UNITED STATES
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 June 30, 2000
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-0720444
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 N. FEDERAL HWY, SUITE 105 E
BOCA RATON, FLORIDA 33431
(Address of principal executive offices) (Zip Code)
(561) 620-0029
(Registrant's telephone number, including area code)
APPLICABLE ONLY TO CORPORATE ISSUERS:
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
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest date practicable:
There were 12,382,241shares of the Registrant's common stock, $.10 par value per
share (the "Common Stock"), outstanding as of August 7, 2000.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 2000, CERTAIN MATTERS DISCUSSED
HEREIN, INCLUDING PART II., ITEM 2., "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," 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 LUXURY/RESORT AND NON-LUXURY/RESORT
MARKETS IN FLORIDA AND COLORADO; THE INDUSTRY AND INDUSTRY SEGMENT CONDITIONS
AND DIRECTIONS; INTEREST RATES; THE AVAILABILITY AND COST OF FINANCING REAL
ESTATE ACQUISITIONS AND DEVELOPMENTS; CONSTRUCTION COSTS; WEATHER; THE
AVAILABILITY AND COST OF MATERIALS AND LABOR; CONSUMER PREFERENCES AND TASTES;
GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT AND
EQUITY STRUCTURE, RELATED FINANCING CONTINGENCIES AND RESTRICTIONS AND THE
COMPANY'S ABILITY TO CURE EXISTING DEFAULTS UNDER CERTAIN OF ITS DEBT
AGREEMENTS; 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 SUCCESS OR LACK THEREOF OF THE COMPANY'S STRATEGIC ALTERNATIVE
INITIATIVE.
<PAGE>
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999...............................................2
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2000 and 1999.....................3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999.............................4
Notes to Consolidated Financial Statements......................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................29
Item 2. Changes in Securities.........................................29
Item 3. Defaults Upon Senior Securities...............................29
Item 4. Submission of Matters to a Vote of Security Holders...........29
Item 5. Other Information.............................................29
Item 6. Exhibits and Reports on Form 8-K..............................29
SIGNATURES....................................................................30
i
<PAGE>
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1)
"ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION, (2) THE
"COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED
SUBSIDIARIES AND (3) THE "PREDECESSOR COMPANY" REFER SOLELY TO GENERAL
DEVELOPMENT CORPORATION (ATLANTIC GULF'S CORPORATE PREDECESSOR) AND ITS DIRECT
AND INDIRECT SUBSIDIARIES.
PART I. FINANCIAL INFORMATION
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(in thousands, except share amounts and par value)
ASSETS June 30, December 31,
------ 2000 1999
---- ----
(Unaudited)
Cash and cash equivalents $ 3,345 $ 8,148
Restricted cash and cash equivalents 1,023 2,147
Contract receivables, net 1,248 2,048
Mortgages, notes and other receivables, net 5,242 7,926
Land and residential inventory 125,665 121,116
Property, plant and equipment, net 10,352 12,750
Other assets, net 3,412 8,817
--------- ---------
Total assets $ 150,287 $ 162,952
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Accounts payable and accrued liabilities $ 20,343 $ 19,386
Other liabilities 11,620 9,778
Notes and mortgages payable 135,842 145,378
--------- ---------
167,805 174,542
Commitments and Contingencies
Redeemable Preferred Stock
Series A, 20%, $.01 par value, 2,500,000
shares authorized; 2,500,000 shares issued
and outstanding, having a liquidation
preference of $43,829 and $39,754 as of June
30, 2000 and December 31, 1999, respectively 42,826 38,310
Series B, 20%, $.01 par value; 2,000,000
shares authorized; 2,000,000 shares issued
and outstanding, having a liquidation
preference of $34,706 and $31,480 as of
June 30, 2000 and December 31, 1999,
respectively 34,031 30,531
--------- ---------
76,857 68,841
Common stockholders' deficit
Common stock, $.10 par value, 70,000,000
shares authorized; 12,821,432 shares
issued and outstanding as of June 30, 2000
and December 31, 1999 1,281 1,281
1999
Contributed capital 94,385 102,402
Accumulated deficit (183,156) (177,229)
Accumulated other comprehensive loss (6,746) (6,746)
Treasury stock, 439,191 shares, at cost (139) (139)
--------- ---------
Total common stockholders' deficit (94,375) (80,431)
--------- ---------
Total liabilities and common stockholders' deficit $ 150,287 $ 162,952
========= =========
See accompanying notes to consolidated financial statements.
2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Revenues: 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate sales:
Homesite $ 10,219 $ 9,993 16,870 $ 17,635
Commercial 283 911 3,185 6,229
-------- -------- -------- --------
Total real estate sales 10,502 10,904 20,055 23,864
Other operating revenue 1,415 1,081 4,047 3,340
Interest income 124 164 922 1,045
-------- -------- -------- --------
Total revenues 12,041 12,149 25,024 28,249
Costs and expenses:
Cost of real estate sales:
Homesite 9,240 8,360 15,029 15,247
Commercial 238 621 2,632 4,524
-------- -------- -------- --------
Total cost of real estate sales 9,478 8,981 17,661 19,771
Inventory Valuation Reserve 900 3,424 900 3,424
Selling expense 1,587 1,702 3,343 3,535
Operating expense 499 1,463 1,397 1,840
Real estate costs 1,044 2,430 1,697 4,167
General and administrative expense 1,513 3,372 2,225 7,025
Cost of borrowing, net of amounts
capitalized 2,159 964 3,311 2,751
Other expense - 217 1,135 407
-------- -------- -------- --------
Total costs and expenses 17,180 22,553 31,669 42,920
-------- -------- -------- --------
Operating loss (5,139) (10,404) (6,645) (14,671)
Other income (expense):
Reorganization items - 146 710 685
-------- -------- -------- --------
Total other income (expense) 0 146 710 685
-------- -------- -------- --------
Net loss income (5,139) (10,258) (5,935) (13,986)
Less:
Accrued preferred stock dividends 3,739 3,076 7,301 6,007
Accretion of preferred stock to
redemption amount 358 347 714 691
Modification of preferred stock
security interest - - - 2,380
-------- -------- -------- --------
4,097 3,423 8,015 9,078
-------- -------- -------- --------
Net loss applicable to common stock $ (9,236) $(13,681) $(13,950) $(23,064)
======== ======== ======== ========
Basic and diluted net loss per common
share $ (.75) $ (1.08) $ (1.13) $ (1.86)
======== ======== ======== ========
Weighted average common shares
outstanding 12,382 12,638 12,382 12,402
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(in thousands of dollars)
(Unaudited)
Six Months Ended
June 30,
2000 1999
---- ----
Cash flows from operating activities:
Net loss $ (5,935) $(13,986)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 299 2,083
Other expense (income) 1,138 (6)
Inventory valuation reserves 900 -
Loss on sale of property, plant and equipment (3) -
Other net changes in assets and liabilities:
Restricted cash 1,124 345
Receivables 3,382 7,603
Land and residential inventory (2,811) (6,119)
Other assets 4,267 (4,323)
Accounts payable and accrued liabilities 4,638 (917)
Customer and other deposits 1,644 -
Other liabilities (3,475) (702)
-------- --------
Net cash provided by (used in) operating
activities 5,167 (16,022)
-------- --------
Cash flow from investing activities:
Additions to property, plant and equipment, net (434) (784)
-------- --------
Net cash used in investing activities (434) (784)
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 15,420 93,784
Repayments under credit agreements (24,956) (83,782)
-------- --------
Net cash (used in) provided by financing
activities (9,536) 10,002
-------- --------
Decrease in cash and cash equivalents (4,803) (6,804)
Cash and cash equivalents at beginning of period 8,148 9,413
-------- --------
Cash and cash equivalents at end of period $ 3,345 $ 2,609
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 1,026 $ 3,086
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
(1) The June 30, 2000 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, 1999 ("1999"), as filed with
the Securities and Exchange Commission (the "SEC") on April 14, 2000
("1999 Form 10-K"). Certain prior year amounts have been reclassified to
conform with the fiscal year 2000 ("2000") presentation.
(2) Net income (loss) per share of common stock of the Company ("Common
Stock") is computed by (a) deducting from net income (loss) all accrued
preferred stock dividends, accretion of preferred stock to redemption
amount and other preferred stock charges 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 Cost of real estate
sales when the related asset is sold. Capitalized interest was $3,934,000
and $10,339,000 for the three and six months ended June 30, 2000,
respectively, and $6,043,000 and $10,197,000 for the three and six months
ended June 30, 1999, respectively.
(4) Revenue from the sale of land is recognized when all the criteria for
sales pursuant to SFAS 66, Accounting for Sales of Real Estate, have been
met.
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
(5) Redeemable preferred stock which includes the 20% Cumulative Redeemable
Convertible Preferred Stock, Series A (the "Series A Preferred Stock), and
the 20% Cumulative Redeemable Convertible Preferred Stock, Series B (the
"Series B Preferred Stock") consisted of the following at June 30, 2000,
December 31, 1999, and June 30, 1999 (in thousands of dollars):
June 30, December 31, June 30,
2000 1999 1999
---- ---- ----
SERIES A PREFERRED STOCK:
Gross proceeds $ 25,000 $ 25,000 $ 25,000
Accrued dividends 18,829 14,754 11,059
-------- -------- --------
Liquidation Preference amount 43,829 39,754 36,059
Less issue costs (3,104) (3,104) (3,104)
Less warrants purchased (300) (300) (300)
Plus accretion of preferred stock to
redemption amount 2,401 1,960 1,526
-------- -------- --------
Total Series A Preferred Stock 42,826 38,310 34,181
SERIES B PREFERRED STOCK:
Private Placement June 24, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 8,028 6,352 4,832
-------- -------- --------
Liquidation Preference amount 18,028 16,352 14,832
-------- -------- --------
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to
redemption amount 770 634 500
-------- -------- --------
17,728 15,916 14,262
Rights Offering November 19, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 6,678 5,128 3,721
-------- -------- --------
Liquidation Preference amount 16,678 15,128 13,721
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to
redemption amount 695 557 423
-------- -------- --------
16,303 14,615 13,074
-------- -------- --------
Total Series B Preferred Stock 34,031 30,531 27,336
-------- -------- --------
Total Redeemable Preferred Stock $ 76,857 $ 68,841 $ 61,517
======== ======== ========
6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
(6) During the six months ended June 30, 2000 and 1999, comprehensive loss
consisted only of the net losses for those periods.
(7) Segment Reporting
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000:
Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Other Total
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 11,152 $ 6,004 $ 2,899 $ 4,969 $ 25,024
======== ======== ======== ======== ========
Gross Margin $ 1,979 $ 184 $ 231 $ - $ 2,394
======== ======== ======== ========
Inventory valuation reserve - (900) - - (900)
Joint Venture valuation reserve - (1,138) - - (1,138)
-------- -------- -------- -------- --------
1,979 (1,854) 231 - 356
Unallocated revenues (expenses), net (6,291)
--------
Net Loss $ (5,935)
========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999:
Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Other Total
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 4,862 $ 14,986 $ 4,016 $ 4,385 $ 28,249
======== ======== ======== ======== ========
Gross Margin $ 998 $ 2,339 $ 756 $ - $ 4,093
======== ======== ======== ========
Unallocated revenues (expenses), net (18,079)
--------
Net Loss $(13,986)
========
</TABLE>
(8) The Company is currently in default under project indebtedness for the
Chenoa Project. Management of the Company is in negotiations with its
lenders to address such defaults.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CURRENT BUSINESS
The Company is a Florida-based, planned community development and asset
management company. The Company's business consists of:
- Luxury/Resort Operations, consisting of the acquisition, development
and sale of real estate projects ("Luxury/Resort Projects") in which
the Company engages in one or more of the following activities:
Homesite development, construction of Vertical Residential Units
(i.e., single family housing, condominiums and timeshare units), and
construction and operation of equity golf clubs and other amenities
("Amenities"). The Company has two existing Luxury/Resort Projects,
one located in Florida (the West Bay Club Project) and another
located in Colorado (the Chenoa Project) ("Luxury/Resort Markets").
- Other Operations, consisting principally of:
-- Non-Luxury/Resort Operations, formerly referred to as Primary
Market Operations, consisting of the development and sale of
existing real estate projects containing residential Homesite
components such as single-family lots, multi-family lots/units
and residential tract sales ("Homesites") and/or
non-residential components such as commercial, industrial,
office and institutional ("Commercial Development") in primary
markets in Florida ("Primary Markets"). The Company has one
existing Non-Luxury/Resort Operation, located in the Orlando
area (the Saxon Woods Project).
-- Receivables Portfolio Management, consisting of portfolio
management of Mortgage Receivables (as defined below) and
Contract Receivables (as defined below) resulting principally
from the sale or other disposition of Predecessor Assets (as
defined below).
The Company is also engaged in the orderly disposition of scattered
Predecessor Homesites (as defined below) and Predecessor Tracts (as defined
below) located in secondary markets in Florida and Tennessee (collectively,
"Predecessor Assets"). As discussed below, the continuing disposition of
Predecessor Assets is a run-off business and not part of the Company's Core
Business.
See ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for a brief
description of the Projects sold during the past 19 months.
8
<PAGE>
CORE BUSINESS
GENERAL. The Company's Core Business consists of two principal business
lines:
- Development and sale of Luxury/Resort Projects; and
- Other Operations, principally including the sale of
Non-Luxury/Resort Projects and Receivables Portfolio Management.
LUXURY/RESORT PROJECTS. The Company is engaged in the development and sale
of master planned Luxury/Resort Projects in Luxury/Resort Markets in Florida and
Colorado. A Luxury/Resort Market is typically not a Primary Market in terms of
the volume of new single family home construction permits, but relative demand
is usually strong and the average retail price of new construction is usually
much higher. Also, there is much less focus in a Luxury/Resort Market on
industrial or employment growth in the area or the quality of schools, and more
focus on natural and/or man-made amenities.
REMAINING UNSOLD LOTS/UNITS/ACRES IN THE LUXURY/RESORT PROJECTS, BY
PROJECT. The following table summarizes the number of remaining unsold
lots/units/acres at the Company's Luxury Resort Projects, by Project, as of June
30, 2000:
<TABLE>
<CAPTION>
Lots/Units/Acres at June 30, 2000 (1)
----------------------------------------------------------------------------------------
Homesites Vertical Residential Units Commercial
Single Family Single Family Multi-Family Timeshare Cabins Development
Total Total Total Total Total Total Total Total Total Total
Lots Entitled Units Entitled Units Entitled Units Entitled Acres Entitled
----------------------------------------------------------------------------------------
OWNED PROPERTIES
----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West Bay Club................ 167 167 54 54 401 401 - - 5 5
Chenoa....................... 412 - - - 41 - 75 - 5 -
----------------------------------------------------------------------------------------
Owned Properties............. 579 167 54 54 442 401 75 - 10 5
----------------------------------------------------------------------------------------
</TABLE>
(1) Varying by Project, unsold units are developed, under development or to be
developed in the future.
9
<PAGE>
OTHER OPERATIONS.
NON-LUXURY/RESORT PROJECTS. The Company is engaged in the sale of
Non-Luxury/Resort Projects in Florida. The Company defines a Non-Luxury/Resort
Market as a geographic market in which more than 5,000 single family home
construction permits are issued annually.
REMAINING UNSOLD LOTS/UNITS IN THE NON-LUXURY/RESORT PROJECTS, BY
PROJECT. The following table summarizes the number of remaining unsold
lots/units at the Company's Non-Luxury Resort Projects, by Project, as of June
30, 2000:
LOTS/UNITS AT JUNE 30, 2000 (1)
-------------------------------
Single Family
Total Total
Lots Entitled
-------------------------------
OWNED PROPERTIES
Saxon Woods ..................... 348 348
West Meadows (2)................. 545 545
-------------------------------
Total All Properties............. 893 893
===============================
(1) Varying by Project, unsold units are developed, under development or to be
developed in the future.
(2) This project was replatted to include an additional 79 lots, prior to its
sale in July 2000.
RECEIVABLES PORTFOLIO MANAGEMENT. The Company is actively engaged in
the management and collection of a portfolio of (1) contract receivables
originated by the Predecessor Company's homesite installment sales program (the
"Contract Receivables") and (2) mortgage receivables generated primarily from
the Company's sales of Predecessor Tracts (the "Mortgage Receivables," which,
together with the Contract Receivables, are collectively referred to as the
"Receivables Portfolio"). As of June 30, 2000 and December 31, 1999, the
portfolio of Contract Receivables had a net book value of $1.2 million and $2.0
million, respectively. As of June 30, 2000 and December 31, 1999, the portfolio
of Mortgage Receivables had a net book value of $3.2 million and $6.2 million,
respectively.
10
<PAGE>
PREDECESSOR ASSETS
The following table summarizes the Company's Predecessor Homesite
Inventory by secondary market area as of June 30, 2000:
PREDECESSOR HOMESITE INVENTORY
(IN HOMESITES)
<TABLE>
<CAPTION>
Other Total
Standard Developed Buildable Other Predecessor
Market Area Buildable Lots (1) Reserved (2) Restricted (3) Homesites
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Port 3,246 9 68 128 3,451
Port Charlotte 1,780 74 116 134 2,104
Port St. Lucie 352 24 64 48 488
Port Malabar 41 1 1,755 1,550 3,347
Port Labelle 740 - 32 1,054 1,826
Silver Springs Shores 519 79 2044 274 2,916
Cumberland Cove 2 - - 1 3
Other 22 - - 2 24
------------------------------------------------------------------
Total 6,702 187 4,079 3,191 14,159
------------------------------------------------------------------
</TABLE>
(1) Includes commercial/industrial and other premium lots.
(2) Includes 3,795 lots held for Utility Reserves.
(3) Represents Predecessor Homesites which may not be buildable due to
lack of utility availability or engineering or title issues, and may
only be sold under certain conditions. The Company's inventory of
Predecessor Homesites that is not buildable has declined and is
expected to decline further as currently non-buildable Predecessor
Homesites become buildable. These Predecessor Homesites become
buildable as the communities in which these lots are located grow
and extend utility services to these lots and the Company satisfies
title or engineering issues with respect to these lots. The
Company's plans are to continue to take the appropriate actions to
convert these lots to buildable Predecessor Homesites consistent
with market demand and to monetize these assets and repay debt.
11
<PAGE>
The following table summarizes the Company's Predecessor Commercial
Development Inventory by secondary market area as of June 30, 2000:
PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY
Total
Market Area Acres
---------------------- -----------
North Port 237
Port Charlotte 843
Port St. Lucie 218
Port Malabar 600
Port Labelle 215
Silver Springs Shores 31
Cumberland Cove 685
Other 39
-----------
Total 2,868
===========
The decrease in inventory from December 31, 1999 is primarily a result of
sales activity during the intervening period in accordance with the Company's
plan of disposal of Predecessor Assets. See PART I, ITEM 1. BUSINESS -
PREDECESSOR ASSETS of the 1999 Form 10-K for information concerning the
Predecessor Homesite and Predecessor Commercial Development Inventory.
12
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
The Company's results of operations for the six months ended June 30, 2000
and 1999, respectively, are summarized below:
COMBINING RESULTS OF REAL ESTATE OPERATIONS
Six Months Ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ $ 9,099 $ 6,004 $ 1,767 $ 16,870
Commercial .......................... 2,053 - 1,132 3,185
---------------------------------------------------
Total real estate sales ................ 11,152 6,004 2,899 20,055
Costs and expenses:
Cost of real estate sales
Homesite ............................ 7,566 5,820 1,643 15,029
Commercial .......................... 1,607 - 1,025 2,632
---------------------------------------------------
Total cost of real estate sales ........... 9,173 5,820 2,668 17,661
---------------------------------------------------
Gross margin real estate sales ............ $ 1,979 $ 184 $ 231 $ 2,394
===================================================
Results of Joint Venture Operations(1)..... $ - $ (1,138) $ - $ (1,138)
===================================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of Operations.
13
<PAGE>
COMBINING RESULTS OF REAL ESTATE OPERATIONS
Six Months Ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ $ 4,862 $ 10,486 $ 2,287 $ 17,635
Commercial .......................... - 4,500 1,729 6,229
Total real estate sales ................ 4,862 14,986 4,016 23,864
Costs and expenses:
Cost of real estate sales
Homesite ............................ 3,864 9,406 1,977 15,247
Commercial .......................... - 3,241 1,283 4,524
---------------------------------------------------
Total cost of real estate sales ........... 3,864 12,647 3,260 19,771
---------------------------------------------------
Gross margin real estate sales ............ $ 998 $ 2,339 $ 756 $ 4,093
===================================================
Results of Joint Venture Operations(1)..... $ (373) $ (34) $ - $ (407)
===================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$13.9 million in the first six months of 2000, compared to a net loss of $23.1
million applicable to Common Stock in the first six months of 1999. The decrease
in net loss of $9.2 million was due primarily to (1) a $4.7 million decrease in
general and administrative expenses, (2) a $1.1 million decrease in total
preferred stock charges, (3) a $2.5 million decrease in real estate costs (4) a
$3.9 decrease in other operating cost, partially offset by (5) a $1.1 million
reserve charge reducing the carrying value of the Falcon Trace Joint Venture
Project and (6) a $1.7 million decrease in sales gross margin.
LUXURY/RESORT OPERATIONS.
HOMESITES. Revenues from Homesite sales increased by $4.2 million to
$9.1 million in the first six months of 2000, compared to $4.9 million in the
first six months of 1999. The $4.2 million increase was due primarily to the
increase in marketing and public awareness for the West Bay Club Project.
Homesite sales began at the West Bay Club Project during the first six months of
1999. The Homesite sales gross margin percentage was 16.8% in the first six
months of 2000 compared to 20.5% in the first six months of 1999. The 3.7%
decrease in Homesite sales gross margin was due primarily to the increase in
unit production cost at the West Bay Club Project.
As of June 30, 2000, the Company had under contract 168 Homesites for
$11.3 million in the West Bay Club Project. As of December 31, 1999 and June 30,
1999, the Company had under contract 156 and 182 Homesites for $8.3 million and
$9.8 million, respectively, in the West Bay Club Project.
14
<PAGE>
COMMERCIAL DEVELOPMENT. Revenues from Commercial Development were
$2.1 million in the first six months of 2000, compared to $0 in the first six
months of 1999. The $2.1 million increase was primarily due to the sale to
Albertson's at the West Bay Project during the first six months of 2000. The
Commercial Development sales gross margin percentage was 21.7% in the first six
months of 2000.
JOINT VENTURES. Results of Joint Ventures in the first six months of
2000 were $0, compared to a net loss of $373,000 for the first six months of
1999. The $373,000 decrease in Joint Venture net loss was due to the sale of the
Jupiter Ocean Grande Project during 1999.
NON-LUXURY/RESORT OPERATIONS.
HOMESITES. Revenues from Homesite sales decreased by $4.5 million to
$6.0 million in the first six months of 2000, compared to $10.5 million in the
first six months of 1999. The $4.5 million decrease was due primarily to a
declining inventory balance in 2000 as compared to 1999. Total inventory
decreased significantly from the final sale of The Trails of West Frisco Project
in December 1999. The Homesite sales gross margin decreased by 7.2% to 3.1% in
the first six months of 2000, compared to 10.3% in the first six months of 1999.
The 7.2% decrease in Homesite sales gross margin was due primarily to a decline
in the gross margins associated with the Lakeside Estates and West Meadows
Project. The higher than expected development costs resulted in a break-even
margin for Lakeside Estates final sell out and a 4.5% margin for the West
Meadows project.
As of June 30, 2000, the Company had under contract 545 Homesites for $5.9
million in the West Meadows Project. As of December 31, 1999, the Company had
under contract 72 Homesites for $3.2 million in the Lakeside Estates, the Saxon
Woods and the West Meadows Projects. And, as of June 30, 1999, the Company had
under contract 770 Homesites for $24.4 million in the Lakeside Estates, the
Saxon Woods, the West Meadows and The Trails of West Frisco Projects.
As of June 30, 2000, the Company was party to a contract to sell its West
Meadows project. The closing of the sale is scheduled to occur during the third
quarter of 2000. See ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for further
details on the sale and pending sale of the Lakeside Estates and West Meadows
projects.
15
<PAGE>
COMMERCIAL DEVELOPMENT. Revenues from Commercial Development were $0
in the first six months of 2000, compared to $4.5 million in the first six
months of 1999. The $4.5 million decrease in revenues from Commercial
Development was due to the lack of inventory for sale. In January 1999, the
Company sold the remaining 26 acres of Non-Luxury/Resort property, located at
the West Meadows Project, for $4.5 million.
JOINT VENTURES. Loss from Joint Ventures in the first six months of
2000 were $1.1 million, compared to a net loss of $34,000 for the first six
months of 1999. The $1.1 million additional loss on JV Projects was primarily
due to an investment valuation reserve charge related to the Falcon Trace JV
Project. In March 2000, the Company sold the Falcon Trace JV Project for
approximately $6.4 million. No gain or loss was realized on the sale.
As of June 30, 2000, the Company's JV projects had no remaining homesites
under contract or available for sale. As of December 31, 1999 and June 30, 1999,
the Company's JV Projects had six and 595 Homesites under contract for
approximately $282,000 and $28.1 million, respectively, in future gross revenue,
a portion of which is allocable to the Company as a joint venturer.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales
decreased by $520,000 to $1.8 million in the first six months of 2000, compared
to $2.3 million in the first six months of 1999. The $520,000 decrease was due
primarily to the elimination of sales staff responsible for the sale of
Predecessor Homesites during the first six months of 2000, compared to the first
six months of 1999. The Predecessor Homesite sales gross margin percentage
decreased by 6.6% to 7.0% in the first six months of 2000, compared to 13.6% in
the first six months of 1999. The 6.6% decrease in Predecessor Homesite sales
gross margin is due primarily to a decrease in the average sales price.
As of June 30, 2000, the Company had under contract approximately 752
Predecessor Homesites for $895,000. As of December 31, 1999 and June 30, 1999,
the Company had under contract 1,103 and 137 Predecessor Homesites for $1.6
million and $614,000, respectively.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales of $1.1
million in the first six months of 2000 were comparable to $1.7 in the first six
months of 1999. A comparable number of Predecessor Tracts were sold in the first
half of 2000, compared to the first half of 1999. The Predecessor Tract sales
gross margin percentage decreased by 16.3% to 9.5% in the first six months of
2000, compared to 25.8% in the first six months of 1999. The 16.3% decrease in
Predecessor Tracts sales gross margin was consistent with the Company's
accelerated plan of disposal of its Predecessor Assets.
As of June 30, 2000, there were pending Predecessor Tract sales
contracts or letters of intent totaling approximately $276,000. As of December
31, 1999 and June 30, 1999, there were pending Predecessor Tract sales contracts
or letters of intent totaling approximately $1.3 million and $1.8 million,
respectively.
16
<PAGE>
OTHER RESULTS OF OPERATIONS.
OTHER OPERATING REVENUE. Other operating revenue increased by
$600,000 to $5.0 million in the first six months of 2000, compared to $4.4
million in the first six months of 1999. The $1.0 million increase was primarily
due to (1) $1.6 million received from the sale of land, previously recorded in
lieu of payment for a loan receivable, (2) a $1.2 million increase in commission
income received from the various property sales offices and (3) a $547,000
increase in resort revenue related to the West Bay Club Project, partially
offset by (4) a $1.9 million decrease in management fee revenue related to the
Country Lakes and Sunset Lakes Joint Venture Projects sold in 1999 and (5) a
$790,000 decrease in environmental service revenue related to the sale of
Environmental Quality, Inc., a wholly-owned subsidiary of the Company ("EQ
Lab"), in 1999.
INVENTORY VALUATION RESERVE. Inventory Valuation Reserve Expense
decreased by $2.5 million to $900,000 in the first six months of 2000, compared
to $3.4 million in the first six months of 1999. The $2.5 million decrease was
primarily due to (1) an additional reserve of $900,000 recorded in 2000 for the
West Meadows Project offset by (2) the Crestwood Project valuation of $3.4
million recorded in 1999.
SELLING EXPENSE. Selling Expense of $3.3 million for the first six
months of 2000 was comparable to $3.5 million for the first six months of 1999.
OPERATING EXPENSE. Operating expense decreased by $3.9 million to
$1.4 million in the first six months of 2000, compared to $5.3 in the first six
months of 1999. The $3.9 million decreased was primarily due to (1) a $3.5
million decrease in due diligence work related to Crestwood Lakes and other
acquisitions expensed in 1999 (2) an $840,000 decrease due to the sale of EQ Lab
in 1999 partially offset by (3) a $456,000 decrease due to the growth in
Amenities at the West Bay Club Project, which is directly related to an increase
in club memberships.
REAL ESTATE COSTS. Real estate costs decreased by $2.5 million to
$1.7 million in the first six months of 2000, compared to $4.2 million in the
first six months of 1999. The $2.5 million decrease was due primarily to the
combined savings of salaries, property taxes and other administrative expenses,
which resulted from the bulk sales of selected Predecessor Assets in 1999.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense decreased by $4.8 million to $2.2 in the first six months of 2000,
compared to $7.0 million in the first six months of 1999. The $4.8 million
decrease was due primarily to the combined savings in corporate salaries,
outside services, occupancy costs, utilities and other administrative expenses,
which resulted from the corporate restructuring plan adopted in late 1999.
COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of borrowing,
net of amounts capitalized, increased by $560,000 to $3.3 million in the first
six months of 2000, compared to $2.8 million in the first six months of 1999.
The $560,000 increase was due primarily to an increase in corporate interest
expensed rather than capitalized in 2000. Corporate debt decreased from $66.0
million as of December 31, 1998 to $49.8 million as of December 31, 1999 and to
$39.3 million as of June 30, 2000.
17
<PAGE>
OTHER EXPENSE. Other expense increased by $728,000 to $1.1 million
in the first six months of 2000, compared to $407,000 in the first six months of
1999. The $728,000 increase was primarily due to a valuation allowance recorded
for the Falcon Trace JV Project, based upon a review of fair values. Inventory
reserve charges represent a reduction in the carrying value of the Company's
inventory based upon a review of the fair values.
OTHER INCOME. Other income of $710,000 in the first six months of
2000, was comparable to $685,000 in the first six months of 1999.
PREFERRED STOCK CHARGES. During the first six months of 2000, the
Company recorded a $7.3 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of June 30,
2000. The dividend rate is 20% of the liquidation preference value of the
Preferred Stock. The liquidation preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends. In addition, the Company
accreted $715,000 of the value of its Preferred Stock to the redemption amount
in the first six months of 2000. The total of $8.0 million of preferred stock
charges was charged to contributed capital in the accompanying June 30, 2000
consolidated balance sheet.
In connection with the closing of the Senior Loan Facilities in February
1999, the Company issued notes totaling $1.85 million and 500,000 shares of
Common Stock at a price of $1.06 per share to AP-AGC, LLC ("Apollo") in exchange
for Apollo's (a) consent to the Company entering into the new Senior Loan
Facilities and agreement to subordinate its collateral interest in certain of
the Company's assets, (b) agreement to certain amendments to the Secured
Agreement and Investment Agreement and (c) agreement to enter into the new
Intercreditor Agreement with the lenders party to the new Senior Loan
Facilities. The total value of the consideration paid to Apollo was $2.4
million.
18
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
The Company's results of operations for the three months ended June 30,
2000 and 1999, respectively, are summarized below:
COMBINING RESULTS OF REAL ESTATE OPERATIONS
Three Months Ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ $ 5,113 $ 3,837 $ 1,269 $10,219
Commercial .......................... - - 283 283
---------------------------------------------------
Total real estate sales ................ 5,113 3,837 1,552 10,502
Costs and expenses:
Cost of real estate sales
Homesite ............................ 4,357 3,691 1,192 9,240
Commercial .......................... (1) - 239 238
---------------------------------------------------
Total cost of real estate sales ........... 4,356 3,691 1,431 9,478
Gross margin real estate sales ............ $ 757 $ 146 $ 121 $ 1,024
===================================================
Results of Joint Venture Operations(1)..... $ - $ - $ - $ -
===================================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of Operations.
19
<PAGE>
COMBINING RESULTS OF REAL ESTATE OPERATIONS
Three Months Ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................. $ 3,113 $ 5,662 $ 1,218 $ 9,993
Commercial ........................... - - 911 911
---------------------------------------------------
Total real estate sales ................. 3,113 5,662 2,129 10,904
Costs and expenses:
Cost of real estate sales
Homesite ............................. 2,423 4,962 975 8,360
Commercial ........................... - 2 619 621
---------------------------------------------------
Total cost of real estate sales ............ 2,423 4,964 1,594 8,981
Gross margin real estate sales ............. $ 690 $ 698 $ 535 $ 1,923
===================================================
Results of Joint Venture Operations(1)...... $ (258) $ 41 $ - $ (217)
===================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
20
<PAGE>
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$9.2 million in the second quarter of 2000, compared to a net loss of $13.7
million applicable to Common Stock in the second quarter of 1999. The decrease
in net loss of $4.5 million was due primarily to (1) a $2.5 million decrease in
charges to inventory valuation reserve, (2) a $1.9 million decrease in general
and administrative expenses, (3) a $1.4 million decrease in real estate costs
and (4) a $1.0 million decrease in operating expenses, partially offset by (5) a
$1.2 million increase in the cost of borrowing net of capitalized cost and (6) a
$899,000 decrease in sales gross margin.
LUXURY/RESORT OPERATIONS.
HOMESITES. Revenues from Homesite sales increased by $2.0 million to
$5.1 million in the second quarter of 2000, compared to $3.1 million in the
second quarter of 1999. The $2.0 million increase was due primarily to the
increase in marketing and public awareness for the West Bay Club Project. The
Homesite sales gross margin percentage was 14.8% in the second quarter of 2000
compared to 22.2% in the second quarter of 1999. The 7.4% decrease in Homesite
sales gross margin was due primarily to the increase in cost per unit at the
West Bay Club Project.
COMMERCIAL DEVELOPMENT. There were no revenues from Commercial
Development in the second quarter of 2000, or in the second quarter of 1999.
JOINT VENTURES. Results of Joint Ventures in the second quarter of
2000 were $0, compared to a net loss of $115,000 for the second quarter of 1999.
The $115,000 decrease in Joint Venture net loss was due to the sale of the
Jupiter Ocean Grande Project during 1999.
NON-LUXURY/RESORT OPERATIONS.
HOMESITES. Revenues from Homesite sales decreased by $1.9 million to
$3.8 million in the second quarter of 2000, compared to $5.7 million in the
second quarter of 1999. The $1.9 million decrease was due primarily to a
declining inventory balance in 2000 as compared to 1999. Total inventory
decreased significantly from the final sale of The Trails of West Frisco Project
in December 1999 and the final sale of the Lakeside Estates Project in April
2000. The Homesite sales gross margin decreased by 8.5% to 3.8% in the second
quarter of 2000, compared to 12.3% in the second quarter of 1999. The 8.5%
decrease in Homesite sales gross margin was consistent with the planned
reduction of inventory in both the Lakeside Estates Project and West Meadows
Project.
21
<PAGE>
COMMERCIAL DEVELOPMENT. There were no revenues from Commercial
Development in the second quarter of 2000, or in the second quarter of 1999.
JOINT VENTURES. There was no Joint Venture income or loss recorded
in the second quarter of 2000. A $258,000 loss in the second quarter of 1999 was
due primarily to start-up marketing expenses associated with the Jupiter Ocean
Grande project.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales of
$1.3 million in the second quarter of 2000 increased marginally as compared to
$1.2 million in the second quarter of 1999. The Predecessor Homesite sales gross
margin percentage decreased by approximately 13.9% to 6.1% in the second quarter
of 2000, compared to 20.0% in the second quarter of 1999. The 13.9% decrease in
Predecessor Homesite sales gross margin is consistent with the Company's
accelerated plan of disposal of its Predecessor Assets.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales were
$283,000 in the second quarter of 2000, compared to $911,000 in the second
quarter of 1999. The Predecessor Tract sales gross margin percentage decreased
by 16.6% to 15.5% in the second quarter of 2000, compared to 32.1% in the second
quarter of 1999. The 16.6% decrease in Predecessor Tracts sales gross margin was
consistent with the Company's accelerated plan of disposal of its Predecessor
Assets.
22
<PAGE>
As of June 30, 2000, there were pending Predecessor Tract sales
contracts or letters of intent totaling approximately $278,000. As of December
31, 1999 and June 30, 1999, there were pending Predecessor Tract sales contracts
or letters of intent totaling approximately $1.3 million and $15.5 million,
respectively.
OTHER RESULTS OF OPERATIONS.
OTHER OPERATING REVENUE. Other operating revenue increased by
$294,000 to $1.5 million in the second quarter of 2000, compared to $1.2 million
in the second quarter of 1999. The $334,000 increase was primarily due to (1) a
$642,000 increase in commission income received from the various property sales
offices and (2) a $116,000 increase in resort revenue related to the West Bay
Club Project, partially offset by (3) a $429,000 decrease in environmental
service revenue as a result of the sale of EQ Lab in 1999 and (4) a 40,000
decrease in interest income related to a reduced receivables balance.
INVENTORY VALUATION RESERVE. Inventory Valuation Reserve Expense
decreased by $2.5 million to $900,000 in the second quarter of 2000, compared to
$3.4 million in the second quarter of 1999. The $2.5 million decrease was
primarily due to (1) an additional reserve of $900,000 recorded in 2000 for the
West Meadows Project offset by (2) the Crestwood Project valuation of $3.4
million recorded in 1999.
SELLING EXPENSE. Selling Expense of $1.6 million for the second
quarter of 2000 was comparable to $1.7 million for the second quarter of 1999.
OPERATING EXPENSE. Operating expense decreased by $976,000 to
$487,000 in the second quarter of 2000, compared to $1,463,000 in the second
quarter of 1999. The $976,000 decrease was primarily due to a $456,000 decrease
in operation expenses as a result of the sale of EQ Lab in 1999.
REAL ESTATE COSTS. Real estate costs decreased by $1.4 million to
$1.0 million in the second quarter of 2000, compared to $2.4 million in the
second quarter of 1999. The $1.4 million decrease was due primarily to the
combined savings of salaries, property taxes and other administrative expenses,
which resulted from the bulk sales of Predecessor Assets in 1999.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense decreased by $1.9 million to $1.5 million in the second quarter of 2000,
compared to $3.4 million in the second quarter of 1999. The $1.9 million
decrease was due primarily to the combined savings in corporate salaries,
outside services, occupancy costs, utilities and other administrative expenses,
which resulted from the corporate restructuring plan adopted in late 1999.
COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of borrowing,
net of amounts capitalized, increased by $1.2 million to $2.1 in the second
quarter of 2000, compared to $964,000 in the second quarter of 1999. The $1.2
million increase was due primarily to a $1.8 million decrease in corporate
interest capitalized to active development projects, partially offset by a
$423,000 decrease in corporate cost of borrowing, and a $100,000 decrease in
non-capitalized project debt. Corporate debt decreased from $66.0 million as of
December 31, 1998 to $49.8 million as of December 31, 1999 and to $39.3 million
as of June 30, 2000.
23
<PAGE>
OTHER EXPENSE. Other expense decreased by $217,000 to zero in the
second quarter of 2000, compared to $217,000 in the second quarter of 1999. The
$217,000 decrease was primarily due to operating losses resulting from JV
Projects that were sold in 1999.
OTHER INCOME. Other income decreased by $146,000 to zero in the
second quarter of 2000, compared to $146,000 in the second quarter of 1999. The
$146,000 decrease was primarily due to a $266,000 utility trust payout in 1999
and partially offset by a $135,000 environmental reserve expense.
PREFERRED STOCK CHARGES. During the second quarter of 2000, the
Company recorded a $3.7 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of June 30,
2000. The dividend rate is 20% of the liquidation preference value of the
Preferred Stock. The liquidation preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends. In addition, the Company
accreted $358,000 of the value of its Preferred Stock to the redemption amount
in the second quarter of 1999. THE TOTAL OF $4.1 MILLION OF PREFERRED STOCK
CHARGES WAS CHARGED TO CONTRIBUTED CAPITAL DURING THE SECOND QUARTER OF 2000.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY'S FINANCIAL STRATEGY IS TO GENERATE SUFFICIENT FUNDS FROM THE
SALE OF NON-LUXURY/RESORT PROJECTS AND PREDECESSOR ASSETS TO RETIRE ANY
REMAINING CORPORATE DEBT AND TO REDEEM ANY OUTSTANDING PREFERRED STOCK. IF THE
COMPANY'S FINANCIAL STRATEGY DOES NOT GENERATE SUFFICIENT FUNDS TO RETIRE
CORPORATE DEBT, REDEEM OUTSTANDING PREFERRED STOCK AND PROVIDE SUFFICIENT
OPERATING CASH FLOW, THE COMPANY WILL NEED TO CONSIDER OTHER ALTERNATIVES,
INCLUDING BUT NOT LIMITED TO, A CAPITAL OR DEBT RESTRUCTURING AND/OR A FEDERAL
BANKRUPTCY FILING.
GENERAL. As of June 30, 2000, the Company's (1) cash and cash equivalents
totaled $3.3 million and (2) restricted cash and cash equivalents totaled $1.0
million, consisting primarily of (a) escrows for the sale or development of real
estate properties, (b) funds held in trust to pay certain bankruptcy claims and
(c) various other escrow accounts. Of the $4.8 decrease in cash and cash
equivalents during the first six months of 2000, (i) $5.2 million was provided
by operating activities, offset by (ii) $434,000 used in investing activities
and (iii) $9.5 million used in financing activities.
Cash provided by operating activities included (1) $3.4 million from
mortgage and land contracts receivable payments, (2) $3.6 from final sales of
the Falcon Trace Joint Venture Project, (3) $10.4 million from the sale of
Predecessor Assets and other land (4) $4.4 million in other operating revenues
and (5) $709,000 in other income from utility escrow reserves, partially offset
by (6) $1.4 million in other operating expenses (7) $6.4 million for
construction and development expenditures, (8)
24
<PAGE>
$2.9 million for interest payments (9) $1.8 million for corporate overhead (10)
$1.7 million in indirect selling expense (11) $1.0 million in other real-estate
overhead expense (12) $1.0 million for property tax payments (13) $375,000 for
the Panther Creek Joint Venture settlement and (14) $165,000 in severance
payments.
Cash used in investing activities consisted of $434,000 of property, plant
and equipment additions primarily in the West Bay Project.
Cash used in financing activities consisted primarily of principal
reductions of $24.9 million partially offset by net borrowings of $15.4 million
under various Project credit facilities. Principal reductions of $24.9 million
included $10.5 million used to payoff the Revolving Loan Facility balance and
$14.4 million used to payoff various project loans, as projects units were sold.
OTHER MATERIAL OBLIGATIONS COMING DUE IN 2000. In addition to the $3.5
million due at the expiration of the Revolving Loan Facility on August 1, 2000
(see the discussion below), Atlantic Gulf's other material obligations coming
due in 2000 include Project-specific debt which comes due as units in or a
Project are/is sold. The Company's 2000 business plan contemplates $12 million
of expenditures for development, construction and other capital improvements, a
substantial portion of which will be funded through individual Project
development loans or joint venture arrangements, many of which are already in
place. If the Company is unable to obtain the capital resources to fund these
obligations and expenditures, the implementation of the Company's business plan
will be adversely affected, slowing the Company's anticipated revenue growth and
increasing the time necessary to achieve profitability. However, management
believes that the Company, through a combination of sources, will be able to
obtain the funds necessary to continue to implement its business plan and, at
the same time, satisfy its debt obligations as they become due.
CHENOA PROJECT FINANCING. Chenoa, formerly known as Aspen Springs Ranch,
is the Company's 5,906-acre Luxury Resort Project located in the Roaring Fork
Valley of Colorado. The Company was unable to obtain approval of its pending
amendment to the existing PUD for the project (the "PUD Approval") within the
time limits set forth in its development loan agreement. The senior lender
notified the Company that it was in default under the terms of its agreement and
ceased funding. Neither the senior lender nor the mezzanine lender have pursued
any default remedies to date. The Company continues to pursue the PUD Approval,
and the Company is funding Project costs out of cash flow and other Company
funds.
LOAN DEFAULTS. Atlantic Gulf is currently in default under project
indebtedness for its Chenoa Project. Senior management is in negotiations
with its lenders to address these defaults.
The Company's Revolving Loan Facility matured on August 1, 2000. The
outstanding principal balance under the facility on that date was $3.5 million.
The Company negotiated an extension of the facility until August 18, 2000. Since
August 1, 2000, the Company has paid down an additional $1.5 million of
principal under the facility, leaving an outstanding principal balance due of
$2.0 million. The Company anticipates that it will close the sale of certain
assets before August 18, 2000, and will use a portion of the proceeds from such
sale to pay the remaining balance due under the Revolving Loan Facility. If the
Company is unable to close such sale before that date, it intends to seek
another extension of time from the lenders. There can be no assurance that the
Company will be unable to obtain such
25
<PAGE>
extension, If it cannot, the failure to repay the remaining balance due
thereunder will constitute an event of default under the Revolving Loan
Facility.
The Company is currently discussing a debt restructuring arrangement with
the lenders under the Term Loan.
PROJECTS SOLD IN 1999 AND 2000
In the past 18 months the Company has sold the following Projects:
o In March 1999, the Company sold its joint venture interest in the 1,040
remaining units in its Country Lakes Project, a Non-Luxury/Resort
Project, for $500,000, recognizing a gain of approximately $219,000.
The Company received a prepayment of its management fee in exchange for
the continued management of the Project until the joint venture engaged
another manager in July 1999.
o In September 1999, the Company sold the remaining two acres of its
Riverwalk Tower Project, a wholly-owned Luxury/Resort Project, for $8.0
million
o In November 1999, the Company sold the remaining 1,146 lots and other
assets in the Sunset Lakes Project, a jointly owned Non-Luxury/Resort
Project, for $46.3 million. The Company's share of the sale proceeds
was $30.1 million.
o In November 1999, the Company decided not to acquire Rayland, a
proposed Non-Luxury/Resort Project located near Jacksonville, Florida.
The Company expensed $1.5 million in design and engineering costs
previously incurred with respect to this Project.
o In December, 1999, the Company sold its JV interest in the 1,093 acre
Orlando Naval Training Center, a Non-Luxury/Resort Project, to its
joint venture partner. The sales price of $1.0 million, together with
unreturned capital of $473,000 were conveyed in the form of a
non-interest bearing promissory note, which note is contingent on the
release of the joint venture from a lawsuit seeking performance under a
development agreement with the City of Orlando, Florida.
o In December, 1999, the Company sold the remaining 1,298 lots in its
Trails of West Frisco Project, a wholly owned Non-Luxury/Resort
Project, for $14.6 million.
o In December 1999, the Company relinquished its 40.0% joint venture
interest in the Cary Glen Project, a Non-Luxury/Resort Project, as part
of a legal settlement with Panther Creek-Raleigh Limited Partnership;
Atlantic Gulf also paid $375,000 as part of the settlement.
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o In December 1999, the Company assigned its contract to purchase the
Harbor Bay Project, a controlled Non-Luxury/Resort Project, plus an
adjacent parcel, for $4.8 million plus reimbursement of its earnest
money deposits and certain costs. The contract assignment also included
the assignment of the Company's rights to purchase an adjacent 350
acres, a contract to purchase land for a planned golf course and a
two-year option to purchase golf course lots.
o In December 1999, the Company sold EQ Lab for $310,000.
o During 1999, the Company sold its joint venture interest in the 154
remaining units of its Jupiter Ocean Grande Project, a
Non-Luxury/Resort Project, for approximately $1.0 million, resulting in
a loss of approximately $3.8 million.
o During 1999, the Company completed the entitlements for Grand Oaks, a
proposed Non-Luxury/Resort Project, but was unable to close on its
purchase in May 1999, due to funding problems. The seller was unwilling
to extend the contract to allow for alternative financing and retained
the company's $1.4 million in earnest money deposits and extension
fees.
o During 1999, the Company commenced and pursued modifications to certain
land use approvals required to develop the Baxter/Martinez Project, a
controlled Non-Luxury/Resort Project for 1,400 residential units. In
1998, the Company entered into agreements with two separate sellers to
purchase approximately 232 acres (the Baxter property) for $2.3 million
and to purchase an additional adjacent 181 acres (the Martinez
property) for $1.6 million, with closings scheduled for the first half
of 2000. The Company began negotiating to assign its rights to purchase
both properties to a third party for $1.0 million plus reimbursement of
its earnest money deposits and cost.
o In March 2000, the Company sold all the property and assets (except for
28 lots) in the Falcon Trace JV Project, a jointly owned
Non-Luxury/Resort Project, for $6.4 million. The Company's share of the
sale proceeds was $2.8 million. No net book gain or loss was
recognized from the sale of the Project. The remaining 28 lots were
sold during the second quarter 2000 for $946,000, the Company's share
of the sale proceeds.
o In April 2000, the Company sold the remaining 287 lots in its Lakeside
Estates Project, a wholly owned Non-Luxury/Resort Project, for $2.7
million. The Company acquired the Project, comprised of 1,379 lots and
located near Orlando, Florida, in 1994. The Lakeside Estates Project
sale resulted in a net book loss of $3.1 million, which was charged
against "Inventory valuation reserve" in the statement of operations as
of December 31, 1999.
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o On July 31, 2000, the Company sold the remaining 545 lots in the West
Meadows Project, a wholly owned Non-Luxury/Resort Project, for $5.9
million. The Company acquired the Project, comprised of 1,397
residential lots and approximately 23 acres of commercial property
located near Tampa, Florida, in 1994. The West Meadows Project sale
resulted in a net book loss of $4.3 million in the third quarter of
2000, of which $3.4 million was charged against "Inventory valuation
reserve" in the statement of operations as of December 31, 1999. An
additional amount of $900,000 was charged against the "Inventory
valuation reserve" in the statement of operations during the second
quarter of 2000.
While the Company intends to diligently pursue all Project sale
opportunities, there can be no assurance that any such sales (including Projects
currently under contract) will be consummated or, if consummated, that the
Company will realize the anticipated (1) amount of sales proceeds therefrom
and/or (2) overhead cost savings therefrom.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new developments with respect to the legal proceedings
referenced in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, as filed with the Securities and Exchange Commission (the
"SEC") on April 14, 2000 (the "1999 Form 10-K").
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES - LOAN
DEFAULTS above for a discussion of pending loan defaults.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K (consecutive numbering,
see the 1999 Form
10-K)
None.
(b) Current Reports on Form 8-K
None.
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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
/s/ RICHARD S. ACKERMAN
-------------------------------------------
Richard S. Ackerman
President and Chief Executive Officer
Dated: August 14, 2000
/s/ EUGENE M. GIBLIN
-------------------------------------------
Eugene M. Giblin
Vice President and Chief Accounting Officer
Dated: August 14, 2000
