Levitt Corporation
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JUNE 30, 2006
OR
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|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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
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11-3675068 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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|
2100 W. Cypress Creek Road, |
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Fort Lauderdale, FL
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33309 |
(Address of principal executive offices)
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(Zip Code) |
(954) 940-4950
(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 þ 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.
Large accelerated filer o Accelerated filer þ 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 þ
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 August 1, 2006 |
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|
Class A Common stock, $0.01 par value
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18,604,053 |
Class B Common stock, $0.01 par value
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|
1,219,031 |
Levitt Corporation
Index to Unaudited Consolidated Financial Statements
2
Levitt Corporation
Consolidated Statements of Financial Condition Unaudited
(In thousands, except share data)
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June 30, |
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December 31, |
|
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|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
73,306 |
|
|
|
113,562 |
|
Restricted cash |
|
|
750 |
|
|
|
1,818 |
|
Inventory of real estate |
|
|
754,655 |
|
|
|
611,260 |
|
Investment in Bluegreen Corporation |
|
|
97,555 |
|
|
|
95,828 |
|
Property and equipment, net |
|
|
62,888 |
|
|
|
44,250 |
|
Other assets |
|
|
29,262 |
|
|
|
28,955 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,018,416 |
|
|
|
895,673 |
|
|
|
|
|
|
|
|
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Liabilities and Shareholders Equity |
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Accounts payable and accrued liabilities |
|
$ |
84,586 |
|
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|
66,652 |
|
Customer deposits |
|
|
56,796 |
|
|
|
51,686 |
|
Current income tax payable |
|
|
|
|
|
|
12,551 |
|
Notes and mortgage notes payable |
|
|
454,066 |
|
|
|
353,846 |
|
Junior subordinated debentures |
|
|
69,588 |
|
|
|
54,124 |
|
Deferred tax liability, net |
|
|
4,643 |
|
|
|
7,028 |
|
|
|
|
|
|
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|
Total liabilities |
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|
669,679 |
|
|
|
545,887 |
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|
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|
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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: 50,000,000 shares |
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|
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Issued and outstanding: 18,604,053 shares |
|
|
186 |
|
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|
186 |
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|
|
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|
|
|
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|
Class B Common Stock, $0.01 par value |
|
|
|
|
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|
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Authorized: 10,000,000 shares |
|
|
|
|
|
|
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Issued and outstanding: 1,219,031 shares |
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|
12 |
|
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|
12 |
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|
|
|
|
|
|
|
|
Additional paid-in capital |
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|
182,346 |
|
|
|
181,084 |
|
Unearned compensation |
|
|
|
|
|
|
(110 |
) |
Retained earnings |
|
|
164,778 |
|
|
|
166,969 |
|
Accumulated other comprehensive income |
|
|
1,415 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
348,737 |
|
|
|
349,786 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,018,416 |
|
|
|
895,673 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
3
Levitt Corporation
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
|
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|
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|
|
|
|
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|
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Three Months |
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Six Months |
|
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|
Ended June 30, |
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|
Ended June 30, |
|
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|
2006 |
|
|
2005 |
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|
2006 |
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|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
130,658 |
|
|
|
107,094 |
|
|
|
256,201 |
|
|
|
305,960 |
|
Title and mortgage operations |
|
|
1,018 |
|
|
|
947 |
|
|
|
2,026 |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues |
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|
131,676 |
|
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|
108,041 |
|
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|
258,227 |
|
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|
307,855 |
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Costs and expenses: |
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Cost of sales of real estate |
|
|
100,910 |
|
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|
84,547 |
|
|
|
202,965 |
|
|
|
215,136 |
|
Selling, general and administrative expenses |
|
|
30,466 |
|
|
|
19,459 |
|
|
|
57,221 |
|
|
|
42,605 |
|
Other expenses |
|
|
6,665 |
|
|
|
626 |
|
|
|
7,291 |
|
|
|
1,942 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total costs and expenses |
|
|
138,041 |
|
|
|
104,632 |
|
|
|
267,477 |
|
|
|
259,683 |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings from Bluegreen Corporation |
|
|
2,152 |
|
|
|
4,729 |
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|
|
2,103 |
|
|
|
6,867 |
|
(Loss) earnings from real estate joint ventures |
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|
(77 |
) |
|
|
42 |
|
|
|
(77 |
) |
|
|
132 |
|
Interest and other income |
|
|
3,198 |
|
|
|
1,453 |
|
|
|
5,030 |
|
|
|
2,775 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
(Loss) income before income taxes |
|
|
(1,092 |
) |
|
|
9,633 |
|
|
|
(2,194 |
) |
|
|
57,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(Benefit) Provision for income taxes |
|
|
(355 |
) |
|
|
3,581 |
|
|
|
(797 |
) |
|
|
22,076 |
|
|
|
|
|
|
|
|
|
|
|
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|
Net (loss) income |
|
|
(737 |
) |
|
|
6,052 |
|
|
|
(1,397 |
) |
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|
35,870 |
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|
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|
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|
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(Loss) earnings per common share: |
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|
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Basic |
|
$ |
(0.04 |
) |
|
|
0.31 |
|
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|
(0.07 |
) |
|
|
1.81 |
|
Diluted |
|
$ |
(0.04 |
) |
|
|
0.30 |
|
|
|
(0.07 |
) |
|
|
1.79 |
|
|
|
|
|
|
|
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|
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|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
19,823 |
|
|
|
19,816 |
|
|
|
19,822 |
|
|
|
19,816 |
|
Diluted |
|
|
19,823 |
|
|
|
19,949 |
|
|
|
19,822 |
|
|
|
19,957 |
|
|
|
|
|
|
|
|
|
|
|
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Dividends declared per common share: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
$ |
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
|
|
|
0.04 |
|
Class B common stock |
|
$ |
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
|
|
|
0.04 |
|
See accompanying notes to unaudited consolidated financial statements.
4
Levitt Corporation
Consolidated Statements of Comprehensive (Loss) Income Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net (loss) income |
|
$ |
(737 |
) |
|
|
6,052 |
|
|
|
(1,397 |
) |
|
|
35,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold |
|
|
(642 |
) |
|
|
106 |
|
|
|
(375 |
) |
|
|
248 |
|
Benefit (provision) for income taxes |
|
|
248 |
|
|
|
(41 |
) |
|
|
145 |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold (net of tax) |
|
|
(394 |
) |
|
|
65 |
|
|
|
(230 |
) |
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(1,131 |
) |
|
|
6,117 |
|
|
|
(1,627 |
) |
|
|
36,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
Levitt Corporation
Consolidated Statement of Shareholders Equity Unaudited
Six Months Ended June 30, 2006
(In thousands)
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|
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|
Accumulated |
|
|
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|
|
|
|
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|
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|
|
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Compre- |
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|
Class A |
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|
Class B |
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Additional |
|
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|
hensive |
|
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|
Class A |
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|
Class B |
|
|
Common |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Unearned |
|
|
Income |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Compensation |
|
|
(Loss) |
|
|
Total |
|
Balance at December 31,
2005 |
|
|
18,604 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
181,084 |
|
|
|
166,969 |
|
|
|
(110 |
) |
|
|
1,645 |
|
|
|
349,786 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,397 |
) |
|
|
|
|
|
|
|
|
|
|
(1,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of
unrealized gain
recognized by Bluegreen
on sale of retained
interests, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230 |
) |
|
|
(230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Bluegreen
common stock, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794 |
) |
|
|
|
|
|
|
|
|
|
|
(794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based
compensation
related to stock
options and
restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of
unamortized stock
compensation related
to restricted stock
upon adoption of
SFAS 123 (R) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
|
18,604 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
182,346 |
|
|
|
164,778 |
|
|
|
|
|
|
|
1,415 |
|
|
|
348,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,397 |
) |
|
|
35,870 |
|
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
964 |
|
|
|
841 |
|
Change in deferred income taxes |
|
|
(2,240 |
) |
|
|
675 |
|
Earnings from Bluegreen Corporation |
|
|
(2,103 |
) |
|
|
(6,867 |
) |
Earnings from unconsolidated trusts |
|
|
(79 |
) |
|
|
(28 |
) |
Loss (earnings) from real estate joint ventures |
|
|
77 |
|
|
|
(132 |
) |
Share-based compensation expense related to
stock options and restricted stock |
|
|
1,373 |
|
|
|
|
|
Gain on sale of property and equipment |
|
|
(1,329 |
) |
|
|
|
|
Impairment of inventory and long lived assets |
|
|
6,049 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
1,068 |
|
|
|
1,035 |
|
Inventory of real estate |
|
|
(157,291 |
) |
|
|
(39,711 |
) |
Other assets |
|
|
954 |
|
|
|
(8,396 |
) |
Accounts payable and accrued liabilities |
|
|
5,383 |
|
|
|
(1,483 |
) |
Customer deposits |
|
|
5,110 |
|
|
|
2,816 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(143,461 |
) |
|
|
(15,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Investment in real estate joint ventures |
|
|
(445 |
) |
|
|
(25 |
) |
Distributions from real estate joint ventures |
|
|
138 |
|
|
|
275 |
|
Investment in unconsolidated trusts |
|
|
(464 |
) |
|
|
(1,624 |
) |
Distributions from unconsolidated trusts |
|
|
79 |
|
|
|
16 |
|
Proceeds from sale of property and equipment |
|
|
1,943 |
|
|
|
|
|
Capital expenditures |
|
|
(12,360 |
) |
|
|
(6,760 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,109 |
) |
|
|
(8,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
212,240 |
|
|
|
144,406 |
|
Proceeds from notes and mortgage notes payable to affiliates |
|
|
|
|
|
|
8,994 |
|
Proceeds from junior subordinated debentures |
|
|
15,464 |
|
|
|
54,124 |
|
Repayment of notes and mortgage notes payable |
|
|
(111,797 |
) |
|
|
(156,222 |
) |
Repayment of notes and mortgage notes payable to affiliates |
|
|
(223 |
) |
|
|
(50,869 |
) |
Payments for debt issuance costs |
|
|
(576 |
) |
|
|
(1,887 |
) |
Cash dividends paid |
|
|
(794 |
) |
|
|
(792 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
114,314 |
|
|
|
(2,246 |
) |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(40,256 |
) |
|
|
(25,744 |
) |
Cash and cash equivalents at the beginning of period |
|
|
113,562 |
|
|
|
125,522 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
73,306 |
|
|
|
99,778 |
|
|
|
|
|
|
|
|
7
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
Ended June 30, |
|
|
2006 |
|
2005 |
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized |
|
$ |
(890 |
) |
|
|
(520 |
) |
Income taxes paid |
|
|
15,700 |
|
|
|
19,214 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
(230 |
) |
|
|
152 |
|
|
|
|
|
|
|
|
|
|
Change in shareholders equity resulting from the
issuance of Bluegreen common stock, net of tax |
|
$ |
(1 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
Decrease in inventory from reclassification as property
and equipment |
|
$ |
(7,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in property and equipment reclassified from
inventory |
|
$ |
7,987 |
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
8
Levitt Corporation
Notes to Unaudited Consolidated Financial Statements
1. Presentation of Interim Financial Statements
Levitt Corporation (including its subsidiaries, the Company) engages in real estate
activities through its Homebuilding and Land Divisions, and Other Operations. The Homebuilding
Division operates through Levitt and Sons, LLC (Levitt and Sons), which primarily develops single
family, multi-family and townhome communities. The Land Division consists of the operations of
Core Communities, LLC (Core Communities), a land and master-planned community developer. Other
Operations includes Levitt Commercial, LLC (Levitt Commercial), a developer of industrial
properties; 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 homesites 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 six month
periods ended June 30, 2006 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2006. The year end balance sheet data was derived from the 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 for the year ended December 31, 2005.
2. Stock Based Compensation
On May 11, 2004, the Companys Shareholders approved the 2003 Levitt Corporation Stock
Incentive Plan (Plan). In March 2006, subject to shareholder approval, the Board of Directors of
the Company approved the amendment and restatement of the Companys 2003 Stock Incentive Plan to
increase the maximum number of shares of the Companys Class A Common Stock, $0.01 par value, that
may be issued for restricted stock awards and upon the exercise of options under the plan from
1,500,000 to 3,000,000 shares. The Companys shareholders approved the Amended and Restated 2003
Stock Incentive Plan at the Companys Annual Meeting of Shareholders on May 16, 2006.
The maximum term of options granted under the Plan is 10 years. The vesting period is
established by the compensation committee in connection with each grant and is generally five years
utilizing cliff vesting. Option awards issued to date become exercisable based solely on fulfilling
a service condition.
In the first quarter of 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (FAS 123R). This Statement requires companies to
9
expense the estimated fair value of stock options and similar equity instruments issued to
employees over the vesting period in their statements of operations. FAS 123R eliminates the
alternative to use the intrinsic method of accounting provided for in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which generally resulted in no
compensation expense recorded in the financial statements related to the granting of stock options
to employees if certain conditions were met.
The Company adopted FAS 123R using the modified prospective method effective January 1, 2006,
which requires the Company to record compensation expense over the vesting period for all awards
granted after the date of adoption, and for the unvested portion of previously granted awards that
remained outstanding at the date of adoption. Accordingly, amounts for periods prior to January 1,
2006 presented herein have not been restated to reflect the adoption of FAS 123R. The proforma
effect for the three and six months ended June 30, 2005 is as follows and has been disclosed to be
consistent with prior accounting rules (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2005 |
|
Pro forma
net income: |
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
6,052 |
|
|
|
35,870 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related income tax effect |
|
|
(154 |
) |
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
5,898 |
|
|
|
35,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.31 |
|
|
|
1.81 |
|
Pro forma |
|
$ |
0.30 |
|
|
|
1.79 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.30 |
|
|
|
1.79 |
|
Pro forma |
|
$ |
0.29 |
|
|
|
1.78 |
|
The fair values of options granted are estimated on the date of their grant using the
Black-Scholes option pricing model based on certain assumptions. 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 under the straight-line method.
No stock options were granted in the three and six months ended June 30, 2005. The fair value
of each option granted in the three and six months ended June 30, 2006 was estimated using the
following assumptions:
|
|
|
Expected volatility |
|
37.5023%-37.5037% |
Weighted-average volatility |
|
37.50% |
Expected dividend yield |
|
.39% - .54% |
Weighted-average dividend yield |
|
.42% |
10
|
|
|
Risk-free interest rate |
|
5.02%-5.13% |
Weighted-average risk-free rate |
|
5.05% |
Expected life |
|
7.5 years |
Forfeiture rate executives |
|
5.0% |
Forfeiture rate non-executives |
|
10.0% |
Expected volatility is based on the historical volatility of the Companys stock. Due to
the short period of time the Company has been publicly traded, the historical volatilities of
similar publicly traded entities are reviewed to validate the Companys expected volatility
assumption. The risk-free interest rate for periods within the contractual life of the stock option
award is based on the yield of US Treasury bonds on the date the stock option award is granted with
a maturity equal to the expected term of the stock option award granted. The expected life of stock
option awards granted is based upon the simplified method for plain vanilla options contained
in SEC Staff Accounting Bulletin No. 107. Due to the short history of stock option activity,
forfeiture rates are estimated based on historical employee turnover rates.
Non-cash stock compensation expense for the three and six months ended June 30, 2006 related
to unvested stock options amounted to $611,812 and $1,263,058, respectively, with an expected or
estimated income tax benefit of $173,000 and $342,000, respectively. The impact of adopting SFAS
No. 123R on basic and diluted loss per share for the three and six months ended June 30, 2006 was
$0.03 per share and $0.05 per share, respectively. At June 30, 2006, the Company had approximately
$8.7 million of unrecognized stock compensation expense related to outstanding stock option awards
which is expected to be recognized over a weighted-average period of 3.5 years.
Stock option activity under the Plan for the six months ended June 30, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
of Options |
|
|
Price |
|
|
Term |
|
|
(thousands) |
|
Options outstanding at December 31,
2005 |
|
|
1,305,176 |
|
|
$ |
25.59 |
|
|
|
|
|
|
$ |
0 |
|
Granted |
|
|
37,500 |
|
|
|
19.40 |
|
|
|
|
|
|
$ |
6 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
96,250 |
|
|
$ |
26.03 |
|
|
|
|
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2006 |
|
|
1,246,426 |
|
|
$ |
25.37 |
|
|
8.27 years |
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested & expected to vest
in the future at June 30, 2006 |
|
|
1,031,239 |
|
|
$ |
25.37 |
|
|
8.27 years |
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2006 |
|
|
55,176 |
|
|
$ |
22.33 |
|
|
7.79 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock available for equity
compensation
grants at June 30, 2006 |
|
|
1,746,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys non-vested shares activity for the six months ended June 30,
2006 was as follows:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Grant Date |
|
|
Contractual |
|
|
Value (in |
|
|
|
Shares |
|
|
Fair Value |
|
|
Term |
|
|
thousands) |
|
Non-vested at December 31, 2005 |
|
|
1,250,000 |
|
|
$ |
13.44 |
|
|
|
|
|
|
$ |
0 |
|
Grants |
|
|
37,500 |
|
|
$ |
9.38 |
|
|
|
|
|
|
$ |
6 |
|
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
96,250 |
|
|
$ |
13.01 |
|
|
|
|
|
|
$ |
0 |
|
|
|
|
|
|
|
Non-vested at June 30, 2006 |
|
|
1,191,250 |
|
|
$ |
13.35 |
|
|
8.30 years |
|
$ |
6 |
|
|
|
|
|
|
|
The Company also grants restricted stock, which is valued based on the market price of
the common stock on the date of grant. 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 reduction of shareholders equity in the consolidated statements of financial
condition. During the year ended December 31, 2005, the Company granted 6,887 restricted shares
of Class A common stock to non-employee directors under the Plan. The restricted stock vested
monthly over a 12 month period and all shares of restricted stock under these grants were vested at
June 30, 2006. Non-cash stock compensation expense for the three months ended June 30, 2006 and
2005 related to restricted stock awards amounted to $55,000 and $0, respectively. Non-cash stock
compensation expense for the six months ended June 30, 2006 and 2005 related to restricted stock
awards amounted to $110,000 and $0, respectively.
Total non- cash stock compensation expense for the three and six months ended June 30, 2006
amounted to $669,000 and $1.4 million, respectively, with no expense recognized in 2005, and is
included in selling, general and administrative expenses in the unaudited consolidated statements
of operations.
Subsequent to June 30, 2006, the Company granted 639,655 stock options and 4,971
shares of restricted stock to employees and directors of the Company at the fair market value on
the date of grant.
3. Impairment of Goodwill
Goodwill acquired in a purchase 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 conducts, on at least an annual basis,
a review of the reporting entity with goodwill to determine whether the carrying value of goodwill
exceeds the fair market value. In the three months ended June 30, 2006, the Company conducted an
impairment review of the goodwill related to the Tennessee operations. The profitability and
estimated cash flows of this reporting entity were determined to have declined to a point where 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 writedown of the goodwill in the
amount of approximately $1.3 million. This writedown is included in other expenses in the
unaudited consolidated statements of operations in the three and six months ended June 30, 2006.
12
4. Inventory of Real Estate
Inventory of real estate is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Land and land development costs |
|
$ |
545,053 |
|
|
|
457,826 |
|
Construction costs |
|
|
150,359 |
|
|
|
112,566 |
|
Capitalized interest |
|
|
32,985 |
|
|
|
21,108 |
|
Other costs |
|
|
26,258 |
|
|
|
19,760 |
|
|
|
|
|
|
|
|
|
|
$ |
754,655 |
|
|
|
611,260 |
|
|
|
|
|
|
|
|
The Company reviews long-lived assets, consisting primarily of inventory of real estate,
for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
In the Homebuilding Division, the Tennessee operations have delivered lower than expected
margins. In the three months ended June 30, 2006, key management personnel left the Company and
the Company continued to experience significant start-up costs associated with expansion from the
Memphis to the Nashville market. The Company also experienced a downward trend in home deliveries
in its Tennessee market in the three months ended June 30, 2006. The Company conducted an
impairment review of the inventory of real estate associated with the Tennessee operations and
recorded an impairment charge related to the write-down of inventory
of approximately $4.7 million,
which is reflected in other expenses in the unaudited consolidated statements of operations in the
three and six months ended June 30, 2006. Projections of future cash flows related to the
remaining assets were discounted and used to determine the estimated impairment charge. Management
is currently evaluating various strategies for our assets in Tennessee. As a result, additional
impairment charges may be necessary in the future based on changes in estimates or actual selling
prices of these assets.
13
5. Interest
Interest incurred relating to land under development and construction is capitalized to real
estate inventory during the active development period. Interest is capitalized as a component of
inventory at the effective rates paid on borrowings during the pre-construction and 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. The following table is a summary of interest incurred
and the amounts capitalized (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Interest incurred to non-affiliates |
|
$ |
9,533 |
|
|
|
3,892 |
|
|
|
17,562 |
|
|
|
6,775 |
|
Interest incurred to affiliates |
|
|
|
|
|
|
207 |
|
|
|
|
|
|
|
820 |
|
Interest capitalized |
|
|
(9,533 |
) |
|
|
(4,099 |
) |
|
|
(17,562 |
) |
|
|
(7,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expensed in cost of sales |
|
$ |
3,091 |
|
|
|
2,194 |
|
|
|
5,685 |
|
|
|
5,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Investment in Bluegreen Corporation
At June 30, 2006, the Company owned approximately 9.5 million shares of the common stock of
Bluegreen Corporation representing approximately 31% of Bluegreens 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.
Bluegreens unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income are as follows (in thousands):
Unaudited Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets |
|
$ |
846,893 |
|
|
|
694,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
516,187 |
|
|
|
371,069 |
|
Minority interest |
|
|
11,043 |
|
|
|
9,508 |
|
Total shareholders equity |
|
|
319,663 |
|
|
|
313,666 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
846,893 |
|
|
|
694,243 |
|
|
|
|
|
|
|
|
14
Unaudited Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues and other income |
|
$ |
165,481 |
|
|
|
191,136 |
|
|
|
312,218 |
|
|
|
325,787 |
|
Cost and other expenses |
|
|
153,105 |
|
|
|
165,944 |
|
|
|
292,265 |
|
|
|
289,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and
provision for income taxes |
|
|
12,376 |
|
|
|
25,192 |
|
|
|
19,953 |
|
|
|
36,371 |
|
Minority interest |
|
|
1,677 |
|
|
|
948 |
|
|
|
2,699 |
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
10,699 |
|
|
|
24,244 |
|
|
|
17,254 |
|
|
|
34,650 |
|
Provision for income taxes |
|
|
4,119 |
|
|
|
9,334 |
|
|
|
6,643 |
|
|
|
13,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
change in accounting principle |
|
|
6,580 |
|
|
|
14,910 |
|
|
|
10,611 |
|
|
|
21,310 |
|
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 |
|
$ |
6,580 |
|
|
|
14,910 |
|
|
|
6,117 |
|
|
|
21,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2006, Bluegreen adopted Statement of Position 04-02 Accounting for
Real Estate Time-Sharing Transactions (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 six
months ended June 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 periods.
On July 27, 2006, Bluegreen announced that its Board of Directors (Bluegreen Board) had
declared a dividend of one preferred share purchase right (the
Rights) for each outstanding share of
Bluegreen common stock. Pursuant to the terms announced, the Rights will only be exercisable in
certain events if a person or group acquires 15% or more of Bluegreens common stock without the
prior approval of the Bluegreen Board. Bluegreen has advised the Company that its holdings will
not trigger the rights agreement.
7. Debt
On April 24, 2006, Levitt and Sons entered into an amendment to an existing credit facility
with a third party lender. The amendment increased the amount available for borrowing under the
facility from $75.0 million to $125.0 million and amended certain of the initial credit agreements
definitions. All other material terms of this existing credit facility remain unchanged.
On May 31, 2006, Levitt and Sons entered into an amendment to an existing credit facility with
a third party lender. The amendment increased the amount available for borrowing under the facility
from $100.0 million to $125.0 million and amended certain of the initial credit agreements
definitions. All other material terms of this existing facility remained unchanged.
On June 1, 2006, the Company formed a statutory business trust ( LCT III) for the purpose of
issuing trust preferred securities and investing the proceeds thereof in junior subordinated
debentures. LCT III issued $15.0 million of trust preferred securities and used the proceeds to
purchase an identical amount of junior subordinated debentures from the Company. Interest on these
15
junior subordinated debentures and distributions on these trust preferred securities are
payable quarterly in arrears at a fixed rate of 9.251% through June 30, 2011, and thereafter at a
variable rate of interest, per annum, reset quarterly, equal to the 3-month LIBOR plus 3.80% until
the scheduled maturity date of June 2036. In addition, the Company contributed $464,000 to LCT
III in exchange for all of its common securities, and those proceeds were also used to purchase an
identical amount of junior subordinated debentures from the Company. The terms of LCT IIIs common
securities are nearly identical to the trust preferred securities.
On June 19, 2006, Levitt and Sons entered into an amendment to an existing credit facility
with a third party lender. The amendment increased the amount available for borrowing under the
facility from $100 million to $125 million and increased the amount available for letters of credit
from $15.0 million to $30.0 million. All other material terms of this existing facility remained
unchanged.
On June 26, 2006, Core Communities entered into a loan for up to $60.9 million with a third
party for the development of a commercial project. The construction loan is secured by a first
mortgage on the project and all improvements. A performance and payment guarantee was provided by
Core Communities. The construction loan accrues interest at 30-day LIBOR plus a spread of 170
basis points. The construction loan is due and payable on June 26, 2009 and is subject to two
twelve-month extensions, subject to satisfaction of certain specified conditions. Interest is
payable monthly during the initial term of the loan, while interest and principal payments based on
a 30-year amortization are payable monthly during the extension periods.
On July 18, 2006, the Company formed a statutory business trust ( LCT IV) for the purpose of
issuing trust preferred securities and investing the proceeds thereof in junior subordinated
debentures. LCT IV issued $15.0 million of trust preferred securities and used the proceeds to
purchase an identical amount of junior subordinated debentures from the Company. Interest on these
junior subordinated debentures and distributions on these trust preferred securities are payable
quarterly in arrears at a fixed rate of 9.349% through September 30, 2011, and thereafter at a
variable rate of interest, per annum, reset quarterly, equal to the 3-month LIBOR plus 3.80% until
the scheduled maturity date of September 2036. In addition, the Company contributed $464,000 to
LCT IV in exchange for all of its common securities, and those proceeds were also used to purchase
an identical amount of junior subordinated debentures from the Company. The terms of LCT IVs
common securities are nearly identical to the trust preferred securities.
8. Commitments and Contingencies
At June 30, 2006, the Company had entered into contracts to acquire approximately $178.8
million of properties for development. Approximately $106.4 million of these commitments are
subject to due diligence and satisfaction of certain requirements and conditions during which time
the deposits remain fully refundable. The remaining contracts have nonrefundable deposits because
the Companys due diligence period has expired. Should the Company decide not to purchase the
underlying properties, liability would be limited to the amount of the deposits. As such there is
no assurance that the Company will fulfill these contracts. Management carefully reviews all
commitments to ensure they are in line with the Companys objectives. The following table
summarizes certain information relating to outstanding purchase and option contracts, including
those contracts subject to the completion of due diligence.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
Expected |
|
|
Price |
|
Units |
|
Closing |
Homebuilding Division |
|
$175.3 million |
|
5,078 units |
|
|
2006-2007 |
|
Other Operations |
|
3.5 million |
|
90 units |
|
|
2006 |
|
16
At June 30, 2006, cash deposits of approximately $2.1 million secured the Companys
commitments under these contracts.
At June 30, 2006, the Company had outstanding surety bonds and letters of credit of
approximately $126.1 million related primarily to obligations to various governmental entities to
construct improvements in various communities. The Company estimates that approximately $98.5
million of work remains to complete these improvements and does not believe that any outstanding
bonds or letters of credit will likely be drawn.
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, but it also gives consideration to (a) the dilutive effect of the Companys stock
options and restricted stock using the treasury stock method and (b) the pro rata impact of
Bluegreens dilutive securities (stock options and convertible securities) on the amount of
Bluegreens earnings that the Company recognizes. For the three and six months ended June
30, 2006, common stock equivalents related to the Companys stock options amounted to 539 shares
and 0 shares, respectively, and were not considered because their effect would have been
antidilutive. In addition, for the three and six months ended June 30, 2006, options to purchase
1,245,887 shares and 1,246,426 shares of common stock, respectively, at various prices were not
included in the computation of diluted (loss) earnings per share because the exercise prices were
greater than the average market price of the common shares and, therefore, their effect would be
antidilutive.
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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income basic |
|
$ |
(737 |
) |
|
|
6,052 |
|
|
|
(1,397 |
) |
|
|
35,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income basic |
|
$ |
(737 |
) |
|
|
6,052 |
|
|
|
(1,397 |
) |
|
|
35,870 |
|
Pro rata share of the net effect of Bluegreen dilutive securities |
|
|
(22 |
) |
|
|
(74 |
) |
|
|
(23 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income diluted |
|
$ |
(759 |
) |
|
|
5,978 |
|
|
|
(1,420 |
) |
|
|
35,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
19,823 |
|
|
|
19,816 |
|
|
|
19,822 |
|
|
|
19,816 |
|
Net effect of stock options assumed to be exercised |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
19,823 |
|
|
|
19,949 |
|
|
|
19,822 |
|
|
|
19,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(.04 |
) |
|
|
0.31 |
|
|
|
(.07 |
) |
|
|
1.81 |
|
Diluted |
|
$ |
(.04 |
) |
|
|
0.30 |
|
|
|
(.07 |
) |
|
|
1.79 |
|
10. Dividends
17
On January 24, 2006, 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. The dividend was paid on February 15,
2006 to all shareholders of record on February 8, 2006.
On April 26, 2006, 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. The dividend was paid on May 15, 2006
to all shareholders of record on May 8, 2006.
On August 1, 2006, 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. The dividend is payable on August 18,
2006 to all shareholders of record on August 11, 2006.
11. Other Expenses and Interest and Other Income
Other expenses and interest and other income are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title and mortgage operations expenses |
|
$ |
616 |
|
|
|
626 |
|
|
|
1,242 |
|
|
|
1,265 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penalty on debt prepayment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677 |
|
Goodwill impairment |
|
|
1,307 |
|
|
|
|
|
|
|
1,307 |
|
|
|
|
|
Impairment of inventory of real estate |
|
|
4,742 |
|
|
|
|
|
|
|
4,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
6,665 |
|
|
|
626 |
|
|
|
7,291 |
|
|
|
1,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
726 |
|
|
|
689 |
|
|
|
1,512 |
|
|
|
1,207 |
|
Gain on sale of fixed assets |
|
|
1,329 |
|
|
|
|
|
|
|
1,329 |
|
|
|
|
|
Other income |
|
|
1,143 |
|
|
|
764 |
|
|
|
2,189 |
|
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
3,198 |
|
|
|
1,453 |
|
|
|
5,030 |
|
|
|
2,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2006, the Company recorded impairment charges
of $1.3 million in goodwill and $4.7 million related to the write-down of inventory associated with
our Tennessee operations (see notes 3 and 4).
12. Segment Reporting
Operating segments are components of an enterprise about which separate financial information
is available that is regularly reviewed by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company has three reportable business
segments: Homebuilding, Land and Other Operations. The Company evaluates segment performance
primarily based on net (loss) income. The information provided for segment reporting is based on
managements internal reports. The accounting policies of the segments are generally the same as
those described in the summary of significant accounting policies in the Companys Annual Report on
Form 10-K for the year ended December 31, 2005. Eliminations consist primarily of the elimination
of sales and profits on real estate transactions between the Land and Homebuilding Divisions, which
18
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 segment consists of the operations of Levitt and Sons while the
Land segment consists of the operations of Core Communities. The Other Operations segment consists
of the activities of Levitt Commercial, the Companys parent company operations, earnings from
investments in Bluegreen and other real estate investments and joint ventures.
The following tables present segment information as of and for the three and six months ended
June 30, 2006 and 2005 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
June 30, 2006 |
|
Homebuilding |
|
Land |
|
Operations |
|
Eliminations |
|
Total |
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
116,574 |
|
|
|
14,086 |
|
|
|
|
|
|
|
(2 |
) |
|
|
130,658 |
|
Title and mortgage operations |
|
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018 |
|
|
|
|
Total revenues |
|
|
117,592 |
|
|
|
14,086 |
|
|
|
|
|
|
|
(2 |
) |
|
|
131,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
92,619 |
|
|
|
7,718 |
|
|
|
656 |
|
|
|
(83 |
) |
|
|
100,910 |
|
Selling, general and administrative
expenses |
|
|
20,568 |
|
|
|
3,034 |
|
|
|
6,863 |
|
|
|
1 |
|
|
|
30,466 |
|
Other expenses |
|
|
6,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,665 |
|
|
|
|
Total costs and expenses |
|
|
119,852 |
|
|
|
10,752 |
|
|
|
7,519 |
|
|
|
(82 |
) |
|
|
138,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
2,152 |
|
|
|
|
|
|
|
2,152 |
|
Loss from real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
(77 |
) |
Interest and other income |
|
|
248 |
|
|
|
2,111 |
|
|
|
859 |
|
|
|
(20 |
) |
|
|
3,198 |
|
|
|
|
(Loss) income before income taxes |
|
|
(2,012 |
) |
|
|
5,445 |
|
|
|
(4,585 |
) |
|
|
60 |
|
|
|
(1,092 |
) |
(Benefit) provision for income taxes |
|
|
(85 |
) |
|
|
2,068 |
|
|
|
(2,371 |
) |
|
|
33 |
|
|
|
(355 |
) |
|
|
|
Net (loss) income |
|
$ |
(1,927 |
) |
|
|
3,377 |
|
|
|
(2,214 |
) |
|
|
27 |
|
|
|
(737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
602,099 |
|
|
|
152,470 |
|
|
|
17,499 |
|
|
|
(17,413 |
) |
|
|
754,655 |
|
|
|
|
Total assets |
|
$ |
614,923 |
|
|
|
226,799 |
|
|
|
187,589 |
|
|
|
(10,895 |
) |
|
|
1,018,416 |
|
|
|
|
Total debt |
|
$ |
365,018 |
|
|
|
67,892 |
|
|
|
90,744 |
|
|
|
|
|
|
|
523,654 |
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
June 30, 2005 |
|
Homebuilding |
|
Land |
|
Operations |
|
Eliminations |
|
Total |
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
107,095 |
|
|
|
149 |
|
|
|
|
|
|
|
(150 |
) |
|
|
107,094 |
|
Title and mortgage operations |
|
|
947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
947 |
|
|
|
|
Total revenues |
|
|
108,042 |
|
|
|
149 |
|
|
|
|
|
|
|
(150 |
) |
|
|
108,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
84,273 |
|
|
|
182 |
|
|
|
624 |
|
|
|
(532 |
) |
|
|
84,547 |
|
Selling, general and administrative
expenses |
|
|
13,732 |
|
|
|
1,949 |
|
|
|
3,778 |
|
|
|
|
|
|
|
19,459 |
|
Other expenses |
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626 |
|
|
|
|
Total costs and expenses |
|
|
98,631 |
|
|
|
2,131 |
|
|
|
4,402 |
|
|
|
(532 |
) |
|
|
104,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
|
|
|
|
4,729 |
|
Earnings from real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
42 |
|
Interest and other income |
|
|
199 |
|
|
|
425 |
|
|
|
829 |
|
|
|
|
|
|
|
1,453 |
|
|
|
|
Income (loss) before income taxes |
|
|
9,610 |
|
|
|
(1,557 |
) |
|
|
1,198 |
|
|
|
382 |
|
|
|
9,633 |
|
Provision (benefit) for income taxes |
|
|
3,653 |
|
|
|
(624 |
) |
|
|
392 |
|
|
|
160 |
|
|
|
3,581 |
|
|
|
|
Net income (loss) |
|
$ |
5,957 |
|
|
|
(933 |
) |
|
|
806 |
|
|
|
222 |
|
|
|
6,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
349,880 |
|
|
|
114,038 |
|
|
|
6,473 |
|
|
|
(17,209 |
) |
|
|
453,182 |
|
|
|
|
Total assets |
|
$ |
382,890 |
|
|
|
188,792 |
|
|
|
161,732 |
|
|
|
(17,209 |
) |
|
|
716,205 |
|
|
|
|
Total debt |
|
$ |
171,893 |
|
|
|
25,668 |
|
|
|
71,098 |
|
|
|
|
|
|
|
268,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
June 30, 2006 |
|
Homebuilding |
|
Land |
|
Operations |
|
Eliminations |
|
Total |
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
234,849 |
|
|
|
21,358 |
|
|
|
|
|
|
|
(6 |
) |
|
|
256,201 |
|
Title and mortgage operations |
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,026 |
|
|
|
|
Total revenues |
|
|
236,875 |
|
|
|
21,358 |
|
|
|
|
|
|
|
(6 |
) |
|
|
258,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
189,116 |
|
|
|
12,737 |
|
|
|
1,298 |
|
|
|
(186 |
) |
|
|
202,965 |
|
Selling, general and administrative
expenses |
|
|
38,140 |
|
|
|
5,820 |
|
|
|
13,260 |
|
|
|
1 |
|
|
|
57,221 |
|
Other expenses |
|
|
7,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,291 |
|
|
|
|
Total costs and expenses |
|
|
234,547 |
|
|
|
18,557 |
|
|
|
14,558 |
|
|
|
(185 |
) |
|
|
267,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
2,103 |
|
|
|
|
|
|
|
2,103 |
|
Loss from real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
(77 |
) |
Interest and other income |
|
|
425 |
|
|
|
3,099 |
|
|
|
1,541 |
|
|
|
(35 |
) |
|
|
5,030 |
|
|
|
|
Income (loss) before income taxes |
|
|
2,753 |
|
|
|
5,900 |
|
|
|
(10,991 |
) |
|
|
144 |
|
|
|
(2,194 |
) |
Provision (benefit)for income taxes |
|
|
1,669 |
|
|
|
2,205 |
|
|
|
(4,735 |
) |
|
|
64 |
|
|
|
(797 |
) |
|
|
|
Net income (loss) |
|
$ |
1,084 |
|
|
|
3,695 |
|
|
|
(6,256 |
) |
|
|
80 |
|
|
|
(1,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
602,099 |
|
|
|
152,470 |
|
|
|
17,499 |
|
|
|
(17,413 |
) |
|
|
754,655 |
|
|
|
|
Total assets |
|
$ |
614,923 |
|
|
|
226,799 |
|
|
|
187,589 |
|
|
|
(10,895 |
) |
|
|
1,018,416 |
|
|
|
|
Total debt |
|
$ |
365,018 |
|
|
|
67,892 |
|
|
|
90,744 |
|
|
|
|
|
|
|
523,654 |
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
June 30, 2005 |
|
Homebuilding |
|
Land |
|
Operations |
|
Eliminations |
|
Total |
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
225,082 |
|
|
|
66,700 |
|
|
|
14,709 |
|
|
|
(531 |
) |
|
|
305,960 |
|
Title and mortgage operations |
|
|
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,895 |
|
|
|
|
Total revenues |
|
|
226,977 |
|
|
|
66,700 |
|
|
|
14,709 |
|
|
|
(531 |
) |
|
|
307,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
177,852 |
|
|
|
27,272 |
|
|
|
11,950 |
|
|
|
(1,938 |
) |
|
|
215,136 |
|
Selling, general and
administrative expenses |
|
|
28,340 |
|
|
|
6,395 |
|
|
|
7,870 |
|
|
|
|
|
|
|
42,605 |
|
Other expenses |
|
|
1,265 |
|
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
1,942 |
|
|
|
|
Total costs and expenses |
|
|
207,457 |
|
|
|
34,344 |
|
|
|
19,820 |
|
|
|
(1,938 |
) |
|
|
259,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
6,867 |
|
|
|
|
|
|
|
6,867 |
|
Earnings from real estate joint ventures |
|
|
104 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
132 |
|
Interest and other income |
|
|
413 |
|
|
|
846 |
|
|
|
1,516 |
|
|
|
|
|
|
|
2,775 |
|
|
|
|
Income before income taxes |
|
|
20,037 |
|
|
|
33,202 |
|
|
|
3,300 |
|
|
|
1,407 |
|
|
|
57,946 |
|
Provision for income taxes |
|
|
7,554 |
|
|
|
12,812 |
|
|
|
1,155 |
|
|
|
555 |
|
|
|
22,076 |
|
|
|
|
Net income |
|
$ |
12,483 |
|
|
|
20,390 |
|
|
|
2,145 |
|
|
|
852 |
|
|
|
35,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
349,880 |
|
|
|
114,038 |
|
|
|
6,473 |
|
|
|
(17,209 |
) |
|
|
453,182 |
|
|
|
|
Total assets |
|
$ |
382,890 |
|
|
|
188,792 |
|
|
|
161,732 |
|
|
|
(17,209 |
) |
|
|
716,205 |
|
|
|
|
Total debt |
|
$ |
171,893 |
|
|
|
25,668 |
|
|
|
71,098 |
|
|
|
|
|
|
|
268,659 |
|
|
|
|
13. Parent Company Financial Statements
The Companys subordinated investment notes (the Investment Notes) and Junior Subordinated
Debentures are direct unsecured obligations of Levitt Corporation and are not guaranteed by the
Companys subsidiaries and are not secured by any assets of the Company or its subsidiaries. The
Company relies on dividends from its subsidiaries to fund its operations, including debt service
obligations relating to the Investment Notes and Junior Subordinated Debentures. 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, and restrictions on the Companys
subsidiaries ability to remit dividends to Levitt Corporation could result in such a default.
Some of the Companys subsidiaries have borrowings which contain covenants 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 the payment of dividends from subsidiaries to the Company. At June 30, 2006
and December 31, 2005, the Company was in compliance with all loan agreement financial covenants.
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. The parent companys interest in its consolidated subsidiaries is reported under equity
method accounting for purposes of this presentation.
21
The parent company unaudited condensed statements of financial condition at June 30, 2006 and
December 31, 2005, and unaudited condensed statements of operations for the three and six months
ended June 30, 2006 and 2005 are shown below (in thousands):
Condensed Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets |
|
$ |
447,939 |
|
|
|
435,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
99,202 |
|
|
|
86,007 |
|
Total shareholders equity |
|
|
348,737 |
|
|
|
349,786 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
447,939 |
|
|
|
435,793 |
|
|
|
|
|
|
|
|
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Earnings from Bluegreen Corporation |
|
$ |
2,152 |
|
|
|
4,729 |
|
|
|
2,103 |
|
|
|
6,867 |
|
Earnings from real estate joint ventures |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
13 |
|
Other revenues |
|
|
382 |
|
|
|
292 |
|
|
|
713 |
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
7,151 |
|
|
|
3,909 |
|
|
|
13,400 |
|
|
|
7,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes |
|
|
(4,617 |
) |
|
|
1,139 |
|
|
|
(10,584 |
) |
|
|
51 |
|
(Benefit) provision for income taxes |
|
|
(2,402 |
) |
|
|
370 |
|
|
|
(4,578 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before undistributed
earnings from consolidated subsidiaries |
|
|
(2,215 |
) |
|
|
769 |
|
|
|
(6,006 |
) |
|
|
149 |
|
Earnings from consolidated subsidiaries, net
of income taxes |
|
|
1,478 |
|
|
|
5,283 |
|
|
|
4,608 |
|
|
|
35,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(737 |
) |
|
|
6,052 |
|
|
|
(1,398 |
) |
|
|
35,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends received from subsidiaries for the six months ended June 30, 2006 and 2005
were $6.6 million and $8.8 million respectively.
14. 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
22
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.
During the three and six months ended June 30, 2006, the Company paid approximately $21,000
and $183,000, respectively to Bancorp. During the three and six months ended June 30, 2005 the
Company paid $224,000 and $351,000, respectively. The amounts paid represent rent, amounts owed
for services performed or expense reimbursements. The Company occupies office space at
BankAtlantics corporate headquarters. In 2005, Bancorp provided this office space on a
month-to-month basis and received reimbursements for overhead based on market rates. In 2006, rent
was paid to BFC.
Effective January 1, 2006, certain personnel from human resources, risk management,
investor relations and executive office administration provide services to the Company by BFC.
During the three and six months ended June 30, 2006, the Company paid approximately $328,000 and
$496,000, respectively, for such services as well as reimbursements of expenses for rent and other
costs.
At June 30, 2006 and 2005, $11.6 million and $11.9 million, respectively, of cash and cash
equivalents were held on deposit by BankAtlantic. Interest on deposits held at BankAtlantic for
each of the three and six months ended June 30, 2006 was approximately $136,000 and $278,000
respectively.
15. New Accounting Pronouncements
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 six months ended June
30, 2006, and accordingly reduced the earnings in Bluegreen recorded by the Company by
approximately $1.4 million for the same period.
In December 2004, FASB issued Staff Position 109-1 (FSP 109-1), Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act
provides a 3% deduction on qualified domestic production activities income and is effective for
the Companys fiscal year ending December 31, 2006, subject to certain limitations. This deduction
provides a tax savings against income attributable to domestic production activities, including the
construction of real property. When fully phased-in, the deduction will be up to 9% of the lesser
of qualified production activities income or taxable income. Based on the guidance provided by
FSP 109-1, this deduction should be accounted for as a special deduction under SFAS No. 109,
Accounting for Income Taxes. This will reduce tax expense in the period or periods that the
amounts are
23
deductible on the tax return. The Company continues to assess the potential impact of this
new deduction for the year ending December 31, 2006.
In June 2006, the FASB issued FIN No. 48 (Accounting for Uncertainty in Income Taxes an
interpretation of FASB No. 109.) FIN 48 provides guidance for how a company should recognize,
measure, present and disclose in its financial statements 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 and is likely to cause greater volatility in the Companys provision
for income taxes. The interpretation also revises disclosure requirements including a tabular
roll-forward of unrecognized tax benefits. The interpretation for the Company is effective as of
January 1, 2007 and management does not believe that the adoption of this Statement will have an
impact on the Companys financial statements.
16. Litigation
On May 26, 2005 a suit was filed in the 9th Judicial Circuit in and for Orange County, Florida
against the Company in Frank Albert, Dorothy Albert, et al. v. Levitt and Sons, LLC, a Florida
limited liability company, Levitt Homes, LLC, a Florida limited liability company, Levitt
Corporation, a Florida corporation, Levitt Construction Corp. East, a Florida corporation and
Levitt and Sons, Inc., a Florida corporation. The suit purports to be a class action on behalf of
residents in one of the Companys communities in Central Florida. The complaint alleges, among
other claims, construction defects and unspecified damages ranging from $50,000 to $400,000 per
house. While there is no assurance that the Company will be successful, the Company believes it has
valid defenses and is engaged in a vigorous defense of the action.
The
Company is also a party to other pending legal proceedings arising in
the normal course of business. While complete assurance cannot be
given as to the outcome of any legal claims, management believes that
any financial impact would not be material to its results of
operations, financial position or cash flows.
24
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 and its wholly owned subsidiaries
(Levitt, or the Company) as of and for the three and six months ended June 30, 2006 and 2005.
The Company may also be referred to as we, us, or our. We engage in real estate activities
through our homebuilding, land development and other 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 and multi-family home and
townhome communities and condominiums for active adults and families in Florida, Georgia, Tennessee
and South Carolina. Levitt and Sons includes the operations of Bowden Building Corporation, a
developer of single family homes based in Tennessee, which was acquired in April 2004. 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 is planned to ultimately include more than 8,200
total acres, including approximately five miles of frontage on Interstate 95, and Tradition South
Carolina currently encompasses 5,400 acres with 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, seeks 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, 2005, 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 include: the impact of economic,
competitive and other factors affecting the Company and its operations; the market for real estate
generally and in the areas where the Company has developments, including the impact of market
conditions on the Companys margins; delays in opening planned new communities and completing
developments as currently anticipated; shortages and increased costs of construction materials and
labor; the need to offer additional incentives to buyers to generate sales; the effects of
increases in interest rates; the ability to consummate sales contracts included in the Companys
backlog; the Companys ability to realize the expected benefits of its expanded platform,
technology investments, growth initiatives and strategic objectives; the Companys ability to
timely close on land sales and to deliver homes from backlog, shorten delivery cycles and improve
operational and construction efficiency; the realization of our cost
25
savings associated with reductions of workforce and the ability to limit overhead and costs
commensurate with sales; the actual costs of disposition of our assets in the Tennessee operations
may exceed current estimates; 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
We evaluate our performance and prospects using a variety of financial and non-financial
measures. The key financial measures utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (which we measure as revenues from sales of real estate
minus cost of sales of real estate), margin percentage (which we measure as margin divided by
revenues from sales of real estate), income (loss) before taxes, net income (loss) and return on
equity. We also continue to evaluate and monitor the selling, general and administrative expenses
as a percentage of revenue. Non-financial measures used to evaluate historical performance include
the number and value of new orders executed, the number of housing starts and the number of homes
delivered. In evaluating our future prospects, management considers non-financial information such
as the number of homes and acres in backlog (which we measure as homes or land subject to an
executed sales contract) and the aggregate value of those contracts. Additionally, we monitor the
number of properties remaining in inventory and under contract to be purchased relative to our
sales and construction trends. Our ratio of debt to shareholders equity and cash requirements are
also considered when evaluating our future prospects, as are general economic factors and interest
rate trends. Each of the above measures is discussed in the following sections as it relates to
our operating results, financial position and liquidity. The list of measures above is not an
exhaustive list, and management may from time to time utilize additional financial and
non-financial information or may not use the measures listed above.
Homebuilding Overview
The trends in the homebuilding industry have generally been unfavorable in 2006. Demand has
slowed as evidenced by fewer new orders and lower conversion rates in the markets in which we
operate. These conditions have been particularly difficult in Florida, and we believe are the
result of changing homebuyer sentiment, reluctance of buyers to commit to a new home purchase
because of uncertainty in their ability to sell their existing home, rising mortgage financing
expenses, and an increase in both existing and new homes available for sale across the industry. As
a result of these conditions, higher expenses are being incurred for advertising, outside brokers
and other incentives in an effort to remain competitive and attract buyers. Selling, general and
administrative costs have increased significantly in 2006 due to increased headcount associated
with expansion into new communities and regions, and expenditures necessary to increase traffic to
our sales centers and improve conversion rates. This is slightly offset by the reduction of
overhead costs associated with communities in the later stages of the home production cycle. To
the extent possible given the existing commitments, costs are being monitored with a view to
aligning overhead spending with new orders and home closings given the
existing communities. In July 2006, in response to slowing
conditions, we reduced our Homebuilding Divisions workforce by
69 employees, or 10.6%. Annual cash savings are expected
to be approximately $4.2 million. We are continuing to review our spending to ensure the costs are
commensurate with backlog, sales and deliveries.
In our Homebuilding Division, we conducted our periodic impairment review of goodwill related
to our Tennessee operations in the three months ended June 30, 2006. The profitability and
estimated cash flows of the reporting entity declined to a point where the carrying value of the
assets
26
exceeded
their market value resulting in a write-down of goodwill in the amount of
approximately $1.3 million which is included in other expenses in the unaudited statements of
operations in the three and six months ended June 30, 2006. Our Tennessee operations have
delivered lower than expected margins. In the three months ended June 30, 2006, key management
personnel left the Company and we continued to experience significant start-up costs associated
with expansion from the Memphis to the Nashville market. We also experienced a downward trend in
home deliveries in our Tennessee operations in the three months ended June 30, 2006. We conducted
an impairment review of our inventory of real estate associated with our Tennessee operations and
recorded an impairment charge related to the write-down of inventory of approximately $4.7 million
which is reflected in other expenses in the unaudited consolidated statements of operations in the
three and six months ended June 30, 2006. Projections of future cash flows related to the
remaining assets were discounted and used to determine the estimated impairment charge. Management
is currently evaluating various strategies for our assets in Tennessee. As a result, additional
impairment charges may be necessary in the future based on changes in estimates or actual selling
prices of these assets.
While various land acquisitions continue to be considered as potential inventory for future
years, we have slowed the pace of land acquisitions, and all contracts for acquisition are being
re-evaluated to determine if completion of the transaction is prudent. Development continues on
land we have acquired in Florida, Georgia, and South Carolina as we diversify and expand our
operations. Three new communities opened for sales during the quarter ended June 30, 2006. The
value of our backlog has grown since December 31, 2005, reflecting higher average selling prices
and increased units. While the average selling prices of our homes have increased over the last
several years and allowed us to more than offset rising construction costs, sales prices in the
current market in Florida are subject to downward pressure associated with a highly competitive
market and the need to offer buyer incentives and other programs to increase sales. Therefore,
margins may come under pressure as there does not appear to be any
near-term moderation of costs.
We continue to focus on quality control and customer satisfaction through the use of initiatives
aimed at improving our customer experience, referral rate and competitive position.
Land Development Overview
Land Division revenues have historically been generated primarily from two master-planned
communities located in St. Lucie County, Florida St. Lucie West and Tradition, Florida.
Development activity in St. Lucie West was completed during the quarter ended June 30, 2006 with
the sale of the final four acres of inventory. The master-planned community, Tradition, Florida
encompasses more than 8,200 total acres, including approximately 5,800 net saleable acres.
Approximately 1,650 acres had been sold and 84 acres were subject to firm sales contracts with
various purchasers as of June 30, 2006. Traffic into the information center at Tradition, Florida
has slowed in connection with the overall slowdown in the Florida homebuilding market, as well as
the current availability of residential real estate inventory approved for development. However,
discussions on potential transactions with homebuilders and commercial developers remain active.
Our newest master-planned community, Tradition, South Carolina, which we acquired in 2005,
encompasses 5,390 total acres, including approximately 3,000 net saleable acres and is
currently entitled for up to 9,500 residential units and 1.5 million feet of commercial space, in
addition to recreational areas, educational facilities and emergency services. Development
commenced in the first quarter of 2006 and our first sale in South Carolina is expected to occur in
the fourth quarter of 2006.
The Land Division remains active in developing and marketing the master-planned communities.
In addition to sales of parcels to homebuilders, the Land Division continues to expand its
operations involving commercial properties through sales to developers and internally developing
27
certain projects for leasing. In addition to sales to third party homebuilders and
commercial developers, the Land Division periodically sells residential land to the Homebuilding
Division.
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 our 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
the valuation of (i) real estate, including the estimation of costs required to complete
development of a property; (ii) investments in real estate joint ventures and unconsolidated
subsidiaries (including Bluegreen); (iii) the fair market value of assets and liabilities in the
application of the purchase method of accounting; (iv) assumptions used in the analysis of
discounted cash flows of the Tennessee operations; and (v) assumptions used in the valuation of
stock based compensation. The accounting policies that we have identified as critical to the
portrayal of our financial condition and results of operations are: (a) real estate inventories;
(b) investments in unconsolidated subsidiaries; (c) homesite contracts and consolidation of
variable interest entities; (d) revenue recognition; (e) capitalized interest; (f) income taxes and
(g) accounting for share-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
for the year ended December 31, 2005.
Stock-based Compensation
The Company adopted SFAS 123R as of January 1, 2006 and elected the modified-prospective
method, under which prior periods are not restated. Under the fair value recognition provisions of
this statement, stock-based compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense on a straight-line basis over the requisite service
period, which is the vesting period.
The
Company currently uses the Black-Scholes option-pricing model to determine the fair value
of stock options. The determination of the fair value of option awards on the date of grant using
the Black-Scholes option-pricing model is affected by the stock price and assumptions regarding the
expected stock price volatility over the expected term of the awards, expected term of the awards,
risk-free interest rate, expected forfeiture rate and expected dividends. If factors change and
the Company uses different assumptions for estimating stock-based compensation expense in future
periods or if the Company decides to use a different valuation model, the amounts recorded in
future periods may differ significantly from the amounts recorded in the current period and could
affect net income and earnings per share.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. These characteristics
are not present in the Companys option awards. Existing valuation models, including the
Black-Scholes may not provide reliable measures of the fair values of stock options. As a
consequence, the Companys estimates of the fair values of stock option awards on the grant dates
may be materially different than the actual values realized on those option awards in the future.
Employee stock options may expire worthless while the Company records compensation expense in its
financial statements. Also, amounts may be realized from exercises of stock options that are
significantly higher than the fair values originally estimated on the grant date and reported in
the Companys financial statements.
28
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
(In thousands) |
|
( U n a u d i t e d ) |
|
|
( U n a u d i t e d ) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
130,658 |
|
|
|
107,094 |
|
|
|
23,564 |
|
|
|
256,201 |
|
|
|
305,960 |
|
|
|
(49,759 |
) |
Title and mortgage operations |
|
|
1,018 |
|
|
|
947 |
|
|
|
71 |
|
|
|
2,026 |
|
|
|
1,895 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
131,676 |
|
|
|
108,041 |
|
|
|
23,635 |
|
|
|
258,227 |
|
|
|
307,855 |
|
|
|
(49,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
100,910 |
|
|
|
84,547 |
|
|
|
16,363 |
|
|
|
202,965 |
|
|
|
215,136 |
|
|
|
(12,171 |
) |
Selling, general and administrative
expenses |
|
|
30,466 |
|
|
|
19,459 |
|
|
|
11,007 |
|
|
|
57,221 |
|
|
|
42,605 |
|
|
|
14,616 |
|
Other expenses |
|
|
6,665 |
|
|
|
626 |
|
|
|
6,039 |
|
|
|
7,291 |
|
|
|
1,942 |
|
|
|
5,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
138,041 |
|
|
|
104,632 |
|
|
|
33,409 |
|
|
|
267,477 |
|
|
|
259,683 |
|
|
|
7,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
2,152 |
|
|
|
4,729 |
|
|
|
(2,577 |
) |
|
|
2,103 |
|
|
|
6,867 |
|
|
|
(4,764 |
) |
(Loss) earnings from real estate
joint ventures |
|
|
(77 |
) |
|
|
42 |
|
|
|
(119 |
) |
|
|
(77 |
) |
|
|
132 |
|
|
|
(209 |
) |
Interest and other income |
|
|
3,198 |
|
|
|
1,453 |
|
|
|
1,745 |
|
|
|
5,030 |
|
|
|
2,775 |
|
|
|
2,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(1,092 |
) |
|
|
9,633 |
|
|
|
(10,725 |
) |
|
|
(2,194 |
) |
|
|
57,946 |
|
|
|
(60,139 |
) |
(Benefit) provision for income taxes |
|
|
(355 |
) |
|
|
3,581 |
|
|
|
(3,936 |
) |
|
|
(797 |
) |
|
|
22,076 |
|
|
|
(22,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(737 |
) |
|
|
6,052 |
|
|
|
(6,789 |
) |
|
|
(1,397 |
) |
|
|
35,870 |
|
|
|
(37,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2006 Compared to the Same 2005 Period:
Consolidated net (loss) income decreased $6.8 million, or 112.2%, for the three months ended
June 30, 2006 as compared to the same period in 2005. The decrease in net (loss) income was the
result of higher selling, general and administrative expenses in all of the Divisions. In
addition, other expenses increased as a result of the impairment charges in the Homebuilding
Division. Further, Bluegreen Corporations earnings decreased during the three months ended June
30, 2006 as compared to the same period in 2005. These increases in expenses were partially offset
by increases in margins on sales of real estate and interest and other income associated with the
Land Divisions commercial operations.
Our revenues from sales of real estate increased 22.0% to $130.7 million for the three months
ended June 30, 2006 from $107.1 million for the same period in 2005. In the three months ended
June 30, 2005, the Land Division did not deliver any parcels, recording revenues of $149,000
associated with lot premiums, while during the same period in 2006, the Land Divisions sales of
real estate totaled $14.1 million. Additionally revenues from home sales increased to $116.6
million during the three months ended June 30, 2006, compared to $107.1 million for the same period
in 2005. During the three months ended June 30, 2006, 392 homes were delivered as compared to 448
homes delivered during the same period in 2005. Despite the decrease in deliveries, revenues
increased, largely as a result of an increase in average selling price of deliveries, which
increased from $239,000 for the three months ended June 30, 2005 compared to $297,000 for the same
period in 2006. The increase in the average price of our homes delivered was due to the price
increases initiated throughout 2005 in the face of strong demand, particularly in Florida.
29
Cost of sales increased 19.4% to $100.9 million during the three months ended June 30, 2006,
as compared to the same period in 2005. The increase in cost of sales was attributable to land sales
recorded by the Land Division, as well as greater costs of sales
associated with the Homebuilding
Division. Cost of sales as a percentage of related revenue decreased to 77.2% for the
three months ended June 30, 2006, as compared to approximately 78.9% for the same period in 2005,
due mainly to the margins realized by the Land Division. In the three months ended June 30, 2006,
the Land Division delivered 48.5 acres at a margin of 45.2% while it did not have any deliveries
during the same period in 2005.
Selling, general and administrative expenses increased $11.0 million to $30.5 million during
the three months ended June 30, 2006 compared to $19.5 million during the same period in 2005
primarily as a result of higher employee compensation and benefits, increased recruiting costs,
advertising costs and professional services expenses. Employee compensation and benefit costs
increased by approximately $3.8 million, from $9.2 million during the three months ended June 30,
2005 to $13.0 million for the same period in 2006. This increase relates to the number of our full
time employees, increasing to 765 at June 30, 2006 from 576 at June 30, 2005, mainly related to the
continued expansion of the Homebuilding activities and support functions. Approximately $612,000
of the increase in compensation expense was associated with non-cash stock based compensation for
which no expense was recorded in the same period in 2005. We also experienced an increase in
advertising and outside broker expense in the three months ended June 30, 2006 compared to the same
period in 2005 due to the increased advertising for three new communities that were opened during
the quarter and the increased advertising and outside broker costs associated with attracting
buyers during the recent slowdown experienced in the homebuilding market. Lastly, professional
services increased due to non-capitalizable consulting services performed in the three months ended
June 30, 2006 related to our systems implementation. These expenses consist of documentation of
process flows, training and other validation procedures that are being performed in connection with
the system implementation. These costs did not exist in the three months ended June 30, 2005. As
a percentage of total revenues, selling, general and administrative expenses increased to 23.0%
during the three months ended June 30, 2006, from 18.1% during
the same period in 2005 due to the
increases in overhead spending. As noted in the overview section, management is reviewing our
overhead spending to ensure the costs are commensurate with backlog, sales and deliveries.
Interest
incurred and capitalized totaled $9.5 million in the three
months ended June 30, 2006 and $4.1 million
for the same period in 2005. 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 June
30, 2006 and 2005 included previously capitalized interest of approximately $3.0 million and $2.7
million, respectively.
Other expenses increased to $6.7 million during the three months ended June 30, 2006 from
$626,000 for the same period in 2005. This increase was primarily attributable to impairment
charges in the three months ended June 30, 2006 of approximately $6.0 million which consisted of
$1.3 million in goodwill and $4.7 million related to the write-down of inventory in our
Homebuilding Division associated with our Tennessee operations. Projections of future cash flows
related to the remaining assets were discounted and used to determine the estimated impairment
charges. Management is currently evaluating various strategies for our assets in Tennessee. As a
result, additional impairment charges may be necessary in the future based on changes in estimates
or actual selling prices of these assets.
Bluegreen reported net income for the three months ended June 30, 2006 of $6.6 million, as
compared to net income of $14.9 million for the same period in 2005. Our interest in Bluegreens
30
earnings,
net of purchase accounting adjustments, was $2.1 million for the
three months ended June 30, 2006 compared to our interest in
Bluegreens earnings of $4.7 million for the same period in 2005.
Interest and other income increased from $1.5 million during the three months ending June 30,
2005 to $3.1 million during the same period in 2006. This change was primarily related to a $1.3
million gain on sale of fixed assets from our Land Division, an increase in lease and irrigation
income from our Land Division, and higher interest income generated by our various interest bearing
deposits.
For the Six Months Ended June 30, 2006 Compared to the Same 2005 Period:
Consolidated net (loss) income decreased $37.2 million, or 103.9%, for the six months ended
June 30, 2006 as compared to the same period in 2005. The decrease in net (loss) income was the
result of decreased margins on sales of real estate by our Land Division and Other Operations and
higher selling, general and administrative expenses associated with Other Operations and the
Homebuilding Division. In addition, other expenses increased as a result of the impairment charges
in the Homebuilding Division. Further, Bluegreen Corporation experienced a decline in earnings in
the six months ended June 30, 2006 compared to the same period in 2005. These decreases were
partially offset by an increase in interest and other income associated with the Land Divisions
commercial operations.
Our revenues from sales of real estate decreased 16.3% to $256.2 million for the six months
ended June 30, 2006 from $306.0 million for the same period in 2005. This decrease was primarily
attributable to the decrease in the Land Divisions and Other Operations sales of real estate in the
six months ended June 30, 2006. In the six months ended June 30, 2005, the Land Division recorded
land sales of $66.7 million while during the same period in 2006, the Land Divisions sales of real
estate totaled $21.3 million. The large decrease is attributable to a bulk land sale of 1,294
acres for $64.7 million recorded by the Land Division in the six months ended June 30, 2005
compared to 105 acres sold by the Land Division for the same period in 2006. Revenues for 2005
also reflect sales of flex warehouse properties as Levitt Commercial delivered 44 flex warehouse
units at two of its development projects, generating revenues of $14.7 million. Levitt Commercial
did not deliver any units during the six months ended June 30, 2006. These decreases were slightly
offset by an increase in revenues from home sales. Revenues from home sales increased to $234.8
million during the six months ended June 30, 2006 compared to $225.1 million for the same period in
2005. During the six months ended June 30, 2006, 831 homes were delivered as compared to 949 homes
delivered during the same period in 2005, however the average selling price of deliveries increased
to $283,000 for the six months ended June 30, 2006 from $237,000 for the same period in 2005. The
increase in the average price of our homes delivered was the result of price increases initiated
throughout 2005 in the face of strong demand, particularly in Florida.
Cost of sales decreased 5.7% to $203.0 million during the six months ended June 30, 2006, as
compared to the same period in 2005. The decrease in cost of sales was due to fewer land sales
recorded by the Land Division and Other Operations. Cost of sales as a percentage of related
revenue was approximately 79.2% for the six months ended June 30, 2006, as compared to
approximately 70.3% for the same period in 2005, due mainly to distribution of cost of sales
between the Homebuilding and Land Division. In the six months ended June 30, 2006 Land Division
and Other Operations, which typically generate larger margin percentages, comprised 7% of total
Cost of Sales, compared to 18% for the same period in 2005. In the six months ended June 30, 2006,
the Land Division delivered 105 acres consisting of commercial land, residential land, and finished
lots, at a margin of 40%, while delivering 1,304 acres at a margin of 59% during the same period in
2005.
31
Selling, general and administrative expenses increased $14.6 million to $57.2 million during
the six months ended June 30, 2006 compared to $42.6 million during the same period in 2005
primarily as a result of higher employee compensation and benefits, recruiting costs, advertising
costs and professional services expenses. Employee compensation costs increased by approximately
$4.3 million, from $21.0 million during the six months ended June 30, 2005 to $25.3 million for the
same period in 2006. This increase relates to the number of full time employees which increased
from 576 at June 30, 2005 to 765 at June 30, 2006 primarily as a result of the continued expansion
of the Homebuilding activities and support functions. Further, approximately $1.3 million of the
increase in compensation expense was associated with non-cash stock based compensation for which no
expense was recorded in the same period in 2005. We also experienced an increase in advertising
and outside broker expense in the six months ended June 30, 2006 compared to the same period in
2005 due to the increased advertising and outside broker costs for three new communities that were
opened during 2006 and the increased advertising and outside broker costs associated with
attracting buyers during the recent slowdown experienced in the homebuilding market. Lastly,
professional services increased due to non-capitalizable consulting services performed in the six
months ended June 30, 2006 related to our systems implementation. These expenses consist of
documentation of process flows, training and other validation procedures that are being performed
in connection with the system implementation. These costs did not exist in the six months ended
June 30, 2005. As a percentage of total revenues, selling, general and administrative expenses
increased to 22.2% during the six months ended June 30, 2006, from 13.8% during the same period in
2005 due to the increases in overhead spending noted above coupled with the decline in total
revenues generated from our Land Division. As noted in the overview section, management is
reviewing our overhead spending to ensure the costs are commensurate with backlog, sales and
deliveries.
Interest
incurred and capitalized totaled $17.6 million for the six
months ended June 30, 2006 and $7.6 million
for the same period in 2005. Interest incurred was higher due to higher outstanding balances of notes and
mortgage notes payable, as well as an increase 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 six months ended June
30, 2006 and 2005 included previously capitalized interest of approximately $5.7 million, and $5.3
million, respectively.
Other expenses increased to $7.3 million during the six months ended June 30, 2006 from $1.9
million in the same period in 2005. The increase was primarily attributable to impairment charges
in the six months ended June 30, 2006 of approximately $6.0 million which consisted of $1.3 million
in goodwill and $4.7 million related to the write-down of inventory in our Homebuilding Division
associated with our Tennessee operations. Projections of future cash flows related to the
remaining assets were discounted and used to determine the estimated impairment charges. Management
is currently evaluating various strategies for our assets in Tennessee. As a result, additional
impairment charges may be necessary in the future based on changes in estimates or actual selling
prices of these assets. These increases were slightly offset by a
decrease due to a $677,000 penalty on debt prepayment incurred during the six months ended June 30, 2005 at
our Land Division. The penalty arose from the repayment of indebtedness under a line of credit
using the proceeds of the bulk land sale described above.
Bluegreen reported net income for the six months ended June 30, 2006 of $6.1 million, as
compared to net income of $21.3 million for the same period in 2005. Our interest in Bluegreens
earnings, net of purchase accounting adjustments, was $2.1 million for the 2006 period compared to
$6.9 million for the same period in 2005.
Interest and other income increased from $2.8 million during the six months ending June 30,
2005 to $5.0 million during the same period in 2006. This change was primarily related to a $1.3
32
million gain on sale of fixed assets from our Land Division, an increase in lease and irrigation
income from our Land Division, and higher interest income generated by our various interest bearing
deposits.
HOMEBUILDING DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
(In thousands, except unit information) |
|
( U n a u d i t e d ) |
|
|
( U n a u d i t e d ) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
116,574 |
|
|
|
107,095 |
|
|
|
9,479 |
|
|
|
234,849 |
|
|
|
225,082 |
|
|
|
9,767 |
|
Title and mortgage operations |
|
|
1,018 |
|
|
|
947 |
|
|
|
71 |
|
|
|
2,026 |
|
|
|
1,895 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
117,592 |
|
|
|
108,042 |
|
|
|
9,550 |
|
|
|
236,875 |
|
|
|
226,977 |
|
|
|
9,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
92,619 |
|
|
|
84,273 |
|
|
|
8,346 |
|
|
|
189,116 |
|
|
|
177,852 |
|
|
|
11,264 |
|
Selling, general and administrative expenses |
|
|
20,568 |
|
|
|
13,732 |
|
|
|
6,836 |
|
|
|
38,140 |
|
|
|
28,340 |
|
|
|
9,800 |
|
Other expenses |
|
|
6,665 |
|
|
|
626 |
|
|
|
6,039 |
|
|
|
7,291 |
|
|
|
1,265 |
|
|
|
6,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
119,852 |
|
|
|
98,631 |
|
|
|
21,221 |
|
|
|
234,547 |
|
|
|
207,457 |
|
|
|
27,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
(104 |
) |
Interest and other income |
|
|
248 |
|
|
|
199 |
|
|
|
49 |
|
|
|
425 |
|
|
|
413 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(2,011 |
) |
|
|
9,610 |
|
|
|
(11,621 |
) |
|
|
2,753 |
|
|
|
20,037 |
|
|
|
(17,284 |
) |
(Benefit) provision for income taxes |
|
|
(85 |
) |
|
|
3,653 |
|
|
|
(3,738 |
) |
|
|
1,669 |
|
|
|
7,554 |
|
|
|
(5,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,926 |
) |
|
|
5,957 |
|
|
|
(7,883 |
) |
|
|
1,084 |
|
|
|
12,483 |
|
|
|
(11,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered (units) |
|
|
392 |
|
|
|
448 |
|
|
|
(56 |
) |
|
|
831 |
|
|
|
949 |
|
|
|
(118 |
) |
Construction starts (units) |
|
|
532 |
|
|
|
478 |
|
|
|
54 |
|
|
|
922 |
|
|
|
825 |
|
|
|
97 |
|
Average selling price of homes delivered |
|
$ |
297 |
|
|
|
239 |
|
|
|
58 |
|
|
|
283 |
|
|
|
237 |
|
|
|
46 |
|
Margin percentage on homes delivered |
|
|
20.5 |
% |
|
|
21.3 |
% |
|
|
0.8 |
% |
|
|
19.5 |
% |
|
|
21.0 |
% |
|
|
(1.5 |
%) |
New sales contracts (units) |
|
|
332 |
|
|
|
429 |
|
|
|
(97 |
) |
|
|
838 |
|
|
|
1,034 |
|
|
|
(196 |
) |
New sales contracts (value) |
|
$ |
117,304 |
|
|
|
133,874 |
|
|
|
(16,570 |
) |
|
|
286,691 |
|
|
|
299,155 |
|
|
|
(12,464 |
) |
Backlog of homes (units) |
|
|
1,799 |
|
|
|
1,899 |
|
|
|
(100 |
) |
|
|
1,799 |
|
|
|
1,899 |
|
|
|
(100 |
) |
Backlog of homes (value) |
|
$ |
609,167 |
|
|
|
522,785 |
|
|
|
(86,382 |
) |
|
|
609,167 |
|
|
|
522,785 |
|
|
|
86,382 |
|
For the Three Months Ended June 30, 2006 Compared to the Same 2005 Period:
Revenues from home sales were up 8.9% at $116.6 million during the three months ended June 30,
2006, compared to $107.1 million for the same period in 2005. During the three months ended June
30, 2006, 392 homes were delivered as compared to 448 homes delivered during the three months ended
June 30, 2005. However, we experienced an increase in revenues due to an increase in the average
price of our homes delivered due to the price increases initiated throughout 2005 in the face of
strong demand, particularly in Florida. As discussed earlier there has been a general slowdown in
the Florida market and management believes that price increases are not currently possible and
additional sales incentives may be required in order to maintain sales levels.
The value of new orders decreased to $117.3 million for the three months ended June 30, 2006,
from $133.9 million for the same period in 2005. During the three months ended June 30, 2006, new
unit orders decreased to 332 units, from 429 units during the same period in 2005. The decrease in
new unit orders was the result of softening in markets as traffic trended downward and conversion
33
rates slowed. The decrease in new orders was offset by the average sales price of new home
orders increasing 13.1% to $353,000 for the three months ended June 30, 2006, from $312,000 during
the same periods in 2005. Higher selling prices are primarily a reflection of a reduction of the
percentage of sales in our Tennessee operations which historically
have yielded lower average sales
prices, as well as the price increases that occurred throughout 2005 that were maintained in the
first six months of 2006. Construction starts increased as we continue to open new communities and
implement our inventory management and production strategies for orders in 2005 and the six months
ended June 30, 2006. The average sales price of the homes in backlog at June 30, 2006 increased
23.3% to $339,000, from $275,000 at June 30, 2005.
Cost of sales increased 9.9% to $92.6 million during the three months ended June 30, 2006,
compared to the same period in 2005. The increase in cost of sales was primarily due to the increased
revenue from home sales and higher construction costs. The costs of labor and building materials
continue to rise. The sales prices of homes in our backlog cannot be increased and the margins on
the delivery of homes in backlog may be adversely affected by this trend.
Margin percentage (which we define as sales of real estate minus cost of sales of real estate,
divided by sales of real estate) declined from 21.3% in the three months ended June 30, 2005
compared to 20.5% during of the three months ended June 30, 2006. The decline was primarily
attributable to higher construction costs related to costs of labor and building materials.
Selling, general and administrative expenses increased 49.8% to $20.6 million during the three
months ended June 30, 2006, as compared to the same period in 2005 primarily as a result of higher
employee compensation and benefits expense, recruiting costs, higher outside broker fees, increased
advertising, and costs of expansion throughout Florida, Georgia and South Carolina. Employee
compensation and benefit costs increased by approximately $1.9 million, from $6.9 million during
the three months ended June 30, 2005 to $8.8 million for the same period in 2006. The increase
relates to the number of our full time employees increasing to 645 at June 30, 2006, from 507 at
June 30, 2005 and mainly is related to the continued expansion of the Homebuilding activities and
support functions. We also experienced an increase in advertising and outside broker costs in the
three months ended June 30, 2006 compared to the same period in 2005 due to the increased
advertising and outside broker for three new communities that were opened during the quarter and
the increased advertising and outside broker costs needed to entice buyers during the slowdown that
the homebuilding market is currently experiencing. As a percentage of total revenues, selling,
general and administrative expense was approximately 17.5% for the three months ended June 30, 2006
compared to 12.7% for the same 2005 period. As we continue our expansion into the North Florida,
Georgia, and South Carolina markets, we expect to continue to incur administrative start-up costs
as well as certain sales related costs in advance of revenue recognition, which will continue to
affect our operating results.
Other expenses increased to $6.7 million during the three months ended June 30, 2006 from
$626,000 for the same period in 2005. This increase was primarily attributable to impairment
charges in the three months ended June 30, 2006 of approximately $6.0 million which consisted of
$1.3 million in goodwill and $4.7 million related to the write-down of inventory in our
Homebuilding Division associated with our Tennessee operations. Projections of future cash flows
related to the remaining assets were discounted and used to determine the estimated impairment
charges. Management is currently evaluating various strategies for our assets in Tennessee. As a
result, additional impairment charges may be necessary in the future based on changes in estimates
or actual selling prices of these assets.
Interest incurred and capitalized totaled $6.5 million and $2.4 million for the three months
ended June 30, 2006 and 2005, respectively. Interest incurred increased as a result of an increase
in
34
the average interest rate on our variable-rate borrowings as well as a $227.6 million increase in
our borrowings from June 30, 2005. Most of our variable-rate borrowings are indexed to LIBOR or
the Prime Rate. Our variable-rate borrowings increased to 8.25% at June 30, 2006, from 6.25% at June 30, 2005. 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 June 30, 2006 and 2005
included previously capitalized interest of approximately $2.4 million and $1.7 million,
respectively.
Six Months Ended June 30, 2006 Compared to the Same 2005 Period:
Revenues from home sales increased moderately to $234.8 million during the six months ended
June 30, 2006, from $225.1 million during the same period in 2005. The increase is a result of an
increase in average sale prices on home deliveries, which increased to $283,000 for the six months
ended June 30, 2006, compared to $237,000 during the same period in 2005. While prices increased
significantly, the effect on revenue was offset by a decrease in the number of deliveries which
declined to 831 homes delivered during the six months ended June 30, 2006 from 949 homes during
the same period in 2005.
The value of new orders decreased to $286.7 million during the six months ended June 30, 2006,
from $299.2 million during the same period in 2005. During the six months ended June 30, 2006, new
unit orders decreased to 838 units, from 1,034 units during the same
period in 2005 as a result of
softening in markets as traffic trended downward and conversion rates slowed. The decrease in new
orders was offset by the average sales price of new home orders increasing 18% during the six
months ended June 30, 2006 to $342,000, from $289,000 during the same period in 2005. Higher
selling prices are primarily a reflection of a reduction of the percentage of sales in our
Tennessee operations which historically have yielded lower average sales prices, as well as the
price increases that occurred throughout 2005 that were maintained in the first six months of 2006.
Cost of sales increased $11.3 million to $189.1 million during the six months ended June 30,
2006, from $177.9 million during the same period in 2005. The increase in cost of sales was primarily
due to the increased revenue from home sales and higher construction costs as discussed earlier.
Margin percentage declined slightly during the six months ended June 30, 2006 to 19.5%, from
21.0% during the same period in 2005. The decline for the six month
period was due to the higher construction costs as discussed earlier.
Selling, general and administrative expenses increased 34.6% to $38.1 million during the six
months ended June 30, 2006, as compared to the same period in 2005 primarily as a result of higher
employee compensation and benefits expense, recruiting costs, higher outside sales commissions,
increased advertising, and costs of expansion throughout Florida, Georgia and South Carolina.
Employee compensation costs increased by approximately $4.1 million, from $12.8 million during the
six months ended June 30, 2005 to $16.9 million for the same period in 2006. The increases are a
result of the same factors discussed above. As a percentage of total revenues, selling, general
and administrative expense was approximately 16.1% for the six months ended June 30, 2006 compared
to 12.5% for the same period in 2005, for the reasons noted above.
Other expenses increased to $7.3 million during the six months ended June 30, 2006 from $1.3
million in the same period in 2005. The increase was primarily attributable to impairment charges
in the six months ended June 30, 2006 of approximately $6.0 million which consisted of $1.3 million
in goodwill and $4.7 million related to the write-down of inventory in our Homebuilding Division
associated with our Tennessee operations. Projections of future cash flows related to the
remaining assets were discounted and used to determine the estimated impairment charges. Management
is
35
currently evaluating various strategies for our assets in Tennessee. As a result, additional
impairment charges may be necessary in the future based on changes in estimates or actual selling
prices of these assets.
Interest incurred and capitalized on notes and mortgages payable totaled $11.8 million during
the six months ended June 30, 2006, compared to
$4.5 million during the same period in 2005. Interest
incurred increased as a result of an increase in the average interest rate on our variable-rate
borrowings as well as a $227.6 million increase in our borrowings from June 30, 2005. Most of our
variable-rate borrowings are indexed to either LIBOR or the Prime Rate, which increased to 8.25% at
June 30, 2006, from 6.25% at June 30, 2005. Cost of sales of real estate associated with
previously capitalized interest totaled $4.5 million during the six months ended June 30, 2006 as
compared to $3.4 million for the same period in 2005.
LAND DIVISION RESULTS OF OPERATIONS
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
(In thousands, except acres information) |
|
( U n a u d i t e d ) |
|
|
( U n a u d i t e d ) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
14,086 |
|
|
|
149 |
|
|
|
13,937 |
|
|
|
21,358 |
|
|
|
66,700 |
|
|
|
(45,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
14,086 |
|
|
|
149 |
|
|
|
13,937 |
|
|
|
21,358 |
|
|
|
66,700 |
|
|
|
(45,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
7,718 |
|
|
|
182 |
|
|
|
7,536 |
|
|
|
12,737 |
|
|
|
27,272 |
|
|
|
(14,535 |
) |
Selling, general and administrative expenses |
|
|
3,034 |
|
|
|
1,949 |
|
|
|
1,085 |
|
|
|
5,820 |
|
|
|
6,395 |
|
|
|
(575 |
) |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677 |
|
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
10,752 |
|
|
|
2,131 |
|
|
|
8,621 |
|
|
|
18,557 |
|
|
|
34,344 |
|
|
|
(15,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
2,111 |
|
|
|
425 |
|
|
|
1,686 |
|
|
|
3,099 |
|
|
|
846 |
|
|
|
2,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(Loss) before income taxes |
|
|
5,445 |
|
|
|
(1,557 |
) |
|
|
7,002 |
|
|
|
5,900 |
|
|
|
33,202 |
|
|
|
(27,302 |
) |
Provision(Benefit) for income taxes |
|
|
2,068 |
|
|
|
(624 |
) |
|
|
2,692 |
|
|
|
2,205 |
|
|
|
12,812 |
|
|
|
(10,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) |
|
$ |
3,377 |
|
|
|
(933 |
) |
|
|
4,310 |
|
|
|
3,695 |
|
|
|
20,390 |
|
|
|
(16,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold |
|
|
48.5 |
|
|
|
|
|
|
|
48.5 |
|
|
|
105 |
|
|
|
1,304 |
|
|
|
(1,199 |
) |
Margin percentage |
|
|
45.2 |
% |
|
|
(22.1 |
%) |
|
|
67.4 |
% |
|
|
40.4 |
% |
|
|
59.1 |
% |
|
|
(18.7 |
%) |
Unsold saleable acres |
|
|
7,138 |
|
|
|
4,657 |
|
|
|
2,481 |
|
|
|
7,138 |
|
|
|
4,657 |
|
|
|
2,481 |
|
Acres subject to sales contracts |
|
|
84 |
|
|
|
545 |
|
|
|
(461 |
) |
|
|
84 |
|
|
|
545 |
|
|
|
(461 |
) |
Acres subject to sales contracts (value) |
|
$ |
15,387 |
|
|
|
59,884 |
|
|
|
(44,497 |
) |
|
|
15,387 |
|
|
|
59,884 |
|
|
|
(44,497 |
) |
Due to the nature and size of individual land transactions, our Land Division results are
subject to significant quarter to quarter volatility. We calculate margin as sales of real estate
minus cost of sales of real estate, and have historically realized between 40% and 60% margin on
Land Division sales. Margins fluctuate based upon changing sales prices and costs attributable to
the land sold. The sales price 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 ultimate 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 development and interest and
real estate tax costs capitalized to the particular land parcel. Allocations to costs of sales
involve management judgment and an estimate of future costs of
36
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 for
elements often beyond management's control. Future margins will continue to vary in response to
these and other market factors.
The
value of acres subject to sales contracts decreased from $59.8 million at June 30, 2005 to $15.4 million
at June 30, 2006. The backlog consists of executed contracts and provides a partial indication of
potential future sales activity and value per acre. Depending upon the underlying land, other
contracts are executed and closed, and therefore do not appear in the backlog. Therefore, the
backlog is not useful as a primary indicator of future sales activity.
For the Three Months Ended June 30, 2006 Compared to the Same 2005 Period:
Revenues increased $14.0 million to $14.1 million during the three months ended June 30, 2006,
as compared to the same period in 2005. Of the total 48.5 acres sold in 2006, raw land sales to
commercial developers as well as homebuilders comprised 24.9 acres. There were no sales in the
three months ended June 30, 2005.
Cost of sales increased $7.5 million to $7.7 million during the three months ended June 30,
2006, as compared to $182,000 for the same period in 2005. The increase in cost of sales was due to
the increase in sales activity. The 2005 cost of sales was associated with an adjustment to our
cost to complete accruals. Cost of sales as a percentage of related revenue was approximately
54.8% for the three months ended June 30, 2006. Of the total sales, raw land sales comprised 24.9
acres at a margin of 49% while the remaining lot sales generated a margin of 32%.
Selling, general and administrative expenses increased to $3.0 million during the three months
ended June 30, 2006 as compared to $1.9 million for the same period in 2005. The increase
primarily was a result of higher incentive compensation associated with the increase in
profitability during the three months ended June 30, 2006 compared to the same period in 2005.
Additionally, increases in compensation and other administrative expenses are attributable to
increased headcount in support of our expansion into the South Carolina market, increased insurance
costs in Florida, and increased depreciation associated with those assets being internally
developed which will generate additional revenue in the future.
Interest incurred and capitalized for the three months ended June 30, 2006 and 2005 was
approximately $1.5 million and $500,000, respectively. Interest incurred was higher due to higher
outstanding balances of notes and mortgage notes payable, as well as to an increase in the average
interest rate on our variable-rate debt.
The increase in interest and other income from $425,000 for the three months ended June 30,
2005 to $2.1 million for the same period in 2006 is primarily related to a $1.3 million gain on
sale of fixed assets, an increase in lease and irrigation income, and higher interest income
generated by our various interest bearing deposits.
Six Months Ended June 30, 2006 Compared to the Same 2005 Period:
Revenues decreased 68.0% to $21.4 million during the six months ended June 30, 2006, from
$66.7 during the same period in 2005. During the six months ended June 30, 2006, we sold 105 acres
at an average margin of 40.4%. The decrease in revenue was primarily attributable to a large bulk
sale of land adjacent to Tradition, consisting of a total of 1,294 acres for $64.7 million, which
occurred in the six months ended June 30, 2005. Acres sold in 2006 have been more evenly
distributed to
37
different developers as well as between land and lot sales. For the six months ended June 30,
2006, land sales represent 51% of the total acres sold while lot sales represent the remaining 49%.
Cost of sales decreased $14.5 million to $12.7 million during the six months ended June 30,
2006, as compared to $27.3 million for the same period in 2005. The decrease in cost of sales was
due to the decrease in sales activity. Cost of sales as a percentage of related revenue was
approximately 59.6% for the six months ended June 30, 2006 compared to 40.9% for the same period in
2005.
Selling, general and administrative expenses decreased 9.0% to $5.8 million during the six
months ended June 30, 2006, from $6.4 million during the same period in 2005. The decrease
primarily is a result of lower incentive compensation in 2006 associated with the decrease in
profitability from the six months ended June 30, 2005 to the same period in 2006. The decrease in
incentive compensation was partially offset by increases in compensation and other administrative
expenses associated with our expansion into the South Carolina market, increased insurance costs in
Florida, and increased depreciation associated with those assets being internally developed. As a
percentage of total revenues, our selling, general and administrative expenses increased to 27.2%
during the six months ended June 30, 2006, from 10% during the
same period in 2005. The large
variance is attributable to the large land sale that occurred in the six months ended June 30, 2005
which created a large increase in revenue without a corresponding increase in selling, general and
administrative expenses due to the fixed nature of many of the Land Divisions expenses.
The decrease in other expenses was attributable to a $677,000 penalty on debt prepayment
incurred during the six months ended June 30, 2005 period arising from the prepayment of
indebtedness under a line of credit using the proceeds of the bulk land sale described above.
Interest incurred and capitalized during the six months ended June 30, 2006 and 2005 was $2.8
million and $960,000, respectively. Interest incurred was higher due to higher outstanding balances
of notes and mortgage notes payable, as well as to an increase in the average interest rate on our
variable-rate debt. Cost of sales of real estate during the six months ended June 30, 2006
included previously capitalized interest of $98,000, compared to
$536,000 during the same period in 2005.
The increase in interest and other income from $846,000 for the six months ended June 30, 2005
to $3.1 million for the same period in 2006 is primarily related to a $1.3 million gain on sale of
fixed assets, an increase in lease and irrigation income, and higher interest income generated by
our various interest bearing deposits.
38
OTHER OPERATIONS RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
(In thousands) |
|
( U n a u d i t e d ) |
|
|
( U n a u d i t e d ) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,709 |
|
|
|
(14,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,709 |
|
|
|
(14,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
656 |
|
|
|
624 |
|
|
|
32 |
|
|
|
1,298 |
|
|
|
11,950 |
|
|
|
(10,652 |
) |
Selling, general and administrative expenses |
|
|
6,863 |
|
|
|
3,778 |
|
|
|
3,085 |
|
|
|
13,260 |
|
|
|
7,870 |
|
|
|
5,390 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
7,519 |
|
|
|
4,402 |
|
|
|
3,117 |
|
|
|
14,558 |
|
|
|
19,820 |
|
|
|
(5,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
2,152 |
|
|
|
4,729 |
|
|
|
(2,577 |
) |
|
|
2,103 |
|
|
|
6,867 |
|
|
|
(4,764 |
) |
(Loss) earnings from real estate joint ventures |
|
|
(77 |
) |
|
|
42 |
|
|
|
(119 |
) |
|
|
(77 |
) |
|
|
28 |
|
|
|
(105 |
) |
Interest and other income |
|
|
859 |
|
|
|
829 |
|
|
|
(30 |
) |
|
|
1,541 |
|
|
|
1,516 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
(4,585 |
) |
|
|
1,198 |
|
|
|
(5,783 |
) |
|
|
(10,991 |
) |
|
|
3,300 |
|
|
|
(14,291 |
) |
Provision for income taxes |
|
|
(2,371 |
) |
|
|
392 |
|
|
|
(2,763 |
) |
|
|
(4,735 |
) |
|
|
1,155 |
|
|
|
(5,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
(2,214 |
) |
|
|
806 |
|
|
|
(3,020 |
) |
|
|
(6,256 |
) |
|
|
2,145 |
|
|
|
(8,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations include all other Company operations, including Levitt Commercial,
Parent Company general and administrative expenses, earnings from our investment in Bluegreen and
(loss) earnings 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% of Bluegreens outstanding shares as of June 30, 2006. 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 based on Bluegreens results. Furthermore, a significant
reduction in Bluegreens financial position could result in an impairment charge against our future
results of operations.
For the Three Months Ended June 30, 2006 Compared to the Same 2005 Period:
Cost of sales of real estate in Other Operations includes the expensing of interest previously
capitalized to reconcile the interest expense on a consolidated basis with the interest expensed in
the Companys other segments regardless of whether sales were incurred in the period. Cost of
sales increased to $656,000 during the three months ended June 30, 2006, as compared to $624,000
during the three months ended June 30, 2005. The slight increase is attributable to larger debt
levels than in the prior period.
Bluegreen reported net income for the three months ended June 30, 2006 of $6.6 million, as
compared to net income of $14.9 million for the same period in 2005. Our interest in Bluegreens
earnings, net of purchase accounting adjustments, was
$2.2 million for the three months ended June 30, 2006 compared to
$4.7 million for the same period in 2005.
Selling, general and administrative expenses increased to $6.9 million during the three months
ended June 30, 2006 as compared to $3.8 million during the three months ended June 30, 2005. This
39
increase is a result of higher employee compensation and benefits, recruiting expenses, and
professional services expenses. Employee compensation costs increased by approximately $1.2
million, from $1.8 million during the three months ended June 30, 2005 to $3.0 million for the same
period in 2006. The increase relates to the increase in the number of full time employees to 63 at
June 30, 2006 from 34 at June 30, 2005. Additionally, approximately $612,000 of the increase in
compensation expense was associated with non-cash stock-based compensation for which no expense was
recorded in the same period in 2005. Professional services also increased due to non-capitalizable
consulting services being performed in the three months ended
June 30, 2006 related to our systems implementation.
These expenses consist of documentation of process flows, training and other validation procedures
that are being performed in connection with the systems implementation. These costs did not exist
in the three months ended June 30, 2005.
Interest
incurred and capitalized in Other Operations was approximately $1.5 million and $1.2 million for the three months ended June 30, 2006 and 2005, respectively. The increase in interest incurred
was attributable to an increase in mortgage notes payable associated with Levitt Commercials
development activities, an increase in the junior subordinated debentures 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.
Six Months Ended June 30, 2006 Compared to the Same 2005 Period:
Sales of real estate decreased $14.7 million in the six months ended June 30, 2006 compared to
the same period in 2005. During the six months ended June 30, 2006, Levitt Commercial did not
deliver any flex warehouse units as compared to 44 flex warehouse units delivered generating
revenues of $14.7 million during the same period in 2005. Deliveries of individual flex warehouse
units by Levitt Commercial generally occur in rapid succession upon the completion of a warehouse
building. Accordingly, revenues from Levitt Commercials development in any one quarter are not
representative of following quarters or the full year. Levitt Commercial has two flex warehouse
projects currently in development that are expected to be completed during 2006, at which time we
expect to generate additional revenue associated with those projects.
Cost of sales of real estate decreased $10.7 million from $12.0 million in the six months
ended June 30, 2005 to $1.3 million in the six months ended June 30, 2006. Cost of sales of real
estate in Other Operations in the six months ended June 30, 2005 includes the cost of sales on flex
warehouse units delivered.
Bluegreen reported net income for the six months ended June 30, 2006 of $6.1 million, as
compared to net income of $21.3 million for the same period in 2005. Our interest in Bluegreens
earnings, net of purchase accounting adjustments, was
$2.1 million for the six months ended June 30, 2006 compared to $6.9
million for the same period in 2005.
Selling, general and administrative expense increased 68% to $13.3 million during the six
months ended June 30, 2006, from $7.9 million during the same period in 2005. The
increase is a result of higher employee compensation and benefits, recruiting expenses, and
professional services expenses. Employee compensation costs increased by approximately $3.2
million from $3.0 million during the six months ended June 30, 2005 to $6.2 million for the same
period in 2006. The increase relates to the increase in the number of full time employees to 63 at
June 30, 2006 from 34 at June 30, 2005. Additionally, approximately $1.3 million of the increase
in compensation expense was associated with non-cash stock-based compensation for which no expense
was recorded in the same period in 2005. Professional services also increased due to
non-capitalizable
40
consulting services being performed in the six months ended June 30, 2006 related to our
systems implementation. These expenses consist of documentation of process flows, training and
other validation procedures that are being performed in connection with the system implementation.
These costs did not exist in the six months ended June 30, 2005.
Interest incurred and capitalized on notes and mortgage notes payable totaled $3.0 million
during the six months ended June 30, 2006, compared to
$2.1 million during the same period in 2005.
The increase in interest incurred was attributable to an increase in mortgage notes payable
associated with Levitt Commercials development activities, an increase in the junior subordinated
debentures and an increase in the average interest rate on our borrowings. Cost of sales of real
estate includes previously capitalized interest of $1.3 million and $1.4 million during the six
months ended June 30, 2006 and 2005, respectively.
41
FINANCIAL CONDITION
June 30, 2006 compared to December 31, 2005
Our total assets at June 30, 2006 and December 31, 2005 were $1.0 billion and $896 million,
respectively.
The material changes in the composition of assets primarily resulted from:
|
|
|
a net decrease in cash and cash equivalents of $40.3 million, which resulted from
cash used in operations and investing activities of $155 million, partially offset by
an increase in cash provided by financing activities of $114 million; |
|
|
|
|
a net increase in inventory of real estate of approximately $143.4 million which
includes approximately $64.2 million in land acquisitions by our Homebuilding
Division; and |
|
|
|
|
an increase of $18.6 million in property and equipment associated with increased
investment in commercial properties under construction at Core Communities, and
hardware and software acquired for our systems upgrade. |
Total liabilities at June 30, 2006 and December 31, 2005 were $670 million and $546 million,
respectively.
The material changes in the composition of total liabilities primarily resulted from:
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|
|
a net increase in notes and mortgage notes payable of $100.4 million, primarily
related to project debt associated with 2006 land acquisitions and land development
activities; |
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|
|
|
an increase of $5.1 million in customer deposits associated with our larger
homebuilding backlog; |
|
|
|
|
an increase of $15.4 million in junior subordinated debentures; |
|
|
|
|
an increase of $17.9 million in accounts payable and accrued liabilities, relating
to accruals for increased selling general and administrative costs, certain
construction related accruals, and the timing of invoices processed; and |
|
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|
|
a decrease in the current tax liability of approximately $12.6 million relating
primarily to the decrease in our taxable income to a loss position and the timing of
estimated tax payments. |
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Companys liquidity in terms of its ability to generate cash to fund
its operating and investment activities. During the six months ended June 30, 2006, 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 acquire, develop and construct real
estate, to service and repay borrowings and to pay operating expenses.
The Companys cash declined $40.3 million during the six months ended June 30, 2006 as a
result of its continued investment in inventory. The Company also utilized borrowings to finance
the purchase of that inventory. Net cash used in operations totaled $143.5 million with $157.3
million expended on inventory, including raw land and construction materials. Net cash used in
investing totaled $11.1 million, with $12.4 million were additions to property and equipment.
These expenditures were offset by an increase in cash generated from various project related and
corporate debt. Total cash provided by financing was $114.3 million, with borrowings totaling
$227.7 million
42
and repayments representing $112.0 million.
We rely on third party financing to fund the acquisition and development of land. During the
three months ended June 30, 2006, Core Communities secured a loan with a third party lender for up
to $60.9 million for the development of a commercial project.
Additionally, during the three months ended June 30, 2006, Levitt and Sons entered into various
amendments of its existing credit facilities to increase the amount available for borrowing by an
aggregate of $100.0 million. These debt instruments are secured by real property and accrue
interest at floating rates.
On June 1, 2005, we formed a statutory business trust (LCT III) which issued $15.0 million
of trust preferred securities and used the proceeds to purchase an identical amount of junior
subordinated debentures from us. Interest on these junior subordinated debentures and distributions
on these trust preferred securities are payable quarterly in arrears at a fixed rate of 9.251%
through June 30, 2011, and thereafter at a variable rate of interest, per annum, reset quarterly,
equal to the 3-month LIBOR plus 3.80% until the scheduled maturity date of June 2036. In
addition, we contributed $464,000 to LCT III in exchange for all of its common securities, and
those proceeds were also used to purchase an identical amount of junior subordinated debentures
from us. The terms of LCT IIIs common securities are nearly identical to the trust preferred
securities.
On July 18, 2006, we formed a statutory business trust (LCT IV) for the purpose of issuing
trust preferred securities and investing the proceeds thereof in junior subordinated debentures.
LCT IV issued $15.0 million of trust preferred securities and used the proceeds to purchase an
identical amount of junior subordinated debentures from us. Interest on these junior subordinated
debentures and distributions on these trust preferred securities are payable quarterly in arrears
at a fixed rate of 9.349% through September 30, 2011, and thereafter at a variable rate of
interest, per annum, reset quarterly, equal to the 3-month LIBOR plus 3.80% until the scheduled
maturity date of September 2036. In addition, we contributed $464,000 to LCT IV in exchange for
all of its common securities, and those proceeds were also used to purchase an identical amount of
junior subordinated debentures from us. The terms of LCT IVs common securities are nearly
identical to the trust preferred securities.
In addition to the liquidity provided by our existing credit facilities, we expect to continue
to fund our short-term liquidity requirements through future cash provided by operations, other
financing activities and our cash on hand. We expect to meet our long-term liquidity requirements
for items such as acquisitions, debt service and repayment obligations primarily with net cash
provided by operations and long-term secured and unsecured indebtedness. As of June 30, 2006 and
December 31, 2005, we had cash and cash equivalents of $73.3 million and $113.6 million,
respectively.
At June 30, 2006, our consolidated debt totaled $523.6 million. Our principal payment
obligations with respect to our debt for the 12 months beginning June 30, 2006 are anticipated to
total $39.6 million. However, certain of our borrowings require us to repay specified amounts upon
a sale of portions of the property securing the debt. These amounts would be in addition to the
scheduled payments over the next twelve months. We expect to generate most of the funds to repay
these amounts from sales of real estate, other financing activities and our cash on hand. Some of
our borrowing agreements contain provisions that, among other things, require us to maintain
certain financial ratios and a minimum net worth. These requirements may limit the amount of debt
that we can incur in the future and restrict the payment of dividends to us by our subsidiaries.
At June 30, 2006, we were in compliance with all loan agreement financial requirements and
covenants.
43
Off Balance Sheet Arrangements and Contractual Obligations
In connection with the development of certain of our communities, we establish community
development districts to access bond financing for the funding of infrastructure development and
other projects within the community. If we were not able to establish community development
districts, we 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 we own property within a district when assessments are levied, we will be obligated to
pay the assessments when they are due. As of June 30, 2006, development districts in Tradition,
Florida had $62 million of community development district bonds outstanding and we owned
approximately 43% of the property in those districts. During the three months ended June 30, 2006,
we recorded approximately $244,231 in assessments on property we owned in the districts. These
costs were capitalized to inventory as development costs and will be recognized as cost of sales
when the assessed properties are sold to third parties.
The following table summarizes our contractual obligations as of June 30, 2006 (in thousands):
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Payments due by period |
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|
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|
Less than |
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2 - 3 |
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4 - 5 |
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More than |
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Category |
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Total |
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|
1 year |
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|
Years |
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|
Years |
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|
5 years |
|
Long-term debt obligations (1) |
|
$ |
523,654 |
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39,565 |
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328,872 |
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|
|
40,520 |
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|
|
114,697 |
|
Operating lease obligations |
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|
11,940 |
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|
|
2,868 |
|
|
|
3,532 |
|
|
|
2,247 |
|
|
|
3,294 |
|
Purchase obligations |
|
|
72,359 |
|
|
|
72,359 |
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Total Obligations |
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$ |
607,953 |
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|
114,792 |
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332,404 |
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42,767 |
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117,991 |
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(1) |
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Amounts exclude interest |
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 June 30,
2006, we had $2.0 million in deposits securing such purchase commitments
At June 30, 2006, we had outstanding surety bonds and letters of credit of approximately
$126.1 million related primarily to obligations to various governmental entities to construct
improvements in our various communities. We estimate that approximately $98.5 million of work
remains to complete these improvements. We do not believe that any outstanding bonds or letters of
credit will likely be drawn upon.
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 June 30, 2006, we had $433.6 million in borrowings
with adjustable rates tied to the prime rate and/or LIBOR rates and $90.1 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
44
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 $433.6 million outstanding at June 30, 2006 (which
does not include initially fixed-rate obligations which will not become floating rate during 2006)
were to remain constant, each one percentage point increase in interest rates would increase the
interest incurred by us by approximately $4.3 million per year.
NEW ACCOUNTING PRONOUNCEMENTS.
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 six months ended June
30, 2006, and accordingly reduced the earnings in Bluegreen recorded by us by approximately $1.4
million for the same period.
In December 2004, the FASB issued Staff Position 109-1 (FSP 109-1), Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act
provides a 3% deduction on qualified domestic production activities income and is effective our
fiscal year ending December 31, 2006, subject to certain limitations. This deduction provides a tax
savings against income attributable to domestic production activities, including the construction
of real property. When fully phased-in, the deduction will be up to 9% of the lesser of qualified
production activities income or taxable income. Based on the guidance provided by FSP 109-1, this
deduction should be accounted for as a special deduction under SFAS No. 109, Accounting for Income
Taxes, and will reduce tax expense in the period or periods that the amounts are deductible on the
tax return. We will continue to assess the potential impact of this new deduction for the year
ending December 31, 2006.
In June 2006, the FASB issued FIN No. 48 (Accounting for Uncertainty in Income Taxes an
interpretation of FASB No. 109.) FIN 48 provides guidance for how a company should recognize,
measure, present and disclose in its financial statements 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 and is likely to cause greater volatility in the provision for income
taxes. The interpretation also revises disclosure requirements including a tabular roll-forward
of unrecognized tax benefits. The interpretation is effective as of January 1, 2007 and management
believes that the adoption of this Statement will not have an impact on the financial statements.
45
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2006, 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)). As discussed below, we have made
changes in our internal controls since the filing of our Form 10-K as of December 31, 2005 which we
believe remediate the material weakness identified below. We are relying on those changes in
internal controls as an integral part of our disclosure controls and procedures. Based upon the
results of the evaluation of our disclosure controls and procedures, management, including our CEO,
CFO and CAO, concluded that our disclosure controls and procedures were effective as of June 30,
2006.
Changes in Internal Control over Financial Reporting
As discussed in our 2005 Annual Report on Form 10-K, we did not maintain effective controls as
of December 31, 2005 over the segregation of duties performed by senior financial personnel with
regard to (1) the cash disbursement function, (2) the journal entry process, and (3) access to our
financial reporting systems. Furthermore, it was determined that management did not have adequate
documentation of the oversight and review of these individuals to compensate for the inadequate
segregation of duties. The remedial actions implemented in 2006 relating to this material weakness
are described below.
During the first quarter of 2006, we implemented automated and manual controls for our
financial systems to restrict responsibilities and financial reporting system access rights for
senior financial personnel. We finished designing, implementing, and testing the operating
effectiveness of the changes in these controls in the first quarter of 2006 and determined that all
access rights within our financial system were appropriately assigned as of June 30, 2006. We
believe that the changes in our internal controls described above have remediated the material
weakness.
In addition, we reviewed our internal control over financial reporting, and there have been no
other changes in our internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
46
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in our legal proceedings from those disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2005.
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, 2005.
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
The Company held its Annual Meeting of Shareholders on May 16, 2006. 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 2009 by the following votes:
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Nominee |
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For |
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Withheld |
James Blosser |
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32,711,235 |
|
244,286 |
Darwin Dornbush |
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32,447,430 |
|
508,091 |
Alan B. Levan |
|
32,433,931 |
|
521,590 |
The other directors continuing in office are John E. Abdo, Joel Levy, William R. Nicholson, Alan J.
Levy, S. Lawrence Kahn, III and William Scherer.
Approval of Amended and Restated 2003 Stock Incentive Plan
The Shareholders voting together as a single class approved to increase the maximum number of
shares of the Companys Class A Common Stock. $.01 par value, that may be issued for restricted
stock awards and upon the exercise of options under the plan from 1,500,000 to 3,000,000 shares by
the following votes:
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For |
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Against |
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Abstain |
21,727,119
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6,676,740
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|
42,999 |
Item 6. Exhibits
Index to Exhibits
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Exhibit 31.1*
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 31.2*
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 31.3*
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 32.1*
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|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 32.2*
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|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
47
|
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Exhibit 32.3*
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|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*
|
|
Exhibits filed with this Form 10-Q |
48
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.
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LEVITT CORPORATION
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Date: August 7, 2006 |
By: |
/s/ Alan B. Levan
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Alan B. Levan, Chief Executive Officer |
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Date: August 7, 2006 |
By: |
/s/ George P. Scanlon
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|
George P. Scanlon, Executive Vice President, |
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Chief Financial Officer |
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Date: August 7, 2006 |
By: |
/s/ Jeanne T. Prayther
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|
Jeanne T. Prayther, Chief Accounting Officer |
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49