SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K/A
AMENDMENT NO. 5
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[ ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________________
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-0720444
- ---------------------------------------- ------------------------------------
(State or 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, including area code (305) 859-4000
--------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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 and 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
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
Documents incorporated by reference
None
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
27 Financial Data Schedule
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
By: /s/ J. Larry Rutherford
---------------------------------
J. Larry Rutherford
Chairman of the Board
President and Chief
Executive Officer
Date: October 16, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amended report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ J. Larry Rutherford
- ----------------------- Chairman of the Board, October 16, 1997
J. Larry Rutherford President and Chief
Executive Officer,
Director
/s/ Callis N. Carleton
- ----------------------- Vice President and October 16, 1997
Callis N. Carleton Controller (Principal
Accounting Officer)
2
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Lee Neibart
- ----------------------- Director October 16, 1997
Lee Neibart
/s/ Ricardo Koenigsberger
- ------------------------- Director October 16, 1997
Ricardo Koenigsberger
/s/ Gerald N. Agranoff
- ------------------------- Director October 16, 1997
Gerald N. Agranoff
/s/ James M. DeFrancia
- ------------------------- Director October 16, 1997
James M. DeFrancia
/s/ Charles K. MacDonald
- ------------------------- Director October 16, 1997
Charles K. MacDonald
- ----------------------- Director October __, 1997
W. Edward Scheetz
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Atlantic Gulf Communities Corporation and Subsidiaries
Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedules for each of the
periods in the three years ended December 31, 1996:
Schedule II - Valuation and Qualifying Accounts S-1
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or not material, or the
information is presented in the Consolidated Financial Statements and Notes
thereto.
<PAGE>
Report of Ernst & Young LLP
Independent Certified Public Accountants
Board of Directors
Atlantic Gulf Communities Corporation
We have audited the accompanying consolidated balance sheets of Atlantic Gulf
Communities Corporation and subsidiaries as of December 31, 1996 and, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Atlantic Gulf Communities Corporation and subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operation and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
--------------------------
ERNST & YOUNG LLP
Miami, Florida
February 27, 1997
F-2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 7,050 $ 3,560
Restricted cash and cash equivalents 6,034 8,461
Contracts receivable, net 9,649 14,350
Mortgages, notes and other receivables, net 63,800 45,479
Land and residential inventory 153,417 218,270
Property, plant and equipment, net 2,911 17,657
Other assets, net 20,532 25,048
--------- ---------
Total assets $ 263,393 $ 332,825
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities $ 16,914 $ 21,078
Customers' and other deposits 5,483 6,091
Contributions in aid of construction -- 4,530
Other liabilities 15,393 25,747
Notes, mortgages and capital leases 169,215 220,999
--------- ---------
207,005 278,445
--------- ---------
Commitments and contingencies
Stockholders' equity
Common stock, $.10 par value, 15,665,000
shares authorized; 9,795,642 and 9,771,521 shares issued 980 977
Contributed capital 122,123 120,115
Accumulated deficit (60,706) (61,887)
Minimum pension liability adjustments (6,000) (4,825)
Treasury stock, 86,277 shares in 1996, at cost (9) --
--------- ---------
Total stockholders' equity 56,388 54,380
--------- ---------
Total liabilities and stockholders' equity $ 263,393 $ 332,825
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Real estate sales:
Homesite $ 43,910 $ 24,106 $ 15,040
Tract 62,693 31,055 25,793
Residential 20,962 27,742 11,467
--------- --------- ---------
Total real estate sales 127,565 82,903 52,300
Other operating revenue 4,919 6,748 9,784
Interest income 6,295 7,765 8,263
Other income -- 603 --
--------- --------- ---------
Total revenues 138,779 98,019 70,347
--------- --------- ---------
Costs and expenses:
Direct cost of real estate sales:
Homesite 35,235 17,151 10,472
Tract 51,354 26,108 17,892
Residential 16,725 23,150 10,144
--------- --------- ---------
Total direct cost of real estate sales 103,314 66,409 38,508
Inventory valuation reserves 12,283 4,851 --
Selling expense 13,525 9,820 7,532
Other operating expense 1,986 4,037 7,085
Other real estate costs 19,384 20,545 22,644
General and administrative expense 11,510 10,405 10,551
Depreciation 900 1,215 1,105
Cost of borrowing, net of amounts capitalized 13,430 14,274 14,818
Other expense 512 517 --
--------- --------- ---------
Total costs and expenses 176,844 132,073 102,243
--------- --------- ---------
Loss before non-recurring and extraordinary items (38,065) (34,054) (31,896)
--------- --------- ---------
Other income (expense) (non-recurring items):
Reorganization reserves
Utility Trust 11,859 863 --
Utility connection 4,097 -- --
C/R termination -- 2,788 --
Deferred property tax -- 2,165 --
Income tax -- 1,500 --
Adm/Convenience class -- 1,673 --
Other 2,641 1,687 700
Utility condemnation 4,122 -- 34,200
Sale of Fla Homefinders -- 2,353 --
Assign Jensen Bch receivable -- 2,000 --
Loan refinancing expense -- -- (2,638)
Land mortgages receivable valuation discount -- (1,181) --
Miscellaneous 2,795 (390) 715
--------- --------- ---------
Total non-recurring items 25,514 13,458 32,977
--------- --------- ---------
Income (loss) before extraordinary items (12,551) (20,596) 1,081
Extraordinary gains on extinguishment of debt 13,732 -- --
--------- --------- ---------
Net income (loss) $ 1,181 $ (20,596) $ 1,081
========= ========= =========
Income (loss) before extraordinary items
per common share $ (1.29) $ (2.12) $ .11
========= ========= =========
Net income (loss) per common share $ .12 $ (2.12) $ .11
========= ========= =========
Weighted average common shares outstanding 9,709 9,708 9,643
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(in thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 1,181 $ (20,596) $ 1,081
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,244 6,879 6,088
Other income (19,337) (8,922) (700)
(Gain) loss from sale of property, plant and equipment 94 (44) (715)
Gains from utility condemnations or sales (5,504) (219) (34,200)
Gain from sale of stock of wholly-owned subsidiaries -- (2,353) --
Extraordinary gains from extinguishment of debt (13,732) -- --
Reorganization items (1,477) (2,589) (3,536)
Inventory valuation reserves 12,283 4,851 --
Land acquisitions (9,338) (7,607) (8,549)
Other net changes in assets and liabilities:
Restricted cash 2,427 1,248 3
Receivables (403) (5,238) (1,008)
Land and residential inventory 61,694 21,463 10,790
Other assets (12,367) (5,311) (7,344)
Accounts payable and accrued liabilities (2,753) (3,641) 5,342
Customer deposits (414) 1,578 2,672
Other liabilities (2,317) (4,244) (2,703)
Other, net (273) (125) (455)
--------- --------- ---------
Net cash provided by (used in) operating activities 15,008 (24,870) (33,234)
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (228) (1,555) (3,576)
Proceeds from sale of property, plant & equipment 1,885 204 2,466
Proceeds from utility condemnations or sales 28,699 850 45,030
Proceeds from sale of stock of wholly-owned subsidiaries -- 2,701 --
--------- --------- ---------
Net cash provided by investing activities 30,356 2,200 43,920
--------- --------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 123,848 44,538 61,851
Repayments under credit agreements (161,477) (24,662) (80,922)
Principal payments on other liabilities (4,250) (5,987) (8,211)
Proceeds from sale of note receivable -- -- 15,137
Proceeds from exercise of stock options 5 44 --
--------- --------- ---------
Net cash provided by (used in) financing activities (41,874) 13,933 (12,145)
Increase (decrease) in cash and cash equivalents 3,490 (8,737) (1,459)
Cash and cash equivalents at beginning of period 3,560 12,297 13,756
--------- --------- ---------
Cash and cash equivalents at end of period $ 7,050 $ 3,560 $ 12,297
========= ========= =========
Supplemental cash flow information:
Income tax payments (refunds) $ -- $ -- $ (917)
========= ========= =========
Interest payments, net of amounts capitalized $ 12,268 $ 7,269 $ 9,470
========= ========= =========
Reorganization item payments $ 5,099 $ 7,298 $ 10,079
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK PENSION
------------------- CONTRIBUTED ACCUMULATED LIABILITY TREASURY
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS STOCK
------ ------ ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 9,603 $975 $119,015 $(42,372) $(4,265) $ (202)
- ---------------------------------------------------------------------------------------------------------------------------
Net income - - - 1,081 - -
Stock returned (3) - - - - -
Shares issued under director
stock plan 19 - (20) - - 20
Shares issued as minimum
pension contribution 56 - 533 - - 80
Minimum pension liability
adjustment - - - - (115) -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 9,675 975 119,528 (41,291) (4,380) (102)
- ---------------------------------------------------------------------------------------------------------------------------
Net loss - - - (20,596) - -
Stock returned (3) - - - -
Shares issued as minimum
pension contribution 31 - 206 - - 42
Minimum pension liability
adjustment - - - - (445) -
Exercise of stock options 8 1 43 - - -
Shares issued as Secured Floating
Rate Note fees 61 1 338 - - 60
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 9,772 977 120,115 (61,887) (4,825) -
- ---------------------------------------------------------------------------------------------------------------------------
Net income - - - 1,181 - -
Stock returned (86) - - - - (9)
Shares issued under director
stock plan 18 2 98 - - -
Warrants issued to pay down
Secured Cash Flow Notes - - 1,875 - - -
Exercise of stock options 1 - 5 - - -
Minimum pension liability
adjustment - - - - (1,175) -
Shares issued to director as
recapitalization committee fee 4 1 30 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 9,709 $980 $122,123 $(60,706) $(6,000) $ (9)
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Atlantic Gulf Communities Corporation ("Atlantic Gulf" or the
"Company") is principally engaged in the business of
acquisition, development and sale of new subdivision and
scattered developed homesites and land tracts, residential
construction and sales and providing other related real estate
asset management services.
(b) CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and all significant subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(c) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(d) REORGANIZATION AND FRESH START REPORTING
In April 1990 (the "Petition Date"), Atlantic Gulf's
predecessor corporation ("Predecessor Company") and certain of
its subsidiaries filed for reorganization under Chapter 11 of
the United States Bankruptcy Code. The Predecessor Company's
Plan of Reorganization ("POR") was confirmed on March 27, 1992
by the Bankruptcy Court and became effective on March 31, 1992
("Effective Date"). Atlantic Gulf, as the successor Company,
adopted a new charter and business plan to be implemented by
its new board of directors and management.
The Company adopted "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("Fresh Start
Reporting") as of the Effective Date in accordance with
American Institute of Certified Public Accountants' Statement
of Position No. 90-7. Accordingly, the Company's consolidated
financial statements have been prepared as if the Company were
a new reporting entity as of, and for the periods subsequent
to, the Effective Date (see Note 18).
(e) NET INCOME (LOSS) PER COMMON SHARE
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 outstanding warrants and
options to
F-7
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
purchase common stock on the per share computations was
anti-dilutive or not material during the periods.
(f) REAL ESTATE SALES
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 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.
Cost of residential sales other than Regency condominium sales
is determined on a specific identification basis. Cost of
sales associated with Regency condominium sales is determined
using the percentage-of-completion method. Cost of land sales
is determined on a project basis using the relative sales
value method.
(g) LAND AND RESIDENTIAL INVENTORY
The Company's cost of land was determined in connection with
its application of Fresh Start Reporting. Costs capitalized
are allocated on a specific project identification basis.
Residential unit costs are accounted for on a specific
identification basis and all land and residential inventory is
carried at values determined in accordance with SFAS 121.
Property currently under development and property held for
future development are evaluated at least quarterly for
impairment if impairment indicators are present. An impairment
write-down to fair value is made if the estimated undiscounted
cash flows from the project are less than the carrying amount
of the asset. Properties that are substantially complete and
ready for their intended use are carried at the lower of
carrying amount or fair value less cost to sell. The
determination of whether the carrying amount of a real estate
project requires a write-down is based on an evaluation of
each individual project.
F-8
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) DEPRECIATION
Depreciation and amortization is provided on a straight-line
basis on the following assets:
Estimated
useful lives in
years
-----------------
Land improvements 5 to 33
Buildings 10 to 40
Fixtures and equipment 3 to 10
Utility equipment and facilities 3 to 50
Maintenance and repairs are charged to income as incurred.
Renewals and betterments to owned properties are capitalized.
Betterments to leased properties are capitalized and amortized
over the shorter of the terms of the leases or the lives of
the betterments.
(i) INCOME TAXES
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, Accounting for Income
Taxes.
(j) CAPITALIZED INTEREST
The Company capitalizes interest on land and residential
inventory under development on a specific project
identification basis. Capitalized interest approximated
$5,693,000, $7,418,000 and $5,101,000 during the years ended
December 31, 1996, 1995 and 1994, respectively.
(k) CASH AND CASH EQUIVALENTS
The Company includes in cash and cash equivalents all highly
liquid debt instruments purchased with a maturity of three
months or less. The credit risk associated with cash and cash
equivalents is considered low due to the high quality of the
financial instruments in which these assets are invested.
Restricted cash and cash equivalents include amounts pursuant
to escrows for the sale of real estate properties, development
cash collateral accounts, funds in a trust to pay certain
bankruptcy claims and various other escrow accounts.
F-9
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) CONTRIBUTIONS IN AID OF CONSTRUCTION
Advances from real estate developers and other direct
contributions to utility subsidiaries for plant construction
are recorded as "contributions in aid of construction." To the
extent required by regulatory agencies, the balance is
amortized over the depreciable life of utility equipment and
facilities as an offset to depreciation expense amounting to
$65,000, $131,000 and $130,000 for the years ended December
31, 1996, 1995 and 1994, respectively. During 1996, the
Company sold its two remaining utility facilities, therefore,
there are no contributions in aid of construction on the
accompanying consolidated balance sheets as of December 31,
1996.
(m) DEFERRED DEBT ISSUANCE COSTS
Costs associated with the issuance of the Company's various
debt instruments or closing of other financing transactions
have been deferred and are being amortized over the term of
the related debt. Amortization of deferred debt issuance
costs, included in cost of borrowing, net in the accompanying
consolidated statements of operations, was $1,187,000,
$2,458,000 and $2,260,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
(n) REPORTING ON ADVERTISING COSTS
Effective January 1, 1995, the Company adopted Statement of
Position (SOP) 93-7, "Reporting on Advertising Costs," issued
by the American Institute of Certified Public Accountants.
Adoption of SOP 93-7 had no effect on the consolidated
financial statements.
The Company expenses advertising costs as incurred. The
Company recognized advertising expenses of $3,577,000,
$2,126,000 and $2,318,000 for the years ended December 31,
1996, 1995 and 1994, respectively and these expenses are
included in selling and other real estate costs in the
accompanying consolidated statements of operations. The
Company did not incur any direct response advertising cost, as
defined by SOP 93-7, during the period.
(o) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company will continue to account for stock-based
compensation plans under the provisions of APB 25 - Accounting
for Stock Issued to Employees. The Company discloses the pro
forma information required for stock-based compensation plans
in accordance with FAS 123 (see Note 20).
(p) RECLASSIFICATION
Certain amounts in the consolidated financial statements have
been reclassified to conform with the 1996 presentation.
F-10
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) MANAGEMENT'S PLANS
The Company's near-term plan is to consummate the transactions
contemplated by the Investment Agreement dated as of February 7, 1997
with Apollo. The Company's high degree of leverage, combined with the
illiquid nature of its assets have resulted in the Company having
insufficient liquidity and capital resources to fully implement its
business plan and generate net income and increase stockholder value.
The Company plans to utilize the funds that result from the Apollo
transaction as follows:
(a) Increase investment in new real estate development projects,
on a wholly owned instead of joint venture basis, thereby
increasing the Company's potential rate of return.
(b) Seek more favorable terms and conditions from the Company's
lenders and other holders of company debt, thereby reducing
the cost of borrowing.
The Company's near-term plan anticipates the Company will
generate cash to meet its 1997 debt service requirements 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; (iii) the sale or financing of any
mortgage or other receivables acquired through real estate
sales; (iv) approximately $12.1 million in cash proceeds from
the various trusts established (see Note 4); and (v) the
potential sale of the Company's interest in one or more of its
primary market projects. The $115 million of cash available
for debt service corresponds to cash collections from the
above noted sources that are not restricted in their use by
the Company and can be applied to the Company's corporate debt
service.
Management believes the backlog of subdivision homesite sales ($15.2
million) and non-core real estate sales ($19.3 million) under contract
carried into 1997 plus the sources noted above will supply sufficient
cash to satisfy the 1997 debt service payments. Management believes the
near-term plan referred to above 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.
The Company will continue to explore alternative sources of funds
including refinancing or recapitalization of certain of its 1997 and/or
1998 debt obligations.
The Company's goal is to produce superior returns for shareholders by
liquidating Predecessor assets, paying off debt, reducing overhead, and
becoming the leading supplier of finished homesites to
F-11
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
builders in Florida's fastest growing markets and selected primary
markets in the Southeast without the exposure associated with carrying
a substantial inventory of land. The Company's historical operating
performance has been adversely affected by (i) investments undertaken
to produce future profits, (ii) high debt costs, (iii) significant
carrying costs attributable to its substantial but slower moving
Predecessor inventory in secondary real estate markets and (iv) the
time interval between asset acquisition, development and sale.
Management anticipates that revenues from many of the Company's
investments during the past three years will begin to be recognized in
1997. The Company anticipates its business plan will be fully
implemented in 1998, assuming availability of appropriate capital
resources, which cannot be assured.
The Company's business plan for 1997 contemplates that expenditures for
development, construction and other capital improvements could range up
to $50 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. Management believes
that it can obtain the funds corresponding to the planned 1997
expenditures for development, construction, and other capital
improvements. However, 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 revenue growth and increasing the expected time necessary for
the Company to achieve profitability.
F-12
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) CONTRACTS RECEIVABLE
The Company owns and manages a portfolio of retail land sales contracts
receivable generated by the Predecessor Company. At December 31,
contracts receivable from retail land sales, net consisted of the
following (in thousands of dollars):
1996 1995
---- ----
Contracts receivable, gross $ 11,779 $ 18,703
Reserve for estimated future cancellations,
net of estimated land recoveries (584) (1,112)
Valuation discounts to yield 15% (1,546) (3,241)
-------- --------
$ 9,649 $ 14,350
======== ========
Stated interest rates on homesite contracts receivable outstanding at
December 31, 1996 and 1995 range from 4% to 12.5% (averaging
approximately 7.0%). The original terms of these contracts were 10 to
12 years, and at December 31, 1996 and 1995, approximately 18% and 15%,
respectively, of such homesite contracts receivable were delinquent.
Contracts are classified as delinquent if their monthly payment is more
than 30 days past due. The percentage of delinquent accounts is not
indicative of the percentage of accounts that subsequently cancel. The
cancellation rates for 1996 and 1995 were respectively 6.3% and 5.2%.
The Company has established the reserve for estimated future
cancellations and the reserve for contracts receivable termination
refunds based on its actual cash collections and actual cancellations.
When a contract cancels, the Company recovers/restores the lot to
inventory at its estimated historical cost. Total future recoveries are
estimated at $1,243,000 and $1,517,000 as of December 31, 1996 and
1995, respectively, based on estimated future cancellations. The
Company's reserve for estimated future cancellations and its reserve
for contracts receivable termination refunds (see Note 9) are based on
1996 collection and cancellation experience, which is not necessarily
indicative of future trends. Due to higher than anticipated
cancellation activity in 1996, an adjustment was made in 1996 to
increase the reserve for future cancellations by $499,000 and the
reserve for estimated land recoveries by $104,000 resulting in a net
loss of $395,000 recorded in other expense in the accompanying
consolidated statements of operations. Due to better than anticipated
collection and cancellation activity in 1995, an adjustment was made in
1995 to reduce the reserve for future cancellations by $1,856,000 and
the reserve for estimated land recoveries by $1,812,000 resulting in a
net gain of $44,000 recorded in other income in the accompanying
consolidated statements of operations. The Company believes that a
downturn in the economy is the most significant factor which could
materially impact the future collectibility of the contracts receivable
portfolio. As of December 31, 1996, the
F-13
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company believes its contracts receivable reserves are adequate based
on current and foreseeable economic trends. There are no significant
concentrations of credit risk associated with this portfolio.
Pursuant to the Company's business plan to monetize receivables
generated as a result of the sale of Predecessor assets, the Company
closed on a $7.5 million financing in January 1997 of a portion of its
contracts receivable portfolio with Litchfield Financial Corporation
("Litchfield"). The proceeds were used to reduce corporate debt and to
fund ongoing operations.
The Company amortizes the valuation discounts over the expected life of
the receivable portfolio. This amortization, included in results of
operations in the accompanying consolidated statements of operations,
amounted to $1,153,000, $1,472,000 and $2,000,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The valuation discounts
were reduced by $542,000 in 1996 due to higher than anticipated
collection and cancellation activity since the Effective Date resulting
in a gain of $542,000 recorded in other income in the accompanying
consolidated statements of operations.
As of December 31, 1996, scheduled principal collections on the
contracts receivable portfolio for the five years ending December 31,
2001 are as follows: 1997 - $3,702,000, 1998 - $2,916,000, 1999 -
$2,210,000, 2000 - $1,563,000 and 2001 - $950,000.
The contracts receivable portfolio serves as collateral for a portion
of the Company's indebtedness (see Note 10).
(4) MORTGAGES, NOTES AND OTHER RECEIVABLES
At December 31, mortgages, notes and other receivables, net consisted
of (in thousands of dollars):
1996 1995
---- ----
Land mortgages receivable,
net of valuation discounts and reserves of
$2,605 and $3,499 $32,028 $21,959
Regency percentage-of-completion receivable 14,801 17,989
Utility trust fund withdrawal receivable 12,109 --
Cumberland Cove land mortgages receivable, net 1,120 3,142
Other receivables 3,742 2,389
------- -------
$63,800 $45,479
======= =======
The portfolio of land mortgages receivable relates primarily to seller
financing associated with sales of the Company's Predecessor tract
inventory. Mortgages in the portfolio as of the Effective Date
F-14
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
were discounted to yield 18%. Mortgages issued during 1994 were
discounted to yield prime plus 3% at the date of closing respectively,
resulting in a reduction in the valuation of real estate sales of
$213,000 for the year ended December 31, 1994 in the accompanying
consolidated statements of operations. Subsequent to December 31, 1994,
mortgages have been issued with a stated rate of approximately prime
plus 2%; therefore, no mortgage valuation discounts were incurred for
mortgages issued in 1995 and 1996. However, the valuation discount
associated with the land mortgages receivable was increased by
approximately $1.2 million to $2.1 million in 1995 and charged to other
expense in the accompanying consolidated statements of operations based
on an anticipated sale of the land sales mortgages in 1996. During
1996, the mortgages which were anticipated to be sold were financed
instead and, due to the non-recourse provisions associated with the
financing transaction which reduced the foreclosure exposure to the
Company, the valuation discount was reduced by $1.2 million to $900,000
in 1996 and recorded in other income in the accompanying consolidated
statements of operations. The land mortgages portfolio is also net of a
valuation reserve of $1.7 million as of December 31, 1995 of which $1.3
million was reserved for in 1995 and charged to inventory valuation
reserves in the accompanying consolidated statements of operations.
Substantially all land sale mortgages receivable are due within five
years. Approximately 26% of the land mortgages receivable resulted from
sales made to a single trustee with multiple investors. The value of
the Florida land securing these mortgages is estimated to equal or
exceed the net book value of the related receivables.
In July 1996, pursuant to the Company's business plan to monetize
receivables generated as a result of the sale of Predecessor assets,
the Company sold to a limited partnership financed by Harbourton
Residential Capital Company, Ltd. ("Harbourton") approximately $19.8
million of mortgage receivables. The Company received an initial cash
distribution of approximately $13.3 million at closing, plus a residual
interest in the limited partnership. Harbourton's recourse is only to
the mortgages. Harbourton has no recourse to the Company or its
partner. This transaction was recorded as a financing because the
limited partnership was not an independent third party, the Company's
partner did not make a substantive capital investment in the
partnership, the Company retained management responsibilities for the
mortgages as well as substantial risks and rewards relative to the
performance of the portfolio, therefore, the underlying mortgage
receivables remained on the Company's accompanying consolidated balance
sheets and a mortgage loan payable was recorded for the amount of the
proceeds. The proceeds were used to reduce corporate debt and to fund
ongoing operations (see Note 10).
In March 1997, the Company entered into a transaction with the First
National Bank of Boston ("BankBoston") which was accounted for as a
secured borrowing in accordance with the provisions of Statement of
Financial Standards No. 125 ("SFAS 125"). The transaction resulted in
the Company receiving approximately $7.0 million and approximately $9.3
million of mortgage receivables were transferred to BankBoston as
collateral. However, the Company did not surrender control of the
mortgage receivables as defined by SFAS 125. The Company's agreement
with BankBoston provides that BankBoston receives all of the principal
and interest payments from the individual mortgage notes. The Company
can repurchase the remaining portfolio at any time prior to November
30, 2001 for an amount equal to BankBoston's remaining investment plus
a stated return. In the event of a default by a individual mortgagee,
the Company is required to repurchase the individual receivable,
however, BankBoston's only remedy if the Company fails to do so is to
terminate the Company's repurchase option of the residual balance of
the portfolio. The proceeds from the transaction were used to reduce
corporate debt and to fund ongoing operations.
As noted above, the Bank of Boston transaction was recorded as a
secured borrowing and not as a sale. The Company recognized a loss of
$0.5 million on the transaction which is reflected on the 1997
financial statements in Other Expense. This loss was based on the
financing proceeds of the transaction ($7.0 million), plus the
discounted present value of the residual interest after the Bank
receives its investment and stated return on the investment less
expenses of the transaction ($1.8 million), less the principal balance
of the mortgages ($9.3 million).
F-15
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Regency percentage-of-completion receivable represents earned
revenue recorded using the percentage-of-completion method for Regency
Island Dunes condominium units which were under contract but had not
closed as of December 31, 1996 and 1995, respectively. The Regency
Island Dunes condominium project consists of two 72-unit buildings. The
construction on the first building was approximately 97% complete and
59 units were under contract as of December 31, 1995 generating a
receivable of $18 million which was collected during 1996 upon the
closing of these units. An additional eight units in the first building
were sold and closed during 1996. As of December 31, 1996, construction
of the second building was approximately 79% complete and 56 units were
sold generating a receivable of $14.8 million. The revenue and profit
recorded in 1996 on the second building represents 79% of the expected
revenue and profit on the 56 units which were under contract as of
December 31, 1996. Additional revenue and profit will be recognized as
the construction progresses and more units are sold. The receivable
balance of $14.8 million as of December 31, 1996 is anticipated to be
collected in full by the third quarter of 1997 upon the closing of
these units.
The following is a summary of costs and estimated earnings associated
with the Company's Regency condominium project as of December 31 (in
thousands of dollars):
1996 1995
---- ----
Costs incurred on uncompleted contracts
and estimated earnings $ 14,801 $ 17,989
Less: Deposits to date (3,981) (4,820)
-------- --------
$ 10,820 $ 13,169
As part of a settlement of the Company's improvement obligations to the
Predecessor Company's retail homesite customers, various trusts were
established. The Company funded these trusts with cash,
F-16
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
stock and notes based on estimates of the costs of the future
improvement obligations. The terms of these trusts and reserves require
the Company to periodically assess the adequacy of the property in the
trusts and reserves and any excess or deficiency will accrue to the
benefit or become an obligation of the Company (see Note 13). In
December 1996, upon review of these trusts, it was determined that
approximately $12.1 million in cash plus $6.2 million of notes could be
recovered from various utility trusts. A receivable for the $12.1
million, which was received in January 1997, was recorded as of
December 31, 1996 in the accompanying consolidated balance sheets and a
gain of $11.9 million, net of expenses, was recorded in other income in
the accompanying consolidated statements of operations.
The portfolio of Cumberland Cove land mortgages receivable relates to
seller financing associated with sales of the Company's scattered
homesite inventory in Cumberland Cove, Tennessee. These receivables
generally bear interest at rates ranging from 9.4% to 10.9%, depending
on the down payment, and a term of 10 years. Valuation discounts of
$242,000 and $236,000 associated with these mortgages were recorded and
are included as a reduction to real estate revenues in the accompanying
consolidated statements of operations for the years ended December 31,
1996 and 1995, respectively. In 1996, the Company obtained a commitment
from Litchfield to buy up to $7 million of deeds of trusts associated
with the Cumberland Cove mortgages by December 31, 1997. During 1996,
the Company closed on approximately $4.5 million under this commitment.
A reserve of $341,000 was recorded associated with these sales and was
recorded in other expense in the accompanying statements of operations.
In October 1995, the Company sold its residential mortgages receivable
portfolio for $2.4 million resulting in a loss of $694,000 which is
included in other expense in the accompanying consolidated statements
of operations.
The valuation discounts in 1995 and 1994 included unamortized interest
rate valuation discounts which were amortized based on the terms of the
related mortgages receivable and $610,000 and $741,000 was included in
interest income in the accompanying consolidated statements of
operations for the years ended December 31, 1995 and 1994,
respectively. The valuation discount balance in 1996 did not contain an
unamortized interest rate valuation discount component, therefore, no
amortization income was recorded in 1996.
Scheduled collections of principal on the land mortgages receivable for
the five years ending December 31, 2001 are as follows: 1997 -
$8,989,000, 1998 - $5,365,000, 1999 - $4,563,000, 2000 - $7,236,000 and
2001 - $7,937,000. Substantially all other receivables are non-interest
bearing and are due within one year.
Substantially all mortgages, notes and other receivables secure a
portion of the Company's debt (see Note 10).
F-17
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) LAND AND RESIDENTIAL INVENTORY
At December 31, land and residential inventory consisted of the
following (in thousands of dollars):
1996 1995
---- ----
Homesite inventory
Subdivision homesites $ 40,684 $ 50,272
Scattered homesites 43,871 56,534
Tract inventory 63,637 103,180
Residential inventory
Single family homes 253 2,452
Condominiums 4,972 5,832
-------- --------
$153,417 $218,270
======== ========
Land inventory is net of net valuation reserves of $7.4 million and
$3.6 million as of December 31, 1996 and 1995, respectively. In
conjunction with the Company's reviews in 1995 and 1996 of the net
realizable values associated with its inventories and land holdings,
the Company provided additional net valuation reserves to reduce the
carrying value of its inventories and land holdings in the amounts of
$10.4 million and $3.6 million for the years ended December 31, 1996
and 1995, respectively, which were charged to inventory valuation
reserves in the accompanying consolidated statements of operations.
Land inventory is also net of environmental reserves of $1.2 million
and $2.6 million as of December 31, 1996 and 1995, respectively (see
Note 13). Based on a review of the environmental reserve and recent
changes in Florida state laws, this reserve was reduced by $1.3 million
in 1996 and recorded in other income in the accompanying consolidated
statements of operations.
During 1996, the Company purchased approximately 300 acres of property
in a project known as Estero Pointe, located in southwest Florida, from
various sellers for approximately $5.6 million of which $2.1 million
was financed by the sellers through notes secured by mortgages on the
properties. The financed amounts totaling $2.1 million are non-cash
financing activities and therefore are not reflected in the
accompanying consolidated statements of cash flows.
In December 1995, the Company purchased a project known as Summerchase
consisting of approximately 320 acres of residential property in
Broward County, Florida for $6.5 million of which $2.6 million was paid
in cash with the remaining balance of $3.9 million financed by the
seller through a note secured by a mortgage on the property. The
financed amount of $3.9 million is a non-cash financing activity and
therefore is not reflected in the accompanying consolidated statements
of cash flows. The company sold this project in bulk in April 1996 for
$9.0 million.
F-18
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1995, the Company acquired a project known as West Meadows
consisting of approximately 900 acres located in the northeastern part
of the Tampa Bay area for $5.0 million, of which $1.5 million was paid
in cash and the balance of $3.5 million was financed by the seller
through a note secured by a mortgage on the property. The financed
amount of $3.5 million is a non-cash financing activity and therefore
is not reflected in the accompanying consolidated statements of cash
flows. In April 1996, the Company acquired an additional 240 acres of
this project 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 financed amount of $1.8 million is a non-cash financing
activity and therefore is not reflected in the accompanying
consolidated statements of cash flows. The combined acreage in the West
Meadows project of approximately 1,140 acres is currently being
permitted for approximately 1,300 homesites.
The single family home inventory has decreased to $253,000 as of
December 31, 1996 as the Company has phased out its single family home
sales operations.
Substantially all of the Company's inventory serves as collateral for
the Company's debt (see Note 10) and certain of its other liabilities
and commitments (see Notes 9 and 13).
F-19
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) PROPERTY, PLANT AND EQUIPMENT
At December 31, property, plant and equipment, net, at cost, consisted
of (in thousands of dollars):
1996 1995
---- ----
Land and improvements $ 992 $ 1,318
Buildings 1,392 1,998
Fixtures and equipment 3,992 3,259
Utility equipment and facilities -- 13,111
Construction in progress -- 1,724
-------- --------
6,376 21,410
Accumulated depreciation (3,465) (3,753)
-------- --------
$ 2,911 $ 17,657
======== ========
During 1996, the Company sold its two remaining utility systems in
accordance with the Company's business plan to dispose of its non-core
operations and provide working capital to the Company. 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 which is included in
other income in the accompanying statements of operations. The proceeds
were used to repay the Company's Secured Floating Rate Notes. In June
1996, the Company sold its Julington Creek utility system for $6.0
million resulting in a gain of $696,000 which is included in other
income in the accompanying consolidated statements of operations. Of
the net proceeds of approximately $5.7 million from this sale,
approximately $2.0 million was used to repay fully the Company's
Utilities loan and $3.0 million was used to repay the Company's Secured
Floating Rate Notes. Construction in progress as of December 31, 1995
consisted primarily of costs associated with the expansion of the
Julington Creek utility mains and outfall facilities which were
substantially completed as of December 31, 1995 and were placed into
service in 1996 for a total cost of approximately $1.8 million.
In 1995, the Company sold Longwood Utilities, Inc. ("Longwood"), a
wholly-owned subsidiary, which operated a wastewater treatment plant in
the City of Longwood, Florida. Longwood was sold for $850,000 resulting
in a gain of $219,000 which is included in other income in the
accompanying consolidated statements of operations.
During 1994, the Company sold its two remaining nine-hole golf courses
and certain other buildings in various communities with a net book
value of $1.8 million for total cash proceeds of $2.4 million,
resulting in a net gain of $715,000 which is included in other income
in the accompanying consolidated statements of operations.
F-20
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Substantially all property, plant and equipment serve as collateral for
the Company's debt (see Note 10).
(7) OTHER ASSETS
Other assets consisted of the following as of December 31 (in thousands
of dollars):
1996 1995
---- ----
Net utility condemnation asset $ -- $12,398
Ocean Grove joint venture 3,046 2,016
Sunset Lakes joint venture 5,854 1,950
Falcon Trace joint venture 3,638 --
Investment in China joint venture -- 1,883
Sanctuary joint venture -- 882
Other real estate related assets 4,038 3,002
Other assets 3,956 2,917
------- -------
$20,532 $25,048
======= =======
The utility condemnation asset represented the excess of net book value
over proceeds received from the taking of the Company's Port St. Lucie
utility system pursuant to condemnation proceedings. On March 15, 1996,
the Company and the City of Port St. Lucie settled litigation pursuant
to these condemnation proceedings. Under the terms of the settlement,
the City of Port St. Lucie paid Atlantic Gulf $18.75 million in April
1996 resulting in a gain of approximately $4.1 million for the year
ended December 31, 1996 which is included in other income in the
accompanying statements of operations. In October 1994, the Company
settled litigation pursuant to condemnation proceedings associated with
its Charlotte County utility system for an additional $45 million in
cash which was paid to the Company in December 1994. This $110 million
settlement resulted in a net gain of $34.2 million for the year ended
December 31, 1994 which is included in other income in the accompanying
consolidated statements of operations.
In January 1995, the Company acquired a two-acre parcel in a six-acre
project known as Ocean Grove for approximately $2 million in cash. In
January 1996, the Company purchased the remaining four acres for
approximately $2.2 million in cash. The project is planned for
construction of 162 luxury oceanfront condominiums consisting of three
six-story towers located in the City of Jupiter in Palm Beach County,
Florida. In June 1995, an unaffiliated third party acquired a 50% joint
venture interest in this project for $3.8 million, $1.8 million of
which was paid in June 1995 and $2 million of which was paid in January
1996. The joint venture is currently in the process of replanning and
permitting the site to encompass certain design concepts utilized in
the Regency Island Dunes project. The Company accounts for this joint
venture under the equity method.
F-21
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1994, the Company entered into a formation agreement and
subsequently in December 1995 entered into a joint venture agreement
with an unaffiliated third party (the "Sunset Lakes Joint Venture") to
finance, develop and sell approximately 1,950 acres located in
southwest Broward County in Florida. This project is expected to yield
approximately 1,800 residential homesites. The Company's percentage
interest in the profits and losses of the Sunset Lakes Joint Venture is
65%. In addition, the Company is entitled to a fee equal to 4% of
development costs, as defined in the joint venture agreement. Although
the Company is the general partner, managing joint venture partner, and
has a majority ownership interest in the joint venture, the Company
does not control the partnership. The Company's partner in the joint
venture must consent to major transactions and actions of the
partnership including the sale of substantially all of the property and
assets of the venture, modification to the venture's business plan,
phasing of sales, development and construction activities, financing,
and the acquisition of additional property. Inasmuch as the Company
does not control the venture, the Company accounts for this joint
venture under the equity method.
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 by
Cypress Realty Limited Partnership ("Cypress") 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. In December 1996, and as amended in March 1997, the Company
and Cypress agreed to a restructuring in which title was transferred
into Falcon Trace Partners Limited Partnership ("Falcon Trace
Partnership") of which the Company is a limited partner. The Company
contributed its net investment in the project and its partner, Falcon
Trace-Cypress Limited Partnership, contributed all of its right, title
and interest to the mortgage on the property. The Company has a 65%
interest in the Falcon Trace Partnership after expenses and fixed
returns to the partners. Although the Company has a majority ownership
interest in the joint venture, the Company does not control the
partnership. Cypress is the managing venturer and must consent to major
transactions and actions of the partnership including the sale of
property and assets of the venture, modification to the venture's
business plan, development and construction activities, financing, and
the acquisition of additional property. Inasmuch as the Company does
not control the venture, the Company accounts for this joint venture
under the equity method.
In September 1993, the Company entered into a Sino-Foreign equity joint
venture with a quasi-governmental entity in the city of Nanjing, China
(the "Ya Dong JV"), giving the Company a 50% joint venture interest.
The Ya Dong JV provides for the phased development of approximately
4,000 agricultural acres located within the city limits of Nanjing into
a new, mixed-use city center. The Chinese partner's capital
contribution is the land use rights for the property and the Company's
capital contribution is in cash not to exceed $10 million. The Company
has contributed $6.0 million as of February 28, 1997. The political,
diplomatic and economic environment in China poses significant
uncertainty and risk to the project. Accordingly, in 1995, the Company
wrote down its investment in the joint venture by $642,000 to $1.9
million and charged other real estate costs in the accompanying
F-22
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
consolidated statements of operations. The Company has made a proposal
to its joint venture partner to transfer 35% of its 50% interest in the
joint venture to its partners in return for a note receivable in the
amount of $2.25 million. The Company would retain a 15% interest in the
joint venture. Due to the uncertainty associated with the collection of
this proposed receivable, the Company established an inventory
valuation reserve in the amount of $1.9 million in the accompanying
consolidated statements of operations. Consequently, the Company's net
investment in this joint venture is carried at $0.
Effective in October 1994, the Company entered into a joint venture
agreement as the general partner with an unaffiliated party (the
"Sanctuary Joint Venture") giving the Company a 50% interest in a $7.8
million mortgage acquired by the Sanctuary Joint Venture for $3.2
million (the "Sanctuary Mortgage"). The Sanctuary Mortgage encumbered
467 partially developed lots near Orlando, Florida. The Company
accounted for the Sanctuary Joint Venture 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 generated a net
profit to the Company of $603,000 in 1995 which is included in other
income in the accompanying consolidated statements of operations. There
were no closings in this project during the first eight months of 1996
prior to the Company acquiring its partner's share, however, in the
fourth quarter of 1996, the Company closed on 151 of the remaining 170
homesites.
Other real estate related assets include refundable deposits to acquire
additional property, costs incurred to obtain regulatory permits and
approvals to develop property under contract and prepaid impact fees
which will reduce the acquisition price or be recovered as the Company
sells the related property.
Other assets include other deposits and prepaid expenses.
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, accounts payable and accrued liabilities consisted of
(in thousands of dollars):
1996 1995
---- ----
Accounts payable, principally trade $ 5,647 $ 4,433
Accrued interest 932 5,707
Taxes, other than income taxes 5,604 4,906
Employee earnings and benefits 1,485 1,534
Other accrued liabilities 3,246 4,498
------- -------
$16,914 $21,078
======= =======
Accrued interest decreased in 1996 due to an interest payment on the
Company's Mandatory Interest Notes on December 31, 1996.
Substantially all accounts payable and accrued liabilities are payable
within one year.
F-23
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) OTHER LIABILITIES
Other liabilities consisted of the following as of December 31 (in
thousands of dollars):
1996 1995
---- ----
Section 365(j) lien liability $ 2,512 $ 4,901
Deferred property tax liability 550 2,642
Reserve for contracts receivable
termination refunds and other costs 3,654 5,325
Accrued pension liability 3,131 2,621
Bankruptcy and other reserves 5,546 10,258
------- -------
$15,393 $25,747
The Section 365(j) lien liability consists of the portion of the claims
of homesite purchasers whose homesite contracts were rejected by the
Company in the reorganization proceedings that is secured pursuant to
Section 365(j) of the Bankruptcy Code. The outstanding balance of the
liability bears interest at 1% over the Chemical Bank reference rate
adjusted annually as of March 31, not to exceed 11%. This liability is
payable semiannually on February 1 and August 1 in a principal amount
approximating $1.2 million through August 1997. It is secured by
approximately 9,800 acres of the Company's tract inventory (see Note
5).
The deferred property tax liability relates to claims asserted with
respect to property or ad valorem tax obligations of the Company that
are secured by liens on property of the Company that attached prior to
the Petition Date. The outstanding balance of the claim bears simple
interest at 9.25% as determined by the Bankruptcy Court. This liability
is payable semiannually on February 1 and August 1 with the last
installment due in August 1997. Outstanding amounts that are secured by
property being sold by the Company are also due at the time of sale and
reduce the amounts payable in future installments. During the fourth
quarter of 1995, the Company received a favorable court ruling which
declared that approximately $2.2 million of the deferred property tax
liability was an unsecured claim thereby reducing the Company's
liability. As a result, the Company recorded a $2.2 million gain in
1995 in other income in the accompanying consolidated statements of
operations.
The reserve for contracts receivable termination refunds and other
costs relates to the Company's obligations to retail land sales
customers whose contracts were not terminated or rejected as a result
of the bankruptcy proceedings. Under the terms of the retail land sales
contract, if a customer defaults and the contract is canceled, the
customer is entitled to a refund of principal payments in excess of the
Company's damages, which generally has been stipulated at 20% of the
sales price. This obligation extends to the Company's owned contracts
receivable, as well as receivables transferred to lenders under the
terms of the POR with a face value of approximately $9 million as of
December 31, 1996. The remaining amount represents the Company's
estimate of the refund liability which would arise from the amount of
future cancellations based on the Company's most recent actual
collection and
F-24
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
cancellation experience (see Note 3). Due to better than anticipated
collection and cancellation results in 1995, an adjustment was made to
reduce the termination refund reserve by approximately $2.8 million
resulting in a gain of $2.8 million in 1995 included in other income in
the accompanying consolidated statements of operations. Due to slightly
higher than anticipated cancellation activity in 1996, the termination
refund reserve was increased in 1996 resulting in a loss of $112,000 in
1996 included in other expense in the accompanying statements of
operations. This reserve also provides for the estimated future costs
to maximize receivable collections and minimize cancellations and
termination refunds during the remaining life of this portfolio. Due to
lower costs than anticipated to service this portfolio, the future
servicing reserve was reduced in 1996 resulting in a gain of $703,000
included in other income in the accompanying statements of operations.
The accrued pension liability is related to a frozen plan more fully
described in Note 15. The Company's estimated funding obligation for
the next three years is as follows: 1997 -$1.1 million, 1998 - $1.1
million and 1999 - $1.2 million. The Company does not anticipate any
significant additional funding requirements.
Bankruptcy and other reserves primarily includes the remaining claims
related to the Predecessor Company with respect to approved claimants
and to the Company's obligation to provide utility connection credits
to qualified claimants.The bankruptcy reserves for December 31, 1996
and 1995 were $2.5 million and $4.9 million respectively. The
bankruptcy reserves corresponding to the obligation to provide utility
connection credits for December 31, 1996 and 1995 were $4.3 million and
$7.7 million respectively. Based on minimal fundings to date and
minimal fundings anticipated in the future, the utility connection
credit reserves were reduced by $4.1 million in 1996 and the reduction
was included in other income in the accompanying statements of
operations. The remaining outstanding claims corresponding to the
issuance of stock and notes to claimants should be satisfied in 1997.
The Company's income tax provision, included in other reserves, was
reduced by $1.5 million during 1995 to $117,000; the reduction was
included in other income in the accompanying consolidated statements of
operations. As of December 31, 1996, approximately $284,000 is included
in restricted cash and cash equivalents to fund a portion of these
remaining claims (see Note 1).
F-25
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) NOTES, MORTGAGES AND CAPITAL LEASES
At December 31, notes, mortgages and capital leases consisted of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mandatory Interest Notes, due December 31, 1996,
weighted average interest rate of 12.0% and 10.7% $ 37,457 $ 94,965
Cash Flow Notes, due December 31, 1998, net of
unamortized discount of $4,015 and $13,444 35,603 85,212
Working Capital Facility 20,000 9,681
Term Loan 40,000 --
Reducing Revolving Loan 1,725 --
Mortgage receivables loan 12,147 --
Construction Loans 9,338 12,667
Utilities Loan -- 1,984
Other mortgages payable 12,609 16,377
Capital leases 336 113
-------- --------
$169,215 $220,999
======== ========
</TABLE>
As discussed in Note 1, in connection with the POR, the Company issued
$100 million in Mandatory Interest Notes, consisting of Secured
Floating Rate Notes and Unsecured 12% Notes, $100 million in Cash Flow
Notes, consisting of Secured Cash Flow Notes and Unsecured 13% Cash
Flow Notes, discounted to a value of $76.5 million, refinanced the debt
incurred during the reorganization through a $50 million Term Loan and
obtained a $20 million Working Capital Facility. On or about May 29,
1992, the Company distributed a majority of the Notes in settlement of
Predecessor Company bankruptcy claims. The balance of the $50 million
Term Loan was fully repaid in December 1994 from the Port Charlotte
litigation settlement proceeds (see Note 7). 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 13% Cash Flow Notes in accordance
with the POR. As of February 28, 1997, $91,800 of the Unsecured 12%
Notes and $101,400 of the Unsecured 13% Cash Flow Notes are remaining
to be distributed in accordance with the POR.
In December 1996, the Company recorded an extraordinary gain of
approximately $6.0 million due to the extinguishment of approximately
$4.2 million of Unsecured 12% Notes and $1.8 million of
F-26
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unsecured 13% Cash Flow Notes, net of a $210,000 unamortized discount,
which were held in various utility trust accounts established during
the reorganization (see Note 13).
On September 30, 1996, the Company closed on three credit facilities
totalling $85.0 million with Foothill (the "Foothill Refinancing").
Pursuant to the Foothill Refinancing, Foothill provided the Company
with (i) an extension to December 1, 1998 of the $20 million Working
Capital Facility; (ii) a $40 million Term Loan maturing on June 30,
1998 and a (iii) $25 million Reducing Revolving Loan maturing on June
30, 1998.
The following is a summary of each debt instrument:
(a) The Mandatory Interest Notes, as of December 31, 1996,
consisted of $37.5 million of Unsecured 12% Notes which
matured on December 31, 1996 and were repaid in full on
January 3, 1997. Under the terms of the Secured Floating Rate
Note agreement, as amended in September 1994, the Company paid
a fee of approximately $1.1 million on January 2, 1996 as the
Secured Floating Rate Notes were not paid by December 31, 1995
and paid fees of $429,000 and $375,000 for the first and
second quarters of 1996, respectively, while such notes
remained outstanding. On September 30, 1996, Foothill
purchased the $37.8 million outstanding balance of the Secured
Floating Rate Notes, advanced an additional $2.2 million and
amended some of the terms in the form of a $40 million Term
Loan discussed in (d) below.
(b) The Cash Flow Notes, as of December 31, 1996, consisted of
$39.6 million of Unsecured 13% Cash Flow Notes. On September
30, 1996, the Company utilized proceeds from the Working
Capital Facility, the Reducing Revolving Loan and cash on hand
for a total of $40 million plus warrants to purchase up to
1,500,000 shares of the Company's stock at $6.50 per share, to
fully repay at a discount the Secured Cash Flow Notes. As a
result of the extinguishment of the Secured Cash Flow Notes,
the Company recorded an extraordinary gain of approximately
$3.9 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, less $3.3
million of expenses. Interest on the Cash Flow Notes is
payable semiannually, only if and to the extent that the
Company has generated Available Cash during the preceding
period. Interest on the Cash Flow Notes is not payable if the
Company has not generated Available Cash and is not
cumulative. The Cash Flow Notes are subject to mandatory
prepayment from Available Cash. The amortization of the Cash
Flow Notes discount is included in cost of borrowing, net, in
the accompanying consolidated statements of operations and
approximated $3,157,000, $3,205,000 and $2,723,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-27
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) The $20 million Working Capital Facility currently bears
interest at 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 and matures on
December 1, 1998. The Working Capital Facility is secured by a
first lien on substantially all Company assets with certain
exceptions as to which the lenders generally will receive
junior liens, including (a) assets with mechanics' liens, site
liens and tax liens (see Note 9); (b) property subject to
Section 365(j) liens of homesite purchasers (see Note 9); (c)
the Construction Loans and certain other mortgages payable;
and (d) certain other assets. As of December 31, 1996, there
was no additional credit available under the Working Capital
Facility. Under the terms of the Working Capital Facility, the
Company is required to pay an unused line fee equal to 1/2 of
1% per annum of the average unused portion of the Working
Capital Facility.
(d) The $40 million Term Loan bears interest at 15% and matures on
June 30, 1998. Under the terms of the Term Loan, the Company
is required to pay an unused line fee equal to 1/2 of 1% per
annum of the average unused portion of the Term Loan. The Term
Loan requires principal repayments of one-third on June 30,
1997, December 31, 1997 and June 30, 1998.
(e) The Reducing Revolving Loan bears interest at prime plus four
percent and matures on June 30, 1998. Under the Reducing
Revolving Loan the Company can borrow up to $25 million.
Amounts under the Reducing Revolving Loan are available only
when the Working Capital Facility is fully utilized. In
January 1997, borrowings under the Reducing Revolving Loan
along with the $12.1 million of excess proceeds released from
various utility trust accounts in January 1997 were utilized
to repay fully the $37.5 million outstanding balance of the
Unsecured 12% Notes. The Reducing Revolving Loan requires
principal repayments of one- third on June 30, 1997, December
31, 1997 and June 30, 1998. The unused portion of the
commitment on the Reducing Revolving Loan will be required to
be reduced by one third on each respective principal repayment
date.
(f) The Mortgage receivables loan was used to finance the
Company's mortgage receivables portfolio in July 1996 (see
Note 4). This loan was provided by Harbourton and is secured
by the underlying mortgage receivables without recourse to the
Company. The mortgage receivables loan is repaid with
collections from the underlying mortgage receivables, bears
interest at prime plus 3% and matures in September 1998.
(g) The Construction Loans consist of two loans which have been
utilized to fund construction of the two 72-unit condominium
buildings at Regency. The first loan, which had an outstanding
balance of $12.7 million at December 31, 1995, was used to
construct the first building and was repaid fully during the
first quarter of 1996 with proceeds from the closings of
condominium units in the first building. The second loan,
which bears interest at prime plus 1.5%, has a commitment of
$14.25 million to fund construction of the second building.
F-28
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The outstanding balance as of December 31, 1996 was $9.3
million. The second loan is payable as the condominium units
in the second building are closed and it matures on October
22, 1997. The second loan is secured by, among other things,
the property under construction.
(h) The Utilities loan was used to fund wastewater expansion costs
at the Company's water and wastewater utility system located
in its Julington Creek development and was repaid in June 1996
from the proceeds of the sale of the Julington Creek utilities
system.
(i) Other mortgages payable consist primarily of notes and
mortgages used to fund the acquisition and development of
various land development projects. The notes are secured by
mortgages on the newly acquired properties and bear interest
at rates ranging from Libor plus 300 to prime plus 1.75%.
Due in part to the necessity of establishing reserves for future
mandatory debt and other POR payments, the Company did not have any
Available Cash at December 31, 1996, 1995 and 1994 to enable it to make
any portion of the interest payment on the Cash Flow Notes for the
payment periods through December 31, 1996. Interest on the Cash Flow
Notes is noncumulative. Therefore, the Company has not recorded any
interest expense related to the Cash Flow Notes during the years ended
December 31, 1996, 1995 and 1994.
Based on the outstanding balances as of December 31, 1996, principal
payments required on the notes, mortgages and capital leases for each
of the five years following December 31, 1996, are as follows: 1997 -
$83,875,000, 1998 - $83,333,000, 1999 - $3,477,000, 2000 - $339,000 and
2001 - $1,693,000.
(11) STOCKHOLDERS' EQUITY
The Company is currently authorized to issue 15,665,000 shares of
Common Stock, $.10 par value. Under the terms of the POR, 9,750,000
shares were issued for distribution to creditors, of which 13,290
shares are being held in a Disputed Claims Reserve Account as of
February 28, 1997. The remaining shares are subject to distribution in
accordance with the POR during 1997 as remaining disputed claims are
resolved.
In connection with the reorganization, Atlantic Gulf issued Common
Stock Purchase Warrants to purchase 665,000 shares of common stock at
an exercise price of $19.50 per share, which warrants expired March 31,
1996. All warrants were outstanding as of December 31, 1995 and 1994.
Atlantic Gulf's Restated Certificate of Incorporation provides for
mandatory dividends on the Common Stock equal to 25 percent of
Available Cash, as defined (see Note 10), after all indebtedness issued
under the POR is paid in full. Dividends will not accrue if the Company
is unable to pay them, due either to a lack of Available Cash, surplus
capital or net profits, or applicable provisions of Delaware law. No
dividends were paid or payable as of December 31, 1996, 1995 or 1994.
F-29
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Company's prepayment, at a discount, of its
Secured Cash Flow Notes on September 30, 1996, the Company issued
10-year warrants to purchase up to 1,500,000 shares of the Company's
common stock at an exercise price of $6.50 per share (see Note 10). The
estimated fair market value of the warrants given to the holders of the
Secured Cash Flow Notes was $1,875,000.
Atlantic Gulf has an Employee Stock Option Plan ("Employee Option
Plan") which was implemented during 1993. Atlantic Gulf had a 1993
Non-Employee Directors' Stock Option Plan (the "1993 Plan") which was
adopted by the board of directors on March 7, 1994 and approved by the
Company's shareholders on June 14, 1994. Under the terms of the 1993
Plan, each non-employee director was to be annually granted options to
purchase 2,500 shares of Atlantic Gulf's common stock at a price equal
to the fair market value of the common stock at the date of grant. The
options were immediately vested and exercisable and remained
exercisable for ten years from the grant date. The total number of
shares to be issued under the 1993 Plan were not to exceed 150,000. The
1993 plan was terminated and all options granted were surrendered in
connection with the shareholders approval of a 1994 Non-Employee Stock
Option Plan (the "1994 Plan"). See Note 20 for information on the
Company's stock option plans.
At its regular meeting on November 8, 1993, Atlantic Gulf's board of
directors adopted the Atlantic Gulf Communities Corporation
Non-Employee Directors' Stock-For-Retainer Plan (the "Directors' Stock
Plan"). Pursuant to the Directors' Stock Plan, each non-employee
Director was eligible to make a one-time, unconditional and irrevocable
election to purchase a certain number of shares of Common Stock at fair
market value and to receive such common stock through 1994 in lieu of
all or a portion of his director compensation. Effective November 18,
1993, four Directors elected to participate in the Directors' Stock
Plan and purchased, at fair market value ($6.50 per share), an
aggregate total of 21,000 shares of common stock. In 1993, a total of
1,543 shares were issued under the Director's Stock Plan and the
remaining 19,457 were issued during 1994.
In 1996, the Company's shareholders approved the adoption of the 1996
Non-Employee Directors' Stock Plan (the "1996 Directors' Stock Plan).
Under such plan, which took effect July 1, 1996, the Non-Employee
Directors receive an annual retainer of $25,000 paid in Common Stock
quarterly based on the share price at the end of the previous quarter.
Pursuant to the 1996 Directors' Stock Plan, 8,328 shares were issued to
the Non-Employee Directors at a price of $6.00 per share for the third
quarter of 1996 and 10,256 shares were issued at a price of $4.875 for
the fourth quarter of 1996.
Shares of Atlantic Gulf's common stock are reserved at December 31,
1996 for possible future issuance as follows:
Warrants 1,500,000
Employee Option Plan 750,000
1994 Directors' Stock Option Plan 350,000
1996 Directors' Stock Plan 150,000
---------
2,750,000
=========
F-30
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1994, the Company issued 56,000 shares of its treasury stock
representing a $613,000 contribution to its Retirement Plan to satisfy
the minimum contribution requirement.
During the third quarter of 1995, the Company issued 31,068 shares of
its treasury stock representing a $249,000 contribution to its pension
plan to satisfy a portion of the minimum contribution requirement. The
remaining $56,000 of the required contribution was paid in cash. During
1995, the Company issued 46,934 shares of its treasury stock and 13,521
shares of its common stock representing $400,000 of fee payments in
connection with the September 1994 amendment of the Company's Secured
Floating Rate Notes and Secured Cash Flow Notes. Also during 1995, the
Company received 2,676 shares of its common stock as a distribution
from the disputed claims reserve in accordance with the Company's plan
of reorganization.
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 negotiation of proposed financing. 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. In December 1996, Atlantic Gulf received 1,314 shares of its
common stock, $7,100 principal amount of Mandatory Interest Notes and
$8,900 principal amount of Cash Flow Notes in accordance with the terms
of the POR.
(12) NONRECURRING AND OTHER ITEMS
The Company recorded various gains and provisions during the years
ended December 31, 1996, 1995 and 1994 for several items included in
other income or other expense in the accompanying consolidated
statements of operations, as more fully described below.
In the first quarter of 1996, the Company recorded a net gain of $4.1
million on proceeds of $18.75 million resulting from the settlement of
the utilities condemnation litigation with the City of Port St.
Lucie (see Note 7).
During 1996, the Company recorded gains of $18.6 million in other
income - reorganization items in the accompanying consolidated
statements of operations resulting from its annual review of certain
reorganization items. These gains included a net gain of $11.9 million
due to the recovery of funds from certain utility trust accounts funded
by the Company during the reorganization (see Note 4 and see schedule
below regarding utility trust account activity), a gain of $4.1 million
due to the reduction of the utility connection credit reserves (see
schedule below regarding utility connection credit reserve account
activity) and a $703,000 gain due to the reduction in the contracts
receivable future servicing
F-31
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
reserve (see Note 9). This process is expected to continue during 1997
with adjustments to be recorded as the final disposition of various
claims and other liabilities is concluded.
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. In June
1996, the Company sold its Julington Creek utility system for $6.0
million resulting in a gain of $696,000 (see Note 6).
During 1996, the Company recorded extraordinary gains of approximately
$13.7 million due to the extinguishment of debt. 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 13% Cash Flow Notes in accordance
with the POR. On September 30, 1996, the Company prepaid, at a
discount, its Secured Cash Flow Notes and recorded and extraordinary
gain of $3.9 million. In December 1996, the Company recorded an
extraordinary gain of approximately $6.0 million due to the
extinguishment of approximately $4.2 million of Unsecured 12% Notes and
$1.8 million of Unsecured 13% Cash Flow Notes, net of a $210,000
unamortized discount, which were held in various utility trust accounts
established during the reorganization (see Notes 10 and 13).
In March 1995, the Company sold its property management and real estate
brokerage company, Florida Home Finders, Inc. ("FHF"), a wholly-owned
subsidiary, for $3.5 million resulting in a gain of $3.3 million which
also included a $200,000 forbearance fee receivable recorded in the
third quarter of 1995. 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 note receivable
and the forbearance fee receivable, the company wrote-off these
receivables in December 1995 thereby reducing the gain on the sale to
$2.4 million.
During 1995, the Company recorded gains totalling $10.7 million
resulting from its annual review of certain reorganization items. These
gains included $2.8 million due to the reduction of the contracts
receivable termination refunds reserve, $2.2 million due to the
reduction of the deferred property tax liability and $1.5 million due
to the reduction in the income tax liability (see Note 9). Other income
in 1995 also included a $2.0 million gain in the third quarter of 1995
on proceeds of $4.0 million associated with the assignment of rights of
one of the Company's mortgage receivables to a third party.
In the third quarter of 1995, the Company sold its Longwood utility
system for $850,000 resulting in a gain of $219,000. In October 1995,
the Company sold its residential mortgages receivable portfolio for
$2.4 million resulting in a net loss of $694,000 which was provided for
in the third quarter of 1995.
In the fourth quarter of 1994, the Company recorded a net gain of $34.2
million on proceeds of $45 million resulting from the settlement of the
utilities condemnation litigation with Charlotte County (see Note 7).
In addition, the Company reduced its bankruptcy reserve based on lower
than previously estimated potential administrative claims as of
December 31, 1994 resulting in a gain of $700,000 in 1994.
F-32
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the repayment of the Term loan in December 1994, the
Company wrote off $2.6 million of capitalized fees incurred in
connection with the refinancing of this loan.
Utility Trust Accounts
Account Activity
1996 1995 1994
---- ---- ----
DESCRIPTION
- -----------
Beginning balance $ 19,699 $ 17,452 $ 15,817
Additions 1,623 2,043 1,938
Interest Earned 675 676 424
Withdrawals (1,005)(a) (472) (727)
Cancellation of Notes (5,794)(b) 0 0
-------- -------- --------
Ending Balance $ 15,198 $ 19,699 $ 17,452
======== ======== ========
(a) $1.0 million was wire transferred to Hendry County
(b) Extraordinary gain, an additional 414K was recorded as extraordinary gain in
1996 - cancelled 1/2/97
Utility Connection Credit Reserve
Account Activity
DESCRIPTION 1996 1995 1994
- ----------- ---- ---- ----
Beginning balance $7,726 $7,726 $7,726
Additions 643 0 0
Amounts charged (Credited) to
Results of Operations -4097 0 0
Deductions -8 0 0
------ ------ ------
Ending Balance $4,264 $7,726 $7,726
====== ====== ======
The activity for the land mortgage receivable valuation discount is included in
Schedule II of the 10-K.
F-33
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) COMMITMENTS AND CONTINGENCIES
Atlantic Gulf is involved in various litigation matters primarily
arising in the normal course of its business or with respect to the
bankruptcy. It is the opinion of management that the resolution of
these matters will not have a material adverse affect on the Company's
financial position.
As part of a settlement of the Company's improvement obligations to the
Predecessor Company's retail homesite customers, various trusts were
established. The Company funded these trusts with cash, stock and notes
based on estimates of the costs of the future improvement obligations.
Certain other reserves were established to make a minimum of 1,700
utility satisfied homesites available for trade to customers whose
homesites may not be utility satisfied, and therefore not buildable, at
the time they wish to construct a home. The terms of these trusts and
reserves require the Company to periodically assess the adequacy of the
property in the trusts and reserves and any excess or deficiency will
accrue to the benefit or become an obligation of the Company. In
December 1996, pursuant to a review of the trusts and reserves it was
determined that approximately $12.1 million in cash, $4.2 million of
Unsecured 12% Notes and $2.0 million of Unsecured 13% Cash Flow Notes
could be released from these trust accounts (see Notes 4 and 10).
Approximately $2.7 million in cash, 204,600 shares of stock and a lot
reserve of 6,000 lots remain in the trusts. The Company believes the
remaining property currently held in trusts and reserves is sufficient
to meet all future improvement obligations required under the terms of
the settlements.
A small portion of the Company's land holdings contain residues or
contaminants from current and past activities by the Company, its
lessees, prior owners and operators of the properties and/or other
third parties. Some of these areas have been the subject of cleanup
action by the Company voluntarily or following the involvement of
regulatory agencies. Additional cleanup in the future also may be
required. The business of the Company is subject to a variety of
additional obligations under the environmental laws, relating to both
the ongoing operations and past activities. The Company does not
believe, however, that its obligations under the environmental laws
will have a material adverse effect on its business, results of
operations or financial position (see Note 5).
Rental expense related to operating leases was $1,835,000, $1,934,000
and $1,830,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company leases its corporate office space under an operating lease
which expires in 1999. Minimum future rental commitments under
non-cancelable operating leases as of December 31,1996 are as follows:
1997 - $1,246,000, 1998 - $1,081,000, 1999 - $545,000, 2000 - $15,000,
2001 - $1,000 and none thereafter.
As of December 31, 1996, the Company had no material development
obligations related to sold property. The Company's business plan
contemplates that 1997 expenditures for development, construction, and
other capital improvements could range up to $50 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.
F-34
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
See Notes 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 15 for a description of
other commitments and contingencies.
(14) INCOME TAXES
The difference between income taxes computed at the statutory federal
rate and the provision for income taxes consists of (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Amount at statutory federal rate $ 402 $(6,749) $ 368
Unrecognized (recognized) benefit
of change in valuation allowance
for temporary differences other
than net operating loss carryovers (402) 6,749 (368)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
The Company's deferred taxes reflect the impact of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts for tax purposes. The most
significant types of temporary differences that give rise to deferred
taxes are installment accounting practices, depreciation, certain
financial statement reserves and cost capitalization methods.
F-35
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1996
are presented below (in thousands of dollars):
Deferred Tax Assets:
--------------------
Excess of tax basis in land over
financial statement basis $ 15,781
Excess of tax basis in other
receivables over financial
statement basis 2,378
Excess of financial statement basis
in debt obligations and reserves
over tax basis 6,358
Other 3,744
Net operating loss carryover 77,990
Capital loss carryover 9,961
Alternative minimum tax and
general business credit carryover 3,620
---------
Total gross deferred tax assets 119,832
Less - valuation allowance (117,443)
---------
Net deferred tax assets 2,389
---------
Deferred Tax Liabilities:
-------------------------
Excess of financial statement basis
in contracts receivable over tax basis $ 2,389
---------
Net deferred tax amount $ -0-
=========
The net change in the valuation allowance for deferred tax assets for
the year ended December 31, 1996 was an increase of $2 million.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1996 will be
allocated as follows (in thousands of dollars):
Income tax benefit that would be reported
in the consolidated statement of operations $ 64,343
Income tax benefit that would be reflected as
an adjustment to contributed capital 53,100
--------
Total $117,443
========
F-36
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At March 31, 1992, the effective date of the POR, the valuation
allowance was approximately $53.1 million, which represents the excess
of the deferred tax assets of approximately $ 99 million over the
deferred tax liabilities of approximately $45.9 million. The years
ended December 31, 1996,1995,1994 and 1993 and the nine months ended
December 31, 1992 have each resulted in a net increase in the valuation
allowance. The Company has not utilized any net operating losses.
At December 31, 1996, the Company had a net operating loss carryover
for tax purposes of approximately $207 million which expires in years
1999 through 2011. Included in this amount is approximately $24.1
million of net operating loss attributable to certain legal entities
that may only be used against future taxable income of these same
entities. The Company has a capital loss carryover for tax purposes of
approximately $26.8 million, of which $25.2 million and $1.6 million
expire in 1996 and 1997, respectively, and may only be offset against
capital gains. Additionally, the Company has an unused general business
credit of approximately $2.7 million expiring in the years 1996 through
2004.
Upon the confirmation date of the POR as discussed in Note 1, the
Company underwent an ownership change as defined in Section 382 of the
Internal Revenue Code of 1986, as amended. Consequently, the
aforementioned tax attributes, existing at the Effective Date, will be
subject to an annual limitation. The net operating loss limitation is
determined pursuant to the Internal Revenue Code and is approximately
$7.6 million annually. Certain unrecognized tax losses at the Fresh
Start Reporting date may be subject to this limitation if recognized by
March 31, 1997.
The Company has an alternative minimum tax credit of approximately $1
million. The alternative minimum tax credit does not have an expiration
date.
(15) RETIREMENT PLANS
The Company has a Defined Benefit Retirement Plan ("Retirement Plan")
for substantially all of the Predecessor Company employees under which
future benefit accruals were frozen in 1990. The Company's policy
generally has been to fund an amount at least equal to the minimum
required contribution but no greater than the maximum tax deductible
amount.
F-37
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, the funded status of the Company's Retirement Plan was
as follows (in thousands of dollars):
1996 1995
---- ----
Actuarial present value of:
Vested benefit obligation $(10,388) $(10,098)
Non-vested benefit obligation (43) (291)
-------- --------
Accumulated benefit obligation $(10,431) $(10,389)
======== ========
Projected benefit obligation $(10,431) $(10,389)
Plan assets at fair value 7,300 7,768
-------- --------
Unfunded projected benefit obligation $ (3,131) $ (2,621)
======== ========
Unrecognized net transition asset $ (406) $ (457)
Unrecognized net loss 6,475 5,282
Unrecognized prior service costs (69) --
Additional minimum liability (6,000) (4,825)
Accrued pension liability (3,131) (2,621)
-------- --------
Total $ (3,131) $ (2,621)
======== ========
Statement of Financial Accounting Standards No. 87 - "Employers'
Accounting for Pensions" requires recognition of a minimum pension
liability for underfunded plans in the consolidated balance sheets. The
minimum liability that must be recognized is equal to the excess of the
accumulated benefit obligation over plan assets. A corresponding amount
is recognized as either an intangible asset or a reduction of equity.
Pursuant to this requirement, the Company has recorded an additional
minimum pension liability resulting in an equity reduction of
$6,000,000 and $4,825,000 as of December 31, 1996 and 1995,
respectively.
The weighted average expected long-term rate of return on plan assets
is 9% for 1996 and 1995. The projected benefit obligation was
determined using a weighted average assumed discount rate of 7.5% for
1996, 7.25% for 1995 and 8.75% for 1994.
Assets of the Retirement Plan are invested in common stocks, U.S.
government agency issues, U.S. treasury bonds and notes, corporate
bonds, foreign bonds and money market funds, and included approximately
87,068 shares of Atlantic Gulf common stock with an aggregate fair
value at December 31, 1996 of $375,500.
Atlantic Gulf also has a defined contribution savings plan which is
available to substantially all employees. The Company matches 25% of
each employee's contributions, up to a maximum of 4% of base salary
through December 31, 1995 and up to a maximum of 6% of base salary
beginning on January 1, 1996. In addition, upon approval from the board
of directors, an annual supplemental contribution may be made in an
amount up to the Company's matching contribution made during the year.
The Company's matching contribution was approximately $138,000 in 1996,
$118,000 in 1995 and $55,000 in 1994.
F-38
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
The carrying value of these instruments approximates fair value because
of the short maturity.
CONTRACTS RECEIVABLE
The net book value of contracts receivable represents the net expected
future cash flow of the Company discounted to a rate approximating 15%,
which management believes approximates fair value.
MORTGAGES, NOTES AND OTHER RECEIVABLES
Substantially all receivables which have a maturity in excess of one
year have been discounted to a market interest rate. Consequently,
management believes that the carrying value of these receivables
approximates fair value.
OTHER INTEREST BEARING LIABILITIES
Other interest bearing liabilities are at rates which approximate
current incremental borrowing rates.
NOTES AND MORTGAGES
As discussed in Note 10, long term debt includes Mandatory Interest
Notes and Cash Flow Notes issued in connection with the reorganization
of the Company. The fair value of these financial instruments is
estimated based on quoted market prices for the unsecured Notes. The
secured Mandatory Interest Notes and Cash Flow Notes are not listed on
any securities exchange and are subject to trading restrictions;
however, the Company has assumed that the fair value of these notes
approximates the fair value of the unsecured notes considering that the
security feature of the notes is offset by lower stated interest rates
on the secured notes. As of December 31, 1996, the Company estimated
the carrying value of the Mandatory Interest Notes to approximate fair
value since these notes were paid in full on January 3, 1997. Long term
debt also includes other indebtedness including a Working Capital
Facility, a Term Loan and a Reducing Revolving Facility as well as
various acquisition, development and construction loans (see Note 10)
for which the Company estimates the carrying value to approximate fair
value.
F-39
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated fair values of the Company's financial instruments at
December 31 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value(*) Value Value(*)
----- -------- ----- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,050 $ 7,050 $3,560 $3,560
Restricted cash and cash equivalents 6,034 6,034 8,461 8,461
Contracts receivable 9,649 9,649 14,350 14,350
Mortgages, notes and other receivables 63,800 63,800 45,479 45,479
Other interest bearing liabilities 3,062 3,062 7,543 7,543
Mandatory Interest Notes 37,457 37,457 94,965 92,775
Cash Flow Notes 35,603 22,252 85,212 62,060
Other Indebtedness 96,155 96,155 40,822 40,822
</TABLE>
- --------------
(*) These values represent an approximation of fair value and may never actually
be realized.
F-40
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for the years ended December 31, 1996 and 1995
are summarized below (in thousands of dollars except per share
amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1996:
- ----
<S> <C> <C> <C> <C>
Real estate sales $ 23,213 $ 46,282 $ 16,464 $ 41,606
Other revenues 8,561 5,447 2,195 21,519
-------- ----------- -------- --------
Total revenues $ 31,774 $ 51,729 $ 18,659 $ 63,125
======== =========== ======== ========
Gross margins on real estate sales (*) $ 5,416 $ 8,986 $ 3,775 $ 6,074
======== =========== ======== ========
Income (loss) before
extraordinary items $ (405) $ 496 $ (9,208) $ (3,434)
======== =========== ======== ========
Extraordinary items $ 3,770 $ -- $ 7,255 $ 2,707
======== =========== ======== ========
Net income (loss) $ 3,365 $ 496 $ (1,953) $ (727)
======== =========== ======== ========
Income (loss) before extraordinary
items per common share $ (.04) $ .05 $ (.95) $ (.35)
======== =========== ======== ========
Net income (loss) per common share $ .35 $ .05 $ (.20) $ (.07)
======== =========== ======== ========
</TABLE>
In conjunction with the Company's ongoing business plan to continue to
monetize its non-core tract and scattered homesites to reduce corporate
debt, certain tracts were targeted for bulk disposal in the fourth
quarter of 1996 and during 1997. The Company has priced its planned
bulk disposals attractively and as a result provided an inventory
valuation reserve in the fourth quarter of approximately $10.4 million
(see Note 5). The Company also reviewed its claims experience with
respect to the utility connection credit reserve and the number of
customers eligible to make a claim against this reserve. Based on the
factors noted above, this reserve was decreased by approximately $4.1
million (see Note 9).
Excluding these adjustments, the net income for the fourth quarter of
1996 was $5.6 million.
F-41
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1995:
- ----
<S> <C> <C> <C> <C>
Real estate sales $ 7,903 $ 11,989 $ 22,605 $ 40,406
Other revenues 8,181 6,580 5,957 9,731
-------- -------- -------- --------
Total revenues $ 16,084 $ 18,569 $ 28,562 $ 50,137
======== ======== ======== ========
Gross margin on real estate sales (*) $ 1,739 $ 3,670 $ 5,443 $ 5,642
======== ======== ======== ========
Net loss $ (4,791) $ (4,953) $ (4,669) $ (6,183)
======== ======== ======== ========
Net loss per common share $ (.50) $ (.51) $ (.48) $ (.63)
======== ======== ======== ========
</TABLE>
- ---------------
(*) Gross margin on real estate sales represents real estate sales revenue less
real estate cost of sales.
(18) FRESH START REPORTING
The Company's consolidated financial statements subsequent to March 31,
1992 have been prepared as if the Company were a new reporting entity
and reflect the recording of the Company's assets and liabilities at
their fair values as of March 31, 1992 and the discharge of
pre-petition liabilities relating to creditors' claims against the
Company. The reorganization value of the Company was determined after
consideration of several factors and by reliance on various valuation
methods, including discounted cash flows and other applicable ratios.
The factors considered by the Company and its independent advisors
included forecasted operating and cash flows results which gave effect
to the estimated impact of corporate restructuring and other operating
program changes, limitations on the use of the available net operating
loss carryovers and other tax attributes resulting from the plan of
reorganization and other events, the discounted residual value at the
end of the forecast period based on the capitalized cash flows for the
last year of that period, market share and position, competition and
general economic considerations, projected sales growth, potential
profitability and working capital requirements.
(19) NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be disposed of," which requires impairment
losses to be recognized for long-lived assets used in operations when
indicators of
F-42
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The Company adopted
Statement No. 121 in 1996. The new impairment rules have not resulted
in any significant change in asset values from December 31, 1995.
In October 1995, the Financial Accounting Standards Board issued
Statement 123, "Accounting for Stock-Based Compensation". This
statement permits a company to choose either a new fair value based
method or the current APB Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. The statement
requires pro forma disclosures of net income and earnings per share
computed as if the fair value method had been applied in financial
statements of companies that continue to follow current practice in
accounting for such arrangements under Opinion 25. The Company has
elected to follow Opinion 25 and make the required disclosures as
outlined in Statement 123 (see Note 20).
In October 1996, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position 96-1 (the "SOP 96-1"). This
Statement of Position (the "SOP") provides guidance on the recognition,
measurement, display, and disclosure of environmental remediation
liabilities. The Company will adopt SOP 96-1 in 1997. Based on
estimates presently available, the adoption of this SOP is not expected
to result in any significant change in asset values/expenses from
December 31, 1996.
(20) STOCK OPTIONS
At December 31, 1996, the Company has three stock based compensation
plans (See Note 11 -Stockholders' Equity). The Company applies APB
Opinion No. 25 and related Interpretations in accounting for its stock
based compensation plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Compensation cost was
recognized for compensation paid to Non-Employee Directors in
conjunction with annual retainer fees. The compensation cost that has
been charged against income for Non-Employee Directors' annual retainer
fees paid in Common Stock was $102,500 for 1996. Annual Non-Employee
Directors' retainer fees were paid in cash in 1994, 1995, and the first
six months of 1996 and were charged to income in the respective
periods.
F-43
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Had compensation cost for the Company's two stock option plans been
determined consistent with FASB 123, the Company's net income and
earnings per share results would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Net Income As reported $1,181,000 $(20,596,000) $1,081,000
Pro forma 649,380 (21,746,322) 810,768
Primary earnings
per share As reported $.12 $(2.12) $.11
Pro forma 0.07 (2.24) .08
Fully diluted
earnings per share As reported $.12 $(2.12) $.11
Pro forma 0.07 (2.24) .08
</TABLE>
FIXED STOCK OPTION PLANS
------------------------
The Company has two fixed stock option plans.
The Employee Stock Option Plan (the "Employee Option Plan"),
implemented in 1993, provides for the issuance of up to 750,000 options
to purchase Atlantic Gulf's common stock at a price equal to the fair
market value of the common stock at the date of grant. The options vest
to the employees over a five-year period or if there is a change in
control as defined in the Employee Option Plan. The options vest 40%
two years after the date of grant and 20% on each of the three
subsequent anniversaries of the date of grant. The options are
exercisable for a period of ten years from the date of the grant.
The 1994 Non-Employee Directors' Stock Option Plan (the "1994 Plan"),
approved by the Company's shareholders in 1995, provides for the
automatic grant of (i) options for 20,000 shares of common stock to
each non-employee director on December 5, 1994, (ii) options for 20,000
shares of common stock to each new non-employee director upon his/her
first election or appointment to the board of directors (the "Board"),
and (iii) options for 5,000 shares of common stock to each non-employee
F-44
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
director at the first meeting of directors following such director's
subsequent election or appointment to the Board. The option price for
any grant under the 1994 Plan is equal to the fair market value of
Atlantic Gulf's common stock at the date of grant. Each option is
immediately vested, exercisable, and remains exercisable for a period
of 10 years from the grant date. A maximum of 350,000 shares of common
stock may be issued pursuant to the 1994 Plan.
In order to calculate the proforma amounts shown above, the fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1994, 1995, and 1996.
Dividend yield: None.
Expected volatility: Based on historical month-end close stock
prices from June, 1992 through the month
prior to the grant date as reported by
NASDAQ.
Expected life of grants: Five years.
Risk free interest rate: Yield on five-year U.S. Treasury Notes
maturing five years from date of grant.
Contractual term of grant: Ten years.
A summary of the status of the Company's two fixed stock option plans
as of December 31, 1996, 1995, and 1994, respectively and the changes
during the years ended on those dates is presented below.
F-45
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
EMPLOYEE STOCK OPTIONS
- ----------------------
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
EMPLOYEE WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
the beginning of year 327,500 $ 6.387 503,250 $8.731 582,400 $8.853
Options granted 221,000 $11.892 166,500 $8.867 102,500 $5.848
Options exercised 0 n/a (8,000) $5.500 (1,000) $5.500
Options forfeited (45,250) $ 7.207 (79,350) $8.450 (46,900) $7.069
------- ------- -------
Outstanding at end of year 503,250 $ 8.731 582,400 $8.853 637,000 $8.506
======= ======= =======
Options exercisable at
year-end. 45,000 -- 126,760 -- 229,000 -
Weighted-avg.
fair value of options
granted during the year. $6.292 -- $4.573 -- $2.707 -
</TABLE>
F-46
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE WEIGHTED- NUMBER OF WEIGHTED-
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.00 - $ 4.99 2,500 9.9 $ 4.25 0 --
$ 5.00 - $ 5.99 155,000 8.3 $ 5.736 34,500 $ 5.500
$ 6.00 - $ 6.99 125,000 5.5 $ 6.738 103,500 $ 6.790
$ 7.00 - $ 7.99 27,000 6.9 $ 7.00 16,200 $ 7.00
$ 8.00 - $ 8.99 140,500 8.1 $ 8.866 0 --
$10.00 - $10.99 1,250 7.1 $10.750 500 $10.750
$11.00 - $11.99 1,250 7.5 $ 11.25 500 $11.250
$12.00 - $12.99 184,500 7.7 $ 12.00 73,800 $ 12.00
------- -------
637,000 229,000
======= =======
</TABLE>
F-47
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
- -----------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
NON-EMPLOYEE
DIRECTOR WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the 0 n/a 0 0 150,000 $8.825
beginning of year
Options granted 0 n/a 150,000 $8.825 35,000 $6.107
Options exercised 0 n/a 0 0 0 $8.825
Options forfeited 0 n/a 0 0 0 0
------ ------- -------
Outstanding at 0 n/a 150,000 $8.825 185,000 $8.311
end of year ====== ======= =======
Options exercisable at 0 -- 150,000 -- 185,000 --
year-end.
Weighted-avg. fair value of 0 -- $4.509 -- $2.881 --
options granted
during the year.
</TABLE>
Note: This schedule does not include the stock options issued in 1995
pursuant to the 1993 Plan and subsequently surrendered in accordance
with the adoption of the 1994 Plan.
F-48
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about non-employee director
stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE WEIGHTED- NUMBER OF WEIGHTED-
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$6.00 - $6.99 35,000 9.3 $6.107 35,000 $6.107
$7.00 - $7.99 10,000 8.3 $7.875 10,000 $7.875
$8.00 - $8.99 120,000 8.1 $8.875 120,000 $8.875
$9.00 - $9.99 20,000 8.2 $ 9.00 20,000 $ 9.00
-------- -------
185,000 185,000
======== =======
</TABLE>
(21) SUBSEQUENT EVENTS
On January 3, 1997, the Company repaid in full the $37.5 million
outstanding balance of Unsecured 12% Notes which matured on December
31, 1996. The repayment was made utilizing the $12.1 million of excess
proceeds released in January 1997 from various utility trust accounts
and borrowings under the Company's Reducing Revolving Loan.
Pursuant to the Company's business plan to monetize receivables
generated as a result of the sale of Predecessor assets, the Company
closed on a $7.5 million financing in January 1997 of a portion of its
contracts receivable portfolio with Litchfield Financial Corporation
("Litchfield"). In addition, in March 1997, the Company sold
approximately $9.3 million of mortgage receivables to the First Bank of
Boston for approximately $7 million. The proceeds from these two
transactions were used to reduce corporate debt and to fund ongoing
operations.
The Company has entered into an investment agreement, dated as of
February 7, 1997, with an affiliate of Apollo Real Estate Advisors,
L.P. ("Apollo"). Subject to the terms of the agreement, Apollo will
invest $25 million in new 20% Redeemable Cumulative Convertible
Preferred Stock of Atlantic Gulf. The agreement also provides Apollo
the opportunity to co-invest up to an additional $60 million in new
joint venture acquisitions with the Company. The preferred stock
closing remains subject to certain conditions, including the approval
of the transaction by the Company's stockholders, which is expected to
be acted on at their annual meeting in 1997, and the consent of the
Company's senior secured lender, Foothill. The preferred stock would be
convertible by Apollo into Atlantic Gulf common stock at a conversion
price of $5.75 per share. At closing, Apollo would also receive
warrants to acquire 5 million shares of Atlantic Gulf common stock at
an exercise price of $5.75, subject to a one-time potential downward
adjustment in early 1999 based upon certain factors, including the pace
at which Atlantic Gulf liquidates certain predecessor assets and the
trading of its common stock.
F-49
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION
Years Ended December 31, 1996, 1995 and 1994
Schedule II -
Valuation and Qualifying Accounts
(In Thousands of Dollars)
<TABLE>
<CAPTION>
AMOUNTS CHARGED
BALANCE AT (CREDITED) BALANCE AT
BEGINNING TO RESULTS OF END OF
OF PERIOD OPERATIONS DEDUCTIONS(2) PERIOD
--------- ---------- ------------- ------
<S> <C> <C> <C> <C>
DESCRIPTION
- -----------
YEAR ENDED DECEMBER 31, 1994:
Contracts receivable reserves $10,490 $(2,000) $1,545 $6,945
Other receivable reserves (1) 5,369 (378) 2,626 2,365
------- ------- ------ ------
Total $15,859 $(2,378) $4,171 $9,310
======= ======= ====== ======
YEAR ENDED DECEMBER 31, 1995:
Contracts receivable reserves $ 6,945 $(1,516) $1,076 $4,353
Other receivable reserves (1) 2,365 2,173 732 3,806
------- -------- ------ ------
Total $ 9,310 $ 657 $1,808 $8,159
======= ======== ====== ======
YEAR ENDED DECEMBER 31, 1996:
Contracts receivable reserves $ 4,353 $(1,300) $ 923 $2,130
Other receivable reserves (1) 3,806 (784) 290 2,732
------- -------- ------ ------
Total $ 8,159 $(2,084) $1,213 $4,862
======= ======== ====== ======
</TABLE>
- ---------------
(1) Reserves are a deduction from mortgages, notes and other receivables.
(2) Deductions represents amounts charged to reserves resulting from the
cancellation, write-off, sale or other disposition of the related
receivables.
S-1
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,084
<SECURITIES> 0
<RECEIVABLES> 73,449<F1>
<ALLOWANCES> 0
<INVENTORY> 153,417
<CURRENT-ASSETS> 0<F2>
<PP&E> 6,376<F3>
<DEPRECIATION> 3,465<F3>
<TOTAL-ASSETS> 263,393
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 169,215
0
0
<COMMON> 980
<OTHER-SE> 55,408
<TOTAL-LIABILITY-AND-EQUITY> 263,393
<SALES> 127,565
<TOTAL-REVENUES> 138,779
<CGS> 103,314
<TOTAL-COSTS> 118,825
<OTHER-EXPENSES> 45,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,430
<INCOME-PRETAX> (12,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 13,732
<CHANGES> 0
<NET-INCOME> 1,181
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<FN>
<F1> The Value for receivables represents a net amount.
<F2> The Company does not prepare a classified balance sheet, therefore, current
assets and current liabilities are not applicable.
<F3> Per Footnote 6 of the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
