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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
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 1-13232

Apartment Investment and Management Company

(303) 757-8101
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)

     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 [   ]

     The number of shares of Class A Common Stock outstanding as of July 31, 2002: 91,564,622

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

FORM 10-Q

INDEX

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

See notes to consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)

See notes to consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

See notes to consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

NOTE 1 — Organization

     Apartment Investment and Management Company, a Maryland corporation incorporated on January 10, 1994 (“AIMCO” and, together with its consolidated subsidiaries and other controlled entities, the “Company”), owns a majority of the ownership interests in AIMCO Properties, L.P. (the “AIMCO Operating Partnership”) through its wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc. The Company held approximately an 87% interest in the AIMCO Operating Partnership as of June 30, 2002. AIMCO-GP, Inc. is the sole general partner of the AIMCO Operating Partnership. Interests in the AIMCO Operating Partnership that are held by limited partners other than the Company are referred to as “OP Units.”

     As of June 30, 2002, AIMCO:

	•		owned or controlled (consolidated) and managed 170,592 units in 663 apartment properties;
	•		held an equity interest in (unconsolidated) 128,911 units in 966 apartment properties, of which 85,833 units were also managed by the Company; and
	•		provided services or managed, for unrelated third party owners, 26,503 units in 212 apartment properties, primarily pursuant to long term, non-cancelable agreements.

     At June 30, 2002, 91,422,761 shares of AIMCO’s Class A Common Stock (the “Common Stock”) were outstanding and the AIMCO Operating Partnership had 12,503,130 common OP Units and equivalents outstanding, for a combined total of 103,925,891 shares of Common Stock and OP Units outstanding (excluding preferred OP Units). Holders of common OP Units may redeem such units for cash or, at the Company’s option, Common Stock.

NOTE 2 — Basis of Presentation

     The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

     The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

     For further information, refer to the statements and notes thereto included in the AIMCO annual report on Form 10-K for the year ended December 31, 2001. Certain 2001 financial statement amounts have been reclassified to conform to the 2002 presentation.

     The accompanying consolidated financial statements include the accounts of AIMCO, the AIMCO Operating Partnership, majority owned subsidiaries and controlled real estate limited partnerships. Interests held by limited partners in real estate partnerships controlled by the Company are reflected as minority interest in consolidated real estate partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. Minority interest in limited partnerships represents the non-controlling partners’ share of the underlying net assets of the Company’s controlled limited partnerships. When these partnerships make cash distributions in excess of net income, the Company, as the majority partner, records a charge equal to the minority partners’ excess of distribution

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over net income, even though there is no economic effect, cost or risk to the Company. This charge is classified in the consolidated statements of income as distributions to minority partners’ in excess of income. Losses are allocated to minority partners to the extent they do not create a minority interest deficit, in which case, the Company recognizes 100% of the losses in operating earnings. With regard to such partnerships, no losses related to the minority interest ownership were charged to operations for the three and six months ended June 30, 2002 and 2001, respectively. The assets of property owning limited partnerships and limited liability companies owned or controlled by AIMCO or the AIMCO Operating Partnership generally are not available to pay creditors of AIMCO or the AIMCO Operating Partnership.

NOTE 3 — Notes Receivable from Unconsolidated Real Estate Partnerships

     The following table summarizes the Company’s notes receivable from unconsolidated real estate partnerships at June 30, 2002 and 2001 (in thousands):

     The Company recognizes interest income earned from its investments in notes receivable when the collectibility of such amounts is both probable and estimable. The notes receivable were either extended by the Company and are carried at the face amount plus accrued interest (“par value notes”) or were made by predecessors whose positions have been acquired by the Company at a discount (“discounted notes”).

     As of June 30, 2002 and 2001, the Company held, primarily through its consolidated subsidiaries, $158.3 million and $116.0 million, respectively, of par value notes receivable from unconsolidated real estate partnerships, including accrued interest, for which management believes the collectibility of such amounts is both probable and estimable. As such, interest income from the par value notes is generally recognized as it is earned. Interest income from such notes for the three and six months ended June 30, 2002 totaled $8.8 million and $16.9 million, respectively, and for the three and six months ended June 30, 2001 totaled $8.0 million and $14.8 million, respectively.

     As of June 30, 2002 and 2001, the Company held discounted notes, including accrued interest, with a carrying value of $132.3 million and $129.9 million, respectively. The total face value plus accrued interest of these notes was $275.6 million and $225.0 million at June 30, 2002 and 2001, respectively.

     Under the cost recovery method, the discounted notes are carried at the acquisition amount, less subsequent cash collections, until such time as collectibility of principal and interest is probable and the timing and amounts are estimable. Based upon closed or pending transactions (which include sales, refinancing, foreclosures and rights offering activities), the Company has determined that certain notes are collectible for amounts greater than their carrying value. Accordingly, the difference between the carrying value of the discounted notes and the estimated collectible value is being amortized, as interest income, on a prospective basis over the estimated remaining life of the loans. For the three and six months ended June 30, 2002 the Company recognized deferred interest income and discounts of approximately $11.1 million ($0.12 per basic share and $0.11 per diluted share) and $15.5 million ($0.17 per basic and diluted share), respectively, and for the three and six months ended June 30, 2001 the Company recognized deferred interest income and discounts of approximately $2.4 million ($0.03 per basic and diluted share) and $2.6 million ($0.04 per basic and diluted share), respectively. These amounts are net of allocated expenses of $0.2 million and $0.6 million for the three and six months ended June 30, 2002, and $1.2 million and $2.4 million for the three and six months ended June 30, 2001. The notes receivable generally are realizable through collection of cash or obtaining ownership of the property.

     The Company continues to monitor and monetize its loans made to affiliated partnerships, of which it is typically the general partner and assesses the collectibility or impairment of each note on a periodic basis. During the second

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quarter of 2002, the Company identified and recorded $3.2 million in impairments. The Company will continue to monitor and assess these notes and expects to identify both recoveries and impairments, but does not expect any net impairments to be material to the Company’s financial position or results of operations.

NOTE 4 — Commitments and Contingencies

  Legal

     The Company is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.

  Limited Partnerships

     In connection with the Company’s acquisitions of interests in limited partnerships that own properties, the Company and its affiliates are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the limited partners of such partnerships or violations of the relevant partnership agreements. The Company may incur costs in connection with the defense or settlement of such litigation. The Company believes it complies with its fiduciary obligations and relevant partnership agreements and does not expect any such legal actions to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.

  Environmental

     Various federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remedy, hazardous substances may adversely affect occupancy at affected apartment communities and our ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of our properties, the Company could potentially be liable for environmental liabilities or costs associated with its properties or properties it acquires or manages in the future.

     There have been recent reports of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold in residential units. Some of these lawsuits have resulted in substantial monetary judgments or settlements. The Company has been named as a defendant in suits that have alleged the presence of mold. Prior to March 31, 2002, the Company was insured against claims arising from the presence of mold due to water intrusion. However, since March 31, 2002, certain of the Company’s insurance carriers have excluded from insurance coverage property damage loss claims arising from the presence of mold although certain of the Company’s insurance carriers do provide some coverage for personal injury claims. The Company has implemented protocols and procedures to prevent or eliminate mold from its properties and believes that its measures will eliminate, or at least minimize, the effects that mold could have on its residents. To date, the Company has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change, however, the Company can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.

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  Other Legal Matters

     In December 2001, the Company and certain of its affiliated partnerships that own properties voluntarily entered into an agreement with the U.S. Environmental Protection Agency (“EPA”) and HUD pursuant to which they agreed to pay a fine of $130,000, conduct lead-based paint inspections and other testing, if necessary, on properties initially built prior to 1978, and re-issue lead-based paint disclosures to residents of such properties which have not been certified as lead-base paint free. In return, neither the Company nor its properties will be subject to any additional fines for inadequate disclosures prior to the Company’s execution of the agreement. The cost of the settlement, inspections and remediations incurred to date had been reserved for at the time the Company acquired the NHP and Insignia portfolios. Any remaining costs are not expected to be material.

     On January 30, 2002, AIMCO and four of its affiliated partnerships were named as defendants in a lawsuit brought by the City Attorney for the City and County of San Francisco in the Superior Court, County of San Francisco. The City Attorney asserts that the defendants have violated certain state and local residential housing codes, and engaged in unlawful business practices and unfair competition, in connection with four properties owned and operated by the affiliated partnerships. The City Attorney asserts civil penalties from $500 to $1,000 per day for each affected unit, as well as other statutory and equitable relief. The Company has engaged in preliminary discussions with the City Attorney to resolve the lawsuit. In the event it is unable to resolve the lawsuit, the Company believes it has meritorious defenses to assert and will vigorously defend itself. The matter has been set for trial on December 30, 2002. While the outcome of any litigation is uncertain, the Company does not believe that the ultimate outcome will have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.

     National Program Services, Inc. and Vito Gruppuso (collectively “NPS”) are insurance agents who in 2000 sold to AIMCO and its affiliates property insurance issued by National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). The financial failure of NPS has resulted in defaults in June 2002 under two agreements by which NPS indemnified AIMCO from losses relating to the matters described below. As a result of such defaults, the Company faces the risk of impairment of a $16.7 million insurance-related receivable as well as a contingent liability of $5.7 million. The Company’s receivable arose from the improper and premature cancellation by National Union of the Company’s property insurance coverage in April 2001. The Company had paid to National Union amounts in excess of $10 million in prepaid premiums for property insurance coverage that was to continue through at least April 2002. In addition, the Company has a $6.7 million receivable from NPS to reimburse the Company for payments on a premium finance agreement, proceeds of which were to pay premiums to National Union. The Company holds two $5 million surety bonds issued by Lumberman’s Mutual Insurance Company to secure the NPS indemnities. In addition, the Company has pending litigation in the U.S. District Court for the District of Colorado against National Union, First Capital Group, a New York based insurance wholesaler, NPS and other agents of National Union, for refund of at least $10 million of prepaid premium plus other damages resulting from the cancellation of the coverage. The cancellation of the property insurance coverage in 2001 has no effect on AIMCO’s present property insurance coverage or on coverage that existed through April 2001. With respect to the contingent liability arising from the NPS defaults, the Company received in July 2002 a demand for payment of $5.7 million from Cananwill, Inc., a premium funding company, allegedly due for premium payments made to National Union. The Company believes it has meritorious defenses to assert, and the Company will vigorously defend itself in the event Cananwill commences any litigation. In the event of litigation and an adverse determination, the Company will seek reimbursement of any loss from the bonds securing the NPS indemnification agreements as well as from all third parties responsible for the misapplication of AIMCO’s payments. While the outcome of any claim or matter in litigation is uncertain, the Company does not believe that it will incur any material loss in connection with the receivable or that the ultimate outcome of these separate but related matters will have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries taken as a whole.

NOTE 5 — Stockholders’ Equity

  Preferred Stock

     On March 19, 2002, the Company announced that on April 18, 2002 it would redeem for Common Stock all 5,000,000 outstanding shares of its Class K Convertible Cumulative Preferred Stock, par value $0.01 per share (the “Class K Preferred Stock”) at a redemption price of $27.2125 per share of Class K Preferred Stock. The redemption price was payable in shares of Common Stock at a price of $45.7835 per share, or the issuance of 0.5944 shares of Common Stock for each share of Class K Preferred Stock redeemed. Subsequent to this announcement all 5,000,000 shares of Class K Preferred Stock were converted into approximately 2,972,000 shares of Common Stock.

     On March 25, 2002, the Company sold 1,000,000 shares of Class R Cumulative Preferred Stock, par value $0.01 per share (the “Class R Preferred Stock”) in a registered public offering, and on April 11, 2002, the Company sold an additional 1,000,000 shares of Class R Preferred Stock in a registered public offering. The total net proceeds from both of these offerings of approximately $50 million were used to repay short-term indebtedness. Holders of the Class R Preferred Stock are entitled to receive dividends in an annual amount of $2.50 or 10% of the $25 per share liquidation preference. These dividends are cumulative from the date of original issuance and are payable quarterly each year. Class R Preferred Stock is senior to Common Stock as to dividends and liquidation. Upon any liquidation, dissolution or winding up of AIMCO, before payments of distributions by AIMCO are made to any holders of Common Stock, the holders of Class R Preferred Stock are entitled to receive a liquidation preference of $25 per share, plus accumulated, accrued and unpaid dividends. Each share of Class R Preferred Stock is redeemable beginning July 20, 2006 at the option of the Company, at a price equal to the liquidation preference of $25 per share, plus all accrued and unpaid dividends, if any, to the date fixed for redemption.

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     On May 6, 2002, the Company converted 2,500,000 shares of AIMCO Class L Convertible Cumulative Preferred Stock, par value $0.01 per share (the “Class L Preferred Stock”), with a face value of $62.5 million, into 1,344,664 shares of Common Stock. Following this conversion, as of June 30 2002, 2,500,000 shares of Class L Preferred Stock remained outstanding.

  Common Stock

     On June 5, 2002, AIMCO completed the sale of 8,000,000 shares of Common Stock in an underwritten public offering at a net price of $46.17 per share. The net proceeds of approximately $369 million were used to repay outstanding short-term indebtedness under the Company’s credit facility and the term loan that was used to finance AIMCO’s acquisition of Casden Properties Inc., (“Casden”) in March of 2002, which included the merger of Casden into AIMCO (the “Casden Merger”).

     During the three and six months ended June 30, 2002, approximately 262,000 and 272,000 shares of Common Stock, respectively, were issued in exchange for common OP Units.

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NOTE 6 — Earnings Per Share

     Earnings per share is calculated based on the weighted average number of shares of Common Stock, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2002 and 2001 (in thousands, except per share data):

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NOTE 7 — Industry Segments

     AIMCO has two reportable segments: real estate (owning and operating apartments); and investment management business (providing, to third parties including affiliates, services relating to the apartment business). The Company owns and operates multi-family apartment communities throughout the United States and Puerto Rico that generate rental and other property related income through the leasing of apartment units to a diverse base of tenants. The Company separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities has similar economic characteristics, the apartment communities have been aggregated into a single apartment communities segment, or real estate segment. There are different components of the multi-family business for which management considers disclosure to be useful. All real estate revenues are from external customers and no revenues are generated from transactions with other segments. There were no tenants that contributed 10% or more of the Company’s total revenues during the three and six months ended June 30, 2002 or 2001. The Company also manages apartment properties and provides other services for third parties and affiliates through its investment management business segment. As disclosed, a significant portion of the revenues of the investment management business are from affiliates of the Company.

     A performance measure used by management of the Company for each segment is its contribution to free cash flow (“Free Cash Flow” or “FCF”). Free Cash Flow is defined by the Company as net operating income less the capital spending required to maintain and improve the related assets. Free Cash Flow measures profitability prior to the cost of capital. Other performance measures used by management of the Company include funds from operations, adjusted funds from operations and earnings before structural depreciation. The Company deducts Capital Replacement spending to arrive at Free Cash Flow and adjusted funds from operations. During the second quarter of 2002, the Company began deducting Capital Enhancement spending as well as Capital Replacement spending. This additional deduction is reflected on a prospective basis.

     The following tables present the contribution (separated between consolidated and unconsolidated activity) to the Company’s Free Cash Flow for the three and six months ended June 30, 2002 and 2001, from these segments, and a reconciliation of Free Cash Flow to funds from operations, funds from operations less actual spending for Capital Replacements and Capital Enhancements, and net income (in thousands, except equivalent units (ownership effected) and monthly rents):

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FREE CASH FLOW FROM BUSINESS COMPONENTS
For the Three Months Ended June 30, 2002 and 2001
(in thousands, except unit data)