the deltona corporation
Transcription
the deltona corporation
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K As Amended by Amendment No. 1 thereto Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1984 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 incorporation or organization) (I.R.S. Employer 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(b) of the Act: Name of each exchange on which registered Title of each class Common Stock, $1 par value New York Stock Exchange Pacific Stock Exchange 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____K__ No_ __ State the aggregate market value of the voting stock held by non-affiliates of the registrant: $27,400,000 based on the closing price of the stock as traded on the New York Stock Exchange on March 15, 1985. Such market value includes the price of 22,545 shares held by relatives of certain affiliates as to which the respective affiliates disclaim beneficial ownership. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: 5,233,461 shares of common stock, $1 par value, as of March 15, 1985. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Part(s) Document • Registrant's 1985 Annual Meeting Proxy Statement filed with the Securities and Exchange Commission pursuant to Regulation 14A. Part III I ITEMS 1 AND 2 THE DELTONA CORPORATION THE COMPANY CROSS REFERENCE SHEET Form 10-K Item No. Part I Items 1 and 2 Page Number Section Heading in Attached Material The Company ....................................... . Business ............................................ . General ........................................... . New Business Strategy .............................. . Business Segments .................................. . Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . Utilities ........................... , ............... . Other Businesses . . . . . . . . . . . . . . ..................... . Discontinued Operations ............................ . Employees ........................................ . Competition ....................... ; ............... . Regulation ........................................ . Executive Officers of the Company ..................... . Item 3 .................. . Legal Proceedings . . . . . . . . . ........................... . Item 4 .................. . Not Applicable Part II Item 5 .................. . Price Range of Common Stock and Dividends ............ Item 6 .................. . Selected Consolidated Financial Information ............. Item 7 .................. . Management's Discussion and Analysis of Financial Condition and Results of Operations .................. Item 8 .................. . Index to Consolidated Financial Statements and Supplementary Data ................................ Item 9 .................. . Not Applicable 2 2 2 3 4 12 13 13 13 14 14 16 17 . . 18 19 . 22 . 32 Part IV Item 14 ................. . Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................................... . 56 Part III Items 10, 11, 12 and 13 .... Incorporated by reference to Registrant's 1985 Annual Meeting Proxy Statement filed with the Securities and Exchange Commission. The Company was founded in 1962 to develop planned communities in Florida that would offer the recreational amenities and lifestyle of a self-contained resort and the utility services and commercial facilities common to metropolitan areas. The Company has nine planned communities in Florida in various stages of development, ranging in size from 1,500 to over 17,000 acres with a combined estimated population in excess of 80,000. Since 1962, the Company has sold over 125,000 single-family lots and multi-family and commercial tracts in its communities, in addition to approximately 13,000 single-family homes and over 4,000 multi-family housing units. Company subsidiaries are engaged in real estate-related businesses which aid in the development of the Company's communities. The utility subsidiaries design, construct and operate water, sewer and LP gas systems. Additionally, the Company operates golf courses, country clubs and recreation centers at its communities, and is engaged in the title insurance and real estate brokerage businesses. Once a community is completed, the Company's involvement is generally limited to providing utility services and furnishing resale and rental services through its real estate brokerage subsidiaries. The Company has substantial land holdings in Florida, virtually all of which were acquired in the 1960's. Its holdings include approximately 7,000 acres which will form the basis for approximately 600 single-family homesites in Putnam County, 100 acres zoned for 300 multi-family housing units on Horr's Island and 1,900 acres zoned for 600 single and 10,000 multi-family housing units which will form the basis for the development of Marco Shores. In addition, the Company has an inventory of approximately 31,500 unsold platted single-family lots and multi-family and commercial tracts and 1,200 acres of unplatted property in its nine existing communities. (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.) The Company also holds approximately 1,400 acres of land located outside of these communities for investment, bulk sale or future development, including 50 acres zoned for commercial use located in Dade County. See "Business: Real Estate-Land". During the past ten years, the Company has been adversely affected by two recessions and the denial of federal permits necessary to complete its Marco Island development, and has incurred substantial indebtedness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business: Regulation-Environmental". As a result of recurring losses and cash shortfalls, the Company reassessed its operations and implemented plans in 1985 to discontinue the sale and construction of single-family homes (except for those under contract at the end of 1984) in order to reduce its marketing, promotion and related overhead costs and, by the end of 1985, to eliminate housing construction and related support costs. In 1985, the marketing of single-family lots and multi-family and commercial tracts in its existing communities will be emphasized. The sale of condominium and vacation ownership units will also continue to be emphasized until the existing inventory is sold. See "Business: New Business Strategy". A part of the Company's strategy was the development and marketing of a new community located near Tampa, Florida. The opening of the community was scheduled for January 13, 1985. On January 9, 1985, the Company entered into a contract to sell the project for $37,900,000 (the "Tampa Sale"). The buyer also purchased 200,000 shares of the Company's Common Stock for $5.00 per share, or $1,000,000. The Tampa Sale closed on March 29, 1985, with the Company receiving $14,400,000 in cash (including prior deposits), a $6,000,000 mortgage note bearing interest at a rate of 15lh% per annum due April29, 1985 and $17,500,000 in non-interest bearing mortgage notes due June 28, 1985. 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. Business Segments · t bl ts forth the total amounts of revenues and operating profits (losses) from continuing Th e fio11 owmg a e se · · d' d (' h d) · 'b operations attn ut able t o ea ch of the Company's business segments for the pertods m tcate m t ousan s . See Note 14 to Consolidated Financial Statements: BUSINESS General The Company is principally engaged in the development and sale of Florida real estate, primarily 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, primarily in communities designed by the Company. The Company plans, designs and develops roads, waterways, utility systems, recreational amenities, grading and drainage systems within these communities. The Company has also designed, constructed and sold single and multi-family housing and commercial centers in its communities. 1984 Revenues(a) Real Estate: $ 2,540 Single-family housing revenues ........... · · · · · · · · · · · · · · · · · · · · · · 16,669 Multi-family housing revenues 17,501 Net land sales(b) ..................... · · · · · · · · · · · · · · · · · · · · · · · · 6,594 Improvement revenues(c) 8,015 ° Interest income(d) 114 Other 51,433 Total Real Estate 13,686 Utilities 12,106 Other( e) 1,422 Equify in earnings of joint venture and non-consolidated subsidiary The Company derives revenues principally from the sale of single-family lots and multi-family and commercial tracts, as well as from the sale of single and multi-family housing in its communities. See "New Business Strategy". When land is sold under an installment contract or pursuant to a purchase money mortgage, the Company recognizes a substantial portion of the revenue. and related profit at the time of the sale. A portion, however, is deferred to be recognized as land improvements occur under the "percentage-ofcompletion method" in accordance with Statement of Financial Accounting Standards No. 66 and a portion of the purchase price is discounted and treated as interest income to be amortized over the life of the contract or mortgage. Interest income is also earned in accordance with the interest rate stated in the installment contract or mortgage, and from housing deposits received by the Company. Thus, even after a community is sold out, the Company will continue to recognize revenue from interest and from previously deferred revenue until development and scheduled contract payments are completed. Thereafter, revenue is derived principally from the Company's utility and real estate brokerage businesses. The Company is also engaged in the following related businesses: the design, construction and operation of utility systems for the distribution of water and LP gas and for the collection and treatment of sewage, primarily at the Company's communities; the operation of other related businesses which are part of the Company's real estate operations, such as golf courses and country clubs, a title insurance company and real estate brokerage companies; and the development, management and marketing of Tierra Verde, a residential subdivision in Pinellas County, pursuant to a joint venture agreement. See also "Discontinued Operations". New Business Strategy In 1985, the Company implemented a new business strategy, concentrating on the sale ofland to builders and the installment sale of land to retail customers. The strategy also calls for the discontinuance of the Company's single-family housing program. In 1985, the Company's single and multi-family housing operations will be limited to the sale of existing inventory and the construction of single-family homes under contract at the end of 1984. The Company anticipates that all single-family housing construction will be completed during 1985. As construction activities are phased out, cost savings are expected to result from the elimination of the labor and overhead involved, as well as from the elimination of certain support services such as housing administration and contract processing. See "Real Estate: Housing-Discontinuance of Single-Family Housing Program". Products to be marketed during 1985 will include single-family lots and commercial and multi-family tracts in virtually all of the Company's communities and existing housing inventory. Additionally, the Company intends to offer property in its existing communities to independent builders who will construct and sell single and multi-family housing in those communities. The Company's focus in the future will be on the development and sale of land. In 1985, the Company will proceed with the planning of three new Florida developments: a 7,000 acre sportsmen's facility consisting of approximately 600 single-family homesites in Putnam County; a secluded resort community zoned for approximately 300 multi-family housing units on Horr's Island, located near Marco Island; and a recreational community zoned for approximately 600 single and 10,000 multi-family housing units located at Marco Shores. The Company will also examine the feasibility of developing approximately 50 acres of commercial property in Dade County, Florida. 2 •••••••• • \ O •• 0 0 0. ••• O 0 0. O 0 : O O O O O ••• Intersegment sales(f) ••••••• ' •••• •••••• 0 0 •••••••••• 0 •••••••• ••••••••••••• 0 0. 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 I 0 o o 0 o O 0 0 O O O I O O 0 O O O O I O O O O I O O O O O O O O tOOt I O O 0 O 0 0 0 0 0 o o o 0 o 0 0 0 0 0 I 0 0 0 0 0 0 0 O O O O O O 0 O 0 O 0 0 0 0 0 0 0 0 o 0 o o 0 I I 0 0 0 0 0 0 0 0 0 0 I O ........ 0 ••••••••••••••• 0 •••••••••• 0. 0 0. t ••• 0 0 O 0 0 •••••• 0 0 ••••• 0 0 0 •••••••••••• 0 • $ 2,879 $ 14,011 $ 51,971 $ 55,726 26,537 25,078 87,651 50,329 11,044 24,641 29,545 44,284 5,508 7,149 11,885 9,122 11,358 14,296 15,985 119 116 52 13,525 105 57,445 85,291 197,089 173,091 11,758 9,518 9,977 8,138 •••• 14,138 17,551 12,845 12,667 1,076 568 1,239 101 ••••••••• ............................................ Total ........................ ··························· ~) ~) ~) ~) $ 78,381 $ 83,294 $112,496 $220,350 $193,030 $ (5,434) $ 9,001 $ 6,119 $ 37,756 $ 27,382 3,310 2,403 2,596 2,307 6,663 627 12 2,273 1,076 568 1,239 ~ Operating Profits(a) \ 1980 •••• o •••••• • ' 0 Years ended December 31, 1981 1982 1983 Real estate(g)(h) ................ · . · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Utilities ............................. · · · · · · · · · · · · · · · · · · · · · · · · · . Other ....................................... · · · · · · · · · · · · · · · · · Equity in earnings of joint venture and non-consolidated subsidiary · · · 5,730 3,736 1,422 (11,923) (13,204) (10,.135) (17,986) (18,641) (27,457) Income (loss) from continuing operations before income taxes .. · · · · · · $(24,455) $(11, 795) $ (27,875) General corporate expense .................. · · · · · · · · · · · · · · · · · · · · Interest expense(g) ............................. · · · . · · · · · · · · · · · · $ 101 (9,097) (8,812) (24,433) (14,383) 8,073 $ 8,868 (a) Due to the sale of the lumber segment and the sale of the airline segment in 1~~4: reve~ues and oper~tin~ profits from such operations have been excluded from the foregoing table. See Dtscontmued Operations and Note 12 to Consolidated Financial Statements. (b) Net land sales consist of gross land sales less estimated uncollectible installment sales, deferred revenue and contract valuation discount. Included in 1984 estimated uncollectible i~stallment sales is a $2,200,000 provision for certain contracts receivable which were deemed uncollecttble. See Notes 1, 2 and 7 to Consolidated Financial Statements. (c) Improvement revenues consist of revenue recognized due to completion of improvements on prior period sales. (d) Interest income primarily consists of interest earned ?n c~ntracts and mortgages receivable and on escrowed cash balances and the amortization of valuat10n dtscounts. (e) Other consists of revenues from sales other than real estate, the major portion of which comes from country club operations. · ranee and asphalt (f) Intersegment sales consist primarily of sales between t h e C ompany and 1'ts t'tl 1 e msu subsidiaries. · · · ·mterest red uced the operat'mg profit of the real estate (g) The effect of expensing prevtously capitalized . 81 segment by $1,258,000 in 1984, $1,780,000 in 1983, $2,164,000 in 1~82, $9,391,000 m 19 ~:~6~·~:~9°~~ in 1980. The effect of capitalizing current period interest decreased mterest expe~se by $2, ' ' $2,980,000 in 1983, $6,421,000 in 1982, $14,516,000 in 1981 and $5,929,000 m 1980. · · ~ th ritedown of multi-family inventory (h) Operating profits for the real estate segment reflect a provtston or e w . f$ · 1982 22 700 000 of $5,700,000 in 1984 and an addition to the provision for Marco permtt costs 0 ' ' m · 3 3 Real Estate The Compa~y.'s ~rincipa.l bus.iness segment has primarily involved the development and marketing of planned ~?mmumttes tn Flonda stnce 1962. The following table sets forth certain information about these ~~mmumttes a~? other 'l'aNnd assets of the Company as of December 31, 1984. For a detailed description of ese commumttes, see ew Communities" and "Existing Communities". New Communities Acres in Planning Initial Acquisition Year Planned Opening 5,408 7,070 143 1,915 1962 1972 1964 1964 1985 1986 1986 1987 Tampa Palms(a) ............ Putnam County Horr's Island ............... Marco Shores I I Total Itt Itt 11 111 Ito t t I It I I Itt t I 0 I I 0 0 0 I I I I Housing Units Planned or Zoned Single-Family Multi-Family 3,110 650 14,536 I 10,387 Total 629 300 10,221 13,497 650 300 10,850 4,389 20,908 25,297 Existing Communities Platted Lots & Tracts Unsold Platted in Masterplan Lots & Tracts Unplatted (b) (b) (c) Acreage Acreage in Masterplan Initial Acquisition Year Year Opened Estimated Current Population Deltona Lakes ........... Marco Island ............ Spring Hill .............. Citrus Springs ........ ' ' ' St. Augustine Shores ... ~ .. Sunny Hills ............. Pine Ridge .............. Marion Oaks ........ ' ... Seminole Woods 17,203 7,844 17,240 15,954 1,985 17,743 9,994 14,644 1,554 1962 1964 1966 1969 1969 1968 1969 1969 1969 J962 1965 1967 1970 1970 1971 1972 1973 1979 31,000 8,000 30,000 3,000 4,500 850 200 3,500 15 34,972 8,551 32,909 33,782 2,126 26,251 4,833 27,538 262 277 58 145 6,445 419 12,813 1,387 9,956 Joint Venture Community: Tierra Verde ............. 666 1976 1977 1,250 1,036 26 Total ........... 104,827 82,315 172,260 31,527 I 0 I I I I Itt 66 79 40 639 400 1,224 Other Properties Dade County tIff If I I I I If I I I I I I I I I I It I I 0 I I Itt t 111 Adjacent to existing communities(e) ................ . Other Florida land holdings ...................... . Total .................................. . Initial Acquisition Year Acres (d) 1970 Various 51 1,141 214 1,406 (a) The Company sold its entire Tampa Palms property on March 29, 1985. See "The Company". (b) Includes single-fa~ily lots and multi-family and commercial tracts, not all of which are currently developed. Approximately 500 of such lots and tracts are required for drainage and cannot be sold. Land In selec.ting sites for its communities, the Company examines various demographic and economic factors, the regulatory climate, the availability of governmental services and medical, educational and commercial fa~ilities, 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 sewer lines. Sites are set aside fo'r shopping centers, schools, houses of worship, medical centers and public facilities such as libraries and fire stations. In its major planned communities, the Company has designated certain "core" areas in which it has offered for sale lot and house "packages" with utility connections 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, with downpayments as low as 5% of the sales price and the balance payable over periods ranging from 2 to 15 years, depending on the payment plan selected. When the Company has received at least 10% of the contracted sales price, a substantial portion of the revenue and related profit on the sale is recognized, with the remaining revenue and profit deferred and recognized as land improvements such as street paving occur. Additionally, a small part of the purchase price is discounted and treated as interest income to be amortized over the life of the contract. The Company also provides an allowance for contract cancellations based on the historical experience of the Company for such cancellations. Interest income is also earned in accordance with the interest rate stated in the installment land sales contract. 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 125,000 lots and tracts sold since the Company's inception, contracts receivable presently exist with respect to approximately 12,000 lots and tracts with an outstanding balance of approximately $55,000,000 at December 31, 1984. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" 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 vacation ownership (timesharing) projects. Since commencing operations, the Company has constructed and sold approximately 13,000 single-family homes and over 4,000 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. Revenues and related costs from the sale of condominium units, however, are recognized under the percentage-of-completion method, such that a portion of revenues, determined by the stage of construction completed, is recognized when the Company has contracted to sell a unit and received a deposit of at least 15% of the purchase price which is virtually non-refundable so long as the Company fulfills its construction obligations. The balance of the revenues is recognized as construction progresses. An allowance for cancellations is reflected in the Company's recognition of revenues under this method. However, during periods when actual cancellations exceed such allowance, less revenues are available for recognition. To aid in its marketing efforts, the Company has reduced prices on certain inventory and has offered, from time to time, various forms of incentive programs, such as furniture packages, discounts in the form of leasing arrangements and trade-in allowances for lots in the Company's communities. The Company anticipates that it will continue such measures until its condominium inventory has been absorbed. Gross profit margins have been reduced by such measures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations". (c) "Unsold .~la~~ed Lots & Tracts", when added to lots and tracts sold, as described in "Existing Com~.u~tttes ' may ~ot equal "Platted Lots & Tracts in Masterplan" for various reasons, such as the subdtvtston of tracts mto- two or more parcels for sale to different purchasers. · (d) -Acquired March 14, 1985 pursuant to the 1982 Settlement Agreement. See "Regulation-Enviromental". (e) Excludes 1,224 unplatted acres in existing communities. 4 5 The following table summarizes certain information about the Company's condominium apartment sales for the periods indicated: Single-Family Housing The following table summarizes certain information about the Company's single-family home sales for the periods indicated. Years ended December 31, 1984 '1983 1982 1981 1980 Number of new house contracts during period ... 249 59 99 330 1,011 Cancellations of house contracts during period ... 36 20 53 141 159 Average price per new house contract during period(a) ................................. $57,087 Number of house sales closed during period Number of houses under contract at end of period t t t I I I I I I I If I I I I! I I I I I I I I I I I I 78 I I I I I Aggregate sales price of houses under contract at end of period (in thousands) I I I I I I I I I I I I I I I 179 $65,436 $66,257 $59,316 34 210 876 1,195 44 39 203 890 $10,018(b) $2,347 $2,540 $13,806 $49,028 I I $57,591 (a) Includes price oflot except where the Company constructs house on lot previously acquired by purchaser. (b) Represents the maximum revenue to be recognized by the Company upon the closing of these houses. All sales under contract at December 31, 1984, are anticipated to be reported as revenue during 1985, but there is no assurance that this will occur. Discontinuance of Single-Family Housing Program The Company discontinued its single-family housing program at Marco Island in 1979 and, in its other communities, in 1981, focusing its housing operations instead on the sale of condominium apartments. The Company believes that the action taken in 1981 together with the severe cost-cutting measures introduced by the Company in 1982 hindered its ability to participate in .the 1983 recovery of the single-family home market. Years ended December 31, 1984 1982 1981 1980 211 285 $104,277 278 429 $108,114 695 145 $92,060 1,033 27 $108,335 156 259 188 861 612 40 35 368 707 1,018 $3,331 $42,251 $87,403 . $120,920 212 Number of new unit contracts during period ... 51 Cancellations of unit contracts during period ... Average price per unit contract during period .. $151,461 Number of unit sales closed during period ..... Number of units under contract at end of period Condominium revenues to be recognized from units under contract at end of period (in thousands) t 1 I 11 I It I I It I If 0 t 0 o 0 0 0 o 11111 1 It I I It I I I I;, I I I I I I I I 1 t 0 I I I I I I I I I I If II I: t $5,009(a) (a) This represents the maximum revenue to be recognized by the Company from units under cont.r~ct for sale. All of the revenues to be recognized from units under contract at December 31, 1984 are anticipated to be reported during 1985; but there is no assurance that this will occur. ~· In 1983 the Company completed construction of The Surf Club, its first vacation ownership complex. The Surf Cl~b consists of 44 two-bedroom apartments located on the Gulf of Mexico at Marco Island. Purchasers buy a unit at The Surf Club for a specified portion of the year, receiving all the rights and benefits of condominium ownership. At December 31, 1984, one-week unit ownership prices ranged from $5,985 to $18,525. The Company has experienced competition in the sale of condominiu·m· and. vacation ow~ership apartments at Marco Island, as well as the effects of over-building of condommm~s. m South Flonda ..At December 31, 1984, the Company carried a completed inventory of 209. condo~umum apartment un~ts, representing $18,233,000 at cost, of which 40 units were under contract pendm~ cl?smg. Of the 2,244 vacation weeks offered for sale, 747 weeks have been sold and 1,497 weeks remained m mventory at December 31, 1984. In mid-1983, the Company re-established its single-family housing program through the introduction of a new line of homes at its Central and North Florida communities and developed a new sales program which was designed to enable the Company to compete more effectively in the local Florida markets. The Company, however, has experienced increasingly stronger competition in the sale of single-family homes, particularly at its more mature communities of Deltona Lakes and Spring Hill, and has determined that the volume of single-family home sales achieved since mid-1983 has not yielded the cost efficiencies necessary to generate an adequate return on such operation. Based on the above and its analysis of the costs and risks involved, the Company has determined to limit the sale of single-family homes in 1985 to those remaining in inventory and will confine its own housing construction activities to the construction of single-family homes under contract at the end of 1984. The Company is inviting independent builders, however, to construct and sell single-family homes in its communities and will sell single-family lots to builders for such purpose. Multi-Family Housing The Company has designed and constructed more than 3,300 condominium apartment units at Marco Island in buildings ranging from garden-style apartment complexes to luxury high-rise towers overlooking the Gulf of Mexico, and has sold more than 3,200 of these units. The Company has also completed 239 units of a condominium complex adjacent to the Marco Shores golf course, 500 condominium units in the community of Deltona Lakes, and 331 condominium units in St. Augustine Shores. Every condominium complex constructed by the Company includes at least one pool and patio area; many feature tennis courts and other recreational amenities. The Company is not currently constructing and does not plan to commence construction of any multi-family housing in 1985. · 7 6 1983 The following table summarizes certain information about the multi-family housing in inventory at December 31, 1984: Project/Location Total Units Sales Closed as of December 31, 1984 1981 1,261 1,259 2 1982 128 107 21 1982 128 118 10 239 114 125 1982 311 302 9 19 82 247 205 42 1983 2,244(b) Construction Completed South Seas Complex . . . . . . . . . . . . . . . . . . Marco Island Royal Seafarer . . . . . . . . . . . . . . . . . . . . . . . Marco Island Summit House . . . . . . . . . . . . . . . . . . . . . . . Marco Island Tropic Schooner ..................... 1982 Marco Shores Edgewater........................... Deltona Lakes Conquistador . . . . . . . . . . . . . . . . . . . . . . . . St. Augustine Shores Surf Club . . . . . . . . . . . . . . . . . . . . . . . . . . . Marco Island 747(b) Units in Inventory at December 31, 1984(a) 1,497(b) (a) Includes 40 units and 23 vacation weeks under contract. (b) Vacation weeks. Marketing The Company has historically sold its land and housing products on a national and international basis through independent franchised dealers ("dealers") in the United States, Canada and overseas, as well as through Company-affiliated salespeople working at branch offices and at its communities ("jobsite offices"). For the year ended December 31, 1984, foreign dealers accounted for approximately 55% (in dollar volume) of new land sales contracts, while domestic dealers accounted for approximately 21% of such contracts and Company-affiliated salespeople accounted for approximately 24% of such contracts. Historically, foreign dealers have accounted for a larger percentage of land sales contracts. Unlike land, where sales by foreign dealer~ acc?unted for the largest portion of new sales, domestic dealers and Company-affiliated sales people have htstoncally accounted for the largest portion of new housing contracts. For the year ended December 31, 198~, domestic dealers accounted for approximately 41% (in dollar volume) of new housing contracts while foretgn dealers accounted for approximately 3% of such contracts and Company-affiliated salespeople accounted for approximately 56% of such contracts. Horr's Island Horr's Island is located in Collier County, approximately 15 miles south of Naples, Florida, and adjacent to the Company's Marco Island community. The 143 acre site is zoned for up to 300 multi-family units. Horr's Island will be accessible from Marco Island via a bridge that is anticipated to be constructed by the Company in 1986. The Company has obtained substantially all the permits and approvals necessary to permit the development of the remainder of this community. See "Regulation-Environmental". The Company expects to complete the initial planning and engineering work for the community in 1985. It is anticipated that the community will be available for marketing in 1986. No financing has been arranged for the development of this community. Marco Shores Marco Shores is located in Collier County approximately 2 miles from the Company's Marco Island community and 15 miles south of Naples, Florida. The 1,915-acre site is zoned for 629 single-family units and 10,221 multi-family units. The Marco Shores area is served by Florida's third largest airport located near Fort Myers, by the Naples airport and by an airport in the community. In 1982, the Company completed construction of a 239-unit condominium complex, adjacent to the Marco Shores Country Club and 18-hole golf course and less than a mile from the airport serving the Marco vicinity (all of which were built by the Company). The Company has obtained substantially all the permits and approvals necessary to permit the development of the remainder of this recreation-oriented community. See "Regulation-Environmental". The Company expects to complete the initial planning a~d engineering work for the community as a whole in 1985. Such plans include additional golf courses, tennis centers, parks and a recreation complex. The marketing of the community will be dependent on the growth of, and demand for real estate in, the Naples area and, accordingly, is not expected to occur prior to 1987. No financing has been arranged for the development of this community. 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 31,000. Over 30,000 lots and tracts with a total sales volume in excess of $61,000,000 and over 4,500 single and multi-family housing units with a total sales volume in excess of $102,000,000 have been sold at this community. Coincident with the implementation of its new business strategy, the Company has reduced its national advertising program and its marketing, advertising and promotional expenses. The reduced level of marketing support has resulted in a reduction in the size of the dealer network. In addition, the Company has closed its four branch offices. Since Deltona Lakes is virtually sold out, the Company's principal revenues from the community in 1985 will be derived from the utility operations, from its real estate brokerage business, from collections on existing property contracts receivable and from single-family homes to be completed in 1985. In 1985, the Company's domestic and foreign dealers and its jobsite offices will market single-family lots ~nd multi-family and commercial tracts at virtually all communities, and the Company's existing housing m.ventory. In a number of communities dealers will be permitted to enter into co-brokerage arrangements wtth the Company's real estate brokerage offices, providing additional markets for these local businesses. 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, having constructed 427 miles of road and 543 miles of water, sewer and gas lines. New Communities Putnam County Putnam County is located 36 miles southwest of Jacksonville, Florida and 30 miles east of Gainesville Florida. The approximately 7,000 acre she is being planned for approximately 650 single-family homesites: The Company has not applied for permits and approvals to develop this community. Due to the limited size of this co~munity, the Company does not expect to encounter significant difficulties in obtaining the necessary permt~s and approv~ls. The initial planning and engineering work for the community is expected to be completed m 1985. Plans mclude a sports lodge, riding facilities, archery and trap shooting ranges, tennis courts. and hiking trails. It is anticipated that the community will be available for marketing in 1986. No financmg has been arranged for the development of ,this community. 8 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 7, 500 lots and tracts with a total sales volume in excess of $171,000,000 and over 4,100 single and multi-family housing units with a total sales volume in excess of $295,Q90,000 have been sold in this community. In 1985, the Company expects to market single-family lots and commercial and multi-family tracts on an installment basis at Marco Island. In addition, the Company will concentrate on selling its remaining condominium and vacation ownership inventory. Revenues will also be generated from the Company's utility subsidiary, its country club operations, its real estate brokerage and rental businesses and from collections on existing property contracts receivable. 9 More than 8,000 persons reside at Marco Island year-round, with the population doubling 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 an 18-hole golf course and country club constructed by the Company, tennis courts, swimming pools and recreation centers. 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, operated and sold a yacht club and marina, as well as the Marco Beach Hotel & Villas. The Company has completed over 114 miles of roads, over 102 miles of seawalls along waterways, and approximately 176 miles of utility lines in this community. The Company has also constructed over 3,300 condominium units and The Surf Club, 44 unit vacation ownership complex on the island. 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, will enable the development of additional dwelling units at Marco Island, Horr's Island and Marco Shores. See "Regulation-Environmental". a Spring Hill Spring Hill, with an estimated population of approximately 30,000, is located 45 miles north of Tampa-St. Petersburg. Over 29,000 lots and tracts with a total sales volume in excess of $82,000,000 and over 3,900 single-family homes with a total sales volume in excess of $120,000,000 have been sold in this community. Since this community is virtually sold out, the Company's principal activities at Spring Hill are the operation of its utility subsidiary, the sale of its remaining multi-family and commercial tracts, and its realty brokerage business. In addition, the Company will derive revenue from collections on existing property contracts receivable and from single-family homes to be completed in 1985. The Company has constructed a recreation complex, a country club, and two golf courses. In 1981, the Company sold its country club and one of the golf courses, and in October, 1984 sold its remaining golf course. 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 virtually completed the development of this community, having constructed 438 miles of roads and over 544 miles of water, sewer and gas lines. Citrus Springs Citrus Springs, with an estimated population of 3,000, is located 28 miles southwest of Ocala and 25 miles from the Gulf of Mexico. Over 26,000 lots and tracts with a sales volume in excess of $78,000,000 and over 700 single-family homes with a sales volume in excess of $20,000,000 have been sold at this community. In 1985, revenues are expected to be generated from collections on existing property contracts receivable, from recognition of deferred revenues as land improvements proceed, from single-family homes completed during the year, and from the sale of its land inventory. A golf course, a clubhouse 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 or under construction 394 miles of road. In addition, 167 miles of water, sewer and gas lines have been installed. In 1985, the Company expects to complete the road base for all properties sold. St. Augustine Shores St. Augustine Shores, with a population estimated at 4,500, is located 7 miles south of St. Augustine, between the Intracoastal Waterway and U.S. Highway 1. Prior to 1985, single-family lots had not been available for sale in this community. Only commercial and multi-family tracts, house and lot packages and condominium apartment units had been marketed. Over 25 tracts with a sales volume in excess of $2,000,000 and over 1,900 single and multi-family housing units with a sales volume in excess of $87,000,000 have been sold at this community. In the future, the Company's marketing efforts at St. Augustine Shores will be concentrated on its remaining condominium inventory, as well as on the sale of single-famlly lots and multi-family and commercial tracts. Revenues will also be generated from club, utility and real estate brokerage operations and from collections on existing property contracts receivable. 10 Certain common areas of the community, such as parks and swale areas, are maintained by St. Augustine Shores Service Corporation, a non-profit corporation, of which all property owners are members. This corporation, formerly controlled by the Company, has been transferred to the property owners. A golf course and country club and a recreation building have been completed by the Company. Several houses of worship and shopping facilities are located in the community. In this community, where development of property occurs either before or at the time of sale, the Company has completed or under construction 23 miles of road. In addition, it has installed 62 miles of water and sewer lines. Sunny Hills Sunny Hills, with a population of approximately 850 residents, is located in the Florida Panhandle, 45 miles north of the Gulf of Mexico and 35 miles north of Panama City. Over 13,000 lots and tracts with a total sales volume in excess of $42,000,000 and over 250 single-family homes with a total sales volume in excess of $10,000,000 have been sold at this community. In 1985, revenues are expected to be generated from the sale of its land inventory, from the recognition of deferred revenue as land improvements proceed, from the completion of single~family homes under contract at the end of 1984, from collections on existing property contracts receivable, and from utility and golf course operations. The community will include two golf courses, one of which has been completed, numerous houses of worship, several of which are presently in existence, and a convenience shopping center. The Company has completed or under construction 208 miles of road. In addition, 91 miles of water, sewer and gas lines have been installed. Pine Ridge Pine Ridge, the Company's equestrian community, is located 34 miles southwest of Ocala. It has a population estimated at 200. Over 3,500 lots and tracts with a total sales volume in excess of $55,000,000 and approximately 45 single-family homes with a total sales volume in excess of $3,000,000 have been sold in the community. In 1985, revenues are expected to be generated from the sale of its land inventory, from the completion of single-family homes under contract at year-end, from the recognition of deferred revenue as land development proceeds and from collections on existing property contracts receivable. The community consists of single-family lots, ranging from one to five and a half acres, and offers facilities, including an equestrian club on a 94-acre recreational complex and tennis courts. Currently, eight miles of equestrian trails wind through the community and 20 additional miles are planned. The community will include a country club and golf course, nine holes of which were completed in 1982. The Company has completed or under construction 69 miles of road. In addition, 40 miles of water and gas lines have been installed. Marion Oaks Marion Oaks, with a population of approximately 3,500 residents, is located 18 miles south of Ocala. Over 16,000 lots and tracts with a total sales volume in excess of $126,000,000 and over 1,200 single-family homes with a total sales volume in excess of $48,900,000 have been sold in the community. In 1985, revenues are expected to be generated from the sale of its land inventory, from the completion of single-family homes under contract at year-end, from the recognition of deferred revenue as land development proceeds, from collections on existing property contracts receivable, and from utility and country club operations. The community will include playgrounds, two golf courses, several recreation buildings, and a tennis club. One golf course and a country club have been completed by the Company. A shopping center and several churches are located in the community. The Company has completed or under construction 193 miles of road. In addition, 122 miles of water, sewer and gas lines have been installed. Seminole Woods Seminole Woods is comprised of 1,554 acres of property located 20 miles north of Orlando. The community is comprised of single-family lots, each a minimum of five acres. Of the 262 lots in its master plan, 261lots with a total sales volume of $7,450,000 have been sold. Opened in 1979, the community was virtually completed by the end of 1984. Since the water system is owned by Seminole Woods Community Association, a non-profit corporation whose members are the property owners, the Company will not derive any revenue from utility operations here. The Company will, however, continue to recognize revenue from collections on existing property contracts receivable .. 11 Tierra Verde Tierra Verde, a 666-acre waterfront subdivision located eight miles south of St. Petersburg, is being developed and marketed pursuant to a 50% joint venture between the Company's ,wholly-owned subsidiary and an unaffiliated corporation. The venture, which extends until December 31, 1990, provides for the Company's subsidiary to receive an annual management fee of $100,000 and to share in the venture's results of operations equally with its venture partner. Since the formation of the venture in 1976, the marketing and development of Tierra Verde has resulted in distributions totalling $8,000,000 being made to the Company's subsidiary. The Company has sold over 750 lots and tracts with a total sales volume( in excess of $43,000,000 at Tierra Verde. Revenues will be reported by the venture in 1985 from ·single-family lot sales and its utility operations, as well as from collections on existing property contracts receivable and from the recognition of deferred revenue as land development proceeds. Other Land Assets In addition to the properties in its existing and new communities, the Company owns 1,406 acres ofland in Florida which is being held for investment, bulk sale, or future development. This acreage consists of 1,141 acres of land adjacent to the Company's existing communities, approximately 50 acres of commercial property located in Dade County and 214 acres of land located elsewhere in Florida. Land which is not included in the Company's master plans for community development may be sold in bulk to other builders and investors, primarily through the Company's wholly-owned subsidiary, Deltona Land & Investment Corp. However, the Company is examining the feasibility of the commercial development of the Dade County property. Historically, the Company has recorded bulk land sales under the full accrual method when all of the criteria of a sale as defined by Statement of Financial Accounting Standards No. 66 have been met. Those criteria include (i) that there be a minimum initial and continuing investment by the buyer; (ii) that the Company's mortgage receivable not be subject to subordination; and (iii) that the Company be relieved of substantially all of the risks and rewards of ownership on the subject property. Other Properties The Company owns approximately 21,890 square feet of space at various shopping centers located at its communities. The Company entered into a sale-leaseback agreement with respect to its 56,000 square foot executive offices in March, 1983. Utilities Deltona Utilities, Inc. ("DU") and United Florida Utilities Corporation ("UF"), design, construct and operate systems for distribution of water and LP gas and for the collection and treatment of sewage at the Company's community developments and operate a water and sewer system for a. small residential area in East Tampa located in Hillsborough County. Although DU and UF are wholly-owned subsidiaries of the Company and officers of the Company control the boards of directors and business affairs of DU and UF, they operate largely independently of the Company. DU, whose divisions provide services to the communities of Deltona Lakes, Marco Island and Spring Hill and to the residential area in East Tampa, serves over 26,900 water customers, over 12,000 sewage disposal customers and over 6,800 LP gas customers. During the past 10 years, DU's water, sewer and gas customers have grown at annual compound rates of 10.7%, 5.0% and 3.2%, respectively. UF, whose divisions provide services to the Company's Central and North Florida communities which were opened in the 1970s, is dependenf on the Company to fund the expansion of its systems. It presently serves over 4,600 water customers, over 3,700 sewage disposal customers and over 1,600 LP gas customers. During the past five years, UF's water, sewer and gas customers have grown at annual compound rates of 17.6%, 11.0% and 10.7%, respectively. The growth ofUF is dependent on the growth of the communities it services. DU and UF capitalize the cost of treatment plants and distribution and collection systems. At December 31, 1984, the total cost of the Company's investment in utility plant and lines was approximately $61,780,000, excluding work in process. The administrative and accounting offices for DU and UF are located at 1244 Coral Way, Miami, Florida. The building, owned by the Company, contains approximately 4,724 square feet. The cost of construction of these utility systems was advanced to DU and to UF by the Company. In 1981, a portion of such borrowings were refinanced in the form of an $18,000,000 utility loan from certain banks (the "Utility Loan"). On December 12, 1984, DU completed a private placement of $30,000,000 of 15~% first mortgage bonds due December 1, 1994 (the "Utility Private Placement"). The bonds provide for annual mandatory sinking fund payments of $3,000,000 beginning on December 1, 1989. The terms of the bonds prohibit loans to, and investment of funds in, the Company. However, the bonds permit the quarterly payment of dividends ranging from 25% to 100% of net income of DU based on minimum net worth levels. The proceeds were used as follows: $18,000,000 to retire the Utility Loan, approximately $4,100,000 for utility capital expenditures, approximately $4,800,000 to pay delinquent principal and interest and the remainder for general corporate purposes. The bonds are collateralized by the stock of DU and UF and a first mortgage lien on substantially all of DU's assets. The Company plans an expansion of its utility plant, collection and distribution systems which are estimated to cost $16,500,000 over the next five years. The Company expects to finance this expansion in part from the working capital of DU. Other Businesses The Company's title insurance subsidiary was established in 1978 in order to reduce title insurance, legal and certain related closings costs incurred by the Company in transferring title at 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 operates seven golf courses and six country clubs at its communities. The Company believes that the operation of such golf courses and clubs is a significant feature in marketing its communities and has operated them with the primary goal of enhancing sales of homes and homesites. The Company's realty subsidiaries perform real estate brokerage and rental services at its communities. The Company's broadcasting subsidiary operates a security-cable television system at the Company's condominium complex in Marco Shores. Discontinued Operations In September, 1984, the Company sold its wholly-owned lumber subsidiary for $4,000,000, of which the Company received approximately $3,000,000 in cash, with the balance due within one year. Approximately $700,000 of such balance is secured by a first mortgage on real estate in Orlando, Florida and the remainder was used as credits toward the purchase of lumber utilized by the Company in its construction activities. In October, 1984, the Company sold its airline subsidiary for $1,500,000. The Company-built airport at Marco Shores was deeded to the State of Florida as part of the Settlement Agreement and leased back to the Company to operate. See "Regulation-Environmental". The Company subleased the airport to the purchaser coincident with the sale of the airline. In March, 1985, the purchaser filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The Company does not anticipate that this proceeding will have a material adverse effect on the Company. The Company's mortgage subsidiary, which functions as a mortgage brokerage agent, was opened in 1982 to assist purchasers of the Company's properties in securing financing. In the past its operations have included the origination and servicing of outside business. Coincident with the discontinuance of its housing business, the Company will phase out the operations of its mortgage subsidiary. In the fourth quarter of 1984, the Company sold substantially all of its mortgage portfolio for a profit of $287,000. See "Real Estate: Housing-Discontinuance of Single-Family Housing Program". During the past five years the Company has sold several other businesses not essential to its real estate business, including its asphalt plants, certain golf courses and an FM radio station. None of these sales were material. Employees The Company has various agreements for the purchase of water and specified amounts of LP gas deemed sufficient to meet the demands ofDU and UF's customers. The Company anticipates no difficulties in extending or renegotiating such contracts in the future. ' At December 31, 1984, the Company had approximately 745 employees, of whom 240 were involved in real estate, 160 were utility personnel, 225 were involved in other businesses, and 120 served in executive, 12 13 professional or general capacities. Certain of the Company's construction activities are carried out by subcontractors who separately employ additional personnel. Although the Company is not presently a party to any collective bargaining agreements, it has, in the past, utilized union labor for construction activities in its Marco Island community and, to a more limited extent, in certain of its Central Florida communities. The Company's work force has declined by more than 60% since December 31, 1981, largely as a result of the contraction of the Company's sales force and reductions in its construction personnel. As a result of the new business strategy and the discontinuance of certain operations, the Company anticipates further reductions in its work force. See "New Business Strategy; Real Estate-Marketing". The Company considers its employee relations to be satisfactory. Competition The Company faces intense competition from many entities engaged in real estate development activities, many of which have greater resources and geographical diversity than the Company, and from property owners in the Company's communities seeking to resell their land, single-family homes and multi-family housing units. In the sale of homes and single-family lots for second-home buyers, the Company has competed on a regional basis with other builders and developers. Competition in the sale of housing units is based primarily upon location, price, reputation, quality of product, and the existence of commercial and recreational facilities and amenities. Large tracts ofland for development in the State of Florida (particularly waterfront property) have become scarce. In the purchase of undeveloped land, the Company faces competition from numerous entities. The scarcity of product, combined with inflation, has resulted in higher prices for such properties. 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. 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, and 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. 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 at this time, it is possible that more stringent requirements could be imposed on development work 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 those 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. The Company's Marco Island and Marco Shores communities had been the subject of permitting uncertainties since the early 1970's, at which time the Company ceased the sale of its Marco properties pending the resolution of such uncertainties. In 1976, these uncertainties intensified when the Corps denied the Company dredge and fill permits necessary to complete the development of Marco Island. Untill982, when the Company entered into the Settlement Agreement referred to below, the Company was unable to determine the extent to which the development of Marco could be completed. The Company implemented several programs following the permit denials to resolve the concerns of customers aflected by the Corps' action, including programs whereby the Company agreed to refund, over an agreed-upon period, monies previously paid to the Company by such customers for the purchase of land at Marco. To secure the payment of such refunds, certain land assets of the Company were placed in trust, with the net proceeds from the sale of such properties to be used for refunds. The number of purchasers requesting refunds was substantially greater than anticipated, such that the Company was unable to meet the original refund schedules from the orderly sale of trust properties. Therefore, the refund programs have been amended to defer repayments to coincide with the anticipated availability of proceeds from the sale of trust properties. In the event that unfavorable market conditions at Marco continue to hamper the sale of the remaining trust properties, such repayments could be further delayed. On July 20, 1982, the Company entered into the Settlement Agreement with the State of Florida and various state and local agencies, concurred in by certain federal agencies and endorsed by key environmental interest groups, to resolve the permitting issues affecting Marco. In September, 1983, the Corps issued a federal permit authorizing development at Marco as provided for in the Settlement Agreement, and in January, 1984, the Company received a U.S. Coast Guard Permit-the last remaining federal permit needed to complete · development at Marco. The Settlement Agreement and the federal permits provide for the Company to develop as many as 14,500 additional dwelling units in the Marco vicinity. 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 ~pproximately 50 acres of State-owned property near the Miami International Airport in Dade County, Flonda. The Settlement Agreement constitutes the permits required from the Florida Department of Environmental Regulation (the "DER") for the development of the additional dwelling units in the Marco vicinity. In June, 1984, Collier County issued a development order and the Company obtained the remaining local approvals necessary to develop Marco Shores, Horr's Island and additional dwellings at Marco Island, in accordance with its application. In December, 1984, all parties entered into a stipulation to dismiss the appeal of the development order which had previously been filed by the Florida Department of Veteran and Community Affairs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Nate 9 to Consolidated Financial Statements. Marketing The Company is also subject to a number of statutes imposing registration, filing and disclosure requirements with respect to homesites, homes, condominiums and vacation ownership properties sold or proposed to be sold to the public. On the state level, the Company's land, condominium and vacation ownership sales activities are subject to the jurisdiction of the Division of Florida Land Sales, Condominium and Mobile Homes ("Division") which requires registration of subdividers, subdivided land, condominiums and vacation ownership properties; 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. . In February, 1980, the Company entered into a Consent Order with the Division as a result of delays the Company encountered in completing improvements to lots in certain of its Central and North Florida comm~nities. The Consent Order provides a program for notifying all affected customers of the anticipated delays m the completion of improvements, various options which may be selected by affected purchasers, a schedule for completing certain improvements, and a deferral of the obligation to install water lines until requested by the purchaser. The Consent Order also requires the maintenance of a specified ratio of contracts receivable to improvement obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations: Liquidity and Capital Resources-Other Obligatiohs" and Notes 2 and 8 to Consolidated Financial Statements. Based upon the Company's experience with affected customers the Comp.any believes that the total costs arising from the delays in completing such improvements wili not matenally exceed the amount provided for in the Consolidated Financial Statements. The Company's land sales activities are further subject to the jurisdiction of the laws of various states and certain Canadian provinces in which the Company's properties are offered for sale. Most jurisdictions also regulate the sale of condominium apartments and vacation ownership properties and, to a lesser extent, homes constructed by the Company. Typically, such regulation requires registration and disclosure similar to the land sales activities described above. 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. The 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. 14 15 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. Real estate salespersons must 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 registered with the Division and licensed by the Florida Real Estate Commission. Utilities The utility subsidiaries are regulated, as to water and sewer services, in part by the Florida Public Service Commission and in part by the regulatory authorities of the respective counties in which they are located. The control exercised by both the Public Service Commission and the counties extends to utility services, facilities, rates and operating areas. The utilities' LP gas operations are regulated by the Florida Department of Insurance. The Company has been granted an exemption by the Securities and Exchange Commission from the Public Utility Holding Company Act. Plans and specifications for all central water facilities in Florida are subject to approval by the DER. Disinfection of such systems is monitored by the DER and the Florida Department of Health and Rehabilitative Services ("HRS"). Permits to construct or operate any sewage collection or sewage treatment plants must also be obtained from the DER. Quality control is monitored by the DER and by HRS. 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; the approval of rates and charges; and various other matters. The country clubs operated by the Company are regulated by the Florida Department of Business Regulation, Division of Hotels and Restaurants; liquor licenses must be obtained from the Department's Division of Alcoholic Beverages and Tobacco. EXECUTIVE OFFICERS OF THE COMPANY The table below sets forth the executive officers of the Company, their ages (at March 31, 1985) 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 Occupations During Past Five Years Name and Age Frank E. Mackie, Jr., 68.................... Chairman of the Board and Chief Executive Officer of the Company since November, 1979. Mr. Mackie, Jr. co-founded the Company in 1962. Principal Occupations During Past Five Years Name and Age Michelle R. Garbis, 38 Mrs. Garbis, who joined the Company in 1973, has been Corporate Secretary and counsel since July, 1974. William I. Livingston, 38 .................. . Mr. Living.ston,. who j'?ined the Company in 1973, has been Semor VIce President-Department of Legal Affairs & General Couns~l since December 1, 1983. Prior ther~to, he was Vtce President-Department of Legal Affatrs & General Counsel since March, 1976. Joseph Mancilla, 38 ....................... . Mr. ~ancilla, who joined the Company in 1975, has been Ass.t~tant ~eneral Counsel since Aprill, 1981, an officer positton smce August 14, 1984. Donald 0. McNelley, 40 .... , ............. . Mr. McNelley,, who joined the Company in 1971, has been Treasurer smce December, 1982. Prior thereto he served as Comptroller since August', 1976. ' Robert L. Mehl, 48 Mr .. Mehl, ~ho rejoined .t~e Company in May, 1983 as VIce. President-Advertising & Sales Promotion, had pr.evtously served as Director of Marketing for Citrus Hills Investment Properties, a real estate developer (June, 1982-May, 1983) and Director of Marketing for Context Development Company, also a real estate developer (June, 1976-June, 1982). Arsenio Milian, 40 ........................ . Mr. M~lian, who joined the Company in 1969, has been Prestdent o~ Deltona Utilities, Inc., a subsidiary of the Company, smce January, 1983. Prior thereto he served as VIce President-Utility Operations (Janu~ry, 1976December, 1982). Lee M. Sanborn, 44 ....................... . Mr. Sanb.orn, who rejoined the Company in April, 1984 as President of Three Seasons Corporation, a subsidiary of the Company, had served as Vice President of Real Estate and Development of Roma Corporation an operator and franchisor of restaurants (February, 1981March, 1984) and as Vice President of Land Develop!llent for Continental Mortgage Investors, a real estate mvestment trust (February, 1979-February, 1981). Mr. Sanborn h~d previo~sly been employed by the Company, servmg as VIce President-Land Development from 1978 through 1979. James M. Stackpoole, 40 .................. . Mr. St~ckpoo1e, who joined the Company in 1971, has been President of.DelMarco Corporation, a subsidiary of the Co~pany, smce May, 1983. Prior thereto, he served as Prestdent ofTamJ?a Palms Corporation (January, 1983May, 1983) and Vtce President-Clubs Division (January 1979-January, 1983). ' Frank E. Mackie, Ill, 40 .................. . President and Chief Operating Officer of the Company since November, 1979. Prior thereto he held various executive positions with the Company. ITEM 3 Neil E. Bahr, 59 .......................... . President of Deltona Land & Investment Corp., a subsidiary of the Company, since September, 1974. The Co~pany had filed fo~r companion cases against the Property Appraiser and Tax Collector of Marion County, .Flonda and the Flonda Department of Revenue in the Circuit Court of Marion County Florida challengmg the 1976, 1977, 1978 and 1979 real property assessments and the related taxes of appr~ximatel; $7?6,000, $811,000, $792,000 and $829,000, respectively for the Company's Marion Oaks Subdivision. In these smts, the Company alleged that the. asses~ments exceeded the constitutional standard of just value of the property and that the. Property Appraiser. fatled to consider the rules and regulations of the Florida Department of Revenue . , statutory reqmrements relating to real propert y assessment s. Th e c ompany h a d . . "and vanous ~emitted ~ts good fatth payment o~ ~uch taxes. in each of the respective years and had made provision in tts financtal statements for the rematmng taxes tt believed might be due in the event it did not prevail. In 1982, followin? affirmation by t~~ Fifth Di~tri~t Court of Appeal of the final judgment entered in favor of the Company m 1981, the provision was ehmmated and the Company reported approximately $1,200,000 Joseph F. X. Corbin, 57 ................... . Mr. Corbin, who joined the Company in 1964, has been President of Deltona Marketing Corporation, a subsidiary of the Company since December, 1984. Prior thereto, he served as Sr. Vice President of Deltona Marketing Corporation (January, 1983-December, 1984) and Vice President-Sales (October, 1973-December, 1982). Earle D. Cortright, Jr., 44 Mr. Cortright, who joined the Company in 1966, has been Senior Vice President and Chief Financial Officer since November, 1979. 16 LEGAL PROCEEDINGS 17 I i I as other revenues. In 1983, the Florida Supreme Court denied the petition for writ of certiorari filed by the Property Appraiser, seeking a review of the decision, and also denied the petition filed by the Company seeking a clarification as to the binding effect of the decision on subsequent tax years. The Company has also filed five companion cases against the Property Appraiser and Tax Collector of Marion County, Florida and the Florida Department of Revenue in the Circuit Court of Marion County, Florida, challenging the 1980, 1981, 1982, 1983 and 1984 real property assessments for the Company's Marion Oaks Subdivision. The tax payment in dispute for each of the years is $369,807, $625,429, $635,047, $501,837 and $519,654, respectively. Although action in these cases had been stayed pending resolution of the 1976 through 1979 tax cases, these cases are now proceeding. In February, 1985, the trial judge entered final judgment in favor of the Company with respect to the 1980 real property assessment. The Property Appraiser has appealed this decision. The Company believes that the 1981 through 1984 cases will also be decided in accordance with the determinations issued in the earlier cases, and accordingly, has made no provision in its financial statements for any additional tax payments, beyond good faith payments previously made. The Company is subject to claims resulting from the 1976 Marco permit denials and has incurred certain obligations with respect to its affected customers. In the opinion of the Company, however, the ultimate costs which may result from the resolution of these matters will not materially exceed the amount for which provision has been made in the financial statements of the Company. See "Business: Regulation-Environmental" and Note 9 to Consolidated Financial Statements. The Company is also a party to certain legal proceedings arising in the ordinary course of its business. The outcome of these matters will not, in the opinion of the Company, have a material adverse effect on the business or financial condition of the Company. ITEM 5 PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Company's Common Stock is traded on the New York and Pacific Stock Exchanges under the ticket symbol D LT. 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 9% 1982-First Quarter Second Quarter .............................................. . Third Quarter ................................................ . Fourth Quarter .............................................. . 8 llYs 6% 6Ys 4% 6% 1983-First Quarter ................................................ . Second Quarter .............................................. . Third Quarter ................................................ . Fourth Quarter .............................................. . 13% 15Ys 14% 12¥s 8% 11 10o/s 8¥s 9~ 6'Vs 8 7% 6 6~ • o 0 0 o 0 0 o 0 0 o 0 0 0 o 0 0 0 0 0 0 If I I 0 0 I I I I 0 I 0 0 0 It f 0 0 0 0 0 0 0 0 0 1984--First Quarter ................................................ Second Quarter .............................................. Third Quarter ................................................ Fourth Quarter .............................................. I . . . . 8~ 5 4Y<l ITEM 6 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following t~ble s~mm~rizes. selected consolidated financial information and is qualified in its entirety and should be read zn conJunctwn wah 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) Revenues: Sales-houses and apartments Single-family ............................................. . $ 2,540 16,669 Multi-family ............................................. . Total ............................................ . 19,209 Net land sales(1) ............................................ . 17,501 Improvement revenue-prior period sales(2) .................... . 6,594 Interest income(3) .......................................... . 8,015 uylity revenues ............................................. . 13,686 Sales--other(4) ............................................. . 11,954 Equity in earnings of joint venture and non-consolidated subsidiary(5) ............................................. . Total ............................................ . Costs and Expenses: Cost of sales and improvements ............................... . Provision for multi-family inventory writedown(6) ............... . Loss from single-family housing operation(?) .................... . Commission, advertising and other selling expenses .............. . General and administrative and real estate tax expenses .......... . Interest expense ............................................ . Subtotal ......................................... . Provision for Marco permit costs(8) ........................... . Total ............................................ . Income (loss) from continuing operations before taxes .............................................. . Provision (benefit) for deferred taxes ............................ : : Income (loss) from continuing operations ......................... . Discontinued Operations(9): Income (loss) from lumber, airline and lodging segments net of taxes . . . . Gain on disposal of lumber and airlin~ ~~~~·e~~~ ·~~t· ~f ~~~~s·: : :: : : : $ 2,879 26,537 29,416 11,044 5,508 11,358 11,758 13,134 47,743 5,700 310 16,224 14,873 17,986 102,836 95,089 (24,455) (11, 795) (24,455) 101 193,030 125,155 15,053 14,014 18,641 15,414 14,068 27,457 ,117,671 22,700 140,371 30,036 16,018 24,433 212,277 29,249 15,375 14,383 184,162 (27,875) (10,181) (17,694) 114 (4.86) $ (2.63) (4.75) $ (2.61) 4,478 8,073 8,868 ~ ~ 5,389 4,829 (1,536) (547) (225) $ (19,230) $ $ (4.41) $ 1.35 $ 1.22 $ (4.80) $ 1.21 $ 1.16 4,008 See Accompanying Notes to Selected Consolidated Financial Information. 19 50,329 106,055 44,284 9,122 13,525 8,138 11,805 141,790 Per Share Amounts: Net income (loss) from continuing operations ................... . $ 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. $ 55,726 60,732 (11,795) (76) 635 5,032 $ 51,971 87,651 139,622 29,545 11,885 15,985 9,977 12,097 47,381 $(11,681) Net income (loss) ........................................... . $ Weighted average shares outstanding .......................... . $ 14,011 25,078 39,089 24,641 7,149 14,296 9,518 17,235 1980 568 112,496 Net income (loss) ............................................. . $ (23,896) On March 15, 1985, the last reported sales price ofthe shares of Common Stock on the NYSE was $5.875. There were 2,697 holders of record of the Company's Common Stock. 18 Years ended December 31, 1983 1982 1981 1984 4,842 4,003 THE DELTONA CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION NOTES TO SELECTED CONSOLIDATED FINANCIAL INFORMATION Consolidated Balance Sheet Data (in thousands) Years ended December 31, 1982 1981 1980 6,237 52,357 24,357 $ 10,941 64,116 43,940 $ 17,671 73,298 90,421 $ 26,206 73,185 85,802 2. Improvement revenue-prior period sales consists of previously deferred revenue recognized due to completion of improvements on previously sold lots. Deferred revenue consists of revenue deferred to reflect the obligation to complete the development of such lots. See Note 7 to Consolidated Financial Statements. 3. Interest income primarily consists of interest earned on contracts and mortgages receivable and on escrowed cash balances and the amortization of valuation discounts. 1983 1984 $ 8,949 Cash, including escrow deposits(lO) 43,017 Contracts receivable for land sales-net(11) ...................... 14,816 Mortgages and other receivables-net ........................... Inventories, at cost(12): 24,318 Houses and apartments-net 50,066 Land and improvements _!dg Other 75,696 Total inventories ................................... $ 39,125 53,714 ~ 97,913 66,585 46,835 4,432 117,852 53,426 43,786 4,324 101,536 31,066 43,491 ~ 78,721 34,922 Land held for investment, bulk sales, or future development, at cost . 71,751 Property, plant, and equipment, at cost-net ..................... Prepaid expenses, deferred charges and sundry ................... ~ Total assets ....................................... $252,412 22,317 77,169 4,540 $284,890 15,928 78,331 4,030 $335,138 11,504 77,326 ~ $380,931 16,879 64,350 ~ $356,678 Mortgages and similar debt ................................... $139,299 30,169 Accounts payable, accrued expenses and customers' deposits(13) .... 25,498 Allowance for Marco permit costs(8) 40,810 Deferred revenue(2) ..................................... · · · · . Deferred income taxes ........................................ 235,776 Total liabilities Stockholders' equity: 5,033 Common stock, $1 par value ............•.........••.... 0. 0. 49,162 Capital surplus Retained earnings (deficit) ................................... (37,559) 16,636 Total stockholders' equity .................................... · Total liabilities and stockholders' equity ............... $252,412 $147,756 25,887 25,912 44,828 $184,864 36,624 29,716 44,052 $203,082 53,380 7,234 48,195 244,383 295,256 322,072 $174,498 60,997 9,731 49,763 8,064 303,053 5,030 49,140 (13,663) 40,507 $284,890 4,024 37,840 (1,982) 39,882 $335,138 3,989 37,622 17,248 58,859 $380,931 3,947 37,272 12,406 53,625 $356,678 0 0. 0 0 l 0 I 0 0 0 0 0 0 0 0 0 0 •••• 0 •••••••••••••••••••• ••••••••••••••••••••••• 0 0 0 0 0 o o o o o 0 o 0 0 o 0 0 0 0 0 o 0 0 0 0 0 0 00 o too 0 0 0 0 oo o 0 0 0 to f 0 0 0 0 0 0 0 0 I 0 0 0 0 0 0 I I 0 0 0 0 0 0 0 0 0 0 0 0 I 0 0 ••• 0 0 ••••••••••• 0 0 0 0 f 0 0 00 0 II o t 0 I 0 0 0 0 0 0 0 0 0 0 00 I 10 oo o toot o 10 o o o o t 0 too 01 It 0 I 0 I 0 0 I I I 0 0 lit It I t t It 0 0 0 t 0 0 0 I 0 0 0 It 0 t 0 0 t 0 0 1. Net land sales consist of gross land sales less estimated uncollectible installment sales, deferred revenue and contract valuation discount. Included in 1984 estimated uncollectible sales is a $2,200,000 provision for certain contracts receivable which were deemed uncollectible. See Notes 1, 2 and 7 to Consolidated Financial Statements. ~ See Accompanying Notes to Selected Consolidated Financial Information. 4. Sales-other consists of revenues primarily from country club operations. 5. Equity in earnings of joint venture and non-consolidated subsidiary constitutes the Company's share of its Tierra Verde joint venture and the earnings (loss) of its wholly-owned mortgage subsidiary. 6. The provision for multi-family inventory writedown represents a reduction in the book value of the Company's multi-family housing inventory to its estimated net realizable value. ~· 7. See Note 1 to Consolidated Financial Statements. 8. Provision for Marco permit costs represents the Company's estimated obligations to customers affected by Marco permit denials. From 1976 through 1982 the Company provided in its financial statements an aggregate of $58,300,000 towards these obligations, of which $18,507,000 remained at December 31, 1984. Also included is an additional $6,991,000 relating to interest accrued on these obligations. See Note 9 to Consolidated Financial Statements. 9. See Note 12 to Consolidated Financial Statements. 10. Cash, including escrow deposits, includes cash escrowed for improvement work, for Marco Island-Marco Shores refund programs and for deposits held for customers. As of December 31, 1984, approximately $4,053,000 of total cash was held in escrow. Also included is $4,783,000 held by DU; use of these funds by the Company is restricted under DU's first mortgage bond agreement. 11. Contracts receivable for land sales (net) consists of contracts receivable outstanding less estimated uncollectible installment sales, deferred revenue, and contract valuation discount. As of December 31, 1984, approximately $13,056,000 of gross contracts receivable was due within one year. In addition, approximately $7,215,000 was past due over 30 days. 12. Inventories, at cost, consist of single and multi-family housing units completed or under construction, unimproved to fully improved land, other land holdings and other subsidiary inventories. 13. Accounts payable, accrued expenses and customer deposits consist of trade payables, accrued commissions, accrued taxes (other than payroll), accrued interest, other accrued expenses, and customer deposits. As of December 31, 1984, customer deposits were $5,031,000. 20 21 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company was founded in 1962 to develop planned communities in Florida. From 1962 through 1973, the Company opened eight communities, accumulated retained earnings of $28,138,000, acquired large quantities of undeveloped acreage and platted over 170,000 lots and tracts in its communities. In the early 1970's, as a result of evolving environmental laws and regulations, the Company ceased the marketing and sale of its undeveloped land in the Marco vicinity (Marco Island and Marco Shores). This action, together with the recession which began in 1973, resulted in substantial losses and cash flow problems in 1974 and 1975 and caused the Company to incur substantial debt for operational purposes, resulting in a highly leveraged capital structure. In April, 1976, the U. S. Army Corps of Engineers (the "Corps") denied the Company's application for dredge and fill permits at its Marco Island community. Although the Marco Shores community was not the subject of such application and denial, the Company anticipated that, in view of the Corps' decision, permits necessary for the development of Marco Shores as originally platted would also be denied. As a result the Company incurred certain obligations to customers who had contracted to purchase property in the Marco vicinity and were adversely affected (see Note 9 to Consolidated Financial Statements). From 1976 through 1982, the Company provided in its financial statements an aggregate of $58,300,000 toward these obligations, with the final provision of $22,700,000 made in 1982. In spite of the continuing impact of the Marco permit denials, the Company recorded net profits in the years 1977 through 1981 as a result of improved operations, including expanded condominium sales, and a number of asset sales. In 1981 and 1982, the Company continued to incur costs associated with the Marco permit denials, and also experienced a significant decline in new sales of single and multi-family housing units and substantial cancellations of previous condominium sales due to the effects of the recession on the Florida real estate market. In late 1981, in order to counteract these factors, the Company implemented cost-cutting programs including reductions in advertising, marketing and general and administrative expenses. In addition, the Company discontinued its single-family housing program in order to concentrate on selling its inventory of multi-family housing. Although the single-family housing markets improved in late 1982, the Company, due to the cost-cutting measures implemented in 1981 and early 1982, was not prepared to re-enter the single-family housing market until mid-1983. Additionally, the market for multi-family housing in South Florida did not improve, thus adversely affecting the Company's ability to sell its Marco Island multi-family housing. The Company incurred losses in 1982, 1983 and 1984. As a consequence of these losses, the Company's highly leveraged capital structure and liquidity problems, the Company implemented a new business strategy in 1985, designed to improve its profitability and cash flow. Based on its analysis of the costs and risks involved in its single-family housing program, the Company discontinued the sale and construction of single-family homes (except for those under contract at December 31, 1984) in order to reduce its marketing, promotion and related overhead costs and, prior to the end of 1985, to eliminate housing construction and related support costs. In 1985, the marketing of single-family lots and multi-family and commercial tracts in its existing communities will be emphasized. The sale of condominium and vacation ownership units will also continue to be emphasized until the existing inventory is sold. C:ompany's Board of Directors on specified matters, (iii) not engage in certain takeover actions, and (iv) not d1sp~se o~ his .stock without Board approval The Tampa transactions constitute Good's only material relat10nsh1ps w1th the Company and its affiliates. . On Fe~ruary ~~· 1985: the Tampa Sale contract was. modified to accelerate the scheduled closing date wh1le allowmg add1t10nal tlme for the payment of a port10n of the purchase price. The Tampa Sale closed on Marc~ 29: 1985, with the Company receiving $14,400,000 in cash (including prior deposits), a $6,000,000 note beanng mterest at a rate of 15~% per annum due April29, 1985, and $17,500,000 in non-interest bearing notes due June 28, 1985: All such notes are secured by mortgages on the Tampa property and by the 200,000 shares of Common Stock of the Company acquired by Good. The gain on the Tampa Sale is expected to be approximately $24,000,000, with approximately $12,000,000 to be recognized in the first quarter of 1985 and the balance to be recognized in the second quarter. Cash proceeds received on March 29, 1985 were used to repay loans in the amount of approximately $8,300,000, approximately $900,000 in accrued interest and the remainder for general corporate purposes. The note collections will be used to repay the approximately $11,700,000 in bank loans, to escrow $10,000,000 specifically for land development work- in the Company's Central and North Florida communities and the balance for general corporate purposes. In the event that Good is unable to meet his debt obligations, the Company would be hampered in its ability to proceed with such land development work and to make such bank loan repayments, thus requiring a modification of the loan agreements. Under its new business strategy, the Company's focus in the future will be on the development and sale of land. In 1985, the Company will proceed with the planning of three new Florida developments: a 7,000 acre sportsmen'~ facility consisting of approximately 600 single-family homesites in Putnam County; a secluded resort commumty zoned for approximately 300 multi-family housing units on Horr's Island, located near Marco Island; and a recreational community zoned for approximately 600 single and 10,000 multi-family housin~ units located at Marco Shores. The Company will also examine the feasibility of developing approximately 50 acres of commercial property in Dade County, Florida. Results of Operations Years Ended December 31, 1984 and 1983 Revenues Total revenues were $78,381,000 for 1984 compared to $83,294,000 for 1983. Revenues from housing sales were down 35% in 1984, due primarily to lower condominium sales which declined approximately 36% from the prior year. The decline in condominium revenues was a result of lower unit sales volumes and sales incentive programs introduced in mid-1983, such as discounts in the form of leasing programs, furniture packages, and lot trade-in allowances. Revenues from the sales of single-family housing and of vacation ownership units are recorded at the time of closing, while condominium revenues are recognized under the percentage-of-completion method. See Note 1 to Consolidated Financial Statements. In August, 1984, the Company announced the discontinuance of the single-family home portion of its real estate segment. The loss from single-family homes since August, 1984 was $310,000 and is reported separately from activity prior to the announcement. Revenues and expenses from discontinued single-family homes for the period from August 14 through December 31, 1984 were $1,902,000 and $2,212,000, respectively. H?using gross profit margins (sales less cost of sales) were 16.5% and 29.0% for 1984 and 1983, respectively. The decline in profitability reflects the impact of the sales incentive programs. The backlog of pre-sold housing products was $15,000,000 at December 31, 1984, compared to $5,700,000 at December 31, 1983. The Company expects that all of the backlog at December 31, 1984 will be delivered by ~ecember 31, 198.5. The Company has at times experienced cancellations of substantial portions of its housmg backl~g due 1~ large measure to economic conditions. The Company experienced a decrease in the percentage of 1ts housmg orders cancelled during 1984. A part of the Company's strategy was the development and marketing of a new community located near Tampa, Florida which was scheduled to open on January 13, 1985. On January 9, 1985, the Company entered into a contract to sell the project to Kenneth M. Good ("Good"), a Colorado-based developer, for $37,900,000 payable in cash at the closing which was scheduled to occur by June 28, 1985. Good also purchased 200,000 shares of the Company's Common Stock for $5 a share, or $1,000,000 (immediately prior to the announcement of these transactions the price of the Company's Common Stock on the New York Stock Exchange was 5%). In conjunction with the stock purchase, Good entered into an agreement providing that for a period of two years he would: (i) not acquire additional shares, (ii) vote in accordance with the recommendation of the Gross land sales were $26,043,000 for 1984 versus $15,984,000 for 1983. Net land sales (gross land sales less estimated uncollectible installment sales, deferred revenue and contract valuation discount) increased to $17,501,000 for 1984 compared to $11,044,000 for 1983. Included in both gross land sales and net land sales for 1984 was the sale of a Marco Island beachfront tract for $8,400,000, while the 1983 amount included a $3,800,000 bulk land sale. In the fourth quarter of 1984, the Company made a $2,200,000 additional provision 22 23 Costs and Expenses to its allowance for contract cancellations for the cancellation of certain contra~ts receivable which were deemed uncollectible. Such contracts receivable arose from four related commerctal tract sales and are not necessarily representative of the total contracts receivable portfolio. The gross profit margin on net land sales (net land sales less cost of sales) was 42.3% for 1984 co~pared to 55.7% for 1983. The decline was primarily due to the inclusion of.the $8,400,000 tract sale whtch had a 4% gross profit margin and the $2,200,000 provision referred to above. In mid-1983, the Company modified the terms of its retail land sales programs by lowering it.s minim~m down payment from 10% to 5%. Because of accounting requirements, a sale cannot be recogmzed untl~ a minimum of 10% of the sales price has been collected. The change in the down payment terms, coupled wtth the accounting requirement, resulted in an increased backlog ofland sales of $3,100,000 at December 31, 1984, compared to $1,200,000 at December 31, 1983. The following table reflects the Company's real estate product mix for 1984 and 1983: Years ended December 31, Housing Sales: Single-family ................. · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Condominium .................. · .. · · · · · · · · · · · • · · · · · · · · · · · · · · · Vacation ownership ................ · . · · .. · · · · · · · · · · · · · · · · · · · · · Total ............ · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Gross Land Sales: Bulk sales .................. · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Retail sales . . . . . . . . . . . . . . . . . . . . . . . . .. · . · · · · · · · · · · · · · · · · · · · · · · Total ............ · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Total Real Estate ........................ · · · · · · · · · · · 1984 1983 $ 2,540,000 14,194,000 2,475,000 $ 2,879,000 22,233,000 4,304,000 19,209,000 29,416,000 11,845,000 14,198,000 4,919,000 11,065,000 26,043,000 15,984,000 $45,252,000 $45,400,000 Improvement revenues result from the recognition of revenue deferred from prior period sales. Recognition occurs as development work proceeds on previously sold property. Improvement re.venues totalled $6,594,000 for 1984 versus $5,508,000 for 1983. This increase reflects the Company's mcreased land development expenditures in 1984 compared to 1983. · $8 015 ,000 1'cor 1984 compared to $11 , 358 , 000 for 1983. This decline resulted from • I nterest tncome was , lower contracts and mortgages receivable balances, as well as from the decrease in cash held m escrow· Revenues from the utility subsidiaries were $13,686,000 for 1984 compared to $11,758,000 for the 19.83 period. The increase in utility revenues was due to rate increases granted in early 1984. Gross profit margms were 46.0% for 1984 compared to 45.4% for 1983. Revenues from sales-other were $11,954,000 for 1984, down from $13,134,000 for 1983. Included in sales-other revenues for 1983 were $2,000,000 from the Company's asphalt subsidiary. Substantially all of the assets of the asphalt subsidiary were sold in the first quarter of 1984; such sale accounted for $700,000 in sales-other revenues in the first quarter of 1984. The Company's joint venture at Tierra Verde contributed $1,319,~ to earnings ~or 1984 compared. to $834,000 for 1983 as a result of the recognition of deferred revenue due to mcreased land Improvements durmg 1984. The Company's non-consolidated mortgage subsidiary r~ported a ~rofi~ of $103,000 for 1984 compa~ed c r 1983 • This was the result of a sigmficant dechne m mortgage. placements for thtrd • • •• t o a profit of $242 ,000 1'0 party customers caused by increased competition from other fin~ncial ~nstitutions .and a d~chne t~ acttvtty caused by rising mortgage interest rates. Coincident with the dtscontmuance of tts housmg busmess, the Company will phase out the operations of its mortgage subs~diary during 1985. In the fourth quarter of 1984, the Company sold substantially all of its mortgage portfoho for a profit of $287,000. 24 Costs and expenses for 1984 were $102,836,000 compared to $95,089,000 for 1983. Cost of sales totalled $47,743,000 for 1984 compared to $47,381,000 for 1983. The increase in such costs represented 5% of the total increase in costs and expenses. The overall increase in the total cost of sales relative to sales reflects the $8,400,000 sale in 1984 of the Marco Island beachfront tract with a cost of $8,100,000. In the fourth quarter of 1984, as a result of unfavorable market conditions, the Company reevaluated its multi-family inventory. Accordingly, the Company incurred a $5,700,000 provision for the writedown of its multi-family inventory to its estimated net realizable value. Commissions, advertising and other selling expenses totalled $16,224,000 for 1984 versus $15,053,000 for 1983 and represented 15% of the increase in total costs and expenses over the period indicated. As a percentage of housing sales and gross land sales, such expenses were 35.9% for 1984 and 33.2% for 1983. Advertising expenditures increased significantly in late 1983 ~nd 1984 as a part of the Company's marketing efforts. Such expenses were $2,924,000 for 1984 versus $1,782,000 for 1983 and accounted for 97% of the increase in commissions, advertising and other selling expenses. Interest expense for 1984 was $17,986,000 compared to $18,641,000 for 1983, a 3.5% decrease. Total interest cost (including capitalized interest) was $20,300,000 and $21,621,000 for 1984 and 1983, respectively. The decline in interest cost was the result of a decrease in outstanding debt obligations and lower interest rates. Net Loss The Company reported a net loss of $23,896,000 ($4.75 per share) for 1984, compared to a net loss of $11,681,000 ($2.61 per share) for 1983. The loss from continuing operations was $24,455,000 ($4.86 per share) for 1984, compared to $11,795,000 ($2.63 per share) for 1983. Discontinued operations of the lumber and airline segments reported losses of $76,000 ($.02 per share) and income of $114,000 ($.03 per share) for 1984 and 1983, respectively. Discontinued operations for 1984 also included a $635,000 gain ($.13 per share) from the sale of the lumber and airline segments. Years Ended December 31, 1983 and 1982 Revenues Revenues declined to $83,294,000 in 1983, down 26% from the 1982 level of $112,496,000. This decline is primarily the result of a decrease in housing and gross land sales. Revenues from housing sales declined 25% in 1983 to $29,416,000, compared to $39,089,000 for 1982. This is primarily the result of a decline in single-family housing revenues, $2,879,000 in 1983 compared to $14,011,000 in 1982. The Company discontinued its single-family housing sales in late 1981 but revenues from sales prior to that date and sales of remaining inventory were reported in 1982 and 1983. Gross profit margins were 29.0% for the year 1983 compared to 30.1% in 1982. At December 31, 1983, the Company's backlog of pre-sold housing products decreased 87% to $5,700,000 from $44,800,000 at December 31, 1982. The decline in backlog was a result of a decrease in multi-family housing orders and cancellations of existing orders. Gross land sales were $15,984,000 in 1983 compared to $33,383,000 in 1982, a decline of 52%. Net land sales declined to $11,044,000 in 1983, compared to $24,641,000 in 1982. Such declines were primarily due to reduced retail land sales attributable to reduced advertising and marketing expenditures. Approximately 30% of the decline in gross land sales resulted from a decrease in bulk land sales, $4,919,000 in 1983 compared to $9,972,000 in 1982. Included in 1982 bulk land sales was an $8,500,000 sale of commercial property previously designated as the site for new corporate headquarters. In 1983, bulk land sales included a $3,800,000 sale. Retail land sales in 1982 included $2,800,000 resulting from the repeal of a county ordinance which had required the Company to contribute certain utility fees for each homesite sold at its Marion Oaks community. 25 1983 1982 Commissions, advertising and other selling expenses decreased 2% to $15,053,000 for 1983 versus $15,414,000 for 1982. As a percentage of housing sales and gross land sales, they were 33% and 21% for 1983 and 1982, respectively. Advertising expenditures decreased in 1983 to $1,782,000 from $2,932,000 in 1982 but were offset by increased marketing overhead costs as the Company developed and implemented its new marketing programs in the second half of 1983. $ 2,879,000 22,233,000 4,304,000 $14,011,000 25,078,000 . Interest expense for 1983 was $18,641,000 compared to $27,457,000 for 1982, a 33% decrease. Total mterest cost (including capitalized interest) was $21,621,000 and $33,878,000. The cause of the decline was lower debt balances and a decline in interest rates. 29,416,000 39,089,000 4,919,000 11,065,000 9,972,000 23,411,000 15,984,000 33,383,000 $45,400,000 $72,472,000 The following table reflects the Company's real estate product mix for the years ended December 31, 1983 and 1982: Years ended December 31, Housing Sales: Single-family ................................................ . Condominium ............................................ ···· Vacation ownership .......................................... . Total o 0 0 0 I 0 0 0 0 0 0 0 0 t 0 0 0 o o 0 0 It I 0 tIt I Itt t 0 0 0 t 0 0 f 0 f 0 0 0 0 t Gross Land Sales: Bulk sales .................................................. . Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... . Total t t t too o o ott t t t t t t t t t t t t tIt Itt t t I o 0 tIt t t t t t tot t t Total Real Estate . . . . . . . . . . . . . . . . .................. . Net Loss Improvement revenues declined 23% to $5,508,000 in 1983 from $7,149,000 in 1982. The reduction in revenues was affected by the Company's decision to defer land development expenditures due to its cash position. Interest income for 1983 was $11,358,000 versus $14,296,000 for 1982. This decline resulted from lower contracts and mortgages receivable balances, as well as from the decrease in cash held in escrow and lower interest rates in 1983 as compared to 1982. Utility revenues were $11,758,000 in 1983 compared to $9,518,000 in 1982. This increase is due primarily due to increases in rates and the customer base. Gross profit margins were 45.4% in 1983 and 43.4% in 1982. Sales-other totalled $13,134,000 in 1983 compared to $17,235,000 in 1982. The decline was primarily due to three non-recurring transactions which occurred in 1982. They were: the sale of the Company's yacht club on Marco Island for $2,000,000 (resulting in a gain of $1,387,000); the sale of one of the Company's office buildings in Dade County, Florida for $1,450,000 (resulting in a gain of $1,136,000); and the successful conclusion of a lawsuit involving the Company's 1976-1979 real estate tax liability, resulting in a $1,200,000 increase in other revenues. The sale of one of the Company's country club operations for $1,600,000 resulted in a gain of $345,000 in 1983. Exclusive of these transactions, sales-other were $12,789,000 in 1983 compared to $13,198,000 in 1982, a decrease of 3%. Gross profit margins from sales-other declined to 20% in 1983 from 37% in 1982. Without the non-recurring transactions in 1983 and 1982, gross profit margins would have been 18% and 20%, respectively. For the year 1983, the Company's joint venture, Tierra Verde, contributed $834,000 to earnings compared to $568,000 in 1982 as a result of an increase in property available for sale. The Company's non-consolidated mortgage subsidiary had a profit of $242,000 for 1983 and broke even for 1982, the subsidiary's initial year of operation. Costs and Expenses Costs and expenses totalled $95,089,000 for the year ended December 31, 1983 compared to $140,371,000 for 1982, a 32% decrease. Included in the 1982 figure was the final provision for Marco permit costs of In 1983, the Company recorded a net loss of $11,681,000 ($2.61 per share), compared to a net loss of $19,230,000 ($4.80 per share) in 1982. The loss from continuing operations was $11,795,000 ($2.63 per share) compared to a loss of$17,694,000 ($4.41 per share) in 1982. Included in the 1982 net loss was the final provision of$22,700,000 related to the permit denials at Marco Island. Discontinued operations of the airline and lumber segments reported income of $114,000 ($.02 per share) for 1983 versus a loss of $1,536,000 in 1982 ($.39 per share). Liquidity and Capital Resources ~· As a .result of declining revenues, significant operating losses and repayment of borrowings, the Company has expenenced a net decrea~e in c~sh from continuing operations of $8,373,000 over the three year period ended December 31, ~984. Thts de?lme was the result of net cash used in continuing operations of$38,588,000, repayme~~ ofborr.o~t~gs aggregatmg $73,621,000 and acquisition of property, plant and equipment (primarily by the utthty substdtanes) of $15,811,000 during this period, partially offset by new borrowings of $84 745 000 (excluding construction loans), proceeds of $19,652,000 from the sale of property, plant and eq~ip~ent, proceeds of $12,250,000 from the private placement of Common Stock and distributions from Tierra Verde of $3,000,000. See Statements of Consolidated Sources and Uses of Cash in the Consolidated Financial Statements and Notes 5 and 10 to Consolidated Financial Statements. Mortgages and Similar Debt The fdllowing table presents information with respect to mortgages and similar debt (in thousands): 1984 Mortgage Notes Payable ..................... Utility First Mortgage Bonds ................. Bank Loans: Revolving Credit Loan .................... Purchase Money Mortgages Loan ........... Term Loan .............................. Bridge Loan ............................. Utility Loan ............................. Others .................................. Construction and Improvement Loans ......... Cost of sales totalled $47,381,000 for the year ended December 31, 1983 compared to $60,732,000 for the comparable 1982 period. The decrease in such costs represented 30% of the total decrease in costs and expenses. The decline in cost of sales was the result of lower housing and land costs resulting from lower housing and land sales volume. 26 1982 . . $ 20,331 30,000 $ 11,768 $ 16,889 . . . . . . . 29,536 6,743 6,996 10,000 30,000 18,450 12,246 1,583 34,110 Total Mortgages and Similar Debt .... . $139,299 29,000 9,050 9,246 6,300 18,000 7,433 56,959 $147,756 18,000 7,434 81,845 $184,864 . T~e Co~pi:my has been late in making certain principal and interest payments on these obligations ~enodtcally smce late 1982 due to the decline in revenues, the resulting decrease in cash flow experienced m 1982, 1983 and 1984, and delays in completing certain planned asset sales and in collections of certain purchase money mortgages. On September 17, 1984, the Company and its lenders entered into an agreement (the "September Letter whereby the lenders agreed to withhold taking enforcement action on account of any event of default attnbutable to the. Company's failure to pay delinquent principal and interest and the principal paymen~s to becom~ due wtth respect to the Bridge Loan and the Purchase Money Mortgages Loan pending the recetpt of certa.m proceeds from .ass.et sales and the Utility Private Placement. The lenders also agreed to defer the matunty date of the pnnctpal outstanding ($ 34,771,000 as of December 31, 19 84) under the Agreement'~) $22,700,000. December 31, 1983 27 I Revolving Credit Loan and a revolving construction loan (collectively, the "Revolving Credit Facilities") until December 31, 1985. Principal prepayments based on collateral tests could, however, be required on the Revolving Credit Facilities prior to that date. The terms of the September Letter Agreement further provided that the lenders would not be obligated to continue their undertaking unless the Company (i) had, by March 31, 1985, made substantial progress toward payment of the principal and interest which was delinquent on the date of the September Letter Agreement and payment of certain bank loans (excluding the Revolving Credit Facilities) with a principal balance of $25,587,000 outstanding as of December 31, 1984; (ii) continued thereafter to enable the lenders to conclude that such principal amount of bank loans will be paid in full by December 31, 1985; (iii) continued in substantial compliance with an expense reduction plan; and (iv) paid interest accruing on its bank loans as it became due. Pursuant to the September Letter Agreement, The Mackie Co. Inc. ("Mackie Co.") advanced an additional $2,000,000 to the Company to meet operating cash shortfalls and extended the due date of the entire $5,000,000 Mackie Co. loan to September 25, 1985. Subsequent to September 17, 1984, the Company was in default under the September Letter Agreement due to its failure to pay current interest, but such default was cured primarily through the application of a portion of the proceeds from the Utility Private Placement. As of December 31, 1984, the Company was in default under the September Letter Agreement due to delinquent principal payments of $850,000 due under certain term loans. Such principal was repaid in February, 1985 from deposit money received on the Tampa Sale. The Company was again in default for its failure to pay current interest and certain principal payments during the first quarter of 1985. In view of these defaults and the Tampa Sale, as of March 29, 1985, the Company and its lenders entered into an agreement superseding the September Letter Agreement (the "March Letter Agreement") whereby the lenders agreed to: (a) continue in effect the deferral provided for in the September Letter Agreement of the maturity date of the principal amounts outstanding pursuant to the Revolving Credit Facilities until March 31, 1986; (b) withhold taking enforcement action on account of any event of default attributable to the Company's failure to pay: (i) the principal of the Bridge Loan or the Term Loan, prior to June 30, 1985; or (ii) the principal due under the Purchase Money Mortgages Loan and a portion of the Company's Construction and Improvement Loans prior to March 31, 1986; and (c) enter into new loan agreements, effective the date of the collection in cash of the full purchase price of the Tampa Sale (provided that the proceeds thereof are applied to the payment of the balance of the Bridge Loan and the Term Loan no later than June 30, 1985). Such new loan agreements would supersede the existing bank loans and would be upon terms and conditions, including a business plan, satisfactory to the lenders and would provide for the repayment of the remaining bank loans outstanding (in accordance with their terms) through December 31, 1986. Pursuant to the March Letter Agreement, the due date of the Mackie Co. loan has been extended to January 31, 1986 and the Company has pledged to the lenders the notes and related security received in the Tampa Sale. In addition, the Company is required to demonstrate to the lenders that it is implementing the business plan referred to in (c) above. The Company believes that it will be able to negotiate satisfactory new loan agreements under the March Letter Agreement and to demonstrate its implementation of an acceptable new business plan. The Company will have to seek further extensions or refinancings of a portion of the Revolving Credit Facilities at the end of 1986. While the Company has been able to renegotiate its bank loans in the past, there is no assurance that it will be able to obtain satisfactory amendments or refinancings in the future. Mortgage Notes Payable of $20,331,000 at December 31, 1984 consists of various purchase money mortgages and installment notes that mature as follows: $10,317,000 in 1985, $1,040,000 in 1986, $1,568,000 in 1987, $589,000 in 1988 and $6,817,000 in subsequent years. Included in Mortgage Notes Payable is a $5,000,000 mortgage note due to Mackie Co. The proceeds of such note were used to meet current debt obligations of 1984. Also included are mortgage notes payable arising from the Company's refinancing of its country clubs and golf courses at Marco Island, Florida for $5,200,000. On December 12, 1984, one of the Company's utility subsidiaries completed a private placement of $30,000,000 of 15Y.z% first mortgage bonds due December 1, 1994, collateralized by substantially all of the 28 subsidiary's assets · The bond s provt'de fior annual mandatory smking . fund payments of $3 000 000 b · · on D ecember 1 1989 Th t f h . . , , egmnmg However, the b~nds . ~ erms o t e bonds prohtbtt .lo.ans to, and investment of funds in, the Company. of the utilit subsidia~er~rut the qu~r~erly payment of dtvtdends ranging from 25% to 100% of net income to retire th:Utilit Lo~n ased on. mtmmum net worth lev:l~. The ~roceeds were used as follows: $18,000,000 to d r y . .' approx~mately $4,100,000 for utihty capttal expenditures, approximately $4 800 000 pay e mquent prmctpal and mterest and the remainder for general corporate purposes. ' ' The Revolving Credit Purchase Mon M t T · Fourth Amended and Res;ated Cr dit de~ o.r gages, erm and Bndge Loans are included under The effective November 30 1983 and m~difi:~ b ~~ur~y Agr~ement (the "Agreement") which was renegotiated is collateralized by substantially all of the e e~tem er and Marc~ Letter Agreements. The Agreement the loans. Under the Agreement th C omp~ny s a~sets and provtdes for cross-collateralization among t dh , e ompany ts reqmred among other thin budgets and obtain lender approval for dividend distributi~ns. gs, o a ere to annual cash J The maturity date of the Revolving Credit Loan has been extend d ~a:ch Letter Agreement. The Company may borrow against this loa: a~oa~arch 31, 1986 pursuant to the ehgt?Ie contracts receivable less the obligation to improve the lots und 1 . o~nt based on a pe~centage of maxtmum line of credit is $30 000 000 and is fully d U d h b er yt~g t e contracts recetvable. The L $2 600 , , rawn. n er t e orrowmg test of the Revolvi C d't oan, , ,000 in principal payments were due February 20 1985 Th C b . . ng re l its lenders and amended the borrowing test so as to cure s h' d 1' . e ompany o tat~ed watvers from Sale Th C · uc e mquency upon the closmg of the Tamp ·.fi deb omhpany ts current in its principal and interest obligations under the Revolving Credit L a mo dl e y t e March Letter Agreement. . . oan as to th~:;~u~?t!a=~~~~!~r~~~o~:~e~e~~~~:;:~ ~~:::~b:~::=~~=u~~~~~il, ~986 pursua1 nt h e ompany a so must mamtam a mmtmum coverage ratio of 1009{ of th D b 31 1984 h o e pure ase money mortgage balance As of ~cern. ~r , , t e coverage ratio was 98%. As of March 31, 1985 the · · · wftt$h mtmmum coverage ratio. During December, 1984, the Company repaid $65~~~~~hwas.m .comlphance o 3,640,000 due on December 14 1984 p h ' e pnnclpa amount withhold any enforcement action as' to th~ r urs~a~t to ~ e. March Letter Agreement, the lenders agreed to towards repaying these and other obligatio:s~:1~~:5~nnctpal payments due, if ~cceptable progress is made The Term Loan amortizes in quarterly installments of $750 000 until aid · f 1 · December31, 1984,theCompanywasdelin uent$750000in . . ' p m .ul m 1986. As of on February 27 1985. The March 31 19is . t 11 , h pnnctpal payments. Such dehnquency was repaid • , ms a ment as been deferred and the T L · to be repaid from the proceeds of the Tampa Sale notes. erm oan ts expected The first $5,000,000 installment of the Bridge Loan wa d 0 December 31 1984 A $5 000 000 h . s ue on ctober 1, 1984 and the remainder on , · , , payment on t e Bndge Loan was made fro th d f Letter the have agreed to th B 'd . g pnnctpal payments due tf the Bndge Loan is repaid by June 30 1985 Th b 1 f e n ge Loan ts expected to be repaid from the proceeds of the Tampa Sale note~. . e a ance o ~:~;~ ~~:s~:!i~~he ~ar~h Agreeme~t, le~ders wit~ol; ~~;ce~fo:~e~::t:~~~= t Other Bank Loans consist primarily of a bank loan administered b h · 1984, a revolving credit loan ofthe Company's lumbers b 'd' Th t e FD!~ and, pnor to September 14, April I, 1985 and provides for re a m u st .tary. e oan admtmstered by the FDIC matures as collateral. As of December 3~ yl9::t th~ou~h :he ~o~lectton of certain purchase money mortgages assigned , , pnnctpa an mterest payments on the FDIC loan were current At December 31' 1984, the Company had $34 110 000 f . . . ' ' Construction and Improvement Loans outstanding and was d r e mquent on approxtmately $545 000 in interest d $100 000 · · · under certain of these loans The del' . . '. an • m pnnctpal payments 31, 1985. The Company and its con~~quet~t p~n~pal :nd mterest was repaid during the quarter ended March will be paid from future closings of rurtc ~on end ers. .ave agr.eed that any delinquent interest on these loans ce am con ommmm umts and the releas · · h loans h ave been modified to provide fu d fi th . e pnces m t ese construction amount outstanding under a loan a n s or e paym~nt of such mterest. The Company has paid the principal greement entered mto to finance th t · f · ·· Tampa Palms from the proceeds of th T e cons ruction o certam amemties at maturity dates are typically renewed fie ~mpa Sale. These loans mature at various dates in 1985. Current . · lenders are satisfactory and the Com or stx d to twelve month periods with l'ts 1end ers. R e1atwns wtt· h these ' pany oes not expect any proble · t' · d h' There can be no assurance that the c . ms m con mumg un er t ts arrangement. ompany wlll be able to obtain dd 1·t' 1 I Th C to retire these loans primarily thro h h . . a . tona renewa s. e ompany expects ug t e sale of condommmm umts. ° 29 Other Obligations Land improvement expenditures were reduced from $11,421,000 in 1982 to $5,230,000 in 1983 due to the Company's cash position. Expenditures for 1984 were $10,112,000. Af; of December 31, 1984, the Company had estimated development obligations of approximately $27,200,000 on sold property, an estimated liability to provide title insurance costing $800,000 and an estimated cost of street maintenance, prior to assumption of such obligations by local governments, of $4,200,000, all of which are included in deferred revenue. The total cost, including the previously mentioned obligations, to complete improvements to tracts from which sales were being made at December 31, 1984, was estimated to be approximately $63,300,000. The Company has included an inllation factor of 8% in estimating these development costs. The Company also escrowed approximately $1,211,000 specifically for land improvements. Excluding anY future expenditures for the development of new communities, the Company anticipates expending $6,800,000 in 1985, $10,300,000 in 1986, $11,200,000 in 1987,$11,100,000 in 1988 and $23,900,000 in subsequent years. The Company intends to finance these development obligations through collections on its contracts receivable, escrow account balances and cash generated from operations. The contracts receivable balance at December 31, 1984 was $54,93 8,000. The approximate principal maturities of the contracts receivables are $13,056,000 in 1985, $10,324,000 in 1986, $8,721,000 in 1987, $6,989,000 in 1988 and $15,848,000 in subsequent years. In addition, the Company also expects to deposit $10,000,000 from the proceeds of the Tampa Sale into an escrow account for the financing of development 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 has fallen behind in meeting its contractual obligations to its customers. In connection with these delays, the Company has entered into a Consent Order with the Division which provides a program for notifying affected customers (see Notes 2 and 8 to Consolidated Financial Statements). In accordance with the Consent Order, the Company is required to meet certain improvement obligations (included in the development obligations described above) and maintain a minimum ratio of contracts receivable to improvement obligations. The Company is in compliance with the Consent Order. In 1976, the Corps denied the Company's application for dredge and fill permits required to complete development of the Marco Island community (see Note 9 to Consolidated Financial Statements). Although the Marco Shores community was not the subject of such application and denial, the Company anticipated that development of Marco Shores as originally platted would not be permitted. As a result, the Company incurred certain obligations to customers who had contracted to purchase property in the Marco vicinity and were adversely affected. From 1976 through 1982, the Company provided in its financial statements an aggregate of $58,300,000 toward these obligations, of which $18,507,000 remained as of December 31, 1984. Also included in the financial statements is an additional $6,991,000 relating to interest accrued on these obligations. In order to meet the refund obligation, the Company has placed certain properties in trust. Net proceeds from the sale of these trust properties are escrowed and used exclusively for payment of refunds. At December 31, 1984, the Company had approximately $952,000 in escrow and $745,000 in trust sales receivables. The remaining refund obligation will be funded from unsold trust properties. Unfavorable market conditions at Marco have hampered the sale of the trust properties, such that the Company has been delayed a joint venture. Other assets are being offered for can be no assurance that such sales will tak 1 sale to generate additional cash for the Company. There Th C e pace. e ompany expects to be able to meet curren . ~hr~ugh cash generated from current operations th ~ operatmg expenses during the next twelve months : t?rs. The Company's principal obligations d~rin~ ~~:~: ~a~e ~nd the revised loan agreements with its th n ;uatton of land improvements at its existing comm ./ ~e ve months are debt retirement and the :~~!~oceedst~mcoll~tlon ~~~::sr~~::~r~:ttp;~xim~tel~ ~m tes. e ompany's debt matures. The Com the Tampa Sale an!':Y $20,000,000 of s:ch to extory an t e of purchase money mortgages. The Co roug t .e sale of tts multi-family housing $6 800e;:g0 the mat~nty dates of the remaining debt. The C mpany w~ll. have to negotiate with its lenders ' ' . ompany antlctpates expendin a . proc~eds j-~;:"n;mg such development costs through a $1 ~ ~~unately on land improvements durin 1985 :~~i!h;!lannincg ;roje:tsai~~l:~~~ ~::a~:~tion, ex~ect; p:~::e~ =referred ~lock to finance such develo:;ent~ ~~~::~:; ~ropo';',d offering of Cumulative c:nve~~~~~ owever, t e Company would be required to seek I . s ro':" t e proposed offering not be available account to be established from the nam v;"'ture and development of new ounty, and would utili th thMe Company to near arco Island in Dad C o~ proJect loan, such that the development ~:;~tlve ~nancmg for these new' projects through a join; pany would a so constder the sale of these pro pe rt'tes. e proJects could be delayed and the Com The Company does not anticipate encounteri . 'fi . . or approvals to proceed with its Putnam Countng stg.m cant dtfficulttes in obtaining any necessary permits ;pprov.als ~o proceed with the development of J:,~~:J:~t a;d ha~ obtained substantially all the necessary s .an and tts new Marco Shores communi! U .ormahzatlon of the development lans th that the funds neede!j to ';"'k suitable means to finance these orr s Island will be obtained by the end of 1985 Fi e. opment and marketing of Putnam County ;nd ~ an~icipated ~roc~o:~:~~ w~ll pr~;,.,t:o~ mo~ths~ancmg or the Marco Shores community is not expected to be consummated within the next twelve ev~ The Company believes that the cash enerat . the proposed extension and refinancing ofgexistined by the new busmess strategy, the new loan agreements ~~~Tampa Sale) will be sufficient to meet its debt !n~e:t "';d the sale of a~sets (including the proceeds fron: o tgattons. However, there can be no assurance that s:c~o;:~nt ~bhgatlOns.and to provide for its ongoing On September 21 1984 th C Wl be suffictent for such purposes · · · . . ' ' e ompany filed Com.rrusSlon for an offering of Cumulative Conve~~:glStratlon statement with the Securities and Exchan e In order to proceed with the offenng of Cumulative Convertible Preferred Stock th :~ f~rther ex.tend the maturities of the Revolving, Cr~i~;P~Y wtll be required to negotiate with its lenders P~eferred St~ck. e umulattve Convertible Preferred Stock ro ose the rayme~t ~f any dividends. The offering wi8 n! m p ace wtth tts lenders. The Company intends to co! Prefer~e.d a~d to permit payment of dividends on offe~~ smce present loan agreements preclude mence untt the Company has revised loan agreements Stock for accelerating the developmen~s~/hte proceeds of th~ ~ffering of Cumulative Convertible acqulSlllo?s and f?r debt reduction. Any outstandin b~l:,:ew commumtles, for financing future property ce on the Mackie Co. loan will also be repaid, in whole ~r m part, m connection with the offering T~ to obtam the necessary revised loan agreements .or t~:~ ~~ne b~ n? ass~rance that the Company will be able o enng wtll be able to proceed. Miscellaneous 30 propos~ act tttes to be in meeting its refund obligation. The Company is continuing to respond to its cash position by actively marketing certain of its assets. In September, 1984, the Company sold its lumber subsidiary for $4,000,000 of which the Company received approximately $3,000,000 in cash with the balance due within one year. Approximately $700,000 of such balance is secured by a first mortgage on real estate in Orlando, Florida and the remainder was used as credits toward the purchase of lumber utilized by the CompanY in its construction activities. As of December 31, 1984, the mortgagor under such mortgage was delinquent with respect to required interest payments. The Company does not anticipate any loss resulting from a default under such mortgage. On October 2, 1984, the Company sold its airline subsidiary for $1,500,000. On October 3, 1984, the Company sold one of its country club operations for $1,250,000. Pursuan\ to the Settlement Agreement, on March 14, 1985, the Company obtained title to approximately SO acres of commercially zoned property in Dade County, Florida. See Note 9 to Consolidated Financial Statements. The Company expects to bulk sell this property or develop it through d~bt tbrou:~ uring 1985 approximate! $60 000 000 31 AUDITORS' REPORT ITEM 8 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA To THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION: 33 Auditors' Report ................ · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Consolidated Balance Sheets as of December 31, 1984 and 1983 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2 Statements of Consolidated Operations for the years ended December 3·1, 1984, 1983 and 198 34 36 Statements of Consolidated Stockholders' Equity for the years ended December31' 1984, 1983 and 1982 ............ · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·. · · · · · · · · 37 Statements of Consolidated Sources and Uses of Cash for the years ended December 31, 1984, 1983 and 1982 ............. ·.. · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·.· · · · · · · · · · 38 Notes to Consolidated Financial Statements ...... · · · · · · · · · · · ·; · · · · · · · · · · · · · · · · · · · · · · · · · · · Supplementary Financial Data ......... · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 39 We have examined the consolidated balance sheets of The Deltona Corporation and subsidiaries as of. December 31, 1984 and 1983 and the related statements of consolidated operations, consolidated stockholders' equity and consolidated sources and uses of cash for each of the three years in the period ended December 31, 1984. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of The Deltona Corporation and its subsidiaries at December 31, 1984 and 1983 and the results of their operations and their sources and uses of cash for each of the three years in the period ended December 31, 1984 in conformity with generally accepted accounting principles applied on a consistent basis. 53 ~· DELOITTE HASKINS & SELLS Miami, Florida March 29, 1985 33 32 CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES LIABILITIES AND STOCKHOLDERS' EQUITY ASSETS December 31, December 31, 1983 1984 Cash, including escrow deposits and restricted cash of $8 836 000 in 1984 $ and $6,237,000 in 1983 (Notes 5 and 8) ........... .' ... : ......... . Contracts receivable for land sales (Notes 2 and 5) ................. . Less: Allowance for uncollectible contracts ....................... . Unamortized valuation discount ........................... . o t o o t Contracts receivable-net Mortgages and other receivables (Notes 2, 3 and 5) ................. . Less: Allowance for doubtful accounts ................... : ....... . Unamortized valuation discount ........................... . I 0 f 0 0 0 0 0 I 0 I I I I I I I" I If I 0 0 10 1 0 0 0 1 8,949,000 Inventories, at lower of cost or net realizable value (Notes 3 and 5): Houses and apartments completed or under construction ............ . Less: Cost recorded on the percentage-of-completion method ........ . Total Land and land improvements .................................... . Other ........................................................ . Total inventories ................................... . 0 0 I If I I I I 0 I I I I I I I 0 0 I I 0 I I 0 t•O 0 0 0 I I I Itt It I 1110 0 Land held for investment, bulk sale, or future development-at cost (Note 3) .................................................... . Property, plant, and equipment, at cost (Notes 4 and 5) ............. . Less: Accumulated depreciation and amortization ................. . Property, plant, and equipment-net ............................ . Prepaid expenses and other (Note 11) ............................. . Total ............................................ . The 6,237,000 61,822,000 (4,097 ,000) (5,368,000) 43,017,000 52,357,000 15,291,000 (402,000) {73,000) 25,835,000 (1,206,000) {272,000) 14,816,000 24,357,000 24,727,000 {409,000) 41,530,000 (2,405,000) 24,318,000 50,066,000 1,312,000 39,125,000 53,714,000 5,074,000 75,696,000 97,913,000 1 Mortgages and other receivables-net ........................... . 0 $ 54,938,000 (5,591,000) (6,330,000) 0 1984 34,922,000 22,317,000 94,324,000 (22,573,000) 101,061,000 (23,892,000) 71,751,000 77,169,000 3,261,000 4,540,000 $252,412,000 $284,890,000 Mortgages and similar debt (Notes 5 and 13): $ 20,331,000 Mortgage notes payable ............. . ···························· Utility first mortgage bonds 30,000,000 Bank loans ...... · · · · · · · · · · · · · · · · · · · · · · · · · · · .. · · · · 54,858,000 Construction. ~~~. i·~~~~~~~~~~ ·1~~~~ .... · · · · · · · · · · · · · · · · · · · · · · · · · · · 34,110,000 Total mortgages and si~i~~r· ~~~~ . . . . . . . . . . . ........ · · · 139,299,000 Accounts payable-trade. ····················· 6,466,000 Accrued expenses and oth~r· (~·o·t~. ~)· : : : : : : : : : : : · · · · · · · · · · · · · · · · · · · 18,672,000 Customers' deposits . . . . . . . · · ·. · · · · · · · · · · · · · · · · 5,031,000 25,498,000 Allowance for Marco permit ·;~s~~ ·(~~~e· ~)::::::::::::::::: · · · · · · · · 40,810,000 Deferred revenue (Notes 4 and 7) . . . . . . . . . . . . . ········ /. Total Liabilities ................. · · · 235,776,000 I I I 0 I o I I I 0 0 0 0 I 0 0 I I I I o 0 I I I I I I I I It I I $ 11,768,000 79,029,000 56,959,000 147,756,000 7,285,000 15,880,000 2,722,000 25,912,000 44,828,000 244,383,000 Commitments and contingent liabilities (Notes 7, 8, 9, 11 and 13) Stockholders' equity (Notes 5, 10 and 13): Common stock, $1 par valueth . d 18.g~o,ooo shares; outstanding: 1984-5,033,461; 1983-5 02~u68~n(e ' ' exc u mg 29,678 shares held in treasury at both dates) Capital surpl ..........······························· us ..... . Retained earnings (defi~i~). :: ....... · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Total stockholders' equity ... : : : : : : : : : : : : : : : ............ · · · · · · · · · · Total ................ · · · · · · I 0 I 0 f I I I I I I 0 I I 0 I I I I I I 0 I I I I I I I If I If I I I I I I I I I It 5,033,000 49,162,000 (37,559,000) 5,030,000 49,140,000 (13,663,000) 16,636,000 40,507,000 $252,412,000 $284,890,000 part of the consolidated fi nap.cia . 1 st atements. The accompanyin g no t es are an mtegral · accompanyin~ notes are an integral part of the consolidated financial statements. 35 34 It 1983 STATEMENTS OF CONSOLIDATED OPERATIONS STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES Years ended December 31, 1984 1983 1982 For the years ended December 31, 1984, 1983 and 1982 Common Stock ($1 par value) Revenues $ 19,209,000 $ 29,416,000 $ 39,089,000 f. Sales-houses and apartments 33,383,000 15,984,000 26,043,000 Gross land sales . . . . . ................................................... . (1,246,000) (1,078,000) (3,729,000) Less: Estimated uncollectible sales (Note 2) ................................ . (5,444,000) (2,321,000) (2, 165,000) Deferred revenue--future improvements .............................. . (2,052,000) (1,541,000) (2,648,000) Contract valuation discount ......................................... . 24,641,000 11,044,000 17,501,000 Net land sales .......................................................... . 7,149,000 5,508,000 6,594,000 Improvement revenue-prior period sales ................................... . 14,296,000 11,358,000 8,015,000 Interest income ......................................................... . 9,518,000 11,758,000 13,686,000 Utility revenues ......................................................... . 17,235,000 13,134,000 11,954,000 Sales-other ........................................................... . 568,000 1,076,000 1,422,000 Equity in earnings of joint venture and non-consolidated subsidiaries (Note 11) .. . 112,496,000 83,294,000 78,381,000 Total ........................................................ . 0 0 I 0 0 0 0 0 0 0 I 0 I 0 e I 0 0 0 I 0 0 0 0 II 0 0 0 0 0 0 0 o t 00 o 0 0 0 0 0 Balances, December 31 1981 Sh~e ~ issu~d as the' Comp~~;.~. ~~~~;il~~~i~~· ~~ · ~h~ e ona mp1oyees' Profit-Sharing Plan ........ . Net proceeds from exercise of stock options Net loss for the year ········ Balances, December 31. ~~~~ ............. · · · · · · · · · · 1 Net proceeds from e~ercise ~f ~~o.ck. ~~~i·o·~s· · · · · · · · · Net loss for the year . . . . . . . . . . ········ Net proceeds from employee stock. ~~~~h~~~s·::::::: Net proceeds from private placement of 1 000 000 shares • • Balances, D~~~~~~~ ·~~,· ~~~~ ........... · · · · · · · · · · · · Net loss for the year ······················ e~~i;;e~· ~t·o~k· ~~~~h~~~s·::::::: December 31, 1984 ...................... Net proceeds from Costs and expenses Cost of sales-houses and apartments ...................................... . Cost of sales-land ...................................................... . Cost of improvements-prior period sales .................................. . Cost of sales-utility .................................................... . Cost of sales-other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . Provision for multi-family inventory writedown (Note 3) ..................... . Loss from single-family housing operation (Note 1) .......................... . Commissions, advertising, and other selling expenses ......................... . General and administrative expenses ....................................... . Real estate tax expense ..... , ............................................. . Interest expense (Note 5) ................................................ . Subtotal ............................................................... . Provision for Marco permit costs (Note 9) .................................. . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 16,049,000 10,097,000 5,595,000 20,872,000 4,895,000 4,697,000 6,417,000 10,500,000 5,387,000 10,830,000 16,224,000 11,923,000 2,950,000 15,053,000 15,414,000 11,053,000 2,961,000 11,605,000 2,463,000 17,986,000 18,641,000 27,457,000 95,089,000 117,671,000 7,396,000 8,606,000 5,700,000 102,836,000 95,089,000 140,371,000 (11,795,000) (27,875,000) 102,836,000 (24,455,000) (24,455,000) (10, 181,000) (11,795,000) (17,694,000) 114,000 (1,536,000) (76,000) 635,000 Gain on disposal of lumber and airline segment (Note 12) .................. . $(23,896,000) $(11,681,000) $ (19 ,230,000) Loss per common and common equivalent shates: $ From continuing operations .............................................. . ~4.86) $ ~2.63) $ ~4.41) $ ~4.75) $ {2.61) $ {4.80) Net loss ............................................................... . The accompanying notes are an integral part of the consolidated financial statements. 36 3,989,000 37,622,000 31,000 4,000 189,000 29,000 4,024,000 3,000 37,840,000 21,000 3,000 29,000 Retained Earnings (Deficit) 17,248,000 (19,230,000) (1,982,000) (11,681,000) 1,000,000 11,250,000 5,030,000 49,140,000 3,000 22,000 $5,033,000 $49,162,000 (13,663,000) (23,896,000) $(37,559,000) The accompanying · notes are an integral part of the consolidated financial statements. 22,700,000 Discontinued operations: Income (loss) from operations of lumber and airline segments less applicable income taxes ............. ·.......................................... . Net loss ................................................................. . Balances, 310,000 Benefit for deferred income taxes (Note 6) .................................. . Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,306,000 11,189,000 6,020,000 Capital Surplus 37 STATEMENTS OF CONSOLIDATED SOURCES AND USES OF CASH NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES Years ended December 31, 1984 1983 1982 Operations: Cash received from: Proceeds from sale of residential units ......................... . $ 23,396,000 $ 32,424,000 $ 80,718,000 Less: Repayment of construction loans ........................ . (21,011,000) (28,456,000) (84, 135,000) Net proceeds (repayments) residential units .................. . Collections on contracts and mortgages receivable (including interest) ....................................... . 2,385,000 3,968,000 (3,417,000) 23,684,000 30,358,000 34,090,000 Down payments on and cash sales of homesites and tracts ....... Proceeds from sale of Marco trust property .................... Cash received from utility operations .......................... Other sources (uses)-net .................................... . . . . 10,428,000 5,927,000 6,735,000 1,561,000 4,189,000 4,631,000 11,840,000 11,747,000 9,496,000 4,469,000 3,299,000 2,176,000 Total ..................................................... . 54,367,000 59,488,000 53,711,000 Cash expended for: Residential construction ......................... , ........... . 8,215,000 9,272,000 46,149,000 Less: Proceeds from construction loans .......... , , .. , ......... . (4, 881,000) (6,761,000) (41,948,000) Net expenditures-residential construction ................... . 3,334,000 2,511,000 4,201,000 Land improvements ....................· ............. , ..... , . Inventory and investment land ............................... . Marco customer programs payments ....................... , .. . 10,112,000 5,230,000 11,421,000 3,758,000 2,541,000 4,323,000 1,920,000 4,861,000 5,549,000 Utility operating expenses ................................... . Selling expenses ............................................ . 7,150,000 6,417,000 5,387,000 11,638,000 9,354,000 15,203,000 General and administrative expenses . . . . . . . . . ................. . Interest costs .............................................. . Real estate taxes .......... , ................ , .. , , ... , ..... , . , 8,663,000 8,403,000 7,898,000 15,860,000 21,455,000 20,227,000 2,460,000 2,784,000 3,494,000 Total ....................................... , ............. . 64,895,000 63,556,000 77,703,000 Cash used in continuing operations .......................... , .......... . (10,528,000) (4,068,000) (23,992,000) New borrowings--other than construction loans ........................ . Sale of property and equipment ...................................... . 45,037,000 10,195,000 29,513,000 8,145,000 7,539,000 Distribution from joint venture investee .. , ............................. . Proceeds from the issuance of common stock .............. ~ ............ . 1,000,000 Total . . . ............................ , . . . . . . . . . . . . . . ....... . 54,182,000 29,984,000 35,481,000 Other Sources: 3,968,000 2,000,000 12,250,000 Other Uses: Repayment of borrowings--other than construction loans .......... , .. , .. . 37,547,000 26,567,000 9,507,000 Acquisition of property, plant and equipment ........................... . 3,428,000 3,928,000 8,455,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 40,975,000 30,495,000 17,962,000 2,679,000 (4,579,000) (6,473,000) 33,000 {125,000) (257,000) 2,712,000 $ {4, 704,000) $ (6,730,000) Net increase (decrease) in cash from continuing operations (including escrow deposits and restricted cash) ......................................... . Net cash provided by (used in) discontinued operations ......................................................... . Net increase (decrease) in cash (including escrow deposits and restricted cash) . $ The accompanying notes are an integral part of the consolidated financial statements. 1. Significant Accounting Policies The consolidated financial statements are prepared in accordance with generally accepted accountin principles and include The Deltona Corporation and its wholly-owned non-financial domestic subsidiaries (th! "Company"). The Company's wholly-owned financial subsidiary, the Deltona Mortgage Company, is accounted for using the equity method of accounting (see Note 11). Material intercompany accounts and transactions are eliminated. The Company sells homesites under installment contracts which provide for payments over periods ranging from 2 to 15 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"). Land improvement costs are allocated to individual homesites based upon the re~ationship 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 internal engineering estimates made in accordance with sound cost estimation practices and provide for anticipated cost-inflation factors. Th~ estimates are systematically reviewed. Whert cost estimates are revised, the percentage they bear to deferred revenues are recalculated on a ~umulative basis to determine future income recognition as performance takes place. Interest costs directly related to, and incurred during, a project's construction period are capitalized. Such capitalized interest amountedto $2,314,000, $2,980,000 and $6,421,000 for the years ended December 31, 1984, 1983 and 1982, respectively. Bulk land sales are recorded and profit is recognized in accordance with FASB No. 66. Bulk land sales are discounted so that the resulting purchase money mortgage will yield Y2% above a specified prime rate at the contract date over the life of the mortgage. 'Bulk land sales of approximately $11,845,000, $4,919,000 and $9,972,000 are included in gross land sales for the years ended December 31, 1984, 1983 and 1982, respectively. Sales of houses and vacation ownership units and all related costs and expenses are recorded at the time of closing. Revenues and related costs and expenses from the sale of condominium apartments are recognized under the percentage~of-completion method in accordance with FASB No. 66. On August 14, 1984, the Board of Directors endorsed a plan to discontinue the sale and construction of single-family homes. This represents the phasing out of part of the Company's product line. In accordance with Accounting Principles Board Opinion No. 30, subsequent to August 14, 1984 the results of operations of this product line have been shown as a separate component of income from continuing operations. Revenues and expenses from discontinued single-family homes for the period from August 14 through December 31, 1984 were $1,902,000 and $2,212,000, respectively. Property, plant and equipment are 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. The Company's profit-sharing plan, which was terminated on October 17, 1984, covered all Company employees except those on commission and hourly employees engaged in construction. Annual Company contributions to the plan were made in cash or in shares of Common Stock valued at their fair market value at the time of contribution. When property exchanges and refund transactions are consummated under the Company's Marco Island-Marco Shores option 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 provision included in accrued expenses and other. The Company accrues interest on its refund obligations in accordance with the various customer refund programs. Certain amounts in the 1983 and 1982 financial statements have been reclassified for comparative purposes. 38 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIALSTATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES 2. Contracts and Mortgages Receivable At December 31, 1984, interest rates on contracts receivable outstanding ranged from 5% to 11% per annum (weighted average approximately 8.2%). The approximate principal maturities (in thousands) of contracts receivable (including $672,000 restricted for use in the Marco refund program) were: December 31, 1984 1985 ........................................... 1986 ........................................... 1987 ........................................... 1988 ........................................... 1989 ........................................... 1990 and thereafter . . . . . . . . . . . . . . . . . . . . .......... Total .............................. . . . . . . . $13,056 10,324 8,721 6,989 4,712 11,136 $54,938 3. During 1984 $18,392,000 was reclassified from land and land improvements to land held for investment, bulk sale or future development. In addition, the carrying value of the Tampa property of approximately $9,900,000 was reclassified from land held for investment, bulk sale or future development to land and land improvements (see Note 13). At December 31, 1984, land and land improvements included approximately $7,791,000 of land placed in the Marco Island and Marco Shores Trusts (see Note 9). The following table presents cost information (in thousands) with respect to inventory of houses and apartments, including related land costs: 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, 1984 and December 31, 1983 approximate $7,215,000 and $8,259,000, respectively, of which $1,539,000 matures in 1985. Information with respect to interest rates and average contract lives used in valuing new contracts receivable generated from sales follows: Average Term Period ended Average Stated Interest Rate December 31, 1984 1985 ........................................... . 1986 ........................................... . 1987 ........................................... . 1988 ........................................... . 1989 ........................................... . Total (included in mortgages and other receivables) ....................... . 5,854 1,272 1,436 308 238 Proceeds from substantially all the mortgages will be used to repay the Company's debt. 3. Inventories Information (in thousands) with respect to the classification of inventory of land and improvements is as follows: December 31, 1984 Unimproved land ................................... Land in various stages of development ................ Fully improved land ............................... Total ................................ 40 . . . . $ 1,867 37,455 10,744 $50,066 December 31, 1983 $20,239 ·.- 26,824 6,651 $53,714 December 31, 1984 December 31, 1983 Single-family homes: Completed ...................................... . Under construction .............................. . $ 1,331 4,754 $ 1,489 535 Total ................................ . 6,085 2,024 18,642 39,506 Multi-family units: Completed ...................................... . Less: Amounts recorded under the percentage-of-completion method of accounting Recovered through customer deposits ............... . Unrecovered .................................... . Discounted to Yield December 31, 1984 ................................. 134 months 7.0% 13.5% December 31, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 months 8.1% 15.0% December 31, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 months 9.2% 15.0% Homesite sales to franchised representatives and salespersons aggregated approximately $565,000 in 1984 $369,000 in 1983, $1,054,000 in 1982. In accordance with the Consent Order (see Note 8), the Company is required to maintain a contracts receivable balance plus future interest collections from the sale of property in certain of its Central and North Florida communities equal to at least 110% of the amount necessary to complete certain improvements. At December 31, 1984 and December 31, 1983, the minimum required amount was $62,420,000 and $65,255,000, respectively. At December 31, 1984, the Company was in compliance with the Consent Order. In the fourth quarter of 1984, the Company made a $2,200,000 additional provision for the cancellation of certain contracts receivable which were deemed uncollectible. Such contracts receivable arose from four related commercial tract sales and are not necessarily representative of the total contracts receivable portfolio. At December 31, 1984, mortgages receivable were collectible over periods ranging from one to eight years at stated interest rates of 7.5% to 14%. Principal maturities (in thousands) were approximately: Inventories-(Continued) (61) {348) (361) (2,044) Net cost of multi-family units ..................... . 18,233 37,101 Total ................................ . $24,318 $39,125 In the fourth quarter of 1984, as a result of unfavorable market conditions, the Company reevaluated its multi-family inventory. Accordingly the Company incurred a $5,700,000 provision for the writedown of . its multi-family inventory to its estimated net realizable value. Approximately $434,000 and $2,916,000 of revenues recognized under the percentage-of-completion method were included in mortgages and other receivables at December 31, 1984 and 1983, respectively. 4. Property, Plant, and Equipment Property, plant, and equipment, and accumulated depreciation consist of the following (in thousands): December 31, 1984 Cost Land and land improvements ........ $ 8,917 Utility plant and equipment ......... 61,780 Other buildings, improvements, and furnishings . . . . . . . . . . . ........... 11,435 4,682 Construction and other equipment .... 7,510 Utility plant under construction ...... Total ................. $94,324 December 31, 1983 Accumulated Depreciation Cost Accumulated Depreciation $13,819 $ 11,773 59,635 $12,062 5,753 3,001 12,877 11,270 5,506 5,614 6,216 $22,573 $101,061 $23,892 Depreciation charged to operations for the years ended December 31, 1984, 1983 and 1982 was approximately $2,419,000, $2,759,000, and $2,704,000, respectively; depreciation charged to other accounts was approximately $84,000 in 1984, $163,000 in 1983, and $432,000 in 1982. During 1983, the Company entered into a sale-leaseback agreement on one of its Miami office buildings. The profit on this agreement is included in deferred revenue and_ is being amortized as a reduction of rent expense over the term ofthe lease. At December 31, 1984 and December 31, 1983, $3,826,000 and $4,076,000, respectively, of the profit remained in deferred revenue. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES Mortgages and Similar Debt At December 31, 1984 and 1983, indebtedness under various purchase money mortgages and loan agreements was collateralized by substantially all of the Company's assets, including stock of certain wholly-owned subsidiaries. At December 31, 1984, mortgages and similar debt matures as follows (in thousands): 5. December 31, 1984 $ 59,884 40,441 1,568 589 6,817 30,000 $139,299 1985 ........................................... . 1986 ........................................... . 1987 ........................................... . 1988 ........................................... . 1989 ........................................... . 1990 and thereafter .............................. . Total .............................. . Mortgage Notes Payable Interest rates on mortgage notes payable ranged from 7.6% to 24.9% at December 31, 1984. The weighted average interest rate of such mortgages at December 31, 1984, 1983 and 1982 was 12.5%, 12.5% and 13.3%, respectively. At December 31, 1984, mortgage notes payable mature as follows (in thousands): December 31, 1984 1985 ........................................... 1986 ........................................... 1987 ........................................... 1988 ........................................... 1989 ........................................... Total .............................. $ 5,317 6,040 1,568 589 6,817 $20,331 . . . . . . Included in mortgage notes payable at December 31, 1983 was $625,000 of the Company's unsecured 6%% note payable. This note was repaid in June, 1984. Included in mortgage notes payable at December 31, 1984 is a $5,000,000 mortgage note due to The Mackie Company, Inc. ("Mackie Co."), a major stockholder of the Company. Such note matures on January 31, 1986 and bears interest at the prime rate charged by Citibank, N.A., plus 2%. Also included are mortgage notes payable arising from the Company's refinancing of its country clubs and golf courses at Marco Island, Florida for $5,200,000. Utility First Mortgage Bonds On December 12, 1984, one of the Company's utility subsidiaries completed a private placement of $30,000,000 of 15~% first mortgage bonds due December 1, 1994 (the "Utility Private Placement"), collateralized by substantially all of the subsidiary's assets. The bonds provide for annual mandatory sinking fund payments of$3,000,000beginningonDecember 1, 1989. The terms of the bonds prohibit loans to, and investment offunds in, the Company. However, the bonds permit the quarterly payment of dividends ranging from 25% to 100% of net income of the utility subsidiary based on minimum net worth levels. The proceeds were used as follows: $18,000,000 to retire the Utility Loan, approximately $4,100,000 for utility capital expenditures, approximately $4,800,000 to pay delinquent principal and interest and the remainder for general corporate purposes. 42 Mortgages and Similar Debt-(Continued) The Company has been late in making certain of its principal and interest payments on its bank and construction loans periodically since late 1982 due to the decline in revenues, the resulting decrease in cash flow experienced in 1982, 1983 and 1984 and the first nine months of 1984, and delays in completing certain planned asset sales and in collections of certain purchase money mortgages. On September 17, 1984l the Company and its lenders entered into an agreement (the "September Letter Agreement") whereby the lenders agreed to withhold taking enforcement action on account of any event of default attributable to the Company's failure to pay delinquent principal and interest and the principal payments to become due with respect to the Bridge Loan and the Purchase Money Mortgages Loan pending the receipt of certain proceeds from asset sales and the Utility Private Placement. The lenders also agreed to defer the maturity date of the principal outstanding ($34,771,000 as of December 31, 1984) under the Revolving Credit Loan and a revolving construction loan (collectively, the "Revolving Credit Facilities") until December 31, 1985. Principal prepayments based on collateral tests could, however, be required on the Revolving Credit Facilities prior to that date. The terms of the September Letter Agreement further provided that the lenders would not be obligated to continue their undertaking unless the Company (i) had, by March 31, 1985, made substantial progress toward payment of the principal and interest which was delinquent on the date of the September Letter Agreement and payment of certain bank loans (excluding the Revolving Credit Facilities) with a principal balance of $25,587,000 outstanding as of December 31, 1984; (ii) continued thereafter to enable the lenders to conclude that such principal amount of bank loans will be paid in full by December 31, 1985; (iii) continued in substantial compliance with an expense reduction plan; and (iv) paid interest accruing on its bank loans as it became due. Pursuant to the September Letter Agreement, Mackie Co. advanced an additional $2,000,000 to the Company to meet operating cash shortfalls and extend~d the due date of the entire $5,000,000 Mackie Co. loan to September 25, 1985. Subsequent to September 17, 1984, the Company was in default under the September Letter Agreement due to its failure to pay current interest, but such default was cured primarily through the application of a portion of the proceeds from the Utility Private Placement. As of December 31, 1984, the Company was in default under the September Letter Agreement due to delinquent principal payments of $850,000 dl:le under certain term loans. Such principal was repaid in February, 1985 from deposit money received on the sale of the Company's Tampa Palms property (the "Tampa Sale"). The Company was again in default for its failure to pay current interest and certain principal payments during the first quarter of 1985. In view of these defaults and the Tampa Sale, as of March 29, 1985, the Company and its lenders entered into an agreement superseding the September Letter Agreement (the "March Letter Agreement") whereby the lenders agreed to: (a) continue in effect the deferral provided for in the September Letter Agreement of the maturity date of the principal amounts outstanding pursuant to the Revolving Credit Facilities until March 31, 19 86; (b) withhold taking enforcement action on account of any event of default attributable to the Company's failure to pay: (i) the principal of the Bridge Loan or the Term Loan, prior to June 30, 1985; or (ii) the principal due under the Purchase Money Mortgages Loan and a portion of the Company's Construction and Improvement Loans prior to March 31, 1986; and . $29,536 $29,000 (c) enter into new loan agreements, effective the date of the collection in cash of the full purchase price of the Tampa Sale (provided that the proceeds thereof are applied to the payment of the balance of the Bridge Loan and the Term Loan no later than June 30, 1985). Such new loan agreements would supersede the existing bank loans and would be upon terms and conditions, including a business plan, satisfactory to the lenders and would provide for the repayment of the remaining bank loans outstanding (in accordance with their terms) through December 31, 1986. . . . . . . 6,743 6,996 10,000 9,050 9,246 6,300 18,000 7,433 $79,029 Pursuant to the March Letter Agreement, the due date of the Mackie Co. loan has been extended to January 31, 1986 and the Company has pledged to the lenders the notes and related security received in the Tampa Sale. In addition, the Company is required to demonstrate to the lenders on a continuing basis that it is implementing the terms of the business plan referred to in (c) above. The Company believes that it will be able to negotiate satisfactory new loan agreements under the March Letter Agreement and to demonstrate its implementation of an acceptable new business plan. Bank Loans Bank loans consist of the following (in thousands): Revolving Credit Loan, due March 31, 1986 ....................... Purchase Money Mortgages Loan due in installments through March 31, 1986 ............................................. Term Loan due in installments through 1986 ...................... Bridge Loan due in 1985 ........................................ Utility Loan .................................................. Other due in installments through April 1, 1985 .................... Total ............................................. 5. December 31, 1984 1983 1,583 $54,858 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES 5. Mortgages and Similar Debt-(Continued) The Company wi\1 have to seek further extensions or refinancings of a portion of the Revolving Credit Facilities at the end of '1986. While the Company has been able to renegotiate its bank loans in the past, there is no assurance that it will be able to obtain satisfactory amendments or refinancings in the future. The Company believes that the cash generated by the new business strategy, the new loan agreements, the proposed extension and refinancing of existing debt and the sale of assets (including the proceeds from the Tampa Sale) will be sufficient to meet its debt and development obligations and to provide for its ongoing obligations. The Revolving Credit, Purchase Money Mortgages, Term and Bridge Loans are included under The Fourth Amended and Restated Credit and Security Agreement (the "Agreement") which was renegotiated effective November 30, 1983 and modified by the September and March Letter Agreements. The Agreement is collateralized by substantially all of the Company's assets and provides for cross-collateralization among the loans. Under the Agreement, the Company is required, among other things, to adhere to annual cash budgets and obtain lender approval for dividend distributions. The maturity date of the Revolving Credit Loan has been extended to March 31, 1986 pursuant to the March Letter Agreement. The Company may borrow against this loan an amount based on a percentage of eligible contracts receivable less the obligation to improve the lots underlying the contracts receivable. The maximum line of credit is $30,(X)(),(X)() and is fully drawn. Under the borrowing test of the Revolving Credit Loan, $2,600,000 in principal payments were due February 20, 1985. The Company obtained waivers from its lenders and amended the borrowing test so as to cure such delinquency upon the closing of the Tampa Sale. The Company is current in its principal and interest obligations under the Revolving Credit Loan as modified by the March Letter Agreement. The maturity date of the Purchase Money Mortgages Loan has been extended to March 31, 1986 pursuant to the March Letter Agreement. The loan is repaid based on a fixed payment schedule but the Company also must maintain a minimum coverage ratio of 100% of the purchase money mortgage balance. As of December 31, 1984, the coverage ratio was 98%. As of March 31, 1985, the Company was in compliance with the minimum coverage ratio. During December, 1984, the Company repaid $657,(X)() of the principal amount of $3,640,(X)() due on December 14, 1984. Pursuant to the March Letter Agreement, the lenders agreed to withhold any enforcement action as to the remaining principal payments due, if acceptable progress is made toward repaying these and other obligations in 1985. The Term Loan amortizes in quarterly installments of $750,(X)() until paid in full in 1986. As of December 31, 1984, the Company was delinquent $7 50,(X)() in principal payments. Such delinquency was repaid on February 27, 1985. The March 31, 1985 installment has been deferred and the Term Loan is expected to be repaid from the proceeds of the Tampa Sale notes. The first $5,(X)(),(X)() installment of the Bridge Loan was due on October 1, 1984 and the remainder on December 31, 1984. A $5,(X)(),(X)() payment on the Bridge Loan was made from the proceeds of the Tampa Sale. Pursuant to the March Letter Agreement, the lenders have agreed to withhold any enforcement action as to the remaining principal payments due if the Bridge Loan is repaid by June 30, 1985. The balance of the Bridge Loan is expected to be repaid from the proceeds of the Tampa Sale notes. The Revolving Credit, Purchase Money Mortgages and Term Loans bear interest, at the Company's choice, at the lender's fluctuating "Base Rate" + 1% ("Base Rate" + 1.25% for the Bridge Loan), or at a fixed rate of 1.75% (2.0% for the Bridge Loan) above the rates at which dollar deposits are offered in immediately available funds by banks in the London interbank markets ("LIBOR") for periods from 30 days to one year. On December 31, 1984, the "Base_ Rate" was 10.75% and, depending on maturities, the Reference and LIBOR rates ranged from 10.87% to 12.25%. The effective interest rate of the combined bank loans at December 31, 1984, 1983 and 1982 was 11.75%, 11.86%, and 14.14% respectively. Bank loans, as of December 31, 1984 (giving effect to the March Letter Agreement), mature as follows (in thousands): December 31, 1984 1985 ........................................... . 1986 ........................................ ' .. . Total t 0 o 0 0 0 0 o 0 0 0 t 0 0 0 t 0 I 0 0 0 It I Itt t t I 0 $20,457 34,401 $54,858 5. Mortgages and Similar Debt-(Continued) Other Bank Loans Other Bank Loans consist of a bank loan administered by the FDIC and, prior to September 14, 1984, a revolving credit loan of the Company's lumber subsidiary. The loan administered by the FDIC matures Apri11, 1985, accrues interest at 2% below the "Base Rate" and provides for repayment through the collection of certain purchase money mortgages assigned as collateral. As of December 31, 1984, principal and interest payments on the FDIC loan were current. Construction and Improvement Loans At December 31, 1984, the Company had $34, 110,000 of construction and improvement loans outstanding and was delinquent on approximately $545,000 in interest and $100,000 in principal payments under certain of these loans. The delinquent principal and interest was repaid during the quarter ended March 31, 1985. The Company and its construction lenders have agreed that any delinquent interest on these loans will be paid trom future closings of certain condominium units and the release prices in these construction loans have been modified to provide funds for the payment of such interest. These construction loans bear interest at 1.5% to 2.0% above the "Base Rate" or may be fixed for periods of up to one year at 2.0% to 2.5% above LIBOR. These loans mature at various dates in 1985. Current maturity dates are typically renewed for six to twelve month periods with its lenders. Relations with these lenders are satisfactory, and the Company does not expect any problems in continuing under this arrangement. There can be no assurance that the Company will be able to obtain additional renewals. The Company expects to retire these loans primarily through the sale of condominium units. In July, 1984, the Company entered into a loan agreement in the amount of $6,000,000 to finance the construction of certain amenities at Tampa Palms. The loan bears interest at a rate of 2% per annum in excess of the lender's prime rate (10.75% at December 31, 1984) or, at the Company's option, at a rate of 2.5% in excess of the Federal Home Loan Bank borrowing rate for three-year loans. At December 31, 1984, $1,411,000 in principal amount was outstanding under this loan. The loan was repaid from the proceeds of the Tampa Sale. The maximum and average amounts of short-term borrowings during 1984 and 1983 were approximately $59,248,000 and $44,362,000, and $82,931,000 and $71,010,000 respectively. During years ended December 31, 1984 and 1983, the interest rate on short-term borrowings ranged from 11.16% to 15.00% and from 10.94% to 13.50%, respectively. The weighted average annual interest rate was 13.22% during the year ended December 31, 1984. 6. Income Taxes The Company has made no provision for income taxes for the years ended December 31, 1984 and 1983 as the Company is in a net operating loss carryover position for both financial statement and income tax purposes. After filing its 1984 tax return, the Company's net operating loss carryover for tax purposes is estimated to be $35,704,000, of which $12,290,000 will be available through 1993, $6,731,000 through 1995, $5,458,000 through 1996 and the remainder through 1999. The Company's net operating loss carryover for financial statement purposes was approximately $39,639,000 and $18,449,000 at December 31, 1984, and 1983, respectively. In addition to the net operating loss carryovers, investment tax credit carryovers of approximately $4,201,000, which expire from 1989 through 1999, are available to reduce future federal income tax liabilities only after the net operating loss carryovers have been utilized. The Internal Revenue Service has commenced an examination of the Company's federal income tax returns for the 1981 and 1982 years. At the present stage of the examination, it is the Company's opinion that any proposed adjustments will not have a material effect on the financial statements. 44 45 r I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES Income Taxes-(Continued) The 1982 (benefit) for deferred income taxes resulted from timing differences in the recognition of revenues and expenses for tax and financial statement purposes. The sources of these differences and the estimated tax effect ($ in thousands) of each is as follows: 7. Liability for lmprovements-(Continued) 31, 1984 and $10,300,000 at December 31, 1983-since such cost will be capitalized as additions to utility plant when expended. Anticipated expenditures for such land improvements to complete areas from which sales have been made through December 31, 1984 (in thousands) is as follows: 6. Amount of Tax Effect Increase (Decrease) Income from land sales reported on the percentage-of-completion basis per books and primarily the installment basis for tax purposes-net .......................... . ,, $ Losses on cancellations and consummated Marco option transactions provided for on the accrual basis and recognized for tax purposes upon cancellations ............... . (370) Equity in joint venture income recognized for tax purposes on a different basis ..... . (199) Profit recognized from condominium sales reported on the percentage-of-completion basis per books and recognized on the completed contract basis for tax purposes-net ... (4,894) State income tax provision (benefit), net of federal tax effect, and unrealized state benefit of net operating loss carryover ............................ ·................. . (509) Effect of net operating loss carryovers recognized (generated) for tax purposes ...... . 1,367 Other differences individually less than 5% of deferred income tax (benefit) expense .. 867 Unrealized benefit of net operating loss carryover ............................... . 3,296 ............................................. ............................................. ............................................. ............................................. ............................................. and thereafter ................................ Total ................................ . . . . . . . December 31, 1984 Real Estate $ 2,256 1,859 1,505 1,259 1,102 9,166 $17,147 $ 1,084 988 944 954 988 9,166 $14,124 Equipment $1,172 871 561 305 114 $3,023 46 47 Computed "expected" tax expense (benefit) .................................... . Increases (reductions) in tax resulting from: Differential tax provided at higher rates on reversing timing differences generated in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . Provision (benefit) for state income tax, net of federal income tax effect .......... . Additional federal provision attributable to prior years' non-deductible expenses .. . Unrealized benefit of net operating loss carryover ............................. . :l : "Actual" tax expense (benefit) t t t 1 t' t I I I I. I I It 1 t 7. I 1985 1986 1987 1988 1989 1990 Total 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 tracts from which sales were being made at December 31, 1984 and 1983 was approximately $63,300,000 and $62,200,000, respectively. The foregoing estimates reflect the Company's current development plans at its communities (see Note 8). As of December 31, 1984 and 1983, the Company had an estimated development obligation applicable to sold lots of approximately $27,200,000 and $29,700,000, respectively, a liability to provide title insurance, costing $800,000 and $1,100,000, respectively, and an estimated cost of street maintenance, prior to assumption of such obligations by local governments, of $4,200,000 and $4,000,000, respectively, all of which are included in deferred revenue, and exclude the estimated cost of installing central' water mains:-approximately $10,400,000 at December 34.6% 1982 ' Commitments and Contingent Liabilities Total rental expense for the years ended December 31, 1984, 1983 and 1982 was approximately $2,411,000, $2,469,000 and $1,976,000, 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 (in thousands): The above commitments are not a forecast of future rental expenses and may not necessarily be the amount payable in the event of default. 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, 1984 was approximately $323,359,000. In certain of its Central and North Florida communities, the Company has been delayed in completing improvements to lots in accordance with its contractual obligations. The Company has entered into a Consent Order with the Division of Florida Land Sales and Condominiums which provides a program for notifying all affected customers of the anticipated delays in the completion of improvements, various options which may be selected by affected purchasers, and a schedule for completing certain improvements through 1986. The Consent Order also requires the Company to maintain a contracts receivable balance plus future interest collections from the sale of property in these communities equal to at least 110% of the amount necessary to complete certain improvements (see Note 2). At December 31, 1984 the liability to complete improvements to fully paid-for lots was approximately $26,000,000. At December 31, 1984, the Company was in compliance with the Consent Order. Based upon the Company's experience with affected customers, the Company believes that the total costs arising from the delays in completing such improvements will not materially exceed the amount provided for in the consolidated financial statements. Approximately $5,116,000 and $5,054,000 of the provision for the total costs relating to the delays for improvements remained in accrued expenses and other at December 31, 1984 and 1983, respectively. Included in cash at December 31, 1984 and 1983, are escrow deposits of $1,211,000 and $3,459,000, respectively, restricted for completion of improvements in certain of the Company's communities, $952,000, and $1,312,000, respectively, restricted for Marco Island-Marco Shores refund programs and $640,000 and $700,000, respectively, of deposits held for customers. i .. $(10,181) A reconciliation of the provision for income tax ("actual" tax expense) to the "expected" tax expense computed by applying the federal income tax rate of 46% to income or loss from continuing operations before income taxes for the year 1982 (in thousands) is as follows: ! $ 6,800 10,300 11,200 11,100 23,900 $63,300 8. Interest expense accrued for financial reporting purposes when paid on consummated Marco option program refund elections-net (see Note 9) ..................... . Effective tax rate .......................................................... . 1,' (100) 803 Total (including state income tax (benefit) of $991,000) ..... : .................... . I 1985.............................. . . . . . . . . . . . . . . 1986.. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 1987............................................ 1988 .......................................... :. 1989 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,442) Provision for Marco permit costs (see Note 9) not recognized for tax purposes ...... . ' December 31, 1984 1982 t 1 t 1 t 1 t t 1 t I I I I I I I 0 I I I I I I I I I I I I $(13,530) 25 (509) 537 3,296 $(10,181) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES 8. Commitments and Contingent Liabilities-(Continued) 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 Apri116, 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. On September 29, 1983, the Company reqeived a Corps permit to develop Marco consistent with the Settlement Agreement, and on January 19, 1984, the Company received aU. S. Coast Guard permit-the last remaining federal permit needed to complete development at Marco. The Settlement Agreement and the federal permits provide for the Company to develop as many as 14,500 additional dwelling units in the Marco vicinity. The Settlement Agreement became effective in March, 1985 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 near the Miami International Airport in Dade County, Florida. The Settlement Agreement constitutes the permits required from the Florida Department of Environmental Regulation ("DER") for the development of the additional dwelling units in the Marco vicinity. In June, 1984, Collier County issued a development order and the Company obtained the remaining local approvals necessary to develop Marco Shores, Horr's Island and additional dwelling units at Marco Island, in accordance with its application. In December, 1984, all parties entered into a stipulation to dismiss the appeal of the development order which had previously been filed by the Florida Department of Veteran and Community Affairs. The stipulation will have no material adverse effect on the financial statements of the Company. As a result of the permit denials, the Company has incurred certain obligations with respect to its affected customers. A total of $58,300,000 (including a final provision of $22,700,000 in 1982) has been provided by the Company for such costs. The Company believes that the remaining costs that may result from such permit denials will not materially exceed the amount provided for in the financial statements. Included in the allowance for Marco permit costs is accrued interest of approximately $6,991,000 and $5,802,000 at December 31, 1984 and 1983, respectively, relating to obligations of affected customers. 10. 10. Common Stock and Loss Per Share Information-(Continued) Number of Shares of Common Stock Under option at December 31, 1982 ............................ , ....... , ... Options granted during 1983 .............................................. Options exercised during 1983 ............................................. Options cancelled or expired during 1983 ................................... Under option at December 31, 1983 ........................................ Options granted during 1984 ............ , ................................. Options exercised during 1984 ............................................. Options cancelled or expired during 19 84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , ... Under option at December 31, 1984 ........................................ . . . . . . . . . 122,000 17,300 (2,600) (25,400) 111,300 2,500 (56,300) 57,500 The following table summarizes shares under option at December 31, 1984: December 31, 1984 Number of employees holding options . . . . . . . . . . . . . . . . . . . . . . . . Average exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aggregate exercise price ............ -. . . . . . . . . . . . . . . . . . . . . . . . Aggregate market price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares under option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of options exerciseable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unoptioned shares available for grant . . . . . . . . . . . . . . . . . . . . . . . . . 27 $10.46 $602,000 $280,000 57,500 36,000 130,200 The options outstanding have expiration dates between December, 1986 and August, 1989. The Company has issued warrants in connection with its unsecured 6%% note which was paid on June 15, 1984. The number of shares which may be acq1,1ired through exercise of the warrants diminishes 10% semi-annually, commencing June 16, 1984 until June 15, 1987 when the warrants expire. The following table reflects information with respect to the warrants at December 31, 1984 and 1983. December 31, 1984 Warrants outstanding .............................. . Exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . ........... . 169,000 $14.46 1983 211,000 $14.46 On December 20, 1983, the Company issued warrants in conjunction with the Bridge Loan agreement for the purchase of 200,000 shares of Common Stock at $12.00 per share. The warrants became exercisable on July 1, 1984 and expire July 1, 1988. On July 19, 1983, the Company completed aprivate placement of 1,000,000 shares of its Common Stock for $12,250,000 to a New York financial institution. This transaction had the effect of increasing the weighted average number ofshares by 451,613 for the year ended December 31, 1983. On January 11, 1985, the Company completed a private placement of 200,000 shares of its Common Stock for $1,000,000. This placement was in conjunction with the Tampa Sale. (See Note 13.) Common Stock and Loss Per Share Information Options to purchase Common Stock of the Company have been granted to employees of the Company under several stock option plans. Such shares may be treasury or authorized but unissued shares, and are 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 cannot be less than the market value of the Company's Common Stock on the date of the grant. All options are exercisable for a period of up to five years from the date of grant at an annual cumulative rate of 20%, except that any incentive stock option granted to a person who holds an earlier incentive stock option is not exercisable while any such earlier option is outstanding. No option may be granted after ten years from the date the plan was adopted. No charges to income are made with respect to any of the stock option plans. Information with respect to shares under option follows: ' Tierra Verde Company (the "Venture") was formed pursuant to a joint' venture agreement (the "Agreement") dated November 22, 1976 between the Company's wholly-owned subsidiary, Delverde, Inc. ("Delverde"), and Madonna Corp. ("Madonna"). The purpose of the Venture is to sell homes and homesites, to complete development, and to operate and maintain the community's facilities at the subdivision known as Tierra Verde, located in Pinellas County, Florida. The terms of the Venture extend to December 31, 1990, 48 49 Loss per common and common equivalent share were computed by dividing net loss by the weighted average number of shares of common stock and common stock equivalents outstanding during each period-5,031,522 for the year ended December 31, 1984, 4,478,275 in 1983 and 4,008,143 in 1982. 11. Joint Venture And Non-Consolidated Subsidiary Information NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES 11. Joint Venture And Non-Consolidated Subsidiary lnformation-(Continued) Delverde receives an annual management fee of $100,000 and shares in the Venture's results of operations equally with Madonna. The Company accounts for the Venture under the equity method. Accordingly, the investment in the Venture (included in "Prepaid expenses and other") is carried at cost plus the Company's equity in the Venture's results of operations since inception, net of any distributions received from the Venture. Condensed consolidated balance sheet information of the Venture at December 31, 1984, 1983 and 1982 and results of operations for the periods then ended follow (in thousands): 12. Summarized results of operations of the lumber company follow (in thousands): 1984 Revenues ................. . Costs and expenses . . . . . . . . . . Income (loss) before income taxes ................... . December 31, Assets ..................... Liabilities . . . . . . . . . . ........ Venturers' equity: Delverde, Inc............. Madonna Corp. Total partners' equity ..... Total liabilities and partners' equity ..... Revenues .................. Costs and expenses .......... Net income .......... o I I I I I I I I I 1984 1983 1982 $9,097 $8,529 $12,257 $12,327 $12,360 $14,096 284 284 568 (35) (35) (70) (868) {868) {1,736) $9,097 $5,181 2,543 $2,638 $12,257 $ 3,472 1,802 $ 1,670 $12,360 $ 3,890 2,754 $ 1,136 During 1984 and 1982, $1,000,000 and $2,000,000, respectively, was distributed to each of the Ventur.e partners. The Venture partners' debt agreements restrict future distributions to the Venture partners unttl such debt is repaid. The Company has guaranteed the Venture's debt. The Company's investment in its wholly-owned financial subsidiary, Deltona Mortgage Company ("DMC"), is included in "Prepaid expenses and other". DMC provides mortgage loans to certain buyers of the Company's houses and condominiums. In addition, DMC originates residential mortgag~ loans from outside sources. With the discontinuance of the Company's housing business, the Company Wlll phase out the operations of DMC during 1985. In the fourth quarter of 1984, the Company sold substantially all of its mortgage portfolio for a profit of $287,000. Condensed balance sheet information of DMC at December 31, 1984, 1983 and 1982 and the results of operation for the years then ended follow (in thousands): December 31, Assets ..................... Liabilities .................. Stockholder's equity ......... Total liabilities and stockholder's equity . Revenues .................. Costs and expenses .......... Income before taxes ......... Theoretical taxes Net income I I I I I I I I I I I I 0 I I I I I I I I ~ 1984 1983 $1,006 $ 280 726 $6,731 $6,058 673 = $1,006 $1,515 1,412 103 50 $ 53 $6,731 = $2,047 1,805 242 118 $ 124 $4,383 $ 325 319 6 - -3 $ 3 = $4,383 $3,834 549 Discontinued Operations-(Continued) $14,926 14,569 $18,483 18,862 $15,299 17,186 $ $ (379) $ (1,887) 357 In October, 1984, the Company sold its airline subsidiary for $1,500,000 in cash of which $100,000 is held in escrow to satisfy certain future maintenance requirements. Summarized results of operations of Marco Island Airways, Inc. follow (in thousands): Years ended December 31, Revenues ................. . Costs and expenses . . . . . . ... . Income (loss) before income taxes· ................... . 13. 1984 1983 1982 $3,208 3,641 $5,321 4,828 $4,845 4,494 $ 493 $ 351 Subsequent Events On January 9, 1985, the Company entered into a contract to sell the property which was to have constituted its Tampa Palms community to Kenneth M. Good ("Good"), a Colorado-based developer, for $37,900,000 payable in cash at the closing which was scheduled to occur by June 28, 1985. Good also purchased 200,000 shares of the Company's Common Stock for $5 a share, or $1,000,000. In conjunction with the stock purchase, Good entered into an agreement providing that for a period of two years he would: (i) not acquire additional shares, (ii) vote in accordance with the recommendation of the Company's Board of Directors on specified matters, (iii) not engage in certain takeover actions, and (iv) not dispose of his stock without Board approval. On February 26, 1985, the Tampa Sale contract was modified to accelerate the scheduled closing date while allowing additional time for the payment of a portion of the purchase price. The Tampa Sale closed on March 29, 1985, with the Company receiving $14,400,000 in cash (including prior deposits), a $6,000,000 note bearing interest at a rate of 15~% per annum due April29, 1985, and $17,500,000 in non-interest bearing notes due June 28, 1985. All such notes are secured by mortgages on the Tampa property and by the 200,000 shares of Common Stock of the Company acquired by Good. The proceeds from the Tampa Sale will be used to repay bank loans, to escrow $10,000,000 specifically for land development work in the Company's Central and North Florida communities and for general corporate purposes (see Notes 5, 7 and 8). On March 14, 1985, the Company obtained title to approximately 50 acres of commercially zoned property in Dade County, Florida. (See Note 9.) = 12. '' I ! I Discontinued Operations In September, 1984, the Company sold its wholly-owned lumber subsidiary for $4,000,000 of w~ich the Company received approximately $3,000,000 in cash, with the balanc.e due within on~ year. Approx1~ately $700,000 of such balance is secured by a first mortgage on real estate 1n Orlando, Flonda and the remamder will be used as credits toward the purchase oflumber to be utilized by the Company in its construction activities. The purchasers assumed all the liabilities of the subsidiary. 50 Years ended December 31, 1983 1982 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) SUPPLEMENTARY FINANCIAL DATA (Unaudited) THE DELTONA CORPORATION AND SUBSIDIARIES Financial Data Adjusted for the Effects of Changing Prices 14. Business Segments Year ended December 31, 1984 (in thousands) Years ended December 31, 1984 1980 1981 1982 1983 As Stated in Financial Statements Adjusted for Changes in Specific Prices (Current Cost) $ 78,381 $ 78,381 Cost of sales and other inventory costs .......................... . 53,753 54,451 Selling, general, administrative and other ........................ . 28,678 28,678 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................. . Interest ° 2,419 2,831 110 17,986 17,986 Total .............................................. . 102,836 103,946 Net loss from continuing operations .............................. . $ (24,455) $ (25,565) (in thousands) Revenues (a) Real estate: Single-family housing revenues ................................ . $ 2,540 16,669 Multi-family housing revenues ................................ . 17,501 Net land sales(b) ............................. · · · · · · · · · · · · · · · · 6,594 Improvement revenues(c) .......................... · .. · · · · · · · · 8,015 Interest income(d) ............................. · · · · · · · · · · · · · · 114 Other ..................................................... . 51,433 Total real estate .................................. · · · · · · · 13,686 Utilities ...................................... · · . · · · · · · · · · · · · · 12,106 Other(e) ..................................................... . 1,422 Equity in earnings of joint venture and non-consolidated subsidiary .. . Intersegment sales(f) ........... , ............... · · · · · · · · · · · · · · · · ~ Total .......................... ························· $ 78,381 Operating Profits(a) Real estate(g)(h) ............... · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · $ (5,434) 5,730 Utilities ..................................................... . 3,736 Other ................................ , .......... , ........... . 1,422 Equity in earnings of joint venture and non-consolidated subsidiary .. . General corporate expense ........................ · .. · · · · · · · · · · · (11,923) Interest expense(g) .... , .................. · ... · . · . · · · · · · · · · · · · · · (17,986) Income (loss) from continuing operations before income taxes ....... . $(24,455) Real Estate Identifiable assets ....... 1984 1983 1982 Depreciation expense .... 1984 1983 1982 Capital expenditures .... 1984 1983 1982 $167,977 199,972 250,819 $ 257 290 151 241 $ 28 144 Lumber $7,970 6,655 $ 259 313 $ 519 571 Utilities Other( e) $65,728 59,063 57,327 $ 1,368 1,409 1,193 $ 4,696 4,078 5,328 $14,010 15,538 18,139 $ 540 707 709 $ 162 1,391 227 $ 14,011 25,078 24,641 7,149 14,296 116 85,291 9,518 17,551 568 $ 51,971 87,651 29,545 11,885 15,985 52 197,089 9,977 12,845 1,239 $ 55,726 50,329 44,284 9,122 13,525 105 173,091 8,138 12,667 101 ~) ~) ~) ~ $ 83,294 $112,496 $220,350 $193,030 $ 37,756 2,596 12 1,239 (9,097) (24,433) $ 27,382 2,307 2,273 101 (8,812) (14,383) $ $ $ 2,879 26,537 11,044 5,508 11,358 . 119 57,445 11,758 14,138 1,076 $ 9,001 3,310 6,663 1,076 (13,204) (18,641) $(11,795) $ 6,119 2,403 627 568 (10,135) (27,457) $ (27,875) 8,073 Investment in Joint Corporate Elimination Venture $1,319 $(576) $3,954 (835) (777) 3,959 (868) (678) 3,744 $ 233 94 338 $ 16 1,039 878 8,868 Total $252,412 284,890 335,138 $ 2,398 2,759 2,704 $ 5,115 7,055 7,148 Total revenues ................................................ . Costs and expenses: 0 0 0 0 0 0 0 0 0 0 0 0 I I 0 t t t I Itt I I Itt I I I I I 0 I I 0 t 0 t I I Itt t t t t t Purchasing power gain on net monetary items held . during the year . . . . . . . . . . . . .................................. . $ Decrease in Current Cost of inventories, property, plant, and equipment held during the year* ...................... . $ 7,794 Effect of increase in General Price Level ..................... , .... . 15,137 Excess of increase in General Price Level over decrease in Current Cost ............................................. . $ 22,931 3,544 *At December 31, 1984, Current Cost of inventory and land held for investment, bulk sale or future development was $147,995,000 and Current Cost of property, plant, and equipment, net of accumulated depreciation, was $76,935,000. Information About The Effects Of Changing Prices (a) Due to the sale of the sale of the lumber segment and the sale of the airline segment in 1984, revenues and operating profits from such operations have been excluded from the foregoing table (see Note 12). (b) Net land sales consist of gross land sales less estimated uncollectible installment sales, deferred revenue and contract valuation discount. Included in 1984 estimated uncollectible installment sales is a $2,200,000 provision for certain contracts receivable which were deemed uncollectible (see Notes 1, 2 and 7). (c) Improvement revenues consist of revenue recognized due to completion of improvements on prior period sales. (d) Interest income primarily consists of interest earned on contracts and mortgages receivable and on escrowed cash balances and the amortization of valuation discounts. (e) Other consists of revenues from sales other than real estate and utilities, the major portion of which comes. from the country club operations. (f) Intersegment sales consist primarily of sales between the Company and its title insurance and asphalt subsidiaries. (g) The effect of expensing previously capitalized interest reduced the operat.ing profit of the real est~te segment by$1,258,000in 1984,$1,780,000in 1983, $2,164,000i~ 1982, $9,391,000m 1981 and$~,394,000m1980. T~e effect of capitalizing current period interest decreased mterest 7x1?ense by $2,314,000 m 1984, $2,980,000 m 1983, $6,421,000 in 1982, $14,516,000 in 1981 and $5,929,000 m 1980. Financial Accounting Standards Board Statements No. 33, and No. 82 "Financial Reporting and Changing Prices," require presentation of supplementary information intended to measure the impact on public enterprises of specific price changes ("Current Cost"). Statement No. 33 establishes limited disclosure requirements, emphasizes flexibility and encourages experimentation. Consequently, Current Cost data presented here is not necessarily comparable with data of other companies--even those operating in the same industries as the Company. Current Cost Information Current Cost accounting is an attempt to measure and report, at today's prices, the cost to the Company of purchasing or producing assets having the same service potential as the Company's present assets. It is important to note that Current Cost is not the same as market value. Market value is the price which the Company can obtain for its assets in the normal course of business. The market value of the Company's assets, in management's opinion, far exceeds Current Cost. The Company determined its Current Cost as described below. Current Cost of"Property, Plant, and Equipment" was determined by the use of appraisals, market values and internal estimates applied to a statistical sample of the Company's assets. (h) Operating profits for the real estate segment reflect~.p.rovision for the writ~down of multi-family i~ventory of $5,700,000 in 1984 and an addition to the provision for Marco permit costs of $22,700,000 m 1982. For Current Cost, the assets of the Company's utility systems and most golf course operations have been stated at historical cost. The value-in-use of these operations was estimated to be approximately equal to their historical cost-in the case of the utility operations because their regulating bodies allow only historical cost depreciation to be included in their rates, and golf course operations based on an estimate of the net present value of their future cash flow. 52 53 The Current Cost of the Company's retail land inventory and land underlying buildings under construction was determined based on (1) estimates of what it would cost the Company to acquire comparable parcels of raw land today (in the same manner as tracts were acquired for existing communities) and (2) on engineering estimates of what it would cost, at today's prices, to bring such land to the same stage of development as the existing inventory. Quarterly Financial Data (In thousands, except per share amounts) Comparison of Selected Financial Data Adjusted for the Effects of Changing Prices 1983 1984 ($ Revenues Years ended December 31, 1982 1981 1980 in thousands of average 1984 dollars, except per share amounts) Current Cost information: Loss from continuing operations $ 25,565 Loss from continuing operations per common share ............ . $ 5.08 $ 24,633 $ 5.50 $ 24,590 $ 5,097 6.14 $ 1.27 $ $ 7,109 $ 1.78 Excess of increase in General Price Level over increase in Current Cost ................. . $ 22,931 $ 6,745 $ (2,706) $ 20,267 $ Net assets at year-end ........... . $ 84,039 $119,498 $122,278 $145,450 $160,438 Purchasing power gain on net monetary items held during the year ..................... . $ 3,544 $ 3,832 $ 3,573 $ 5,917 Market price per common share at year-end .................... . 4.87 $ 9.00 $ 8.29 $ 9.28 Average consumer price index .... . $ 298.4 311.1 289.1 272.4 (643) $ 7,431 $ 16.17 246.8 No cash dividends have been paid. For Current Cost the inventory of unpermitted areas of Marco Island-Mateo Shores was assumed, for purposes of this reporting only, to equal historical cost due to the permitting surrounding these areas. Construction costs in the inventory of "Houses and apartments completed or under construction" were not adjusted for Current Cost because these costs were incurred within a relatively short period of time and, consequently, already reflect average-current-year dollars. Likewise, the Current Cost of"Inventories--other" approximates historical cost due to the high rate of turnover. Income (Loss) From Continuing Operations Before Income Taxes Income (Loss) From Continuing Operations Income (Loss) Gain on From Disposal of Lumber Lumber and And Airline Airline Segments Subsidiaries Earnings (Loss) Per Share Net Of Net of Income Income Net Income Continuing Taxes Taxes (Loss) Operations Total 1984 First ......... $ 26,805 $ (3,188) $ (3,188) $ 230 Second ..... 21,068 (3,981) (3,981) (273) Third ....... 17,773 (4,709) (4,709) 48 Fourth ..... 12,735(1) . (12,577)(2) (12,577)(2) (81) Total ............ $ 78,381 $(24,455) $(24,455) $ (76) 1983 First ......... $ 23,200 Second ..... 20,034 Third ....... 19,796 Fourth ..... 20,264 Total ............ $ 83,294 157 (3,880) (3,997) (4,075) $(11,795) 157 (3,880) (3,997) {4,075) $(11,795) 1982 First ......... $ 35,916 Second ..... 23,967 Third ....... 30,379 Fourth ..... 22,234 Total ............ $112,496 $ 919 (24,930) (707) (3,157) $(27,875) $ 564 (14,394) (707) {3,157) $(17,694) $ $ $635 $ (29) (98) 25 216 $ 128 (3,978) (3,972) {3,859) $ .04 (.96) (.82) $ .03 (.99) (.82) ~) _D]) $ 114 ${11,681) $(2.63) $(2.61) $ (189) (10) (602) {735) $ 375 (14,404) (1,309) {3,892) $ .09 (3.60) (.32) $(1,536) ${19,230) $ .14 (3.60) (.17) (.79) ${4.41) ___tm $(4.80) (1) Includes ~n additional provision of $2,200,000 for the cancellation of certain contracts which were deemed uncollecttble. (See Note 2 to the Consolidated Financial Statements.) (2) In ~dditi?n to note 1 above, includes a provision of $5,700,000 for the writedown of multi-family inventory to tts estimated net realizable value. (See Note 3 to the Consolidated Financial Statements.) "Cost of Sales" for Current Cost was computed using the inventory valuation methods previously described. "Depreciation Expense" for Current Cost was computed under the straight-line method using the same useful lives and salvage values used for historical cost purposes. Impact on Net Assets and Purchasing Power Net assets decreased in 1984 primarily due to the significant loss from operations and remained stable in 1983, despite the significant loss from operations, due primarily to the private placement of one million shares of Common Stock at avalue of $12,250,000. In 1982, the large loss from operations was only partially offset by an increase in assets and inventories, attributable mostly to an increase in value of the Tampa Palins project. This decrease in net assets in 1981 and 1980 was due to the depressed real estate market. The purchasing power of the Company's monetary items increased in 1984, 1983, 1982, 1981 and 1980. This increase was attributable to inflation which enables the Company to repay debt in dollars having declining purchasing power, requiring fewer Company resources for future repayment. Inflation causes the Company's operating costs to· increase. The Company attempts to anticipate cost ' increases in its selling prices. 54 322 $313 $ (2,958) $ (.63) $ (.59) (4,254) (.79) (.84) (4,339) (.94) (.86) (12,345)(2) (2.50)(2) (2.45)(2) ${23,896) $(4.86) ${4.75) 55 ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(l) Financial Statements See Item 8, Index to Consolidated Financial Statements and Supplementary Data. (a)(2) Financial Statement Schedules Auditors' Report ................... · .... · .. · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Schedule v _Property, plant and equipment for the three years ended December 31, 1984 ................... ·, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule VI_ Accumulated depreciation, depletion and amortization of property, plant and equipment for the three years ended December 31, 1984 · · · · · · · · · · · · · · · Schedule VII _ Guarantees of securities of other issuers for the three years ended December 31, 1984 ........................ · · ·. · · · · · · · · · · · · · · · · · · · · · · · · · · Schedule VIII_ Valuation and qualifying accounts for the three years ended December 31, 1984.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUDITORS' REPORT 57 58 59 60 61 Schedule IX_ Short term borrowings for the three years ended December 31, 1984 · · · · · 62 Schedule X _ Supplementary income statement information for the three years ended December 31, 1984 ........................ · ... · · · · · · · · · · · · · · · · · · · 6~ All other schedules are omitted because they are not applicable or not required, or because the reqmred 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 . . Report on Form 8-K dated December 12, 1984 responding to item 5 and 7 was filed durmg the fourth quarter of the year ended December 31, 1984. 56 To THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION: We have examined the consolidated balance sheets of The Deltona Corporation and subsidiaries (the "Company") as of December 31, 1984 and 1983 and the related state!llents of consolidated operations, consolidated stockholders' equity, and consolidated sources and uses of cash for each of the three years in the period ended December 31, 1984, and have issued our opinion thereon dated March 29, 1985 (included elsewhere in this Annual Report on Form 10-K). Our examinations also comprehended the supplemental schedules of the Company, listed in Item 14(a)2. In our opinion, such supplemental schedules, when considered in relation to the basic financial statements, present fairly in all material respects the information shown therein. DELOITTE HASKINS & SELLS Miami, Florida March 29, 1985 57 SCHEDULE V SCHEDULE THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT ($ in thousands) ($ in thousands) Balance at Beginning of Period Year ended December 31, 1984 $ 11,773 Land and land improvements 59,635 Utility, plant, and equipment .... 10,263 Other buildings . . . . . . ... · . . . · . Office furniture, fixtures, and · 1,898 equipment ............. · ·. · · 364 Model home furnishings ....... . 352 Leasehold improveme~ts .. : .... . Construction, automotive, air11,270 craft, and other equipment ... . 95,555 Total ............... . 5,506 Construction in progress ....... . $101,061 Total ............... . Year ended December 31, 1983 Land and land improvements .. . $ 11,839 55,539 Utility, plant, and equipment ... . 12,594 Other buildings ............ · · · Office furniture, fixtures, and 1,907 equipment .......... · · · · · · · · 82 Model home furnishings ....... . 599 Leasehold improvements ....... . Construction, automotive, air11,217 craft, and other equipment ... . 93,777 Total .............. · · 7,029 Construction in progress ....... . Total .............. ·. $100,806 Year ended December 31, 1982 Land and land improvements .. . $ 11,936 48,061 Utility, plant, and equipment ... . 13,174 Other buildings .......... · · · · · Office furniture, fixtures, and 2,926 equipment ............. · · · · · 319 Model home furnishings ....... . 792 Leasehold improvements ....... . Construction, automotive, air13,047 craft, and other equipment ... . 90,255 Total ............... . 9,465 Construction in progress ....... . Total ............... . $ 99,720 Additions at Cost 342 2,145(2) 31 $ Retirements $ 910 4,096(2) 833(5) Balance at End of Period $ $ (3,198)(1) (629) $ (470)(1) 7 (1) (306) (34) (313) 60 187 37 274 $ 3,076 Other Changes Add (Deduct) {6,816)(3) $(11,296) (12)(1) (46)(1) $ (521) 1,659 517 64 4,682 86,814 7,510 $ 94,324 $ 11,773 59,635 10,263 (976)(4) $ 8,917 61,780 9,195 (3,164)(4) 121 282 20 (158) (267) 1,898 364 352 1,237(6) $ 7,499 (1,184)(4) $ {5,749) 11,270 95,555 28 (1) $ 28 $ 5,506 $101,061 $ 6,337(7) 5,888(2) 144 $ (6,434)(7) (134)(1) 1,907 82 599 (1,916)(10) (1,456)(1) $$(10,786) 11,217 93,777 (1,224)(8) (238) (250) 339 1 57 1,542(9) $14,308 $ 1,590 (1) (724) $ 11,839 55,539 12,594 7,049 $100,806 (1) Reclassification of existing property, p~ant, and .eq~ip~ent.. (2) Principally water and sewer transmission and dtstnbution hnes. 1 Year ended December 31, 1984 Utility, plant, and equipment .... Other buildings Office furniture, fixtures, and equipment .................. Model home furnishings ........ Leasehold improvements ........ Construction, automotive, aircraft, and other equipment .... I I I I I I I If I I 11 1 1 Total ................ Year ended December 31, 1983 Utility, plant, and equipment .... Other buildings Office furniture, fixtures, and equipment .................. Model home furnishings ........ Leasehold improvements ........ Construction, automotive, aircraft, and other equipment .... It I I I I I I I I I I I I I Total ................ Year ended December 31, 1982 Utility, plant, and equipment .... Other buildings Office furniture, fixtures, and equipment .................. Model home furnishings ........ Leasehold improvements ........ Construction, automotive, aircraft, and other equipment .... I I I I I I I I I I 111 I 1 Total ................ Balance at Beginning of Period Additions Charged to Costs and Expenses Retirements $12,062 4,167 $1,371 395 $ (137) 1,173 51 223 146 89 18 $13,819 4,432 (190) 14 (3) (6)(3) (11)(3) 1,147 134 40 ~(2) 3,001 (186) 6,216 400 {3,684) $23,892 $2,419 ${4,197) $ 459 $22,573 $10,317 4,857 $·1,409 355 $(1,065) $ 336 (1) 20 (2) $12,062 4,167 1,169 30 290 171 21 39 (91) (76)(3) 1,173 51 223 (106) 5,812 764 {600) ~ $22,475 $2,759 ${1,862) $ 520 $ 7,904 4,763 $1,193 465 $ (396) $1,220 (1)(3) $10,317 25 (2) 4,857 2,117 250 276 252 10 87 (1,107) (230) (11) (62)(3) 1,169 30 290 7,084 697 {1,602) ___Q§1)(2)(3) 5,812 $22,394 $2,704 ${3,346) (2)(3) (93)(3) $ 723 6,216 $23,892 $22,475 (1) Represents depreciation and amortization charged to construction work in progress. (2) Represents depreciation and amortization charged to inventory of land and improvements of houses and apartments completed or under construction for equipment used for construction. . ~!~ ~~:~\~::\~ :~: :::: ~~ ~:h~:\~~i=~~ !~C:i~~~l~i~~~. ~~~~:t:~b~:~:~~~ ic,~?~::~. and abranch of the lumber subsidiary. . (5) Principally construction of model homes. (6) Principally addition of construction and computer eqm?ment. (7) Principally the purchase and subsequen.t sale. of office stte. (8) Principally the write-off of fully depreciated ttems. . (9) Principally addition 6f asphalt plant and aircraft ~qmpme.nt. (10) Principally the sale of asphalt plant and construction equipment. 58 Balance at End of Period $ 386 (1) 7 (2) (3) Primarily reclassification of existing property, plant, and equipment. . . . Other Changes Add (Deduct) vt 59 SCHEDULE VII SCHEDULE VIII THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES GUARANTEES OF SECURITIES OF OTHER ISSUERS ($ in thousands) VALUATION AND QUALIFYING ACCOUNTS Name of Issuer of Securities Guaranteed By Person for Which Statement is Filed Title of Issue of Each Class of Securities Guaranteed Amount Owned By Person or Total Amount Persons for Which Guaranteed Statement and Is Filed Outstanding Amount in Treasury of Issuer of Securities Guarantee Nature of Guarantee ($ Nature of Any Default By Issuer of Securities Guaranteed in Principal, Interest, Sinking Fund or Redemption Provisions, or Payment of Dividends Year ended December 31, 1984 Tierra Verde Company ....... Term Loan Agreement Tierra Verde Company ....... Letters of Credit Checker Oil Deed and Company ....... Mortgage 50% Guarantee of Principal and Interest Guarantee of Principal Only 0% Security Sold with Recourse 50% $ 650 $3,778 $2,180 None None None Year ended December 31, 1983 Tierra Verde Company ....... Term Loan Agreement Tierra Verde Company ....... Letters of Credit Deltona Mortgage Company ....... Mortgage Loan Warehousing Agreement Mortgages, Philip Higgins .... Assignments of Rents and Security Agreements Checker Oil Deed and Company ....... Mortgage $2,150 50% $3,778 50% Guarantee of Principal and Interest Guarantee of Principal Only 100% Guarantee of Principal and Interest $3,794 $2,800 0% Guarantee of Principal and Interest $4,360 0% Security Sold with Recourse None None None None None Year ended December 31, 1982 Tierra Verde Company ....... Term Loan Agreement Tierra Verde Company ....... Letters of Credit 50% $2,000 50% $3,778 60 Guarantee of Principal and Interest Guarantee of Principal Only None Those Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet from the Assets to Which They Apply Balance at Beginning of Period Year ended December 31, 1984 Allowance for uncollectible con tracts( 1) . . . . . . . ......... . $ 4,097 Unamortized contract valuation discount(2) ................ . in thousands) Additions Charged to Revenues, Charged Costs, and to Other Expenses Account Deductions from Reserves Balance at End of Period $3,729 $2,235 $ 5,591 $ 5,368 $2,602 $1,640 $ 6,330 Allowance for doubtful accounts(3) ................ . $ 1,206 $ 203 $ 267 $ 402 Unamortized mortgage valuation ~·discount(4) ................ . $ $ $ 247 $ 73 272 $ (740)(5) 48 Year ended December 31, 1983 Allowance for uncollectible contracts(!) . . . . . . . . . . . . . . . . . $ 7,577 Unamortized contract valuation discount(2) . . . . . . . . . . . . . . . . . $ 6,474 Allowance for doubtful accounts(3) . . . . . . . . . . . . . . . . . $ Unamortized mortgage valuation discount(4) .. .. .. .. .. .. . .. .. $ 1,192 $ Year ended December 31, 1982 Allowance for uncollectible contracts(!) . . . . . . . . . . . . . . . . . $11,274 $1,246(6) Unamortized contract valuation discount(2) . . . . . . . . . . . . . . . . . $ 6,992 Allowance for doubtful accounts(3) . . . . . . . . . . . . . . . . . $ Unamortized mortgage valuation discount(4) . . . . . . . . . . . . . . . . . $ 1,657 = $ 4,097 $ 203 888 $ 5,368 $ 10 $ (203) 98 $ 727 $ 1,206 $ 272 $ 7,577 $' 6,474 590 $ 344 $ 62 $ 46· $ 527 $ 888 $ 1,192 (1) Represents estimated uncollectible contracts receivable and includes in 1984 estimated uncollectible installment sales is a $2,200,000 provision for certain contracts receivable which were deemed uncollectible (see Notes 1 and 2 to Consolidated Financial Statements). (2) Represents the unamortized discount generated from initial valuations of contracts receivable (see Notes 1 and 2 to Consolidated Financial Statements). (3) Represents allowance for estimated uncollectible mortgages and other receivables. None (4) Represents the unamortized discount generated from initial valuations of mortgages receivable (see Notes 1 and 2 to Consolidated Financial Statements). (5) Represents the sale of the Company's lumber and airline subsidiaries. (6) Includes Marco write-off of $616,983. 61 SCHEDULE IX SCHEDULE X THE DELTONA CORPORATION AND SUBSIDIARIES THE DELTONA CORPORATION AND SUBSIDIARIES SHORT-TERM BORROWINGS SUPPLEMENTARY INCOME STATEMENT INFORMATION ($ in thousands) Category of Aggregate Short-Term Borrowings Year ended December 31, 19 84 Bank Borrowings: Revolving Construction Loan(1) Condominium Construction Loans(2) .................. . Short-Term Loan(3) .......... . Total Bank Borrowings .. . Other Financial Institutions: Tampa Palms Construction Loan(4) ................... . Total ................. . Year ended December 31, 1983 Bank Borrowings: Revolving Construction Loan( 1) Condominium Construction Loans(2) .................. . Short-Term Loan(5) .......... . Total Bank Borrowings .. . Other Financial Institutions: Condominium Construction Loan(2) ................... . Total . . . . . . . . . . . . . . . . . . Year ended December 31, 1982 Bank Borrowings: Revolving Construction Loan(1) Condominium Construction Loans(2) .................. . Short-Term Loan(5) .......... . Total Bank Borrowings .. . Other Financial Institutions: Condominium Construction Loan(2) ................... . Total .............. ·... . Balance at End of Period Weighted Average Interest Rate Maximum Amount Outstanding During the Period Average Amount Outstanding During the Period(6) Weighted Average Interest Rate During the Period(7) Years ended December 31, 1984, 1983 and 1982 Charges (in thousands) to costs and expenses Maintenance and repairs .................................. $ 7,535 12.2% $ 9,612 $ 9,182 13.2% 24,863 301 32,699 12.3% 12.2% 12.3% 45,905 3,731 59,248 31,939 2,837 43,958 13.2% 14.4% 13.3% 1,411 $34,110 13.2% 12.3% $ 59,248 404 $44,362 14.1% 13.3% $ 9,616 12.4% $ 19,000 $13,760 13.3% 47,343 3,376 60,335 12.4o/o 13.5% 12.5% 57,209 2,400 78,609 52,503 2,355 68,618 12.3% 14.2% 12.6% $60,335 12.5% 4,322 $ 82,931 2,392 $71,010 14.0% 12.7% $19,000 12.8% $ 10,900 $12,723 16.9% 58,287 2,391 79,678 12.9% 14.0% 12.9% 75,448 3,000 89,348 67,156 2,473 82,352 16.9% 17.3% 16.9% 4,558 $84,236 13.5% 12.9% 7,340 $ 96,688 . 5,508 16.8% 16.9% 1983 1982 $2,350 $2,375 $2,950 $2,961 $2,463 179 224 146 $3,129 $3,185 $2,609 $2,924 $1,782 $2,932 Taxes, other than payroll and income taxes: Real estate Other I Itt I Total 0 t 0 0 0 I I I I It 0 t f f t Advertising costs $87,860 1984 $2,330 Ott 0 0 0 t 0 tIt 0 0 If I Itt It t t t t t t t t t t t t t 1 t t 0 t 0 tIt t f t t t t 1 t f 11 f 1 t t t 1 1 t t Itt t I Iff t t t t t f t 1 t 0 t t 0 0 f t t 0 0 t t t t t t t t t t t t t t t 111 0 0 0 0 ................... ' .................... (1) Revolving construction loan maturing December 31, 1984. To be retired with the proceeds from the sale of single family homes. The loan bears interest at the Base Rate + 1lh %. (2) Various construction loans to be retired with the proceeds from the sales of the condominium units. The loans bear interest ranging from 1.5% to 2% above the Base Rate. (3) Construction loan collateralized by model homes in one of the Company's Central and North Florida communities. The loan bears interest at Prime + 2lh %. . (4) Construction loan for the administration building at Tampa Palms. The loan bears interest at Prime + 2lh% (5) Revolving loan collateralized by the inventory and receivable of the lumber segment. The loan bears interest at Prime + 2lh%. (6) Based on simple average of month's end balances. (7) Based on average principal balances outstanding at month's end. 62 63 SIGNATURES INDEX TO EXHIBITS Pursuant to the requirements of Section 13 or 15 (d) of th~ Securities Act of 1934, the ~egistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authonzed. Exhibit Number Exhibits 3(a) Restated Certificate of Incorporation and By-Laws of Registrant, reflecting amendment to Article V of the By-Laws adopted by the Board of Directors of the Registrant on February 28, 1985. 4(a) Specimen certificates for Common Stock, $1 par value, of Registrant. Incorporated herein by reference to Exhibit 2 of the Registrant's Registration Statement on Form S-7, registration number 2-44066. 4(b) Letter Agreement dated as of March 29, 1985, between the Registrant, certain subsidiaries of the Registrant, Citibank, N.A., and certain other Banks. 4(c) Letter Agreement dated as of September 17, 1984, between the Registrant, certain subsidiaries of the Registrant, Citibank, N.A., and certain other Banks. Incorporated herein by reference to Exhibit 4(b) to Form 8-K, dated December 12, 1984. F. E. MACKLE, JR. F. E. Mackie, Jr., Chairman of the Board and Chief Executive Officer & Director 3(d) Note Purchase Agreement dated as of May 19, 1969 between John Hancock Mutual Life Insurance Company and Insurance Company and Registrant with form of Warrant contained therein. Incorporated herein by reference to Exhibit 13(b)(5) of the Registrant's Registration Statement on Form S-1, registration number 2-33076. F. E. MACKLE, III F. E. Mackie, Ill, President & Director 4(e) Amendment to Note Purchase Agreement between John Hancock Mutual Life Insurance Company and Registrant, dated June 28, 1982, modifying terms of warrant. Incorporated herein by reference to Exhibit 4(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. EARLE D. CoRTRIGHT, JR. Earle D. Cortright, Jr., Senior Vice President & Chief Financial Officer 4(f) Fourth Amended and Restated Credit and Security Agreement, dated as of November 30, 1983, between the Registrant, certain subsidiaries of the Registrant, Citibank, N.A., and certain other Banks. Incorporated herein by reference to Exhibit 4(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. WILLIAM H. O'DOWD, JR. William H. O'Dowd, Jr., Director 4(g) Warrants issued to Citibank, N.A., Chemical Bank and Fleet National Bank pursuant to the Fourth Restated and Amended Credit and Security Agreement dated as of November 30, 1983 between the Registrant, certain subsidiaries of the Registrant, Citibank, N.A., and certain other Banks. Incorporated herein by reference to Exhibit 4(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. 4(h) Second Amended and Restated Revolving Credit and Security Agreement, dated as of November 30, 1983, between the Registrant, certain subsidiaries of the Registrant and Citicorp Real Estate, Inc. Incorporated herein by reference to Exhibit 4(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. 4(i) First Amendment to Second Amended and Restated Revolving Credit and Security Agreement, dated as of August 9, 1984, between the Registrant, certain subsidiaries of the Registrant and Citicorp Real Estate, Inc. Incorporated herein by reference to Exhibit 4(i) of the Registrant's Registration Statement on Form S-1, registration number 2-93400. 4(j) Modification and Extension Agreement between the Registrant, certain subsidiaries of the Registrant, and Federal Deposit Insurance Corporation, dated December 17, 1981. Incorporated herein by reference to Exhibit 4(e) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. THE DELTONA CORPORATION (Registrant) DATE: March 29, 1985 By ________~D~o~N~A~LD~O~.M~c~N~E~L~L~E~Y~-:----Donald 0. McNelley, Treasurer & Principal Accounting Officer Pursuant to the requirements of the Secu~ities ~ct of 19~~· t~is .report has been si~ne~ below by the following persons on behalf of the registrant and in the capacities mdicated on the date mdicated. NEIL E. BARR Neil E. Bahr, Director THOMAS B. McNEILL Thomas B. McNeill, Director Conrad S. Young, Director DATE: March 29, 1985 DoNALD 0. McNELLEY Donald 0. McNelley, Treasurer & Principal Accounting Officer 64 65 Sequentially Numbered Page Exhibit Number 4(k) 4(1) 4(m) 10(a) 10(b) 10(c) 10(d) 10(e) 10(f) 10(g) Exhibits Loan Agreement, dated April 30, 1981, betwen Citibank, N.A., and cer~ain subsidiaries of the Registrant and the Registrant, as guarantor, and Subordmation Agreement dated May 16, 1983. Incorporated herein by reference to Exhibit 4(f) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. Sequentially Numbered Page Sequentially Numbered Page Exhibit Number 10(h) 1969 Employees' Qualified Stock Option Plan. Incorporated herein by reference to Exhibit 5(5) to Registrant's Registration Statement on Form S-1 registration number 2-33076. ' 10(i) 1970 Employee's Qualified Stock Option Plan. Incorporated herein by reference to Exhibit 1(e) to Registrant's Registration Statement on Form S-8 registration number 2-40258. ' 10(j) 1971 Employees' Qualified Stock Option Plan. Incorporated herein by reference to Exhibit 1(f) to Registrant's Registration Statement on Form S-8, registration number 2-44099. 10(k) 1972 Employees' Incentive Stock Option Plan. Incorporated herein by reference to Exhibit 1(g) to Registrant's Registration Statement on Form S-8, registration number 2-48401. 10(1) Resolution of the Board of Directors of Registrant adopted July 13, 1977, amending the 1972 Employees' Incentive Stock Option Plan. Incorporated herein by reference to Exhibit 1(j) to Registrant's Registration Statement on Form S-8, registration number 2-56553. 10(m) Resolution of the Board of Directors of Registrant adopted September 29, 1981, amending the 1971 Employees' Qualifi,ed Stock Option Plan and the 1972 Employees' Incentive Stock Option Plan. Incorporated herein by refer~nce to Exhibit 4(f) to Registrant's Registration Statement on Form S-8, registration number 2-78904. 10(n) 1982 Employees' Incentive Stock Option Plan. Incorporated herein by reference to Exhibit 4(g) to Registrant's Registration Statement on Form S-8, registration number 2-78904. 10(o) Purchase agreement dated July 14, 1983 between Registrant and Morgan Guaranty Trust Company of New York. Incorporated herein by reference to Exhibit 10 to Registrant's Registration Statement on Form S-3, registration number 2-85691. 10(p) Letter agreement dated July 16, 1984 between Earle D. Cortright, Jr. and Registrant. Promissory Note of Deltampa, Inc., a subsidiary of the Registrant, in favor of The Mackie Company, Inc., dated May 22, 1984, with Mortgage as security therefor and Guarantee of the Registrant. Incorporated herein by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. 10(q) Agreement of Sale and Purchase dated January 9, 1985 between Kenneth M. Good, Registrant, and certain subsidiaries of Registrant and modification thereto. lO(r) Purchase Agreement and related Agreement dated January 9, 1985 between Registrant and Kenneth M. Good. Settlement Agreement, made and entered into by and between the National Audubon Society, Collier County Conservancy, Florida Audubon Society, Environmental Defense Fund, Florida Division of the lzaak Walton League, Department of Environmental Regulation of the State of Florida, the Board of Trustees of the Internal Improvement Trust Fund, the Department of Veteran and Community Affairs of the State of Florida, the South Florida Water Management District and Registrant dated July 20, 1982, and Agreement of Exchange executed pursuant thereto, dated March 24, 1984. Incorporated herein by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. 11 22 Statement of computation of net income (loss) per common share. Subsidiaries of Registrant. 24 Consent of Deloitte Haskins & Sells. Term Loan Agreement between Deltona's Mackle-Built Construction Company, Inc., a subsidiary of the Registrant, and Citibank, N.A., dated May 3, 1980, and amendment thereto, dated January 1, 1982. Incorporated herein by reference to Exhibit 4(g) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. Bond Purchase Agreement between Registrant's wholly owned subsidiary, Deltona Utilities, Inc. and certain institutional purchasers, dated as of December 1, 1984. Incorporated herein by reference to Exhibit 4(a) to Form 8-K, dated December 12, 1984. Employment Agreement, dated January 18, 1980, between Frank E. Mackie, III and Registrant. Incorporated herein by reference to Exhibit 1O(A) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1980. Employment and Consulting Agreement, dated July 1, 1980, between Willi~~ H. O'Dowd, Jr. and Registrant. Incorporated herein by reference to Exh1b1t 10(B) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1980. Employment Agreement, dated May 1, 1983, between Neil E. Bahr and Registrant. Incorporated herein by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1983. Employee Long-Term Disability Plan, adopted by the Registrant, effective January 1, 1982. Incorporated herein by reference to Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1984. Consent Order, dated February 13, 1979 entered into by Registrant with the State of Florida, Department of Business Regulation, Division of Florida ~and Sales and Condominiums, and amendments thereto. Incorporated herem by reference to Exhibit 10(g) to Registrant's,Registration Statement on Form S-1, registration number 2-93400. 66 67 The Deltona Corporation 3250 S.W. Third Avenue Miami, Florida 33129