SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 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 11,769,418 shares of the Registrant's Common Stock outstanding as of
November 11, 1998.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998, CERTAIN MATTERS
DISCUSSED HEREIN CONTAIN FORWARD LOOKING STATEMENTS BASED ON MANAGEMENT'S
EXPECTATIONS REGARDING, AND EVALUATIONS OF CURRENT INFORMATION ABOUT, THE
COMPANY'S BUSINESS THAT INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO
FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER, BOTH ADVERSELY AND
MATERIALLY, FROM CURRENTLY ANTICIPATED RESULTS, INCLUDING, WITHOUT LIMITATION,
THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE CYCLICAL NATURE OF THE REAL
ESTATE MARKET IN FLORIDA, TEXAS, COLORADO AND OTHER SOUTHEAST U.S. PRIMARY
MARKETS; THE INDUSTRY AND INDUSTRY SEGMENT CONDITIONS AND DIRECTIONS; INTEREST
RATES; THE AVAILABILITY AND COST OF FINANCING REAL ESTATE ACQUISITIONS AND
DEVELOPMENTS; THE SALEABILITY OF PREDECESSOR ASSETS; CONSTRUCTION COSTS;
WEATHER; THE AVAILABILITY OF HIGH QUALITY REAL ESTATE PARCELS IN PRIMARY FLORIDA
AND OTHER U.S. MARKETS; THE AVAILABILITY AND COST OF MATERIALS AND LABOR;
CONSUMER PREFERENCES AND TASTES; ENVIRONMENTAL ISSUES; GOVERNMENTAL REGULATION;
COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE AND RELATED
FINANCING CONTINGENCIES AND RESTRICTIONS; MANAGEMENT LIMITATIONS; THE COMPANY'S
ABILITY TO CLOSE FINANCINGS OF NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO
THE COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO REFINANCE
EXISTING INDEBTEDNESS; LEGISLATION; RESOLUTION OF PENDING LITIGATION IN WHICH
THE COMPANY IS A DEFENDANT; THE SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT
DEVELOPMENT PROJECTS; AND THE COMPANY'S ABILITY TO SATISFY ALL OF NASDAQ'S
CONDITIONS FOR CONTINUED LISTING OF THE COMPANY'S SECURITIES ON THE NASDAQ
NATIONAL MARKET.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. - OTHER INFORMATION
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
</TABLE>
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(in thousands, except share amounts and par value)
September 30, December 31,
1998 1997
------------- ------------
Assets (unaudited)
------
<S> <C> <C>
Cash and cash equivalents $ 5,622 $ 9,188
Restricted cash and cash equivalents 1,124 1,713
Contracts receivable, net 4,526 6,336
Mortgages, notes and other receivables, net 32,499 34,910
Land and residential inventory 152,626 130,506
Property, plant and equipment, net 6,015 1,754
Other assets, net 18,133 18,664
--------- ---------
Total assets $ 220,545 $ 203,071
========= =========
Liabilities and Stockholders' (Deficit) Equity
----------------------------------------------
Accounts payable and accrued liabilities $ 14,949 $ 13,615
Other liabilities 8,251 10,046
Notes, mortgages and capital leases 146,690 132,408
--------- ---------
Total liabilities 169,890 156,069
--------- ---------
Redeemable Preferred Stock
Series A, 20%, $.01 par value, 2,500,000 shares authorized; 2,500,000 shares
issued, having a liquidation preference of $31,149, as of September 30, 1998;
2,326,500 shares issued, having a liquidation preference of $25,254, as of
December 31, 1997 28,640 22,378
Series B, 20%, $.01 par value; 2,000,000 shares authorized; 2,000,000 shares
issued, having a liquidation preference of $24,665 as of September 30, 1998 and
a liquidation preference of $21,307 as of December 31, 1997 23,052 19,306
--------- ---------
51,692 41,684
--------- ---------
Stockholders' (deficit) equity
Common stock, $.10 par value, 70,000,000 shares authorized; 11,915,349 and
11,607,526 shares issued as of September 30, 1998, and December 31, 1997, respectively 1,192 1,161
Contributed capital 121,094 128,930
Accumulated deficit (117,598) (119,052)
Accumulated other comprehensive loss (5,712) (5,712)
Treasury stock, at cost, 126,547 and 86,277 shares as of
September 30, 1998, and December 31, 1997, respectively (13) (9)
--------- ---------
Total stockholders' (deficit) equity (1,037) 5,318
--------- ---------
Total liabilities and stockholders' (deficit) equity $ 220,545 $ 203,071
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1998 and 1997
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
Revenues: 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate sales:
Core Homesite $ 2,858 $ 2,970 $ 8,005 $ 11,438
Core Tract 3,520 135 35,561 725
Core Residential - 826 - 10,021
Predecessor Homesite 647 2,007 2,578 5,621
Predecessor Tract 2,943 4,674 16,699 16,790
Other Operations - - - 76
-------- -------- -------- --------
Total real estate sales 9,968 10,612 62,843 44,671
Other operating revenues 1,507 632 2,922 2,077
Interest income 1,201 1,182 3,720 4,299
Other income 1,243 - 2,924 -
-------- -------- -------- --------
Total revenues 13,919 12,426 72,409 51,047
-------- -------- -------- --------
Costs and expenses:
Cost of real estate sales:
Core Homesite 2,419 2,573 6,826 10,609
Core Tract 841 106 26,272 590
Core Residential - 3,890 - 12,200
Predecessor Homesite 528 1,735 2,286 4,955
Predecessor Tract 2,568 4,265 15,967 15,474
Other Operations - - - 88
-------- -------- -------- --------
Total cost of real estate sales 6,356 12,569 51,351 43,916
Selling expense 1,491 1,930 4,711 5,948
Other operating expense 399 337 1,165 965
Other real estate costs 2,871 3,742 6,947 9,544
General and administrative expense 2,385 2,078 6,427 6,734
Depreciation 172 171 510 524
Cost of borrowing, net of amounts capitalized 1,215 2,389 4,246 11,123
Other expense 96 268 567 730
-------- -------- -------- --------
Total costs and expenses 14,985 23,484 75,924 79,484
-------- -------- -------- --------
Operating loss (1,066) (11,058) (3,515) (28,437)
-------- -------- -------- --------
Other income (expense):
Reorganization items 4,401 442 5,183 2,236
Miscellaneous 2 (185) (214) (546)
-------- -------- -------- --------
Total other income 4,403 257 4,969 1,690
-------- -------- -------- --------
Net income (loss) 3,337 (10,801) 1,454 (26,747)
======== ======== ======== ========
Less:
Accrued preferred stock dividends 2,658 1,319 7,518 1,381
Accretion of preferred stock to redemption amount 338 182 992 190
-------- -------- -------- --------
2,996 1,501 8,510 1,571
-------- -------- -------- --------
Net income (loss) applicable to common stock $ 341 $(12,302) $ (7,056) $(28,318)
======== ======== ======== ========
Basic and diluted earnings per common share:
Net income (loss) per common share $ .03 $ (1.07) $ (.61) $ (2.73)
======== ======== ======== ========
Weighted average common shares outstanding 11,729 11,512 11,597 10,372
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
(in thousands of dollars)
(unaudited)
Nine Months Ended
September 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,454 $ (26,747)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 3,478 4,047
Other income (577) (1,568)
Reorganization items 45 562
Land acquisitions (22,125) (19,745)
Other net changes in assets and liabilities:
Restricted cash 589 4,049
Receivables 3,996 19,446
Land and residential inventory 5 20,704
Other assets (2,052) (3,944)
Accounts payable and accrued liabilities 1,402 (4,124)
Other liabilities (1,027) (4,686)
--------- ---------
Net cash used in operating activities (14,812) (12,006)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment, net (4,771) (277)
Funds withdrawn from utility trust accounts - 12,109
--------- ---------
Net cash (used in) provided by investing activities (4,771) 11,832
--------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 64,854 78,670
Repayments under credit agreements (50,572) (120,932)
Principal payments on other liabilities - (2,498)
Proceeds from issuance of common stock - 10,000
Proceeds from issuance of preferred stock 1,735 29,965
--------- ---------
Net cash provided by (used in) financing activities 16,017 (4,795)
--------- ---------
Decrease in cash and cash equivalents (3,566) (4,969)
Cash and cash equivalents at beginning of period 9,188 7,050
--------- ---------
Cash and cash equivalents at end of period $ 5,622 $ 2,081
========= =========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 3,951 $ 6,634
========= =========
Reorganization item payments $ 45 $ 1,743
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(unaudited)
(1) The September 30, 1998 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, 1997, as amended by
that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
Securities and Exchange Commission (the "SEC") ("1997 Form 10-K").
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
(2) Net income (loss) per share of Company common stock ("Common Stock") is
computed by (a) deducting accrued preferred stock dividends and the
accretion of preferred stock to redemption amount from net income
(loss) to determine net income (loss) applicable to common stock and
(b) then dividing net income (loss) applicable to common stock by 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
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 $3,199,000 and
$8,595,000 for the three and nine months ended September 30, 1998,
respectively, and $2,067,000 and $4,789,000 for the three and nine
months ended September 30, 1997, respectively.
(4) Revenue from the sale of residential units other than Regency Island
("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 all the criteria for sales pursuant
to SFAS66 have been met.
(5) Due to the establishment of reserves, the Company did not have
Available Cash, as defined in the Company's Cash Flow Notes, at
September 30, 1998, to make any interest payments on the Cash Flow
Notes for the nine months ended September 30, 1998. In addition, the
Company did not have Available Cash to make any interest payments on
the Cash Flow Notes for the twelve months ended December 31, 1997.
Interest on the Cash Flow Notes is noncumulative. Therefore, the
Company has not recorded interest expense associated with the Cash Flow
Notes during the nine months ended September 30, 1998 and 1997. See
PART I. FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY
AND CAPITAL RESOURCES to the Form 10-Q for the fiscal quarter ended
September 30, 1998 (the "Third Quarter 1998 Form 10-Q") for more
information concerning the Cash Flow Notes.
(6) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued to its Non-Employee Directors (a) 8,330 shares of Common
Stock at a price of $4.50 per share for the
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(unaudited)
first quarter of 1998, (b) 6,209 shares of Common Stock at a price of
$3.625 per share for the second quarter of 1998 and (c) 10,908 shares
of Common Stock at a price of $2.0625 per share for the third quarter
of 1998.
(7) The Company and AP-AGC, LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"), are parties to that certain Investment
Agreement, as amended (the "Investment Agreement," which closed in June
1997), pursuant to which Apollo agreed, subject to certain conditions,
to acquire 2.5 million shares of 20% Series A Redeemable Preferred
Stock (the "Series A Preferred Stock") from the Company at a purchase
price of $9.88 per share, and warrants to purchase up to 5 million
shares of Common Stock (the "Investor Warrants"), at a purchase price
of $.06 per share, for an aggregate purchase price of $25 million (the
"Apollo Transaction"). As of December 31, 1997, Apollo had purchased
2,326,475 shares of Series A Preferred Stock and Investor Warrants to
acquire 4,652,950 shares of Common Stock, for an aggregate purchase
price of approximately $23.3 million. On March 31, 1998, Apollo
purchased the remaining 173,525 shares of Series A Preferred Stock and
Investor Warrants to acquire 347,050 shares of Common Stock, for an
aggregate purchase price of approximately $1.7 million.
(8) Redeemable preferred stock consisted of the following at September 30,
1998 and December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Series A
--------
Gross proceeds $ 25,000 $ 23,265
Accrued dividends 6,149 1,989
-------- --------
Liquidation Preference amount 31,149 25,254
Less issue costs (3,100) (2,885)
Less warrants purchased (300) (279)
Plus accretion of preferred stock to redemption amount 891 288
-------- --------
28,640 22,378
-------- --------
Series B
--------
Gross proceeds 20,000 20,000
Accrued dividends 4,665 1,307
-------- --------
Liquidation Preference amount 24,665 21,307
Less issue costs (1,900) (1,900)
Less warrants purchased (240) (240)
Plus accretion of preferred stock to redemption amount 527 139
-------- --------
23,052 19,306
-------- --------
Total redeemable preferred stock $ 51,692 $ 41,684
======== ========
</TABLE>
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(unaudited)
(9) As of January 1, 1998, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's minimum pension liability adjustments,
which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the
requirements of Statement 130.
During the first nine months of 1998 and 1997, comprehensive income
consisted only of the net losses for those periods.
6
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------------
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES TO (1) THE
"COMPANY" INCLUDE ATLANTIC GULF COMMUNITIES CORPORATION AND ITS DIRECT AND
INDIRECT WHOLLY-OWNED SUBSIDIARIES, (2) "ATLANTIC GULF" REFERS SOLELY TO
ATLANTIC GULF COMMUNITIES CORPORATION AND (3) "PREDECESSOR COMPANY" OR
"PREDECESSOR" REFER TO GENERAL DEVELOPMENT CORPORATION, ATLANTIC GULF'S
IMMEDIATE PREDECESSOR.
Current Business
- ----------------
The Company is a Florida-based, planned community development and asset
management company.
The Company's principal business (its "Core Business") consists of:
o the acquisition, development and sale of residential homesites
("Homesites") to home builders and commercial, industrial and
retail land ("Tracts") in primary or oceanfront markets in
Florida and other selected primary markets in the southeast
(the "Southeast") United States (collectively, "Primary
Markets"), as well as in one project in Texas and one project
in Colorado
o the construction and sale of selected vertical residential
products, including oceanfront condominium units and an urban
luxury apartment tower ("Vertical Development"); and
o environmental services.
The Company is also engaged in:
o the orderly disposition of scattered Predecessor Homesites
(i.e., homesites inherited from the Company's Predecessor) and
Predecessor Tracts (i.e., commercial, industrial,
institutional, residential, and agricultural acreage inherited
from the Company's Predecessor) in secondary markets
(collectively, the "Predecessor Assets"); and
o portfolio management of mortgages and contract receivables
related to the Predecessor Assets.
The continuing disposition of Predecessor Assets is a run-off business and is
not part of the Company's Core Business.
The Company's Core Business is comprised of four primary functions:
o business development;
o planning;
o community development; and
o residential construction.
7
<PAGE>
See PART I., ITEM 1. BUSINESS in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, as amended by that certain Amendment to Form
10-K on Form 10-K/A-1, as filed with the Securities and Exchange Commission (the
"SEC") ("1997 Form 10-K") and PART I. FINANCIAL INFORMATION, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS in the Company's Quarterly Report on Form 10-Q, as filed with the SEC
(the "First Quarter 1998 Form 10-Q"), for a more detailed description of the
Company's current business.
Business Plan
- -------------
Atlantic Gulf's business plan is to:
o Execute and grow its Core Business, principally the sales of
new Homesites and Tracts, throughout its Primary Markets.
o Capitalize on special opportunities in Vertical Development.
o Complete the orderly disposition of its remaining Predecessor
Assets.
In furtherance of its plan, (1) since 1992, the Company has sold
approximately 83,000 acres of Predecessor Tracts and 11,000 Predecessor
Homesites, and substantially reduced the corporate debt and deferred liabilities
which it inherited from its Predecessor and (2) since 1994, the Company has
acquired interests in 18 new projects in nine Primary Markets (plus Texas and
Colorado) in five states.
The Company has successfully transitioned itself from a land company
holding principally Predecessor Assets in 1994 to a leading provider to builders
of developed Homesites in planned communities in Primary Markets in 1998.
From 1994 through 1996, the Company acquired interests in new Core
Business assets both directly and, in some cases, indirectly, through joint
venture, limited partnership or similar structures and arrangements
(collectively, "JV Projects"). The Company used these structures and
arrangements because its debt amortization schedules imposed severe capital
constraints on new business growth. The Company did not have the capital
resources during this period to acquire direct ownership interests in all of its
new projects.
In 1997 and the first quarter of fiscal year 1998, the Company closed
three major equity transactions, raising an aggregate of $55 million (the "1997
Equity Transactions"). See PART I., ITEM 1. BUSINESS SIGNIFICANT BUSINESS
DEVELOPMENTS in the 1997 Form 10-K and PART II. OTHER INFORMATION, ITEM 2.
CHANGES IN SECURITIES in the First Quarter 1998 Form 10-Q for more information
concerning the 1997 Equity Transactions. The Company used the funds from the
1997 Equity Transactions and other funds to acquire direct ownership interest in
all of its new Core Business projects in 1997.
The Company's strategy to grow the Homesite segment of its business is
being accomplished in two stages. In the first stage, the Company built sales
volume, principally through JV Projects. Now, in the second stage, the Company
is replacing sold inventory with new projects, acquired principally through
direct ownership.
8
<PAGE>
As of September 30, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Homesite projects:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project (3) to-Date Contract
------- --------- -------- -------- -------------------- ------- --------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
West Meadows D (1) Tampa Bay, FL 1995 1,316 single-family Homesites 408 158
- ----------------------------------------------------------------------------------------------------------------------------------
Saxon Woods D Orlando, FL 1997 408 single-family Homesites 17 101
- ----------------------------------------------------------------------------------------------------------------------------------
Lakeside Estates D Orlando, FL 1994-1995 1,379 single-family Homesites 820 131
- ----------------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995-1997 520 single-family Homesites - 12
- ----------------------------------------------------------------------------------------------------------------------------------
The Trails of West Frisco D Dallas, TX 1997 1,643 single-family Homesites - 415
- ----------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes JV (2) Broward County, FL 1994 1,512 single-family Homesites and
255 multi-family units 485 622
- ----------------------------------------------------------------------------------------------------------------------------------
Country Lakes JV Broward County, FL 1995 1,116 single-family Homesites and
1,930 multi-family units 1,955 -
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Trace JV Orlando, FL 1996 871 single-family Homesites 169 263
- ---------------------------------------------------------------------------------------------------------------------------------
Cary Glen JV Raleigh/Durham, NC 1996 917 single-family Homesites and 249
multi-family units - -
- ----------------------------------------------------------------------------------------------------------------------------------
Aspen Springs Ranch D Glenwood Springs, CO 1998 352 single-family Homesites and 200
timeshare quarter units - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
(3) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
As of September 30, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Tracts:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Acres Acres
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project (3) to-Date Contract
------- --------- -------- -------- -------------------- ------- --------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
West Meadows D (1) Tampa Bay, FL 1997 76 commercial/industrial acres 50 -
- ----------------------------------------------------------------------------------------------------------------------------------
Regency Island D Hutchinson Island, FL 1994 4 commercial acres - -
- ----------------------------------------------------------------------------------------------------------------------------------
Country Lakes JV (2) Broward County, FL 1995 140 commercial/industrial acres - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
9
<PAGE>
As of September 30, 1998, the Company owned, directly or through JV
Projects, interests in the following vertical residential products:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project (3) to-Date Contract
------- --------- -------- -------- -------------------- ------- --------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Riverwalk Tower D (1) Fort Lauderdale, FL 1997 373 high-rise apartments - -
- ----------------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995-1997 578 high-rise residential units - -
- ----------------------------------------------------------------------------------------------------------------------------------
Jupiter Ocean Grande JV (2) Jupiter, FL 1995 138 condominium units - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
As of September 30, 1998, the Company owned approximately 16,000
Predecessor Homesites and approximately 9,000 acres of Predecessor Tracts in 8
communities.
See PART I., ITEM 1. BUSINESS in the 1997 Form 10-K, PART I. -
FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS in the First Quarter 1998 Form 10-Q and PART
I. FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS to this Quarterly Report on Form
10-Q for more information concerning the Company's business.
10
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company's results of operations for the nine months ended September
30, 1998 and 1997 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Nine Months Ended September 30, 1998
(in thousands of dollars)
(unaudited)
Core Predecessor
---------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 8,005 $35,561 $ $2,578 $16,699 $ $ $ $ 62,843
Other operating revenues 1,296 209 1,417 2,922
Interest income 236 2,572 912 3,720
Other income 2,924 2,924
----------------------------------------------------------------------------------------------
Total revenues 12,461 35,561 - 2,787 16,699 3,989 - 912 72,409
----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 6,826 26,272 2,286 15,967 51,351
Selling expense 1,338 890 668 1,815 4,711
Other operating expense 1,165 1,165
Other real estate costs 657 6 18 491 765 26 1,966 3,018 6,947
General and administrative expense 6,427 6,427
Depreciation 22 13 56 64 355 510
Cost of borrowing, net 1,530 2,716 4,246
Other expense 225 342 567
----------------------------------------------------------------------------------------------
Total costs and expenses 9,068 27,168 360 3,458 18,603 2,785 1,966 12,516 75,924
----------------------------------------------------------------------------------------------
Operating income (loss) 3,393 8,393 (360) (671) (1,904) 1,204 (1,966) (11,604) (3,515)
----------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 4,573 610 5,183
Miscellaneous (214) (214)
----------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 4,573 - 396 4,969
----------------------------------------------------------------------------------------------
Net income (loss) 3,393 8,393 (360) (671) (1,904) 5,777 (1,966) (11,208) 1,454
----------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 7,518 7,518
Accretion of preferred stock to
redemption amount 992 992
----------------------------------------------------------------------------------------------
- - - - - - - 8,510 8,510
----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 3,393 $ 8,393 $ (360) $ (671) $(1,904) $ 5,777 $ (1,966) $(19,718) $ (7,056)
==============================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Nine Months Ended September 30, 1997
(in thousands of dollars)
(unaudited)
Core Predecessor
-------------------------- ------------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 11,438 $ 725 $10,021 $ 5,621 $16,790 $ 76 $ $ $ 44,671
Other operating revenues 511 1,566 2,077
Interest income 222 3,367 710 4,299
-----------------------------------------------------------------------------------------------
Total revenues 12,171 725 10,021 5,621 16,790 5,009 - 710 51,047
-----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 10,609 590 12,200 4,955 15,474 88 43,916
Selling expense 508 14 532 2,584 2,302 8 5,948
Other operating expense 965 965
Other real estate costs 732 440 502 1,118 533 2,000 4,219 9,544
General and administrative expense 6,734 6,734
Depreciation 10 2 5 46 90 371 524
Cost of borrowing, net 1,789 9,334 11,123
Other expense 265 465 730
-----------------------------------------------------------------------------------------------
Total costs and expenses 12,124 604 13,639 8,046 18,940 3,465 2,008 20,658 79,484
-----------------------------------------------------------------------------------------------
Operating income (loss) 47 121 (3,618) (2,425) (2,150) 1,544 (2,008) (19,948) (28,437)
-----------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 798 1,438 2,236
Miscellaneous (96) (450) (546)
-----------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 702 - 988 1,690
-----------------------------------------------------------------------------------------------
Net income (loss) 47 121 (3,618) (2,425) (2,150) 2,246 (2,008) (18,960) (26,747)
-----------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 1,381 1,381
Accretion of preferred stock
to redemption amount 190 190
-----------------------------------------------------------------------------------------------
- - - - - - - 1,571 1,571
-----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 47 $ 121 $(3,618) $ (2,425) $(2,150) $ 2,246 $ (2,008) $(20,531) $(28,318)
===============================================================================================
</TABLE>
During the first nine months of 1998, the Company reported net income
of $1.4 million compared to a net loss of ($26.7) million during the first nine
months of 1997. After certain non-cash charges applicable to preferred stock,
the Company reported a net loss applicable to common stock of ($7.1) million
compared to a net loss applicable to common stock of ($28.3) million during the
first nine months of 1997. The loss decreased by $21.2 million during the first
nine months of 1998 compared to the first nine months of 1997 primarily due to
(1) a 41% increase in real estate revenues in 1998 generating a $13.9 million
gross margin increase, (2) a $3.3 million increase in other income in 1998, (3)
a $4.1 million reduction in selling expenses, other real estate costs and
general and administrative expenses in 1998 and (4) a $6.9 million decrease in
borrowing costs in 1998, offset by a $6.9 million increase in accrued preferred
stock dividends
12
<PAGE>
and accretion of preferred stock in 1998. As discussed below, the increase in
real estate revenues in 1998 was primarily due to $31.8 million of Tract sales
in the second quarter of 1998, consisting of (a) a $24.8 million sale of Dave's
Creek, a 1,372 acre project near Atlanta, Georgia ("Dave's Creek"), and (b) a
$7.0 million sale of 0.9 commercial acres out of the 2.8-acre Riverwalk Tower
site in Ft. Lauderdale, Florida.
Core Business
- -------------
The results of operations of the Core Business are set forth below.
CORE HOMESITE SALES. Net income from Homesite sales improved $2.6
million in the first nine months of 1998 compared to the first nine months of
1997 primarily due to a $2.9 million increase in other income from joint venture
Homesite operations and net gains from the assignment of real estate purchase
contracts.
Consolidated revenues from Homesite sales (excluding revenues and
income from joint venture Homesite operations) decreased $3.4 million in the
first nine months of 1998 compared to the first nine months of 1997 primarily
due to a $4.5 million sale in June 1997 of the final 102 lots in Windsor Palms,
partially offset by a $1.8 million increase in sales in West Meadows. The
following table summarizes consolidated Homesite sales activity for the nine
months ended September 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
Number of Average Number of Average
lots Revenue sales price lots Revenue sales price
--------- ------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
West Meadows 202 $ 5,089 $ 25.2 65 $ 2,312 $35.5
Lakeside Estates 110 2,336 21.2 228 3,842 16.9
Saxon Woods 17 432 25.4 - - -
Windsor Palms - - - 102 4,514 44.3
Sabal Trace 4 148 37.0 12 447 37.2
Sanctuary - - - 19 323 17.0
------ ------- ------ ------- ------- -----
333 $ 8,005 $ 24.0 426 $11,438 $26.8
====== ======= ====== ======= ======= =====
</TABLE>
The average sales price in West Meadows decreased in the first nine
months of 1998 compared to the first nine months of 1997 due to a bulk sale of
82 small, unfinished lots for $840,000 in the first quarter of 1998. The average
sales price in Lakeside Estates increased for the first nine months of 1998
compared to the first nine months of 1997 due to a bulk sale of 82 lots for
$890,000 in the third quarter of 1997.
Other operating revenues included $451,000 in the first nine months of
1998 and $179,000 in the first nine months of 1997 representing management fees
earned in connection with the Sunset Lakes JV Project. Other operating revenues
in the first nine months of 1997 also included a $332,000 management fee from
the Country Lakes JV Project. The Country Lakes JV Project sold 95 acres for
$9.5 million during the first nine months of 1997.
Other income of $2.9 million in the first nine months of 1998 included
$1.8 million of income from the Company's 65% interest in profits from the
Sunset Lakes JV Project. During the first nine months of 1998, the Sunset Lakes
JV Project sold 230 Homesites and a 29-acre tract designed for 255 multi-family
units for approximately $21.3 million. Other income in the first nine months of
1998 also included net gains totaling $1.1 million on assignments of real estate
purchase agreements for two residential projects located in the Orlando, Florida
area.
13
<PAGE>
As of September 30, 1998, the Company had under contract approximately
(1) 817 Homesites for approximately $28.3 million with 21 homebuilders in
Lakeside Estates, West Meadows, The Trails of West Frisco and Saxon Woods and
(2) 885 JV Project Homesites for approximately $41.0 million with 8 homebuilders
in Sunset Lakes and Falcon Trace. As of September 30, 1997, the Company had
under contract approximately 93 Homesites for approximately $2.6 million in
Lakeside Estates, West Meadows and Sanctuary.
The consolidated Homesite sales gross margin percentage was 14.7% in
the first nine months of 1998 compared to 7.2% in the first nine months of 1997.
Although the gross margin percentage increased in the first nine months of 1998
compared to the first nine months of 1997, it is lower than the targeted gross
margin of approximately 20% for this line of business principally due to
reductions in the gross margin percentages at Lakeside Estates and West Meadows,
due to increases in the estimated costs to complete these projects. The Company
anticipates that the impact of these reductions will decrease on a relative
basis as additional consolidated Homesite projects (i.e., The Trails of West
Frisco, West Bay Club and Aspen Springs Ranch) come on line during the last
quarter of 1998 and in 1999. The lower than targeted gross margin in the first
nine months of 1997 was principally attributable to the sale of the final 102
Windsor Palms lots for $4.5 million, generating a (11%) gross margin. This sale
was necessitated by the Company's need for liquidity to meet a June 30, 1997
corporate debt payment.
Homesite selling expense increased $830,000 in the first nine months of
1998 (despite a decrease in revenues) compared to the first nine months of 1997
primarily due to presales advertising and marketing costs associated with the
West Bay Club project.
CORE TRACT SALES. Net income from Tract sales increased $8.3 million in
the first nine months of 1998 compared to the first nine months of 1997 due to
an increase in Tract sales revenues.
Tract sales revenues increased $34.8 million in the first nine months
of 1998 compared to the first nine months of 1997 due primarily to two large
Tract sales in 1998. In April 1998, the Company sold and closed Dave's Creek for
$24.8 million. Additional sales proceeds of $2.5 million were received in the
third quarter of 1998 after the Company received an Army Corp of Engineers
permit. This increased the total revenues from the sale to $27.3 million, and
the gross margin from 6.6% to approximately 15.2%. In June 1998, the Company
sold a 0.9 acre office/hotel parcel for 7.0 million which was part of the
2.8-acre Riverwalk Tower site. This sale generated a gross margin of 70.4%. The
balance of the Riverwalk Tower site is being developed by the Company as a
luxury high-rise apartment tower.
As of September 30, 1998, the Company's Joint Venture Projects had no
pending Tract sales under contract.
Tract sales selling expense increased $876,000 in the first nine months
of 1998 compared to the first nine months of 1997 due to increased sales
activities.
CORE RESIDENTIAL SALES. Net operating results from Residential sales
decreased $3.3 million in the first nine months of 1998 compared to the first
nine months of 1997 due to the absence of revenues and profits from Regency
Island which closed sales of all units as of December 31, 1997.
During 1993, the Company entered the luxury oceanfront condominium
market through the acquisition of the Regency Island project. The Company
completed construction and sold out Regency Island in 1997. In 1995, the Company
acquired the Jupiter Ocean Grande condominium JV Project. The Company has a 50%
interest in this JV Project and anticipates commencing presales on the first
building in Jupiter Ocean Grande in the 1998-1999 selling season. The Company
also anticipates commencing presales
14
<PAGE>
of its West Bay Club high-rise residential units in the 1998-1999 selling
season. In 1999, the Company intends to begin construction of Riverwalk Tower,
its first luxury apartment tower.
The following table summarizes Residential sales activity for the nine
months ended September 30 (in thousands of dollars):
1998 1997
--------- ---------
Condominium sales - Regency Island:
First Building $ - $ 1,620
Second Building - 8,401
--------- ---------
Total condominium sales $ - $ 10,021
========= =========
The revenues and profits associated with Regency Island were recorded
using the percentage of completion method. The project consisted of two 72-unit
buildings, all of which were sold and closed as of December 31, 1997. The
revenues of $1.6 million from the first building in the first nine months of
1997 represented revenue earned from the closing of five units. As of September
30, 1997, all 72 units in the first building were sold and closed. The revenues
of approximately $8.4 million in the second building in the first nine months of
1997 resulted from (1) an increase in the completion percentage from 79% as of
December 31, 1996 to 100% as of September 30, 1997, and (2) 13 additional units
sold during the first nine months of 1997 for a total of 69 units sold in the
second building as of September 30, 1997. As of September 30, 1997, 68 of the 72
units in the second building had closed.
The gross margin for Residential - condominiums sales in the first nine
months of 1997 was (21.7%) principally due to an unanticipated $2.8 million
accrual in August 1997 for an arbitration award granted to the Company's general
contractor related to the first buiding in Regency Island Dunes. The final
overall gross margin for the Regency Island project was 12.1%.
Residential selling expense and real estate overhead decreased from a
total of $532 in the first nine months of 1997 to $0 in the first nine months of
1998 due to the close out of Regency Island in 1997.
Residential other expenses of $342,000 in the first nine months of 1998
and $465,000 in the first nine months of 1997 constitute the Company's share of
the net loss from the Jupiter Ocean Grande JV Project. The loss resulted from
pre-sales advertising and other selling and overhead costs.
Predecessor Business
- --------------------
The results of operations of the Predecessor Business are set forth
below.
PREDECESSOR HOMESITE SALES. Net operating results from Predecessor
Homesite sales improved $1.8 million in the first nine months of 1998 compared
to the first nine months of 1997 due to a $1.9 million decrease in selling
expenses.
15
<PAGE>
Revenues from Predecessor Homesite sales decreased $3.0 million in the
first nine months of 1998 compared to the first nine months of 1997 due to (1) a
46% decrease in the number of Predecessor Homesites sold and (2) a 15% decrease
in the average sales price for Predecessor Homesites sold. The following table
summarizes Predecessor Homesite sales activity for the nine months ended
September 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
Number of Average Number of Average
lots Revenue sales price lots Revenue sales price
--------- ------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Scattered sales 278 $ 1,437 $ 5.2 551 $ 3,298 $ 6.0
Bulk sales 447 1,141 2.6 801 2,323 2.9
------ ------- ------ ------- ------- ------
725 $ 2,578 $ 3.6 1,352 $ 5,621 $ 4.2
====== ======= ====== ======= ======= ======
</TABLE>
Revenues from Predecessor Homesite scattered sales decreased in the
first nine months of 1998 compared to the first nine months of 1997 primarily
due to a $1.0 million decrease in sales in the Company's Cumberland Cove,
Tennessee, project ("Cumberland Cove"). Sales in Cumberland Cove declined
because the project began winding down during 1997, and the Company closed its
on-site sales office in September 1997. The decline in the average sales price
of Predecessor Homesite scattered sales is also principally due to the reduction
in sales in Cumberland Cove, the Company's highest priced Predecessor Homesite
product.
As of September 30, 1998, the Company had under contract approximately
54 Predecessor Homesites for $226,000. As of September 30, 1997, the Company had
under contract 1,518 Predecessor Homesites for $2.8 million. Predecessor
Homesite sales often vary significantly from period to period depending on the
timing and size of bulk sales.
The Predecessor Homesite sales gross margin percentage increased to
11.8% in the first nine months of 1998 from 11.3% in the first nine months of
1997 principally due to the overall community sales mix.
Predecessor Homesite selling expense decreased $1.9 million or 74% in
the first nine months of 1998 compared to the first nine months of 1997 due to
(1) a $1.4 million reduction in selling expenses at Cumberland Cove due to the
closing of the on-site sales operation in September 1997 and (2) the decrease in
revenues. Predecessor Homesite selling expense decreased as a percentage of
revenue from 46% in the first nine months of 1997 to 26% in the first nine
months of 1998 primarily due to the reduction in selling expenses at Cumberland
Cove.
PREDECESSOR TRACT SALES. The net loss from Predecessor Tract sales
improved $246,000 in the first nine months of 1998 compared to the first nine
months of 1997 principally due to reduced selling expense and other real estate
costs partially offset by a decline in the gross profit.
Revenues from Predecessor Tract sales decreased $91,000 in the first
nine months of 1998 compared to the first nine months of 1997. Tract sales and
corresponding revenues from such sales often vary significantly from period to
period depending on the timing and size of individual sales. As of September 30,
1998, there were pending Predecessor Tract sales contracts or letters of intent
totaling approximately $4.3 million, which, subject to certain contingencies,
are anticipated to close in 1998. As of September 30, 1997, there were pending
Predecessor Tract sales contracts or letters of intent totaling approximately
$14.4 million.
16
<PAGE>
The following table summarizes Predecessor Tract sales gross margins
for the nine months ended September 30:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 0% 3.3% 0% (5.2)%
Other Predecessor Tract acreage 0% 6.1% 5-10% 10.5%
</TABLE>
The targeted gross margin is break even for Port LaBelle agricultural
acreage because management determined 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 in 1992 from "retail" to "wholesale", which reduced the targeted gross
margin for this property. During the first nine months of 1998, the Company sold
10,313 acres of Port LaBelle agricultural property for approximately $10.1
million. As of September 30, 1998, the Company had approximately 4,700 acres of
Port LaBelle agricultural property remaining in inventory.
The targeted gross margin for other Predecessor Tract acreage was
reduced to break even in 1998 in accordance with the Company's business plan to
accelerate the liquidation of Predecessor Assets. The actual gross margins for
other Predecessor Tract acreage in 1998 and 1997 generally reflect the targeted
gross margins.
Predecessor Tract selling expense decreased $487,000 in the first nine
months of 1998 compared to the first nine months of 1997 and decreased as a
percentage of revenues from 14% in the first nine months of 1997 to 11% in the
first nine months of 1998 primarily because of a decrease in indirect selling
expenses resulting from the discontinuation of the Company's in-house sales
operation in January 1998.
Predecessor Tract sales other real estate costs decreased $353,000, a
32% decrease, in the first nine months of 1998 compared to the first nine months
of 1997 primarily due to the discontinuation of the Company's in-house sales
operation in January 1998.
Other Operations
- ----------------
Net income from other operations increased by $3.4 million in the first
nine months of 1998 compared to the first nine months of 1997 primarily due to a
$3.8 million utility trust payout in September 1998.
Other operations interest income declined $795,000 in the first nine
months of 1998 compared to the first nine months of 1997 due to lower average
balances of Predecessor Homesite Contracts Receivable and land mortgages
receivable in 1998.
Other operations other real estate costs declined $507,000 in the first
nine months of 1998 compared to the first nine months of 1997 due to the Company
closing its offices in its Predecessor communities in December 1997.
Other income - reorganization items of $4.6 million in the first nine
months of 1998 consists of (1) a $3.8 million utility trust payout and (2)
amortization of $799,000 of the Company's utility connections
17
<PAGE>
reserve. The amortization of the Company's utility connections reserve for the
first nine months of 1997 was $798,000.
Business Development
- --------------------
Total business development expenditures decreased by $42,000 in the
first nine months of 1998 compared to the first nine months of 1997 principally
due to a decline in costs associated with the pursuit of business opportunities
in Primary Markets.
Administrative & Other
- ----------------------
The net loss from administrative and other activities decreased
$813,000 in the first nine months of 1998 compared to the first nine months of
1997 principally due to a $1.2 million decrease in other real estate costs and a
$6.6 million decrease in borrowing costs, offset by a $6.9 million increase in
accrued preferred stock dividends and accretion of preferred stock, which is
included only in the calculation of net income applicable to common stock.
Interest income increased $202,000 in the first nine months of 1998
compared to the first nine months of 1997 primarily due to an increase in
short-term investment interest income.
Other real estate costs decreased $1.2 million in the first nine months
of 1998 compared to the first nine months of 1997 primarily due to a reduction
of land inventory not under development (which corresponds to sales activity
during the intervening period).
General and administrative expenses declined $307,000 in the first nine
months of 1998 compared to the first nine months of 1997 primarily due to
declines in personnel and legal expenses.
Cost of borrowing, net of capitalized interest, decreased $6.6 million
in the first nine months of 1998 compared to the first nine months of 1997. This
was offset by a $6.9 million increase in Preferred Stock accrued dividends and
accretions as the Company reduced their reliance on debt financing. During the
nine months ended September 30, 1998 and 1997, the Company did not accrue
interest on its Cash Flow Notes (see Liquidity and Capital Resources below)
because of the absence of Available Cash (see LIQUIDITY AND CAPITAL RESOURCES
below) during the periods.
Other income - reorganization items consisted of gains of $610,000 in
the first nine months of 1998 and $1.4 million in the first nine months of 1997
resulting from the resolution of certain reorganization items.
Other expense - miscellaneous of $214,000 in the first nine months of
1998 and $546,000 in the first nine months of 1997 consisted of various reserve
adjustments and settlements.
During the nine months ended September 30, 1998, the Company recorded a
$7.5 million accrual for preferred stock dividends associated with its Series A
and Series B Preferred Stock ("the Preferred Stock"). See PART I., ITEM 1.
BUSINESS - SIGNIFICANT BUSINESS DEVELOPMENTS in the 1997 Form 10-K and PART II.
OTHER INFORMATION, ITEM 2. CHANGES IN SECURITIES in the First Quarter 1998 Form
10-Q for more information concerning the 1997 Equity Transactions. In addition,
the Company accreted $992,000 of the value of its Preferred Stock to the
redemption amount in the first nine months of 1998. The total of approximately
$8.5 million of accrued Preferred Stock dividends and Preferred Stock accretion
was charged to contributed capital.
18
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The comparison of the three months ended September 30, 1998 and 1997
should be read in conjunction with the comparison of the nine months ended
September 30, 1998 and 1997 for a more comprehensive discussion of the results
of operations. The Company's results of operations for the three months ended
September 30, 1998 and 1997 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended September 30, 1998
(in thousands of dollars)
(unaudited)
Core Predecessor
--------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 2,858 $ 3,520 $ $ 647 $ 2,943 $ $ $ $ 9,968
Other operating revenues 1,000 209 298 1,507
Interest income 86 810 305 1,201
Other income 1,243 1,243
----------------------------------------------------------------------------------------------
Total revenues 5,187 3,520 - 856 2,943 1,108 - 305 13,919
----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,419 841 528 2,568 6,356
Selling expense 663 90 232 506 1,491
Other operating expense 399 399
Other real estate costs 154 6 18 250 443 15 1,274 711 2,871
General and administrative expense 2,385 2,385
Depreciation 13 19 22 118 172
Cost of borrowing, net 445 770 1,215
Other expense 96 96
----------------------------------------------------------------------------------------------
Total costs and expenses 3,249 937 114 1,010 3,536 881 1,274 3,984 14,985
----------------------------------------------------------------------------------------------
Operating income (loss) 1,938 2,583 (114) (154) (593) 227 (1,274) (3,679) (1,066)
----------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 4,039 362 4,401
Miscellaneous 2 2
----------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 4,039 - 364 4,403
----------------------------------------------------------------------------------------------
Net income (loss) 1,938 2,583 (114) (154) (593) 4,266 (1,274) (3,315) 3,337
----------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 2,658 2,658
Accretion of preferred stock to
redemption amount 338 338
----------------------------------------------------------------------------------------------
2,996 2,996
----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 1,938 $ 2,583 $(114) $ (154) $ (593) $4,266 $ (1,274) $ (6,311) $ 341
==============================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended September 30, 1997
(in thousands of dollars)
(unaudited)
Core Predecessor
--------------------------- -----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
---------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate sales $ 2,970 $ 135 $ 826 $ 2,007 $ 4,674 $ $ $ $ 10,612
Other operating revenues 110 522 632
Interest income 941 241 1,182
---------------------------------------------------------------------------------------------
Total revenues 3,080 135 826 2,007 4,674 1,463 - 241 12,426
---------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,573 106 3,890 1,735 4,265 12,569
Selling expense 78 (2) 293 898 687 (24) 1,930
Other operating expense 337 337
Other real estate costs 242 302 342 419 185 653 1,599 3,742
General and administrative expense 2,078 2,078
Depreciation 6 2 15 28 120 171
Cost of borrowing, net 684 1,705 2,389
Other expense 208 60 268
---------------------------------------------------------------------------------------------
Total costs and expenses 3,107 104 4,545 2,977 5,386 1,234 629 5,502 23,484
---------------------------------------------------------------------------------------------
Operating income (loss) (27) 31 (3,719) (970) (712) 229 (629) (5,261) (11,058)
---------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 266 176 442
Miscellaneous (185) (185)
---------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 266 - (9) 257
---------------------------------------------------------------------------------------------
Net income (loss) (27) 31 (3,719) (970) (712) 495 (629) (5,270) (10,801)
---------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 1,319 1,319
Accretion of preferred stock
to redemption amount 182 182
---------------------------------------------------------------------------------------------
- - - - - - - 1,501 1,501
---------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ (27) $ 31 $ (3,719) $ (970) $ (712) $ 495 $ (629) $(6,771) $(12,302)
=============================================================================================
</TABLE>
During the third quarter of 1998, the Company reported net income of
$3.3 million compared to a net loss of $10.8 million during the third quarter of
1997. After certain non-cash charges applicable to preferred stock, the Company
reported net income applicable to common stock of $341,000 compared to a net
loss applicable to common stock of ($12.3) million during the third quarter of
1997. Results of operations improved by $12.6 million during the third quarter
of 1998 compared to the third quarter of 1997 primarily due to (1) a 12%
increase in real estate revenues generating a $7.6 million gross margin increase
in 1998, (2) a $1.2 million increase in other income during 1998, (3) a $4.0
million increase in Reorganization related items
20
<PAGE>
and (4) a $1.2 million decrease in borrowing costs in 1998, partially offset by
a $1.5 million increase in accrued preferred stock dividends and accretion of
preferred stock.
Core Business
- -------------
The results of operations of the Core Business are set forth below.
CORE HOMESITE SALES. Net income from Homesite sales improved $2.1
million in the third quarter of 1998 compared to the third quarter of 1997
primarily due to a $1.2 million increase in other income from joint venture
Homesite operations and a $890,000 increase in other operating revenues.
Consolidated revenues from Homesite sales (excluding revenues and
income from joint venture Homesite operations) decreased $112,000 in the third
quarter of 1998 compared to the third quarter of 1997 primarily due to a bulk
sale in Lakeside Estates in the third quarter of 1997. The following table
summarizes consolidated Homesite sales activity for the three months ended
September 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
Number of Average Number of Average
lots Revenue sales price lots Revenue sales price
--------- ------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
West Meadows 55 1,951 35.5 24 1,021 42.5
Lakeside Estates 38 815 21.5 125 1,751 14.0
Saxon Woods 2 55 27.5 - - -
Windsor Palms - - - - - -
Sabal Trace 1 37 37.0 4 147 36.8
Sanctuary - - - 3 51 17.0
------ ------- ------ ------- ------- ------
96 $ 2,858 $ 29.8 156 $ 2,970 $ 19.0
====== ======= ====== ======= ======= ======
</TABLE>
The average sales price in Lakeside Estates increased for the third
quarter of 1998 compared to the third quarter of 1997 due to a bulk sale of 82
lots for $890,000 in the third quarter of 1997.
Other operating revenues included $155,000 in the third quarter of 1998
and $100,000 in the third quarter of 1997 representing management fees earned in
connection with the Sunset Lakes JV Project. Other operating revenues in the
third quarter of 1997 also included a $10,000 management fee from the Country
Lakes JV Project.
Other income of $1.2 million in the third quarter of 1998 included $1.2
million of income from the Company's 65% profits interest in the Sunset Lakes JV
Project. During the third quarter of 1998 the Sunset Lakes JV Project sold 43
Homesites and a 10-acre tract designed for commercial development for
approximately $5.8 million. Other income in the third quarter of 1998 also
included a $876,000 net gain on an assignment of a real estate purchase
agreement for a residential project located in the Orlando, Florida area.
The consolidated Homesite sales gross margin percentage was 15% in the
third quarter of 1998 compared to 13% in the third quarter of 1997. Although the
gross margin percentage increased in the third quarter of 1998 compared to the
third quarter of 1997, it is lower than the targeted gross margin of
approximately 20% for this line of business principally due to reductions in the
gross margin percentages at Lakeside Estates and West Meadows, due to increases
in the estimated costs to complete these projects. The Company anticipates that
the impact of these reductions will decrease on a relative basis as additional
21
<PAGE>
consolidated Homesite projects (i.e., The Trails of West Frisco, West Bay Club
and Aspen Springs Ranch) come on line during the last quarter of 1998 and in
1999.
Homesite selling expense increased $935,000 in the third quarter of
1998 (despite a decrease in revenues) primarily due to presales advertising and
marketing costs associated with the West Bay Club project.
CORE TRACT SALES. Net income from Tract sales increased $2.6 million in
the third quarter of 1998 compared to the third quarter of 1997 primarily due to
additional sales proceeds received in connection with the prior sale of Dave's
Creek.
Tract sales revenues increased $3.4 million in the third quarter of
1998 compared to the third quarter of 1997 primarily due to the receipt of
additional sales proceeds on the sale in second quarter of 1998 of Dave's Creek
of $2.5 million after the Company received an Army Corp of Engineers permit.
This increased the total revenues from the sale to $27.3 million. The gross
margin on this sale increased to approximately 15.2% from 6.6%.
CORE RESIDENTIAL SALES. Net operating results from Residential sales
increased $3.6 million in the third quarter of 1998 compared to the third
quarter of 1997 due to adjustments made in the third quarter of 1997 to increase
the estimated costs associated with Regency Island.
The revenues and profits associated with Regency Island sales were
recorded using the percentage of completion method. The project consisted of two
72-unit buildings, all of which were sold and closed as of December 31, 1997.
The revenues of $826,000 in the third quarter of 1997 were associated with the
sale of one unit in each building during the third quarter of 1997 for a total
of 69 units under contract in the second building as of September 30, 1997.
The gross margin for Residential - condominiums in the third quarter of
1997 was a ($3.0) million principally due to an unanticipated $2.8 million
accrual in August 1997 for an arbitration award granted to the Company's general
contractor related to the first building in Regency Island Dunes.
Residential selling expenses and real estate overhead costs were
$293,000 in the third quarter of 1998 due to the close out of Regency Island in
1997.
Residential sales other expenses of $96,000 in the third quarter of
1998 and $60,000 in the third quarter of 1997 constitute the Company's share of
the net loss of the Jupiter Ocean Grande JV Project. The loss resulted from
pre-sales advertising and other selling and overhead costs.
Predecessor Business
- --------------------
The results of operations of the Predecessor Business are set forth
below.
PREDECESSOR HOMESITE SALES. Net operating results from Predecessor
Homesite sales improved $816,000 in the third quarter of 1998 compared to the
third quarter of 1997 primarily due to a $666,000 decrease in selling expenses
and a $92,000 decrease in other real estate costs.
22
<PAGE>
Revenues from Predecessor Homesite sales decreased $1.4 million in the
third quarter of 1998 compared to the third quarter of 1997 due to a 69%
decrease in the number of Predecessor Homesites sold. The following table
summarizes Predecessor Homesite sales activity for the three months ended
September 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
Number of Average Number of Average
lots Revenue sales price lots Revenue sales price
--------- ------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Scattered sales 84 529 6.3 185 1,140 6.2
Bulk sales 65 118 1.8 295 867 2.9
------ ------- ------ ------- ------- ------
149 $ 647 $ 4.3 480 $ 2,007 $ 4.2
====== ======= ====== ======= ======= ======
</TABLE>
Revenues from Predecessor Homesite scattered sales decreased in the
third quarter of 1998 compared to the third quarter of 1997 primarily due to a
$391,000 decrease in sales in the Company's Cumberland Cove project. Sales in
Cumberland Cove decreased because the project began winding down during 1997,
and the Company closed its on-site sales operation in September 1997.
The Predecessor Homesite sales gross margin percentage increased from
14% in the third quarter of 1997 to 18% in the third quarter of 1998 primarily
due to the sales composition. Bulk sales, which have a lower gross profit
declined from 61% of total unit sales for the third quarter of 1997 to 44% in
the third quarter of 1998.
Predecessor Homesite selling expense decreased $666,000 or 74% in the
third quarter of 1998 compared to the third quarter of 1997 due to (1) a
reduction in selling costs at Cumberland Cove due to the closing of the on-site
sales operation in September 1997 and (2) the decrease in revenues. Predecessor
Homesite selling expense decreased as percentage of revenue from 44% in the
third quarter of 1997 to 35% in the third quarter of 1998 primarily due to the
reduction in selling costs at Cumberland Cove.
Predecessor Homesite other real estate costs decreased $92,000 in the
third quarter of 1998 compared to the third quarter of 1997 primarily due to
lower property taxes associated with the reduced land inventory.
PREDECESSOR TRACT SALES. The net loss from Predecessor Tract sales
decreased $119,000 in the third quarter of 1998 compared to the third quarter of
1997 primarily due to a decrease in selling expenses.
Revenues from Predecessor Tract sales decreased $1.7 million in the
third quarter of 1998 compared to the third quarter of 1997. Tract sales and
corresponding revenues from such sales often vary significantly from period to
period depending on the timing and size of individual sales.
The following table summarizes Predecessor Tract sales gross margins
for the three months ended September 30:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C>
Port LaBelle agricultural acreage 0% 51.8% 0% --
Other Predecessor Tract acreage 0% 9.5% 5-10% 9.1%
</TABLE>
23
<PAGE>
During the third quarter of 1998, the Company sold 64 acres of Port
LaBelle agricultural property for approximately $224,000 generating a gross
margin of 52% which is significantly higher than the targeted gross margin.
However, due to the small size of the sale, the actual gross margin is not
indicative of anticipated future gross margins.
The targeted gross margin for other Predecessor Tract acreage was
reduced to break even in 1998 in accordance with the Company's business plan to
accelerate the liquidation of Predecessor Assets. The actual gross margin for
other Predecessor Tract acreage in the third quarter of 1998 and 1997 was within
the targeted gross margin.
Predecessor Tract selling expense decreased $181,000 in the third
quarter of 1998 compared to the third quarter of 1997 but increased as a
percentage of revenues from 15% in the third quarter of 1997 to 17% in the third
quarter of 1998 primarily due to significantly reduced sales volume for the
quarter.
Other Operations
- ----------------
Net income from other operations increased $3.8 million in the third
quarter of 1998 compared to the third quarter of 1997 due to a $3.8 million
utility trust payout.
Other operations interest income declined $131,000 in the third quarter
of 1998 compared to the third quarter of 1997 due to lower average balances of
Predecessor Homesite Contracts Receivable and land mortgages receivable in 1998.
Other operations other real estate costs declined $170,000 in the third
quarter of 1998 compared to the third quarter of 1997 due to the Company closing
its offices in its Predecessor communities in December 1997.
Other income - reorganization items of $4.0 million in the third
quarter of 1998 consists of (1) a $3.8 million utility trust payout and (2)
amortization of $265,000 of the Company's utility connections reserve. The third
quarter 1997 amortization of the Company's utility connections reserve was
$266,000.
Business Development
- --------------------
Total business development expenditures increased $1.3 million in the
third quarter of 1998 compared to the third quarter of 1997 primarily due to an
increase in costs associated with the pursuit of business opportunities in
Primary Markets.
Administrative & Other
- ----------------------
The net loss from administrative and other activities decreased
$460,000 in the third quarter of 1998 compared to the third quarter of 1997
principally due to an $888,000 decrease in other real estate costs and a $1.2
million decrease in borrowing costs partially offset by a $373,000 increase in
other income - reorganization items and a $1.5 million increase in accrued
preferred stock dividends and accretion of preferred stock which is only
included in the calculation of net income applicable to common stock.
Interest income increased $64,000 in the third quarter of 1998 compared
to the third quarter of 1997 primarily due to an increase in short-term
investment income.
Other real estate costs decreased by $888,000 in the third quarter of
1998 compared to the third quarter of 1997 primarily due to reduced property
taxes.
24
<PAGE>
General and administrative expenses increased $307,000 in the third
quarter of 1998 compared to the third quarter of 1997 primarily due to the
timing of financial mailings and other expenses.
Cost of borrowing, net of capitalized interest, decreased $935,000 in
the third quarter of 1998 compared to the third quarter of 1997. This was offset
by a $1.5 million increase in Preferred Stock accrued dividends and accretions
as the Company reduced its reliance on debt financing. During the three months
ended September 30, 1998 and 1997, the Company did not accrue interest on its
Cash Flow Notes because of the absence of Available Cash during the periods.
Other income - reorganization items of $4.4 million in the third
quarter of 1998 and $442,000 in the third quarter of 1997 consisted of gains
resulting from the resolution of certain reorganization items.
Other income (expense) - miscellaneous of $2,000 in the third quarter
of 1998 and other income miscellaneous of $185,000 in the third quarter of 1997
consisted of various reserve adjustments and settlements.
During the three months ended September 30, 1998, the Company recorded
a $2.7 million accrual for preferred stock dividends associated with its
Preferred Stock. In addition, the Company accreted $338,000 of the value of its
Preferred Stock to the redemption amount in the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's cash and cash equivalents
totaled approximately $5.6 million. The Company also had restricted cash and
cash equivalents of $1.1 million, which consisted primarily of (1) escrows for
the sale and development of real estate properties, (2) funds held in trust to
pay certain bankruptcy claims and (3) various other escrow accounts. Cash and
cash equivalents decreased by $3.6 million during the first nine months of 1998.
The decrease consists of (a) $14.8 million used in operating activities, (b)
$4.7 million used in investing activities and (c) $16.0 million provided by
financing activities.
Cash used in operating activities during the first nine months of 1998
consisted of net cash generated through real estate sales and other operations,
offset, in part, by various expenditures including approximately (1) $4.0
million of interest payments, (2) $4.2 million of property tax payments, (3)
$17.8 million of construction and development expenditures and (4) $22.1 million
of land acquisition costs.
Cash used in financing activities during the first nine months of 1998
consisted of approximately $4.4 million for the construction of West Bay Club
amenities and $237,000 for Year 2000 compliant computer applications and
equipment.
Cash provided by financing activities included (1) borrowings of $4.7
million under the Company's working capital facility ("Working Capital
Facility") with Foothill, (2) net borrowings of $38.4 million from new project
financings and (3) approximately $1.7 million of proceeds from the issuance of
Series A Preferred Stock and related warrants. These proceeds were partially
offset by (a) $13.3 million of principal payments that fully repaid the
Company's term loan (the "Term Loan") with Foothill Capital Corporation
("Foothill"), (b) $7.6 million of net principal payments that fully repaid the
Company's reducing revolving loan (the "Reducing Revolving Loan") with Foothill,
(c) net principal payments of $5.5 million associated with the financings of
mortgage receivables and Predecessor Homesite Contract Receivables and (d)
approximately $1.7 million of principal payments on the Working Capital
Facility.
On June 26, 1998, the Company repaid the entire remaining principal
balance of $3,686,648 under its Reducing Revolving Facility with funds drawn on
its Working Capital Facility.
25
<PAGE>
On June 30, 1998, the Company repaid the entire remaining principal
balance of $13,333,333 under its Term Loan with (i) $2,333,333 of funds drawn on
its Working Capital Facility and (ii) $11,000,000 of funds borrowed from AGC-SP,
Inc., a wholly-owned special purpose subsidiary of the Company ("AP Sub") (the
"SP Sub Loan," which is described below).
The Reducing Revolving Loan terminated on June 26, 1998, and the Term
Loan terminated on June 30, 1998.
On June 30, 1998, the Company and Foothill entered into that certain
Third Amendment to Second Amended and Restated Revolving Loan Agreement (the
"Third Amendment"), pursuant to which Foothill agreed to (1) increase the
Working Capital Facility from $20 million to $25 million, (2) permit the Company
to enter into the SP Sub Loan and (3) modify the Borrowing Base for the Working
Capital Facility to limit it to $25 million through August 1,1998 (declining to
$23 million in August, $20 million through September, $17 million through
October, $12.5 million through November and $0 on December 1, 1998, coinciding
with the scheduled maturity date of the facility) and to provide for accelerated
mandatory Borrowing Base reductions aggregating $5 million upon certain events
on or before September 30, 1998. Amounts outstanding under the Working Capital
Facility bear 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. As of September 30, 1998, the Company had $19.9 million
outstanding under the Working Capital Facility.
On September 30, 1998, the Company and Foothill entered into that
certain Fourth Amendment to Second Amended and Restated Revolving Loan Agreement
(the "Fourth Amendment"), pursuant to which Foothill agreed to maintain the
Borrowing Base at $20 million through October 31, 1998.
The Company's material debt repayment obligations for the remainder of
1998 consist of (1) a $39.6 million payment on its Unsecured 13% Cash Flow Notes
due on December 31, 1998 (the "13% Cash Flow Notes"), which will fully retire
these obligations and (2) the balance of its Working Capital Facility which is
due in full on December 1, 1998 (collectively, the Company's "1998 Debt
Obligations").
The Company does not currently have sufficient liquid funds to satisfy
all of its 1998 Debt Obligations. However, management believes that, through a
combination of sources, it will be able to obtain the funds necessary to
continue to implement its business plan and, at the same time, satisfy all of
its 1998 Debt Obligations as they become due. The Company is in final
negotiations with (1) Foothill to obtain a new two-year $40 million revolving
line of credit, a portion of the proceeds of which will be used to repay the
existing Working Capital Facility and (2) another senior institutional lender to
obtain $25 million of senior subordinated financing (the "New Debt Facilities").
Management has obtained written term sheets from both lenders and anticipates
that it will be successful in closing the New Debt Facilities before the end of
1998. Closing of the New Debt Facilities is contingent on standard closing
conditions for facilities of these types. Several of these closing conditions
are within the lenders' sole discretion. Accordingly, there can be no assurances
that the New Debt Facilities will close until all such time as all of the
closing conditions are satisfied or waived by the lenders.
The Company's ongoing business plan is to continue to monetize its
Predecessor Assets and to reduce corporate debt. The Company has made
substantial progress in this regard. It sold $55.6 million of Predecessor Assets
in 1996, $41.2 million in 1997 and $19.5 million in the first nine months of
1998. As of September 30, 1998, the Company had $4.5 million of Predecessor
Assets under contract or letter of intent, consisting of $2.1 million cash and
$2.4 million of mortgage notes. The transactions under contract are subject to
customary closing conditions including, in certain cases, financing conditions.
Transactions subject to a letter of intent are subject to further negotiation
and documentation. While the Company expects to close these transactions in
1998, there can be no assurance that any particular transaction will be
consummated.
26
<PAGE>
The Company monetized mortgage and note receivables generated from the
sale of Predecessor Assets. The Company raised approximately $19.8 million of
cash, and received certain residual interests, in 1997 from the sale or
financing of mortgages and other receivables from the sale of Predecessor
Assets. These cash proceeds, along with the net cash proceeds from Predecessor
Asset sales, were used to reduce corporate debt and fund ongoing operations.
On March 31, 1998, AP-AGC LLC ("Apollo") purchased 173,525 shares of
Series A Preferred Stock and Investor Warrants to purchase 347,050 shares of
common stock, for an aggregate purchase price of $1,735,248, pursuant to the
terms of that certain Amended and Restated Investment Agreement by and between
the Company and Apollo (the "Investment Agreement"). See Note (7) to the
Company's Consolidated Financial Statements included in its First Quarter 1998
Form 10-Q, PART I., ITEM 1. BUSINESS - SIGNIFICANT BUSINESS DEVELOPMENTS in the
1997 Form 10-K and ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE INVESTMENT AGREEMENT in
the 1997 Form 10-K/A-1 for more information concerning Apollo's purchases of
Series A Preferred Stock and Investor Warrants. Apollo has now purchased all of
the Series A Preferred Stock and Investor Warrants covered by the Investment
Agreement.
As required by the Company's Agreements with Apollo, the proceeds from
the sale of the Series A Preferred Stock have been, and will be, used primarily
to acquire and develop properties through SP Sub and its subsidiaries. The
Company's repurchase and redemption obligations in respect of the Series A
Preferred Stock (but not the Series B Preferred Stock) are secured by (1) a
junior lien on substantially all of the assets of the Company and its
subsidiaries, except for SP Sub's capital stock and its assets, and (2) a senior
lien on SP Sub's capital stock and its assets. As discussed above, in June 1998,
with Apollo's consent, the Company and SP Sub entered into the SP Sub Loan,
pursuant to which the Company borrowed $11.5 million from SP Sub to pay down the
Term Loan and Reducing Revolving Loan. See the discussion of the use of SP Sub
Loan above.
The Company must apply any Available Cash (as defined in the governing
documents) to (1) the payment of interest due on the Company's 13% Unsecured
Cash Flow Notes due December 31, 1998 ("Cash Flow Notes") and (2) repayments of
principal on its Cash Flow Notes. Due to the establishment of certain reserves,
the Company had $0 of Available Cash as of the nine months ended September 30,
1998 and the twelve months ended December 31, 1997, respectively. Accordingly,
the Company did not accrue interest on its Cash Flow Notes during the nine
months ended September 30, 1998 and the twelve months ended December 31, 1997,
respectively. Also, the Company does not anticipate that it will have any
Available Cash during the remainder of 1998.
YEAR 2000 COMPLIANCE
- --------------------
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth century.
Such software may recognize a date using "00" as the year 1900 rather than the
year 2000. Utilizing both internal and external resources, the Company is in the
process of defining, assessing and converting or replacing various programs,
hardware and instrumentation systems to make them Year 2000 compatible. The
Company's Year 2000 project is comprised of two components - business
applications and equipment. The business applications component consists of the
Company's business computer systems, as well as the computer systems of
third-party suppliers or customers, whose Year 2000 problems could potentially
impact the Company. Equipment exposures consist of computers, personal
computers, system servers, telephone equipment and other related computer
equipment whose Year 2000 problems could also impact the Company. The Company
has identified and completed the upgrading or replacement of all critical
hardware and software systems . Remaining noncritical applications and hardware
replacements will be performed in the normal course of business throughout 1999.
Total remaining expenses are not expected to exceed $20,000 in 1999.
27
<PAGE>
PART II. - OTHER INFORMATION
Item 5. Other Information
-----------------
(1) NASDAQ Listing
--------------
On May 19, 1998, the NASDAQ Stock Market, Inc. ("NASDAQ"), informed the
Company, in writing, that it was no longer in compliance with the net tangible
assets/market capitalization/net income continued listing requirement of the
NASDAQ National Market system (the "NNM"), and, unless the Company could
demonstrate that it would promptly regain compliance with such listing
requirement, the Company's common stock would be de-listed from the NNM. A
hearing on this matter was held in front of NASDAQ on August 20, 1998. On
October 28, 1998, NASDAQ informed the Company that it would stay the proposed
de-listing of the Company's securities until December 10, 1998, pending the
successful completion by the Company of certain (1) capital restructuring
transactions and (2) other operating transactions to increase its Net Tangible
Assets (as defined by NASDAQ) to at least $14 million. While the Company is
working diligently to complete these transactions, there can be no assurance
that the Company will in fact be able to meet all of NASDAQ's conditions on
NASDAQ's timetable. If all of its conditions are timely met, NASDAQ will
terminate its de-listing proceeding. If the Company does not meet all of
NASDAQ's conditions on NASDAQ's timetable, NASDAQ has informed the Company that
its securities will be de-listed.
(2) Warrant Reset
-------------
As part of the 1997 Equity Transactions, the Company issued (1)
warrants to Apollo to acquire up to 5,000,000 shares of Common Stock and (2)
warrants to the purchasers of the Series B Preferred Stock to acquire up to
4,000,000 shares of Common Stock (collectively, the "Warrants"). The Warrants
have an exercise price of $5.75 per share (the "Exercise Price"). The Exercise
Price is subject to a potential downward adjustment by March 31, 1999, pursuant
to a formula in the event the Company's actual operating cash flow from certain
business lines is less than the targeted cumulative operating cash flow (i.e.,
$62.443 million) from such business lines on a cumulative basis for 1997 and
1998 (the "Warrant Reset"). No Warrant Reset will be made if, on December 31,
1998, and on an average basis during the three months ending on December 31,
1998, the average closing price for the Common Stock is greater than $9.75,
subject to certain adjustments.
Management has reviewed the Warrant Reset calculation through the date
hereof. At this time, based on the information currently available to it and the
projections for the remainder of 1998, the likely range of any Warrant Reset is
a downward adjustment of $0.50 to $1.50 in the exercise price per Warrant share.
This range is subject to fourth quarter events, many of which are outside the
control of the Company. Accordingly, there can be no assurance that the actual
Warrant Reset will not exceed $1.50 per share.
28
<PAGE>
Item 6. Exhibits and Reports On Form 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
(10.4) Fourth Amendment to Second Amended and Restated Revolving
Loan Agreement , dated as of September 30, 1998, by and among
Atlantic Gulf Communities Corporation (as Borrower), the
Financial Institutions listed on the signature pages thereto
(as Lenders) and Foothill Capital Corporation (as Agent and
Collateral Agent).
(21) Subsidiaries of the Company.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None
29
<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: November 12, 1998 /s/ THOMAS W. JEFFREY
----------------- -------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: November 12, 1998 /s/ PAULA J. COOK
----------------- ----------------------------------
Paula J. Cook
Vice President and Controller
(Principal Accounting Officer)
30
Atlantic Gulf Communities Corporation Exhibit to the September 30, 1998
Form 10-Q
Exhibit (a)(10.4) Fourth Amendment to Second Amended and Restated Revolving Loan
Agreement Atlantic Gulf Communities Corporation, dated as of September 30, 1998
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
ATLANTIC GULF COMMUNITIES CORPORATION
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING LOAN
AGREEMENT (this "FOURTH AMENDMENT") is entered into as of September 30, 1998 by
and among ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation,
formerly known as General Development Corporation ("COMPANY"), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (together with each financial
institution that may become a party to this Agreement as herein provided,
referred to herein individually as a "BANK" and collectively as "BANKS"),
FOOTHILL CAPITAL CORPORATION, a California corporation, as successor to Chemical
Bank as agent for Banks (hereinafter, in such capacity, together with any
successors thereto in such capacity, referred to as "AGENT"), and FOOTHILL
CAPITAL CORPORATION, a California corporation, as collateral agent for Banks
(hereinafter, in such capacity, together with any successors thereto in such
capacity, referred to as "COLLATERAL AGENT").
R E C I T A L S:
WHEREAS, Company, Banks, Agent and Collateral Agent entered into that
certain Second Amended and Restated Revolving Loan Agreement dated as of
September 30, 1996, as modified by that certain Amendment dated as of March 31,
1997, as further modified by that certain Second Amendment dated as of June 17,
1997, as further modified by that certain Third Amendment dated as of June 30,
1998 (collectively, the "Loan Agreement").
WHEREAS, the parties hereto desire to enter into this Fourth Amendment
for the purpose of modifying the Loan Agreement with respect to the dates for
mandatory principal reduction payments to be made under the Working Capital Note
dated June 30, 1998 in the original principal amount of Twenty-Five Million
Dollars ($25,000,000.00);
WHEREAS, all terms which are capitalized but not defined herein shall
have the meaning set forth therefor in the Loan Agreement.
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Banks, Agent and Collateral
Agent agree as follows:
1. RECITALS. The foregoing recitals are true and correct and are
incorporated herein by reference.
2. AMENDMENT AND RESTATEMENT OF CERTAIN DEFINED TERMS.
Subparagraph B of the definition of Borrowing Base in the Loan
Agreement is hereby
1
<PAGE>
amended and restated as follows:
B. With respect to each corresponding period, the amounts set forth
on the chart below (the "Borrowing Base Limits"):
DATE BORROWING BASE LIMIT
September 1, 1998, through
October 31, 1998 $20,000,000.00
November 1, 1998, through
November 30, 1998 $12,500,000.00
December 1, 1998 $0.0
Anything to the contrary notwithstanding, the Borrowing Base shall not include,
directly or indirectly, either any asset of any Unrestricted Subsidiary, or any
of the following: (a) any Homesite Contract Receivable, Commercial Receivable,
or JV Receivable to the extent the same is sold or discounted; or (b) any Real
Property or JV Real Property to the extent the same is sold or otherwise
disposed of; or (c) any Borrowing Base Joint Venture interest to the extent the
same (or any underlying JV Real Property of the relevant Borrowing Base Joint
Venture) is sold or otherwise disposed of; in each case, whether pursuant to
Section 7.6 or otherwise.
3. AMENDMENT FEE. In consideration for the execution and delivery of
this Fourth Amendment, the Company agrees to pay Collateral Agent the sum of
Seventy-Five Thousand and No/100 Dollars ($75,000.00) (the "Amendment Fee"). The
Amendment Fee shall be delivered by the Company to Collateral Agent
simultaneously with the execution of this Fourth Amendment.
4. RATIFICATION. Except as modified by this Fourth Amendment and by
any other documents executed in connection herewith, the terms and conditions of
the Loan Agreement and all other Loan Documents are hereby ratified and
confirmed and remain in full force and effect.
5. MISCELLANEOUS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Fourth Amendment.
(b) COUNTERPARTS. This Fourth Amendment may be executed by one or
more of the parties to this Fourth Amendment on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATLANTIC GULF COMMUNITIES
CORPORATION
By:
--------------------------
John H. Fisher
Vice President
FOOTHILL CAPITAL CORPORATION,
as Agent and as a Bank
By:
--------------------------
Catherine Burke
Senior Vice President
FOOTHILL CAPITAL CORPORATION,
as Collateral Agent
By:
--------------------------
Catherine Burke
Senior Vice President
3
<PAGE>
JOINDER AND CONSENT
AP-AGC, LLC, a Delaware limited liability company, consents to the
Company entering into this Fourth Amendment and agrees that the execution and
delivery of this Fourth Amendment shall not constitute a default or event of
default under that certain Investment Agreement dated February 7, 1997 (together
with any and all amendments and modifications thereto), or that certain Secured
Agreement dated as of February 7, 1997 (together with any and all amendments and
modifications thereto), or any other documents executed in connection with
either of the foregoing documents.
AP-AGC, LLC, a Delaware limited
liability company
By: KRONUS PROPERTY, INC., its
manager
By:
-------------------------
Ricardo Koenigsberger
Vice President
4
Atlantic Gulf Communities Corporation Exhibit to the September 30, 1998
Form 10-Q
Exhibit (a) (21) Subsidiaries of the Company
- --------------------------------------------
SUBSIDIARIES OF ATLANTIC GULF COMMUNITIES CORPORATION
A DELAWARE CORPORATION - AS OF OCTOBER 29, 1998
AG-NTC, Inc. (Florida)
AG Sanctuary of Orlando, Inc. (Florida)
AG Title Corporation (Florida)
AGC CL Limited Partner, Inc. (Florida)
AGC Homes, Inc. (Florida)
AGC Sanctuary Corporation (Florida)
AGC-SP, Inc. (Delaware)
AGC-SP4, Inc. (Florida)
AGC-SP5, Inc. (Florida)
Aspen Springs Ranch Acquisition Corp. (Colorado)
Aspen Springs Ranch Holding Company (Florida) -
f/k/a A. G. Assisted Living, Inc.
Aspen Springs Ranch, Inc. (Colorado)
Atlantic Gulf Asia Holdings N.V. (Netherlands Antilles)
Atlantic Gulf C.C. Corp. (Florida) - f/k/a C.C. Village Development Corporation
Atlantic Gulf Commercial Realty, Inc. (Florida)
Atlantic Gulf Communities Management Corporation (Florida)
Atlantic Gulf Communities Service Corporation (Florida)
Atlantic Gulf Development, Inc. (Florida)
Atlantic Gulf Engineering Company (Florida)
Atlantic Gulf of Tampa, Inc. (Florida)
Atlantic Gulf Realty, Inc. (Florida)
Atlantic Gulf Receivables Corporation (Florida)
Atlantic Gulf Utilities, Inc. (Florida)
Community Title Agency, Inc. (Florida)
Country Lakes Development Corporation (STOCK ISSUED TO COUNTRY LAKES, LP)
Cumberland Cove, Inc. (Tennessee)
Environmental Quality Laboratory, Incorporated (Florida)
EQL Environmental Services, Inc. (Florida)
Five Star Homes, Inc. (Florida)
Fox Creek Development Corporation (Florida)
FRC Investments, Inc. (Florida)
GDV Financial Corporation (Florida)
General Development Acceptance Corporation (Delaware)
General Development Air Service, Inc. (Florida)
General Development Commercial Credit Corp. (Florida)
General Development Headquarters Corp. (Florida)
General Development Resorts, Inc. (Florida)
General Development Sales Corporation (Florida)
General Development Service Corporation (Florida)
General Development Utilities, Inc, Inc. (Florida)
Grand Oaks Development Corporation (Florida)
Hunter Trace Development Corporation (Florida)
Lakeside Development of Orlando, Inc. (Florida)
Las Olas Tower at River Walk, Inc. - fka AGC-SP2, Inc.
Longwood Utilities, Inc. (Florida)
Maplewood Development Corporation (Florida)
Miramar Rock, Inc. (STOCK ISSUED TO SUNSET LAKES ASSOCIATES)
NT Development Corporation (STOCK ISSUED TO COUNTRY LAKES, LP)
Ocean Grove, Inc. (Florida)
Panther Creek Corp. (North Carolina)
Regency Island Dunes, Inc. (Florida)
Sabal Trace Development Corporation (Florida)
<PAGE>
Saxon-DeBary, Inc. (Florida)
SUBSIDIARIES OF ATLANTIC GULF COMMUNITIES CORPORATION
A DELAWARE CORPORATION - AS OF OCTOBER 29, 1998 (Continued)
Summerchase Development Corporation (Florida)
Sunset Lakes Development Corporation (Florida)
Town & Country II, Inc. (Florida)
Waterford-Orlando, Inc. (Florida) fka: AGC-SP1, Inc.;
fka Saxon Park Development Corporation
West Bay Club Development Corporation (Florida)
fka Estero Pointe Development Corporation
West Bay Holding Corporation (Florida)
West Bay Realty, Inc. (Florida)
West Frisco Development Corporation (Florida) - fka AGC-SP3, Inc.
Windsor Palms Corporation (Florida)
XYZ Insurance, Inc. (Florida)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities Corporation
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,746
<SECURITIES> 0
<RECEIVABLES> 37,025
<ALLOWANCES> 0
<INVENTORY> 152,626
<CURRENT-ASSETS> 0
<PP&E> 6,015
<DEPRECIATION> 0
<TOTAL-ASSETS> 220,545
<CURRENT-LIABILITIES> 0
<BONDS> 146,690
51,692
0
<COMMON> 1,192
<OTHER-SE> (2,229)
<TOTAL-LIABILITY-AND-EQUITY> 220,545
<SALES> 62,843
<TOTAL-REVENUES> 72,409
<CGS> 51,351
<TOTAL-COSTS> 57,227
<OTHER-EXPENSES> 8,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,246
<INCOME-PRETAX> (7,056)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,056)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
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