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 MARCH 31, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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2200 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) 958-1800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer x Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
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Class |
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Outstanding at May 5, 2007 |
Class A common stock, $0.01 par value |
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18,612,042 |
Class B common stock, $0.01 par value |
|
1,219,031 |
Levitt Corporation and Subsidiaries
Index to Unaudited Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Levitt Corporation
Consolidated Statements of Financial Condition Unaudited
(In thousands, except share data)
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March 31, |
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December 31, |
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2007 |
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|
2006 |
|
Assets |
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|
|
|
|
|
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|
Cash and cash equivalents |
|
$ |
60,550 |
|
|
|
48,391 |
|
Restricted cash |
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|
312 |
|
|
|
1,397 |
|
Inventory of real estate |
|
|
836,303 |
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|
822,040 |
|
Investment in Bluegreen Corporation |
|
|
108,615 |
|
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|
107,063 |
|
Property and equipment, net |
|
|
87,444 |
|
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|
78,675 |
|
Other assets |
|
|
27,968 |
|
|
|
33,100 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,121,192 |
|
|
|
1,090,666 |
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Liabilities and Shareholders Equity |
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Accounts payable, accrued liabilities and other |
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$ |
71,039 |
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|
85,123 |
|
Customer deposits |
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|
32,358 |
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|
42,696 |
|
Current income tax payable |
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|
985 |
|
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|
3,905 |
|
Notes and mortgage notes payable |
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|
586,712 |
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|
530,651 |
|
Junior subordinated debentures |
|
|
85,052 |
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|
85,052 |
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|
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|
|
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Total liabilities |
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776,146 |
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|
747,427 |
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Shareholders equity: |
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Preferred stock, $0.01 par value |
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Authorized: 5,000,000 shares |
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Issued and outstanding: no shares |
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Class A Common Stock, $0.01 par value |
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Authorized: 50,000,000 shares
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Issued and
outstanding: 18,612,042 and 18,609,024 shares, respectively |
|
|
186 |
|
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|
186 |
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|
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Class B Common Stock, $0.01 par value |
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Authorized: 10,000,000 shares
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Issued and outstanding: 1,219,031 shares |
|
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12 |
|
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|
12 |
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|
|
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|
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Additional paid-in capital |
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|
185,133 |
|
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|
184,401 |
|
Retained earnings |
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|
157,333 |
|
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|
156,219 |
|
Accumulated other comprehensive income |
|
|
2,382 |
|
|
|
2,421 |
|
|
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|
|
|
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Total shareholders equity |
|
|
345,046 |
|
|
|
343,239 |
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|
|
|
|
|
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|
Total liabilities and shareholders equity |
|
$ |
1,121,192 |
|
|
|
1,090,666 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
1
Levitt Corporation
Consolidated Statements of Operations Unaudited
(In thousands, except per share data)
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Three Months Ended |
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March 31, |
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2007 |
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2006 |
|
Revenues: |
|
|
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|
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Sales of real estate |
|
$ |
141,742 |
|
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|
125,543 |
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Other revenues |
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|
2,497 |
|
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|
1,951 |
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|
|
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Total revenues |
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|
144,239 |
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127,494 |
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Costs and expenses: |
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Cost of sales of real estate |
|
|
112,908 |
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|
102,055 |
|
Selling, general and administrative expenses |
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|
32,906 |
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|
26,755 |
|
Other expenses |
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|
482 |
|
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|
626 |
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Total costs and expenses |
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|
146,296 |
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129,436 |
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Earnings (loss) from Bluegreen Corporation |
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|
1,744 |
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|
(49 |
) |
Earnings from real estate joint ventures |
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|
3 |
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|
|
|
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Interest and other income |
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|
2,339 |
|
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|
889 |
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Income (loss) before income taxes |
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2,029 |
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|
|
(1,102 |
) |
(Provision) benefit for income taxes |
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|
(779 |
) |
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|
442 |
|
|
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Net income (loss) |
|
$ |
1,250 |
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(660 |
) |
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Earnings (loss) per share: |
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Basic |
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$ |
0.06 |
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(0.03 |
) |
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Diluted |
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$ |
0.06 |
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(0.03 |
) |
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Weighted average common shares outstanding: |
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Basic |
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|
19,826 |
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|
19,821 |
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|
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Diluted |
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|
19,837 |
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|
19,821 |
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Dividends declared per common share: |
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Class A common stock |
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$ |
0.02 |
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|
0.02 |
|
Class B common stock |
|
$ |
0.02 |
|
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|
0.02 |
|
See accompanying notes to unaudited consolidated financial statements.
2
Levitt Corporation
Consolidated Statements of Comprehensive Income (loss) Unaudited
(In thousands)
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Three Months |
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Ended March 31, |
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2007 |
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2006 |
|
Net income (loss) |
|
$ |
1,250 |
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|
|
(660 |
) |
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Other comprehensive income: |
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Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold |
|
|
(64 |
) |
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|
267 |
|
Benefit (provision) for income taxes |
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25 |
|
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|
(103 |
) |
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|
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|
Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold (net of tax) |
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|
(39 |
) |
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|
164 |
|
|
|
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|
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Comprehensive income (loss) |
|
$ |
1,211 |
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|
(496 |
) |
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|
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|
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|
See accompanying notes to unaudited consolidated financial statements.
3
Levitt Corporation
Consolidated Statement of Shareholders Equity Unaudited
Three Months Ended March 31, 2007
(In thousands)
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Accumulated |
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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 |
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Common |
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Common |
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|
Paid-In |
|
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Retained |
|
|
Income |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
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|
(Loss) |
|
|
Total |
|
Balance at December 31, 2006 |
|
|
18,609 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
184,401 |
|
|
|
156,219 |
|
|
|
2,421 |
|
|
|
343,239 |
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
1,250 |
|
|
|
|
|
|
|
1,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Pro-rata share of unrealized loss
recognized by Bluegreen on
sale of retained interests, net
of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39 |
) |
|
|
(39 |
) |
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|
|
|
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Issuance of Bluegreen common
stock, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
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|
|
|
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|
|
|
|
(79 |
) |
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|
|
|
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|
|
|
|
|
|
|
|
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|
Cash
dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
(396 |
) |
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|
|
|
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|
|
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|
|
|
|
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|
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|
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Share based compensation
related to stock options and
restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
811 |
|
|
|
|
|
|
|
|
|
|
|
811 |
|
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|
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|
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|
|
|
|
|
|
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Issuance of restricted common
stock |
|
|
3 |
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|
|
|
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|
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Cumulative impact of change
in accounting for
uncertainties in income
taxes (FIN 48 - See Note 11) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
|
18,612 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
185,133 |
|
|
|
157,333 |
|
|
|
2,382 |
|
|
|
345,046 |
|
|
|
|
|
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4
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
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|
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Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,250 |
|
|
|
(660 |
) |
Adjustments to reconcile net income (loss) to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
906 |
|
|
|
550 |
|
Change in deferred income taxes |
|
|
(945 |
) |
|
|
(236 |
) |
(Earnings) loss from Bluegreen Corporation |
|
|
(1,744 |
) |
|
|
49 |
|
Earnings from unconsolidated trust |
|
|
(55 |
) |
|
|
(33 |
) |
Earnings from real estate joint ventures |
|
|
(3 |
) |
|
|
|
|
Share-based compensation expense related to
stock options and restricted stock |
|
|
811 |
|
|
|
706 |
|
Impairment of long lived assets |
|
|
282 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
1,085 |
|
|
|
661 |
|
Inventory of real estate |
|
|
(14,638 |
) |
|
|
(94,105 |
) |
Notes receivable |
|
|
4,076 |
|
|
|
178 |
|
Other assets |
|
|
3,031 |
|
|
|
1,056 |
|
Customer deposits |
|
|
(10,338 |
) |
|
|
5,395 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
(17,004 |
) |
|
|
(15,951 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(33,286 |
) |
|
|
(102,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Investment in and advances to real estate joint ventures |
|
|
(144 |
) |
|
|
(402 |
) |
Distributions of capital from real estate joint ventures |
|
|
5 |
|
|
|
138 |
|
Distributions from consolidated trusts |
|
|
55 |
|
|
|
33 |
|
Capital expenditures |
|
|
(9,332 |
) |
|
|
(2,640 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,416 |
) |
|
|
(2,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
117,407 |
|
|
|
136,660 |
|
Repayment of notes and mortgage notes payable |
|
|
(61,346 |
) |
|
|
(68,568 |
) |
Repayment of notes and mortgage notes payable to affiliates |
|
|
|
|
|
|
(223 |
) |
Payments for debt offering costs |
|
|
(804 |
) |
|
|
|
|
Cash dividends paid |
|
|
(396 |
) |
|
|
(398 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
54,861 |
|
|
|
67,471 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
12,159 |
|
|
|
(37,790 |
) |
Cash and cash equivalents at the beginning of period |
|
|
48,391 |
|
|
|
113,562 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
60,550 |
|
|
|
75,772 |
|
|
|
|
|
|
|
|
5
Levitt Corporation
Consolidated Statements of Cash Flows Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized |
|
$ |
(254 |
) |
|
|
(500 |
) |
Income taxes paid |
|
|
4,370 |
|
|
|
12,200 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
(39 |
) |
|
|
164 |
|
Change in shareholders equity resulting from the
issuance of Bluegreen common stock, net of tax |
|
$ |
(79 |
) |
|
|
(60 |
) |
Decrease in inventory from reclassification to property
and equipment |
|
$ |
93 |
|
|
|
6,554 |
|
Increase in deferred tax liability due to cumulative
impact of change in accounting for uncertainties in
income taxes (FIN 48 see Note 11) |
|
$ |
260 |
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
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
and multi-family home and townhome communities specializing in both active adult and family
communities in Florida, Georgia, Tennessee and South Carolina. The Land Division consists of the
operations of Core Communities, LLC (Core Communities), which develops master-planned
communities. Other Operations include Levitt Commercial, LLC (Levitt Commercial), a developer of
industrial properties; the operations at Levitt Corporation (Parent Company); investments in real
estate and real estate joint ventures; and an equity investment in Bluegreen Corporation
(Bluegreen), a New York Stock Exchange-listed company engaged in the acquisition, development,
marketing and sale of vacation ownership interests in primarily drive-to resorts, as well as
residential home sites located around golf courses and other amenities.
The accompanying unaudited consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-segment transactions have been
eliminated in consolidation. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and disclosures required by accounting
principles generally accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair statement have been included. Operating results for the three month period
ended March 31, 2007 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2007. The year end balance sheet data 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, 2006.
2. Stock Based Compensation
On May 11, 2004, the Companys shareholders approved the 2003 Levitt Corporation Stock
Incentive Plan and on May 16, 2006 the Companys shareholders approved an amendment to this plan
which is currently named the Amended and Restated 2003 Stock Incentive Plan (the Plan). The
maximum number of shares of the Companys Class A Common Stock, that may be issued for restricted
stock awards and upon the exercise of options under the Plan is 3,000,000 shares.
The maximum term of options granted under the Plan is 10 years. The vesting period for each
option grant is established by the Compensation Committee of the Board of Directors and for
employees is generally five years utilizing cliff vesting and for directors the option awards are
immediately vested. Option awards issued to date become exercisable based solely on fulfilling a
service condition. Since the inception of the Plan there have been no expired stock options.
The Company follows Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (FAS 123R). This Statement requires companies to expense the estimated fair
7
value of stock options and similar equity instruments issued to employees over the vesting
period in their statement of operations. The Company uses the modified prospective method which
requires the Company to record compensation expense over the vesting period for all awards granted
after January 1, 2006, and for the unvested portion of stock options that were outstanding at
January 1, 2006.
The fair values of options granted are estimated on the date of their grant using the
Black-Scholes option pricing model 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. During the three months ended
March 31, 2006, no stock option awards were granted by the Company. During the three months ended
March 31, 2007, options to acquire 37,500 shares of Class A Common Stock were granted by the
Company. The fair value of each option granted was estimated using the following assumptions:
|
|
|
Expected volatility |
|
40.05%-42.58% |
Expected dividend yield |
|
.58%-.73% |
Risk-free interest rate |
|
4.58%-4.88% |
Expected life |
|
7.5 years |
Forfeiture rate executives |
|
5% |
Forfeiture rate non- executives |
|
10% |
Non-cash stock compensation expense related to stock options for the three months ended
March 31, 2007 amounted to approximately $791,000 with an income tax benefit of $202,251 and for
the three months ended March 31, 2006 amounted to $651,000 with an income tax benefit of $175,000.
The Company also grants restricted stock, which is valued based on the market price of the
common stock on the date of grant and normally vests over a one-year period for directors and a
five-year period for employees. Compensation expense arising from restricted stock grants is
recognized using the straight-line method over the vesting period. Unearned compensation for
restricted stock is a component of additional paid-in capital in shareholders equity in the
unaudited consolidated statements of financial condition. Non-cash stock compensation expense
related to restricted stock for the three months ended March 31, 2007 and 2006 amounted to $20,000
and $55,000, respectively.
3. Inventory of Real Estate
Inventory of real estate is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Land and land development costs |
|
$ |
578,010 |
|
|
|
566,459 |
|
Construction costs |
|
|
166,464 |
|
|
|
172,682 |
|
Capitalized interest |
|
|
55,883 |
|
|
|
47,752 |
|
Other costs |
|
|
35,946 |
|
|
|
35,147 |
|
|
|
|
|
|
|
|
|
|
$ |
836,303 |
|
|
|
822,040 |
|
|
|
|
|
|
|
|
Reflected in the above inventory balance are approximately $32.5 million and $33.3
million of impairment reserves at March 31, 2007 and December 31, 2006, respectively. Due to the
downturn in the homebuilding market, the Company monitors projected future cash flows of inventory
on a quarterly basis to determine if additional impairment charges are needed. In the three months
ended
8
March 31, 2007 impairment charges amounted to approximately $282,000 due to estimated price
reductions on some bulk home sales that are expected to occur in the second quarter of 2007 as well
as to adjust the reserve for a land sale that occurred in April 2007 reflecting the final terms of
the contract.
4. 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
relating to land under development and construction and the amounts capitalized (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Interest incurred |
|
$ |
13,006 |
|
|
|
8,029 |
|
Interest capitalized to property and equipment |
|
|
(450 |
) |
|
|
|
|
Interest capitalized to inventory |
|
|
(12,556 |
) |
|
|
(8,029 |
) |
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest included in cost of sales |
|
$ |
4,425 |
|
|
|
2,594 |
|
|
|
|
|
|
|
|
For fixed assets under construction, interest associated with these assets is capitalized
as incurred and will be relieved to expense through depreciation once the asset is put into use.
5. Investment in Bluegreen Corporation
At March 31, 2007, 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.
9
Bluegreens unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income are as follows (in thousands):
Unaudited Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Total assets |
|
$ |
887,382 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
511,739 |
|
|
|
486,487 |
|
Minority interest |
|
|
16,336 |
|
|
|
14,702 |
|
Total shareholders equity |
|
|
359,307 |
|
|
|
353,023 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
887,382 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues and other income |
|
$ |
146,882 |
|
|
|
147,105 |
|
Cost and other expenses |
|
|
136,646 |
|
|
|
139,528 |
|
|
|
|
|
|
|
|
Income before minority interest and
provision for income taxes |
|
|
10,236 |
|
|
|
7,577 |
|
Minority interest |
|
|
1,634 |
|
|
|
1,022 |
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
8,602 |
|
|
|
6,555 |
|
Provision for income taxes |
|
|
(3,269 |
) |
|
|
(2,524 |
) |
|
|
|
|
|
|
|
Income before cumulative effect of
change in accounting principle |
|
|
5,333 |
|
|
|
4,031 |
|
Cumulative effect of
change in accounting principle, net of tax |
|
|
|
|
|
|
(4,494 |
) |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,333 |
|
|
|
(463 |
) |
|
|
|
|
|
|
|
10
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 three months ended March 31, 2006,
and accordingly reduced the earnings in Bluegreen recorded by the Company by approximately $1.4
million, or $.04 earnings per share, for the same period.
6. Debt
Notes and mortgage notes payable increased $56.1 million since December 31, 2006 mainly due to
borrowings under existing credit facilities to support the Companys operations and working
capital needs.
On February 28, 2007, Core Communities of South Carolina, LLC, a wholly owned subsidiary of
Core Communities entered into a $50.0 million revolving credit facility for construction financing
for the development of the Tradition South Carolina master planned community. The facility is due
and payable on February 28, 2009 and is subject to a one year extension upon compliance with the
conditions set forth in the agreement. The loan is collateralized by 1,829 gross acres of land and
the related improvements, easements as well as assignments of rents and leases. A payment guarantee
for the loan amount was provided by Core Communities. The loan accrues interest at the banks prime
rate and is payable monthly. The loan documents include customary conditions to funding, collateral
release and acceleration provisions and financial, affirmative and negative covenants.
On March 21, 2007, Levitt and Sons entered into a $100.0 million revolving working capital,
land acquisition, development and residential construction borrowing base facility agreement and
borrowed $30.2 million under the facility. The proceeds were used to finance the intercompany sale
of a 150 acre parcel in Tradition South Carolina from Core Communities (by repaying outstanding
acquisition indebtedness on the property owed to Core Communities) and to refinance a $15.0 million
line of credit. The facility is collateralized by a mortgage on the 150 acre parcel in Tradition
South Carolina and by a guarantee of the Company. The Companys
guarantee of the $15.0 million working capital component of the
facility is collateralized by a pledge of the Companys
membership interest in Levitt and Sons. The guarantee and the pledge
of the membership interest can be released by payment in full of any
amounts outstanding under the $15.0 million working capital component.
The facility is due and payable on March 21,
2011 and may be extended for an additional year at the discretion of the financial institution at
the anniversary date of the facility. Interest accrues under the facility at the Prime Rate and is
payable monthly.
11
7. Commitments and Contingencies
At March 31, 2007, the Company had a commitment to purchase property for development for $14.2
million. Should the Company decide not to purchase the underlying property, its liability would be
limited to the amount of the deposit, which was approximately $400,000 at March 31, 2007. There is
no assurance that the Company will consummate the purchase pursuant to the terms of the contract,
or at all. Management reviews its commitments to ensure they continue to be in line with the
Companys objectives. The following table summarizes certain information relating to this
outstanding purchase contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
Expected |
|
|
|
Price |
|
|
Units |
|
|
Closing |
|
Homebuilding Division |
|
$14.2 million |
|
690 Units |
|
|
2008 |
|
At March 31, 2007, the Company had outstanding surety bonds and letters of credit of
approximately $112.6 million related primarily to obligations to various governmental entities to
construct improvements in various communities. The Company estimates that approximately $69.6
million of work remains to complete these improvements and does not believe that any outstanding
bonds or letters of credit will likely be drawn.
8. Earnings (loss) per Share
Basic earnings (loss) per common share is computed by dividing earnings attributable to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per common share is computed in the same manner as basic earnings (loss) 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 (losses) that the Company recognizes. For the three months ended March 31, 2006 common
stock equivalents related to the Companys stock options and unvested restricted stock amounted to
11,897 shares and were not considered because their effect would have been antidilutive. In
addition, for the three months ended March 31, 2007 and 2006, 1,837,598 and 1,258,666 shares of
common stock equivalents, respectively, at various prices were not included in the computation of
diluted earnings (loss) per common share because the exercise prices were greater than the average
market price of the common shares and, therefore, their effect would be antidilutive.
12
The following table presents the computation of basic and diluted earnings (loss) per common share
(in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
Net income (loss) basic |
|
$ |
1,250 |
|
|
|
(660 |
) |
|
|
|
|
|
|
|
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
Net income (loss) basic |
|
$ |
1,250 |
|
|
|
(660 |
) |
Pro rata share of the net effect of Bluegreen
dilutive securities |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) diluted |
|
$ |
1,238 |
|
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
19,826 |
|
|
|
19,821 |
|
Net effect of stock options assumed to be exercised |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
19,837 |
|
|
|
19,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
|
(0.03 |
) |
Diluted |
|
$ |
0.06 |
|
|
|
(0.03 |
) |
9. Dividends
On January 22, 2007, the Companys Board of Directors declared a cash dividend of $0.02 per
share on its Class A common stock and Class B common stock, which was paid to all shareholders of
record on February 9, 2007.
10. Other Revenues
For the three months ended March 31, 2007, the Company classified lease and rental income,
marketing fees and irrigation revenue as other revenues. Prior periods have been reclassified
from interest and other income to conform to the current presentation. The following table
summarizes other revenues detail information (in thousands):
13
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Other revenues |
|
|
|
|
|
|
|
|
Mortgage & title operations |
|
$ |
722 |
|
|
|
1,008 |
|
Lease/rental income |
|
|
894 |
|
|
|
618 |
|
Marketing fees |
|
|
631 |
|
|
|
180 |
|
Irrigation revenue |
|
|
250 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
$ |
2,497 |
|
|
|
1,951 |
|
|
|
|
|
|
|
|
11. Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty
in Income Taxes an interpretation of FASB No. 109 (FIN 48) on January 1, 2007. FIN 48
provides guidance 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. As a
result of the implementation of FIN 48, the Company recognized a decrease of $260,000 in the
liability for unrecognized tax benefits, which was accounted for as an increase to the January 1,
2007 balance of retained earnings. As of the adoption date, the Company had gross tax affected
unrecognized tax benefits of $2.0 million of which $0.2 million, if recognized, would affect the
effective tax rate. There have been no significant changes to these amounts during the quarter
ended March 31, 2007.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
tax expense. The Company had approximately $200,000 and $170,000 for the payment of interest and
penalties accrued at March 31, 2007 and December 31, 2006, respectively.
The
Company and its subsidiaries, as appropriate, files income tax returns in the U.S. federal
jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject
to U.S. federal or state and local income tax examinations by tax authorities for tax years before
2003. In the first quarter of 2007, the Internal Revenue Service (IRS) commenced an examination of
the Companys U.S. income tax return for 2004 and the review is anticipated to be completed by the
end of 2007. As of March 31, 2007, the IRS was in the planning stage of its examination and the
Company is unable to evaluate whether additional tax payments will be required to be made upon the
completion of the examination.
14
12. Other Expenses and Interest and Other Income
Other expenses and interest and other income are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Other expenses |
|
|
|
|
|
|
|
|
Title and mortgage operations expenses |
|
$ |
482 |
|
|
|
626 |
|
Interest and other income |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
719 |
|
|
|
785 |
|
Forfeited deposits |
|
|
1,429 |
|
|
|
22 |
|
Other income |
|
|
191 |
|
|
|
82 |
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
2,339 |
|
|
|
889 |
|
|
|
|
|
|
|
|
The Company recorded $1.4 million in forfeited deposits in the three months ended March
31, 2007 resulting from increased cancellations of home sale contracts.
13. 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 income. The information provided for segment reporting is based on
managements internal reports. The accounting policies of the segments are the same as those of the
Company. Eliminations consist primarily of the elimination of sales and profits on real estate
transactions between the Land and Homebuilding Divisions, which were recorded based upon terms that
management believes would be attained in an arms-length transaction. The presentation and
allocation of assets, liabilities and results of operations may not reflect the actual economic
costs of the segments as stand-alone businesses. If a different basis of allocation were utilized,
the relative contributions of the segments might differ, but management believes that the relative
trends in segments would likely not be impacted.
The Companys Homebuilding segment consists of the operations of Levitt and Sons and 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 (losses)
from investments in Bluegreen and other real estate investments and joint ventures.
15
The following tables present segment information as of and for the three months ended March
31, 2007 and 2006 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
March 31, 2007 |
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
134,169 |
|
|
|
777 |
|
|
|
6,574 |
|
|
|
222 |
|
|
|
141,742 |
|
Other revenues |
|
|
722 |
|
|
|
1,502 |
|
|
|
293 |
|
|
|
(20 |
) |
|
|
2,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
134,891 |
|
|
|
2,279 |
|
|
|
6,867 |
|
|
|
202 |
|
|
|
144,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
107,603 |
|
|
|
72 |
|
|
|
5,501 |
|
|
|
(268 |
) |
|
|
112,908 |
|
Selling, general and administrative
expenses |
|
|
20,305 |
|
|
|
4,365 |
|
|
|
8,236 |
|
|
|
|
|
|
|
32,906 |
|
Interest expense |
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
Other expenses |
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
128,390 |
|
|
|
4,652 |
|
|
|
13,737 |
|
|
|
(483 |
) |
|
|
146,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
1,744 |
|
|
|
|
|
|
|
1,744 |
|
Earnings (loss) from joint ventures |
|
|
16 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
3 |
|
Interest and other income |
|
|
1,654 |
|
|
|
947 |
|
|
|
258 |
|
|
|
(520 |
) |
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
8,171 |
|
|
|
(1,426 |
) |
|
|
(4,881 |
) |
|
|
165 |
|
|
|
2,029 |
|
(Provision) benefit for income taxes |
|
|
(3,211 |
) |
|
|
568 |
|
|
|
1,864 |
|
|
|
|
|
|
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,960 |
|
|
|
(858 |
) |
|
|
(3,017 |
) |
|
|
165 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
667,195 |
|
|
|
195,394 |
|
|
|
10,079 |
|
|
|
(36,365 |
) |
|
|
836,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
698,419 |
|
|
|
286,431 |
|
|
|
173,657 |
|
|
|
(37,315 |
) |
|
|
1,121,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
427,827 |
|
|
|
144,931 |
|
|
|
99,006 |
|
|
|
|
|
|
|
671,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
March 31, 2006 |
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
118,275 |
|
|
|
7,272 |
|
|
|
|
|
|
|
(4 |
) |
|
|
125,543 |
|
Other revenues |
|
|
1,008 |
|
|
|
620 |
|
|
|
337 |
|
|
|
(14 |
) |
|
|
1,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
119,283 |
|
|
|
7,892 |
|
|
|
337 |
|
|
|
(18 |
) |
|
|
127,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
96,497 |
|
|
|
5,019 |
|
|
|
642 |
|
|
|
(103 |
) |
|
|
102,055 |
|
Selling, general and administrative
expenses |
|
|
17,572 |
|
|
|
2,786 |
|
|
|
6,397 |
|
|
|
|
|
|
|
26,755 |
|
Other expenses |
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
114,695 |
|
|
|
7,805 |
|
|
|
7,039 |
|
|
|
(103 |
) |
|
|
129,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
(49 |
) |
Interest and other income |
|
|
177 |
|
|
|
368 |
|
|
|
345 |
|
|
|
(1 |
) |
|
|
889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
4,765 |
|
|
|
455 |
|
|
|
(6,406 |
) |
|
|
84 |
|
|
|
(1,102 |
) |
(Provision) benefit for income taxes |
|
|
(1,754 |
) |
|
|
(137 |
) |
|
|
2,364 |
|
|
|
(31 |
) |
|
|
442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,011 |
|
|
|
318 |
|
|
|
(4,042 |
) |
|
|
53 |
|
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
553,905 |
|
|
|
147,910 |
|
|
|
14,492 |
|
|
|
(17,496 |
) |
|
|
698,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
583,589 |
|
|
|
213,109 |
|
|
|
173,396 |
|
|
|
(17,527 |
) |
|
|
952,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
338,347 |
|
|
|
64,350 |
|
|
|
73,142 |
|
|
|
|
|
|
|
475,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
In the ordinary course of business certain intersegment loans are entered into and
interest is recorded at current borrowing rates. All interest expense and interest income associated with
these intersegment loans are eliminated in consolidation .
14. Parent Company Financial Statements
The Parent Company relies on dividends from its subsidiaries to fund its operations, including
debt service obligations relating to its Investment Notes and Junior Subordinated Debentures. The
Investment Notes and the Junior Subordinated Debentures are direct unsecured obligations of Levitt
Corporation, are not guaranteed by the Companys subsidiaries and are not secured by any assets of
the Company or its subsidiaries. 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 if the Company does not have available funds to service
those obligations.
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 March 31, 2007
and 2006, 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.
The Parent Company unaudited condensed statements of financial condition at March 31, 2007 and
December 31, 2006, and unaudited condensed statements of operations for the three months ended
March 31, 2007 and 2006 are shown below (in thousands):
Condensed Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Total assets |
|
$ |
452,936 |
|
|
|
454,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
107,890 |
|
|
|
110,835 |
|
|
|
|
|
Total shareholders equity |
|
|
345,046 |
|
|
|
343,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
452,936 |
|
|
|
454,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Earnings (loss) from Bluegreen Corporation |
|
$ |
1,744 |
|
|
|
(49 |
) |
|
|
|
|
Other revenues |
|
|
246 |
|
|
|
331 |
|
|
|
|
|
Costs and expenses |
|
|
8,265 |
|
|
|
6,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(6,275 |
) |
|
|
(5,967 |
) |
|
|
|
|
Benefit for income taxes |
|
|
2,347 |
|
|
|
2,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before undistributed earnings from consolidated
subsidiaries |
|
|
(3,927 |
) |
|
|
(3,790 |
) |
|
|
|
|
Earnings from consolidated subsidiaries, net of income taxes |
|
|
5,178 |
|
|
|
3,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,250 |
|
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends recorded from subsidiaries were $9.4 million and $5.0 million for the
three months ended March 31, 2007 and 2006, respectively.
15. Certain Relationships and Related Party Transactions
The Company and BankAtlantic Bancorp, Inc. (Bancorp) are under common control. The
controlling shareholder of the Company and Bancorp is BFC Financial Corporation (BFC). Bancorp
is the parent company of BankAtlantic. The majority of BFCs capital stock is owned or controlled
by the Companys Chairman and Chief Executive Officer, Alan B. Levan, and by the Companys Vice
Chairman, John E. Abdo, both of whom are also directors of the Company, and executive officers and
directors of BFC, of Bancorp and of BankAtlantic. Mr. Levan and Mr. Abdo are the Chairman and Vice
Chairman, respectively, of Bluegreen Corporation.
Pursuant to the terms of a shared services agreement between the Company and BFC certain
administrative services, including human resources, investor and public relations, are provided to
the Company by BFC on a percentage of cost basis. The total amounts for occupancy and these
services paid in the three months ended March 31, 2007 and 2006 were $139,000 and
$200,000, respectively, and may not be representative of the amounts that would be paid in an
arms-length transaction.
On January 31, 2007, the Company announced that it had entered into a definitive merger
agreement with BFC, pursuant to which the Company would, upon consummation of the merger, become a
wholly owned subsidiary of BFC. Under the terms of the merger agreement, holders of the Companys
Class A Common Stock (other than BFC) will be entitled to receive 2.27 shares of BFC Class A Common
Stock for each share of the Companys Class A Common Stock held by them and cash in lieu of any
fractional shares of BFC Class A Common Stock that they otherwise would be entitled to receive in
connection with the merger. Further, under the terms of the merger agreement, options to purchase,
and restricted stock awards, of shares of the Companys Class A Common Stock will be converted into
options to purchase, and restricted stock awards, as applicable, of shares of BFC Class A Common
Stock with appropriate adjustments. BFC Class A Common Stock is listed for trading on the NYSE
Arca Stock Exchange under the symbol BFF. The merger agreement contains certain customary representations, warranties and
covenants on the part of the Company and BFC, and the consummation of the merger is subject to a
number of customary closing and termination conditions as well as the
18
approval of both the Companys and BFCs shareholders. Further, in addition to the
shareholder approvals required by Florida law, the merger will also be subject to the approval of
the holders of the Companys Class A Common Stock other than BFC and certain other shareholders.
The Company maintains securities sold under repurchase agreements at BankAtlantic. The
balances in its accounts at March 31, 2007 and March 31, 2006 were $2.7 million and $17.0 million,
respectively. BankAtlantic paid interest to the Company on its accounts for the three months ended
March 31, 2007 and 2006 of $40,000 and $142,000, respectively.
16. New Accounting Pronouncements
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, Applicability of
the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales
of Real Estate , for Sales of Condominiums, (EITF 06-8). EITF 06-8 establishes that a company
should evaluate the adequacy of the buyers continuing investment in determining whether to
recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first
annual reporting period beginning after March 15, 2007 (our fiscal year beginning January 1, 2008).
The effect of this EITF is not expected to be material to the Companys financial statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, (FAS 159). FAS 159 permits companies to measure many financial instruments
and certain other items at fair value. This Statement is effective for fiscal years beginning after
November 15, 2007 (the Companys fiscal year beginning January 1, 2008). The adoption of FAS 159 is
not expected to be material to the Companys consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year
beginning January 1, 2008), and interim periods within those fiscal years. The Company is currently
reviewing the effect of SFAS 157 and does not expect the adoption to have an effect on the
financial condition or results of operations of the Company.
17. Litigation
On
February 28, 2007 and March 1, 2007, two identical complaints were filed in the 17th
Judicial Circuit in and for Broward County, Florida against the Company, the members of the
Companys Board of Directors and BFC Financial Corporation (BFC) in (i) Samuel Flamholz, on
behalf of himself and all others similarly situated, v. James Blosser, Darwin Dornbush, Alan B.
Levan, William Scherer, S. Lawrence Kahn, III, Joel Levy, John E. Abdo, William Nicholson, Alan J.
Levy, Levitt Corporation, and BFC Financial Corp. and (ii) Elaine Mount, on behalf of herself and
all others similarly situated, v. James Blosser, Darwin Dornbush, Alan B. Levan, William Scherer,
S. Lawrence Kahn, III, Joel Levy, John E. Abdo, William Nicholson, Alan J. Levy, Levitt
Corporation, and BFC Financial Corp., respectively. Each complaint relates to the previously
reported definitive merger agreement entered into by the Company and BFC, pursuant to which the
Company would, if the merger is consummated, become a wholly-owned subsidiary of BFC. The
complaints allege that the members of the Companys Board of Directors breached their fiduciary
duty to the Companys minority shareholders by approving the merger agreement with BFC. However, the merger will be
consummated only if, as required by
Florida law, it is approved by the holders of a majority of the outstanding shares of the
Companys Class A Common Stock (of which BFC holds only approximately 11%) and, as required by the
terms of the merger agreement, it is approved by the holders of a majority of the Companys Class A
Common Stock voted at the meeting without counting the shares of the Companys Class A Common Stock
voted by BFC. In both complaints, the plaintiffs seek to enjoin the merger or, if it is completed,
to rescind it. The Company believes the lawsuits are without merit.
18. Subsequent
Events
On May 1, 2007, the Companys Registration Statement on Form S-3 for the offering from
time to time of up to $200 million of subordinated investment notes was declared effective by the
SEC. No subordinated investment notes have been sold to date, and there is no assurance that the
full $200 million of subordinated investment notes, if any, will be sold.
On May 7, 2007, the Company filed a Registration Statement on Form S-3 in connection with a
proposed distribution to the Companys shareholders of rights to purchase up to $200 million of
additional shares of the Companys Class A Common Stock. In the event that the Companys or BFCs
shareholders do not approve the merger between the Company and BFC or such
merger is not consummated for any reason, the Company expects to proceed with the rights offering.
The Company will not proceed with the rights offering if the merger is consummated.
19
|
|
|
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 months ended March 31, 2007 and 2006. 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), operations at Levitt Corporation (Parent Company), 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. Core Communities
develops master-planned communities and is currently developing Tradition, Florida, which is
located in Port St. Lucie, Florida, and Tradition, South Carolina, which is located in Hardeeville,
South Carolina. Tradition, Florida encompasses more than 8,200 total acres, including
approximately five miles of frontage on Interstate 95, and Tradition South Carolina currently
encompasses approximately 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 vacation ownership interests in
primarily drive-to vacation resorts, and the development and sale of golf communities and
residential land.
Some of the statements contained or incorporated by reference herein include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act ), that involve substantial risks and uncertainties. Some of the forward-looking
statements can be identified by the use of words such as anticipate, believe, estimate,
may, intend, expect, will, should, seek or other similar expressions. Forward-looking
statements are based largely on managements expectations and involve inherent risks and
uncertainties. In addition to the risks identified in the Companys Annual Report on Form 10-K
for the year ended December 31, 2006, you should refer to the other risks and uncertainties
discussed throughout this document for specific risks which could cause actual results to be
significantly different from those expressed or implied by those forward-looking statements.
Some factors which may affect the accuracy of the forward-looking statements apply generally to
the real estate industry, while other factors apply directly to us. Any number of important
factors could cause actual results to differ materially from those in the forward-looking
statements including: the impact of economic, competitive and other factors affecting the Company
and its operations; the market for real estate in the areas where the Company has developments,
including the impact of market conditions on the Companys margins and the fair value of our real
estate inventory; the accuracy of the estimated fair value of our real estate inventory and the
potential for further write-downs or impairment charges; the need to offer additional incentives
to buyers to generate sales; the effects of increases in interest rates; cancellations of
existing sales contracts and the ability to consummate sales contracts included in the Companys
backlog; the Companys ability to realize the expected benefits of its expanded platform and
technology investments; the Companys ability to timely deliver homes from backlog, shorten
delivery cycles and improve operational and construction efficiency; the realization of cost
savings associated with reductions of workforce and the ability to limit overhead and costs
commensurate with sales; the Companys ability to maintain sufficient liquidity in the event of a
prolonged downturn in the housing market; the Companys ability to access additional capital on
acceptable terms, if at all, including through BFC Financial Corporation (BFC); and the
Companys success at managing the
20
risks involved in the foregoing. Many of these factors are beyond our control. The Company
cautions that the foregoing factors are not exclusive.
Executive Overview
Our operations are concentrated in the real estate industry, which is cyclical in nature. In
addition, the majority of our inventory is located in the State of Florida. Our homebuilding
operations sell residential housing while our land development business sells land to residential
builders as well as commercial developers, and on occasion internally develops commercial real
estate and enters into lease arrangements. In the three months ended March 31, 2007, we continued
to experience the dramatic slowdown in our homebuilding business. Excess supply, particularly in
previously strong markets like Florida, in part driven by a significant decline in demand and
speculative activity by investors, has led to the continued downward pressure on pricing for
residential homes and land. Based on a project by project assessment of local market conditions,
existing backlog and available remaining inventory, we offered various sales incentives to our
customers in the first quarter of 2007, and continue to aggressively reduce prices in the second
quarter of 2007 on select inventory to increase sales. These current pricing strategies will
negatively impact gross margins in the future. Similarly, the market for residential land in
Florida remains soft, and our Land Division did not record any sales in the three months ended
March 31, 2007. It is expected that in the near term, an increasing percentage of revenue will
come from commercial land sales in Florida and residential land sales in South Carolina.
We are focused on efforts to maintain sufficient liquidity in order to withstand this
downturn by aligning field staffing levels with current and anticipated market conditions and
implementing cost saving initiatives throughout the organization. We also are closely monitoring
capital spending for land development and looking at opportunities to sell various land positions.
Financial and Non-Financial Metrics
We evaluate our performance and prospects using a variety of financial and non-financial
metrics. The key financial metrics utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (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 before taxes, net income and return on equity. We
also continue to evaluate and monitor selling, general and administrative expenses as a percentage
of revenue. Non-financial metrics used to evaluate historical performance include the number and
value of net orders executed, the number of cancelled contracts and resulting spec inventory, 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 as well as cancellation rates of homes in backlog. 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 metrics is discussed in the following sections as it relates to our
operating results, financial position and liquidity. These metrics are not an exhaustive list, and
management may from time to time utilize different financial and non-financial information or may
not use all of the metrics mentioned above.
21
Homebuilding Overview
The homebuilding environment continued to deteriorate during the first quarter of 2007 as
increased inventory levels combined with weakened consumer demand for housing negatively affects
sales, deliveries and margins throughout the industry. We delivered fewer homes in the first
quarter of 2007, as compared to the same period of 2006 due to these difficult market conditions,
and experienced decreased sales and increased cancellation rates on homes in backlog.
We entered 2007 with a substantially lower backlog compared to the December 31, 2005 level.
The backlog decreased reflecting fewer units in combination with lower average selling prices on
net orders. The decrease in the number of units is due to the number of closings of homes
exceeding the level of sales activity in the three months ended March 31, 2007 as well as the
cancellation of contracts by buyers. The decrease in sales resulted in a decrease in construction
starts in the three months ended March 31, 2007 compared to the three months ended March 31, 2006.
In addition, sales prices in the current market have experienced downward pressure associated with
pricing incentives necessary to mitigate the imbalance in housing supply and increased competition.
We offered price incentives in the first quarter of 2007 and expect to aggressively
offer even more incentives as well as reduce sales prices throughout 2007 in order to attract
buyers to our communities. We also continue to monitor our cancellation rates of homes in backlog
and work with our customers to convert backlog into deliveries.
Land Division Overview
The Land Division continued developing land in its two master-planned communities; Tradition,
South Carolina and Tradition, Florida. Tradition, Florida encompasses more than 8,200 total acres,
including approximately 5,800 net saleable acres. Approximately 1,757 acres had been sold to date
and 37 acres were subject to firm sales contracts with various purchasers as of March 31, 2007.
Tradition, South Carolina, encompasses almost 5,400 total acres , including approximately 3,000 net
saleable acres and is currently entitled for up to 9,500 residential units and 1.5 million square
feet of commercial space. Approximately 37 acres were subject to firm sales contracts with various
purchasers as of March 31, 2007 as this project is still in the beginning stages of development.
While traffic at the information center at Tradition, Florida has slowed in connection with
the overall slowdown in the Florida homebuilding market, interest in commercial property appears to
have maintained its strength in the first quarter of 2007, and interest in the South Carolina
residential market appears to not be impacted as severely as the Florida residential market. In
addition to sales of parcels to homebuilders, the Land Division plans to continue to expand its
commercial operations through sales to developers and to internally develop certain projects for
leasing to third parties.
22
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. These estimates require
the exercise of judgment, as future events cannot be determined with certainty. Accordingly, actual
results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in subsequent periods relate to revenue and cost recognition on
percent complete projects, reserves and accruals, impairment reserves of assets, valuation of real
estate, estimated costs to complete of construction, reserves for litigation and contingencies and
deferred tax valuation allowances. The accounting policies that we have identified as critical
to the portrayal of our financial condition and results of operations are: (a) 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; (g) impairment of long-lived assets; and (h) accounting for stock-based compensation.
For a more detailed discussion of these critical accounting policies see Critical Accounting
Policies appearing in our Annual Report on Form 10-K for the year ended December 31, 2006.
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
141,742 |
|
|
|
125,543 |
|
|
|
16,199 |
|
Other revenues |
|
|
2,497 |
|
|
|
1,951 |
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
144,239 |
|
|
|
127,494 |
|
|
|
16,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
112,908 |
|
|
|
102,055 |
|
|
|
10,853 |
|
Selling, general and administrative expenses |
|
|
32,906 |
|
|
|
26,755 |
|
|
|
6,151 |
|
Other expenses |
|
|
482 |
|
|
|
626 |
|
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
146,296 |
|
|
|
129,436 |
|
|
|
16,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from Bluegreen Corporation |
|
|
1,744 |
|
|
|
(49 |
) |
|
|
1,793 |
|
Earnings from joint ventures |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Interest and other income |
|
|
2,339 |
|
|
|
889 |
|
|
|
1,450 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
2,029 |
|
|
|
(1,102 |
) |
|
|
3,131 |
|
(Provision) benefit for income taxes |
|
|
(779 |
) |
|
|
442 |
|
|
|
(1,221 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,250 |
|
|
|
(660 |
) |
|
|
1,910 |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2007 Compared to the Same 2006 Period:
We earned consolidated net income of $1.3 million for the three months ended March 31, 2007,
which represented an increase of $1.9 million as compared to a consolidated net loss of $660,000
for the same period in 2006. The increase in net income is the result of increases in average sales
prices of homes delivered by our Homebuilding Division, increases in sales of real estate
associated with Other Operations, as well as increases in interest and other income related to
forfeited deposits. Additionally, Bluegreen Corporation experienced net earnings in the three
months ended
23
March 31, 2007 in comparison to a net loss in the same period in 2006. These increases were
partially offset by increases in selling, general and administrative costs incurred by all
segments.
Our revenues from sales of real estate increased 12.9% to $141.7 million for the quarter ended
March 31, 2007 from $125.5 million for the same 2006 period. This increase was primarily
attributable to the increase in the Homebuilding Division sales of real estate. In the three
months ended March 31, 2007, a land sale of $11.1 million was recorded by the Homebuilding
Division, as compared to no land sales recorded during the same period in 2006, and the average
sales price on homes delivered increased from $269,000 to $340,000. The increase in the average
sales price of homes was offset in part by a decrease in the number of homes delivered from 439
units in the three months ended March 31, 2006 to 362 units in the three months ended March 31,
2007. Revenues for the three months ended March 31, 2007 also reflect sales of flex warehouse
properties as Levitt Commercial delivered 17 flex warehouse units at
its remaining development
project, generating revenues of $6.6 million. Levitt Commercial did not deliver any units during
the three months ended March 31, 2006.
Other revenues increased to $2.5 million for the three months ended March 31, 2007 from $2.0
million for the same period in 2006. This was due to increased rental income associated with
the leasing of certain commercial properties, increased revenues relating to irrigation services
provided to both homebuilders and the residents of Tradition, Florida, and marketing income
associated with Tradition, Florida.
Cost of sales increased 10.6% to $112.9 million during the three months ended March 31, 2007,
as compared to the same 2006 period. The increase in cost of sales was due to increased sales of
real estate recorded by Other Operations and the Homebuilding Division which included costs related
to an $11.1 million land sale. These costs were offset in part by a decline in construction costs
due to fewer homes being delivered. Cost of sales as a percentage of related revenue was
approximately 79.7% for the three months ended March 31, 2007, as compared to approximately 81.3%
for the same period in 2006, due mainly to the increased margins on homes delivered by the
Homebuilding Division. In the three months ended March 31, 2007, the Homebuilding Division
delivered 362 units at a margin of 21.6%, and completed a land sale that was fully reserved for in
prior periods which as a result generated no margin, as compared with the delivery of 439 units at
a margin of 18.4% and no land sales during the same period in 2006.
Selling, general and administrative expenses increased $6.2 million to $32.9 million during
the three months ended March 31, 2007 compared to $26.8 million during the same period in 2006
primarily as a result of higher employee compensation and benefits, increased advertising and
marketing costs, increased depreciation and professional services expenditures. The increase in
employee compensation and benefits of $2.4 million is mainly due to the addition of several senior
management positions with higher salaries and increased sales
commissions related to higher revenues in the three months ended March 31, 2007 compared to the three
months ended March 31, 2006. Compensation amounts also include severance related charges in the
amount of approximately $400,000 related to a reduction in force that occurred in February 2007.
These increases were partially offset by a decrease in full time employees to 581 at March 31,
2007, from 679 at March 31, 2006. Advertising and other marketing expenses increased $1.5 million
related to efforts to attract buyers in a challenging homebuilding market. Depreciation expense
increased due to the amortization of software costs in the three months ended March 31, 2007 while
no software costs were depreciated in the three months ended March 31, 2006 as the system was not
implemented until October 2006. In addition, depreciation expense increased due to an increase in
commercial development properties in our Land Division. Lastly, fees for professional services
increased relating to the pending merger with BFC and increased legal costs. As a percentage of
total revenues, selling,
24
general and administrative expenses increased to 22.8% during the three months ended March 31,
2007, from 21.0% during the same 2006.
Interest incurred and capitalized totaled $13.0 million for the 2007 period and $8.0 million
for the 2006 period. 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 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 March 31, 2007
and 2006 included previously capitalized interest of approximately $4.4 million and $2.6 million,
respectively. The increase is primarily attributable to the increased debt balance attributable to
funding inventory expenditures.
Other expenses for the three months ended March 31, 2007 decreased to $482,000 from $626,000
for the same period in 2006, and consisted solely of mortgage operations expense. The decrease
reflected fewer home deliveries during the quarter ended March 31, 2007 as compared to 2006.
Bluegreen reported net income for the three months ended March 31, 2007 of $5.3 million, as
compared to a net loss of $463,000 for the same period in 2006. In the first quarter of 2006,
Bluegreen adopted Statement of Position 04-02, Accounting for Real Estate Time-Sharing Transactions
(SOP 04-02), and recorded a one-time, non-cash, cumulative effect of change in accounting
principle charge of $4.5 million, which accounted for a significant portion of the decline in
earnings. Our interest in Bluegreens earnings, was $1.7 million for the 2007 period compared to our interest in Bluegreens loss of $49,000 for the 2006
period. At March 31, 2007 and 2006, the 9.5 million shares of Bluegreen that we own represented
approximately 31% of the outstanding shares of Bluegreen.
Interest and other income increased from $889,000 during the three months ending March 31,
2006 to $2.3 million during the same period in 2007. This change was primarily related to an
increase in forfeited deposits of $1.4 million resulting from increased cancellations of home sale
contracts.
25
HOMEBUILDING DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
134,169 |
|
|
|
118,275 |
|
|
|
15,894 |
|
Other revenues |
|
|
722 |
|
|
|
1,008 |
|
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
134,891 |
|
|
|
119,283 |
|
|
|
15,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
107,603 |
|
|
|
96,497 |
|
|
|
11,106 |
|
Selling, general and administrative expenses |
|
|
20,305 |
|
|
|
17,572 |
|
|
|
2,733 |
|
Other expenses |
|
|
482 |
|
|
|
626 |
|
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
128,390 |
|
|
|
114,695 |
|
|
|
13,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from joint ventures |
|
|
16 |
|
|
|
|
|
|
|
16 |
|
Interest and other income |
|
|
1,654 |
|
|
|
177 |
|
|
|
1,477 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,171 |
|
|
|
4,765 |
|
|
|
3,406 |
|
Provision for income taxes |
|
|
(3,211 |
) |
|
|
(1,754 |
) |
|
|
(1,457 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,960 |
|
|
|
3,011 |
|
|
|
1,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered (units) |
|
|
362 |
|
|
|
439 |
|
|
|
(77 |
) |
Construction starts (units) |
|
|
254 |
|
|
|
390 |
|
|
|
(136 |
) |
Average selling price of homes delivered (a) |
|
$ |
340 |
|
|
|
269 |
|
|
|
71 |
|
Margin percentage on homes delivered (a) |
|
|
21.6 |
% |
|
|
18.4 |
% |
|
|
3.2 |
% |
Net orders (units) |
|
|
159 |
|
|
|
506 |
|
|
|
(347 |
) |
Net orders (value) |
|
$ |
43,900 |
|
|
|
169,387 |
|
|
|
(125,487 |
) |
Backlog of homes (units) |
|
|
1,045 |
|
|
|
1,859 |
|
|
|
(814 |
) |
Backlog of homes (value) |
|
$ |
359,029 |
|
|
|
608,437 |
|
|
|
(249,408 |
) |
|
|
|
(a) |
|
Calculation for the three months ended March 31, 2007 excludes $11.1 million land sale,
which generated no margin. No comparable land sales occurred in the three months ended
March 31, 2006. |
For the Three Months Ended March 31, 2007 Compared to the Same 2006 Period:
The value of net orders decreased to $43.9 million for the three months ended March 31, 2007,
from $169.4 million for the same period in 2006. The average sales price of net orders decreased
17.6% to $276,000 for the three months ended March 31, 2007, from $335,000 during the same 2006
period. Lower selling prices are primarily a reflection of higher sales incentives and the need to
reduce prices in certain markets in order to remain competitive in a deteriorating homebuilding
market. Additionally, 36.5% of our net orders were generated from our Tennessee operations, which
have historically yielded lower average sales prices. During the three months ended March 31,
2007, net orders decreased to 159 units reflecting gross orders of 285 offset by cancellations of
126. During the three months ended March 31, 2006, gross orders of 585 were offset by cancelled
orders of 79, resulting in net orders of 506. The decrease in net orders was the result of slow
market conditions as traffic trended downward and conversion rates slowed. Construction starts
decreased in line with net orders for the above mentioned reasons.
Revenues from sales of real estate increased to $134.2 million during the three months ended
March 31, 2007, compared to $118.3 million during the same 2006 period. Included in this revenue
was $11.1 million from a sale of land in our Tennessee operations that management decided to not
develop further. During the three months ended March 31, 2007, 362 homes were delivered at an
average sales price of $340,000 as compared to 439 homes delivered at an average price of $269,000
during the three months ended March 31, 2006. The increase in the average price of our homes
delivered was due to the mix of homes delivered as the 2007 closings occurred in regions with
higher average sales prices.
26
Cost of sales increased 11.5% to $107.6 million during the three months ended March 31, 2007,
as compared to $96.5 million during the same period in 2006. Included in cost of sales was $11.1
million in cost of sales associated with the land sale in Tennessee. No margin was generated on
this transaction as this sale was fully reserved as of December 31, 2006. Excluding this land
sale, cost of sales remained relatively unchanged.
Margin percentage on homes delivered (which we define as sales of real estate associated with
home sales minus cost of sales for those homes, divided by home sales) increased from 18.4% in the
first quarter of 2006 to 21.6% during the first quarter of 2007. The increase was primarily
attributable to the geographic mix of deliveries by the Homebuilding Division as deliveries of
homes in Tennessee, which historically have lower margins than in the Florida markets served by the
Homebuilding
Division, comprised approximately 13% of the deliveries in the three months ended March 31,
2007 while in the same period in 2006 this region accounted for 30% of the deliveries. Margins are
expected to decline in the future as a result of aggressive pricing strategies in Florida.
Selling, general and administrative expenses increased $2.7 million to $20.3 million during
the three months ended March 31, 2007 compared to $17.6 million during the same period in 2006
primarily as a result of higher employee compensation and benefits and increased advertising and
marketing costs. The increase in employee compensation and benefits of $1.7 million is mainly due
to the addition of several senior management positions with higher salaries partially offset by the
decrease in full time employees to 460 at March 31, 2007 from 580 at March 31, 2006. Compensation
and benefits also increased due to increased sales commissions related to higher revenues in the
three months ended March 31, 2007 compared to the three months ended March 31, 2006. Compensation
amounts also include severance related charges in the amount of approximately $400,000 related to a
reduction in force that occurred in February 2007. Advertising and other marketing expenses
increased $786,000 related to efforts to attract buyers to our communities in a challenging
homebuilding market.
Interest and other income increased from $177,000 during the three months ending March 31,
2006 to $1.7 million during the same period in 2007. This change was primarily related to income
resulting from forfeited deposits of $1.4 million associated with buyers cancellation of purchase
contracts. The increase in forfeited deposits resulted from increased
cancellations of home sale contracts.
Interest incurred and capitalized totaled $8.4 million and $5.3 million for the three months
ended March 31, 2007 and 2006, respectively. Interest incurred increased as a result of an
increase in the average interest rate on our variable-rate borrowings as well as an increase of
$89.5 million in our borrowings from March 31, 2006 to March 31, 2007. Most of our variable-rate
borrowings are indexed to the Prime Rate, which increased to 8.25% at March 31, 2007, from 7.75% at
March 31, 2006. 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 March 31, 2007 and 2006 included previously capitalized interest of approximately $3.6
million and $2.0 million, respectively.
27
LAND DIVISION RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate (a) |
|
$ |
777 |
|
|
|
7,272 |
|
|
|
(6,495 |
) |
Other revenues |
|
|
1,502 |
|
|
|
620 |
|
|
|
882 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,279 |
|
|
|
7,892 |
|
|
|
(5,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
72 |
|
|
|
5,019 |
|
|
|
(4,947 |
) |
Selling, general and administrative
expenses |
|
|
4,365 |
|
|
|
2,786 |
|
|
|
1,579 |
|
Interest expense |
|
|
215 |
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
4,652 |
|
|
|
7,805 |
|
|
|
(3,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
947 |
|
|
|
368 |
|
|
|
579 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(1,426 |
) |
|
|
455 |
|
|
|
(1,881 |
) |
Benefit (provision) for income taxes |
|
|
568 |
|
|
|
(137 |
) |
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(858 |
) |
|
|
318 |
|
|
|
(1,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold |
|
|
|
|
|
|
56 |
|
|
|
(56 |
) |
Margin percentage (a) |
|
|
90.7 |
% |
|
|
31.0 |
% |
|
|
59.7 |
|
Unsold saleable acres |
|
|
6,871 |
|
|
|
7,231 |
|
|
|
(360 |
) |
Acres subject to sales contracts
Third parties |
|
|
74 |
|
|
|
195 |
|
|
|
(121 |
) |
Aggregate sales price of acres
subject to sales contracts to third
parties |
|
$ |
21,124 |
|
|
|
33,717 |
|
|
|
(12,593 |
) |
|
|
|
(a) |
|
For the three months ended March 31, 2007, there were no land sales
recorded. Sales of real estate and margin percentage relate to revenues from look
back provisions and recognition of deferred revenue associated with sales in prior periods. |
The Land Division currently has two master planned communities being developed for sale:
Tradition, Florida and Tradition, South Carolina. In the three months ended March 31, 2006, sales
in the Land Divisions original master planned community in St. Lucie West were winding down with
final sales completed in the second quarter of 2006. Additionally, the Land Division generates
ancillary revenue from commercial leasing and provides irrigation services and marketing services
to the homebuilders who purchase developed property in our master planned communities.
The master-planned community in Tradition, Florida encompasses more than 8,200 total acres,
including approximately 5,800 net saleable acres. Approximately 1,757 acres have been sold as of
March 31, 2007 and 37 acres were subject to firm sales contracts in Tradition, Florida with various
homebuilders as of March 31, 2007. Tradition, South Carolina, encompasses almost 5,400 total
acres, including approximately 3,000 net saleable acres and is currently entitled for 9,500
residential units and 1.5 million feet of commercial space, in addition to recreational areas,
educational facilities and emergency services. Approximately 37 acres were subject to firm sales
contracts in Tradition, South Carolina with various homebuilders as of March 31, 2007. Due to the
nature and size of individual land transactions, our Land Division results are subject to
significant volatility. We have historically realized between 40.0% and 60.0% margin on Land
Division sales. Margins on land sales may not remain at these levels given the current downturn in
the real estate markets where our master planned communities are located and the decrease in demand
we are continuing to experience. Margins will
28
fluctuate based upon changing sales prices and costs attributable to the land sold, as well as
the potential impact of revenue deferrals associated with percentage of completion accounting. In
addition to the impact of economic and market factors on the sales price of land, 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 designated use of land is residential or commercial. The cost of sales
of real estate is dependent upon the original cost of the land acquired, the timing of the
acquisition of the land, and the amount of land development, interest and real estate tax costs
capitalized to the particular land parcel during active development. Allocations to costs of sales
include an estimate of future costs of development, which can vary over time due to labor and
material cost increases, master plan design changes and regulatory modifications and involve
significant management judgment. Accordingly, allocations are subject to change based on factors
which are in many instances beyond managements control. Future margins will continue to vary
based on these and other market factors.
For the Three Months Ended March 31, 2007 Compared to the Same 2006 Period:
Revenues decreased 89.3% to $777,000 during the three months ended March 31, 2007, compared to
$7.3 million during the same period in 2006. Revenue for the three months ended March 31, 2007 was
comprised of look back provisions of $415,000 and recognition of deferred revenue totaling
$362,000, of which $223,000 was inter-segment. Look back revenue relates to incremental revenue
received from homebuilders that purchased land based on the final resale price to the homebuilders
customer. Certain of the Land Divisions contracts contain these
provisions. There were no costs associated with the look back provisions since these costs were fully expensed at the time of
closing. In the three months ended March 31, 2006, 56 acres consisting of finished lots were sold
in Tradition, Florida at a margin percentage of 31%, while no land sales occurred during the three
months ended March 31, 2007.
Other revenues increased to $1.5 million for the three months ended March 31, 2007, as
compared to $620,000 during the same quarter in 2006. This was due to increased rental income
associated with commercial leasing of certain properties, increased revenues relating to irrigation
services provided to both homebuilders and the residents of Tradition, Florida, and marketing
income associated with Tradition, Florida.
Cost of sales decreased $4.9 million to $72,000 during the three months ended March 31, 2007,
as compared to $5.0 million for the same 2006 period. The decrease in cost of sales was due
primarily to no land sales recognized in the three months ended March 31, 2007 as described above
in the revenue discussion.
Selling, general and administrative expenses increased 56.7% to $4.4 million during the three
months ended March 31, 2007 as a result of higher employee compensation and benefits and other
general and administrative costs. Full time employees increased to 60 at March 31, 2007, from 47
at March 31, 2006, as additional personnel were added to support our commercial leasing and
irrigation services and to support the development activity in Tradition, South Carolina. General
and administrative costs increased related to increased legal expenditures and increased marketing
and advertising costs needed to maintain visibility to attract buyers in Florida and establish a
market presence in South Carolina.
Interest incurred for the three months ended March 31, 2007 and 2006 was $2.8 million and $1.3
million, respectively. Interest capitalized totaled $2.6 million for the three months ended March
31, 2007 as compared to $1.3 million during the same 2006 period. The difference in the interest
29
incurred and capitalized in the three months ended March 31, 2007 of approximately $215,000 was
attributable to funds borrowed by Core Communities but then loaned to the Parent Company. The
capitalization of this interest occurred at the Parent Company level and all intercompany interest
expense and income was eliminated on a consolidated basis. Interest incurred was higher due to
higher outstanding balances of notes and mortgage notes payable, as
well as due to an increase in the
average interest rate on variable-rate debt. Most of Core Communities variable-rate debt is
indexed to various LIBOR rates, which increased from March 31, 2006 to March 31, 2007. Cost of
sales of real estate for the three months ended March 31, 2007 did not include previously
capitalized interest, as compared to $23,000 for the three months ended March 31, 2006.
The increase in interest and other income from $368,000 for the three months ended March 31,
2006 to $947,000 for the same period in 2007 is primarily related to interest income relating to
intercompany loans and notes receivable which are eliminated in consolidation.
OTHER OPERATIONS RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
6,574 |
|
|
|
|
|
|
|
6,574 |
|
Other revenues |
|
|
293 |
|
|
|
337 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
6,867 |
|
|
|
337 |
|
|
|
6,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
5,501 |
|
|
|
642 |
|
|
|
4,859 |
|
Selling, general and administrative expenses |
|
|
8,236 |
|
|
|
6,397 |
|
|
|
1,839 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
13,737 |
|
|
|
7,039 |
|
|
|
6,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from Bluegreen Corporation |
|
|
1,744 |
|
|
|
(49 |
) |
|
|
1,793 |
|
Loss from real estate joint ventures |
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
Interest and other income |
|
|
258 |
|
|
|
345 |
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(4,881 |
) |
|
|
(6,406 |
) |
|
|
1,525 |
|
Benefit for income taxes |
|
|
1,864 |
|
|
|
2,364 |
|
|
|
(500 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,017 |
) |
|
|
(4,042 |
) |
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
Other Operations include all other Company operations, including Levitt Commercial,
Parent Company general and administrative expenses, earnings (loss) from our investment in
Bluegreen and (losses) 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 March 31, 2007. Under equity method accounting, we
recognize our pro-rata share of Bluegreens net income or loss (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 deferred tax liability on our portion of Bluegreens net earnings (loss).
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.
30
For the Three Months Ended March 31, 2007 Compared to the Same 2006 Period:
During the three months ended March 31, 2007, Levitt Commercial delivered 17 flex
warehouse units generating revenues of $6.6 million while no units were delivered during the same
period in 2006. Levitt Commercial has completed the sale of all flex warehouse units in inventory
and we have no current plan for future sales from Levitt Commercial.
Cost of sales of real estate in Other Operations includes both the cost of sales of flex
warehouse units delivered in the period as well as the expensing of interest previously capitalized
in this business segment. Cost of sales increased to $5.5 million during the three months ended
March 31, 2007, as compared to $642,000 during the three months ended March 31, 2006. The increase
is attributable to the delivery of the 17 flex warehouse units in the three months ended March 31,
2007 as compared to no units being delivered in the same period in 2006.
Bluegreen reported net income for the three months ended March 31, 2007 of $5.3 million, as
compared to a net loss of $463,000 for the same period in 2006. In the first quarter of 2006,
Bluegreen adopted SOP 04-02 and recorded a one-time, non-cash, cumulative effect of change in
accounting principle charge of $4.5 million, which comprised of a significant portion of the
decline in earnings. Our interest in Bluegreens income was $1.7 million for the 2007 period compared to our interest in Bluegreens loss of $49,000 for
the 2006 period.
Selling, general and administrative expenses increased to $8.2 million during the three months
ended March 31, 2007 as compared to $6.4 million during the three months ended March 31, 2006. The
increase was attributable to increased compensation and benefits expense, increased selling costs
associated with the Levitt Commercial sales noted above, increased depreciation attributable to the
implementation of new software in October 2006 and increased professional services attributable to
merger related and other corporate services. The increase in compensation related expenses is
attributable to increased headcount, as total employees increased from 52 at March 31, 2006 to 61
at March 31, 2007.
Interest incurred and capitalized in Other Operations was approximately $2.3 million and $1.4
million for the three months ended March 31, 2007 and 2006, respectively. The increase in interest
incurred was attributable to an increase in our 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.
Interest and other income decreased to $258,000 during the three months ended March 31, 2007
as compared to $345,000 for the same period of 2006. The decrease is attributable to lower average
cash balances earning interest.
31
FINANCIAL CONDITION
March 31, 2007 compared to December 31, 2006
Our total assets at March 31, 2007 and December 31, 2006 were $1.1 billion. Although total
assets did not change there were increases and decreases that offset
each other. The significant changes in the composition of assets primarily resulted from:
|
|
|
a net increase in cash and cash equivalents of $12.2 million, which resulted from
cash provided by financing activities, offset by cash used in operations and investing
activities; |
|
|
|
|
a net increase in inventory of real estate of approximately $14.3 million resulting
from increases in land development and construction costs by our Homebuilding and
Land Divisions; |
|
|
|
|
a decrease in notes receivable of $4.1 million due to the repayment of a note
associated with a Land Division sale; and |
|
|
|
|
an increase of $8.8 million in property and equipment associated with increased
investment in commercial properties under construction by our Land Division, and
support for infrastructure in our master planned communities. |
Total liabilities at March 31, 2007 and December 31, 2006 were $776.1 million and $747.4
million, respectively.
The material changes in the composition of total liabilities primarily resulted from:
|
|
|
a net increase in notes and mortgage notes payable of $56.1 million, primarily
related to project debt associated with development activities; |
|
|
|
|
a decrease of $10.3 million in customer deposits reflecting fewer orders for new
homes; |
|
|
|
|
a decrease in the current tax liability of approximately $2.9 million relating to
the payment of 2006 annual taxes offset in part by our current provision for income
tax; and |
|
|
|
|
a net decrease in other accrued liabilities of approximately $14.1 million
attributable to decreased incentive compensation accruals, decreased construction
related accruals, and decreased professional services accruals related to the
consultants retained in 2006 for our technology updgrade. |
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating and
investment activities. During the three months ended March 31, 2007, our primary sources of funds
were proceeds from the sale of real estate inventory and borrowings from financial institutions.
These funds were utilized primarily to develop and construct real estate, to service and repay
borrowings and to pay operating expenses. As of March 31, 2007 and December 31, 2006, we had cash
and cash equivalents of $60.6 million and $48.4 million, respectively. Our cash increased $12.2
million during the three months ended March 31, 2007 primarily as a result of liquidity generated
by borrowings by our Land and Homebuilding Divisions during the quarter. The Company primarily
utilized borrowings to finance the growth in inventory in Tradition, South Carolina and to fund the
Companys operations. Total debt increased to $671.8 million at March 31, 2007 compared to $615.7
million at December 31, 2006.
32
Due to deteriorating market conditions in the homebuilding industry, and in Florida in
particular, we have offered and will continue to offer sales incentives and reduced sales prices on
selected inventory in an effort to increase sales, which will lead to reduced margins in the
future when those homes are delivered. In addition, we continue to experience weaker sales volumes
and high cancellation rates. All of these conditions have a negative impact on our liquidity. As
a result, there is no assurance that operating cash flows will adequately support operations, and
accordingly, we anticipate seeking additional capital. Sources for additional capital include
proceeds from the disposition of certain properties or investments, joint venture partners, as well
as issuances of debt or equity. In addition, our intention to merge with BFC is predicated in part
on the additional need for capital and the recognition that BFC can provide access to additional
financial resources. The merger is subject to shareholder approval and other conditions. Should
this merger not occur, we will pursue a $200 million rights offering to all holders of Levitts Class A common
stock and Class B common stock giving each then current holder the right to purchase a proportional
number of additional shares of Levitt Class A common stock.
Additionally, we have filed a registration statement with the SEC for the offer and sale over time of
up to $200 million of investment notes, an unsecured debt security of Levitt Corporation. There is no assurance that we will be
able to successfully raise additional capital on acceptable terms, if at all.
Operating Activities. During the three months ended March 31, 2007, we used $33.5 million of
cash in our operating activities, as compared to $102.4 million of cash used in such activities in
the prior period. The primary use of cash during the three months ended March 31, 2007 and
2006 was the result of increased inventories in both our Homebuilding and Land Divisions. While
increases in inventory in 2006 were primarily the result of land
purchases, the increase in 2007 was
attributable to significant land development expenditures to prepare the land for the construction
of homes. We will continue to invest in our existing projects in 2007, many of which are in a
stage of development requiring further investment in land development, amenities including
entryways and clubhouse facilities, as well as model homes and sales facilities. As a result, we
are not expecting a decline in inventory during the year. At this time, no land purchases are
contemplated in 2007 based on current market conditions.
We also utilize deposits from customers who enter into purchase contracts to support our
working capital needs. These deposits totaled $32.4 million at March 31, 2007 and represented 9.0%
of our homebuilding backlog value. In comparison, deposits at December 31, 2006 were $42.7 million
and represented 9.7% of our homebuilding backlog value. The decline in deposits reflects a
reduction in the backlog, as well as a decision in late 2006 to reduce the required deposits in
certain communities and tier the required deposits on selected options. In the three months ended
March 31, 2007, $1.4 million in deposits were retained by us as a result of forfeitures by buyers
as cancellations increased, compared with $22,000 during the same period in 2006.
Investing Activities. In the three months ended March 31, 2007 and 2006, cash used in
investing activities totaled $9.4 million and $2.9 million, respectively. The uses of cash in the
three months ended March 31, 2007 represented net purchases of property and equipment, primarily
associated with commercial development activities and utility services at Tradition, Florida. The
uses of cash in the three months ended March 31, 2006 represented commercial development activities
and utility services as well as investment in new technology systems and capitalized related
expenses for software, hardware and certain implementation costs.
Financing Activities. The majority of our financing activities are secured financings
principally from commercial banks, and the issuance of Trust Preferred securities. We have also
issued common equity in the public markets, and continue to evaluate various sources of capital
from both public and private investors to ensure we maintain sufficient liquidity to deal with our
existing leverage and the potential of a prolonged slowdown in the residential real estate markets
where we operate. Cash provided by financing activities totaled $54.9 million in the three months
ended March 31, 2007, compared with $67.5 million in the same period in 2006.
33
Certain of our borrowings require us to repay specified amounts upon a sale of portions of the
property securing the debt and these specified amounts are not based upon the sales price of the
property sold. Repayment of these amounts would be in addition to our scheduled payments over the
next twelve months. While homes in backlog are subject to sales contracts, there can be no
assurance that these homes will be delivered as evidenced by the escalation of our cancellation
rates. Upon cancellation, such homes become spec units and are aggressively marketed to new buyers.
Our borrowing base facilities include project limitations on the number of spec units, the holding
period, as well as the overall dollar amount of spec units. Accordingly, if that limitation is
exceeded, the underlying assets no longer qualify for financing. In that event, our available
borrowings are reduced, and depending upon the status of other qualifying assets in the borrowing
base, we may be required to repay the lender prior to scheduled payment dates for funds advanced on
that particular property. Further, our borrowing facilities give our lenders the right to obtain
current appraisals on the land serving as collateral for their outstanding facilities and our
lenders can require additional repayments if the appraisals reflect that loan to value ratios are
above required amounts. We communicate with our lenders regarding limitations on spec houses, and
in the past have received increased spec allowances, but there can be no assurance we will receive
such flexibility in the future. Accordingly, our cash flow and liquidity would be adversely
impacted should spec inventory continue to rise as a result of customer cancellations and we are
unable to obtain amendments from our lenders.
Some of our subsidiaries have borrowings which contain covenants that, among other things,
require the subsidiary to maintain financial ratios, including minimum working capital, maximum
leverage and minimum net worth. These covenants may have the effect of limiting the amount of debt
that the subsidiaries can incur and restrict the distribution of funds to the Parent Company, which
as a holding company, is dependent upon dividends from its subsidiaries for a significant portion
of its operating cash flow. At March 31, 2007, we were in compliance with all loan agreement financial covenants. The
risk of additional impairments could adversely impact the subsidiarys net worth which would
require additional capital and restrict the payment of dividends from
that subsidiary to the Parent Company. Negative earnings and the risk of additional impairments may cause noncompliance with
financial covenants and result in defaults under our credit facilities. There can be no assurance
we will remain in compliance in the future should the homebuilding market remain in a prolonged
downturn.
34
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 as they are due. As of March 31, 2007, development districts in Tradition,
Florida had $46.6 million of community development district bonds outstanding and we owned
approximately 36% of the property in those districts. During the three months ended March 31,
2007, we recorded approximately $726,000 in assessments on property we owned in the districts of
which $657,000 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 March 31, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
2 - 3 |
|
|
4 - 5 |
|
|
More than |
|
Category (2) |
|
Total |
|
|
1 year |
|
|
Years |
|
|
Years |
|
|
5 years |
|
Long-term debt obligations (1) |
|
$ |
671,764 |
|
|
|
22,851 |
|
|
|
406,102 |
|
|
|
228,976 |
|
|
|
13,835 |
|
Operating lease obligations |
|
|
7,661 |
|
|
|
2,358 |
|
|
|
2,916 |
|
|
|
979 |
|
|
|
1,408 |
|
Purchase obligations |
|
|
14,220 |
|
|
|
14,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations |
|
$ |
693,645 |
|
|
|
39,429 |
|
|
|
409,018 |
|
|
|
229,955 |
|
|
|
15,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts exclude interest because terms of repayment are based on construction activity
and sales volume. In addition, a large portion of our debt is based on variable rates. |
|
(2) |
|
These amounts represent scheduled principal payments and some of those borrowings require
the repayment of specified amounts upon a sale of portions of the property securing those
obligations. |
Long-term debt obligations consist of notes, mortgage notes and bonds payable. Operating
lease obligations consist of lease commitments. Purchase obligations consist of contracts to
acquire real estate properties for development and sale for which due diligence has been completed
and our deposit is committed; however our liability for not completing the purchase of any such
property is generally limited to the deposit we made under the relevant contract. At March 31,
2007, we had $400,000 in a deposit securing a purchase commitment. In
addition to the above
contractual obligations, the Company has recorded $2.3 million in unrecognized tax benefits
related to FIN 48.
At March 31, 2007, we had outstanding surety bonds and letters of credit of approximately
$112.6 million related primarily to obligations to various governmental entities to construct
improvements in our various communities. We estimate that approximately $69.6 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.
35
|
|
|
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 March 31, 2007, we had $567.6 million in borrowings
with adjustable rates tied to the prime rate and/or LIBOR rates and $104.2 million in borrowings
with fixed or initially-fixed rates. Consequently, the impact on our variable rate debt from
changes in interest rates may affect our earnings and cash flows but would generally not impact the
fair value of such debt. With respect to fixed rate debt, changes in interest rates generally
affect the fair market value of the debt but not our earnings or cash flow.
Assuming the variable rate debt balance of $567.6 million outstanding at March 31, 2007 (which
does not include initially fixed-rate obligations which will not become floating rate during 2007)
were to remain constant, each one percentage point increase in interest rates would increase the
interest incurred by us by approximately $5.7 million per year.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 16 of our unaudited consolidated financial statements included under Item 1 of this
Report for a discussion of new accounting pronouncements applicable to our company.
|
|
|
Item 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer,
our Chief Financial Officer and our Chief Accounting Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended). Based upon that evaluation, we concluded that as of
March 31, 2007, our disclosure controls and procedures are effective to ensure that information
required to be disclosed in reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer, to allow for timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred
during the period covered by this report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
36
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/A for the year ended December 31, 2006.
There have been no material changes in our risk factors from those disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2006.
Index to Exhibits
|
|
|
Exhibit 31.1*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.2*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.3*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.1*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.2*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.3*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Exhibits filed with this Form 10-Q |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LEVITT CORPORATION
|
|
Date: May 10, 2007 |
By: |
/s/ Alan B. Levan
|
|
|
|
Alan B. Levan, Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: May 10, 2007 |
By: |
/s/ George P. Scanlon
|
|
|
|
George P. Scanlon, Executive Vice President, |
|
|
|
Chief Financial Officer |
|
|
|
|
|
Date: May 10, 2007 |
By: |
/s/ Jeanne T. Prayther
|
|
|
|
Jeanne T. Prayther, Chief Accounting Officer |
|
|
|
|
|
38