Levitt Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended SEPTEMBER 30, 2007 |
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OR |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ___to ___ |
Commission file number: 001-31931
LEVITT CORPORATION
(Exact name of registrant as specified in its charter)
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FLORIDA
(State or other jurisdiction of
incorporation or organization)
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11-3675068
(I.R.S. Employer
Identification No.) |
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2200 W. Cypress Creek Road,
Fort Lauderdale, FL
(Address of principal executive offices)
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33309
(Zip Code) |
(954) 958-1800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
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Class |
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Outstanding at November 7, 2007 |
Class A Common stock, $0.01 par value
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96,259,762 |
Class B Common stock, $0.01 par value
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1,219,031 |
Levitt Corporation
Index to Unaudited Consolidated Financial Statements
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Levitt Corporation
Consolidated Statements of Financial Condition Unaudited
(In thousands, except share data)
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September 30, |
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December 31, |
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2007 |
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2006 |
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Assets |
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Cash and cash equivalents |
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$ |
35,733 |
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48,391 |
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Restricted cash |
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166 |
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1,397 |
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Inventory of real estate |
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580,104 |
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822,040 |
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Assets held for sale |
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85,727 |
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48,022 |
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Investment in Bluegreen Corporation |
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115,408 |
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107,063 |
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Property and equipment, net |
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35,556 |
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32,377 |
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Other assets |
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47,698 |
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31,376 |
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Total assets |
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$ |
900,392 |
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1,090,666 |
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Liabilities and Shareholders Equity |
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Accounts payable, accrued liabilities and other |
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$ |
86,124 |
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84,324 |
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Customer deposits |
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19,469 |
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42,571 |
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Current income tax payable |
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3,905 |
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Liabilities related to assets held for sale |
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66,217 |
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27,965 |
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Notes and mortgage notes payable |
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524,097 |
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503,610 |
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Junior subordinated debentures |
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85,052 |
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85,052 |
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Total liabilities |
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780,959 |
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747,427 |
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Shareholders equity: |
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Preferred stock, $0.01 par value |
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Authorized: 5,000,000 shares |
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Issued and outstanding: no shares |
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Class A Common Stock, $0.01 par value |
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Authorized: 150,000,000 and 50,000,000 shares, respectively |
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Issued and outstanding: 18,616,665 and 18,609,024 shares, respectively |
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186 |
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186 |
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Class B Common Stock, $0.01 par value |
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Authorized: 10,000,000 shares |
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Issued and outstanding: 1,219,031 and 1,219,031 shares, respectively |
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12 |
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12 |
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Additional paid-in capital |
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187,648 |
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184,401 |
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(Accumulated deficit) retained earnings |
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(70,196 |
) |
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156,219 |
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Accumulated other comprehensive income |
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1,783 |
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2,421 |
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Total shareholders equity |
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119,433 |
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343,239 |
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Total liabilities and shareholders equity |
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$ |
900,392 |
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1,090,666 |
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See accompanying notes to unaudited consolidated financial statements.
2
Levitt Corporation
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
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Three Months |
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Nine Months |
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Ended September 30, |
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Ended September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues: |
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Sales of real estate |
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$ |
122,824 |
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130,939 |
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389,486 |
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387,140 |
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Other revenues |
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1,449 |
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1,782 |
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5,063 |
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5,515 |
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Total revenues |
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124,273 |
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132,721 |
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394,549 |
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392,655 |
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Costs and expenses: |
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Cost of sales of real estate |
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275,340 |
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104,520 |
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559,842 |
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312,228 |
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Selling, general and administrative expenses |
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31,556 |
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31,678 |
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96,887 |
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88,703 |
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Other expenses |
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1,112 |
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615 |
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2,007 |
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3,164 |
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Total costs and expenses |
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308,008 |
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136,813 |
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658,736 |
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404,095 |
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Earnings from Bluegreen Corporation |
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4,418 |
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6,923 |
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7,519 |
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9,026 |
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Interest and other income |
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3,109 |
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1,548 |
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8,743 |
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4,549 |
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(Loss) income from continuing operations before income taxes |
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(176,208 |
) |
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4,379 |
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(247,925 |
) |
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2,135 |
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Benefit (provision) for income taxes |
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6,228 |
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(1,399 |
) |
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20,729 |
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(583 |
) |
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(Loss) income from continuing operations |
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(169,980 |
) |
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2,980 |
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(227,196 |
) |
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1,552 |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of tax |
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812 |
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(7 |
) |
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917 |
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24 |
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Net (loss) income |
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$ |
(169,168 |
) |
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2,973 |
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(226,279 |
) |
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1,576 |
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Basic (loss) earnings per common share: |
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Continuing operations |
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$ |
(8.41 |
) |
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0.15 |
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(11.24 |
) |
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0.08 |
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Discontinued operations |
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0.04 |
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0.05 |
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Total basic (loss) earnings per common share |
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$ |
(8.37 |
) |
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0.15 |
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(11.19 |
) |
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0.08 |
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Basic weighted average shares outstanding |
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20,220 |
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|
20,214 |
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20,218 |
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20,213 |
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Diluted (loss) earnings per common share: |
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Continuing operations |
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$ |
(8.41 |
) |
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0.14 |
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(11.24 |
) |
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|
0.07 |
|
Discontinued operations |
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0.04 |
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0.05 |
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Total diluted (loss) earnings per common share |
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$ |
(8.37 |
) |
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0.14 |
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(11.19 |
) |
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0.07 |
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Diluted weighted average shares outstanding |
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20,220 |
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|
20,221 |
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20,218 |
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20,219 |
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Dividends declared per common share: |
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Class A common stock |
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$ |
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|
0.02 |
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0.02 |
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0.06 |
|
Class B common stock |
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$ |
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0.02 |
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|
0.02 |
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|
0.06 |
|
See accompanying notes to unaudited consolidated financial statements.
3
Levitt Corporation
Consolidated Statements of Comprehensive (Loss) Income Unaudited
(In thousands)
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Three Months |
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Nine Months |
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Ended September 30, |
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Ended September 30, |
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2007 |
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|
2006 |
|
|
2007 |
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|
2006 |
|
Net (loss) income |
|
$ |
(169,168 |
) |
|
|
2,973 |
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|
|
(226,279 |
) |
|
|
1,576 |
|
Other comprehensive income: |
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Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on
retained interests in notes receivable sold |
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(499 |
) |
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|
1,384 |
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|
(1,038 |
) |
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|
1,009 |
|
Benefit (provision) for income taxes |
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192 |
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|
(534 |
) |
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400 |
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(389 |
) |
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Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold (net of tax) |
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(307 |
) |
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|
850 |
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(638 |
) |
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620 |
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Comprehensive (loss) income |
|
$ |
(169,475 |
) |
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3,823 |
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|
(226,917 |
) |
|
|
2,196 |
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See accompanying notes to unaudited consolidated financial statements.
4
Levitt Corporation
Consolidated Statement of Shareholders Equity Unaudited
Nine Months Ended September 30, 2007
(In thousands)
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Retained |
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Accumulated |
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Class A |
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Class B |
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Additional |
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Earnings |
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Compre- |
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Class A |
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Class B |
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Common |
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Common |
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Paid-In |
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(Accumulated |
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|
hensive |
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Shares |
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Shares |
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Stock |
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Stock |
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Capital |
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Deficit) |
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Income |
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Total |
|
Balance at December 31, 2006 |
|
|
18,609 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
184,401 |
|
|
|
156,219 |
|
|
|
2,421 |
|
|
|
343,239 |
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Net loss |
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|
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|
|
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|
|
|
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(226,279 |
) |
|
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|
|
|
(226,279 |
) |
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|
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|
|
|
|
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|
|
|
|
|
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|
Pro-rata share of unrealized
loss recognized by Bluegreen
on sale of retained
interests, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(638 |
) |
|
|
(638 |
) |
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Issuance of restricted stock |
|
|
8 |
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Issuance of Bluegreen
common stock, net of tax |
|
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|
|
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|
|
1,145 |
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1,145 |
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Cash dividends paid |
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|
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|
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|
|
|
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
(396 |
) |
Tax asset valuation
allowance associated with
Bluegreen capital
transactions |
|
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|
|
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|
|
(513 |
) |
|
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|
|
|
|
|
(513 |
) |
Share based compensation
related to stock options and
restricted stock |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
2,615 |
|
|
|
|
|
|
|
|
|
|
|
2,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
impact of change in accounting for uncertainties in income tax (FIN 48-See
Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007 |
|
|
18,617 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
187,648 |
|
|
|
(70,196 |
) |
|
|
1,783 |
|
|
|
119,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(226,279 |
) |
|
|
1,576 |
|
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,909 |
|
|
|
1,516 |
|
Change in deferred income taxes |
|
|
5,529 |
|
|
|
(2,545 |
) |
Earnings from Bluegreen Corporation |
|
|
(7,519 |
) |
|
|
(9,026 |
) |
Earnings from unconsolidated trusts |
|
|
(164 |
) |
|
|
(122 |
) |
Loss from real estate joint ventures |
|
|
27 |
|
|
|
205 |
|
Share-based compensation expense related to
stock options and restricted stock |
|
|
2,615 |
|
|
|
2,428 |
|
Loss gain on sale of property and equipment |
|
|
|
|
|
|
(1,329 |
) |
Impairment of inventory and long lived assets |
|
|
227,403 |
|
|
|
6,049 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
1,231 |
|
|
|
1,410 |
|
Inventory of real estate |
|
|
19,629 |
|
|
|
(248,089 |
) |
Other assets |
|
|
(2,189 |
) |
|
|
4,224 |
|
Accounts payable, accrued liabilities and other |
|
|
(35,594 |
) |
|
|
21,088 |
|
Customer deposits |
|
|
(23,046 |
) |
|
|
2,331 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(34,448 |
) |
|
|
(220,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Investment in real estate joint ventures |
|
|
(229 |
) |
|
|
(465 |
) |
Distributions from real estate joint ventures |
|
|
47 |
|
|
|
138 |
|
Investment in unconsolidated trusts |
|
|
|
|
|
|
(928 |
) |
Distributions from unconsolidated trusts |
|
|
128 |
|
|
|
88 |
|
Proceeds from sale of property and equipment |
|
|
12 |
|
|
|
1,943 |
|
Capital expenditures |
|
|
(34,142 |
) |
|
|
(20,410 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(34,184 |
) |
|
|
(19,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
214,057 |
|
|
|
312,855 |
|
Proceeds from junior subordinated debentures |
|
|
|
|
|
|
30,928 |
|
Repayment of notes and mortgage notes payable |
|
|
(156,031 |
) |
|
|
(148,531 |
) |
Payments for debt issuance costs |
|
|
(1,656 |
) |
|
|
(2,475 |
) |
Cash dividends paid |
|
|
(396 |
) |
|
|
(1,190 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
55,974 |
|
|
|
191,587 |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(12,658 |
) |
|
|
(48,331 |
) |
Cash and cash equivalents at the beginning of period |
|
|
48,391 |
|
|
|
113,562 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
35,733 |
|
|
|
65,231 |
|
|
|
|
|
|
|
|
6
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized |
|
$ |
(1,900 |
) |
|
|
963 |
|
Income taxes paid |
|
|
4,556 |
|
|
|
16,344 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating,
investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in shareholders equity resulting from pro-rata
share of unrealized (loss) gain recognized by
Bluegreen
on sale of retained interests, net of tax |
|
$ |
(638 |
) |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
Change in shareholders equity resulting from the
Bluegreen equity transactions, net of tax |
|
$ |
1,145 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
Decrease in inventory from reclassification to property
and equipment |
|
$ |
1,148 |
|
|
|
7,978 |
|
|
|
|
|
|
|
|
|
|
Increase in deferred tax liability due to cumulative
impact of change in accounting for uncertainties in
income taxes ( FIN 48 see note 12) |
|
$ |
260 |
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
7
Levitt Corporation
Notes to Unaudited Consolidated Financial Statements
1. Presentation of Interim Financial Statements
Levitt
Corporation (Levitt Corporation or the Company) and its wholly owned subsidiaries engage in real estate activities through its Homebuilding Division, Land Division, and Other
Operations segment.
Through September 30, 2007, the Homebuilding Division consisted of two reportable operating
segments, the Primary Homebuilding segment and the Tennessee Homebuilding segment, both of which
operate through Levitt and Sons, LLC (Levitt and Sons). These segments primarily developed single
and multi-family homes specializing in both active adult and family communities in Florida,
Georgia, South Carolina and Tennessee. On November 9, 2007, Levitt and Sons and substantially all
of its subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United
States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District
of Florida (Bankruptcy Cases). Based on this filing and the uncertainties surrounding the nature,
timing and specifics of the bankruptcy proceedings, Levitt Corporation anticipates that it will
de-consolidate Levitt and Sons as of November 9, 2007,
effectively eliminating all future results of Levitt and Sons and
substantially all of its subsidiaries from the financial results of
operations of the Company, and will prospectively account for any remaining investment in
Levitt and Sons, net of any outstanding advances due from Levitt and Sons, as a cost method
investment. Under cost method accounting, income would only be recognized to the extent of cash
received in the future. At September 30, 2007, Levitt Corporation had a negative investment in
Levitt and Sons of $88.2 million, after recording the impairment
charges discussed below, and there are outstanding advances due from Levitt and Sons of
$84.3 million at Levitt Corporation resulting in a net negative investment of $3.9 million. After
November 9, 2007, Levitt Corporation will continue to evaluate its cost method investment in Levitt
and Sons to determine the appropriate treatment based upon the realizability of the investment
balance. At September 30, 2007, the Homebuilding Division had combined total assets and total
liabilities of $442.7 million and $531.0 million, respectively and recorded revenues of $382.3 for
the nine months ended September 30, 2007.
The Land Division consists of the operations of Core Communities, LLC (Core Communities or
Core), which develops master-planned communities. Other Operations includes Levitt Commercial,
LLC (Levitt Commercial), a developer of industrial properties; the operations of Levitt
Corporation (Parent Company); investments in real estate and real estate joint ventures; and an
equity investment in Bluegreen Corporation (Bluegreen), a New York Stock Exchange-listed company
engaged in the acquisition, development, marketing and sale of vacation ownership interests in
primarily drive-to resorts, as well as residential home sites located around golf courses and
other amenities.
The accompanying unaudited consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-segment transactions have been
eliminated in consolidation. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and disclosures required by accounting
principles generally accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair statement have been included. Operating results for the three and nine month
periods ended September 30, 2007 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2007. The year end balance sheet data for 2006 was derived from
the December 31, 2006 audited consolidated financial statements but does not include all
disclosures required by accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the Companys consolidated financial
statements and footnotes thereto included in the Companys annual report on Form 10-K/A Amendment
No. 2 for the year ended December 31, 2006.
2. Sale of Two Core Communities Commercial Leasing Projects Discontinued operations
During the second quarter of 2007, Core Communities began soliciting bids from several
potential buyers to purchase assets associated with two of Cores commercial leasing projects. In
June 2007, Core was reviewing bids that required management to have significant continuing
involvement in these assets after the
8
sale. As of September 30, 2007, management determined it is probable that Core will sell
these projects and while Core may retain an equity interest in the properties and provide ongoing
management services to a potential buyer, the anticipated level of continuing involvement is not
expected to be significant. It is managements intention to complete the sale of these assets by
the end of the first quarter of 2008. The assets are available for immediate sale in their present
condition. However, Core has not entered into definitive agreements for the sale of these assets
and there is no assurance that these sales will be completed in the timeframe expected by
management or at all. Due to this decision, the projects and assets that are for sale have been
accounted for as discontinued operations for all periods presented in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144), including the reclassification of results of operations from these
projects to discontinued operations for the three and nine months ended September 30, 2006.
The assets have been reclassified to assets held for sale and the related liabilities
associated with these assets were also reclassified to liabilities related to assets held for sale
in the unaudited consolidated statements of financial condition. Prior period amounts have been
reclassified to conform to the current year presentation. Depreciation related to these assets
held for sale ceased in June 2007. The Company has elected not to separate these assets in the
unaudited consolidated statements of cash flows for all periods presented. Management has reviewed
the net asset value and estimated the fair market value of the assets based on the bids received
related to these assets and determined that these assets were appropriately recorded at the lower
of cost or fair value less the costs to sell at September 30, 2007.
The following table summarizes the assets held for sale and liabilities related to the assets
held for sale for the two commercial leasing projects as of September 30, 2007 and December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Property and equipment, net |
|
$ |
76,715 |
|
|
|
46,298 |
|
Other assets |
|
|
9,012 |
|
|
|
1,724 |
|
|
|
|
|
|
|
|
Assets held for sale |
|
$ |
85,727 |
|
|
|
48,022 |
|
|
|
|
|
|
|
|
Accounts payable, accrued liabilities and
other |
|
$ |
1,637 |
|
|
|
924 |
|
Notes and mortgage payable |
|
|
64,580 |
|
|
|
27,041 |
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale |
|
$ |
66,217 |
|
|
|
27,965 |
|
|
|
|
|
|
|
|
The following table summarizes the results of operations for the two commercial leasing
projects for the three months ended September 30, 2007 and 2006 and the nine months ended September
30, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
$ |
1,551 |
|
|
|
494 |
|
|
|
2,910 |
|
|
|
1,268 |
|
Costs and expenses |
|
|
307 |
|
|
|
512 |
|
|
|
1,491 |
|
|
|
1,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244 |
|
|
|
(18 |
) |
|
|
1,419 |
|
|
|
15 |
|
Other Income |
|
|
7 |
|
|
|
7 |
|
|
|
14 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
1,251 |
|
|
|
(11 |
) |
|
|
1,433 |
|
|
|
39 |
|
(Provision) benefit for income taxes |
|
|
(439 |
) |
|
|
4 |
|
|
|
(516 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
812 |
|
|
|
(7 |
) |
|
|
917 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
3. Stock Based Compensation
On May 11, 2004, the Companys shareholders approved the 2003 Levitt Corporation Stock
Incentive Plan and on May 16, 2006, the Companys shareholders approved an amendment to this plan
which is currently named the Amended and Restated 2003 Stock Incentive Plan (the Plan). The
maximum number of shares of the Companys Class A Common Stock that may be issued for restricted
stock awards and upon the exercise of options under the Plan is 3,000,000 shares.
The maximum term of options granted under the Plan is 10 years. The vesting period for each
option grant is established by the Compensation Committee of the Board of Directors. Options
granted to employees generally provide for five year cliff vesting and option awards to directors
immediately vest. To date, option awards issued to employees become exercisable based solely on
fulfilling a service condition. No stock options granted under the Plan have been exercised.
The Company follows Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (FAS 123R). The Company uses the modified prospective method which requires
the Company to record compensation expense over the vesting period for all awards granted after
January 1, 2006, and for the unvested portion of stock options that were outstanding at January 1,
2006.
The fair values of options granted are estimated on the date of their grant using the
Black-Scholes option pricing model. The fair value of the Companys stock option awards, which are
primarily subject to five-year cliff vesting, is expensed over the vesting life of the stock
options using the straight-line method. During the three months ended September 30, 2007 and 2006,
options to acquire 12,000 and 652,155 shares of Class A Common Stock were granted by the Company,
respectively. During the nine months ended September 30, 2007 and 2006, options to acquire 752,409
shares and 689,655 shares of Class A common stock were granted by the Company, respectively. The
fair value of each option was estimated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Expected volatility
|
|
|
52.59 |
% |
|
|
37.72 |
% |
|
|
40.05%-52.59 |
% |
|
|
37.37%-37.72 |
% |
Expected dividend yield
|
|
|
0.00 |
% |
|
|
.50%-.61 |
% |
|
|
0.00%-.83 |
% |
|
|
.39%-.61 |
% |
Risk-free interest rate
|
|
|
4.57 |
% |
|
|
4.99%-5.06 |
% |
|
|
4.57%-5.14 |
% |
|
|
4.99%-5.06 |
% |
Expected life
|
|
7.5 years
|
|
7.5 years
|
|
7.5 years
|
|
7.5 years
|
Forfeiture rate executives
|
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
5.0 |
% |
Forfeiture rate non-executives
|
|
|
10.0 |
% |
|
|
10.0 |
% |
|
|
10.0 |
% |
|
|
10.0 |
% |
Expected volatility has increased in the three and nine months ended September 30, 2007
compared to the same period in 2006 due to the increased volatility of homebuilding stocks in
general and the declining share price of the Companys stock. Expected dividend yield has
decreased because the Company does not expect to pay dividends to shareholders in the foreseeable
future. The most recent dividend was paid in the first quarter of 2007.
Non-cash stock compensation expense related to unvested stock options for the three months
ended September 30, 2007 and 2006 amounted to $937,357 and $1,034,101, respectively, with an
expected income tax benefit of $226,152 and $302,546, respectively. Non-cash stock compensation
expense related to unvested stock options for the nine months ended September 30, 2007 and 2006
amounted to $2,551,894 and $2,299,062, respectively, with an expected income tax benefit of
$635,664 and $644,694, respectively.
10
The Company also grants restricted stock, valued at the closing price of the Companys Class A
common stock on the New York Stock Exchange on the date of grant. Restricted stock is normally
issued to the Companys directors and the grants typically vest over a one-year period.
Compensation expense arising from restricted stock grants is recognized using the straight-line
method over the vesting period. Unearned compensation for restricted stock is a component of
additional paid-in capital in shareholders equity in the unaudited consolidated statements of
financial condition. Non-cash stock compensation expense related to restricted stock for the
three months ended September 30, 2007 and 2006 amounted to
$17,498 and $19,996, respectively.
Non-cash stock compensation expense related to restricted stock for the nine months ended September
30, 2007 and 2006 amounted to $63,340 and $119,996, respectively.
4. Inventory of Real Estate
Inventory of real estate is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Land and land development costs |
|
$ |
415,560 |
|
|
|
566,459 |
|
Construction costs |
|
|
85,795 |
|
|
|
172,682 |
|
Capitalized interest |
|
|
44,260 |
|
|
|
47,752 |
|
Other costs |
|
|
34,489 |
|
|
|
35,147 |
|
|
|
|
|
|
|
|
|
|
$ |
580,104 |
|
|
|
822,040 |
|
|
|
|
|
|
|
|
The above inventory balances have been reduced by approximately $244.4 million and $33.3
million of impairment reserves at September 30, 2007 and December 31, 2006, respectively.
As of September 30, 2007, Levitt and Sons was in the process of attempting to negotiate with
its lenders to obtain meaningful concessions or agreements to restructure its outstanding debt and
determine if these lenders would fund the projects serving as collateral for their debt. As of
that date, Levitt Corporation had indicated that it would not commit to make any additional
material loans to Levitt and Sons unless Levitt and Sons was successful in obtaining acceptable
concessions or restructuring agreements with its principal lenders. Without additional funding
from the lenders or Levitt Corporation, Levitt and Sons will not be able to continue development of
its projects. As a result, development activity was suspended at virtually all of Levitt and Sons
homebuilding projects at the end of September 2007.
At September 30, 2007, the real estate inventory was reviewed for impairment in accordance with SFAS No. 144. The further deterioration in the
homebuilding market along with the disruption in the credit markets in the third quarter of 2007,
have significantly adversely impacted the value of this inventory beyond previous expectations
causing the Company to re-assess all projects for impairment at September 30, 2007. The fair
market value of the real estate inventory balance at September 30, 2007 was assessed on a
project-by-project basis. As management has ceased development at the real estate projects at
September 30, 2007, it was determined that each project should be reported at the lower of cost or
fair market value. At September 30, 2007, the fair market value calculation was based on the following
principles and assumptions:
|
Ø |
|
For projects representing land investments, where homebuilding activity has not
yet begun (which consisted of seven projects in the Primary Homebuilding segment),
valuation models were used. Management believes that these
valuation models are the best evidence of fair value and were used as the basis for
the measurement. The projects were |
11
|
|
|
analyzed and valued from the perspective of what a land developer would pay to
acquire the projects. The analysis included an evaluation of the type of units that
could be constructed and the selling price for such units. The projected land
acquisition price was assumed to be financed with debt amounting to 75% of the
purchase price at interest rates ranging from 10-15%. A 25% internal rate of return was assumed
on the equity portion of the investment. If the suggested project fair value was
lower than the carrying value of the real estate inventory at September 30, 2007, an
impairment charge was recognized to reduce the carrying value of the project to the
fair value. |
|
|
Ø |
|
For projects with homes under construction, where construction had ceased as of
September 30, 2007 (which consisted of twelve projects in the Primary Homebuilding
segment) cash flow models were used. These cash flows were determined based on the
assumption of a third party completing these projects and achieving a reasonable
expected rate of return on this inventory. The related unleveraged cash flow
models projected future revenues and costs-to-complete and the sale of the
remaining inventory based on the current status of each project. Many of these
projects are in the early stages of development and, accordingly, the projections
extend for four to seven years into the future, thereby increasing the inherent
uncertainty in the projections. The cash flows used were updated in the third
quarter of 2007 to reflect current market trends, current pricing strategies and
cancellation trends. If the carrying amount of the project exceeded the present
value of the cash flows from the project discounted using the weighted average cost
of capital, an impairment charge was recognized to reduce the carrying value of the
project to fair market value. Specific assumptions for projected unit sales and
margin percentages in these cash flows include: |
|
o |
|
A 25% internal rate of return is assumed on the equity
portion of the investment with a weighted average cost of capital of 15.4%; |
|
|
o |
|
for projects with single family or a mix of single
family and townhome products (representing ten projects) the estimated
average future sales prices was based on current sales prices with
significant discounts and incentives continuing through 2009. Discounting
activity is assumed to gradually diminish beginning in the second half of
2009 followed by average sales price increases ranging up to 4% in 2010
through 2012. All sales price increases are assumed to cease after 2012; |
|
|
o |
|
for projects with townhomes (representing two projects)
no sales price increases or elimination of discounts were assumed due to
market saturation in Florida; |
|
|
o |
|
estimated future construction and land development
costs were kept relatively consistent with the level of projected
deliveries throughout the entire project; and |
|
|
o |
|
estimates of average gross margin percentages ranged
between 10% and 17% through 2010 and 17% and 21% in 2011 and beyond
depending on the specific location of the project and the current backlog. |
|
Ø |
|
Six projects in the Tennessee Homebuilding segment were under a letter of intent
or draft contract at September 30, 2007. The fair value of such projects were
assumed to be the contract price contemplated in the letters of intent or draft
contracts. In calculating the fair market value, the Company estimated selling and
closing costs of 2.5% to sell these properties. |
|
|
Ø |
|
For the remaining 86 lots in backlog at September 30, 2007 in the Tennessee
Homebuilding segment, any lots with projected losses were fully reserved. |
As a result of the above analysis, the Company recorded impairment charges of approximately
$163.6 million in cost of sales of real estate in the three months ended September 30, 2007 for
sixteen projects in the Primary Homebuilding segment, for eleven projects in the Tennessee
Homebuilding segment and for capitalized interest in the Other Operations segment related to the
projects in the Homebuilding Division that Levitt and Sons has ceased developing. No impairment charges were
recorded in the three months ended September 30, 2006. In the nine months ended September 30, 2007
and 2006, impairment charges amounted to approximately $226.9 million and $4.7 million,
respectively.
12
5. Interest
Interest incurred relating to land under development and construction is capitalized to real
estate inventory or property and equipment during the active development period. For inventory,
interest is capitalized at the effective rates paid on borrowings during the pre-construction, the
planning stages and the periods that projects are under development. Capitalization of interest is
discontinued if development ceases at a project. Capitalized interest is expensed as a component of
cost of sales as related homes, land and units are sold. For property and equipment under
construction, interest associated with these assets is capitalized as incurred to property and
equipment and is expensed through depreciation once the asset is put into use. The
following table is a summary of interest incurred, capitalized and expensed relating to inventory
under development and construction exclusive of impairment adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Interest incurred to
non-affiliates |
|
$ |
13,170 |
|
|
|
11,534 |
|
|
|
38,837 |
|
|
|
29,095 |
|
Interest capitalized
to inventory |
|
|
(13,170 |
) |
|
|
(11,534 |
) |
|
|
(38,837 |
) |
|
|
(29,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expensed in
cost of sales |
|
$ |
7,563 |
|
|
|
3,975 |
|
|
|
17,550 |
|
|
|
9,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above interest expensed in cost of sales, the capitalized interest balance
of inventory of real estate as of September 30, 2007 has been reduced by $24.8 million of
impairment reserves allocated to the capitalized interest component of inventory of real estate. Approximately $9.3 million of these impairments related to Levitt Corporations impairment
of capitalized interest recorded in Other Operations associated with projects at Levitt and Sons
that are no longer being developed as of September 30, 2007, and the remaining $14.5 million
relates to our Homebuilding segments. See note 4 for discussion of real estate inventory and the
status of Levitt and Sons development activities.
Additionally, as indicated in note 2, certain amounts for the three and nine months ended
September 30, 2007 associated with two of Cores commercial leasing projects have been
reclassified to income(loss) from discontinued operations. Prior periods have been reclassified
to conform to the current presentation.
6. Investment in Bluegreen Corporation
At September 30, 2007, the Company owned approximately 9.5 million shares of the common stock
of Bluegreen representing approximately 31% of its outstanding common stock. The Company accounts
for its investment in Bluegreen under the equity method of accounting. The cost of the Bluegreen
investment is adjusted to recognize the Companys interest in Bluegreens earnings or losses. The
difference between (a) the Companys ownership percentage in Bluegreen multiplied by its earnings
and (b) the amount of the Companys equity in earnings of Bluegreen as reflected in the Companys
financial statements relates to the amortization or accretion of purchase accounting adjustments
made at the time of the acquisition of Bluegreens stock.
13
Bluegreens unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income are as follows (in thousands):
Unaudited Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Total assets |
|
$ |
1,001,351 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
605,706 |
|
|
|
486,487 |
|
Minority interest |
|
|
20,013 |
|
|
|
14,702 |
|
Total shareholders equity |
|
|
375,632 |
|
|
|
353,023 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,001,351 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues and other income |
|
$ |
206,161 |
|
|
|
207,569 |
|
|
|
523,943 |
|
|
|
519,787 |
|
Cost and other expenses |
|
|
181,612 |
|
|
|
170,134 |
|
|
|
480,925 |
|
|
|
462,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and
provision for income taxes |
|
|
24,549 |
|
|
|
37,435 |
|
|
|
43,018 |
|
|
|
57,388 |
|
Minority interest |
|
|
2,044 |
|
|
|
2,241 |
|
|
|
5,311 |
|
|
|
4,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes |
|
|
22,505 |
|
|
|
35,194 |
|
|
|
37,707 |
|
|
|
52,448 |
|
Provision for income taxes |
|
|
(8,552 |
) |
|
|
(13,287 |
) |
|
|
(14,329 |
) |
|
|
(19,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
change in accounting principle |
|
|
13,953 |
|
|
|
21,907 |
|
|
|
23,378 |
|
|
|
32,518 |
|
Cumulative effect of change
in accounting principle, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,678 |
) |
Minority interest in cumulative
effect of
change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,953 |
|
|
|
21,907 |
|
|
|
23,378 |
|
|
|
28,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
In December 2004, FASB issued Statement No. 152 (Accounting for Real Estate Time-Sharing
Transactionsan amendment of FASB Statements No. 66 and 67). This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting
guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position
04-02 Accounting for Real Estate Time-Sharing Transactions (SOP 04-02). This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions. The accounting for
those operations and costs is subject to the guidance in SOP 04-02. Effective January 1, 2006,
Bluegreen adopted SOP 04-02 which resulted in a one-time, non-cash, cumulative effect of change in
accounting principle charge of $4.5 million to Bluegreen for the nine months ended September 30,
2006, and accordingly reduced the earnings in Bluegreen recorded by the Company by approximately
$1.4 million, or $0.04 earnings per share, for the same period.
7. Debt
Notes and mortgage notes payable increased $20.5 million since December 31, 2006 mainly due to
borrowings under existing credit facilities to support operations and working capital needs. For
all debt outstanding by entity, see Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources of this Form 10-Q.
On February 28, 2007, a wholly owned subsidiary of Core Communities entered into a $50.0
million revolving credit facility for construction financing for the development of the Tradition,
South Carolina master planned community. The facility is due and payable on February 28, 2009 and
may be extended for one year subject to compliance with the conditions set forth in the agreement.
The loan is collateralized by 1,829 gross acres of land and the related improvements and easements
as well as assignments of rents and leases. A payment guarantee for the loan amount was provided by
Core Communities. Interest accrues at the banks Prime Rate (7.75% at September 30, 2007) and is
payable monthly. The loan documents include customary conditions to funding, collateral release and
acceleration provisions and financial, affirmative and negative covenants. There is no guarantee
from Levitt Corporation on this facility.
On March 21, 2007, Levitt and Sons entered into a $100.0 million revolving working capital,
land acquisition, development and residential construction borrowing base facility agreement and
borrowed $30.2 million under the facility. The proceeds were used to finance the inter-company
purchase of a 150-acre parcel in Tradition, South Carolina from Core Communities and to refinance a
$15.0 million line of credit. On October 25, 2007, in connection with Levitt Corporations
acquisition of the membership interests in Levitt and Sons of Jasper County, LLC, a subsidiary of
Levitt and Sons which owns the 150 acre parcel in Tradition, South Carolina, (now known as Carolina
Oak Homes LLC; see note 18), Levitt Corporation became the obligor for the entire outstanding
balance of $34.1 million (the Carolina Oak Loan). The Carolina Oak Loan was modified in
connection with the acquisition. Levitt Corporation was previously a guarantor of this loan and as
partial consideration for the Carolina Oak Loan, the membership interest of Levitt and Sons,
previously pledged by Levitt Corporation to the lender, was released. The outstanding balance
under the Carolina Oak Loan may be increased by approximately $11.2 million to fund certain
infrastructure improvements and to complete the construction of fourteen residential units
currently under construction. The Carolina Oak Loan is collateralized by a first mortgage on the
150 acre parcel in Tradition, South Carolina and guaranteed by Carolina Oak Homes, LLC. The
Carolina Oak Loan is due and payable on March 21, 2011 and may be extended on the anniversary date
of the facility for one additional year, at the discretion of the financial institution. Interest
accrues under the facility at the Prime Rate (7.75% at September 30, 2007) and is payable monthly.
The Carolina Oak Loan is subject to customary terms, conditions and covenants, including the
lenders right to accelerate the debt upon a material adverse change with respect to the borrower.
On October 17, 2007, Levitt and Sons received notices of default from Wachovia Bank, N.A.
(Wachovia) with respect to three separate loan facilities. The first notice of default from
Wachovia relates to a $125.0 million loan made by Wachovia to Levitt and Sons. The proceeds of this
loan were utilized to fund land acquisition, development and construction. The defaults included
that (1) liens have been filed upon certain assets pledged as security for the loan, (2) Levitt and
Sons is experiencing financial difficulties, and (3) defaults have occurred under other loan
facilities of Levitt and Sons and its subsidiaries with Wachovia. As of
15
September
30, 2007, the amount advanced under this facility was $102.4 million. The notice states that until
such events of default are cured, Wachovia will not advance additional amounts under the facility
and will not release any property from its lien. The second Wachovia notice of default relates to
a $30.0 million construction loan made by Wachovia to Levitt and Sons and its wholly-owned
subsidiaries, Bellaggio by Levitt and Sons, LLC and Levitt and Sons of Manatee County, LLC. The
proceeds of this loan were utilized to fund land acquisition, development and construction. The
defaults indicated in the notice included that (1) the financial projections provided to Wachovia
indicate a general inability of Levitt and Sons and its affiliates to pay debts as they become due
and (2) defaults have occurred under other loan facilities of Levitt and Sons and its affiliates
with Wachovia as indicated in its other notices. As of September 30, 2007, the amount advanced
under this facility was $9.5 million. The notice states that until such time as the events of
default are cured, Wachovia will not advance any additional amounts or release any property from
its lien. The third Wachovia notice of default relates to a $26.5 million loan made by Wachovia to
Levitt and Sons and its wholly-owned subsidiary, Levitt and Sons at World Golf Village, LLC. The
proceeds of this loan were utilized to fund land acquisition, development and construction. The
notice of default asserts that the loan matured and became due on September 29, 2007, and that the
failure to pay all amounts due by October 18, 2007 constituted an event of default under the loan.
The notice states that after October 18, 2007 interest will accrue at the default rate and that
Wachovia reserves the right to collect the amounts due together with its collection and enforcement
expenses. As of September 30, 2007, the amount advanced under this facility was $8.6 million.
On October 19, 2007, Levitt and Sons and certain of its subsidiaries received a
notice of default from KeyBank National Association (KeyBank). The notice of default from
KeyBank relates to a $125.0 million Revolving Land Acquisition, Development and Residential
Construction Borrowing Base Facility. At September 30, 2007, $95.2 million was outstanding under
the facility. Amounts outstanding are guaranteed by certain of Levitt and Sons subsidiaries. The
event of default stated in the notice was the failure to pay interest when due. KeyBank demanded payment of all outstanding and delinquent amounts by
October 25, 2007, but the requested payments were not made.
On November 2, 2007, Levitt and Sons received a notice of default from Bank of America, N.A
(Bank of America) with respect to a $125.0 million loan by Bank of America to Levitt and Sons.
The proceeds of the loan were utilized to fund land acquisition, development and construction. The
notice indicates that Levitt and Sons defaulted in its obligation to make the monthly interest
payment due October 1, 2007. As of September 30, 2007, the amount advanced under the loan was
approximately $102.5 million. The notice states that Bank of America has not yet determined
whether, or when, to accelerate or otherwise demand payment in full of the obligations under the
loan or whether, or when, to exercise any other remedies as a result
of the Levitt and Sons default.
On November 8, 2007, Levitt and Sons received a notice of default from Regions Bank
(Regions) with respect to a $75.0 million loan made by Regions to Levitt and Sons. The proceeds
of this loan were utilized to fund land acquisition, development and construction. As of September
30, 2007, the amount advanced under this facility was $24.4 million. Amounts outstanding are
guaranteed by certain of Levitt and Sons subsidiaries. The defaults included (1) a failure to make
timely payments when due (2) the filing of liens against certain assets pledged as security (3) the
discontinuance of construction work on residential projects and the failure to proceed with work on
such projects in a diligent and workmanlike manner and (4) Levitt and Sons experiencing financial
difficulties. The notice states that Regions has accelerated the maturity date of all amounts
outstanding such that all amounts of principal, interest, fees and expenses arising thereunder are
now immediately due and payable. The notice also states that interest will accrue at the default
rate and that Regions reserves the right to collect the amounts due together with its collection
and enforcement expenses.
Additionally, although Levitt and Sons has not received any other formal notices of default,
Levitt and Sons and a subsidary guarantor are not in compliance with their
obligations under their loan
facility with AmTrust Bank (formerly known as Ohio Savings Bank). The
proceeds of this loan was utilized to fund land
acquisition, development and construction at various Levitt and Sons projects in Florida. Further, the filing of a
voluntary petition for relief under the Bankruptcy Code by Levitt and Sons constitutes an event of default
under substantially all of the loan facilities.
16
The above defaults have not been cured by Levitt and Sons and entitle the respective lenders
to exercise any and all remedies available to them under the respective loan documents, including,
without limitation, acceleration of the entire amount of the respective loans, commencement of
foreclosure proceedings against the assets securing the respective loans and other appropriate
action against the respective borrowers and guarantors. Levitt and Sons is not currently in a
position to cure any defaults without additional advances from Levitt Corporation, and as
previously noted above, Levitt Corporation has indicated that it would not make any additional
material advances to Levitt and Sons unless Levitt and Sons obtains acceptable concessions or
restructuring agreements with its principal lenders. As a result of the current funding situation
with its lenders and with Levitt Corporation, the current homebuilding market and lack of access to
additional capital, Levitt and Sons and substantially all of its subsidiaries entered into a
voluntary petition for relief under the Bankruptcy Code on November 9, 2007. See subsequent event note 18 for further
discussion of the bankruptcy event and its effect on the Companys liabilities.
8. Commitments and Contingencies
On September 20, 2007, the Company had a reduction in force resulting in the
termination of 174 employees which consisted of 149 employees from Levitt and Sons and 25 employees
from Other Operations. The Company recorded severance charges related to this reduction in force
of $1.2 million during the three and nine months ended September 30, 2007 of which $1.2 million
remains as a liability at September 30, 2007. On November 9, 2007, Levitt Corporation indicated that it will pay up to $5 million in the aggregate to terminated Levitt and Sons employees to supplement the limited termination benefits granted by Levitt and Sons
to those employees. Levitt and Sons is restricted in the amount of
termination benefits it can pay to its former employees by virtue of
its filing under Chapter 11 of the United States Bankruptcy Court.
At September 30, 2007, Levitt and Sons had a contract to acquire approximately $14.2 million of
properties for development, subject to due diligence and satisfaction of certain requirements and
conditions during which time the deposits remain fully refundable. On October 9, 2007, Levitt and Sons
canceled this contract. As this commitment was subject to due diligence and satisfaction of
certain requirements and conditions as noted above, Levitt and Sons received a refund of the deposit
subsequent to September 30, 2007, excepting a nominal fee to the seller. There were no other
outstanding purchase and option contracts in place at September 30, 2007.
At September 30, 2007, Core Communities had outstanding surety bonds and letters of credit of
approximately $13.1 million, and Levitt and Sons had outstanding surety bonds and letters of credit
of approximately $52.8 million. These surety bonds and letters of credit related to performance
and maintenance obligations of the respective entities to various governmental entities to
construct improvements in various communities and, in the case of Levitt and Sons, to guarantee
certain escrowed customer deposits that were released to Levitt and Sons. Levitt Corporation has
guaranteed $22.3 million of the obligations under these surety bonds and letters of credit, which
includes $10.3 million relating to Core Communities projects and $12.0 million relating to Levitt
and Sons projects. The Company estimates that approximately $12.9 million of work remains to
complete the improvements at Core Communities projects and does not believe that any outstanding
surety bonds or letters of credit of Core Communities are likely to be drawn.
Due to the cessation of most development activity in Levitt and Sons projects as of September
30, 2007, the Company evaluated the likelihood that surety bonds and letters of credit supporting
any Levitt and Sons projects would be drawn. It is unclear given the uncertainty involved in
bankruptcy proceedings and the cessation of development activities whether and to what extent any
of these surety bonds or letters of credit of Levitt and Sons will be drawn; however, in the event
that these obligations are drawn, Levitt Corporation would be responsible for up to $12.0 million
in accordance with the terms of these instruments, and it is unlikely that Levitt Corporation would
receive any repayment, assets or other consideration if it were required to pay any of these
amounts. It is not probable that Levitt Corporation will be responsible for any obligations under
these surety bonds, nor is any amount of future loss estimable at September 30, 2007.
17
9. (Loss) earnings per Share
Basic (loss) earnings per common share is computed by dividing (loss) earnings attributable to
common shareholders by the weighted average number of common shares outstanding for the period.
Diluted (loss)
earnings per common share is computed in the same manner as basic (loss) earnings per share,
taking into consideration (a) the dilutive effect of the Companys stock options and restricted
stock using the treasury stock method, (b) the 76,424,066 shares issued in the rights offering to
the holders of Levitt Corporations common stock (the offering was made prior to September 30, 2007
but did not close until October 1, 2007- see Note 18), and (c) the pro rata impact of Bluegreens
dilutive securities (stock options and convertible securities) on the amount of Bluegreens
earnings recognized by the Company. For the three months ended September 30, 2007 and 2006, common
stock equivalents related to the Companys outstanding stock options amounted to 11,853 shares and
6,896 shares, respectively, and for the nine months ended September 30, 2007 and 2006, common stock
equivalents related to the Companys outstanding stock options amounted to 11,056 shares and 5,730
shares, respectively. In the three and nine months ended September 30, 2007, common stock
equivalents related to stock options and the shares related to the rights offering were not
considered, because their effect would have been anti-dilutive. In addition, there were additional
options to purchase shares of common stock at various prices which were not included in common
stock equivalents, because the exercise prices were greater than the average market price of the
common shares. For the three months ended September 30, 2007 and 2006, there were additional
options to purchase 2,381,436 shares and 1,831,685 shares of common stock, respectively. In the
nine months ended September 30, 2007 and 2006, there were additional options to purchase 2,382,233
shares and 1,831,685 shares, respectively.
The weighted average number of common shares outstanding in basic and diluted (loss) earnings
per share for the three and nine months ended September 30, 2007 and all prior periods presented
have been retroactively adjusted for a number of shares representing the bonus element arising
from the rights offering that closed on October 1, 2007. Under the rights offering, stock was
issued on October 1, 2007 at a purchase price below the market price on October 1, 2007 resulting in
the bonus element which is required to be retroactively included in (loss) earnings per share. Sale
of the Companys Class A common stock priced at $2.00 per share pursuant to the terms of this
offering was completed on October 1, 2007; the closing price of the Companys Class A common stock
on the October 1, 2007 closing date was $2.05 per share. As a result there is a bonus element
adjustment of 1.97% for all stockholders of record on August 29, 2007 and accordingly, the number
of weighted average shares of Class A common stock outstanding for basic and diluted (loss)
earnings per share has been retroactively increased by 1.97% for all periods presented.
The following table presents the computation of basic and diluted (loss) earnings per common share
(in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
|
$ |
(169,980 |
) |
|
|
2,980 |
|
|
|
(227,196 |
) |
|
|
1,552 |
|
Income (loss) from discontinued operations |
|
|
812 |
|
|
|
(7 |
) |
|
|
917 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) earnings |
|
$ |
(169,168 |
) |
|
|
2,973 |
|
|
|
(226,279 |
) |
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations basic |
|
$ |
(169,980 |
) |
|
|
2,980 |
|
|
|
(227,196 |
) |
|
|
1,552 |
|
Pro rata share of the net effect of Bluegreen
dilutive securities |
|
|
(8 |
) |
|
|
(66 |
) |
|
|
(40 |
) |
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(169,988 |
) |
|
|
2,914 |
|
|
|
(227,236 |
) |
|
|
1,457 |
|
Income
(loss) from discontinued operations |
|
|
812 |
|
|
|
(7 |
) |
|
|
917 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) earnings |
|
$ |
(169,176 |
) |
|
|
2,907 |
|
|
|
(226,319 |
) |
|
|
1,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
19,830 |
|
|
|
19,824 |
|
|
|
19,828 |
|
|
|
19,822 |
|
Bonus adjustment factor from registration rights
offering |
|
|
1.0197 |
|
|
|
1.0197 |
|
|
|
1.0197 |
|
|
|
1.0197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
20,220 |
|
|
|
20,214 |
|
|
|
20,218 |
|
|
|
20,213 |
|
Net effect of stock options assumed to be exercised |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
20,220 |
|
|
|
20,221 |
|
|
|
20,218 |
|
|
|
20,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(8.41 |
) |
|
|
0.15 |
|
|
|
(11.24 |
) |
|
|
0.08 |
|
Discontinued operations |
|
$ |
0.04 |
|
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per share |
|
$ |
(8.37 |
) |
|
|
0.15 |
|
|
|
(11.19 |
) |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(8.41 |
) |
|
|
0.14 |
|
|
|
(11.24 |
) |
|
|
0.07 |
|
Discontinued operations |
|
$ |
0.04 |
|
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per share |
|
$ |
(8.37 |
) |
|
|
0.14 |
|
|
|
(11.19 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
10. Dividends
On January 22, 2007, the Companys Board of Directors declared a cash dividend of $0.02 per
share on its Class A common stock and Class B common stock, which was paid to all shareholders of
record on February 9, 2007. There were no other dividends declared in the nine months ended
September 30, 2007.
11. Other Revenues
For the three and nine months ended September 30, 2007, the Company revised other revenues to
include lease/rental income, marketing fees and irrigation revenue which had been previously
included in interest and other income and selling, general and administrative expenses. These
revisions had no impact on net (loss) income or cash flows from operations. Additionally, as
noted in note 2, certain amounts for the three and nine months ended September 30, 2007 associated
with two of Cores commercial leasing projects have been reclassified to income (loss) from
discontinued operations. Prior periods have been reclassed to conform to the current
presentation. The following table summarizes other revenues detail information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Mortgage & title operations |
|
$ |
614 |
|
|
|
936 |
|
|
|
2,213 |
|
|
|
2,962 |
|
Lease/rental income |
|
|
339 |
|
|
|
325 |
|
|
|
819 |
|
|
|
1,121 |
|
Marketing fees |
|
|
304 |
|
|
|
320 |
|
|
|
1,400 |
|
|
|
919 |
|
Irrigation revenue |
|
|
192 |
|
|
|
201 |
|
|
|
631 |
|
|
|
513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues |
|
$ |
1,449 |
|
|
|
1,782 |
|
|
|
5,063 |
|
|
|
5,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty
in Income Taxes an interpretation of FASB No. 109 (FIN 48) on January 1, 2007. FIN 48
provides guidance on recognition, measurement, presentation and disclosure in financial statements
of uncertain tax positions that a company has taken or expects to take on a tax return. FIN 48
substantially changes the accounting policy for uncertain tax positions. As a result of the
implementation of FIN 48, the Company recognized a decrease of $260,000 in the liability for
unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of
retained earnings. As of the adoption date, the Company had gross tax-affected unrecognized tax
benefits of $2.0 million of which $0.2 million, if recognized, would affect the effective tax rate.
There have been no significant changes to these amounts during the three and nine months ended
September 30, 2007.
19
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
tax expense. The Company had approximately $270,000 and $170,000 for the payment of interest and
penalties accrued at September 30, 2007 and December 31, 2006, respectively.
The Company files a consolidated federal income tax return and various state returns either on
a consolidated basis or on a separate entity basis. With few exceptions, the Company is no longer
subject to U.S. federal or state and local income tax examinations by tax authorities for tax years
prior to 2003. In the first quarter of 2007, the Internal Revenue Service (IRS) commenced an
examination of the Companys U.S. income tax return for 2004, and the review is anticipated to be
completed by the end of 2007. As of September 30, 2007, the IRS was in the process of its
examination and the Company is unable to evaluate at this time whether additional tax payments will
be required to be made upon the completion of the examination.
The Companys provision for income taxes is estimated to result in an effective tax rate of
8.4% in 2007 compared to 38.6% in 2006. The decrease in the effective tax rate in 2007 is a result
of the Companys recording of a valuation allowance for unrecoverable deferred tax assets. Due to
significant impairment charges recorded in the nine months ended September 30, 2007, the expected
timing of the future reversal of those impairment charges, and expected taxable losses in the
foreseeable future, the Company does not believe at this time it will generate sufficient taxable
income of the appropriate character in the future to realize any of the net deferred tax asset. At
September 30, 2007, the Company has $105.4 million in gross deferred tax assets. After
consideration of $25.2 million of deferred tax liabilities and the effect of available carry-back
losses, a valuation allowance of $80.2 million was recorded. The increase in the valuation
allowance from December 31, 2006 is $79.8 million.
The Company anticipates generating $90.0 million of taxable losses in 2007 that may be
utilized to offset taxable income generated during 2005 and 2006.
In the three and nine
months ended September 30, 2006, the Company had an effective tax rate of 32.0% and negative 27.3%,
respectively, due to an adjustment of an over accrual of income tax expense corrected in the 2006
period in the amount of approximately $262,000.
As noted in note 2, certain amounts, including the benefit (provision) for income tax, for the three
and nine months ended September 30, 2006 associated with two of Cores commercial leasing projects
have been reclassified to income(loss) from discontinued operations.
13. Other Expenses and Interest and Other Income
Other expenses and interest and other income are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title and mortgage operations |
|
$ |
576 |
|
|
|
615 |
|
|
|
1,471 |
|
|
|
1,857 |
|
Loss on disposal of fixed assets |
|
|
536 |
|
|
|
|
|
|
|
536 |
|
|
|
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
1,112 |
|
|
|
615 |
|
|
|
2,007 |
|
|
|
3,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
704 |
|
|
|
807 |
|
|
|
2,115 |
|
|
|
2,301 |
|
Forfeited buyer deposits |
|
|
1,937 |
|
|
|
740 |
|
|
|
5,835 |
|
|
|
832 |
|
Gain on sale of fixed assets |
|
|
13 |
|
|
|
|
|
|
|
25 |
|
|
|
1,329 |
|
Other income |
|
|
455 |
|
|
|
1 |
|
|
|
768 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
3,109 |
|
|
|
1,548 |
|
|
|
8,743 |
|
|
|
4,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
For the nine months ended September 30, 2006, the Company revised other expenses to exclude
impairment charges which were reclassified to cost of sales. This revision was performed to
conform to the year
ended December 31, 2006 and the current period presentation. This revision has no impact on
net loss or cash flows from operations.
The Company recorded $1.9 million and $5.8 million in forfeited deposits in the three and nine
months ended September 30, 2007, respectively, due to increased cancellations of home sale
contracts.
Goodwill acquired in a business combination and determined to have an infinite useful life is
not amortized, but instead tested for impairment at least annually. In accordance with SFAS No.
142, Goodwill and Other Intangible Assets, the Company conducted, a review of the goodwill
recorded in the Tennessee Homebuilding segment to determine whether the carrying value of goodwill
exceeds the fair market value in the nine months ended September 30, 2006. The profitability and
estimated cash flows of those operations had declined significantly, and the carrying value of the
assets exceeded their market value. The Company used a discounted cash flow methodology to
determine the amount of impairment resulting in a write-down of the goodwill of approximately $1.3
million in the nine months ended September 30, 2006 which represented the entire amount of
goodwill.
14. Segment Reporting
Operating segments are components of an enterprise about which separate financial information
is available and which is regularly reviewed by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. The Company has four reportable business
segments: Primary Homebuilding, Tennessee Homebuilding, Land and Other Operations. The Company
evaluates segment performance primarily based on pre-tax income. The information provided for
segment reporting is based on managements internal reports. The accounting policies of the
segments are the same as those of the Company. Eliminations consist primarily of the elimination
of sales and profits on real estate transactions between the Land and Primary Homebuilding
segments, which were recorded based upon terms that management believes would be attained in an
arms-length transaction. The presentation and allocation of assets, liabilities and results of
operations may not reflect the actual economic costs of the segments as stand-alone businesses. If
a different basis of allocation were utilized, the relative contributions of the segments might
differ, but management believes that the relative trends in segments would likely not be impacted.
The Companys Homebuilding Division, which operates through Levitt and Sons, consists of the
Primary Homebuilding segment and the Tennessee Homebuilding segment, while the Land segment
consists of the operations of Core Communities. The Other Operations segment consists of the
activities of Levitt Commercial, the operations of the Parent Company, earnings from investments in
Bluegreen and other real estate investments and joint ventures.
See Note 18 regarding the filing by Levitt and Sons and substantially all of its subsidiaries
of a voluntary petition for relief under the Bankruptcy Code on November 9, 2007 which will effect
segment reporting in subsequent periods.
21
The following tables present segment information as of and for the three and nine months ended
September 30, 2007 and 2006 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
September 30, 2007 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
112,885 |
|
|
|
9,339 |
|
|
|
757 |
|
|
|
|
|
|
|
(157 |
) |
|
|
122,824 |
|
Other revenues |
|
|
614 |
|
|
|
|
|
|
|
711 |
|
|
|
258 |
|
|
|
(134 |
) |
|
|
1,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
113,499 |
|
|
|
9,339 |
|
|
|
1,468 |
|
|
|
258 |
|
|
|
(291 |
) |
|
|
124,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
247,388 |
|
|
|
19,822 |
|
|
|
256 |
|
|
|
10,259 |
|
|
|
(2,385 |
) |
|
|
275,340 |
|
Selling, general and administrative expenses |
|
|
19,252 |
|
|
|
1,552 |
|
|
|
4,152 |
|
|
|
6,776 |
|
|
|
(176 |
) |
|
|
31,556 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
829 |
|
|
|
|
|
|
|
(829 |
) |
|
|
|
|
Other expenses |
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
536 |
|
|
|
1 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
267,215 |
|
|
|
21,374 |
|
|
|
5,237 |
|
|
|
17,571 |
|
|
|
(3,389 |
) |
|
|
308,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,418 |
|
|
|
|
|
|
|
4,418 |
|
Interest and other income |
|
|
2,274 |
|
|
|
25 |
|
|
|
1,354 |
|
|
|
285 |
|
|
|
(829 |
) |
|
|
3,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations
before income taxes |
|
|
(151,442 |
) |
|
|
(12,010 |
) |
|
|
(2,415 |
) |
|
|
(12,610 |
) |
|
|
2,269 |
|
|
|
(176,208 |
) |
Benefit (provision) for
income taxes |
|
|
1,866 |
|
|
|
(100 |
) |
|
|
728 |
|
|
|
4,594 |
|
|
|
(860 |
) |
|
|
6,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations |
|
|
(149,576 |
) |
|
|
(12,110 |
) |
|
|
(1,687 |
) |
|
|
(8,016 |
) |
|
|
1,409 |
|
|
|
(169,980 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income |
|
$ |
(149,576 |
) |
|
|
(12,110 |
) |
|
|
(875 |
) |
|
|
(8,016 |
) |
|
|
1,409 |
|
|
|
(169,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
355,349 |
|
|
|
32,317 |
|
|
|
212,704 |
|
|
|
4,507 |
|
|
|
(24,773 |
) |
|
|
580,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
405,553 |
|
|
|
37,172 |
|
|
|
329,538 |
|
|
|
146,083 |
|
|
|
(17,954 |
) |
|
|
900,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
353,391 |
|
|
|
25,086 |
|
|
|
131,679 |
|
|
|
98,993 |
|
|
|
|
|
|
|
609,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
486,493 |
|
|
|
44,457 |
|
|
|
196,918 |
|
|
|
59,458 |
|
|
|
(6,367 |
) |
|
|
780,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit) |
|
$ |
(80,940 |
) |
|
|
(7,285 |
) |
|
|
132,620 |
|
|
|
86,625 |
|
|
|
(11,587 |
) |
|
|
119,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
September 30, 2006 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
104,538 |
|
|
|
18,099 |
|
|
|
8,302 |
|
|
|
|
|
|
|
|
|
|
|
130,939 |
|
Other revenues |
|
|
936 |
|
|
|
|
|
|
|
543 |
|
|
|
325 |
|
|
|
(22 |
) |
|
|
1,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
105,474 |
|
|
|
18,099 |
|
|
|
8,845 |
|
|
|
325 |
|
|
|
(22 |
) |
|
|
132,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
83,062 |
|
|
|
16,007 |
|
|
|
4,760 |
|
|
|
749 |
|
|
|
(58 |
) |
|
|
104,520 |
|
Selling, general and
administrative expenses |
|
|
18,599 |
|
|
|
2,736 |
|
|
|
3,273 |
|
|
|
7,070 |
|
|
|
|
|
|
|
31,678 |
|
Other expenses |
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
102,276 |
|
|
|
18,743 |
|
|
|
8,033 |
|
|
|
7,819 |
|
|
|
(58 |
) |
|
|
136,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,923 |
|
|
|
|
|
|
|
6,923 |
|
Interest and other income |
|
|
740 |
|
|
|
45 |
|
|
|
284 |
|
|
|
478 |
|
|
|
1 |
|
|
|
1,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
3,938 |
|
|
|
(599 |
) |
|
|
1,096 |
|
|
|
(93 |
) |
|
|
37 |
|
|
|
4,379 |
|
(Provision) benefit for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes |
|
|
(1,519 |
) |
|
|
276 |
|
|
|
(427 |
) |
|
|
271 |
|
|
|
|
|
|
|
(1,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
2,419 |
|
|
|
(323 |
) |
|
|
669 |
|
|
|
178 |
|
|
|
37 |
|
|
|
2,980 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,419 |
|
|
|
(323 |
) |
|
|
662 |
|
|
|
178 |
|
|
|
37 |
|
|
|
2,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
599,975 |
|
|
|
59,662 |
|
|
|
183,199 |
|
|
|
20,084 |
|
|
|
(17,355 |
) |
|
|
845,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
619,715 |
|
|
|
62,132 |
|
|
|
249,794 |
|
|
|
195,791 |
|
|
|
(10,836 |
) |
|
|
1,116,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
368,950 |
|
|
|
39,304 |
|
|
|
66,036 |
|
|
|
108,084 |
|
|
|
|
|
|
|
582,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
490,523 |
|
|
|
56,892 |
|
|
|
114,077 |
|
|
|
103,316 |
|
|
|
(1,544 |
) |
|
|
763,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
129,192 |
|
|
|
5,240 |
|
|
|
135,717 |
|
|
|
92,475 |
|
|
|
(9,292 |
) |
|
|
353,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
September 30, 2007 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
340,202 |
|
|
|
39,844 |
|
|
|
3,451 |
|
|
|
6,574 |
|
|
|
(585 |
) |
|
|
389,486 |
|
Other revenues |
|
|
2,213 |
|
|
|
|
|
|
|
2,494 |
|
|
|
693 |
|
|
|
(337 |
) |
|
|
5,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
342,415 |
|
|
|
39,844 |
|
|
|
5,945 |
|
|
|
7,267 |
|
|
|
(922 |
) |
|
|
394,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
496,663 |
|
|
|
49,156 |
|
|
|
811 |
|
|
|
16,778 |
|
|
|
(3,566 |
) |
|
|
559,842 |
|
Selling, general and
administrative expenses |
|
|
58,348 |
|
|
|
5,416 |
|
|
|
11,421 |
|
|
|
21,940 |
|
|
|
(238 |
) |
|
|
96,887 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
1,851 |
|
|
|
|
|
|
|
(1,851 |
) |
|
|
|
|
Other expenses |
|
|
1,470 |
|
|
|
|
|
|
|
|
|
|
|
536 |
|
|
|
1 |
|
|
|
2,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
556,481 |
|
|
|
54,572 |
|
|
|
14,083 |
|
|
|
39,254 |
|
|
|
(5,654 |
) |
|
|
658,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,519 |
|
|
|
|
|
|
|
7,519 |
|
Interest and other income |
|
|
6,475 |
|
|
|
77 |
|
|
|
3,414 |
|
|
|
933 |
|
|
|
(2,156 |
) |
|
|
8,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations
before income taxes |
|
|
(207,591 |
) |
|
|
(14,651 |
) |
|
|
(4,724 |
) |
|
|
(23,535 |
) |
|
|
2,576 |
|
|
|
(247,925 |
) |
Benefit (provision) for
income taxes |
|
|
11,680 |
|
|
|
824 |
|
|
|
1,701 |
|
|
|
7,500 |
|
|
|
(976 |
) |
|
|
20,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations |
|
|
(195,911 |
) |
|
|
(13,827 |
) |
|
|
(3,023 |
) |
|
|
(16,035 |
) |
|
|
1,600 |
|
|
|
(227,196 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(195,911 |
) |
|
|
(13,827 |
) |
|
|
(2,106 |
) |
|
|
(16,035 |
) |
|
|
1,600 |
|
|
|
(226,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
355,349 |
|
|
|
32,317 |
|
|
|
212,704 |
|
|
|
4,507 |
|
|
|
(24,773 |
) |
|
|
580,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
405,553 |
|
|
|
37,172 |
|
|
|
329,538 |
|
|
|
146,083 |
|
|
|
(17,954 |
) |
|
|
900,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
353,391 |
|
|
|
25,086 |
|
|
|
131,679 |
|
|
|
98,993 |
|
|
|
|
|
|
|
609,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
486,493 |
|
|
|
44,457 |
|
|
|
196,918 |
|
|
|
59,458 |
|
|
|
(6,367 |
) |
|
|
780,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
(80,940 |
) |
|
|
(7,285 |
) |
|
|
132,620 |
|
|
|
86,625 |
|
|
|
(11,587 |
) |
|
|
119,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
September 30, 2006 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
297,670 |
|
|
|
59,816 |
|
|
|
29,660 |
|
|
|
|
|
|
|
(6 |
) |
|
|
387,140 |
|
Other revenues |
|
|
2,962 |
|
|
|
|
|
|
|
1,490 |
|
|
|
1,121 |
|
|
|
(58 |
) |
|
|
5,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
300,632 |
|
|
|
59,816 |
|
|
|
31,150 |
|
|
|
1,121 |
|
|
|
(64 |
) |
|
|
392,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
235,430 |
|
|
|
57,497 |
|
|
|
17,497 |
|
|
|
2,047 |
|
|
|
(243 |
) |
|
|
312,228 |
|
Selling, general and
administrative expenses |
|
|
49,805 |
|
|
|
9,670 |
|
|
|
8,898 |
|
|
|
20,330 |
|
|
|
|
|
|
|
88,703 |
|
Other expenses |
|
|
1,857 |
|
|
|
1,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
287,092 |
|
|
|
68,474 |
|
|
|
26,395 |
|
|
|
22,377 |
|
|
|
(243 |
) |
|
|
404,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,026 |
|
|
|
|
|
|
|
9,026 |
|
Interest and other income |
|
|
1,107 |
|
|
|
103 |
|
|
|
2,191 |
|
|
|
1,146 |
|
|
|
2 |
|
|
|
4,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
14,647 |
|
|
|
(8,555 |
) |
|
|
6,946 |
|
|
|
(11,084 |
) |
|
|
181 |
|
|
|
2,135 |
|
(Provision) benefit for
income taxes |
|
|
(5,650 |
) |
|
|
2,738 |
|
|
|
(2,613 |
) |
|
|
5,006 |
|
|
|
(64 |
) |
|
|
(583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
8,997 |
|
|
|
(5,817 |
) |
|
|
4,333 |
|
|
|
(6,078 |
) |
|
|
117 |
|
|
|
1,552 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
8,997 |
|
|
|
(5,817 |
) |
|
|
4,357 |
|
|
|
(6,078 |
) |
|
|
117 |
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
599,975 |
|
|
|
59,662 |
|
|
|
183,199 |
|
|
|
20,084 |
|
|
|
(17,355 |
) |
|
|
845,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
619,715 |
|
|
|
62,132 |
|
|
|
249,794 |
|
|
|
195,791 |
|
|
|
(10,836 |
) |
|
|
1,116,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
368,950 |
|
|
|
39,304 |
|
|
|
66,036 |
|
|
|
108,084 |
|
|
|
|
|
|
|
582,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
490,523 |
|
|
|
56,892 |
|
|
|
114,077 |
|
|
|
103,316 |
|
|
|
(1,544 |
) |
|
|
763,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
129,192 |
|
|
|
5,240 |
|
|
|
135,717 |
|
|
|
92,475 |
|
|
|
(9,292 |
) |
|
|
353,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the ordinary course of business certain inter-segment loans are entered into and interest
is recorded at current borrowing rates. All interest expense and interest income associated with
these inter-segment loans are eliminated in consolidation.
15. Parent Company Financial Statements
The Companys subordinated investment notes (the Investment Notes) and Junior Subordinated
Debentures are direct unsecured obligations of the Parent Company, are not guaranteed by the
Companys subsidiaries and are not secured by any assets of the Company or its subsidiaries. The
Parent Company has historically relied on dividends or management fees from its subsidiaries and
earnings on its cash investments to fund its operations, including debt service obligations
relating to the Investment Notes and Junior Subordinated Debentures, however, due to the funds
raised in the recently completed rights offering, the dependence on payments from subsidiaries is
substantially reduced. The Company would be restricted from paying dividends to its common
shareholders in the event of a default on either the Investment Notes or Junior Subordinated
Debentures.
Some of the Companys subsidiaries borrowed upon terms that, among other things, require the
subsidiary to maintain certain financial ratios and a minimum net worth. These covenants may have
the effect of limiting the amount of debt that the subsidiaries can incur in the future and
restricting payments to the Parent
25
Company. See note 7 with respect to Levitt and Sons defaults under certain of its
indebtedness and Note 18 with respect to Levitt and Sons Bankruptcy Cases. At September 30,
2007, Core Communities and the Other Operations segment were in compliance with all loan agreement
financial covenants. As a result of the Bankruptcy Cases and other defaults under Levitt and Sons
indebtedness, as well as the cessation of development activities in the Homebuilding Division, the
Parent Company does not expect to receive additional payments from Levitt and Sons.
Advances to Levitt and Sons at September 30, 2007 from Levitt Corporation totaled
approximately $84.3 million. Of this amount, $3.3 million of advances made during the third quarter of 2007 were collateralized by a
pledge of notes and mortgages receivable that resulted from seller financing on a land sale and
mortgages assigned to Levitt and Sons as a result of the bankruptcy of a home mortgage lender.
Subsequent to September 30, 2007, $2.8 million of the loan to Levitt Corporation was reduced in
connection with the sale or maturity of the underlying notes and mortgages receivable. At
September 30, 2007, Levitt Corporation had a negative investment in Levitt and Sons of $88.2
million. The advances and the investment in Levitt and Sons eliminate in consolidation. Due to the
Bankruptcy Cases described in Note 18, Levitt Corporation anticipates it will de-consolidate Levitt
and Sons as of November 9, 2007 and will continue to evaluate its investment in Levitt
and Sons to determine the appropriate treatment based upon the realizability of the investment balance.
As of September 30, 2007, the Parent Company had outstanding advances from Core Communities in
the amount of $38.2 million which are also generally subordinated to loans from third party
lenders. These advances eliminate in consolidation.
The accounting policies for the Parent Company are generally the same as those policies
described in the summary of significant accounting policies outlined in the Annual Report on Form
10-K/A Amendment No. 2. The Parent Companys interest in its consolidated subsidiaries is reported
under the equity method accounting for purposes of this presentation.
The Parent Company unaudited condensed statements of financial condition at September 30, 2007
and December 31, 2006, and unaudited condensed statements of operations for the three and nine
months ended September 30, 2007 and 2006 are shown below (in thousands):
Unaudited Condensed Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Total assets |
|
$ |
226,971 |
|
|
|
454,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
107,538 |
|
|
|
110,835 |
|
Total shareholders equity |
|
|
119,433 |
|
|
|
343,239 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
226,971 |
|
|
|
454,074 |
|
|
|
|
|
|
|
|
26
Unaudited Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Earnings from Bluegreen Corporation |
|
$ |
4,418 |
|
|
|
6,923 |
|
|
|
7,519 |
|
|
|
9,026 |
|
Loss from real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
284 |
|
|
|
439 |
|
|
|
928 |
|
|
|
1,152 |
|
Costs and expenses |
|
|
16,274 |
|
|
|
7,316 |
|
|
|
32,022 |
|
|
|
20,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(11,572 |
) |
|
|
46 |
|
|
|
(23,575 |
) |
|
|
(10,538 |
) |
Benefit
(provision) for income taxes |
|
|
(4,594 |
) |
|
|
(187 |
) |
|
|
(7,868 |
) |
|
|
(4,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income before
undistributed earnings from
consolidated subsidiaries |
|
|
(6,978 |
) |
|
|
233 |
|
|
|
(15,707 |
) |
|
|
(5,773 |
) |
(Deficit)
earnings from
consolidated subsidiaries, net of
income taxes |
|
|
(162,190 |
) |
|
|
2,740 |
|
|
|
(210,572 |
) |
|
|
7,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(169,168 |
) |
|
|
2,973 |
|
|
|
(226,279 |
) |
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees received from subsidiaries for the nine months ended September 30, 2007 and
2006 were $13.1 million and $6.6 million respectively.
16. Certain Relationships and Related Party Transactions
The Company and BankAtlantic Bancorp, Inc. (Bancorp) are under common control. The
controlling shareholder of the Company and Bancorp is BFC Financial Corporation (BFC). Bancorp
is the parent company of BankAtlantic. The majority of BFCs capital stock is owned or controlled
by the Companys Chairman of the Board and Chief Executive Officer, Alan B. Levan, and by the
Companys Vice Chairman, John E. Abdo, both of whom are also executive officers and directors of
BFC, of Bancorp and of BankAtlantic. Mr. Levan and Mr. Abdo are the Chairman of the Board and Vice
Chairman, respectively, of Bluegreen Corporation.
Pursuant to the terms of a shared services agreement between the Company and BFC, certain
administrative services, including human resources, risk management, and investor relations, are
provided to the Company by BFC on a percentage of cost basis. The amounts paid for these services
in the three and nine months ended September 30, 2007 were $198,000 and $539,000, respectively, and
the amounts paid in the three and nine months ended September 30, 2006 were $174,000 and $669,000,
respectively. The 2006 amounts included occupancy charges. These amounts may not be representative
of the amounts that would be paid in an arms-length transaction.
The Company maintains securities sold under repurchase agreements at BankAtlantic. The
balances in its accounts at September 30, 2007 and September 30, 2006 were $2.0 million and $5.6
million, respectively. BankAtlantic paid interest to the Company on its accounts for the three and
nine months ended September 30, 2007 of $33,000 and $102,000, respectively and for the three and
nine months ended September 30, 2006 of $143,000 and $421,000, respectively.
On
October 1, 2007, the Company completed its rights offering to holders of common stock providing each holder
the right to purchase 5.0414 shares of Class A common stock at $2.00 per share for each share of
common stock held of record on August 27, 2007 on October 1,
2007 (as described in Note 18). BFC participated in this rights
offering on the same terms as made available to all other shareholders. BFC was issued an
aggregate of 16,602,712 basic subscription rights of which 10,457,130 and 6,145,582 are
attributable to BFCs holdings in the Companys Class A and Class B Stock, respectively.
By letter dated September 27, 2007 (Letter Agreement), BFC agreed, subject to certain
limited exceptions, not to vote the 6,145,582 shares of Levitts Class A common stock that BFC
acquired upon exercise of its subscription rights in the rights offering associated with BFCs
holdings in Levitts Class B common stock. The Letter Agreement provides that any future sale of
shares of Levitts Class A common stock by BFC will reduce, on a share for share basis, the number
of shares of Levitts Class A common stock that BFC has agreed not to vote. The 6,145,582 shares
of Class A common stock represented approximately 3.4% of the vote in Levitts Class A common
stock. BFCs acquisition of the 16,602,712 shares of Levitts Class A common stock upon its
exercise of its subscription rights increased BFCs ownership interest in Levitt to 20.6% from
16.6% and increased BFCs voting interest to 53.98% from 52.9%.
27
17. New Accounting Pronouncements
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, Applicability of
the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales
of Real Estate , for Sales of Condominiums, (EITF 06-8). EITF 06-8 establishes that a company
should evaluate the adequacy of the buyers continuing investment in determining whether to
recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first
annual reporting period beginning after March 15, 2007 (the Companys fiscal year beginning January
1, 2008). The effect of this EITF is not expected to be material to the Companys consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, (SFAS 159). FAS 159 permits companies to measure many financial
instruments and certain other items at fair value. This Statement is effective for fiscal years
beginning after November 15, 2007 (the Companys fiscal year beginning January 1, 2008). The
adoption of SFAS 159 is not expected to be material to the Companys consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007 (the Companys
fiscal year beginning January 1, 2008), and interim periods within those fiscal years. The Company
is currently reviewing the effect of SFAS 157 and does not expect the adoption to have a material
effect on the Companys consolidated financial statements.
18. Subsequent events
Bankruptcy of Levitt and Sons
On November 9, 2007, Levitt and Sons and substantially all of its subsidiaries (collectively,
the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of Florida. Under Section 362 of the
Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against the
Debtors, including most actions to collect pre-petition indebtedness or to exercise control of the
property of the Debtors. Absent an order of the Bankruptcy Court, substantially all pre-petition
liabilities will be subject to settlement under a plan of reorganization.
The Office of United States Trustee, a division of the Department of Justice, will appoint an
official committee of unsecured creditors (the Creditors Committee). The Creditors Committee
and its legal representatives have a right to be heard on all matters that come before the
Bankruptcy Court. If the Debtors file a plan of reorganization or liquidation, the rights and
claims of various creditors and security holders will be determined by a plan of reorganization
that is confirmed by the Bankruptcy Court. Under the priority rules established by the Bankruptcy
Code, certain post-petition liabilities and pre-petition liabilities are given priority over
pre-petition indebtedness and need to be satisfied before unsecured creditors or stockholders are
entitled to any distribution.
Reorganization Plan. In order to exit the Chapter 11 Bankruptcy Cases successfully, the
Debtors would need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of
reorganization or liquidation (the Reorganization Plan) that satisfies the requirements of the
Bankruptcy Code. As provided by the Bankruptcy Code, the Debtors initially have the exclusive right
to solicit a plan. At this time, it is not possible to predict the precise effect of the
reorganization process on Levitt and Sons business and creditors or when and if Levitt and
Sons may emerge from bankruptcy nor is it possible to predict the effect of the Bankruptcy Cases
and the reorganization process on Levitt Corporation and its results of operations, cash flows or
financial condition, including those of its subsidiaries not included in the bankruptcy filing. No
Reorganization Plan has been submitted to the Bankruptcy Court. A liquidating plan of
reorganization is expected to be filed shortly after the filing.
Chapter 7;
Dismissal of the Bankruptcy Cases. If the Debtors fail to file a Reorganization
Plan or if the Bankruptcy Court does not confirm a Reorganization Plan filed by the Debtors, one or
more of the Debtors Bankruptcy Cases could be converted to cases under Chapter 7 of the
Bankruptcy Code. Under Chapter 7, a trustee is appointed to collect the Debtors assets, reduce
them to cash and distribute the proceeds to the Debtors
28
creditors in accordance with the statutory scheme of the Bankruptcy Code. Alternatively, in
the event the Debtors Reorganization Plan is not confirmed by the Bankruptcy Court, in lieu of
conversion to Chapter 7, the Bankruptcy Court could dismiss one or more of the Debtors Bankruptcy
Cases.
It is likely that, in connection with a final Reorganization Plan, the liabilities of the
Debtors will be found to exceed the fair value of their assets. This would result in claims being
paid at less than 100% of their face value and the extinguishment of the equity interests of the
pre-bankruptcy equity owners. At this time, it is not possible to predict the outcome of the
bankruptcy proceedings.
Accounting Impact. Based on this filing and the uncertainties surrounding the nature, timing
and specifics of the bankruptcy proceedings, Levitt Corporation anticipates that it will
de-consolidate Levitt and Sons as of November 9, 2007, eliminating all future operations from its
financial results, and will prospectively account for any remaining investment in
Levitt and Sons, net of any outstanding advances due from Levitt and Sons, as a cost method
investment. Under cost method accounting, income would only be recognized to the extent of cash
received in the future. At September 30, 2007, Levitt Corporation had a negative investment in
Levitt and Sons of $88.2 million and there are outstanding advances due from Levitt and Sons of
$84.3 million at Levitt Corporation resulting in a net negative investment of $3.9 million. After
November 9, 2007, Levitt Corporation will continue to evaluate its cost method investment in Levitt
and Sons to determine the appropriate treatment based upon the realizability of the investment
balance.
Subscription rights offering
On August 29, 2007, Levitt Corporation distributed to each holder of record of its Class
A common stock and Class B common stock as of August 27, 2007 5.0414 subscription rights for each
share of such stock owned on that date (the Rights Offering), or an aggregate of rights to
purchase 200 million shares. The Rights Offering was priced at $2.00 per share, commenced on August
29, 2007 and was completed on October 1, 2007. Levitt Corporation received $152.8 million of
proceeds in connection with the exercise of rights by its shareholders. As a result of the offering,
Levitt Corporation issued an aggregate of 76,424,066 shares of the Companys Class A common stock
on October 1, 2007. The sale of the Companys Class A
common stock was $2.00 per share and the stock price on the October 1, 2007 closing date was $2.05 per share. As a result, there is a bonus element adjustment of 1.97% for all stockholders of record on August 29, 2007 and
accordingly the number of weighted average shares of Class A
common stock outstanding for basic and diluted (loss) earnings per share has been retroactively increased by 1.97% for all periods presented. See Note 9.
Reduction in force
Subsequent to September 30, 2007, Levitt and Sons had reductions in workforce involving the
termination of an additional 179 employees resulting in $1.5 million of severance charges which
will be recorded in the fourth quarter. As a consequence of the filing of the Bankruptcy Cases on November 9, 2007, there are likely to be further reductions in force which to some extent
will depend on the Reorganization Plan.
On November 9, 2007, Levitt Corporation indicated that it will pay up to $5 million in the aggregate to terminated Levitt and Sons employees to supplement the limited termination benefits granted by Levitt and Sons
to those employees. Levitt and Sons is restricted in the amount of
termination benefits it can pay to its former employees by virtue of
its filing under Chapter 11 of the United States Bankruptcy Court.
Acquisition of Carolina Oak Homes, LLC
On October 23, 2007, Levitt Corporation acquired from Levitt and Sons all of the outstanding
membership interests in Carolina Oak Homes, LLC, a South Carolina limited liability company
(formerly known as Levitt and Sons of Jasper County, LLC) for the following consideration: (i)
assumption of the outstanding
principal balance of a loan in the amount of $34.1 million which is collateralized by a 150 acre parcel of land owned by Carolina Oak Homes, LLC located in Tradition, South Carolina, (ii) execution of a promissory
note in the amount of $400,000 to serve as a deposit under a purchase agreement between Carolina
Oak Homes, LLC and Core Communities of South Carolina, LLC and (iii) the assumption of specified
payables in the amount of approximately $5.3 million. See note 7 for details of the loan
outstanding and the assumption of this debt by Levitt Corporation. The principal asset in
Carolina Oak Homes, LLC is a 150 acre parcel of land currently under development and located in
Tradition, South Carolina.
29
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The objective of the following discussion is to provide an understanding of the financial
condition and results of operations of Levitt Corporation
(Levitt Corporation or the Company) and its wholly owned subsidiaries as of and for the three and nine months ended September 30,
2007 and 2006. The Company may also be referred to as we, us, or our. Levitt Corporation
engages in real estate activities through Levitt and Sons, LLC (Levitt and Sons), Core
Communities, LLC (Core Communities) and other operations, which includes Levitt Commercial, LLC
(Levitt Commercial), an investment in Bluegreen Corporation (Bluegreen) and investments in real
estate projects through subsidiaries and joint ventures.
Acquired in December 1999, Levitt and Sons is a developer of single family home and townhome
communities for active adults and families in Florida, Georgia, Tennessee and South Carolina.
Levitt and Sons operates in two reportable segments, Primary Homebuilding and Tennessee
Homebuilding. On November 9, 2007, Levitt and Sons and substantially all of its subsidiaries
(collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of Title 11 of
the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the
Southern District of Florida (Bankruptcy Cases). See Executive Overview and Part II. Item 1.
Legal Proceedings.
Core Communities develops master-planned communities and is currently developing Tradition,
Florida, which is located in Port St. Lucie, Florida, and Tradition, South Carolina, which is
located in Hardeeville, South Carolina. Tradition, Florida encompasses more than 8,200 total
acres, including approximately five miles of frontage on Interstate 95 and 8.5 million square feet
of commercial space, and Tradition, South Carolina currently encompasses approximately 5,400 acres
for residential development and approximately 1.5 million square feet of commercial space.
Levitt Commercial specializes in the development of industrial properties. Bluegreen, a New York
Stock Exchange-listed company in which we own approximately 31% of the outstanding common stock, is
engaged in the acquisition, development, marketing and sale of ownership interests in primarily
drive-to vacation resorts, and the development and sale of golf communities and residential land.
Some of the statements contained or incorporated by reference herein include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act ), that involve substantial risks and uncertainties. Some of the forward-looking
statements can be identified by the use of words such as anticipate, believe, estimate,
may, intend, expect, will, should, seek or other similar expressions. Forward-looking
statements are based largely on managements expectations and involve inherent risks and
uncertainties. In addition to the risks identified in the Companys Annual Report on Form 10-K
for the year ended December 31, 2006, you should refer to the other risks and uncertainties
discussed throughout this Form 10-Q for specific risks which could cause actual results to be
significantly different from those expressed or implied by those forward-looking statements. When
considering those forward-looking statements, you should keep in mind the risks, uncertainties and
other cautionary statements in this Form 10-Q. Some factors which may affect the accuracy of the
forward-looking statements apply generally to the real estate industry, while other factors apply
directly to us. Any number of important factors could cause actual results to differ materially
from those in the forward-looking statements including: the impact of economic, competitive and
other factors affecting the Company and its operations; the market for real estate in the areas
where the Company has developments, including the impact of market conditions on the Companys
margins and the fair value of our real estate inventory; the impact of market conditions for
commercial property and whether the factors negatively impacting the homebuilding industry and
residential real estate will impact the market for commercial property; continued declines in the
estimated fair value of our real estate inventory and the potential for further write-downs or
impairment charges; the effects of increases in interest rates and availability of credit to
buyers of our inventory; the realization of cost savings associated with reductions of workforce
and the ability to limit overhead and costs commensurate with sales; the ability to obtain
financing and to renew existing credit facilities on acceptable terms, if at all; the Companys
ability to access additional capital on acceptable terms, if at all; the risks and uncertainties
inherent in bankruptcy proceedings and the inability to predict the effect of Levitt and Sons
reorganization and/or liquidation process on Levitt Corporation and its results of operation and
financial
30
condition; Levitt and Sons ability to develop, prosecute, confirm and consummate a plan of
reorganization or liquidation; Levitt and Sons ability, through the Chapter 11 process, to reach
agreement with its lenders or other third parties to complete unfinished projects, homes and
amenities, to consummate delayed closings or to otherwise maximize recovery for Levitt and Sons
customers and creditors and the Companys success at managing the risks involved in the foregoing.
Many of these factors are beyond our control. The Company cautions that the foregoing factors
are not exclusive.
Executive Overview
Our operations are concentrated in the real estate industry, which is cyclical in nature. In
addition, the majority of our inventory is located in the State of Florida. Until its filing for
protection under the Bankruptcy Code on November 9, 2007, Levitt and Sons engaged in the sale of
residential housing.
Our ongoing operations include our land development business, Core Communities, which sells
land to residential builders as well as to commercial developers, and internally develops
commercial real estate and enters into lease arrangements with tenants. In addition, our Other
Operations consist of an investment in Bluegreen, a New York Stock Exchange-listed company in which
we own approximately 31% of the outstanding common stock. Bluegreen is engaged in the acquisition,
development, marketing and sale of ownership interests in primarily drive-to vacation resorts,
and the development and sale of golf communities and residential land.
Levitt and Sons
The Homebuilding Division, which operates through Levitt and Sons, consists of two reportable
operating segments, the Primary Homebuilding segment and the Tennessee Homebuilding segment. The
homebuilding environment continued to deteriorate throughout 2007 as increased inventory levels
combined with weakened consumer demand for housing and tightened credit requirements negatively
affected sales, deliveries and margins throughout the industry. In the Tennessee Homebuilding
segment, Levitt and Sons delivered significantly fewer homes in the first nine months of 2007, as
compared to the same period of 2006 due to these difficult market conditions, and in both segments
of our Homebuilding Division, Levitt and Sons experienced decreased orders and increased
cancellation rates on homes in backlog.
There has been a significant slowdown in the Florida market, and new orders in 2007 reflected
a reduction in average sales price due to sales incentives and discounts. Average sales prices of
deliveries, while higher than the prior year, were also significantly reduced in 2007 by discounts
provided in an effort to avoid cancellations and encourage closings.
The Homebuilding Divisions backlog at September 30, 2007 was substantially lower than the
December 31, 2006 level. The value of the backlog decreased reflecting fewer units at lower average
selling prices. The number of units in backlog decreased as the number of home closings exceeded
new sales net of cancellations in the nine months ended September 30, 2007. In addition, sales
prices have been impacted by downward pressure as pricing incentives are implemented industry-wide
in an effort to generate sales in the face of a significant imbalance in housing supply and demand.
Consistent with broader industry trends, in the three and nine months ended September 30,
2007, Levitt and Sons continued to experience further deterioration of demand in its markets.
Excess supply, particularly in previously strong markets like Florida, in combination with a
reduction in demand resulting from tightened credit requirements and reductions in credit
availability, as well as buyers fears about the direction of the market, exerted downward pricing
pressure for residential homes and land. Based on a project by project assessment of local market
conditions, existing backlog and available remaining inventory, Levitt and Sons offered various
sales incentives to our customers and aggressively reduced pricing in 2007 in an effort to increase
sales. These actions led to downward pressure on current and future margins. There is no
indication that market conditions will improve in the foreseeable future.
Levitt and Sons engaged in discussions with its five principal lenders in which it sought to
obtain meaningful concessions or agreements to restructure its outstanding indebtedness. No
agreements or concessions were made that addressed either the short term or longer term cash flow
requirements of Levitt and Sons or debt repayment. Levitt and Sons did not pay the approximately
$2.6 million of interest payments due to its five lenders on October 10, 2007, and defaulted under
the terms of its loan agreements. Due to the uncertainty
31
regarding Levitt and Sons indebtedness and the continued deterioration of the homebuilding
industry in general, and Levitt and Sons operations in particular, Levitt Corporation which had
previously loaned Levitt and Sons approximately $84.3 million stopped funding the cash flow needs
of this subsidiary. Levitt Corporation was unwilling to commit additional material loans to Levitt
and Sons unless Levitt and Sons debt was restructured in a way which increased the likelihood that
Levitt and Sons could generate sufficient cash to meet its future obligations and be positioned to
address the long term issues it faced. Levitt and Sons ceased development at its projects at
September 30, 2007 due to a lack of funding. $154.3 million and $217.6 million in impairment
charges were recorded in the three and nine months ended
September 30, 2007, respectively, due to the ceasing of development activities and the assessment of the market for various homebuilding projects.
In addition, on September 20, 2007, Levitt and Sons reduced its workforce by 149 employees, and
additional reductions in workforce involving 179 employees occurred subsequent to September 30,
2007. Severance charges of $1.2 million were recorded for the three months ended at September 30,
2007 related to the September reduction in force, and severance charges associated with the
reductions subsequent to the September 30, 2007 are approximately $1.5 million.
The downward trends in the homebuilding industry, the cash flow requirements of the Levitt
and Sons projects and the absence of any meaningful concessions or modifications from Levitt and
Sons lenders have led to Levitt and Sons insolvency. As a consequence, on November 9, 2007 the
Debtors filed voluntary petitions for relief under the Bankruptcy Code. Under Section 362 of the
Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against the
Debtors, including most actions to collect pre-petition indebtedness or to exercise control of the
property of the Debtors. Absent an order of the Bankruptcy Court, substantially all pre-petition
liabilities will be subject to settlement under a plan of reorganization.
Based on this filing and the uncertainties surrounding the nature, timing and specifics of the
bankruptcy proceedings, Levitt Corporation anticipates that it will de-consolidate Levitt and Sons
as of November 9, 2007, eliminating all future operations from
its financial results,
and will prospectively account for any remaining investment in Levitt and Sons, net of any
outstanding advances due from Levitt and Sons, as a cost method investment. Under cost method
accounting, income would only be recognized to the extent of cash received in the future. At
September 30, 2007, Levitt Corporation had a negative investment in Levitt and Sons of $88.2
million and there are outstanding advances due from Levitt and Sons of $84.3 million at Levitt
Corporation resulting in a net negative investment of $3.9 million. After November 9, 2007, Levitt
Corporation will continue to evaluate its cost method investment in Levitt and Sons to determine
the appropriate treatment based upon the realizability of the investment balance.
Core Communities
The Land Division generates revenue from land sales from two master planned communities:
Tradition, Florida and Tradition, South Carolina. Tradition, Florida has been in active
development for several years, while Tradition, South Carolina is in the early stage of
development. Revenue is principally derived from the sale of land parcels. Additionally, the Land
Division generates ancillary revenue from commercial leasing and provides irrigation services and
marketing services to the homebuilders who purchase developed property in Cores master planned
communities. Core generated higher revenues from services in the current period compared to the
prior period due to increased rental income associated with commercial leasing of certain
properties and increased revenues relating to irrigation services provided to both homebuilders and
the residents of Tradition, Florida.
Tradition,
Florida encompasses more than 8,200 total acres, including approximately 5,700 net
saleable acres. Approximately 1,757 acres have been sold to date and 291 acres were subject to
firm sales contracts with various purchasers as of September 30, 2007. Tradition, South Carolina,
encompasses almost 5,400 total acres, including approximately 3,000 net saleable acres and is
currently entitled for up to 9,500 residential units and 1.5 million square feet of commercial
space, in addition to recreational areas, educational facilities and emergency services, and had no
firm sales contracts as of September 30, 2007.
Our Land division did not record any significant sales in the three and nine months ended
September 30, 2007 as demand for residential inventory by homebuilders in Florida substantially
decreased. In response, the Land Division has concentrated on seeking buyers for commercial
property. In addition to sales of parcels to developers, the Land Division plans to continue to
internally develop certain projects for leasing to third parties.
32
It is expected that a higher percentage of revenue in the near term will come from sales of
commercial property in Florida where the market for commercial property has to date remained
relatively stable. In addition, the Land Division expects to realize increased revenues in the
future arising from residential and commercial land sales in South Carolina as development on
Tradition, South Carolina progresses.
Due to the nature and size of individual land transactions, our Land Division results are
subject to significant volatility. Although we have historically realized margins between 30.0%
and 60.0% on Land Division sales, margins on land sales are likely to remain in the lower end of
the historical range given the current downturn in the real estate markets and the significant
decrease in demand in Florida. Margins will fluctuate based upon changing sales prices and costs
attributable to the land sold. In addition to the impact of economic and market factors, the sales
price and margin of land sold varies depending upon: the location; the parcel size; whether the
parcel is sold as raw land, partially developed land or individually developed lots; the degree to
which the land is entitled; and whether the designated use of land is residential or commercial.
The cost of sales of real estate is dependent upon the original cost of the land acquired, the
timing of the acquisition of the land, and the amount of land development, interest and real estate
tax costs capitalized to the particular land parcel during active development. Allocations to cost
of sales involve significant management judgment and include an estimate of future costs of
development, which can vary over time due to labor and material cost increases, master plan design
changes and regulatory modifications. Accordingly, allocations are subject to change based on
factors which are in many instances beyond managements control. Future margins will continue to
vary based on these and other market factors.
During the second quarter of 2007, Core Communities began soliciting bids from several
potential buyers to purchase assets associated with two of Cores commercial leasing projects. In
June 2007, Core was reviewing bids that required management to have significant continuing
involvement in these assets after the sale. As of September 30, 2007, management determined it is
probable that Core will sell these projects and while Core may retain an equity interest in the
properties and provide ongoing management services to a potential buyer, the anticipated level of
continuing involvement is not expected to be significant. It is managements intention to complete
the sale of these assets by the first quarter of 2008. The assets are available for immediate sale
in their present condition. However, Core has not entered into definitive agreements for the sale
of these assets and there is no assurance that these sales will be completed in the timeframe
expected by management or at all. Due to this decision, the projects and assets that are for
sale have been classified as a discontinued operation for all periods presented in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), and its revenue and expenses are not included in the results
of continuing operations for any periods presented in this Quarterly Report on Form 10-Q. The
assets have been reclassified to assets held for sale and the related liabilities associated with
these assets held for sale were also reclassified in the unaudited consolidated statements of
financial condition. Prior period amounts have been reclassified to conform to the current year
presentation. As of September 30, 2007, the carrying value of the subject net assets for sale was
$19.5 million. This amount is comprised of total assets of $85.7 million less total liabilities of
$66.2 million. Management has reviewed the net asset value and estimated the fair market value
of the assets based on the bids received related to these assets and determined that these assets
were appropriately recorded at the lower of cost or fair value less the costs to sell at September
30, 2007.
Other Operations
On August 29, 2007, Levitt Corporation distributed to each holder of record of Levitts Class
A common stock and Class B common stock as of August 27, 2007 5.0414 subscription rights for each
share of such stock owned on that date (the Rights Offering), or an aggregate of rights to
purchase 200 million shares. The Rights Offering was priced at $2.00 per share, commenced on August
29, 2007 and was completed on October 1, 2007. Levitt Corporation received $152.8 million of
proceeds in connection with the exercise of rights by its shareholders. As a result of the offering,
Levitt Corporation issued an aggregate of 76,424,066 shares of the Companys Class A common stock
on October 1, 2007. The proceeds will be used for general corporate purposes.
As a result of the reduction in operating activity at Levitt and Sons projects, Levitt
Corporation reduced its workforce by 25 employees on September 20, 2007. Levitt Corporation also
evaluated its capitalized interest related to Levitt and Sons projects. As a result of the
deterioration of market factors in the Levitt and Sons
projects and the ceasing of development activity at the Levitt and
Sons projects, $9.3 million of capitalized
interest on the respective projects was deemed to also be impaired and was written off in the three
and nine months ended September 30, 2007 in the Other Operations segment.
33
Financial and Non-Financial Metrics
Performance and prospects are evaluated using a variety of financial and non-financial
metrics. The key financial metrics utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (measured as revenues from sales of real estate minus
cost of sales of real estate), margin percentage (measured as margin divided by revenues from sales
of real estate), income before taxes, net income and return on equity. We also continue to
evaluate and monitor selling, general and administrative expenses as a percentage of revenue.
Non-financial metrics used to evaluate historical performance include the number and value of new
orders executed, the number of cancelled contracts and resulting spec inventory, the number of
housing starts and the number of homes delivered. In evaluating future prospects, management
considers non-financial information such as the number of homes and acres in backlog (measured as
homes or land subject to an executed sales contract) and the aggregate value of those contracts as
well as cancellation rates of homes in backlog. The ratio of debt to shareholders equity and cash
requirements are also considered when evaluating future prospects, as are general economic factors
and interest rate trends. Each of the above metrics is discussed in the following sections as it
relates to operating results, financial position and liquidity and were used in Levitt
Corporations determination to suspend additional investment in Levitt and Sons. These metrics are
not an exhaustive list, and management may from time to time utilize different financial and
non-financial information or may not use all of the metrics mentioned above.
Critical Accounting Policies and Estimates
Critical accounting policies are those policies that are important to the understanding of our
financial statements and may also involve estimates and judgments about inherently uncertain
matters. In preparing financial statements, management makes estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. These estimates require
the exercise of judgment, as future events cannot be determined with certainty. Accordingly, actual
results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in subsequent periods relate to revenue and cost recognition on
percent complete projects, reserve and accruals, impairment reserves of assets, valuation of real
estate, estimated costs to complete of construction, reserves for litigation and contingencies and
deferred tax valuation allowances. The accounting policies that we have identified as critical to
the portrayal of our financial condition and results of operations are: (a) inventory of real
estate; (b) investments in unconsolidated subsidiaries; (c) homesite contracts and consolidation of
variable interest entities; (d) revenue recognition; (e) capitalized interest; (f) income taxes,
(g) impairment of long-lived assets and (h) accounting for stock-based compensation. For a more
detailed discussion of these critical accounting policies see Critical Accounting Policies
appearing in our Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31, 2006.
Inventory of real estate
As of September 30, 2007, Levitt and Sons was in the process of attempting to negotiate with
its lenders to obtain meaningful concessions or agreements to restructure its outstanding debt and
determine if these lenders would fund the projects serving as collateral for their debt. As of
that date, Levitt Corporation had indicated that it would not commit to make any additional
material loans to Levitt and Sons unless Levitt and Sons was successful in obtaining acceptable
concessions or restructuring agreements with its principal lenders. Without additional funding
from the lenders or Levitt Corporation, Levitt and Sons will not be able to continue development of
its projects. As a result, development activity was suspended at virtually all of Levitt and Sons
homebuilding projects at the end of September 2007.
34
At September 30, 2007, the real estate inventory was reviewed for
impairment in accordance with SFAS No. 144. The further deterioration in the
homebuilding market along with the disruption in the credit markets in the third quarter of 2007,
have significantly adversely impacted the value of this inventory beyond previous expectations,
causing us to re-assess all projects for impairment at September 30, 2007. The fair market value
of the real estate inventory balance at September 30, 2007 was assessed on a project-by-project
basis. As management has ceased development at the real estate projects at September 30, 2007, it
was determined that each project should be reported at the lower of
cost or fair market value. At
September 30, 2007, the fair market value calculation was based on the following principles and
assumptions:
|
Ø |
|
For projects representing land investments, where homebuilding activity has not
yet begun (which consisted of seven projects in the Primary Homebuilding segment)
valuation models were used. Management believes that these
valuation models are the best evidence of fair value and were used as the basis for
the measurement. The projects were analyzed and valued from the perspective of
what a land developer would pay to acquire the projects. The analysis included an
evaluation of the type of units that could be constructed and the selling price for
such units. The projected land acquisition price was assumed to be financed with
debt amounting to 75% of the purchase price at interest rates ranging
from 10-15%. A 25%
internal rate of return was assumed on the equity portion of the investment. If
the suggested project fair value was lower than the carrying value of the real
estate inventory at September 30, 2007, an impairment charge was recognized to
reduce the carrying value of the project to the fair value. |
|
|
Ø |
|
For projects with homes under construction, where development had ceased as of
September 30, 2007 (which consisted of twelve projects in the Primary Homebuilding
segment) cash flow models were used. These cash flows were determined based on the
assumption of a third party completing these projects and achieving a reasonable
expected rate of return on this inventory. The related unleveraged cash flow
models projected future revenues and costs-to-complete and the sale of the
remaining inventory based on the current status of each project. Many of these
projects are in the early stages of development and, accordingly, the projections
extend for four to seven years into the future, thereby increasing the inherent
uncertainty in the projections. The cash flows used were updated in the third
quarter of 2007 to reflect current market trends, current pricing strategies and
cancellation trends. If the carrying amount of the project exceeded the present
value of the cash flows from the project discounted using the weighted average cost
of capital, an impairment charge was recognized to reduce the carrying value of the
project to fair market value. Specific assumptions for projected unit sales and
margin percentage in these cash flows include: |
|
o |
|
A 25% internal rate of return is assumed on the equity
portion of the investment with a weighted average cost of capital of 15.4%; |
|
|
o |
|
for projects with single family or a mix of single
family and townhome products (representing ten projects) the estimated
average future sales prices was based on current sales prices with
significant discounts and incentives continuing through 2009. Discounting
activity is assumed to gradually diminish beginning in the second half of
2009 followed by average sales price increases ranging up to 4% in 2010
through 2012. All sales price increases are assumed to cease after 2012; |
|
|
o |
|
for projects with townhomes (representing two projects)
no sales price increases or elimination of discounts were assumed due to
market saturation in Florida; |
|
|
o |
|
estimated future construction and land development
costs were kept relatively consistent with the level of projected
deliveries throughout the entire project; and |
|
|
o |
|
estimates of average gross margin percentages ranged
between 10% and 17% through 2010 and 17% and 21% in 2011 and beyond
depending on the specific location of the project and the current backlog. |
35
|
Ø |
|
Six projects in the Tennessee Homebuilding segment were under a letter of intent
or draft contract at September 30, 2007. The fair value of such projects were
assumed to be the contract price contemplated in the letters of intent or draft
contracts. In calculating the fair market value, we estimated selling and closing
costs of 2.5% to sell these properties. |
|
|
Ø |
|
For the remaining 86 lots in backlog at September 30, 2007 in the Tennessee
Homebuilding segment, any lots with projected losses were fully reserved. |
As a result of the above analysis, we recorded impairment charges of approximately $163.6
million in cost of sales in the three months ended September 30, 2007 for sixteen projects in the
Primary Homebuilding segment, for eleven projects in the Tennessee Homebuilding segment and for
capitalized interest in the Other Operations segment related to the projects in the Homebuilding
Division that Levitt and Sons has ceased developing. No impairment charges were recorded in the three months
ended September 30, 2006. In the nine months ended September 30, 2007 and 2006, impairment charges
amounted to approximately $226.9 million and $4.7 million, respectively.
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
122,824 |
|
|
|
130,939 |
|
|
|
(8,115 |
) |
|
|
389,486 |
|
|
|
387,140 |
|
|
|
2,346 |
|
Other revenues |
|
|
1,449 |
|
|
|
1,782 |
|
|
|
(333 |
) |
|
|
5,063 |
|
|
|
5,515 |
|
|
|
(452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
124,273 |
|
|
|
132,721 |
|
|
|
(8,448 |
) |
|
|
394,549 |
|
|
|
392,655 |
|
|
|
1,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
275,340 |
|
|
|
104,520 |
|
|
|
170,820 |
|
|
|
559,842 |
|
|
|
312,228 |
|
|
|
247,614 |
|
Selling, general and
administrative expenses |
|
|
31,556 |
|
|
|
31,678 |
|
|
|
(122 |
) |
|
|
96,887 |
|
|
|
88,703 |
|
|
|
8,184 |
|
Other expenses |
|
|
1,112 |
|
|
|
615 |
|
|
|
497 |
|
|
|
2,007 |
|
|
|
3,164 |
|
|
|
(1,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
308,008 |
|
|
|
136,813 |
|
|
|
171,195 |
|
|
|
658,736 |
|
|
|
404,095 |
|
|
|
254,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen
Corporation |
|
|
4,418 |
|
|
|
6,923 |
|
|
|
(2,505 |
) |
|
|
7,519 |
|
|
|
9,026 |
|
|
|
(1,507 |
) |
Interest and other income |
|
|
3,109 |
|
|
|
1,548 |
|
|
|
1,561 |
|
|
|
8,743 |
|
|
|
4,549 |
|
|
|
4,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations
before income taxes |
|
|
(176,208 |
) |
|
|
4,379 |
|
|
|
(180,587 |
) |
|
|
(247,925 |
) |
|
|
2,135 |
|
|
|
(250,060 |
) |
Benefit (provision) for
income taxes |
|
|
6,228 |
|
|
|
(1,399 |
) |
|
|
7,627 |
|
|
|
20,729 |
|
|
|
(583 |
) |
|
|
21,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations |
|
|
(169,980 |
) |
|
|
2,980 |
|
|
|
(172,960 |
) |
|
|
(227,196 |
) |
|
|
1,552 |
|
|
|
(228,748 |
) |
Discontinued
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
discontinued operations,
net of tax |
|
|
812 |
|
|
|
(7 |
) |
|
|
819 |
|
|
|
917 |
|
|
|
24 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(169,168 |
) |
|
|
2,973 |
|
|
|
(172,141 |
) |
|
|
(226,279 |
) |
|
|
1,576 |
|
|
|
(227,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2007 Compared to the Same 2006 Period:
We had a consolidated net loss of $169.2 million for the three months ended September 30, 2007
as compared to net income of $3.0 million in the same period in 2006. The significant loss in the
three months ended September 30, 2007 was primarily due to $163.6 million of impairment charges
related to inventory of
36
real estate of which $154.3 million is recorded in the Homebuilding Division and $9.3 million
is recorded in the Other Operations segment related to capitalized interest. There was no
impairment charges in the three months ended September 30, 2006. In addition, the reductions in
force on September 20, 2007 resulted in $1.2 million of severance accruals being recorded in the
three months ended September 30, 2007. In addition, the results for the three months ended
September 30, 2007 were negatively impacted by lower sales of real estate from the Land Division
and lower earnings associated with Bluegreen Corporations results as compared to the same period
in 2006. These decreases were offset by an increase in interest and other income associated with
the increased forfeited deposits realized by the Homebuilding Division.
Revenues from sales of real estate decreased 6.2% to $122.8 million for the three months ended
September 30, 2007 from $130.9 million for the same period in 2006. In the three months ended
September 30, 2007, the Land Division sold two lots or approximately one acre compared to 29 acres
sold in the same period in 2006. Additionally, Homebuilding Division revenues from sales of real
estate also decreased slightly to $122.2 million during the three months ended September 30, 2007,
compared to $122.6 million for the same period in 2006. During the three months ended September 30,
2007, 375 homes were delivered as compared to 403 homes delivered during the same period in 2006.
The decreases in deliveries were offset by $8.0 million of revenue associated with land sales
recorded by the Primary Homebuilding Division for the three months ended September 30, 2007.
Other revenues decreased $333,000 to $1.4 million for the three months ended September 30,
2007, compared to $1.8 million during the same period in 2006. Other revenues in the Primary
Homebuilding segment decreased due to lower revenues from our title company because we used an
outside title broker for more closings in the 2007 period compared to the 2006 period due to the
geographic location of the closings.
Cost of sales of real estate increased $170.8 million to $275.3 million during the three
months ended September 30, 2007, as compared to $104.5 million in the same period in 2006. Cost of
sales increased despite the decrease in revenues from sales of real estate. The increase was due
to impairment charges being recorded in an aggregate amount of $163.6 million in both of our
segments of the Homebuilding Division and in the Other Operations segment during the three months
ended September 30, 2007 compared to no impairment charges in the same period in 2006. Lastly, the
increase in cost of sales is related to $7.7 million of costs of sales related to a land sale that
occurred during the period. The increases in cost of sales were partially offset by lower cost of
sales in the Land Division due to lower sales.
Consolidated margin percentage declined during the three months ended September 30, 2007 to a
negative margin of 124.2% compared to a margin of 20.2% in the three months ended September 30,
2006 primarily related to the impairment charges recorded. Consolidated gross margin excluding
impairment charges was 9.0% compared to a gross margin of 20.2% for the same period in 2006. The
decline was associated with significant discounts offered to reduce cancellations and encourage
buyers to close and aggressive pricing discounts on spec units, and lower margin land sales that
occurred in the three months ended September 30, 2007.
Selling, general and administrative expenses decreased $122,000 to $31.6 million during the
three months ended September 30, 2007 compared to $31.7 million during the same period in 2006.
Selling, general and administrative expenses decreased as a result of decreased advertising costs
and lower incentive compensation. The decrease in incentive compensation
is attributable to the lower profitability of the Company and the reduction in force that occurred
in the three months ended September 30, 2007. This decrease was offset by increased outside broker commissions, and
increased operating expenses related to commercial leasing. The increase in outside broker costs
is due to the increased use of outside brokers to direct buyers to our homebuilding communities,
and the increase in expenses related to rental properties is attributable to costs associated with
our commercial leasing operations that were not incurred in the prior
year. Lastly, professional services remained flat. We
incurred fees for advisory services being performed related to the Bankruptcy Cases that were filed
on November 9, 2007 and associated legal and accounting fees for this activity. These fees were
offset by a reduction in non-capitalizable consulting services which were performed in the three
months ended September 30, 2006 related to the systems implementation that did not take place in
the same period in 2007. As a percentage of
total revenues, selling, general and administrative expenses increased to 25.4% during the three
months ended September 30, 2007, from 23.9% during the same period in
2006 due to the decrease in total revenues.
37
Interest incurred and capitalized totaled $13.2 million in the three months ended September
30, 2007 compared to $11.5 million for the same period in 2006. Interest incurred was higher due to
higher outstanding balances of notes and mortgage notes payable, as well as increases in the
average interest rate on our variable rate debt. At the time of home closings and land sales,
the capitalized interest allocated to such inventory is charged to cost of sales. Cost of sales of
real estate for the three months ended September 30, 2007 and 2006 included previously capitalized
interest of approximately $7.6 million and $4.0 million, respectively.
Other expenses increased $497,000 to $1.1 million for the three months ended September 30,
2007 from $615,000 for the same period in 2006. As part of the reduction in force discussed
above, we vacated certain leased space. The increase in expense is attributable to expensing
certain leasehold improvements in the Other Operations segment. The leasehold improvements related to this
leased space will not be recovered and were written off in the three months ended September 30,
2007. The space is currently under a plan to be subleased and rental payments are expected to be
recovered. There was no comparable charge in the same 2006 period.
Bluegreen reported net income for the three months ended September 30, 2007 of $14.0 million,
as compared to net income of $21.9 million for the same period in 2006. Our interest in
Bluegreens earnings, net of purchase accounting adjustments, was $4.4 million for the three months
ended September 30, 2007 period compared to our interest in Bluegreens earnings of $6.9 million
for the same period in 2006.
Interest and other income increased from $1.5 million during the three months ended September
30, 2006 to $3.1 million during the same period in 2007. This change was primarily related to
higher forfeited deposits on cancelled contracts in our Homebuilding Division.
The benefit for income taxes had an effective rate of 3.5% in the three months ended September
30, 2007 compared to 31.9% in the three months ended September 30, 2006. The decrease in the
effective tax rate is a result of recording a valuation allowance in the three months ended
September 30, 2007 for those deferred tax assets that are not expected to be recovered in the
future. Due to the significant impairment charges recorded in the three months ended September 30,
2007, the expected timing of the reversal of those impairment charges, and expected taxable losses
in the foreseeable future, we do not believe at this time we will have sufficient taxable income to
realize all of the deferred tax assets. At September 30, 2007, we had $105.4 million in gross
deferred tax assets. After consideration of $25.2 million of deferred tax liabilities and the
ability to carryback losses, a valuation allowance of $80.2 million was recorded. The increase in
the valuation allowance from December 2006 is $79.8 million.
The income (loss) from discontinued operations, which comprises two commercial leasing
projects at Core Communities increased $819,000 from a $7,000 loss in the three months ended
September 30, 2006 to income of $812,000 for the three months ended September 30, 2007 The increase
is due to increased commercial lease activity generating higher rental revenues.
For the Nine Months Ended September 30, 2007 Compared to the Same 2006 Period:
We had a consolidated net loss of $226.3 million for the nine months ended September 30, 2007
as compared to net income of $1.6 million for the same period in 2006. The significant loss in the nine
months ended September 30, 2007 was the result of recording $226.9 million of impairment charges
related to inventory of real estate of which $217.6 million is recorded in the Homebuilding
Division and $9.3 million is recorded in the Other Operations segment related to capitalized
interest. This compares to $4.7 million of impairment charges being recorded in the nine months
ended September 30, 2006. In addition, there were decreased sales of real estate and margins on
sales of real estate by our Land Division and Other Operations, and higher selling, general and
administrative expenses associated with all operations except in the Tennessee Homebuilding
segment. In addition, Bluegreen Corporations earnings decreased during the nine months ended
September 30, 2007 as compared to the same period in 2006. These decreases were slightly offset by
an increase in interest and other income associated with the increased forfeited deposits realized
by the Homebuilding Division.
38
Revenues from sales of real estate increased to $389.5 million for the nine months ended
September 30, 2007 from $387.1 million for the same period in 2006. This increase is attributable to higher
sales of real estate in our Primary Homebuilding segment and Other Operations segment due to land sale
revenue being recognized by the Homebuilding segments and Levitt Commercial recording 17 unit sales in
the 2007 period. There were no land sales or Levitt commercial sales recorded in the same period in
2006. In addition, during the nine
months ended September 30, 2007, 982 homes were delivered as compared to 958 homes delivered during
the same period in 2006 in the Primary Homebuilding segment. These increases were slightly offset
by a decrease in the sales of real estate for the Land Division for the nine months ended September
30, 2007 compared to the 2006 period. The Land Division sold approximately 2 acres in the nine
months ended September 30, 2007 as compared to 134 acres in the same period in 2006. In addition,
the Tennessee Homebuilding segment had a decrease in revenues from home sales as a result of
delivering 134 homes at an average sales price of $208,000 in the nine months ended September 30,
2007 compared to delivering 276 homes at an average sales price of $217,000 for the same period in
2006.
Other revenues decreased $452,000 to $5.1 million for the nine months ended September 30,
2007, compared to $5.5 million during the same period in 2006. Other revenues in the Primary
Homebuilding segment decreased due to lower revenues from our title company because we used an
outside title broker for more closings in the 2007 period compared to the 2006 period due to the
geographic location of the closings.
Cost of sales of real estate increased $247.6 million to $559.8 million during the nine months
ended September 30, 2007, as compared to $312.2 million for the same period in 2006. The increase in
cost of sales was due to the increased impairment charges recorded in an aggregate amount of $226.9
million compared to $4.7 million in the same period in 2006. In addition, included in cost of
sales is $19.0 million associated with sales of land by both segments of the Homebuilding Division
that management decided to not develop further, while there were no cost of sales in the
corresponding period of 2006 due to no land sales in that period. These increases were offset by
lower cost of sales due to fewer land sales recorded by the Land Division.
Consolidated margin percentage declined during the nine months ended September 30, 2007 to a
negative margin of 43.7% compared to a margin of 19.4% in the nine months ended September 30, 2006
primarily related to the impairment charges recorded in the Homebuilding Division and Other
Operations segment. Consolidated gross margin excluding impairment charges was 14.5% in the nine
months ended September 30, 2007 compared to a gross margin of 20.6% for the same period in 2006.
The decline was associated with significant discounts offered in 2007 to reduce cancellations and
encourage buyers to close and aggressive pricing discounts on spec units as well as a lower margin
being earned on land sales.
Selling, general and administrative expenses increased $8.2 million to $96.9 million during
the nine months ended September 30, 2007 compared to $88.7 million during the same period in 2006
primarily as a result of higher employee compensation and benefits, increased outside broker
commissions, increased advertising, increased depreciation and increased professional fees. The
increase in employee compensation and benefits is mainly due to severance related charges in the
amount of approximately $2.6 million related to reductions in force in our Primary Homebuilding and
Other Operations segments in the nine months ended September 30, 2007 compared to $1.0 million in
severance charges recorded in our Homebuilding Division in the same period in the prior year. The
increase also relates to increased sales commissions related to increased homebuilding revenue and
higher sales commission percentages being paid in the nine months ended September 30, 2007 compared
to the nine months ended September 30, 2006. The increase in outside broker costs and advertising
was due to more aggressive efforts to direct buyers to our communities in a challenging
homebuilding environment. Depreciation expense increased approximately $1.3 million due to the
amortization of software costs in the nine months ended September 30, 2007 as well as the increased
depreciation associated with Core Communities commercial assets. No software costs were amortized
in the nine months ended September 30, 2006 as our new information technology system was not
implemented until October 2006, and many of the commercial assets were put into use at the end of
2006. Lastly, fees for professional services increased relating to increased legal and accounting
costs related to the proposed BFC merger which was cancelled in the third quarter of 2007 and costs
associated with amendments to our Annual Report on Form 10-K for the year ended December 31, 2006
and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. In addition,
professional fees were incurred related to the Bankruptcy Cases that were filed on November 9, 2007.
39
These professional fees were slightly offset by a reduction in non-capitalizable
consulting services which were performed in the nine months ended September 30, 2006 related to the
systems implementation. These increases were offset by lower selling, general and administrative
costs in our Tennessee Homebuilding segment as average headcount and overhead spending decreased
commensurate with the decrease in units under construction and in backlog. As a percentage of
total revenues, selling, general and administrative expenses increased to 24.6% during the nine
months ended September 30, 2007, from 22.6% during the same period in 2006.
Interest
incurred and capitalized totaled $38.9 million for the nine months ended September
30, 2007 compared to $29.1 million for the same period in 2006. Interest incurred was higher due
to higher outstanding balances of notes and mortgage notes payable, as well as increases in the
average interest rate on our variable-rate debt. At the time of home closings and land sales,
the capitalized interest allocated to such inventory is charged to cost of sales. Cost of sales of
real estate for the nine months ended September 30, 2007 and 2006 included previously capitalized
interest of approximately $17.6 million and $9.7 million, respectively.
Other expenses of $2.0 million decreased $1.2 million during the nine months ended September
30, 2007 from $3.2 million for the same period in 2006. The decrease was primarily attributable to
the write-down of goodwill in the nine months ended September 30, 2006 of approximately $1.3
million associated with our Tennessee Homebuilding segment. In addition, title and mortgage expense
decreased. Title and mortgage expense mostly relates to closing costs and title insurance costs
for closings processed internally. These costs were lower in 2007 despite the increase in closings
due to more closings handled by an outside title broker in the nine months ended September 30, 2007
compared to September 30, 2006. These decreases were slightly
offset by the write-off of leasehold improvements in the nine months
ended September 30, 2007, as discussed previously. There was no comparable
charge in the period in 2006.
Bluegreen reported net income for the nine months ended September 30, 2007 of $23.4 million,
as compared to net income of $28.0 million for the same period in 2006. Our interest in
Bluegreens earnings, net of purchase accounting adjustments, was $7.5 million for the 2007 period
compared to $9.0 million for the same period in 2006.
Interest and other income increased from $4.5 million during the nine months ending September
30, 2006 to $8.7 million during the same period in 2007. This change was primarily related to
higher forfeited deposits on cancelled contracts in our Homebuilding Division.
The benefit for income taxes had an effective rate of 8.4% in the nine months ended September
30, 2007 compared to 27.3% in the nine months ended September 30, 2006. The decrease in the
effective tax rate is a result of recording a valuation allowance in the nine months ended
September 30, 2007 for those deferred tax assets that are not expected to be recovered in the
future. Due to the significant impairment charges recorded in the nine months ended September 30,
2007, the expected timing of the reversal of those impairment charges, and expected taxable losses
in the foreseeable future, we do not believe at this time we will have sufficient taxable income to
realize all of the deferred tax assets. At September 30, 2007, we had $105.4 million in gross
deferred tax assets. After consideration of $25.2 million of deferred tax liabilities and the
ability to carryback losses, a valuation allowance of $80.2 million was recorded. The increase in
the valuation allowance from December 31, 2006 is $79.8 million.
The
income from discontinued operations,
which comprises two commercial leasing
projects at Core Communities, increased $893,000, from $24,000 for the nine months ended September 30, 2006
to $917,000 in the same period in 2007. The increase is due to increased commercial lease
activity generating higher rental revenues.
40
PRIMARY HOMEBUILDING DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands, except unit information) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
112,885 |
|
|
|
104,538 |
|
|
|
8,347 |
|
|
|
340,202 |
|
|
|
297,670 |
|
|
|
42,532 |
|
Other revenues |
|
|
614 |
|
|
|
936 |
|
|
|
(322 |
) |
|
|
2,213 |
|
|
|
2,962 |
|
|
|
(749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
113,499 |
|
|
|
105,474 |
|
|
|
8,025 |
|
|
|
342,415 |
|
|
|
300,632 |
|
|
|
41,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
247,388 |
|
|
|
83,062 |
|
|
|
164,326 |
|
|
|
496,663 |
|
|
|
235,430 |
|
|
|
261,233 |
|
Selling, general and administrative expenses |
|
|
19,252 |
|
|
|
18,599 |
|
|
|
653 |
|
|
|
58,348 |
|
|
|
49,805 |
|
|
|
8,543 |
|
Other expenses |
|
|
575 |
|
|
|
615 |
|
|
|
(40 |
) |
|
|
1,470 |
|
|
|
1,857 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
267,215 |
|
|
|
102,276 |
|
|
|
164,939 |
|
|
|
556,481 |
|
|
|
287,092 |
|
|
|
269,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
2,274 |
|
|
|
740 |
|
|
|
1,534 |
|
|
|
6,475 |
|
|
|
1,107 |
|
|
|
5,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(151,442 |
) |
|
|
3,938 |
|
|
|
(155,380 |
) |
|
|
(207,591 |
) |
|
|
14,647 |
|
|
|
(222,238 |
) |
Benefit (provision) for income taxes |
|
|
1,866 |
|
|
|
(1,519 |
) |
|
|
3,385 |
|
|
|
11,680 |
|
|
|
(5,650 |
) |
|
|
17,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(149,576 |
) |
|
|
2,419 |
|
|
|
(151,995 |
) |
|
|
(195,911 |
) |
|
|
8,997 |
|
|
|
(204,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered (units) |
|
|
332 |
|
|
|
324 |
|
|
|
8 |
|
|
|
982 |
|
|
|
958 |
|
|
|
24 |
|
Construction starts (units) |
|
|
181 |
|
|
|
432 |
|
|
|
(251 |
) |
|
|
558 |
|
|
|
1,218 |
|
|
|
(660 |
) |
Average selling price of homes
delivered |
|
$ |
316 |
|
|
|
323 |
|
|
|
(7 |
) |
|
|
338 |
|
|
|
311 |
|
|
|
27 |
|
Margin percentage |
|
|
(119.2 |
%) |
|
|
20.5 |
% |
|
|
(139.7 |
%) |
|
|
(46.0 |
%) |
|
|
20.9 |
% |
|
|
(66.9 |
%) |
Gross orders (units) |
|
|
159 |
|
|
|
215 |
|
|
|
(56 |
) |
|
|
753 |
|
|
|
969 |
|
|
|
(216 |
) |
Gross orders (value) |
|
$ |
47,037 |
|
|
|
68,497 |
|
|
|
(21,460 |
) |
|
|
219,687 |
|
|
|
312,024 |
|
|
|
(92,337 |
) |
Cancellations (units) |
|
|
102 |
|
|
|
81 |
|
|
|
21 |
|
|
|
352 |
|
|
|
166 |
|
|
|
186 |
|
Net orders (units) |
|
|
57 |
|
|
|
134 |
|
|
|
(77 |
) |
|
|
401 |
|
|
|
803 |
|
|
|
(402 |
) |
Backlog of homes (units) |
|
|
545 |
|
|
|
1,444 |
|
|
|
(899 |
) |
|
|
545 |
|
|
|
1,444 |
|
|
|
(899 |
) |
Backlog of homes (value) |
|
$ |
179,796 |
|
|
|
521,844 |
|
|
|
(342,048 |
) |
|
|
179,796 |
|
|
|
521,844 |
|
|
|
(342,048 |
) |
For the Three Months Ended September 30, 2007 Compared to the Same 2006 Period:
The value of gross orders decreased to $47.0 million for the three months ended September 30,
2007, from $68.5 million for the same period in 2006 due to the decrease in gross orders and a
decline in average sales price. During the three months ended September 30, 2007, gross orders of
159 units were offset by 102 cancellations resulting in a cancellation rate of 64%. During the
three months ended September 30, 2006, gross orders of 215 units were offset by 81 cancellations
resulting in a cancellation rate of 38%. Average sales prices of gross orders decreased to
$296,000 for the three months ended September 30, 2007, from $319,000 in the same period in 2006.
The decrease in the average sales prices of gross orders was the result of increased discounts on
new orders and aggressive pricing on spec sales. Tightened credit requirements also made it
increasingly difficult for our buyers to obtain financing. Construction starts decreased as
compared to 2006 due to lower sales. The average sales price of the homes in backlog at September
30, 2007 decreased 9% to $330,000 from $361,000 at September 30, 2006.
Revenues from sales of real estate increased 8.0% to $112.9 million during the three months
ended September 30, 2007, compared to $104.5 million for the same period in 2006. The increase is
primarily related to the $8.0 million of revenue recognized attributable to a sale of land that
management decided to not develop
41
further, while there was no land sales in the corresponding period of 2006. The increase in
deliveries to 332 units during the three months ended September 30, 2007 compared to 324 homes
delivered in the same period in 2006 was offset by a decline in the average sales prices of homes
delivered from $323,000 in the three months ended September 30, 2006 to $316,000 in the three
months ended September 30, 2007.
Other revenues decreased $322,000 to $614,000 for the three months ended September 30, 2007,
compared to the same period in 2006. Other revenues decreased due to lower revenues from our title
company despite the higher number of closings because the Primary Homebuilding segment used an
outside title broker for more closings in the three months ended September 30, 2007 compared to the
same period in 2006 due to the geographic location of the closings.
Cost of sales increased $164.3 million to $247.4 million during the three months ended
September 30, 2007, compared to $83.1 million for the same period in 2006. The increase was
primarily due to the increased impairment charges on inventory of real estate, an increase in cost
of sales due to larger number of deliveries and an increase in cost of sales associated with the
land sale that occurred in the three months ended September 30, 2007. Impairment charges were
$143.9 million in the three months ended September 30, 2007 compared to no charges in the three
months ended September 30, 2006.
Margin percentage (which we define as sales of real estate minus cost of sales of real estate,
divided by sales of real estate) declined to a negative 119.2% in the three months ended September
30, 2007 from 20.5% in the three months ended September 30, 2006 mainly attributable to impairment
charges recorded in the three months ended September 30, 2007. Gross margin excluding impairments
declined from 20.5% in the three months ended September 30, 2006 to 8.3% during the three months
ended September 30, 2007. This decline was primarily attributable to significant discounts offered
to reduce cancellations and encourage buyers to close, aggressive pricing on spec units, and lower
margin generated on land sales.
Selling, general and administrative expenses increased 3.5% to $19.3 million during the three
months ended September 30, 2007, compared to $18.6 million during the same period in 2006 primarily
as a result of higher compensation and benefits expense and higher outside broker fees offset in
part by decreased advertising and marketing costs. The increase in compensation and benefits
expense is related to severance related charges of approximately $1.2 million for the three months
ended September 30, 2007 compared to $800,000 in the same period in 2006. The increase in outside
broker costs is due to the increased use of outside brokers to direct buyers to our communities.
These increases were offset by a decrease in advertising costs. As a percentage of total revenues,
selling, general and administrative expense was approximately 17.0% for the three months ended
September 30, 2007 compared to 17.6% for the same period in 2006.
Other expenses were $575,000 during the three months ended September 30, 2007 compared to
$615,000 for the same period in 2006. The decrease was due to title and mortgage expense
decreasing. Title and mortgage expense mostly relates to closing costs and title insurance costs
for closings processed internally. These costs were down despite the increase in closings due to
more closings handled by an outside title broker in the three months ended September 30, 2007as
opposed to September 30, 2006.
Interest incurred and capitalized totaled $7.6 million and $7.1 million for the three months
ended September 30, 2007 and 2006, respectively. Interest incurred increased as a result of a
higher average debt balance for the three months ended September 30, 2007. At the time of home
closings and land sales, the capitalized interest allocated to such inventory is charged to cost of
sales. Cost of sales of real estate for the three months ended September 30, 2007 and 2006
included previously capitalized interest of approximately $6.1 million and $2.5 million,
respectively.
Interest and other income increased from $740,000 during the nine months ended September 30,
2006 to $2.3 million during the same period in 2007. This change was primarily related to an
increase in forfeited deposits of $1.2 million resulting from increased cancellations of home sale
contracts.
42
Nine Months Ended September 30, 2007 Compared to the Same 2006 Period:
The value of gross orders decreased to $219.7 million for the nine months ended September 30,
2007, from $312.0 million during the same period in 2006 due to the decrease in gross orders and a
decline in average selling price. During the nine months ended September 30, 2007, gross orders of
753 units were offset by 352 cancellations resulting in a cancellation rate of 47%. During the
nine months ended September 30, 2006, gross orders of 969 units were offset by 166 cancellations
resulting in a cancellation rate of 17%. Average sales prices of gross orders declined to $292,000
for the nine months ended September 30, 2007, from $322,000 in the same period in 2006. The
decrease in the average sales price of gross orders was the result of increased discounts on new
orders, and aggressive pricing on spec sales. Tightened credit requirements have also made it
increasingly difficult for our buyers to obtain financing.
Revenues from sales of real estate increased 14.3% or $42.5 million to $340.2 million during
the nine months ended September 30, 2007, from $297.7 million during the same period in 2006.
During the nine months ended September 30, 2007, 982 homes were delivered compared to 958 homes
delivered during the same period in 2006. There was also an increase in the average sales price on
homes delivered to $338,000 for the nine months ended September 30, 2007, compared with $311,000
during the same period in 2006 due to deliveries from higher priced communities. Additionally
during the nine months ended September 30, 2007 land sales of $8.0 million were recorded with no
comparable sales in the same 2006 period.
Other revenues decreased $749,000 to $2.2 million for the nine months ended September 30,
2007, compared to $3.0 million during the same period in 2006. Other revenues in the Primary
Homebuilding segment decreased due to lower revenues from our title company despite the higher
number of closings because we used an outside title broker for more closings in the nine months
ended September 30, 2007 compared to the same period in 2006 due to the geographic location of the
closings.
Cost of sales increased to $496.7 million during the nine months ended September 30, 2007,
compared to $235.4 million for the same period in 2006. The increase was due to the increased
impairment charges related to inventory of real estate, an increase in cost of sales due to larger
number of deliveries and an increase in cost of sales associated with the land sale that occurred
in the three months ended September 30, 2007. Impairment charges were $206.4 million in the nine
months ended September 30, 2007 compared to no impairment charges in the same period in 2006.
Margin percentage (defined as sales of real estate minus cost of sales of real estate,
divided by sales of real estate) declined to a negative 46.0% in the nine months ended September
30, 2007 from 20.9% in the nine months ended September 30, 2006 mainly attributable to the
impairment charges recorded in the nine months ended September 30, 2007. Margin percentage excluding
impairments declined from 20.9% in the nine months ended September 30, 2006 to 14.7% during the
nine months ended September 30, 2007. This decline was primarily attributable to significant
discounts offered to reduce cancellations and encourage buyers to close, and aggressive pricing
discounts on spec units as well as lower margin earned on the $8.0 million land sale mentioned
above.
Selling, general and administrative expenses increased 17.2% to $58.3 million during the nine
months ended September 30, 2007, compared to $49.8 million in the same period in 2006 primarily as
a result of higher employee compensation and benefits expense, higher broker commissions, and
increased advertising costs. The increase in employee compensation and benefits expense was due to
severance related charges of approximately $2.6 million compared to $800,000 in severance charges
in the nine months ended September 30, 2006. Other increases in employee compensation and benefits
include increased sales commissions related to increased deliveries and higher sales commission
percentages being paid in the nine months ended September 30, 2007 compared to the same period in
2006. The increase in advertising and outside broker costs was due to increased advertising and
the use of outside brokers to direct potential buyers to our communities. As a percentage of
total revenues, selling, general and administrative expense was approximately 17.0% for the nine
months ended September 30, 2007 compared to 16.6% for the same period in 2006.
Interest incurred and capitalized totaled $23.2 million and $17.5 million for the nine months
ended September 30, 2007 and 2006, respectively. Interest incurred increased as a result of a
higher average debt balances for the nine months ended September 30, 2007 as compared to the same
2006 period, as well as increases in the average interest rate on our variable-rate debt. At the
time of home closings and land sales, the
43
capitalized interest allocated to such inventory is charged to cost of sales. Cost of sales of
real estate for the nine months ended September 30, 2007 and 2006 included previously capitalized
interest of approximately $13.9 million and $6.1 million, respectively.
Interest and other income increased from $1.1 million during the nine months ended September
30, 2006 to $6.5 million during the same period in 2007. This change was primarily related to an
increase in forfeited deposits of $5.1 million resulting from increased cancellations of home sale
contracts, offset in part by a decrease in interest income.
TENNESSEE HOMEBUILDING DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands, except unit information) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
9,339 |
|
|
|
18,099 |
|
|
|
(8,760 |
) |
|
|
39,844 |
|
|
|
59,816 |
|
|
|
(19,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,339 |
|
|
|
18,099 |
|
|
|
(8,760 |
) |
|
|
39,844 |
|
|
|
59,816 |
|
|
|
(19,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
19,822 |
|
|
|
16,007 |
|
|
|
3,815 |
|
|
|
49,156 |
|
|
|
57,497 |
|
|
|
(8,341 |
) |
Selling, general and administrative expenses |
|
|
1,552 |
|
|
|
2,736 |
|
|
|
(1,184 |
) |
|
|
5,416 |
|
|
|
9,670 |
|
|
|
(4,254 |
) |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,307 |
|
|
|
(1,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
21,374 |
|
|
|
18,743 |
|
|
|
2,631 |
|
|
|
54,572 |
|
|
|
68,474 |
|
|
|
(13,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
25 |
|
|
|
45 |
|
|
|
(20 |
) |
|
|
77 |
|
|
|
103 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(12,010 |
) |
|
|
(599 |
) |
|
|
(11,411 |
) |
|
|
(14,651 |
) |
|
|
(8,555 |
) |
|
|
(6,096 |
) |
(Provision) benefit for income taxes |
|
|
(100 |
) |
|
|
276 |
|
|
|
(376 |
) |
|
|
824 |
|
|
|
2,738 |
|
|
|
(1,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,110 |
) |
|
|
(323 |
) |
|
|
(11,787 |
) |
|
|
(13,827 |
) |
|
|
(5,817 |
) |
|
|
(8,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered (units) |
|
|
43 |
|
|
|
79 |
|
|
|
(36 |
) |
|
|
134 |
|
|
|
276 |
|
|
|
(142 |
) |
Construction starts (units) |
|
|
55 |
|
|
|
51 |
|
|
|
4 |
|
|
|
167 |
|
|
|
187 |
|
|
|
(20 |
) |
Average selling price of homes
delivered |
|
$ |
196 |
|
|
|
229 |
|
|
|
(33 |
) |
|
|
207 |
|
|
|
217 |
|
|
|
(10 |
) |
Margin percentage |
|
|
(112.2 |
%) |
|
|
11.6 |
% |
|
|
(123.8 |
%) |
|
|
(23.4 |
%) |
|
|
3.9 |
% |
|
|
(27.2 |
%) |
Gross orders (units) |
|
|
47 |
|
|
|
93 |
|
|
|
(46 |
) |
|
|
216 |
|
|
|
347 |
|
|
|
(131 |
) |
Gross orders (value) |
|
$ |
10,649 |
|
|
|
19,535 |
|
|
|
(8,886 |
) |
|
|
47,283 |
|
|
|
70,892 |
|
|
|
(23,609 |
) |
Cancellations (units) |
|
|
55 |
|
|
|
31 |
|
|
|
24 |
|
|
|
118 |
|
|
|
116 |
|
|
|
2 |
|
Net orders (units) |
|
|
(8 |
) |
|
|
62 |
|
|
|
(70 |
) |
|
|
98 |
|
|
|
231 |
|
|
|
(133 |
) |
Backlog of homes (units) |
|
|
86 |
|
|
|
148 |
|
|
|
(62 |
) |
|
|
86 |
|
|
|
148 |
|
|
|
(62 |
) |
Backlog of homes (value) |
|
$ |
17,608 |
|
|
|
32,745 |
|
|
|
(15,137 |
) |
|
|
17,608 |
|
|
|
32,745 |
|
|
|
(15,137 |
) |
For the Three Months Ended September 30, 2007 Compared to the Same 2006 Period:
The value of gross orders decreased to $10.6 million for the three months ended September 30,
2007, from $19.5 million for the same period in 2006 due to the decrease in the number of gross
orders and a decline in the average selling price. During the three months ended September 30,
2007, gross orders of 47 units were offset by 55 cancellations resulting in a cancellation rate of
117%. During the three months ended September 30, 2006, gross orders of 93 were offset by 31
cancellations resulting in a cancellation rate of 33%. Average sales
44
prices of gross orders increased to $227,000 for the three months ended September 30, 2007,
compared with $210,000 in the same period in 2006. The decrease in gross orders was the result of
continuing slow market conditions as traffic trended downward and conversion rates slowed, as well
as reduced inventory available for sale as we wind down our Tennessee operations. Tightened credit
requirements have also made it increasingly difficult for our buyers to obtain financing. At
September 30, 2007, 86 homes remained in backlog with 74 of those units under construction.
Revenues from sales of real estate decreased to $9.3 million during the three months ended
September 30, 2007, compared to $18.1 million during the same 2006 period. During the three
months ended September 30, 2007, 43 homes were delivered at an average sales price of $196,000 as
compared to 79 homes delivered at an average price of $229,000 during the three months ended
September 30, 2006. The decrease in the average price of homes delivered was due to the mix of
homes delivered in the quarter and downward pricing pressures,
reflecting the
downturn in the homebuilding market. Additionally included in revenue is approximately $1.0
million in lot sales occurring in the three months ended September 30, 2007.
Cost of sales increased 23.8% to $19.8 million during the three months ended September 30,
2007 compared to $16.0 million during the same period in 2006 due to increased impairment charges
related to inventory offset by a decrease in cost of sales due to the decrease in home deliveries.
Impairment charges were $10.5 million in the three months ended September 30, 2007 compared to no
charges in the three months ended September 30, 2006.
Margin percentage decreased to a negative margin of 112.2% in the three months ended
September 30, 2007 compared to a margin of 11.6% in the three months ended September 30, 2006.
This decrease in margin percentage was primarily attributable to impairment charges of $10.5 million
recorded in the three months ended September 30, 2007. There were no impairment charges recorded
in the same period in 2006. Margin percentage excluding impairments declined from 11.6% during the
three months ended September 30, 2006 to a negative margin of 0.2% during the three months ended
September 30, 2007 due to lower selling prices.
Selling, general and administrative expenses decreased $1.2 million to $1.6 million during
the three months ended September 30, 2007 compared to $2.7 million during the same period in 2006
primarily as a result of lower employee compensation and benefits, decreased broker commission
costs and decreased advertising and marketing costs. The decrease in employee compensation and
benefits is mainly due to the decrease in average headcount for the three months ended September
30, 2007, compared to the same period in 2006. Decreased broker commission costs were due to fewer
deliveries in the three months ended September 30, 2007 compared to the same period in 2006. The
decreases associated with marketing and advertising are attributable to a reduced emphasis on
advertising in the Tennessee market.
Interest incurred and capitalized totaled approximately $521,000 and $596,000 for the three
months ended September 30, 2007 and 2006, respectively. At the time of home closings and land
sales, the capitalized interest allocated to such inventory is charged to cost of sales. Cost of
sales of real estate for the three months ended September 30, 2007 and 2006 included previously
capitalized interest of approximately $485,000 and $583,000, respectively.
For the Nine Months Ended September 30, 2007 Compared to the Same 2006 Period:
The value of gross orders decreased to $47.3 million for the nine months ended September 30,
2007, from $70.9 million for the same period in 2006 due to the decrease in the number of gross
orders. During the nine months ended September 30, 2007, gross orders of 216 units were offset by
118 cancellations resulting in a cancellation rate of 55%. During the nine months ended September
30, 2006, gross orders of 347 were offset by 116 cancellations resulting in a cancellation rate of
33%. The decrease in gross orders was the result of continuing slow market conditions as traffic
trended downward and conversion rates slowed, as well as reduced inventory available for sale and
tightened credit requirements. These decreases were slightly offset by an increase in average
selling price due to the product mix of orders that were sold in the nine months ended September
30, 2007 which were at higher priced communities compared to the same period in 2006. Average
sales prices of gross orders increased to $219,000 for the nine months ended September 30, 2007
from $204,000 in the same period in 2006.
45
Revenues from sales of real estate decreased to $39.8 million during the nine months ended
September 30, 2007, from $59.8 million during the same period in 2006. During the nine months
ended September 30, 2007, 134 homes were delivered at an average sales price of $207,000 as
compared to 276 homes delivered at an average price of $217,000 during the nine months ended
September 30, 2006. While the average sales prices of homes delivered in 2007 remained relatively
consistent with 2006, home sales revenue decreased significantly due to fewer homes delivered.
This decrease was offset by an increase of $11.1 million of revenue recognized related to a
sale that occurred in the nine months ended September 30, 2007 of land that management decided to not
develop further. There were no land sales in the corresponding 2006 period. Additionally,
included in revenues are certain lot sales occurring in the nine months ended September 30, 2007.
Cost of sales of real estate decreased 14.5% to $49.2 million during the nine months ended
September 30, 2007, as compared to $57.5 million during the same period in 2006 due to a decrease
in home deliveries. The decrease in home deliveries was offset by increased impairment charges
related to inventory, and increased cost of sales associated with land sales. Included in cost of
sales in the nine months ended September 30, 2007 was $11.1 million associated with land sales with
no land sales in the same period in 2006. In addition, impairment charges increased $6.5 million
from $4.7 million in the nine months ended September 30, 2006 to $11.2 million in the nine months
ended September 30, 2007.
Margin percentage decreased to a negative margin of 23.4% in the nine months ended
September 30, 2007 from 3.9% in the nine months ended September 30, 2006. The decrease in
margin percentage was primarily attributable to impairment charges, which increased by $6.5 million in the
nine months ended September 30, 2007 compared to the same period in 2006. Margin percentage excluding
impairment charges declined from 11.8% during the nine months ended September 30, 2006 to 4.8%
during the three months ended September 30, 2007 due to the mix of homes delivered with lower
average selling prices and minimal to no margin being generated on the land or lot sales that
occurred during the period.
Selling, general and administrative expenses decreased $4.3 million to $5.4 million during the
nine months ended September 30, 2007 compared to $9.7 million during the same period in 2006
primarily as a result of lower employee compensation and benefits, decreased broker commission
costs and decreased advertising and marketing costs. The decrease in employee compensation and
benefits is mainly due to the decrease in the average headcount from September 30, 2006 to
September 30, 2007. Decreased broker commission costs were due to lower revenues generated in the
nine months ended September 30, 2007 compared to the same period in 2006. The decreases associated
with marketing and advertising are attributable to a decreased focus on advertising in the
Tennessee market.
Other expenses were not recorded in the nine months ended September 30, 2007 compared to $1.3
million in the same period in 2006. Other expenses in the nine months
ended September 30, 2006 reflect the write-off of
$1.3 million in goodwill.
Interest incurred and capitalized totaled approximately $1.6 million and $2.0 million for the
nine months ended September 30, 2007 and 2006, respectively. At the time of home closings and land
sales, the capitalized interest allocated to such inventory is charged to cost of sales. Cost of
sales of real estate for the nine months ended September 30, 2007 and 2006 included previously
capitalized interest of approximately $1.2 million and $1.5 million, respectively.
46
LAND DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands, except acres |
|
|
|
|
|
|
information) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
757 |
|
|
|
8,302 |
|
|
|
(7,545 |
) |
|
|
3,451 |
|
|
|
29,660 |
|
|
|
(26,209 |
) |
Other revenues |
|
|
711 |
|
|
|
543 |
|
|
|
168 |
|
|
|
2,494 |
|
|
|
1,490 |
|
|
|
1,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,468 |
|
|
|
8,845 |
|
|
|
(7,377 |
) |
|
|
5,945 |
|
|
|
31,150 |
|
|
|
(25,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
256 |
|
|
|
4,760 |
|
|
|
(4,504 |
) |
|
|
811 |
|
|
|
17,497 |
|
|
|
(16,686 |
) |
Selling, general and
administrative expenses |
|
|
4,152 |
|
|
|
3,273 |
|
|
|
879 |
|
|
|
11,421 |
|
|
|
8,898 |
|
|
|
2,523 |
|
Interest expense |
|
|
829 |
|
|
|
|
|
|
|
829 |
|
|
|
1,851 |
|
|
|
|
|
|
|
1,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
5,237 |
|
|
|
8,033 |
|
|
|
(2,796 |
) |
|
|
14,083 |
|
|
|
26,395 |
|
|
|
(12,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
1,354 |
|
|
|
284 |
|
|
|
1,070 |
|
|
|
3,414 |
|
|
|
2,191 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations
before income taxes |
|
|
(2,415 |
) |
|
|
1,096 |
|
|
|
(3,511 |
) |
|
|
(4,724 |
) |
|
|
6,946 |
|
|
|
(11,670 |
) |
Benefit (provision) for
income taxes |
|
|
728 |
|
|
|
(427 |
) |
|
|
1,155 |
|
|
|
1,701 |
|
|
|
(2,613 |
) |
|
|
4,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations |
|
|
(1,687 |
) |
|
|
669 |
|
|
|
(2,356 |
) |
|
|
(3,023 |
) |
|
|
4,333 |
|
|
|
(7,356 |
) |
Discontinued
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
discontinued operations,
net of tax |
|
|
812 |
|
|
|
(7 |
) |
|
|
819 |
|
|
|
917 |
|
|
|
24 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(875 |
) |
|
|
662 |
|
|
|
(1,537 |
) |
|
|
(2,106 |
) |
|
|
4,357 |
|
|
|
(6,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold |
|
|
1 |
|
|
|
29 |
|
|
|
(28 |
) |
|
|
2 |
|
|
|
134 |
|
|
|
(132 |
) |
Margin percentage |
|
|
66.2 |
% |
|
|
42.7 |
% |
|
|
23.5 |
% |
|
|
76.5 |
% |
|
|
41.0 |
% |
|
|
35.5 |
% |
Unsold saleable acres (a) |
|
|
6,717 |
|
|
|
7,109 |
|
|
|
(392 |
) |
|
|
6,717 |
|
|
|
7,109 |
|
|
|
(392 |
) |
Acres subject to sales
contracts third parties |
|
|
291 |
|
|
|
69 |
|
|
|
222 |
|
|
|
291 |
|
|
|
69 |
|
|
|
222 |
|
Aggregate sales price of
acres subject to sales
contracts to third parties |
|
$ |
92,451 |
|
|
|
20,281 |
|
|
|
72,170 |
|
|
|
92,451 |
|
|
|
20,281 |
|
|
|
72,170 |
|
|
|
|
(a) |
|
Includes approximately 62 acres related to assets held for sale as of September 30, 2007 |
For the Three Months Ended September 30, 2007 Compared to the Same 2006 Period:
Revenues from sales of real estate decreased 90.1% to $757,000 during the three months ended
September 30, 2007, compared to $8.3 million during the same period in 2006. Revenues for the
three months ended September 30, 2007 were comprised of look back provisions of $177,000 compared
to $231,000 in the three months ended September 30, 2006. Look back revenue relates to
incremental revenue received from homebuilders based on the final resale price to the homebuilders
customer. Certain of the Land Divisions contracts contain these provisions. In the three months
ended September 30, 2007, we also recognized deferred revenue on previously sold bulk land and
residential lots totaling approximately $274,000, of which $156,000 was related to the sales to the
Primary Homebuilding segment and is eliminated in consolidation. In addition, in the three months
ended September 30, 2007, we sold two residential lots encompassing approximately one acre
47
in Tradition, South Carolina with a gross sales price of $418,000, in which we recognized revenue
of $306,000 and deferred $112,000 based on percentage of completion accounting. In the three
months ended September 30, 2006, 29 acres were sold in Tradition, Florida in which we recognized
revenue of $8.1 million. In 2007, demand for residential land in Tradition, Florida continues to
slow dramatically. Management continues to focus on commercial land sales and the leasing and
development of its retail centers for which there has been more demand. At Tradition, South Carolina,
management is completing the development of the initial phases and expects a marketing launch in
the spring of 2008.
Other revenues increased $168,000 to $711,000 for the three months ended September 30, 2007,
compared to $543,000 during the same period in 2006. This was due to increased revenues relating
to irrigation services provided to both homebuilders and the residents of Tradition, Florida, and
marketing income associated with Tradition, Florida.
Cost of sales of real estate decreased $4.5 million to $256,000 during the three months ended
September 30, 2007, as compared to $4.8 million for the same period in 2006 due to the decrease in
sales of real estate.
Margin percentage increased to 66.2% in the three months ended September 30, 2007 from 42.7%
in the three months ended September 30, 2006. The increase in margin is primarily due to 100%
margin being realized on lookback revenue because the costs were fully expensed at the time of
closing. The increased margin attributable to lookback revenue was slightly offset by a lower
margin on the lot sales in South Carolina in the three months ended September 30, 2007 of 35.0%
compared to a margin of 40.9% on the land sold in the three months ended September 30, 2006.
Selling, general and administrative expenses increased 26.9% to $4.2 million during the three
months ended September 30, 2007 compared to $3.3 million in the same period in 2006. The increase
is the result of higher employee compensation and benefits and other general and administrative
costs. The number of employees increased to 68 at September 30, 2007, from 63 at September 30,
2006, as additional personnel were added to support development activity in Tradition, South
Carolina. In addition, general and administrative costs increased related to increased expenses
associated with our commercial leasing activities and increased payments to property owners
associations.
Interest incurred for the three months ended September 30, 2007 and 2006 was $3.0 million and
$1.7 million, respectively. Interest capitalized totaled $2.2 million for the three months ended
September 30, 2007 as compared to $1.7 million during the same period in 2006. The difference in
the interest incurred and capitalized which is included in interest expense in the three months
ended September 30, 2007 of approximately $829,000 was attributable to funds borrowed by Core
Communities but then loaned to Levitt Corporation. The capitalization of this interest occurred at
the consolidated eliminations level and all intercompany interest expense and income was eliminated
on a consolidated basis. Interest incurred was higher due to higher outstanding balances of notes
and mortgage notes payable and due to an increase in the average interest rate on variable-rate
debt. Most of Core Communities variable-rate debt is indexed to various LIBOR rates, which
averaged lower rates in the nine months ended September 30, 2006 compared to the same period
September 30, 2007. Cost of sales of real estate for the three months ended September 30, 2007 did
not include any previously capitalized interest, as compared to $151,000 for the three months ended
September 30, 2006.
Interest and other income increased from $284,000 during the three months ending September 30,
2006 to $1.4 million during the same period in 2007. The increase primarily relates to $829,000 in
inter-segment interest income associated with the aforementioned
intercompany loan to Levitt Corporation which is eliminated in consolidation.
The
income (loss) from discontinued operations net of tax, which comprises two commercial leasing
projects at Core Communities increased $819,000 from a $7,000 loss in the three months ended
September 30, 2006 to income of $812,000 for the three months ended September 30, 2007 The increase
is due to increased commercial lease activity generating higher rental revenues.
48
For the Nine Months Ended September 30, 2007 Compared to the Same 2006 Period:
Revenues from sales of real estate decreased 88.4% to $3.5 million during the nine months
ended September 30, 2007, compared to $29.7 million during the same period in 2006. Revenues for
the nine months ended September 30, 2007 included look back provisions of $1.4 million
compared to $321,000 in the nine months ended September 30, 2006. We also recognized deferred
revenue on previously sold bulk land and residential lots totaling approximately
$1.3 million, of which $584,000 related to sales to the Primary Homebuilding segment and is eliminated in consolidation. In addition, in
the nine months ended September 30, 2007 we sold five residential lots encompassing approximately
two acres in Tradition, South Carolina with a gross sales price of $1.0 million, in which we
recognized revenue of $734,000 and deferred $270,000 based on percentage of completion accounting.
In the nine months ended September 30, 2006, 134 acres were sold in Tradition, Florida in which we
recognized revenue of $29.3 million. In 2007, demand for residential land in Tradition, Florida
continues to slow dramatically. Management continues to focus on commercial land sales and the
leasing and development of its retail centers for which there has been more demand. At Tradition,
South Carolina, management is completing the development of the initial phases and expects a
marketing launch in the spring of 2008.
Other revenues increased $1.0 million to $2.5 million for the nine months ended September 30,
2007, compared to $1.5 million during the same period in 2006. This was due to increased revenues
related to irrigation services provided to both homebuilders and the residents of Tradition,
Florida, and marketing income associated with Tradition, Florida.
Cost of sales decreased $16.7 million to $811,000 during the nine months ended September 30,
2007, as compared to $17.5 million for the same period in 2006 due to the decrease in sales of real
estate.
Margin percentage increased to 76.5% in the nine months ended September 30, 2007 from 41.0% in
the nine months ended September 30, 2006. The increase in margin is primarily due to 100% margin
being realized on lookback revenue because the costs were fully expensed at the time of closing.
The increased margin attributable to lookback revenue was slightly offset by a lower margin on the
land sales in Tradition, South Carolina in the nine months ended September 30, 2007 of 33.4%
compared to a margin of 40.5% on the land sold in the nine months ended September 30, 2006.
Selling, general and administrative expenses increased 28.4% to $11.4 million during the nine
months ended September 30, 2007 compared to $8.9 million in the same period in 2006. The increase
is the result of higher employee compensation and benefits and other general and administrative
costs. The number of employees increased to 68 at September 30, 2007, from 63 at September 30,
2006, as additional personnel were added to support development activity in Tradition, South
Carolina. General and administrative costs increased related to increased expenses associated
with our commercial leasing activities, increased legal expenditures, increased insurance costs and
increased marketing and advertising expenditures designed to attract buyers in Florida and
establish a market presence in South Carolina.
Interest incurred for the nine months ended September 30, 2007 and 2006 was $8.2 million and
$4.5 million, respectively. Interest capitalized totaled $6.4 million for the nine months ended
September 30, 2007 compared to $4.5 million during the same period in 2006. The difference in the
interest incurred and capitalized which is included in interest expense in the nine months ended
September 30, 2007 of approximately $1.9 million was attributable to funds borrowed by Core
Communities but then loaned to Levitt Corporation. As noted above, interest incurred was higher
due to higher outstanding balances of notes and mortgage notes payable and due to an increase in
the average interest rate on variable-rate debt. Cost of sales of real estate for the nine months
ended September 30, 2007 included approximately $1,000 in previously capitalized interest, as
compared to $249,000 for the nine months ended September 30, 2006.
Interest and other income increased from $2.2 million during the nine months ending September
30, 2006 to $3.4 million during the same period in 2007. The increase relates to an increase in
inter-segment interest income associated with the aforementioned intercompany loan with Levitt
Corporation which is eliminated in consolidation offset by a decrease in gain on sale of fixed
assets which totaled $1.3 million in the nine months ended September 30, 2006 compared to $18,000
in the same period in 2007.
The
income from discontinued operations which comprises two commercial leasing
projects at Core Communities, increased $893,000 from $24,000 for the nine months ended September 30, 2006 to
$917,000 in the same period in 2007. The increase is due to increased commercial lease activity
generating higher rental revenues.
49
OTHER OPERATIONS RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
6,574 |
|
|
|
|
|
|
|
6,574 |
|
Other revenues |
|
|
258 |
|
|
|
325 |
|
|
|
(67 |
) |
|
|
693 |
|
|
|
1,121 |
|
|
|
(428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
258 |
|
|
|
325 |
|
|
|
(67 |
) |
|
|
7,267 |
|
|
|
1,121 |
|
|
|
6,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
10,259 |
|
|
|
749 |
|
|
|
9,510 |
|
|
|
16,778 |
|
|
|
2,047 |
|
|
|
14,731 |
|
Selling, general and administrative expenses |
|
|
6,776 |
|
|
|
7,070 |
|
|
|
(294 |
) |
|
|
21,940 |
|
|
|
20,330 |
|
|
|
1,610 |
|
Other expenses |
|
|
536 |
|
|
|
|
|
|
|
536 |
|
|
|
536 |
|
|
|
|
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
17,571 |
|
|
|
7,819 |
|
|
|
9,752 |
|
|
|
39,254 |
|
|
|
22,377 |
|
|
|
16,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
4,418 |
|
|
|
6,923 |
|
|
|
(2,505 |
) |
|
|
7,519 |
|
|
|
9,026 |
|
|
|
(1,507 |
) |
Interest and other income |
|
|
285 |
|
|
|
478 |
|
|
|
(193 |
) |
|
|
933 |
|
|
|
1,146 |
|
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(12,610 |
) |
|
|
(93 |
) |
|
|
(12,517 |
) |
|
|
(23,535 |
) |
|
|
(11,084 |
) |
|
|
(12,451 |
) |
Benefit for income taxes |
|
|
4,594 |
|
|
|
271 |
|
|
|
4,323 |
|
|
|
7,500 |
|
|
|
5,006 |
|
|
|
2,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(8,016 |
) |
|
|
178 |
|
|
|
(8,194 |
) |
|
|
(16,035 |
) |
|
|
(6,078 |
) |
|
|
(9,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations include all other Company operations, including Levitt Commercial, Parent
Company general and administrative expenses, earnings from our investment in Bluegreen and earnings
(loss) from investments in various real estate projects and trusts. We currently own approximately
9.5 million shares of the common stock of Bluegreen, which represented approximately 31.0% of
Bluegreens outstanding shares as of September 30, 2007. Under equity method accounting, we
recognize our pro-rata share of Bluegreens net income (net of purchase accounting adjustments) as
pre-tax earnings. Bluegreen has not paid dividends to its shareholders; therefore, our earnings
represent only our claim to the future distributions of Bluegreens earnings. Accordingly, we
record a tax liability on our portion of Bluegreens net income. Our earnings in Bluegreen
increase or decrease concurrently with Bluegreens reported results. Furthermore, a significant
reduction in Bluegreens financial position could potentially result in an impairment charge on our
investment against our future results of operations.
For the Three Months Ended September 30, 2007 Compared to the Same 2006 Period:
Other revenues decreased $67,000 to $258,000 in the three months ended September 30, 2007 from
$325,000 in the same period in 2006 due to the reduction in lease
revenue received from a sub-tenant in the corporate headquarters
building. The sub-tenant leased space in our headquarters building and returned a portion of
this space to us in the fourth quarter of 2006, which we are now occupying.
Cost of sales of real estate increased to $10.3 million during the three months ended
September 30, 2007, as compared to $749,000 during the three months ended September 30, 2006. Cost
of sales of real estate includes the expensing of interest previously capitalized. Interest in
Other Operations has typically been capitalized and amortized to cost of sales in accordance with
the relief rate used in the Companys operating segments. This capitalization is for Other
Operations debt where interest is allocated to inventory in the other operating segments.
However, in the three months ended September 30, 2007 capitalized interest was written
off in the amount of $9.3 million related to the projects in the Homebuilding Division that
have ceased development.
50
Bluegreen reported net income for the three months ended September 30, 2007 of $14.0 million,
as compared to net income of $21.9 million for the same period in 2006. Our interest in
Bluegreens earnings, net of purchase accounting adjustments, was $4.4 million for the three months
ended September 30, 2007 compared to $6.9 million for the same period in 2006.
Selling, general and administrative expenses decreased to $6.8 million during the three months
ended September 30, 2007 as compared to $7.1 million during the three months ended September 30,
2006. This decrease is primarily a result of the decrease in employee incentive compensation
offset in part by higher professional services expense and higher depreciation. Employee incentives
decreased by approximately $800,000, from $1.4 million during the three months ended September 30,
2006 to $600,000 for the same period in 2007. The decrease relates to the decreased profitability
anticipated by the Company for the year ended December 31, 2007 and lower number of employees
compared to 2006. The professional services expense increase was due to advisory services being
performed related to the Bankruptcy Cases that were filed on November 9, 2007 and associated legal
and accounting fees for this activity. These professional fees were slightly offset by a reduction
in non-capitalizable consulting services which were performed in the three months ended September
30, 2006 related to the systems implementation that did not exist in the same period in 2007.
Other expenses for the three months ended September 30, 2007 was $536,000 which is attributable
to the expensing of certain leasehold improvements at Levitt Corporation. As part of the reduction in
force discussed above we vacated certain leased space. The leasehold improvements related to this
leased space will not be recovered and were written off in the three months ended September 30,
2007. The space is currently under a plan to be subleased and rental payments are expected to be
recovered. There was no comparable charge in the same 2006 period.
Interest incurred and capitalized in Other Operations was approximately $2.9 million and $2.2
million for the three months ended September 30, 2007 and 2006, respectively. The increase in
interest incurred was attributable to an increase in borrowings and an increase in the average
interest rate on our borrowings. Those amounts include adjustments to reconcile the amount of
interest eligible for capitalization on a consolidated basis with the amounts capitalized in the
Companys other business segments. As noted above, $9.3 million of impairment charges were recorded
during the three months ended September 30, 2007 associated with the write off capitalized interest
as a result of the cessation of development on certain Levitt and Sons projects.
Interest and other income was approximately $285,000 for the three months ended September 30,
2007 compared to $478,000 in the same period in 2006 primarily related to lower average cash
balances at the parent company in the three months ended September 30, 2007.
Nine Months Ended September 30, 2007 Compared to the Same 2006 Period:
Revenue from sales of real estate was $6.6 million in the nine months ended September 30, 2007
compared to no revenue in the nine months ended September 30, 2006. Levitt Commercial delivered
17 flex warehouse units in 2007 while no units were delivered during the same period in 2006.
Levitt Commercial completed the sale of all flex warehouse units in inventory in 2007 and we have
no current plans for future sales from Levitt Commercial.
Other revenues decreased to $693,000 in the nine months ended September 30, 2007 from $1.1
million in the same period in 2006 due to the reduction in leasing revenue received from the
sub-tenant described above.
Cost of sales of real estate increased to $16.8 million during the nine months ended September
30, 2007, as compared to $2.0 million during the nine months ended September 30, 2006 due to an
increase of $4.4 million associated with the delivery of the 17 flex warehouse units in the nine
months ended September 30, 2007, an increase of $9.3 million in capitalized interest impairment charges as noted above and an
increase of approximately $1.0 million in capitalized interest amortization to cost of sales
attributable to the increased interest costs incurred to fund operations as a result of increased
borrowings.
51
Bluegreen reported net income for the nine months ended September 30, 2007 of $23.4 million,
as compared to net income of $28.0 million for the same period in 2006. In the first quarter of
2006, Bluegreen adopted AICPA Statement of Position 04-02 Accounting for Real Estate Time-Sharing
Transactions (SOP 04-02) and recorded a one-time, non-cash, cumulative effect of change in
accounting principle charge of $4.5 million, which comprised of a significant portion of the
decline in earnings. Our interest in Bluegreens income was $7.5 million for the nine months ended
September 30, 2007 compared to our interest in Bluegreens income of $9.0 million for the same
period in 2006.
Selling, general and administrative expenses increased $1.6 million to $21.9 million during
the nine months ended September 30, 2007 compared to $20.3 million during the same period in 2006.
The increase was primarily attributable to increased compensation and benefits expense and
increased professional services expense. The increase in compensation and benefits expense was
partially due to an increase of approximately $253,000 in non-cash stock compensation expense due
to the issuance of stock options since September 2006 and a slight increase in average headcount
(while headcount declined as of September 30, 2007 there were more employees in March and June of
2007 as compared to the same 2006 periods). The professional services expense increase was due to
professional services being performed related to the Bankruptcy Cases that were filed on November 9,
2007 and increased legal fees
related to the proposed merger with BFC which was subsequently cancelled
in August 2007. Other increases in
selling, general and administrative expenses were due to increased selling costs associated with
the Levitt Commercial sales noted above and increased depreciation attributable to the
implementation of new software in October 2006.
Other
expenses for the nine months ended September 30, 2007 of $536,000 attributable to the
expensing of certain leasehold improvements at Levitt Corporation, as noted above.
Interest incurred and capitalized in Other Operations was approximately $8.0 million and $5.1
million for the nine months ended September 30, 2007 and 2006, respectively. The increase in
interest incurred was attributable to an increase in the average balance of our borrowings (certain
of the Trust Preferred Securities were issued during 2006). Those amounts include adjustments
to reconcile the amount of interest eligible for capitalization on a consolidated basis with the
amounts capitalized in our other business segments and are net of the capitalized interest
impairment charges as discussed above.
Interest and other income was approximately $933,000 for the three months ended September 30,
2007 compared to $1.1 million in the same period in 2006 primarily related to lower average cash
balances at the parent company in the nine months ended September 30, 2007.
52
FINANCIAL CONDITION
September 30, 2007 compared to December 31, 2006
Our total assets at September 30, 2007 and December 31, 2006 were $900.4 million and $1.1
billion, respectively.
The material changes in the composition of assets primarily resulted from:
|
|
|
a net decrease in cash and cash equivalents of $12.6 million, which resulted from
cash used in operations of $34.5 million, cash used in investing activities of $34.2
million offset by an increase in cash provided by financing activities of $56.0
million; |
|
|
|
|
a net decrease in inventory of real estate of approximately $241.9 million primarily
due to impairment charges of approximately $226.9 million; |
|
|
|
|
an increase of $3.2 million in property and equipment associated with increased
investment in commercial properties under construction at Core Communities; |
|
|
|
|
an increase of $37.7 million in assets held for sale related to the development of
two commercial projects which were previously included in property and equipment; and |
|
|
|
|
an increase in other assets of $16.3 million related to current and deferred taxes
from operating losses at Levitt and Sons partially offset by payment received on notes
receivable related to land sales. |
Total liabilities at September 30, 2007 and December 31, 2006 were $ 781.0 million and
$747.4 million, respectively.
The material changes in the composition of total liabilities primarily resulted from:
|
|
|
a net increase in notes and mortgage notes payable of $20.5 million, primarily
related to project debt associated with 2006 land acquisitions and land development
activities; |
|
|
|
|
a decrease of $23.1 million in customer deposits reflecting the decline in customer
backlog; |
|
|
|
|
an increase of $1.8 million in accounts payable and accrued liabilities, relating to
accruals for certain construction related activity, and the timing of invoices
processed; and |
|
|
|
|
an increase of $38.3 million in liabilities related to assets held for sale. |
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Companys liquidity in terms of the Companys ability to generate cash
to fund its operating and investment activities. During the nine months ended September 30, 2007,
our primary sources of funds were the proceeds from the sale of real estate inventory and
borrowings from financial institutions. These funds were utilized primarily to develop and
construct real estate, to service and repay borrowings and to pay operating expenses.
The Company separately manages liquidity at the Levitt Corporation parent level, at the Core
Communities level and at the Levitt and Sons level. Subsidiary operations are generally financed
using operating assets as loan collateral and covenants at the subsidiary level, and parent company
guarantees are rarely provided and only on a limited basis.
Levitt Corporation (Parent level)
At September 30, 2007, Levitt Corporation had approximately $17.1 million of cash and $99.0
million of outstanding debt. On October 1, 2007, Levitt Corporation completed a rights offering to
its shareholders which generated cash proceeds of approximately $152.8 million. Debt principally
consisted of approximately $86.9 million of junior subordinated debentures associated with the
issuance of Trust Preferred Securities, and subordinated investment notes which are unsecured and
do not contain any financial covenants. The balance of the $12.1 million in debt consisted
principally of secured financing on our Corporate headquarters building which does not contain any financial covenants.
53
On October 25, 2007, in connection with Levitt Corporations acquisition of the membership
interests in Levitt and Sons of Jasper County, LLC, a subsidiary of Levitt and Sons which owns the
150 acre parcel in Tradition, South Carolina (now known as Carolina Oak Homes LLC; see note 18 to
the unaudited condensed consolidated financial statements Subsequent Events), Levitt Corporation
became the obligor for the entire outstanding balance of
$34.1 million under the facility collateralized by the 150 acre parcel (the Carolina Oak Loan).
The Carolina Oak Loan was modified in connection with the acquisition. Levitt Corporation was
previously a guarantor of this loan and as partial consideration for the Carolina Oak Loan, the
membership interest of Levitt and Sons, previously pledged by Levitt Corporation to the lender, was
released. The outstanding balance under the Carolina Oak Loan may be increased by approximately
$11.2 million to fund certain infrastructure improvements and to complete the construction of
fourteen residential units currently under construction. The Carolina Oak Loan is collateralized
by a first mortgage on the 150 acre parcel in Tradition, South Carolina and guaranteed by Carolina
Oak Homes LLC. The Carolina Oak Loan is due and payable on March 21, 2011 and may be extended on
the anniversary date of the facility for one additional year, at the discretion of the financial
institution. Interest accrues under the facility at the Prime Rate (7.75% at September 30, 2007)
and is payable monthly. The Carolina Oak Loan is subject to customary terms, conditions and
covenants, including the lenders right to accelerate the debt upon a material adverse change with
respect to the borrower.
Levitt Corporation is primarily a holding company, and in light of Levitt and Sons bankruptcy
filing, the cash needs of Core Communities and Bluegreens history of not paying dividends, it is
not anticipated that Levitt Corporation will receive management fees from its subsidiaries for the
foreseeable future.
Core Communities
At September 30, 2007, Core had approximately
$6.8 million of cash as well as availability
under its various lines of credit of $28.5 million, and
$196.3 million in outstanding debt. Core has incurred
and expects to continue to incur significant land development expenditures in both Tradition,
Florida and in Tradition, South Carolina. The current investment in land and development has been
financed primarily through secured borrowings, which totaled $131.7 million at September 30, 2007.
Tradition, South Carolina is in the early stage of the master planned communitys development
cycle and significant investments have been made and will be required in the future to develop the
master community infrastructure. Sales in Tradition, South Carolina have been limited to golf
course lots sold to various builders and an internal land sale to Levitt and Sons completed in
December 2006 ( See above for a description of the acquisition
of Carolina Oak Homes, LLC, the entity which owns such land, by Levitt Corporation).
The recent investments in Tradition, Florida have been primarily to build infrastructure which
would allow support for the master planned community and the sale of various commercial land
parcels. In addition to cash from sales of land and secured lending facilities, Core also
supplements its financing needs through proceeds from bonds issued by community development
districts which support the development of infrastructure improvements such as roadway expansion
and expressway interchanges. These bonds are further discussed in the below section Off Balance
Sheet Arrangements and Contractual Obligations. Additionally, Core has undertaken construction
projects on certain commercial land parcels within its developments. At September 30, 2007, Core
had incurred debt of $64.6 million in connection with the development of these commercial
properties which are being actively marketed for sale. These assets and related liabilities are
classified as held for sale in the unaudited consolidated statements of financial condition and are
treated as discontinued operations for accounting purposes. See further discussion in Executive
Overview.
Possible
liquidity sources available to Core include the sale of the
commercial properties, and
the sale or pledging of additional unencumbered land. The debt covenants at Core generally consist
of net worth, liquidity and loan to value financial covenants. The loans which provide the primary
financing for Tradition, Florida and Tradition, South Carolina have an annual appraisal and
re-margining requirement. Should land prices decline, reappraisals could result in significant
future re-margining payments. Loans at Core are only cross collateralized and/or cross defaulted
with other assets or loans of a given lender for other loans made to Core by that lender. Given
the overall state of the homebuilding industry in Florida and the oversupply of single-family
residential land in the St. Lucie market, we do not expect any meaningful single-family
residential land sales in the near future. Management efforts will continue to be focused on
commercial and other land sales in Florida and commercial and residential sales in South Carolina.
There is no assurance that Core will have sufficient funds to continue to develop its master planned
communities as currently contemplated without additional financing or equity investment.
54
Levitt and Sons
At September 30, 2007, Levitt and Sons had approximately $11.9 million of cash and $378.5
million in debt. In addition, Levitt and Sons had approximately $30.0 million in accounts payable,
the majority of which was past due. Levitt and Sons notes and mortgages payable to financial
institutions generally are only cross collateralized and/or cross defaulted with other assets or
loans of a given lender. With the exception of a loan made by Ohio Savings, none of the debt of
Levitt and Sons was guaranteed by Levitt Corporation. Based on non-payment of accounts payable,
contractors have filed liens on the properties on which they provided materials and labor. With
liens mounting on the properties, substantially all closings of completed homes have ceased,
resulting in an inability for Levitt and Sons to generate cash. Without additional funding from
the lenders or Levitt Corporation, Levitt and Sons ceased
construction on its projects at the end of Septemebr 2007.
In
addition to debt funding Levitt and Sons from third party financial institutions, Levitt Corporation would
periodically loan funds to Levitt and Sons. Loans to Levitt and Sons at September 30, 2007 from
Levitt Corporation totaled approximately $84.3 million. Of this loan amount, $3.3 million was
collateralized by a pledge of notes and mortgages receivable that resulted from seller financing on
a land sale and mortgages assigned to Levitt and Sons as a result of the bankruptcy of a home
mortgage lender. Subsequent to September 30, 2007, $2.8 million of the loan to Levitt Corporation
was reduced in connection with the sale or maturity of the underlying notes and mortgages
receivable. In addition, on November 9, 2007, Levitt Corporation indicated that it will pay up to $5 million in the aggregate to terminated Levitt and Sons employees to supplement the limited termination benefits granted by Levitt and Sons
to those employees. Levitt and Sons is restricted in the amount of
termination benefits it can pay to its former employees by virtue of
its filing under Chapter 11 of the United States Bankruptcy Court.
On November 9, 2007, Levitt and Sons and substantially all of its subsidiaries filed a
voluntary petition for relief under the Bankruptcy Code. See Part II. Item 1. Legal Proceedings for a discussion of the
Bankruptcy Cases.
As
Levitt and Sons does not have the sufficient funds without additional third party financing or
support from Levitt Corporation to continue development, the real estate projects represent
long-lived assets that have been effectively abandoned at September 30, 2007. According to SFAS No.
144, a long-lived asset to be disposed of other than by sale continues to be classified as held and
used until it is disposed of. Accordingly, the real estate projects that were abandoned are
reported as Inventory of Real Estate in the unaudited consolidated statements
of financial condition.
As a result of Levitt and Sons Bankruptcy Cases as well as other covenant defaults, Levitt
and Sons is in default under the terms of substantially all of its debt, including the following:
|
|
|
|
|
|
|
Facility Size |
|
Type |
|
Lender |
|
Balance at 9/30/07 |
$30.0 Million
|
|
Acquisition, Development & Construction
|
|
Wachovia
|
|
$9.5 million |
$12.0 Million
|
|
Construction
|
|
Ohio Savings
|
|
$1.1 million |
$26.5 Million
|
|
Acquisition, Development & Construction
|
|
Wachovia
|
|
$8.6 million |
$125.0 Million
|
|
Acquisition, Development & Construction
|
|
Key Bank
|
|
$95.2 million |
$125.0 Million
|
|
Acquisition, Development & Construction
|
|
Bank of America
|
|
$102.5 million |
$75.0 Million
|
|
Acquisition, Development & Construction
|
|
Regions
|
|
$24.4 million |
$125.0 Million
|
|
Acquisition, Development & Construction
|
|
Wachovia
|
|
$102.4 million |
See Note 7
to the unaudited consolidated financial statements in Part I,
Item 1 Financial Statements for further
discussion of material defaults.
At this time, it is not possible to predict the precise effect of the reorganization process
on Levitt and Sons business and creditors or when and if Levitt and Sons may emerge from
bankruptcy nor is it possible to predict the effect of the Bankruptcy Cases and the reorganization
process on Levitt Corporation and its results of operations, cash flows or financial condition,
including those of its subsidiaries not included in the filing. No
55
Reorganization Plan has been submitted to the Bankruptcy Court. It is likely that, in
connection with a final Reorganization Plan, the liabilities of the Debtors will be found to exceed
the fair value of their assets. This would result in claims being paid at less than 100% of their
face value and the extinguishment of the equity interests of the pre-bankruptcy equity owners. At
this time, it is not possible to predict the outcome of the bankruptcy proceedings.
Off Balance Sheet Arrangements and Contractual Obligations
In
connection with the development of certain of its master planned communities, Core
Communities established community development districts to access bond financing for the funding of
infrastructure development and other projects within the community. If Core was not able to
establish community development districts, it would need to fund community infrastructure
development out of operating income or through other sources of financing or capital. The bonds
issued are obligations of the community development district and are repaid through assessments on
property within the district. To the extent that Core owns property within a district when
assessments are levied, it will be obligated to pay the assessments as they are due. As of
September 30, 2007, development districts in Tradition, Florida had $49.1 million of community
development district bonds outstanding and Core owned approximately 17% of the property in those
districts. During the three months ended September 30, 2007, Core recorded approximately $306,000
in assessments on property it owned in the districts of which $298,000 was capitalized to inventory
as development costs and will be recognized as cost of sales when the assessed properties are sold
to third parties.
In addition to the property owned by Core Communities, Levitt and Sons owned approximately 18%
of the property in those districts as of September 30, 2007. During the three months ended
September 30, 2007, no assessments were recorded by Levitt and Sons.
The following table summarizes contractual obligations for Core Communities and the Other
Operations segment as of September 30, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
2 - 3 |
|
|
4 - 5 |
|
|
More than |
|
Category (2) |
|
Total |
|
|
1 year |
|
|
Years |
|
|
Years |
|
|
5 years |
|
Long-term debt obligations (1) |
|
$ |
230,673 |
|
|
|
3,960 |
|
|
|
38,736 |
|
|
|
79,863 |
|
|
|
108,114 |
|
Operating lease obligations |
|
|
4,393 |
|
|
|
1,133 |
|
|
|
1,390 |
|
|
|
557 |
|
|
|
1,313 |
|
Purchase Obligations |
|
|
14,220 |
|
|
|
14,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations |
|
$ |
249,286 |
|
|
|
19,313 |
|
|
|
40,126 |
|
|
|
80,420 |
|
|
|
109,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts exclude interest because terms of repayment are based on construction activity
and sales volume. In addition, a large portion of our debt is based on variable rates. |
|
(2) |
|
These amounts represent scheduled principal payments and some of those borrowings
require the repayment of specified amounts upon a sale of portions of the property securing
those obligations. |
Long-term debt obligations consist of notes, mortgage notes and bonds payable. Operating
lease obligations consist of lease commitments. Purchase obligations consist of contracts to
acquire real estate properties for development and sale for which due diligence has been completed
and our deposit is committed; however our liability for not completing the purchase of any such
property is generally limited to the deposit we made under the relevant contract. At September 30,
2007, we had $400,000 in deposits securing $14.2 million of purchase commitments. This amount less
a nominal fee was refunded in October 2007 upon cancellation of the related contract
Subsequent to the balance sheet date, Levitt and Sons received various default notices as
discussed above in Liquidity and Capital Resources from certain lending institutions, and was
determined to be not compliant with the financial covenants at September 30, 2007. As such, due to
the default by Levitt and Sons
56
and failure to cure such default in accordance with the loan agreements, debt which totals
$378.5 million becomes immediately due and payable. Additionally as discussed above, on November
9, 2007, Levitt and Sons and substantially all of its subsidiaries, filed voluntary petitions for
relief under Chapter 11 of Title 11 of the Bankruptcy Code. Under Section 362 of the Bankruptcy
Code, the filing of a bankruptcy petition automatically stays most actions against Levitt and Sons,
including most actions to collect pre-petition indebtedness or to exercise control of the property
of Levitt and Sons. Absent an order of the Bankruptcy Court, substantially all pre-petition
liabilities including debt and lease obligations will be subject to settlement under a plan of
reorganization, and therefore the timing and amount of these liabilities cannot be estimated at
this time for Levitt and Sons.
At September 30, 2007, Core Communities had outstanding surety bonds and letters of credit of
approximately $13.1 million, and Levitt and Sons had outstanding surety bonds and letters of credit
of approximately $52.8 million. These surety bonds and letters of credit related to performance
and maintenance obligations of the respective entities to various governmental entities to
construct improvements in various communities and, in the case of Levitt and Sons, to guarantee
certain escrowed customer deposits that were released to Levitt and Sons. Levitt Corporation has
guaranteed $22.3 million of the obligations under these surety bonds and letters of credit, which
includes $10.3 million relating to Core Communities projects and $12.0 million relating to Levitt
and Sons projects. The Company estimates that approximately $12.9 million of work remains to
complete the improvements at Core Communities projects and does not believe that any outstanding
surety bonds or letters of credit of Core Communities are likely to be drawn.
Due to the cessation of most development activity in Levitt and Sons projects as of September
30, 2007, the Company evaluated the likelihood that surety bonds and letters of credit supporting
any Levitt and Sons projects would be drawn. It is unclear given the uncertainty involved in
bankruptcy proceedings and the cessation of development activities whether and to what extent any
of these surety bonds or letters of credit of Levitt and Sons will be drawn; however, in the event
that these obligations are drawn, Levitt Corporation would be responsible for up to $12.0 million
in accordance with the terms of these instruments, and it is unlikely that Levitt Corporation would
receive any repayment, assets or other consideration if it were required to pay any of these
amounts. It is not probable that Levitt Corporation will be responsible for any obligations under
these surety bonds, nor is any amount of future loss estimable at September 30, 2007.
In addition to the above contractual obligations, we recorded $2.3 million in unrecognized tax
benefits related to FIN 48.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes in market valuations
that arise from interest rate risk, foreign currency exchange rate risk, commodity price risk and
equity price risk. We have a risk of loss associated with our borrowings as we are subject to
interest rate risk on our long-term debt. At September 30, 2007, we had $569.6 million in
borrowings with adjustable rates tied to the Prime Rate and/or LIBOR rates and $104.1 million in
borrowings with fixed or initially-fixed rates. Consequently, the impact on our variable rate debt
from changes in interest rates may affect our earnings and cash flows but would generally not
impact the fair value of such debt. With respect to fixed rate debt, changes in interest rates
generally affect the fair market value of the debt but not our earnings or cash flow.
Assuming the variable rate debt balance of $569.6 million outstanding at September 30, 2007
(which does not include initially fixed-rate obligations which will not become floating rate during
2007) were to remain constant, each one percentage point increase in interest rates would increase
the interest incurred by us by approximately $5.7 million per year.
NEW ACCOUNTING PRONOUNCEMENTS.
See Note 18 of our unaudited consolidated financial statements included under Item 1 of this
report for discussion of new accounting pronouncements applicable to our company.
57
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation under the
supervision and with the participation of our management, including our Chief Executive Officer
(CEO), our Chief Financial Officer (CFO) and our Chief Accounting Officer (CAO), as to the
effectiveness, design and operation of our disclosure controls and procedures (pursuant to Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)).
Based upon that evaluation, we concluded that as of September 30, 2007, our disclosure controls and
procedures are effective to ensure that information required to be disclosed in reports that we
file or submit under the Exchange Act are recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission and that
such information is accumulated and communicated to our management, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, to allow for timely decisions
regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15
that occurred during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
58
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Bankruptcy of Levitt and Sons
On November 9, 2007, Levitt and Sons and substantially all of its subsidiaries (collectively,
the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of Florida. Under Section 362 of the
Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against the
Debtors, including most actions to collect pre-petition indebtedness or to exercise control of the
property of the Debtors. Absent an order of the Bankruptcy Court, substantially all pre-petition
liabilities will be subject to settlement under a plan of reorganization.
The Office of United States Trustee, a division of the Department of Justice, will appoint an
official committee of unsecured creditors (the Creditors Committee). The Creditors Committee
and its legal representatives have a right to be heard on all matters that come before the
Bankruptcy Court. If the Debtors file a plan of reorganization or liquidation, the rights and
claims of various creditors and security holders will be determined by a plan of reorganization
that is confirmed by the Bankruptcy Court. Under the priority rules established by the Bankruptcy
Code, certain post-petition liabilities and pre-petition liabilities are given priority over
pre-petition indebtedness and need to be satisfied before unsecured creditors or stockholders are
entitled to any distribution.
Reorganization Plan. In order to exit the Chapter 11 Bankruptcy Cases successfully, the
Debtors would need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of
reorganization or liquidation (the Reorganization Plan) that satisfies the requirements of the
Bankruptcy Code. As provided by the Bankruptcy Code, the Debtors initially have the exclusive right
to solicit a plan. At this time, it is not possible to predict the precise effect of the
reorganization process on Levitt and Sons business and creditors or when and if Levitt and
Sons may emerge from bankruptcy nor is it possible to predict the effect of the Bankruptcy Cases
and the reorganization process on Levitt Corporation and its results of operations, cash flows or
financial condition, including those of its subsidiaries not included in the bankruptcy filing. No
Reorganization Plan has been submitted to the Bankruptcy Court. A liquidating plan of
reorganization is expected to be filed shortly after the filing.
Chapter 7; Dismissal of the Bankruptcy Cases. If the Debtors fail to file a Reorganization
Plan or if the Bankruptcy Court does not confirm a Reorganization Plan filed by the Debtors, one or
more of the Debtors Bankruptcy Cases could be converted to cases under Chapter 7 of the Bankruptcy
Code. Under Chapter 7, a trustee is appointed to collect the Debtors assets, reduce them to cash
and distribute the proceeds to the Debtors creditors in accordance with the statutory scheme of
the Bankruptcy Code. Alternatively, in the event the Debtors Reorganization Plan is not confirmed
by the Bankruptcy Court, in lieu of conversion to Chapter 7, the Bankruptcy Court could dismiss one
or more of the Debtors Bankruptcy Cases.
It is likely that, in connection with a final Reorganization Plan, the liabilities of the
Debtors will be found to exceed the fair value of their assets. This would result in claims being
paid at less than 100% of their face value and the extinguishment of the equity interests of the
pre-bankruptcy equity owners. At this time, it is not possible to predict the outcome of the
bankruptcy proceedings.
Accounting Impact. Based on this filing and the uncertainties surrounding the nature, timing
and specifics of the bankruptcy proceedings, Levitt Corporation anticipates that it will
de-consolidate Levitt and Sons as of November 9, 2007,
eliminating all future operations from its financial results, and will prospectively account for any remaining investment in
Levitt and Sons, net of any outstanding advances due from Levitt and Sons, as a cost method
investment. Under cost method accounting, income would only be recognized to the extent of cash
received in the future. At September 30, 2007, Levitt Corporation had a negative investment in
Levitt and Sons of $88.2 million and there are outstanding advances due from Levitt and Sons of
$84.3 million at Levitt Corporation resulting in a net negative investment of $3.9 million. After
November 9, 2007, Levitt Corporation will continue to evaluate its cost method investment in Levitt
and Sons to determine the appropriate treatment based upon the realizability of the investment
balance.
59
Item 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2006 except for the following:
Levitt Corporation and Levitt and Sons are subject to various risks associated with Levitt and
Sons bankruptcy filing.
Levitt Corporation and Levitt and Sons are subject to risks associated with Levitt and Sons
insolvency and bankruptcy filing, including risks and uncertainties inherent in bankruptcy
proceedings and the inability to predict the precise effect of the reorganization and/or
liquidation process on Levitt and Sons business and creditors or on Levitt Corporation and its
results of operation and financial condition. Levitt and Sons may not be able to develop,
prosecute, confirm and consummate a plan of reorganization or liquidation on a timely basis or at
all, and third parties may seek and obtain bankruptcy court approval to terminate or shorten the
exclusivity period for Levitt and Sons to propose and confirm a plan of reorganization, for the
appointment of a Chapter 11 trustee or to convert Levitt and Sons bankruptcy case to a Chapter 7
liquidation proceeding, any of which circumstances could prolong the bankruptcy proceedings and the
negative publicity associated with the bankruptcy proceedings and increase the costs and expenses
incurred in connection with the bankruptcy proceedings. Additionally, creditors of Levitt and Sons
may seek to assert claims against Levitt Corporation and its subsidiaries other than Levitt and
Sons, whether or not such claims have any merit, and Levitt Corporations or any such subsidiarys
assets may become subject to Levitt and Sons bankruptcy proceedings. Levitt Corporation may also
be required to record additional impairment charges or write-offs as a result of the bankruptcy
proceedings and to incur expenses and liabilities associated with the bankruptcy proceedings.
Additionally, Levitt and Sons bankruptcy and the publicity surrounding its filing could adversely
affect the businesses and relationships with employees, customers and suppliers of Levitt
Corporation and its subsidiaries other than Levitt and Sons. All of the foregoing circumstances or
events could have an adverse impact on Levitt Corporations financial condition and results of
operations.
Item 3. DEFAULTS UPON SENIOR SECURITIES
See
Note 7 to the unaudited consolidated financial statements included in
Part I, Item 1 Financial Statements and Part I, Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity
and Capital Resources, for discussion of Levitt and Sons defaults under the terms of substantially
all of its outstanding debt.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Election of Directors
The Company held its Annual Meeting of Shareholders on September 26, 2007. At the meeting the
holders of the Companys Class A and Class B common stock (Shareholders) voting together as a
single class elected the following three directors to serve on the Companys Board of Directors
until the Annual Meeting in 2010 by the following votes:
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
|
Withheld |
|
S. Lawrence Kahn |
|
|
29,640,371 |
|
|
|
4,114,498 |
|
Joel Levy |
|
|
29,568,807 |
|
|
|
4,186,062 |
|
William Scherer |
|
|
29,565,837 |
|
|
|
4,189,032 |
|
The other directors continuing in office are Alan B. Levan, John E. Abdo, James Blosser, Darwin C.
Dornbush, William R. Nicholson, and Alan J. Levy.
Approval of Increase in Authorized shares of Common stock
The Shareholders voting together as a single class approved an increase in the number of
authorized shares of the Companys Class A Common Stock from 50,000,000 to 150,000,000 shares by
the following votes:
|
|
|
|
|
For
|
|
Against
|
|
Abstain |
20,915,265
|
|
8,396,892
|
|
813,880 |
60
Item 6. Exhibits
Index to Exhibits
|
|
|
Exhibit 10.11*
|
|
Revolving working capital, land acquisition and development and
residential construction borrowing base facility agreement dated March
21, 2007, by and among Levitt and Sons, LLC and Ohio Savings Bank. |
|
|
|
Exhibit 10.12*
|
|
Assumption and Modification of March 21, 2007 Note and Loan Agreement,
by and among Levitt and Sons, LLC, Levitt Corporation and AmTrust Bank,
f/k/a Ohio Savings Bank dated October 25, 2007. |
|
|
|
Exhibit 31.1*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.2*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.3*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.1**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.2**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.3**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
* |
|
Exhibits filed with this Form 10-Q |
|
** |
|
Exhibits furnished with this Form 10-Q |
61
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LEVITT CORPORATION
|
|
Date: November 9, 2007 |
By: |
/s/ Alan B. Levan
|
|
|
|
Alan B. Levan, Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 9, 2007 |
By: |
/s/ George P. Scanlon
|
|
|
|
George P. Scanlon, Executive Vice President, |
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
Date: November 9, 2007 |
By: |
/s/ Jeanne T. Prayther
|
|
|
|
Jeanne T. Prayther, Chief Accounting Officer |
|
|
|
|
|
|
62