SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2
[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
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
MIAMI, FLORIDA 33133-5461
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(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (305) 859-4000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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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
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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 I
Item 1. BUSINESS
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CURRENT BUSINESS
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Atlantic Gulf Communities Corporation is a Florida-based real estate
development and asset management company. The Company's primary lines of
business are acquisition, development and sale of new subdivision and scattered
developed homesites, sale of land tracts and residential construction and sales
(see "Primary Lines of Business"). Additional lines of business which contribute
to the Company's overall operations include portfolio management of mortgages
and contracts receivable and environmental services.
The Company acquires and develops real estate to: (i) enhance the value
of certain properties, (ii) maintain a continuing inventory of marketable tracts
and (iii) supply finished homesites to builders in Florida's fastest growing
markets. The Company's acquisition and development activities are comprised of
four primary functions: business development, planning, community development
and residential construction.
BUSINESS DEVELOPMENT. The Company's business development activities
focus on formulating strategies to invest Company resources in real estate in
primary markets and the corresponding business opportunities to produce superior
returns for our shareholders. The business development department identifies
specific primary markets and evaluates specific business opportunities within
these markets which meet the Company's investment criteria. The business
development department initiates and evaluates the financial and market
feasibility studies of these business opportunities and conducts appropriate due
diligence activities with respect to planning, zoning, and permitting
requirements. The department also identifies financing and investment sources
and potential joint venture partners.
PLANNING. The Company's planning activities include master land use
planning, zoning, mitigation, project permitting and obtaining all other
regulatory approvals necessary to develop a specified property. These activities
are coordinated by a staff at the Company's Miami corporate headquarters
consisting of 11 employees, supplemented, as needed, by subcontracted engineers
and other professionals.
The planning department evaluates, designs (or re-designs) and obtains
approvals to develop the Company's new acquisitions as residential subdivisions.
This department also obtains certain approvals and permits to enhance the value
of the Company's land tracts prior to sale.
Atlantic Gulf also has a wholly-owned subsidiary, Environmental Quality
Laboratory, Inc., staffed with 15 professionals who conduct environmental
assessments, testing and planning activities for the Company as well as for
unaffiliated parties. This company combines 20 years' experience in
environmental science with an in-depth knowledge of complex state and federal
regulations and state-of-the-art facilities to assist the Company and other
clients in achieving projects that are environmentally sound.
See "OTHER BUSINESSES - ENVIRONMENTAL SERVICES" below.
COMMUNITY DEVELOPMENT. The Company's community development staff
focusses on land development activities including the construction of roads,
amenities, utilities, and other infrastructure needed to obtain building
permits. These activities are directed by Company personnel in the field using
subcontractors with fixed price contracts to perform the actual land development
work. The final product is finished homesites that are sought by leading
homebuilders.
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RESIDENTIAL CONSTRUCTION. The Company owns and develops condominiums in
coastal locations where the Company believes there is existing demand for such
product. The Company acts as an owner/general contractor and subcontracts
substantially all residential construction activities. The Company was also
involved in the construction of single family homes, however, during 1995 the
Company decided to phase out its single family home construction and sales
operation in Predecessor communities. See "PRIMARY LINES OF BUSINESS -
RESIDENTIAL SALES" below.
BUSINESS PLAN
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The Company's goal is to produce superior returns for shareholders by
liquidating Predecessor assets, paying off debt, matching overhead to
development and construction activities, and becoming the leading supplier of
finished homesites to independent homebuilders in Florida's fastest growing
markets and in selected primary markets in the southeastern United States (the
"Southeast"), without the exposure entailed in carrying a substantial inventory
of land.
The Company's business plan is centered on its three principal lines of
business: (i) sales of finished homesites to independent homebuilders, (ii)
sales of tract land to end users as well as to investors and (iii) residential
construction and sales. The intent of the plan is to monetize the Company's
Predecessor assets as rapidly as market conditions permit while entering into
new markets with a higher risk-adjusted return potential. The business plan also
contemplates modifying the Company's capital structure by reducing debt,
improving financial flexibility, and reducing overhead by focusing on the
Company's core assets and businesses.
Florida continues to be one of the fastest growing states in the
nation. It currently ranks as the fourth most populous state behind California,
Texas and New York. Since 1992, the population of the United States has grown by
4.0%. In the past three years, Florida grew by approximately 686,500 persons to
an estimated population of 14,400,000, a 5.0% growth rate. Florida currently
accounts for 5.4% of the nation's total population, but it accounted for 8.2% of
the nation's population growth during the four years ended December 31, 1996.
Florida achieved this pace of growth by attracting new residents both from other
areas of the United States and other countries. While this growth has
historically been lead by retirees, in the 1980's Florida's rapid job growth
attracted residents in search of job opportunities.
Within Florida, a number of submarkets exist which vary based on
demographics and economic growth, among other factors. There are five markets
within Florida that represent densely populated, high growth areas referred to
as primary markets. All other areas in Florida are referred to as secondary
markets. Over the past few years, the Company has increasingly directed its
efforts to Florida's primary markets in an attempt to achieve solid growth in
the future. In 1995, the Company withdrew from single family home construction
activities and aggressively marketed assets located in secondary markets,
consistent with its business plan. In 1996, the Company continued to shift its
asset base and development activities from secondary to primary markets. See
"Florida Real Estate Market Summary" below for a discussion of these markets.
HOMESITE SALES. The supply of homesites suitable for residential
construction in Florida's primary markets has decreased, significantly in some
cases, over the last three years. The Company has identified other primary
market areas in the Southeast that have experienced similar decreases in
available homesites. This decrease resulted from several factors, including: (i)
a reduction in the number of major land developers, (ii) reduced availability of
acquisition and development financing and (iii) increased environmental and
regulatory restrictions.
As a result of financial difficulties caused by the last real estate
down cycle in the late 1980's and
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early 1990's, many residential real estate developers terminated their
businesses or stopped acquiring new properties for development. The absence of
these developers has made it difficult in the 1990's for homebuilders to
maintain an adequate supply of developed lots in more desirable areas in Florida
and selected markets in the Southeast.
Traditional development financing is no longer readily available to
homebuilders or developers as a result of the collapse of the savings and loan
industry. The surviving lenders are generally more risk averse, which has
reduced developers' access to capital.
Environmental and other regulatory restrictions have become
increasingly burdensome. As a result, the Company believes that the more
knowledgeable and technically capable developers will be more successful. These
regulatory challenges will continue as Florida and other Southeastern states
seek to achieve responsible growth.
Increased demand for developed homesites, together with a reduction in
new homesite supply, provides the Company with an opportunity to capitalize on
its acquisition, planning, and community development expertise. For these
reasons, the Company has focused during the past three years on property
acquisitions in Florida's primary markets. Management believes that property
acquisitions in these markets should increase the Company's sales volume and
overall profitability in future years. The Company will also seek to identify
other primary market areas in the Southeast and Texas with similar
characteristics for potential property acquisitions.
To provide appropriate management focus, the Company divides its
homesite sales operation between "subdivision" homesite sales, which generally
corresponds to traditional land development activities in Florida's primary
markets, and "scattered" homesite sales, which generally encompasses Predecessor
non-contiguous homesites located in secondary markets.
As of December 31, 1996, the Company had pending subdivision homesite
sales contracts totalling approximately $15.2 million corresponding to 616
homesite or 86% of the total homesite inventory.
The Company typically develops new subdivision homesites in multiple
phases and does not incur hard development costs until all or substantially all
of the homesites in a phase are under contract with third party homebuilders.
Developing homesites in phases allows the Company to more closely match the
supply of finished homesites to the homebuilders' demand, thereby reducing the
overhead and carrying costs associated with carrying a substantial inventory of
finished lots.
The Company owns approximately 20,000 scattered homesites located in
secondary markets. The Company has implemented an aggressive sales program to
increase the sales rate of its scattered homesites. As of December 31, 1996, the
Company had pending scattered homesite sales contracts totalling $1.2 million.
During 1996, 1995 and 1994, homesite sales represented approximately 35%, 29%
and 29% of the Company's total real estate revenues, respectively. In 1997,
homesite sales are expected to account for approximately 35% of the Company's
total real estate revenues. (See "Primary Lines of Business -Homesite Sales").
TRACT SALES. This line of business includes sales of commercial,
industrial, institutional, residential and agricultural acreage from the
Company's existing inventory located in secondary markets. The Company has
substantially completed, at significant cost since 1992, an effort to replan
many of these tracts to their highest and best use, enhancing their value and
marketability. Tract sales, while more variable from quarter to quarter than
homesites sales, have represented approximately 49%, 38% and 49% of the
Company's total real estate revenues during 1996, 1995 and 1994, respectively.
As part of the Company's comprehensive plan approved by the Board of Directors
in July 1995, the Company formed a new division, Atlantic Gulf Land Company, to
focus on the liquidation of Predecessor assets. This focus is consistent
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with the Company's goal of producing superior returns for shareholders by
liquidating Predecessor assets, paying corporate debt, and reducing overhead.
Brian A. McLaughlin was hired as the president of Atlantic Gulf Land Company,
(See Executive Officers of Atlantic Gulf). Mr. McLaughlin has extensive
experience in real estate turn-arounds and asset dispositions. As of December
31, 1996, the Company had pending tract sales contracts totalling approximately
$18.1 million.
Due to the Company's plan to monetize the Company's Predecessor assets
located in secondary markets, tract sales will continue to be a significant
source of revenue for the Company in 1997. However, subsequent to the Company's
full implementation of the business plan anticipated in 1998, tract sales are
expected to decline from approximately 55% of total revenues in 1997 to
approximately 25% of total real estate revenues thereafter. See "Primary Lines
of Business - Tract Sales."
RESIDENTIAL CONSTRUCTION AND SALES. The Company undertakes condominium
construction projects where the Company believes the risks can be reasonably
estimated and the prospective returns are attractive. The Company recorded
revenues of approximately $17.8 million and $18.0 million from sales in Regency
Island Dunes in 1996 and 1995, respectively. There were no significant
condominium revenues in 1994.
The Company has historically constructed single family homes. However,
in mid-1995, the Company decided to withdraw from the single family home
business in Predecessor communities. The Company has substantially completed its
withdrawal from this business. The Company is no longer accepting new sales
contracts in Predecessor communities to construct single family homes but is
fulfilling the contracts in place. The Company may seek to re-enter the single
family home business in primary market areas where this business would
complement current or potential land development activities. The Company may
seek to acquire demonstrated homebuilding expertise in order to re-enter this
single family home construction business.
Residential sales, including single family and condominium units, have
comprised 16%, 33% and 22% of total real estate sales for 1996, 1995 and 1994,
respectively. As the residential business shifts from primarily single family to
condominiums, and the Company's business plan is fully implemented, anticipated
in 1998, residential revenues are expected to increase to approximately 25% of
the Company's revenues. Residential sales revenues are expected to be
approximately 10% of total revenues in 1997. See "Primary Lines of Business -
Residential Sales."
Overall, the Company believes that these three complementary business
lines represent the most appropriate utilization of the Company's resources to
take advantage of the opportunities in its markets and to pursue the highest
return on the Company's assets. However, the Company's business is affected by
general risks associated with the real estate business, including specific risks
incident to the Florida and other primary real estate markets. The Florida real
estate market, as well as other primary markets in the Southeast, historically
have been cyclical, and the Company's business may be affected by changes in
interest rates. Any downturn in the Florida or national economy or increase in
interest rates can have adverse effects on the Company's sales and profitability
and its ability to make required debt payments.
Other factors that could effect the Company's business include the
availability and cost of financing for acquisition and development, the
availability and cost of materials and labor, weather conditions, changes in
government regulations and changes in consumer preferences. The real estate
business, particularly in Florida, is highly competitive. See "Regulation" and
"Competition."
The Company's historical operating performance has been adversely
affected by: (i) investments undertaken to produce future profits; (ii) high
debt costs; (iii) sales pressure attributable to near term debt maturities; (iv)
significant carrying costs attributable to its substantial but slower moving
inventory in secondary real estate markets; and (v) the time interval between
asset acquisition, development and sale. The results of several of the Company's
recent investments began to be realized in 1996. The results of certain other
investments will begin to be realized in 1997 when additional new projects come
on line. The
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Company anticipates its business plan will be fully implemented in 1998,
assuming availability of appropriate capital resources during 1998, which cannot
be assured. See "Management's Discussion and Analysis - Liquidity and Capital
Resources."
FLORIDA REAL ESTATE MARKET SUMMARY
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The information set forth in this section was provided primarily by
American Metro Study Corporation, an independent real estate consulting and
research firm.
Florida has one of the strongest economies in the nation. Since 1992,
the total non-agricultural employment in the nation has grown by 7.6% while
Florida's employment grew by 10.5% during the same period. Florida currently
accounts for 5.5% of the nation's non-agricultural employment, but it accounted
for 7.6% of the nation's job growth since 1992. The strong job growth in the
state is transforming Florida from a retirement destination to an employment
destination, particularly in the larger metropolitan areas of the state.
Due to the rapid population and employment growth, Florida has become
the leading state in the nation for single family home construction starts. In
the last four years the state has accounted for 365,900 single family home
construction starts, an average of 91,500 starts per year. During that period,
there were approximately 4,560,000 starts nationwide, an average of 1,140,000
starts per year, and Florida accounted for 8.0% of all single family home
construction starts in the nation.
The Company believes that, over the next five years, Florida should
continue to rank high nationally in terms of population growth, employment and
single family home construction starts and that its economic growth will be led
by tourism and international trade. It also believes that rapid expansion of the
Florida economy and the continued attraction of retirees will cause population
growth, which, in turn, will create increased demand for new housing units.
The Federal Reserve recently raised interest rates one-quarter of one
percent. Higher interest rates may impact single family starts in 1997 and 1998.
Currently, housing demand is strong in the primary markets and there is a
reduced supply of finished homesites in Florida. The Company believes Florida's
favorable economic attributes will maintain a strong demand for finished
homesites over the next five years.
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The Company has real estate interests in the following geographic
markets:
PRIMARY MARKET AREAS
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JACKSONVILLE AREA
Jacksonville is in the northeast corner of Florida. This four-county
metropolitan statistical area has 1 million residents and 502,000
non-agricultural jobs. This is a diverse local economy, with key employers
including the military, banking, insurance and service businesses.
Non-agricultural jobs increased 3.3% or 16,000 jobs during 1996. In 1996, the
local housing market had 5,750 single family home construction starts or 6.3% of
Florida's total single family home construction starts for the year. In 1996,
the Company sold its only Jacksonville-market project, Julington Creek
Plantation, for $24 million as part of the Company's plan to monetize certain
assets to retire debt. Under a management agreement between the Company and the
purchaser, the Company continues to manage Julington Creek Plantation in return
for 1% of gross revenues and a reimbursement of the Company's real estate and
overhead expenses. This management agreement expires in June 1997 and the
Company and the new owner are currently negotiating to extend its term on an
increased level of compensation to the Company. The Company is actively looking
for new projects in the Jacksonville market.
ORLANDO AREA
The Orlando metropolitan statistical area is located in the east
central part of Florida, and is the only major market in the state not on either
coast. Orlando, with more than 13 million visitors per year, is Florida's
largest tourist center and is the most vibrant housing market. This four-county
metropolitan area has approximately 1,495,000 residents and 771,100
non-agricultural jobs. After tourism, the local market depends on defense,
manufacturing, banking and business services. During 1996, non-agricultural jobs
in the Orlando area increased 3.3% or 25,000 new jobs. This market has the most
active single family market in the state, with more than 13,000 single family
home construction starts in 1996, a 14.2% share of the entire state.
During 1996, approximately 25% of all the single family home
construction starts in the Orlando market occurred in the southeast area of the
city. This market area currently has the greatest shortage of developed
homesites in the entire Orlando market. The Company owns two residential
projects, Lakeside Estates in the southeast and the Sanctuary in the central
Orlando area, and has joint venture interests in one other residential project
known as Falcon Trace in southeast Orlando. In 1996, the Company's Lakeside
Estates project was fourth in the Orlando market in terms of single family
housing permits issued. Substantially all of the Lakeside and Sanctuary
homesites under development are under contract to homebuilders.
TAMPA BAY AREA
The four-county Tampa Bay area is on the central Gulf Coast of Florida.
This market is a more traditional housing market than the rest of Florida, with
many of the home buyers moving to the area for employment opportunities. It is
the largest metropolitan statistical area in Florida with approximately
2,250,000 residents and 1,050,000 non-agricultural jobs. This market has
significant employment in business services, health services, trade, banking and
manufacturing. During 1996, the Tampa Bay area's non-agricultural jobs increased
2.3% or 24,200 jobs. After experiencing a significant drop in housing market
activity from 1987 through 1991, the Tampa Bay market has recovered to 7,800
single family home construction starts in 1996, which represented 8.5% of such
starts for the entire state. The Company believes there is currently significant
demand for developed homesites in Tampa Bay's northeast market area. In this
growing area, where the Company's West Meadows project is located, there is less
than a 23-month supply of developed homesites. West Meadows will be developed in
four phases. Development of the first phase, consisting of 212 homesites was
completed in 1996 and all of these homesites have closed
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or are under contract. The Company is currently developing the second phase of
99 homesites. Substantially all of the homesites under development in West
Meadows are subject to sales contracts with third party builders.
BROWARD COUNTY
During the last two years, the Broward County (Fort Lauderdale)
metropolitan statistical area has been one of the fastest growing housing
markets in the nation. Housing demand in this market has almost doubled from
4,737 single family home construction starts in 1992, to 9,500 single family
home construction starts in 1996, representing a 10.4% share of the entire
state. This increase in housing demand began as a result of Hurricane Andrew,
which, in 1992, destroyed tens of thousands of homes in Dade County (Miami),
located directly south of Broward County. Since the initial relocation boom,
however, growth in southwestern Broward County has remained very strong.
Considered alone, Broward County has approximately 1,450,000 residents and
approximately 625,000 non-agricultural jobs. Broward County and Dade County
(Dade County - approximately 2,190,000 residents, 965,500 non-agricultural jobs
and 5,400 single family home construction starts in 1996) combined constitutes
the largest market in Florida. Non-agricultural jobs increased 3.4% or 52,500
jobs during 1996 for the combined Dade County/Broward County area.
Southwest Broward County was one of the best housing markets in the
nation in 1996, with more than 5,700 single family home construction starts and
less than a one-year supply of developed homesites. This market area, however,
does not have substantial developable land. This market area abuts the
Everglades which limits the number of new homesites that can be developed. The
Company owns one project and has joint venture interests in two other projects
that account for a significant portion of the total remaining developable
homesites in this market area.
NAPLES/FORT MYERS AREA
The Naples/Fort Myers area is on the southern Gulf Coast of Florida.
This area has a population of approximately 580,000 residents and approximately
160,000 jobs. During 1996, the Naples/Fort Myers had approximately 6,000
construction starts of which 3,000 or 50% were for multi-family homes which
represents the highest ratio of multi-family homes starts to total starts in the
state of Florida. During 1995 and 1996, the Company purchased approximately 326
acres of property in Naples, Florida in a project known as Estero Pointe and is
planning to assemble a total of 879 acres in this project. The Estero Pointe
project is anticipated to yield approximately 744 multi-family homes and 313
family single family homes.
RALEIGH/DURHAM, NORTH CAROLINA
Raleigh/Durham, North Carolina has a population of approximately
995,300 residents. The growth rate of the population in the state of North
Carolina is expected to grow at an 8.1% rate over the next five years which is
the fifth highest growth rate in the United States. In December 1996, the
Company became a limited partner in a limited partnership formed to acquire and
develop an $8.0 million residential real estate tract consisting of
approximately 660 acres located adjacent to the Research Triangle Park in the
town of Cary, North Carolina which is near Raleigh/Durham North Carolina. This
project, known as Panther Creek, is planned for 822 single family homes and up
to 310 multi-family homes. Panther Creek represents the Company's first new
residential project outside the Florida market.
SECONDARY MARKET AREAS
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TREASURE COAST AREA
The Treasure Coast area, consisting of Martin and St. Lucie counties,
is north of Palm Beach County on Florida's east coast. This market has a
combination of job growth driven demand coming out
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of Palm Beach County, as well as, retirement/second home demand. This market
area has approximately 355,000 residents and 88,200 non-agricultural jobs. In
1996 there were 3,000 single family home construction starts, a 3.2% share of
the entire state. As the Palm Beach and Broward markets exhaust the developable
land, job growth and housing demand is expected to increase in the Treasure
Coast area.
MELBOURNE AREA
The Melbourne area is the home of the Kennedy Space Center on Florida's
Central Atlantic Coast. This market has approximately 450,000 residents and
approximately 181,000 non-agricultural jobs. This market had 2,950 single family
home construction starts in 1996, a 3.2% share of the entire state. While the
demand for retirement homes in the Melbourne area is expected to remain strong
over the next few years, reductions in federal spending for space exploration
may limit job growth in the near future.
OTHER AREAS
The Company has land holdings in several other secondary market areas,
some of which may currently have relatively high growth rates, but could be
adversely affected by changes in the economy. Furthermore, the existing supply
of homesite inventory in these other market areas should satisfy current annual
demand for many years. These factors render these markets shallow, with limited
annual absorption expected in the near term. A brief description of these other
secondary market areas is set forth below.
SARASOTA/BRADENTON/PUNTA GORDA AREA
Located on Florida's west coast, north from Naples/Ft. Myers, the
Sarasota/Bradenton/Punta Gorda area is a diverse local market in which a
majority of new home sales are to retirees and second home buyers. This market
has approximately 698,000 residents and approximately 209,000 non-agricultural
jobs. During 1996, the area had 3,800 single family home construction starts, a
4.2% share of the entire state. Included in this area are the Company's land
holdings in the Port Charlotte and North Port communities.
OCALA AREA
Ocala, located 100 miles north of Tampa on Interstate 75, has emerged
as an attractive alternative location for affordable retirement communities. The
Ocala area has approximately 226,700 residents and 71,200 non-agricultural jobs.
This market is very dependent on out-of-state retirees. The Company's land
holdings in Silver Springs Shores are included in this market area.
PRIMARY LINES OF BUSINESS
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The Company's primary lines of business are summarized below. See
"Management's Discussion and Analysis" for a summary of results of operations by
line of business.
This Annual Report includes "forward looking" statements that are
subject to risks and uncertainties. Such forward-looking statements include (a)
expectations and estimates as to the Company's future financial performance,
including growth and opportunities for growth in revenues, net income and cash
flow; (b) estimated and targeted annual unit sales, sales prices, and margins
and (c) those other statements preceded by, followed by or that include the
words "believes," "expects," "intends," "anticipate," "potential" or similar
expressions. For these statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The following important factors, in addition to
those discussed elsewhere in this Annual Report, could affect the Company's
future results and could cause those results to differ materially from those
expressed in the forward-looking statements: (a) the inability to generate
growth in revenues and net income; (b) the inability to generate
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sufficient cash flows from operations to fund capital expenditures and debt
service; (c) unanticipated capital expenditures, including costs associated with
real estate development prices; (d) unanticipated costs, difficulties or delays
in completing or realizing the intended benefits of development projects; (e)
adverse changes in current financial market and general economic conditions,
including interest rate increases; and (f) actions by competitors.
HOMESITE SALES.
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Finished homesites are typically sold to independent homebuilders,
although some scattered homesites are sold to individuals, most notably in the
Company's Cumberland Cove community in Tennessee, or are sold in bulk to
investors and other end users. Most homesite sales are on a cash basis except
for Cumberland Cove sales which are typically sold for a down payment of 10% to
20% with an interest bearing note and deed of trust securing the balance of the
purchase price with a term of ten years. The Company divides its homesite sales
into two categories - subdivision and scattered. Subdivision homesites are
generally located in Florida's primary real estate markets and represent
contiguous homesites in subdivisions with entrance features and other amenities
which could include lakes, parks, or other recreational facilities. Scattered
homesites are generally located in secondary real estate markets, representing
land assets inherited from the Predecessor Company (see "History" below).
Scattered homesites typically do not have associated amenities.
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The table below sets forth certain information regarding homesite sales
for the three years ended December 31, 1996.
HOMESITE SALES SUMMARY
----------------------
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- -----------------------
HOMESITES AMOUNT HOMESITES AMOUNT HOMESITES AMOUNT
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Subdivision
Julington Creek 176 $ 7,574 209 $ 7,549 169 $ 5,505
Lakeside Estates 258 4,191 160 2,605 25 400
Sanctuary 151 2,561 - - - -
Windsor Palms 306 12,467 - - - -
West Meadows 64 1,698 - - - -
Sabal Trace 15 599 - - - -
--- -------- ------ -------- ----- ---------
Total-Subdivision 970 29,090 369 10,154 194 5,905
Scattered 2,903 14,820 1,936 13,952 1,278 9,135
----- ------ ------ -------- ----- ---------
Total 3,873 $43,910 2,305 $ 24,106 1,472 $15,040
===== ======= ====== ======== ===== =========
</TABLE>
SUBDIVISION HOMESITE SALES
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During 1993, the Company began acquiring interests in or ownership of
property in Florida's primary real estate markets as part of its overall
business plan to become the leading supplier of finished homesites to builders
in Florida's fastest growing markets. During 1996, the Company began evaluating
the potential acquisitions of properties in other primary markets outside of
Florida, including Cary, North Carolina, located near Raleigh/Durham, North
Carolina. The Company is currently evaluating opportunities in other primary
market areas in the Southeast, including Atlanta, Charlotte, and Dallas. The
Company reduces the exposure corresponding to carrying a substantial inventory
of land by developing new subdivisions in multiple phases and by incurring hard
development costs only when all or substantially all of the homesites in a phase
are under contract with third party homebuilders.
Gross margin represents the difference between the Company's real
estate revenue and related cost of sales. Targeted gross margin percentages for
the Company's subdivision homesite sales generally range between 20% and 30%. As
discussed in Management's Discussion and Analysis of Results of Operations, the
Company's actual gross margins have suffered due to the Company's high weighted
average cost of capital and delays in obtaining development financing, both of
which are attributable to the historically high debt to equity ratios. Due to
the significant demand in most of the subdivision homesite market areas, the
Company does not anticipate a substantial marketing effort to achieve its
anticipated annual sales levels and estimates its selling costs as a percentage
of revenues to range from 5% to 10%.
10
<PAGE>
The table below summarizes the Company's subdivision homesite inventory
by market area as of December 31, 1996.
SUBDIVISION HOMESITE INVENTORY
------------------------------
<TABLE>
<CAPTION>
(IN NUMBER OF HOMESITES) (IN ACRES)
--------------------------------------------- ---------------
HOMESITES
BUILDABLE UNDER TOTAL ADDITIONAL
MARKET AREA HOMESITES DEVELOPMENT HOMESITES ACREAGE*
- ----------- --------- ----------- --------- --------
<S> <C> <C> <C> <C>
Orlando Area
Lakeside Estates .......... 89 169 258 122
Sanctuary ................. 19 - 19 -
Broward County
Windsor Palms ............. 102 - 102 -
Tampa Bay Area
West Meadows .............. 148 99 247 950
North Port Area
Sabal Trace ............... 92 - 92 107
Naples Area
Estero Pointe ............. - - - 326
--- --- ---- -----
Total ........................ 450 268 718 1,505
=== === ==== =====
</TABLE>
- --------------
* Represents tract acreage which the Company currently intends to
develop as subdivision homesites.
As of December 31, 1996 and 1995, the Company had pending subdivision
homesite sales contracts totalling approximately $15.2 million (616 homesites)
and $29.3 million (950 homesites), respectively.
11
<PAGE>
ORLANDO AREA
LAKESIDE ESTATES. In February 1994, the Company acquired approximately
245 acres in a community known as Lakeside Estates, situated approximately seven
miles south of Orlando International Airport, near the Florida Turnpike. The
total acquisition price for the property was approximately $7 million (including
$1 million of prepaid impact fees), of which $3.5 million was paid in cash and
$3.5 million was financed through a $7.8 million acquisition and development
loan.
In February 1995, the Company acquired an additional 50 acres in this
community for approximately $3.2 million (including approximately $500,000 of
prepaid impact fees). Approximately $1 million of the acquisition price was paid
in cash and the $2.2 million balance was financed through a $2.2 million
increase to the existing $7.8 million acquisition and development loan. The
combined acreage is approved for 1,389 residential homesites which are fully
permitted for development.
The first homesites in this project were sold in late 1994. The Company
anticipates this project will produce annual sales of approximately 200 - 250
homesites with sales prices ranging from $16,500 to $23,000. As of December 31,
1996 and 1995, the Company had pending sales contracts for $5.3 million (306
homesites) and $7.4 million (370 homesites), respectively. Substantially all of
the homesites under development are under contract with third party
homebuilders.
SANCTUARY. In October 1994, the Company purchased a 50% joint venture
interest in a mortgage receivable for $1.6 million. The mortgage receivable
encumbered approximately 409 homesites in a subdivision known as the Sanctuary
located approximately 10 miles east of Orlando. The joint venture completed a
foreclosure proceeding on the property in mid-1995. 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 for
approximately $1.0 million.
In December 1996, the joint venture sold 151 of the remaining 170
homesites in this project for $2.6 million. The remaining 19 homesites were
under contract for $323,000 as of December 31, 1996. The Company has recovered
all costs associated with the purchase of this property.
FALCON TRACE. 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.
BROWARD COUNTY
WINDSOR PALMS. In October 1994, the Company purchased approximately 200
acres of residential property in southwest Broward County, just east of the
Interstate 75/Miramar Parkway interchange. The purchase price was $4.5 million,
of which $1.3 million was paid in cash and the remaining balance was financed
through the seller. This project, known as Windsor Palms, is a 408-unit gaited
community, featuring 26 acres of lakes, a 48-acre conservation area and a
1.5-acre recreation area. Windsor Palms' phased development is consistent with
the Company's plan to incur hard development costs only when all or
substantially all of the subdivision homesites are under contract with third
party homebuilders. The property is fully permitted. In 1996, the Company sold
306 homesites for $12.5 million in Windsor Palms. As of December 31, 1996, there
were no homesites under contract with third party homebuilders, however,
12
<PAGE>
the remaining 102 homesites are anticipated to be sold and closed in 1997.
SUNSET LAKES. The Company is a party to a joint venture arrangement
formed to plan, finance, develop and sell approximately 1,950 acres located in
southwest Broward County, approximately three miles west of the Interstate
75/Pines Boulevard interchange. The Company has designed a plan for this parcel
which will allow construction of approximately 1,800 single family and
multi-family units. The Company is close to obtaining all required permits and
approvals to implement this plan. The Company will develop this property in
phases and will expend development costs when substantially all of the homesites
in a phase are under contract with third party homebuilders. As of December 31,
1996, the Company had pending sales contracts for approximately 786 homesites,
inclusive of options, for $39.2 million which are subject to a variety of
customary conditions, including the Company successfully obtaining all required
permits and approvals. The anticipated overall gross profit margin is
approximately 30%. The Company's percentage interest in the profits and losses
of the partnership is 65%. In addition, the Company is entitled to a fee equal
to 4% of the development costs, as defined in the Sunset Lakes joint venture
agreement.
COUNTRY LAKES. In September 1995, the Company became a limited partner
of Country Lakes, Ltd., a Virginia limited partnership (the"partnership") formed
to acquire, plan, develop and market approximately 1,750 acres located in Dade
and Broward counties, Florida, formerly known as Viacom/Blockbuster Park. This
unique joint venture arrangement does not require the Company to make any
substantial cash investment but capitalizes on the Company's planning and
community development expertise. This venture and the premier location of the
property are consistent with the Company's goal to produce superior returns for
shareholders by becoming the leading supplier of finished homesites to
homebuilders in Florida's fastest growing markets while avoiding the exposure
associated with carrying a substantial inventory of land. The Company accounts
for the partnership under the equity method. The anticipated overall gross
profit margin is approximately 45%. During 1996, this partnership sold 312 acres
for $7.5 million and generated a net profit to the Company of $251,000. Subject
to the partner's minimum return, the Company's percentage interest in the
profits of the partnership is 20 to 25%. In addition, the Company entered into a
development management agreement with the Partnership to provide day-to-day
management, development, marketing and sales coordination. The Company is
entitled to receive compensation of 3.5% of all gross revenues as defined in the
partnership agreement.
TAMPA BAY AREA
WEST MEADOWS. In February 1995, the Company acquired approximately 900
acres located in the northeastern part of the Tampa Bay area for $5 million, of
which $1.5 million was paid in cash and the balance of $3.5 million was financed
through a mortgage securing the property. 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 combined acreage in the West Meadows project of approximately
1,140 acres is permitted for approximately 1,300 homesites. The property is
being developed in phases and hard development dollars are expended only when
substantially all of the homesites in a phase are under contract with third
party homebuilders. As of December 31, 1996, the Company had 291 homesites under
contract for approximately $9.6 million. Beginning in 1997, this project is
projected to generate approximately 150 - 200 homesites sales annually, with
sales prices ranging from $23,000 to $33,000. Substantially all of the homesites
under development are under contract with third party homebuilders.
NORTH PORT AREA
SABAL TRACE. The Company has obtained required permits for this
164-acre tract which was selected from the Company's existing inventory, located
adjacent to the Sabal Trace golf course in the community of North Port. The
Company plans to develop 107 homesites and sell the remaining 107 acres in bulk.
The homesites in this project, known as Sabal Trace, are designed and priced to
meet demand for
13
<PAGE>
mid-range priced residences for the "move-up" and retirement markets.
Development of the 107 homesites, began in the fourth quarter of 1995. In 1997,
annual sales levels for the first phase are projected at approximately 50
homesites, with sales prices ranging from $37,000 to $44,000.
NAPLES AREA
ESTERO POINTE. During 1995 and 1996, the Company purchased
approximately 326 acres of residential property in Naples, Florida, which is in
southwest Florida, from various sellers for approximately $6.0 million of which
$2.4 million was financed by the sellers through notes secured by mortgages on
the properties. The Company is planning to assemble a total of approximately 879
acres in this project, known as Estero Pointe, which is anticipated to yield
approximately 313 single family homes and 744 multi-family homes. The Company
anticipates converting its ownership of this project to a joint venture with a
third party capital partner.
NORTH CAROLINA
PANTHER CREEK. In December 1996, the Company became a limited partner
of Panther Creek-Raleigh, Limited Partnership (the "Panther Creek Partnership"),
a North Carolina limited partnership formed to acquire and develop an $8.0
million residential real estate tract consisting of approximately 660 acres
located near Raleigh/Durham North Carolina. The property, planned for 822 single
family homes and up to 310 multi-family homes, is located adjacent to the
Research Triangle Park in the town of Cary, North Carolina. Panther Creek
represents the Company's first new residential project outside the Florida
market. This joint venture arrangement does not require the Company to make any
substantial cash investment but capitalizes on the Company's planning and
community development expertise. The Company's interest in the net cash flows of
this partnership is 40%. In addition, the Company entered into a development
management agreement with the Panther Creek Partnership to provide development
and marketing services to the partnership pursuant to which the Company is
entitled to receive compensation of 2% percent of all project revenues as
defined in the partnership agreement.
SCATTERED HOMESITE SALES
The Company has a substantial inventory of developed lots which have
all required road and drainage improvements ("Homesites"). Homesites are
considered buildable if they are in areas where well and septic systems can be
utilized or have central utility service improvements required for a purchaser
to obtain a building permit ("Buildable Homesites").
14
<PAGE>
The table below summarizes the Company's scattered Homesite sales by
market area for the three years ended December 31, 1996.
<TABLE>
<CAPTION>
SCATTERED HOMESITE SALES SUMMARY
--------------------------------
(dollars in thousands)
1996 1995 1994
------------------ ------------------ ---------------------
MARKET AREA HOMESITES AMOUNT HOMESITES AMOUNT HOMESITES AMOUNT
- ----------- --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 297 $ 1,716 65 $ 1,099 63 $ 663
Melbourne Area
Port Malabar 1,305 3,425 1,114 5,362 245 2,023
Other Communities 60 579 163 1,244 303 2,203
Other Areas
Port Charlotte 846 3,600 167 926 211 1,114
North Port 97 566 123 371 285 1,873
Port LaBelle 9 52 5 41 42 324
Silver Springs Shores 76 558 105 727 123 831
Cumberland Cove 213 4,324 194 4,182 6 104
----- ------- ----- -------- ----- -------
Total 2,903 $14,820 1,936 $ 13,952 1,278 $ 9,135
===== ======= ===== ======== ===== =======
</TABLE>
As of December 31, 1996 and 1995, the Company had pending scattered
Homesite sales contracts totalling approximately $1.2 million (475 homesites)
and $4.4 million (869 homesites), respectively.
Scattered homesite sales increased in 1996 due to a 50% increase in the
number of homesites sold, partially offset by a 29% decrease in the average
sales price principally due to an increase in bulk sales of scattered homesites.
Scattered homesite sales in 1997 are expected to be in the $10 million to $12
million range, with a targeted gross margin of approximately 40% in Cumberland
Cove and 20% in all other areas, except for bulk homesites sales which generally
have lower gross margins. The Company will continue to attempt to supplement
scattered homesite sales with bulk sales in accordance with its plan to
accelerate the sale of assets in secondary real estate markets. The Company's
marketing and other selling costs for homesites sold to homebuilders, using
in-house sales staff or brokers, generally range from 15% to 25% of the related
revenues. Marketing and other selling costs for Cumberland Cove are expected to
range from 50% to 60% due to recently implemented marketing programs which have
generated an increase in sales activity in this community.
15
<PAGE>
The table below summarizes the Company's scattered Homesite inventory
by market area as of December 31, 1996.
<TABLE>
<CAPTION>
SCATTERED HOMESITE INVENTORY SUMMARY
------------------------------------
(in homesites)
STANDARD OTHER BUILDABLE OTHER
BUILDABLE DEVELOPED RESERVED RESTRICTED TOTAL
MARKET AREA HOMESITES LOTS (1) HOMESITES (2) HOMESITES (3) HOMESITES
- ----------- --------- -------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 373 57 346 102 878
Melbourne Area
Port Malabar 907 71 1,807 2,104 4,889
Other Communities 229 - 54 21 304
Other Areas
Port Charlotte 509 107 2,185 356 3,157
North Port 3,131 47 1,761 155 5,094
Port LaBelle 81 - 86 1,774 1,941
Silver Springs Shores 2,645 97 237 323 3,302
Cumberland Cove 323 - 1 11 335
------ ----- ------- ------ -------
Total 8,198 379 6,477 4,846 19,900
====== ===== ======= ====== =======
</TABLE>
- --------------
(1) Includes commercial/industrial and other premium lots.
(2) Includes 6,000 lots held for Utility Reserves (see "RECEIVABLE PORTFOLIO
MANAGEMENT" below) and other portfolio management use.
(3) Represents Homesites which may not be Buildable Homesites due to lack of
utility availability or engineering or title issues, and may only be sold
under certain conditions. Although the Company has a significant inventory
of homesites that at the present time may not be buildable, this inventory
has declined and is expected to decline as currently unbuildable homesites
become buildable. These homesites become buildable as the communities in
which these lots are located grow and extend utility services to these lots
and the Company satisfies title or engineering issues with respect to these
lots. The Company's plans are to continue to take the appropriate actions
to convert these lots to buildable homesites consistent with market demand
and to monetize these assets and repay debt.
TREASURE COAST AREA
PORT ST. LUCIE. Port St. Lucie is located in southern St. Lucie County
between the cities of Fort Pierce and Stuart in Florida's Treasure Coast area.
The community is served by three major highways -- U.S. 1, Interstate 95 and the
Florida Turnpike. The original Port St. Lucie development forms most of what is
now the city of Port St. Lucie which was incorporated in 1961. The city has
approximately 48,700 acres containing an estimated 70,000 platted lots and
24,500 homes. Commercial development, including a number of hotels, strip
shopping centers, and a regional mall, is concentrated along U.S. 1 and at the
Interstate 95 and Florida Turnpike interchanges.
16
<PAGE>
MELBOURNE AREA
PORT MALABAR. Port Malabar is located on the east coast of Florida,
primarily within the City of Palm Bay, in a rapidly growing portion of southern
Brevard County. The community is served primarily by U.S. 1 and by three
east/west arterials, Palm Bay Road, Port Malabar Boulevard and Malabar Road.
Each arterial has a full interchange at Interstate 95, providing direct linkage
to south Florida and the northeastern United States. The City of Palm Bay has a
current population of approximately 75,000 permanent residents.
OTHER COMMUNITIES. The Company owns additional inventory in the
following smaller Florida communities: (i) Port St. John, located in Brevard
County, approximately six miles north of Cocoa, Florida; (ii) Sebastian
Highlands, located within the City of Sebastian, approximately 12 miles north of
Vero Beach, Florida and (iii) Vero Beach Highlands/Vero Shores, located
approximately five miles south of Vero Beach.
OTHER AREAS
PORT CHARLOTTE. Port Charlotte is located in northern Charlotte County,
halfway between Fort Myers and Sarasota. This community is served by U.S. 41 and
Interstate 75. Development began in the mid 1950's and is comprised of
approximately 47,000 acres. Port Charlotte has a current population of
approximately 90,000 permanent residents.
NORTH PORT. North Port is located north of Port Charlotte in Sarasota
County, also by U.S. 41 and Interstate 75. This community was incorporated in
1959 and consists of approximately 76 square miles. Geographically, North Port
is the third largest city in size in the state, but only has a population of
approximately 15,000 residents.
PORT LABELLE. Port LaBelle, originally planned as a 31,500-acre
residential community, is located in Hendry and Glades counties in southwest
Florida, approximately 35 miles east of the City of Ft. Myers and Interstate 75.
It has a current population of approximately 2,400 residents. The Company
converted approximately 22,000 acres of its inventory in this community from
residential to agricultural use (see "Tract Sales" below).
SILVER SPRINGS SHORES. Silver Springs Shores, a 17,300-acre community,
is located in the southeastern Ocala area. This community has a current
population of approximately 11,000 residents.
CUMBERLAND COVE. Cumberland Cove, a 21,700-acre community, is located
in the plateau of the Cumberland Mountains midway between Nashville and
Knoxville, Tennessee near Interstate 40. The wooded area features a variety of
large lake and bluff view lots suitable for building vacation and retirement
homes. The community includes 135 homes, a nine hole golf course and a small
commercial area.
TRACT SALES.
-----------
The Company's most significant recurring revenue source during the past
three years has been from the sale of commercial/industrial, undeveloped
residential, institutional and agricultural tracts ("Tracts") to both
governmental and private users and third party investors. The Company sells
Tracts either for cash or with seller financing typically structured with a
minimum 20% cash down payment with an interest-bearing note and mortgage
securing the balance of the purchase price which note typically matures within
three to five years. During 1996 and 1995, approximately 75% and 80%,
respectively, of the Company's aggregate Tract sales were for cash.
As part of the Company's comprehensive plan approved by the Board of
Directors in July 1995, the Company formed a new division, Atlantic Gulf Land
Company, to focus on the liquidation of Predecessor assets. This focus is
consistent with the Company's goal of liquidating Predecessor assets, paying off
debt, and reducing overhead. Brian A. McLaughlin was hired as the president of
Atlantic Gulf Land Company. Mr. McLaughlin has extensive experience in real
estate dispositions.
17
<PAGE>
Tracts are marketed both by the Company's employees and by independent
brokers. Due to variations in the timing and size of the Tracts being sold,
revenue from Tract sales may vary significantly from quarter to quarter. As of
December 31, 1996 and 1995, the Company had pending Tract sales contracts
totalling approximately $18.1 million (6,686 acres) and $25.8 million (4,105
acres), respectively.
The reduction in pending tract sales is consistent with the Company's
liquidation of Predecessor assets and shift to subdivision homesite sales in
primary markets.
The table below summarizes the Company's Tract sales by market area for
the three years ended December 31, 1996.
<TABLE>
<CAPTION>
TRACT SALES SUMMARY
-------------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
----------------------------
COMMERCIAL/ UNDEVELOPED
INDUSTRIAL RESIDENTIAL INSTITUTIONAL AGRICULTURAL TOTAL
---------------- --------------- -------------- -------------- --------------
MARKET AREA ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT
- ----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacksonville Area
Julington Creek 42 $ 164 2,923 $11,438 - $ - - $ - 2,965 $11,602
Broward County
Summerchase - - 320 9,000 - - - - 320 9,000
Tampa Bay Area
West Meadows - - 34 1,333 - - - - 34 1,333
Treasure Coast Area
Port St. Lucie 206 1,796 2,309 8,777 254 1,344 - - 2,769 11,917
Melbourne Area
Port Malabar 150 1,140 174 1,893 5 43 - - 329 3,076
Other Communities 70 775 274 1,280 3 8 - - 347 2,063
Other Areas
Port Charlotte 498 8,109 426 5,068 186 580 - - 1,110 13,757
North Port 194 2,384 485 1,653 94 678 - - 773 4,715
Port LaBelle 10 159 4 36 - - - - 14 195
Silver Springs Shores 345 630 1,393 2,080 335 493 - - 2,073 3,203
Cumberland Cove - - 4,083 1,832 - - - - 4,083 1,832
----- ------- ------ ------- --- ------ ------ ------- ------ -------
Total 1,515 $15,157 12,425 $44,390 877 $3,146 - $ - 14,817 $62,693
===== ======= ====== ======= === ====== ====== ======= ====== =======
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
COMMERCIAL/ UNDEVELOPED
INDUSTRIAL RESIDENTIAL INSTITUTIONAL AGRICULTURAL TOTAL
--------------- --------------- -------------- ------------- --------------
MARKET AREA ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT
- ----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 65 $ 817 392 $ 2,874 81 $ 691 - $ - 538 $ 4,382
Melbourne Area
Port Malabar 47 1,931 761 950 4 26 - - 812 2,907
Other Communities 16 210 161 776 3 36 - - 180 1,022
Other Areas
Port Charlotte 69 1,856 1,763 5,768 634 1,515 - - 2,466 9,139
North Port 198 1,589 2,566 3,906 98 389 5,980 6,324 8,842 12,208
Port LaBelle - - - - - - 1,116 1,381 1,116 1,381
Silver Springs Shores 4 16 - - - - - - 4 16
--- ------ ----- ------- --- ------ ----- ------ ------ -------
Total 399 $6,419 5,643 $14,274 820 $2,657 7,096 $7,705 13,958 $31,055
=== ====== ===== ======= === ====== ===== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
COMMERCIAL/ UNDEVELOPED
INDUSTRIAL RESIDENTIAL INSTITUTIONAL AGRICULTURAL TOTAL
-------------- --------------- --------------- --------------- --------------
MARKET AREA ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT ACRES AMOUNT
- ----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 55 $ 1,897 442 $3,335 34 $ 381 - $ - 531 $ 5,613
Melbourne Area
Port Malabar 10 397 1,183 2,502 116 4,024 - - 1,309 6,923
Other Communities 9 788 123 739 - - - - 132 1,527
Other Areas
Port Charlotte 107 7,274 45 531 9 54 - - 161 7,859
North Port 161 961 450 1,405 14 83 - - 625 2,449
Port LaBelle - - - - 4 18 872 1,003 876 1,021
Silver Springs Shores 8 380 6 37 2 24 - - 16 441
Cumberland Cover - - 97 60 - - 287 113 384 173
--- ------- ----- ------ ----- ------ ----- ------ ----- -------
Total 350 $11,697 2,346 $8,609 179 $4,584 1,159 $1,116 4,034 $26,006*
=== ======= ===== ====== ===== ====== ===== ====== ===== =======
</TABLE>
* Amount excludes a $213,000 reduction in real estate sales which resulted
from discounting the purchase money mortgage notes received in 1994 to yield
prime plus 3% at the time of closing of the transactions. See Note 4 of the
Notes to Consolidated Financial Statements.
19
<PAGE>
The table below summarizes the Company's Tract acreage by market area
and current approved land use as of December 31, 1996.
<TABLE>
<CAPTION>
TRACT INVENTORY SUMMARY
-----------------------
(in acres)
COMMERCIAL/ UNDEVELOPED
MARKET AREA INDUSTRIAL RESIDENTIAL INSTITUTIONAL AGRICULTURAL TOTAL
- ----------- ---------- ----------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 182 1,495 509 - 2,186
Melbourne Area
Port Malabar 321 1,670 851 - 2,842
Other Communities - 410 30 - 440
Other
Port Charlotte 143 784 1,107 - 2,034
North Port 1,012 923 597 - 2,532
Port LaBelle 235 759 430 20,035 21,459
Silver Springs Shores 31 70 70 - 171
Cumberland Cove - 685 1,840 - 2,525
----- ----- ----- ------ ------
Total 1,924 6,796 5,434 20,035 34,189
===== ===== ===== ====== ======
</TABLE>
The acreage owned by the Company will either be sold as is, sold in
bulk after approval of new land uses or development designs or developed and
used in the Company's homesite operations. See "Homesite Sales" for a
description of each location.
Some of the more significant development activities affecting Tract
inventory for 1997 are as follows:
PORT LABELLE AGRICULTURAL ACREAGE. In recent years, southwest Florida
has become the center for production of new citrus groves in Florida because of
its climatically desirable location. During the mid-to-late 1980's, Hendry,
Glades, Collier, Lee and Charlotte Counties experienced substantial growth in
citrus grove development, with aggregate planting of approximately 10,000 to
12,000 acres of groves annually.
The Company determined that the highest and best use for substantially
all of its remaining undeveloped residential Port LaBelle acreage was to convert
it to agricultural use. In 1992, the Company began efforts to replan and obtain
permits to convert approximately 22,000 acres to citrus grove and other
agricultural uses. During 1993, the Company completed the water use permitting
process and created 23 separate agricultural basins ranging from approximately
300 to 2,300 acres per basin. In late 1994, the Company received final approval
for the sale of this property. The Company sold 872 acres in 1994 and 1,116
acres in 1995, with the remaining balance of approximately 20,000 acres
anticipated to be sold in the near term. The Company's targeted gross margin for
this property is approximately break even.
RIVER TRACE. The Company expects to sell the remaining 1,210 acres of a
parcel known as River Trace in 1997 for approximately $5.0 million. This parcel
is located in Port St. Lucie immediately north of the Martin County line and
east of the Florida Turnpike and is zoned as golf course residential property.
Historical averages of the per acre tract sales price within a
particular zoning category are not
20
<PAGE>
necessarily indicative of expected sales values to be achieved in the future.
The average sales prices per acre for tracts can vary significantly based on
numerous factors which include general real estate market conditions, location
within the market area, stage of development, environmental conditions and the
number of net usable acres. Tract sales are expected to increase in the near
term due to the Company's plan to aggressively market assets located in
secondary real estate markets. A targeted gross margin of 5-10% is estimated for
all acreage other than the Port LaBelle agricultural tracts.
RESIDENTIAL SALES
-----------------
Residential sales include construction and sale of single family homes
and condominium units. The Company has historically constructed single family
homes. However, in mid-1995, the Company decided to begin phasing out its single
family home business in Predecessor communities and substantially completed the
withdrawal from this business in 1996. During 1993, the Company entered the
luxury condominium market through the acquisition of a parcel on Hutchinson
Island, Florida. Consistent with the Company's business plan, the Company
entered the luxury condominium market to increase revenues and improve the
profitability of its residential sales operation.
All of the Company's residential sales are for cash. All purchasers
requiring financing obtain loans from independent financial institutions. Most
of the Company's residential sales are generated through local marketing
programs using an in-house sales staff and local brokers.
CONDOMINIUM SALES
During 1993, the Company was presented with an opportunity to enter the
luxury condominium market through the purchase of Regency Island Dunes (see
below). The Company strengthened its position in this market, with the addition
of the Ocean Grove condominium project in January 1995. This segment of the
residential construction market appears to have the potential to become a
profitable business line for the Company, with targeted gross margins of 20% to
25%. The Company markets this product locally, augmented by some regional and
national advertising. Generally, the Company will begin construction of a
condominium phase on a fixed price contract with independent general contractors
only after approximately 50% of the units in that phase have been pre-sold with
non-refundable earnest money deposits.
21
<PAGE>
REGENCY ISLAND DUNES. In 1993, the Company acquired this parcel located
on Hutchinson Island, Florida for approximately $4.1 million in cash. Hutchinson
Island is located in St. Lucie County, 40 miles north of Palm Beach and five
miles east of Port St. Lucie. The property, known as Regency Island Dunes, is
part of Island Dunes, a golf course and condominium community with 2,700 feet of
frontage on both the Atlantic Ocean and the Intracoastal Waterway. This parcel
is permitted for construction of two 72-unit high rise condominium buildings.
The revenues associated with Regency Island Dunes condominium sales are recorded
using the percentage of completion method and are summarized as follows for the
years ended December 31 (in thousands of dollars):
1996 1995
---- ----
Condominium sales - Regency Island Dunes:
First building $ 3,008 $17,989
Second building 14,801 -
-------- -------
Total condominium sales $ 17,809 $17,989
======== =======
The revenues of approximately $18 million in 1995 were derived from 61 units
under contract in the first building as of December 31, 1995 and construction on
the first building 97% complete. The condominium revenues of $3.0 million in the
first building in 1996 represent the incremental revenue earned upon the
completion of 59 of these 61 units in 1996 and the sale and closing of an
additional eight units in 1996. The revenues of approximately $14.8 million in
the second building in 1996 were derived from 56 units under contract in the
second building as of December 31, 1996 and construction on the second building
79% complete. Additional revenues and profits will be recorded as the
construction progresses and more units are sold. The Company anticipates that
construction of the second building will be completed during the first half of
1997 and that all 72 units in the second building will close in 1997. See Item
3. - "LEGAL PROCEEDINGS".
OCEAN GROVE. In January 1995, the Company acquired a two-acre parcel in
a six-acre project known as Ocean Grove. 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, when the joint venture acquired the remaining four acres for $2.2
million in cash. The project was planned to encompass 162 luxury oceanfront
condominiums consisting of three, six-story towers, located in the City of
Jupiter in Palm Beach County, Florida. Presales of the first proposed building
in the 1995 - 1996 season were disappointing and the joint venture is currently
in the process of replanning and repermitting the site.
SINGLE FAMILY HOME SALES
As mentioned above, the Company in 1995 decided to begin phasing out
its single family home sales operation in Predecessor communities and
substantially completed the withdrawal during 1996. The Company may seek to
re-enter the single family home business in primary market areas where this
business would complement current or potential land development activities. The
Company may seek to acquire demonstrated homebuilding expertise in order to
re-enter the single family home construction business.
22
<PAGE>
The table below summarizes the Company's single family home sales by
market area for the three years ended December 31, 1996.
SINGLE FAMILY HOME SALES
------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
MARKET AREA UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
- ----------- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Treasure Coast Area
Port St. Lucie 12 $1,213 28 $3,402 25 $ 3,097
Melbourne Area
Port Malabar 11 833 24 2,289 28 2,588
Hidden Glen at Suntree - - 9 833 22 2,015
Other Areas 13 1,107 48 3,229 37 3,767
-- ------ --- ------ --- -------
Total 36 $3,153 109 $9,753 112 $11,467
== ====== === ====== === =======
</TABLE>
The Company's single family home inventory as of December 31, 1996
consisted of three completed units, none of which were under contract as of
December 31, 1996. As of December 31, 1995, the Company had pending sales
contracts of approximately $2.7 million representing 30 units. The decline in
pending sales contracts in 1996 corresponds to the Company's exit from its
single family home sales operations.
OTHER BUSINESSES
- ----------------
The Company has entered into several contracts to provide development
and/or administrative management services. These services are to be provided to
certain joint ventures in which the Company has a joint venture interest. The
Company will receive a fee equal to 4% of the development costs as defined in
the Sunset Lakes joint venture agreement. The Company is entitled to receive
compensation of 2% of all project revenues, as defined in the Panther Creek
development agreement, for development and marketing services provided to this
venture. The Company entered into a development management agreement with the
purchaser of its Julington Creek Plantation project and is entitled to receive
1% of all gross revenues as defined in the agreement. Country Lakes, Ltd. will
pay the Company 3.5% of all gross revenues for services to the venture including
day-to-day management, development, marketing, and sales coordination. The
Company's income from services will be deferred to the extent of the Company's
ownership percentage. Any income deferred will be recognized as the venture
recognizes sales revenue from third parties.
SPECIAL OPPORTUNITIES. The Company will, under certain circumstances,
undertake special opportunities outside its normal operations. For example, in
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 up to $10 million. As of March 29, 1997, the Company had
contributed approximately $6.0 million to the Ya Dong JV. The Company is
actively pursuing financing for the project. Such financing is anticipated to
include a development loan for the first phase of residential and industrial
development, and may also include a sale of a portion of the equity held by
either or both
23
<PAGE>
of the JV partners. The Company does not anticipate making any material capital
contributions in 1997. 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.
Consequently, the Company's net investment in the joint venture is carried at
$0.
RECEIVABLE PORTFOLIO MANAGEMENT. The Company is actively engaged in the
management and collection of a portfolio of homesite contracts receivable
originated by the Predecessor Company's homesite installment sales program (the
"Homesite Contracts Receivable"). The Company collected for its own account a
total of approximately $7.0 million in principal and interest payments on the
Homesite Contracts Receivable during 1996. As of December 31, 1996, the
portfolio of Homesite Contracts Receivable had a remaining face value of $11.8
million. In January 1997, the Company closed on a $7.5 million financing of a
portion of its contracts receivable portfolio. See Notes 3 and 9 of the Notes to
Consolidated Financial Statements. The Company also services a land mortgage
receivable portfolio with a face value of $34.2 million as of December 31, 1996,
which was generated in connection with the Company's Tract sales line of
business. In addition, the Company also services approximately $533,000 of
Homesite Contracts Receivable for others.
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.
Pursuant to certain reorganization-related agreements between the
Predecessor Company and the State of Florida, Department of Business Regulation,
Division of Florida Land Sales, Condominiums and Mobile Homes (the "Division of
Florida Land Sales") concerning homesite purchasers who have received or will
receive deeds in connection with the Predecessor Company's homesite sales
program, the Company established a series of trust accounts (collectively, the
"Utility Trusts") and a "Utility Reserve" to provide additional Buildable
Homesites to satisfy the Company's obligations to provide a Buildable Homesite
to such purchasers when they are ready to construct a house. The Utility Trusts
were funded with cash, shares of Atlantic Gulf's common stock and notes based on
estimates of the costs of future improvement obligations. Beginning in 1994, the
amount of cash, securities and Buildable Homesites set aside for such purposes
was subject to review and adjustment. In December 1996, pursuant to a review of
the Utility Trusts, 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 recovered from these trust accounts. See Notes 4 and 10 of the
Notes to Consolidated Financial Statements. 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
24
<PAGE>
trusts and reserves is more than sufficient to meet all future improvement
obligations required under the terms of the settlements.
ENVIRONMENTAL SERVICES. Environmental Quality Laboratory, Inc. ("EQ
Lab"), a wholly owned subsidiary of the Company based in Charlotte County,
Florida, is a full service ecological consulting firm and laboratory. It
performs water and soil testing and environmental assessments for the Company
and third parties, including both governmental and private entities.
Characteristic services performed by EQ Lab for clients include acting as the
primary surface water laboratory for three regional Water Management Districts
(government) and performing environmental chemistry analyses for the Florida
Concrete Products Association (industry), the Florida Sugar Cane Growers Co-op
(agriculture) and numerous marina projects (development). EQ Lab also provides
services to the Company and clients in the areas of hazardous substance testing
and site remediation, endangered species management plans and wetlands
identification and mitigation. EQ Lab's capabilities permit the Company to
quickly and cost-effectively assess and address environmental concerns involving
its existing real property assets and other properties it may seek to acquire.
An analysis of revenues recorded by Environmental Quality Laboratory,
Inc. are as follows:
1996 1995 1994
---- ---- ----
Revenues from
affiliated parties $ 109,709 $ 197,595 $ 175,913
Revenues from
unaffiliated parties 1,065,550 1,121,724 1,022,339
---------- ---------- ----------
Total Revenues $1,175,259 $1,319,319 $1,198,252
========== ========== ==========
UTILITY OPERATIONS. During the Reorganization Proceedings (see
"History" below) and the formulation of its new business plan, the Company
determined that utility operations were not part of its core business and that
its systems should be sold in due course to provide working capital to the
Company. Over the past six years, the Company's seven largest utility systems
were acquired by governmental entities, one of which was the subject of
condemnation proceedings until a settlement was reached in March 1996. See Notes
7 and 12 of the Notes to Consolidated Financial Statements. During 1996, the
Company disposed of its two remaining systems. 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 and in June 1996, the Company sold its Julington Creek
utility system for $6.0 million resulting in a gain of $696,000. As of December
31, 1996, the Company had no remaining interest in any utility assets.
25
<PAGE>
The table below summarizes significant utility financial and operating
information for the three years ended December 31, 1996.
YEAR ENDED DECEMBER 31,
-----------------------
(dollars in thousands)
1996 1995 1994
---- ---- ----
Operating revenues $1,004 $2,328 $2,886
Operating income(1) $ 289 $ 205 $ 619
Plant and equipment
(at year end)(2 $ - $9,953 $9,659
Total connections
(at year end) $ - 3,184 4,272
- ---------------
(1) Operating income represents income before taxes and interest
expense, and excludes other income and expense items.
(2) Net of contributions in aid of construction and accumulated depreciation.
OTHER OPERATIONS. Other operations consist primarily of the leasing of
non-residential acreage for pasture and farm use and the sale of excess fill
dirt from Company-owned property.
Item 3. Legal Proceedings
-----------------
A. CONDEMNATION PROCEEDINGS INVOLVING GENERAL DEVELOPMENT UTILITIES,
INC. AND RELATED PROCEEDINGS
--------------------------------------------------------------------
ATLANTIC GULF COMMUNITIES CORPORATION, ET AL. V. LOFTUS, ET AL., Case
No. 94-1931 CA (Charlotte Cty. Cir. Ct.). In December 1994, Atlantic Gulf and
GDU(all references herein to "GDU" are to General Development Utilities, Inc., a
wholly owned subsidiary of Atlantic Gulf Communities Corporation) filed a
declaratory judgement action in the Circuit Court for the Twentieth Judicial
Circuit in and for Charlotte County against a defendant class based upon a
demand made upon the Company by Richard D. Loftus and others for a portion of
the proceeds from the Charlotte County eminent domain case entitled CHARLOTTE
COUNTY, ET AL. V. GDU, ET AL., Case No. 90-936 (Charlotte Cty. Cir. Ct.) in
which the Charlotte County Circuit Court entered a stipulated Final Judgment
setting full and complete compensation to Atlantic Gulf and GDU for certain
water and wastewater systems taken by Charlotte County in June 1991 totalling
$110 million, $65 million of which was paid as a good faith deposit at the time
of the taking and the balance of which was paid in December of 1994. The demand
made upon the Company was based upon the theory that there exists a class of
property owners in Charlotte County, Florida who have an interest in the
proceeds from the condemnation proceeding because of "contributions in aid of
construction." The case has been dormant as no rulings have been made by the
Court and discovery has not begun in any meaningful way. The Company believes,
based on the advice of counsel, that the defendants' claim has no merit under
Florida law. The Company intends to vigorously pursue the class action suit for
declaratory judgement, seeking an order of the Court that the class members have
no interest in the proceeds from the Charlotte County condemnation case.
26
<PAGE>
C. Other Litigation
----------------
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
------------------------------------------------------------------------
Other Operations
----------------
Net income from other operations increased $5.4 million in 1996
compared to 1995 due to an increase in other income, partially offset by a
decrease in interest income.
Other operating revenues and expenses decreased in 1996 compared to
1995 primarily due to the absence of revenues and expenses from Florida Home
Finders Inc. (FHF), a wholly-owned subsidiary providing property management and
real estate brokerage services, sold on March 31, 1995 and Longwood Utilities,
Inc. ("Longwood"), a wholly-owned subsidiary sold in July 1995 and to a
reduction in revenues and expenses from the Port LaBelle utility system sold in
February 1996 and the Julington Creek utility system sold in June 1996.
Interest income decreased in 1996 compared to 1995 primarily due to
adjustments associated with the Company's land mortgage receivable portfolio,
including an adjustment of the unamortized interest rate valuation discount in
December 1995, and to a lower average balance of contracts receivable during the
periods under review.
Other income in 1996 included a $4.1 million gain due to a reduction in
the Company's utility connections reserve in conjunction with the Company's
annual review of certain reorganization items. The Company also recognized a
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 -
Mortgages, Notes, and Other Receivables). For a further explanation of these
other income items, please see Note 9 - Other Liabilities and Note 12 -
Nonrecurring and Other Items of the Notes to Consolidated Financial Statements.
Other income in 1996 also included a gain of approximately $4.1 million on the
$18.75 million settlement in March 1996 with the City of Port St. Lucie
regarding litigation pursuant to condemnation proceedings associated with the
taking of the Company's Port St. Lucie system. Additionally, other income in
1996 consisted of a gain of $686,000 on the sale of the Company's Port LaBelle
utility system which was sold in February 1996 for $4.5 million and a gain of
$696,000 on the sale of the Company's Julington Creek utility system sold in
June 1996 for $6.0 million. Other income of $2.6 million in 1995 included a $2.4
million gain on the sale of FHF (see Item 3. LEGAL PROCEEDINGS and Note 12 of
the Notes to Consolidated Financial Statements) and a $219,000 gain on the sale
of Longwood which was sold in July 1995 for $850,000. The majority of the other
income items are adjustments to reorganization reserves that are reviewed and
adjusted on an annual basis. These adjustments are generally nonrecurring,
infrequent, and unusual.
PART III
Item 10. Directors And Executive Officers Of The Registrant
--------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Atlantic Gulf's directors and officers, and persons who
own more than 10% of a registered class of Atlantic Gulf's equity securities
("10% Stockholders"), to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
Atlantic Gulf. Directors, officers and 10% Stockholders are required by SEC
regulation to furnish Atlantic Gulf with copies of all Section 16(a) forms they
file. Atlantic Gulf assists its directors and officers in preparing their
Section 16(a) forms. Each of the following
27
<PAGE>
filed a late Form 3 during 1996: J. Thomas Gillette, III, Marcia H. Langley, and
Lawrence B. Seidman. Each of the following filed a late Form 5 with respect to
stock options granted in July 1996: Callis N. Carleton, Jay C. Fertig, John H.
Fischer, J. Thomas Gillette, III, Thomas W. Jeffrey, Marcia H. Langley, Kevin M.
O'Grady, and Kimball D. Woodbury.
Except as set forth above, to Atlantic Gulf's knowledge, based solely
on a review of the copies of such reports furnished to Atlantic Gulf and written
representations that no other reports were required, with respect to 1996,
Atlantic Gulf's directors, officers and 10% Stockholders complied with all
applicable Section 16(a) filing requirements.
Item 11. Executive Compensation
----------------------
The following table, together with the footnotes thereto, sets forth
summary information concerning compensation paid by Atlantic Gulf with respect
to 1996, 1995 and 1994 to each of its five executive officers on December 31,
1996 who were Atlantic Gulf's most highly compensated executive officers in
1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ---------------------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) UNDERLYING OPTIONS(#) COMPENSATION(5)
------------------ ---- ------ ----- --------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Rutherford ........... 1996 $400,000 $295,000 $ 0 0 $ 3,183
President and 1995 350,000 230,000 0 50,000 2,288
Chief Executive Officer 1994 350,000 200,000 0 112,500 924
Jay C. Fertig ................. 1996 70,000 329,777(2) 0 10,000 3,946
Senior Vice President 1995 70,000 152,992(2) 0 10,000 1,922
1994 70,000 73,573(2) 0 10,000 1,185
Thomas W. Jeffrey ............. 1996 175,000 85,000 0 20,000 3,403
Executive Vice President 1995 175,000 55,220 0 40,000 2,616
and Chief Financial Officer 1994 155,288 52,250 0 30,000 981
Brian A. McLaughlin(3) ........ 1996 250,000 618,907(2) 24,000 0 2,250
President-Atlantic Gulf 1995 110,577 66,887(2) 24,138 0 0
Land Company
Kevin O'Grady(3) .............. 1996 100,000 168,914(4) 12,000 5,000 0
Vice President 1995 42,433 50,000(2) 9,274 0 0
</TABLE>
- -----------------
(1) Other Annual Compensation for Mr. McLaughlin included $20,413 for
relocation expenses in 1995. While the named officers receive certain
prerequisites, except as stated herein such prerequisites did not exceed
the lesser of $50,000 or 10% of any such officer's salary and bonus for
any of the periods presented.
(2) The bonus amounts for Messrs. Fertig, McLaughlin and O'Grady represent
commissions.
(3) Messrs. McLaughlin and O'Grady joined Atlantic Gulf in July 1995.
(4) The bonus amount for Mr. O'Grady in 1995 included commissions of $153,914.
(5) Represents amounts contributed on the officer's behalf by Atlantic Gulf to
its 401(k) plan.
28
<PAGE>
STOCK OPTIONS
Atlantic Gulf's Employee Stock Option Plan provides for the grant of
options with respect to Common Stock.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996 FISCAL YEAR
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) FISCAL YEAR PRICE DATE PRESENT VALUE(2)
---- ------------- ------------------ --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
J. Larry Rutherford...... 0 -- $5.875 7/17/06 $2.72
Jay C. Fertig............ 10,000 9.8% 5.875 7/17/06 2.72
Thomas W. Jeffrey........ 20,000 19.5% 5.875 7/17/06 2.72
Brian A. McLaughlin...... 0 -- -- -- --
Kevin O'Grady............ 5,000 4.9% 5.875 7/17/06 2.72
</TABLE>
- ---------------
(1) All options vest 40% two years from the date of grant and 20% on each of
the three subsequent anniversaries of the date of grant.
(2) The grant date present values are calculated based on the "risk free"
Black-Scholes model. The assumptions used in the calculations include an
expected volatility of .418, a rate of return of 6.6%, no dividend yield
and a time to exercise of five years.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END(1)
ON VALUE ------------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Rutherford ..... 0 $0 162,500 112,500 $0 $0
Jay C. Fertig ........... 0 0 14,000 26,000 0 0
Thomas W. Jeffrey ....... 0 0 46,000 74,000 0 0
Brian A. McLaughlin ..... 0 0 0 0 0 0
Kevin O'Grady ........... 0 0 0 5,000 0 0
</TABLE>
- ---------------
(1) Represents the different between the fair market of the Common Stock
subject to the options, based on the closing price of $4.3125 for the
Common Stock on December 31, 1996, and the exercise prices of the
options.
29
<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: September 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, September 16, 1997
J. Larry Rutherford President and Chief
Executive Officer,
Director
/s/ Callis N. Carleton
- ----------------------- Vice President and September 16, 1997
Callis N. Carleton Controller (Principal
Accounting Officer)
30
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
- ----------------------- Director September __, 1997
Lee Neibart
/s/ Ricardo Koenigsberger
- ------------------------- Director September 15, 1997
Ricardo Koenigsberger
/s/ Gerald N. Agranoff
- ------------------------- Director September 11, 1997
Gerald N. Agranoff
/s/ James M. DeFrancia
- ------------------------- Director September 12, 1997
James M. DeFrancia
/s/ Charles K. MacDonald
- ------------------------- Director September 13, 1997
Charles K. MacDonald
31
<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:
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 --
Miscellaneous 3,789 907 715
--------- --------- ---------
Total revenues 165,287 113,352 105,962
--------- --------- ---------
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 1,506 2,392 2,638
--------- --------- ---------
Total costs and expenses 177,838 133,948 104,881
--------- --------- ---------
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)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<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
generating approximately $115 million of cash available for
debt service in 1997 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 5); 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 sold approximately $9.3 million of mortgage
receivables to the First Bank of Boston (the "Bank") for approximately
$7 million. If the Bank receives the principal and interest payments in
accordance with the individual mortgage terms and/or the Company
replaces or repurchases any loans that enter into default and the Bank
receives a stated return on the invesment in the portfolio ($7
million), the portfolio will have a residual balance that the Company
can repurchase on favorable terms. The estimated balance of the
portfolio after repurchase is $3.2 million. In the event of a default
by a mortgagee, the Company is required to repurchase or replace the
receivable, however, the Bank's only remedy if the Company fails to do
so is to terminate the Company's purchase
F-15
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
option of the residual balance of the portfolio. The proceeds were used
to reduce corporate debt and to fund ongoing operations.
The First Bank of Boston transaction was recorded as a sale and not as
a financing. The transaction was recorded as a sale because (1) the
mortgages, although serviced by the Company, have been assigned and the
notes delivered to the purchaser, (2) the Bank has the right to sell
the mortgages, and (3) the Company does not have effective control over
the mortgages through an agreement that both entitles and obligates the
Company to repurchase or redeem the mortgages before their maturity.
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 sales 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).
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
<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> 165,287
<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>
