<PAGE> 1
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 quarterly period ended June 30, 1996
Commission File Number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 59-0720444
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
Miami, Florida 33133-5461
- -------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 859-4000
--------------
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.
X Yes No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
There are 9,692,600 shares of the Registrant's Common Stock outstanding
as of August 12, 1996.
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
No.
----
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 1
Consolidated Statements of Operations for the
Three and Six Months Ended
June 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for the
Three and Six Months Ended
June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(unaudited)
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 8,936 $ 3,560
Restricted cash and cash equivalents 8,723 8,461
Contracts receivable, net 12,351 14,350
Mortgages, notes and other receivables, net 38,050 45,479
Land and residential inventory 191,222 218,270
Property, plant and equipment, net 4,124 17,657
Other assets, net 16,524 25,048
-------- --------
Total assets $279,930 $332,825
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable and accrued liabilities $ 14,696 $ 21,078
Customers' and other deposits 4,259 6,091
Contributions in aid of construction -- 4,530
Other liabilities 22,435 25,747
Notes, mortgages and capital leases 180,271 220,999
-------- --------
221,661 278,445
-------- --------
Stockholders' equity
Common stock, $.10 par value; 15,665,000
shares authorized; 9,777,058 and
9,771,521 shares issued 978 977
Contributed capital 120,150 120,115
Accumulated deficit (58,026) (61,887)
Minimum pension liability adjustment (4,825) (4,825)
Treasury stock, 84,458 shares in 1996,
at cost (8) --
-------- --------
Total stockholders' equity 58,269 54,380
-------- --------
Total liabilities and stockholders' equity $279,930 $332,825
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1996 and 1995
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate sales:
Homesite $ 9,627 $ 5,077 $24,225 $ 8,650
Tract 30,204 4,544 35,949 6,762
Residential 6,451 2,368 9,321 4,480
------- ------- ------- -------
Total real estate sales 46,282 11,989 69,495 19,892
Other operating revenue 1,149 1,407 2,282 3,961
Interest income 1,789 2,024 3,130 4,051
Other income:
Reorganization reserves -- 2,853 1,267 3,453
Other income 2,509 296 7,329 3,296
------- ------- ------- -------
Total revenues 51,729 18,569 83,503 34,653
------- ------- ------- -------
Costs and expenses:
Cost of real estate sales:
Homesite 7,494 3,528 18,413 6,049
Tract 24,906 2,751 29,609 4,633
Residential 4,896 2,040 7,071 3,801
------- ------- ------- -------
Total cost of real estate sales 37,296 8,319 55,093 14,483
Selling expense 3,272 1,722 5,824 3,707
Other operating expense 558 825 1,257 2,578
Other real estate costs 4,435 5,749 8,692 11,015
General and administrative expense 2,256 2,797 5,386 5,369
Depreciation 223 328 472 622
Cost of borrowing, net of
amounts capitalized 3,098 3,543 6,386 6,384
Other expense 95 239 302 239
------- ------- ------- -------
Total costs and expenses 51,233 23,522 83,412 44,397
------- ------- ------- -------
Income (loss) before extraordinary
item 496 (4,953) 91 (9,744)
Extraordinary gain on extinguishment
of debt -- -- 3,770 --
------- ------- ------- -------
Net income (loss) $ 496 $(4,953) $ 3,861 $(9,744)
======= ======= ======= =======
Net income (loss) per common share $ .05 $ (.51) $ .40 $ (1.01)
======= ======= ======= =======
Weighted average common shares
outstanding 9,699 9,675 9,716 9,675
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 1996 and 1995
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,861 $ (9,744)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,605 3,206
Gain from utility condemnations or sales (5,684) --
Gain from sale of stock of wholly owned
subsidiaries -- (3,000)
Extraordinary gain from extinguishment of debt (3,770) --
Other income (1,881) (1,973)
Reorganization items (882) (1,805)
Land acquisitions (7,903) (7,000)
Other net changes in assets and liabilities:
Restricted cash 2,738 2,251
Receivables 10,002 4,113
Land and residential inventory 37,295 (2,348)
Other assets (6,462) (3,349)
Accounts payable and accrued liabilities (4,867) (4,530)
Customer deposits (1,638) 560
Other liabilities (1,060) (1,624)
Other, net (261) (401)
-------- --------
Net cash provided by (used in) operating
activities 22,093 (25,644)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (167) (1,231)
Proceeds from sale of property, plant and
equipment, net 773 --
Proceeds from utility condemnations or sales 25,690 --
Proceeds from sale of stock of wholly owned
subsidiaries -- 2,701
-------- --------
Net cash provided by investing activities 26,296 1,470
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 25,448 24,143
Repayments under credit agreements (66,081) (2,215)
Principal payments on other liabilities (2,380) (2,706)
-------- --------
Net cash provided by (used in) financing
activities (43,013) 19,222
-------- --------
Increase (decrease) in cash and cash equivalents 5,376 (4,952)
Cash and cash equivalents at beginning of period 3,560 12,297
-------- --------
Cash and cash equivalents at end of period $ 8,936 $ 7,345
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 3,827 $ 3,085
======== ========
Reorganization item payments $ 2,861 $ 3,870
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(unaudited)
(1) The June 30, 1996 financial statements are unaudited and subject to
year-end adjustments. In management's opinion, the interim financial
statements reflect all adjustments, principally consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations. Results for interim periods are
not necessarily indicative of results for the full year. For a
complete description of the Company's accounting policies, see "Notes
to Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. Certain
prior year amounts have been reclassified to conform with the 1996
presentation.
(2) The net income (loss) per common share is based on the weighted
average number of shares of common stock outstanding during the
periods. The effect of any outstanding warrants and options to
purchase common stock on the per share computation was anti-dilutive
or not material during the periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when
the related asset is sold. Capitalized interest was $1,369,000 and
$3,261,000 for the three and six-month periods ended June 30, 1996,
respectively and $1,932,000 and $3,782,000 for the three and six-month
periods ended June 30, 1995, respectively.
(4) Revenue from the sale of residential units other than Regency
Island Dunes ("Regency") condominium units is recognized when the
earnings process is complete. Revenue from the sale of Regency
condominium units is recognized using the percentage-of-completion
method. Earned revenue is based on the percentage of costs incurred
to date to total estimated costs to be incurred. This percentage is
then applied to the expected revenue associated with units that have
been sold to date. Revenue from the sale of land is recognized when
the cash received, as a percentage of the sales price, is at least 20%
for land sales other than retail land sales and 10% for retail land
sales, the earnings process is complete and the collection of any
remaining receivable is reasonably assured.
(5) The Company did not have Available Cash, as defined in the Company's
loan agreements, at June 30, 1996, to require it to make any interest
payments on the Cash Flow Notes for the payment period commencing
January 1, 1996 and ending June 30, 1996. In addition, the Company
did not have any Available Cash requiring it to make any interest
payments for the twelve-month period ended December 31, 1995.
Interest on the Cash Flow Notes is noncumulative. Therefore, the
Company has not recorded interest expense associated with the Cash
Flow Notes during the six months ended June 30, 1996 and 1995. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
(6) In March 1996, upon approval from the Company's board of directors,
the Company issued 4,537 shares of its common stock to Gerald
Agranoff, one of its non-employee directors, representing a $30,000
partial payment to assist management on a potential recapitalization
of the Company and related stockholder issues. In February 1996, the
Company received 75,730 shares of its common stock as a distribution
from the disputed claims reserve in accordance with the Company's
plan of reorganization. In June 1996, the Company received 8,728
shares of its common stock, $96,400
4
<PAGE> 7
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(unaudited)
principal amount of Mandatory Interest Notes and $103,800 principal
amount of Cash Flow Notes from the disputed claims reserve account in
settlement of a claim. The Company recorded the shares at par value
because the shares were never issued to a third party. The debt
corresponding to the notes was reduced and concurrently other
bankruptcy reserves were increased for the principal amount of the
notes.
(7) In March 1996, the City of Port St. Lucie agreed to pay the Company
$18.75 million in settlement of litigation pursuant to condemnation
proceedings associated with the taking of the Company's Port St.
Lucie utility system. The Company recorded a gain of approximately
$4.1 million in the first quarter of 1996 and the proceeds of
approximately $18.75 million were received in April 1996. In April
1996, the Company, pursuant to a contractual obligation, applied $9.1
million of the proceeds to the Company's Secured Floating Rate Notes
and used the remaining $9.6 million of proceeds to reduce the amount
outstanding under its Working Capital Facility.
(8) In February 1996, the Company sold its Port LaBelle utility system to
Hendry County for $4.5 million resulting in a gain of $686,000. Of
the net proceeds of $4.2 million from this sale, approximately $1.2
million was received in March 1996 and the remaining $3.0 million was
received in April 1996. Such proceeds were used to repay the
Company's Secured Floating Rate Notes.
(9) In February 1996, the Company recorded an extraordinary gain of
approximately $3.8 million due to the extinguishment of approximately
$1.9 million of Unsecured 12% Notes and $1.9 million of Unsecured Cash
Flow Notes. These notes, held in the disputed claims reserve account,
were in excess of the requirements necessary to satisfy the Company's
obligations in accordance with the Company's plan of reorganization.
(10) In June 1996, the Company sold its Julington Creek Plantation project
for $24 million as part of the Company's business plan to monetize
certain assets to retire debt. The $24 million sales price
consisted of $11.6 million for tract acreage, $5.6 million for
subdivision homesites, $6.0 million for the Julington Creek utilities
system and $773,000 for fixed assets. The sale resulted in a gross
margin of approximately $1.8 million on the land assets and a gain of
$865,000 on the utilities system. Approximately $7.1 million of the
proceeds from the sale of the Julington Creek land assets were used
to repay fully the Company's Working Capital Facility. Of the net
proceeds of approximately $5.7 million from the sale of the utilities
system, $3.0 million was placed in escrow and will be applied to the
Company's Secured Floating Rate Notes and approximately $2.0 million
was used to repay fully the Company's Utilities loan. The Company
entered into a development management agreement with the purchaser to
provide day-to-day management, development, marketing and sales
coordination for the Julington Creek project. The Company is entitled
to receive compensation of one percent of all gross revenues as
defined in the agreement. The Company also entered into a management
agreement to provide day-to-day operation, management and maintenance
with respect to the Julington Creek utilities system.
(11) In April 1996, the Company acquired approximately 390 acres in
southeast Orlando for approximately $5.3 million, of which
$2.4 million was paid in cash and the balance of $2.9 million was
financed through an acquisition loan secured by a mortgage on the
property. This project, known as Hunter's Trace, is currently being
permitted for approximately 900 homesites.
5
<PAGE> 8
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(unaudited)
Also in April 1996, the Company acquired an additional 240
acres as part of the Company's West Meadows project located in the
northeastern part of the Tampa Bay area for approximately $2.1
million, of which $1.8 million was financed by the seller through a
note secured by a mortgage on the property. The combined acreage in
the West Meadows project of approximately 1,140 acres is currently
being permitted for approximately 1,300 homesites. The financed
amount of $1.8 million is a non-cash financing activity and therefore
is not reflected in the accompanying statements of cash flows.
6
<PAGE> 9
PART I. - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
CURRENT BUSINESS
- ----------------
Atlantic Gulf Communities Corporation is a Florida-based real estate
development and asset management company. The Company's primary lines of
business are (1) acquisition, development and sale of new subdivision and
scattered developed homesites, (2) sale of land tracts and (3) residential
construction and sales. Additional lines of business which contribute to the
Company's overall operations include (a) environmental consulting and testing
services, (b) portfolio management of mortgages and contracts receivable and (c)
real estate development management services.
The Company acquires and develops real estate to: (i) enhance the value
of certain properties, (ii) maintain a continuing inventory of marketable
tracts and (iii) supply finished homesites to builders in Florida's fastest
growing markets. The Company's acquisition and development activities are
comprised of four primary functions: business development, planning, community
development and residential construction. See Item 1. BUSINESS in the
Company's 1995 Annual Report on Form 10-K for a more detailed description of
the Company's current business.
BUSINESS PLAN
- -------------
The Company's goal is to produce superior returns for stockholders by
liquidating predecessor assets, retiring debt, reducing overhead, and becoming
the leading supplier of finished homesites to unaffiliated homebuilders in
Florida's fastest growing markets without the exposure entailed in carrying a
substantial inventory of land. Predecessor assets are those real estate assets
inherited by the Company from its predecessor company and consist of tracts and
scattered homesites located in secondary markets throughout Florida and in one
community in Tennessee.
The Company's business plan is centered on its three principal lines of
business: (i) sales of finished homesites to unaffiliated homebuilders, (ii)
sales of tract land to end users as well as to investors and (iii) residential
construction and sales. The intent of the plan is to monetize the Company's
predecessor assets as rapidly as market conditions permit while entering into
new markets with a higher risk-adjusted return potential. The business plan
also contemplates modifying the Company's capital structure by reducing debt,
improving financial flexibility, and reducing overhead by focusing on the
Company's core assets and businesses.
Consistent with the Company's plan to monetize predecessor assets, in
April 1996 the Company entered into an agreement with Secured Capital
Corporation, a real estate investment banking firm, to conduct a sealed bid
portfolio offering of a substantial portion of the Company's predecessor real
estate assets. The sealed bid portfolio offering was designed to monetize those
assets that the Company determined did not fit the development criteria
outlined in its business plan. Proceeds from the offering were intended to be
used to pay corporate debt. On July 30, 1996, the Company received sealed bids
from several potential investors corresponding to the bulk sale of predecessor
assets in secondary markets. The prices, terms, and conditions of these bids
were reviewed by the Company and none of the bids were accepted. However, the
Company
7
<PAGE> 10
is continuing negotiations with certain persons who submitted bids and
others who did not choose to participate in the bidding.
The Company is also actively marketing predecessor assets on a bulk
sale basis as well as on an individual tract/lot basis through the Company's
Atlantic Gulf Land Company. The Company currently has approximately $24.7
million in pending contracts and letters of intent on predecessor assets.
There are no assurances that the above-mentioned negotiations, pending
contracts and letters of intent will result in material sales or in material
sales at prices which, in the aggregate, equal the Company's book value in the
properties sold. See Item 1. BUSINESS in the Company's 1995 Annual Report on
Form 10-K for additional information on the Company's business plan.
8
<PAGE> 11
Results of Operations
---------------------
Comparison of the Six Months Ended June 30, 1996 and 1995
---------------------------------------------------------
The Company's results of operations for the six months ended June 30,
1996 and 1995 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business
---------------------------------------------------
Six Months Ended June 30, 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
-------- ----- ----------- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $24,225 $35,949 $ 9,321 $ $ $ $69,495
Other operating revenue 2,282 2,282
Interest income 2,079 1,051 3,130
Other income:
Reorganization reserves 1,267 1,267
Other income 5,675 1,654 7,329
------------------------------------------------------------------------------------------
Total revenues 24,225 35,949 9,321 10,036 3,972 83,503
------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 18,413 29,609 7,071 55,093
Selling expense 2,881 2,037 906 5,824
Other operating expense 1,257 1,257
Other real estate costs:
Property tax, net 30 2,902 2,932
Other real estate overhead 935 864 533 623 1,587 1,218 5,760
General and administrative 5,386 5,386
Depreciation 18 45 14 188 207 472
Cost of borrowing, net 6,386 6,386
Other expense (11) 313 302
------------------------------------------------------------------------------------------
Total costs and expenses 22,236 32,555 8,524 2,098 1,900 16,099 83,412
------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 1,989 3,394 797 7,938 (1,900) (12,127) 91
Extraordinary gain on
extinguishment of debt 3,770 3,770
------------------------------------------------------------------------------------------
Net income (loss) $ 1,989 $ 3,394 $ 797 $ 7,938 $(1,900) $(8,357) $ 3,861
==========================================================================================
</TABLE>
9
<PAGE> 12
Combining Results of Operations by Line of Business
---------------------------------------------------
Six Months Ended June 30, 1995
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
-------- ----- ----------- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $8,650 $6,762 $4,480 $ $ $ $ 19,892
Other operating revenue 3,961 3,961
Interest Income 3,207 844 4,051
Other income:
Reorganization reserves 3,453 3,453
Other income 245 3,060 (9) 3,296
------------------------------------------------------------------------------------------
Total revenues 8,895 6,762 4,480 10,228 4,288 34,653
------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 6,049 4,633 3,801 14,483
Selling expense 1,618 854 1,229 6 3,707
Other operating expense 2,578 2,578
Other real estate costs:
Property tax, net 5 61 4,097 4,163
Other real estate overhead 820 452 680 529 3,388 983 6,852
General and administrative 5,369 5,369
Depreciation 11 27 120 238 226 622
Cost of borrowing, net 6,384 6,384
Other expense 239 239
------------------------------------------------------------------------------------------
Total costs and expenses 8,498 5,966 5,835 3,406 3,633 17,059 44,397
------------------------------------------------------------------------------------------
Net income (loss) $ 397 $ 796 $(1,355) $ 6,822 $(3,633) $(12,771) $ (9,744)
==========================================================================================
</TABLE>
During the first six months of 1996, the Company generated net income of
$3.9 million which was a $13.6 million improvement from the $9.7 million net
loss incurred during the first six months of 1995. This improvement was
primarily due to a significant increase in real estate sales, a $3.8 million
extraordinary gain in the first quarter of 1996 resulting from the
extinguishment of debt, an increase in other income and a decrease in other
real estate costs. The increase in other income was principally attributable
to a gain of approximately $4.1 million in the first quarter of 1996 on the
settlement of the Port St. Lucie utility condemnation litigation.
10
<PAGE> 13
Homesite Sales
--------------
Net income from homesite sales improved $1.6 million during the first
six months of 1996 compared to the first six months of 1995 primarily due to an
increase in the number of homesites sold and an increase in the average sales
price per homesite.
Revenues from homesite sales increased $15.6 million in the first six
months of 1996, a 180% increase from the first six months of 1995. The
increase resulted from a 90% increase in the number of homesites sold and a 47%
increase in the average sales price per homesite. The following table
summarizes homesite activity for the six months ended June 30 (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995
---------------------------------- -----------------------------------
Number Average Number Average
of lots Revenue sales price of lots Revenue sales price
-------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Subdivision homesite sales 542 $18,455 $34.0 215 $5,501 $25.6
Scattered homesite sales 730 5,770 7.9 455 3,149 6.9
----- ------- ----- --- ------ -----
1,272 $24,225 $19.0 670 $8,650 $12.9
===== ======= ===== === ====== =====
</TABLE>
The increase in subdivision homesite sales is primarily due to the
closing in 1996 of 193 homesites for $8.1 million in Windsor Palms, a project
located in southwest Broward County, Florida and to a $3.5 million increase in
sales in Julington Creek Plantation due to the sale of the entire project in
June 1996 which included 126 subdivision homesites for $5.6 million. In
addition, there was an increase in closings in the Company's Lakeside Estates
project in Orlando, Florida. The increase in the average sales price of
subdivision homesite sales is primarily due to the homesite sales in Windsor
Palms which yielded an average sales price of approximately $42,000 and in
Julington Creek which yielded an average sales price of approximately $43,000
in 1996 compared to $34,000 in 1995.
Scattered homesite sales increased in the first six months of 1996
compared to the first six months of 1995 due to increases in volume and the
average sales price per homesite. These increases are principally due to an
increase in sales in the Company's Cumberland Cove community in Tennessee and
to bulk homesite sales in the secondary markets in Florida. During the
remainder of 1996, the Company anticipates it will continue to supplement
scattered homesite sales volume in the secondary markets through bulk sales and
through the marketing activities of the Atlantic Gulf Land Company as part of
its plan to accelerate the disposition of assets in secondary real estate
markets in Florida.
Other income of $245,000 in the first six months of 1995 represents the
Company's 50% share of net profits from the Sanctuary Joint Venture which the
Company accounts for under the equity method. The Sanctuary Joint Venture
derives its profits from the sale of subdivision homesites located near
Orlando, Florida.
As of June 30, 1996, the Company had approximately 1,030 total
homesites under contract for approximately $8.6 million which are anticipated
to close in 1996. As of June 30, 1995, the Company had approximately 279 total
homesites under contract totaling approximately $4.9 million.
The homesite sales gross margin percentages were 24.0% in the first six
months of 1996 compared to 30.1% in the first six months of 1995. The gross
margin percentage in the first six months of 1995 reflects targeted gross
margins of 25% to 30% for this line of business. The lower gross margin in the
first six months
11
<PAGE> 14
of 1996 is primarily attributable to a decrease in gross margins in
Julington Creek from 32.4% in 1995 to 24.4% in 1996 due to the bulk sale of
this project in June 1996 and to the Windsor Palms sales which had a gross
margin of 19%. Julington Creek was sold in bulk as part of the Company's
business plan to monetize certain assets to generate cash to retire debt.
Gross margin represents the difference between the Company's real estate
revenue and related cost of sales. There are no assurances that the targeted
margins set forth herein will be achieved. The achievement of such targets is
subject to a number of factors over which the Company has no control, including
the continuation of current market conditions and interest rates, the timely
receipt of required regulatory approvals and the absence of other adverse
developments.
Homesite selling expense increased primarily due to an increase in
revenues. Homesite selling expense as a percentage of revenues decreased from
18.7% in the first six months of 1995 to 11.9% in the first six months of 1996,
primarily due to the increased revenues over which to spread fixed costs and
costs associated with the implementation in 1995 of scattered homesite retail
sales programs, most particularly in the Cumberland Cove community in
Tennessee, designed to supplement homesite sales activity.
Other real estate overhead increased in 1996 primarily due to costs
incurred to manage recently acquired subdivision homesite projects in Florida's
primary real estate markets.
Tract Sales
-----------
Net income from tract sales increased $2.6 million during the first six
months of 1996 compared to the first six months of 1995 primarily due to an
increase in revenues.
Revenues from tract sales increased $29.2 million or 432% in the first
six months of 1996 to $35.9 million in 1995 primarily due to several large
sales during the period including the sale of the Company's Julington Creek
Plantation project which included $11.6 million of tract acreage and a $9.0
million bulk sale of Summerchase, a project consisting of 320 acres in
southwest Broward County. Tract sales acreages and corresponding revenues from
such sales often vary significantly from quarter to quarter depending on the
timing and size of individual sales. As of June 30, 1996, there were pending
tract sales contracts totaling approximately $15 million which, subject to
certain contingencies, are anticipated to close in 1996. Pending sales
contracts increased to approximately $19 million as of July 31, 1996 primarily
due to the addition of an anticipated sale in 1996 for $5.1 million of the
remaining 1,200 acres of a parcel known as River Trace in Port St. Lucie. As
of June 30, 1995, there were pending tract sales contracts totaling
approximately $32.0 million. The amount of pending tract sales contracts
decreased in 1996 compared to 1995 primarily due to a large tract sale in 1995
to the Southwest Florida Water Management District for approximately $14.2
million.
Tract sales gross margins are summarized as follows for the six months
ended June 30:
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 5% -- 10% 2.8%
Julington Creek bulk sale -- 6.3% -- --
Other tract acreage 20% 23.0% 35% 38.6%
</TABLE>
12
<PAGE> 15
The Port LaBelle agricultural acreage gross margin in 1995 was
generated from one tract sale of approximately 1,100 acres and is not
considered to be representative of the gross margin anticipated for the
remaining approximately 20,000 acres of agricultural property. The targeted
gross margin is lower for Port LaBelle agricultural acreage because management
has determined that the Port LaBelle agricultural property is not an integral
part of the Company's long-term business strategy. In order to accelerate the
disposal of this property, the sales value for this property was adjusted from
a "retail" to a "wholesale" basis, which reduced the targeted gross margin for
this property.
The low gross margin in Julington Creek resulted from the bulk sale of
this project in June 1996 as part of the Company's business plan to monetize
certain assets to generate cash to retire debt.
The actual gross margins in 1996 and 1995 for other tract acreage
generally reflect the targeted gross margins. The targeted gross margins were
reduced in 1996 primarily due to the plan approved in July 1995 to accelerate
land sales in secondary real estate market locations.
Tract sales selling expense increased in the first six months of 1996
compared to the first six months of 1995 primarily due to an increase in
revenues. Tract sales selling expense as a percentage of revenues decreased
from 12.6% in the first six months of 1995 to 5.7% in the first six months of
1996 primarily due to lower selling expenses associated with several large
tract sales including the Summerchase and Julington Creek sales.
Tract sales other real estate overhead increased in the first six
months of 1996 compared to the first six months of 1995 primarily due to
management and advertising costs associated with the efforts to accelerate the
disposition of predecessor assets in secondary real estate markets.
Residential Sales
-----------------
The net operating results from residential sales, which includes single
family homes and condominiums, improved $2.2 million during the six months
ended June 30, 1996 compared to the corresponding prior year period principally
due to condominium revenues and profits from the Company's Regency Island Dunes
condominium project and a decrease in fixed selling and overhead costs
associated with single family homes as the Company is phasing out its single
family homes sales operations.
Residential sales are summarized as follows for the six months ended
June 30 (in thousand of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominium sales $6,541 $ --
Single family home sales 2,780 4,480
------ ------
$9,321 $4,480
====== ======
</TABLE>
The revenues and profits associated with Regency Island Dunes
condominium sales are recorded using the percentage of completion method. The
Regency Island Dunes condominium project consists of two 72-unit buildings.
The condominium revenues of $6.5 million during the first six months of 1996
consist of $2.0 million from the first building and $4.5 million from the
second building. As of December 31, 1995, the Company recorded 97% of the
expected revenues and profits on 61 units that were under contract in the first
building as of December 31, 1995 based on a construction completion percentage
of 97%. The condominium revenues of $2.0 million in the first building
represent the incremental revenue earned upon the completion of 59 of these 61
units in the first six months of 1996 and the sale and closing of an additional
five units in 1996. As of
13
<PAGE> 16
June 30, 1996, 45 units were under contract in the second building representing
a sales volume of $15.6 million, the building was 30% complete, and revenues of
$4.5 million were recognized on the percentage of completion basis. Additional
revenues and profits will be recorded as the construction progresses and more
units are sold. The construction of the second building is expected to be
substantially completed by the end of 1996.
Single family home sales revenues decreased during the first six months
of 1996 compared to the first six months of 1995 due to a decrease in closings
from 48 in 1995 to 32 in 1996 and a decrease in the average selling price from
$93,000 in 1995 to $87,000 in 1996. Closings decreased as the Company decided
in mid-1995 to withdraw from the single family home business and is currently
winding down this business. The decrease in the average selling price was due
to the mix of product sold. As of June 30, 1996, the Company had two single
family home residential units under contract totalling $168,000 which are
expected to close during 1996.
Residential sales gross margins are summarized as follows for the six
months ended June 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominiums 29.7% --
Single family homes 11.1% 15.2%
</TABLE>
The gross margin for condominiums was higher than the targeted gross
margin of approximately 20% to 25% primarily due to adjustments resulting from
the recording of the actual profits associated with 59 closings in the first
six months of 1996 as compared to the estimated profits previously recorded in
1995.
The single family home gross margins decreased in 1996 due to the mix
of product sold and as a result of the Company winding down this line of
business.
Residential selling expense as a percentage of revenues decreased from
27.4% in the first six months of 1995 to 9.7% in the first six months of 1996
primarily due to a decrease in fixed selling costs as a result of the
phasing-out of the single family home sales operations. Also impacting this
percentage are advertising and other selling costs for the Regency Island Dunes
condominium project which had no corresponding sales revenue in 1995.
Other real estate overhead decreased in the first six months of 1996
compared to the first six months of 1995 primarily due to reduced single family
home overhead resulting from the phase-out of this operation, partially offset
by costs associated with the Regency Island Dunes condominium project.
Other Operations
----------------
Net income from other operations increased in the first six months of
1996 compared to the first six months of 1995 primarily due to an increase in
other income, partially offset by a decrease in interest income.
Other operating revenues and expenses decreased in the first six months
of 1996 from the first six months of 1995 primarily due to the absence of
revenues and expenses from Florida Home Finders Inc. (FHF), a wholly owned
subsidiary sold on March 31, 1995 and Longwood Utilities, a wholly owned
subsidiary sold in July 1995 and to a reduction in revenues and expenses from
the Port LaBelle utility system sold in February 1996.
14
<PAGE> 17
Interest income decreased in the first six months of 1996 from the
corresponding prior year period primarily due to adjustments associated with
the Company's land mortgage receivable portfolio, including an adjustment of
the unamortized interest rate valuation discount in December 1995, and to a
lower average balance of contracts receivable during the periods under review.
Other income of $5.7 million in the first six months of 1996 included a
gain of approximately $4.1 million on the $18.75 million settlement in March
1996 with the City of Port St. Lucie regarding litigation pursuant to
condemnation proceedings associated with the taking of the Company's Port St.
Lucie system. Also included in other income during the first six months of
1996 was a gain of $686,000 on the sale of the Company's Port LaBelle utility
system which was sold in February 1996 for $4.5 million and a gain of $865,000
on the sale of the Company's Julington Creek utility system sold in June 1996
for $6.0 million. Other income of $3.1 million in the first six months of 1995
represented a gain on the sale of FHF, a property management and real estate
brokerage company, in March 1995 for $3.5 million. The proceeds included a
$3.0 million promissory note of which $2.3 million was received in June 1995.
In October 1995, in connection with an allegedly illegal transfer by the new
owners of FHF of certain escrowed funds, a receiver was appointed to manage
FHF. Due to the uncertain collectibility of the remaining balance of the note
receivable, the Company wrote-off the receivable in December 1995 thereby
reducing the gain on the sale to approximately $2.4 million.
Business Development
--------------------
Total business development expenditures decreased $1.7 million in the
first six months of 1996 compared to the first six months of 1995 primarily due
to a decrease in expenditures related to the Company's Ya Dong joint venture in
China.
Business development overhead decreased in the first six months of 1996
compared to the first six months of 1995 primarily due to a decrease in costs
related to the Ya Dong joint venture. The Company incurred costs of $617,000
in 1996 compared to approximately $2.3 million in 1995. The Company does not
anticipate making any additional material capital contributions to the Ya Dong
joint venture in 1996.
Other expenses of $313,000 in the first six months of 1996 and $239,000
in the first six months of 1995 represent the Company's 50% share of the net
loss of the Ocean Grove joint venture which is a condominium project in Palm
Beach County, Florida. The loss resulted from pre-sales advertising and other
selling and overhead costs.
Administrative & Other
---------------------
The net loss from administrative & other activities decreased $4.4
million in the first six months of 1996 from the first six months of 1995
principally due to an extraordinary gain of $3.8 million in 1996 resulting from
the extinguishment of debt.
Other income included gains of $1.3 million in the first six months of
1996 and $3.5 million in the first six months of 1995 resulting from the
resolution of reorganization items. This process is expected to continue
during the remainder of the year with adjustments to be recorded as the final
disposition of various claims and other liabilities is concluded. Other income
in 1996 also included a gain of approximately $1.0 million due to a reduction
of the Company's environmental reserve and a gain of approximately $600,000
due to a reduction in the Company's land mortgages receivable valuation reserve.
15
<PAGE> 18
Property tax, net decreased in the first six months of 1996 compared to
the first six months of 1995 primarily due to a reduction of land inventory not
under development. This decrease in inventory corresponds to sales activity in
the intervening period.
Other real estate overhead increased in the first six months of 1996
compared to the corresponding prior year period primarily due to legal costs
associated with supporting increased real estate sales activity.
Cost of borrowing, net of capitalized interest remained at the same
level during the first six months of 1996 compared to the same period in 1995
despite a lower average balance of the Company's Mandatory Interest Notes due
to a decrease in corporate interest capitalized to land inventory corresponding
to a decrease in land under development. During the six months ended June 30,
1996 and 1995, the Company did not accrue interest on its Cash Flow Notes
because of the absence of Available Cash during the periods. See "LIQUIDITY
AND CAPITAL RESOURCES."
In February 1996, the Company recorded an extraordinary gain of
approximately $3.8 million due to the extinguishment of approximately $1.9
million of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow Notes.
These notes, held in the disputed claims reserve account, were in excess of the
requirements necessary to satisfy the Company's obligations in accordance with
the Company's plan of reorganization.
16
<PAGE> 19
Comparison of the Three Months Ended June 30, 1996 and 1995
-----------------------------------------------------------
The comparison of the three months ended June 30, 1996 and 1995 should
be read in conjunction with the comparison of the six months ended June 30,
1996 and 1995 for a more comprehensive discussion of the result of operations.
The Company's results of operations for the three months ended June 30, 1996
and 1995 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business
---------------------------------------------------
Three Months Ended June 30, 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
-------- ----- ----------- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $9,627 $30,204 $6,451 $ $ $ $46,282
Other operating revenue 1,149 1,149
Interest income 1,265 524 1,789
Other income:
Reorganization reserves --
Other income 855 1,654 2,509
------------------------------------------------------------------------------------------
Total revenues 9,627 30,204 6,451 3,269 2,178 51,729
------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 7,494 24,906 4,896 37,296
Selling expense 1,496 1,394 382 3,272
Other operating expense 558 558
Other real estate costs:
Property tax, net 20 1,473 1,493
Other real estate overhead 385 369 111 372 1,003 702 2,942
General and administrative 2,256 2,256
Depreciation 9 27 2 81 104 223
Cost of borrowing, net 3,098 3,098
Other expense (23) 118 95
------------------------------------------------------------------------------------------
Total costs and expenses 9,361 26,696 5,391 1,031 1,121 7,633 51,233
------------------------------------------------------------------------------------------
Net income (loss) $ 266 $ 3,508 $1,060 $2,238 $(1,121) $(5,455) $ 496
==========================================================================================
</TABLE>
17
<PAGE> 20
Combining Results of Operations by Line of Business
---------------------------------------------------
Three Months Ended June 30, 1995
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
-------- ----- ----------- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $5,077 $4,544 $2,368 $ $ $ $11,989
Other operating revenue 1,407 1,407
Interest income 1,571 453 2,024
Other income:
Reorganization reserves 2,853 2,853
Other income 245 60 (9) 296
------------------------------------------------------------------------------------------
Total revenues 5,322 4,544 2,368 3,038 3,297 18,569
------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 3,528 2,751 2,040 8,319
Selling expense 870 555 542 (245) 1,722
Other operating expense 825 825
Other real estate costs:
Property tax, net 5 30 2,089 2,124
Other real estate overhead 430 216 358 257 1,996 368 3,625
General and administrative 2,797 2,797
Depreciation 4 25 62 128 109 328
Cost of borrowing, net 3,543 3,543
Other expense 239 239
------------------------------------------------------------------------------------------
Total costs and expenses 4,832 3,547 3,007 1,240 1,990 8,906 23,522
------------------------------------------------------------------------------------------
Net income (loss) $ 490 $ 997 $ (639) $1,798 $(1,990) $(5,609) $(4,953)
==========================================================================================
</TABLE>
During the second quarter of 1996 the Company had net income of
$496,000 which was a $5.5 million improvement from the $5.0 million net loss
incurred during the second quarter of 1995. This improvement was primarily due
to a significant increase in real estate sales and a decrease in other real
estate costs.
18
<PAGE> 21
Homesite Sales
--------------
Net income from homesite sales decreased slightly in the second quarter
of 1996 compared to the second quarter of 1995 despite an increase in revenues,
primarily due to lower gross margin percentages in the second quarter of 1996.
Revenues from homesite sales increased $4.6 million in the second
quarter of 1996, a 90% increase from the second quarter of 1995. The increase
resulted from a 69% increase in the number of homesites sold and a 12% increase
in the average sales price per homesite. The following table summarizes
homesite activity for the three months ended June 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------------------------------------ -----------------------------------
Number Average Number Average
of lots Revenue sales price of lots Revenue sales price
-------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Subdivision homesite sales 158 $6,373 $40.3 136 $3,464 $25.5
Scattered homesite sales 445 3,254 7.3 220 1,613 7.3
--- ------ ----- --- ------ -----
603 $9,627 $16.0 356 $5,077 $14.3
=== ====== ===== === ====== =====
</TABLE>
The increase in subdivision homesite sales is primarily due to a $3.1
million increase in sales in Julington Creek Plantation due to the sale of the
entire project in June 1996 which included 126 subdivision homesites for $5.6
million. The increase in the average sales price of subdivision homesite sales
is primarily due to an increase in the average sales price in Julington Creek
Plantation from approximately $32,600 in the second quarter of 1995 to $44,600
in the second quarter of 1996.
Scattered homesite sales increased in the second quarter of 1996
compared to the second quarter of 1995 due to a 102% increase in the number of
homesites sold. The increase in volume is primarily attributable to a
significant increase in sales in the Company's Cumberland Cove community in
Tennessee and to bulk homesite sales in the secondary markets in Florida.
Other income of $245,000 in the second quarter of 1995 represents the
Company's 50% share of net profits from the Sanctuary Joint Venture which the
Company accounts for under the equity method. The Sanctuary Joint Venture
derives its profits from the sale of subdivision homesites located near
Orlando, Florida.
The homesite sales gross margin percentages were 22.2% in the second
quarter of 1996 compared to 30.5% in the second quarter of 1995. The gross
margin percentage in the second quarter of 1995 reflects targeted gross margins
of 25% to 30% for this line of business. The lower gross margin percentage in
the second quarter of 1996 is primarily attributable to a decrease in gross
margins in Julington Creek Plantation from 42.4% in the second quarter of 1995
to 19% in the second quarter of 1996 primarily due to the bulk sale of this
project in June 1996.
Homesite selling expense increased in the second quarter of 1996
compared to the second quarter of 1995 primarily due to an increase in
revenues. Homesite selling expense as a percentage of revenues decreased from
17.1% in the second quarter of 1995 to 15.5% in the second quarter of 1996
primarily due to the increased revenues over which to spread fixed costs and
costs associated with the implementation in 1995 of scattered homesite retail
sales programs, most particularly in the Cumberland Cove community in
Tennessee, designed to supplement homesite sales activity.
19
<PAGE> 22
Tract Sales
-----------
Net income from tract sales increased $2.5 million in the second
quarter of 1996 compared to the second quarter of 1995 primarily due to an
increase in revenues.
Revenues from tract sales increased $25.7 million or 565% in the second
quarter of 1996 to $30.2 million in 1995 primarily due to several large sales
during the period including the sale of the Company's Julington Creek
Plantation project which included $11.6 million of tract acreage and a $9.0
million bulk sale of Summerchase, a project consisting of 320 acres in
southwest Broward County. Tract sales acreages and corresponding revenues from
such sales often vary significantly from quarter to quarter depending on the
timing and size of individual sales.
Tract sales gross margins are summarized as follows for the three
months ended June 30:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Julington Creek bulk sale -- 6.3% -- --
Other tract acreage 20% 24.5% 35% 39.5%
</TABLE>
The lower gross margin in Julington Creek resulted from the bulk sale
of this project in June 1996 as part of the Company's business plan to monetize
certain assets to generate cash to retire debt.
The actual gross margins in the second quarter of 1996 and the second
quarter of 1995 for other tract acreage generally reflect the targeted gross
margins. The targeted gross margins have been reduced primarily due to the
plan approved in July 1995 to accelerate land sales in secondary real estate
market locations.
Tract sales other real estate overhead increased in the second quarter
of 1996 compared to the second quarter of 1995 primarily due to management and
advertising costs associated with the efforts to accelerate the disposition of
land sales in secondary real estate markets.
Residential Sales
-----------------
The net operating results from residential sales, which includes single
family homes and condominiums, improved $1.7 million during the second quarter
of 1996 compared to the corresponding prior year period. This increase
corresponds to condominium revenues and profits from the Company's Regency
Island Dunes condominium project and a decrease in fixed selling and overhead
costs associated with single family homes as the Company is phasing out its
single family homes sales operations.
20
<PAGE> 23
Residential sales are summarized as follows for the three months ended
June 30 (in thousand of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominium sales $5,631 $ --
Single family home sales 820 2,368
------ ------
$6,451 $2,368
====== ======
</TABLE>
The condominium revenues of $5.6 million during the second quarter of
1996 consist of $4.5 million from the second building and $1.1 million from the
first building of the Regency Island Dunes condominium project consisting of
two 72-unit buildings. As of June 30, 1996, 45 units were under contract in the
second building representing a sales volume of $15.6 million, the building was
30% complete, and revenues of $4.5 million were recognized on the percentage of
completion basis. Revenues of $1.1 million from the first building were
generated primarily from the closing of three units in the second quarter of
1996 which were sold in 1996.
Single family home sales revenues decreased in the second quarter of
1996 compared to the second quarter of 1995 due to a decrease in the number of
closings from 30 closings in 1995 with an average selling price of $79,000 to
10 closings in 1996 with an average selling of price of $82,000. The number of
closings decreased as the Company decided in mid-1995 to withdraw from the
single family home business and is currently winding down this operation.
Residential sales gross margins are summarized as follows for the three
months ended June 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominiums 27.0% -
Single family homes 4.4% 13.9%
</TABLE>
The gross margin for condominiums generally reflects the targeted gross
margin of approximately 20% to 25% for this line of business.
The single family home gross margins were lower due to the mix of
product sold and to the winding down of this operation.
Residential selling expense as a percentage of revenues decreased from
22.9% in the second quarter of 1995 to 5.9% in the second quarter of 1996
primarily due to a decrease in fixed selling costs associated with the
phasing-out of the single family home sales operations. Also impacting this
percentage are advertising and other selling costs for the Regency Island
Dunes condominium project which had no corresponding sales revenue in 1995.
Other real estate overhead decreased in the second quarter of 1996
compared to the second quarter of 1995 primarily due to reduced single family
home overhead resulting from the phasing-out of this operation.
Other Operations
----------------
Net income from other operations increased in the second quarter of
1996 compared to the second quarter of 1995 primarily due to an increase in
other income, partially offset by a decrease in interest income.
21
<PAGE> 24
Other operating revenues and expenses decreased in the second quarter
of 1996 from the second quarter of 1995 primarily due to the absence of
revenues and expenses from Longwood Utilities sold in July 1995 and the Port
LaBelle utility system sold in February 1996.
Interest income decreased in the second quarter of 1996 from the
corresponding prior year period primarily due to adjustments associated with
the Company's land mortgage receivable portfolio, including an adjustment of
the unamortized interest rate valuation discount in December 1995, and to a
lower average balance of contracts receivable during the periods under review.
Other income in the second quarter of 1996 consisted primarily of a
gain of $865,000 on the sale of the Company's Julington Creek utilities system
sold in June 1996 for $6.0 million.
Business Development
--------------------
Total business development expenditures decreased in the second quarter
of 1996 compared to the first quarter of 1995 primarily due to a decrease in
expenditures related to the Company's Ya Dong joint venture in China.
Selling expenses of $251,000 incurred in the first quarter of 1995
associated with the Company's Ocean Grove condominium project were reclassified
in the second quarter of 1995 as a result of converting this project into a
joint venture in June 1995 and subsequently accounting for it under the equity
method. The Company's share of these costs are included in other expenses.
Business development overhead decreased in the second quarter of 1996
compared to the second quarter of 1995 primarily due to a decrease in costs
related to the Ya Dong joint venture.
Other expenses of $118,000 in the second quarter of 1996 and $239,000
in the second quarter of 1995 represent the Company's 50% share of the net loss
of the Ocean Grove joint venture. The loss resulted from pre-sales advertising
and other selling and overhead costs.
Administrative & Other
---------------------
Other income of $1.6 million in the second quarter of 1996 consisted of
a gain of approximately $1.0 million due to a reduction of the Company's
environmental reserve and a gain of approximately $600,000 due to a reduction
in the Company's land mortgages receivable valuation reserve. Other income of
$2.9 million in the second quarter of 1995 represented gains resulting from the
resolution of reorganization items.
Property tax, net decreased in the second quarter of 1996 compared to
the second quarter of 1995 primarily due to a reduction of land inventory not
under development. This decrease in inventory corresponds to sales activity in
the intervening period.
Other real estate overhead increased in the second quarter of 1996
compared to the same period in 1995 primarily due to legal costs associated
with supporting increased real estate sales activity.
General and administrative expenses decreased in the second quarter of
1996 compared to the second quarter of 1995 principally due to the
capitalization in the second quarter of 1996 of financial advisory and due
diligence costs associated with recapitalization efforts which were expensed in
previous periods.
Cost of borrowing, net of capitalized interest decreased in the second
quarter of 1996 compared to the same period in 1995 primarily due to lower
average balances of the Company's Working Capital Facility
22
<PAGE> 25
and Mandatory Interest Notes, partially offset by a decrease in
corporate interest capitalized to land inventory due to a decrease in land
under development. During the three months ended June 30, 1996 and 1995, the
Company did not accrue interest on its Cash Flow Notes because of the absence
of Available Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES."
LIQUIDITY & CAPITAL RESOURCES
-----------------------------
As of June 30, 1996, the Company's cash and cash equivalents totaled
approximately $8.9 million. The Company also had restricted cash and cash
equivalents of $8.7 million which consisted primarily of escrows for the sale
and development of real estate properties, funds held in trust to pay certain
bankruptcy claims and various other escrow accounts. Of the $5.4 million
increase in cash and cash equivalents during the first six months of 1996,
$22.1 million was provided by operating activities and $26.3 million was
provided by investing activities, partially offset by $43.0 million used in
financing activities.
Cash provided by operating activities includes net cash generated
through real estate sales and other operations partially offset by
approximately (i) $7.1 million for interest payments, (ii) $5.6 million for a
portion of the annual property tax payments, (iii) $16.2 million for
construction and development expenditures and (iv) $7.9 million related to
property acquisitions.
Cash provided by investing activities consisted primarily of the
proceeds from the Port St. Lucie utility condemnation settlement and from the
sales of the Port LaBelle and Julington Creek utilities systems.
Cash used in financing activities includes net repayments of $15.5
million on new project financings, net repayments of $9.7 million on the
Working Capital Facility, $2.4 million in principal payments related to the
Company's deferred property tax and Section 365(j) lien obligations arising out
of the reorganization proceedings and $13.4 million of principal payments on
the Company's Secured Floating Rate Notes.
The June 30, 1996 balances of the Secured Floating Rate Notes and
Secured Cash Flow Notes were $37.8 million and $54.9 million, respectively.
The balance of the Secured Floating Rate Notes was reduced by $13.4 million in
the first six months of 1996 utilizing approximately $9.1 million of proceeds
from the settlement of the Port St. Lucie condemnation suit and approximately
$4.2 million received from the sale of the Port LaBelle utility system. Of the
$18.75 million of proceeds received pursuant to the settlement of the Port St.
Lucie condemnation suit, the Company was committed to apply $9.1 million to the
Secured Floating Rate Notes. The remaining $9.6 million of proceeds were used
to reduce the amount outstanding under the Working Capital Facility. Pursuant
to the Secured Note Agreements, the Company paid fees of approximately $454,000
in April 1996 and $375,000 in June 1996 to the Secured Floating Rate Note
holders as the Secured Floating Rate Notes were not prepaid in full through
those periods. The Company is required to pay $375,000 for each quarter
thereafter during which such notes remain outstanding. In addition, the
holders of the Secured Cash Flow Notes earn a fee of $375,000 if the Secured
Floating Rate Notes have been paid in full but any Secured Cash Flow Notes
remain outstanding payable on the last day of each calendar quarter. Such fees
are payable each quarter thereafter until such notes have been fully repaid.
With respect to the Secured Cash Flow Notes, such fees will be reduced by
prepayments in part or in whole.
The Company has a $20 million Working Capital Facility with Foothill
Capital Corporation ("Foothill"). The maturity date of this Facility is
November 30, 1996, although Foothill has issued a commitment, dated July 11,
1996, to extend this Facility to at least December 1, 1998, and to provide
certain additional financing (the "Foothill Refinancing" - see discussion
below). Amounts outstanding under the Working Capital Facility bear
variable interest at a rate equal to the highest of the variable interest
rates, per annum, announced by Bank of America, N.T. & S.A., Mellon Bank, N.A.
and Citibank, N.A., or any
23
<PAGE> 26
successor thereto, as its "prime rate" or "reference rate," plus two
percentage points. As of June 30, 1996, $18.5 million of credit was available
under the Working Capital Facility with a $1.5 million letter of credit
outstanding under the Facility to be used as additional collateral for a $14.3
million construction loan on the second building of the Regency Island Dunes
condominium project.
The Company's material obligations for the third quarter of 1996
include approximately $4.7 million for semiannual interest on the Company's
Secured Floating Rate Notes and Unsecured 12% Notes (collectively, the
"Mandatory Interest Notes"), $694,000 for deferred property tax principal and
interest, and $1.4 million for Section 365(j) lien principal and interest. The
Mandatory Interest Notes mature on December 31, 1996. By that time, the
Company must pay principal in the amount of $37.8 million for the Secured
Floating Rate Notes and $41.7 million for the Unsecured 12% Notes, plus accrued
interest with respect to each. The Company's 1996 business plan also
contemplates full year expenditures for development, construction and other
capital improvements estimated at approximately $35 million, of which a
substantial portion will require funding through individual project development
loans or joint venture arrangements. If the Company is unable to obtain the
capital resources to fund these expenditures, the implementation of the
Company's business plan will be adversely affected, thus slowing the Company's
expected revenue growth and increasing the expected time necessary for the
Company to achieve profitability.
Management believes it will obtain sufficient liquid capital resources
to satisfy its obligations as more fully described hereafter. However, the
Company does not currently have sufficient liquid capital resources to satisfy
the $79.5 million of Mandatory Interest Notes maturing on December 31, 1996.
The Company also has $54.9 million of Secured Cash Flow Notes and $41.6 million
of Unsecured Cash Flow Notes maturing on December 31, 1998.
Management believes that the Company, through a combination of sources,
will be able to obtain sufficient liquidity and capital resources necessary to
continue implementing its business plan and to satisfy or otherwise refinance
its debt maturing on December 31 of 1996 and 1998. Management has developed a
near-term plan to satisfy its debt maturing in 1996. This near-term plan
anticipates the Company generating approximately $130 million of cash available
for debt service in the second half of 1996 from several sources, including (i)
the increased cash generated from ongoing core operations, including
subdivision homesite and condominium sales; (ii) the accelerated disposition of
non-core tract and scattered homesite assets through the efforts of the
Company's in-house sales staff in cooperation with outside brokers, including
non-traditional sales approaches such as portfolio sales or joint ventures;
(iii) the sale or financing of any mortgages or other receivables acquired
through real estate sales; (iv) the potential sale of the Company's interest in
one or more of the Company's primary market projects; and (v) the Foothill
Refinancing, discussed below.
With respect to the accelerated disposition of non-core real estate
assets, the Company has made substantial progress over the last nine months
through a combination of increased marketing efforts and increased willingness
to accept terms such as purchase money mortgages. As discussed above (see
"Business Plan"), the Company engaged Secured Capital Corporation to conduct a
sealed bid portfolio offering of a substantial portion of the Company's
predecessor assets. This portfolio offering was an integral part of the
Company's near-term plan to satisfy the 1996 debt obligations. As noted
previously, no bids were accepted with respect to this portfolio offering.
Consequently, management is now pursuing alternative sources of funds to
replace the anticipated revenues associated with the portfolio offering.
Management actions include increased emphasis on internally generated cash by
actively marketing predecessor assets on a bulk sale basis as well as on an
individual tract/lot basis through the Company's Atlantic Gulf Land Company.
As of June 30, 1996, the Company had closed or under contract or letter of
intent a combination of transactions which would generate, if consummated, in
excess of $24.7 million cash and notes not directly associated with specific
project financings. The transactions under contract are subject to a variety of
customary conditions, in some cases including a financing condition.
Transactions subject to a letter of intent are also subject to further
negotiation and documentation. There are no assurances that any particular
transaction under contract or letter of intent will be consummated.
With respect to the Foothill Refinancing, in July 1996, Foothill issued
a commitment letter to (i) extend to December 1, 1998 the existing $20 million
Working Capital Facility at prime plus two
24
<PAGE> 27
percent; (ii) loan $40 million as a term loan at 15% to mature June 30,
1998; and (iii) issue a stand-by commitment of up to $25 million at prime plus
four percent to mature June 30, 1998. The stand-by facility may be activated
any time prior to December 31, 1996 and will be a reducing revolving facility
up to the amount activated. Both the term loan and stand-by facility will
require principal repayments of one-third on June 30, 1997, December 31, 1997
and June 30, 1998. The unused portion of the commitment on the stand-by
facility will be required to be reduced by one third on each respective
principal repayment date. The Foothill Refinancing is expected to close in
September 1996. The proceeds from the Working Capital Facility, the term loan,
approximately $16.3 million currently held in cash collateral accounts, and
cash generated from business operations, are expected to be used to fully repay
the Secured Floating Rate Notes and purchase at a discount the Secured Cash
Flow Notes. The Company and the holders of the Secured Cash Flow Notes have
reached an understanding, subject to certain conditions and appropriate
documentation, pursuant to which the holders will accept $40 million plus
warrants to purchase up to 1,500,000 shares of the Company's common stock, in
exchange for the $54.9 million par outstanding Secured Cash Flow Notes. The
stand-by commitment is intended to be used primarily for repayment of a portion
of the remaining $41.7 million Unsecured 12% Notes due December 31, 1996. The
remaining balance of the Unsecured 12% Notes will be paid using a combination
of the above-mentioned sources. Atlantic Gulf has paid approximately $1.1
million as commitment fees for the $85 million Foothill facility. A funding
fee of one percent is due upon closing of the $40 million term loan and an
activation fee of one and one-half percent is due upon activation of the
stand-by facility. Consummation of the transactions contemplated by the
Foothill commitment is subject to certain conditions, including the
above discussed payment of the Secured Floating Rate Notes and the Secured
Cash Flow Notes.
Management believes that the transactions noted above, the satisfaction
of its 1996 debt obligations, and the refinancing of its secured debt, will
strengthen its ability to obtain sufficient liquidity and capital resources
necessary to continue to successfully implement its business plan. There is no
assurance, however, that the Company's above discussed plan will generate net
proceeds sufficient to satisfy the Company's 1996 debt obligations.
Available Cash is defined in the Company's debt agreements with respect
to any payment period (generally, any six-month period ending June 30 or
December 31), as the sum of all cash receipts (exclusive of borrowed money and
certain delineated cash items) less the sum of payments for operating expenses,
all debt payments (including repurchases of indebtedness), capital
expenditures, tax payments, payments to creditors under the plan of
reorganization and creation of reserves for working capital and other expenses
for the next two payment periods.
Pursuant to the Company's debt agreements, the Company must apply any
Available Cash (a) to payment of interest due on the Cash Flow Notes; (b) to
payments of outstanding amounts under the Working Capital Facility; (c) to
prepayments of principal on the Mandatory Interest Notes; and (d) to repayments
of principal on the Cash Flow Notes. Under the Company's certificate of
incorporation, after all reorganization debt has been repaid, the Company must
pay mandatory dividends on its common stock in an amount equal to 25% of
Available Cash.
If there is no Available Cash on a payment date, the then current
interest on the Cash Flow Notes is not due or payable on that payment date or
at any time thereafter. Due to the necessity to establish reserves against
future mandatory debt and other reorganization payments, the Company did not
have any Available Cash to enable it to make payments on the Cash Flow Notes
through June 30, 1996. Accordingly, the Company did not accrue any interest on
those notes during the six months ended June 30, 1996 and 1995. Also, based
upon the Company's existing debt obligations, its anticipated net cash flows
and its business plan, management does not anticipate the Company having
Available Cash in the foreseeable future.
25
<PAGE> 28
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Stockholders was held at the Wyndham Harbour
Island Hotel, 725 South Harbour Island Boulevard, Tampa, Florida on May 22,
1996.
The stockholders voted on the following matters as set forth in the
proxy statement:
1. ELECTION OF DIRECTORS. The stockholders voted to elect three
class 1 directors, Allen A. Blase, Raymond Ehrlich and W. D. Frederick, Jr., to
three-year terms expiring at the annual meeting of stockholders in 1999. The
voting tabulation for each nominee was as follows:
Allen A. Blase -- 5,530,739 votes in favor of election; 61,654 votes withheld.
Raymond Ehrlich -- 5,529,432 votes in favor of election; 62,961 votes withheld.
W. D. Frederick, Jr. -- 5,530,216 votes in favor of election; 62,177
votes withheld.
The Company has a staggered board. In addition to the three class 1
directors elected at the annual meeting of stockholders, the board has three
class 2 directors whose terms expire at the annual meeting in 1997: James W.
Apthorp, Chairman of the Board, Jerome J. Cohen and Lawrence B. Seidman; and
three class 3 directors whose terms expire at the annual meeting in 1998:
Gerald N. Agranoff, J. Larry Rutherford and John W. Temple.
2. REVERSE STOCK SPLIT AND SUBSEQUENT FORWARD SPLIT OF THE
COMPANY'S COMMON STOCK. The stockholders approved the proposal to amend the
Company's restated certificate of incorporation (a) to effect, as determined by
the Board in its discretion, either of two different reverse stock splits of
the outstanding Common Stock as of the close of business on the effective date
of the amendment (the "Effective Date"), pursuant to which either (i) each 100
shares then outstanding will be converted into one share (the "1-for-100
Reverse Split") , or (ii) each 200 shares then outstanding will be converted
into one share (the "1-for-200 Reverse Split" and together with the 1-for-100
Reverse Split, the "Reverse Split" or "Reverse Splits") and (b) to effect a
forward split of the Common Stock on the day following the effective date of
the Reverse Split, pursuant to which each share of Common Stock then
outstanding as of such date will be converted into the number of shares of the
Common Stock that each share represented immediately prior to the Effective
Date ("Forward Split"). The voting tabulation was as follows: 5,278,506 votes
in favor of the amendment; 115,209 votes against the amendment; and 39,407
abstentions.
3. 1996 NON-EMPLOYEE DIRECTORS STOCK PLAN. The stockholders
approved the 1996 Non-Employee Directors Stock Plan. The voting tabulation was
as follows: 5,125,783 votes in favor of the plan; 378,036 votes against the
plan; and 52,991 abstentions. The 1996 plan provides that Non-Employee
Directors will be paid, effective as of July 1, 1996, an annual fee of $25,000,
payable in Common Stock quarterly, based on the closing price of the shares as
of the end of each previous quarter, and an attendance fee of $3,000 payable in
cash for each Board meeting attended, except if the Non-Employee Director
participates by telephone, the attendance fee would be $1,000 for such meeting.
Also, the chairman of the Board would receive an annual fee of $25,000, payable
in Common Stock quarterly, and a monthly fee of $10,000 payable in cash. Also,
effective July 1, 1996, no fees would be paid for attending Board committee
meetings or for serving as a chairman of a Board committee. The aggregate
number of shares subject to the 1996 Plan will not exceed 150,000 shares. This
plan supersedes the previous compensation plan whereby Non-Employee Directors
were
26
<PAGE> 29
paid an annual fee of $25,000, an annual fee of $2,000 for serving as a
Board committee chairman, an attendance fee of $1,500 for each Board meeting,
and an attendance fee of $800 for each Board committee meeting. Also, the
Chairman of the Board was paid a monthly fee of $12,000. All of the
above-mentioned fees under the former plan were paid in cash.
4. AMENDMENT TO THE COMPANY'S BY-LAWS TO ELIMINATE THE
CLASSIFICATION OF THE BOARD. An insufficient number of stockholders voted to
approve a stockholder proposal to repeal the staggered election of directors.
Sixty percent of all outstanding shares of Common Stock were required to
approve the proposal. If such proposal had been approved, after a transition
period all directors of the Company would have been required to stand for
re-election on an annual basis. The voting tabulation was as follows:
1,566,657 votes in favor of the amendment; 1,743,010 votes against the
amendment; and 55,989 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None
27
<PAGE> 30
SIGNATURES
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.
ATLANTIC GULF COMMUNITIES CORPORATION
Date: August 12, 1996 /s/ Thomas W. Jeffrey
---------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: August 12, 1996 /s/ Callis N. Carleton
---------------------------------
Callis N. Carleton
Vice President and Controller
(Principal Accounting Officer)
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,659
<SECURITIES> 0
<RECEIVABLES> 50,401<F1>
<ALLOWANCES> 0
<INVENTORY> 191,222
<CURRENT-ASSETS> 0<F2>
<PP&E> 4,124<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 279,930
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 180,271
0
0
<COMMON> 978
<OTHER-SE> 57,291
<TOTAL-LIABILITY-AND-EQUITY> 279,930
<SALES> 69,495
<TOTAL-REVENUES> 83,503
<CGS> 55,093
<TOTAL-COSTS> 62,174
<OTHER-EXPENSES> 14,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,386
<INCOME-PRETAX> 91
<INCOME-TAX> 0
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 3,770
<CHANGES> 0
<NET-INCOME> 3,861
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<FN>
<F1>THE VALUES FOR RECEIVABLES AND PP&E REPRESENT NET AMOUNTS.
<F2>THE COMPANY DOES NOT PREPARE A CLASSIFIED BALANCE SHEET. THEREFORE, CURRENT
ASSETS AND CURRENT LIABILITIES ARE NOT APPLICABLE.
</FN>
</TABLE>
