (571) (118,979) (17,357)
Loss from discontinued operations - - (6,748)
---------- ---------- ----------
Net loss $ (571) $ (118,979) $ (24,105)
========== ========== ==========
The accompanying notes are an integral part of these financial
statements.
14
FM PROPERTIES OPERATING CO.
STATEMENTS OF CASH FLOW
Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(In Thousands)
Cash flow from operating activities:
Net loss $ (571) $ (118,979) $ (24,105)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 2,472 2,254 72,763
Cost of real estate sales 41,756 25,308 11,808
Write-down of investment in real
estate assets - 115,000 -
(Increase) decrease in working capital:
Accounts receivable and other 1,298 (9,689) 25,596
Accounts payable and accrued
liabilities 2,281 (2,101) 12,180
Other 244 - 6,028
---------- ---------- ----------
Net cash provided by operating
activities 47,480 11,793 104,270
---------- ---------- ----------
Cash flow from investing activities:
Real estate and facilities (25,509) (54,765) (37,176)
Proceeds from sale of oil and gas
properties - 95,600 242,496
Oil and gas expenditures - - (5,961)
Natural gas contract settlement
proceeds paid to working and
royalty interests (9,733) (11,816) (2,987)
---------- ---------- ----------
Net cash provided by (used in)
investing activities (35,242) 29,019 196,372
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from debt 16,000 25,000 12,397
Repayment of debt (27,156) (67,095) (313,264)
---------- ---------- ----------
Net cash used in financing
activities (11,156) (42,095) (300,867)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,082 (1,283) (225)
Cash and cash equivalents at
beginning of year 1,200 2,483 2,708
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 2,282 $ 1,200 $ 2,483
========== ========== ==========
Interest paid $ 9,768 $ 11,189 $ 24,269
========== ========== ==========
The accompanying notes are an integral part of these financial
statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. Highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents.
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 reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
15
2. LONG-TERM DEBT
During 1995, the Partnership entered into a two-year $50 million
credit agreement replacing its previous credit arrangement and
extended $68 million of debt due January 1996 until June 1997. All of
the Partnership's debt is guaranteed by either FTX or FCX.
December 31,
------------------------
1995 1994
---------- ----------
(In Thousands)
Bank loan, average rates of
7.3% in 1995 and 5.8% in
1994, due June 1997 $ 24,000 $ 17,000
Note due June 1997, 12% rate
(LIBOR plus 1.375% beginning
in 1996) 68,000 73,450
Circle C bank loan, average
rate of 7.3% in 1995 and 5.6%
in 1994, due February 1997 29,294 41,450
---------- ----------
121,294 131,900
Less current portion - 3,300
---------- ----------
$ 121,294 $ 128,600
========== ==========
The Partnership's credit agreement is structured as a revolving
credit facility through June 1997 and contains covenants restricting
asset sales, mergers and distributions by the Partnership, the
incurrence of additional indebtedness, the creation of liens and
certain other matters. FTX and FCX have liens on the Partnership's
real estate assets.
FTX and FCX have liens on the Partnership's real estate assets
and as the Managing General Partner of the Partnership, FTX has the
right to make distributions in its sole discretion, except that, to
the extent net cash flow is available, FTX is required to make
distributions to FMPO to cover taxes and administrative expenses. As
long as any debt of the Partnership is owed to or guaranteed by FTX,
FCX, or any of their respective affiliates, the net cash flow of the
Partnership will be applied to repay such debt and no distributions
will be made, other than those described above.
Capitalized interest totaled $11.7 million in 1995, $12.3 million
in 1994 and $7.4 million in 1993. Interest expense allocated to the
discontinued operations, based on the relative net assets of the
Partnership, was $11.6 million in 1993.
3. INVESTMENT IN REAL ESTATE
Real estate assets include acreage, development, construction and
carrying costs, and other related costs through the development state.
Capitalized costs are assigned to individual components of a project,
as practicable, whereas interest and other common costs are allocated
based on the relative fair value of individual land parcels. Carrying
costs are capitalized on properties currently under active
development. Revenues are recognized when the risks and rewards of
ownership are transferred to the buyer and the consideration received
can be reasonably determined.
In March 1995, the Financial Accounting Standards Board issued
SFAS 121 which requires a reduction of the carrying amount of long-
lived assets to fair value when events indicate that their carrying
amount may not be recoverable. Measurement of the impairment loss is
based on the fair value of the asset. Generally, the Partnership
determines fair value using valuation techniques such as the expected
future sales proceeds from properties. The Partnership adopted SFAS
121 effective January 1, 1995, and since that time no impairment
losses have been recognized.
16
December 31,
------------------------
1995 1994
---------- ----------
(In Thousands)
Operating properties (primarily
resort properties), net of
accumulated depreciation and
write-down of $24,598 for 1995
and $22,445 for 1994 $ 25,770 $ 32,718
Land held for investment,
development or sale:
Austin, Texas area, net of
accumulated depreciation and
write-down of $76,831 for 1995
and $96,657 for 1994 96,910 99,485
Other areas of Texas 57,360 66,250
---------- ----------
$ 180,040 $ 198,453
========== ==========
The resort properties, known as "the Barton Creek Resort", are
located near Austin, Texas and include a conference center, a 147-room
hotel and related facilities and three golf courses. These properties
are currently managed by Club Resorts Holding, Inc. (ClubCorp).
ClubCorp has an option to purchase the facilities when certain cash
flow objectives are achieved. Prior to any purchase, operating cash
flow is shared between ClubCorp and the Partnership and deficits are
funded by the Partnership.
The Partnership's investment in real estate includes the Barton
Creek Resort and approximately 6,400 acres of land located in Austin,
Dallas, Houston and San Antonio. Most significant among these are the
Barton Creek Community, which includes approximately 3,600 acres of
primarily undeveloped land adjacent to the Barton Creek Resort, and
approximately 1,000 acres of undeveloped land planned for commercial
use, which is located within the Circle C development in Austin,
Texas. For several years development of the Barton Creek Community
had been delayed principally because of disagreements between FMPO and
the City of Austin (the City) over ordinances governing development
activities in the Barton Creek area. In 1994, FMPO filed suit in U.S.
District Court against the City seeking declaratory and injunctive
relief as well as damages. In 1995, the Court ruled in favor of FMPO,
declaring that the restrictive 1992 water quality ordinance enacted by
public initiative was void and that the Partnership is entitled to
develop its project based on ordinances that were in effect at the
time of its initial applications. The jury also found that the City
violated the Partnership's constitutional right to substantive due
process in the way the City applied its ordinances to the Barton Creek
Community and awarded damages and legal costs of $0.5 million to the
Partnership. Another lawsuit in Hays County (where a portion of
Circle C is located) found the ordinances to be invalid. The Austin
City Council has appealed both decisions. Also in 1995, the Texas
State Legislature passed several laws relating to water quality and
other regulatory issues that greatly enhance FMPO's development
potential in the Austin area by providing an opportunity for it to
develop and market its Barton Creek and Circle C properties free of
the unreasonable and arbitrary land development rules and
interpretations of the City. Additionally, in August 1995, FMPO
designated its Barton Creek Community a Water Quality Protection Zone.
The water quality protection plan for the Barton Creek Community was
approved by The Texas Natural Resource Conservation Commission in
December 1995 enabling the development of the Barton Creek Community
to proceed with specified development requirements designed to protect
the water quality in Barton Creek.
The real estate interests of the Partnership in Dallas, Houston
and San Antonio, Texas are managed by professional real estate
developers. Under the terms of these agreements, the operating
expenses and development costs, net of revenues, are funded by the
Partnership. The developers are entitled to a management fee and a
25% interest in the net profits, after recovery by the Partnership of
its investments and a stated return, resulting from the sale of the
respective properties under their management.
In September 1995, Circle C Land Corp. sold its single-family
residential real estate properties and related amenities for $15.8
million. The Partnership realized no significant gain or loss on the
transaction, and proceeds were used to reduce debt.
Concurrent with certain yearend 1994 debt negotiations, the
Partnership analyzed the carrying amount in its financial statements
of its investment in real estate assets, using generally accepted
17
accounting principles, and recorded a $115 million pretax, noncash
write-down. The actual amounts that will be realized depend on future
market conditions and may be more or less than the amounts recorded in
the Partnership's financial statements.
Oil and Gas Property Sales. In 1993, the Partnership sold
substantially all of its remaining producing oil and gas properties
for $312.7 million, recognizing a loss totaling $3 million, and
negotiated the buy-out of a long-term natural gas contract for $25.4
million net to the Partnership. The Partnership indemnified the
purchaser on one property for future abandonment costs in excess of
net revenues received by the purchaser. The Partnership recognized a
$3 million charge to fourth-quarter 1993 earnings for the estimated
future liability because of a decline in oil prices.
4. COMMITMENTS AND CONTINGENCIES
The Partnership has made, and will continue to make, expenditures at
its operations for protection of the environment. Increasing emphasis
on environmental matters can be expected to result in additional
costs, which will be charged against the Partnership's operations in
future periods. Present and future environmental laws and regulations
applicable to the Partnership's operations may require substantial
capital expenditures, could adversely affect the development of FMPO's
real estate interests or may affect its operations in other ways that
cannot now be accurately predicted.
The Partnership is aware of certain sites related to its former
oil and gas operations for which it may receive notices as a
"potentially responsible party" in the future. The potentially
responsible parties for the sites, however, include many large and
viable companies with proportionate shares equal to or greater than
the Partnership's. FMPO believes that the Partnership's exposure on
these sites is not material and expects that any costs would be
minimal.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERSHIP COMMITTEE OF FM PROPERTIES OPERATING CO.:
We have audited the accompanying balance sheets of FM Properties
Operating Co. (a Delaware general partnership) as of December 31, 1995
and 1994, and the related statements of operations and cash flow for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements 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 financial statements referred to above
present fairly, in all material respects, the financial position of FM
Properties Operating Co. as of December 31, 1995 and 1994 and the
results of its operations and its cash flow for each of the three
years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 23, 1996
18
SIGNATURE
Pursuant to the requirements of Section 13 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, on
May 19, 1997.
FM PROPERTIES INC.
By: /s/ William J. Blackwell
----------------------------------
William J. Blackwell
Vice President and Controller
(Authorized Signatory and
Principal Accounting Officer)
19
FM PROPERTIES INC.
EXHIBIT INDEX
Exhibit Sequentially
Number Numbered
Page
23.1 Consent of Arthur Andersen LLP dated May 16, 1997.
27.1 Financial Data Schedule
20
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporated by reference of our reports included herein or
incorporated by reference in this Form 10-K/A, into FM Properties
Inc.'s previously filed Registration Statement on Form S-8 (File No.
33-78798).
Arthur Andersen LLP
New Orleans, Louisiana
May 16, 1997
5
0000885508
FM PROPERTIES INC.
1,000
YEAR YEAR YEAR
DEC-31-1995 DEC-31-1994 DEC-31-1993
DEC-31-1995 DEC-31-1994 DEC-31-1993
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
4,496 3,931 194
0 0 0
0 0 0
60,897 60,903 193,637
0 175 7,958
0 0 175
0 0 0
0 0 0
143 143 143
59,380 59,227 145,517
60,897 60,903 193,637
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
(2,540) (123,071) (27,360)
(2,693) (36,781) (8,546)
153 (86,290) (18,814)
0 0 0
0 0 0
0 0 0
153 (86,290) (18,814)
.01 (6.04) (1.32)
0 0 0
