SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 59-0720444
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
MIAMI, FLORIDA 33133-5461
- -------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 859-4000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
There are 9,721,720 shares of the Registrant's Common Stock outstanding as of
May 12, 1997.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
No.
----
PART I. - FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and December 31,
1996 1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Cash and cash equivalents $ 2,458 $ 7,050
Restricted cash and cash equivalents 6,004 6,034
Contracts receivable, net 8,773 9,649
Mortgages, notes and other receivables, net 55,170 63,800
Land and residential inventory 146,485 153,417
Property, plant and equipment, net 2,802 2,911
Other assets, net 25,153 20,532
--------- ---------
Total assets $ 246,845 $ 263,393
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities $ 9,322 $ 16,914
Customers' and other deposits 5,945 5,483
Other liabilities 13,267 15,393
Notes, mortgages and capital leases 169,145 169,215
--------- ---------
197,679 207,005
--------- ---------
Stockholders' equity
Common stock, $.10 par value; 15,665,000
shares authorized; 9,807,997 and
9,795,642 shares issued 981 980
Contributed capital 122,176 122,123
Accumulated deficit (67,982) (60,706)
Minimum pension liability adjustment (6,000) (6,000)
Treasury stock, 86,277 shares, at cost (9) (9)
--------- ---------
Total stockholders' equity 49,166 56,388
--------- ---------
Total liabilities and stockholders' equity $ 246,845 $ 263,393
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
<S> <C> <C>
Revenues: 1997 1996
-------- --------
Real estate sales:
Homesite $ 2,550 $ 14,598
Tract 6,664 5,745
Residential 7,070 2,870
-------- --------
Total real estate sales 16,284 23,213
Other operating revenue 593 1,133
Interest income 1,372 1,341
Other income:
Reorganization reserves 429 1,267
Other income -- 4,820
-------- --------
Total revenues 18,678 31,774
-------- --------
Costs and expenses:
Cost of real estate sales:
Homesite 1,988 10,919
Tract 6,155 4,703
Residential 5,316 2,175
-------- --------
Total cost of real estate sales 13,459 17,797
Selling expense 2,129 2,552
Other operating expense 330 699
Other real estate costs 2,906 4,257
General and administrative expense 2,200 3,130
Depreciation 184 249
Cost of borrowing, net of amounts capitalized 4,035 3,288
Other expense 711 207
-------- --------
Total costs and expenses 25,954 32,179
-------- --------
Loss before extraordinary item (7,276) (405)
Extraordinary gain on extinguishment of debt -- 3,770
-------- --------
Net income (loss) $ (7,276) $ 3,365
======== ========
Loss before extraordinary item per common share $ (.75) $ (.04)
======== ========
Net income (loss) per common share $ (.75) $ .35
======== ========
Weighted average common shares outstanding 9,722 9,733
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,276) $ 3,365
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,072 1,212
Gain from utility condemnations or sales -- (4,846)
Extraordinary gain from extinguishment of debt -- (3,770)
Other (income) expense 81 (231)
Reorganization items (175) (597)
Other net changes in assets and liabilities:
Restricted cash 30 1,787
Receivables (2,951) 13,483
Land and residential inventory 6,956 8,029
Other assets (4,999) (4,242)
Accounts payable and accrued liabilities (7,404) (4,571)
Customer deposits 462 (1,320)
Other liabilities (215) (526)
Other, net -- (11)
-------- --------
Net cash provided by (used in) operating activities (14,419) 7,762
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (75) (48)
Proceeds from utility system sale -- 1,244
Funds withdrawn from utility trust accounts 12,109 --
-------- --------
Net cash provided by investing activities 12,034 1,196
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 52,857 15,935
Repayments under credit agreements (53,461) (23,935)
Principal payments on other liabilities (1,603) (2,232)
Net cash used in financing activities -------- --------
Net cash used in financing activities (2,207) (10,232)
-------- --------
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period (4,592) (1,274)
Cash and cash equivalents at end of period 7,050 3,560
-------- --------
$ 2,458 $ 2,286
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized
$ 2,483 $ 4,625
======== ========
Reorganization item payments
$ 1,644 $ 2,428
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(unaudited)
(1) The March 31, 1997 financial statements are unaudited and subject to
year-end adjustments. In management's opinion, the interim financial
statements reflect all adjustments, principally consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations. Results for interim periods are not
necessarily indicative of results for the full year. For a complete
description of the Company's accounting policies, see "Notes to
Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. Certain prior
year amounts have been reclassified to conform with the 1997
presentation.
(2) The net income (loss) per common share is based on the weighted average
number of shares of common stock outstanding during the periods. The
effect of any outstanding warrants and options to purchase common stock
on the per share computation was anti-dilutive or not material during
the periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when the
related asset is sold. Capitalized interest was $1,275,000 and
$1,892,000, for the three months ended March 31, 1997 and 1996,
respectively.
(4) Revenue from the sale of residential units other than Regency Island
Dunes ("Regency") condominium units is recognized when the earnings
process is complete. Revenue from the sale of Regency condominium units
is recognized using the percentage-of-completion method. Earned revenue
is based on the percentage of costs incurred to date to total estimated
costs to be incurred. This percentage is then applied to the expected
revenue associated with units that have been sold to date. Revenue from
the sale of land is recognized when the cash received, as a percentage
of the sales price, is at least 20% for land sales other than retail
land sales and 10% for retail land sales, the earnings process is
complete and the collection of any remaining receivable is reasonably
assured.
(5) The Company has made an estimate of Available Cash, as defined in the
Company's loan agreements, at June 30, 1997, and has determined, based
on this estimate, that the Company will not have any Available Cash
requiring it to make any portion of the interest payments on the Cash
Flow Notes for the six-month period commencing January 1, 1997 and
ending June 30, 1997. In addition, the Company did not have any
Available Cash requiring it to make any interest payments for the
twelve month period ended December 31, 1996. Interest on the Cash Flow
Notes is noncumulative. Therefore, the Company has not recorded
interest expense associated with the Cash Flow Notes during the three
months ended March 31, 1997 and 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources."
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(unaudited)
(6) In January 1997, pursuant to the Company's 1996 Non-Employee Directors'
Stock Plan, the Company issued 12,355 shares of Atlantic Gulf's common
stock to the Non-Employee Directors at a price of $4.3125 per share for
the first quarter of 1997.
(7) The Company and AP-AGC, LLC ("Apollo") entered into an Amended and
Restated Investment Agreement dated as of February 7, 1997, amended as
of March 20, 1997, and amended and restated as of May 12, 1997. The
Company, certain of its subsidiaries, and Apollo entered into a Secured
Note Agreement dated as of February 7, 1997, and amended and restated
as of May 12, 1997. Apollo, a Delaware limited liability company, is an
affiliate of Apollo Real Estate Investment Fund II, L.P. ("Apollo Fund
II"), a private real estate investment fund, the general partner of
which is Apollo Real Estate Advisors II, L.P., a New York-based
investment fund.
5
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------
CURRENT BUSINESS
- ----------------
Atlantic Gulf Communities Corporation is a Florida-based real estate
development and asset management company. The Company's primary lines of
business are acquisition, development and sale of new subdivision and scattered
developed homesites, sale of land tracts and residential construction and sales.
Additional lines of business which contribute to the Company's overall
operations include portfolio management of mortgages and contracts receivable
and environmental services.
The Company acquires and develops real estate to: (i) enhance the value
of certain properties, (ii) maintain a continuing inventory of marketable tracts
and (iii) supply finished homesites to builders in Florida's fastest growing
markets. The Company's acquisition and development activities are comprised of
four primary functions: business development, planning, community development
and residential construction. See Item 1. BUSINESS in the Company's 1996 Annual
Report on Form 10-K for a more detailed description of the Company's current
business.
BUSINESS PLAN
- -------------
The Company's goal is to produce superior returns for stockholders by
liquidating predecessor assets, paying off debt, 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,
without the exposure entailed in carrying a substantial inventory of land.
Predecessor assets are those real estate assets inherited by the Company from
its predecessor company and consist of tracts and scattered homesites located in
secondary markets throughout Florida and in one community in Tennessee.
The Company's business plan is centered on its three principal lines of
business: (i) sales of finished homesites to 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.
The Company is also actively marketing predecessor assets on a bulk
sale basis as well as on an individual tract/lot basis through the Company's
Atlantic Gulf Land Company. The Company currently has approximately $26.4
million in pending contracts and letters of intent on predecessor assets. There
are no assurances that the above-mentioned negotiations, pending contracts and
letters of intent will result in material sales or in material sales at prices
which, in the aggregate, equal the Company's book value in the properties sold.
See Item 1. BUSINESS in the Company's 1996 Annual Report on Form 10-K for
additional information on the Company's business plan.
6
<PAGE>
This Quarterly 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 Quarterly 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 sufficient cash
flows from operations to fund capital expenditures and debt service; (c)
unanticipated capital expenditures, including costs associated with real estate
development projects; (d) unanticipated costs, difficulties or delays in
completing or realizing the intended benefits of development projects; (e)
adverse changes in current financial markets and general economic conditions,
including interest rate increases; (f) adverse changes in current real estate
markets and the real estate industry; and (g) actions by competitors.
7
<PAGE>
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
------------------------------------------------------------
The Company's results of operations for the three months ended March
31, 1997 and 1996 are summarized by line of business, as follows:
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
---------------------------------------------------
Three Months Ended March 31, 1997
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $2,550 $6,664 $7,070 $ $ $ $16,284
Other operating revenues 10 583 593
Interest income 1,118 254 1,372
Other income:
Reorganization reserves 267 162 429
Other income -
- ------------------------------------------------------------------------------------------------------------------------
Total revenues 2,560 6,664 7,070 1,968 416 18,678
- ------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 1,988 6,155 5,316 13,459
Selling expense 911 803 407 8 2,129
Other operating expense 330 330
Other real estate costs:
Property tax, net 911 911
Other real estate overhead 363 344 23 188 657 420 1,995
General and administrative expense 2,200 2,200
Depreciation 4 15 2 29 134 184
Cost of borrowing, net 4,035 4,035
Other expense 96 175 440 711
- ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,266 7,317 5,748 643 840 8,140 25,954
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (706) $ (653) $1,322 $1,325 $ (840) $(7,724) $(7,276)
========================================================================================================================
</TABLE>
8
<PAGE>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
---------------------------------------------------
Three Months Ended March 31, 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $14,598 $5,745 $2,870 $ $ $ $23,213
Other operating revenue 1,133 1,133
Interest income 814 527 1,341
Other income:
Reorganization reserves 1,267 1,267
Other income 4,820 4,820
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 14,598 5,745 2,870 6,767 1,794 31,774
- ------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 10,919 4,703 2,175 17,797
Selling expense 1,385 643 524 2,552
Other operating expense 699 699
Other real estate costs:
Property tax, net 10 1,429 1,439
Other real estate overhead 550 495 422 251 584 516 2,818
General and administrative 3,130 3,130
Depreciation 9 18 12 107 103 249
Cost of borrowing, net 3,288 3,288
Other expense 12 195 207
- ------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 12,875 5,859 3,133 1,067 779 8,466 32,179
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 1,723 (114) (263) 5,700 (779) (6,672) (405)
Extraordinary gain on
extinguishment of debt 3,770 3,770
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,723 $ (114) $ (263) $5,700 $ (779) $(2,902) $ 3,365
==============================================================================================================================
</TABLE>
During the first quarter of 1997, the Company incurred a net loss of
$7.3 million compared to net income of $3.4 million during the first quarter of
1996 primarily due to a $5.7 million decrease in other income and a $3.8 million
extraordinary gain in the first quarter of 1996 resulting from the cancellation
of debt. The decrease in other income was principally attributable to a gain of
approximately $4.1 million in the first quarter of 1996 from an $18.75 million
settlement of the Port St. Lucie condemnation litigation.
9
<PAGE>
HOMESITE SALES
--------------
The net operating results from homesite sales decreased $2.4 million
during the first quarter of 1997 compared to the first quarter of 1996 primarily
due to a decrease in the number of homesites sold.
Revenues from homesite sales decreased $12.0 million in the first
quarter of 1997 from the first quarter of 1996. The decrease resulted from a 64%
decrease in the number of homesites sold and a 52% decrease in the average sales
price per homesite. The decrease in the average sales price was primarily due to
a change in the sales mix. The following table summarizes homesite activity for
the three months ended March 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- ------------------------------------
NUMBER OF AVERAGE NUMBER OF AVERAGE
LOTS REVENUE SALES PRICE LOTS REVENUE SALES PRICE
---------- ------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Subdivision homesite sales 67 $1,469 $21.9 384 $12,082 $31.5
Scattered homesite sales 177 1,081 6.1 285 2,516 8.8
--- ------ ----- --- ------- -----
244 $2,550 $10.5 669 $14,598 $21.8
=== ====== ===== === ======= =====
</TABLE>
The decrease in subdivision homesite sales is primarily due to two
sales in the first quarter of 1996 consisting of 193 homesites for $8.1 million
in Windsor Palms, a project located in southwest Broward County, Florida. There
were no sales in Windsor Palms in the first quarter of 1997, however, the
Company anticipates it will sell the remaining 102 lots in this project for
approximately $5.0 million during the remainder of 1997. In addition, there were
approximately $2.0 million of sales in the first quarter of 1996 in Julington
Creek Plantation, a project in Jacksonville, Florida, which was sold in its
entirety in June 1996. The decrease in the average sales price of subdivision
homesite sales is primarily due to the homesite sales in the first quarter of
1996 in Windsor Palms and Julington Creek Plantation which yielded average sales
prices of approximately $42,000 and $39,000, respectively.
Scattered homesite sales decreased in the first quarter of 1997
compared to the first quarter of 1996 due to decreases in volume and the average
sales price per homesite. These decreases are principally due to a $1.2 million
decrease in sales and a 30% decrease in the average sales price in the Company's
Cumberland Cove community in Tennessee. The decrease in sales in Cumberland Cove
is primarily due to timing as sales in this project are anticipated to increase
during the remainder of 1997. The decrease in the average sales price in
Cumberland Cove is primarily due to the mix of homesites sold. Scattered
homesite sales includes bulk homesite sales in secondary markets in Florida
which increased slightly in the first quarter of 1997 compared to the same prior
year period. The Company anticipates it will continue to supplement scattered
homesite sales volume in secondary markets through bulk homesite sales and
through the marketing activities of the Atlantic Gulf Land Company as part of
its plan to accelerate the disposition of assets in secondary real estate
markets in Florida.
As of March 31, 1997, the Company had approximately 569 total homesites
for approximately $12.6 million under contract and which are anticipated to
close in 1997. Of the 569 homesites under contract, 450 homesites totaling $12.2
million are in the Company's subdivision homesite projects of Lakeside Estates,
West Meadows and Sanctuary. Substantially, all of the Company's subdivision
10
<PAGE>
homesites currently under development are under "contract" for sale. As of March
31, 1996, the Company had approximately 1,827 total homesites under contract
totaling approximately $29.2 million.
The homesite sales gross margin percentages were 22.0% in 1997 compared
to 25.2% in 1996, which generally reflect targeted gross margins of 20% to 30%
for this line of business. Gross margin represents the difference between the
Company's real estate revenue and related cost of sales.
Homesite selling expense decreased primarily due to a decrease in
revenues. Homesite selling expense as a percentage of revenues increased from
9.5% in 1996 to 35.7% in 1997, primarily due to the decreased revenues over
which to spread fixed selling costs.
Homesite sales other real estate overhead decreased in the first
quarter of 1997 compared to the first quarter of 1996 primarily due to lower
overhead costs associated with managing the Company's subdivision homesite
projects in Florida's primary real estate markets.
TRACT SALES
-----------
The net operating results from tract sales decreased in the first
quarter of 1997 compared to the first quarter of 1996 despite an increase in
revenues, primarily due to lower tract sales gross margins in 1997.
Revenues from tract sales of $6.7 million in the first quarter of 1997
represented an increase of $919,000 or 16% compared to the first quarter of
1996. Tract sales acreages often vary significantly in size and revenues from
such sales vary from quarter to quarter depending on the timing and size of
individual sales. Due to the Company's plan to monetize the Company's
predecessor assets located in secondary markets, tract sales are expected to
continue to be a significant source of revenue for the Company in 1997. As of
March 31, 1997, there were pending tract sales contracts totaling approximately
$18.0 million which, subject to certain contingencies, are anticipated to close
in 1997. As of March 31, 1996, there were pending tract sales contracts totaling
approximately $29.7 million.
Tract sales gross margins are summarized as follows for the three
months ended March, 31:
<TABLE>
<CAPTION>
1997 1996
------------------------ -------------------------
TARGETED ACTUAL TARGETED ACTUAL
MARGINS MARGINS MARGINS MARGINS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 0% (2.7)% 5% -
Other tract acreage 5-10% 14.3% 20% 18.1%
</TABLE>
The targeted gross margin is lower for Port LaBelle agricultural
acreage as management has determined that approximately 20,000 acres of the Port
LaBelle agricultural property is not an integral part of the Company's long-term
business strategy. In order to accelerate the disposal of this property, the
sales value for this property was adjusted from a "retail" to a "wholesale"
basis, which reduced the targeted gross margin for this property. During the
first quarter of 1997 the Company sold 2,156 acres of this property for
approximately $2.5 million.
The actual gross margin in 1997 for other tract acreage was higher than
the targeted gross margin principally due to the mix of properties sold during
11
<PAGE>
the period. The targeted gross margins have been reduced primarily due to the
Company's plan to accelerate land sales in secondary real estate market
locations.
Tract sales selling expenses increased and other real estate costs
decreased in the first quarter of 1997 compared to the first quarter of 1996
primarily due to advertising and other marketing costs which were included in
other real estate costs in 1996 and are included in selling expenses in 1997.
RESIDENTIAL SALES
-----------------
The net operating results from residential sales, which includes single
family homes and condominiums, improved $1.6 million during the three months
ended March 31, 1997 compared to the corresponding prior year period principally
due to an increase in condominium revenues and profits from the Company's
Regency Island Dunes condominium project and a decrease in other real estate
overhead costs.
Residential sales are summarized as follows for the three months ended
March 31 (in thousand of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Condominium sales - Regency Island Dunes:
First Building $1,310 $ 910
Second Building 5,684 -
------ ------
Total condominium sales 6,994 910
Single family home sales 76 1,960
------ ------
$7,070 $2,870
====== ======
</TABLE>
The revenues and profits associated with Regency Island Dunes
condominium sales are recorded using the percentage of completion method. The
Regency Island Dunes condominium project consists of two 72-unit buildings. As
of December 31, 1995, the Company recorded 97% of the expected revenues and
profits on 61 units that were under contract in the first building as of
December 31, 1995 based on a construction completion percentage of 97%.
Condominium revenues of $910,000 in the first quarter of 1996 represent the
incremental revenue earned upon the completion of 49 of the 61 units in the
first quarter of 1996. The condominium revenues of $1.3 million in the first
building in 1997 represent revenue earned upon the closing of an additional four
units in 1997. As of March 31, 1997, 70 of the 72 units in the first building
have been sold and closed. As of December 31, 1996, the Company recorded 79% of
the expected revenues and profits on 56 units that were under contract in the
second building as of December 31, 1996 based on a construction completion
percentage of 79%. The revenues of approximately $5.7 million in the second
building in the first quarter of 1997 were derived from an increase in the
completion percentage from 79% as of December 31 1996 to 96% as of March 31,
1997 and to an additional eight units sold during the first quarter of 1997 for
a total of 64 units sold in the second building. 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 second quarter of 1997 and that all 72 units in the second building
will be sold and closed in 1997.
Single family home sales revenues decreased during the first quarter of
1997 compared to the first quarter of 1996 due a decrease in closings from 22 in
1996 to one in 1997. Closings decreased because the Company decided in mid-1995
to begin phasing out its single family home business in predecessor communities
and substantially completed the withdrawal in 1996. The Company may seek to
re-enter the single family home business in primary markets where this business
12
<PAGE>
would complement current or potential land development activities. As of March
31, 1997, the Company had two single family home residential units in inventory,
neither of which were under contract. As of March 31, 1996, the Company had six
single family home residential units under contract totalling $498,000.
Residential sales gross margins are summarized as follows for the three
months ended March 31:
1997 1996
---- ----
Condominiums 25.3% 46.4%
Single family homes (15.8)% 13.9%
The gross margin for condominiums in the first quarter of 1997 was
within the targeted gross margin of approximately 20% to 25%for this line of
business. The gross margin for condominiums in the first quarter of 1996 was
higher than the targeted gross margin primarily due to adjustments resulting
from the recording of the actual profits associated with 49 closings in the
first quarter of 1996 as compared to the estimated profits previously recorded.
The single family home gross margin in the first quarter of 1997 was
generated from one unit which was priced to sell as the Company has withdrawn
from this line of business.
Residential selling expense as a percentage of revenues decreased from
18.3% in 1996 to 5.8% in 1997 primarily due to closing costs incurred in the
first quarter of 1996 associated with the closing of 49 condominium units, the
revenues for which, had previously been recorded using the percentage of
completion method. The residential selling expenses percentage also decreased
due to increased revenues over which to spread fixed selling costs.
Other real estate overhead decreased in the first quarter of 1997
compared to the first quarter of 1996 primarily due to a $329,000 reduction in
overhead costs associated with the Regency Island Dunes condominium project,
most notably due to a reduction condominium association costs. In addition,
single family overhead costs decreased due to the phasing-out of this operation.
OTHER OPERATIONS
----------------
Net income from other operations decreased $4.4 million in the first
quarter of 1997 compared to the first quarter of 1996 primarily due to a
decrease in other income.
Other operating revenues and expenses decreased in the first quarter of
1997 from the same prior year period primarily due to the absence of revenues
and expenses from the Port LaBelle utility system sold in February 1996 and the
Julington Creek utility system sold in June 1996.
Interest income increased in the first quarter of 1997 from the
corresponding prior year period primarily due to a higher average balance of
land mortgages receivable in 1997 and to adjustments in the first quarter of
1996 associated with the land mortgages receivable portfolio, partially offset
by a lower average balance of contracts receivable during the periods under
review.
Other income of $267,000 in the first quarter of 1997 represents the
amortization of the Company's utility connections reserve. Other income in the
first quarter of 1996 included a gain of approximately $4.1 million on an $18.75
million settlement in March 1996 with the City of Port St. Lucie regarding
litigation pursuant to condemnation proceedings associated with the taking of
the Company's Port St. Lucie system. Also included in other income in the first
13
<PAGE>
quarter of 1996 was a gain of $695,000 on the sale of the Company's Port LaBelle
utility system which was sold in February 1996 for $4.5 million.
BUSINESS DEVELOPMENT
--------------------
Total business development expenditures were similar in the first
quarter of 1997 compared to the first quarter of 1996. Business development
expenditures consist primarily of costs associated with the pursuit of business
opportunities in primary market locations within Florida and other southeastern
United States locations.
Business development other expenses included $112,000 in the first
quarter of 1997 and $195,000 in the first quarter of 1996 representing the
Company's 50% share of the net loss of the Ocean Grove joint venture. The loss
resulted from pre-sales advertising and other selling and overhead costs.
ADMINISTRATIVE & OTHER
----------------------
The net loss from administrative & other activities increased $4.8
million in the first quarter of 1997 from the first quarter of 1996 principally
due to an extraordinary gain of $3.8 million in 1996 resulting from the
cancellation of debt and to a $1.1 million reduction in other income.
Interest income decreased in the first quarter of 1997 from the
corresponding prior year period primarily due to a decrease in short term
investment interest income.
Other income of $162,000 in the first quarter of 1997 and $1.3 million
in the first quarter of 1996 represented gains resulting from the resolution of
certain reorganization items. This process is expected to continue during the
remainder of the year with adjustments to be recorded as the final disposition
of various claims and other liabilities is concluded.
Property tax, net of capitalized property taxes decreased in the first
quarter of 1997 compared to the first quarter of 1996 primarily due to a
reduction of land inventory not under development. The decrease in inventory
under development corresponds to sales activity and to the completion of various
projects during the intervening period.
General and administrative expenses decreased approximately $1.0
million in the first quarter of 1997 compared to the first quarter of 1996
principally due to financial advisory and due diligence costs incurred in the
first quarter of 1996 associated with the Company's recapitalization efforts.
Cost of borrowing, net increased in the first quarter of 1997 compared
to the same period in 1996 primarily due to a $617,000 decrease in interest
capitalized to land inventory corresponding to the decrease in land under
development. During the three months ended March 31, 1997 and 1996, the Company
did not accrue interest on its Cash Flow Notes because of the absence of
Available Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES."
Other expense of $440,000 in the first quarter of 1997 represented a
loss on a transaction with First Bank of Boston recorded as a secured borrowing.
This transaction involved the transfer of $9.3 million of land mortgage
receivables to the First Bank of Boston in March 1997 for an initial cash
distribution of $7.0 million plus a residual interest in the portfolio. The
proceeds were used to reduce corporate debt and to fund ongoing operations.
14
<PAGE>
In February 1996, the Company recorded an extraordinary gain of
approximately $3.8 million due to the cancellation of approximately $1.9 million
of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow Notes. These
notes, held in the disputed claims reserve account, were in excess of the
requirements necessary to satisfy the Company's obligations in accordance with
the Company's plan of reorganization.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
As of March 31, 1997, the Company's cash and cash equivalents totaled
approximately $2.5 million. The Company also had restricted cash and cash
equivalents of $6.0 million, which consisted primarily of escrows for the sale
and development of real estate properties, funds held in trust to pay certain
bankruptcy claims and various other escrow accounts. Of the $4.6 million
decrease in cash and cash equivalents during the first quarter of 1997, $14.4
million was used in operating activities and $2.2 million was used in financing
activities, partially offset by $12.0 million provided by investing activities.
Cash used in operating activities includes approximately (i) $3.8
million for interest payments, (ii) $5.4 million for property tax payments,
(iii) $6.6 million for construction and development expenditures and (iv) $1.8
million of fees associated with the Company's refinancing and recapitalization
efforts. These uses were offset in part by net cash generated through real
estate sales and other operations.
Cash provided by investing activities consisted of $12.1 million of
funds released on January 2, 1997 from various utility trust accounts which were
funded by the Company during the reorganization proceedings. The terms of these
trusts require the Company to periodically assess the adequacy of the property
in these trusts. Pursuant to a review of these trusts in December 1996, it was
determined that approximately $12.1 million in cash and $6.2 million of notes
could be released from these trust accounts.
Cash used in financing activities includes $37.5 million of principal
payments on January 3, 1997 to repay in full the Company's Unsecured 12% Notes
and $1.6 million in principal payments related to the Company's deferred
property tax and Section 365(j) lien obligations arising out of the
reorganization proceedings. These payments were partially offset by net
borrowings of $18.1 million under the Reducing Revolving Loan with Foothill,
which were used along with the $12.1 million of excess funds from the various
utility trust accounts to repay the Unsecured 12% Notes. In addition, the
Company had net borrowings of $13.2 million associated with the financing of the
Company's mortgage receivables and net borrowings of $5.6 million on new project
financings.
The Company has, pursuant to a Revolving Loan Agreement dated as of
September 30, 1996 with Foothill Capital Corporation ("Foothill"), (i) a $20
million working capital facility maturing December 1, 1998 ("Working Capital
Facility"), and a $25 million reducing revolving loan maturing June 30, 1998
("Reducing Revolving Loan "), with principal reductions as set forth below.
Amounts under the Reducing Revolving Loan are available only when (i) the
Working Capital Facility is fully utilized, and (ii) the Company is in
compliance with, among other conditions, a "borrowing base" formula based on the
value of certain of the Company's assets. Amounts outstanding under the Working
Capital Facility bear variable interest at a rate equal to the variable interest
rate, per annum, announced by Northwest Bank of Minnesota, N.A., as its "base
rate" plus two percentage points. The Reducing Revolving Loan bears variable
interest at the "base rate" plus four percentage points. As of March 31, 1997,
the Working Capital Facility was fully drawn and there was $19.8 million
outstanding on the Reducing Revolving Loan. The Company and Foothill have
amended the Revolving Loan Agreement, effective as of March 31, 1997, pursuant
to which, among other things, the Company can borrow thereunder until June 30,
1997 up to $10 million in excess of the amount otherwise available under the
borrowing base formula, subject in any event to the maximum availability of $25
million under the Reducing Revolving Loan. Upon execution of the Revolving Loan
Agreement amendment, the Company paid a $1 million fee to Foothill. The
above-mentioned amendment also provides that as long as the Company's
indebtedness under the Foothill loan
15
<PAGE>
agreements is in excess of the aggregate amount the Company could otherwise
borrow under the borrowing base formula, the interest rates payable under the
Working Capital Loan, Reducing Revolving Loan and the Term Loan (as defined
below) will be increased by two percentage points.
The Company's remaining material obligations for 1997 include (i)
principal repayments on the Foothill debt up to $43.3 million as more fully
described below, and (ii) the final principal and interest payments on the
Company's Section 365(j) lien and deferred property tax liabilities totaling
$1.5 million which is due in the third quarter of 1997. The Company's 1997
business plan also contemplates full year expenditures for development,
construction and other capital improvements estimated at approximately $50
million, of which a substantial portion will require funding through individual
project development loans or joint venture arrangements, many of which are
already in place. If the Company is unable to obtain the capital resources to
fund these expenditures, the implementation of the Company's business plan will
be adversely affected, thus slowing the Company's expected revenue growth and
increasing the expected time necessary for the Company to achieve profitability.
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 has provided the Company with (I) an
extension to December 1, 1998 of the $20 million Working Capital Facility as
discussed above; (ii) a $40 million Term Loan at an interest rate of 15% per
annum, maturing June 30, 1998; and (iii) a Reducing Revolving Loan of up to $25
million maturing on June 30, 1998, as discussed above. At March 31, 1997, the
Company had outstanding the full $20 million under the Working Capital Facility
and approximately $19.8 million under the Reducing Revolving Loan. The Term Loan
requires principal repayments of one-third on each of June 30, 1997, December
31, 1997, and June 30, 1998. The commitment under the Reducing Revolving Loan
will also be reduced by one-third on each of June 30, 1997, December 31, 1997,
and June 30, 1998, and the Company will be required to repay on those dates any
amounts outstanding under the Reducing Revolving Loan in excess of the new
commitment amount.
The Company does not currently have sufficient liquid capital resources
to satisfy the up to $43.3 million of Foothill debt of which approximately $21.7
million is due on each of June 30, 1997, and December 31, 1997. However,
management believes that the Company, through a combination of sources as more
fully described below, will be able to obtain sufficient liquidity and capital
resources necessary to continue implementing its business plan and to satisfy
its debt obligations as they become due.
The Company's ongoing business plan is to continue to monetize its
non-core tract and scattered homesite assets ("Predecessor assets") to reduce
corporate debt. The Company made substantial progress in this regard as it sold
$55.6 million of tract and scattered homesite assets in 1996 and $7.7 million in
the first quarter of 1997. In addition, the Company currently has pending under
contract or letter of intent a combination of Predecessor asset sale
transactions which would generate, if consummated, approximately $26.4 million
of cash and notes. The transactions under contract are subject to a variety of
customary conditions, in some cases including a financing condition.
Transactions subject to a letter of intent are also subject to further
negotiation and documentation and there are no assurances that any particular
transaction under contract or letter of intent will be consummated.
As part of the effort to monetize the Predecessor assets pursuant to
its business plan, the Company is actively monetizing mortgage and note
receivables generated from the sale of Predecessor tracts and scattered
homesites. The Company raised approximately $17.8 million of cash proceeds in
1996 and an additional $14.6 million in the first quarter of 1997, and received
certain residual interests, from the sale or refinancing of mortgages or other
receivables generated from the sale of Predecessor real estate assets. These
cash proceeds, along with the net cash proceeds from Predecessor real estate
sales, were applied to
16
<PAGE>
the reduction of corporate debt and to fund ongoing operations. The Company
plans to continue to sell or finance mortgages and other receivables generated
from the future sale of Predecessor real estate assets going forward.
As previously disclosed by the Company in a current report on Form 8-K
dated February 13, 1997 and in an annual report on Form 10-k for the fiscal year
ended December 31, 1996, the Company executed an Investment Agreement Note
Agreement with AP-AGC, LLC, a Delaware limited liability company and an
affiliate of Apollo Real Estate Advisors II, L.P., a New York-based investment
fund ("Apollo"). Subject to the terms of the Investment Agreement and the
approval of certain charter amendments by the Company's stockholders, Apollo
would invest $25 million in new Series A 20% cumulative redeemable convertible
preferred stock of the Company (the "Series A Preferred Stock"). The Investment
Agreement also contemplates that the Company would seek the approval of its
stockholders of a charter amendment authorizing an additional $10 million of new
Series B 20% cumulative redeemable convertible preferred stock of the Company
(the "Series B Preferred Stock") to be made available to the Company's
stockholders in a rights offering (the "Series B Rights Offering"). The 20%
cumulative dividend rate on the Series A and Series B Preferred Stock would
accumulate unless declared and paid by the Company.
The Company expects that the Investment Agreement will be amended to
provide, among other things, that the amounts invested by Apollo (which will be
staged over a period of time, as appropriate investment projects are identified)
will be held by a new wholly owned special purpose subsidiary of the Company,
and invested in new real estate development projects. Apollo would have a first
lien over the assets and stock of such subsidiary securing the Company's
repurchase and redemption obligations in respect of the Series A Preferred
Stock.
The Company anticipates submitting the proposed charter amendments for
the authorization of the Series A and Series B Preferred Stock at the 1997
annual meeting of stockholders. If the stockholders approve the charter
amendments, the initial closing on the Series A Preferred Stock transaction
could occur in June 1997, and the $10 million Series B Rights Offering could
close in the third quarter of 1997. Pursuant to the Investment Agreement, as
Apollo purchases up to $25 million of Series A Preferred Stock, Apollo would
also receive, on a pro rata basis, warrants to acquire up to 5 million shares of
Company common stock. In addition to stockholder approval, the closings under
the Investment Agreement are also subject to the satisfaction of other
conditions, including the consent of Foothill.
The Company anticipates that the proceeds from the Series A Preferred
Stock closings would be available for new project acquisition and development
through the special purpose subsidiary described above) while the net proceeds
from the Series B Rights Offering would be available to the Company for general
corporate purposes, including the repayment of debt owed to Foothill.
The Company expects the above discussed amendments to the Investment
Agreement will among other things, also provide for warrants to purchase 2
million shares of the Company's common stock to be part of the Series B Rights
Offering, and a possible private placement by the Company, with financial
purchasers unaffiliated with Apollo, of newly issued common stock, additional
Series B Preferred Stock, and warrants to purchase additional common stock. The
gross proceeds to the Company from the private placement could be up to $20
million.
The closing under the Investment Agreement with Apollo and the private
placement and Series B Rights Offering are contingent upon a number of factors
which are not within the control of the Company, including shareholder approval
and receipt of the final approval of Foothill. There can be no assurance that
all of these conditions will be fulfilled or, to the extent that they may be
waived, waived by Apollo,
17
<PAGE>
Foothill or the private placement purchasers. For more detailed information
relating to the transactions described above, please refer to the Company's
proxy statement for its 1997 annual meeting, which will be mailed to
shareholders in the near future.
If the stockholders' approval is not obtained or the Series A Preferred
Stock transaction is not otherwise consummated, the Company will pursue other
alternatives to address its liquidity issues, and improve its financial
condition and liquidity, including the possibility of soliciting other
transactions similar to the transaction. If, however, the stockholders' approval
is not obtained or the Series A Preferred Stock transaction is not otherwise
consummated, under certain circumstances the Company will be required to pay a
$1 million fee to Apollo and the Company's $1 million commitment fee will be
forfeited; and if an alternative transaction is consummated within specified
time periods, the Company will be required to pay an additional $1 million fee
to Apollo.
Available Cash is defined in the Company's POR with respect to any
payment period (generally, any six-month period ending June 30 or December 31),
as the sum of all cash receipts (exclusive of borrowed money and certain
delineated cash items) less the sum of payments for operating expenses, all debt
payments (including repurchases of indebtedness), capital expenditures, tax
payments, payments to creditors under the plan of reorganization and creation of
reserves for working capital and other expenses for the next two payment
periods.
Pursuant to the Company's debt agreements, the Company must apply any
Available Cash (I) to the payment of interest due on the Company's unsecured
cash flow notes due December 31, 1998 ("Cash Flow Notes"); (ii) to payments of
outstanding amounts under the Working Capital Facility; and (iii) to repayments
of principal on the Cash Flow Notes. Under the Company's certificate of
incorporation, after all reorganization debt has been repaid, the Company must
pay mandatory dividends on its common stock in an amount equal to 25% of
Available Cash. (If, however, the Series Preferred Stock closing occurs, the
charter provision requiring mandatory dividends equal to 25% of available cash
will be eliminated.)
If there is no Available Cash on a payment date, the then current
interest on the Cash Flow Notes is not due or payable on that payment date or at
any time thereafter. Due to the necessity to establish reserves against future
mandatory debt, capital and operating expenditures, the Company did not have any
Available Cash to enable it to make payments on the Cash Flow Notes through
March 31, 1997. Accordingly, the Company did not accrue any interest on the Cash
Flow Notes during the three months ended March 31, 1997 and 1996. Also, based
upon the Company's existing debt obligations, its anticipated net cash flows and
its business plan, management does not anticipate the Company having Available
Cash in the foreseeable future.
18
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
FLORIDA HOME FINDERS, INC. In March, 1995, the Company sold Florida
Home Finders, Inc. ("Florida Home Finders") to the FHF Trust, owned by Ian R.
Law and Benjamin Schiff, for $3.5 million. It has been alleged in litigation
filed against Florida Home Finders that FHF Trust withdrew escrow deposits held
by Florida Home Finders for the benefit of tenant and owner clients and utilized
those funds to purchase a certificate of deposit. It is further alleged that the
certificate of deposit was pledged as security to County National Bank for a
personal loan to Messrs. Law and Schiff, and that a portion of the proceeds of
that loan were utilized to pay the Company approximately $2.0 million of the
amount due under the purchase money note given by FHF Trust in favor of the
Company at the time of the sale of Florida Home Finders. The Company had no
knowledge of the source of the payment.
Subsequent to the foregoing alleged events, the Florida Real Estate
Commission discovered that escrow deposits were missing from Florida Home
Finder's accounts and brought an action in St. Lucie County circuit court
seeking the appointment of a receiver for the property and business of Florida
Home Finders. STATE OF FLORIDA, DEPARTMENT OF BUSINESS AND PROFESSIONAL
REGULATION V. FLORIDA HOME FINDERS, INC. ET AL., Case No. 95-1092-CA 17 (St.
Lucie Cty. Cir. Ct.) A receiver was appointed for Florida Home Finders in
October 1995. In November 1995, the Company intervened in the receivership
proceeding. The receivers have sold the Florida Home Finders' assets (other than
litigation claims against third parties, which have been retained by the
receiver) to ALL FLORIDA PROPERTY MANAGEMENT, INC., a Florida corporation;
however the sales proceeds are being held by the receiver pending the court's
order directing disbursement.
In November 1995, the receiver filed a lawsuit against several parties,
including the Company, seeking a return and recovery of the missing escrow
deposits. SPIRE V. IAN R. LAW ET AL., Case No. 95-1300-CA 17 (St. Lucie Cty.
Cir. Ct.). The Company filed a motion to dismiss the complaint, contending that
the complaint failed to identify any knowledge, notice or wrongdoing on the part
of the Company. This case was voluntarily dismissed without prejudice on
February 6, 1997.
The Company tentatively agreed with the receiver on May 5, 1997 to a
settlement of all matters pending final documentation, the satisfaction of
certain conditions and court approval. The terms of the settlement, if
finalized, will not have a material, adverse financial effect on the Company.
REGENCY ISLAND DUNES. In connection with the construction of the
Regency Island Dunes Condominium Project in Jensen Beach, Florida, various
disputes have arisen between the Company's subsidiary, Regency Island Dunes,
Inc. ("Regency"), and the general contractor, Foley and Associates Construction
Company, Inc. ("Foley"), regarding completion of the first phase of the project
containing 72 units. As a result, Foley filed suit in the Circuit Court of St.
Lucie County under the caption of FOLEY AND ASSOCIATES CONSTRUCTION, INC. V.
REGENCY ISLAND DUNES, INC. AND ATLANTIC GULF COMMUNITIES CORPORATION, Case No.
96-1569-CA-03 (St. Lucie Cty. Cir. Ct.) alleging breach of the construction
contract, claims for lost profits and delay damages as well as various counts
claiming fraudulent transfers of funds from Regency to the Company. This case
was filed by Foley in addition to Foley's demand for arbitration before the
American Arbitration Association as required pursuant to the terms of the
construction contract between Regency and Foley. Regency has asserted
counterclaims for Foley's failure to properly staff the job and refusal to
perform corrective work which was performed at Regency's expense, all such sums
incurred by Regency would offset Foley's contract claim. The costs of corrective
work already incurred together with Regency's claims for delay damages and
penalties exceed Foley's claims for the unpaid contract balance. In addition, in
the case styled REGENCY ISLAND DUNES INC. V. FOLEY AND ASSOCIATES CONSTRUCTION
COMPANY, INC., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.), Regency filed
19
<PAGE>
its action to discharge the construction lien filed by Foley on the basis that
the lien claim was inflated and was recorded against units which had previously
been conveyed to third party purchasers as well as additional lands not included
within the construction contract between the parties. The preceding two cases
have been consolidated and partially stayed pending resolution of the contract
disputes in arbitration. In REGENCY ISLAND DUNES, INC. V. NATIONAL FIRE
INSURANCE COMPANY OF HARTFORD AND FOLEY AND ASSOCIATES CONSTRUCTION COMPANY,
INC., now refiled under Case No. 97-14075, U.S.D.C., Southern District of
Florida, Regency filed suit to recover damages against Foley's surety for
corrective work performed by Regency as well as various other claims for damages
asserted by Regency in the arbitration described above. In addition, based upon
a separate construction contract between Regency and Foley for the construction
of the second phase of the Regency Island Dunes Condominium Project, Foley filed
a demand for arbitration in March 1997 asserting breach of contract relating to
change orders, release of retainage and Foley's requests for extensions of time.
The dispute with Foley in connection with the second phase has escalated and
Foley has filed a claim of lien which includes retainage, overhead and
unauthorized change orders. The Company continues discussions with Foley to
resolve these matters. In the event the settlement discussions are unsuccessful,
the Company and Regency will vigorously defend the claims asserted by Foley and
aggressively pursue their claims against Foley and the surety.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
*(10.1) Utility Lot Trust Agreement, dated as of December 26,
1996, between Atlantic Gulf Communities Corporation and
the Division of Florida Land Sales, Condominiums, and
Mobile Homes, and Peninsula State Title, as Trustee.
*(10.2) Restated, Amended and Consolidated Trust Agreement,
dated as of December 26, 1996, amended as of December
30, 1996, between the State of Florida, Department of
Business Regulation, Division of Florida Land Sales,
Condominiums, and Mobile Homes, Atlantic Gulf
Communities Corporation and First Union National Bank of
Florida, as Trustee.
*(10.3) First Amendment to the Restated, Amended and
Consolidated Trust Agreement dated as of December 26,
1996, amended as of December 30, 1996.
(27) Financial Data Schedule.
- --------------------
* previously filed
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on February 13, 1997, pursuant
to Item 5, Other Events, reporting that the Company entered into an Investment
Agreement dated as of February 7, 1997 with Apollo.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
Date: October 7, 1997 /s/ THOMAS W. JEFFREY
-------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: October 7, 1997 /s/ CALLIS N. CARLETON
-------------------------------
Callis N. Carleton
Vice President and Controller
(Principal Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
*(10.1) Utility Lot Trust Agreement, dated as of December 26,
1996, between Atlantic Gulf Communities Corporation and
the Division of Florida Land Sales, Condominiums, and
Mobile Homes, and Peninsula State Title, as Trustee.
*(10.2) Restated, Amended and Consolidated Trust Agreement,
dated as of December 26, 1996, amended as of December
30, 1996, between the State of Florida, Department of
Business Regulation, Division of Florida Land Sales,
Condominiums, and Mobile Homes, Atlantic Gulf
Communities Corporation and First Union National Bank of
Florida, as Trustee.
*(10.3) First Amendment to the Restated, Amended and
Consolidated Trust Agreement dated as of December 26,
1996, amended as of December 30, 1996.
(27) Financial Data Schedule.
- --------------------
* previously filed
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on February 13, 1997, pursuant
to Item 5, Other Events, reporting that the Company entered into an Investment
Agreement dated as of February 7, 1997 with Apollo.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31,
1997 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000771934
<NAME> Gulf Atlantic Communities Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,462
<SECURITIES> 0
<RECEIVABLES> 63,943 <F1>
<ALLOWANCES> 0
<INVENTORY> 146,485
<CURRENT-ASSETS> 0 <F2>
<PP&E> 2,802 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 246,845
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 169,145
0
0
<COMMON> 981
<OTHER-SE> 48,185
<TOTAL-LIABILITY-AND-EQUITY> 246,845
<SALES> 16,284
<TOTAL-REVENUES> 18,678
<CGS> 13,459
<TOTAL-COSTS> 15,918
<OTHER-EXPENSES> 6,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,035
<INCOME-PRETAX> (7,276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,276)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
<FN>
<F1> The values for Receivables and PP&E Represent Net Amounts.
<F2> The Company does not prepare a Classified Balance Sheet. Therefore, Current
Assets and Current Liabilities are not applicable.
</FN>
</TABLE>
