<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 March 31, 1996
Commission File Number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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
--------------
</TABLE>
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 9,700,328 shares of the Registrant's Common Stock outstanding as of
May 10, 1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 1
Consolidated Statements of Operations for the Three Months Ended March 31,
1996 and 1995 2
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
Assets (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,286 $ 3,560
Restricted cash and cash equivalents 6,674 8,461
Contracts receivable, net 13,375 14,350
Mortgages, notes and other receivables, net 54,702 45,479
Land and residential inventory 210,241 218,270
Property, plant and equipment, net 13,894 17,657
Other assets, net 14,623 25,048
--------- ---------
Total assets $315,795 $332,825
======== ========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 16,191 $ 21,078
Customers' and other deposits 4,734 6,091
Contributions in aid of construction 4,429 4,530
Other liabilities 22,570 25,747
Notes, mortgages and capital leases 210,103 220,999
-------- --------
258,027 278,445
-------- --------
Stockholders' equity
Common stock, $.10 par value; 15,665,000
shares authorized; 9,776,058 and
9,771,521 shares issued 978 977
Contributed capital 120,145 120,115
Accumulated deficit (58,522) (61,887)
Minimum pension liability adjustment (4,825) (4,825)
Treasury stock, 75,730 shares in 1996, at cost (8) -
-------- --------
Total stockholders' equity 57,768 54,380
-------- --------
Total liabilities and stockholders' equity $315,795 $332,825
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Real estate sales:
Homesite $14,598 $ 3,573
Tract 5,745 2,218
Residential 2,870 2,112
------- --------
Total real estate sales 23,213 7,903
Other operating revenue 1,133 2,554
Interest income 1,341 2,027
Other income:
Reorganization reserves 1,267 600
Other income 4,820 3,000
------- --------
Total revenues 31,774 16,084
------- -------
Costs and expenses:
Cost of real estate sales:
Homesite 10,919 2,521
Tract 4,703 1,882
Residential 2,175 1,761
------- --------
Total cost of real estate sales 17,797 6,164
Selling expense 2,552 1,985
Other operating expense 699 1,753
Other real estate costs 4,257 5,266
General and administrative expense 3,130 2,572
Depreciation 249 294
Cost of borrowing, net of amounts capitalized 3,288 2,841
Other expense 207 -
------- --------
Total costs and expenses 32,179 20,875
------- --------
Loss before extraordinary item (405) (4,791)
Extraordinary gain on extinguishment of debt 3,770 -
------- --------
Net income (loss) $ 3,365 $ (4,791)
======= =======
Net income (loss) per common share $ .35 $ (.50)
======= ========
Weighted average common shares outstanding 9,733 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 Months Ended March 31, 1996 and 1995
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,365 $(4,791)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,212 1,560
Gain from utility condemnations or sales (4,846) -
Gain from sale of stock of wholly owned subsidiaries - (3,000)
Extraordinary gain from extinguishment of debt (3,770) -
Other income (231) -
Reorganization items (597) (1,925)
Land acquisitions - (7,000)
Other net changes in assets and liabilities:
Restricted cash 1,787 1,706
Receivables 13,483 2,452
Land and residential inventory 8,029 (2,928)
Other assets (4,242) (1,163)
Accounts payable and accrued liabilities (4,571) (1,854)
Customer deposits (1,320) 15
Other liabilities (526) (495)
Other, net (11) (326)
-------- --------
Net cash provided by (used in) operating activities 7,762 (17,749)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (48) (848)
Proceeds from utility system sale 1,244 -
Proceeds from sale of stock of wholly owned subsidiaries - 371
-------- --------
Net cash provided by (used in) investing activities 1,196 (477)
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 15,935 11,183
Repayments under credit agreements (23,935) (796)
Principal payments on other liabilities (2,232) (3,090)
-------- -------
Net cash provided by (used in) financing activities (10,232) 7,297
-------- -------
Decrease in cash and cash equivalents (1,274) (10,929)
Cash and cash equivalents at beginning of period 3,560 12,297
-------- -------
Cash and cash equivalents at end of period $ 2,286 $ 1,368
======== =======
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 4,625 $ 4,057
======= =======
Reorganization item payments $ 2,428 $ 4,379
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
(unaudited)
(1) The March 31, 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 $1,892,000 and
$1,850,000, for the three months ended March 31, 1996 and 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 has made an estimate of Available Cash, as defined in the
Company's loan agreements, at June 30, 1996, and has determined, based on
this estimate, that the Company will not have any Available Cash
requiring 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 Cash Flow Notes
during the three months ended March 31, 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
work with 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.
4
<PAGE> 7
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
(unaudited)
(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 $4.2
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 $695,000 in the
first quarter of 1996. Of the net proceeds of $4.2 million from this
sale, approximately $1.2 million were received in March 1996 and the
remaining $3.0 million were received in April 1996. Upon receipt of the
proceeds they 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 cancellation of approximately $1.9
million of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow
Notes in accordance with the Company's plan of reorganization.
5
<PAGE> 8
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 acquisition, development and sale of new subdivision and scattered
developed homesites, sale of land tracts and residential construction and
sales. Additional lines of business which contribute to the Company's overall
operations include portfolio management of mortgages and contracts receivable
and environmental 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 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, paying off 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
("SCC"), 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 portfolio sale is designed to monetize those assets that
the Company has determined do not fit the development criteria outlined in its
business plan. Proceeds from the portfolio offering are intended to be used to
pay corporate debt. There can be no assurances that the portfolio offering
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. The Company
currently also has approximately $28 million in pending contracts, letters of
intent or active negotiations on predecessor assets, which are not included the
portfolio offering. See Item 1. Business in the Company's Annual Report on
Form 10-K for additional information on the Company's business plan.
6
<PAGE> 9
Results of Operations
Comparison of the Three Months Ended March 31, 1996 and 1995
The Company's results of operations for the three months ended March 31,
1996 and 1995 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business
Three Months Ended March 31, 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 $ 14,598 $5,745 $ 2,870 $ $ $ $23,213
Other operating revenue 1,133 1,133
Interest income 814 527 1,341
Other income:
Reorganization reserves 1,267 1,267
Other income 4,820 4,820
-------------------------------------------------------------------------------------------------------
Total revenues 14,598 5,745 2,870 6,767 1,794 31,774
-------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 10,919 4,703 2,175 17,797
Selling expense 1,385 643 524 2,552
Other operating expense 699 699
Other real estate costs:
Property tax, net 10 1,429 1,439
Other real estate 550 495 422 251 584 516 2,818
overhead
General and administrative 3,130 3,130
Depreciation 9 18 12 107 103 249
Cost of borrowing, net 3,288 3,288
Other expense 12 195 207
----------------------------------------------------------------------------------------------------
Total costs and expense 12,875 5,859 3,133 1,067 779 8,466 32,179
----------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 1,723 (114) (263) 5,700 (779) (6,672) (405)
Extraordinary gain on
extinguishment of debt 3,770 3,770
----------------------------------------------------------------------------------------------------
Net income (loss) $ 1,723 $ (114) $ (263) $5,700 $(779) $ (2,902) $ 3,365
====================================================================================================
</TABLE>
7
<PAGE> 10
Combining Results of Operations by Line of Business
Three Months Ended March 31, 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 $3,573 $2,218 $2,112 $ $ $ $7,903
Other operating revenue 2,554 2,554
Interest Income 1,636 391 2,027
Other Income:
Reorganization reserves 600 600
Other income 3,000 3,000
--------------------------------------------------------------------------------------------
Total revenues 3,573 2,218 2,112 7,190 991 16,084
--------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,521 1,882 1,761 6,164
Selling expense 748 299 687 251 1,985
Other operating expense 1,753 1,753
Other real estate costs:
Property tax, net 31 2,008 2,039
Other real estate overhead 390 236 322 272 1,392 615 3,227
General and administrative 2,572 2,572
Depreciation 7 2 58 110 117 294
Cost of borrowing, net 2,841 2,841
--------------------------------------------------------------------------------------------
Total costs and expenses 3,666 2,419 2,828 2,166 1,643 8,153 20,875
--------------------------------------------------------------------------------------------
Net income (loss) $ (93) $ (201) $ (716) $5,024 $(1,643) $(7,162) $(4,791)
===========================================================================================
</TABLE>
During the first quarter of 1996, the Company had net income of $3.4 million
which was an $8.2 million improvement from the $4.8 million net loss incurred
during the first quarter of 1995. This improvement was primarily due to an
increase in real estate sales, a $3.8 million extraordinary gain resulting from
the cancellation of debt and an increase in other income. The increase in
other income was principally attributable to a gain of approximately $4.2
million in the first quarter of 1996 on the settlement of the Port St. Lucie
utility condemnation litigation.
8
<PAGE> 11
Homesite Sales
The net operating results from homesite sales improved $1.8 million
during the first quarter of 1996 compared to the first quarter 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 $11.0 million in the first quarter
of 1996, a 309% increase from the first quarter of 1995. The increase
resulted from an increase in the number of homesites sold and an increase in
the average sales price per homesite. The following table summarizes homesite
activity for the three months ended March 31 (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 384 $12,082 $31.5 79 $2,037 $25.8
Scattered homesite sales 285 2,516 8.8 235 1,536 6.5
--- -------- ------ --- ------- ------
669 $14,598 $21.8 314 $3,573 $11.4
=== ======= ===== === ====== =====
</TABLE>
The increase in subdivision homesite sales is primarily due to the
closing of 193 homesites for $8.1 million in Windsor Palms, a recently acquired
project located in southwest Broward County, Florida. In addition, there was a
significant 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. The
average homesite sales price at Windsor Palms is approximately $42,000.
Scattered homesite sales increased in the first quarter of 1996 compared
to the first quarter 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 resulting from a
recently implemented retail sales program. During the remainder of 1996, the
Company anticipates it will supplement scattered homesite sales volume in the
secondary markets through the sealed bid portfolio offering of the Company's
predecessor assets to be conducted by Secured Capital Corporation and bulk
sales as part of its plan to accelerate the disposition of assets in secondary
real estate markets in Florida.
As of March 31, 1996, the Company had approximately 1,827 total homesites
totaling approximately $29.2 million which are under contract and are
anticipated to close in 1996. Of the 1,827 homesites under contract, 778
homesites for $23.8 million are in the Company's subdivision homesite projects
of Windsor Palms, Julington Creek Plantation, Lakeside Estates and West
Meadows. As of March 31, 1995, the Company had approximately 423 total
homesites under contract totaling approximately $7.8 million.
The homesite sales gross margin percentages were 25.2% in 1996 compared
to 29.4% in 1995, which generally reflect targeted gross margins of 25% to 30%
for this line of business. 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 and annual sales volumes 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.
9
<PAGE> 12
Homesite selling expense increased primarily due to an increase in
revenues. Homesite selling expense as a percentage of revenues decreased from
20.9% in 1995 to 9.5% in 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
The net operating results from tract sales were similar in the first
quarter of 1996 compared to the first quarter of 1995 despite an increase in
revenues, primarily due to costs associated with the Company's plan to
accelerate the disposition of assets in secondary real estate markets
throughout Florida which began during the third quarter of 1995.
Revenues from tract sales increased $3.5 million or 159% in the first
quarter of 1996 to $5.7 million primarily due to a $2.0 million sale of
approximately 664 acres in Port St. Lucie in 1996. Tract sales acreages often
vary significantly in size and revenues from such sales vary from quarter to
quarter depending on the timing and size of individual sales. During the
latter part of 1996, tract sales are anticipated to be supplemented by the
sealed bid portfolio offering of the Company's predecessor assets. As of March
31, 1996, there were pending tract sales contracts totaling approximately $29.7
million which, subject to certain contingencies, are anticipated to close in
1996. As of March 31, 1995, there were pending tract sales contracts totaling
approximately $16.0 million.
Tract sales gross margins are summarized as follows for the three months
ended March, 31:
<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%
Other tract acreage 20% 18.1% 35% 35.2%
</TABLE>
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 as management has determined that the Port
LaBelle agricultural property is not an integral part of the Company's
long-term business strategy. As a result, 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 actual gross margin in 1996 for other tract acreage was lower than
the targeted gross margin principally due to the mix of properties sold during
the period. The targeted gross margins have been reduced primarily due to the
recently approved plan to accelerate land sales in secondary real estate market
locations.
10
<PAGE> 13
Tract sales other real estate overhead increased in the first quarter of
1996 compared to the first 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 during the three months ended March 31,
1996 compared to the corresponding prior year period principally due to
condominium revenues from the Company's Regency Island Dunes condominium
project and a decrease in fixed selling expenses 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 three months ended
March 31 (in thousand of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominium sales $ 910 $ -
Single family home sales 1,960 2,112
------- -------
$2,870 2,112
====== ========
</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. 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%.
Condominium revenues of $910,000 in the first quarter of 1996 represent the
incremental revenue earned upon the completion of 49 of the 61 units in the
first quarter of 1996. The remaining 12 units and 3 additional units sold in
the first building in the first quarter of 1996 are anticipated to close during
the second quarter of 1996. In addition, as of March 31, 1996, there were 38
units under contract in the second building with a sales volume of $13.4
million. The construction of the second building is expected to be
substantially completed by the end of 1996.
Single family home sales revenues were similar for the two quarters under
review despite an increase in closings from 18 in 1995 to 22 in 1996 due to a
decrease in the average selling price from $117,000 in 1995 to $89,000 in 1996.
The decrease in the average selling price was due to the mix of product sold.
In mid-1995 the Company decided to withdraw from the single family home
business and is currently winding down this business. As of March 31, 1996,
the Company had 6 single family home residential units under contract totalling
$498,000 which are expected to close during 1996.
Residential sales gross margins are summarized as follows for the three
months ended March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominiums 46.4% -
Single family homes 13.9% 16.6%
</TABLE>
The gross margin for condominiums was higher than the targeted gross
margin of approximately 20% primarily due to adjustments resulting from the
recording of the actual profits associated with 49 closings in
11
<PAGE> 14
the first quarter of 1996 as compared to the estimated profits previously
recorded.
The single family home gross margins generally reflect the targeted gross
margins for this line of business.
Residential selling expense as a percentage of revenues decreased from
32.5% in 1995 to 18.3% in 1996 primarily due to a decrease in fixed selling
costs associated with the phasing-out of the single family home sales
operations.
Other real estate overhead increased in the first quarter of 1996
compared to the first quarter of 1995 primarily due to costs associated with
the Regency Island Dunes condominium project, partially offset by reduced
single family home overhead resulting from the phase-out of this operation.
OTHER OPERATIONS
Net income from other operations increased in the first quarter of 1996
compared to the first quarter 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 quarter of
1996 from the first quarter 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.
Interest income decreased in the first quarter of 1996 from the
corresponding prior year period primarily due to adjustments associated with
the Company's land mortgage receivable portfolio, including the elimination 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 first quarter of 1996 included a gain of
approximately $4.2 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.
The proceeds of $18.75 million were received in April 1996. Also included in
other income in the first quarter of 1996 was a gain of $695,000 on the sale of
the Company's Port LaBelle utility system which was sold in February 1996 for
$4.5 million. Other income of $3.0 million in the first quarter 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 in the first 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.
Business development selling expenses in the first quarter of 1995
consisted primarily of initial advertising costs associated with the new Ocean
Grove condominium project. In June 1995, the Company
12
<PAGE> 15
obtained a 50% joint venture partner for this project, subsequent to which,
the Company's 50% share of the Ocean Grove joint venture's expenses were
recorded in other expense.
Business development overhead decreased in the first quarter of 1996
compared to the first quarter of 1995 primarily due to a decrease in costs
related to the Ya Dong joint venture. The Company incurred costs of $328,000 in
1996 compared to approximately $1.0 million in 1995. The Company does not
anticipate making any material capital contributions to the Ya Dong joint
venture in 1996.
The $195,000 of other expense in the first quarter of 1996 represents
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
The net loss from administrative & other activities decreased $4.3
million in the first quarter of 1996 from the first quarter of 1995 principally
due to an extraordinary gain of $3.8 million resulting from the cancellation of
debt.
Other income of $1.3 million in the first quarter of 1996 and $600,000 in
the first quarter of 1995 represented gains resulting from procedures
associated with 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.
Property tax, net decreased in the first quarter of 1996 compared to the
first 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.
General and administrative expenses increased in 1996 principally due to
financial advisory and due diligence costs associated with the potential
recapitalization of the Company.
Cost of borrowing, net increased in the first quarter of 1996 compared to
the same period in 1995 primarily due to a higher average balance of the
Company's Working Capital Facility. During the three months ended March 31,
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 cancellation of approximately $1.9
million of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow Notes in
accordance with the Company's plan of reorganization.
LIQUIDITY & CAPITAL RESOURCES
As of March 31, 1996, the Company's cash and cash equivalents totaled
approximately $2.3 million. The Company also had restricted cash and cash
equivalents of $6.7 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 $1.3 million
reduction of cash and cash equivalents during the first quarter of 1996, $10.2
million was used in financing activities, partially offset by $7.7 million
provided by operating activities and $1.2 million provided by investing
activities.
13
<PAGE> 16
Cash provided by operating activities includes net cash generated through
real estate sales and other operations partially offset by approximately (i)
$6.5 million for interest payments, (ii) $3.8 million for a portion of the
annual property tax payments and (iii) $7.7 million for construction and
development expenditures.
Cash used in financing activities includes net repayments of $17.1
million on new project financings, $2.2 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 a $1.2 million principal
payment on the Company's Secured Floating Rate Notes, partially offset by net
borrowings of $10.3 million from the Working Capital Facility.
The March 31, 1996 balances of the Secured Floating Rate Notes and
Secured Cash Flow Notes were $49.9 million and $54.9 million, respectively. The
balance of the Secured Floating Rate Notes was reduced to $37.8 million in
April 1996 utilizing $9.1 million of proceeds from the settlement of the Port
St. Lucie condemnation suit and an additional $3.0 million received in April
1996 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. Of the
net proceeds of approximately $4.2 million received from the sale of Port
LaBelle utility system, approximately $1.2 million were received and used to
repay the Secured Floating Rate Notes in March 1996 and the remaining $3.0
million were received and used to repay the Secured Floating Rate Notes in
April 1996. In connection with the amendment of the Secured Notes, the Company
paid a fee of approximately $1.1 million in January 1996 as the Secured
Floating Rate Notes were not paid by December 31, 1995 and the Company is
required to pay up to $500,000 for each quarter thereafter during which such
notes remain outstanding. In addition, the holders of the Secured Cash Flow
Notes earn a fee if the Secured Floating Rate Notes have been paid in full but
any Secured Cash Flow Notes remain outstanding on certain dates. Those dates
and the corresponding fees are (i) March 31, 1996, $225,000; (ii) June 30,
1996, $325,000; (iii) September 30, 1996, $375,000; and (iv) December 31, 1996,
$375,000. Such fees are payable January 1, 1997 and $375,000 is payable March
31, 1997 and each quarter thereafter until such notes have been fully repaid.
In each case, such fees will be reduced by prepayments in part or in whole.
In January 1995, the Company's $20 million Working Capital Facility with
Foothill Capital Corporation ("Foothill") was amended, effective as of December
31, 1994, to extend its maturity to November 30, 1996, to maintain the amount
available under the Facility at $20 million through the extended maturity date,
to reduce the interest rate, and to amend the covenants to afford the Company
more operational and financing flexibility. Among other things, the covenant
amendments further increase the amount of permitted project development debt
and permitted investments in partnerships and joint ventures, and increase the
amount of permitted debt by the Company and its subsidiaries. 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
successor thereto, as its "prime rate" or "reference rate," plus two percentage
points. Under the terms of the Working Capital Facility, the Company is
required to pay (a) an unused line fee equal to 1/4 of 1% per annum of the
average unused portion of the Working Capital Facility commitments payable
quarterly, (b) a servicing fee of $5,000 per month, and (c) an extension fee of
$50,000 on August 1, September 1, October 1 and November 1 of 1996. As of
March 31, 1996, there was no additional credit available under the Working
Capital Facility. However, as of May 10, 1996, the Company had approximately
$13 million of credit available under the Working Capital Facility due to
approximately $15 million of repayments in April 1996 utilizing proceeds
primarily from the Port St. Lucie condemnation settlement. In April 1996, the
Company obtained a $1.5 million letter of credit outstanding under the Working
Capital 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.
14
<PAGE> 17
The Company's obligations for 1996 include payments made in the first
quarter of 1996, for semiannual interest on the Company's Secured Floating Rate
Notes and Unsecured 12% Notes (collectively, the "Mandatory Interest Notes"),
deferred property tax principal and interest and Section 365(j) lien principal
and interest totaling approximately $7.9 million and 1995 property tax payments
of approximately $3.8 million. The Company's total annual 1995 property tax
payments were approximately $8.5 million as $2.7 million were paid in November
1995 and $2.0 million were paid in April 1996 in addition to the $3.8 million
paid in the first quarter of 1996. In the third quarter of 1996, the Company
will again be required to make semiannual payments of approximately $7.2
million on its Mandatory Interest Notes, deferred property tax and Section
365(j) lien obligations. The Company's business plan also contemplates 1996
expenditures for development, construction and other capital improvements
estimated at $35 million, of which a substantial portion would need to be
funded through individual project development loans or joint venture
arrangements, some of which are not yet in place. If the Company is unable to
obtain the capital resources to fund these expenditures, the implementation of
the Company's business plan would be adversely affected, thus slowing the
Company's expected revenue growth and increasing the expected time necessary
for the Company to achieve profitability.
The Company's capital structure is not yet fully compatible with the
Company's long-term business plan. Although amendments in 1994 to the
Company's Secured Floating Rate Notes and Secured Cash Flow Notes
(collectively, the "Secured Notes") afford the Company more operational and
financing flexibility, the remaining restrictions continue to limit the
Company's ability to sell assets, incur debt, make capital expenditures and
make investments. 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 $37.8 million of Secured Floating Rate Notes and $41.8
million of Unsecured 12% Notes maturing on December 31, 1996. The Company also
has $54.9 million of Secured Cash Flow Notes and $41.7 million of Unsecured
Cash Flow Notes maturing on December 31, 1998.
Management believes, however, 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 $121
million of cash available for debt service in 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 sealed bid portfolio sales;
(iii) the sale or financing of any mortgages or other receivables acquired
through real estate sales; (iv) approximately $18.75 million in proceeds from
the court-approved settlement of the St. Lucie condemnation suit; and (v) the
potential sale of the Company's interest in one or more of the Company's
primary market projects. 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. This
progress is partially reflected in the increased backlog of non-core real
estate sales under contract carried into 1996 ($30.2 million) as opposed to the
backlog carried into 1995 ($4.3 million). As of March 31, 1996, the Company
had closed or under contract or letter of intent a combination of transactions
which would generate in excess of $90 million cash not directly associated with
specific project financings. The transactions under contract are subject to a
variety of routine 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.
15
<PAGE> 18
As noted above (see "Business Plan"), the Company entered into an
agreement with Secured Capital Corporation in April 1996 to conduct a sealed
bid portfolio offering of a substantial portion of the Company's predecessor
assets. This portfolio sale is designed to monetize predecessor assets and
reduce corporate debt. The Company currently has approximately $28 million in
pending contracts, letters of intent or active negotiations on predecessor
assets, which are not included in the portfolio sale. The Company also intends
to utilize the cash proceeds generated from these sales to reduce corporate
debt.
Management believes that the transactions noted above and the
satisfaction of its 1996 debt obligations will strengthen its ability to obtain
sufficient liquidity and capital resources necessary to satisfy its future debt
obligations and to obtain financing to continue to implement its business plan.
There is no assurance, however, that the Company's above discussed plan to
satisfy its debt maturing in 1996 will be consummated or consummated in 1996,
or if consummated, that it will generate net proceeds sufficient to satisfy the
Company's 1996 debt obligations. The Company, however, has and will continue
to explore alternatives that include refinancing or recapitalization of certain
of its 1996 and 1998 debt obligations, although no commitments for such
refinancing or recapitalization are currently in place, and there are no
assurances that any such commitment will be received.
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 Loan; (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 March 1996. Accordingly, the Company did not accrue any interest on
those notes during the three months ended March 31, 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.
The Secured Floating Rate Notes bear interest at a variable rate equal to
the Chemical Bank reference rate plus 1%, with a minimum interest rate of 8%
and a maximum interest rate of 12% and the Secured Cash Flow Notes bear
interest at a variable rate equal to the Chemical Bank reference rate plus 2%,
with a minimum interest rate of 9% and a maximum interest rate of 13%. The
rates as of March 31, 1996 were 9.25% and 10.25%, respectively. The Unsecured
Floating Rate Notes and Unsecured Cash Flow Notes bear interest at 12% and 13%
per annum, respectively.
16
<PAGE> 19
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None
17
<PAGE> 20
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: May 10, 1996 /s/ Thomas W. Jeffrey
----------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: May 10, 1996 /s/ Callis N. Carleton
----------------------------
Callis N. Carleton
Vice President and Controller
(Principal Accounting
Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED),
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,960
<SECURITIES> 0
<RECEIVABLES> 68,077<F1>
<ALLOWANCES> 0
<INVENTORY> 210,241
<CURRENT-ASSETS> 0<F2>
<PP&E> 13,894<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 315,795
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 210,103
0
0
<COMMON> 978
<OTHER-SE> 56,790
<TOTAL-LIABILITY-AND-EQUITY> 315,795
<SALES> 23,213
<TOTAL-REVENUES> 31,774
<CGS> 17,797
<TOTAL-COSTS> 21,048
<OTHER-EXPENSES> 7,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,288
<INCOME-PRETAX> (405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (405)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,770
<CHANGES> 0
<NET-INCOME> 3,365
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<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>
