<PAGE> 1
PRELIMINARY DRAFT
NOVEMBER 13, 1996 (2:30PM)
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 September 30, 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)
</TABLE>
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 9,710,679 shares of the Registrant's Common Stock outstanding as of
November 12, 1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
No.
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for the Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
Assets (unaudited)
------
<S> <C> <C>
Cash and cash equivalents $ 2,120 $ 3,560
Restricted cash and cash equivalents 5,269 8,461
Contracts receivable, net 10,490 14,350
Mortgages, notes and other receivables, net 43,271 45,479
Land and residential inventory 191,096 218,270
Property, plant and equipment, net 4,212 17,657
Other assets, net 19,248 25,048
-------- --------
Total assets $275,706 $332,825
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable and accrued liabilities $ 13,258 $ 21,078
Customers' and other deposits 4,251 6,091
Contributions in aid of construction - 4,530
Other liabilities 19,488 25,747
Notes, mortgages and capital leases 180,518 220,999
-------- --------
217,515 278,445
-------- --------
Stockholders' equity
Common stock, par value $.10 per share;
15,665,000 shares authorized; 9,777,058 and
9,771,521 shares issued 978 977
Contributed capital 122,025 120,115
Accumulated deficit (59,979) (61,887)
Minimum pension liability adjustment (4,825) (4,825)
Treasury stock, 84,963 shares in 1996, at cost (8) -
-------- --------
Total stockholders' equity 58,191 54,380
-------- --------
Total liabilities and stockholders' equity $275,706 $332,825
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1996 and 1995
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
Revenues: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate sales:
Homesite $ 4,155 $ 3,887 $ 28,380 $ 12,537
Tract 7,605 2,140 43,554 8,902
Residential 4,704 16,578 14,025 21,058
-------- -------- --------- ---------
Total real estate sales 16,464 22,605 85,959 42,497
Other operating revenue 1,281 1,536 3,563 5,497
Interest income 1,027 1,737 4,157 5,788
Other income:
Reorganization reserves 129 - 1,396 3,453
Other income (242) 2,684 7,087 5,980
-------- -------- --------- ---------
Total revenues 18,659 28,562 102,162 63,215
-------- -------- --------- ---------
Costs and expenses:
Cost of real estate sales:
Homesite 3,053 2,614 21,466 8,663
Tract 6,171 1,649 35,780 6,282
Residential 3,465 12,899 10,536 16,700
-------- -------- --------- ----------
Total cost of real estate sales 12,689 17,162 67,782 31,645
Selling expense 3,029 2,175 8,853 5,882
Other operating expense 354 784 1,611 3,362
Other real estate costs 5,878 5,350 14,570 16,365
General and administrative expense 2,906 2,731 8,292 8,100
Depreciation 186 317 658 939
Cost of borrowing, net of amounts capitalized 2,725 3,990 9,111 10,374
Other expense 100 722 402 961
-------- -------- --------- --------
Total costs and expenses 27,867 33,231 111,279 77,628
-------- -------- --------- --------
Loss before extraordinary items (9,208) (4,669) (9,117) (14,413)
Extraordinary gains on extinguishment of debt 7,255 - 11,025 -
-------- -------- --------- --------
Net income (loss) $ (1,953) $ (4,669) $ 1,908 $(14,413)
======== ======== ========= ========
Net income (loss) per common share $ (.20) $ (.48) $ .20 $ (1.49)
======== ======== ======== =========
Weighted average common shares outstanding 9,692 9,713 9,708 9,688
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
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ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,908 $(14,413)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization
Gain from utility condemnations or sales 4,174 4,921
Gain from sale of stock of wholly-owned subsidiaries (5,504) -
Extraordinary gains from extinguishment of debt - (3,260)
Other income (11,025) -
Reorganization items (1,841) (1,820)
Land acquisitions (1,281) (2,269)
Other net changes in assets and liabilities: (8,101) (7,000)
Restricted cash
Receivables 3,192 2,411
Land and residential inventory 6,636 (2,427)
Other assets 37,619 3,136
Accounts payable and accrued liabilities (9,130) (4,398)
Customers' and other deposits (6,259) (4,655)
Other liabilities (1,646) 791
Other, net (1,897) (2,893)
Net cash provided by (used in) operating activities (260) (389)
-------- --------
6,585 (32,265)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (198) (1,485)
Proceeds from sale of property, plant and equipment 773 1,042
Proceeds from utility condemnations or sales 28,699 -
Proceeds from sale of stock of wholly-owned subsidiaries - 2,701
-------- ---------
Net cash provided by investing activities 29,274 2,258
-------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 113,637 32,059
Repayments under credit agreements (146,670) (5,918)
Principal payments on other liabilities (4,266) (5,710)
-------- --------
Net cash provided by (used in) financing activities (37,299) 20,431
------- --------
Decrease in cash and cash equivalents (1,440) (9,576)
Cash and cash equivalents at beginning of period 3,560 12,297
-------- --------
Cash and cash equivalents at end of period $ 2,120 $ 2,721
======= ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 8,513 $ 7,760
======= ========
Reorganization item payments $ 4,919 $ 6,706
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(unaudited)
1) The September 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 $1,527,000 and
$4,788,000 for the three and nine-month periods ended September 30, 1996,
respectively and $2,044,000 and $5,826,000 for the three and nine-month
periods ended September 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 has made an estimate of Available Cash, as defined in the
Company's loan agreements, at December 31, 1996, and has determined,
based on this estimate, that the Company will not have any Available Cash
requiring it to make any portion of the interest payment on the Cash Flow
Notes for the six-month period commencing on July 1, 1996 and ending
December 31, 1996. In addition, the Company did not have any Available
Cash requiring it to make any interest payments for the six-month period
ended June 30, 1996 and 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 nine months ended September 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 in the Company's recapitalization efforts and related
4
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ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(unaudited)
stockholder issues. In June 1996, the Company issued 1,000 shares of its
common stock pursuant to the Company's Employee Stock Option Plan. In
February 1996, the Company received 75,730 shares of its common stock and
in August 1996, it received 505 shares as distributions 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 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) On September 30, 1996, the Company closed on three credit facilities
totalling $85 million with Foothill Capital Corporation ("Foothill"),
including a two-year extension of the Company's existing $20 million
Working Capital Facility to December 1, 1998. On September 30, 1996, the
Company borrowed $66 million of the $85 million. Approximately $37.8
million of these proceeds was used to fully refinance the Company's
Secured Floating Rate Notes and extend the maturity of these notes from
December 31, 1996 to June 30, 1998. The Company used the remaining
proceeds, along with cash on hand for a total of $40 million plus
warrants to purchase up to 1,500,000 of the Company's common stock at
$6.50 per share, to fully prepay at a discount its Secured Cash Flow
Notes. As a result of the extinguishment of the Secured Cash Flow Notes,
the Company recorded an extraordinary gain of approximately $7.2 million
representing the difference between the book value of these notes of
$49.1 million, consisting of a par value of $54.9 million less an
unamortized discount of $5.8 million, and the consideration given of
$41.9 million, consisting of cash of $40.0 million and the estimated fair
market value of the warrants of $1.9 million.
(8) 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.
(9) 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.
(10) 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.
5
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ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(unaudited)
(11) 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 $696,000 on the utilities system. Approximately $7.1
million of the proceeds from the sale of the Julington Creek land
assets were used to repay the Company's Working Capital Facility.
Of the net proceeds of approximately $5.7 million from the sale of
the utilities system, approximately $2.0 million was used to repay
fully the Company's Utilities loan and $3.0 million was placed in
escrow and was applied to the Company's Secured Floating Rate Notes
on September 30, 1996. 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.
(12) 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 Falcon Trace, is currently being
permitted for approximately 900 homesites.
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
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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
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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 $39.3 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.
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Results of Operations
Comparison of the Nine Months Ended September 30, 1996 and 1995
The Company's results of operations for the nine months ended September
30, 1996 and 1995 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business
Nine Months Ended September 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 $28,380 $43,554 $14,025 $ $ $ $ 85,959
Other operating revenue 3,563 3,563
Interest income 2,765 1,392 4,157
Other income:
Reorganization reserves 1,396 1,396
Other income 5,504 1,583 7,087
---------------------------------------------------------------------------------------------------
Total revenues 28,380 43,554 14,025 11,832 4,371 102,162
---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 21,466 35,780 10,536 67,782
Selling expense 4,379 3,382 1,092 8,853
Other operating expense 1,611 1,611
Other real estate costs:
Property tax, net 4,405 4,405
Other real estate 1,280 2,703 629 865 2,958 1,730 10,165
General and administrative 8,292 8,292
Depreciation 13 69 18 228 330 658
Cost of borrowing, net 9,111 9,111
Other expense (6) 408 402
---------------------------------------------------------------------------------------------------
Total costs and expenses 27,132 41,934 12,275 2,704 3,366 23,868 111,279
---------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary items 1,248 1,620 1,750 9,128 (3,366) (19,497) (9,117)
Extraordinary gains on
extinguishment of debt 11,025 11,025
---------------------------------------------------------------------------------------------------
Net income (loss) $ 1,248 $ 1,620 $ 1,750 $ 9,128 $ (3,366) $ (8,472) $ 1,908
===================================================================================================
</TABLE>
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Combining Results of Operations by Line of Business
Nine Months Ended September 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 $12,537 $8,902 $21,058 $ $ $ $ 42,497
Other operating revenue 5,497 5,497
Interest Income 4,502 1,286 5,788
Other income:
Reorganization reserves 3,453 3,453
Other income 627 3,520 1,833 5,980
------------------------------------------------------------------------------------------------
Total revenues 13,164 8,902 21,058 13,519 6,572 63,215
------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 8,663 6,282 16,700 31,645
Selling expense 2,851 1,227 1,797 7 5,882
Other operating expense 3,362 3,362
Other real estate costs:
Property tax, net 8 92 5,429 5,529
Other real estate 1,508 833 1,048 831 4,771 1,845 10,836
General and administrative 8,100 8,100
Depreciation 19 58 163 363 336 939
Cost of borrowing, net 10,374 10,374
Other expense 267 694 961
------------------------------------------------------------------------------------------------
Total costs and expenses 13,041 8,400 19,716 4,648 5,045 26,778 77,628
------------------------------------------------------------------------------------------------
Net income (loss) $ 123 $ 502 $ 1,342 $ 8,871 $ (5,045) $ (20,206) $(14,413)
================================================================================================
</TABLE>
During the first nine months of 1996, the Company generated net income of
$1.9 million which was a $16.3 million improvement from the $14.4 million net
loss incurred during the first nine months of 1995. This improvement was
primarily due to a significant increase in real estate sales and to
extraordinary gains of approximately $11.0 million in 1996 resulting from the
extinguishment of debt.
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Homesite Sales
Net income from homesite sales improved $1.1 million during the first
nine months of 1996 compared to the first nine 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 $15.8 million in the first nine
months of 1996, a 126% increase from the first nine months of 1995. The
increase resulted from a 78% increase in the number of homesites sold and a 27%
increase in the average sales price per homesite. The following table
summarizes homesite activity for the nine months ended September 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 600 $19,643 $32.7 278 $ 7,173 $25.8
Scattered homesite sales 1,088 8,737 8.0 671 5,364 8.0
----- -------- ------ --- -------- -----
1,688 $28,380 $16.8 949 $12,537 $13.2
===== ======= ===== === ======= =====
</TABLE>
The increase in subdivision homesite sales is primarily due to closings
in 1996 of 193 homesites for $8.1 million in Windsor Palms, a project located
in southwest Broward County, Florida and to a $2.5 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 $34,600 in 1995.
Scattered homesite sales increased in the first nine months of 1996
compared to the first nine months of 1995 due to a 62% increase in the number
of homesites sold. The increase in volume is 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 homesite 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 $627,000 during the first nine months of 1995 represented
the Company's 50% share of net profits from the Sanctuary Joint Venture which
the Company accounted for under the equity method until August 1996, at which
time the Company purchased its partner's interest in the joint venture. The
Sanctuary Joint Venture derived its profits from the sale of subdivision
homesites located near Orlando, Florida. There were no sales in this project
during the first nine months of 1996, however, the Company anticipates that
approximately 150 of the remaining 170 homesites will be sold in the fourth
quarter of 1996.
As of September 30, 1996, the Company had approximately 2,279 total
homesites under contract for approximately $14.4 million which are anticipated
to close in 1996. As of September 30, 1995, the Company had approximately 235
total homesites under contract totaling approximately $4.0 million.
The homesite sales gross margin percentages were 24.4% in the first nine
months of 1996 compared to 30.9% in the first nine months of 1995 which
generally reflect the targeted gross margins of 25% to 30%
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for this line of business. The decrease in the gross margin during the first
nine months of 1996 compared to the same prior year period is primarily
attributable to the Windsor Palms sales which had a gross margin of 19%, a
decrease in gross margins in Julington Creek from 32.3% in 1995 to 24.4% in
1996 due to the bulk sale of this project in June 1996 and to a decrease in the
gross margins on bulk homesite sales. Julington Creek was sold in bulk as part
of the Company's business plan to monetize certain assets to generate cash to
retire debt. The bulk homesite gross margins in 1996 have been reduced as part
of the Company's plan to accelerate land sales in secondary real estate market
locations. 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
22.7% in the first nine months of 1995 to 15.4% in the first nine 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.
Homesite sales other real estate overhead decreased in 1996 primarily due
to a $180,000 severance charge in the third quarter of 1995.
Tract Sales
Net income from tract sales increased $1.1 million during the first nine
months of 1996 compared to the first nine months of 1995 primarily due to an
increase in revenues.
Revenues from tract sales of $43.6 million in the first nine months of
1996 represented an increase of $34.7 million or 389% compared to the first nine
months of 1995. The increase is primarily due to several large sales during
1996 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 September 30, 1996, there were pending tract sales
contracts totaling approximately $29.6 million which, subject to certain
contingencies, are anticipated to close in 1996. As of September 30, 1995,
there were pending tract sales contracts totaling approximately $29.0 million.
Tract sales gross margins are summarized as follows for the nine months
ended September 30:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 5% - 5% 2.8%
Julington Creek bulk sale - 6.3% - -
Other tract acreage 20% 22.0% 35% 34.2%
</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 nine months of 1996
compared to the first nine months of 1995 primarily due to an increase in
revenues. Tract sales selling expense as a percentage of revenues decreased
from 13.8% in the first nine months of 1995 to 7.8% in the first nine months of
1996 primarily due to the increased revenues over which to spread fixed costs
and to lower selling expenses associated with several large tract sales, most
notably, the Summerchase sale.
Tract sales other real estate overhead increased in the first nine months
of 1996 compared to the first nine 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
Net income from residential sales, which includes single family homes and
condominiums, improved $408,000 during the nine months ended September 30, 1996
compared to the corresponding prior year period. Net income increased, despite
a decrease in revenues, principally due to a higher gross margin percentage on
the condominium revenues 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 nine months ended
September 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominium sales - Regency Island Dunes: $ 2,014 $ 14,156
First Building 8,941 --
---------- ----------
Second Building 10,955 14,156
Total condominium sales 3,070 6,902
---------- ----------
Single family home sales $ 14,025 $ 21,058
========== ==========
</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
September 30, 1995, 61 units were under contract in the first building
representing a sales volume of $19.5 million, the building was 74% complete,
and revenues of $14.2 million were recognized on
13
<PAGE> 16
the percentage of completion basis. 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 nine months of 1996 and the sale and closing
of an additional five units in 1996. As of September 30, 1996, 49 units were
under contract in the second building representing a sales volume of $16.8
million, the building was 55% complete, and revenues of $8.9 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 Company anticipates that construction of the second building will be
approximately 80% complete by the end of 1996 and expects to have approximately
56 units under contract which should generate approximately $15.0 million of
revenue from the second building for the full year of 1996.
Single family home sales revenues decreased during the first nine months
of 1996 compared to the first nine months of 1995 due to a decrease in closings
from 79 in 1995 to 35 in 1996. Closings decreased because the Company decided
in mid-1995 to withdraw from the single family home business and is currently
winding down this business. The Company has only three single family home
residential units in inventory, none of which were under contract as of
September 30, 1996.
Residential sales gross margins are summarized as follows for the nine
months ended September 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominiums 28.9% 24.0%
Single family homes 10.6% 13.9%
</TABLE>
The gross margin for condominiums in 1996 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 nine months of 1996 as compared to the estimated profits previously
recorded in 1995. In addition, the gross margin for the second building of
27.4% is higher than the targeted gross margin due to lower than anticipated
construction costs.
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 decreased in the first nine months of 1996
from the first nine months of 1995 primarily due to a decrease in revenues.
Residential sales other real estate overhead decreased in the first nine
months of 1996 compared to the first nine months of 1995 primarily due to
reduced single family home overhead resulting from the phase-out of this
operation.
Other Operations
Net income from other operations increased slightly in the first nine
months of 1996 compared to the first nine months of 1995 due to an increase in
other income, partially offset by a decrease in interest income.
Other operating revenues and expenses decreased in the first nine months
of 1996 from the first nine months of 1995 primarily due to the absence of
revenues and expenses from Florida Home Finders Inc. (FHF), a wholly-owned
subsidiary providing property management and real estate brokerage services,
sold on March 31, 1995 and Longwood Utilities, Inc. ("Longwood"), a wholly
owned subsidiary sold in July 1995
14
<PAGE> 17
and to a reduction in revenues and expenses from the Port LaBelle utility
system sold in February 1996 and the Julington Creek utility system sold in
June 1996.
Interest income decreased in the first nine 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 $5.5 million in the first nine 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 nine 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 $696,000
on the sale of the Company's Julington Creek utility system sold in June 1996
for $6.0 million. Other income of $3.5 million in the first nine months of
1995 consisted primarily of a $3.3 million gain on the sale of FHF 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. Also included in other income in the first nine
months of 1995 was a $219,000 gain on the sale of Longwood which was sold in
July 1995 for $850,000.
Business Development
Total business development expenditures decreased $1.7 million in the
first nine months of 1996 compared to the first nine 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 nine months of 1996
compared to the first nine months of 1995 primarily due to the decrease in
costs related to the Ya Dong joint venture. The Company incurred costs of
$940,000 in 1996 compared to approximately $2.9 million in 1995. The Company
does not anticipate making any additional material capital contributions to the
Ya Dong joint venture in 1996. The remaining business development expenditures
consist primarily of costs associated with the pursuit of business
opportunities in primary market locations within Florida and other southeastern
United States locations.
Other expenses of $408,000 in the first nine months of 1996 and
$267,000 in the first nine 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 $11.7
million in the first nine months of 1996 from the first nine months of 1995
principally due to extraordinary gains totalling $11.0 million in 1996
resulting from the extinguishment of debt.
Other income included gains of $1.4 million in the first nine months of
1996 and $3.5 million in the first nine 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 when the final
disposition of various
15
<PAGE> 18
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. Other income in
1995 also included a $2.0 million gain on proceeds of $4.0 million associated
with the assignment of rights of one of the Company's mortgage receivables.
Property tax, net decreased in the first nine months of 1996 compared to
the first nine 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 decreased in the first nine months of 1996
compared to the corresponding prior year period primarily due to a severance
charge of approximately $265,000 in 1995.
General and administrative expenses increased slightly in the first nine
months of 1996 compared to the first nine months of 1995, despite a severance
charge of approximately $310,000 in 1995, principally due to financial advisory
and due diligence costs associated with the Company's recapitalization efforts.
Cost of borrowing, net of capitalized interest decreased during the first
nine months of 1996 compared to the same period in 1995 primarily due to lower
average balances of the Company's Mandatory Interest Notes and Working Capital
Facility and to a decrease in interest rates, partially offset by a decrease in
interest capitalized to land inventory corresponding to a decrease in land
under development. During the nine months ended September 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."
The $694,000 of other expense in 1995 was the result of a valuation
reserve provided in the third quarter of 1995 associated with the Company's
residential mortgages receivable portfolio which was sold in October 1995.
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.
In September 1996, the Company fully prepaid at a discount its Secured
Cash Flow Notes for $40.0 million in cash plus warrants to purchase up to
1,500,000 of the Company's common stock at $6.50 per share. As a result of the
extinguishment of the Secured Cash Flow Notes, the Company recorded an
extraordinary gain of approximately $7.2 million representing the difference
between the book value of these notes of $49.1 million, consisting of a par
value of $54.9 million less an unamortized discount of $5.8 million, and the
consideration given of $41.9 million, consisting of cash of $40.0 million and
the estimated fair market value of the warrants of $1.9 million.
16
<PAGE> 19
Comparison of the Three Months Ended September 30, 1996 and 1995
The comparison of the three months ended September 30, 1996 and 1995
should be read in conjunction with the comparison of the nine months ended
September 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
September 30, 1996 and 1995 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business
Three Months Ended September 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 $ 4,155 $ 7,605 $ 4,704 $ $ $ $ 16,464
Other operating revenue 1,281 1,281
Interest income 686 341 1,027
Other income:
Reorganization reserves 129 129
Other income (171) (71) (242)
----------------------------------------------------------------------------------------------
Total revenues 4,155 7,605 4,704 1,796 399 18,659
----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 3,053 6,171 3,465 12,689
Selling expense 1,498 1,345 186 3,029
Other operating expense 254 354
Other real estate costs:
Property tax, net (30) 1,503 1,473
Other real estate 345 1,839 96 242 1,371 512 4,405
General and administrative 2,906 2,906
Depreciation (5) 24 4 40 123 186
Cost of borrowing, net 2,725 2,725
Other expense 5 95 100
----------------------------------------------------------------------------------------------
Total costs and expenses 4,896 9,379 3,751 606 1,466 7,769 27,867
----------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (741) (1,774) 953 1,190 (1,466) (7,370) (9,208)
Extraordinary gain on
extinguishment of debt 7,255 7,255
----------------------------------------------------------------------------------------------
Net income (loss) $ (741) $ (1,774) $ 953 $ 1,190 $ (1,466) $ (115) $ (1,953)
==============================================================================================
</TABLE>
17
<PAGE> 20
Combining Results of Operations by Line of Business
Three Months Ended September 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 $ 3,887 $ 2,140 $ 16,578 $ $ $ $ 22,605
Other operating revenue 1,536 1,536
Interest income 1,295 442 1,737
Other income:
Reorganization reserves --
Other income 382 460 1,842 2,684
--------------------------------------------------------------------------------------
Total revenues 4,269 2,140 16,578 3,291 2,284 28,562
--------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,614 1,649 12,899 17,162
Selling expense 1,233 373 568 1 2,175
Other operating expense 784 784
Other real estate costs:
Property tax, net 3 31 1,332 1,366
Other real estate 688 381 368 302 1,383 862 3,984
General and administrative 2,731 2,731
Depreciation 8 31 43 125 110 317
Cost of borrowing, net 3,990 3,990
Other expense 28 694 722
--------------------------------------------------------------------------------------
Total costs and expenses 4,543 2,434 13,881 1,242 1,412 9,719 33,231
--------------------------------------------------------------------------------------
Net income (loss) $ (274) $ (294) $ 2,697 $ 2,049 $ (1,412) $ (7,435) $ (4,669)
======================================================================================
</TABLE>
During the third quarter of 1996 the Company incurred a net loss of $2.0
million which was $2.7 million lower than the $4.7 million net loss incurred
during the third quarter of 1995. This improvement was primarily due to an
extraordinary gain of $7.3 million in 1996 resulting from the extinguishment of
debt, partially offset by decreases in residential sales and other income. The
decrease in other income was principally attributable to a gain of $2.0 million
in the third quarter 1995 on proceeds of $4.0 million associated with the
assignment of rights of one of the Company's mortgage receivables.
18
<PAGE> 21
Homesite Sales
The net loss from homesite sales increased in the third quarter of 1996
compared to the third quarter of 1995 despite an increase in revenues,
primarily due to lower gross margin percentages in the third quarter of 1996
and to a decrease in other income.
Revenues from homesite sales increased $268,000 in the third quarter of
1996, due to a 49% increase in the number of homesites sold, partially offset
by a 28% decrease in the average sales price per homesite. The following table
summarizes homesite activity for the three months ended September 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 58 $1,188 $20.5 63 $1,672 $26.5
Scattered homesite sales 358 2,967 8.3 216 2,215 10.3
--- ------- ------ --- ------- ------
416 $4,155 $10.0 279 $3,887 $13.9
=== ====== ===== === ====== =====
</TABLE>
The decrease in subdivision homesite sales is primarily due to a $1.1
million decrease in sales in Julington Creek Plantation due to the sale of the
entire project in June 1996, partially offset by an increase in sales in
Lakeside Estates. The decrease in the average sales price of subdivision
homesite sales is primarily due to the $1.1 million of sales in Julington Creek
Plantation in the third quarter of 1995 which yielded an average selling price
of $38,000.
Scattered homesite sales increased in the third quarter of 1996 compared
to the third quarter of 1995 due to a 66% increase in the number of homesites
sold, partially offset by a 19% decrease in the average sales price. The
increase in volume is primarily attributable 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. The decrease in the average selling price is
due to the mix of properties sold in the secondary markets in Florida.
Other income of $382,000 in the third quarter of 1995 represented the
Company's 50% share of net profits from the Sanctuary Joint Venture which the
Company accounted for under the equity method until August 1996, at which time
the Company purchased its partner's interest in the joint venture. The
Sanctuary Joint Venture derived its profits from the sale of subdivision
homesites located near Orlando, Florida.
The homesite sales gross margin percentages were 26.5% in the third
quarter of 1996 compared to 32.8% in the third quarter of 1995 which generally
reflect the targeted gross margins of 25% to 30% for this line of business.
The lower gross margin percentage in the third quarter of 1996 compared to the
prior year quarter is primarily attributable to the 31.8% gross margin
associated with Julington Creek Plantation sales in the third quarter of 1995
and to a decrease in the gross margins on bulk homesite sales.
Homesite selling expense increased in the third quarter of 1996 compared
to the third quarter of 1995 primarily due to an increase in revenues and to
additional commissions paid in the third quarter of 1996 associated with sales
recorded during the first six months of 1996. Homesite selling expense as a
percentage of revenues increased from 31.7% in the third quarter of 1995 to
36.1% in the third quarter of 1996 primarily due to the payment of these
additional commissions.
Homesite sales other real estate overhead decreased in the third quarter
of 1996 compared to the prior year quarter primarily due to a $180,000
severance charge in the third quarter of 1995.
19
<PAGE> 22
Tract Sales
The net loss from tract sales increased $1.5 million in the third quarter
of 1996 compared to the third quarter of 1995 despite an increase in revenues,
primarily due to advertising costs associated with the efforts to accelerate
the disposition of predecessor assets in secondary real estate markets.
Revenues from tract sales increased $5.5 million or 255% in the third
quarter of 1996 compared to the same prior year period primarily due to timing
as several large tract sales closed during the third quarter of 1996. 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.
The tract sales gross margin of 18.9% in the third quarter of 1996
approached the 1996 targeted gross margin of 20%. The tract sales gross margin
of 22.9% in the third quarter of 1995 was lower than the 1995 targeted gross
margin of 35% primarily due to sales mix. The targeted gross margins have been
reduced primarily due to the Company's business plan approved in July 1995 to
accelerate land sales in secondary real estate market locations.
Tract sales selling expense increased in the third quarter of 1996
compared to the third quarter of 1995 due to an increase in revenues and to
additional commissions paid in the third quarter of 1996 associated with sales
recorded during the first six months of 1996.
Tract sales other real estate overhead increased in the third quarter of
1996 compared to the third 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
Net income from residential sales, which includes single family homes and
condominiums, decreased $1.7 million during the third quarter of 1996 compared
to the corresponding prior year period. This decrease corresponds to a
decrease in condominium revenues and profits from the Company's Regency Island
Dunes condominium project.
Residential sales are summarized as follows for the three months ended
Setpember 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominium sales $4,414 $14,156
Single family home sales 290 2,422
------ -------
$4,704 $16,578
====== =======
</TABLE>
The condominium revenues of $4.4 million during the third quarter of 1996
were generated from the second building of the Regency Island Dunes condominium
project and the $14.2 million of revenues during the third quarter of 1995 were
generated from the first building of this two 72-unit building project.
Condominium revenues are recognized on the percentage of completion method.
The revenues of $4.4 million during the third quarter of 1996 were derived from
an increase in the second building completion percentage of 25% during the
quarter from 30% as of June 30, 1996 to 55% as of September 30, 1996 and to
four additonal units under contract during the quarter from 45 units as of June
30, 1996 to 49 units as of September 30, 1996 representing a $1.2 million
increase in sales volume. The revenues of $14.2 million during the third
20
<PAGE> 23
quarter of 1995 were derived from 61 units under contract in the first building
as of September 30, 1995 representing a sales volume of $19.5 million and a 74%
building completion percentage.
Single family home sales revenues decreased in the third quarter of 1996
compared to the third quarter of 1995 due to a decrease in the number of
closings from 31 closings in 1995 to three closings in 1996. The number of
closings decreased because 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 September 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condominiums 27.7% 24.0%
Single family homes 5.9% 11.6%
</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 decreased in the third quarter of 1996
compared to the third quarter of 1995 primarily due to a decrease in revenues.
Residential sales other real estate overhead decreased in the third
quarter of 1996 compared to the third 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 decreased in the third quarter of 1996
compared to the third quarter of 1995 primarily due to decreases in interest
income and other income.
Other operating revenues and expenses decreased in the third quarter of
1996 from the third quarter of 1995 primarily due to the absence of revenues
and expenses from the Port LaBelle utility system sold in February 1996 and the
Julington Creek utility system sold in June 1996.
Interest income decreased in the third 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.
The reduction in other income during the third quarter of 1996 consisted
primarily of $169,000 of additional expenses associated with the June 1996 sale
of the Company's Julington Creek utilities system thereby reducing the gain to
$696,000. Other income in the third quarter of 1995 included the $219,000 gain
on the sale of Longwood and an additional $200,000 gain on the FHF sale
resulting from a forbearance fee charged to the buyer.
21
<PAGE> 24
Business Development
Total business development expenditures were similar for the two periods
under review. Business development expenditures consist primarily of costs
associated with the pursuit of business opportunities in primary market
locations within Florida and other southeastern United States locations.
Administrative & Other
The net loss from administrative & other activities decreased $7.3
million in the third quarter of 1996 from the third quarter of 1995 principally
due to an extraordinary gain of $7.2 million in 1996 resulting from the
extinguishment of debt.
Other income in the third quarter of 1995 included a $2.0 million gain on
proceeds of $4.0 million associated with the assignment of rights of one of the
Company's mortgage receivables.
Other real estate overhead decreased in the third quarter of 1996
compared to the same period in 1995 primarily due to a severance charge of
approximately $265,000 in the third quarter of 1995.
General and administrative expenses increased in the third quarter of
1996 compared to the third quarter of 1995, despite a severance charge of
approximately $310,000 in the third quarter of 1995, principally due to
financial advisory and due diligence costs associated with the Company's
recapitalization efforts.
Cost of borrowing, net of capitalized interest decreased during the third
quarter of 1996 compared to the same period in 1995 primarily due to lower
average balances of the Company's Mandatory Interest Notes and Working Capital
Facility and a decrease in interest rates, partially offset by a decrease in
interest capitalized to land inventory corresponding to a decrease in land
under development. During the three months ended September 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."
The $694,000 of other expense in 1995 was the result of the valuation
reserve provided in the third quarter of 1995 associated with the Company's
residential mortgages receivable portfolio which was sold in October 1995.
In September 1996, the Company recorded an extraordinary gain of
approximately $7.2 million resulting from the extinguishment of the Company's
Secured Cash Flow Notes at a discount.
LIQUIDITY & CAPITAL RESOURCES
As of September 30, 1996, the Company's cash and cash equivalents totaled
approximately $2.1 million. The Company also had restricted cash and cash
equivalents of $5.3 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 $1.4 million
decrease in cash and cash equivalents during the first nine months of 1996,
$37.3 million was used in financing activities, partially offset by $6.6
million provided by operating activities and $29.3 million provided by
investing activities.
Cash provided by operating activities includes net cash generated through
real estate sales and other operations, partially offset by approximately (i)
$13.3 million for interest payments, (ii) $6.0 million for property tax
payments, (iii) $24.6 million for construction and development expenditures,
(iv) $8.1 million
22
<PAGE> 25
related to property acquisitions and (v) $5.6 million of fees associated with
the Company's refinancing and recapitalization efforts.
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 $51.2 million of principal
payments to repay in full the Company's Secured Floating Rate Notes, $40.0
million of principal payments to repay in full the Company's Secured Cash Flow
Notes, net repayments of $11.7 million on new project financings and $4.3
million in principal payments related to the Company's deferred property tax
and Section 365(j) lien obligations arising out of the reorganization
proceedings. These payments were partially offset by net borrowings of $10.3
million on the Working Capital Facility and $46.0 million of borrowings from
the new credit facilities with Foothill, which were used to partially finance
the repayments of the Secured Floating Rate Notes and Secured Cash Flow Notes
(the "Foothill Refinancing" - see discussion below). In addition, the Company
had net borrowings of $13.5 million associated with the financing of the
Company's mortgage receivables.
The Company has a $20 million Working Capital Facility with Foothill
Capital Corporation ("Foothill") maturing December 1, 1998. Amounts
outstanding under the Working Capital Facility bear variable interest at a rate
equal to the variable interest rate, per annum, announced by Norwest Bank of
Minnesota, N.A., or any successor thereto, as its "base rate" plus two
percentage points. As of September 30, 1996, there was no available credit
under the Working Capital Facility.
The Company's material obligations in the fourth quarter of 1996 include
the repayment of its Unsecured 12% Notes which mature on December 31, 1996. By
that time, the Company is obligated to pay principal in the amount of $41.7
million plus accrued interest. 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.
The Company does not currently have sufficient liquid capital resources
to satisfy the $41.7 million of Unsecured 12% Notes maturing on December 31,
1996. However, management believes that the Company, through a combination of
sources, as more fully described hereafter, will be able to obtain sufficient
liquidity and capital resources necessary to continue implementing its business
plan and to satisfy the Unsecured 12% Notes maturing on December 31, 1996.
The Company has made substantial progress over the last nine months with
respect to the accelerated disposition of non-core tract and scattered homesite
assets ("Predecessor Assets"). As of September 30, 1996, the Company had
pending under contract or letter of intent a combination of Predecessor Asset
sale transactions which would generate, if consummated, in excess of $39.3
million cash and notes. 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. Not all of these transactions are anticipated
to be closed by December 31, 1996, and there are no assurances that any
particular transaction under contract or letter of intent will be consummated.
With respect to the potential sale or financing of mortgages or other
receivables acquired through real
23
<PAGE> 26
estate sales, the Company has a commitment from Litchfield Financial
Corporation ("Litchfield") to buy up to $7 million of deeds of trust generated
in the retail homesite sales program conducted by Cumberland Cove, Inc., the
Company's Tennessee subsidiary, by December 31, 1997. On October 30,1996, the
Company closed with Litchfield on approximately $4.3 million under this
commitment. The Company anticipates closing on an additional $850,000 by
December 31, 1996.
As previously announced, in July of 1996 the Company sold to a limited
partnership financed by Harbourton Residential Capital Company, Ltd.
("Harbourton") approximately $19.8 million of mortgage receivables generated
through sales of Predecessor Assets. The Company received an initial cash
distribution of approximately $13.3 million at the Harbourton Closing, plus a
residual interest in the limited partnership. The Company is considering
selling or financing additional Predecessor Asset mortgages by December 31,
1996, and is in discussions with potential buyers or lenders in this regard.
The Company is also considering selling or financing its portfolio of
receivables generated by the predecessor company in connection with homesite
contracts for deed (the "Homesite Contract Receivables"), and is in discussions
with certain potential buyers or lenders in this regard. The face value of the
Company's Homesite Contract Receivables as of October 31, 1996 was $12,797,000.
With respect to the Foothill Refinancing, on September 30, 1996, the
Company closed on three credit facilities totalling $85.0 million with
Foothill. Pursuant to the Foothill Refinancing, Foothill has provided the
Company with (i) an extension to December 1, 1998 of the existing $20 million
Working Capital Facility at prime plus two percent of which the Company has
borrowed $20 million as of September 30, 1996; (ii) a $40 million term loan at
15% to mature June 30, 1998; and (iii) a stand-by commitment of up to $25
million at prime plus four percent to mature June 30, 1998 of which the Company
has borrowed $6 million as of September 30, 1996. Upon closing, $10 million of
the stand-by facility was activated and the remaining portion may be activated
any time prior to December 31, 1996. The stand-by facility is 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 proceeds from the Working Capital
Facility, the term loan, approximately $16.3 million of cash held in cash
collateral accounts, $6 million from the stand-by commitment, and 1,500,000
warrants (which were issued to the holders of the Secured Cash Flow Notes) were
used to repay in full the Secured Floating Rate Notes and prepay the Secured
Cash Flow Notes at a discount. The remaining portion of the stand-by
commitment is intended to be used primarily for repayment of a portion of the
remaining $41.7 million of Unsecured 12% Notes due December 31, 1996.
The Company is also engaged in discussions with respect to the possible
private placement of debt or equity securities. The completion of such a
transaction could be subject to various conditions, including the consent of
Foothill.
The remaining balance of the Unsecured 12% Notes are expected to be paid
using a combination of the above- mentioned sources. There is no assurance
that all of the transactions will close or will close by December 31, 1996.
However, the Unsecured 12% Notes provide for a thirty-day grace period on any
payments not made when due. 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.
In April 1996, in connection with the Company's acquisition of the
Falcon Trace project in Orlando, the Company's subsidiary, Hunter Trace
Development Corporation, ("HTDC") entered into various agreements with Cypress
Realty Limited Partnership ("Cypress") in which Cypress agreed to (a) invest
$2.5 million in equity and (b) provide up to a $1.0 million temporary
development fund until such time as HTDC was able to close upon a development
loan, but no later than October 17, 1996. Although HTDC has received a loan
commitment from SunTrust to finance the development of this project, the
commitment calls for more equity and more debt financing than originally
anticipated by Cypress. As a result, Cypress has exercised its right to
require HTDC to repay approximately $3.0 million currently invested by Cypress,
together with interest thereon at the rate of 20%, which sums would be due
November 17, 1996. The Company is currently in active negotiations with
Cypress to restructure the terms of the Cypress agreements to permit HTDC to
retain the Cypress investment and to close the SunTrust loan as expeditiously
as possible. Although there can be no assurance that an agreement will be
reached with Cypress, the Company believes that, based upon the status of these
negotiations, the Company will not be required to repay the Cypress investment
currently.
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
24
<PAGE> 27
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 September 30, 1996. Accordingly, the Company did not accrue any
interest on those notes during the nine months ended September 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.
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.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated September 30, 1996,
pursuant to item 5, Other Events, reporting the closing on the Foothill
Refinancing.
25
<PAGE> 28
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: November 12, 1996 /s/ Thomas W. Jeffrey
-------------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: November 12, 1996 /s/ Callis N. Carleton
----------------------------------------
Callis N. Carleton
Vice President and Controller
(Principal Accounting Officer)
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,389
<SECURITIES> 0
<RECEIVABLES> 53,761<F1>
<ALLOWANCES> 0
<INVENTORY> 191,096
<CURRENT-ASSETS> 0<F2>
<PP&E> 4,212<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 275,706
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 180,518
0
0
<COMMON> 978
<OTHER-SE> 57,213
<TOTAL-LIABILITY-AND-EQUITY> 275,706
<SALES> 85,959
<TOTAL-REVENUES> 102,162
<CGS> 67,782
<TOTAL-COSTS> 78,246
<OTHER-EXPENSES> 23,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,111
<INCOME-PRETAX> (9,117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 11,025
<CHANGES> 0
<NET-INCOME> 1,908
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>(1) THE VALUES FOR RECEIVABLES AND PP&E REPRESENT NET AMOUNTS.
<F2>(2) THE COMPANY DOES NOT PREPARE A CLASSIFIED BALANCE SHEET THEREFORE; CURRENT
ASSETS AND CURRENT LIABILITIES ARE NOT APPLICABLE.
</FN>
</TABLE>
