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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-4719
THE DELTONA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-0997584
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3250 S.W. THIRD AVENUE
MIAMI, FLORIDA 33129
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 854-1111
SECURITIES REGISTERED PURSUANT TO SECTION
12(G) OF THE ACT:
COMMON STOCK, $1 PAR VALUE
(TITLE OF CLASS)
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. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENTS TO THIS FORM 10-K. [ ]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT: $1,097,602 BASED AVERAGE BID AND ASKED PRICES
OF SUCH STOCK AS TRADED ON THE OVER-THE-COUNTER ON SEPTEMBER 9, 1994. (EXCLUDES
SHARES OF VOTING STOCK HELD BY DIRECTORS, EXECUTIVE OFFICERS AND BENEFICIAL
OWNERS OF MORE THAN 10% OF THE REGISTRANT'S VOTING STOCK; HOWEVER, THIS DOES NOT
CONSTITUTE AN ADMISSION THAT ANY SUCH HOLDER IS AN "AFFILIATE" FOR ANY PURPOSE.)
INDICATE THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 6,664,156 SHARES OF COMMON
STOCK, $1 PAR VALUE, AS OF AUGUST 31, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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THE DELTONA CORPORATION
INDEX
FORM 10-K SECTION HEADING IN PAGE
ITEM NO. ATTACHED MATERIAL NUMBER
PART I
Items 1 and 2 ......... Business........................................ 1
General........................................ 1
Recent Developments............................ 1
Business Segments.............................. 4
Real Estate.................................... 5
Other Businesses............................... 11
Employees...................................... 11
Competition.................................... 11
Regulation..................................... 11
Item 3 ................ Legal Proceedings............................... 16
Item 4 ................ Not Applicable
PART II
Item 5 ................ Price Range of Common Stock and Dividends....... 18
Item 6 ................ Selected Consolidated Financial Information..... 19
Item 7 ................ Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 20
Item 8 ................ Index to Consolidated Financial Statements and
Supplemental Data.............................. 35
Item 9 ................ Not Applicable
PART III
Items 10, 11 and 13 ... Directors and Executive Officers................ 62
Directors of the Company..................... 62
Executive Officers of the Company.............. 68
Executive Compensation......................... 69
Item 12 ............... Ownership of Voting Securities of the Company... 77
PART IV
Item 14 ............... Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................... 80
ITEMS 1 AND 2
BUSINESS
GENERAL
The Company was founded in 1962 and is principally engaged in the
development and sale of Florida real estate, through the development of planned
communities on land acquired for that purpose. The Company offers single-family
lots and multi-family and commercial tracts for sale, in communities designed by
the Company. The Company has developed nine planned communities in Florida, six
of which are completed and three are in various stages of development, and range
in size from 1,500 to over 17,000 acres with a combined estimated population in
excess of 174,000. The Company plans, designs and develops roads, waterways,
recreational amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 137,000 single-family lots and
multi-family and commercial tracts in its communities, in addition to
approximately 13,000 single-family homes and over 4,300 multi-family housing
units.
The Company has substantial land holdings in Florida. Its holdings include
an inventory of over 19,500 unsold platted single-family lots and multi-family
and commercial tracts. (Platting is the process of recording, in the public
records of the county where the land is located, a map or survey delineating the
legal boundaries of the lots and tracts.) See "Real Estate: Land".
The Company also operates other businesses related to its real estate
activities, such as a title insurance company and a real estate brokerage
company. In addition, the Company has designed and constructed country clubs,
golf courses and other recreational amenities at its communities, and operates
such amenities until their conveyance or sale.
Historically, the Company has designed, constructed and operated
utility systems for the distribution of water and LP gas and for the collection
and treatment of sewage, primarily at the Company's communities. However, on
June 6, 1989, Topeka Group Incorporated ("Topeka"), a subsidiary of Minnesota
Power & Light Company ("MPL"), exchanged the Company's Preferred Stock which it
acquired in November, 1985 for the Company's utility subsidiaries.
The Company is incorporated in Delaware and has its principal executive
offices at 3250 S.W. Third Avenue, Miami, Florida 33129. Its telephone number is
(305) 854-1111. The Company, as used herein, refers to The Deltona Corporation
and, unless the context otherwise indicates, its wholly-owned subsidiaries.
RECENT DEVELOPMENTS
On July 13, 1994, Antony Gram was appointed Chairman of the Board and
Chief Executive Officer of the Company. As Chairman and Chief Executive Officer,
Mr. Gram was given the responsibility of resolving the financial and legal
difficulties facing the Company and developing an alternative business plan to
enable the Company to continue as a going concern.
1
Mr. Gram, who had served as a director of the Company and Vice Chairman
of the Board from June, 1992 through April 6, 1994, holds a controlling interest
in Yasawa Holdings N.V., a Netherlands Antilles Corporation ("Yasawa") and
Wilbury International N.V., a Netherlands Antilles Corporation ("Wilbury"),
which holds all of the issued and outstanding capital stock of Selex
International B.V., a Netherlands Corporation ("Selex"). As a consequence, Mr.
Gram is deemed to be the beneficial owner of 3,109,703 shares of Common Stock of
the Company (46.7% of the outstanding shares of Common Stock of the Company,
based upon the number of shares of the Company's Common Stock outstanding as of
August 19, 1994).
Although the Company has experienced severe liquidity problems since
1990, the Company was able to stabilize its situation somewhat in 1992 when it
completed a $13,500,000 sale of contracts receivable and a transaction with
Selex, which resulted in the infusion of additional funds into the Company and
in a change in control of the Company.
In conjunction with the Selex transaction, Selex loaned the Company
$3,000,000 collateralized by a first mortgage on certain of the Company's
property in its St. Augustine Shores, Florida community ("the First Selex Loan")
and acquired from Empire of Carolina, Inc. ("Empire") 2,220,066 shares of the
Company's Common Stock held by Empire, as well as the $1,000,000 Loan which
Empire previously made the Company (with interest accrued thereon of
approximately $225,000). As part of the Selex transaction, Selex was granted an
option, which, as modified, enabled Selex to convert the First Selex Loan, or
any portion thereof, into a maximum of 600,000 shares of the Company's Common
Stock at a per share conversion price equal to the greater of (i) $1.25 or (ii)
95% of the market price of the Company's Common Stock at the time of conversion,
but in no event greater than $4.50 per share (the "Option"). On February 17,
1994, Selex exercised the Option, in full, at a conversion price of $1.90 per
share, such that $1,140,000 in principal was repaid under the First Selex Loan
through such conversion, and Selex held an aggregate of 2,820,066 shares of the
Company's Common Stock (42.3% of the outstanding shares of Common Stock of the
Company, based upon the number of shares of the Company's Common Stock
outstanding as of August 19, 1994). In December, 1992, Mr. Gram, the beneficial
owner of the Common Stock of the Company held by Selex, acquired all of the
Company's outstanding bank debt and then assigned same to Yasawa. Yasawa
simultaneously completed a series of transactions with the Company which
involved the transfer of certain assets to Yasawa or its affiliated companies,
the acquisition by Yasawa of 289,637 shares of the Company's Common Stock
through the exercise of warrants previously held by the banks, the provision of
a $1,500,000 line of credit to the Company and the restructuring of the
remaining debt as a $5,106,000 loan from Yasawa ("the Yasawa Loan").
The Company began 1993 with the objective of securing the financing
necessary to effectively implement its marketing program and achieve the
objectives of its business plan so that the Company could continue as a going
concern. The business plan was designed to significantly increase the Company's
sales through a major marketing effort so that future working capital could be
obtained by selling or otherwise financing newly generated contracts and
mortgages receivable. During 1993, the Company was dependent on loans and
advances from Selex, Yasawa and their affiliates in order to implement its
marketing program and assist in meeting its working capital requirements. On
April 30, 1993, Selex loaned the Company an additional amount of $1,000,000
("the second Selex loan") and since July 1, 1993 made further loans to the
Company aggregating $4,400,000 ("the third Selex loan"). Funds advanced under
the third Selex loan enabled the Company to commence implementation of its
marketing plan in the third quarter of 1993. The full benefits of the program
were not realized in 1993 and the Company was unable to secure financing in 1994
to meet its ongoing working capital requirements.
While Selex, Yasawa and their affiliates provided the Company with
certain limited funds in the first quarter of 1994, such funds were not
sufficient to meet the Company's obligations or support its marketing program.
Additionally, on March 10, 1994, the Company was advised that Selex filed
Amendment No. 2 dated February 17, 1994 to its Schedule 13d ("the Amendment")
with the Securities and Exchange Commission ("the Commission"). In the
amendment, Selex reported that it, together with Yasawa and their affiliates,
were uncertain as to whether they would provide any further funds to the
Company. The amendment further stated
2
that Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such transaction, they
would be willing to sell or restructure all or a portion of their loans and
Common Stock in the Company.
Since March, 1994, the Company together with Selex, Yasawa and their
affiliates, have engaged in discussions with third parties to provide funds to
the Company through loans, equity investments or asset acquisitions. None of
such discussions has resulted in an agreement or commitment by any party. In the
interim, the Company's liquidity position further deteriorated, causing the
Company to default on certain obligations, including its escrow obligations to
the State of Florida, Department of Business and Professional Regulation,
Division of Land Sales, Condominiums and Mobile Homes ("the Division") pursuant
to the Company's 1992 Consent Order, its obligation under its lease for its
corporate offices and its obligation to make required principal and interest
payments under loans from Selex, Yasawa and their affiliates. Furthermore, the
Company has not paid certain real estate taxes which aggregate approximately
$1,549,000, as of August 31, 1994 and is subject to certain pending litigation
claims which could further adversely affect the financial condition of the
Company. To address its severe lack of working capital, the Company has
drastically reduced the scope of its operations, which, among other things,
required the Company to reduce its staffing levels by over 76% since December
31, 1993. See "Regulation - Other Obligations", "Legal Proceedings",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and Notes 1, 5 and 8 to Consolidated Financial Statements.
On April 6, 1994, both the New York and Pacific Stock Exchanges
suspended the Company's Common Stock from trading and instituted procedures to
delist the Company's Common Stock. On June 16, 1994, the Company's Common Stock
was formally removed from listing and registration on the New York Stock
Exchange. As of August 31, 1994, the Company's Common Stock was traded on a
limited basis in the over-the-counter markets.
The above-described appointment of Mr. Gram as Chairman and Chief
Executive Officer of the Company represents a further attempt by the Board of
Directors to address the Company's financial difficulties. In conjunction with
Mr. Gram's appointment, he has loaned funds to the Company to pay certain
essential expenses and effectuate certain settlements with the Company's
principal creditors. Yasawa has, as of August 31, 1994, advanced an aggregate
amount of $1,200,000 to the Company ("the second Yasawa loan") at an interest
rate of 8% per annum. Efforts are continuing to seek third parties to provide
funds to the Company, to reach reasonable settlements with the Company's
principal creditors and to develop an alternative business plan that would
provide for the Company to continue as a going concern. There can be no
assurance, however, that any of these efforts will be successful, that
additional financing will be obtained, that reasonable settlements will be
effected with the Company's principal creditors, or that an alternative business
plan will be developed and successfully implemented. Consequently, there can be
no assurance that the Company can continue as a going concern. In the event that
these matters are not successfully addressed, the Company's Board of Directors
will consider other appropriate action given the severity of the Company's
liquidity position, including, but not limited to, filing for protection under
the federal bankruptcy laws. Alternatively, the Company could be subject to the
filing of an involuntary bankruptcy proceeding in the event it is unable to
resolve and settle pending litigation, satisfy settlement commitments and other
unpaid creditor claims. See "Legal Proceedings", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 1, 5 and 8
to Consolidated Financial Statements.
3
BUSINESS SEGMENTS
The following table sets forth the total amounts of revenues and
operating profits (losses) from continuing operations attributable to each of
the Company's business segments for the years ended as indicated.
See Note 12 to Consolidated Financial Statements:
YEARS ENDED
--------------------------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
-------- --------- --------- --------- --------
(IN THOUSANDS)
REVENUES
Real estate:
Net land sales(a) .. $ 2,432 $ 2,092 $ 1,154 $ 11,612 $ 38,475
Housing revenues ... 344 -0- 120 1,919 5,718
Improvement revenues(b) 4,725 2,404 -0- 2,152 7,559
Interest income(c) . 1,197 3,584 5,270 8,236 9,102
Other .............. 67 -0- -0- -0- 50
-------- --------- --------- --------- --------
Total real estate 8,765 8,080 6,544 23,919 60,904
Other(d) ............. 3,447 4,372 4,510 5,436 6,370
Intersegment sales(e) (113) (235) (270) (322) (395)
-------- --------- --------- --------- ---------
TOTAL ............ $ 12,099 $ 12,217 $ 10,784 $ 29,033 $ 66,879
======== ========= ========= ========= =========
OPERATING PROFITS (LOSSES)
Real estate .......... $ (3,073) $ 1,486 $ (6,750) $ (798) $ 19,114
Other ................ 279 2,209 1,928 1,789 1,305
General corporate expense (4,721) (7,057) (7,811) (10,602) (12,190)
Merger expense ....... -0- -0- -0- -0- (500)
Interest expense ..... (1,257) (3,356) (6,896) (7,397) (6,858)
-------- --------- --------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ (8,772) $ (6,718) $ (19,529) $ (17,008) $ 871
======== ========= ========= ========= =========
- - --------------------
(a) Net land sales consist of gross land sales less estimated uncollectible
installment sales and contract valuation discount and, prior to 1991,
deferred revenue (see Notes 1, 2 and 7 to Consolidated Financial Statements).
(b) Improvement revenues consist of revenue recognized due to completion of
improvements on prior period sales.
(c) Interest income primarily consists of interest earned on contracts and
mortgages receivable and on temporary cash investments and the amortization
of valuation discounts.
(d) Other consists of revenues from sales other than real estate, the major
portion of which comes from the country club operations (see Note 11 to
Consolidated Financial Statements).
(e) Intersegment sales consist primarily of sales between the Company and its
title insurance subsidiary.
4
REAL ESTATE
The Company's principal business segment has primarily involved the
development and marketing of planned communities in Florida since 1962. The
following table sets forth certain information about these communities and other
land assets of the Company as of December 31, 1993. For a detailed description
of these communities, see "Existing Communities" and "Other Properties".
EXISTING COMMUNITIES
PLATTED UNIMPROVED IMPROVED
ACREAGE INITIAL ESTIMATED LOTS & TRACTS UNSOLD PLATTED UNSOLD PLATTED
IN ACQUISITION YEAR CURRENT IN MASTERPLAN LOTS & TRACTS LOTS & TRACTS UNPLATTED
MASTERPLAN YEAR OPENED POPULATION (A) (A) (B) (A) (B) ACREAGE
---------- ----------- ------ ---------- ------------- -------------- -------------- ---------
* Deltona Lakes... 17,203 1962 1962 54,500 34,964 - 6 -
* Marco Island(c). 7,844 1964 1965 34,000 8,657 - 1 -
* Spring Hill(d).. 17,240 1966 1967 60,000 32,909 - 6 -
* Citrus Springs
(e),(f),(g)... 15,954 1969 1970 5,600 33,783 - 42(f) 2
St. Augustine
Shores ....... 1,985 1969 1970 6,700 3,130 875 6 16
Sunny Hills..... 17,743 1968 1971 1,200 26,251 12,281 842 -
* Pine Ridge...... 9,994 1969 1972 2,100 4,833 - 10 -
Marion Oaks(e).. 14,644 1969 1973 6,800 27,537 4,265 1,205 -
* Seminole Woods.. 1,554 1969 1979 290 262 - - -
JOINT VENTURE
COMMUNITY:
* Tierra Verde.... 666 1976 1977 3,000 1,036 - - -
------- ------- ------- ------ ----- --
Total............. 104,827 174,190 173,362 17,421(f) 2,118(f) 18
======= ======= ===== ====== ===== ==
OTHER PROPERTIES
INITIAL
ACQUISITION
YEAR ACRES
----------- ----
Other Land Assets:
Other land adjacent to existing communities(h).......................Various 92
--
Total...................................................... 92
==
- - --------------------
* Development completed.
(a) Excluded from these lots and tracts are approximately 340 improved and 87
unimproved lots and tracts that are required for drainage and cannot be
sold, and approximately 202 improved and 415 unimproved lots and tracts that
have been removed from sale for encumbrances or additional site development,
which can only be sold when these issues are resolved. Also excluded are
amenities consisting of 4 administration facility sites, 3 recreational
facility sites and 2 unimproved golf course sites, as well as approximately
560 tracts reserved for community usage such as for greenbelts, buffer
areas, church and school sites.
(b) "Unimproved Unsold Platted Lots & Tracts" and "Improved Unsold Platted Lots
& Tracts", when added to lots and tracts sold, as described in "Existing
Communities", may not equal "Platted Lots & Tracts in Masterplan" for
various reasons, such as the subdivision of tracts into two or more parcels
for sale to different purchasers.
(c) Excludes permit denial areas.
5
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excluded 84 Citrus Springs and 65 Marion Oaks improved lots deeded to the
purchaser of the Company's contracts receivable as exchange inventory to be
available for customers who pre-pay their contracts prior to the
installation of water service lines within one mile of their homesite and
who wish to commence immediate construction. Unused exchanged inventory
will be reconveyed to the Company when all purchased receivables have
matured and are paid in full.
(f) Excludes 850 improved and 844 unimproved platted lots and tracts held for
retail sale by Citony Development Corporation ("Citony"), an affiliate of
Yasawa. The property acquired by Citony in December, 1992 had been marketed
by the Company during 1993 and early 1994 pursuant to a joint venture
agreement between the Company and Citony. The Company and Citony agreed to
terminate the joint venture agreement in April, 1994; however, the Company
is providing certain assistance to Citony during the transition period.
(g) Excludes 17 improved lots held by SunBank/Miami, N.A., as Trustee for the
Marco Shores Trust.
(h) Excludes 18 unplatted acres in existing communities and 3,829 acres of
unplatted natural preserves restricted for recreational park use which
cannot be sold.
LAND
In selecting sites for its communities, the Company examined various
demographic and economic factors, the regulatory climate, the availability of
governmental services and medical, educational and commercial facilities, and
estimated development costs. Its communities are accessible to major highways
and Florida's major metropolitan areas and are near at least one large body of
water that can be used for recreational purposes. Other criteria used by the
Company in site selection are the suitability of the land for natural or
engineered drainage and the availability of a sufficient supply of potable water
to support the community's anticipated population.
The master plans of the Company's communities have been designed to provide for
amenities such as golf courses, greenbelt areas, parks and recreational areas,
as well as for the basic infrastructure, such as roads and water, and in
selected development areas, sewer lines. Sites are set aside for shopping
centers, schools, houses of worship, medical centers and public facilities such
as libraries and fire stations.
In its major planned communities, the Company offers for sale lot and house
"packages" situated on paved streets. In other areas of these communities, the
Company historically has sold single-family lots and multi-family and commercial
tracts on an installment basis. Prior to 1991, the Company sold such land,
subject to a future development obligation, accepting down payments as low as 5%
of the sales price, with the balance payable over periods ranging from 2 to 15
years, depending on the payment plan selected. When the applicable rescission
period expired and the Company received at least 10% of the contracted sales
price, a substantial portion of the revenue and related profit on the sale was
recognized, with the remaining revenue and profit deferred and recognized as
land improvements such as street paving occurred.
Due to various factors, since 1986, the Company had utilized a deed and
mortgage format for effecting sales in certain communities upon receipt of a
down payment equal to at least 25% of the sales price. Beginning September 29,
1990, the Company changed its method of recognizing land sales by recording the
sale of lots, subject to a future development obligation, under the deposit
method; since January 1, 1991, no sale has been recognized until the Company
receives at least 20% of the contracted sales price; and beginning in the fourth
quarter of 1991, the Company limited the sale of lots to those which front on a
paved street and are ready for immediate building. See Note 1 to Consolidated
Financial Statements.
6
A portion of the contract purchase price is discounted and treated as interest
income to be amortized over the life of the contract. Interest income is also
earned in accordance with the interest rate stated in the installment land sales
contract. The Company further provides an allowance for contract cancellations
based on the historical experience of the Company for such cancellations.
Substantially all of the Company's single-family lot and multi-family and
commercial tract sales have been made on an installment basis. Of the over
137,000 lots and tracts sold since the Company's inception, contracts receivable
presently exist with respect to approximately 879 lots and tracts with an
outstanding balance of approximately $10,132,000 at December 31, 1993, excluding
contracts receivable of which the Company is a guarantor. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 2 to Consolidated Financial Statements.
HOUSING
Historically, the Company has been involved in the design, construction and
marketing of single-family homes and multi-family housing, including both
condominium apartment complexes and a vacation ownership (timesharing) project.
Since commencing operations, the Company has constructed and sold approximately
13,000 single-family homes and over 4,300 multi-family housing units in its
communities, with much of the actual construction performed by subcontractors.
Revenues, as well as related costs and expenses, from single-family home and
vacation ownership sales are recorded at the time of closing.
SINGLE-FAMILY HOUSING
Although the Company had discontinued its single-family housing activities at
the end of 1984, in December, 1992, the Company re-entered the single-family
housing business at its Marion Oaks community. Two and three bedroom
moderately-priced homes are being constructed by an exclusive independent
builder at the Company's FeatherNest housing village in this community and sold
in the local markets and through the Company's independent dealer network. These
homes include, as standard features, cathedral ceilings, attached garages,
lanais, breakfast nooks and spacious walk-in closets. The housing village is
planned to feature its own recreational complex, including a swimming pool,
tennis courts and other amenities. The Company also offers the same model line
in Marion Oaks outside of the FeatherNest village in a suburban program as well
as build on your own lot program for those purchasers who have previously
acquired a lot. During the third quarter of 1993, the Company introduced its
"House of the Year," a two-bedroom home, priced from as low as $47,900 on the
purchaser's already-owned lot.
MULTI-FAMILY HOUSING
The Company has designed, constructed and sold more than 4,300 condominium
apartment units at its communities in buildings ranging from garden-style
apartment complexes to luxury high-rise towers. Every condominium complex
constructed by the Company includes at least one pool and patio area; many
feature tennis courts and other recreational amenities.
Substantially all of the Company's remaining inventory in its vacation
ownership complex, The Surf Club, located on the Gulf of Mexico at Marco Island,
was sold in 1990.
MARKETING
The Company has historically sold land and housing products on a national and
international basis through independent dealers in the United States, Canada and
overseas, as well as through Company-affiliated salespeople.
7
For the year ended December 31, 1993, sales by independent dealers in the
United States accounted for approximately 23% (in dollar volume) of new land
sales contracts; while overseas dealers accounted for approximately 31% of such
contracts; and Company-affiliated salespeople accounted for approximately 46% of
such contracts.
The financing and debt restructuring completed in 1992 and the first half of
1993 enabled the Company to commence implementation of its 1993 business plan by
undertaking a new marketing program which provided for the strengthening of the
Company's marketing organization, the rebuilding of its retail land sales
business and its re-entry into the single-family home business. During 1993, the
Company concentrated on bolstering and expanding its existing network of
independent dealers, particularly in the northeastern and midwestern regions of
the United States, and during the latter part of the year, overseas. The Company
also established a Company-affiliated sales office in Chicago during the second
half of 1993.
The marketing program initiated in 1993 did not produce the level of sales
necessary in order that the Company's future working capital requirements could
be obtained through the sale of newly generated contracts and mortgages
receivables. Selex, Yasawa and their affiliates, upon whom the Company had been
dependent to meet its working capital needs since December, 1992, further
concluded that they would not provide any further funds to the Company to be
utilized in such marketing program. Consequently, the Company severely curtailed
its marketing program in 1994. At this time, the implementation of a revised
marketing program by the Company is dependent upon the resolution of the
financial and legal problems facing the Company, as well as the alternative
business plan to be developed.
EXISTING COMMUNITIES
DELTONA LAKES
Deltona Lakes is located 26 miles northeast of Orlando, with its popular
tourist attractions of Disney World and Sea World, and is bordered on the
northwest by Interstate 4. Opened in 1962, Deltona Lakes now has a population of
approximately 54,500. Over 30,000 lots and tracts and over 4,500 single and
multi-family housing units have been sold at this community.
Recreational amenities constructed by the Company include tennis courts, a golf
course and country club (which were sold in 1983), and a recreational complex on
the shores of Lake Monroe. A 133-room motel, an industrial park, a medical
complex, several shopping centers, numerous houses of worship, a fire station, a
public library and a junior high school are located in the community. The
Company has virtually completed development of this community.
MARCO ISLAND
The Company's resort community of Marco Island is located 104 miles west of
Miami and approximately 17 miles south of Naples, Florida. Over 8,500 lots and
tracts and over 4,200 single and multi-family housing units have been sold in
this community.
More than 10,000 persons reside at Marco Island year-round, with the population
tripling during the winter season. It is the largest of Florida's Ten Thousand
Islands and is known for its recreational amenities which, in addition to its
3-1/2 mile white sand beach, sport fishing, sailing and shelling, include golf,
tennis, swimming and other recreational activities. The island community has
several major shopping centers, banks and savings & loan associations, and
medical and professional centers.
Since the community's opening in January, 1965, the Company has built and
operated a yacht club and marina, the Marco Beach Hotel & Villas, and a golf
course and country club, all of which have been sold. The
8
Company has also constructed over 3,300 condominium units and The Surf Club, a
44 unit vacation ownership complex, on the island. In 1990, the Company
completed the sale of substantially all of its remaining vacation ownership
weeks.
Since its inventory at Marco Island is virtually sold out, in 1994 revenues are
expected to be generated from collections on existing contracts receivable.
The community's planned growth was interrupted in 1976 by denial of certain
federal permits needed to complete the development of approximately 14,500
units. The Settlement Agreement between the Company, the State of Florida and
various environmental interest groups (the "Settlement Agreement") which became
effective on March 14, 1985, allowed for the potential development of additional
dwelling units at Marco Island, Horr's Island and Marco Shores, located two
miles from Marco Island. The bulk of these properties have subsequently been
sold or transferred to the Company's lenders or to the trustee pursuant to the
1992 settlement of the class action litigation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources" and Notes 5 and 9 to Consolidated Financial Statements.
SPRING HILL
Spring Hill, with an estimated population of approximately 60,000, is located
45 miles north of Tampa-St. Petersburg. Over 32,000 lots and tracts and over
4,000 single-family homes have been sold in this community. The Company has
constructed a recreation complex, a country club, and two golf courses. The
Company has sold its country club and golf courses. Several shopping centers and
medical centers, two elementary schools, a junior high school, a senior high
school, numerous houses of worship and two fire stations are located in the
community. The Company has completed the development of this community.
CITRUS SPRINGS
Citrus Springs, with an estimated population of 5,600, is located 28 miles
southwest of Ocala and 25 miles from the Gulf of Mexico. Over 30,000 lots and
tracts and over 700 single-family homes have been sold at this community. A golf
course and a clubhouse (sold in 1990) and a community center have been completed
by the Company. Several churches and a convenience shopping area are located in
the community. The Company has completed 400 miles of road. In 1992, most of the
Company's remaining inventory at this community was sold to Citony for
approximately $6,500,000. The Company and Citony then entered into a joint
venture agreement with respect to the property, providing for the Company to
market the property and receive an administration fee from the venture. The
Company and Citony terminated the joint venture agreement in April, 1994;
however, the Company is providing certain assistance to Citony during the
transition period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 to Consolidated Financial
Statements.
ST. AUGUSTINE SHORES
St. Augustine Shores, with a population estimated to be approximately 6,700, is
located seven miles south of St. Augustine, between the Intracoastal Waterway
and U.S. Highway 1. Only commercial and multi-family tracts, house and lot
packages and condominium apartment units had been sold in this community before
1987, but that year St. Augustine Shores was opened for the retail sale of
single-family lots. Approximately 1,000 additional single-family lots became
available during 1988 through the platting of 641 acres adjacent to the existing
platted properties. Over 2,000 single and multi-family housing units and tracts
have been sold.
The Company has completed 28 miles of road. Certain common areas of the
community, such as parks and swale areas, are maintained by the St. Augustine
Shores Service Corporation, a non-profit corporation, of which all property
owners are members. A golf course and country club and a recreation building
have been completed by the Company. Several houses of worship and shopping
facilities are also located in the community. In
9
October, 1991, the country club and golf course was transferred to the
Company's lenders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and Note
5 to Consolidated Financial Statements.
Pursuant to the June, 1992 transaction with Selex, the Company purchased
certain multi-family and commercial property at this community from Mr. Muyres
and entities affiliated with Messrs. Muyres and Zwaans. Also in conjunction with
the June, 1992 transaction, an affiliate of Selex was granted an option to
repurchase certain of the property for $312,000, which option was exercised by
the affiliate in March, 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Retail land sales will not
resume at the community until certain improvements are completed, as the Company
is selling only fully improved lots. See also "Regulation - Community
Development and Environmental".
SUNNY HILLS
Sunny Hills, with a population of approximately 1,200 residents, is located in
the Florida Panhandle, 45 miles north of the Gulf of Mexico and 35 miles north
of Panama City. Over 12,000 lots and tracts and 300 single-family homes have
been sold at this community. It includes several houses of worship and a
convenience shopping center. The Company has completed or under construction 165
miles of road. The community also has a golf course and country club which was
sold by the Company for $1,000,000 in the first quarter of 1993.
The Company reopened Sunny Hills for retail lot sales in mid-1989. Revenues in
1994 will be generated from collections on existing contracts receivable, from
retail land sales and from the recognition of deferred revenue as land
development proceeds.
PINE RIDGE
Pine Ridge is located 34 miles southwest of Ocala. The community's facilities
include an equestrian club and tennis courts. In May, 1987, the Company
completed the $8,500,000 sale of its remaining inventory and golf course at Pine
Ridge. Prior to the sale, the Company had sold over 3,500 lots and tracts and
over 53 single-family homes in Pine Ridge.
MARION OAKS
Marion Oaks, with a population of approximately 6,800 residents, is located 18
miles south of Ocala. Over 20,000 lots and tracts and over 13,000 single-family
homes have been sold in the community. The community includes playgrounds, two
golf courses (one of which was sold in 1988 and the second which was transferred
to the Company's lenders on October 11, 1991) and several recreation buildings.
A shopping center and several houses of worship are located in the community.
The Company has completed 311 miles of road. The Company re-entered the
single-family housing business at this community in December, 1992 with the
opening of its FeatherNest housing village. See "Housing" and "Marketing".
Revenues in 1994 will be generated from the sale of land inventory, from housing
sales, from the recognition of deferred revenue as land development proceeds,
from collections on existing contracts receivable and from the Company's real
estate brokerage operation.
SEMINOLE WOODS
Seminole Woods is comprised of 1,554 acres of property located 20 miles north
of Orlando. The community, comprised of 262 single-family lots, each a minimum
of five acres, has been sold out and development completed.
10
TIERRA VERDE
Tierra Verde, a 666-acre waterfront subdivision located eight miles south of
St. Petersburg, has been developed and marketed pursuant to a 50% joint venture
between a wholly-owned subsidiary of the Company and an unaffiliated corporation
which filed a petition for bankruptcy under the Bankruptcy Code in 1985. The
community has been sold out and development completed. The venture, which
extended until December 31, 1990, provided for the Company's subsidiary to
receive a management fee and to share in the venture's results of operations
equally with its venture partner. The venture was extended for the purposes of
winding down operations which were completed in 1993.
OTHER PROPERTIES
OTHER LAND ASSETS
The Company also owns 92 acres of land in Florida adjacent to its existing
communities which is being marketed by the Company's commercial sales division.
OTHER BUSINESSES
The Company's title insurance subsidiary was established in 1978 in order to
reduce title insurance, legal and certain related closing costs incurred by the
Company in transferring title of its land and housing products to its
purchasers. The subsidiary serves as an agent for TICOR Title Insurance Company,
Chicago Title Insurance Company and other title insurers. The Company's realty
subsidiary perform real estate brokerage and rental services at the Company's
Marion Oaks and Sunny Hills communities.
EMPLOYEES
At August 31, 1994, the Company had 35 employees, of whom 31 were involved in
executive, administrative, marketing and community maintenance capacities and 4
were involved with the title insurance subsidiary. Certain of the Company's
development activities are carried out by subcontractors who separately employ
additional personnel. Given the 76% reduction in staffing levels and the
cutbacks in employee benefits that have been required since December, 1993 by
the Company's liquidity situation, the Company's employee relations are somewhat
tenuous.
COMPETITION
The Company faces competition primarily from property owners in the Company's
communities seeking to resell their land. The Company is also facing
competition, on a regional level, with other builders and developers in the sale
of single-family housing. Such competition is generally based upon location,
price, reputation, quality of product and the existence of commercial and
recreational facilities and amenities.
REGULATION
The Company's real estate business is subject to regulation by various local,
state and federal agencies. The communities are increasingly subject to
substantial regulation as they are planned, designed and constructed, the nature
of such regulation extending to improvements, zoning, building, environmental,
health and related matters. Although the Company has been able to operate within
the regulatory environment in the past, there can be no assurance that such
regulations could not be made more restrictive and thereby adversely affect the
Company's operations.
11
COMMUNITY DEVELOPMENT
In Florida, as in many growth areas, local governments have sought to limit or
control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements, construct
public facilities, and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.
The implementation of the Florida Growth Management Act of 1985 (the "Act") has
now commenced. The Act precludes the issuance of development orders or permits
if public facilities such as transportation, water and sewer services will not
be available concurrent with development. Development orders have been issued
for, and development has commenced in, the Company's existing communities (with
development being virtually completed in certain of these communities). Thus,
such communities are less likely to be affected by the new growth management
policies than future communities. Any future communities developed by the
Company will be strongly impacted by new growth management policies. Since the
Act and its implications are consistently being re-examined by the State,
together with local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the effect of new
growth management policies, but anticipates that such policies may increase the
Company's permitting and development costs.
On September 30, 1988, the Company entered into an agreement with Citrus
County, Florida to establish the procedure for transferring final maintenance
responsibilities for roads in the Company's Citrus Springs subdivision to Citrus
County. The agreement obligated the Company to perform certain remedial work on
previously completed improvements within the Citrus Springs subdivision by June
1, 1991. The Company was unable to complete this work due to the lack of
available funds and is negotiating with Citrus County for the transfer of final
maintenance responsibility for the roads to the County.
The Company's present development schedule for completing improvements to
approximately 600 acres at its St. Augustine Shores community does not coincide
with the current development requirements of the Planned Unit Development
("PUD") approved by St. Johns County. The Company is seeking a modification of
the PUD development requirements to be coincident with the Company's development
plans at St. Augustine Shores.
The Company's corporate performance bonds to assure the completion of
development at its St. Augustine Shores community expired in 1993. Such bonds
cannot be renewed due to a change in the policy of the Board of County
Commissioners of St. Johns County which precludes allowing any developer to
secure the performance of development obligations by the issuance of corporate
bonds. In the event that St. Johns County elects to undertake the completion of
such development work, the Company would be obligated with respect to 1,000
unimproved lots at St. Augustine Shores in the amount of approximately
$6,200,000. The Company has proposed the formation of a community development
district as a funding source and submitted an alternative assurance program for
the completion of such development and improvements.
In the third quarter of 1991, St. Johns County, Florida acquired the St.
Augustine Shores utility company, formerly owned by Topeka, under an action
framed as a condemnation suit. The County has contended that it is not
obligated, as was Topeka, to extend utility lines at its cost to future
residents of the Company's St. Augustine Shores community. The Company has had
discussions with Topeka and the County in attempt to reach a resolution to this
dispute. If a satisfactory resolution is not achieved it may be necessary for
the Company to institute appropriate legal proceedings to assure the
installation of utility lines.
12
ENVIRONMENTAL
To varying degrees, certain permits and approvals will be necessary to complete
the development of all of the Company's communities. Despite the fact that the
Company has obtained substantially all of the permits and authorizations
necessary to proceed with its development work on communities presently being
marketed, additional approvals may be required to develop certain platted
properties in certain communities to be marketed in the future. Although the
Company cannot predict the impact of such requirements, they could result in
delays and increased expenditures. In addition, the continued effectiveness of
permits and authorizations already granted is subject to many factors, some of
which, including changes in policies, rules and regulations and their
interpretation and application, are beyond the Company's control.
Certain of the Company's development permits for a portion of its St. Augustine
Shores community issued by the St. Johns Water Management District and the U.S.
Army Corps of Engineers are due to expire on dates prior to the Company's
planned completion of improvements within the community. The Company has
submitted new permit applications that will coincide with the Company's
development plans. Since there can be no assurance that the Company will be
successful in obtaining such new permits in a timely manner, the Company may be
required to alter its development plans for this community.
The Company is aware of studies indicating that prolonged exposure to radon gas
may be hazardous to one's health. Such studies further indicate that radon gas
is apparently associated with mining and earth moving activities, particularly
in phosphate-bearing geological formations. Since phosphate mining has, over the
years, constituted a significant industry in Florida, various state and local
governmental agencies are in the process of attempting to determine the nature
and extent of indoor radon gas intrusion throughout the state. Similar studies
undertaken by the Company at its Citrus Springs community indicate that less
than 1% of its property in that community may be affected by radon gas; studies
conducted at the Company's Marion Oaks community revealed no indications of
potential indoor radon gas problems. None of the other properties owned by the
Company are situated over geological formations which are suspected of causing
radon gas problems. Consequently, the existence of radon gas in Florida is not
expected to materially affect the business or financial condition of the
Company.
The Company owns and operates above ground and underground fuel storage tanks
at its communities. The Florida Department of Environmental Regulation ("DER")
is responsible not only for regulating these tanks, but for developing and
implementing plans and programs to prevent the discharge of pollutants by such
facilities. The Company has registered its storage tanks with the DER, installed
monitoring wells at all underground facilities, constructed containment devices
around above ground storage tanks, replaced or properly abandoned faulty tanks
or equipment and conducts periodic inspections and monitoring of all facilities.
All underground tanks will be replaced, retrofitted or abandoned pursuant to
schedules established under Florida law.
In December, 1988, the Company surveyed all of its fuel facilities and reported
any facility which exhibited evidence of potential soil contamination to the DER
prior to the deadline for acceptance into the Early Detection Incentive ("EDI")
Program. The EDI Program provides for the State to assume the financial
responsibility for any necessary clean-up operations when suspected
contamination has been voluntarily reported by the facility owner and accepted
into the program by the DER. Although all of the Company's sites have not yet
been inspected by the DER to verify the existence of significant contamination,
many sites have already been accepted into the EDI program.
13
MARKETING
The Company is also subject to a number of statutes imposing registration,
filing and disclosure requirements with respect to homesites and homes sold or
proposed to be sold to the public. On the state level, the Company's land sales
activities are subject to the jurisdiction of the Division of Florida Land
Sales, Condominiums and Mobile Homes (the "Division") which requires
registration of subdividers and subdivided land; reviews the contents of
advertising and other promotional material; inspects the Company's land and
development work; exercises jurisdiction over sales practices; and requires full
disclosure to prospective purchasers of pertinent information relating to the
property offered for sale.
OTHER OBLIGATIONS
As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for notifying affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community, the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested by the
purchaser. Under an agreement with Topeka, Topeka's utility companies have
agreed to furnish utility service to the future residents of the Company's
communities on substantially the same basis as such services were provided by
the Company. The Consent Order also required the establishment of an improvement
escrow account as assurance for completing such improvement obligations. In
June, 1992, the Company entered into the 1992 Consent Order with the Division
(the "1992 Consent Order"), which replaced and superseded the original Consent
Order, as amended and restated. Among other things, the 1992 Consent Order
consolidated the Company's development obligations and provided for a reduction
in its required monthly escrow obligation to $175,000 from September, 1992
through December, 1993. To meet its current escrow and development obligations
under the 1992 Consent Order, the Company is required to deposit into escrow
$5,160,000 in 1994 and 1995. As part of the assurance program under the 1992
Consent Order (as amended in February, 1993), the Company and its lenders
granted the Division a lien on certain contracts receivable (approximately
$8,915,000 as of December 31, 1993) and future receivables. Beginning January,
1994 and until development is completed or the 1992 Consent Order is amended,
the Company was required to deposit $430,000 per month into the escrow account.
The Company defaulted on its obligation to escrow $430,000 per month for the
period January 1994 through the present and, in accordance with the 1992 Consent
Order, collections on Division receivables were escrowed for the benefit of
purchasers from March 1, 1994 through April 30, 1994. In May, 1994 the Company
implemented a program to exchange purchasers who contracted to purchase property
which is undeveloped to property which is developed. Consequently, the Division
has allowed the Company to utilize collections on receivables since May 1, 1994.
At August 31, 1994, the amount collected on fully paid-for lots under the 1992
Consent Order was approximately $1,340,000. Pursuant to the 1992 Consent Order,
the Company has limited the sale of single-family lots to lots which front on a
paved street and are ready for immediate building so as not to increase its
development obligation. Because of the Company's default, the Division could
also exercise other available remedies under the 1992 Consent Order, which
remedies entitle the Division, among other things, to halt all sales of
registered property.
14
As of December 31, 1993, the Company had estimated development obligations of
approximately $2,825,000 on sold property, an estimated liability to provide
title insurance costing $951,000 and an estimated cost of street maintenance,
prior to assumption of such obligations by local governments, of $3,852,000, all
of which are included in deferred revenue. The total cost, including the
previously mentioned obligations, to complete improvements at December 31, 1993
to lots subject to the 1992 Consent Order and to lots in the St. Augustine
Shores community was estimated to be approximately $18,574,000. As of December
31, 1993, and August 31, 1994 the Company had in escrow approximately $1,664,000
and $913,000 respectively, specifically for land improvements, which are the
subject of the 1992 Consent Order.
The Company's land sales activities are further subject to the jurisdiction of
the laws of various states in which the Company's properties are offered for
sale.
On the federal level, the Company's homesite installment sales are subject to
the Federal Consumer Credit Protection ("Truth-in-Lending") Act. In addition,
the Company's activities are subject to regulation by the Interstate Land Sales
Registration Division ("ILSRD"), which administers the Interstate Land Sales
Full Disclosure Act. That Act requires that the Company file with ILSRD copies
of applicable materials on file with the Division as to all properties
registered; certain properties must be registered directly with ILSRD, in
addition to being registered with the Division.
The Company has either complied with applicable statutory requirements relative
to the properties it is offering or has relied on various statutory exemptions
which have relieved the Company from such registration, filing and disclosure
requirements. If these exemptions do not continue to remain available to the
Company, compliance with such statutes may result in delays in the offering of
the Company's properties and products to the public.
In addition, Florida and other jurisdictions in which the Company's properties
are offered for sale have recently strengthened, or are considering
strengthening, their regulation of subdividers and subdivided lands in order to
provide further assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The Company has
attempted to take appropriate steps to modify its marketing programs and
registration applications in the face of such increased regulation, but has
incurred additional costs and delays in the marketing of certain of its
properties in certain states and countries. For example, the Company has
complied with the regulations of certain states which require that the Company
sell its properties to residents of those states pursuant to a deed and mortgage
transaction, regardless of the amount of the down payment. The Company intends
to continue to monitor any changes in statutes or regulations affecting, or
anticipated to affect, the sale of its properties and intends to take all
necessary and reasonable action to assure that its properties and its proposed
marketing programs are in compliance with such regulations, but there can be no
assurance that the Company will be able to timely comply with all regulatory
changes in all jurisdictions in which the Company's properties are presently
offered for sale to the public.
Real estate salespersons must, absent exemptions which may be available to
employees of the property owner, be licensed in the jurisdiction in which they
perform their activities. Real estate brokerage companies in Florida, as well as
their brokers and salespersons, must be licensed by the Florida Real Estate
Commission.
MISCELLANEOUS
In addition, various other subsidiaries and divisions of the Company are
subject to regulation by local, state and federal agencies. Such regulation
extends to the licensing of operations, operating areas and personnel; the
establishment of safety and service standards; and various other matters.
15
ITEM 3
LEGAL PROCEEDINGS
In the action styled GARCIA V. DELTONA ET. AL, Case No. 86-03542, filed in the
Circuit Court for Dade County, Florida, on January 30, 1986, the plaintiff had
sought to recover $2,000,000 allegedly paid to the Company on four installment
land sales contracts, claiming fraud and misrepresentation on the part of one of
the Company's independent sales representatives and other violations of law. The
Company had cancelled the contracts in question according to their terms for
default of the payment obligations by the purchaser. Although the Company
negotiated a settlement of this action which provides for the Company to convey
to the plaintiff property which has a value equivalent to the monies paid by the
plaintiff to the Company under the cancelled contracts, the plaintiff has
asserted that the Company has breached the settlement agreement by failing to
convey sufficient property which meets the criteria of the settlement agreement.
The Company is of the belief that the property conveyed complies with such
criteria. The parties are currently attempting to resolve the dispute by
reaching an agreement as to alternative property that may be used for settlement
purposes.
In the action styled FIVE POINTS LIMITED V. THE DELTONA CORPORATION, Case No.
93-22877, filed in the Circuit Court for Dade County, Florida and served upon
the Company on December 8, 1993, the plaintiff is seeking damages against the
Company for an alleged breach of the lease for its office building. The
complaint alleges that the Company has defaulted in its obligation to make
payments under the lease and seeks damages in excess of $272,000 for additional
past due rent, plus damages for acceleration of lease payments in excess of
$4,000,000. On February 17, 1994 the Court entered an Order requiring the
Company to pay uncontested back rent of approximately $240,000, plus uncontested
monthly rents of approximately $48,000, commencing on March 1, 1994. As of
August 31, 1994, approximately $41,500 had been garnished by the Court under
this Order. The Plaintiff has obtained multiple judgments in the amount of
$647,000 as of August 31, 1994. These judgments have been recorded in certain of
the Company's communities. On September 1, 1994 the Company entered into a
settlement agreement with plaintiff to be consummated on or before October 17,
1994. New financing is essential for the Company to consummate the settlement
agreement. Failure to fund this agreement will result in continued litigation
and a likely substantial judgment against the Company. As part of the settlement
agreement, the Company will be evicted from the premises and must vacate its
occupancy by January 6, 1995.
In the action styled LEE, ET.AL. V. THE DELTONA CORPORATION, Case No. 94-3808,
filed in the Circuit Court for Dade County, Florida and served upon the Company
on February 28, 1994, the plaintiff had alleged that the liquidated damages
provision in the Company's contracts for the sale of its properties is
unenforceable under Florida law and contests the method utilized by the Company
to calculate actual damages in the event of contract cancellations. As part of
its complaint, the plaintiff was seeking certification as a class action, as
well as unspecified compensatory damages, together with interest, costs and
fees. The Company has reached a settlement with the plaintiff and proceedings
have been dismissed.
In the action styled BRUCE WEINER V. THE DELTONA CORPORATION, the plaintiff,
Bruce Weiner, prior Executive Vice President of the Company, has sued the
Company on April 28, 1994 for alleged breach of employment contract seeking
damages of approximately $750,000.00 and unspecified employee benefits. The
proceeding is pending in the Circuit Court of Dade County, Florida, Case No.
94-7825-04. The Company has filed a response to the plaintiff's complaint and
discovery is pending. No final hearing has been set. The Company believes that
it has defenses to the claim. In the event that the Company is not successful in
its defenses or a settlement is not reached, a substantial judgment may be
entered against the Company in favor of the plaintiff. The Company at the
present time is unable to predict the ultimate outcome of the litigation.
Although settlement discussions have commenced, no resolution of the matter has
been consummated. Any ultimate settlement will require the Company to obtain
financing for payment.
16
In the action styled JOSEPH MANCILLA, JR. V. THE DELTONA CORPORATION, the
plaintiff, Joseph Mancilla, Jr., prior Senior Vice President of the Company, has
sued the Company on May 17, 1994 for alleged breach of employment contract
seeking damages in excess of $391,000,000 plus unspecified employee benefits,
costs and other claims. The proceeding is pending in the Circuit Court of Dade
County, Florida, Case No. 94-09116. The Company has filed a responsive pleading
and no final hearing has been set. If a settlement is not reached and the
Company is not successful in its defenses, a substantial portion of the
plaintiff's claim may be entered as a judgment against the Company. The Company
at the present time is unable to predict the ultimate outcome. The Company
intends to begin settlement discussions with plaintiff. Any settlement funding
would require the Company to obtain financing to meet settlement commitment.
In the action styled MICHELLE GARBIS V. THE DELTONA CORPORATION, the plaintiff,
Michelle Garbis, prior Senior Vice President and Corporate Secretary of the
Company, has sued the Company on August 18, 1994 for alleged breach of
employment contract seeking damages of approximately $280,000.00. The Company
disputes the plaintiff's claim which is pending in the Circuit Court of Dade
County, Florida, Case No. 94-15531 CA (11). The Company and plaintiff have
reached a resolution and settlement of the claim and have entered into a
stipulation requiring installment payments through December 1994. Failure of the
Company to obtain financing and perform under the stipulation, would result in
continued litigation and potential judgment against the Company for the unpaid
portion of the settlement amount.
The Company is subject to various litigation involving claims by certain trade
creditors. The Company has entered into individual compromise and settlement
agreements or stipulations, for payments at discounted amounts on or before
September 30, 1994. Failure to obtain financing to make the committed payments
may result in judgments of up to $500,000.00.
The Company is also a party to certain other legal and administrative
proceedings arising in the ordinary course of its business. The outcome will
not, in the opinion of the Company, have a material adverse effect on the
business or financial condition of the Company.
17
ITEM 5
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock was traded on the New York and Pacific Stock
Exchanges under the ticker symbol DLT until trading was suspended on April 6,
1994. The following table sets forth the reported high and low sales prices for
the Company's Common Stock during the periods indicated as reported in the
record of composite transactions for NYSE listed securities.
QUARTER HIGH LOW
- - ------- ------ -----
1992 - First Quarter........................................ 1-1/2 5/8
Second Quarter....................................... 2-3/4 7/8
Third Quarter........................................ 2-1/4 1-7/8
Fourth Quarter....................................... 4-1/8 1-3/4
1993 - First Quarter........................................ 3-3/8 2-1/2
Second Quarter....................................... 3-1/2 1-7/8
Third Quarter........................................ 2-7/8 1-7/8
Fourth Quarter....................................... 3 1-7/8
On March 18, 1994 the last reported sales price of the shares of Common Stock
on the NYSE was 1-1/4. There were 1,704 holders of record of the Company's
Common Stock.
On April 6, 1994, both the New York and Pacific Stock Exchanges suspended the
Company's Common Stock from trading and instituted procedures to delist the
Company's Common Stock. On June 16, 1994, the Company's Common Stock was
formally removed from listing and registration on the New York Stock Exchange.
As of August 31, 1994, the Company's Common Stock was traded on a limited basis
in the over-the-counter markets. The high bid was 12-1/2(cent) and the low ask
price was 50(cent) at September 6, 1994 on the over-the-counter markets.
The Company has never paid any cash dividends on its Common Stock. The
Company's loan agreements contain certain restrictions which currently prohibit
the Company from paying dividends on its Common Stock.
18
ITEM 6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected consolidated financial information and
should be read in conjunction with the Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED
------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Revenues .................................... $ 12,099 $ 12,217 $ 10,784 $ 29,033 $ 66,879
Costs and expenses .......................... 20,871 18,935 30,313 46,041 66,008
----------- ----------- ----------- ----------- ----------
Income (loss) from continuing operations
before taxes and extraordinary items ....... (8,772) (6,718) (19,529) (17,008) 871
Provision for income taxes .................. -- 90 -- -- 343
----------- ----------- ----------- ----------- ----------
Income (loss) from continuing operations
before extraordinary items ................. 8,772 (6,808) (19,529) (17,008) 528
Discontinued operations (net of taxes):
Income from operations of utility
segment ................................... -- -- -- -- 904
Gain on sale of utility segment ............ -- -- -- -- 1,670
----------- ----------- ----------- ----------- ----------
Income (loss) before extraordinary items .... (8,772) (6,808) (19,529) (17,008) 3,102
Extraordinary items:
Gain (loss) from debt restructuring ....... -- 10,161 (7,100) -- --
Gain on settlement related to the
Marco refund obligation ................. -- 3,983 -- -- --
Utilization of net operating loss
carryforward ............................. -- -- -- -- 1,929
----------- ----------- ----------- ----------- ----------
Net income (loss) ........................... (8,772) 7,336 (26,629) (17,008) 5,031
Cumulative redeemable preferred stock
dividend ................................... -- -- -- -- 1,315
----------- ----------- ----------- ----------- ----------
Net income (loss) applicable to common
stock ...................................... $ (8,772) $ 7,336 $ (26,629) $ (17,008) $ 3,716
=========== =========== =========== =========== ==========
Per common share amounts:
Continuing operations ................... $ (1.45) $ (1.19) $ (3.45) $ (3.01) $ .09
Discontinued operations ................. -- -- -- -- .46
Extraordinary items ..................... -- 2.48 (1.25) -- .35
Preferred stock dividend ................ -- -- -- -- (.23)
----------- ----------- ----------- ----------- ----------
Net income (loss) ........................... $ (1.45) $ 1.29 $ (4.70) $ (3.01) $ .67
=========== =========== =========== =========== ==========
Weighted average common shares
outstanding ................................ 6,056,743 5,694,236 5,660,967 5,647,790 5,584,425
=========== =========== =========== =========== ==========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
----------- ----------- -----------
Total assets............................. $ 26,565 $ 37,050 $ 65,243 $ 113,003 $ 137,691
========== ========== ========= ========= =========
Liabilities.............................. $ 40,856 $ 42,569 $ 78,412 $ 99,543 $ 107,573
Stockholders' equity (deficiency)........ (14,291) (5,519) (13,169) 13,460 30,118
---------- --------- --------- --------- ---------
Total liabilities,preferred stock and
stockholders' equity (deficiency)....... $ 26,565 $ 37,050 $ 65,243 $ 113,003 $ 137,691
========== ========== ========= ========= =========
19
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 19, 1992, the Company completed a transaction with Selex, which
resulted in a change in control of the Company. Under the transaction, Selex
loaned the Company $3,000,000 collateralized by a first mortgage on certain of
the Company's property in its St. Augustine Shores, Florida community (the
"First Selex Loan"). The First Selex Loan initially bears interest at the rate
of 10% per annum with a term of four years and payment of interest deferred for
the first 18 months. Accrued interest due under the First Selex Loan in the
amount of $604,312 (including $463,562 due December 31, 1993) was unpaid and in
default as of August 31, 1994.
In conjunction with the First Selex Loan: (i) Empire sold Selex its 2,220,066
shares of the Company's Common Stock and assigned Selex its $1,000,000 Note from
the Company, with $225,000 of interest accrued thereon; (ii) Maurice A.
Halperin, Chairman of the Board of Empire and former Chairman of the Board of
the Company, forgave payment of the $200,000 salary due him for the period of
April, 1990 through April, 1991, which was in arrears; and (iii) certain changes
occurred in the composition of the Company's Board of Directors. Namely, the six
directors serving on the Company's Board who were previously designated by
Empire resigned and four Selex designees (Messrs. Marcellus H.B. Muyres, Antony
Gram, Cornelis van de Peppel and Cornelis L.J.J. Zwaans) were elected to serve
as directors in their stead. Marcellus H.B. Muyres was appointed Chairman of the
Board and Chief Executive Officer of the Company. These directors, as well as
Leonardus G.M. Nipshagen, a Selex designee, were then elected as directors at
the Company's 1992 Annual Meeting and re-elected at the Company's 1993 Annual
Meeting.
As part of the Selex transaction, Selex was granted an option, approved by the
holders of a majority of the outstanding shares of the Company's Common Stock at
the Company's 1992 Annual Meeting, to convert the Selex Loan, or any portion
thereof, into a maximum of 850,000 shares of the Company's Common Stock at a per
share conversion price equal to the greater of (i) $1.25 or (ii) 95% of the
market price of the Company's Common Stock at the time of conversion, but in no
event greater than $4.50 per share (the "Option"). However, on September 14,
1992, Selex formally waived and relinquished its right to exercise the Option as
to 250,000 shares of the Company's Common Stock to enable the Company to settle
certain litigation involving the Company through the issuance of approximately
250,000 shares of the Company's Common Stock to the claimants, without
jeopardizing the utilization of the Company's net operating loss carryforward.
On February 17, 1994, Selex exercised the remaining full 600,000 share Option at
a conversion price of $1.90 per share, such that $1,140,000 in principal was
repaid under the First Selex Loan through such conversion. As a consequence of
such conversion, Selex holds 2,820,066 shares of the Company's Common Stock
(43.1% of the outstanding shares of Common Stock of the Company based upon the
number of shares of the Company's Common Stock outstanding as of March 18, 1994.
Pursuant to the Selex transaction, $1,000,000 of the proceeds from the First
Selex Loan was used by the Company to acquire certain commercial and
multi-family properties at the Company's St. Augustine Shores community at their
net appraised value, from Mr. Muyres and certain entities affiliated with
Messrs. Zwaans and Muyres. Namely, (i) $416,000 was used to acquire 48
undeveloped condominium units (twelve 4 unit building sites) and 4 completed
(and rented) condominium units from Conquistador, in which Messrs. Zwaans and
Muyres serve as directors, as well as President and Secretary/Treasurer,
respectively; (ii) $485,000 was used to acquire 4 commercial lots from Swan, in
which Messrs. Zwaans and Muyres also serve as directors, as well as President
and Secretary, respectively; and (iii) approximately $99,000 was used to
reacquire, from Mr. Muyres, all of his rights, title and interest in that
certain contract with the Company for the purchase of a commercial tract in St.
Augustine Shores, Florida. None of the commercial land and multi-family property
acquired by the Company from Mr. Muyres and certain entities affiliated with
Messrs. Zwaans and Muyres collateralizes the First Selex Loan. In March, 1994,
Conquistador exercised its right to repurchase certain of the multi-family
property
20
from the Company (which right had been granted in connection with the June, 1992
transaction) at a price of $312,000, of which $260,000 was paid in cash to the
Company and $52,000 was applied to reduce interest due to Selex under the Third
Selex Loan.
In December, 1992, Mr. Gram, a director of the Company and beneficial owner of
the Common Stock of the Company held by Selex, acquired all of the Company's
outstanding bank debt and then assigned same to Yasawa, of which Mr. Gram is
also the beneficial owner. Yasawa simultaneously completed a series of
transactions with the Company which involved the transfer of certain assets to
Yasawa or its affiliated companies, the acquisition by Yasawa of 289,637 shares
of the Company's Common Stock through the exercise of warrants previously held
by the banks, the provision of a $1,500,000 line of credit to the Company and
the restructuring of the remaining debt as a $5,106,000 Yasawa Loan. Principal
repayments aggregating $341,000 were made in 1993 and 1994 to reduce the Yasawa
Loan to $4,765,000. On April 30, 1993, Selex loaned the Company an additional
amount of $1,000,000 pursuant to the Second Selex Loan and since July 1, 1993
made further loans to the Company aggregating $4,400,000 under the Third Selex
Loan. Principal of $33,000 had been repaid under the Second Selex Loan through
August 31, 1994. As of August 31, 1994, Yasawa has loaned the Company an
additional sum of $l,200,000 pursuant to the Second Yasawa Loan. As a
consequence of these transactions, the Company had loans outstanding from Selex,
Yasawa and their affiliates on August 31, 1994 in the aggregate amount of
approximately $17,976,000, including interest. The loans from Selex, Yasawa and
their affiliates are secured by substantially all of the assets of the Company.
See Note 5 to Consolidated Financial Statements.
The Company has stated in previous filings with the Commission that the
obtainment of additional funds to implement its marketing program and achieve
the objectives of its business plan is essential to enable the Company to
maintain operations and continue as a going concern. Since December, 1992, the
Company has been dependent on loans and advances from Selex, Yasawa and their
affiliates in order to implement its marketing program and assist in meeting its
working capital requirements. As stated above, during the last six months of
1993, Selex, Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the Third Selex
Loan enabled the Company to commence implementation of the majority of its
marketing program in the third quarter of 1993. The full benefits were not
realized in 1993 and the Company was unable to secure financing in 1994 to meet
its working capital requirements.
On March 10, 1994, the Company was advised that Selex filed Amendment No. 2
dated February 17, 1994 to its Schedule 13D (the "Amendment") with the
Commission. In the Amendment, Selex reported that it, together with Yasawa and
their affiliates were uncertain as to whether they would provide any further
funds to the Company. The Amendment further stated that Selex, Yasawa and their
affiliates, were seeking third parties to provide financing for the Company and
that as part of any such transaction, they would be willing to sell or
restructure all or a portion of their loans and Common Stock in the Company.
Inasmuch as funding is not presently available to the Company from external
sources and, as stated in their Amendment, Selex, Yasawa and their affiliates
have not determined whether they will provide any further funds to the Company,
the Company is facing a severe cash shortfall. As a consequence of its liquidity
position, the Company has defaulted on certain obligations, including its escrow
obligations to the Division pursuant to the Company's 1992 Consent Order, its
obligation under its lease for its corporate offices and its obligation to make
required interest payments under loans from Selex, Yasawa and their affiliates.
Furthermore, the Company has not paid certain real estate taxes which are
approximately $1,549,000 at August 31, 1994 and is also subject to certain
pending litigation by former employees and others, which may adversely affect
the financial condition of the Company. See "Legal Proceedings."
The Company is continuing to seek third parties to provide financing. As part
of any such transaction, Selex, Yasawa and their affiliates have indicated that
they are willing to sell or restructure all or a portion of their loans and
Common Stock in the Company. They have also indicated that they are willing to
sell their interests in the Company at a significant discount. Consummation of
any such transaction may result in a change in control of
21
the Company. There can be no assurance, however, that any such transaction
will result or that any financing will be obtained. Accordingly, the Company's
Board of Directors is also considering other appropriate action given the
severity of the Company's liquidity position including but not limited to filing
under the federal bankruptcy laws. Alternatively, the Company could be subject
to the filing of an involuntary bankruptcy proceeding in the event it is unable
to resolve and settle pending litigation, satisfy settlement commitments and
other unpaid creditor claims. See "Business: Recent Developments", "Legal
Proceedings" and Notes 1, 5 and 8 to Consolidated Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 25, 1992
REVENUES
Total revenues were $12,099,000 for 1993 compared to $12,217,000 for 1992.
Included in 1992 revenues is a third quarter gain of $448,000 from the sale of
the administration building at the Company's Citrus Springs community.
Gross land sales were $3,170,000 for 1993 versus $2,515,000 for 1992. Net land
sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $2,432,000 for 1993 from $2,092,000
for 1992. The modest increase in sales reflects the introduction of the
Company's marketing program which was delayed until the third quarter of the
year.
Retail land sales increased to $3,057,000 from $2,289,000, a 33.5% increase.
The Company had a 90.6% increase in retail land sales contracts entered into in
1993 over 1992. This increase was due to the third quarter introduction of the
Company's marketing program and reflects increased spending on advertising and
promotional programs to strengthen the Company's marketing organization, rebuild
its retail land sales business and re-enter the single-family home business.
Bulk land sales were $113,000 in 1993 as compared to bulk land sales of
$226,000 in 1992. In light of the Company's diminished bulk land sales inventory
and the properties transferred to the Company's lenders on October 11, 1991, it
is anticipated that 1994 will also produce a low volume of bulk land sales. See
"Liquidity and Capital Resources: Mortgages and Similar Debt".
The Company re-entered the single-family housing business in December, 1992.
Since revenues are not recognized from housing sales until the completion of
construction and passage of title, no significant housing revenues will be
recognized in 1994. The Company recognized revenues from housing sales of
$344,000 for 1993, primarily during the fourth quarter of the year, and had a
backlog of housing sales of $899,000 as of December 31, 1993.
The following table reflects the Company's real estate product mix for 1993 and
1992 (in thousands):
YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 25,
1993 1992
------- -------
Gross Land Sales:
Bulk sales........................................................... $ 113 $ 226
Retail sales*........................................................ 3,057 2,289
------- -------
Total........................................................... 3,170 2,515
------- -------
Housing Sales:
Single Family........................................................ 314 -0-
Vacation Ownership................................................... 30 -0-
------- -------
Total........................................................... 344 -0-
------- -------
Total Real Estate............................................... $ 3,514 $ 2,515
======= =======
22
- - --------------------
* New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 31, 1993 and December 25, 1992
were $4,106,000 and $2,154,000, respectively. Such contracts are not included
in retail land sales until the applicable rescission period has expired and
the Company has received payments totalling 20% of the contract sales prices.
See Note 1 to the Consolidated Financial Statements.
Improvement revenues result from the recognition of revenue deferred from prior
period sales. Recognition occurs as development work proceeds on previously sold
property. Improvement revenues totalled $4,725,000 in 1993 as compared to
$2,404,000 for 1992. The increase was due to the Company's resumption of
development work in the third quarter of 1992.
Interest income was $1,197,000 for 1993 compared to $3,584,000 for 1992. This
decrease is the result of lower contracts receivable balances.
Other revenues were $3,401,000 for 1993 compared to $4,137,000 in 1992.
Included in other revenues for 1992 is the previously mentioned gain of $448,000
on the sale of the administration building at the Company's Citrus Springs
community, as well as revenues from the Company's Sunny Hills golf and country
club which was sold in the first quarter of 1993.
COSTS AND EXPENSES
Costs and expenses were $20,871,000 for 1993 compared to $18,935,000 in 1992.
Cost of sales totalled $6,441,000 for 1993 versus $4,605,000 for 1992, primarily
due to the resumption of development work in the third quarter of 1992. Gross
profit margins decreased from 46.7% to 40.9%
The 1993 results include a provision for contract cancellations of $2,400,000.
Included in the provision is $1,400,000 for contracts sold in prior years to
third parties which the Company is obligated to repurchase.
Commissions, advertising and other selling expenses totalled $6,008,000 for
1993 versus $3,917,000 for 1992. Advertising and promotional expenditures
increased from $580,000 in 1992 to $1,521,000 in 1993, reflecting the Company's
implementation of its marketing program.
General and administrative expenses were $3,790,000 in 1993 versus $5,844,000
for 1992. General and administrative expenses have decreased primarily due to
overhead reductions, as part of the Company's efforts to stabilize its liquidity
situation.
Interest expense was $1,257,000 for 1993, as compared to $3,356,000 for 1992,
or a 62.5% decrease. Total interest costs (including capitalized interest) were
$1,421,000 and $3,456,000 for 1993 and 1992, respectively.
The decrease in interest cost is due to lower debt balances.
NET INCOME
The Company reported a net loss of $8,772,000 for 1993, compared to a net
income of $7,336,000 for 1992. The 1993 results include a provision for contract
cancellations of $2,400,000. The 1992 results include a gain of $448,000 on the
sale of the administration building at the Company's Citrus Springs community,
as well as a $10,161,000 extraordinary gain from debt restructuring and a
$3,983,000 extraordinary gain from the settlement related to the Company's Marco
refund obligation.
23
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 25, 1992 AND DECEMBER 27, 1991
REVENUES
Total revenues were $12,217,000 for 1992 compared to $10,784,000 for 1991.
Included in 1992 revenues is a third quarter gain of $448,000 from the sale of
the administration building at the Company's Citrus Springs community.
Gross land sales were $2,515,000 for 1992 versus $1,539,000 for 1991. Net land
sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $2,092,000 for 1992 from $1,154,000
for 1991. Retail land sales contracts written increased $851,000 from $1,438,000
in 1991 to $2,289,000 in 1992, a 60% increase. The increase in sales is
primarily due to the resale, during the first quarter of 1992, of property which
was the subject of a previously cancelled contract; however, sales for the year
reflected the economic slowdown and the Company's inability to bolster marketing
efforts due to its liquidity situation. Bulk land sales were $226,000 in 1992 as
compared to bulk land sales of $101,000 in 1991. See "Liquidity and Capital
Resources: Mortgages and Similar Debt".
Although the Company re-entered the single-family housing business in December,
1992, since revenues are not recognized from housing sales until the completion
of construction and passage of title, no housing revenues were expected to be
recognized until late 1993.
The following table reflects the Company's real estate product mix for 1992 and
1991 (in thousands):
YEARS ENDED
-----------------------------
DECEMBER 25, DECEMBER 27,
1992 1991
------------- ------------
Gross Land Sales:
Bulk sales........................................................... $ 226 $ 101
Retail sales*........................................................ 2,289 1,438
------- -------
Total........................................................... 2,515 1,539
------- -------
Housing Sales:
Condominium.......................................................... -0- 37
Vacation Ownership................................................... -0- 83
------- -------
Total........................................................... -0- 120
------- -------
Total Real Estate............................................... $ 2,515 $ 1,659
======= =======
- - --------------------
* New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 25, 1992 and December 27, 1991
were $2,154,000 and $4,087,000, respectively. Such contracts are not included
in retail land sales until the applicable rescission period has expired and
the Company has received payments totalling 20% of the contract sales prices.
See Note 1 to the Consolidated Financial Statements.
24
Improvement revenues result from the recognition of revenue deferred from prior
period sales. Recognition occurs as development work proceeds on previously sold
property. Improvement revenues totalled $2,404,000 in 1992 as compared to $-0-
for 1991. The increase was due to the Company's resumption of development work
in the third quarter of 1992.
Interest income was $3,584,000 for 1992 compared to $5,270,000 for 1991. This
decrease is the result of lower contracts receivable balances.
Other revenues were $4,137,000 for 1992 compared to $4,240,000 in 1991.
Included in other revenues is the previously mentioned gain of $448,000 on the
sale of the administration building at the Company's Citrus Springs community.
COSTS AND EXPENSES
Costs and expenses were $18,935,000 for 1992 compared to $30,313,000 in 1991.
Included in costs and expenses for 1991 was a provision of $8,900,000 caused by
an addition to the allowance for uncollectible contracts for previously
recognized sales of $12,200,000. Cost of sales totalled $4,605,000 for 1992
versus $2,599,000 for 1991, primarily due to the resumption of development work
in the third quarter of 1992. Gross profit margins decreased from 53.1% to
46.7%.
Commissions, advertising and other selling expenses totalled $3,917,000 for
1992 versus $4,107,000 for 1991. Advertising expenditures increased from
$259,000 in 1991 to $580,000 in 1992, reflecting the Company's efforts to
stimulate sales and implement its marketing program. Additional working capital
was expected to be allocated during the year for advertising and promotional
purposes to strengthen the Company's marketing organization, rebuild its retail
land sales business and re-enter the single-family home business.
General and administrative expenses were $5,844,000 in 1992 versus $6,165,000
for 1991. General and administrative expenses decreased primarily due to
overhead reductions, as part of the Company's efforts to stabilize its liquidity
situation.
Interest expense was $3,356,000 for 1992, as compared to $6,896,000 for 1991,
or a 51% decrease. Total interest costs (including capitalized interest) were
$3,456,000 and $6,896,000 for 1992 and 1991, respectively. The decrease in
interest cost is due to substantially lower debt balances, as well as lower
prime rates of interest charged by the Company's lenders.
NET INCOME
The Company reported net income of $7,336,000 for 1992, compared to a net loss
of $26,629,000 for 1991. The 1992 results include a gain of $448,000 on the sale
of the administration building at the Company's Citrus Springs community, as
well as a $10,161,000 extraordinary gain from debt restructuring and a
$3,983,000 extraordinary gain from the settlement related to the Company's Marco
refund obligation. The 1991 results included a provision of approximately
$8,900,000 related to a $12,200,000 addition to the allowance for uncollectible
contracts, as well as a $7,100,000 extraordinary loss from debt restructuring
related to the Sixth Restatement. Exclusive of the extraordinary items, the loss
from operations for 1992 was $6,808,000, as compared to the prior year's loss of
$19,529,000.
25
REGULATORY DEVELOPMENTS WHICH MAY AFFECT FUTURE OPERATIONS
In Florida, as in many growth areas, local governments have sought to limit or
control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans, the increased regulation has lengthened the development
process and added to development costs.
On a statewide level, the Florida Legislature adopted and implemented the
Florida Growth Management Act of 1985 (the "Act") to aid local governments
efforts to discourage uncontrolled growth in Florida. The Act precludes the
issuance of development orders or permits if public facilities such as
transportation, water and sewer services will not be available concurrent with
development. Development orders have been issued for, and development has
commenced in, the Company's existing communities (with development being
virtually completed in certain of these communities). Thus, such communities are
less likely to be affected by the new growth management policies than future
communities. Any future communities developed by the Company will be strongly
impacted by new growth management policies. Since the Act and its implications
are consistently being re-examined by the State, together with local governments
and various state and local governmental agencies, the Company cannot further
predict the timing or the effect of new growth management policies, but
anticipates that such policies may increase the Company's permitting and
development costs.
In addition to Florida, other jurisdictions in which the Company's properties
are offered for sale have recently strengthened, or are considering
strengthening, their regulation of subdividers and subdivided lands in order to
provide further assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The Company has
attempted to take appropriate steps to modify its marketing programs and
registration applications in the face of such increased regulation, but has
incurred additional costs and delays in the marketing of certain of its
properties in certain states and countries. For example, the Company has
complied with regulations of certain states which require that the Company sell
its properties to residents of those states pursuant to a deed and mortgage
transaction, regardless of the amount of the down payment. The Company intends
to continue to monitor any changes in statutes or regulations affecting, or
anticipated to affect, the sale of its properties and intends to take all
necessary and reasonable action to assure that its properties and its proposed
marketing programs are in compliance with such regulations, but there can be no
assurance that the Company will be able to timely comply with all regulatory
changes in all jurisdictions in which the Company's properties are presently
offered for sale to the public.
LIQUIDITY AND CAPITAL RESOURCES
MORTGAGES AND SIMILAR DEBT
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries.
The following table presents information with respect to mortgages and similar
debt (in thousands):
YEARS ENDED
----------------------------------
DECEMBER 31, DECEMBER 25,
1993 1992
------------ ------------
Mortgage Notes Payable .................. $ 13,284 $ 8,165
Other Loans.............................. 2,500 1,000
--------- --------
Total Mortgages and Similar Debt..... $ 15,784 $ 9,165
========= ========
Included in Mortgage Notes Payable is the $3,000,000 First Selex Loan
($1,860,000 as of August 31, 1994), the $1,000,000 Second Selex Loan ($967,000
as of August 31, 1994) the $4,384,000 Third Selex Loan and the
26
$4,900,000 Yasawa Loan ($4,765,000 as of August 31, 1994). Other loans include
the $1,000,000 Empire note and the $1,500,000 Scafholding Loan.
These mortgage notes payable and other loans are in default as of August 31,
1994 due to the non-payment of interest and principal. The lenders have not
taken any action as a result of these defaults.
On June 19, 1992, the Company completed a transaction with Selex whereby, among
other things, Selex loaned the Company $3,000,000 (the First Selex Loan). The
First Selex Loan is collateralized by a first mortgage on certain of the
Company's property in its St. Augustine Shores, Florida community. The Loan
matures on June 15, 1996 and provides for principal to be repaid at 50% of the
net proceeds per lot for lots requiring release from the mortgage, with the
entire unpaid balance becoming due and payable at the end of the four year term.
It initially bears interest at the rate of 10% per annum, with payment of
interest deferred for the initial eighteen months of the Loan and interest
payments due quarterly thereafter. On February 17, 1994, principal in the amount
of $1,140,000 was repaid under the First Selex Loan when Selex exercised its
previously described Option to convert a portion of the Loan into 600,000 shares
of the Company's Common Stock at a conversion price of $1.90 per share. Accrued
interest in the amount of $604,300 (including $463,600 due December 31, 1993)
was unpaid and in default under the First Selex Loan as of August 31, 1994.
The Company had defaulted on its bank debt in the third quarter of 1990, and
was engaged in negotiating the repayment and restructuring of such debt through
1991 and the first half of 1992. As of December 27, 1991, the Company's bank
debt had been reduced by the assignment of mortgages receivables and, on October
11, 1991, the transfer of certain properties to its principal lending banks
pursuant to a Conveyance Agreement with such lenders. The Conveyance Agreement
not only provided for the partial repayment of the bank debt, but also
encompassed an agreement in principle providing for the restructuring and
repayment of the remaining bank debt.
On June 18, 1992, the Company completed the restructuring of its bank debt by
entering into the Sixth Amended and Restated Credit and Security Agreement (the
"Sixth Restatement") with its lenders. The terms of the Sixth Restatement
provided for the Company's remaining debt in the principal amount of
approximately $25,300,000 to be repaid by June 30, 1997, with specified interim
repayments and benchmarks to be achieved. Among other things, the Sixth
Restatement provided for: (i) interest to accrue on the remaining debt at
Citibank's alternate base rate ("ABR") plus 4% per annum, subject to a minimum
interest rate of 11% per annum and a maximum interest rate of 14% per annum,
with no interest payments due until June 30, 1996; (ii) accrued, but unpaid
interest on $10,000,000 of the restructured debt to be forgiven provided that
the principal balance outstanding on the restructured debt as of June 30, 1996
was less than $9,000,000; and (iii) the issuance to the lenders of warrants to
acquire up to 277,387 shares of the Company's Common Stock at a price of $1.00
per share.
In conjunction with the completion of the Sixth Restatement, the lenders
released or subordinated their lien on certain assets of the Company, to enable
the Company to complete the First Selex Loan, to complete the $13,500,000 sale
of contracts receivable described below, to enter into the 1992 Consent Order
with the Division, and to secure working capital needed to pay real estate taxes
which were, at the time, delinquent and meet its customer obligations for
improvement work at certain of the Company's communities. During the third
quarter of 1992, the lenders also released their lien on certain other contracts
receivable to allow the Company to complete a sale of such receivables, which
generated $600,000 in proceeds. These proceeds were, in turn, paid to the
lenders, with the lenders allowing the Company $1,000,000 in debt reduction
credit, and resulting in an extraordinary gain of $400,000.
During the 1991 second quarter, the Company incurred extraordinary expenses of
$3,500,000 for debt restructuring, based upon the transfer value of the assets
involved in the first phase of its debt restructuring. During the fourth quarter
of 1991, the Company provided for an additional $3,600,000 of extraordinary
expenses for debt restructuring based upon the Company's assessment of the
ultimate costs that would result from the
27
restructuring of its debt pursuant to the Sixth Restatement. The fourth
quarter addition included the anticipated professional fees, bank charges and
other costs related to the Sixth Restatement, as well as the loss on the sale of
contracts receivable discussed below. The completion of the Sixth Restatement
was dependent upon the completion of the sale of contracts receivable;
therefore, the loss on such sale was included as an extraordinary item.
On December 2, 1992 the Company entered into various agreements relating to
certain of its assets and the restructuring of its debt with Yasawa. The
consummation of these agreements was conditioned upon the acquisition by Mr.
Gram of the bank debt under the Sixth Restatement (the "Bank Loan") described
above. On December 4, 1992, Gram acquired the Bank Loan of approximately
$25,150,000 (including interest and fees) for a price of $10,750,000, as well as
the warrants which the lenders held. Immediately thereafter, Gram transferred
all of his interest in the Bank Loan, including the warrants, to Yasawa. See
Notes 5 and 10 to Consolidated Financial Statements.
On December 11, 1992 the Company consummated the December 2, 1992 agreements
with Yasawa. Under these agreements, Yasawa, its affiliates and the Company
agreed as follows: (i) the Company sold certain property at its Citrus Springs
community to an affiliate of Yasawa in exchange for approximately $6,500,000 of
debt reduction credit; (ii) an affiliate of Yasawa and the Company entered into
a joint venture agreement with respect to the Citrus Springs property, providing
for the Company to market such property and receive an administration fee from
the venture (in March, 1994, the Company and the affiliate agreed to terminate
the venture); (iii) the Company sold certain contracts receivable at face value
to an affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club and Golf Course
to an affiliate of Yasawa for an aggregate sales price of $5,500,000, with the
affiliate assuming an existing first mortgage of approximately $1,100,000 and
the Company receiving debt reduction credit of $2,400,000, such that the Company
obtained cash proceeds from this transaction of $2,000,000, which amount was
used for working capital; (v) an affiliate of Yasawa agreed to lease the Marco
Shores Country Club and Golf Course to the Company for a period of approximately
one year; (vi) an affiliate of Yasawa and the Company agreed to amend the terms
of the warrants to increase the number of shares issuable upon their exercise
from 277,387 shares to 289,637 shares and to adjust the exercise price to an
aggregate of approximately $314,000; (vii) Yasawa exercised the warrants in
exchange for debt reduction credit of approximately $314,000; (viii) Yasawa
released certain collateral held for the Bank Loan; (ix) an affiliate of Yasawa
agreed to make an additional loan of up to $1,500,000 to the Company, thus
providing the Company with a future line of credit (all of which was drawn and
outstanding as of August 31, 1994); and (x) Yasawa agreed to restructure the
payment terms of the remaining $5,106,000 of the Bank Loan as a loan from
Yasawa.
The Yasawa Loan bears interest at the rate of 11% per annum, with payment of
interest deferred until December 31, 1993, at which time only accrued interest
became payable. Commencing January 31, 1994, principal and interest became
payable monthly, with all unpaid principal and accrued interest being due and
payable on December 31, 1997. A portion of the proceeds from a March, 1993 sale
of contracts receivable was applied to reduce the Yasawa Loan to $4,900,000
during the first quarter of 1993 and the assignment of a mortgage receivable to
Yasawa reduced the Yasawa Loan to $4,764,000 as of August 31, 1994. Accrued
interest due under the Yasawa Loan in the amount of $355,196 was unpaid and in
default as of August 31, 1994.
In February, 1994, Yasawa loaned the Company an additional amount of $437,500
at an interest rate of 8% per annum (the "Second Yasawa Loan"). As of August 31,
1994, a total of $1,200,000 had been advanced under the Loan.
On April 30, 1993 Selex loaned the Company an additional $1,000,000
collateralized by a first mortgage on certain of the Company's property in its
Marion Oaks, Florida community (the "Second Selex Loan"). The Second Selex Loan
bears interest at 11% per annum, with interest deferred until December 31, 1993.
The Second Selex Loan provides for principal to be repaid at $3,000 per lot for
lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994
28
to be due and payable on April 30, 1994. Although Selex had certain conversion
rights under the Second Selex Loan in the event the Company sold any
Common Stock or Preferred Stock prior to payment in full of all amounts due to
Selex under the Second Selex Loan, such rights were voided as of December 31,
1993 since the regulations set forth in proposed Treasury Decision CO-18-90
relative to Section 382 of the Internal Revenue Code were not adopted by such
date. As of August 31, 1994, $33,000 in principal had been repaid under the
Second Selex Loan, but accrued interest of $93,344 due under the Loan as of
August 31, 1993 remained unpaid and in default.
From July 9, 1993 through December 31, 1993, Selex loaned the Company an
additional $4,400,000 collateralized by a second mortgage on certain of the
Company's property on which Selex and/or Yasawa hold a first mortgage pursuant
to a Loan Agreement dated July 14, 1993 and amendments thereto (the "Third Selex
Loan"). The Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at $3,000 per lot
for lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 becoming
due and payable on April 30, 1994. As of August 31, 1994 accrued interest of
$466,837 due under the Third Selex Loan was unpaid and in default.
Interest due to Selex, Yasawa and their affiliates in the aggregate amount of
$2,300,000 remained unpaid and in default as of August 31, 1994. From January 1,
1994 through August 31, 1994, $24,000 in principal was repaid under the Second
Selex Loan and $1,140,000 in principal was repaid under the First Selex Loan
through the exercise of the above described Option. After giving effect to such
repayments of principal, the Company had loans outstanding from Selex, Yasawa
and their affiliates on August 31, 1994 in the amount of approximately
$17,976,000 including interest, of which approximately $9,867,000 is owed to
Selex, (10% per annum on the First Selex Loan, 11% per annum on the Second and
Third Selex Loans and 12% per annum on the $1,000,000 Empire Note assigned to
Selex); approximately $6,349,000 is owed to Yasawa, including accrued and unpaid
interest of approximately $384,500 (11% per annum on the Yasawa Loan and 8% per
annum on the Second Yasawa Loan); and approximately $1,759,000 is owed to an
affiliate of Yasawa, including accrued and unpaid interest of approximately
$259,500 (12% per annum). The loans from Selex, Yasawa and their affiliates are
secured by substantially all of the assets of the Company.
On March 10, 1994, the Company was advised that Selex filed an Amendment to its
Schedule 13D filed with the Commission. In the Amendment, Selex reported that
it, together with Yasawa and their affiliates, were uncertain as to whether they
would provide any further funds to the Company. The Amendment further stated
that Selex, Yasawa and their affiliates were seeking third parties to provide
financing for the Company and that as part of any such transaction, they would
be willing to sell or restructure all or a portion of their loans and Common
Stock in the Company.
The Company has stated in previous filings with the Commission that the
obtainment of additional funds to implement its marketing program and achieve
the objectives of its business plan is essential to enable the Company to
maintain operations and continue as a going concern. Since December, 1992, the
Company has been dependent on loans and advances from Selex, Yasawa and their
affiliates in order to implement its marketing program and assist in meeting its
working capital requirements. As stated above, during the last six months of
1993, Selex, Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the Third Selex
Loan enabled the Company to commence implementation of the majority of its
marketing program in the third quarter of 1993. The full benefits of the program
could not be realized in 1993 and the Company was unable to secure financing in
1994 to meet its ongoing working capital requirements.
Inasmuch as funding is not presently available to the Company from external
sources and, as stated in their Amendment, Selex, Yasawa and their affiliates
have not determined whether they will provide any further funds to the Company,
the Company is facing a severe cash shortfall. As a consequence of its liquidity
position, the Company has defaulted on certain obligations, including its escrow
obligations to the Division pursuant to the
29
Company's 1992 Consent Order, its obligation under its lease for its corporate
offices and its obligation to make required interest payments under loans
from Selex, Yasawa and their affiliates. Furthermore, the Company has not
paid certain real estate taxes which aggregate approximately $1,549,000 as of
August 31, 1994 and is also subject to certain pending litigation from former
employees and others, which may adversely affect the financial condition of the
Company. See "Legal Proceedings."
The Company is continuing to seek third parties to provide financing. As part
of any such transaction, Selex, Yasawa and their affiliates have indicated that
they are willing to sell or restructure all or a portion of their loans and
Common Stock in the Company. They have also indicated that they are willing to
sell their interests in the Company at a significant discount. Consummation of
any such transaction may result in a change in control of the Company. There can
be no assurance, however, that any such transaction will result or that any
financing will be obtained. Accordingly, the Company's Board of Directors is
also considering other appropriate action given the severity of the Company's
liquidity position including but not limited to protection under federal
bankruptcy laws. Alternatively, the Company could be subject to the filing of an
involuntary bankruptcy proceeding in the event it is unable to resolve and
settle pending litigation, satisfy settlement commitments and other unpaid
creditor claims. See "Business: Recent Developments", "Legal Proceedings" and
Notes 1, 5 and 8 to Consolidated Financial Statements.
CONTRACTS AND MORTGAGES RECEIVABLE SALES
In December, 1992, as described above, the Company sold $10,800,000 of
contracts and mortgages receivable to an affiliate of Yasawa at face value,
applying the proceeds therefrom to reduce the Bank Loan acquired by Yasawa.
In June, 1992, the Company completed a new financing through a $13,500,000 sale
of contracts and mortgages receivable which generated approximately $8,000,000
in net proceeds to the Company and the creation of a holdback account in the
amount of $3,100,000. The anticipated costs of this transaction were included in
the extraordinary loss from debt restructuring for 1991. In conjunction with
this sale, the February, 1990 sale described below and certain prior sales of
receivables, the Company granted the purchaser a security interest in certain
additional contracts receivable of approximately $2,700,000 and conveyed all of
its rights, title and interest in the property underlying such contracts to a
collateral trustee. Upon compliance with the conditions of the agreement with
the purchaser, funds from the holdback account and property held by the
collateral trustee will be released to the Company.
In February, 1990, the Company completed a sale of $17,000,000 of receivables,
generating approximately $13,900,000 in net proceeds and a loss of approximately
$600,000. This transaction, as well as the June, 1992 sale described above,
among other things, requires that the Company replace or repurchase any
receivable that becomes 90 days delinquent upon the request of the purchaser.
Such requirement can be satisfied from contracts in which the purchaser holds a
security interest (approximately $1,200,000 as of August 31, 1993). The Company
believes that it has established adequate reserves and guarantees in the event
such replacement or repurchase becomes necessary.
In addition to the above, the Company transferred $1,600,000 in contracts and
mortgages receivable in March, 1993, to a third party generating $1,100,000 in
proceeds to the Company and the creation of a holdback account in the amount
$150,000.
The Company was the guarantor of approximately $29,265,000 of contracts
receivable sold or transferred as of December 31, 1993 and had $1,992,000 on
deposit with the purchaser of the receivables as security to assure
collectibility as of such date. The Company has been in compliance with all
receivable transactions since the consummation of the June, 1992 sale.
30
The Company anticipates that it will be necessary to complete additional sales
and financings of a portion of its receivables in 1994 and 1995. There can be no
assurance, however, that such sales and/or financings can be accomplished.
OTHER OBLIGATIONS
As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for notifying affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community, the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested by the
purchaser. Under an agreement with Topeka, Topeka's utility companies have
agreed to furnish utility service to the future residents of the Company's
communities on substantially the same basis as such services were provided by
the Company. The Consent Order also required the establishment of an improvement
escrow account as assurance for completing such improvement obligations. In
June, 1992, the Company entered into the 1992 Consent Order with the Division,
which replaced and superseded the original Consent Order, as amended and
restated. Among other things, the 1992 Consent Order consolidated the Company's
development obligations and provided for a reduction in its required monthly
escrow obligation to $175,000 from September, 1992 through December, 1993.
Beginning January, 1994 and until development is completed or the 1992 Consent
Order is amended, the Company is required to deposit $430,000 per month into the
escrow account. To meet its current escrow and development obligations under the
1992 Consent Order, the Company is required to deposit into escrow $5,160,000 in
1994 and $3,519,000 in 1995. As part of the assurance program under the 1992
Consent Order, the Company and its lenders granted the Division a lien on
certain contracts receivable (approximately $8,915,000 as of December 31, 1993)
and future receivables. As previously stated, the Company is in default of its
escrow obligations, and in accordance with the 1992 Consent Order, the
collections on such receivables have been escrowed for the benefit of purchasers
since March 1, 1994. At August 31, 1994, the amount collected on fully paid-for
lots was approximately $1,340,000. Pursuant to the 1992 Consent Order, the
Company has limited the sale of single-family lots to lots which front on a
paved street and are ready for immediate building. Because of the Company's
default, the Division could also exercise other available remedies under the
1992 Consent Order, which remedies entitle the Division, among other things, to
halt all sales of registered property.
As of December 31, 1993, the Company had estimated development obligations of
approximately $2,825,000 on sold property, an estimated liability to provide
title insurance costing $951,000 and an estimated cost of street maintenance,
prior to assumption of such obligations by local governments, of $3,852,000, all
of which are included in deferred revenue. The total cost, including the
previously mentioned obligations, to complete improvements at December 31, 1993
to lots subject to the 1992 Consent Order and to lots in the St. Augustine
Shores community was estimated to be approximately $18,574,000. The Company has
in escrow approximately $1,664,000 specifically for land improvements at certain
of its Central and North Florida communities.
The Company's continuing liquidity problems have precluded the timely payment
of the full amount of its 1992 and 1993 real estate taxes. The Company has paid
real estate taxes on all properties sold on which it is solely obligated to pay
real estate taxes and on all properties which are presently available for sale.
On properties where customers have contractually assumed the obligation to pay
into a tax escrow maintained by the Company, the Company has and will continue
to pay real estate taxes as monies are collected from customers. Delinquent real
estate taxes on certain of the Company's properties, none of which are presently
being marketed, aggregated approximately $1,549,000 as of August 31, 1994.
31
The Company's corporate performance bonds to assure the completion of
development at its St. Augustine Shores community expired in March and June,
1993. Such bonds cannot be renewed due to a change in the policy of the Board of
County Commissioners of St. Johns County which precludes allowing any developer
to secure the performance of development obligations by the issuance of
corporate bonds. In the event that St. Johns County elects to undertake and
complete such development work, the Company would be obligated with respect to
1,000 improved lots at St. Augustine Shores in the amount of approximately
$6,200,000. The Company intends to submit an alternative assurance program for
the completion of such development and improvements to the County for its
approval.
On September 30, 1988, the Company entered into an agreement with Citrus
County, Florida to establish the procedure for transferring final maintenance
responsibilities for roads in the Company's Citrus Springs subdivision to Citrus
County. The agreement obligated the Company to complete certain remedial work on
previously completed improvements within the Citrus Springs subdivision by June
1, 1991. The Company was unable to complete this work by the specified date and
is negotiating with Citrus County for the transfer of final maintenance
responsibility for the roads to the County.
Following the consummation of the Sixth Restatement, the Company conveyed
certain properties to the landlord in satisfaction of its outstanding lease
obligations for its executive office building in Miami, Florida. The Company
also entered into a modification of its lease agreement, providing for a
reduction of its rental expenses through June 30, 1994, at which time the
Company would have the option of acquiring the leased premises or reinstating
the lease according to its original terms. Should the landlord sell the leased
premises to a third party at any time that the lease, or any modification
thereof, is in effect, then the lease with the Company would be cancelled. In
December, 1993, the landlord filed suit against the Company alleging that the
Company defaulted in its obligation to make rental payments under the lease and
seeking to accelerate lease payments. See "Business: Recent Developments" and
"Legal Proceedings".
The Company had placed certain properties in trust to meet its refund
obligations to customers affected by the 1976 denial by the U.S. Army Corps of
Engineers of permits to complete the development of the Company's Marco Island
community and had provided in its financial statements for such obligations.
Following the September, 1992 court approval of a settlement of certain class
action litigation instituted by customers affected by the Marco permit denials,
the Company, among other things, conveyed more than 120 acres of multi-family
and commercial land that had been placed in trust to the trustee of the 809
member class, and listed 250,000 shares of restricted Common Stock of the
Company to be issued to the class members. At December 31, 1993, $2,886,000
remained in the allowance for Marco permit costs, including $554,000 relating to
interest accrued on such obligations. Based upon the Company's experience with
affected customers, the Company believes that its total obligations to the
remaining 1.3% of its affected customers will not materially exceed the amount
provided for in its financial statements. See Note 9 to Consolidated Financial
Statements.
LIQUIDITY
Since 1986, the Company has directed its marketing efforts to rebuilding retail
land sales in an attempt to obtain a more stable income stream and achieve a
balanced growth of retail land sales and bulk land sales. Retail land sales
typically have a higher gross profit margin than bulk land sales and the
contracts receivable generated from retail land sales provide a continuing
source of income. However, retail land sales also have traditionally produced
negative cash flow through the point of sale. This is because the marketing and
selling expenses have generally been paid prior to or shortly after the point of
sale, while the land is generally paid for in installments. The Company's
ability to rebuild retail land sales has been substantially dependent on its
ability to sell or otherwise finance contracts receivable and/or secure other
financing sources to meet its cash requirements.
32
To alleviate the negative cash flow impact arising from retail land sales while
attempting to rebuild its sales volume, the Company implemented several new
marketing programs which, among other things, adjusted the method of commission
payments and required larger down payments. However, the nationwide economic
recession, which has been especially pronounced in the real estate industry,
adverse publicity surrounding the industry which existed in 1990, the resulting,
more stringent regulatory climate, and worldwide economic uncertainties have
severely depressed retail land sales beginning in mid-1990 and continuing
thereafter, resulting in a continuing liquidity crisis.
Because of this severe liquidity crisis, the Company ceased development work
late in the third quarter of 1990 and did not resume development work until the
third quarter of 1992. From September 29, 1990 through the fourth quarter of
1991, when the Company ceased selling undeveloped lots, sales of undeveloped
lots were accounted for using the deposit method. Under this method, all
payments were recorded as a customer deposit liability. In addition, because of
the increasing trend in delinquencies during 1990, since the beginning of 1991,
the Company has not recognized any sale until 20% of the contract sales price
has been received. As a result, the reporting and recognition of revenues and
profits on a portion of the Company's retail land sales contracts is being
delayed. See Note 1 to Consolidated Financial Statements.
The continued economic recession and the increasing adverse effects of such
recession on the Florida real estate industry not only resulted in the Company's
sales remaining at depressed levels, but caused greater contract cancellations
in 1991, particularly in the second half of the year, than were anticipated.
Such cancellations required the Company to record an additional provision to its
allowance for uncollectible sales of approximately $12,200,000 in the 1991 third
quarter, impacting net income by approximately $8,900,000. While the Company is
making every effort to reduce its cancellations, should this trend continue, the
Company could be required to record additional provisions in the future.
The Company had defaulted on its bank debt in the third quarter of 1990, and
was engaged in negotiating the repayment and restructuring of such debt through
1991 and the first half of 1992. On October 11, 1991, as described above, the
Company completed the first phase of the restructuring of its bank debt by
conveying to the lenders certain real estate assets which had been held for
future development or bulk sales purposes, and on June 18, 1992, the Company
finalized the restructuring of its remaining bank debt by entering into the
Sixth Restatement.
In December, 1992, such bank debt was acquired by Mr. Gram and assigned to
Yasawa. Through the sale of certain assets to Yasawa and its affiliates,
including certain contracts receivable, and the exercise of the warrants by
Yasawa, the Company was able to reduce such remaining debt from approximately
$25,150,000 (including interest and fees) to approximately $5,106,000. During
1993, the Yasawa Loan was reduced to $4,900,000. The agreement with Yasawa also
provided the Company with a future line of credit of $1,500,000, all of which
was drawn and outstanding as of August 31, 1994. During 1993, Selex loaned the
Company an additional $5,400,000 pursuant to the Second and Third Selex Loans,
of which $5,351,000 was outstanding as of August 31, 1994, and Yasawa loaned the
Company an additional $1,200,000 in 1994 pursuant to the Second Yasawa Loan. The
loans from Selex, Yasawa and their affiliates are collateralized by
substantially all of the Company's assets.
On March 10, 1994, the Company was advised that Selex filed an Amendment to its
Schedule 13D with the Commission. In the Amendment, Selex reported that it,
together with Yasawa and their affiliates, were uncertain as to whether they
would provide any further funds to the Company. The Amendment further stated
that Selex, Yasawa and their affiliates were seeking third parties to provide
financing for the Company and that as part of any such transaction, they would
be willing to sell or restructure all or a portion of their loans and Common
Stock in the Company.
The Company has stated in previous filings with the Commission and elsewhere
herein that the obtainment of additional funds to implement its marketing
program and achieve the objectives of its business plan is essential
33
to enable the Company to maintain operations and continue as a going concern.
Since December, 1992, the Company has been dependent on loans and advances
from Selex, Yasawa and their affiliates in order to implement its marketing
program and assist in meeting its working capital requirements. As previously
stated, during the last six months of 1993, Selex, Yasawa and their affiliates
loaned the Company an aggregate of $4,400,000 pursuant to Third Selex Loan.
Funds advanced under the Third Selex Loan enabled the Company to commence
implementation of the majority of its marketing program in the third quarter of
1993. The full benefits of the program were not realized in 1993 and the Company
was unable to secure financing in 1994 to meet its working capital requirements.
Inasmuch as funding is not presently available to the Company from external
sources and, as stated in their Amendment, Selex, Yasawa and their affiliates
have not determined whether they will provide any further funds to the Company,
the Company is facing a severe cash shortfall. As a consequence of its liquidity
position, the Company has defaulted on certain obligations, including its
previously described escrow obligations to the Division pursuant to the
Company's 1992 Consent Order, its obligation under its lease for its corporate
offices and its obligation to make required interest payments under loans from
Selex, Yasawa and their affiliates. Furthermore, the Company has not paid
certain real estate taxes which aggregate approximately $1,549,000 as of August
31, 1994 and is also subject to certain pending litigation from former employees
and others, which may adversely affect the financial condition of the Company.
See "Legal Proceedings."
The Company is continuing to seek third parties to provide financing. As part
of any such transaction, Selex, Yasawa and their affiliates have indicated that
they are willing to sell or restructure all or a portion of their loans and
Common Stock in the Company. They have also indicated that they are willing to
sell their interests in the Company at a significant discount. Consummation of
any such transaction may result in a change in control of the Company. There can
be no assurance, however, that such transaction will result or that any
financing will be obtained. Accordingly, the Company's Board of Directors is
also considering other appropriate action given the severity of the Company's
liquidity position. Alternatively, the Company could be subject to the filing of
an involuntary bankruptcy proceeding in the event it is unable to resolve and
settle pending litigation, satisfy settlement commitments and other unpaid
creditor claims. See "Business: Recent Developments", "Legal Proceedings" and
Notes 1, 5 and 8 to Consolidated Financial Statements.
34
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
PAGE
Independent Auditors' Report................................................. 36
Consolidated Balance Sheets as of December 31, 1993 and December 25, 1992.... 37
Statements of Consolidated Operations for the years ended December 31, 1993,
December 25, 1992 and December 27, 1991................................... 39
Statements of Consolidated Stockholders' Equity (Deficiency) for the years
ended December 31, 1993, December 25, 1992 and December 27, 1991............ 40
Statements of Consolidated Cash Flows for the years ended December 31, 1993,
December 25, 1992 and December 27, 1991................................... 41
Notes to Consolidated Financial Statements................................... 43
Supplemental Unaudited Quarterly Financial Data.............................. 61
35
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE DELTONA CORPORATION:
We have audited the consolidated balance sheets of The Deltona Corporation and
subsidiaries (the "Company") as of December 31, 1993 and December 25, 1992 and
the related statements of consolidated operations, consolidated stockholders'
equity (deficiency) and consolidated cash flows for each of the three years in
the period ended December 31, 1993. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1993 and December 25, 1992 and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1993
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred substantial operating
losses during 1993, 1992 and 1991, has continued to experience severe liquidity
crises, causing the Company to be unable to meet certain contractual
obligations, in some cases resulting in litigation that may have a substantial
impact on the Company, and has a stockholders' deficiency at December 31, 1993.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans concerning these matters are described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
September 5, 1994
36
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
ASSETS
(IN THOUSANDS)
DECEMBER 31, DECEMBER 25,
1993 1992
------------ -----------
Cash and short term investments, including escrow deposits and restricted cash
of $2,730 in 1993 and $7,248 in 1992 (Note 7)............................... $ 3,008 $ 7,622
-------- --------
Contracts receivable for land sales (Notes 2, 5 and 8)....................... 7,881 10,741
Less: Allowance for uncollectible contracts.................................. (1,456) (1,646)
Unamortized valuation discount......................................... (894) (1,269)
-------- --------
Contracts receivable - net................................................... 5,531 7,826
-------- --------
Mortgages and other receivables - net (Notes 2, 5 and 8)..................... 3,946 6,392
-------- --------
Inventories, at lower of cost or net realizable value (Notes 3 and 5):
Land and land improvements................................................... 12,443 12,418
Other........................................................................ 163 1,102
-------- --------
Total inventories.................................................. 12,606 13,520
-------- --------
Property, plant and equipment - net (Notes 4 and 5).......................... 1,009 1,158
-------- --------
Prepaid expenses and other................................................... 465 532
-------- --------
TOTAL.............................................................. $ 26,565 $ 37,050
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
37
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 25,
1993 1992
----------- -----------
Mortgages and similar debt (Note 5):
Mortgage notes payable................................................... $ 13,284 $ 8,165
Other loans.............................................................. 2,500 1,000
-------- --------
Total mortgages and similar debt..................................... 15,784 9,165
Accounts payable-trade..................................................... 948 1,564
Accrued expenses and other (Note 8)........................................ 6,949 6,793
Customers' deposits........................................................ 1,051 2,656
Allowance for Marco permit costs (Note 9).................................. 2,886 3,849
Deferred revenue (Notes 7 and 8)........................................... 13,238 18,542
-------- --------
Total liabilities.......................................................... 40,856 42,569
-------- --------
Stockholders' equity (deficiency) (Notes 1, 5, and 10):
Common stock, $1 par value-authorized 15,000,000 shares;
outstanding: 1993 and 1992 - 5,950,604 shares (excluding 12,228
shares held in treasury)................................................ 5,951 5,951
Capital surplus.......................................................... 42,080 42,080
Accumulated deficit...................................................... (62,322) (53,550)
-------- --------
Total stockholders' equity (deficiency)................................... (14,291) (5,519)
-------- --------
TOTAL.................................................. $ 26,565 $ 37,050
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
38
STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(IN THOUSANDS EXCEPT SHARE DATA)
YEARS ENDED
---------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1993 1992 1991
----------- ------------ ------------
REVENUES
Gross land sales (Notes 2 and 7)........................ $ 3,170 $ 2,515 $ 1,539
Less: Estimated uncollectible sales..................... (486) (248) (223)
Deferred revenue-future improvements.............. - - -
Contract valuation discount....................... (252) (175) (162)
--------- -------- --------
Net land sales.......................................... 2,432 2,092 1,154
Sales-housing........................................... 344 - 120
Recognized improvement revenue-prior period sales....... 4,725 2,404 -
Interest income......................................... 1,197 3,584 5,270
Other (Note 11)......................................... 3,401 4,137 4,240
--------- -------- --------
TOTAL............................................ 12,099 12,217 10,784
--------- -------- --------
COSTS AND EXPENSES
Cost of sales-land...................................... 656 629 253
Cost of sales-housing................................... 292 -0- 34
Cost of improvements-prior period sales................. 3,574 2,048 -0-
Cost of sales-other..................................... 1,919 1,928 2,312
Provision for uncollectible contracts................... 2,400 - 8,900
Commissions, advertising, and other selling expenses.... 6,008 3,917 4,107
General and administrative expenses..................... 3,790 5,844 6,165
Real estate tax......................................... 975 1,213 1,646
Interest expense........................................ 1,257 3,356 6,896
--------- -------- --------
TOTAL............................................ 20,871 18,935 30,313
--------- -------- --------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS..................................... (8,772) (6,718) (19,529)
PROVISION FOR INCOME TAXES (NOTE 6)......................... - 90 -0-
--------- -------- --------
INCOME (LOSS) FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS.... (8,772) (6,808) (19,529)
EXTRAORDINARY ITEMS:
Gain (loss) from debt restructuring..................... - 10,161 (7,100)
Gain on settlement related to the Marco refund
obligation............................................ - 3,983 -0-
--------- -------- --------
NET INCOME (LOSS)........................................... $ (8,772) $ 7,336 $(26,629)
========= ======== ========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
FROM (NOTE 12):
Operations.............................................. $ (1.45) $ (1.19) $ (3.45)
Extraordinary gain (loss)............................... - 2.48 (1.25)
--------- -------- --------
NET INCOME (LOSS)................................... $ (1.45) $ 1.29 $ (4.70)
========= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
39
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
THE DELTONA CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 25, 1992 AND DECEMBER 27, 1991
COMMON STOCK CAPITAL ACCUMULATED
($1 PAR VALUE) SURPLUS DEFICIT
-------------- ------- -----------
BALANCES, DECEMBER 28, 1990.............................. $5,661 $42,056 $(34,257)
Net (loss) for the year.............................. - - (26,629)
------ ------- --------
BALANCES, DECEMBER 27, 1991.............................. 5,661 42,056 (60,886)
Net proceeds from the exercise of Warrants........... 290 24 -
Net income for the year.............................. - - 7,336
------ ------- --------
BALANCES, DECEMBER 25, 1992.............................. 5,951 42,080 (53,550)
Net (loss) for the year.............................. - - (8,772)
------ ------- --------
BALANCES, DECEMBER 31, 1993.............................. $5,951 $42,080 $(62,322)
====== ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
40
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE DELTONA CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
YEARS ENDED
--------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1993 1992 1991
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from operations:
Proceeds from sale of residential units............. $ 344 $ - $ 9
Collections on contracts and mortgages receivable... 1,726 7,192 10,937
Proceeds from sale or transfer of contracts
receivable........................................ 1,059 8,615 -
Down payments on and proceeds from sales
of homesites and tracts........................... 1,517 861 1,007
Proceeds from sale of Marco Trust property.......... 444 817 792
Proceeds from other sources......................... 262 654 1,753
-------- -------- --------
TOTAL CASH RECEIVED FROM OPERATIONS............ . 5,352 18,139 14,498
-------- -------- --------
Cash expended by operations:
Cash paid for residential units..................... 282 - -
Cash paid for land and land improvements............ 5,028 3,626 856
Customer refunds.................................... 1,248 1,296 1,215
Commissions, advertising and other selling expenses. 5,331 2,300 3,403
General and administrative expenses................. 3,806 6,061 5,844
Interest paid....................................... 258 153 1,933
Real estate taxes paid.............................. 1,030 2,665 273
-------- -------- --------
TOTAL CASH EXPENDED BY OPERATIONS............... 16,983 16,101 13,524
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................... (11,631) 2,038 974
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment...... 493 2,014 -
Payment for acquisition and construction of property,
plant and equipment.................................... (94) (78) (4)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................... 399 1,936 (4)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings........................................... 6,900 3,000 -
Repayment of borrowings.................................. (282) (3,504) (103)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................... 6,618 (504) (103)
-------- -------- --------
Net increase (decrease) in cash and short term investments.. (4,614) 3,470 867
Cash and short term investments, at beginning of year....... 7,622 4,152 3,285
-------- -------- --------
Cash and short term investments, at end of year............. $ 3,008 $ 7,622 $ 4,152
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
41
STATEMENTS OF CONSOLIDATED CASH FLOWS - (CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
YEARS ENDED
-------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1993 1992 1991
------------ ------------ ------------
Net income (loss)............................................ $ (8,772) $ 7,336 $ (26,629)
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 104 175 292
Provision for estimated uncollectible sales.............. 2,886 248 9,123
Contract valuation discount, net of amortization......... (255) (3,063) (2,574)
Net gain on sale of property, plant and equipment........ (50) (448) -
Extraordinary (gain) loss from debt restructuring........ - (10,161) 7,100
Extraordinary gain on settlement related to the
Marco refund obligation................................ - (3,983) -
Notes payable issued for accounts payable-trade (net).... - - 123
(Increase) decrease in assets and increase (decrease) in
liabilities:
Gross contracts receivable plus deductions from reserves. (546) 17,547 7,073
Mortgages and other receivables.......................... 2,204 (3,483) 10,636
Land and land improvements............................... (25) 4,462 3,452
Land held for sale or transfer........................... - 4,979 (4,979)
Housing completed or under construction and other........ 1,088 (907) 14
Land held for bulk sale or future development............ - - -
Prepaid expenses and other............................... 67 371 (85)
Accounts payable, accrued expenses and other............. (460) (717) (462)
Customers' deposits...................................... (1,605) 1,030 (150)
Allowance for Marco permit costs......................... (963) (287) 491
Deferred revenue......................................... (5,304) (2,137) (2,451)
---------- ---------- ----------
Total adjustments and changes........................ (2,859) (5,298) 27,603
---------- ---------- ----------
Net cash provided by (used in) operating activities.......... $ (11,631) $ 2,038 $ 974
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Assets assigned or conveyed as a reduction of accrued
expenses, mortgages and notes payable and settlement of
Marco refund obligation:
Contracts and mortgages receivable (net)................. $ 708 $ 7,266 $ 4,920
========== ========== ==========
Land and land improvements, including land held for
bulk sale or future development........................ $ 202 $ 11,522 $ 21,640
========== ========== ==========
Property, plant and equipment............................ $ - $ 1,338 $ 3,090
========== ========== ==========
Reduction of accrued expenses, mortgages and notes payable
as a result of assignment and conveyance agreements........ $ - $ 25,866 $ 20,361
========== ========== ==========
Reduction of Allowance for Marco permit costs in settlement
related to the Marco refund obligation..................... $ - $ 12,182 $ -
========== ========== ==========
Common Stock issued for reduction of long-term debt.......... $ - $ 341 $ -
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements of The Deltona Corporation and
subsidiaries (the "Company") have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
During 1990, as a result of adverse publicity surrounding the Florida real
estate industry, the Company could not complete the sale of $7,000,000 of
contracts receivable. This created a severe liquidity crisis for the Company.
The liquidity crisis was further impacted by declining sales and increasing
delinquencies in the Company's contracts receivable portfolio caused by such
adverse publicity and the national economic slowdown which was particularly
severe in the real estate industry. These factors caused the Company to incur a
loss from operations of $19,529,000 during 1991, to default on its bank debt and
to defer development work at its communities. As a result of its 1991 loss, the
Company had a stockholders' deficiency of $13,169,000 for the year ended
December 27, 1991. Although the Company reported net income of $7,336,000 for
1992, primarily due to extraordinary gains of $10,161,000 from debt
restructuring and $3,983,000 from a settlement related to the Marco refund
obligation, such that it was able to reduce the stockholders' deficiency to
$5,519,000 as of December 25, 1992, the Company incurred a loss from operations
for 1992 of $6,808,000 and for 1993 of $8,772,000, resulting in a stockholders'
deficiency of $14,291,000 as of December 31, 1993. The Company has continued to
experience liquidity problems, causing it to be unable to fully implement its
marketing program and to meet certain contractual obligations, primarily
relating to the repayment of debt and the completion of improvements. The
Company must obtain additional financing to accomplish the objectives of
satisfying or substantially reducing its current debt obligations and provide
the financial stability that will allow the Company to accomplish the objectives
of a successful business plan. These matters raise substantial doubt about the
Company's ability to continue as a going concern.
Following the completion of the restructuring of its bank debt in 1992 (see
Note 5), the Company commenced the implementation of its business plan by
undertaking a new marketing program which included the Company's re-entry into
the single-family housing business. To accomplish the objectives of its business
plan required the Company to obtain financing during 1993 and will require the
Company to obtain additional financing in 1994 and 1995. The transactions
described in Note 5 with Selex International B.V., a Netherlands corporation
("Selex"), Yasawa Holding, N.V., a Netherlands Antilles corporation ("Yasawa"),
and their affiliates provided the Company with a portion of its financing
requirements enabling the Company to commence implementation of the marketing
program and attempt to accomplish the objectives of its business plan, but
additional financing will be required in 1994 and 1995. Selex, Yasawa and their
affiliates are uncertain as to whether they will provide any further funds to
the Company. While the Company, together with Selex, Yasawa and their
affiliates, is seeking third parties to provide financing for the Company and,
as part of any such transaction, Selex, Yasawa and their affiliates have
indicated their willingness to sell or restructure all or a portion of their
loans and Common Stock in the Company, such financing has not yet become
available. As a consequence of its liquidity position, the Company has defaulted
on certain obligations, including its escrow account obligations to the State of
Florida, Department of Business Regulation, Division of Land Sales, Condominiums
and Mobile Homes (the "Division") pursuant to the Company's 1992 Consent Order
with the Division (the "1992 Consent Order"), its obligation under its lease for
its corporate offices, its obligation to pay certain real estate taxes, and its
obligation to make required interest payments under loans from Selex, Yasawa and
their affiliates. Additionally, the Company is subject to certain pending
litigation by former employees and
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
others, which may adversely affect the financial condition of the Company (See
Note 5 and 8).
There can be no assurance that the Company will be able to timely secure the
necessary financing to resolve its present liquidity situation, that the pending
litigation will be favorably concluded, or that a new business plan will be
successfully implemented. Consequently, there can be no assurance that the
Company can continue as a going concern. In the event that these matters are not
successfully addressed, the Company's Board of Directors will consider other
appropriate action given the severity of the Company's liquidity position,
including, but not limited to, filing for protection under the federal
bankruptcy laws. Alternatively, the Company could be subject to the filing of an
involuntary bankruptcy proceeding in the event it is unable to resolve and
settle pending litigation, satisfy settlement commitments and other unpaid
creditor claims. See "Legal Proceedings", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Notes 5 and 8 to
Consolidated Financial Statements.
The consolidated financial statements do not include any adjustments relating
to the recoverability of asset amounts or the amounts of liabilities should the
Company be unable to continue as a going concern.
Significant Accounting Policies
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Material intercompany accounts and
transactions are eliminated.
Since 1986, the Company has used a 52-53 week fiscal year ending on the last
Friday of the year. The year ended December 31, 1993 contained 53 weeks, and the
years ended December 25, 1992 and December 27, 1991 contained 52 weeks.
Commencing in 1994, the Company will return to a fiscal year ended December 31.
The Company sells homesites under installment contracts which provide for
payments over periods ranging from 2 to 10 years. Sales of homesites are
recorded under the percentage-of-completion method in accordance with Statement
of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate"
("FASB No. 66"). Since 1991, the Company has not recognized a sale until it has
received 20% of the contract sales price.
Because of the severe liquidity crisis faced by the Company as discussed above,
the Company ceased development work late in the third quarter of 1990. From
September 29, 1990 through the fourth quarter of 1991, all sales of undeveloped
lots were accounted for using the deposit method. Since the fourth quarter of
1991 and in compliance with the 1992 Consent Order, the Company has been
offering only developed lots for sale (see Note 8).
At the time of recording a sale the Company records an allowance for the
estimated cost to cancel the related contracts receivable through a charge to
the provision for uncollectible sales. The amount of this provision and the
adequacy of the allowance is determined by the Company's continuing evaluation
of the portfolio and past cancellation experience. While the Company uses the
best information available to make such evaluations, future adjustments to the
allowance may be necessary as a result of future national and international
economic and other conditions that may be beyond the Company's control. Changes
in the Company's estimate of the allowance for previously recognized sales will
be reported in earnings in the period in which they become
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
estimable and are charged to the provision for uncollectible contracts.
Land improvement costs are allocated to individual homesites based upon the
relationship that the homesite's sales price bears to the total sales price of
all homesites in the community. The estimated costs of improving homesites are
based upon independent engineering estimates made in accordance with sound cost
estimation and provide for anticipated cost-inflation factors. The estimates are
systematically reviewed. When cost estimates are revised, the percentage
relationship they bear to deferred revenues is recalculated on a cumulative
basis to determine future income recognition as performance takes place.
Bulk land sales are recorded and profit is recognized in accordance with FASB
No. 66. Bulk land sales of approximately $113,000, $226,000 and $101,000 are
included in gross land sales for the years ended December 31, 1993, December 25,
1992 and December 27, 1991, respectively.
Sales of houses and vacation ownership units, as well as all related costs and
expenses, are recorded at the time of closing.
Interest costs directly related to, and incurred during, a project's
construction period are capitalized. Such capitalized interest amounted to
$164,000, $100,000 and $-0- for the years ended December 31, 1993, December 25,
1992 and December 27, 1991, respectively.
Property, plant and equipment is stated at cost. Depreciation is provided by
the straight-line method over the estimated useful lives of the respective
assets. Additions and betterments are capitalized, and maintenance and repairs
are charged to income as incurred. Generally, upon the sale or retirement of
assets, the accounts are relieved of the costs and related accumulated
depreciation and any gain or loss is reflected in income.
When property exchanges and refund transactions are consummated under the
Company's Marco Island-Marco Shores customer programs (see Note 9), any
resulting loss is charged to the allowance for Marco permit costs. When property
exchanges and refund transactions are consummated under the Consent Order (see
Note 8), any resulting loss is charged against the allowance included in accrued
expenses and other. The Company accrues interest on its refund obligations in
accordance with the various customer refund programs.
For the purposes of the statements of cash flows, the Company considers its
investments, which are comprised of short term, highly liquid investments
purchased with a maturity of three months or less, to be cash equivalents.
Certain amounts in the 1991 and 1992 financial statements have been
reclassified for comparative purposes to the 1993 presentation.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
2. CONTRACTS AND MORTGAGES RECEIVABLE
At December 31, 1993, interest rates on contracts receivable outstanding ranged
from 6.0% to 12.0% per annum (weighted average approximately 8.4%). The
approximate principal maturities of contracts receivable (including $65,000
restricted for use in the Marco refund program, see Note 9) were:
DECEMBER 31,
1993
--------------
(IN THOUSANDS)
1994........................................................... $ 942
1995........................................................... 1,011
1996........................................................... 1,077
1997........................................................... 1,125
1998........................................................... 1,156
1999 and thereafter............................................ 2,570
-------
Total.................................................. $ 7,881
=======
If a regularly scheduled payment on a contract remains unpaid 30 days after its
due date, the contract is considered delinquent. Aggregate delinquent contracts
receivable at December 31, 1993 and December 25, 1992 approximate $1,717,000 and
$2,104,000, respectively.
Information with respect to interest rates and average contract lives used in
valuing new contracts receivable generated from sales follows:
AVERAGE AVERAGE STATED DISCOUNTED
YEARS ENDED TERM INTEREST RATE TO YIELD
----------- ---------- -------------- ----------
December 31, 1993.................... 98 months 7.8% 13.5%
December 25, 1992.................... 111 months 8.4% 13.5%
December 27, 1991.................... 108 months 7.8% 13.5%
In March, 1993 the Company transferred $1,600,000 of contracts and mortgages
receivable, generating approximately $1,059,000 in proceeds to the Company,
which was used for working capital, and the creation of a holdback account in
the amount of $150,000. As of December 31, 1993, the balance of the holdback
account was $126,000.
In December, 1992 the Company sold $10,800,000 of contracts and mortgages
receivable to an affiliate of Yasawa at face value, applying the proceeds
therefrom to reduce the debt under the Sixth Amended and Restated Credit and
Security Agreement (the "Sixth Restatement") which had been acquired by Yasawa
(see Note 5).
In June, 1992, the Company completed a $13,500,000 sale of contracts and
mortgages receivable which generated approximately $8,000,000 in net proceeds to
the Company and the creation of a holdback account in the amount of $3,100,000.
The anticipated costs of this transaction were included in the extraordinary
loss from debt restructuring for 1991 since the restructuring was dependent on
the sale. In conjunction with this sale, the February, 1990 sale described below
and certain prior sales of receivables, the Company granted the purchaser a
security interest in certain additional contracts and mortgages receivable of
approximately $2,700,000
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
2. CONTRACTS AND MORTGAGES RECEIVABLE - (CONTINUED)
and conveyed all of its rights, title and interest in the property underlying
such contracts to a collateral trustee. Upon compliance with the conditions of
the agreement with the purchaser, funds from the holdback account and property
held by the collateral trustee will be released to the Company.
The Company sold approximately $17,000,000 of contracts and mortgages
receivable in February, 1990. Net proceeds from the sale were approximately
$13,900,000 (see Note 8). The Company recorded a loss of $600,000 on the 1990
sale (see Note 12). This transaction, as well as the June, 1992 sale described
above, among other things, requires that the Company replace or repurchase any
receivable that becomes 90 days delinquent upon the request of the purchaser.
Such requirement can be satisfied from contracts in which the purchaser holds a
security interest (approximately $1,419,000 as of December 31, 1993). Since the
sale of receivables in 1992, the Company has been in compliance with the
requirements of its prior receivables transactions and believes that it has
established adequate reserves in the event such replacement or repurchase
becomes necessary. The Company was unable, however, to replace or repurchase
approximately $1,946,000 of delinquent contracts in 1993, which amount was
deducted from the deposit held by the purchaser of the receivables as security.
The Company was the guarantor of approximately $29,265,000 of contracts
receivable sold or transferred as of December 31, 1993 and had $1,992,000 on
deposit with the purchasers of the receivables as security to assure
collectibility as of such date. The Company has been in compliance with all
receivable transactions since the consummation sales.
On July 24, 1991, the Company assigned mortgages receivable, including accrued
interest and payments collected thereon from December 1990 through July 1991, of
approximately $6,400,000, to its principal lending banks to be applied to reduce
its outstanding bank debt (see Note 5).
At December 31, 1993, mortgages receivable were collectible over periods
ranging from one to seven years at stated interest rates of 7% to 10%. Principal
maturities (including approximately $619,000 restricted for use in the Marco
refund program, see Note 9) were approximately:
DECEMBER 31,
1993
--------------
(IN THOUSANDS)
1994......................................................... $ 1,139
1995......................................................... 5
1996......................................................... 4
1997......................................................... 3
1998......................................................... 3
1999 and thereafter.......................................... 8
-------
Total (included in mortgages and other receivables)...... $ 1,162
=======
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
3. INVENTORIES
Information with respect to the classification of inventory of land and
improvements including land held for sale or transfer is as follows:
DECEMBER 31, DECEMBER 25,
1993 1992
------------ ------------
(IN THOUSANDS)
Unimproved land...................................... $ 444 $ 444
Land in various stages of development................ 4,888 7,168
Fully improved land.................................. 7,111 4,806
-------- --------
Total.................................... $ 12,443 $ 12,418
======== ========
Land and land improvements include approximately $202,000 and $406,000 of land
placed in the Marco Island and Marco Shores trusts for the Marco refund program
as of December 31, 1993 and December 25, 1992, respectively (see Note 9). Other
inventories consists primarily of multi-family units completed, as well as
approximately $900,000 in 1992 of land assets previously classified as being
held for sale or transfer to lenders. Land held for sale or transfer to lenders
consists of land and land assets which were transferred to the Company's lenders
or sold by the Company with proceeds therefrom used in repayment of outstanding
debt (see Note 5).
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist of the
following:
DECEMBER 31, 1993 DECEMBER 25, 1992
--------------------- ----------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
(IN THOUSANDS)
Land and land improvements...... $ 143 $ - $ 157 $ -
Other buildings, improvements
and furnishings.............. 1,954 1,250 2,223 1,414
Construction and
other equipment.............. 1,661 1,543 1,654 1,496
Construction work in progress... 43 - 34 -
------- ------- ------- -------
Total...................... $ 3,801 $ 2,793 $ 4,068 $ 2,910
======= ======= ======= =======
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
4. PROPERTY, PLANT AND EQUIPMENT - (CONTINUED)
Depreciation charged to operations for the years ended December 31, 1993,
December 25, 1992 and December 27, 1991 was approximately $104,000, $175,000 and
$292,000, respectively.
5. MORTGAGES AND SIMILAR DEBT
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries.
The following table presents information with respect to mortgages and similar
debt (in thousands):
DECEMBER 31, DECEMBER 25,
1993 1992
------------ ------------
Mortgage Notes Payable ........................ $ 13,284 $ 8,165
Other Loans.................................... 2,500 1,000
-------- --------
Total Mortgages and Similar Debt....... $ 15,784 $ 9,165
======== ========
Included in Mortgage Notes Payable is the $3,000,000 First Selex Loan
($1,860,000 as of August 31, 1994), the $1,000,000 Second Selex Loan ($967,000
as of August 31, 1994) the $4,384,000 Third Selex Loan and the $4,900,000 Yasawa
Loan ($4,765,000 as of August 31, 1994). Other loans include the $1,000,000
Empire note and the $1,500,000 Scafholding Loan.
These mortgage notes payable and other loans are in default as of August 31,
1994 due to the non-payment of interest and principal. The lenders have not
taken any action as a result of these defaults.
On June 19, 1992, the Company completed a transaction with Selex whereby, among
other things, Selex loaned the Company $3,000,000 (the "First Selex Loan"). The
First Selex Loan is collateralized by a first mortgage on certain of the
Company's property in its St. Augustine Shores, Florida community. The Loan
matures on June 15, 1996 and provides for principal to be repaid at 50% of the
net proceeds per lot for lots requiring release from the mortgage, with the
entire unpaid balance becoming due and payable at the end of the four year term.
It initially bears interest at the rate of 10% per annum, with payment of
interest deferred for the initial eighteen months of the Loan and interest
payments due quarterly thereafter. As discussed in Note 10, Selex was granted an
Option to convert the First Selex Loan, or any portion thereof, into up to
600,000 shares of the Company's Common Stock. On February 17, 1994, principal in
the amount of $1,140,000 was repaid under the First Selex Loan when Selex
exercised such Option at a conversion price of $1.90 per share. Accrued interest
in the amount of $604,300 (including $463,600 due December 31, 1993) was unpaid
and in default under the First Selex Loan as of August 31, 1994.
The Company had defaulted on its bank debt in the third quarter of 1990, and
was engaged in negotiating the repayment and restructuring of such debt through
1991 and the first half of 1992. As of December 27, 1991, the Company's bank
debt had been reduced by the assignment of mortgages receivables and, on October
11, 1991, the transfer of certain properties to its principal lending banks
pursuant to a Conveyance Agreement with such lenders. The Conveyance Agreement
not only provided for the partial repayment of the bank debt, but also
encompassed an agreement in principle providing for the restructuring and
repayment of the remaining bank debt.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. MORTGAGES AND SIMILAR DEBT - (CONTINUED)
On June 18, 1992, the Company completed the restructuring of its bank debt by
entering into the Sixth Amended and Restated Credit and Security Agreement (the
"Sixth Restatement") with its lenders. The terms of the Sixth Restatement
provided for the Company's remaining debt in the principal amount of
approximately $25,300,000 to be repaid by June 30, 1997, with specified interim
repayments and benchmarks to be achieved. Among other things, the Sixth
Restatement provided for: (i) interest to accrue on the remaining debt at
Citibank's alternate base rate ("ABR") plus 4% per annum, subject to a minimum
interest rate of 11% per annum and a maximum interest rate of 14% per annum,
with no interest payments due until June 30, 1996; (ii) accrued, but unpaid
interest on $10,000,000 of the restructured debt to be forgiven provided that
the principal balance outstanding on the restructured debt as of June 30, 1996
was less than $9,000,000; and (iii) the issuance to the lenders of warrants to
acquire up to 277,387 shares of the Company's Common Stock at a price of $1.00
per share.
In conjunction with the completion of the Sixth Restatement, the lenders
released or subordinated their lien on certain assets of the Company, to enable
the Company to complete the First Selex Loan, to complete the $13,500,000 sale
of contracts receivable described below, to enter into the 1992 Consent Order
with the Division, and to secure working capital needed to pay real estate taxes
which were, at the time, delinquent and meet its customer obligations for
improvement work at certain of the Company's communities. During the third
quarter of 1992, the lenders also released their lien on certain other contracts
receivable to allow the Company to complete a sale of such receivables, which
generated $600,000 in proceeds. These proceeds were, in turn, paid to the
lenders, with the lenders allowing the Company $1,000,000 in debt reduction
credit, and resulting in an extraordinary gain of $400,000.
During the 1991 second quarter, the Company incurred extraordinary expenses of
$3,500,000 for debt restructuring, based upon the transfer value of the assets
involved in the first phase of its debt restructuring. During the fourth quarter
of 1991, the Company provided for an additional $3,600,000 of extraordinary
expenses for debt restructuring based upon the Company's assessment of the
ultimate costs that would result from the restructuring of its debt pursuant to
the Sixth Restatement. The fourth quarter addition included the anticipated
professional fees, bank charges and other costs related to the Sixth
Restatement, as well as the loss on the sale of contracts receivable discussed
below. The completion of the Sixth Restatement was dependent upon the completion
of the sale of contracts receivable; therefore, the loss on such sale was
included as an extraordinary item.
On December 2, 1992 the Company entered into various agreements relating to
certain of its assets and the restructuring of its debt with Yasawa. The
consummation of these agreements was conditioned upon the acquisition by Mr.
Gram of the bank debt under the Sixth Restatement as described above. On
December 4, 1992, Gram acquired the Bank Loan of approximately $25,150,000
(including interest and fees) for a price of $10,750,000, as well as the
warrants which the lenders held. Immediately thereafter, Gram transferred all of
his interest in the Bank Loan, including the warrants, to Yasawa.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. MORTGAGES AND SIMILAR DEBT - (CONTINUED)
On December 11, 1992, the Company consummated the December 2, 1992 agreements
with Yasawa. Under these agreements, Yasawa, its affiliates and the Company
agreed as follows: (i) the Company sold certain property at its Citrus Springs
community to an affiliate of Yasawa in exchange for approximately $6,500,000 of
debt reduction credit; (ii) an affiliate of Yasawa and the Company entered into
a joint venture agreement with respect to the Citrus Springs property, providing
for the Company to market such property and receive an administration fee from
the venture (in March, 1994, the Company and the affiliate agreed to terminate
the venture); (iii) the Company sold certain contracts receivable at face value
to an affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club and Golf Course
to an affiliate of Yasawa for an aggregate sales price of $5,500,000, with the
affiliate assuming an existing first mortgage of approximately $1,100,000 and
the Company receiving debt reduction credit of $2,400,000, such that the Company
obtained cash proceeds from this transaction of $2,000,000, which amount was
used for working capital; (v) an affiliate of Yasawa agreed to lease the Marco
Shores Country Club and Golf Course to the Company for a period of approximately
one year; (vi) an affiliate of Yasawa and the Company agreed to amend the terms
of the warrants to increase the number of shares issuable upon their exercise
from 277,387 shares to 289,637 shares and to adjust the exercise price to an
aggregate of approximately $314,000; (vii) Yasawa exercised the warrants in
exchange for debt reduction credit of approximately $314,000; (viii) Yasawa
released certain collateral held for the bank loan; (ix) an affiliate of Yasawa
agreed to make an additional loan of up to $1,500,000 to the Company, thus
providing the Company with a future line of credit (all of which was drawn and
outstanding as of August 31, 1994); and (x) Yasawa agreed to restructure the
payment terms of the remaining $5,106,000 of the bank loan as a loan from Yasawa
(the "Yasawa Loan").
The Yasawa Loan bears interest at the rate of 11% per annum, with payment of
interest deferred until December 31, 1993, at which time only accrued interest
became payable. Commencing January 31, 1994, principal and interest became
payable monthly, with all unpaid principal and accrued interest being due and
payable on December 31, 1997. A portion of the proceeds from a March, 1993 sale
of contracts receivable was applied to reduce the Yasawa Loan to $4,900,000
during the first quarter of 1993 and the assignment of a mortgage receivable to
Yasawa reduced the Yasawa Loan to $4,771,000 as of February 17, 1994. Accrued
interest due under the Yasawa Loan in the amount of $355,200 was unpaid and in
default as of August 31, 1994.
In February, 1994, Yasawa loaned the Company an additional amount of $437,500
at an interest rate of 8% per annum (the "Second Yasawa Loan"). As of August 31,
1994 a total of $1,200,000 had been advanced under this loan.
On April 30, 1993 Selex loaned the Company an additional $1,000,000
collateralized by a first mortgage on certain of the Company's property in its
Marion Oaks, Florida community (the "Second Selex Loan"). The Second Selex Loan
bears interest at 11% per annum, with interest deferred until December 31, 1993.
The Second Selex Loan provides for principal to be repaid at $3,000 per lot for
lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 to be due
and payable on April 30, 1994. Although Selex had certain conversion rights
under the Second Selex Loan in the event the Company sold any Common Stock or
Preferred Stock prior to payment in full of all
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. MORTGAGES AND SIMILAR DEBT - (CONTINUED)
amounts due to Selex under the Second Selex Loan, such rights were voided as of
December 31, 1993 since the regulations set forth in proposed Treasury Decision
CO-18-90 relative to Section 382 of the Internal Revenue Code were not adopted
by such date. As of August 31, 1994, $33,000 in principal had been repaid under
the Second Selex Loan. Accrued interest of $93,300 due under the Loan as of
August 31, 1993 remained unpaid and in default.
From July 9, 1993 through December 31, 1993, Selex loaned the Company an
additional $4,400,000 collateralized by a second mortgage on certain of the
Company's property on which Selex and/or Yasawa hold a first mortgage pursuant
to a Loan Agreement dated July 14, 1993 and amendments thereto (the "Third Selex
Loan"). The Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at $3,000 per lot
for lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 becoming
due and payable on April 30, 1994. As of August 31, 1994 accrued interest of
$466,800 due under the Third Selex Loan was unpaid and in default.
Interest due to Selex, Yasawa and their affiliates in the aggregate amount of
$2,300,000 remained unpaid and in default as of August 31, 1994. From January 1,
1994 through August 31, 1994, $24,000 in principal was repaid under the Second
Selex Loan and $1,140,000 in principal was repaid under the First Selex Loan
through the exercise of the above described Option. After giving effect to such
repayments of principal, the Company had loans outstanding from Selex, Yasawa
and their affiliates on August 31, 1994 in the amount of approximately
$17,976,000 including interest, of which approximately $9,867,000 is owed to
Selex, (10% per annum on the First Selex Loan, 11% per annum on the Second and
Third Selex Loans and 12% per annum on the $1,000,000 Empire Note assigned to
Selex); approximately $6,349,000 is owed to Yasawa, including accrued and unpaid
interest of approximately $384,500 (11% per annum on the Yasawa Loan and 8% per
annum on the Second Yasawa Loan); and approximately $1,759,000 is owed to an
affiliate of Yasawa, including accrued and unpaid interest of approximately
$259,500 (12% per annum). The loans from Selex, Yasawa and their affiliates are
secured by substantially all of the assets of the Company.
6. INCOME TAXES
Because the Company incurred a net loss for 1991 and is in a carryforward
position for both book and tax purposes for such year, no tax provision was
recorded for 1991. Since the Company had income before consideration of any net
operating loss carryforwards for book purposes for 1992, deferred taxes were
provided for alternative minimum tax.
The deferred provision for 1992 for alternative minimum tax resulted from the
enactment of the alternative minimum tax provisions under the Tax Reform Act of
1986. Under these federal income tax provisions, a corporation may offset only
90% of its alternative minimum taxable income with net operating loss
carryovers.
Prior to December 26, 1992, the Company accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11. Effective December
26, 1992, the Company adopted Statement of Accounting Standard No. 109
"Accounting for Income Taxes." There was no effect from the adoption of this
standard. Under this standard deferred income assets and liabilities are
computed annually for the difference between financial statements and the tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future bases on enacted tax laws and rates applicable to periods
in which the differences are expected to affect taxable
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
6. INCOME TAXES - (CONTINUED)
income. Income tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred assets and liabilities.
For the year ended December 31, 1993, the Company had a net loss for tax
purposes and, as a result, there was no tax payable or refundable and there was
no change in the net deferred tax asset. Accordingly, there was no tax provision
for the year ended December 31, 1993.
As of December 31, 1993, the Company had a net deferred tax asset of
approximately $25,564,000 which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $21,719,000 and losses on
subsidiaries sold in prior years of $3,944,000. A valuation allowance of
$25,564,000 has been established against the net deferred tax asset.
The Company's regular net operating loss carryover for tax purposes is
estimated to be $51,813,000 at December 31, 1993, of which $6,555,000 will be
available through 1995, $4,733,000 through 1996, $11,022,000 through 1997,
$364,000 through 2002, $9,189,000 through 2003, $9,780,000 through 2006, and the
remainder through 2007. In addition to the net operating loss carryover,
investment tax credit carryovers of approximately $259,000, which expire from
1994 through 2001, are available to reduce federal income tax liabilities only
after the net operating loss carryovers have been utilized.
The utilization of the Company's net operating loss and tax credit
carryforwards would be impaired or reduced under certain circumstances, pursuant
to changes in the federal income tax laws effected by the Tax Reform Act of
1986. Events which affect these carryforwards include, but are not limited to,
cumulative stock ownership changes of 50% or more over a three-year period, as
defined, and the timing of the utilization of the tax benefit carryforwards.
7. LIABILITY FOR IMPROVEMENTS
The Company has an obligation to complete land improvements upon deeding which,
depending on contractual provisions, typically occurs within 90 to 120 days
after the completion of payments by the customer. The estimated cost to complete
improvements to lots and tracts at December 31, 1993 and December 25, 1992 was
approximately $18,574,000 and $24,600,000 (as adjusted for the 1992 Consent
Order), respectively. The foregoing estimates reflect the Company's current
development plans at its communities (see Note 8). These estimates include
estimated development obligations applicable to sold lots of approximately
$2,825,000 and $10,700,000, respectively, a liability to provide title
insurance, costing $951,000 and $900,000, respectively, and an estimated cost of
street maintenance, prior to assumption of such obligations by local
governments, of $3,852,000 and $2,800,000, respectively, all of which are
included in deferred revenue. Included in cash at December 31, 1993 and December
25, 1992, are escrow deposits of $1,664,000 and $4,998,000, respectively,
restricted for completion of improvements in certain of the Company's
communities.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
7. LIABILITY FOR IMPROVEMENTS - (CONTINUED)
The anticipated expenditures for land improvements to complete areas from which
sales have been made through December 31, 1993 are as follows:
DECEMBER 31, 1993
-----------------
(In Thousands)
1994.......................................... $ 1,000
1995.......................................... 5,200
1996.......................................... 5,200
1997.......................................... 5,200
1998.......................................... 1,974
-------
Total..................................... $18,574
=======
8. COMMITMENTS AND CONTINGENT LIABILITIES
Total rental expense for the years ended December 31, 1993, December 25, 1992
and December 27, 1991 was approximately $808,000, $1,164,000 and $1,684,000,
respectively.
Following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year:
DECEMBER 31, 1993
-----------------------------------
TOTAL REAL ESTATE EQUIPMENT
----- ----------- ---------
(IN THOUSANDS)
1994.................... $ 982 $ 916 $ 66
1995.................... 1,305 1,236 69
1996.................... 1,258 1,227 31
1997.................... 1,276 1,276 -
1998.................... 322 322 -
1999 and thereafter..... - - -
------ ------ ----
Total............... $5,143 $4,977 $166
====== ====== ====
The above commitments are not a forecast of future rental expenses and may not
necessarily be the amount payable in the event of default and do not encompass
the terms of the proposed settlement of the corporate office lease (see
discussion below).
During 1983 the Company entered into a sale-leaseback agreement on its
executive office building. Included in the above schedule in the real estate
category is approximately $5,860,000 in future minimum rental payments to be
paid over the term of the lease which expires March 31, 1998. The profit on this
agreement is included in deferred revenue and is being amortized as a reduction
in rent expense over the term of the lease. At December 31, 1993 and December
25, 1992, $1,205,000 and $1,544,000, respectively, of the profit remained in
deferred revenue.
Following the consummation of the Sixth Restatement, the Company conveyed
certain properties to the landlord in satisfaction of its outstanding lease
obligations for its executive office building in Miami, Florida. The Company
also entered into a modification of its lease agreement, providing for a
reduction of its rental expenses through June 30, 1994, at which time the
Company would have the option of acquiring the leased premises or
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
8. COMMITMENTS AND CONTINGENT LIABILITIES - (CONTINUED)
reinstating the lease according to its original terms. Should the landlord sell
the leased premises to a third party at any time that the lease, or any
modification thereof, is in effect, then the lease with the Company would be
cancelled. In the action styled FIVE POINTS LIMITED V. THE DELTONA CORPORATION,
Case No. 93-22877, filed in the Circuit Court for Dade County, Florida and
served upon the Company on December 8, 1993, the plaintiff is seeking damages
against the Company for an alleged breach of the lease for its office building.
The complaint alleges that the Company has defaulted in its obligation to make
payments under the lease and seeks damages in excess of $272,000 for additional
past due rent, plus damages for acceleration of lease payments in excess of
$4,000,000. On February 17, 1994 the Court entered an Order requiring the
Company to pay uncontested back rent of approximately $240,000, plus uncontested
monthly rents of approximately $48,000, commencing on March 1, 1994. As of
August 31, 1994, the Company had paid approximately $41,500 to the Court under
this Order. The plaintiff has obtained judgments in the amount of $647,000 as of
August 31, 1994. These judgments have been recorded in certain of the Company's
communities. On September 1, 1994 the Company entered into a Settlement
Agreement with plaintiff to be consummated on or before October 17, 1994. New
financing is essential for the Company to fund the settlement agreement. Failure
to fund this agreement will result in continued litigation and a likely
substantial judgment against the Company. As part of the settlement agreement,
the Company will be evicted from the premises and must vacate its occupancy by
January 6, 1995.
Homesite sales contracts provide for the return of all monies paid in
(including paid-in interest) should the Company be unable to meet its
contractual obligations after the use of reasonable diligence. If a refund is
made, the Company will recover the related homesite and any improvement thereto.
The aggregate amount of all monies paid in (including paid-in interest) on all
homesite contracts having outstanding contractual obligations (primarily to
complete improvements) at December 31, 1993 was approximately $11,422,000.
As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for notifying affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community, the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested by the
purchaser. Under an agreement with Topeka, Topeka's utility companies have
agreed to furnish utility service to the future residents of the Company's
communities on substantially the same basis as such services were provided by
the Company. The Consent Order also required the establishment of an improvement
escrow account as assurance for completing such improvement obligations. In
June, 1992, the Company entered into the 1992 Consent Order with the Division,
which replaced and superseded the original Consent Order, as amended and
restated. Among other things, the 1992 Consent Order consolidated the Company's
development obligations and provided for a reduction in its required monthly
escrow obligation to $175,000 from September, 1992 through December, 1993.
Beginning January, 1994 and until development is completed or the 1992 Consent
Order is amended, the Company is required to deposit $430,000 per month into the
escrow account. To meet its current escrow and development obligations under the
1992 Consent Order, the Company is required to deposit into escrow $5,160,000 in
1994 and $3,519,000 in 1995. As part of the assurance program under the 1992
Consent Order, the Company and its lenders granted the Division a lien on
certain contracts receivable (approximately $8,915,000 as of December 31, 1993)
and future receivables. As previously stated, the Company is in default of its
escrow obligations, and in
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
8. COMMITMENTS AND CONTINGENT LIABILITIES - (CONTINUED)
accordance with the 1992 Consent Order, the collections on such receivables have
been escrowed for the benefit of purchasers since March 1, 1994. At December 31,
1993, the liability to complete improvements to fully paid-for lots was
approximately $774,000. Pursuant to the 1992 Consent Order, the Company has
limited the sale of single-family lots to lots which front on a paved street and
are ready for immediate building. Because of the Company's default, the Division
could also exercise other available remedies under the 1992 Consent Order, which
remedies entitle the Division, among other things, to halt all sales of
registered property.
Based upon the Company's experience with affected customers, the Company
believes that the total refunds arising from delays in completing such
improvements will not materially exceed the amount provided for in the
consolidated financial statements. Approximately $64,000 and $133,300 of the
provision for the total refunds relating to the delays of improvements remained
in accrued expenses and other at December 31, 1993 and December 25, 1992,
respectively.
The Company's corporate performance bonds to assure the completion of
development at its St. Augustine Shores community expire in March and June,
1993. Such bonds cannot be renewed due to a change in the policy of the Board of
County Commissioners of St. Johns County which precludes allowing any developer
to secure the performance of development obligations by the issuance of
corporate bonds. In the event that St. Johns County elects to undertake the
completion of such development work, the Company would be obligated with respect
to 1,000 improved lots at St. Augustine Shores in the amount of approximately
$6,200,000. The Company intends to submit an alternative assurance program for
the completion of such development and improvements to the County for its
approval.
In addition to the matters discussed above and in Note 9, the Company is a
party to other litigation relating to the conduct of its business which is
routine in nature and, in the opinion of management, should have no material
effect upon the Company's operation.
9. MARCO ISLAND-MARCO SHORES PERMITS
On April 16, 1976, the U.S. Army Corps of Engineers (the "Corps") denied the
Company's application for dredge and fill permits required to complete
development of the Marco Island community. These denials adversely affected the
Company's ability to obtain the required permits for the Marco Shores community
as originally platted. Following the denials, the Company instituted legal
proceedings, implemented various programs to assist its customers affected by
the Corps' action, and applied for permits from certain administrative agencies
for other areas of the Company's Marco ownership.
On July 20, 1982, the Company entered into an agreement with the State of
Florida and various state and local agencies (the "Settlement Agreement"),
endorsed by various environmental interest groups, to resolve pending litigation
and administrative proceedings relative to the Marco permitting issues. The
Settlement Agreement became effective when, pursuant thereto, approximately
12,400 acres of the Company's Marco wetlands were conveyed to the State in
exchange for approximately 50 acres of State-owned property in Dade County,
Florida. In October, 1987, the Company sold the Dade County property for
$9,000,000. The Settlement Agreement also allowed the Company to develop as many
as 14,500 additional dwelling units in the Marco vicinity. On October 11, 1991,
1,300 acres of Marco property (7,000 dwelling units) were conveyed to the
Company's lenders pursuant to the Conveyance Agreement.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
9. MARCO ISLAND-MARCO SHORES PERMITS - (CONTINUED)
The Company had placed certain properties in trust to meet its refund
obligation to affected customers. On September 14, 1992, the Circuit Court of
Dade County, Florida approved a settlement of certain class action litigation
instituted by customers affected by the Marco permit denials, under the terms of
which the Company was required, among other things, to convey more than 120
acres of multi-family and commercial land that had been placed in trust to the
trustee of the 809 member class. As part of the settlement, the Company
guaranteed the amount to be realized from the sale of the conveyed property.
This guaranteed amount shall not exceed $2,000,000. Such settlement enabled the
Company to resolve the claims of an additional 12.7% of its affected customers
and re-evaluate the allowance for Marco permit costs. As a result of such
analysis, the Company was able to reduce such allowance by $12,200,000,
resulting in a $3,983,000 extraordinary gain and a $500,000 credit to accrued
expenses to be credited to paid-in capital following issuance of 250,000 shares
of restricted Common Stock of the Company to the class members. At December 31,
1993, $2,886,000 remained in the allowance for Marco permit costs. Based upon
the Company's experience with affected customers, the Company believes that its
total obligations to the remaining 1.3% of its affected customers will not
materially exceed the amount provided for in the accompanying Consolidated
Financial Statements.
Information with respect to the allowance for Marco permit costs follows:
DECEMBER 31, DECEMBER 25,
1993 1992
------------ ------------
(IN THOUSANDS)
Refunds requested by affected customers............ $ 332 $ 905
Reserve for settlement guarantee................... 2,000 2,000
Accrued interest on actual and estimated
refund obligation............................... 554 944
------- -------
Total..................................... $ 2,886 $ 3,849
======= =======
10. COMMON STOCK AND EARNINGS PER SHARE INFORMATION
Options to purchase Common Stock of the Company had been granted to employees
of the Company under an incentive stock option plan. Such shares could be
treasury or authorized but unissued shares, and were subject to adjustment
resulting from stock dividends, splits, reorganizations, or other substitutions
of securities for the present Common Stock of the Company. The option price
could not be less than the market value of the Company's Common Stock on the
date of the grant. All options were exercisable for a period of up to five years
from the date of grant at an annual cumulative rate of 20%, except that no
option could be exercised for a period of 60 days from grant. Since options
could not be granted after ten years from the date the plan was adopted, options
were not available for grant under the plan after March 1, 1992, and options to
purchase an aggregate of 26,800 shares which were outstanding as of December 27,
1991 expired unexercised on December 9, 1992.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
10. COMMON STOCK AND EARNINGS PER SHARE INFORMATION - (CONTINUED)
Under the Company's 1987 Stock Incentive Plan (the "Stock Plan"), an aggregate
of 500,000 shares of Common Stock have been reserved for the granting of
non-qualified stock options and the award of incentive shares to such executive
officers and other key employees of the Company as may be determined by the
Committee administering the Stock Plan. The extent to which incentive shares are
earned and charged to expense will be determined at the end of the three-year
award cycle, based on the achievement of the Company' s net income goal for the
award cycle. Payment of incentive shares earned may be made in shares of the
Company's Common Stock and/or cash. If paid in cash, such payment will be based
on the average daily closing price of the Company's Common Stock during the last
month of the award cycle. The option features of the Stock Plan are
substantially the same as the Company's incentive stock option plan described
above. A total of 79,940 shares were issued and $233,412 was paid with respect
to awards earned under the Stock Plan as of December 29, 1989. In March, 1993 an
option to acquire 20,000 shares of the Company's Common Stock at an exercise
price of $4.00 per share was granted under the Stock Plan; the 20,000 share
option remained outstanding as of December 31, 1993.
On June 18, 1992, in conjunction with the Sixth Restatement, the Company issued
warrants to its lenders for the purchase of 277,387 shares of Common Stock at
$1.00 per share (the Warrants"). The Warrants became exercisable on June 18,
1992, were subject to mandatory repurchase by the Company at the request of the
holder at any time after December 18, 1993 at 75% of the market price of the
Company's Common Stock (unless such repurchase would cause a default under the
Sixth Restatement or unless the Company elected to effect an underwritten public
offering on a firm commitment basis), and expired on the later of: (i) 30 days
after payment in full of all debt under the Sixth Restatement; (ii) July 31,
1997, or (iii) such later date as to which the expiration date had been extended
to implement the provisions applicable to the mandatory repurchase option.
On December 2, 1992, the Company entered into a Warrant Exercise and Debt
Reduction Agreement with Yasawa, providing for the number of shares issuable
upon acquisition of the Warrants by Yasawa and the exercise of such Warrants by
Yasawa to be increased from 277,387 shares of Common Stock to 289,637 shares of
Common Stock, and adjusting the exercise price to an aggregate of approximately
$314,000. On December 11, 1992, following the acquisition of the Bank Loan and
the Warrants by Gram and the immediate transfer of the Bank Loan and the
Warrants by Gram to Yasawa, Yasawa exercised the Warrants in exchange for debt
reduction credit to the Company of approximately $314,000.
As part of the Selex transaction, Selex was granted an option which was
approved by the holders of a majority of the outstanding shares of the Company's
Common Stock at the Company's 1992 Annual Meeting, to convert the Selex Loan, or
any portion thereof, into a maximum of 850,000 shares of the Company's Common
Stock at a per share conversion price equal to the greater of (i) $1.25 or (ii)
95% of the market price of the Company's Common Stock at the time of conversion,
but in no event greater than $4.50 per share (the "Option"). However, on
September 14, 1992, Selex formally waived and relinquished its right to exercise
the Option as to 250,000 shares of the Company's Common Stock to enable the
Company to settle certain litigation involving the Company through the issuance
of approximately 250,000 shares of the Company's Common Stock to the claimants,
without jeopardizing the utilization of the Company's net operating loss
carryforward. On February 17, 1994, Selex exercised the remaining full 600,000
share Option at a conversion price of $1.90 per share, such that $1,140,000 in
principal was repaid under the First Selex Loan through such conversion. As a
consequence of such conversion, Selex holds 2,820,066 shares of the Company's
Common Stock (43.1% of the outstanding shares of Common Stock of the Company
based upon the number of shares of the Company's Common Stock outstanding as of
March 18, 1994.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
10. COMMON STOCK AND EARNINGS PER SHARE INFORMATION -(CONTINUED)
Earnings (loss) per common and common equivalent share were computed by
dividing net income (loss) by the weighted average number of shares of Common
Stock and common stock equivalents outstanding during each period. The earnings
(loss) and average number of shares of Common Stock and common stock equivalents
used to calculate earnings per share for 1993, 1992 and 1991 were ($8,772,000)
and 6,056,743, $7,336,000 and 5,694,236 and ($26,629,000) and 5,660,967,
respectively.
11. OTHER OPERATIONS
Through December 31, 1993, the Company operated country clubs and golf courses
at certain of its communities. All such operations have been sold as of December
31, 1993. The following is a summary of its operations:
YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1993 1992 1991
------------ ------------ ------------
(IN THOUSANDS)
Revenues........................ $1,820 $1,823 $2,375
Costs of sales.................. 1,527 1,638 1,948
------ ------ ------
Gross profit............... $ 293 $ 185 $ 427
====== ====== ======
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
THE DELTONA CORPORATION AND SUBSIDIARIES
12. BUSINESS SEGMENTS
YEARS ENDED
--------------------------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
REVENUES
Real estate:
Net land sales(a)........ $ 2,432 $ 2,092 $ 1,154 $ 11,612 $ 38,475
Housing revenues......... 344 -0- 120 1,919 5,718
Improvement revenues(b).. 4,725 2,404 -0- 2,152 7,559
Interest income(c)....... 1,197 3,584 5,270 8,236 9,102
Other.................... 67 -0- -0- -0- 50
------- -------- -------- -------- --------
Total real estate...... 8,765 8,080 6,544 23,919 60,904
Other(d)................... 3,447 4,372 4,510 5,436 6,370
Intersegment sales(e)...... (113) (235) (270) (322) (395)
------- -------- -------- -------- --------
TOTAL.................. $ 12,099 $ 12,217 $ 10,784 $ 29,033 $ 66,879
======== ======== ======== ======== ========
OPERATING PROFITS (LOSSES)
Real estate................ $ (3,073) $ 1,486 $ (6,750) $ (798) $ 19,114
Other...................... 279 2,209 1,928 1,789 1,305
General corporate expense.. (4,721) (7,057) (7,811) (10,602) (12,190)
Merger expense............. -0- -0- -0- -0- (500)
Interest expense........... (1,257) (3,356) (6,896) (7,397) (6,858)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS... $ (8,772) $ (6,718) $(19,529) $(17,008) $ 871
======== ======== ======== ======== ========
REAL
ESTATE OTHER CORPORATE TOTAL
-------- ------ --------- -------
IDENTIFIABLE ASSETS........ 1993 $ 25,997 $ 248 $ 320 $ 26,565
1992 36,450 280 320 37,050
1991 62,341 2,568 334 65,243
DEPRECIATION EXPENSE....... 1993 57 - 47 104
1992 109 39 12 160
1991 122 121 49 292
CAPITAL EXPENDITURES....... 1993 22 - 72 94
1992 9 - 110 119
1991 - - - -
- - --------------------
(a) Net land sales consist of gross land sales less estimated uncollectible
installment sales and contract valuation discount and, prior to 1991,
deferred revenue (see Notes 1, 2 and 7 to Consolidated Financial
Statements).
(b) Improvement revenues consist of revenue recognized due to completion of
improvements on prior period sales.
(c) Interest income primarily consists of interest earned on contracts and
mortgages receivable and on temporary cash investments and the
amortization of valuation discounts.
(d) Other consists of revenues from sales other than real estate, the major
portion of which comes from the country club operations (see Note 11 to
Consolidated Financial Statements).
(e) Intersegment sales consist primarily of sales between the Company and
its title insurance subsidiary.
60
SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EXTRAORDINARY
(LOSS) ITEM: GAIN ON
FROM EXTRAORDINARY SETTLEMENT
OPERATIONS ITEM: RELATING TO
BEFORE (LOSS) GAIN (LOSS) THE NET
INCOME FROM FROM DEBT MARCO REFUND INCOME
REVENUES TAXES OPERATIONS RESTRUCTURING OBLIGATION (LOSS)
-------- --------- ---------- ------------- ------------- ------
1993
First.... $ 3,735 $ (997) $ (997) $ - $ - $ (997)
Second... $ 2,084 $ (1,797) $ (1,797) $ - $ - $ (1,797)
Third.... $ 2,523 $ (2,006) $ (2,006) $ - $ - $ (2,006)
Fourth... $ 3,757 $ (3,972) $ (3,972) $ - $ - $ (3,972)
-------- -------- -------- -------- ------ --------
TOTAL...... $ 12,099 $ (8,772) $ (8,772) $ - $ - $ (8,772)
-------- -------- -------- -------- ------ --------
1992
First.... $ 3,441 $ (1,095) $ (1,095) $ - $ - $ (1,095)
Second... 2,100 (1,390) (1,390) - - (1,390)
Third.... 2,874 (1,742) (1,742) 400 3,983 2,641
Fourth... 3,802 (2,491) (2,581) 9,761 - 7,180
-------- -------- -------- -------- ------ --------
TOTAL...... $ 12,217 $ (6,718) $ (6,808) $ 10,161 $3,983 $ 7,336
-------- -------- -------- -------- ------ --------
1991
First.... $ 3,818 $ (1,787) $ (1,787) $ - $ - $ (1,787)
Second... 2,917 (2,498) (2,498) (3,500) - (5,998)
Third.... 2,203 (11,910) (11,910) - - (11,910)
Fourth... 1,846 (3,334) (3,334) (3,600) - (6,934)
-------- -------- -------- -------- ------ --------
TOTAL...... $ 10,784 $(19,529) $(19,529) $ (7,100) $ - $(26,629)
-------- -------- -------- -------- ------ --------
EARNINGS (LOSS) PER SHARE
- - -------------------------
EXTRAORDINARY NET INCOME
OPERATIONS ITEMS (LOSS)
---------- ------------- ----------
1993
First.............................................. $ (.16) $ - $ (.16)
Second............................................. $ (.30) $ - $ (.30)
Third.............................................. $ (.33) $ - $ (.33)
Fourth............................................. $ (.66)(b) $ - $ (.66)(b)
------- ------- -------
TOTAL......................................................... $ (1.45) $ - $ (1.45)
------- ------- -------
1992
First.............................................. $ (.19) $ - $ (.19)
Second............................................. (.25) - (.25)
Third.............................................. (.31) .77 .47
Fourth............................................. (.45) 1.69 1.24
------- ------- -------
TOTAL.......................................................... $ (1.19)(a) $ 2.46 (a) $ 1.27 (a)
======= ======= =======
1991
First............................................... $ (.31) $ - $ (.31)
Second.............................................. (.44) (.62) (1.06)
Third............................................... (2.10) - (2.10)
Fourth.............................................. (.59) (.64) (1.23)
------- ------- -------
TOTAL........................................................... $ (3.44) $ (1.26) $ (4.70)
======= ======= =======
- - --------------------
(a) Total shown does not agree with earnings per share set forth in the
Company's Statement of Consolidated Operations for the year ended
December 25, 1992 due to differences in the calculation of the weighted
average number of shares outstanding at the end of each quarter during
1992.
(b) Certain significant adjustments were recorded in the fourth quarter of
1993 which the impact on previous quarters in 1993 could not be determined.
61
ITEM 10, 11 AND 13
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS OF THE COMPANY
The Board of Directors of the Company presently consists of eight
individuals: Antony Gram, Chairman of the Board and Chief Executive Officer, and
Neil E. Bahr, George W. Fischer, Marcellus M. B. Muyres, Thomas B. McNeill,
Leonardus G.M. Nipshagen, Cornelis van de Peppel and Cornelis L.J.J. Zwaans.
As previously discussed, in June, 1992, the Company completed a transaction
with Selex, which resulted in the infusion of additional funds into the Company
and in a change in control of the Company. In conjunction with the transaction
with Selex, Messrs. Muyres, Gram, Nipshagen, Peppel and Zwaans were designated
by Selex for election as directors of the Company. See "Business: Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The table below sets forth the names of the present directors of the
Company, together with certain information with respect to each of them. Unless
otherwise indicated, each such person has held the position shown, or has been
associated with the named employer in the executive capacity shown, for more
than the past five years. The entire Board of Directors is elected annually to
hold office until the next Annual Meeting of Stockholders and until their
respective successors are duly elected and qualified.
YEAR FIRST
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION ELECTED DIRECTOR
------------ ------------------------------------------ ----------------
Neil E. Bahr, 68.............. Vice Chairman of the Board of Directors of the 1983(e)
(a),(b),(c) Company since June 19, 1992. Although otherwise
retired, Mr. Bahr had served as President of
Deltona Land & Investment Corp. ("DL&IC"), a
subsidiary of the Company, from September,
1974 through December, 1985.
George W. Fischer, 53......... President of CPS Industries, Inc., a privately
(b) held company primarily engaged in owning and 1992
operating a chain of beauty salons in the
Philadelphia, Pennsylvania area since March,
1980. Since 1975, Mr. Fischer has also served
President of H.E.C. Fischer, Inc., a closely held
real estate company.
Other Directorships: Guaranty Bancshares Corp.
62
YEAR FIRST
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION ELECTED DIRECTOR
------------ ------------------------------------------ ----------------
Antony Gram, 52............... Chairman of the Board of Directors and 1992
(a), (c) Chief Executive Officer of the Company
since July 13, 1994. From June 19, 1992 through
April 6, 1994, Mr. Gram served as Vice Chairman
of the Board of Directors of the Company. For
more than the past five years, Mr. Gram has
served as Managing Director of Gramyco, a
scaffolding company, based in Belgium.
Thomas B. McNeill, 59......... Partner, Mayer, Brown & Platt, Chicago, Illinois. 1975
(b),(d) The law firm of Mayer, Brown & Platt was retained
by the Company to perform legal services on the
Company's behalf during 1992 and 1993.
Marcellus H.B. Muyres, 45..... Vice Chairman of the Board of Directors of the 1992
(a), (c) Company since July 13, 1994. From June 19, 1992
through July 12, 1994, Mr. Muyres served as
Chairman of the Board and Chief Executive Officer
of the Company. For more than the past five
years, Mr. Muyres has served as Managing Director
of Muypro & Meganck N.V., a holding company based
in Belgium, whose interests include construction
and development, and for more than the past three
years, Mr. Muyres has also served as Managing
Director of Marcel Muyres International Holding
B.V., a holding company based in Holland, whose
interests include construction and development.
Since November 10, 1988, Mr. Muyres has also
served as Secretary and a director of Swan
Development Corporation, a Florida-based
development company ("Swan"), since October 3,
1989, as Secretary, Treasurer and a director of
Conquistador Development Corp., a company engaged
in the business of developing, constructing and
selling condominiums in St. Augustine Shores,
Florida ("Conquistador"), and since August 6,
1990, as President and a director of M&M First
Coast Realty Corporation, a real estate brokerage
based in St. Augustine Shores, Florida ("M&M").
(f)
Other Directorships: Swan, Conquistador and M&M.
Leonardus G.M. Nipshagen, 50.. For more than the past five years, Mr. Nipshagen 1992
(d) has been investor in, and management consultant to,
various companies in Holland, Canada, Curacao and
Hong Kong, including IBG Nederland B.V., a
holding company based in Holland.
63
YEAR FIRST
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION ELECTED DIRECTOR
------------ ------------------------------------------ ----------------
Cornelis van de Peppel, 46.... For more than the past five years, Mr. van de 1992
(d) Peppel has been an investor in, and management
consultant to, various companies in Holland. In
addition, he has served as Managing Director of
Voit International Warsaw, a medical supply and
finance company operating in Poland. During 1993,
C.F.S. B.V., a consulting company based in Holland,
in which Mr. van de Peppel serves as Director.
Cornelis L.J.J. Zwaans, 49.... For more than the past five years, Mr. Zwaans has 1992
(a), (c) served as Managing Director of Zwaans, N.V., a
company based in Belgium, which is engaged in the
import, sale and rental of construction equipment.
Since November 10, 1988, Mr. Zwaans has also
served as President and a director of Swan, since
October 3, 1989, as President and a director of
Conquistador, and since August 6, 1990, as
Secretary, Treasurer and a director of M&M. (f)
Other Directorships: Swan, Conquistador and M&M.
- - --------------------
(a) Member, Executive Committee.
(b) Member, Audit Committee.
(c) Member, Executive Compensation Committee.
(d) Member, Nominating Committee.
(e) Mr. Bahr also served as a director of the Company from December, 1964
until September, 1974 when he resigned to devote all of his time to
his duties as President of DL&IC.
(f) Messrs. Muyres and Zwaans are brothers-in-law.
Messrs. Bahr, Fischer and McNeill (Audit Committee) receive a fee of $1,000
per month for services as a Director of the Company and are reimbursed for
travel and related costs incurred with respect to committee and board meetings.
Messrs. Gram, Muyres, Nipshagen, van de Peppel and Zwaans do not receive a
monthly Directors fee, however are reimbursed for travel and related costs
incurred with respect to committee and board meetings and other Company business
activities.
In August 1994, the Directors with outstanding fees and/or expenses agreed
to forgive 50% of the amounts due them. The following sets forth the amounts due
those Directors at August 31, 1994 after the forgiveness.
Neil E. Bahr $ 6,500
George Fischer 6,500
Thomas B. McNeill 6,500
Marcellus H.B. Muyres 9,585
Cornelis L.J.J. Zwaans 4,981
-------
Total $34,066
=======
64
Cornelis van de Peppel provided the Company consulting services
periodically during the months of August 1993 through November 1993. Mr. van de
Peppel was paid $22,500 in consulting fees for his services as well as $11,862
in expense reimbursement in conjunction with those services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee (the "Committee") is comprised of Mr.
Bahr, Chairman, and three of the Selex directors, namely, Messrs. Gram, Muyres
and Zwaans.
Mr. Bahr, Chairman of the Committee and Vice Chairman of the Board, retired
from the Company in December, 1985. From the Company's incorporation in
September, 1962 until his retirement, Mr. Bahr served as an officer of the
Company and/or its subsidiaries. He presently does not serve as a director or as
a member of the compensation committee of any other company.
Mr. Gram, a member of the Committee, has served as Chairman of the Board
and Chief Executive Officer of the Company, and thus, as an executive officer of
the Company, since July 13, 1994. Additionally, Mr. Gram is deemed to be the
beneficial owner of 46.7% of the Company's Common Stock since he is the
beneficial owner of Yasawa (which holds 4.4% of the Common Stock of the Company
as of August 19, 1994), as well as the holder of a seventy-four percent equity
interest in Wilbury International N.V., a Netherlands Antilles corporation
("Wilbury"), which owns all of the issued and outstanding stock of Selex (which
holds 42.3% of the Common Stock of the Company as of August 19, 1994). See
"Ownership of Voting Securities of the Company."
Mr. Muyres, Vice Chairman of the Board of the Company, and a member of the
Committee, served as Chairman of the Board and Chief Executive Officer, and
thus, as an officer of the Company, from June 19, 1992 through July 12, 1994. As
previously stated, Mr. Muyres serves as a director and executive officer of
Swan, Conquistador and M&M, companies of which Mr. Zwaans, also a member of the
Committee, serves as a director and executive officer. Mr. Zwaans also serves as
a Managing Director of Selex. As previously stated, all of the issued and
outstanding stock of Selex is owned by Wilbury. Wilbury is, in turn, owned by
Messrs. Gram and Muyres, with Mr. Gram, as the largest shareholder of Wilbury,
being treated as the beneficial owner of all of the Company's Common Stock held
by Selex. See "Ownership of Voting Securities of the Company."
On June 19, 1992, Selex loaned the Company the sum of $3,000,000 pursuant
to the First Selex Loan. The First Selex Loan is collateralized by a first
mortgage on certain of the Company's unsold, undeveloped property in its St.
Augustine Shores, Florida community. The Loan matures on June 15, 1996 and
provides for principal to be repaid at 50% of the net proceeds per lot for lots
requiring release from the mortgage, with the entire unpaid balance becoming due
and payable at the end of the four year term. It initially bears interest at the
rate of 10% per annum, with payment of interest deferred for the initial 18
months of the Loan and interest payments due quarterly thereafter. As part of
the Selex transaction, Selex was granted an option, approved by the holders of a
majority of the outstanding shares of the Company's Common Stock at the
Company's 1992 Annual Meeting, which, as modified, enabled Selex to convert the
First Selex Loan, or any portion thereof, into a maximum of 600,000 shares of
the Company's Common Stock at a per share conversion price equal to the greater
of (i) $1.25 or (ii) 95% of the market price of the Company's Common Stock at
the time of conversion, but in no event greater than $4.50 per share (the
"Option"). On February 17, 1994, Selex exercised the Option, in full, at a
conversion price of $1.90 per share, such that $1,140,000 in principal was
repaid under the First Selex Loan through such conversion. As of August 31,
1994, the Company was in default of the First Selex Loan inasmuch as accrued
interest in the amount of $604,300 (including $463,500 due December 31, 1993)
remained unpaid.
One million dollars of the proceeds from the First Selex Loan was used by
the Company to acquire certain commercial and multi-family properties at the
Company's St. Augustine Shores community at their net appraised value, from Mr.
Muyres and certain entities affiliated with Messrs. Zwaans and Muyres. Namely,
(i) $416,000 was used to acquire 48 undeveloped condominium units (twelve 4 unit
building sites) and 4 completed
65
and rented) condominium units from Conquistador, in which Messrs. Zwaans and
Muyres serve as directors, as well as President and Secretary/Treasurer,
respectively; (ii) $485,000 was used to acquire 4 commercial lots from Swan, in
which Messrs. Zwaans and Muyres also serve as directors, as well as President
and Secretary, respectively; and (iii) approximately $99,000 was used to
reacquire, from Mr. Muyres, all of his rights, title and interest in that
certain contracts with the Company for the purchase of a commercial tract in St.
Augustine Shores, Florida. None of the commercial and multi-family property
acquired by the Company from Mr. Muyres and certain entities affiliated with
Messrs. Zwaans and Muyres collateralizes the First Selex Loan. In March, 1994,
Conquistador exercised its right to repurchase certain multi-family property
from the Company (which right had been granted in connection with the June, 1992
Selex transaction) at a price of $312,000, of which $260,000 was paid in cash to
the Company and $52,000 was applied to reduce interest due to Selex under the
third Selex Loan.
As previously stated, Messrs. Muyres and Zwaans also serve as directors and
executive officers of M&M. The Company has leased certain office space to M&M at
its St. Augustine Shores community pursuant to a Lease Agreement dated August
10, 1990. The aggregate annual rental payments under such Lease are less than
$60,000.
On December 2, 1992, the Company entered into various agreements relating
to certain of its assets and the restructuring of its debt with Yasawa, which is
beneficially owned by Mr. Gram. The consummation of these agreements, which are
further described below, was conditioned upon the acquisition by Gram of the
Company's outstanding bank loan.
On December 4, 1992, Gram entered into an agreement with the lenders,
pursuant to which he acquired the bank loan of approximately $25,150,000
(including interest and fees) for a price of $10,750,000. In conjunction with
such transaction, the lenders transferred to Gram the warrants which they held
that entitled the holder to purchase an aggregate of 277,387 shares of the
Company's Common Stock at an exercise price of $1.00 per share. Immediately
after the acquisition of the bank loan, Gram transferred all of his interest in
the bank loan, including the warrants, to Yasawa.
On December 11, 1992, the Company consummated the December 2, 1992
agreements with Yasawa. Under these agreements, Yasawa, its affiliates and the
Company agreed as follows: (i) the Company sold certain property at its Citrus
Springs community to an affiliate of Yasawa in exchange for approximately
$6,500,000 of debt reduction credit; (ii) an affiliate of Yasawa and the Company
entered into a joint venture agreement with respect to the Citrus Springs
property, providing for the Company to market such property and receive an
administration fee from the venture (in March, 1994, the Company and the
affiliate agreed to terminate the venture); (iii) the Company sold certain
contracts receivable at face value to an affiliate of Yasawa for debt reduction
credit of approximately $10,800,000; (iv) the Company sold the Marco Shores
Country Club and Golf Course to an affiliate of Yasawa for an aggregate sales
price of $5,500,000, with the affiliate assuming an existing first mortgage of
approximately $1,100,000 and the Company receiving debt reduction credit of
$2,400,000, such that the Company obtained cash proceeds from this transaction
of $2,000,000, which amount was used for working capital; (v) an affiliate of
Yasawa agreed to lease the Marco Shores Country Club and Golf Course to the
Company for a period of approximately one year; (vi) an affiliate of Yasawa and
the Company agreed to amend the terms of the warrants to increase the number of
shares issuable upon their exercise from 277,387 shares to 289,637 shares and to
adjust the exercise price to an aggregate of approximately $314,000; (vii)
Yasawa exercised the warrants in exchange for debt reduction credit of
approximately $314,000; (viii) Yasawa released certain collateral held for the
bank loan; (ix) an affiliate of Yasawa agreed to make an additional loan of up
to $1,500,000 to the Company, thus providing the Company with a future line of
credit (all of which was drawn and outstanding as of August 19, 1994); and (x)
Yasawa agreed to restructure the payment terms of the remaining $5,106,000 of
the bank loan as a loan from Yasawa (the "Yasawa Loan").
The Yasawa Loan bears interest at the rate of 11% per annum, with payment
of interest deferred until December 31, 1993, at which time only accrued
interest became payable. Commencing January 31, 1994,
66
principal and interest became payable monthly, with all unpaid principal and
accrued interest being due and payable on December 31, 1997. A portion of
the proceeds from a March, 1993 sale of contracts receivable was applied to
reduce the Yasawa Loan to $4,900,000 during the first quarter of 1993 and the
assignment of a mortgage receivable to Yasawa reduced the Yasawa Loan to
$4,771,600 as of December 31, 1993. Accrued interest due under the Yasawa Loan
in the amount of $355,200 were unpaid and in default as of August 31, 1994.
In February, 1994, Yasawa loaned the Company an additional amount of
approximately $514,900 at an interest rate of 8% per annum (the "Second Yasawa
Loan"). Since May, 1994, additional amounts were advanced to the Company under
the Second Yasawa Loan to enable the Company to pay certain essential expenses
and effectuate settlements with the Company's principal creditors. As of August
31, 1994, an aggregate amount of $1,200,000 had been advanced to the Company
under the Second Yasawa Loan.
On April 30, 1993 Selex loaned the Company an additional $1,000,000
collateralized by a first mortgage on certain of the Company's property in its
Marion Oaks, Florida community (the "Second Selex Loan"). The Second Selex Loan
bears interest at 11% per annum, with interest deferred until December 31, 1993.
The Second Selex Loan provides for principal to be repaid at $3,000 per lot for
lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 to be due
and payable on April 30, 1994. Although Selex had certain conversion rights
under the Second Selex Loan in the event the Company sold any Common Stock or
Preferred Stock prior to payment in full of all amounts due to Selex under the
Second Selex Loan, such rights were voided as of December 31, 1993 since the
regulations set forth in proposed Treasury Decision CO-18-90 relative to Section
382 of the Internal Revenue Code were not adopted by such date. As of August 31,
1994, $33,000 in principal had been repaid under the Second Selex Loan, but
accrued interest of 93,300 due under the Loan as of August 31, 1994, as well as
the principal balance of $967,000, remained unpaid and in default.
From July 9, 1993 through December 31, 1993, Selex loaned the Company an
additional $4,400,000 collateralized by a second mortgage on certain of the
Company's property on which Selex and/or Yasawa hold a first mortgage pursuant
to a Loan Agreement dated July 14, 1993 and amendments thereto (the "Third Selex
Loan"). The Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at $3,000 per lot
for lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 becoming
due and payable on April 30, 1994. As of August 31, 1994, accrued interest of
$466,800 due under the Third Selex Loan as well as the principal balance of
$4,384,200 remained unpaid and in default.
Interest due to Selex, Yasawa and their affiliates in the aggregate amount
of $2,300,000 remained unpaid and in default as of August 31, 1994. Through
August 31, 1994 $33,000 in principal was repaid under the Second Selex Loan and
$1,140,000 in principal was repaid under the First Selex Loan through the
exercise of the above described Option; however, Selex, Yasawa and their
affiliates were unpaid and in default as of August 31, 1994. Consequently, as of
August 31, 1994, the Company had loans outstanding from Selex, Yasawa and their
affiliates in the aggregate amount of approximately $17,976,000, including
interest, of which approximately $9,867,000 is owed to Selex, including accrued
and unpaid interest of approximately $1,656,000 (10% per annum on the First
Selex Loan, 11% per annum on the Second and Third Selex Loans and 12% per annum
on the $1,000,000 Empire Note assigned to Selex); approximately $6,349,200 is
owed to Yasawa, including accrued and unpaid interest of approximately $384,500
(11% per annum on the Yasawa Loan and 8% per annum on the Second Yasawa Loan);
and approximately $1,759,000 is owed to an affiliate of Yasawa, including
accrued and unpaid interest of approximately $259,500 (12% per annum). The loans
from Selex, Yasawa and their affiliates are secured by substantially all of the
assets of the Company. See "Business: Recent Developments", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 5 to Consolidated Financial Statements.
67
The lease between an affiliate of Yasawa and the Company with respect to
the Marco Shores Country Club and Gold Course was terminated in December 31,
1993. At the time of termination, an amount of approximately $34,200 was due to
the Company from the Yasawa affiliate, which amount was paid in 1994.
In December 1992, the Company and Citony (an affiliate of Yasawa) entered
into a joint venture agreement with respect to Citony's Citrus Springs property,
providing for the Company to market the property and receive an administration
fee from the venture. The Company and Citony agreed to terminate the joint
venture agreement in March, 1994, however, the Company is providing certain
assistance to Citony during the transition period. At the time of termination
$265,000 was due to the Company by Citony for marketing costs incurred as well
as administrative services provided, which amount was paid in 1994.
M&M First Coast Realty, of which Messrs. Muyres and Zwaans are Directors
leased office facilities from the Company in its St. Augustine Shores community.
At December 31, 1993 $16,600 was due the Company for past rents, which amount
was paid in 1994.
Messrs. Muyres and Zwaans serve as officers and directors of Conquistador
Development Corporation, which the Company owed $11,583 at December 31, 1993,
principally for condominium fees advanced on behalf of the Company.
This amount was paid in 1994.
EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth the executive officers of the Company as of
August 19, 1994, their ages and their principal occupations during the past five
years; they have been appointed to serve in the capacities indicated until their
successors are appointed and qualified, subject to their earlier resignation or
removal by the Board of Directors.
PRINCIPAL OCCUPATION
NAME AND AGE DURING THE PAST FIVE YEARS
------------ --------------------------
Antony Gram, 52.............................. Chairman of the Board of Directors and Chief
Executive Officer of the Company since July
13, 1994. From June 19, 1992 through April 6,
1994, Mr. Gram served as Vice Chairman
of the Board of Directors of the Company. For
more than the past five years, Mr. Gram has
served as Managing Director of Gramyco, a
scaffolding company based in Belgium.
Earle D. Cortright, Jr., 53.................. Mr. Cortright, who joined the Company in 1966,
has been President and Chief Operating Officer
since April, 1990. Prior thereto, he served as
Executive Vice President and Chief Operating
Officer (January, 1988-April, 1990), as Executive
Vice President and Chief Financial Officer (March,
1986-December, 1987) and as Senior Vice President
and Chief Financial Officer (November,
1979-February, 1986).
David M. Harden, 41........................... Mr. Harden, who joined the Company in 1978, has
been Senior Vice President - Marketing
Administration since November, 1992. Prior
thereto, he served as Vice President-Real Estate
Services (January, 1990 - November, 1992), as
Assistant Vice President-Real Estate Services
(January, 1989-December, 1989) and as Director of
Real Estate Services.
68
PRINCIPAL OCCUPATION
NAME AND AGE DURING THE PAST FIVE YEARS
------------ --------------------------
Sharon J. Hummerhielm, 44.................... Mrs. Hummerhielm, who joined the Company in March,
1975, has been Vice President - Administration
since January, 1993. Prior thereto, she served as
Vice President - Regulatory and Customer Affairs
(January, 1987 - December, 1992) and as Director
of Administrative Services and Director of Regulatory
Affairs.
On July 13, 1994, Marcellus H.B. Muyres, who had served as Chairman of the
Board and Chief Executive Officer of the Company since June 19, 1992, agreed to
serve, instead, as a Vice Chairman of the Board to facilitate the appointment of
Antony Gram as Chairman and Chief Executive Officer. Additionally, since
December 31, 1993, one executive officer (Stephen J. Diamond) resigned his
position and four executive officers (Michelle R. Garbis, Joseph Mancilla, Jr.,
Theodore J. Maureau, III and Bruce M. Weiner) were removed from the positions in
which they served.
EXECUTIVE COMPENSATION
Due to the Company's liquidity situation, Antony Gram has served as
Chairman of the Board and Chief Executive since July 13, 1994 without
compensation. Likewise, Marcellus H.B. Muyres served as Chairman of the Board
and Chief Executive Officer without compensation from June, 1992 through July
12, 1994. The Commission's rules on executive compensation disclosure require,
however, that the Summary Compensation Table which appears below, depict the
compensation for the past three years of the Company's chief executive officer
and its four most highly compensated executive officers whose annual salary and
bonuses exceed $100,000. During the fiscal year ended December 31, 1993, four
executive officers of the Company were paid an annual salary and bonus in excess
of $100,000, with one of such officers not being employed by the Company until
March 15, 1993 and one not being employed until July 15, 1992. Accordingly, the
table set forth below discloses compensation paid to Mr. Weiner for the year
ended December 31, 1993, to Mr. Muyres and Mr. Mancilla for the two years ended
December 31, 1993 and to Mr. Cortright and Mrs. Garbis for the three years ended
December 31, 1993.
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- -----------------------------------------
AWARDS PAYOUTS
------------------ ---------
OTHER
NAME ANNUAL SARS/ ALL OTHER
AND COMPEN- RESTRIC- STOCK COMPEN-
PRINCIPAL FISCAL SALARY BONUS SATION TED STOCK OPTIONS LTIP SATION
POSITION YEAR ($) ($)(A) (B) AWARDS (#)(C) PAYOUTS ($)
-------- ------- ------ ------ ------- --------- ------- ------- --------
M.H.B Muyres 1993 -- -- -- -- -- -- --
Chairman of The 1992 -- -- -- -- --
Board & Chief
Executive Officer
(from 6/19/92 -
7/12/94)
E.D. Cortright, Jr. 1993 $200,000 $ 50,000 -- -- -- -- --
President & Chief 1992 $181,231 $ 50,000 -- -- -- $100,000(d)
Operating Officer 1991 $153,333 -- -- -- --
69
B.M. Weiner 1993 $262,500 -- -- -- 20,000 sh. -- --
Exec. Vice President
(since 3/15/93 - -
Removed 4/28/94)
J. Mancilla, Jr. 1993 $150,000 -- -- -- -- -- --
Sr. Vice President 1992 $ 62,500 $ 50,000 -- -- --
& General Counsel
(since 7/15/92 - -
Removed 7/12/94)
M.R. Garbis 1993 $115,000 -- -- -- -- -- --
Sr. Vice Pres. & 1992 $112,150 -- -- -- -- --
Corp. Secretary 1991 $103,500 -- -- -- --
(since 7/74 - -
Removed 8/22/94)
- - --------------------
(a) The amounts disclosed in this column represent, in the case of Mr.
Cortright, $50,000 which was paid to him in 1993 and 1992 pursuant to the
special bonus provided for in his employment contract, and, in the case of
Mr. Mancilla, $50,000 which was paid to him in 1992 upon the settlement of
certain litigation, as provided for in his employment contract. See
"Employment Contracts." Although the Company maintains an Annual Executive
Bonus Plan (the "Bonus Plan)" in which all executive officers of the
Company are eligible to participate, due to the Company's financial
condition and its liquidity situation, no bonus awards have been made under
the Bonus Plan to any executive officer of the Company since 1990.
(b) In accordance with the rules of the Commission, amounts relating to 1991
and 1992, if any, and amounts totalling less than the lower of $50,000 or
10% of the total annual salary and bonus have been omitted.
(c) The Company has a 1987 Stock Incentive Plan (the "Stock Plan") which
combines the features of a stock option plan and a performance unit plan.
The only option granted under the Stock Plan since 1990 was to Mr. Weiner,
as discussed below, and said option was the only option outstanding under
the Stock Plan as of December 31, 1993. The option expired unexercised
following Weiner's removal as an officer of the Company. Due to the
Company's financial condition, no awards have been granted under the Stock
Plan since November, 1986 and no awards have been paid under the Stock Plan
except for those initial awards which were earned at the end of 1989.
(d) This amount reflects the remaining two installments of Mr. Cortright's
special bonus. See "Employment Contracts."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The only option granted during 1993 was the grant of an option to Mr.
Weiner to acquire 20,000 shares under the provisions of the Stock Plan. The
exercise price of $4.00 per share was above the market price of the Company's
Common Stock (2 7/8) on the March 15, 1993 grant date. The option was not
awarded with tandem stock appreciation rights, and it expired unexercised
following Mr. Weiner's removal as an officer of the Company.
EMPLOYMENT CONTRACTS
In 1993, the Company recruited Bruce M. Weiner, an individual with over
twenty years of experience in the sale and marketing of Florida real estate, to
develop, implement and oversee a marketing program which would strengthen the
Company's marketing organization, rebuild its retail land sales business and
provide for the Company's successful re-entry into the single family housing
business. Effective March 15, 1993, the Company entered into a three-year
employment agreement with Mr. Weiner. The agreement provided for Mr. Weiner to
be paid an annual salary of $350,000 (subject to reduction or repayment, as
discussed below, in the event that the overall annual objectives of the
Company's marketing program were not substantially achieved) and for the
furnishing of certain benefits, such as payment of an automobile allowance. The
agreement further provided for Mr. Weiner to be paid an annual bonus if the
annual overall objectives of the marketing program were met in an amount equal
to the greater of: (i) one half of one percent of the Company's net retail land
sales
70
were met in an amount equal to the greater of: (i) one half of one percent of
the Company's net retail land sales revenue for the preceding fiscal year
(pro-rated for the Company's 1993 fiscal year) and one quarter of one percent of
revenues from house sale closings during the Company's preceding fiscal year; or
(ii) five percent of the annual pre-tax profits of the Company for the preceding
fiscal year. Such bonus was to have been payable, net of applicable taxes, in
incentive shares or other form of stock equivalents as may be determined, valued
at a price of $4.00 per share unit. On the other hand, if the annual overall
objectives of the marketing program were not met by Mr. Weiner in any given
year, he was responsible for either repaying to the Company an amount equal to
five percent of the operating losses of the Company for the preceding year or
subject to a fifty percent reduction in salary until an amount equal to five
percent of the operating loss had been recovered by the Company. In the event,
however, that Mr. Weiner was precluded from meeting the annual overall
objectives due to strikes, unforeseen governmental action or intervention, war,
hurricane striking employer's communities or other similar acts of God, or the
failure of the Company to fund or otherwise fulfill its obligations under the
marketing program, then no such repayment or salary adjustment would be
required. Additionally, the maximum amount of salary repayment or adjustment was
limited to $50,000 per year (pro-rated to $39,584 for the Company's 1993 fiscal
year, based upon the salary payments made to Mr. Weiner during 1993). In
conjunction with Mr. Weiner's employment and his agreement, Mr. Weiner was
awarded an option to purchase 20,000 shares of the Company's Common Stock under
the provisions of the 1987 Stock Incentive Plan described below. See
"Compensation Committee Report." In the event that Mr. Weiner earned the bonus
provided for in his agreement with respect to the Company's 1994 fiscal year, it
was anticipated that any net bonus payable would first be applied by the Company
to exercise the shares in respect of which Mr. Weiner was granted said option.
Mr. Weiner's agreement further provided that if his employment were terminated
without cause (defined as gross misconduct or the failure to achieve certain
specific objectives set forth in his agreement), he would be entitled to receive
a lump-sum payment upon termination equal to the salary remaining to be paid him
for the term of his agreement, unless termination was due to death, in which
case his beneficiary would be entitled to receive a sum equal to one month's
salary for each month of his employment during the first twelve months of
employment, and thereafter, a sum equal to the aggregate of one year's salary.
Mr. Weiner failed to achieve both the specific objectives set forth in his
agreement for 1993 and the annual overall objectives of the marketing program
during 1993.
Due to the Company's liquidity situation, the Company was unable to pay its
executive officers the compensation due them for the months of March, 1994 and
April, 1994. The executive officers employed pursuant to an employment agreement
notified the Chairman of the Board, the Vice Chairmen of the Board and the
Chairman of the Executive Compensation Committee, on April 1, 1994, that the
Company's failure to remit the compensation due constituted a breach of their
respective agreements and that while they were willing to continue their
efforts, for a limited time, to assist the Company in resolving its problems,
they were not waiving their rights to enforce any remedies available under their
respective agreements. On April 28, 1994, Mr. Weiner filed suit against the
Company for breach of his agreement by reason of non-payment of compensation,
seeking damages under the agreement in excess of $744,000. He was subsequently
removed as an officer of the Company and his employment was terminated for
non-performance. See "Legal Proceedings."
Mr. Mancilla, Jr., who was appointed Senior Vice President and General
Counsel of the Company, effective July 15, 1992, was employed pursuant to an
employment agreement with the Company which continued through July 15, 1994 (the
initial term), was to be automatically renewed at that time for an additional
year (the initial renewal term), and thereafter was subject to automatic renewal
for successive one-year periods (subsequent renewal terms) unless notice of
intent not to renew was given by the Company sixty days prior to the applicable
expiration date. The agreement provided for Mr. Mancilla to be paid an annual
salary of $150,000 (subject to such increases as might be mutually agreed upon),
for the furnishing of certain benefits, such as payment of an automobile
allowance, and for payment of a bonus (the "Bonus") of $50,000 upon the
settlement of certain litigation. The Bonus was paid in 1992 following court
approval of the settlement of such litigation, and is included in the Summary
Compensation Table set forth above. The agreement further provided that if Mr.
Mancilla's employment were terminated or constructively terminated by the
Company, without cause (defined as gross misconduct), he would be entitled to
receive a lump-sum payment at termination equal to two
71
years' salary (one year's salary if termination occurred during the initial
renewal term or any subsequent renewal term), together with any salary remaining
to be paid for the contract term (but, in no event, more than for an additional
year); he would also be entitled to payment of an automobile allowance and
certain insurance benefits for a period of not less than one year. For the
purposes of Mr. Mancilla's agreement, "constructive termination" was defined as
the assignment of duties inconsistent with his status as Senior Vice President
and General Counsel or a substantial alteration in his responsibilities. Mr.
Mancilla's agreement with the Company further provided that if his employment
were terminated due to death, his beneficiary would be entitled to receive a sum
equal to the aggregate of one year's salary. In May, 1994, Mr. Mancilla filed
suit against the Company for breach of his employment agreement by reason of
non-payment of compensation, seeking damages under the agreement in excess of
$391,500. He was subsequently removed as an officer of the Company and his
employment was terminated for non-performance. See "Legal Proceedings."
In June, 1992, the Company obtained $8,000,000 additional financing through
a $13,500,000 sale of certain of the Company's contracts receivable. The
agreement with respect to such sale requires that the Company maintain, in
effect, certain employment agreements with Mr. Cortright, Mrs. Garbis, and
certain other executive officers of the Company.
Pursuant to the requirements of such agreement, Mr. Cortright entered into
a five-year employment agreement which continues through June 19, 1997. Such
agreement is subject to automatic renewal for successive one-year periods unless
notice of intent not to renew is given by the Company 60 days prior to the end
of the applicable contract term. The agreement provides for Mr. Cortright to be
paid his current annual salary of $200,000 (subject to such increases as may be
mutually agreed upon) and for the furnishing of certain benefits, such as
payment of an automobile allowance. The agreement contains "non compete"
provisions which preclude Mr. Cortright from engaging, in any manner, or from
being employed, in any capacity, in any business which could be deemed to be
competitive with the Company in Florida, New York, New Jersey and Ohio during
the five year term of his agreement, if his employment is terminated or
constructively terminated by the Company or if he resigns his employment from
the Company. Because of such non-compete provisions and to compensate Mr.
Cortright for his exceptional services in conjunction with the completion of the
restructuring of the Company's bank debt and the securing of financing for the
Company through the above-mentioned contracts receivable sale and the Selex
Loan, Mr. Cortright's agreement also provides for the payment of a $200,000
bonus, $50,000 of which was paid upon the signing of his agreement and the
completion of the foregoing transactions, $50,000 of which was paid in June,
1993 (and is included in the Summary Compensation Table set forth above),
$50,000 of which was due in June, 1994, the payment of which is in default, and
$50,000 being payable on June, 1995 so long as he continues to serve as
President and Chief Operating Officer of the Company (the "Special Bonus"), with
payment of the unpaid portion of the Special Bonus accelerated in the event of
the termination or constructive termination of his employment or the agreement
without cause or due to his death or medical disability. Additionally and as a
consequence of such non-compete provisions, Mr Cortright's employment agreement
provides that if his employment is terminated or constructively terminated by
the Company, without cause (defined as gross misconduct), during its initial
term or any renewal term, he is entitled to receive a lump sum payment at
termination equal to any salary remaining to be paid him for the contract term
(but, in no event, less than for an additional two years); in addition, he is
entitled to payment of an automobile allowance and certain insurance benefits
for such period. For purposes of Mr. Cortright's agreement, "constructive
termination" includes, among other things: (i) the assignment of duties
inconsistent with Mr. Cortright's status as President and Chief Operating
Officer or a substantial alteration in his responsibilities if such assignment
and/or alteration is not acceptable to him, (ii) relocation of the Company's
principal place of business to a location other than Orlando, Florida (unless
such other location is mutually agreed upon), (iii) failure of the Company to
maintain compensation plans in which Mr. Cortright participates or to continue
providing certain other existing employee benefits, or (iv) any disability
commencing after a "change in control" which is continuous for six months. Mr.
Cortright's agreement with the Company further provides that if his employment
is terminated due to death or medical disability (as distinguished from a
disability following a change in control), payment of salary to him or his
beneficiary shall continue for two years following termination. Under this
agreement, the agreement with Mrs. Garbis described below, and the benefit plans
described in the
72
Compensation Committee Report, a "change in control" is (a) an acquisition of
35% of the voting securities of the Company if the Board of Directors
determines that a change in control has occurred or is likely to occur; or (b) a
change in the majority of the Board of Directors of the Company which is not
recommended or approved by the incumbent Board. On June 11, 1992, the Board
determined that the acquisition by Selex of more than 35% of the Company's
Common Stock from Empire, accompanied by its control of the Board, would
constitute a change in control of the Company.
Mrs. Garbis was employed pursuant to a renewal of her employment agreement
with the Company which, as renewed, continues through December 31, 1994. Such
agreement was subject to automatic renewal for successive one-year periods
unless notice of intent not to renew is given by the Company sixty days prior to
the end of each year. The agreement provides for Mrs. Garbis to be paid her
current annual salary of $115,000 (subject to such increases as the Company may
determine) and for the furnishing of certain benefits, such as payment of an
automobile allowance. The agreement provided that if employment is terminated
due to death, payment of salary to her beneficiary continues for one year
following termination. In addition, if employment is terminated by the Company
without cause, regardless of whether or not the agreement itself is effect, she
is entitled to receive a lump sum payment at termination equal to two years'
salary; she is also entitled to payment of an automobile allowance and certain
insurance benefits for one year. Such payments and benefits would be due if
employment is terminated by the Company at any time within a two-year period
following a change in control of the Company (unless termination is due to gross
misconduct). In August, 1994 Mrs. Garbis filed suit against the Company for
breach of her employment agreement by reason of non-payment of compensation,
seeking damages under the agreement in excess of $280,000. Mrs. Garbis and the
Company have reached a resolution and settlement of the claim. Mrs. Garbis has
been removed as an officer of the Company and her employment was terminated. See
"Legal Proceedings."
Two other executive officers, Mr. Harden and Mrs. Hummerhielm, are employed
pursuant to employment agreements which provide that if their employment is
terminated due to death, payment of salary to their beneficiary continues for
six months and, if employment is otherwise terminated by the Company without
cause (defined as gross misconduct), they are entitled to receive one year's
salary, payable in twenty-four equal semi-monthly installments.
Although, as discussed above, the Company is in default of certain
compensation due Mr. Cortright, Mrs. Garbis, Mr. Harden and Mrs. Hummerhielm,
none of such officers has, as of August 19, 1994, instituted legal action with
respect to such defaults. Since May 1, 1994, the Company has, with the exception
of the $50,000 installment payment of the Special Bonus due Mr. Cortright, met
all compensation obligations on a current basis. Nevertheless, should the
employment of Mr. Cortright, Mr. Harden and Mrs. Hummerhielm be determined to
have been terminated without cause, then the amounts that would be payable, as
of August 19, 1994 under the agreements described above, inclusive of
compensation in default and certain benefits, but exclusive of insurance
benefits, would be $804,166, $101,337, and $101,337, respectively.
COMPENSATION COMMITTEE REPORT
COMPENSATION PHILOSOPHY
It is the goal of the Company and the Executive Compensation Committee (the
"Committee") to align all compensation, including executive compensation, with
business objectives and both individual and corporate performance, while
simultaneously attracting and retaining employees who contribute to the
long-term success of the Company. The Company attempts, within its resources, to
pay competitively and for performance and management initiative, while striving
for fairness in the administration of its compensation program.
73
EXECUTIVE COMPENSATION PROGRAM
Since it has been the policy of the Company to encourage and enable
employees upon whom it principally depends to acquire a personal proprietary
interest in the Company, the total executive compensation program of the Company
historically, consisted of both cash and equity-based compensation, and has been
comprised of three key elements: salary, an annual bonus and a long term
incentive plan that provides for both incentive awards and stock options.
While each of these elements is discussed below, it is important to note
that due to the financial performance of the Company during the past four years
and the fact that the Company has undergone two changes in control since January
1, 1990, no awards have been made under the Annual Executive Bonus Plan (the
"Bonus Plan") since 1990 and, with the exception of one stock option grant in
1993, no awards have been made under the long term incentive program other than
the initial awards which were fully earned at the end of 1989. In particular,
the Committee has been reticent to grant additional equity-based awards, lest it
jeopardize the utilization of the Company's net operating loss carryforward for
federal income tax purposes. This situation is re-examined annually and the 1993
review made it feasible for the Committee to grant Mr. Weiner, the Company's
newly recruited executive vice president, an option to acquire 20,000 shares of
the Company's Common Stock.
SALARY
Salaries paid to executive officers (other than the Chief Executive Officer
and the President) are based upon the recommendations of the President, derived
from his subjective assessment of the nature of the position, competitive
salaries and the contribution, experience and Company tenure of the executive
officer. The President reviews all salary recommendations with the Committee,
which is responsible for approving or disapproving such recommendations.
Salaries paid to the Chief Executive Officer (if any) and the President are
determined by the Committee, subject to ratification by the Board of Directors,
and are based upon the Committee's subjective evaluation of their contribution
to the Company, their performance, and salaries paid by competitors to their
chief executive officer and chief operating officer. Prior to January 1, 1990,
the President's assessment and the Committee's subsequent approval or
disapproval also took into consideration data from comparable industry salary
surveys, such as that prepared by Stephens & Associates. From 1990 through March
31, 1994, the only salary increases which were granted occurred in June, 1992,
at which time Mr. Cortright, Mrs. Garbis and two other executive officers of the
Company were granted salary increases. Such increases were granted in connection
with the efforts of these officers in securing over $10,000,000 in new financing
for the Company and resolving various regulatory matters with the State of
Florida.
ANNUAL INCENTIVE PROGRAM
Although business exigencies and the Company's liquidity situation have
required the Company to suspend the granting of awards under the Bonus Plan, and
to award bonuses only in certain limited instances where the bonus directly
relates to the accomplishment of certain specified corporate and financial
objectives, it is the intention of the Committee that an executive's annual
compensation consist of a base salary and an annual bonus such as that provided
under the Bonus Plan. All executive officers of the Company (except those
officers who are otherwise entitled to receive additional compensation) and all
managerial employees who meet certain eligibility criteria determined by their
level of responsibility are eligible to participate in the Bonus Plan. The Bonus
Plan provides for executives to earn bonuses of up to 150% of the base bonus for
which they are eligible (which generally ranges from 10% to 75% of annual
salary, depending upon their position and anticipated contribution to the
Company), with the maximum bonus payable to the President being limited to 100%
of his annual salary. Such bonuses are earned based upon the success of the
Company, or of the subsidiary or division for which the individual is
responsible, in achieving its debt-to-equity and/or net income goals. Typically,
under
74
the Bonus Plan, awards are determined in advance of a fiscal year, at which
time the net income and/or debt-to-equity goals for the year are also
established. Thereafter, at the conclusion of the year, the awards are adjusted
up or down and paid, based upon the achievements of the specified objectives and
individual job performance. The Bonus Plan provides for the acceleration of the
determination and payment of bonuses thereunder in the event of the termination
of employment of a participant following a change in control of the Company. No
bonuses were awarded, earned by, or paid to, any executive officer of the
Company under the Bonus Plan during or in respect of 1993; further, since no
bonus awards have been outstanding to any executive officer of the Company for
the past three years, the change in control resulting from the Selex transaction
did not result in the acceleration of the determination and payment of bonuses
under the Bonus Plan.
The only bonus paid in 1993 was to Mr. Cortright pursuant to his employment
agreement described above. In 1992, Mr. Cortright was instrumental in securing
over $10,000,000 in new financing for the Company through the sale of contracts
receivable and the Selex transaction, as well as for resolving certain
regulatory matters with the State of Florida. His contribution was recognized
through the award of a $200,000 bonus (an amount equal to one year's salary). To
avoid straining the Company's liquidity situation, it was determined that his
employment agreement would provide for that bonus to be paid in four annual
installments, the second of which was paid in 1993. The installment due to have
been paid in June, 1994 is currently in default and the final remaining
installment is due to be paid in June, 1995. See "Employment Contracts."
LONG TERM INCENTIVE PROGRAM
Additional long-term cash and equity incentives has been provided through
the 1987 Stock Incentive Plan (the "Stock Plan"). The Stock Plan combines the
features of a stock option plan and a performance unit plan by providing for the
issuance of up to 500,000 shares of Common Stock through the granting of stock
options and the award of incentive shares. Under the Stock Plan, incentive
shares are awarded to those executive officers and other key employees who, in
the opinion of the Committee, are in positions which enable them to make
significant contributions to the long-term performance and growth of the
Company. The extent to which incentive share awards are earned is determined at
the end of the three-year award cycle, based upon the achievement of a net
income goal set forth in the three-year business plan adopted by the Board of
Directors of the Company prior to or during the first year of the cycle. Awards
are paid, in the discretion of the Committee, in cash or in shares of Common
Stock of the Company, on or before the May 1st following the end of the
three-year cycle. The Stock Plan provides for the acceleration of the
determination and payment of awards thereunder in the event of a change of
control of the Company. Incentive shares awarded in November, 1986 were fully
earned as of the end of 1989, and 79,940 shares were issued under the Stock
Plan. Inasmuch as no additional awards have been granted or are outstanding
under the Stock Plan, the change in control resulting from the Selex transaction
did not result in the acceleration of the determination and payment of awards
thereunder.
The Stock Plan also provides for the granting of non-qualified stock
options, such that the Committee has available a further vehicle for
compensating executives through equity participation. The exercise price of
options granted under the Stock Plan cannot be less than the fair market value
of the Company's Common Stock on the date of the grant. Options are granted
under the Stock Plan for periods of up to five years and become exercisable in
20% cumulative annual increments (but no option may be exercised within 60 days
of its grant). The only option granted in 1993, as indicated above, was an
option to Mr. Weiner to acquire 20,000 shares of Common Stock at a price of
$4.00 per share, which was in excess of the market value of the Company's Common
Stock on the grant date. Such option expired unexercised following Mr. Weiner's
removal as an officer of the Company.
75
CHIEF EXECUTIVE OFFICER COMPENSATION
Marcellus H.B. Muyres, who served as Chairman of the Board and Chief
Executive Officer of the Company from June 19, 1992 through July 12, 1994,
served without compensation in accordance with his representation to the
Committee and the Board that he would not draw a salary until the Company's
liquidity situation permitted the payment of appropriate compensation. To date,
Mr. Muyres has received no compensation for his services as Chairman of the
Board and Chief Executive Officer. As a director and executive officer of the
Company, Mr. Muyres is entitled to reimbursement of expenses, including travel
and transportation expenses, incurred on the Company's behalf. From June, 1992
through August 19, 1994, Mr. Muyres incurred expenses aggregating approximately
$39,112, none of which has been reimbursed, but which is being carried as a
liability of the Company.
On July 13, 1994, Antony Gram was appointed Chairman of the Board and Chief
Executive Officer of the Company, with Mr. Muyres agreeing to serve as a Vice
Chairman of the Board. As Chairman and Chief Executive Officer, Mr. Gram has
been given the responsibility of resolving the financial and legal difficulties
facing the Company and developing an alternative business plan to enable the
Company to continue as a going concern. During the process of resolving such
difficulties and developing such plan, Mr. Gram has agreed to serve without
compensation, with the understanding that all ordinary, necessary and reasonable
expenses incurred by him in the performance of his duties, including travel and
temporary living expenses, will be reimbursed by the Company and with the
further understanding that the Committee and the Board will thereafter consider
establishing an appropriate salary to be paid him for his services.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,0000
paid to the corporation's Chief Executive Officer and four other mostly highly
compensated executives officers. Qualifying performance-based compensation will
not be subject to the deduction limit if certain requirements are met. The
compensation currently paid to the Company's Chief Executive Officer and highly
compensated executive officers does not approach the $1,000,000 threshold, and
the Company does not anticipate approaching such threshold in the foreseeable
future. Nevertheless, the Company intends to take the necessary action to comply
with the Code limitations.
FUTURE COMPENSATION TRENDS
The Committee anticipates undertaking a review of all compensation programs
and policies of the Company, and making appropriate modifications and revisions,
in conjunction with the development of an alternative business plan for the
Company.
Executive Compensation Committee
Neil E. Bahr, Chairperson
Antony Gram
Marcellus H.B. Muyres
Cornelis L.J.J. Zwaans
76
ITEM 12
OWNERSHIP OF VOTING SECURITIES OF THE COMPANY
Based upon information furnished to the Company or contained in filings
made with the Commission, the Company believes that the only persons who
beneficially own more than five percent (5%) of the Common Stock the Common
Stock of the Company are Dimensional Fund Advisors Inc. (5.7%), Selex (42.3%),
and Antony Gram, through his holdings in Selex and Yasawa (46.7%).
Dimensional Fund Advisors Inc. ("Dimensional"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, a registered investment advisor, is
deemed to have beneficial ownership of 380,300 shares of the Company's Common
Stock as of December 31, 1993, with sole dispositive power as to all of such
shares and sole voting power as to 216,100 of such shares. All of such shares
are held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company (the "Fund"), or in series of The DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and the DFA
Participating Group Trust, investment vehicles for qualified employee benefit
plans, as to all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares. Persons who are officers of
Dimensional also serve as officers of the Fund. In their capacity as officers of
the Fund, these persons vote the 164,200 additional shares which are owned by
the Fund.
All of the issued and outstanding stock of Selex, Gerrit Van Den Veenstraat
70, Amsterdam, the Netherlands, is owned by Wilbury which is, in turn, owned by
Messrs. Muyres and Gram. Antony Gram, Chairman of the Board of Directors and
Chief Executive Officer of the Company, as the largest shareholder of Wilbury,
holding a seventy-four percent equity interest in that corporation, is treated
as the beneficial owner of all of the Company's Common Stock held by Selex. In
addition, Mr. Gram beneficially owns Yasawa. Since Yasawa is the direct owner of
289,637 shares of the Common Stock of the Company, Mr. Gram is deemed to be the
beneficial owner of an aggregate of 3,109,703 shares of Common Stock of the
Company.
The following table sets forth information, as of August 19, 1994,
concerning the beneficial ownership by all directors, by each of the executive
officers named in the Summary Compensation Table beginning on Page 69 (the
"Summary Compensation Table") and by all directors and executive officers as a
group. The number of shares beneficially owned by each director or executive
officer is determined under the rules of the Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose.
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNERSHIP(A) OF CLASS
-------------------------- --------
Directors:
Neil E. Bahr...................................... 4,121 - Direct *
George W. Fischer ................................ 15,000 - Direct *
Thomas B. McNeill................................. 200 - Direct *
Marcellus H.B. Muyres............................. (b) (b)
Antony Gram....................................... 3,109,703 - Indirect 46.7%
Leonardus G.M. Nipshagen.......................... (b) (b)
Cornelis van de Peppel............................ (b) (b)
Cornelis L.J.J. Zwaans............................ (b) (b)
77
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNERSHIP(A) OF CLASS
-------------------------- --------
Executive officers named in Summary Compensation Table:
Marcellus H.B. Muyres............................. (b) (b)
Earle D. Cortright, Jr............................ 18,706 - Direct *
Bruce M. Weiner (removed April, 1994)............. 2,000 - Direct *
Michelle R. Garbis (removed August, 1994)......... 2,000 - Direct *
Joseph Mancilla, Jr. (removed July, 1994)......... 100 - Direct *
All executive officers and directors as a group,
consisting of 14 persons (including those
listed above)........................................ 3,152,030 47.3%
- - --------------------
* Represents holdings of less than 1%.
(a) Except for Antony Gram, who beneficially owns 46.7% of the Common
Stock of the Company, no current director, nominee or executive
officer beneficially owns more than 1% of the Company's outstanding
shares.
(b) Does not include the 2,820,066 shares held by Selex.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Securities Exchange Act of 1934 requires the Company's directors, its
executive officers and any persons holding more than ten percent of the
Company's Common Stock to report their initial ownership of the Company's Common
Stock and any subsequent changes in that ownership to the Commission and the New
York Stock Exchange. Under the Section 16(a) rules, the Company is required to
disclose in this Annual Report on Form 10-K any failure to file such required
reports by their prescribed due dates.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1993, all
Section 16(a) filing requirements were satisfied, except that Mr. Gram, as
beneficial owner of Selex, failed to file a Form 4 with respect to the
conversion rights in the Second Selex Loan, which rights lapsed unexercised, Mr.
Fischer filed one Form 4 approximately one week late, and Messrs. Muyres,
Nipshagen, van de Peppel and Zwaans have neither filed a Form 5 nor acknowledged
that such filing was not necessary.
78
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies on the Media General
Financial Services Composite Index and the Media General Peer Group (real estate
subdividers and developers) Index.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG THE DELTONA CORPORATION,
MEDIA GENERAL INDEX AND PEER GROUP INDEX
[INSERT GRAPH]
79
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1 FINANCIAL STATEMENTS
See Item 8, Index to Consolidated Financial Statements and
Supplemental Data.
(A) 2 FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report...................................... 81
Schedule IV - Indebtedness to related parties - non current as
of December 31, 1993............................. 82
Schedule VIII - Valuation and qualifying accounts for the three
years ended December 31, 1993.................... 83
Schedule X - Supplementary income statement information for
the three years ended December 31, 1993.......... 84
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the Consolidated Financial
Statements or Notes thereto.
(A) 3 EXHIBITS
See the Exhibit Index included herewith.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31, 1993;
however, a report on Form 8-K dated February 17, 1994 responding to Item 5
"Other Events" was filed on March 14, 1994.
80
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION:
We have audited the consolidated financial statements of The Deltona
Corporation and subsidiaries (the "Company") as of December 31, 1993 and
December 25, 1992, and for each of the three years in the period ended December
31, 1993, and have issued our report thereon dated September 5, 1994, included
elsewhere in this Annual Report on Form 10-K. Our audits also included the
financial statement schedules listed in Item 14(a)2 of this Annual Report on
Form 10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
September 5, 1994
81
SCHEDULE IV
THE DELTONA CORPORATION AND SUBSIDIARIES
INDEBTEDNESS TO RELATED PARTIES - NON CURRENT
BALANCE AT BALANCE AT
BEGINNING END
RELATED PARTIES OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
--------------- ---------- --------- ---------- ----------
Year ended December 31, 1993:
Yasawa Holding N.V. (a)........ $ 5,106,000 $ 206,000 $ 4,900,000
Selex International B.V.(b).... 3,000,000 3,000,000
Selex International B.V.(c).... 1,000,000 1,000,000
Selex International B.V.(d).... -0- $ 1,000,000 9,000 991,000
Selex International B.V.(c).... -0- 4,400,000 7,000 4,393,000
Scafholding B.V.(f)............ -0- 1,500,000 1,500,000
----------- ----------- ----------- -----------
Total................ $ 9,106,000 $ 6,900,000 $ 222,000 $15,784,000
=========== =========== =========== ===========
Year ended December 25, 1992:
Yasawa Holding N.V. (a)........ $ -0- $25,147,000 $20,041,000 $ 5,106,000
Selex International B.V.(b).... -0- 3,000,000 3,000,000
Selex International B.V.(c).... -0- 1,000,000 1,000,000
----------- ----------- ----------- -----------
Total................ $ -0- $29,147,000 $20,041,000 $ 9,106,000
=========== =========== =========== ===========
- - --------------------
(a) Represents debt acquired from principal lending banks.
(b) Represents Note collateralized by property at the Company's St.
Augustine Shores community.
(c) Represents Note assigned from Empire of Carolina.
(d) Represents Note collateralized by property at the Company's Marion
Oaks community.
(e) Represents Note collateralized by a second mortgage on property on
which Selex and Yasawa hold a first mortgage.
(f) Represents unsecured Note. Affiliated with Yasawa N.V.
82
SCHEDULE VIII
THE DELTONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
CHARGED TO
THOSE VALUATION AND QUALIFYING ACCOUNTS BALANCE AT REVENUES, DEDUCTIONS BALANCE AT
WHICH ARE DEDUCTED IN THE BALANCE SHEET BEGINNING COSTS, AND FROM END OF
FROM THE ASSETS TO WHICH THEY APPLY OF PERIOD EXPENSES RESERVES PERIOD
- - --------------------------------------- ---------- ---------- --------- ---------
Year ended December 31, 1993
Allowance for uncollectible contracts(a)........ $ 1,646 $ 1,670 $ 1,860 $ 1,456
======= ======= ======= =======
Unamortized contract valuation discount(b)...... $ 1,269 $ 252 $ 626 $ 895
======= ======= ======= =======
Allowance for doubtful accounts(c).............. $ 58 $ 58 $ -
======= ======= =======
Unamortized mortgage valuation discount(d)...... $ - $ 100 $ 100
======== ======= =======
Year ended December 25, 1992
Allowance for uncollectible contracts(a)........ $ 6,606 $ 248 $ 5,208 $ 1,646
======= ======= ======= =======
Unamortized contract valuation discount(b)...... $ 5,462 $ 175 $ 4,368 $ 1,269
======= ======= ======= =======
Allowance for doubtful accounts(c).............. $ 174 $ 116 $ 58
======= ======= =======
Year ended December 27, 1991
Allowance for uncollectible contracts(a)..........$ 8,134 $ 9,123 $10,651 $ 6,606
======= ======= ======= =======
Unamortized contract valuation discount(b)...... $ 8,036 $ 162 $ 2,736 $ 5,462
======= ======= ======= =======
Allowance for doubtful accounts(c)................$ 1,572 $ 1,398 $ 174
======= ======= ========
Unamortized mortgage valuation discount(d).... $ 6 $ 6 $ -0-
======= ======= =======
- - --------------------
(a) Represents estimated uncollectible contracts receivable (see Notes
1 and 2 to Consolidated Financial Statements).
(b) Represents the unamortized discount generated from initial valuations
of contracts receivable (see Notes 1 and 2 to Consolidated Financial
Statements).
(c) Represents allowance for estimated uncollectible mortgages and other
receivables.
(d) Represents the unamortized discount generated from initial valuations
of mortgages receivable (see Notes 1 and 2 to Consolidated Financial
Statements).
83
SCHEDULE X
THE DELTONA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGES (IN THOUSANDS) TO COSTS AND EXPENSES
YEARS ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1993 1992 1991
------------ ------------ ------------
Maintenance and repairs............................. $ 340 $ 710 $ 747
====== ====== ======
Taxes, other than payroll and income taxes:
Real estate....................................... $ 975 $1,213 $1,646
Other............................................. 13 101 22
------ ------ ------
Total.......................................... $ 988 $1,314 $1,668
====== ====== ======
Advertising costs................................... $1,521 $ 580 $ 259
====== ====== ======
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE DELTONA CORPORATION
(Company)
By /S/ EARLE D. CORTRIGHT, JR. DATE: August 30, 1994
---------------------------------------
Earle D. Cortright, Jr., PRESIDENT &
CHIEF OPERATING OFFICER
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on the date indicated.
/S/ ANTONY GRAM /S/ CORNELIS VAN DE PEPPEL
- - ---------------------------------- --------------------------------
Antony Gram, CHIEF EXECUTIVE Cornelis van de Peppel, DIRECTOR
OFFICER & DIRECTOR
/S/ EARLE D. CORTRIGHT, JR. /S/ CORNELIS L.J.J. ZWAANS
- - ---------------------------------- --------------------------------
Earle D. Cortright, Jr., PRESIDENT Cornelis L.J.J. Zwaans, DIRECTOR
& CHIEF OPERATING OFFICER
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
/S/ NEIL E. BAHR
- - ----------------------------------
Neil E. Bahr, DIRECTOR
/S/ GEORGE W. FISCHER
- - ----------------------------------
George W. Fischer, DIRECTOR
/S/ THOMAS B. MCNEILL
- - ----------------------------------
Thomas B. McNeill, DIRECTOR
/S/ MARCELLUS H.B. MUYRES
- - ----------------------------------
Marcellus H.B. Muyres, DIRECTOR
/S/ LEONARDUS G.M. NIPSHAGEN
- - ----------------------------------
Leonardus G.M. Nipshagen, DIRECTOR
DATE: August 30, 1994
85