Levitt Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Year Ended December 31, 2007
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number
001-31931
Levitt Corporation
(Exact name of registrant as specified in its charter)
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Florida
(State or other jurisdiction of
incorporation or organization)
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11-3675068
(I.R.S. Employer
Identification No.) |
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2200 West Cypress Creek Road
Ft. Lauderdale, Florida
(Address of principal executive offices)
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33309
(Zip Code) |
(954) 958-1800
(Registrants telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Class A Common Stock, Par Value $0.01 Per Share
(Title of each class)
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New York Stock Exchange
(Name of each exchange on which registered) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes o No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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
As of June 30, 2007, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $155.4 million based on the $9.43 closing sale price as
reported on the New York Stock Exchange.
The number of shares outstanding for each of the registrants classes of common stock, as of
February 27, 2008 is as follows:
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Class of Common Stock
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Shares Outstanding |
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Class A common stock, $0.01 par value
Class B common stock, $0.01 par value
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95,040,731
1,219,031 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the registrant relating to the Annual Meeting of
Shareholders are incorporated as Part III of this report. The financial statements of Bluegreen
Corporation are incorporated in Part II of this report and are filed as an exhibit to this report.
Levitt Corporation
Annual Report on Form 10-K for the year ended December 31, 2007
TABLE OF CONTENTS
PART I
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 described in this report. When considering those forward-looking statements, you
should keep in mind the risks, uncertainties and other cautionary
statements in this
Form 10-K,
including those identified under Item 1A.Risk Factors. These risks are subject to change based
on factors which are, in many instances, beyond the Companys control. 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 risk
that the value of the property held by Core Communities may decline, including as a result of a
sustained downturn in the residential real estate and homebuilding industries; the impact of
market conditions for commercial property and whether the factors negatively impacting the
homebuilding and residential real estate industries will impact the market for commercial
property; the risk that the development of parcels and master-planned communities will not be
completed as anticipated; continued declines in the estimated fair value of our real estate
inventory and the potential for write-downs or impairment charges; the effects of increases in
interest rates and availability of credit to buyers of our inventory; accelerated principal payments on our debt obligations due to re-margining or curtailment payment requirements; the ability to obtain
financing and to renew existing credit facilities on acceptable terms, if at all; the Companys
ability to access additional capital on acceptable terms, if at all; the risks and uncertainties
inherent in bankruptcy proceedings and the inability to predict the effect of Levitt and Sons
reorganization and/or liquidation process on Levitt Corporation and its results of operation and
financial condition; the risk that creditors of Levitt and Sons may be successful in asserting
claims against Levitt Corporation and the risk that any of Levitt Corporations assets may become
subject to or included in Levitt and Sons bankruptcy case; and the Companys success at managing
the risks involved in the foregoing. Many of these factors are beyond our control. The Company
cautions that the foregoing factors are not exclusive.
ITEM 1. BUSINESS
General Description of Business
Levitt Corporation (Levitt Corporation, we or the Company), directly and through its
wholly owned subsidiaries, historically has been a real estate development company with activities
in the Southeastern United States. We were organized in December 1982 under the laws of the State
of Florida.
In 2007, Levitt Corporation engaged in real estate activities through Core Communities, LLC
(Core Communities or Core), and other operations, which included Levitt Commercial, LLC
(Levitt Commercial), an investment in Bluegreen Corporation (Bluegreen NYSE: BXG), a
development of a homebuilding community in South Carolina, Carolina Oak Homes, LLC (Carolina Oak)
and other investments in real estate projects through subsidiaries and joint ventures. During
2007, Levitt Corporation also conducted homebuilding operations through Levitt and Sons, LLC
(Levitt and Sons).
Core Communities
Core
Communities was founded in May 1996 to develop a master-planned community in Port St.
Lucie, Florida now known as St. Lucie West. It is currently developing master-planned communities
in Port St. Lucie, Florida called Tradition, Florida and in a community outside of Hardeeville,
South Carolina called Tradition Hilton Head (formerly known as Tradition, South Carolina).
Tradition, Florida has been in
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active development for several years, while Tradition Hilton Head is in the early stage of
development. As a master-planned community developer, Core Communities engages in four primary
activities: (i) the acquisition of large tracts of raw land; (ii) planning, entitlement and
infrastructure development; (iii) the sale of entitled land and/or developed lots to homebuilders
and commercial, industrial and institutional end-users; and (iv) the development and leasing of
commercial space to commercial, industrial and institutional end-users.
St. Lucie West is a 4,600 acre master-planned community located in St. Lucie County, Florida.
It is bordered by Interstate 95 to the west and Floridas Turnpike to the east. The community
blends residential, commercial and industrial developments where residents have access to commerce,
recreation, entertainment, religious and educational facilities all within the community. St. Lucie
West is completely sold out and substantially built out and consists of a residential community,
two college campuses and numerous recreational amenities and facilities. PGA of America owns and
operates a golf course and a country club on an adjacent parcel. The communitys baseball stadium,
Tradition Field, serves as the spring training headquarters for the New York Mets professional
baseball team and a minor league affiliate. There are more than 6,000 homes in St. Lucie West
housing nearly 15,000 residents.
Tradition, Florida encompasses more than 8,200 total acres, including approximately 3,900
remaining net saleable acres. Approximately 1,800 acres have been sold to date and 259 acres were
subject to firm sales contracts with various purchasers as of December 31, 2007. Community
Development District special assessment bonds are being utilized to provide financing for certain
infrastructure developments. Tradition, Florida is planned to include a 4.5-mile long employment
corridor along I-95, educational and health care facilities, commercial properties, residential
developments and other uses in a series of mixed-use parcels. As part of the employment corridor,
a 120-acre research park is being marketed as the Florida Center for Innovation at Tradition
(FCI), within which the Torrey Pines Institute for Molecular Studies (TPIMS) is building its new
headquarters. FCI is planned to consist of just under two million square feet of research and
development space, a 300 bed Martin Memorial Health Systems hospital, a 27-acre lake with a 1-mile
fitness trail and recreational amenities, state-of-the-art fiber optic cabling, underground
electrical power and proximity to high-quality housing, restaurants, hotels and shopping. Mann
Research Center also recently purchased a 22.4 acre parcel within the FCI on which it intends to
build a 400,000-square-foot life sciences complex. Oregon Health & Science Universitys Vaccine
and Gene Therapy Institute also recently announced plans to locate a 120,000-square-foot facility
within FCI.
Tradition Hilton Head, encompasses almost 5,400 total acres, including approximately 2,800
remaining net saleable acres and 150 acres owned and being developed by Carolina Oak, a subsidiary
of the Company currently included under Other Operations below. The community is currently entitled
for up to 9,500 residential units and 1.5 million square feet of commercial space, in addition to
recreational areas, educational facilities and emergency services. There were no firm sales
contracts as of December 31, 2007.
Our Land Division recorded $16.6 million in sales in 2007 compared to $69.8 million in 2006 as
demand for residential inventory by homebuilders in Florida substantially decreased. In response,
the Land Division has concentrated on seeking buyers for commercial property. In addition to sales
of parcels to developers, the Land Division plans to continue to internally develop certain
projects for leasing to third parties based on market demand. It is expected that a higher
percentage of revenue in the near term will come from sales and development of commercial property
in Florida, provided that the market for commercial property remains stable. In addition, the Land
Division expects to realize increased revenues in the future arising from residential and
commercial land sales in South Carolina as development on Tradition Hilton Head progresses.
However, revenues from land sales in South Carolina would be negatively affected if the real estate
market in South Carolina sustains a downturn similar to that experienced in Florida. Core
generated higher revenues from services in 2007 compared to 2006 due to increased rental income
associated with leasing of certain commercial properties and increased revenues relating to
irrigation services provided to homebuilders, commercial users, and the residents of Tradition,
Florida. Retailers at Tradition, Florida include nationally branded retail stores such as Target,
Babies R Us, Bed, Bath and Beyond, Office Max, The Sports Authority, TJ Maxx, Petsmart, LA Fitness
and Old Navy.
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In June 2007, Core Communities began soliciting bids from several potential buyers to purchase
assets associated with two of Cores commercial leasing projects. Management determined it is
probable that Core will sell these projects in 2008 and, while Core may retain an equity interest
in the properties and provide ongoing management services to a potential buyer, the anticipated
level of continuing involvement is not expected to be significant. The assets are available for
immediate sale in their present condition. There is no assurance that these sales will be
completed in the timeframe expected by management or at all. Due to this decision, the projects
and assets that are for sale have been classified as a discontinued operation for all periods
presented in accordance with Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), and its revenue and expenses are
not included in the results of continuing operations for any periods presented in this Annual
Report on Form 10-K. The assets have been reclassified to assets held for sale and the related
liabilities associated with these assets held for sale were also reclassified in the audited
consolidated statements of financial condition. Prior period amounts have been reclassified to
conform to the current year presentation. As of December 31, 2007, the carrying value of the
subject net assets for sale was $16.1 million. This amount is comprised of total assets of $96.2
million less total liabilities of $80.1 million. While the commercial real estate market has
generally been stronger than the residential real estate market, interest in commercial property is
weakening and financing is not as readily available in the current market, which may adversely
impact the profitability of our commercial property. Management has reviewed the net asset value
and estimated the fair market value of the assets based on the bids received related to these
assets and determined that the assets were appropriately recorded at the lower of cost or fair
value less the costs to sell at December 31, 2007.
Other Operations
During 2007, we were also engaged in commercial real estate activities through our wholly
owned subsidiary, Levitt Commercial, LLC (Levitt Commercial), and we also have investments in
other real estate projects through subsidiaries and various joint ventures. We own approximately
31% of the outstanding common stock of Bluegreen, which acquires, develops, markets and sells
vacation ownership interests in drive-to vacation resorts, as well as residential home sites
around golf courses or other amenities.
In addition, we are engaged in limited homebuilding activities in Tradition Hilton Head
through our wholly owned subsidiary, Carolina Oak, which is a direct subsidiary of Levitt
Corporation which was acquired from Levitt and Sons during October 2007. See Recent Developments
Acquisition of Carolina Oak. Levitt Corporation had a previous financial commitment associated
with this community, which is located in Tradition Hilton Head, and management determined that it
was in the best interest of the Company to continue to develop the community. The results of
operations and financial condition of Carolina Oak as of and for the three year period ended
December 31, 2007 are included in the Primary Homebuilding segment in this Annual Report on Form
10-K because it is engaged in homebuilding activities and because the financial metrics from this
company are similar in nature to the other homebuilding projects within this segment that existed
during these periods.
Levitt and Sons
Acquired in December 1999, Levitt and Sons was a developer of single family homes and townhome
communities for active adults and families in Florida, Georgia, Tennessee and South Carolina.
Levitt and Sons operated in two reportable segments, Primary Homebuilding and Tennessee
Homebuilding. On November 9, 2007 (the Petition Date), Levitt and Sons and substantially all of
its subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter
11 of Title 11 of the United States Code (the Chapter 11 Cases) in the United States Bankruptcy
Court for the Southern District of Florida ( theBankruptcy Court). See Recent Developments
Bankruptcy of Levitt and Sons for the current status of the Chapter 11 Cases.
The homebuilding environment continued to deteriorate throughout 2007 as increased inventory
levels combined with weakened consumer demand for housing and tightened credit requirements
negatively affected sales, deliveries and margins throughout the industry. In both Homebuilding
segments, Levitt and Sons experienced decreased orders, decreased margins and increased
cancellation rates on
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homes in backlog. Excess supply, particularly in previously strong markets like Florida, in
combination with a reduction in demand resulting from tightened credit requirements and reductions
in credit availability, as well as buyers fears about the direction of the market exerted a
continuous cycle of downward pricing pressure for residential homes.
Levitt and Sons engaged in discussions with its five principal lenders in an effort to obtain
agreements to restructure its outstanding indebtedness. No substantive agreements were received
that addressed either the short term or longer term cash flow requirements of Levitt and Sons or
debt repayment. Due to the uncertainty regarding Levitt and Sons indebtedness and the continued
deterioration of the homebuilding industry and Levitt and Sons operations in particular, Levitt
Corporation, which had previously loaned Levitt and Sons approximately $84.3 million, stopped
funding the cash flow needs of this subsidiary in the third quarter of 2007. Levitt Corporation was
unwilling to commit additional material loans and advances to Levitt and Sons unless Levitt and
Sons debt was restructured in a way which increased the likelihood that Levitt and Sons could
generate sufficient cash to meet its future obligations and be positioned to address the long term
issues it faced. Levitt and Sons ceased development at its projects at September 30, 2007 due to a
lack of funding.
On November 9, 2007, the Debtors filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. Under Section 362 of the Bankruptcy Code, the filing of a
bankruptcy petition automatically stays most actions against the Debtors, including most actions to
collect pre-petition indebtedness or to exercise control of the property of the Debtors.
Based on the loss of control over Levitt and Sons as a result of the Chapter 11 Cases and the
uncertainties surrounding the nature, timing and specifics of the bankruptcy proceedings, Levitt
Corporation deconsolidated Levitt and Sons as of November 9, 2007, eliminating all future
operations from its financial results. We are prospectively accounting for any remaining
investment in Levitt and Sons, net of any outstanding advances due from Levitt and Sons, as a cost
method investment. Under cost method accounting, income would only be recognized to the extent of
cash received in the future or when Levitt Corporation is discharged from the bankruptcy, at which
time, the balance of the loss in excess of investment in subsidiary can be recognized into
income. As of November 9, 2007, Levitt Corporation had a negative investment in Levitt and Sons
of $123.0 million and there were outstanding advances due from Levitt and Sons of $67.8 million at
Levitt Corporation resulting in a net negative investment of $55.2 million. Included in the
negative investment was approximately $15.8 million associated with deferred revenue related to
intra-segment sales between Levitt and Sons and Core Communities. Since the Chapter 11 Cases were
filed, Levitt Corporation has also incurred certain administrative costs in the amount of $1.4
million relating to certain services and benefits provided by the Company in favor of the Debtors.
These costs include, but are not limited to, the cost of maintaining employee benefit plans,
providing accounting services, human resources expenses, general liability and property insurance
premiums, payroll processing expenses, licensing and third-party professional fees (collectively,
the Post Petition Services).
Recent Developments
Bankruptcy of Levitt and Sons
On November 9, 2007, the Debtors filed voluntary petitions for relief under the Chapter 11
Cases in the Bankruptcy Court. The Debtors commenced the Chapter 11 Cases in order to preserve the
value of their assets and to facilitate an orderly wind-down of their businesses and disposition of
their assets in a manner intended to maximize the recoveries of all constituents.
On November 27, 2007, the Office of the United States Trustee (the U.S. Trustee), appointed an
official committee of unsecured creditors in the Chapter 11 Cases (the Creditors Committee). On
January 22, 2008, the U.S. Trustee appointed a Joint Home Purchase Deposit Creditors Committee of
Creditors Holding Unsecured Claims (the Deposit Holders Committee, and together with the
Creditors Committee, the Committees) The Committees have a right to appear and be heard in the
Chapter 11 Cases.
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On November 27, 2007, the Bankruptcy Court granted the Debtors Motion for Authority to Incur
Chapter 11 Administrative Expense Claim (Chapter 11 Admin. Expense Motion) thereby authorizing
the Debtors to incur a post petition administrative expense claim in favor of the Company for Post
Petition Services. While the Bankruptcy Court approved the incurrence of the amounts as unsecured
post petition administrative expense claims, the cash payments of such claims is subject to
additional court approval. In addition to the unsecured administrative expense claims, the
Company has pre-petition secured and unsecured claims against the Debtors. The Debtors have
scheduled the amounts due to the Company in the Chapter 11 Cases. The unsecured pre-petition
claims of the Company scheduled by Levitt and Sons are approximately $67.3 million and the secured
pre-petition claim scheduled by Levitt and Sons is approximately $460,000. The Company has also
filed contingent claims with respect to any liability it may have arising out of disputed
indemnification obligations under certain surety bonds. Lastly, the Company implemented an
employee severance fund in favor of certain employees of the Debtors. Employees who received funds
as part of this program as of December 31, 2007, which totaled approximately $600,000 paid as of
that date, have assigned their unsecured claims to the Company. There is no assurance that there
will be any funds available to pay the Company these or any other amounts associated with the
Companys claims against the Debtors.
At December 31, 2007, the Company had a federal income tax receivable of $27.4 million as a
result of losses incurred, which is anticipated to be collected upon filing the 2007 consolidated
U.S. federal income tax return. The Creditors Committee has advised the Company that they believe
the creditors are entitled to share in an unstated amount of the refund.
Pursuant to the Bankruptcy Code, the Debtors have for a limited period subject to extension,
the exclusive right to file a plan of reorganization or liquidation (the Plan).
Rights Offering
On August 29, 2007, Levitt Corporation distributed to each holder of record of its Class A
common stock and Class B common stock as of August 27, 2007 5.0414 subscription rights for each
share of such stock owned on that date (the Rights Offering), or an aggregate of rights to
purchase 100 million shares of Class A common stock. The Rights Offering was priced at $2.00 per
share, commenced on August 29, 2007 and was completed on October 1, 2007. Levitt Corporation
received $152.8 million of proceeds in connection with the exercise of rights by its shareholders.
In connection with the offering, Levitt Corporation issued an aggregate of 76,424,066 shares of
Class A common stock on October 1, 2007. The stock price on the October 1, 2007 closing date was
$2.05 per share. As a result, there is a bonus element adjustment of 1.97% for all shareholders of
record on August 29, 2007 and accordingly the number of weighted average shares of Class A common
stock outstanding for basic and diluted (loss) earnings per share was retroactively increased by
1.97% for all prior periods presented in this Annual Report on Form 10-K.
Reductions in Force
In the third and fourth quarters of 2007, substantially all of Levitt and Sons employees were
terminated and 22 employees were terminated at Levitt Corporation primarily as a result of the
Chapter 11 Cases. On November 9, 2007, Levitt Corporation implemented an employee fund and
indicated that it would pay up to $5 million of severance benefits to terminated Levitt and Sons
employees to supplement the limited termination benefits which could be paid by Levitt and Sons to
those employees. Levitt and Sons is restricted in the amount of termination benefits it can pay to
its former employees by virtue of the Chapter 11 Cases. For the year ended December 31, 2007, the
Company paid approximately $600,000 in severance and termination charges related to the above fund which is
reflected in the Other Operations segment and paid $2.3 million in severance to the employees of the Homebuilding
Division prior to deconsolidation. Employees entitled to participate in the fund either received a payment
stream, which in certain cases extended over two years, or a lump sum payment, dependent on a
variety of factors. For any amounts paid related to this fund from the Other Operations segment,
these payments were in exchange for an assignment to the Company by those employees of their
unsecured claims against Levitt and Sons. At December 31, 2007 there was $2.0
million accrued to be paid related to this fund as well as severance for employees other than
Levitt and Sons employees. In addition to these amounts, we expect additional severance related
obligations associated with the fund mentioned above of $1.7 million in 2008 as employees assign
their unsecured claims to the Company.
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In addition to the severance benefits, Levitt Corporation entered into two independent
contractor agreements in December 2007 with two former Levitt and Sons employees. The agreements
are for past and future consulting services. The total commitment related to these agreements is
$1.6 million and will be paid monthly through 2009.
Acquisition of Carolina Oak Homes, LLC
On October 23, 2007, Levitt Corporation acquired from Levitt and Sons all of the outstanding
membership interests in Carolina Oak, a South Carolina limited liability company (formerly known as
Levitt and Sons of Jasper County, LLC) for the following consideration: (i) assumption of the
outstanding principal balance of a loan in the amount of $34.1 million which is secured by a 150
acre parcel of land owned by Carolina Oak located in Tradition Hilton Head , (ii) execution of a
promissory note in the amount of $400,000 to serve as a deposit under a purchase agreement between
Carolina Oak and Core Communities of South Carolina, LLC and (iii) the assumption of specified
payables in the amount of approximately $5.3 million. The principal asset in Carolina Oak is a
150 acre parcel of partially developed land currently under development and located in Tradition
Hilton Head. As of December 31, 2007, Carolina Oak had 14 units under current development with no
units in backlog. Carolina Oak has an additional 91 lots that are currently available for home
construction.
Acquisition of common stock
As of March 17, 2008, the Company, together with, Woodbridge Equity Fund LLLP, a newly formed
limited liability limited partnership, wholly-owned by the Company, had purchased 3,000,200 shares
of Office Depot, Inc. (Office Depot) common stock, which represents approximately one percent of
Office Depots outstanding stock, at a cost of approximately $34.0 million. In connection with the
acquisition of this ownership interest, on March 17, 2008, the Company delivered notice to Office
Depot of the Companys intent to nominate two nominees to stand for election to Office Depots
Board of Directors. One of the nominees, Mark D Begelman, was the President and Chief Operating
Officer of Office Depot from 1991 to 1995 and is currently an officer of BankAtlantic. Also on
March 17, 2008, the Company, together with Woodbridge Equity Fund LLLP and other participants in
the proxy solicitation, filed a preliminary proxy statement with the SEC in connection with the
solicitation of proxies in support of the election of the two nominees. The Company has agreed to
indemnify each nominee against certain losses and expenses which such nominees may incur in
connection with the proxy solicitation and their efforts to gain election to the Office Depot
board. In addition, the Company has filed a complaint in the Delaware Court of Chancery seeking,
among other things, a court order declaring that the nomination of the two nominees at the Office
Depot annual meeting is valid.
Business Strategy
Our business strategy involves the following principal goals:
Pursue investment opportunities. We intend to pursue acquisitions and investments
opportunistically, using a combination of our cash and third party equity and debt financing.
These investments may be within or outside of the real estate industry. We also intend to explore
a variety of funding structures which might leverage and capitalize on our available cash and other
assets currently owned by us. We may acquire entire businesses, majority interests in companies or
minority, non-controlling interests. Investing on this basis will present additional risks,
including the risks inherent in the industries in which we invest and potential integration risks
if we seek to integrate the acquired operations into our operations.
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Continue to develop master-planned communities. The Land Division is actively developing and
marketing its master-planned communities in Florida and South Carolina. In addition to marketing
of parcels to homebuilders, the Land Division continues to expand its commercial operations through
sales to
developers and through its efforts to internally develop projects for leasing to third
parties. Core is committed to developing communities that will responsibly serve its residents and
business in the long-term. The goal of its developments is to facilitate a regional roadway network
and establish model communities that will set an example for future development. Core has
established a series of community design standards which have been incorporated into the overall
planning effort of master-planned communities including: utilizing a mix of housing types,
including single-family neighborhoods and a variety of higher density communities; and having a
neighborhood Town Center, Community School parcels, a workplace environment and community parks.
The intent is to establish well-planned, innovative communities that are sustainable for the
long-term.
We view our commercial projects opportunistically and intend to periodically evaluate the
short and long term benefits of retention or disposition. In 2007, we announced the intention to
sell the commercial leasing projects owned by Core and provide ongoing management services to a
potential buyer. Historically, land sale revenues have been sporadic and fluctuate dramatically by
quarter and land sale transactions have resulted in 40% to 60% margins. However, margins on land
sales and the many factors which impact the margin may not remain at these levels given the current
downturn in the real estate markets where we own properties. Recent trends in home sales may
require us to hold our land inventory longer than originally projected. We intend to review each
parcel ready for development to determine whether to market the parcel to third parties, to
internally develop the parcel for leasing, or hold the parcel and determine later whether to pursue
third party sales or internal development opportunities. Our decision will be based, in part, on
the condition of the commercial real estate market and our evaluation of future prospects. Our
land development activities in our master-planned communities offer a source of land for future
homebuilding by others. Much of our master-planned community acreage is under varying development
orders and is not immediately available for construction or sale to third parties at prices that
maximize value. Third-party homebuilder sales remain an important part of our ongoing strategy to
generate cash flow, maximize returns and diversify risk, as well as to create appropriate housing
alternatives for different market segments in our master-planned communities.
Operate efficiently and effectively. We have recently taken steps which we believe strengthen
our company. We raised a significant amount of capital through a rights offering and have
implemented significant reductions in workforce levels. We intend to continue our focus on
aligning our staffing levels with business goals and current and anticipated future market
conditions. We also intend to continue to focus on expense management initiatives throughout the
organization.
Utilize community development districts to fund development costs. We establish community
development districts to access tax-exempt bond financing to fund infrastructure development at
our master-planned communities, which is a common practice among land developers in Florida. The
ultimate owners of the property within the district are responsible for amounts owed on these
bonds, which are funded through annual assessments. Generally, in Florida, no payments under the
bonds are required from property owners during the first two to three years after issuance as a
result of capitalized interest built into the bond proceeds. While we are responsible for any
assessed amounts until the underlying property is sold, this strategy allows us to more effectively
manage the cash required to fund infrastructure at the project in the short term. If the property
is not sold prior to the assessment date we will be required to pay the full amount of the annual
assessment on the property owned by us. However, there have recently been significant disruptions
in credit markets, including downward trends in the municipal bond markets which may impact the
availability and pricing of this type of financing in the future. We
may not be able to access tax-exempt bond financing or any other financing through community development districts if market
conditions do not improve.
Business Segments
Through 2007, management reported results of operations through four segments: Land Division,
Other Operations, Primary Homebuilding and Tennessee Homebuilding. The results of operations of
Primary Homebuilding, with the exception of Carolina Oak, and Tennessee Homebuilding are only
included as separate segments through November 9, 2007, the date of Levitt Corporations
deconsolidation of Levitt and Sons. The presentation and allocation of the assets, liabilities and
results of operations of each
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segment may not reflect the actual economic costs of the segment as a stand-alone business. If
a different basis of allocation were utilized, the relative contributions of the segment might
differ but, in managements view, the relative trends in segments would not likely be impacted.
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
and Item 8. Financial Statements Note 23 to our audited consolidated financial statements for a
discussion of trends, results of operations and other relevant information on each segment.
Land Division
The Land Division, which operates through Core Communities, generates revenue primarily from
land sales from master-planned communities and also generates revenue from leasing commercial
properties which it has developed. At December 31, 2007, our Land Division owned approximately
6,500 gross acres in Tradition, Florida including approximately 3,900 saleable acres. Through
December 31, 2007, Core Communities had entered into contracts for the sale of a total of
approximately 2,100 acres in the first phase development at Tradition, Florida of which
approximately 1,800 acres had been delivered at December 31, 2007. Our backlog contains contracts
for the sale of 259 acres, although there is no assurance that the consummation of those
transactions will occur. Delivery of these acres is expected to be completed in 2009. At December
31, 2007, our Land Division also owned approximately 5,200 gross acres in Tradition Hilton Head,
including approximately 2,800 remaining net saleable acres and 150 acres owned and being developed
by Carolina Oak, a subsidiary of the Company, currently included under Other Operations below.
Our Land Divisions land in development and relevant data as of December 31, 2007 were as
follows:
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Non- |
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Third |
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Date |
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Acres |
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Closed |
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Current |
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Saleable |
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Saleable |
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|
Party |
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Acres |
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Acquired |
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Acquired |
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Acres(a) |
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Inventory |
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|
Acres(b) |
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|
Acres(b) |
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Backlog(c) |
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Available |
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Currently in Development |
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Tradition, Florida |
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1998 2004 |
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8,246 |
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1,794 |
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6,452 |
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2,583 |
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3,869 |
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|
|
259 |
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|
|
3,610 |
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Tradition Hilton Head |
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2005 |
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|
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5,390 |
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|
163 |
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5,227 |
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2,417 |
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2,810 |
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2,810 |
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Total Currently in Development |
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13,636 |
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1,957 |
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11,679 |
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5,000 |
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6,679 |
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|
259 |
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6,420 |
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(a) |
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Closed acres for Tradition Hilton Head include 150 acres owned by Carolina Oak, a wholly owned subsidiary of Levitt Corporation. The revenue from this sale was eliminated in consolidation. |
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(b) |
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Actual saleable and non-saleable acres may vary over time due to changes in zoning, project design, or other factors. Non-saleable acres include, but are not limited to, areas set aside for
roads, parks, schools, utilities, wetlands and other public purposes. |
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(c) |
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Acres under contract to third parties. |
Other Operations
Other operations consist of Levitt Commercial, our investment in Bluegreen Corporation,
investments in joint ventures and holding company operations.
Levitt Commercial
Levitt Commercial was formed in 2001 to develop industrial, commercial, retail and residential
properties. Revenues for the year ended December 31, 2007 amounted to $6.6 million which reflect
sales of warehouse properties. Levitt Commercial delivered 17 flex warehouse units at its
remaining development project. Levitt Commercial completed the sale of all flex warehouse units in
inventory in 2007 and we have no current plans for future sales from Levitt Commercial.
8
Investment in Bluegreen Corporation
We own approximately 9.5 million shares of the outstanding common stock of Bluegreen, which
represents approximately 31% of that companys issued and outstanding common stock. Bluegreen is a
leading provider of vacation and residential lifestyle choices through its resorts and residential
community businesses. Bluegreen is organized into two divisions: Bluegreen Resorts and Bluegreen
Communities.
Bluegreen Resorts acquires, develops and markets vacation ownership interests (VOIs) in
resorts generally located in popular high-volume, drive-to vacation destinations. Bluegreen
Communities acquires, develops and subdivides property and markets residential land homesites, the
majority of which are sold directly to retail customers who seek to build a home in a high quality
residential setting, in some cases on properties featuring a golf course and related amenities.
Bluegreen also generates significant interest income through its financing of individual
purchasers of VOIs and, to a nominal extent, homesites sold by its Bluegreen Communities division.
We evaluated our investment in Bluegreen at December 31, 2007 and noted that the current
$116.0 million book value of the investment was greater than the market value of $68.4 million
(based upon a December 31, 2007 closing price of $7.19). We performed an impairment review in
accordance with Emerging Issues Task Force 03-1 (EITF
03-1), Accounting Principles Board Opinion No. 18 (APB No. 18), and Securities and Exchange Commission Staff Accounting Bulletin 59 (SAB
59) to analyze various quantitative and qualitative factors and determine if an impairment
adjustment was needed. Based on our evaluation and the review of various qualitative and
quantitative factors relating to the performance of Bluegreen, the current value of the stock
price, and managements intention with regards to this investment, management determined that the
impairment associated with the investment in Bluegreen was not an other than temporary decline and,
accordingly, no adjustment to the carrying value was recorded at December 31, 2007.
Bluegreen recently announced its intention to pursue a rights offering to its shareholders of
up to $100 million of its common stock. Bluegreen intends to file a registration statement relating
to the rights offering in March 2008. We own approximately 31% of Bluegreens outstanding common
stock and we currently intend to participate in this rights offering and to support the efforts of
Bluegreens management to maximize shareholder value through organic and acquisition-driven growth
initiatives and then exploring strategic alternatives.
Corporate Operations Headquarters
In October 2004, we acquired an 80,000 square foot office building to serve as our home office
in Fort Lauderdale, Florida for $16.2 million. The building was fully leased and occupied during
the year ended December 31, 2005 and generated rental income. On November 9, 2005 the lease was
modified and two floors of the building were vacated in January 2006. The building now serves as
the Corporate Headquarters for Levitt Corporation. We are planning to seek to lease to third
parties this space in 2008 and relocate to a smaller space due to the number of employees we have
remaining at this facility.
Other Investments and Joint Ventures
In the past we have sought to mitigate the risks associated with certain real estate projects
by entering into joint ventures. Our investments in joint ventures and the earnings recorded on
these investments were not significant for the year ended December 31, 2007.
We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman
Longleaf relating to, among other obligations, that partners guarantee of the joint ventures
indebtedness. Our liability under the indemnity agreement is limited to the amount of any
distributions from the joint venture which exceeds our original capital and other contributions.
Levitt Commercial owns a 20% interest in Altman Longleaf, LLC, which owns a 20% interest in this
joint venture. This joint venture is developing a 298-unit apartment complex in Melbourne, Florida.
An affiliate of our joint venture partner is the general contractor. Construction commenced on
the development in 2004 and was completed in 2006. Our original capital contributions totaled
approximately $585,000 and we have received approximately $1.2 million in distributions since 2004.
Accordingly, our potential obligation of indemnity at December 31, 2007 is approximately $664,000.
The book value of this investment as of December 31, 2007 was zero due
to the losses this joint venture has incurred. Based on the joint venture assets that secure
the indebtedness, we do not currently believe it is likely that any payment will be required under
the indemnity agreement.
9
Homebuilding Division
The Primary and Tennessee Homebuilding segments were deconsolidated from our results of
operations on November 9, 2007 due to the Chapter 11 Cases. The results of operations for the
three year period ended December 31, 2007 include the results of operations for the Debtors through
November 9, 2007. However, we continue to be engaged in limited homebuilding activities in
Tradition Hilton Head through Carolina Oak, which was acquired by Levitt Corporation from Levitt
and Sons during 2007. The results of operations and financial condition of Carolina Oak as of and
for the three year period ended December 31, 2007 are included in the Primary Homebuilding segment
in this Form 10-K because it is engaged in homebuilding activities and because the financial
metrics from this company are similar in nature to the other homebuilding projects within this
segment that existed during these periods.
As of December 31, 2007, Carolina Oak had 14 units under current development with no units in
backlog. Carolina Oak has an additional 91 lots that are currently available for home
construction. We may decide to continue to build the remainder of the community which is planned
to consist of approximately 403 additional units if the sales of the existing units are successful.
Information Technologies
We continue to seek to improve the efficiency of our field and corporate operations in an
effort to plan appropriately for the construction of our master-planned communities, perform
limited homebuilding activities and to plan for future investments or acquisitions. In the fourth
quarter of 2006, we implemented a fully integrated operating and financial system in order to have
all operating entities on one platform. These systems have enabled information to be shared and
utilized throughout our company and have enabled us to better manage, optimize and leverage our
employees and management. During 2007, we further implemented the property management module
associated with this financial system for use in our Land Division to assist with our expansion and
management of our commercial leasing business.
Seasonality
We have historically experienced volatility but not necessarily seasonality, in our results of
operations from quarter-to-quarter due to the nature of the real estate business. Historically,
land sale revenues have been sporadic and have fluctuated dramatically. In addition, margins on
land sales and the many factors which impact the margin may not remain at historical levels given
the current downturn in the real estate markets where we own properties. We are focusing on
maximizing our sales efforts with homebuilders at our master-planned communities. However, due to
the uncertainty in the real estate market, we expect to continue to experience high volatility in
our Land Division revenues throughout 2008.
Competition
The real estate development industry is highly competitive and fragmented. We compete with
third parties in our efforts to sell land to homebuilders. We compete with other local, regional
and national real estate companies and homebuilders, often within larger subdivisions designed,
planned and developed by such competitors. Some of our competitors have greater financial,
marketing, sales and other resources than we do.
In addition, there are relatively low barriers to entry into our business. There are no
required technologies that would preclude or inhibit competitors from entering our markets. Our
competitors may independently develop land. A substantial portion of our operations are in Florida
and South Carolina, and we expect to continue to face additional competition from new entrants into
our markets.
10
Employees
As of December 31, 2007, we employed a total of 117 full-time employees and 8 part-time
employees. The breakdown of employees by segment was as follows:
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Full |
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Part |
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Time |
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Time |
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Primary Homebuilding |
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3 |
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Land |
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67 |
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8 |
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Other Operations |
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47 |
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Total |
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117 |
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8 |
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|
Primary Homebuilding employee count includes those employees working at Carolina Oak. They are
Levitt Corporation employees but the salaries and expenses related to these individuals are
included in the results of operations of Primary Homebuilding for the three year period ended
December 31, 2007. In addition to the employees listed in the preceding table, Levitt and Sons
had 38 employees as of December 31, 2007 who were providing post-bankruptcy services. These
employees are being phased out as projects are abandoned or transferred to the lenders. Levitt
Corporation is not paying for the salaries or benefits of these remaining Levitt and Sons
employees.
Our employees are not represented by any collective bargaining agreements and we have never
experienced a work stoppage. We believe our employee relations are satisfactory.
Additional Information
Our
Internet website address is www.levittcorporation.com. Our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are
available free of charge through our website, as soon as reasonably practicable after such material
is electronically filed with, or furnished to, the Securities and
Exchange Commission (SEC). Our Internet website and the information
contained in or connected to our website are not incorporated into this Annual Report on Form 10-K.
Our website also includes printable versions of our Corporate Governance Guidelines, our Code
of Business Conduct and Ethics and the charters for each of the Audit, Compensation and
Nominating/Corporate Governance Committees of our Board of Directors.
ITEM 1A. RISK FACTORS
RISKS RELATING TO OUR BUSINESS AND THE REAL ESTATE BUSINESS GENERALLY
We engage in real estate activities which are speculative and involve a high degree of risk.
The real estate industry is highly cyclical by nature, the current market is experiencing a
significant decline and future market conditions are uncertain. Factors which adversely affect the
real estate industry, many of which are beyond our control, include:
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overbuilding or decreases in demand to acquire land; |
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the availability and cost of financing; |
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unfavorable interest rates and increases in inflation; |
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changes in national, regional and local economic conditions; |
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cost overruns, inclement weather, and labor and material shortages; |
11
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the impact of present or future environmental legislation, zoning laws and
other regulations; |
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availability, delays and costs associated with obtaining permits, approvals or
licenses necessary to develop property; and |
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increases in real estate taxes, insurance and other local government fees. |
There has been a decline in the homebuilding industry over the past two years and if it continues
it could adversely affect land development activities at our Land Division.
For the past two years, the homebuilding industry has experienced a significant decline in
demand for new homes and a significant oversupply of lots and homes available for sale. The trends
in the homebuilding industry continue to be unfavorable. Demand has slowed as evidenced by fewer
new orders and lower conversion rates, which has been exacerbated by increasing cancellation rates.
The combination of the lower demand and higher inventories affects the amount of land that we are
able to develop and sell in the future, as well as the prices at which we are able to sell the
land. We cannot predict how long demand and other factors in the homebuilding industry will remain
unfavorable, how active the market will be during the coming periods and how these factors will
affect our Land Division. A substantial downturn or a further deterioration in the homebuilding
industry will have an adverse effect on our results of operations and financial condition.
Because real estate investments are illiquid, a decline in the real estate market or in the economy
in general could adversely impact our business and our cash flow.
Real estate investments are generally illiquid. Companies that invest in real estate have a
limited ability to vary their portfolio of real estate investments in response to changes in
economic and other conditions. In addition, the market value of any or all of our properties or
investments may decrease in the future. Moreover, we may not be able to timely dispose of an
investment when we find dispositions advantageous or necessary, or complete the disposition of
properties under contract to be sold, and any such dispositions may not provide proceeds in excess
of the amount of our investment in the property or even in excess of the amount of any indebtedness
secured by the property. Our inventory of real estate was $227.3 million at December 31, 2007.
These land holdings subject us to a greater risk from declines in real estate values in our markets
and are susceptible to impairment write-downs in the current real estate environment. Declines in
real estate values or in the economy generally could have a material adverse impact on our
financial condition and results of operations.
Natural disasters could have an adverse effect on our real estate operations.
The Florida and South Carolina markets in which we operate are subject to the risks of natural
disasters such as hurricanes and tropical storms. These natural disasters could have a material
adverse effect on our business by causing the incurrence of uninsured losses, increased homebuyer
insurance rates, delays in construction, and shortages and increased costs of labor and building
materials.
In addition to property damage, hurricanes may cause disruptions to our business operations.
Approaching storms may require that operations be suspended in favor of storm preparation
activities. After a storm has passed, construction-related resources such as sub-contracted labor
and building materials are likely to be redeployed to hurricane recovery efforts. Governmental
permitting and inspection activities may similarly be focused primarily on returning displaced
residents to homes damaged by the storms rather than on new construction activity. Depending on
the severity of the damage caused by the storms, disruptions such as these could last for several
months.
12
A portion of our revenues from land sales in our master-planned communities are recognized for
accounting purposes under the percentage of completion method, therefore, if our actual results
differ from our assumptions, our profitability may be reduced.
Under the percentage of completion method of accounting for recognizing revenue, we record
revenue and cost of sales as work on the project progresses based on the percentage of actual work
incurred compared to the total estimated costs. This method relies on estimates of total expected
project costs. Revenue and cost estimates are reviewed and revised periodically as the work
progresses. Adjustments are reflected in sales of real estate and
cost of sales in the period when such estimates are
revised. Variation of actual results compared to our estimated costs in these large master-planned
communities could cause material changes to our net margins.
Product liability litigation and claims that arise in the ordinary course of business may be costly
which could adversely affect our business.
Our commercial development business is subject to construction defect and product liability
claims arising in the ordinary course of business. These claims are common in the commercial real
estate industries and can be costly. We have, and many of our subcontractors have, general
liability, property, errors and omissions, workers compensation and other business insurance.
However, these insurance policies only protect us against a portion of our risk of loss from
claims. In addition, because of the uncertainties inherent in these matters, we cannot provide
reasonable assurance that our insurance coverage or our subcontractor arrangements will be adequate
to address all warranty, construction defect and liability claims in the future. In addition, the
costs of insuring against construction defect and product liability claims, if applicable, are high
and the amount of coverage offered by insurance companies is also currently limited. There can be
no assurance that this coverage will not be further restricted and become more costly. If we are
not able to obtain adequate insurance against these claims, we may experience losses that could
negatively impact our operating results.
We are subject to governmental regulations that may limit our operations, increase our expenses or
subject us to liability.
We are subject to laws, ordinances and regulations of various federal, state and local
governmental entities and agencies concerning, among other things:
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environmental matters, including the presence of hazardous or
toxic substances; |
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wetland preservation; |
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health and safety; |
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zoning, land use and other entitlements; |
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building design; and |
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density levels. |
In developing a project and building commercial properties, we may be required to obtain the
approval of numerous governmental authorities regulating matters such as:
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installation of utility services such as gas, electric, water and waste
disposal; |
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the dedication of acreage for open space, parks and schools; |
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permitted land uses; and |
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the construction design, methods and materials used. |
These laws or regulations could, among other things:
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establish building moratoriums; |
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limit the number of commercial properties that may be built; |
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change building codes and construction requirements affecting property under
construction; |
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increase the cost of development and construction; and |
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delay development and construction. |
13
We may also at times not be in compliance with all regulatory requirements. If we are not in
compliance with regulatory requirements, we may be subject to penalties or we may be forced to incur
significant expenses to cure any noncompliance. In addition, some of our land and some of the land
that we may acquire have not yet received planning approvals or entitlements necessary for planned
or future development. Failure to obtain entitlements necessary for further development of this
land on a timely basis or to the extent desired may adversely affect our future results.
Several governmental authorities have also imposed impact fees as a means of defraying the
cost of providing governmental services to developing areas, and many of these fees have increased
significantly during recent years.
Building moratoriums and changes in governmental regulations may subject us to delays or increased
costs of construction or prohibit development of our properties.
We may be subject to delays or may be precluded from developing in certain communities because
of building moratoriums or changes in statutes or rules that could be imposed in the future. The
State of Florida and various counties have in the past and may in the future continue to declare
moratoriums on the issuance of building permits and impose restrictions in areas where the
infrastructure, such as roads, schools, parks, water and sewage treatment facilities and other
public facilities, does not reach minimum standards. Additionally, certain counties in Florida,
including counties where we are developing projects, have enacted more stringent building codes
which have resulted in increased costs of construction. As a consequence, we may incur significant
expenses in connection with complying with new regulatory requirements that we may not be able to
pass on to buyers.
We are subject to environmental laws and the cost of compliance could adversely affect our
business.
As a current or previous owner or operator of real property, we may be liable under federal,
state, and local environmental laws, ordinances and regulations for the costs of removal or
remediation of hazardous or toxic substances on, under or in the property. These laws often impose
liability whether or not we knew of, or were responsible for, the presence of such hazardous or
toxic substances. The cost of investigating, remediating or removing such hazardous or toxic
substances may be substantial. The presence of any such substance, or the failure promptly to
remediate any such substance, may adversely affect our ability to sell or lease the property, to
use the property for our intended purpose, or to borrow funds using the property as collateral.
Increased insurance risk could negatively affect our business.
Insurance and surety companies may take actions that could negatively affect our business,
including increasing insurance premiums, requiring higher self-insured retentions and deductibles,
requiring additional collateral or covenants on surety bonds, reducing limits, restricting
coverages, imposing exclusions, and refusing to underwrite certain risks and classes of business.
Any of these actions may adversely affect our ability to obtain appropriate insurance coverage at
reasonable costs which could have a material adverse effect on our business.
We utilize community development district and special assessment district bonds to fund
development costs and we will be responsible for assessments until the underlying property is sold.
We
establish community development district and special assessment
district bonds to access
tax-exempt bond financing to fund infrastructure development at our master-planned communities. We
are responsible for any assessed amounts until the underlying property is sold. We will continue to
be responsible for the annual assessments if the property is never sold. Accordingly, if recent
negative trends in the homebuilding industry do not improve, and we are forced to hold our land
inventory longer than originally projected, we would be forced to pay a higher portion of annual
assessments on property which is subject to assessments. We could be required to pay down a portion
of the bonds in the event our entitlements were to decrease as to the number of residential units
and/or commercial space that can be built on a parcel(s) encumbered by the bonds. In addition,
Core Communities has guaranteed payments for assessments under the district bonds in Tradition,
Florida which would require funding if future
assessments to be allocated to property owners are insufficient to repay the bonds.
14
The
availability of tax-exempt bond financing to fund infrastructure
development at our
master-planned communities may be affected by recent disruptions in credit markets, including the
municipal bond market, by general economic conditions and by fluctuations in the real estate
market. If we are not able to access this type of financing, we would be forced to obtain
substitute financing, which may not be available on terms favorable to the Company, or at all. If
we are not able to obtain financing for infrastructure development, Core would be forced to use our
own funds or delay development activity at the master-planned communities.
RISKS ASSOCIATED WITH LEVITT AND SONS BANKRUPTCY FILING
We cannot predict the effect that the Chapter 11 Cases will have on Levitt and Sons business and
creditors or on Levitt Corporation.
There is no assurance that Levitt and Sons will be able to develop, prosecute, confirm and
consummate the Plan and that the Plan will be accepted. Third parties may seek and obtain
Bankruptcy Court approval to propose and confirm the Plan. As a result, there is no assurance that
the creditors will not seek to assert claims against Levitt Corporation or any of its subsidiaries
other than Levitt and Sons, whether or not such claims have any merit and the risk that Levitt
Corporations or any such subsidiarys assets become subject to or included in Levitt and Sons
bankruptcy case. In addition, Levitt Corporation files a consolidated federal income tax return,
which means that the taxable income or tax losses of Levitt and Sons were included in the Companys
federal income tax return. At December 31, 2007, Levitt
Corporation had a federal income tax receivable of $27.4
million as a result of losses incurred, which is anticipated to be collected upon filing the 2007
consolidated U.S. federal income tax return. The Creditors Committee of the Chapter 11 Cases has
advised that they believe that the creditors are entitled to share in an unstated amount of the refund. At this time, it is not possible to
predict the effect that the Chapter 11 Cases will have on Levitt Corporation or whether it will
adversely affect our results of operations and financial condition.
Levitt and Sons bankruptcy and the publicity surrounding its filing may adversely affect Levitt
Corporation and its subsidiaries other than Levitt and Sons.
The businesses and relationships we had at Levitt and Sons may also be relationships we have
at our other subsidiaries. These relationships could be affected by the Chapter 11 Cases of Levitt
and Sons and it could materially affect our ability to conduct business with customers, suppliers
and employees in the future.
Levitt and Sons had surety bonds on most of their projects some, of which were subject to indemnity
by Levitt Corporation.
Levitt and Sons had $33.3 million in surety bonds relating to its ongoing projects at the time
of the filing of the Chapter 11 Cases. In the event that these obligations are drawn and paid by
the surety, Levitt Corporation could be responsible for up to $12.0 million plus costs and expenses
in accordance with the surety indemnity agreement for these instruments. As of December 31, 2007,
we recorded $1.8 million in surety bonds accrual at Levitt Corporation related to certain bonds
where management considers it probable that the Company will be required to reimburse the surety
under the indemnity agreement. It is unclear given the uncertainty involved in the Chapter 11
Cases whether and to what extent the outstanding surety bonds of Levitt and Sons will be drawn and
the extent to which Levitt Corporation may be responsible for additional amounts beyond this
accrual. It is unlikely that Levitt Corporation would have the ability to receive any repayment,
assets or other consideration as recovery of any amount it is required to pay. If losses on
additional surety bonds are identified, we will need to take additional charges associated with
Levitt Corporations exposure under our indemnities, and this may have a material adverse effect on
our results of operations and financial condition.
15
Levitt Corporations outstanding advances due from Levitt and Sons may not be repaid.
Levitt Corporation has deconsolidated Levitt and Sons from its consolidated financial
statements and reflects Levitt and Sons as a cost method investment as of December 31, 2007. At
the time of deconsolidation, November 9, 2007, Levitt Corporation had a negative investment in
Levitt and Sons of $123.0 million and there were outstanding advances due from Levitt and Sons of
$67.8 million at Levitt Corporation resulting in a net negative investment of $55.2 million.
Since the Chapter 11 Cases were filed, Levitt Corporation has also incurred certain administrative
costs in the amount of $1.4 million related to Post Petition Services. The payment by Levitt and
Sons of its outstanding advances and the Post Petition Services expenses are subject to the risks
inherent to creditors in the Chapter 11 Cases. Levitt and Sons may not have sufficient assets to
repay Levitt Corporation for advances made to Levitt and Sons or the Post Petition Services and it
is likely that some, if not all, of these amounts will not be recovered.
RISKS RELATING TO OUR COMPANY
Our outstanding debt instruments impose restrictions on our operations and activities and could
adversely affect our financial condition.
At December 31, 2007, our consolidated debt was approximately $274.8 million of which $137.1
million relates to the Land Division. Debt associated with assets held for sale was $79.0 million. Certain loans which provide the primary financing for
Tradition, Florida and Tradition Hilton Head have an annual appraisal and re-margining requirement.
These provisions may require Core Communities, in circumstances where the value of its real estate
securing these loans declines, to pay down a portion of the principal amount of the loan to bring
the loan within specified minimum loan-to-value ratios. Accordingly, should land prices decline,
reappraisals could result in significant future re-margining payments. In addition, all of our
outstanding debt instruments require us to comply with certain financial covenants. Further, one of
our debt instruments contains cross-default provisions, which could cause a default in this debt
instrument if we default on other debt instruments. If we fail to comply with any of these
restrictions or covenants, the holders of the applicable debt could cause our debt to become due
and payable prior to maturity. These accelerations or significant re-margining payments could
require us to dedicate a substantial portion of our cash and cash flow from operations to payment
of or on our debt and reduce our ability to use our cash for other purposes.
Certain of our borrowings require us to repay specified amounts upon a sale of a portion of
the property securing the debt. The borrowings may require additional principal payments in the
event that the timing and the amount of sales are below those agreed to at the inception of the
borrowing. Our anticipated minimum debt payment obligations in 2008 total approximately $12.2
million, of which $8.9 million relates to assets held for sale. These amounts do
not include any amounts due upon a sale of the collateral, amounts due as a result of sales below
expectations or re-margining payments that could be required in the event that property serving as
collateral becomes impaired. Core is subject to provisions in its borrowing agreement that require
additional principal payments, known as curtailment payments, in the
event that sales, within a specific timeframe, are below
those agreed to at the inception of the borrowing. In the event that agreed upon sales targets are
not met in Tradition Hilton Head, total curtailment payments during 2008 could amount to $34.2
million. In January 2008, a $14.9 million curtailment payment was paid and an additional $19.3
million would be due in June 2008 if actual sales continue to be below the contractual requirements
of the development loan. Unfavorable current trends in the homebuilding industry could result in us holding property longer than projected which would increase the likelihood that sales of
property would be below levels required by our lenders.
Our business may not generate sufficient cash flow from operations, and future borrowings may
not be available under our existing credit facilities or any other financing sources in an amount
sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may
need to refinance all or a portion of our debt on or before maturity, which we may not be able to
do on favorable terms or at all. Recent disruptions in the credit and capital markets could make
it more difficult for us to obtain future financing.
Our ability to meet our debt service and other obligations, to refinance our indebtedness or
to fund planned capital expenditures will depend upon our future performance. We are engaged in
businesses that are substantially affected by changes in economic cycles. Our revenues and
earnings vary with the level of general economic activity in the real estate market and are,
therefore, subject to many factors outside of our control. See risk factor below entitled Our results may vary.
16
Our current land development plans may require additional capital, which may not be available on
favorable terms, if at all.
We may need to obtain additional financing as we fund our current land development projects
and pursue new investments. These funds may be obtained through public or private debt or equity
financings, additional bank borrowings or from strategic alliances. We may not be successful in
obtaining additional funds in a timely manner, on favorable terms or at all, especially in light of
the current adverse conditions in the capital and credit markets and the adverse conditions in
municipal bond markets which impact our ability to access tax-exempt bond financing. Moreover,
certain of our bank financing agreements contain provisions that limit the type and amount of debt
we may incur in the future without our lenders consent. If we do not have access to additional
capital, we may be required to delay, scale back or abandon some or all of our land development
activities and we may not be able to pursue new investments. In addition, we may need to reduce capital expenditures and
the size of our operations. There is no assurance that we will have sufficient funds to continue to
develop our master-planned communities or pursue new investments as currently contemplated without
additional financing or equity investment.
Our results may vary.
We historically have experienced, and expect to continue to experience, variability in
operating results on a quarterly basis and from year to year. Factors expected to contribute to
this variability include:
|
|
|
the cyclical nature of the real estate industry; |
|
|
|
|
prevailing interest rates and the availability of mortgage financing; |
|
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|
|
weather; |
|
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|
|
cost and availability of materials and labor; |
|
|
|
|
competitive conditions; |
|
|
|
|
timing of sales of land; |
|
|
|
|
the timing of receipt of regulatory and other governmental approvals for land
development projects; and |
|
|
|
|
the timing of the sale of our commercial leasing operations. |
Margins in our Land Division are subject to significant volatility.
Due to the nature and size of our individual land transactions, our Land Division results are
subject to significant volatility. Historically, land sale revenues have been sporadic and have
fluctuated dramatically and margins on land sales and the many factors which impact the margin may
not remain at the current levels given the current downturn in the real estate markets where we own
properties. Margins will fluctuate based upon changing sales prices and costs attributable to the
land sold. Recent declines in the value of residential land, especially in Florida where Cores
Tradition, Florida community is located, could significantly adversely impact our margins. If the
real estate markets deteriorate further or if the current downturn is prolonged, we may not be able
to sell land at prices above our carrying cost or even in amounts necessary to repay our
indebtedness. In addition to the impact of economic and market factors, the sales price and margin
of land sold varies depending upon: the location; the parcel size; whether the parcel is sold as
raw land, partially developed land or individually developed lots; the degree to which the land is
entitled; and whether the designated use of land is residential or commercial.
In addition, our ability to realize margins may be affected by circumstances beyond our
control, including:
|
|
|
shortages or increases in prices of construction materials; |
|
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|
|
natural disasters in the areas in which we operate; |
|
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|
lack of availability of adequate utility infrastructure and services; and |
|
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|
|
our need to rely on local subcontractors who may not be adequately capitalized
or insured. |
17
Any of these circumstances could give rise to delays in the start or completion of, or
increase the cost of, developing our master-planned communities. We compete with other real estate
developers, both regionally and nationally, for labor as well as raw materials, and the competition
for materials has recently become global. Increased costs in labor and materials could cause
increases in construction costs. In addition, 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. Future margins will continue to vary based on these and other market
factors.
When commercial leasing projects become available for sale, they may not yield anticipated returns,
which could harm our operating results, reduce cash flow, or cause management to choose not to sell
certain commercial assets.
A component of our business strategy is the development of commercial properties and assets
for sale. These developments may not be as successful as expected due to the commercial leasing
related risks discussed below, as well as the risks associated with real estate development
generally, and the timeline involved in development and leasing.
Development of commercial projects involve the risk of the significant time lag between
commencement and completion of the project which subjects us to greater risks due to fluctuation in
the general economy, failure or inability to obtain construction or permanent financing on
favorable terms, inability to achieve projected rental rates,
anticipated pace that we will be able to lease new tenants,
higher than estimated construction costs, including labor and material costs, and possible delay in
completion of the project because of a number of factors, including weather, labor disruptions,
construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or
natural disasters.
Significant changes in economic conditions could adversely affect prospective tenants and our
ability to lease newly developed properties and could result in our being forced to hold these
properties for a longer period of time.
We are dependent upon certain key tenants in our commercial developments and decisions made by
these tenants or adverse developments in the business of these tenants could have a negative impact
on our financial condition.
We own commercial real estate centers which are supported by anchor tenants which, due to
size, reputation or other factors, are particularly responsible for drawing other tenants and
shoppers to our centers in certain cases. We are subject to the risk that certain of these anchor
tenants may be unable to make their lease payments or may decline to extend a lease upon its
expiration.
In addition, an anchor tenant may decide that a particular store is unprofitable and close its
operations, and, while the tenant may continue to make rental payments, its failure to occupy its
premises could have an adverse effect on the property. A lease termination by an anchor tenant or
a failure by that anchor tenant to occupy the premises could result in lease terminations or
reductions in rent by other tenants in the same shopping center. Vacated anchor tenant space also
tends to adversely affect the entire shopping center because of the loss of the departed anchor
tenants power to draw customers to the center. We may not be able to quickly re-lease vacant
space on favorable terms, if at all. Any of these developments could adversely affect our
financial condition or results of operations.
It may be difficult and costly to rent vacant space and space which may become vacant in future
periods.
Our goal is to improve the performance of our properties by leasing available space and
re-leasing vacated space. However, we may not be able to maintain our overall occupancy levels.
Our ability to continue to lease or re-lease vacant space in our commercial properties will be
affected by many factors, including our properties locations, current market conditions and the
provisions of the leases we enter into with the tenants at our properties. In fact, many of the factors
which could cause our current tenants to vacate
their space could also make it more difficult for us to release that space. The failure to
lease or to re-lease vacant space on satisfactory terms could harm our operating results.
18
If we are able to re-lease vacated space, there is no assurance that rental rates will be
equal to or in excess of current rental rates. In addition, we may incur substantial costs in
obtaining new tenants, including brokerage commission fees paid by us in connection with new leases
or lease renewals, and the cost of making leasehold improvements.
The loss of the services of our key management and personnel could adversely affect our business
Our ability to successfully implement our business strategy will depend on our
ability to attract and retain experienced and knowledgeable management and other professional
staff. We currently have an Acting Chief Financial Officer and are in the process of seeking to
recruit a permanent replacement. There is no assurance that we will be successful in attracting
and retaining an experienced and knowledgeable Chief Financial Officer or other key management
personnel.
Our future acquisitions may reduce our earnings, require us to obtain additional financing and
expose us to additional risks.
Our business strategy includes investing in and acquiring diverse operating companies and some
of these investments and acquisitions may be material. While we will seek investments and
acquisitions primarily in companies that provide opportunities for growth with seasoned and
experienced management teams, we may not be successful in identifying these opportunities.
Further, investments or acquisitions that we do complete may not prove to be successful.
Acquisitions may expose us to additional risks and may have a material adverse effect on our
results of operations and may:
|
|
|
fail to accomplish our strategic objectives; |
|
|
|
|
not perform as expected; and/or |
|
|
|
|
expose us to the risks of the business that we acquire. |
In addition, we will likely face competition in making investments or acquisitions which could
increase the costs associated with the investment or acquisition. Our investments or acquisitions
could initially reduce our per share earnings and add significant amortization expense or
intangible asset charges. Since our acquisition strategy involves holding investments for the
foreseeable future and because we do not expect to generate significant excess cash flow from
operations, we may rely on additional debt or equity financing to implement our acquisition
strategy. The issuance of debt will result in additional leverage which could limit our operating
flexibility, and the issuance of equity could result in additional dilution to our then-current
shareholders. In addition, such financing could consist of equity securities which have rights,
preferences or privileges senior to our Class A common stock. If we do require additional
financing in the future, there is no assurance that it will be available on favorable terms, if at
all. If we fail to obtain the required financing, we would be required to curtail or delay our
acquisition plans or to liquidate certain of our assets. Additionally, we do not intend to seek
shareholder approval of any investments or acquisitions unless required by law or regulation.
Our controlling shareholders have the voting power to control the outcome of any shareholder vote,
except in limited circumstances.
As of December 31, 2007, BFC Financial Corporation (BFC) owned 1,219,031 shares of our Class
B common stock, which represented all of our issued and outstanding Class B common stock, and
18,676,955 shares, or approximately 19.7%, of our issued and outstanding Class A common stock. In
the aggregate these shares represent approximately 20.7% of our total equity and, excluding the
6,145,582 shares of our Class A common stock that BFC has agreed, subject to certain exceptions,
not to vote in accordance with the Letter Agreement described in Item 8. Financial Statements
Note 16, these shares represent approximately 54.0% of our total voting power. Since the Class A
common stock and Class B common stock vote as a single group on most matters, BFC is in a position
to control our company and
19
elect a
majority of our Board of Directors. Additionally, Alan B. Levan, our Chairman and Chief
Executive Officer, and John E. Abdo, our Vice Chairman, beneficially own approximately 22.6% and
14.0% of the shares of BFC, respectively. Collectively, these shares represent approximately 73.2%
of BFCs total voting power. As a consequence, Alan B. Levan and John E. Abdo effectively have
the voting power to control the outcome of any shareholder vote of Levitt Corporation, except in
those limited circumstances where Florida law mandates that the holders of our Class A common stock
vote as a separate class. BFCs interests may conflict with the interests of our other
shareholders.
RISKS ASSOCIATED WITH OUR OWNERSHIP STAKE IN BLUEGREEN CORPORATION
We own approximately 31% of the outstanding common stock of Bluegreen Corporation, a
publicly-traded corporation whose common stock is listed on the New York Stock Exchange under the
symbol BXG. Although traded on the New York Stock Exchange, our shares of Bluegreens common
stock may be deemed restricted stock, which would limit our ability to liquidate our investment if
we chose to do so. While we have made a significant investment in Bluegreen Corporation, we do not
expect to receive any dividends from the company for the foreseeable future.
For the year ended December 31, 2007, our earnings from our investment in Bluegreen were $10.3
million, compared to $9.7 million in 2006, and $12.7 million in 2005. At December 31, 2007, the
book value of our investment in Bluegreen was $116.0 million. A significant portion of our
earnings and book value are dependent upon Bluegreens ability to continue to generate earnings and
maintain its market value. Further, declines in the market value of Bluegreens shares or other
events that could impair the value of our holdings would have an adverse impact on the value of our
investment. We review our investment in Bluegreen for impairment on an annual basis or as events or
circumstances warrant for other than temporary declines in value. Bluegreen recently announced its
intention to pursue a rights offering to its shareholders of up to $100 million of its common stock
and we currently intend to participate in the rights offering. We refer you to the public reports
filed by Bluegreen with the Securities and Exchange Commission for information regarding Bluegreen.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own our principal and executive offices located at our Corporate Headquarters at 2200 West
Cypress Creek Road, Fort Lauderdale, Florida 33309. In 2008, we are planning to seek to lease to
third parties the space in our executive offices and relocate to smaller space due to the number of
employees we have remaining at this facility. Core Communities owns their executive office
building in Port St. Lucie, Florida. We also have various month to month leases on the trailers we
occupy in Tradition Hilton Head. In addition to our properties used for offices, we additionally
own commercial space in Florida that is leased to third parties. Because of the nature of our real
estate operations, significant amounts of property are held as inventory and property and equipment
in the ordinary course of our business.
ITEM 3. LEGAL PROCEEDINGS
Levitt and Sons Bankruptcy
On November 9, 2007, Levitt and Sons and substantially all of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of Florida.
It is not possible to predict the impact that the Chapter 11 Cases will have on Levitt and
Sons business and creditors or on Levitt Corporation. See Item 1. Business Recent
Developments Bankruptcy of Levitt and Sons.
20
Class Action litigation
On January 25, 2008, plaintiff Robert D. Dance filed a purported class action complaint as a
putative purchaser of our securities against us and certain of our officers and directors,
asserting claims under the federal securities law and seeking damages. This action was filed in
the United States District Court for the Southern District of Florida and is captioned Dance v.
Levitt Corp. et al., No. 08-CV-60111-DLG. The securities litigation purports to be brought on
behalf of all purchasers of our securities beginning on January 31, 2007 and ending on August 14,
2007. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange
Act, and Rule 10b-5 promulgated thereunder by issuing a series of false and/or misleading
statements concerning our financial results, prospects and condition. We intend to vigorously
defend this action.
General litigation
We are party to additional various claims and lawsuits which arise in the ordinary course of
business. We do not believe that the ultimate resolution of these claims or lawsuits will have a
material adverse effect on our business, financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None submitted.
21
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A common stock is listed on the New York Stock Exchange (the NYSE) under the
symbol LEV. BFC is the sole holder of the Companys Class B common stock and there is no
trading market for the Companys Class B common stock. The Class B common stock may only be owned
by BFC or its affiliates and is convertible into Class A common stock at the discretion of the
holder on a one-for-one basis.
The quarterly high and low sale prices of our Class A common stock on the NYSE for the years
ended December 31, 2007 and 2006 are presented in the following table.
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|
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|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First Quarter |
|
$ |
25.50 |
|
|
$ |
20.10 |
|
|
$ |
15.44 |
|
|
$ |
9.19 |
|
Second Quarter |
|
$ |
22.33 |
|
|
$ |
14.15 |
|
|
$ |
11.82 |
|
|
$ |
8.47 |
|
Third Quarter |
|
$ |
16.10 |
|
|
$ |
9.22 |
|
|
$ |
10.62 |
|
|
$ |
2.00 |
|
Fourth Quarter |
|
$ |
13.70 |
|
|
$ |
11.54 |
|
|
$ |
4.00 |
|
|
$ |
1.54 |
|
The stock prices do not include retail mark-ups, mark-downs or commissions. On March
7, 2008, the closing sale price of our Class A common stock as reported on the NYSE was $1.91 per
share.
Shareholder Return Performance Graph
Set forth below is a graph comparing the cumulative total returns (assuming reinvestment of
dividends) for the Class A common stock, the Dow Jones U.S. Total Home Construction Index and the
Russell 2000 Index and assumes $100 was invested on January 2, 2004.
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Symbol |
|
|
1/2/2004 |
|
|
12/31/2004 |
|
|
12/31/2005 |
|
|
12/31/2006 |
|
|
12/31/2007 |
|
|
Levitt Corporation
Class A common
stock
|
|
|
LEV
|
|
|
|
100.00 |
|
|
|
|
152.48 |
|
|
|
|
113.60 |
|
|
|
|
61.31 |
|
|
|
|
11.04 |
|
|
|
Dow Jones US Total Home Construction Index
|
|
|
DJUSHB |
|
|
|
100.00 |
|
|
|
|
140.43 |
|
|
|
|
161.22 |
|
|
|
|
127.99 |
|
|
|
|
56.58 |
|
|
|
Russell 2000 Index
|
|
|
RTY
|
|
|
|
100.00 |
|
|
|
|
116.18 |
|
|
|
|
120.04 |
|
|
|
|
140.44 |
|
|
|
|
136.58 |
|
|
|
22
Comparison
of Four Year Cumulative Total Return
Holders
On February 27, 2008, there were approximately 690 record holders and 95,040,731 shares of
the Class A common stock issued and outstanding. Our controlling shareholder, BFC, holds all of
the 1,219,031 shares of our Class B common stock outstanding.
NYSE Certification
On October 9, 2007, the Company submitted its Annual Section 303A.12(b) Certification to the
NYSE. Pursuant to this filing, the Chief Executive Officer provided an unqualified certification
that, as of the date of the certification, he was not aware of any violation by the Company of the
Corporate Governance Listing Standards of the NYSE.
Dividends
On each of January 24, 2006, April 26, 2006, August 1, 2006, October 23, 2006 and January 22,
2007 our Board of Directors declared cash dividends of $0.02 per share on our Class A common stock
and Class B common stock. These dividends were paid in February 2006, May 2006, August 2006,
November 2006 and February 2007, respectively. There were no other dividends declared during the
years ended December 31, 2006 and 2007.
The Board has not adopted a policy of regular dividend payments. The payment of dividends in
the future is subject to approval by our Board of Directors and will depend upon, among other
factors, our results of operations and financial condition. We do not expect to pay dividends to
shareholders for the foreseeable future.
23
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of and for the
years ended December 31, 2003 through 2007. Certain selected financial data presented
below as of December 31, 2007, 2006, 2005, 2004 and 2003 and for each of the years in the
five-year period ended December 31, 2007, are derived from our audited consolidated
financial statements. Based on the loss of control over Levitt and Sons as a result of
the Chapter 11 Cases and the uncertainties surrounding the nature, timing and specifics of
the bankruptcy proceedings, Levitt Corporation deconsolidated Levitt and Sons as of
November 9, 2007, eliminating all future operations from its financial results. The
results of operations for the Primary and Tennessee Homebuilding segments are through
November 9, 2007 with the exception of the operations of Carolina Oak which are for the
full year. As a result of the deconsolidation, the consolidated financial condition data
does not include the Primary and Tennessee Homebuilding segments with the exception of
Carolina Oak. This table is a summary and should be read in conjunction with the audited
consolidated financial statements and related notes thereto which are included elsewhere in
this report.
|
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|
As of and for the Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(Dollars in thousands, except per share, unit and average price data) |
|
Consolidated Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
410,115 |
|
|
|
566,086 |
|
|
|
558,112 |
|
|
|
549,652 |
|
|
|
283,058 |
|
Cost of sales of real estate (a) |
|
|
573,241 |
|
|
|
482,961 |
|
|
|
408,082 |
|
|
|
406,274 |
|
|
|
209,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
|
(163,126 |
) |
|
|
83,125 |
|
|
|
150,030 |
|
|
|
143,378 |
|
|
|
73,627 |
|
Earnings from Bluegreen Corporation |
|
|
10,275 |
|
|
|
9,684 |
|
|
|
12,714 |
|
|
|
13,068 |
|
|
|
7,433 |
|
Selling, general & administrative expenses |
|
|
116,087 |
|
|
|
119,337 |
|
|
|
87,162 |
|
|
|
70,992 |
|
|
|
42,027 |
|
(Loss) income from continuing operations |
|
|
(236,385 |
) |
|
|
(9,143 |
) |
|
|
55,069 |
|
|
|
57,420 |
|
|
|
26,820 |
|
Income (loss) from discontinued operations, net of tax |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
(5 |
) |
|
|
|
|
Net (loss) income |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
26,820 |
|
Basic
(loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.45 |
) |
|
|
2.73 |
|
|
|
3.04 |
|
|
|
1.78 |
|
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per common share |
|
$ |
(6.00 |
) |
|
|
(0.45 |
) |
|
|
2.72 |
|
|
|
3.04 |
|
|
|
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.46 |
) |
|
|
2.70 |
|
|
|
2.98 |
|
|
|
1.74 |
|
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
diluted (loss) earnings per common share (b) |
|
$ |
(6.00 |
) |
|
|
(0.46 |
) |
|
|
2.69 |
|
|
|
2.98 |
|
|
|
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
(thousands) (c) |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,208 |
|
|
|
18,883 |
|
|
|
15,108 |
|
Diluted weighted average common shares outstanding
(thousands) (c) |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,320 |
|
|
|
18,965 |
|
|
|
15,108 |
|
Dividends declared per common share |
|
$ |
0.02 |
|
|
|
0.08 |
|
|
|
0.08 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin percentage (d) |
|
|
(39.8 |
)% |
|
|
14.7 |
% |
|
|
26.9 |
% |
|
|
26.1 |
% |
|
|
26.0 |
% |
SG&A expense as a percentage of total revenues |
|
|
27.9 |
% |
|
|
20.8 |
% |
|
|
15.4 |
% |
|
|
12.8 |
% |
|
|
14.7 |
% |
Return on
average shareholders equity, annualized (e) |
|
|
(77.6 |
)% |
|
|
(2.6 |
)% |
|
|
17.0 |
% |
|
|
27.3 |
% |
|
|
23.0 |
% |
Ratio of debt to shareholders equity |
|
|
105.3 |
% |
|
|
171.4 |
% |
|
|
113.6 |
% |
|
|
89.9 |
% |
|
|
138.8 |
% |
Ratio of debt to total capitalization (f) |
|
|
51.3 |
% |
|
|
63.2 |
% |
|
|
53.2 |
% |
|
|
47.3 |
% |
|
|
58.1 |
% |
Ratio of net debt to total capitalization (f) |
|
|
14.9 |
% |
|
|
58.0 |
% |
|
|
38.0 |
% |
|
|
24.9 |
% |
|
|
46.1 |
% |
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(Dollars in thousands, except per share, unit and average price data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
195,181 |
|
|
|
48,391 |
|
|
|
113,562 |
|
|
|
125,522 |
|
|
|
35,965 |
|
Inventory of real estate |
|
$ |
227,290 |
|
|
|
822,040 |
|
|
|
611,260 |
|
|
|
413,471 |
|
|
|
254,992 |
|
Investment in Bluegreen Corporation |
|
$ |
116,014 |
|
|
|
107,063 |
|
|
|
95,828 |
|
|
|
80,572 |
|
|
|
70,852 |
|
Total assets |
|
$ |
712,851 |
|
|
|
1,090,666 |
|
|
|
895,673 |
|
|
|
678,467 |
|
|
|
393,505 |
|
Total debt |
|
$ |
274,820 |
|
|
|
588,365 |
|
|
|
397,309 |
|
|
|
264,967 |
|
|
|
174,093 |
|
Total liabilities |
|
$ |
451,745 |
|
|
|
747,427 |
|
|
|
545,887 |
|
|
|
383,678 |
|
|
|
268,053 |
|
Shareholders equity |
|
$ |
261,106 |
|
|
|
343,239 |
|
|
|
349,786 |
|
|
|
294,789 |
|
|
|
125,452 |
|
Book value per share (j) |
|
$ |
2.71 |
|
|
|
17.31 |
|
|
|
17.65 |
|
|
|
14.88 |
|
|
|
8.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
345,666 |
|
|
|
424,420 |
|
|
|
352,723 |
|
|
|
418,550 |
|
|
|
222,257 |
|
Cost of sales of real estate (a) |
|
|
501,206 |
|
|
|
367,252 |
|
|
|
272,680 |
|
|
|
323,366 |
|
|
|
173,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
(155,540 |
) |
|
|
57,168 |
|
|
|
80,043 |
|
|
|
95,184 |
|
|
|
49,185 |
|
Margin
percentage (d) |
|
|
(45.0 |
)% |
|
|
13.5 |
% |
|
|
22.7 |
% |
|
|
22.7 |
% |
|
|
22.1 |
% |
Construction starts |
|
|
558 |
|
|
|
1,445 |
|
|
|
1,212 |
|
|
|
1,893 |
|
|
|
1,593 |
|
Homes delivered |
|
|
998 |
|
|
|
1,320 |
|
|
|
1,338 |
|
|
|
1,783 |
|
|
|
1,011 |
|
Average selling price of homes delivered |
|
$ |
338,000 |
|
|
|
322,000 |
|
|
|
264,000 |
|
|
|
235,000 |
|
|
|
220,000 |
|
Net orders (units) |
|
|
383 |
|
|
|
847 |
|
|
|
1,289 |
|
|
|
1,378 |
|
|
|
2,240 |
|
Net orders (value) |
|
$ |
94,782 |
|
|
|
324,217 |
|
|
|
448,207 |
|
|
|
376,435 |
|
|
|
513,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee Homebuilding (g): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
42,042 |
|
|
|
76,299 |
|
|
|
85,644 |
|
|
|
53,746 |
|
|
|
|
|
Cost of sales of real estate (a) |
|
|
51,360 |
|
|
|
72,807 |
|
|
|
74,328 |
|
|
|
47,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
(9,318 |
) |
|
|
3,492 |
|
|
|
11,316 |
|
|
|
6,015 |
|
|
|
|
|
Margin percentage (d) |
|
|
(22.2 |
)% |
|
|
4.6 |
% |
|
|
13.2 |
% |
|
|
11.2 |
% |
|
|
|
|
Construction starts |
|
|
171 |
|
|
|
237 |
|
|
|
450 |
|
|
|
401 |
|
|
|
|
|
Homes delivered |
|
|
146 |
|
|
|
340 |
|
|
|
451 |
|
|
|
343 |
|
|
|
|
|
Average selling price of homes delivered |
|
$ |
205,000 |
|
|
|
224,000 |
|
|
|
190,000 |
|
|
|
157,000 |
|
|
|
|
|
Net orders (units) |
|
|
110 |
|
|
|
269 |
|
|
|
478 |
|
|
|
301 |
|
|
|
|
|
Net orders (value) |
|
$ |
20,621 |
|
|
|
57,776 |
|
|
|
98,838 |
|
|
|
51,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Division (h): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
16,567 |
|
|
|
69,778 |
|
|
|
105,658 |
|
|
|
96,200 |
|
|
|
55,037 |
|
Cost of sales of real estate |
|
|
7,447 |
|
|
|
42,662 |
|
|
|
50,706 |
|
|
|
42,838 |
|
|
|
31,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
9,120 |
|
|
|
27,116 |
|
|
|
54,952 |
|
|
|
53,362 |
|
|
|
23,675 |
|
Margin percentage (d) |
|
|
55.0 |
% |
|
|
38.9 |
% |
|
|
52.0 |
% |
|
|
55.5 |
% |
|
|
43.0 |
% |
Acres sold |
|
|
40 |
|
|
|
371 |
|
|
|
1,647 |
|
|
|
1,212 |
|
|
|
1,337 |
|
Inventory of real estate (acres) (i) |
|
|
6,679 |
|
|
|
6,871 |
|
|
|
7,287 |
|
|
|
5,965 |
|
|
|
6,837 |
|
Inventory of real estate (value) |
|
$ |
189,903 |
|
|
|
176,356 |
|
|
|
150,686 |
|
|
|
122,056 |
|
|
|
43,906 |
|
Acres subject to sales contracts Third parties |
|
|
259 |
|
|
|
74 |
|
|
|
246 |
|
|
|
1,833 |
|
|
|
1,433 |
|
Aggregate sales price of acres subject to sales
contracts to third parties |
|
$ |
77,888 |
|
|
|
21,124 |
|
|
|
39,283 |
|
|
|
121,095 |
|
|
|
103,174 |
|
Assets held for sale |
|
|
96,214 |
|
|
|
47,284 |
|
|
|
19,134 |
|
|
|
7,985 |
|
|
|
|
|
Total assets |
|
|
342,696 |
|
|
|
271,169 |
|
|
|
228,756 |
|
|
|
194,825 |
|
|
|
83,034 |
|
Liabilities related to assets held for sale |
|
|
80,093 |
|
|
|
28,263 |
|
|
|
10,770 |
|
|
|
3,262 |
|
|
|
|
|
Notes and mortgage notes payable |
|
|
137,057 |
|
|
|
68,642 |
|
|
|
51,294 |
|
|
|
49,470 |
|
|
|
15,174 |
|
Total liabilities |
|
|
214,393 |
|
|
|
133,015 |
|
|
|
94,006 |
|
|
|
83,343 |
|
|
|
23,621 |
|
Total shareholders equity |
|
$ |
128,303 |
|
|
|
138,154 |
|
|
|
134,750 |
|
|
|
111,482 |
|
|
|
59,413 |
|
25
|
|
|
(a) |
|
Margin is calculated as sales of real estate minus cost of sales of real estate. Included in cost of sales of real estate
for the years ended December 31, 2007 and 2006 are homebuilding inventory impairment charges and write-offs of deposits and
pre-acquisition costs of $206.4 million and $31.1 million, respectively, in our Primary Homebuilding segment. In our Tennessee
Homebuilding segment impairment charges amounted to $11.2 million and $5.7 million in the years ended December 31, 2007 and 2006,
respectively. |
|
(b) |
|
Diluted (loss) earnings per share takes into account the dilutive effect of our stock options and restricted stock using the
treasury stock method and the dilution in earnings we recognize as a result of outstanding Bluegreen securities that entitle the
holders thereof to acquire shares of Bluegreens common stock. |
|
(c) |
|
The weighted average number of common shares outstanding in basic and diluted (loss) earnings per common share for all prior
periods presented has been retroactively adjusted for the number of shares representing the bonus element arising from the rights
offering that closed on October 1, 2007. Under the rights offering, stock was issued on October 1, 2007 at a purchase price below
the market price on October 1, 2007 resulting in the bonus element of 1.97%. The number of weighted average shares of Class A
common stock is required to be retroactively increased by this percentage for all prior periods presented. |
|
(d) |
|
Margin percentage is calculated by dividing margin by sales of real estate. |
|
(e) |
|
Calculated by dividing net (loss) income by average shareholders equity. Average shareholders equity is calculated by averaging
beginning and end of period shareholders equity balances. |
|
(f) |
|
Total capitalization is calculated as total debt plus total shareholders equity. Net debt is calculated as total debt minus cash. |
|
(g) |
|
Bowden Building Corporation was acquired in May 2004. The Company had no homebuilding operations in Tennessee in 2003. |
|
(h) |
|
Revenues and costs of sales of real estate include land sales to Levitt and Sons, if any. These inter-segment transactions are
eliminated in consolidation. Included in total liabilities is a net receivable amount associated with intersegment loans. This amount eliminates fully in consolidation but has the effect of decreasing liabilities when shown on a stand alone basis. As of December 31,
2007, the Parent Company (Other Operations) had outstanding advances from Core Communities in the amount of $38.3 million which are generally subordinated to loans from third party lenders. These advances eliminate in consolidation. |
|
(i) |
|
Estimated net saleable acres (subject to final zoning,
permitting, and other governmental regulations and approvals). Includes approximately 56 acres related to assets held for sale as of December 31, 2007. |
|
(j) |
|
Book value per share is calculated as shareholders equity divided by total number of shares issued and outstanding as of December
31 of each year. |
26
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
Our operations have historically been concentrated in the real estate industry which is
cyclical in nature. In addition, the majority of our inventory has been located in the State of
Florida.
Our ongoing operations include our land development business, Core Communities, which sells
land to residential builders as well as to commercial developers, and internally develops
commercial real estate and enters into lease arrangements with tenants. In addition, our Other
Operations consist of an investment in Bluegreen, a NYSE-listed company in which
we own approximately 31% of its outstanding common stock. Bluegreen is engaged in the acquisition,
development, marketing and sale of ownership interests in primarily drive-to vacation resorts,
and the development and sale of golf communities and residential land. Other Operations also
includes limited homebuilding activities in Tradition Hilton Head through our subsidiary, Carolina
Oak, which is developing a community known as Magnolia Walk. The results of operations and
financial condition of Carolina Oak as of and for the three year period ended December 31, 2007 are
included in the Primary Homebuilding segment in this Annual Report on Form 10-K because it is
engaged in homebuilding activities and because the financial metrics from this company are similar
in nature to the other homebuilding projects within this segment that existed during these periods.
Until its filing for protection under the Bankruptcy Code on November 9, 2007, Levitt and Sons
engaged in the construction and sale of residential housing.
Outlook
The homebuilding environment continued to deteriorate throughout 2007 as increased inventory
levels combined with weakened consumer demand for housing and tightened credit requirements
negatively affected sales, deliveries and margins throughout the industry. Excess supply,
particularly in previously strong markets like Florida, in combination with a reduction in demand
resulting from tightened credit markets and reductions in credit availability, as well as buyers
fears about the direction of the market, exerted downward pricing pressure for residential homes
and land. As a result of the significant slowdown Levitt and Sons and substantially all of its
subsidiaries filed the Chapter 11 cases. See Item 1.
Business Recent Developments Bankruptcy of Levitt and Sons for the current status of the
Chapter 11 Cases.
Our Land Division entered 2007 with two active projects, Tradition, Florida and Tradition
Hilton Head. During 2007, we continued our development and sales activities in both of these
projects with increased activity in Hilton Head from the prior year. As a result of the Hilton
Head expansion, we incurred higher general and administrative expenses in the Land Division in
2007. In addition, the overall slowdown in the homebuilding market had an effect on demand for
residential land in our Land Division which was partially mitigated by increased commercial sales
and commercial leasing revenue. Traffic at the Tradition, Florida information center slowed from
prior years in connection with the overall slowdown in the Florida homebuilding market.
As we enter 2008, we will continue to focus on the strength of our balance sheet and will
continue to bring costs in line with market conditions and our strategic objectives. We have taken
steps to align our staffing levels with current and anticipated future market conditions and have
implemented expense management initiatives throughout the organization. While there is clearly a
slowdown in the homebuilding sector, the Land Division expects to continue developing and selling
land in its master-planned communities in South Carolina and Florida. In addition to the marketing
of parcels to homebuilders, the Land Division plans to continue to expand its commercial operations
through sales to developers and the internal development of certain projects for leasing to third
parties. The Land Division is currently pursuing the sale of two of its commercial leasing
projects. However, while the commercial real estate market has generally been stronger than the
residential real estate market, interest in commercial property is showing signs of weakening and
financing is not as readily available in the current market,
which may adversely impact the profitability of these sales.
27
We are also engaged in limited homebuilding activities in Tradition Hilton Head through our
wholly owned subsidiary, Carolina Oak. Levitt Corporation had a previous financial commitment
associated with this community and management determined that it was in the best interest of the
Company to develop the community. As of December 31, 2007, Carolina Oak had 14 units under current
development with no units in backlog. Carolina Oak has an additional
91 lots that are currently available for home construction. We may decide to continue to build the remainder of the community which consists
of approximately 403 additional units if the sales of the existing units are successful. The
results of operations and financial condition of Carolina Oak as of and for the three year period
ended December 31, 2007 are included in the Primary Homebuilding segment in this Annual Report on
Form 10-K.
Looking forward, we intend to pursue acquisitions and investments opportunistically, using a
combination of our cash and third party equity and debt financing. These acquisitions and
investments may be within or outside of the real estate industry. We also intend to explore a
variety of funding structures which might leverage and capitalize on our available cash and other
assets currently owned by us. We may acquire entire businesses, majority interests in companies or
minority, non-controlling interests.
Financial and Non-Financial Metrics
Performance and prospects are evaluated using a variety of financial and non-financial
metrics. The key financial metrics utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (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), (loss) income from continuing operations, net (loss) income
and return on equity. We also continue to evaluate and monitor selling, general and
administrative expenses as a percentage of revenue, our ratios of debt to shareholders equity and
debt to total capitalization and our cash requirements. Non-financial metrics used to evaluate
historical performance include saleable acres in our Land Division and the number of acres in our
backlog. In evaluating future prospects, management considers financial results as well as
non-financial information such as acres in backlog (measured as land subject to an executed sales
contract). The ratio of debt to shareholders equity and cash requirements are also considered
when evaluating future prospects, as are general economic factors and interest rate trends. These
metrics are not an exhaustive list, and management may from time to time utilize different
financial and non-financial information or may not use all of the metrics mentioned above.
Critical Accounting Policies and Estimates
Management views critical accounting policies as accounting policies that are important to the
understanding of our financial statements and also involve estimates and judgments about inherently
uncertain matters. In preparing financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the consolidated statements of financial condition and
assumptions that affect the recognition of revenues and expenses on the consolidated statements of
operations for the periods presented. These estimates require the exercise of judgment, as future
events cannot be determined with certainty. 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 construction, reserves for litigation and contingencies and deferred
tax valuation allowances. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis of making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could differ significantly from these
estimates if conditions change or if certain key assumptions used in making these estimates
ultimately prove to be materially incorrect.
28
We have identified the following accounting policies that management views as critical to the
accurate portrayal of our financial condition and results of operations.
Loss in excess of investment in Levitt and Sons
Under Accounting Research Bulletin No. 51 (ARB No. 51), consolidation of a majority-owned
subsidiary is precluded where control does not rest with the majority owners. Under these rules,
legal reorganization or bankruptcy represents conditions which can preclude consolidation or equity
method accounting as control rests with the Bankruptcy Court, rather than the majority owner.
Accordingly, we deconsolidated Levitt and Sons as of November 9, 2007, eliminating all future
operations from the financial results of operations. Therefore, in accordance with ARB No. 51, we
follow the cost method of accounting to record the interest in Levitt and Sons, our wholly owned
subsidiary which declared bankruptcy on November 9, 2007. Under cost method accounting, income
will only be recognized to the extent of cash received in the future or when the Company is
discharged from the bankruptcy, at which time, any loss in excess of the investment in subsidiary
can be recognized into income as discussed below.
As a result of the deconsolidation, Levitt Corporation had a negative basis in its investment
in Levitt and Sons because the subsidiary generated significant losses and intercompany liabilities
in excess of its asset balances. This negative investment, Loss in excess of investment in
subsidiary, is reflected as a single amount on the audited consolidated statement of financial
condition as a $55.2 million liability as of December 31, 2007. This balance was comprised of a
negative investment in Levitt and Sons of $123.0 million and outstanding advances due from Levitt
and Sons of $67.8 million to Levitt Corporation. Included in the negative investment was
approximately $15.8 million associated with deferred revenue related to intra-segment sales between
Levitt and Sons and Core Communities.
Since Levitt and Sons results are no longer consolidated and Levitt Corporation believes that
it is not probable that it will be obligated to fund future operating losses at Levitt and Sons,
any adjustments reflected in Levitt and Sons financial statements subsequent to November 9, 2007
are not expected to affect the results of operations of Levitt Corporation. The reversal of our
liability into income will occur when either Levitt and Sons bankruptcy is discharged and the
amount of the Companys remaining investment in Levitt and Sons is determined or we reach a final
settlement in the Bankruptcy Court related to any claims against Levitt Corporation. Levitt
Corporation will continue to evaluate our cost method investment in Levitt and Sons quarterly to
review the reasonableness of the liability balance.
Inventory of Real Estate
As of November 9, 2007, Levitt and Sons was deconsolidated from Levitt Corporations results
of operations and accordingly the inventory of real estate related to homebuilding is no longer
included in the consolidated statement of financial condition with the exception of Carolina Oak
which is a homebuilding community now owned directly by Levitt Corporation.
As of December 31, 2007, inventory of real estate includes Carolina Oak homebuilding
inventory, land, land development costs, interest and other construction costs and is stated at
accumulated cost which does not exceed net realizable value. Due to the large acreage of certain
land holdings and the nature of our project development life cycles, disposition of our inventory
in the normal course of business is expected to extend over a number of years.
The expected future costs of development in our Land Division are analyzed at least quarterly
to determine the appropriate allocation factors to charge to cost of sales when such inventory is
sold. During the long term project development cycles in our Land Division, which can approximate
12-15 years, such development costs are subject to volatility. Costs in the Land Division to
complete infrastructure will be influenced by changes in direct costs associated with labor and
materials, as well as changes in development orders and regulatory compliance.
29
We review real estate inventory for impairment on a project-by-project basis in accordance
with SFAS No. 144. In accordance with SFAS No. 144, long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized in an amount by which the carrying amount of the asset
exceeds the fair value of the asset.
At December 31, 2007, we reviewed the Carolina Oak project using a cash flow model. The
related unleveraged cash flow was calculated using projected revenues and costs-to-complete and
projected sales of inventory. The present value of the projected cash flow from the project
exceeded the carrying amount of the project and accordingly no impairment charge was recognized. We
obtained market assessments and appraisals for our land inventory in 2007 to assess the fair market
value. The sales value exceeded the book value and accordingly no impairment charge was
recognized.
In prior periods, the real estate inventory for Levitt and Sons was reviewed for impairment in
accordance with SFAS No. 144. The fair market value of the real estate inventory balance was
assessed on a project-by-project basis. For projects representing land investments, where
homebuilding activity had not yet begun, valuation models were used as the best evidence of fair
value and as the basis for the measurement. If the calculated project fair value was lower than
the carrying value of the real estate inventory, an impairment charge was recognized to reduce the
carrying value of the project to the fair value. For projects with homes under construction, we
measured the recoverability of assets by comparing the carrying amount of an asset to the estimated
future undiscounted net cash flows. At the time of our analyses, the unleveraged cash flow models
projected future revenues and costs-to-complete and the sale of the remaining inventory based on
the current status of each project and reflected current market trends, current pricing strategies
and cancellation trends. If the carrying amount of a project exceeded the present value of the
cash flows from the project discounted using the weighted average cost of capital, an impairment
charge was recognized to reduce the carrying value of the project to fair market value. As a
result of this analysis, we recorded impairment charges of approximately $226.9 million and $36.8
million in cost of sales for the years ended December 31, 2007 and 2006, respectively, in the
Primary and Tennessee Homebuilding segments and for capitalized interest in the Other Operations
segment related to the projects in the Homebuilding Division that Levitt and Sons ceased
developing.
The assumptions developed and used by management are subjective and involve significant
estimates, and are subject to increased volatility due to the uncertainty of the current market
environment. As a result, actual results could differ materially from managements assumptions and
estimates and may result in material inventory impairment charges to be recorded in the future.
Investments in Unconsolidated Subsidiaries Equity Method
In December 2003, FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities,
(FIN No. 46(R)) was issued by the FASB to clarify the application of ARB No. 51 to certain
Variable Interest Entities (VIEs), in which equity investors do not have the characteristics of a
controlling interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties. Pursuant to FIN
No. 46(R), an enterprise that absorbs a majority of the VIEs expected losses, receives a majority
of the VIEs expected residual returns, or both, is determined to be the primary beneficiary of the
VIE and must consolidate the entity. For entities in which the company has less than a controlling
financial interest or entities where it is not deemed to be the primary beneficiary under FIN No. 46R,
the entities are accounted for using the equity method of accounting.
We follow the equity method of accounting to record our interests in subsidiaries in which we
do not own the majority of the voting stock and to record our investment in variable interest
entities in which we are not the primary beneficiary. These entities consist of Bluegreen
Corporation, joint ventures and statutory business trusts. The statutory business trusts are
variable interest entities in which the Company is not the primary beneficiary. Under the equity
method, the initial investment in a joint venture is recorded at cost and is subsequently adjusted
to recognize our share of the joint ventures earnings or losses. Distributions received reduce
the carrying amount of the investment. We evaluate our investments in
30
unconsolidated entities for impairment during each reporting period in accordance with
Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock (APB No. 18). These investments are evaluated annually or as events or
circumstances warrant for other than temporary declines in value. We evaluated the investment in
Bluegreen at December 31, 2007 and noted that the $116.0 million book value of the investment was
greater than the market value of $68.4 million (based upon a December 31, 2007 closing price of
$7.19). We performed an impairment review in accordance with Emerging Issues Task Force 03-1
(EITF 03-1), APB No. 18, and Securities and Exchange Commission Staff Accounting Bulletin 59
(SAB 59) to analyze various quantitative and qualitative factors to determine if an impairment
adjustment was needed. Based on the evaluation and the review of various qualitative and
quantitative factors relating to the performance of Bluegreen, the current value of the stock
price, and managements intention with regard to this investment, management determined that the
impairment associated with the investment in Bluegreen was not an other than temporary decline and
accordingly, no adjustment to the carrying value was recorded at December 31, 2007.
Homesite Contracts and Consolidation of Variable Interest Entities
In the ordinary course of business, we enter into contracts to purchase land held for
development, including option contracts. Option contracts allow us to control significant positions
with minimal capital investment and substantially reduce the risks associated with land ownership
and development. Our liability for nonperformance under such contracts is typically only the
required non-refundable deposits. We do not have legal title to these assets. However, if certain
conditions are met under the requirements of FIN No. 46(R), our non-refundable deposits in these
land contracts may create a variable interest for the Company, with the Company being identified as
the primary beneficiary. If these conditions are met, FIN No. 46(R) requires us to consolidate the
variable interest entity holding the asset to be acquired at their fair value. At December 31,
2007, we had no non-refundable deposits under these contracts, and we had no contracts in place to
acquire land.
Revenue Recognition
Revenue and all related costs and expenses from house and land sales are recognized at the
time that closing has occurred, when title and possession of the property and the risks and rewards
of ownership transfer to the buyer, and we do not have a substantial continuing involvement in
accordance with SFAS No. 66, Accounting for Sales of Real Estate (SFAS 66). In order to
properly match revenues with expenses, we estimate construction and land development costs incurred
and to be incurred, but not paid at the time of closing. Estimated costs to complete are determined
for each closed home and land sale based upon historical data with respect to similar product types
and geographical areas and allocated to closings along with actual costs incurred based on a
relative sales value approach. We monitor the accuracy of estimates by comparing actual costs
incurred subsequent to closing to the estimate made at the time of closing and make modifications
to the estimates based on these comparisons.
Revenue is recognized for certain land sales on the percentage-of-completion method when the
land sale takes place prior to all contracted work being completed. Pursuant to the requirements
of SFAS 66, if the seller has some continuing involvement with the property and does not transfer
substantially all of the risks and rewards of ownership, profit shall be recognized by a method
determined by the nature and extent of the sellers continuing involvement. In the case of our
land sales, this involvement typically consists of final development activities. We recognize
revenue and related costs as work progresses using the percentage-of-completion method, which
relies on estimates of total expected costs to complete required work. Revenue is recognized in
proportion to the percentage of total costs incurred in relation to estimated total costs at the
time of sale. Actual revenues and costs to complete construction in the future could differ from
our current estimates. If our estimates of development costs remaining to be completed and relative
sales values are significantly different from actual amounts, then our revenues, related cumulative
profits and costs of sales may be revised in the period that estimates change.
31
Other revenues consist primarily of rental property income, marketing revenues, irrigation
service fees, and title and mortgage revenue. Irrigation service connection fees are deferred and
recognized systematically over the life of the irrigation plant. Irrigation usage fees are recognized
when billed as the service is performed. Title and mortgage operations include agency and other fees received for
processing of title insurance policies and mortgage loans. Revenues from title and mortgage
operations are recognized when the transfer of the corresponding property or mortgages to third
parties has been consummated.
Effective January 1, 2006, Bluegreen adopted AICPA Statement of Position 04-02, Accounting
for Real Estate Time-Sharing Transactions (SOP 04-02). This Statement amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects (FAS No. 67),
to state that the guidance for incidental operations and 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. The adoption of SOP 04-02 resulted
in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million
to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in
Bluegreen recorded by us by approximately $1.4 million for the same period.
Capitalized Interest
Interest incurred relating to land under development and construction is capitalized to real
estate inventory or property and equipment during the active development period. For inventory,
interest is capitalized at the effective rates paid on borrowings during the pre-construction, 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. For property and equipment under
construction, interest associated with these assets is capitalized as incurred to property and
equipment and is expensed through depreciation once the asset is put into use.
Income Taxes
We record income taxes using the liability method of accounting for deferred income taxes.
Under this method, deferred tax assets and liabilities are recognized for the expected future tax
consequence of temporary differences between the financial statement and income tax basis of our
assets and liabilities. We estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as deferred revenue, for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are
included within our consolidated statements of financial condition. The recording of a net
deferred tax asset assumes the realization of such asset in the future. Otherwise, a valuation
allowance must be recorded to reduce this asset to its net realizable value. We consider future
pretax income and ongoing prudent and feasible tax strategies in assessing the need for such a
valuation allowance. In the event that we determine that we may not be able to realize all or part
of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made.
We file a consolidated Federal and Florida income tax return. Separate state returns are
filed by subsidiaries that operate outside the state of Florida. Even though Levitt and Sons and
its subsidiaries have been deconsolidated from Levitt Corporation for financial statement purposes,
they will continue to be included in the Companys Federal and Florida consolidated tax returns
until Levitt and Sons is discharged from bankruptcy. As a result of the deconsolidation of Levitt
and Sons, all of Levitt and Sons net deferred tax assets are no longer presented in the
consolidated statement of financial condition at December 31, 2007 but remain a part of Levitt and
Sons condensed consolidated financial statements at December 31, 2007 and accordingly will be part
of the tax return.
We adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxes an interpretation of FASB No. 109 (FIN 48) on January 1, 2007. FIN 48 provides
guidance on recognition, measurement, presentation and disclosure in financial statements of
uncertain tax positions that a company has taken or expects to take on a tax return. FIN 48
substantially changes the accounting policy for uncertain tax positions. As a result of the
implementation of FIN 48, we 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. At year end, we had gross tax-affected unrecognized
tax benefits of $2.4 million of which $0.2 million, if recognized, would affect the effective
tax rate.
32
Stock-based Compensation
We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (SFAS 123R) as of January 1, 2006 and elected the modified-prospective method, under
which prior periods are not restated. Under the fair value recognition provisions of this
statement, stock-based compensation cost is measured at the grant date based on the fair value of
the award and is recognized as expense on a straight-line basis over requisite service period,
which is 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.
We currently use the Black-Scholes option-pricing model to determine the fair value of stock
options. The fair value of option awards on the date of grant using the Black-Scholes
option-pricing model is determined by the stock price and assumptions regarding expected stock
price volatility over the expected term of the awards, risk-free interest rate, expected forfeiture
rate and expected dividends. If factors change and we use different assumptions for estimating
stock-based compensation expense in future periods or if we decide to use a different valuation
model, the amounts recorded in future periods may differ significantly from the amounts recorded in
the current period and could affect net income and earnings per share.
Goodwill
Goodwill acquired in a purchase business combination and determined to have an indefinite
useful life is not amortized, but instead tested for impairment at least annually in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). We conduct on at least
an annual basis, a review of the goodwill to determine whether the carrying value of goodwill
exceeds the fair market value using a discounted cash flow methodology. Should this be the case,
the value of goodwill may be impaired and written down. In the year ended December 31, 2006, we
conducted an impairment review of the goodwill related to the Tennessee Homebuilding segment in the
Homebuilding Division acquired in connection with our acquisition of Bowden Building Corporation in
2004. The profitability and estimated cash flows of this reporting entity were determined in the
second quarter of 2006 to have declined to a point where the carrying value of the assets exceeded
their market value. We used a discounted cash flow methodology to determine the amount of
impairment resulting in completely writing off goodwill of approximately $1.3 million in the year
ended December 31, 2006. The write-off is included in other expenses in the consolidated
statements of operations.
Discontinued Operations
As discussed previously in Item 1. Business, the commercial leasing properties at Core
Communities are treated as discontinued operations due to our intention to sell these projects.
Due to this decision, the projects and assets that are for sale have been accounted for as
discontinued operations for all periods presented in accordance with SFAS No. 144. Accordingly,
the results of operations from these projects have been reclassified to discontinued operations for
all periods presented in this Annual Report on Form 10-K. In addition, the assets have been
reclassified to assets held for sale and the related liabilities associated with these assets held
for sale were also reclassified in the consolidated statements of financial condition for all prior
periods presented to conform to the current year presentation. Additionally, pursuant to SFAS No.
144 assets held for sale are measured at the lower of its carrying amount or fair value less cost
to sell. Management has reviewed the net asset value and estimated the fair market value of the
assets based on the bids received related to these assets and determined that these assets were
appropriately recorded at the lower of cost or fair value less the costs to sell at December 31,
2007.
33
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Year Ended December 31, |
|
|
vs. 2006 |
|
|
vs. 2005 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Change |
|
|
|
(In thousands, except per share data) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
410,115 |
|
|
|
566,086 |
|
|
|
558,112 |
|
|
|
(155,971 |
) |
|
|
7,974 |
|
Other revenues |
|
|
5,766 |
|
|
|
7,488 |
|
|
|
6,585 |
|
|
|
(1,722 |
) |
|
|
903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
415,881 |
|
|
|
573,574 |
|
|
|
564,697 |
|
|
|
(157,693 |
) |
|
|
8,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
573,241 |
|
|
|
482,961 |
|
|
|
408,082 |
|
|
|
90,280 |
|
|
|
74,879 |
|
Selling, general and administrative expenses |
|
|
116,087 |
|
|
|
119,337 |
|
|
|
87,162 |
|
|
|
(3,250 |
) |
|
|
32,175 |
|
Other expenses |
|
|
3,929 |
|
|
|
3,677 |
|
|
|
4,855 |
|
|
|
252 |
|
|
|
(1,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
693,257 |
|
|
|
605,975 |
|
|
|
500,099 |
|
|
|
87,282 |
|
|
|
105,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
10,275 |
|
|
|
9,684 |
|
|
|
12,714 |
|
|
|
591 |
|
|
|
(3,030 |
) |
Interest and other income, net of interest
expense |
|
|
7,439 |
|
|
|
7,816 |
|
|
|
10,289 |
|
|
|
(377 |
) |
|
|
(2,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before income taxes |
|
|
(259,662 |
) |
|
|
(14,901 |
) |
|
|
87,601 |
|
|
|
(244,761 |
) |
|
|
(102,502 |
) |
Benefit (provision) for income taxes |
|
|
23,277 |
|
|
|
5,758 |
|
|
|
(32,532 |
) |
|
|
17,519 |
|
|
|
38,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(236,385 |
) |
|
|
(9,143 |
) |
|
|
55,069 |
|
|
|
(227,242 |
) |
|
|
(64,212 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations,
net of tax |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
1,786 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
|
|
(225,456 |
) |
|
|
(64,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.45 |
) |
|
|
2.73 |
|
|
|
(5.60 |
) |
|
|
(3.18 |
) |
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
0.05 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per share |
|
$ |
(6.00 |
) |
|
|
(0.45 |
) |
|
|
2.72 |
|
|
|
(5.55 |
) |
|
|
(3.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.46 |
) |
|
|
2.70 |
|
|
|
(5.59 |
) |
|
|
(3.16 |
) |
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
0.05 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per share (a) |
|
$ |
(6.00 |
) |
|
|
(0.46 |
) |
|
|
2.69 |
|
|
|
(5.54 |
) |
|
|
(3.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding (b) |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,208 |
|
|
|
18,878 |
|
|
|
6 |
|
Diluted weighted average shares outstanding (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,320 |
|
|
|
18,878 |
|
|
|
(106 |
) |
|
|
|
(a) |
|
Diluted (loss) earnings per share takes into account (i) the dilution in earnings we recognize from Bluegreen as a result of
outstanding
securities issued by Bluegreen that enable the holders thereof to acquire shares of Bluegreens common stock and (ii) the dilutive
effect of our stock options and restricted stock using the treasury stock method. |
|
(b) |
|
The weighted average number of common shares outstanding in basic and diluted (loss) earnings per common share for 2006 and 2005
have been retroactively adjusted for a number of shares representing the bonus element arising from the rights offering that closed
on October 1, 2007. Under the rights offering, stock was issued on October 1, 2007 at a purchase price below the market price on
October 1, 2007 resulting in the bonus element of 1.97%. The number of weighted average shares of Class A common stock is required
to be retroactively increased by this percentage for all prior periods presented. |
34
As of November 9, 2007, the accounts of Levitt and Sons were deconsolidated from our
financial statements. Therefore, the financial data and comparative analysis in the preceding table
reflects operations
through November 9, 2007 related to the Primary Homebuilding and Tennessee Homebuilding
segments compared to full year results of operations in 2006 and 2005, with the exception of
Carolina Oak which is included in the above table for the full year in 2007 since this subsidiary
is not part of the Chapter 11 Cases.
For the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
We had a consolidated net loss of $234.6 million for the year ended December 31, 2007 as
compared to a net loss of $9.2 million for the year ended December 31, 2006. The significant loss
in the year ended December 31, 2007 was the result of recording $226.9 million of impairment
charges related to inventory of real estate of which $217.6 million was recorded in the
Homebuilding Division and $9.3 million was recorded in the Other Operations segment related to
capitalized interest. This compares to $36.8 million of impairment charges recorded in the year
ended December 31, 2006. In addition, there were decreased sales of real estate and margins on
sales of real estate by all segments, and higher selling, general and administrative expenses
associated with Other Operations and our Land Division. In addition, interest expense was $3.8
million for the year ended December 31, 2007 while there was no interest expense in 2006. These
increased expenses and lower sales of real estate were slightly offset by an increase in income from discontinued operations related to increased commercial
lease activity generating higher rental revenues.
Revenues from sales of real estate decreased to $410.1 million for the year ended December 31,
2007 from $566.1 million for the year ended December 31, 2006. This decrease is attributable to
fewer homes delivered in the Homebuilding Division, and fewer land sales in both Other Operations
and the Land Division. The Homebuilding Division had lower revenue despite the average sales price
of units delivered increasing to $321,000 in 2007 compared to $302,000 in the same period in 2006
due to the number of deliveries decreasing to 1,144 homes as compared to 1,660 homes during the
same period in 2006. In Other Operations, Levitt Commercial delivered 17 units during the year
ended December 31, 2007 recording $6.6 million in revenues compared to 29 units during the year
ended December 31, 2006 and $11.0 million in revenues. The Land Division sold approximately 40
acres in the year ended December 31, 2007 as compared to 371 acres in 2006. These decreases were
slightly offset by an increase in land sales recorded by the Homebuilding Division which totaled
$20.1 million for the year ended December 31, 2007 while there were no comparable sales in 2006.
Other revenues decreased $1.7 million to $5.8 million for the year ended December 31, 2007,
compared to $7.5 million during the year ended December 31, 2006. Other revenues in the Primary
Homebuilding segment decreased due to fewer closings.
Cost of sales of real estate increased $90.3 million to $573.2 million during the year ended
December 31, 2007, as compared to $483.0 million for the year ended December 31, 2006. The
increase in cost of sales was due to the increased impairment charges recorded in an aggregate
amount of $226.9 million compared to $36.8 million in the same period in 2006. In addition,
included in cost of sales is approximately $18.8 million associated with sales by both segments of
the Homebuilding Division of land that management decided to not develop further, while there were
no similar sales or costs in 2006. These increases were offset by lower cost of sales due to fewer
land sales recorded by the Land Division and the Other Operations segment and fewer units delivered
by both segments of the Homebuilding Division.
Consolidated margin percentage declined during the year ended December 31, 2007 to a negative
margin of 39.8% compared to a margin of 14.7% in the year ended December 31, 2006 primarily related
to the impairment charges recorded in the Homebuilding Division and Other Operations segment.
Consolidated gross margin excluding impairment charges was 15.5% in the year ended December 31,
2007 compared to a gross margin of 21.2% in 2006. The decline was associated with significant
discounts offered in 2007 in an attempt to reduce cancellations and encourage buyers to close,
aggressive pricing discounts on spec units and a lower margin being earned on land sales.
35
Selling, general and administrative expenses decreased $3.3 million to $116.1 million during
the year ended December 31, 2007 compared to $119.3 million during the year ended December 31, 2006
primarily as a result of decreased employee compensation and benefits and other general and
administrative charges in the Homebuilding Division and Other Operations as a result of the
multiple reductions in force that occurred in 2007. In addition, annual incentive compensation
recorded in 2007 was significantly less throughout all segments of the business compared to the
year ended December 31, 2006 due to the significant reductions in force in the Homebuilding
Division and significant operating losses in 2007. In addition, Levitt and Sons was
deconsolidated as of November 9, 2007 and the selling, general and administrative expenses of
Levitt and Sons are reflected through November 9, 2007 compared to a full year of selling, general
and administrative expenses in 2006. These decreases were slightly offset by increased selling,
general and administrative expenses in the Land Division segment related to operating costs
associated with the commercial leasing business and increasing activity in the master-planned
community in Tradition Hilton Head and restructuring related expenses
recorded in Other Operations and the Homebuilding Division, in the
amount of $7.4 million
which included severance related expenses, facilities expenses, and independent contractor
expenses. As a percentage of total revenues, selling, general and administrative expenses increased
to 27.9% during the year ended December 31, 2007, from 20.8% during 2006 as a result of the
decreased revenue.
Other expenses increased slightly to $3.9 million during the year ended December 31, 2007 from
$3.7 million in 2006. In the year ended December 31, 2007, we recorded a surety bond accrual that
did not exist in 2006. Due to the cessation of most development activity in Levitt and Sons
projects, we evaluated Levitt Corporations exposure on the surety bonds and letters of credit
supporting any Levitt and Sons projects based on indemnifications Levitt Corporation provided to
the bond holders. Levitt and Sons had $33.3 million in surety bonds related to its ongoing projects
at the time of the filing of the Chapter 11 Cases. In the event that these obligations are drawn
and paid by the surety, we could be responsible for up to $12.0 million plus costs and expenses in
accordance with the surety indemnity agreement for these instruments. As of December 31, 2007, we
recorded $1.8 million in surety bonds accrual related to certain bonds where management considers
it probable that the Company will be required to reimburse the surety under the indemnity
agreement. In addition to the surety bond accrual, the Other Operations segment also recorded a
write-off of leasehold improvements which did not exist in 2006. As part of the reductions in
force discussed above and the Chapter 11 Cases, we vacated certain leased space. Leasehold
improvements in the amount of $564,000 related to the vacated space will not be recovered and were
written-off in the year ended December 31, 2007. These decreases were offset by the write-down of
goodwill in 2006 of approximately $1.3 million associated with the Tennessee Homebuilding segment.
In addition, title and mortgage expense decreased due to the decrease in closings.
Bluegreen reported net income for the year ended December 31, 2007 of $31.9 million, as
compared to net income of $29.8 million 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 contributed to the slight increase in 2007. Our interest in
Bluegreens income was $10.3 million for the year ended December 31, 2007 compared to $9.7 million
in 2006.
Interest and other income, net of interest expense decreased from $7.8 million during the year
ending December 31, 2006 to $7.4 million during the same period in 2007. The decrease is due to an
increase in interest expense in 2007. Interest incurred totaled $46.7 million and $40.5 million
for the years ended December 31, 2007 and 2006, respectively. While all interest was capitalized in
the year ended December 31, 2006, only $42.9 million was capitalized in 2007 due to a decreased
level of development associated with a large portion of our real estate inventory which resulted in
a decreased amount of qualified assets for interest capitalization. Interest incurred was higher
due to higher average debt balances for the year ended December 31, 2007 as compared to the same
period in 2006, as well as increases in the average interest rate on our variable-rate debt. At
the time of home closings and land sales, the capitalized interest allocated to such inventory is
charged to cost of sales. Cost of sales of real estate for the years ended December 31, 2007 and
2006 included previously capitalized interest of approximately $17.9 million and $15.4 million,
respectively. Interest expense was offset by higher forfeited deposits on cancelled contracts in
our Homebuilding Division as well as higher interest income due to the investment of the proceeds
from the Rights Offering.
36
The benefit for income taxes had an effective rate of 9.0% in the year ended December 31, 2007
compared to 38.6% in the year ended December 31, 2006. The decrease in the effective tax rate is a
result of recording a valuation allowance in the year ended December 31, 2007 for those deferred
tax assets that
are not expected to be recovered in the future. Due to the significant impairment charges
recorded in the year ended December 31, 2007, the expected timing of the reversal of those
impairment charges, and expected taxable losses in the foreseeable future, we do not believe at
this time we will have sufficient taxable income to realize all of the deferred tax assets. At
December 31, 2007, we had $102.6 million in gross deferred tax assets. After consideration of
$24.0 million of deferred tax liabilities and the ability to carryback losses, a valuation
allowance of $78.6 million was recorded. The increase in the valuation allowance from December 31,
2006 is $78.1 million.
The income from discontinued operations, which relates to two commercial leasing projects at
Core Communities, was $1.8 million in 2007 compared to a loss of
$21,000 in
2006. The increase is due to increased commercial lease
activity generating higher rental revenues.
For the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
We incurred a consolidated net loss of $9.2 million for the year ended December 31, 2006 as
compared to net income of $54.9 million in 2005, which represented a decrease in consolidated net
income of $64.1 million, or 116.7%. This decrease was the result of decreased margins on sales of
real estate across all operating segments due to increased cost of sales, and inventory impairments
recorded in the year ended December 31, 2006 in the amount of $36.8 million, and higher selling and
administrative expenses. There were no inventory impairments recorded in 2005, although we did
write-off $467,000 in deposits. These increases in expenses were offset in part by an increase in
sales of real estate. Further, Bluegreen Corporation experienced a decline in earnings in the year
ended December 31, 2006 compared to the same period in 2005.
Revenues from sales of real estate increased slightly from $558.1 million to $566.1 million
for the year ended December 31, 2006 as compared to 2005. The increase was primarily attributable
to an increase in the average selling prices of homes delivered by both segments of our
Homebuilding Division offset in part by decreases in the sales of real estate for the Land Division
and Other Operations for the year ended December 31, 2006. Homebuilding Division revenues
increased from $438.4 million for the year ended December 31, 2005 to $500.7 million in 2006.
During the year ended December 31, 2006, 1,660 homes were delivered compared to 1,789 homes
delivered during 2005, however the average selling price of deliveries increased to $302,000 for
the year ended December 31, 2006 from $245,000 in 2005. The increase in the average price of our
homes delivered was the result of price increases initiated throughout 2005 due to strong demand,
particularly in Florida. In the year ended December 31, 2005, the Land Division recorded land
sales of $105.7 million compared to land sales of $69.8 million in 2006. The large decrease is
attributable to a bulk land sale of 1,294 acres for $64.7 million recorded by the Land Division in
the year ended December 31, 2005 compared to 371 total acres sold by the Land Division in 2006.
Revenues for 2005 also reflect sales of flex warehouse properties as Levitt Commercial delivered 44
flex warehouse units at two of its development projects, generating revenues of $14.7 million.
Levitt Commercial delivered 29 units during the year ended December 31, 2006 recording $11.0
million in revenues.
Other revenues increased from $6.6 million during the year ending December 31, 2005 to $7.5
million in 2006. This change was primarily related to an increase in lease and irrigation revenue
associated with our Land Divisions Tradition, Florida master-planned community.
Cost of sales increased 18.4% to $483.0 million during the year ended December 31, 2006, as
compared to 2005. The increase in cost of sales was due to increased revenues from real estate.
In addition, the increase was due to impairment charges and inventory related valuation adjustments
in the amount of $36.8 million in our Homebuilding Division. Projections of future cash flows
related to the remaining assets in the Homebuilding Divisions were discounted and used to determine
the estimated impairment charge. These adjustments were calculated based on market conditions at
that time and assumptions made by our management, which may differ materially from actual results.
In the second quarter of 2006, we recorded inventory impairment charges related to the Tennessee
Homebuilding segment which have consistently delivered lower than expected margins. In the second
quarter of 2006, key management personnel resigned and we faced increased start-up costs in the
Nashville market. We also
37
experienced a downward trend in home deliveries in our Tennessee Homebuilding segment during
the second quarter and as a result of these factors, we recorded an impairment charge of
approximately $4.7 million. In the fourth quarter of 2006, we recorded additional impairment
charges of $29.7 million in both segments of the Homebuilding Division due to the continued
downward trend in certain homebuilding markets. In addition to impairment charges, cost of sales
increased due to higher construction costs. The increase in cost of sales in the Homebuilding
Division was partially offset by lower cost of sales in the Land Division and Other Operations,
based on the decrease in land sales recorded. Consolidated cost of sales as a percentage of related
revenue was approximately 85.3% for the year ended December 31, 2006, as compared to approximately
73.1% in 2005. This increase adversely affected gross margin percentages across all business
segments. This decrease in margin was attributable to the impairment charges, higher construction
costs as well as lower land revenues recognized associated with pricing pressure on sales of land.
Selling, general and administrative expenses increased $32.1 million to $119.3 million during
the year ended December 31, 2006 compared to $87.2 million during 2005 as a result of higher
employee compensation and benefits, advertising costs and professional services expenses. Employee
compensation and benefits expense increased by approximately $7.1 million, from $42.5 million
during the year ended December 31, 2005 to $49.6 million for 2006. This increase related to the
number of employees increasing from 668 at December 31, 2005 to 698 at December 31, 2006. The
employee count was as high as 765 as of June 30, 2006. These increases were primarily a result of
the continued expansion of the Primary Homebuilding segment and Land Division activities into new
geographic areas and enhanced support functions. Further, approximately $3.1 million of the
increase in compensation expense was associated with non-cash stock-based compensation for which no
expense was recorded in 2005. Additionally, other charges of $1.0 million consisted of employee
related costs, including severance and retention payments relating to our Homebuilding Division.
Advertising and outside broker expense increased approximately $8.6 million in the year ended
December 31, 2006 compared to 2005 due to increased advertising costs for new communities opened
during 2006 and increased advertising and increased costs to outside brokers associated with
efforts to attract buyers in a challenging homebuilding market. Lastly, we experienced an increase
in administrative costs of $2.8 million due to non-capitalizable consulting services performed
during the year ended December 31, 2006 related to our financial systems implementation of a new
technology and data platform for all of our operating entities. Effective October 2006, our
segments, excluding our Tennessee Homebuilding segment began utilizing one system platform. The
system implementation costs consisted of training and other validation procedures that were
performed in the year ended December 31, 2006. Similar professional services costs were not
incurred during the year ended December 31, 2005. As a percentage of total revenues, selling,
general and administrative expenses increased to 20.8% during the year ended December 31, 2006,
from 15.4% during the same period in 2005, due to the increases in overhead spending noted above,
coupled with the decline in total revenues generated in our Land Division with no corresponding
decrease in overhead costs. Management continues to evaluate overhead spending in an effort to
align costs with backlog, sales and deliveries.
Interest incurred and capitalized totaled $40.5 million for the year ended December 31, 2006
compared to $18.9 million in 2005. Interest incurred was higher due to higher outstanding debt
balances, as well as an increase in the average interest rate on our variable-rate debt and new
borrowings. 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 years ended
December 31, 2006 and 2005 included previously capitalized interest of approximately $15.4 million
and $9.0 million, respectively.
Other expenses decreased to $3.7 million during the year ended December 31, 2006 from $4.9
million for the year ended December 31, 2005. The decrease was primarily attributable to a
decrease of $677,000 in debt prepayment penalties that were incurred in 2005, a $830,000 litigation
reserve recorded in 2005, and hurricane related expenses incurred during the year ended December
31, 2005 while no hurricane expenses were incurred in 2006. The decrease in other expenses was
partially offset by goodwill impairment charges recorded in the year ended December 31, 2006 of
approximately $1.3 million related to our Tennessee Homebuilding segment. In the second quarter of
2006, we determined the profitability and estimated cash flows of the reporting entity declined to
a point where the carrying value of the assets exceeded their estimated fair market value resulting
in a write-off of goodwill.
38
Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as
compared to net income of $46.6 million in 2005. Our interest in Bluegreens earnings, net of
purchase accounting adjustments, was $9.7 million for the 2006 period compared to $12.7 million for
the same period in 2005, net of purchase accounting adjustments and the cumulative effect of a 2005
restatement.
Interest and other income, net of interest expense decreased from $10.3 million during the year ending December 31,
2005 to $7.8 million during 2006. This change was primarily related to certain one time income
items recorded in 2005 in the amount of $7.3 million, including a contingent gain receipt and the
reversal of a $6.8 million construction related obligation which were not realized in 2006. These
decreases were partially offset by higher income in 2006 related to a $1.3 million gain on sale of
fixed assets from our Land Division, higher interest income generated by our various interest
bearing deposits, and a $2.6 million increase in forfeited deposits realized by our Homebuilding
Division.
Provision for income taxes reflects an effective rate of 38.6% in the year ended December 31,
2006 compared to 37.1% in the year ended December 31, 2005. The change in the effective rate is due
to the temporary differences created due to impairment of goodwill for the year ended December 31,
2006. Additionally, we recognized an adjustment of an over accrual of income tax expense in the
amount of approximately $262,000, which is immaterial to the current and prior period financial
statements to which it relates.
The loss from discontinued operations, which relates to two commercial leasing projects at
Core Communities decreased $137,000 from $158,000 in the year ended December 31, 2005 to $21,000 in
2006. The decrease is due to increased commercial lease activity generating higher rental revenues.
39
Land Division Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Year Ended December 31, |
|
|
vs. 2006 |
|
|
vs. 2005 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
16,567 |
|
|
|
69,778 |
|
|
|
105,658 |
|
|
|
(53,211 |
) |
|
|
(35,880 |
) |
Other revenues |
|
|
2,893 |
|
|
|
2,063 |
|
|
|
924 |
|
|
|
830 |
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
19,460 |
|
|
|
71,841 |
|
|
|
106,582 |
|
|
|
(52,381 |
) |
|
|
(34,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
7,447 |
|
|
|
42,662 |
|
|
|
50,706 |
|
|
|
(35,215 |
) |
|
|
(8,044 |
) |
Selling, general and administrative expenses |
|
|
17,240 |
|
|
|
13,305 |
|
|
|
11,918 |
|
|
|
3,935 |
|
|
|
1,387 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
1,177 |
|
|
|
|
|
|
|
(1,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
24,687 |
|
|
|
55,967 |
|
|
|
63,801 |
|
|
|
(31,280 |
) |
|
|
(7,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net of interest
expense |
|
|
1,842 |
|
|
|
2,622 |
|
|
|
7,861 |
|
|
|
(780 |
) |
|
|
(5,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before income taxes |
|
|
(3,385 |
) |
|
|
18,496 |
|
|
|
50,642 |
|
|
|
(21,881 |
) |
|
|
(32,146 |
) |
Provision for income taxes |
|
|
(4,802 |
) |
|
|
(6,948 |
) |
|
|
(19,088 |
) |
|
|
2,146 |
|
|
|
12,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(8,187 |
) |
|
|
11,548 |
|
|
|
31,554 |
|
|
|
(19,735 |
) |
|
|
(20,006 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations,
net of tax |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
1,786 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(6,422 |
) |
|
|
11,527 |
|
|
|
31,396 |
|
|
|
(17,949 |
) |
|
|
(19,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold |
|
|
40 |
|
|
|
371 |
|
|
|
1,647 |
|
|
|
(331 |
) |
|
|
(1,276 |
) |
Margin percentage (a) |
|
|
55.0 |
% |
|
|
38.9 |
% |
|
|
52.0 |
% |
|
|
16.1 |
% |
|
|
(13.1 |
)% |
Unsold saleable acres (b) |
|
|
6,679 |
|
|
|
6,871 |
|
|
|
7,287 |
|
|
|
(192 |
) |
|
|
(416 |
) |
Acres subject to sales contracts Third
parties |
|
|
259 |
|
|
|
74 |
|
|
|
246 |
|
|
|
185 |
|
|
|
(172 |
) |
Aggregate sales price of acres subject to
sales contracts to third parties |
|
|
77,888 |
|
|
|
21,124 |
|
|
|
39,283 |
|
|
|
56,764 |
|
|
|
(18,159 |
) |
|
|
|
(a) |
|
Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate. |
|
(b) |
|
Includes approximately 56 acres related to assets held for sale as of December 31, 2007. |
Due to the nature and size of individual land transactions, our Land Division results are
subject to significant volatility. Although we have historically realized margins of between 40.0%
and 60.0% on Land Division sales, margins on land sales are likely to remain in the lower end, or
even below, of the historical range given the downturn in the real estate markets and the
significant decrease in demand in Florida. Margins will fluctuate based upon changing sales
prices and costs attributable to the land sold. In addition to the impact of economic and market
factors, the sales price and margin of land sold varies depending upon: the location; the parcel
size; whether the parcel is sold as raw land, partially developed land or individually developed
lots; the degree to which the land is entitled; and whether the designated use of land is
residential or commercial. The cost of sales of real estate is dependent upon the original cost of
the land acquired, the timing of the acquisition of the land, and the amount of land development,
interest and real estate tax costs capitalized to the particular land parcel during active
development. Allocations to cost of sales involve significant management judgment and include an
estimate of future costs of development, which can vary over time due to labor and material cost
increases, master plan design changes and regulatory modifications. Accordingly, allocations are
subject to change based on factors
which are in many instances beyond managements control. Future margins will continue to vary
based on these and other market factors. If the real estate markets deteriorate further, there is
no assurance that we will be able to sell land at prices above our carrying cost or even in amounts
necessary to repay our indebtedness.
40
The value of acres subject to third party sales contracts increased from $21.1 million at
December 31, 2006 to $77.9 million at December 31, 2007. This backlog consists of executed
contracts and provides an indication of potential future sales activity and value per acre.
However, the backlog is not an exclusive indicator of future sales activity. Some sales involve
contracts executed and closed in the same quarter and therefore will not appear in the backlog. In
addition, contracts in the backlog are subject to cancellation.
For the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
Revenues from sales of real estate decreased 76.3% to $16.6 million during the year ended December
31, 2007, compared to $69.8 million in 2006. Sales of real estate in Tradition, Florida for the
year ended December 31, 2007 consisted of 37 acres with a net sales price of $12.7 million, net of
deferrals related to percentage of completion accounting, as compared to 208 acres with a net
sales price of $51.2 million in 2006. In 2007, demand for residential land in Tradition, Florida
slowed dramatically. In addition, in the year ended December 31, 2007, we sold nine residential
lots encompassing approximately three acres in Tradition Hilton Head with a net sales price of $1.1
million, net of deferrals related to percentage of completion accounting. This compares to sales
to third parties in Tradition Hilton Head encompassing 10 acres with
a net sales price of $4.7
million in the year ended December 31, 2006 and an additional 150 acres transferred to Carolina Oak
which eliminated in consolidation. In addition, revenues for the year ended December
31, 2007 included look back provisions of $1.5 million compared to $870,000 in the year ended
December 31, 2006. Look back revenue relates to incremental revenue received from homebuilders
based on the final resale price to the homebuilders customer. We also recognized deferred revenue
on previously sold bulk land and residential lots totaling approximately $1.3 million for the year
ended December 31, 2007, of which $733,000 related to sales to affiliated segments and is
eliminated in consolidation. There was no similar activity for the year ended December 31, 2006.
Management continues to focus on commercial land sales and the leasing and development of its
retail centers. At Tradition Hilton Head, management is completing the development of the initial
phases of this master-planned community and expects a marketing launch in the spring of 2008.
Other revenues increased approximately $800,000 to $2.9 million for the year ended December
31, 2007, compared to $2.1 million during 2006. This was due to increased revenues related to
irrigation services provided to homebuilders, commercial users and the residents of Tradition,
Florida, marketing income associated with Tradition, Florida, and rental revenues associated with
our commercial leasing business.
Cost of sales decreased $35.2 million to $7.5 million during the year ended December 31, 2007,
as compared to $42.7 million for the same period in 2006 due to the decrease in sales of real
estate.
Margin percentage increased to 55.0% in the year ended December 31, 2007 from 38.9% in the
year ended December 31, 2006. The increase in margin is primarily due to increased commercial
sales in 2007 which generated a higher margin and 100% margin being realized on lookback revenue
because the associated costs were fully expensed at the time of closing.
Selling, general and administrative expenses increased 29.6% to $17.2 million during the year
ended December 31, 2007 compared to $13.3 million in the same period in 2006. The increase is the
result of higher employee compensation and benefits, increased operating costs associated with the
commercial leasing business and increased other general and
administrative costs. The number of full time
employees increased to 67 at December 31, 2007, from 59 at December 31, 2006, as additional
personnel were added to support development activity in Tradition Hilton Head. General and
administrative costs increased due to increased expenses associated with our commercial leasing
activities, increased legal expenditures, increased insurance costs and increased marketing and
advertising expenditures designed to attract buyers in Florida and establish a market presence in
South Carolina.
41
Interest and other income, net of interest expense decreased from $2.6 million during the year
ending December 31, 2006, to $1.8 million during 2007. Interest incurred for the years ended
December 31, 2007 and 2006 was $10.3 million and $5.1 million, respectively. Interest capitalized
totaled $7.7 million for the year ended December 31, 2007 compared to $5.1 million during 2006.
The interest expense in the year ended December 31, 2007 of approximately $2.6 million was
attributable to funds borrowed by Core Communities but then loaned to Levitt Corporation. The
capitalization of this interest occurred at the consolidated level and all intercompany interest
expense and income was eliminated on a consolidated basis. As noted above, interest incurred was
higher due to higher outstanding balances of notes and mortgage notes payable and an increase in
the average interest rate on variable-rate debt. At the time of land sales, the capitalized
interest allocated to such inventory is charged to cost of sales. Cost of sales of real estate for
the years ended December 31, 2007 and 2006 included previously capitalized interest of
approximately $66,000 and $443,000, respectively. Interest and other income also decreased by a gain on sale
of fixed assets which totaled $1.3 million in the year ended December 31, 2006 compared to $20,000
in 2007. The decreases were slightly offset by an increase in inter-segment interest income
associated with the aforementioned intercompany loan to Levitt Corporation (which is eliminated in
consolidation).
The income from discontinued operations, which relates to two commercial leasing projects at
Tradition, Florida, was $1.8 million in 2007 compared to a loss of $21,000 in 2006. The increase is due to increased commercial lease
activity generating higher rental revenues.
For the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
Revenues from sales of real estate decreased 34.0% to $69.8 million during the year ended
December 31, 2006, from $105.7 million during 2005. During the year ended December 31, 2006, we
sold 371 acres at an average margin of 38.9% as compared to 1,647 acres sold at an average margin
of 52.0% for 2005. The decrease in revenue was primarily attributable to a large bulk sale of land
adjacent to Tradition, Florida consisting of a total of 1,294 acres for $64.7 million, which
occurred in the year ended December 31, 2005. Included in the 371 acres sold in 2006 are 150 acres
transferred to Carolina Oak. Intercompany profits recognized by the Land Division are deferred
until the homes are delivered on those properties to third parties, at which time the deferred
profit is applied against consolidated cost of sales. During the year ended December 31, 2006, the
Land Divisions intercompany sales amounted to $18.8 million, of which the $3.3 million profit was
deferred at December 31, 2006, as compared to no intercompany sales in the year ended December 31,
2005.
The increase in other revenues from $924,000 for the year ended December 31, 2005 to $2.1
million in 2006 related to increased marketing fees associated with cooperative marketing
agreements with homebuilders and lease and irrigation income.
Cost of sales decreased $8.0 million to $42.7 million during the year ended December 31, 2006,
as compared to $50.7 million in 2005. The decrease in cost of sales was directly related to the
decrease in revenues from the Land Division in 2006. This decrease was slightly offset by an
increase in cost of sales due to lower margin sales in 2006. The large bulk sale that took place
in 2005, which represented the majority of the sales activity in 2005, generated higher than normal
margins for the year ended December 31, 2005. Cost of sales as a percentage of related revenue was
approximately 61.1% for the year ended December 31, 2006 compared to 48.0% in 2005.
Selling, general and administrative expenses increased 11.6% to $13.3 million during the year
ended December 31, 2006, from $11.9 million during 2005. The increase primarily was a result of
increases in compensation and other administrative expenses attributable to increased headcount in
support of our expansion into the South Carolina market, and commercial development, commercial
leasing and irrigation activities. Additionally, we incurred increases in Florida property taxes,
advertising and marketing costs, and depreciation associated with commercial projects being
developed internally. These increases were slightly offset by lower incentive compensation
associated with significant operating losses
42
in the year ended December 31, 2006 compared to 2005. As a percentage of total revenues, our
selling, general and administrative expenses increased to 18.5% during the year ended December 31,
2006, from 11.2% during 2005. The large variance is attributable to the large land sale that
occurred in the year ended December 31, 2005 which resulted in a large increase in revenue without
a corresponding increase in selling, general and administrative expenses due to the fixed nature of
many of the Land Divisions expenses.
Interest incurred and capitalized during the years ended December 31, 2006 and 2005 was $5.1
million and $2.4 million, respectively. Interest incurred was higher in 2006 due to higher
outstanding balances of notes and mortgage notes payable, as well as increases in the average
interest rate on our variable-rate debt. Cost of sales of real estate during the year ended
December 31, 2006 included previously capitalized interest of $443,000, compared to $743,000 during
2005.
The decrease in interest and other income from $7.9 million for the year ended December 31,
2005 to $2.6 million in 2006 is related to a reversal of a construction related obligation recorded
in 2005 in the amount of $6.8 million. This item was not present in 2006. This decrease was
partially offset by a $1.3 million gain on sale of fixed assets and higher interest income
generated by our various interest bearing deposits.
The loss from discontinued operations, relates to two commercial leasing projects at Core
Communities decreased $137,000 from $158,000 in the year ended December 31, 2005 to $21,000 in the
year ended December 31, 2006. The decrease in the loss from discontinued operations is due to
increased commercial lease activity generating higher rental revenues.
Other Operations Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Year Ended December 31, |
|
|
Vs. 2006 |
|
|
Vs. 2005 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
6,574 |
|
|
|
11,041 |
|
|
|
14,709 |
|
|
|
(4,467 |
) |
|
|
(3,668 |
) |
Other revenues |
|
|
952 |
|
|
|
1,435 |
|
|
|
1,963 |
|
|
|
(483 |
) |
|
|
(528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,526 |
|
|
|
12,476 |
|
|
|
16,672 |
|
|
|
(4,950 |
) |
|
|
(4,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
16,793 |
|
|
|
11,649 |
|
|
|
12,520 |
|
|
|
5,144 |
|
|
|
(871 |
) |
Selling, general and administrative expenses |
|
|
32,508 |
|
|
|
28,174 |
|
|
|
17,841 |
|
|
|
4,334 |
|
|
|
10,333 |
|
Other expenses |
|
|
2,390 |
|
|
|
8 |
|
|
|
72 |
|
|
|
2,382 |
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
51,691 |
|
|
|
39,831 |
|
|
|
30,433 |
|
|
|
11,860 |
|
|
|
9,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
10,275 |
|
|
|
9,684 |
|
|
|
12,714 |
|
|
|
591 |
|
|
|
(3,030 |
) |
Interest and other income, net of interest
expense |
|
|
6,294 |
|
|
|
4,059 |
|
|
|
2,108 |
|
|
|
2,235 |
|
|
|
1,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(27,596 |
) |
|
|
(13,612 |
) |
|
|
1,061 |
|
|
|
(13,984 |
) |
|
|
(14,673 |
) |
Benefit (provision) for income taxes |
|
|
34,297 |
|
|
|
5,639 |
|
|
|
(378 |
) |
|
|
28,658 |
|
|
|
6,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,701 |
|
|
|
(7,973 |
) |
|
|
683 |
|
|
|
14,674 |
|
|
|
(8,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations include all other Company operations, including Levitt Commercial,
parent company general and administrative expenses, earnings from our investment in Bluegreen and
earnings (loss) from investments in various real estate projects and trusts. We currently own
approximately 9.5 million shares of the common stock of Bluegreen, which represented approximately
31% of Bluegreens outstanding shares as of December 31, 2007. Under equity method accounting, we
recognize our pro-rata
43
share of Bluegreens net income (net of purchase accounting adjustments) as pre-tax earnings.
Bluegreen has not paid dividends to its shareholders; therefore, our earnings represent only our
claim to the future distributions of Bluegreens earnings. Accordingly, we record a tax liability
on our portion of Bluegreens net income. Our earnings in Bluegreen increase or decrease
concurrently with Bluegreens reported results. Furthermore, a significant reduction in Bluegreens
financial position could potentially result in an impairment charge on our investment against our
future results of operations. For a complete discussion of Bluegreens results of operations and
financial position, we refer you to Bluegreens Annual Report on Form 10-K for the year ended
December 31, 2007,as filed with the SEC, and the financial statement contained herein, as filed as
an Exhibit 99.1 to this Form 10-K.
For the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
Revenue from sales of real estate was $6.6 million in the year ended December 31, 2007
compared to $11.0 million in the year ended December 31, 2006. Levitt Commercial delivered 17
flex warehouse units in 2007 while 29 units were delivered during 2006. Levitt Commercial
completed the sale of all flex warehouse units in inventory in 2007, and we have no current plans
for future sales from Levitt Commercial.
Other revenues decreased to $952,000 in the year ended December 31, 2007 from $1.4 million in
2006 due to the reduction in leasing revenue received from the sub-tenant in the corporate
headquarters building. The sub-tenant leased space in our headquarters building and returned a
portion of this space to us in the fourth quarter of 2006, which we now occupy. We are planning
to seek to lease to third parties this space in 2008 and relocate to smaller space due to the
number of employees we have remaining at this facility.
Cost of sales of real estate increased to $16.8 million during the year ended December 31,
2007, as compared to $11.6 million during the year ended December 31, 2006 due to an increase of
$9.3 million in capitalized interest impairment charges. This increase was offset in part by a
decrease of $3.8 million in cost of sales related to fewer deliveries of commercial warehouse
units, as we delivered 12 fewer flex warehouse units in the year ended December 31, 2007 as
compared to 2006. In addition, interest in Other Operations is amortized to cost of sales in
accordance with the relief rate used in the Companys operating segments, and due to the lower
sales in 2007, the operating segments experienced decreased interest amortization which resulted in
less amortization by the Other Operations segment.
Bluegreen reported net income for the year ended December 31, 2007 of $31.9 million, as
compared to net income of $29.8 million 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 contributed to the slight increase in 2007. Our interest in
Bluegreens income was $10.3 million for the year ended December 31, 2007 compared to $9.7 million
in 2006.
Selling, general and administrative expenses increased $4.3 million to $32.5 million during
the year ended December 31, 2007 compared to $28.2 million in 2006. The increase was attributable
to $5.1 million of restructuring related charges associated with Levitt Corporation and Levitt and
Sons employees. In the third and fourth quarters of 2007, substantially all of Levitt and Sons
employees were terminated and 22 employees were terminated at Levitt Corporation primarily as a
result of the Chapter 11 Cases. Levitt Corporation recorded approximately $2.4 million in the year ended December 31, 2007 of severance benefits to terminated Levitt and Sons employees to supplement
the limited termination benefits which could be paid by Levitt and Sons to those employees. The
restructuring related expenses were slightly offset by lower stock based compensation and annual incentive compensation expense as a result of the multiple reductions in
force that occurred in 2007 and significant operating losses in 2007. The decrease in
non-cash stock based compensation expense is attributable to the large number of employee terminations
that occurred in 2007 which resulted in a reversal of stock compensation amounts previously
accrued. The reversal related to forfeited options in connection with the terminations.
44
Other expenses increased to $2.4 million during the year ended December 31, 2007 from $8,000
in 2006. In the year ended December 31, 2007, we recorded a surety bond accrual that did not
exist in 2006. Due to the cessation of most development activity in Levitt and Sons projects, we
evaluated Levitt Corporations exposure on the surety bonds and letters of credit supporting any
Levitt and Sons projects based on indemnifications Levitt Corporation provided to the bond holders.
As of December 31, 2007, we recorded $1.8 million in surety bonds accrual related to certain bonds
where management considers it probable that the Company will be required to reimburse the surety
under the indemnity agreement. In addition to the surety bond accrual, the Other Operations segment
also recorded a write-off of leasehold improvements which also did not exist in 2006. As part of
the reductions in force discussed above and the Chapter 11 Cases, we vacated certain leased space.
Leasehold improvements in the amount of $564,000 related to this vacated space will not be
recovered and were written off in the year ended December 31, 2007.
Interest and other income, net of interest expense was approximately $6.3 million for the year
ended December 31, 2007 compared to $4.1 million in 2006. This increase was primarily the result
of the Rights Offering we completed in October 2007, the proceeds of which resulted in higher average cash
balances at the parent company in the year ended December 31, 2007 which generated higher interest
income, as well as interest income related to intersegment loans to the Primary and Tennessee
Homebuilding segments which were eliminated in consolidation. This increase was partially offset
by an increase in interest expense. Interest incurred in Other Operations was approximately $10.8
million and $7.4 million for the year ended December 31, 2007 and 2006, respectively. While all
interest was capitalized in the year ended December 31, 2006, $9.8 million was capitalized in 2007
due to a decreased level of development associated with a large portion of our real estate
inventory which resulted in a decreased amount of qualified assets for interest capitalization.
The increase in interest incurred was attributable to an increase in the average balance of our
borrowings as a result of our issuance of trust preferred securities during 2006, and the
aforementioned funds borrowed by Core Communities but then loaned to Levitt Corporation.
For the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
During the year ended December 31, 2006, Levitt Commercial delivered 29 flex warehouse units
at two of its projects, generating revenues of $11.0 million as compared to 44 flex warehouse units
in 2005, generating revenues of $14.7 million. Deliveries of individual flex warehouse units by
Levitt Commercial generally occur in rapid succession upon the completion of a warehouse building.
Cost of sales of real estate in Other Operations includes the expensing of interest previously
capitalized, as well as the costs of development associated with the Levitt Commercial projects.
Interest in Other Operations is capitalized and amortized to cost of sales in accordance with the
relief rate used in our operating segments. This capitalization is for Other Operations debt where
interest is allocated to inventory in the other operating segments. Cost of sales of real estate
decreased $871,000 from $12.5 million in the year ended December 31, 2005 to $11.6 million in the
year ended December 31, 2006. The primary reason for the decrease in cost of sales is due to fewer
sales at Levitt Commercial partially offset by increased cost of sales associated with previously
capitalized interest related to corporate debt.
Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as
compared to net income of $46.6 million in 2005. Our interest in Bluegreens earnings, net of
purchase accounting adjustments, was $9.7 million for the year ended December 31, 2006 compared to
$12.7 million in 2005.
Selling, general and administrative expense increased 57.9% to $28.2 million during the year
ended December 31, 2006, from $17.8 million during 2005. The increase was a result of higher
employee compensation and benefits, recruiting expenses, and professional services expenses.
Employee compensation costs increased by approximately $4.4 million from $7.4 million during the
year ended December 31, 2005 to $11.8 million in 2006. The increase related to the increase in the
number of full time employees to 63 at December 31, 2006 from 46 at December 31, 2005.
Additionally, approximately $3.1 million of the increase in compensation expense was associated
with non-cash stock-based compensation for which no expense was recorded in 2005. We experienced an
increase in professional services due to non-capitalizable consulting services performed in the
year ended December 31, 2006 related to our systems implementation. The system implementation costs
and merger related costs did not exist in the year ended December 31, 2005. These increases were
partially offset by decreases in bonus expense of approximately $1.0 million from the year ended
December 31, 2005 due to decreased profitability.
Interest incurred and capitalized on notes and mortgage notes payable totaled $7.4 million
during the year ended December 31, 2006, compared to $4.4 million during the same period in 2005.
The increase in interest incurred was attributable to an increase in junior subordinated debentures
and an increase in the average interest rate on our borrowings. Cost of sales of real estate
includes previously capitalized interest of $3.6 million and $2.0 million during the year ended
December 31, 2006 and 2005, respectively. Those amounts include adjustments to reconcile the amount
of interest eligible for capitalization on a consolidated basis with the amounts capitalized in our
other business segments.
45
Primary Homebuilding Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Year Ended December 31, |
|
|
vs. 2006 |
|
|
vs. 2005 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Change |
|
|
|
(Dollars in thousands, except average price data) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
345,666 |
|
|
|
424,420 |
|
|
|
352,723 |
|
|
|
(78,754 |
) |
|
|
71,697 |
|
Other revenues |
|
|
2,243 |
|
|
|
4,070 |
|
|
|
3,750 |
|
|
|
(1,827 |
) |
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
347,909 |
|
|
|
428,490 |
|
|
|
356,473 |
|
|
|
(80,581 |
) |
|
|
72,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
501,206 |
|
|
|
367,252 |
|
|
|
272,680 |
|
|
|
133,954 |
|
|
|
94,572 |
|
Selling, general and administrative expenses |
|
|
61,568 |
|
|
|
65,052 |
|
|
|
46,917 |
|
|
|
(3,484 |
) |
|
|
18,135 |
|
Other expenses |
|
|
1,539 |
|
|
|
2,362 |
|
|
|
3,606 |
|
|
|
(823 |
) |
|
|
(1,244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
564,313 |
|
|
|
434,666 |
|
|
|
323,203 |
|
|
|
129,647 |
|
|
|
111,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net of interest
expense |
|
|
(325 |
) |
|
|
2,982 |
|
|
|
639 |
|
|
|
(3,307 |
) |
|
|
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(216,729 |
) |
|
|
(3,194 |
) |
|
|
33,909 |
|
|
|
(213,535 |
) |
|
|
(37,103 |
) |
Benefit (provision) for income taxes |
|
|
1,396 |
|
|
|
1,508 |
|
|
|
(12,270 |
) |
|
|
(112 |
) |
|
|
13,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(215,333 |
) |
|
|
(1,686 |
) |
|
|
21,639 |
|
|
|
(213,647 |
) |
|
|
(23,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered |
|
|
998 |
|
|
|
1,320 |
|
|
|
1,338 |
|
|
|
(322 |
) |
|
|
(18 |
) |
Construction starts |
|
|
558 |
|
|
|
1,445 |
|
|
|
1,212 |
|
|
|
(887 |
) |
|
|
233 |
|
Average selling price of homes delivered |
|
$ |
338,000 |
|
|
|
322,000 |
|
|
|
264,000 |
|
|
|
16,000 |
|
|
|
58,000 |
|
Margin percentage (a) |
|
|
(45.0 |
)% |
|
|
13.5 |
% |
|
|
22.7 |
% |
|
|
(58.5 |
)% |
|
|
(9.2 |
)% |
Gross sales contracts (units) |
|
|
765 |
|
|
|
1,108 |
|
|
|
1,398 |
|
|
|
(343 |
) |
|
|
(290 |
) |
Sales contracts cancellations (units) |
|
|
382 |
|
|
|
261 |
|
|
|
109 |
|
|
|
121 |
|
|
|
152 |
|
Net orders (units) |
|
|
383 |
|
|
|
847 |
|
|
|
1,289 |
|
|
|
(464 |
) |
|
|
(442 |
) |
Net orders (value) |
|
$ |
94,782 |
|
|
|
324,217 |
|
|
|
448,207 |
|
|
|
(229,435 |
) |
|
|
(123,990 |
) |
Backlog of homes (units) |
|
|
|
|
|
|
1,126 |
|
|
|
1,599 |
|
|
|
(1,126 |
) |
|
|
(473 |
) |
Backlog of homes (value) |
|
$ |
|
|
|
|
411,578 |
|
|
|
512,140 |
|
|
|
(411,578 |
) |
|
|
(100,562 |
) |
|
|
|
(a) |
|
Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of
real estate. |
As of November 9, 2007, the accounts of Levitt and Sons were deconsolidated from our
financial statements. Therefore, the financial data and comparative analysis in the table above
reflects operations through November 9, 2007 in the Primary Homebuilding segment compared to full
year results of operations in 2006 and 2005, with the exception of Carolina Oak the results of
which are included in the above results for the full year in 2007 since this subsidiary is not part
of the Chapter 11 Cases. Carolina Oak is still in the early stages of development, and therefore
its results of operations are immaterial to the segment, but have been included in the Primary
Homebuilding segment because it is engaged in homebuilding activities and because the financial
metrics from this company are similar in nature to the other homebuilding projects within this
segment that existed in 2006 and 2007.
For the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
Revenues from sales of real estate decreased 18.6% or $78.8 million to $345.7 million during
the year ended December 31, 2007, from $424.4 million during 2006 despite the increase in average
sales price of deliveries from $322,000 in 2006 to $338,000 in 2007. During the year ended
December 31, 2007, 998 homes were delivered compared to 1,320 homes delivered during 2006. The
decrease in units delivered was partially offset by increased land sales. We recognized $8.0
million of revenue attributable to the sale
of land that management decided not to develop further, while there were no land sales in
2006.
46
Other revenues decreased $1.8 million to $2.2 million for the year ended December 31, 2007,
compared to $4.1 million during 2006. Other revenues in the Primary Homebuilding segment decreased
due to lower revenues from our title company due to fewer closings.
Cost of sales increased to $501.2 million during the year ended December 31, 2007, compared to
$367.3 million for 2006. The increase was primarily due to the increased impairment charges on
inventory of real estate and an increase in cost of sales associated with the land sale that
occurred in the year ended December 31, 2007 slightly offset by a decrease in cost of sales due to
a fewer number of deliveries. Impairment charges were $206.4 million in the year ended December
31, 2007 compared to $31.1 million in impairment charges in 2006.
Margin percentage (defined as sales of real estate minus cost of sales of real estate, divided
by sales of real estate) declined to a negative 45.0% in the year ended December 31, 2007 from
13.5% in the year ended December 31, 2006 mainly attributable to the impairment charges recorded in
the year ended December 31, 2007. Margin percentage excluding impairments declined from 20.8% in
the year ended December 31, 2006 to 14.7% during the year ended December 31, 2007. This decline
was primarily attributable to significant discounts offered in an effort to reduce cancellations
and to encourage buyers to close, and aggressive pricing discounts on spec units as well as lower
margin earned on the $8.0 million land sale mentioned above.
Selling, general and administrative expenses decreased 5.4% to $61.6 million during the year
ended December 31, 2007, compared to $65.1 million in 2006 primarily as a result of lower employee
compensation and benefits expense and decreased office and administrative expenses as a result of
the multiple reductions in force that occurred in 2007. In addition, there was no annual incentive
compensation recorded in 2007 for the Primary Homebuilding segment. In addition, Levitt and Sons
was deconsolidated as of November 9, 2007 and the selling, general and administrative expenses of
Levitt and Sons are reflected through November 9, 2007 compared to a full year of selling, general
and administrative expenses in 2006. These decreases were offset in part by increased legal costs primarily related to the preparation of the Chapter 11
Cases. As a percentage of total revenues, selling, general and administrative expense was
approximately 17.7% for the year ended December 31, 2007 compared to 15.2% in 2006.
Other expenses of $1.5 million decreased during the year ended December 31, 2007 from $2.4
million in 2006 as a result of a decrease in title and mortgage expense. Title and mortgage
expense mostly relates to closing costs and title insurance costs for closings processed
internally. These costs were lower in 2007 due to the decrease in closings.
Interest and other income, net of interest expense decreased from income of $3.0 million
during the year ended December 31, 2006 to expense of $325,000 during 2007. This change was
primarily related to interest expense. Interest incurred totaled $31.2 million and $27.2 million
for the years ended December 31, 2007 and 2006, respectively. While all interest was capitalized
during the year ended December 31, 2006, $23.9 million in interest was capitalized during the year
ended December 31, 2007 due to a decreased level of development occurring in the projects in the
Primary Homebuilding segment in 2007 which resulted in a decreased amount of qualified assets for
interest capitalization. Interest incurred increased as a result of higher average debt balances
for the year ended December 31, 2007 as compared to 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 years ended December 31, 2007 and 2006 included previously capitalized
interest of approximately $14.1 million and $9.7 million, respectively. Interest expense was
slightly offset by an increase in forfeited deposits of $3.5 million resulting from increased
cancellations of home sale contracts.
47
For
the Year Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Revenues from home sales in our Primary Homebuilding segment increased 20.3% to $424.4 million
during the year ended December 31, 2006, from $352.7 million during 2005. The increase was the
result of an increase in average sale prices on home deliveries, which increased to $322,000 for
the year ended December 31, 2006, compared to $264,000 during 2005. Since our typical sale to
delivery cycle lasted between 12 and 15 months, much of the increase in average sales price on
deliveries was attributable to the price increases in 2005 which we were able to maintain through
the first half of 2006. The increase in sales prices was partially offset by a decrease in the
number of deliveries which declined slightly to 1,320 homes during the year ended December 31, 2006
from 1,338 homes during 2005.
The value of net orders in our Primary Homebuilding segment decreased to $324.2 million during
the year ended December 31, 2006, from $448.2 million during 2005. During the year ended December
31, 2006, net unit orders decreased to 847 units from 1,289 units during 2005 as a result of
reduced traffic and lower conversion rates as well as an increase in order cancellations. The
decrease in net orders was partially offset by the average sales price increasing 10.1% during the
year ended December 31, 2006 to $383,000, from $348,000 in 2005. Higher average selling prices are
primarily a reflection of price increases that were implemented in 2005 and maintained in the first
half of 2006, as well as the product mix of sales being generated from projects with higher average
sales prices. In 2006, Primary Homebuilding had 1,108 gross sales contracts with 261
cancellations (a 24% cancellation rate) compared to 1,398 gross sales contracts with 109
cancellations (an 8% cancellation rate) for 2005. The increase in cancellations was pervasive in
our Florida markets and was attributed primarily to adverse market conditions in Florida and the
overall residential market.
Cost of sales in our Primary Homebuilding segment increased $94.6 million to $367.3 million
during the year ended December 31, 2006, from $272.7 million during 2005. The increase in cost of
sales is due to the increase in revenue from home sales as well as impairment charges and inventory
related valuation adjustments recorded in the amount of $31.1 million. Cost of sales also
increased due to higher construction costs related to longer cycle times and increased carrying
costs.
Margin percentages declined in the Primary Homebuilding segment during the year ended December
31, 2006 to 13.5%, from 22.7% during 2005. There were no impairment charges recorded in 2005,
although we did write-off $457,000 in deposits. Gross margin excluding inventory impairments was
20.8% in 2006 compared to a gross margin of 22.7% in 2005. The decline was associated with higher
construction costs in 2006 compared to 2005.
Selling, general and administrative expenses in our Primary Homebuilding segment increased
38.7% to $65.1 million during the year ended December 31, 2006, as compared to $46.9 million during
2005 primarily as a result of higher employee compensation and benefits expense, recruiting costs,
higher outside sales commissions, increased advertising, and costs of expansion throughout Florida,
Georgia and South Carolina. Employee compensation costs increased by approximately $4.5 million,
from $26.1 million during the year ended December 31, 2005 to $30.6 million in 2006 mainly
attributable to higher average headcount, which reached 581 employees as of June 30, 2006, before
totaling 536 employees as of December 31, 2006. There were 506 employees at December 31, 2005.
During 2006, we reduced headcount throughout the Primary Homebuilding segment and, in connection
with these reductions, we incurred charges for employee related costs, including severance and
retention payments. Employee cost increases were offset in part by a reduction in incentive
compensation in 2006 associated with the decrease in profitability in the year ended December 31,
2006 as compared to 2005. Selling costs were higher in 2006 by $8.8 million, primarily associated
with higher broker commissions earned, increased sales expenses associated with efforts to attract
buyers in a challenging homebuilding market and increased headcount associated with the expansion
into new markets discussed above. Additionally, legal fees associated with litigation increased
for the year ended December 31, 2006 as compared to 2005. As a percentage of total revenues,
selling, general and administrative expense was approximately 15.2% for the year ended December 31,
2006 compared to 13.2% in 2005.
Other expenses decreased 34.6% to $2.4 million during the year ended December 31, 2006 from
$3.6 million in 2005. The decrease in other expenses related to an $830,000 reserve recorded in
2005 to
account for our share of costs associated with a litigation settlement and a decrease in
title and mortgage expense of approximately $414,000 compared to 2005.
Interest incurred and capitalized on notes and mortgages payable totaled $27.2 million during
the year ended December 31, 2006, compared to $11.0 million in 2005. Interest incurred increased
as a result of an increase in the average interest rate on our variable-rate borrowings as well as
a $149.6 million increase in our borrowings from December 31, 2005. Cost of sales of real estate
associated with previously capitalized interest totaled $9.7 million during the year ended December
31, 2006 as compared to $4.7 million in 2005.
48
Tennessee Homebuilding Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Year Ended December 31, |
|
|
vs. 2006 |
|
|
vs. 2005 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Change |
|
|
|
(Dollars in thousands, except average price data) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
42,042 |
|
|
|
76,299 |
|
|
|
85,644 |
|
|
|
(34,257 |
) |
|
|
(9,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
42,042 |
|
|
|
76,299 |
|
|
|
85,644 |
|
|
|
(34,257 |
) |
|
|
(9,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
51,360 |
|
|
|
72,807 |
|
|
|
74,328 |
|
|
|
(21,447 |
) |
|
|
(1,521 |
) |
Selling, general and administrative expenses |
|
|
5,010 |
|
|
|
12,806 |
|
|
|
10,486 |
|
|
|
(7,796 |
) |
|
|
2,320 |
|
Other expenses |
|
|
|
|
|
|
1,307 |
|
|
|
|
|
|
|
(1,307 |
) |
|
|
1,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
56,370 |
|
|
|
86,920 |
|
|
|
84,814 |
|
|
|
(30,550 |
) |
|
|
2,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net of interest
expense |
|
|
(68 |
) |
|
|
127 |
|
|
|
188 |
|
|
|
(195 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(14,396 |
) |
|
|
(10,494 |
) |
|
|
1,018 |
|
|
|
(3,902 |
) |
|
|
(11,512 |
) |
(Provision) benefit for income taxes |
|
|
(1,700 |
) |
|
|
3,241 |
|
|
|
(421 |
) |
|
|
(4,941 |
) |
|
|
3,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(16,096 |
) |
|
|
(7,253 |
) |
|
|
597 |
|
|
|
(8,843 |
) |
|
|
(7,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered |
|
|
146 |
|
|
|
340 |
|
|
|
451 |
|
|
|
(194 |
) |
|
|
(111 |
) |
Construction starts |
|
|
171 |
|
|
|
237 |
|
|
|
450 |
|
|
|
(66 |
) |
|
|
(213 |
) |
Average selling price of homes delivered |
|
$ |
205,000 |
|
|
|
224,000 |
|
|
|
190,000 |
|
|
|
(19,000 |
) |
|
|
34,000 |
|
Margin percentage (a) |
|
|
(22.2 |
)% |
|
|
4.6 |
% |
|
|
13.2 |
% |
|
|
(26.8 |
)% |
|
|
(8.6 |
)% |
Gross sales contracts (units) |
|
|
266 |
|
|
|
412 |
|
|
|
641 |
|
|
|
(146 |
) |
|
|
(229 |
) |
Sales contracts cancellations (units) |
|
|
156 |
|
|
|
143 |
|
|
|
163 |
|
|
|
13 |
|
|
|
(20 |
) |
Net orders (units) |
|
|
110 |
|
|
|
269 |
|
|
|
478 |
|
|
|
(159 |
) |
|
|
(209 |
) |
Net orders (value) |
|
$ |
20,621 |
|
|
|
57,776 |
|
|
|
98,838 |
|
|
|
(37,155 |
) |
|
|
(41,062 |
) |
Backlog of homes (units) |
|
|
|
|
|
|
122 |
|
|
|
193 |
|
|
|
(122 |
) |
|
|
(71 |
) |
Backlog of homes (value) |
|
$ |
|
|
|
|
26,662 |
|
|
|
45,185 |
|
|
|
(26,662 |
) |
|
|
(18,523 |
) |
|
|
|
(a) |
|
Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of
real estate. |
As of November 9, 2007, the accounts of Levitt and Sons were deconsolidated from our
financial statements. Therefore, the financial data and comparative analysis in the above table
reflects the operations of the Tennessee Homebuilding segment through November 9, 2007 compared to
full year results of operations in 2006 and 2005.
For the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
Revenues from sales of real estate decreased to $42.0 million during the year ended December
31, 2007, from $76.3 million during 2006. During the year ended December 31, 2007, 146 homes were
delivered at an average sales price of $205,000 as compared to 340 homes delivered at an average
price of $224,000 during the year ended December 31, 2006. The average sales prices of homes
delivered in 2007 declined due to the product mix sold, discounts on deliveries, and aggressive
pricing on spec sales. This decrease was offset by an increase of $11.1 million of revenue
recognized related to a land sale that occurred in the year ended December 31, 2007 related to
property that management decided to not develop further. There were no land sales in 2006.
Additionally, included in revenues are certain lot sales occurring in the year ended December 31,
2007.
49
Cost of sales of real estate decreased 29.5% to $51.4 million during the year ended December
31, 2007, as compared to $72.8 million during 2006 due to a decrease in home deliveries. The
decrease in
home deliveries was offset by increased impairment charges related to inventory, and increased
cost of sales associated with land sales. Included in cost of sales in the year ended December 31,
2007 was $11.1 million associated with land sales. There were no land sales in 2006. In
addition, impairment charges increased $5.5 million from $5.7 million in the year ended December
31, 2006 to $11.2 million in the year ended December 31, 2007.
Margin percentage decreased to a negative margin of 22.2% in the year ended December 31, 2007
from 4.6% in the year ended December 31, 2006. The decrease in margin percentage was primarily
attributable to impairment charges, which increased by $5.5 million in the year ended December 31,
2007 compared to 2006. Margin percentage excluding impairment charges declined from 12.0% during
the year ended December 31, 2006 to 4.6% during the year ended December 31, 2007 due to the mix of
homes delivered with lower average selling prices and minimal to no margin being generated on the
land or lot sales that occurred during the period.
Selling, general and administrative expenses decreased $7.8 million to $5.0 million during the
year ended December 31, 2007 compared to $12.8 million during 2006 primarily as a result of lower
employee compensation and benefits, decreased broker commission costs and decreased advertising and
marketing costs. The decrease in employee compensation and benefits is mainly a result of the
multiple reductions in force that occurred in 2007 in connection with the filing of the Chapter 11
Cases. Decreased broker commission costs were due to lower revenues generated in the year ended
December 31, 2007 compared to 2006 and the decreases associated with marketing and advertising are
attributable to a decreased focus in 2007 on advertising in the Tennessee market. In addition,
selling, general and administrative expenses related to the Tennessee Homebuilding segment are
reflected through November 9, 2007 compared to a full year of selling, general and administrative
expenses in 2006. These decreases were offset in part by increased severance related expense
related to Tennessee employees, payroll taxes and other benefits associated with the terminations
that occurred in 2007.
There were no other expenses in the year ended December 31, 2007 compared to $1.3 million in
2006. Other expenses in the year ended December 31, 2006 reflect the write-off of $1.3 million in
goodwill related to the Bowden acquisition.
Interest incurred totaled $1.9 million and $2.7 million for the years ended December 31, 2007
and 2006, respectively. While all interest was capitalized during the year ended December 31,
2006, $1.8 million in interest was capitalized during the year ended December 31, 2007 due to the
decreased level of development in the projects in this segment in 2007 which resulted in less
assets being qualified for interest capitalization. Interest incurred decreased as a result of
lower average debt balances for the year ended December 31, 2007 as compared to 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 years ended December 31, 2007 and 2006 included previously
capitalized interest of approximately $1.3 million and $2.1 million, respectively.
For the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
Revenues from home sales decreased 10.9% to $76.3 million during the year ended December 31,
2006, from $85.6 million during 2005. The decrease is the result of a decrease in the number of
deliveries which declined to 340 homes during the year ended December 31, 2006 from 451 homes
during 2005 partially offset by an increase in average sales prices on homes delivered, which
increased to $224,000 for the year ended December 31, 2006, compared to $190,000 during 2005.
The value of net orders decreased to $57.8 million during the year ended December 31, 2006,
from $98.8 million during 2005. During the year ended December 31, 2006, net unit orders decreased
to 269 units, from 478 units during 2005 as a result of reduced traffic and lower conversion rates.
The decrease in net orders was partially offset by the average sales price on new orders
increasing 3.9% during the year ended December 31, 2006 to $215,000, from $207,000 during 2005.
Higher average selling prices are primarily a reflection of the homes sold in certain projects in
2006. In 2006, the Tennessee Homebuilding segment had 412 gross sales contracts with 143
cancellations (a 35% cancellation rate) compared to 641 gross sales contracts with 163
cancellations (a 25% cancellation rate) for 2005.
50
Cost of sales decreased $1.5 million to $72.8 million during the year ended December 31, 2006,
from $74.3 million during 2005. The decrease in cost of sales is due to the decreased number of
deliveries, offset in part by an increase in impairment charges and inventory related valuation
adjustments in the amount of $5.7 million.
Margin percentage declined during the year ended December 31, 2006 to 4.6%, from 13.2% during
2005. There were no impairment charges recorded in 2005, although we did write-off $10,000 in
deposits. Gross margin excluding inventory impairments was 12.0% compared to a gross margin of
13.2% in 2005. The decline was associated with higher construction costs in 2006 compared to 2005.
Selling, general and administrative expenses increased 22.1% to $12.8 million during the year
ended December 31, 2006, as compared to $10.5 million during 2005 primarily as a result of higher
employee compensation and benefits expense, costs of expansion into the Nashville market and
increased marketing and selling costs. During 2006, we reduced headcount in the Tennessee
Homebuilding segment and in connection with these reductions we incurred charges for employee
related costs, including severance and retention payments. As a percentage of total revenues,
selling, general and administrative expense was approximately 16.8% for the year ended December 31,
2006 compared to 12.2% in 2005.
Other expense of $1.3 million for the year ended December 31, 2006 related to the write-off of
goodwill associated with the Bowden acquisition as compared to no expense recorded in 2005.
Interest incurred and capitalized on notes and mortgages payable totaled $2.7 million during
the year ended December 31, 2006, compared to $1.1 million in 2005. Interest incurred increased as
a result of an increase in the average interest rate on our variable-rate borrowings. Cost of
sales of real estate associated with previously capitalized interest totaled $2.1 million during
the year ended December 31, 2006 as compared to $1.6 million for 2005.
FINANCIAL CONDITION
Our total assets at December 31, 2007 and 2006 were $712.9 million and $1.1 billion,
respectively of which $195.2 million and $48.4 million was cash and cash equivalents at December
31, 2007 and 2006, respectively. At December 31, 2006, $706.5 million of assets related to Levitt
and Sons. Excluding assets from Levitt and Sons at December 31, 2006, total assets related to our
ongoing operations increased by $314.6 million at December 31, 2007 from December 31, 2006. The
changes in total assets, excluding Levitt and Sons, primarily resulted from:
|
|
|
a net increase in inventory of real estate of approximately $69.8 million,
primarily related to the Land Divisions development activities and the acquisition of Carolina Oak; |
|
|
|
|
an increase of $41.8 million in property and equipment and assets held for sale
associated with increased investment in commercial properties under construction by
our Land Division and support for infrastructure in our master-planned communities; |
|
|
|
|
a net increase of approximately $9.0 million in our investment in Bluegreen
associated primarily with $10.3 million of earnings from Bluegreen (net of purchase
accounting adjustments); |
|
|
|
|
a net increase in cash and cash equivalents of $146.8 million, which resulted from
cash provided by financing activities of $228.5 million, offset by cash used in
operations and investing activities of $36.7 million and $45.0 million, respectively.
The increase in financing activities relates to the $152.8 million of proceeds from
the Rights Offering, as well as increases in our borrowings associated with commercial
and residential development; and |
|
|
|
|
An increase in our current tax asset of $22.8 million related to tax benefits
incurred due to the net operating losses recorded in 2007. |
51
Total liabilities at December 31, 2007 and December 31, 2006 were $451.7 million and $747.4
million, respectively. At December 31, 2006, $511.5 million of liabilities was related to Levitt
and Sons. Excluding liabilities related to Levitt and Sons at December 31, 2006, total liabilities
related to our ongoing operations increased by $215.8 million at December 31, 2007 from December
31, 2006. The changes in total liabilities, excluding Levitt and Sons, primarily resulted from:
|
|
|
a net increase in notes and mortgage notes payable of $156.0 million, primarily
related to project debt associated with land development activities and the acquisition of Carolina Oak; |
|
|
|
|
an increase of $55.2 million associated with the loss in excess of the investment
in Levitt and Sons created as a result of Levitt and Sons declaring bankruptcy on
November 9, 2007; and |
|
|
|
|
The above increases were partially offset by a decrease in our deferred tax
liability of $12.8 million. |
LIQUIDITY AND CAPITAL RESOURCES
We have taken steps throughout 2007 to address the challenging real estate environment and we
continue to work to improve operational cash flows and increase our sources of financing. We
implemented reductions in force throughout 2007 in order to align staffing levels with current
market conditions and our business goals and strategies. We believe that our current financial
condition and credit relationships, together with anticipated cash flows from operations and other
sources of funds, which may include proceeds from the disposition of certain properties or
investments, will provide for our anticipated current liquidity needs.
Management assesses the Companys liquidity in terms of the Companys ability to generate cash
to fund its operating and investment activities. During the year ended December 31, 2007, our
primary sources of funds were the proceeds from our Rights Offering, the proceeds from the sale of
real estate inventory and borrowings from financial institutions. We intend to use available cash
and our borrowing capacity to implement our business strategy of pursuing investment opportunities,
continuing the development of our master-planned communities,
operating efficiently and effectively and utilizing community
development districts to fund development costs. We also will use
available cash to repay borrowings and to pay
operating expenses.
The Company separately manages liquidity at the Levitt Corporation parent level and at the
operating subsidiary level, consisting primarily of Core Communities. Subsidiary operations are
generally financed using operating assets as loan collateral and many of the financing agreements
in place contain covenants at the subsidiary level. Parent company guarantees are rarely provided
and when provided, are provided on a limited basis.
Levitt Corporation is primarily a holding company, and in light of the cash needs of Core
Communities and Bluegreens history of not paying dividends, it is not anticipated that Levitt
Corporation will receive sufficient dividends or other payments from its subsidiaries or investment
income from its investments to cover its overhead costs for the foreseeable future.
Levitt Corporation (Parent level)
At December 31, 2007, Levitt Corporation had approximately $162.0 million of cash and $137.8
million of outstanding debt. On October 1, 2007, Levitt Corporation completed a Rights Offering to
its shareholders which generated cash proceeds of approximately $152.8 million
Debt principally consisted of :
|
|
|
approximately $85.1 million of junior subordinated debentures associated with the
issuance of Trust Preferred Securities; |
|
|
|
|
approximately $746,000 in subordinated investment notes which are unsecured and do not
contain any financial covenants; |
|
|
|
|
approximately $39.7 million in debt in connection with the loan assumption related to
Carolina Oak; and |
|
|
|
|
approximately $12.0 million in debt consisting principally of secured financing on our
Corporate headquarters building. |
52
On October 25, 2007, Levitt Corporation acquired from Levitt and Sons the membership interests
in Carolina Oak which owns a 150 acre parcel in Tradition Hilton Head. Levitt Corporation became
the obligor for the entire outstanding balance of $34.1 million under the credit facility
collateralized by the 150 acre parcel (the Carolina Oak Loan). The Carolina Oak Loan was
modified in connection with the acquisition. Levitt Corporation was previously a guarantor of this
loan and as partial consideration for the Carolina Oak Loan, the membership interest of Levitt and
Sons, previously pledged by Levitt Corporation to the lender, was released. The outstanding
balance under the Carolina Oak Loan may be increased by approximately $11.2 million to fund certain
infrastructure improvements and to complete the construction of fourteen residential units
currently under construction. The Carolina Oak Loan is collateralized by a first mortgage on the
150 acre parcel in Tradition Hilton Head and guaranteed by Carolina Oak. The Carolina Oak Loan is
due and payable on March 21, 2011 but may be extended for one additional year at the discretion of
the lender. Interest accrues under the facility at the Prime Rate (7.25% at December 31, 2007) and
is payable monthly. The Carolina Oak Loan is subject to customary terms, conditions and covenants,
including the lenders right to accelerate the debt upon a material adverse change with respect to
Levitt Corporation. At December 31, 2007, there was no immediate availability to draw on this
facility based on available collateral.
On February 14, 2008, Bluegreen announced that it intends to pursue a rights offering to its
shareholders for up to $100 million of its common stock. We currently intend to participate in
this rights offering which could result in a substantial additional investment in Bluegreen.
At
this time, it is not possible to predict the impact that the
Chapter 11 Cases will have on Levitt
Corporation and its results of operations, cash flows or financial condition. At the time of
deconsolidation, November 9, 2007, Levitt Corporation had a negative investment in Levitt and Sons
of $123.0 million and there were outstanding advances due from Levitt and Sons of $67.8 million at
Levitt Corporation resulting in a net negative investment of $55.2 million. Since the Chapter 11
Cases were filed, Levitt Corporation has also incurred certain administrative costs in the amount
of $1.4 million related to Post Petition Services. The payment by Levitt and Sons of its
outstanding advances and the Post Petition Services expenses are subject to the risks inherent to
creditors in the Chapter 11 Cases. Levitt and Sons may not have sufficient assets to repay Levitt
Corporation for advances made to Levitt and Sons or the Post Petition Services and it is likely
that some, if not all, of these amounts will not be recovered. In addition, Levitt Corporation
files a consolidated federal income tax return. At December 31, 2007, Levitt Corporation had a
federal income tax receivable of $27.4 million as a result of losses incurred which is anticipated
to be collected upon filing the 2007 consolidated U.S. federal income tax return. The Creditors
Committee has advised that they believe the creditors are entitled to share in an unstated amount of the
refund.
Core Communities
At December 31, 2007, Core had approximately $33.1 million of cash as well as immediate
availability under its various lines of credit of $19.0 million, and $216.0 million in outstanding
debt including liabilities associated with assets held for sale. Core has incurred and expects to continue to incur significant land development expenditures
in both Tradition, Florida and in Tradition Hilton Head. Tradition Hilton Head is in the early
stage of the master-planned communitys development cycle and significant investments have been
made and will be required in the future to develop the master community infrastructure. Sales in
Tradition Hilton Head have been limited to golf course lots sold to various builders and an
intercompany land sale in December 2006 (see Item 1. Business Recent Developments Acquisition
of Carolina Oak Homes LLC). Recent investments in Tradition, Florida have been primarily to build
infrastructure to support the master-planned community and the sale of various commercial land
parcels. The current investment in land and development, as well as property and equipment has
been financed primarily through a combination of secured borrowings, which totaled $212.7 million
at December 31, 2007, and proceeds from bonds issued by community development districts and special
assessment districts which support the development of infrastructure improvements while burdening
the developed property with long-term tax assessments. This financing at December 31,
53
2007 consisted of district bonds totaling $218.7 million with approximately $82.9 million currently
outstanding and approximately $129.5 million available to fund future development expenditures.
These bonds are further discussed below in Off Balance Sheet Arrangements and Contractual
Obligations. The availability of tax-exempt bond financing to fund infrastructure development at
our master-planned communities may be affected by recent disruptions in credit markets, including
the municipal bond market, by general economic conditions and by fluctuations in the real estate
market. If we are not able to access this type of financing, we would be forced to obtain
substitute financing, which may not be available on terms favorable to the Company, or at all. If
we are not able to obtain financing for infrastructure development, we would be forced to use our
own funds or delay development activity at our master-planned communities.
Cores borrowing agreement requires repayment of specified amounts upon a sale of a portion of
the property collateralizing the debt. Core is subject to provisions in its borrowing agreement
that require additional principal payments, known as curtailment payments, in the event that sales
are below those agreed to at the inception of the borrowing. In the event that agreed upon sales
targets are not met in Tradition Hilton Head, total curtailment payments during 2008 could amount
to $34.2 million. In January 2008, a $14.9 million curtailment payment was paid and an additional
$19.3 million would be due in June 2008 if actual sales continue to be below the contractual
requirements of the development loan.
In March 2008, Core agreed to the termination of a $20 million line of credit after the lender
expressed its concern that Levitt and Sons bankruptcy may have resulted in a technical default by
virtue of language in the facility regarding affiliates. At December 31, 2007, no amounts were
outstanding under the $20 million facility other than a $122,000 outstanding letter of credit which was secured by a cash deposit in March 2008. There have been no funds drawn subsequent to December 31, 2007. The lender has agreed to honor two construction loans to a
subsidiary of Core totaling $11.7 million provided that the borrowings are paid in full at maturity
and has waived any technical defaults under the loans arising from Levitt and Sons bankruptcy
through the maturity dates of the loans.
Additionally, Core has undertaken construction projects on certain commercial land parcels
within its developments. At December 31, 2007, Core had incurred debt of $79.0 million in
connection with the development of these commercial properties which are being actively marketed
for sale. These assets and related liabilities are classified as held for sale in the consolidated
statements of financial condition and are treated as discontinued operations for accounting
purposes. See further discussion in Item 1. Business Core Communities.
Possible liquidity sources available to Core include the sale of the commercial properties,
the sale or pledging of additional unencumbered land and funding from Levitt Corporation. The debt
covenants at Core generally consist of net worth, liquidity and loan to value financial covenants.
The loans which provide the primary financing for Tradition, Florida and Tradition Hilton Head have
an annual appraisal and re-margining requirement. These provisions may require Core, in
circumstances where the value of its real estate securing these loans declines, to pay down a
portion of the principal amount of the loan to bring the loan within specified minimum
loan-to-value ratios. Accordingly, should land prices decline, reappraisals could result in
significant future re-margining payments. In addition, all of our outstanding debt instruments
require us to comply with certain financial covenants. Further, one of our debt instruments
contains cross-default provisions, which could cause a default in this debt instrument if we
default on other debt instruments. If we fail to comply with any of these restrictions or
covenants, the holders of the applicable debt could cause our debt to become due and payable prior
to maturity. These accelerations or significant re-margining payments could require us to dedicate
a substantial portion of cash or cash flow from operations to payment of or on our debt and reduce
our ability to use our cash flow for other purposes.
Given the overall condition of the homebuilding industry in Florida and the current oversupply
of single-family residential land in the St. Lucie market, we do not expect any meaningful
single-family residential land sales by Core in the near future. Management efforts will be
focused on commercial and other land sales in Florida and commercial and residential sales in
Hilton Head. Cores business may not generate sufficient cash flow from operations, and future
borrowings may not be available under its existing credit facilities or any other financing sources
in an amount sufficient to enable Core to service its indebtedness, or to fund its other liquidity
needs. We may need to refinance all or a portion of Cores debt on or before maturity, which we
may not be able to do on favorable terms or at all. Recent disruptions in the credit and capital
markets could make it more difficult for us to obtain financing than in prior periods
54
Off Balance Sheet Arrangements and Contractual Obligations
In connection with the development of certain projects, community development, special
assessment or improvement districts have been established and may utilize tax-exempt bond financing
to fund construction or acquisition of certain on-site and off-site infrastructure improvements
near or at these communities. If these improvement districts were not established, we would need
to fund community infrastructure development out of operating income or through other sources of financing or
capital, or be forced to delay our development activity. The obligation to pay principal and
interest on the bonds issued by the districts is assigned to each parcel within the district, and a
priority assessment lien may be placed on benefited parcels to provide security for the debt
service. The bonds, including interest and redemption premiums, if any, and the associated priority
lien on the property are typically payable, secured and satisfied by revenues, fees, or assessments
levied on the property benefited. The Company pays a portion of the revenues, fees, and assessments
levied by the districts on the properties the Company still owns that are benefited by the
improvements. The Company may also agree to pay down a specified portion of the bonds at the time
of each unit or parcel closing. These costs are capitalized to inventory during the development
period and recognized as cost of sales when the properties are sold.
The
bond financing from Core Communities at December 31, 2007 and
2006 consisted of district bonds totaling $212.7 million and
$62.8 million, respectively, with outstanding amounts of
approximately $82.9 million and
$50.4 million at December 31, 2007 and 2006, respectively.
Further, at December 31, 2007 and 2006, there was approximately
$129.5 million and $7.0 million, respectively, available
under these bonds to fund future development expenditures. Bond obligations at December 31, 2007
mature in 2035 and 2040. As of December 31, 2007, the Company owned approximately 11% of the
property within the community development district and approximately 91% of the property within the
special assessment district. During the year ended December 31, 2007, the Company recorded
approximately $1.3 million in assessments on property owned by the Company in the districts. We
are responsible for any assessed amounts until the underlying property is sold. We will continue to
be responsible for the annual assessments if the property is never sold. Accordingly, if recent
negative trends in the homebuilding industry do not improve, and we are forced to hold our land
inventory longer than originally projected, we would be forced to pay a higher portion of annual
assessments on property which is subject to assessments. We could be required to pay down a portion
of the bonds in the event our entitlements were to decrease as to the number of residential units
and/or commercial space that can be built on a parcel(s) encumbered by the bonds. In addition,
Core Communities has guaranteed payments for assessments under the district bonds in Tradition,
Florida which would require funding if future assessments to be allocated to property owners are
insufficient to repay the bonds.
At December 31, 2006, we recorded no liability associated with outstanding CDD bonds as the
assessments were not both fixed and determinable. At December 31, 2007, a liability of $3.3 million
was recognized because the special assessments related to the commercial leasing assets held for
sale were fixed and the final assessment was made during the fourth quarter of 2007. This liability
is included in the liabilities related to assets held for sale in the audited consolidated
statement of financial condition.
We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman
Longleaf, relating to, among other obligations, that partners guarantee of the joint ventures
indebtedness. Our liability under the indemnity agreement is limited to the amount of any
distributions from the joint venture which exceeds our original capital and other contributions.
Accordingly, our potential obligation of indemnity was approximately $664,000 at December 31, 2007.
Based on the joint venture assets that secure the indebtedness, we do not believe it is likely
that any payment will be required under the indemnity agreement.
55
The following table summarizes our contractual obligations as of December 31, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
13 - 36 |
|
|
37 - 60 |
|
|
More than |
|
Category (1) |
|
Total |
|
|
12 Months |
|
|
Months |
|
|
Months |
|
|
60 Months |
|
Long-term debt obligations (2) |
|
$ |
274,820 |
|
|
|
3,242 |
|
|
|
45,942 |
|
|
|
118,193 |
|
|
|
107,443 |
|
Long-term
debt obligations associated with
assets held for sale |
|
|
78,970 |
|
|
|
8,914 |
|
|
|
5,709 |
|
|
|
61,250 |
|
|
|
3,097 |
|
Interest payable on long-term debt |
|
|
181,293 |
|
|
|
21,202 |
|
|
|
36,592 |
|
|
|
18,116 |
|
|
|
105,383 |
|
Operating lease obligations |
|
|
4,714 |
|
|
|
1,276 |
|
|
|
1,599 |
|
|
|
557 |
|
|
|
1,282 |
|
Severance related termination
obligations |
|
|
1,949 |
|
|
|
1,912 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
Independent contractor agreements |
|
|
1,596 |
|
|
|
915 |
|
|
|
681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
$ |
543,342 |
|
|
|
37,461 |
|
|
|
90,560 |
|
|
|
198,116 |
|
|
|
217,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt obligations consist of notes, mortgage notes and bonds payable.
Interest payable on these long-term debt obligations is the interest that will be incurred
related to the outstanding debt. Operating lease obligations consist of lease
commitments. The timing of contractual payments for debt obligations assumes the exercise
of all extensions available at the borrowers sole discretion. |
|
(2) |
|
In addition to the above scheduled payments, the Core borrowing agreement requires
repayment of specified amounts upon a sale of a portion of the property collateralizing
the debt or upon a reappraisal of the underlying collateral if declines in value cause the
loan to exceed maximum loan to value ratios. In addition, Core is subject to provisions
in its borrowing agreement that require additional principal payments, known as
curtailment payments, in the event that sales are below those agreed to at the inception
of the borrowing. In the event that agreed upon sales targets are not met in Tradition
Hilton Head, total curtailment payments during 2008 could amount to $34.2 million. In
January 2008, a $14.9 million curtailment payment was paid and an additional $19.3 million
would be due in June 2008 if actual sales continue to be below the contractual
requirements of the development loan. Additionally, certain borrowings may require
increased principal payments on our debt obligations due to re-margining requirements. |
In addition to the above contractual obligations, we have $2.4 million in unrecognized tax
benefits related to FIN 48.
Tradition Development Company, LLC, a wholly-owned subsidiary of Core Communities (TDC),
entered into an advertising agreement with the operator of a Major League Baseball team pursuant to
which, among other advertising rights, TDC obtained a royalty-free license to use, among others,
the trademark Tradition Field at the sports complex located in Port St. Lucie and the naming
rights to that complex. Unless otherwise renewed, the agreement terminates on December 31, 2013;
provided, however, that upon payment of a specified buy-out fee and compliance with other
contractual procedures, TDC has the right to terminate the agreement on or after December 31, 2008.
Required cumulative payments under the agreement through December 31, 2013 are approximately $1.1
million.
At December 31, 2007, Core Communities had outstanding surety bonds and letters of credit of
approximately $2.8 million related primarily to obligations to various governmental entities to
construct improvements in our various communities. We estimate that approximately $2.7 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.
In the ordinary course of business we sell land to third parties where the Company is
obligated to complete site development and infrastructure improvements subsequent to the sale
date. Future development and construction obligations amount to $4.7 million at December 31, 2007,
which are
expected to be incurred over the next three years. The timing of future development will depend
on factors such as the timing of future sales, demographic growth rates in the areas in which these
obligations occur and the impact of any future deterioration or improvement in the local real
estate market.
56
Levitt and Sons had $33.3 million in surety bonds under their projects at the time of filing
the Chapter 11 Cases. In the event that these obligations are drawn and paid by the surety, Levitt
Corporation could be responsible for up to $12.0 million plus costs and expenses in accordance with
the surety indemnity agreement for these instruments. As of December 31, 2007, we recorded $1.8
million in surety bonds accrual at Levitt Corporation related to certain bonds where management
considers it probable that Levitt Corporation will be required to reimburse the surety under the
indemnity agreement. It is unclear, given the uncertainty involved in the Chapter 11 Cases
whether and to what extent these surety bonds will be drawn and the extent to which Levitt
Corporation may be responsible for additional amounts beyond this accrual. It is unlikely that
Levitt Corporation would have the ability to receive any repayment, assets or other consideration
as recovery of any amounts it is required to pay.
The table below sets forth our debt obligations, principal payments by scheduled maturity,
weighted-average interest rates and estimated fair market value as of December 31, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at |
|
|
|
Payments due by year |
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
2007 |
|
Fixed rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and mortgage payable(a) |
|
|
999 |
|
|
|
427 |
|
|
|
271 |
|
|
|
298 |
|
|
|
244 |
|
|
|
100,983 |
|
|
|
103,222 |
|
|
|
90,398 |
|
Average interest rate |
|
|
8.08 |
% |
|
|
8.09 |
% |
|
|
8.10 |
% |
|
|
8.11 |
% |
|
|
5.27 |
% |
|
|
5.27 |
% |
|
|
7.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and mortgage payable(a) |
|
|
2,243 |
|
|
|
41,892 |
|
|
|
3,352 |
|
|
|
115,276 |
|
|
|
2,375 |
|
|
|
6,460 |
|
|
|
171,598 |
|
|
|
168,365 |
|
Average interest rate |
|
|
7.53 |
% |
|
|
7.53 |
% |
|
|
7.61 |
% |
|
|
7.61 |
% |
|
|
7.73 |
% |
|
|
7.73 |
% |
|
|
7.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt obligations |
|
|
3,242 |
|
|
|
42,319 |
|
|
|
3,623 |
|
|
|
115,574 |
|
|
|
2,619 |
|
|
|
107,443 |
|
|
|
274,820 |
|
|
|
258,763 |
|
|
|
|
(a) |
|
Fair value calculated using current estimated borrowing rates. |
Assuming the variable rate debt balance of $171.6 million outstanding at December 31, 2007
(which does not include approximately $85.1 million of initially fixed-rate obligations which will
not become floating rate during 2008) was to remain constant, each one percentage point increase in
interest rates would increase the interest incurred by us by approximately $1.7 million per year.
Impact of Inflation
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which require the measurement
of financial position and operating results in terms of historical dollars without considering
changes in the relative purchasing power of money over time due to inflation.
Inflation could have a long-term impact on us because any increase in the cost of land,
materials and labor would result in a need to increase the sales prices of land which may not be
possible. In addition, inflation is often accompanied by higher interest rates which could have a
negative impact on demand and the costs of financing land development activities. Rising interest
rates as well as increased materials and labor costs may reduce margins.
57
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, (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 EITF
06-8 is not expected to be material to our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, (SFAS 159). SFAS 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 (our fiscal year beginning January 1, 2008). The adoption of SFAS
159 is not expected to be material to our 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. During February 2008,
the FASB issued a Staff Position that will (i) partially defer the effective date of SFAS 157 for
one year for certain nonfinancial assets and nonfinancial liabilities and (ii) remove certain
leasing transactions from the scope of SFAS 157. Management is currently reviewing the effect of
SFAS 157 but does not at this time expect that the adoption will have a material effect on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51, (SFAS 160). SFAS 160 requires that a
noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting changes in the
parents ownership interest and requires fair value measurement of any noncontrolling equity
investment retained in a deconsolidation. SFAS 160 is effective for our fiscal year beginning
January 1, 2009. We have not yet evaluated the impact that the adoption of SFAS 160 will have on
our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or more other
businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities
assumed, and interests transferred as a result of business combinations. SFAS 141R expands on
required disclosures to improve the statement users abilities to evaluate the nature and financial
effects of business combinations. SFAS 141R is effective for our fiscal year beginning January 1,
2009. The adoption of SFAS 141R could have a material effect on our consolidated financial
statements if we decide to pursue business combinations due to the requirement to write-off transaction costs
to the consolidated statements of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 December 31, 2007, we had $171.6 million in borrowings
with adjustable rates tied to the prime rate and/or LIBOR rates and $103.2 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.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Levitt Corporation
|
|
|
|
|
Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP |
|
|
60 |
|
|
|
|
|
|
Consolidated Statements of Financial Condition |
|
|
61 |
|
As of December 31, 2007 and 2006 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations |
|
|
62 |
|
For each of the years in the three year period ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive (Loss) Income |
|
|
63 |
|
For each of the years in the three year period ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders Equity |
|
|
64 |
|
For each of the years in the three year period ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows |
|
|
65 |
|
For each of the years in the three year period ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
67 |
|
Bluegreen Corporation
The financial statements of Bluegreen Corporation, which is considered a significant subsidiary,
are required to be included in this report. The financial statements of Bluegreen Corporation for
the three years ended December 31, 2007, including the Report of Independent Registered Certified
Public Accounting Firm of Ernst & Young LLP, are included as exhibit 99.1 to this report.
59
Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and Shareholders of Levitt Corporation
In our opinion, based on our audits and the report of other auditors, the accompanying
consolidated statements of financial condition and the related consolidated statements of
operations, of comprehensive (loss) income, of shareholders equity and of cash flows present
fairly, in all material respects, the financial position of Levitt Corporation and its
subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is responsible for these financial
statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in
Managements Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on the Companys internal
control over financial reporting based on our integrated audits. We did not audit the financial statements of Bluegreen Corporation, an
approximate 31 percent-owned equity investment of the Company which reflects a net investment
totaling $116.0 million and $107.1 million at December 31, 2007 and 2006, respectively and equity
in the net earnings of approximately $10.3 million, $9.7 million and $12.7 million for the years
ended December 31, 2007, 2006 and 2005 respectively. The financial statements of Bluegreen
Corporation were audited by other auditors whose report thereon has been furnished to us, and our
opinion on the financial statements expressed herein, insofar as it relates to the amounts
included for Bluegreen Corporation, is based solely on the report of the other auditors. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that
our audits and the report of other auditors provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company adopted the
provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes and
interpretation of FASB No. 109 in January 1, 2007.
As discussed in Notes 22 and 26, on November 9, 2007 (the Petition Date), Levitt and Sons, LLC
(Levitt and Sons) and substantially all of its subsidiaries filed voluntary petitions for
relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy
Court for the Southern District of Florida. As a result, Levitt and Sons was deconsolidated
from the Company as of the Petition Date and has been prospectively reported as a cost method
investment. On the Petition Date, Levitt and Sons had total assets, total liabilities and net shareholders deficit of approximately $373 million, $480 million, and $107 million, respectively.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 17, 2008
60
Levitt Corporation
Consolidated Statements of Financial Condition
December 31, 2007 and 2006
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
195,181 |
|
|
|
48,391 |
|
Restricted cash |
|
|
2,207 |
|
|
|
1,397 |
|
Current income tax receivable |
|
|
27,407 |
|
|
|
|
|
Inventory of real estate |
|
|
227,290 |
|
|
|
822,040 |
|
Assets held for sale |
|
|
96,214 |
|
|
|
47,284 |
|
Investment in Bluegreen Corporation |
|
|
116,014 |
|
|
|
107,063 |
|
Property and equipment, net |
|
|
33,566 |
|
|
|
33,115 |
|
Other assets |
|
|
14,972 |
|
|
|
31,376 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
712,851 |
|
|
|
1,090,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued liabilities and other |
|
$ |
41,077 |
|
|
|
84,323 |
|
Customer deposits |
|
|
541 |
|
|
|
42,571 |
|
Current income tax payable |
|
|
|
|
|
|
3,905 |
|
Liabilities related to assets held for sale |
|
|
80,093 |
|
|
|
28,263 |
|
Notes and mortgage notes payable |
|
|
189,768 |
|
|
|
503,313 |
|
Junior subordinated debentures |
|
|
85,052 |
|
|
|
85,052 |
|
Loss in excess of investment in subsidiary |
|
|
55,214 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
451,745 |
|
|
|
747,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 5,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: no shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 150,000,000 and 50,000,000 shares, respectively |
|
|
|
|
|
|
|
|
Issued and outstanding: 95,040,731 and 18,609,024 shares,
respectively |
|
|
950 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
Class B Common Stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 10,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: 1,219,031 shares |
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
336,795 |
|
|
|
184,401 |
|
(Accumulated deficit) retained earnings |
|
|
(78,537 |
) |
|
|
156,219 |
|
Accumulated other comprehensive income |
|
|
1,886 |
|
|
|
2,421 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
261,106 |
|
|
|
343,239 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
712,851 |
|
|
|
1,090,666 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
61
Levitt Corporation
Consolidated Statements of Operations
For each of the years in the three year period ended December 31, 2007
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
410,115 |
|
|
|
566,086 |
|
|
|
558,112 |
|
Other revenues |
|
|
5,766 |
|
|
|
7,488 |
|
|
|
6,585 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
415,881 |
|
|
|
573,574 |
|
|
|
564,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
573,241 |
|
|
|
482,961 |
|
|
|
408,082 |
|
Selling, general and administrative
expenses |
|
|
116,087 |
|
|
|
119,337 |
|
|
|
87,162 |
|
Other expenses |
|
|
3,929 |
|
|
|
3,677 |
|
|
|
4,855 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
693,257 |
|
|
|
605,975 |
|
|
|
500,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
10,275 |
|
|
|
9,684 |
|
|
|
12,714 |
|
Interest and other income, net of interest expense |
|
|
7,439 |
|
|
|
7,816 |
|
|
|
10,289 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations before income taxes |
|
|
(259,662 |
) |
|
|
(14,901 |
) |
|
|
87,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes |
|
|
23,277 |
|
|
|
5,758 |
|
|
|
(32,532 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(236,385 |
) |
|
|
(9,143 |
) |
|
|
55,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations, net of tax |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.45 |
) |
|
|
2.73 |
|
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per common
share |
|
$ |
(6.00 |
) |
|
|
(0.45 |
) |
|
|
2.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.46 |
) |
|
|
2.70 |
|
Discontinued operations |
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per
common share |
|
$ |
(6.00 |
) |
|
|
(0.46 |
) |
|
|
2.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,208 |
|
Diluted |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
$ |
0.02 |
|
|
|
0.08 |
|
|
|
0.08 |
|
Class B common stock |
|
$ |
0.02 |
|
|
|
0.08 |
|
|
|
0.08 |
|
See accompanying notes to consolidated financial statements.
62
Levitt Corporation
Consolidated Statements of Comprehensive (Loss) Income
For each of the years in the three year period ended December 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net (loss) income |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold |
|
|
(870 |
) |
|
|
1,263 |
|
|
|
2,420 |
|
Benefit (provision) for income taxes |
|
|
335 |
|
|
|
(487 |
) |
|
|
(933 |
) |
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized (loss) gain
recognized by Bluegreen Corporation on retained
interests in notes receivable sold (net of tax) |
|
|
(535 |
) |
|
|
776 |
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(235,155 |
) |
|
|
(8,388 |
) |
|
|
56,398 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
63
Levitt Corporation
Consolidated Statements of Shareholders Equity
For each of the years in the three year period ended December 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Shares of Common |
|
|
Class A |
|
|
Class B |
|
|
Additional |
|
|
Retained |
|
|
|
|
|
|
Compre- |
|
|
|
|
|
|
Stock Outstanding |
|
|
Common |
|
|
Common |
|
|
Paid-In |
|
|
Earnings |
|
|
Unearned |
|
|
hensive |
|
|
|
|
|
|
Class A |
|
|
Class B |
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
(Deficit) |
|
|
Compensation |
|
|
Income (loss) |
|
|
Total |
|
Balance at December 31, 2004 |
|
|
18,597 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
180,790 |
|
|
|
113,643 |
|
|
|
|
|
|
|
158 |
|
|
|
294,789 |
|
Issuance of restricted common stock |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
(220 |
) |
|
|
|
|
|
|
|
|
Amortization of unearned
compensation
on restricted stock grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
110 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,911 |
|
|
|
|
|
|
|
|
|
|
|
54,911 |
|
Pro-rata share of unrealized gain
recognized by Bluegreen on sale of
retained interests, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,487 |
|
|
|
1,487 |
|
Issuance of Bluegreen common
stock, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,585 |
) |
|
|
|
|
|
|
|
|
|
|
(1,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
18,604 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
181,084 |
|
|
|
166,969 |
|
|
|
(110 |
) |
|
|
1,645 |
|
|
|
349,786 |
|
Issuance of restricted common stock |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of unamortized stock
compensation related to restricted
stock upon adoption of FAS 123(R) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
Share based compensation related
to stock options and restricted
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,164 |
) |
|
|
|
|
|
|
|
|
|
|
(9,164 |
) |
Pro-rata share of unrealized gain
recognized by Bluegreen on sale
of retained interests, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776 |
|
|
|
776 |
|
Issuance of Bluegreen common
stock, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,586 |
) |
|
|
|
|
|
|
|
|
|
|
(1,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
18,609 |
|
|
|
1,219 |
|
|
$ |
186 |
|
|
|
12 |
|
|
|
184,401 |
|
|
|
156,219 |
|
|
|
|
|
|
|
2,421 |
|
|
|
343,239 |
|
Issuance of restricted common stock |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance from Rights Offering, net
of issue costs |
|
|
76,424 |
|
|
|
|
|
|
|
764 |
|
|
|
|
|
|
|
151,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,651 |
|
Share based compensation related
to stock options and restricted
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,193 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,620 |
) |
|
|
|
|
|
|
|
|
|
|
(234,620 |
) |
Pro-rata share of unrealized loss
recognized by Bluegreen on sale of
retained interests, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(535 |
) |
|
|
(535 |
) |
Issuance of Bluegreen common
stock, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279 |
) |
Tax asset valuation allowance
associated with Bluegreen capital
transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,407 |
) |
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
(396 |
) |
Cumulative impact of change in
accounting for uncertainties in
income taxes (FIN 48 see Note
18) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
95,041 |
|
|
|
1,219 |
|
|
$ |
950 |
|
|
|
12 |
|
|
|
336,795 |
|
|
|
(78,537 |
) |
|
|
|
|
|
|
1,886 |
|
|
|
261,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
64
Levitt Corporation
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
5,207 |
|
|
|
3,703 |
|
|
|
1,681 |
|
Change in deferred income taxes |
|
|
(1,187 |
) |
|
|
(14,263 |
) |
|
|
4,202 |
|
Earnings from Bluegreen Corporation |
|
|
(10,275 |
) |
|
|
(9,684 |
) |
|
|
(12,714 |
) |
Earnings from unconsolidated trusts |
|
|
(220 |
) |
|
|
(178 |
) |
|
|
(95 |
) |
Loss (earnings) from real estate joint ventures |
|
|
27 |
|
|
|
417 |
|
|
|
(69 |
) |
Share-based compensation expense related to stock options and restricted stock |
|
|
1,962 |
|
|
|
3,250 |
|
|
|
|
|
Gain on sale of property and equipment |
|
|
|
|
|
|
(1,329 |
) |
|
|
|
|
Write off of property and equipment |
|
|
533 |
|
|
|
245 |
|
|
|
|
|
Impairment of inventory and long lived assets |
|
|
226,879 |
|
|
|
38,083 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(1,321 |
) |
|
|
421 |
|
|
|
199 |
|
Inventory of real estate |
|
|
26,950 |
|
|
|
(255,968 |
) |
|
|
(199,598 |
) |
Notes receivable |
|
|
2,903 |
|
|
|
(1,640 |
) |
|
|
(764 |
) |
Other assets |
|
|
2,180 |
|
|
|
5,174 |
|
|
|
2,413 |
|
Customer deposits |
|
|
(23,974 |
) |
|
|
(8,990 |
) |
|
|
8,664 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
(31,662 |
) |
|
|
9,824 |
|
|
|
8,633 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(36,618 |
) |
|
|
(240,099 |
) |
|
|
(132,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate joint ventures |
|
|
(229 |
) |
|
|
(469 |
) |
|
|
(50 |
) |
Distributions from real estate joint ventures |
|
|
47 |
|
|
|
576 |
|
|
|
365 |
|
Investments in unconsolidated trusts |
|
|
|
|
|
|
(928 |
) |
|
|
(1,624 |
) |
Distributions from unconsolidated trusts |
|
|
220 |
|
|
|
178 |
|
|
|
82 |
|
Proceeds from sale of property and equipment |
|
|
30 |
|
|
|
1,943 |
|
|
|
|
|
Deconsolidation of subsidiary cash balance |
|
|
(6,387 |
) |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(38,749 |
) |
|
|
(29,476 |
) |
|
|
(12,857 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(45,068 |
) |
|
|
(28,176 |
) |
|
|
(14,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
236,839 |
|
|
|
379,732 |
|
|
|
381,345 |
|
Proceeds from notes and mortgage notes payable to affiliates |
|
|
|
|
|
|
|
|
|
|
9,767 |
|
Proceeds from junior subordinated debentures |
|
|
|
|
|
|
30,928 |
|
|
|
54,124 |
|
Repayment of notes and mortgage notes payable |
|
|
(158,923 |
) |
|
|
(202,704 |
) |
|
|
(249,327 |
) |
Repayment of notes and mortgage notes payable to affiliates |
|
|
|
|
|
|
(223 |
) |
|
|
(56,165 |
) |
Payments for debt issuance costs |
|
|
(1,695 |
) |
|
|
(3,043 |
) |
|
|
(3,498 |
) |
Payments for stock issue costs |
|
|
(196 |
) |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
152,847 |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(396 |
) |
|
|
(1,586 |
) |
|
|
(1,585 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
228,476 |
|
|
|
203,104 |
|
|
|
134,661 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
146,790 |
|
|
|
(65,171 |
) |
|
|
(11,960 |
) |
Cash and cash equivalents at the beginning of period |
|
|
48,391 |
|
|
|
113,562 |
|
|
|
125,522 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
195,181 |
|
|
|
48,391 |
|
|
|
113,562 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
Levitt Corporation
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized |
|
$ |
5,927 |
|
|
|
963 |
|
|
|
(1,285 |
) |
Income taxes paid |
|
|
4,556 |
|
|
|
17,140 |
|
|
|
19,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating,
investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in shareholders equity resulting from the change
in other comprehensive (loss) gain, net of taxes |
|
$ |
(535 |
) |
|
|
776 |
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in shareholders equity from the net effect
of Bluegreens capital transactions, net of taxes |
|
|
(279 |
) |
|
|
177 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in inventory from reclassification to property and equipment |
|
|
2,859 |
|
|
|
8,412 |
|
|
|
1,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred tax liability due to cumulative impact of change in
accounting for uncertainties in income taxes (FIN 48 see Note 18) |
|
|
260 |
|
|
|
|
|
|
|
|
|
At November 9, 2007 all accounts of Levitt and Sons were deconsolidated from the Company. Refer to Note 26 for an analysis
of the balances at the time of deconsolidation.
See accompanying notes to consolidated financial statements.
66
Levitt Corporation
Notes to Consolidated Financial Statements
1. Description of Business
Organization and Business
Levitt Corporation, and its wholly owned subsidiaries, historically has been a real estate
development company with activities in the Southeastern United States. The Company was organized
in December 1982 under the laws of the State of Florida.
In 2007, Levitt Corporation engaged in real estate activities through Core Communities, LLC
(Core Communities or Core), and other operations, which included Levitt Commercial, LLC (Levitt
Commercial), an investment in Bluegreen Corporation (Bluegreen), a development of a homebuilding
community in South Carolina, Carolina Oak Homes, LLC (Carolina Oak), and other investments in
real estate projects through subsidiaries and joint ventures. During 2007, the Company also conducted
homebuilding operations through Levitt and Sons, LLC (Levitt and Sons).
Core Communities was founded in May 1996 to develop a master-planned community in Port St.
Lucie, Florida now known as St. Lucie West. It is currently developing master-planned communities
in St. Lucie, Florida called Tradition, Florida and in a community outside of Hardeeville, South
Carolina called Tradition Hilton Head (formerly known as Tradition, South Carolina). Tradition,
Florida has been in active development for several years, while Tradition Hilton Head is in the
early stage of development. As a master-planned community developer, Core Communities engages in
four primary activities: (i) the acquisition of large tracts of raw land; (ii) planning,
entitlement and infrastructure development; (iii) the sale of entitled land and/or developed lots
to homebuilders and commercial, industrial and institutional end-users; and (iv) the development
and leasing of commercial space to commercial, industrial and institutional end-users.
On October 23, 2007, Levitt Corporation acquired from Levitt and Sons all of the outstanding
membership interests in Carolina Oak Homes, LLC, a South Carolina limited liability company
(formerly known as Levitt and Sons of Jasper County, LLC), for the following consideration: (i)
assumption of the outstanding principal balance of a loan in the amount of $34.1 million which is
collateralized by a 150 acre parcel of land owned by Carolina Oak Homes, LLC located in Tradition
Hilton Head, (ii) execution of a promissory note in the amount of $400,000 to serve as a deposit
under a purchase agreement between Carolina Oak and Core Communities of South Carolina,
LLC and (iii) the assumption of specified payables in the amount of approximately $5.3 million.
The principal asset of Carolina Oak is a 150 acre parcel of land currently under
development and located in Tradition Hilton Head.
Acquired in December 1999, Levitt and Sons was a developer of single family homes and townhome
communities for active adults and families in Florida, Georgia, Tennessee and South Carolina.
Levitt and Sons operated in two reportable segments, Primary Homebuilding and Tennessee
Homebuilding. On November 9, 2007 (the Petition Date), Levitt and Sons and substantially all of
its subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter
11 of Title 11 of the United States Code (the Chapter 11 Cases) in the United States Bankruptcy
Court for the Southern District of Florida ( theBankruptcy Court). Based on the loss of
control over Levitt and Sons as a result of the Chapter 11 Cases and the uncertainties surrounding
the nature, timing and specifics of the bankruptcy proceedings, Levitt Corporation deconsolidated
Levitt and Sons as of November 9, 2007, eliminating all future operations from its financial
results. The Company is prospectively accounting for any remaining investment in Levitt and Sons,
net of outstanding advances due from Levitt and Sons, as a cost method investment. Under cost
method accounting, income would only be recognized to the extent of cash received in the future or
when the Company is discharged from the bankruptcy, at which time, the balance of the loss in
excess of investment in subsidiary can be recognized into income. See Note 22 for a discussion of
the Chapter 11 Cases and Note 26 for a discussion of our investment in Levitt and Sons and
the related condensed consolidated financial statements of this cost investment at December 31,
2007.
67
2. Summary of Significant Accounting Policies
Consolidation Policy
The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries except with respect to Levitt and Sons which is described below. All
significant inter-company transactions have been eliminated in consolidation.
Based on the loss of control over Levitt and Sons as a result of the bankruptcy filing and the
uncertainties surrounding the nature, timing and specifics of the bankruptcy proceedings, Levitt
Corporation deconsolidated Levitt and Sons as of November 9, 2007, effectively eliminating all
future results of Levitt and Sons and substantially all of its subsidiaries from its financial
results of operations, and will prospectively account for any remaining investment in Levitt and
Sons, as a cost method investment, as noted above.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ significantly from those estimates. Material estimates relate to revenue recognition
on percent complete projects, reserves and accruals, impairment of assets, determination of the
valuation of real estate and estimated costs to complete construction, litigation and
contingencies, the current tax asset, and the amount of the deferred tax asset valuation
allowance. The Company bases estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis of
making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources.
Loss in excess of investment in Levitt and Sons
Under Accounting Research Bulletin No. 51 (ARB 51), consolidation of a majority-owned
subsidiary is precluded where control does not rest with the majority owners. Under these rules,
legal reorganization or bankruptcy represents conditions which can preclude consolidation or equity
method accounting as control rests with the bankruptcy court, rather than the majority owner.
Accordingly, Levitt Corporation deconsolidated Levitt and Sons as of November 9, 2007, eliminating
all future operations from the financial results of operations. Therefore, and in accordance with
ARB 51 the Company follows the cost method of accounting to record the interest in Levitt and Sons,
a wholly owned subsidiary, which declared bankruptcy on November 9, 2007. Under cost method
accounting, income will only be recognized to the extent of cash received in the future or when the
Company is discharged from the bankruptcy, at which time, any loss in excess of the investment in
subsidiary can be recognized into income, as described below.
As a result of the deconsolidation, Levitt Corporation had a negative basis in the investment
in Levitt and Sons because the subsidiary generated significant losses and intercompany liabilities
in excess of its asset balances. This negative investment, Loss in excess of investment in
subsidiary, is reflected as a single amount on the Companys consolidated statement of financial
condition as a $55.2 million liability as of December 31, 2007. This balance was comprised of a
negative investment in Levitt and Sons of $123.0 million, and outstanding advances due from Levitt
and Sons of $67.8 million to Levitt Corporation. Included in the negative investment was
approximately $15.8 million associated with deferred revenue related to intra-segment sales between
Levitt and Sons and Core Communities.
68
Since Levitt and Sons results are no longer consolidated and Levitt Corporation believes that
it is not probable that it will be obligated to fund future operating losses at Levitt and Sons,
any adjustments
reflected in Levitt and Sons financial statements subsequent to November 9, 2007 are not
expected to affect the results of operations of Levitt Corporation. The reversal of the Companys
liability into income will occur when either Levitt and Sons bankruptcy is discharged and the
amount of the Companys remaining investment in Levitt and Sons is determined or Levitt
Corporation reaches an agreement with the Bankruptcy Court for a final settlement amount related to
any claims against Levitt Corporation. Levitt Corporation will continue to evaluate the cost method
investment in Levitt and Sons quarterly to review the reasonableness of the liability balance.
Cash Equivalents
Cash and cash equivalents consist of demand deposits at commercial banks. The Company also
invests in money market funds during the year. The cash deposits are held primarily at various
financial institutions and exceed federally insured amounts, however the Company has not
experienced any losses on such accounts and management does not believe these concentrations to be
a credit risk to the Company.
Restricted Cash
Cash and interest bearing deposits are segregated into restricted accounts for specific uses
in accordance with the terms of certain land sale contracts, home sales and other sales agreements.
Restricted funds may be utilized in accordance with the terms of the applicable governing
documents. The majority of restricted funds are controlled by third-party escrow fiduciaries.
Inventory of Real Estate
As of November 9, 2007, Levitt and Sons was deconsolidated from Levitt Corporations results
of operations and accordingly the inventory of real estate related to homebuilding is no longer
included in the consolidated statement of financial condition with the exception of Carolina Oak
which is a homebuilding community now owned directly by Levitt Corporation.
As of December 31, 2007, inventory of real estate includes Carolina Oak homebuilding
inventory, land, land development costs, interest and other construction costs and is stated at
accumulated cost which does not exceed net realizable value. Due to the large acreage of certain
land holdings and the nature of the Companys project development life cycles, disposition of
inventory in the normal course of business is expected to extend over a number of years.
The expected future costs of development in our Land Division are analyzed at least quarterly
to determine the appropriate allocation factors to charge to cost of sales when such inventory is
sold. During the long term project development cycles in our Land Division, which can approximate
12-15 years, such development costs are subject to volatility. Costs in the Land Division to
complete infrastructure will be influenced by changes in direct costs associated with labor and
materials, as well as changes in development orders and regulatory compliance.
The Company reviews real estate inventory for impairment on a project-by-project basis in
accordance with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144). In accordance with SFAS No. 144, long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized in an amount by which the carrying
amount of the asset exceeds the fair value of the asset.
At December 31, 2007, the Company reviewed the Carolina Oak project using a cash flow model.
The related unleveraged cash flow was calculated using projected revenues and costs-to-complete and
projected sales of inventory. The present value of the projected cash flow from the project
exceeded the carrying amount of the project and accordingly no impairment charge was recognized. The Company obtained market assessments and appraisals for land inventory in 2007 to assess the fair
market value. The sales value exceeded the book value and accordingly no impairment charge was
recognized.
69
In prior periods, the real estate inventory for Levitt and Sons was reviewed for impairment in
accordance with SFAS No. 144. The fair market value of the real estate inventory balance was
assessed on a project-by-project basis. For projects representing land investments where
homebuilding activity had not yet begun, valuation models were used as the best evidence of fair
value and as the basis for the measurement. If the calculated project fair value was lower than
the carrying value of the real estate inventory, an impairment charge was recognized to reduce the
carrying value of the project to the fair value. For projects with homes under construction, the
Company measured the recoverability of assets by comparing the carrying amount of an asset to the
estimated future undiscounted net cash flows. At the time of these analyses, the unleveraged cash
flow models projected future revenues and costs-to-complete and the sale of the remaining inventory
based on the current status of each project and reflected current market trends, current pricing
strategies and cancellation trends. If the carrying amount of a project exceeded the present value
of the cash flows from the project discounted using the weighted average cost of capital, an
impairment charge was recognized to reduce the carrying value of the project to fair market value.
As a result of this analysis, the Company recorded impairment charges of approximately $226.9
million and $36.8 million in cost of sales for the years ended December 31, 2007 and 2006,
respectively, in the Primary and Tennessee Homebuilding segments and for capitalized interest in
the Other Operations segment related to the projects in the Homebuilding Division that Levitt and
Sons ceased developing.
The assumptions developed and used by management are subjective and involve significant
estimates, and are subject to increased volatility due to the uncertainty of the current market
environment. As a result, actual results could differ materially from managements assumptions and
estimates and may result in material inventory impairment charges to be recorded in the future.
Discontinued Operations
As discussed in Note 3, the commercial leasing properties at Core Communities are treated as a
discontinued operation due to our intention to sell these projects. Due to this decision, the
projects and assets that are for sale have been accounted for as discontinued operations for all
periods presented in accordance with SFAS No. 144. Accordingly, the results of operations from
these projects have been reclassified to discontinued operations for all periods presented in these
consolidated financial statements. In addition, the assets have been reclassified to assets held
for sale and the related liabilities associated with these assets held for sale were also
reclassified in the consolidated statements of financial condition for all prior periods presented
to conform to the current year presentation. Additionally, pursuant to SFAS No. 144, assets held
for sale are measured at the lower of its carrying amount or fair value less cost to sell.
Management has reviewed the net asset value and estimated the fair market value of the assets based
on the bids received related to these assets and determined that these assets were appropriately
recorded at the lower of cost or fair value less the costs to sell at December 31, 2007.
Investments in Unconsolidated Subsidiaries Equity Method
In December 2003, FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities,
(FIN No. 46(R)) was issued by the FASB to clarify the application of ARB 51 to certain Variable
Interest Entities (VIEs), in which equity investors do not have the characteristics of a
controlling interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties. Pursuant to FIN
No. 46(R), an enterprise that absorbs a majority of the VIEs expected losses, receives a majority
of the VIEs expected residual returns, or both, is determined to be the primary beneficiary of the
VIE and must consolidate the entity. For entities in which the company has less than a
controlling financial interest or entities where it is not deemed to be the primary beneficiary
under FIN No. 46R, the entities are accounted for using the equity method of accounting.
70
The Company follows the equity method of accounting to record its interests in subsidiaries in
which it does not own the majority of the voting stock and to record its investment in variable
interest entities in which it is not the primary beneficiary. These entities consist of Bluegreen
Corporation, joint ventures and statutory business trusts. The statutory business trusts are
variable interest entities in which the Company is not the primary beneficiary. Under the equity
method, the initial investment in a joint
venture is recorded at cost and is subsequently adjusted to recognize the Companys share of
the joint ventures earnings or losses. Distributions received reduce the carrying amount of the
investment. The Company evaluates its investments in unconsolidated entities for impairment during
each reporting period in accordance with Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock. (APB No. 18). These investments are
evaluated annually or as events or circumstances warrant for other than temporary declines in
value. The Company evaluated the investment in Bluegreen at December 31, 2007 and noted that the
$116.0 million book value of the investment was greater than the market value of $68.4 million
(based upon a December 31, 2007 closing price of $7.19). The Company performed an impairment
review in accordance with Emerging Issues Task Force 03-1 (EITF 03-1), APB No. 18, and Securities
and Exchange Commission Staff Accounting Bulletin 59 (SAB 59) to analyze various quantitative and
qualitative factors to determine if an impairment adjustment was needed. Based on the evaluation
and the review of various qualitative and quantitative factors relating to the performance of
Bluegreen, the current value of the stock price, and managements intention with regard to this
investment, the Company determined that the impairment associated with the investment in Bluegreen
was not an other than temporary decline and accordingly, no adjustment to the carrying value was
recorded at December 31, 2007.
Homesite Contracts and Consolidation of Variable Interest Entities
In the ordinary course of business, the Company enters into contracts to purchase land held
for development, including option contracts. Option contracts allow the Company to control
significant positions with minimal capital investment and substantially reduce the risks associated
with land ownership and development. The liability for nonperformance under such contracts is
typically only the required non-refundable deposits. The Company does not have legal title to these
assets. However, if certain conditions are met, under the requirements of FIN No. 46(R), the
Companys non-refundable deposits in these land contracts may create a variable interest, with the
Company being identified as the primary beneficiary. If these conditions are met, FIN No. 46(R)
requires the Company to consolidate the variable interest entity holding the asset to be acquired
at their fair value. At December 31, 2007, there were no non-refundable deposits under these
contracts, and the Company had no contracts in place to acquire land.
Capitalized Interest
Interest incurred relating to land under development and construction is capitalized to real
estate inventory or property and equipment during the active development period. For inventory,
interest is capitalized at the effective rates paid on borrowings during the pre-construction 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. For property and equipment under
construction, interest associated with these assets is capitalized as incurred to property and
equipment and is expensed through depreciation once the asset is put into use. The following table
is a summary of interest incurred, capitalized and expensed relating to inventory under development
and construction exclusive of impairment adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest incurred to non-affiliates |
|
$ |
46,719 |
|
|
|
40,473 |
|
|
|
17,977 |
|
Interest incurred to affiliates |
|
|
|
|
|
|
|
|
|
|
892 |
|
Interest capitalized |
|
|
(42,912 |
) |
|
|
(40,473 |
) |
|
|
(18,869 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
3,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest included in cost of sales |
|
$ |
17,949 |
|
|
|
15,358 |
|
|
|
8,959 |
|
|
|
|
|
|
|
|
|
|
|
In addition to the above interest expensed in cost of sales, the capitalized interest
balance of inventory of real estate as of December 31, 2007 has been reduced by $24.8 million of
impairment reserves allocated to the capitalized interest component of inventory of real estate.
Approximately $9.3 million of
these impairments related to Levitt Corporations impairment of capitalized interest recorded
in Other Operations associated with projects at Levitt and Sons, and the remaining $15.5 million
relates to our Homebuilding segments.
71
Additionally, as indicated in Note 3, certain amounts of interest for the year ended December
31, 2007 associated with two of Cores commercial leasing projects have been reclassified to
income (loss) from discontinued operations. Prior periods have been reclassified to conform to
the current presentation.
Property and Equipment
Property and equipment is stated at cost and consists primarily of office buildings and land,
furniture and fixtures, equipment and water treatment and irrigation facilities. Repair and
maintenance costs are expensed as incurred. Depreciation is primarily computed on the straight-line
method over the estimated useful lives of the assets which generally range up to 40 years for
buildings and 10 years for equipment. Leasehold improvements are amortized using the straight-line
method over the shorter of the terms of the related leases or the useful lives of the assets. In
cases where the Company determines that land and the related development costs are to be used as
fixed assets, these costs are transferred from inventory of real estate to property and equipment.
For fixed assets that are 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.
Revenue Recognition
Revenue and all related costs and expenses from house and land sales are recognized at the
time that closing has occurred, when title and possession of the property and the risks and rewards
of ownership transfer to the buyer, and if the Company does not have a substantial continuing
involvement in accordance with SFAS No. 66, Accounting
for Sales of Real Estate (SFAS 66). In
order to properly match revenues with expenses, the Company estimates construction and land
development costs incurred and to be incurred, but not paid at the time of closing. Estimated costs
to complete are determined for each closed home and land sale based upon historical data with
respect to similar product types and geographical areas and allocated to closings along with actual
costs incurred based on a relative sales value approach. The Company monitors the accuracy of
estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time
of closing and make modifications to the estimates based on these comparisons.
Revenue is recognized for certain land sales on the percentage-of-completion method when the
land sale takes place prior to all contracted work being completed. Pursuant to the requirements
of SFAS 66, if the seller has some continuing involvement with the property and does not transfer
substantially all of the risks and rewards of ownership, profit shall be recognized by a method
determined by the nature and extent of the sellers continuing involvement. In the case of land
sales, this involvement typically consists of final development activities. The Company recognizes
revenue and related costs as work progresses using the percentage of completion method, which
relies on estimates of total expected costs to complete required work. Revenue is recognized in
proportion to the percentage of total costs incurred in relation to estimated total costs at the
time of sale. Actual revenues and costs to complete construction in the future could differ from
current estimates. If the estimates of development costs remaining to be completed and relative
sales values are significantly different from actual amounts, then the revenues, related cumulative
profits and costs of sales may be revised in the period that estimates change.
Other revenues consist primarily of rental property income, marketing revenues, irrigation
service fees, and title and mortgage revenue. Irrigation service connection fees are deferred and
recognized systematically over the life of the irrigation plant. Irrigation usage fees are
recognized when billed as the service is performed. Title and mortgage operations include agency
and other fees received for processing of title insurance policies and mortgage loans. Revenues
from title and mortgage operations are recognized when the transfer of the corresponding property
or mortgages to third parties has been consummated.
72
Effective January 1, 2006, Bluegreen adopted AICPA Statement of Position 04-02, Accounting
for Real Estate Time-Sharing Transactions (SOP 04-02). This Statement amends FASB Statement No.
67 Accounting for Costs and Initial Rental Operations of Real Estate Projects (FAS No. 67)
to state that the guidance for incidental operations and 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. The adoption of SOP 04-02 resulted
in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million
to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in
Bluegreen recorded by us by approximately $1.4 million for the same period.
Goodwill
Goodwill acquired in a purchase business combination and determined to have an indefinite
useful life is not amortized, but instead tested for impairment at least annually in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). The Company conducts on
at least an annual basis, a review of the goodwill to determine whether the carrying value of
goodwill exceeds the fair market value using a discounted cash flow methodology. Should this be
the case, the value of goodwill may be impaired and written down. In the year ended December 31,
2006, the Company conducted an impairment review of the goodwill related to the Tennessee
Homebuilding segment in the Homebuilding Division acquired in connection with our acquisition of
Bowden Building Corporation in 2004. The profitability and estimated cash flows of this reporting
entity were determined in the second quarter of 2006 to have declined to a point where the carrying
value of the assets exceeded their market value. The Company used a discounted cash flow
methodology to determine the amount of impairment resulting in completely writing off goodwill of
approximately $1.3 million in the year ended December 31, 2006. The write-off is included in other
expenses in the consolidated statements of operations.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment (SFAS 123R) as of January 1, 2006 and elected the modified-prospective
method, under which prior periods are not restated. Under the fair value recognition provisions of
this statement, stock-based compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense on a straight-line basis over the requisite service
period, which is the vesting period for all awards granted after January 1, 2006, and for the
unvested portion of stock options that were outstanding at January 1, 2006.
The Company currently uses the Black-Scholes option-pricing model to determine the fair value
of stock options. The fair value of option awards on the date of grant using the Black-Scholes
option-pricing model is determined by the stock price and assumptions regarding expected stock
price volatility over the expected term of the awards, risk-free interest rate, expected forfeiture
rate and expected dividends. If factors change and the Company uses different assumptions for
estimating stock-based compensation expense in future periods or if the Company decides to use a
different valuation model, the amounts recorded in future periods may differ significantly from the
amounts recorded in the current period and could affect net income and earnings per share.
Income Taxes
The Company records income taxes using the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are recognized for the expected
future tax consequence of temporary differences between the financial statement and income tax
bases of our assets and liabilities. The Company estimates income taxes in each of the
jurisdictions in which it operates. This process involves estimating tax exposure together with
assessing temporary differences resulting from differing treatment of items, such as deferred
revenue, for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within the consolidated statements of financial condition. The
recording of a net deferred tax asset assumes the realization of such asset in the future.
Otherwise, a valuation allowance must be recorded to reduce this asset to its net realizable value.
The Company considers future pretax income and ongoing prudent and feasible tax strategies in
assessing the need for such a valuation allowance. In the event that the Company determines that
it may not be able
to realize all or part of the net deferred tax asset in the future, a valuation allowance for
the deferred tax asset is charged against income in the period such determination is made.
73
The Company and its subsidiaries file a consolidated Federal and Florida income tax return.
Separate state returns are filed by subsidiaries that operate outside the state of Florida. Even
though Levitt and Sons and its subsidiaries have been deconsolidated from Levitt Corporation for
financial statement purposes, they will continue to be included in the Companys Federal and
Florida consolidated tax returns until Levitt and Sons is discharged from bankruptcy. As a result
of the deconsolidation of Levitt and Sons, all of Levitt and Sons net deferred tax assets are no
longer presented in the accompanying consolidated statement of financial condition at December 31,
2007 but remain a part of Levitt and Sons condensed consolidated financial statements at December
31, 2007 and accordingly will be part of the tax return.
The Company adopted the provisions of FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxes an interpretation of FASB No. 109 (FIN 48) on January 1, 2007.
FIN 48 provides guidance on recognition, measurement, presentation and disclosure in financial
statements of uncertain tax positions that a company has taken or expects to take on a tax return.
FIN 48 substantially changes the accounting policy for uncertain tax positions. As a result of the
implementation of FIN 48, the Company recognized a decrease of $260,000 in the liability for
unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of
retained earnings. At year-end, there were gross tax affected unrecognized tax benefits of $2.4
million of which $0.2 million, if recognized, would affect the effective tax rate.
(Loss) Earnings per Share
The Company has two classes of common stock. Class A common stock is listed on the New York
Stock Exchange, and 95,040,731 shares and 18,609,024 at December 31, 2007 and 2006, respectively,
are issued and outstanding. The Company also has Class B common stock which is held exclusively by
BFC Financial Corporation (BFC), the Companys controlling shareholder.
While the Company has two classes of common stock outstanding, the two-class method is not
presented because the Companys capital structure does not provide for different dividend rates or
other preferences, other than voting and conversion rights, between the two classes. Basic (loss)
earnings per common share is computed by dividing net (loss) income by the weighted average number
of common shares outstanding for the period. Diluted (loss) earnings per share is computed in the
same manner as basic (loss) earnings per share, but it also gives consideration to (a) the dilutive
effect of the Companys stock options and restricted stock using the treasury stock method and (b)
the pro rata impact of Bluegreens dilutive securities (stock options and convertible securities)
on the amount of Bluegreens earnings that the Company recognizes.
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, (EITF 06-8). EITF 06-8 establishes that a company should evaluate the adequacy
of the buyers continuing investment in determining whether to recognize profit under the
percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period
beginning after March 15, 2007 (the Companys fiscal year beginning January 1, 2008). The effect
of EITF 06-8 is not expected to be material to the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure
many financial assets and financial liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The impact of SFAS No. 159 is not
expected to have a material impact on the Companys financial position or results of operations.
74
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS No. 157), which
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurement. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007. During February 2008, the FASB issued a Staff Position
that will (i) partially defer the effective date of SFAS No. 157 for one year for certain
nonfinancial assets and nonfinancial liabilities and (ii) remove certain leasing transactions from
the scope of SFAS No. 157. The impact of adopting SFAS No. 157 is not expected to have a material
impact on the Companys financial position or results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that a
noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting changes in the
parents ownership interest and requires fair value measurement of any noncontrolling equity
investment retained in a deconsolidation. SFAS 160 is effective for the Companys fiscal year beginning
January 1, 2009. The Company has not yet evaluated the impact the adoption of SFAS 160 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or more other
businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities
assumed, and interests transferred as a result of business combinations. SFAS 141R expands on
required disclosures to improve the statement users abilities to evaluate the nature and financial
effects of business combinations. SFAS 141R is effective for the Companys fiscal year beginning January 1,
2009. The adoption of SFAS 141R could have a material effect on its consolidated financial
statements if the Company decides to pursue business combinations due to the requirement to write-off
transaction costs to the consolidated statements of operations.
3. Sale of Two Core Communities Commercial Leasing Projects Discontinued Operations
In June 2007, Core Communities began soliciting bids from several potential buyers to
purchase assets associated with two of Cores commercial leasing projects. Management determined
it is probable that Core will sell these projects and, while Core may retain an equity interest in
the properties and provide ongoing management services to a potential buyer, the anticipated level
of continuing involvement is not expected to be significant. It is managements intention to
complete the sale of these assets in the first half of 2008. The assets are available for
immediate sale in their present condition. There is no assurance that these sales will be
completed in the timeframe expected by management or at all. Due to this decision, the projects
and assets that are for sale have been accounted for as discontinued operations for all periods
presented in accordance with SFAS No. 144, including the reclassification of results of operations
from these projects to discontinued operations for the years ended December 31, 2006 and 2005.
The assets have been reclassified to assets held for sale and the related liabilities
associated with these assets were also reclassified to liabilities related to assets held for sale
in the consolidated statements of financial condition. Prior period amounts have been
reclassified to conform to the current year presentation. Depreciation related to these assets
held for sale ceased in June 2007. The Company has elected not to separate these assets in the
consolidated statements of cash flows for all periods presented. While the commercial real estate
market has generally been stronger than the residential real estate market, interest in commercial
property is weakening and financing is not as readily available in the current market, which may
adversely impact the profitability of the Companys commercial property. Management has reviewed
the net asset value and estimated the fair market value of the assets based on the bids received
related to these assets and determined that these assets were appropriately recorded at the lower
of cost or fair value less the costs to sell at December 31, 2007.
75
The following table summarizes the assets held for sale and liabilities related to the assets
held for sale for the two commercial leasing projects as of December 31, 2007 and December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Property and equipment, net |
|
$ |
84,677 |
|
|
|
45,560 |
|
Other assets |
|
|
11,537 |
|
|
|
1,724 |
|
|
|
|
|
|
|
|
Assets held for sale |
|
$ |
96,214 |
|
|
|
47,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued liabilities and
other |
|
$ |
1,123 |
|
|
|
925 |
|
Notes and mortgage payable |
|
|
78,970 |
|
|
|
27,338 |
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale |
|
$ |
80,093 |
|
|
|
28,263 |
|
|
|
|
|
|
|
|
The following table summarizes the results of operations for the two commercial leasing
projects for the years ended December 31, 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
4,692 |
|
|
|
1,753 |
|
|
|
187 |
|
Costs and expenses |
|
|
1,837 |
|
|
|
1,814 |
|
|
|
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,855 |
|
|
|
(61 |
) |
|
|
(290 |
) |
Other Income |
|
|
18 |
|
|
|
28 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
2,873 |
|
|
|
(33 |
) |
|
|
(254 |
) |
(Provision) benefit for income taxes |
|
|
(1,108 |
) |
|
|
12 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
4. (Loss) Earnings per Share
Basic (loss) earnings per common share is computed by dividing (loss) earnings
attributable to common shareholders by the weighted average number of common shares outstanding for
the period. Diluted (loss) earnings per common share is computed in the same manner as basic (loss)
earnings per share taking into consideration (a) the dilutive effect of the Companys stock options
and restricted stock using the treasury stock method and (b) the pro rata impact of Bluegreens
dilutive securities (stock options and convertible securities) on the amount of Bluegreens
earnings recognized by the Company. For the years ended December 31, 2007 and 2006, common stock
equivalents related to the Companys outstanding stock options and unvested restricted stock
amounted to 11,528 shares and 6,095 shares, respectively, and were not considered because their
effect would have been antidilutive. In the year ended December 31, 2005, 112,187 shares of
outstanding stock options were considered for common stock equivalents. In addition, there were
additional options to purchase shares of common stock at various prices which were not included in
common stock equivalents because the exercise prices were greater than the average market price of
the common shares and therefore, their effect would be antidilutive. For the years ended December
31, 2007, 2006 and 2005, there were additional options to purchase 1,870,361, 1,897,944 and
1,311,951 shares of common stock equivalents, respectively which were not included.
The weighted average number of common shares outstanding in basic and diluted (loss) earnings
per share for the year ended December 31, 2006 and 2005 have been retroactively adjusted by the
bonus element subsequently created on October 1, 2007 as a result of the rights offering in which
stock was issued on October 1, 2007 at a purchase price below the market price on October 1, 2007.
Sale of the Companys Class A common stock priced at $2.00 per share pursuant to the terms of this
offering was completed on October 1, 2007; the closing price of the Companys Class A common stock
on the October 1, 2007 closing
date was $2.05 per share creating a bonus element adjustment of 1.97% for all shareholders of
record on August 29, 2007. Thus, the weighted average shares of Class A common stock outstanding
for basic and diluted (loss) earnings per share is retroactively increased by 1.97% for the years
ended December 31, 2006 and 2005.
76
The following table presents the computation of basic and diluted (loss) earnings per common
share (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
|
$ |
(236,385 |
) |
|
|
(9,143 |
) |
|
|
55,069 |
|
Income (loss) from discontinued operations |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income basic |
|
$ |
(234,620 |
) |
|
|
(9,164 |
) |
|
|
54,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations basic |
|
$ |
(236,385 |
) |
|
|
(9,143 |
) |
|
|
55,069 |
|
Pro rata share of the net effect of Bluegreen dilutive
securities |
|
|
(42 |
) |
|
|
(100 |
) |
|
|
(251 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(236,427 |
) |
|
|
(9,243 |
) |
|
|
54,818 |
|
Income (loss) from discontinued operations |
|
|
1,765 |
|
|
|
(21 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income diluted |
|
$ |
(234,662 |
) |
|
|
(9,264 |
) |
|
|
54,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
39,092 |
|
|
|
19,823 |
|
|
|
19,817 |
|
Bonus adjustment factor from registration rights offering |
|
|
|
|
|
|
1.0197 |
|
|
|
1.0197 |
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,208 |
|
Net effect of stock options assumed to be exercised |
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
39,092 |
|
|
|
20,214 |
|
|
|
20,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.45 |
) |
|
|
2.73 |
|
Discontinued operations |
|
$ |
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per share |
|
$ |
(6.00 |
) |
|
|
(0.45 |
) |
|
|
2.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(6.05 |
) |
|
|
(0.46 |
) |
|
|
2.70 |
|
Discontinued operations |
|
$ |
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per share |
|
$ |
(6.00 |
) |
|
|
(0.46 |
) |
|
|
2.69 |
|
|
|
|
|
|
|
|
|
|
|
77
5. Equity transactions
Cash dividends
Cash dividends declared by the Companys Board of Directors for the three year period
ended December 31, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classes of |
|
Dividend |
|
|
Declaration Date |
|
Record Date |
|
Common Stock |
|
per share |
|
Payment Date |
January 24, 2005
|
|
February 8, 2005
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
February 15, 2005 |
April 25, 2005
|
|
May 9, 2005
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
May 16, 2005 |
July 25, 2005
|
|
August 11, 2005
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
August 18, 2005 |
November 7, 2005
|
|
November 17, 2005
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
November 23, 2005 |
January 24, 2006
|
|
February 8, 2006
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
February 15, 2006 |
April 26, 2006
|
|
May 8, 2006
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
May 15, 2006 |
August 1, 2006
|
|
August 11, 2006
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
August 18, 2006 |
October 23, 2006
|
|
November 10, 2006
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
November 17, 2006 |
January 22, 2007
|
|
February 9, 2007
|
|
Class A, Class B
|
|
$ |
0.02 |
|
|
February 16, 2007 |
The Company has not adopted a policy of regular dividend payments. The payment of
dividends in the future is subject to approval by the Board of Directors and will depend upon,
among other factors, the Companys results of operations and financial condition.
Rights Offering
On August 29, 2007, Levitt Corporation distributed to each holder of record of its Class A
common stock and Class B common stock as of August 27, 2007 5.0414 subscription rights for each
share of such stock owned on that date (the Rights Offering), or an aggregate of rights to
purchase 100 million shares of Class A common stock. The Rights Offering was priced at $2.00 per
share, commenced on August 29, 2007 and was completed on October 1, 2007. Levitt Corporation
received $152.8 million of proceeds in connection with the exercise of rights by its shareholders.
In connection with the offering, Levitt Corporation issued an aggregate of 76,424,066 shares of
Class A common stock on October 1, 2007. The stock price on the October 1, 2007 closing date was
$2.05 per share. As a result, there is a bonus element adjustment of 1.97% for all shareholders of
record on August 29, 2007 and accordingly the number of weighted average shares of Class A common
stock outstanding for basic and diluted (loss) earnings per share was retroactively increased by
1.97% for all periods presented in these consolidated financial statements. See Note 4 for (loss)
earnings per share calculation.
6. Stock Based Compensation
On May 11, 2004, the Companys shareholders approved the 2003 Levitt Corporation Stock
Incentive Plan. In March 2006, subject to shareholder approval, the Board of Directors of the
Company approved the amendment and restatement of the Companys 2003 Stock Incentive Plan to
increase the maximum number of shares of the Companys Class A common stock, $0.01 par value, that
may be issued for restricted stock awards and upon the exercise of options under the plan from
1,500,000 to 3,000,000 shares. The Companys shareholders approved the Amended and Restated 2003
Stock Incentive Plan (Incentive Plan) on May 16, 2006.
The maximum term of options granted under the Incentive Plan is 10 years. The vesting period
for each 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 Incentive Plan there have been no expired stock
options.
78
In January 2006, the Company adopted FAS 123R using the modified prospective method which
requires the Company to record compensation expense over the vesting period for all awards granted
after the date of adoption, and for the unvested portion of previously granted awards that remained
outstanding at the date of adoption. This Statement requires companies to expense the estimated
fair value of stock options and similar equity instruments issued to employees over the vesting
period in their statements of operations. FAS 123R eliminated the alternative to use the intrinsic
method of accounting provided for in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), which generally resulted in no compensation expense recorded
in the financial statements related to the granting of stock options to employees if certain
conditions were met.
Amounts for periods prior to January 1, 2006 presented herein have not been restated to
reflect the adoption of FAS 123R. The proforma effect for the year ended December 31, 2005 is as
follows and has been disclosed to be consistent with prior accounting rules (in thousands, except
per share data):
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2005 |
|
Pro forma net income: |
|
|
|
|
Net income, as reported |
|
$ |
54,911 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related income tax effect |
|
|
(1,416 |
) |
|
|
|
|
Pro forma net income |
|
$ |
53,495 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
As reported |
|
$ |
2.72 |
|
Pro forma |
|
$ |
2.65 |
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
As reported |
|
$ |
2.69 |
|
Pro forma |
|
$ |
2.63 |
|
The basic and diluted earnings per share for the year ended December 31, 2005 was adjusted to
reflect the bonus element subsequently created on October 1, 2007 as a result of the rights
offering. See discussion in Note 4.
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.
The fair value of each option granted was estimated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
Year ended |
|
Year ended |
|
|
December 31, 2007 |
|
December 31, 2006 |
|
December 31, 2005 |
Expected volatility
|
|
|
40.05%-52.59 |
% |
|
|
37.37%-39.80 |
% |
|
37.99%-50.35% |
Expected dividend yield
|
|
|
0.00%-.83 |
% |
|
|
0.39%-0.61 |
% |
|
0.00%-0.33% |
Risk-free interest rate
|
|
|
4.58%-5.14 |
% |
|
|
4.57%-5.06 |
% |
|
4.02%-4.40% |
Expected life
|
|
5-7.5 years
|
|
5-7.5 years
|
|
7.5 years |
Forfeiture rate
executives
|
|
|
5 |
% |
|
|
5 |
% |
|
|
Forfeiture rate
non-executives
|
|
|
10 |
% |
|
|
10 |
% |
|
|
79
Expected volatility is based on the historical volatility of the Companys stock. Due to the
short period of time the Company has been publicly traded, the historical volatilities of similar
publicly traded entities are reviewed to validate the Companys expected volatility assumption.
Expected volatility increased in the year ended December 31, 2007 compared to 2006 and 2005 due to
increased volatility of homebuilding stocks in general and the declining share price of the
Companys stock. The expected dividend yield is based on an expected quarterly dividend. In April
2007, the Company determined that it does not expect to pay dividends to shareholders in the
foreseeable future. The most recent dividend was paid in first quarter of 2007 at $.02 per share.
In years ended December 31, 2006 and 2005, the quarterly dividend was $.02 per share. The
risk-free interest rate for periods within the contractual life of the stock option award is based
on the yield of US Treasury bonds on the date the stock option award is granted with a maturity
equal to the expected term of the stock option award granted. The expected life of stock option
awards granted is based upon the simplified method for plain vanilla options contained in SEC
Staff Accounting Bulletin (SAB) No. 107 (SAB 107). SAB 107 stated that it would not expect a
company to use the simplified method for share option grants after December 31, 2007. Such detailed
information about employee exercise behavior is not widely available by December 31, 2007.
Accordingly, SAB 110 was issued stating that the simplified method is accepted beyond December 31,
2007. Historically, forfeiture rates were estimated based on historical employee turnover rates.
In 2007, there were substantial forfeitures as a result of the reductions in force. See Note 12
for explanation. As a result, the Company adjusted their stock compensation to reflect actual
forfeitures.
Non-cash stock compensation expense for the years ended December 31, 2007 and 2006 related to
unvested stock options amounted to $1.9 million and $3.1 million, with an expected or estimated
income tax benefit of $578,000 and $849,000 respectively. Stock compensation expense for the year
ended December 31, 2007 includes $3.5 million of amortization of stock option compensation offset
by $1.6 million of a reversal of stock compensation previously expensed related to forfeited
options. In addition to stock compensation, the Company recorded $231,000 of tax benefit related
to employees exercising stock options to acquire BankAtlantic Bancorp Inc (Bancorp) shares of common stock which was granted to the Companys employees before the Company was spun off from Bancorp.
At December 31, 2007, the Company had approximately $8.1 million of unrecognized stock
compensation expense related to outstanding stock option awards which is expected to be recognized
over a weighted-average period of 3.2 years.
Stock option activity under the Incentive Plan for the years ended December 31, 2006 and 2007
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
of Options |
|
|
Price |
|
|
Term |
|
|
(thousands) |
|
Options outstanding
at December 31,
2005 |
|
|
1,305,176 |
|
|
$ |
25.59 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
759,655 |
|
|
|
13.53 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
172,650 |
|
|
|
25.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
at December 31,
2006 |
|
|
1,892,181 |
|
|
$ |
20.73 |
|
|
8.33 years |
|
|
|
|
Granted |
|
|
752,409 |
|
|
|
9.18 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
782,200 |
|
|
|
17.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
at December 31,
2007 |
|
|
1,862,390 |
|
|
$ |
17.33 |
|
|
8.00 years |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at December 31,
2007 |
|
|
99,281 |
|
|
$ |
19.56 |
|
|
7.27 years |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
available for
equity compensation
grants at December
31, 2007 |
|
|
1,137,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys non-vested stock options activity for the years ended December 31, 2006
and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
of Options |
|
|
Price |
|
|
Term |
|
|
(thousands) |
|
Non-vested at December 31, 2005 |
|
|
1,250,000 |
|
|
$ |
13.44 |
|
|
|
|
|
|
$ |
|
|
Grants |
|
|
759,655 |
|
|
|
6.44 |
|
|
|
|
|
|
|
|
|
Vested |
|
|
44,105 |
|
|
|
6.33 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
172,650 |
|
|
|
12,98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 31,
2006 |
|
|
1,792,900 |
|
|
$ |
10.70 |
|
|
8.28 years |
|
|
|
|
|
Grants |
|
|
752,409 |
|
|
|
4.95 |
|
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
782,200 |
|
|
|
9.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007 |
|
|
1,763,109 |
|
|
$ |
8.95 |
|
|
|
8.04 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
The following table summarizes information about stock options outstanding as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Remaining |
|
|
|
|
Range of Exercise |
|
Number of |
|
Contractual |
|
|
|
|
Price |
|
Stock Options |
|
Life |
|
Options |
|
Exercise Price |
$0.00 $3.21
|
|
|
12,000 |
|
|
|
9.66 |
|
|
|
|
|
|
|
$6.43 $9.64
|
|
|
522,909 |
|
|
|
9.47 |
|
|
|
|
|
|
|
$9.64 $12.85
|
|
|
7,500 |
|
|
|
9.24 |
|
|
|
|
|
|
|
$12.85 $16.07
|
|
|
439,950 |
|
|
|
8.57 |
|
|
|
|
|
|
|
$16.07 $19.28
|
|
|
51,605 |
|
|
|
8.48 |
|
|
|
44,105 |
|
|
$ |
16.09 |
|
$19.28 $22.49
|
|
|
451,800 |
|
|
|
6.09 |
|
|
|
45,000 |
|
|
$ |
20.15 |
|
$22.49 $25.70
|
|
|
48,250 |
|
|
|
6.61 |
|
|
|
|
|
|
|
$28.92 $32.13
|
|
|
328,376 |
|
|
|
7.56 |
|
|
|
10,176 |
|
|
$ |
31.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,862,390 |
|
|
|
8.00 |
|
|
|
99,281 |
|
|
$ |
19.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also grants restricted stock, which is valued based on the market price of the
common stock on the date of grant. Compensation expense arising from restricted stock grants is
recognized using the straight-line method over the vesting period. Unearned compensation for
restricted stock is a reduction of shareholders equity in the consolidated statements of financial
condition. During the year ended December 31, 2005, the Company granted 6,887 restricted shares
of Class A common stock to non-employee directors under the Incentive Plan, having a market price
on the date of grant of $31.95 per share. During the year ended December 31, 2006, the Company
granted 4,971 restricted shares of Class A common stock to non-employee directors under the
Incentive Plan, having a market price on the
date of grant of $16.09 per share. During the year ended December 31, 2007, the Company
granted 7,641 restricted shares of Class A common stock to non-employee directors under the
Incentive Plan, having a market price on the date of grant of $9.16 per share. The restricted
stock vests monthly over a 12 month period. Non-cash stock compensation expense for the years
ended December 31, 2007, 2006 and 2005 related to restricted stock awards amounted to $81,000,
$150,000 and $110,000, respectively.
7. Notes Receivable
Notes receivable, which is included in other assets, amounted to $4.0 million and $6.9
million as of December 31, 2007 and 2006, respectively, and represents purchase money notes due
from third parties resulting from various land sales at Core Communities. The weighted average
interest rate of the notes outstanding was 7.25% and 6.74% as of December 31, 2007 and 2006,
respectively. There was one outstanding note at December 31, 2007, and its interest is payable
quarterly at the Prime Rate and payment of principal is due in full in December 2009.
8. Impairment of Goodwill
SFAS No. 142 requires that goodwill be reviewed for impairment at least annually. In
2005, no impairment charges were required as a result of this review. During 2006, the Company
performed its annual review of goodwill for impairment. Under SFAS No. 142, goodwill impairment
is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value as
determined using a discounted cash flow methodology. As a result of the 2006 review, the Company
completely wrote off the $1.3 million of goodwill in the Tennessee Homebuilding segment that was
recorded in connection with the Bowden Building Corporation acquisition and that was recorded in
other assets. The profitability and estimated cash flows of the reporting entity declined to a
point where the carrying value of the assets exceeded their market value resulting in a write-off
of goodwill. This write-off is included in other expenses in the audited consolidated statements of
operations for the year ended December 31, 2006.
9. Inventory of Real Estate
At December 31, 2007 and 2006, inventory of real estate is summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Land and land development costs |
|
$ |
196,577 |
|
|
|
566,459 |
|
Construction cost |
|
|
1,062 |
|
|
|
172,682 |
|
Capitalized interest |
|
|
29,012 |
|
|
|
47,752 |
|
Other costs |
|
|
639 |
|
|
|
35,147 |
|
|
|
|
|
|
|
|
|
|
$ |
227,290 |
|
|
|
822,040 |
|
|
|
|
|
|
|
|
The Company reviews long-lived assets, consisting primarily of inventory of real estate, for
impairment whenever events or changes in circumstances indicate that the carrying value may not be
realizable as noted above. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the assets carrying amount to determine if an
impairment of such asset is necessary. The effect of any impairment would be to expense the
difference between the fair value of such asset and its carrying value.
In 2005, fair market value was based on the sales prices of similar real estate inventory and
the reviews resulted in no impairment. As a result of the various impairment analysis conducted
throughout 2007 and 2006, the Company recorded impairment charges of approximately $226.9 million
and $36.8 million, respectively, in cost of sales of real estate in the years ended December 31,
2007 and 2006 in the Homebuilding Division and for capitalized interest in the Other Operations
segment related to the projects in the Homebuilding Division that Levitt and Sons ceased
developing.
81
10. Property and Equipment
Property and equipment at December 31, 2007 and 2006 is summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
Depreciable Life |
|
|
2007 |
|
|
2006 |
|
Land, buildings |
|
30 years |
|
$ |
16,677 |
|
|
|
16,516 |
|
Water and irrigation facilities |
|
30 years |
|
|
6,594 |
|
|
|
6,588 |
|
Furniture and fixtures and equipment |
|
3-10 years |
|
|
15,165 |
|
|
|
15,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,436 |
|
|
|
38,206 |
|
Accumulated depreciation |
|
|
|
|
|
|
(4,870 |
) |
|
|
(5,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
$ |
33,566 |
|
|
|
33,115 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $2.9 million, $1.7 million and $1.4 million for the years ended
December 31, 2007, 2006 and 2005, respectively, and is included in selling, general and
administrative expenses in the accompanying consolidated statements of operations. Depreciation
expense related to assets held for sale was $755,000, $925,000 and $214,000 for the years ended
December 31, 2007, 2006 and 2005, respectively, and is included in income (loss) from discontinued
operations.
Management reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value amount may not be realizable. If an evaluation is
required, the estimated future undiscounted cash flows associated with the asset are compared to
the assets carrying value to determine if an impairment of such asset is necessary. The effect of
any impairment would be to expense the difference between the fair value of such asset and its
carrying value. In 2005 and 2006, fair market value was based on disposals of similar assets and
the review resulted in no impairment. In 2007, the Company performed a review of its fixed assets
and determined that certain leasehold improvements were no longer appropriately valued as we
vacated the leased space associated with those improvements. The leasehold improvements in the
amount of $564,000 related to this vacated space will not be recovered and were written off in the
year ended December 31, 2007.
11. Investment in Bluegreen Corporation
The Company owns 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
financial statements relates to the amortization or accretion of purchase accounting adjustments
made at the time of the acquisition of Bluegreens stock, adjustments made to the Companys
investment balance related to equity transactions recorded by Bluegreen that effect the Companys ownership
and to the cumulative adjustment discussed below.
In connection with the securitization of certain of its receivables in December 2005,
Bluegreen undertook a review of the prior accounting treatment and determined that it would restate
its consolidated financial statements for the first three quarters of fiscal 2005 and the fiscal
years ended December 31, 2003 and 2004 due to certain misapplications of GAAP in the accounting for
sales of Bluegreens vacation ownership notes receivable and other related matters. The Company
recorded the cumulative effect of the restatement in the year ended December 31, 2005. This
cumulative adjustment was recorded as a $2.4 million reduction of the Companys earnings from
Bluegreen and a $1.1 million increase in the Companys pro-rata share of unrealized gains recognized by
Bluegreen. These adjustments resulted in a $1.3 million reduction in the investment in Bluegreen.
82
Effective January 1, 2006, Bluegreen adopted SOP 04-02. This Statement amends FAS No. 67 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. The adoption of SOP 04-02 resulted
in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million
to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in
Bluegreen recorded by the Company by approximately $1.4 million for the same period.
The Company evaluated the investment in Bluegreen at December 31, 2007 and noted that the
current $116.0 million book value of the investment was greater than the market value of $68.4
million (based upon a December 31, 2007 closing price of $7.19). The Company performed an
impairment review in accordance with EITF 03-1, APB No. 18 and SAB 59 to analyze various
quantitative and qualitative factors and determine if an impairment adjustment was needed. Based
on the evaluation and the review of various qualitative and quantitative factors relating to the
performance of Bluegreen, the current value of the stock price, and managements intention with
regards to this investment, the Company determined that the impairment associated with the
investment in Bluegreen was not an other than temporary decline and accordingly, no adjustment to
the carrying value was recorded at December 31, 2007.
Bluegreens condensed consolidated financial statements are presented below (in thousands):
Condensed Consolidated Balance Sheet
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Total assets |
|
$ |
1,039,578 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
632,047 |
|
|
|
486,487 |
|
Minority interest |
|
|
22,423 |
|
|
|
14,702 |
|
Total shareholders equity |
|
|
385,108 |
|
|
|
353,023 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity |
|
$ |
1,039,578 |
|
|
|
854,212 |
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues and other income |
|
$ |
691,494 |
|
|
|
673,373 |
|
|
|
684,156 |
|
Cost and other expenses |
|
|
632,279 |
|
|
|
610,882 |
|
|
|
603,624 |
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and provision for income taxes |
|
|
59,215 |
|
|
|
62,491 |
|
|
|
80,532 |
|
Minority interest |
|
|
7,721 |
|
|
|
7,319 |
|
|
|
4,839 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
51,494 |
|
|
|
55,172 |
|
|
|
75,693 |
|
Provision for income taxes |
|
|
(19,568 |
) |
|
|
(20,861 |
) |
|
|
(29,142 |
) |
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle |
|
|
31,926 |
|
|
|
34,311 |
|
|
|
46,551 |
|
Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
(5,678 |
) |
|
|
|
|
Minority interest in cumulative effect of change in accounting
principle |
|
|
|
|
|
|
1,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
31,926 |
|
|
|
29,817 |
|
|
|
46,551 |
|
|
|
|
|
|
|
|
|
|
|
Bluegreen issued a press release on February 14, 2008 announcing its intention to pursue
a rights offering to its shareholders of up to $100 million of its common stock. The Company owns
approximately 31% of Bluegreens outstanding common stock and it currently intends to participate
in this rights offering.
83
12. Accounts Payable, Accrued Liabilities and Other
Accounts payable, accrued liabilities and other at December 31, 2007 and 2006 are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Trade and retention payables |
|
$ |
3,015 |
|
|
|
34,758 |
|
Accrued compensation |
|
|
2,017 |
|
|
|
7,399 |
|
Accrued construction obligations |
|
|
8,354 |
|
|
|
21,299 |
|
Deferred revenue |
|
|
16,799 |
|
|
|
12,255 |
|
Accrued litigation reserve |
|
|
|
|
|
|
320 |
|
Restructuring related accruals |
|
|
6,211 |
|
|
|
|
|
Other liabilities |
|
|
4,681 |
|
|
|
8,292 |
|
|
|
|
|
|
|
|
|
|
$ |
41,077 |
|
|
|
84,323 |
|
|
|
|
|
|
|
|
The following table summarizes the restructuring related accruals activity recorded for
the year ended December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
|
|
|
|
Independent |
|
|
Surety |
|
|
|
|
|
|
related and |
|
|
|
|
|
|
Contractor |
|
|
Bond |
|
|
|
|
|
|
Benefits |
|
|
Facilities |
|
|
agreements |
|
|
Accrual |
|
|
Total |
|
Balance at December 31, 2006 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
4,864 |
|
|
|
1,010 |
|
|
|
1,497 |
|
|
|
1,826 |
|
|
|
9,197 |
|
Cash payments |
|
|
(2,910 |
) |
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
(2,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
1,954 |
|
|
|
1,010 |
|
|
|
1,421 |
|
|
|
1,826 |
|
|
|
6,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
In the third and fourth quarters of 2007, substantially all of Levitt and Sons employees were
terminated and 22 employees were terminated at Levitt Corporation primarily as a result of the
Chapter 11 Cases. On November 9, 2007, Levitt Corporation implemented an employee fund and
indicated that it would pay up to $5 million of severance benefits to terminated Levitt and Sons
employees to supplement the limited termination benefits which could not be paid by Levitt and Sons
to those employees. Levitt and Sons is restricted in the amount of termination benefits it can pay
to its former employees by virtue of the Chapter 11 Cases.
The severance related and benefits accrual includes severance, severance related payments made
to Levitt and Sons employees, payroll taxes and other benefits related to the terminations that
occurred in 2007 as part of the Chapter 11 Cases. For the year ended December 31, 2007, the
Company paid approximately $600,000 in severance and termination charges related to the above fund which is
reflected in the Other Operations segment and paid $2.3 million in severance to the employees of the Homebuilding
Division prior to deconsolidation. Employees entitled to participate in the fund either received a payment
stream, which in certain cases extended over two years, or a lump sum payment, dependent on a
variety of factors. For any amounts paid related to the fund from the Other Operations segment,
these payments were in exchange for an assignment to the Company by those employees of their
unsecured claims against Levitt and Sons. At December 31, 2007 there was $2.0 million accrued to
be paid related to this fund as well as severance for employees other than Levitt and Sons
employees. In addition to these amounts, we expect additional severance related obligations of $1.7
million in 2008 as employees assign their unsecured claims to the Company.
The facilities accrual as of December 31, 2007 represents expense associated with property and
equipment leases that the Company had entered into that are no longer providing a benefit to the
Company, as well as termination fees related to contractual obligations the Company cancelled.
Included in this amount are future minimum lease payments, fees and expenses, net of estimated
sublease income for which the provisions of SFAS 146, as applicable, were satisfied. This
restructuring expense is included in selling general and administrative expenses for the Other
Operations segment for the year ended December 31, 2007.
The independent contractor related expense relates to two contractor agreements entered into
with former Levitt and Sons employees. The agreements are for past and future consulting services.
The total commitment related to these agreements is $1.6 million as of December 31, 2007 and will
be paid monthly through 2009. The expense associated with these arrangements is included in
selling general and administrative expenses for the Other Operations segment for the year ended
December 31, 2007.
Levitt and Sons had $33.3 million in surety bonds related to its ongoing projects at the time
of the filing of the Chapter 11 Cases. In the event that these obligations are drawn and paid by
the surety, Levitt Corporation could be responsible for up to $12.0 million plus costs and expenses
in accordance with the surety indemnity agreement for these instruments. As of December 31, 2007,
the Company has recorded $1.8 million in surety bonds accrual at Levitt Corporation related to
certain bonds for which management considers it probable that the Company will be required to
reimburse the surety under the indemnity agreement. It is unclear given the uncertainty involved
in the Chapter 11 Cases whether and to what extent the outstanding surety bonds of Levitt and Sons
will be drawn and the extent to which Levitt Corporation may be responsible for additional amounts
beyond this accrual. It is unlikely that Levitt Corporation would have the ability to receive any
repayment, assets or other consideration as recovery of any amounts it is required to pay. The
expense associated with this accrual is included in other expense in the Other Operations segment
for the year ended December 31, 2007, due to its non-recurring and unusual nature.
While there may have been immaterial amounts of severance related charges in the years ended
2005 and 2006, there were not comparable restructuring related costs.
85
13. Notes and Mortgage Notes Payable
Notes and mortgages payable at December 31, 2007 and 2006 are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2007 |
|
2006 |
|
Interest Rate |
|
Maturity Date |
Primary Homebuilding Borrowings (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable (b)
|
|
$ |
|
|
|
$ |
48,633 |
|
|
From Prime 0.50%
|
|
Range from July |
|
|
|
|
|
|
|
|
|
|
to Prime + 0.50%
|
|
2007 to September
2009 |
South Carolina borrowing base facility (c)
|
|
|
39,674 |
|
|
|
|
|
|
Prime
|
|
March 2011 |
Other borrowing base facilities (d)
|
|
|
|
|
|
|
316,000 |
|
|
From LIBOR + 2.00%
to LIBOR + 2.40%
|
|
Range from August
2009 to January
2010 |
Line of credit (e)
|
|
|
|
|
|
|
14,000 |
|
|
Prime
|
|
September 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,674 |
|
|
|
378,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee Homebuilding Borrowings (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable (b)
|
|
|
|
|
|
|
6,674 |
|
|
From Prime 0.25%
to Prime + 0.50%
|
|
Range from March
2007 to March 2008 |
Other borrowing base facilities (d)
|
|
|
|
|
|
|
32,600
|
|
|
From LIBOR + 2.00%
to LIBOR + 2.40%
|
|
December 2009 |
|
|
|
|
|
|
|
39,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
Land acquisition mortgage notes payable (f)
|
|
|
97,594 |
|
|
|
66,932 |
|
|
From Fixed 6.88% to
LIBOR + 2.80%
|
|
Range from June 2011
to October 2019 |
Construction mortgage notes payable (f) (g)
|
|
|
39,330 |
|
|
|
1,546 |
|
|
From LIBOR + 2.00%
to Prime
|
|
Range from February
2009 to November
2009 |
Other borrowings
|
|
|
133 |
|
|
|
164 |
|
|
Fixed 7.48%
|
|
August 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,057 |
|
|
|
68,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
Land acquisition and construction
mortgage notes payable
|
|
|
|
|
|
|
1,641 |
|
|
LIBOR + 2.75%
|
|
September 2007 |
Mortgage notes payable (h)
|
|
|
12,027 |
|
|
|
12,197 |
|
|
Fixed 5.47%
|
|
April 2015 |
Subordinated investment notes
|
|
|
746 |
|
|
|
2,489 |
|
|
Fixed from 7.25% to
9.15%
|
|
Range from January
2008 to August 2011 |
Promissory note payable
|
|
|
264 |
|
|
|
437 |
|
|
Fixed 2.44%
|
|
July 2009 |
Levitt Capital Trust I
|
|
|
23,196 |
|
|
|
23,196 |
|
|
From fixed 8.11% to
|
|
March 2035 |
Unsecured junior subordinated debentures (i)
|
|
|
|
|
|
|
|
|
|
LIBOR + 3.85% |
|
|
Levitt Capital Trust II
Unsecured junior subordinated debentures (j)
|
|
|
30,928 |
|
|
|
30,928 |
|
|
From fixed 8.09% to
LIBOR + 3.80%
|
|
July 2035 |
Levitt Capital Trust III
Unsecured junior subordinated debentures (k)
|
|
|
15,464 |
|
|
|
15,464 |
|
|
From fixed 9.25% to
LIBOR + 3.80%
|
|
June 2036 |
Levitt Capital Trust IV
Unsecured junior subordinated debentures (l)
|
|
|
15,464 |
|
|
|
15,464 |
|
|
From fixed 9.35% to
LIBOR + 3.80%
|
|
September 2036 |
|
|
|
98,089 |
|
|
|
101,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes and Mortgage Notes Payable (m)
|
|
$ |
274,820 |
|
|
$ |
588,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Levitt Corporation deconsolidated Levitt and Sons from its consolidated financial
statements as of November 9, 2007. Thus, notes and mortgage notes payable related to the
Primary Homebuilding and Tennessee Homebuilding segments as of December 31, 2007 are not
included in this table, see Note 26 for more information regarding Levitt and Sons
financial statements with the exception of outstanding debt related to Carolina Oak. The
South Carolina borrowing base facility represents the Carolina Oak Loan and is
included in the Primary Homebuilding segment because it is engaged in homebuilding
activities and because the financial metrics from this company are similar in nature to
the other homebuilding projects within this segment that existed in 2006 and 2007. |
86
|
|
|
(b) |
|
Levitt and Sons entered into various loan agreements to provide financing for the
acquisition, site improvements and construction of residential units. As of December 31,
2006, these loan agreements provided for advances on a revolving loan basis up to a
maximum outstanding balance of $79.2 million. The loans were collateralized by inventory
of real estate with net carrying values aggregating $100.4 million at December 31, 2006. |
|
(c) |
|
On March 21, 2007, Levitt and Sons entered into a $100.0 million revolving working
capital, land acquisition, development and residential construction borrowing base
facility agreement and borrowed $30.2 million under the facility. The proceeds were used
to finance the inter-company purchase of a 150 acre parcel in Tradition Hilton Head from
Core Communities and to refinance a $15.0 million line of credit. On October 25, 2007, in
connection with Levitt Corporations acquisition from Levitt and Sons of the membership
interests in Carolina Oak (see Item 1. Business Recent Developments Acquisition of
Carolina Oak Homes), Levitt Corporation became the obligor for the entire Carolina Oak
Loan outstanding balance of $34.1 million. The Carolina Oak Loan was modified in
connection with the acquisition. Levitt Corporation was previously a guarantor of this
loan and as partial consideration for the Carolina Oak Loan, the membership interest of
Levitt and Sons, previously pledged by Levitt Corporation to the lender, was released. The
outstanding balance under the Carolina Oak Loan may be increased by approximately $11.2
million to fund certain infrastructure improvements and to complete the construction of
fourteen residential units currently under construction. The Carolina Oak Loan is
collateralized by a first mortgage on the 150 acre parcel in Tradition Hilton Head and
guaranteed by Carolina Oak. The Carolina Oak Loan is due and payable on March
21, 2011 and may be extended on the anniversary date of the facility at the Prime Rate
(7.25% at December 31, 2007) and interest is payable monthly. The Carolina Oak Loan is
subject to customary terms, conditions and covenants, including the lenders right to
accelerate the debt upon a material adverse change with respect to the borrower. At
December 31, 2007, there was no immediate availability to draw on this facility based on
available collateral. |
|
(d) |
|
During 2006, Levitt and Sons entered into a revolving credit facility and amended
certain of its existing credit facilities, increasing the amount available for borrowings
under these facilities to $450.0 million and amending certain of the initial credit
agreements definitions. Advances under these facilities bore interest, at Levitt and
Sons option at either (i) the lenders Prime Rate less 50 basis points or (ii) 30-day
LIBOR plus a spread of between 200 and 240 basis points, depending on the facility. As of December 31, 2006, these facilities provided for advances on a
revolving loan basis up to a maximum outstanding balance of $357.7 million. The loans were
collateralized by mortgages on respective properties including improvements. The
facilities were collateralized by inventory of real estate with net carrying values
aggregating $483.6 million at December 31, 2006. |
|
(e) |
|
As of December 31, 2006, Levitt and Sons had a credit agreement with a financial
institution to provide a $15.0 million line of credit. At December 31, 2006, Levitt and
Sons had available credit of $1.0 million and had $14.0 million outstanding. The credit
facility was refinanced in connection with the $100.0 million revolving working capital,
land acquisition, development and residential construction borrowing base facility
agreement that Levitt and Sons entered into on March 21, 2007. The guarantee was
collateralized by Levitt Corporations pledge of its membership interest in Levitt and
Sons, LLC. |
|
(f) |
|
Core Communities notes and mortgage notes payable are collateralized by inventory of
real estate and property and equipment with net carrying values aggregating $172.1 million
and $150.6 million as of December 31, 2007 and 2006, respectively. In September 2006, Core
entered into credit agreements with a financial institution to provide an additional $40.0
million in financing on an existing credit facility increasing the total maximum
outstanding balance to $88.9 million. This facility matures in June 2011. As of December
31, 2007, $77.2 million was outstanding, with $11.0 million under the line currently
available for borrowing based on available collateral. In September 2007, Core entered
into credit agreements with a financial institution to provide an additional $8.0 million
in financing on an existing credit facility increasing the total maximum outstanding
balance to $33.0 million. This facility matures in October 2019. As of December 31, 2007,
$15.4 million is outstanding with $8.0 million under the line currently available for
borrowing based on available collateral. These notes accrue interest at varying rates tied
to various indices as noted above and interest is payable monthly. For certain notes,
principal payments are required monthly or quarterly as the note dictates. |
87
|
|
|
(g) |
|
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 Hilton Head 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
interest is payable monthly. The loan documents include customary conditions to funding,
collateral release and acceleration provisions and financial, affirmative and negative
covenants. |
|
(h) |
|
Levitt Corporation entered into a mortgage note payable agreement with a financial
institution in March 2005 to repay the bridge loan used to temporarily fund the Companys
purchase of its Corporate headquarters in Fort Lauderdale. This note payable is
collateralized by the office building. The note payable contains a balloon payment
provision of approximately $10.4 million at the maturity date in April 2015. Principal and
interest are payable monthly. |
|
(i) |
|
In March 2005, Levitt Capital Trust I issued $22.5 million of trust preferred
securities to third parties and $696,000 of trust common securities to the Company and
used the proceeds to purchase an identical amount of junior subordinated debentures from
the Company. Interest on these junior subordinated debentures and distributions on these
trust preferred securities are payable quarterly in arrears at a fixed rate of 8.11%
through March 30, 2010 and thereafter at a floating rate of 3.85% over 3-month LIBOR until
the scheduled maturity date of March 30, 2035. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated debentures
are redeemable in whole or in part at our option at any time after five years from the
issue date or sooner following certain specified events. |
|
(j) |
|
In May 2005, Levitt Capital Trust II issued $30.0 million of trust preferred
securities to third parties and $928,000 of trust common securities to the Company and
used the proceeds to purchase an identical amount of junior subordinated debentures from
the Company. Interest on these junior subordinated debentures and distributions on these
trust preferred securities are payable quarterly in arrears at a fixed rate of 8.09%
through June 30, 2010 and thereafter at a floating rate of 3.80% over 3-month LIBOR until
the scheduled maturity date of June 30, 2035. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated debentures
are redeemable in whole or in part at our option at any time after five years from the
issue date or sooner following certain specified events. |
|
(k) |
|
In June 2006, Levitt Capital Trust III issued $15.0 million of trust preferred
securities to third parties and $464,000 of trust common securities to the Company and
used the proceeds to purchase an identical amount of junior subordinated debentures from
the Company. Interest on these junior subordinated debentures and distributions on these
trust preferred securities are payable quarterly in arrears at a fixed rate of 9.25%
through June 30, 2011 and thereafter at a floating rate of 3.80% over 3-month LIBOR until
the scheduled maturity date of June 30, 2036. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated debentures
are redeemable in whole or in part at our option at any time after five years from the
issue date or sooner following certain specified events. |
|
(l) |
|
In July 2006, Levitt Capital Trust IV issued $15.0 million of trust preferred
securities to third parties and $464,000 of trust common securities to the Company and
used the proceeds to purchase an identical amount of junior subordinated debentures from
the Company. Interest on these junior subordinated debentures and distributions on these
trust preferred securities are payable quarterly in arrears at a fixed rate of 9.35%
through September 30, 2011 and thereafter at a floating rate of 3.80% over 3-month LIBOR
until the scheduled maturity date of September 30, 2036. The trust preferred securities
are subject to mandatory redemption, in whole or in part, upon repayment of the junior
subordinated debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable in whole or in part at our option at any time after five years
from the issue date or sooner following certain specified events. |
|
(m) |
|
At December 31, 2007, 2006 and 2005 the Prime Rate as reported by the Wall Street
Journal was 7.25%, 8.25% and 7.25%, respectively, and the three-month LIBOR Rate was
4.98%, 5.36% and 4.53%, respectively. |
88
Some of the Companys subsidiaries have borrowings which contain covenants that, among other
things, require the subsidiary to maintain financial ratios and a minimum net worth. These
requirements may limit the amount of debt that the subsidiaries can incur in the future and restrict the payment
of dividends from subsidiaries to the Company. At December 31, 2007, the Company was in compliance
with all loan agreement financial requirements and covenants.
At December 31, 2007, the aggregate required scheduled principal payment of indebtedness in
each of the next five years is approximately as follows (in thousands):
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
$ |
3,242 |
|
2009 |
|
|
42,319 |
|
2010 |
|
|
3,623 |
|
2011 |
|
|
115,574 |
|
2012 |
|
|
2,619 |
|
Thereafter |
|
|
107,443 |
|
|
|
|
|
|
|
$ |
274,820 |
|
|
|
|
|
The timing of contractual payments for debt obligations assumes the exercise of all loan
extensions available at the borrowers sole discretion.
In addition to the above scheduled payments, Core is subject to provisions in its borrowing
agreement that require additional principal, known as curtailment payments, in the event that
sales are below those agreed to at the inception of the borrowing. In the event that agreed upon
sales targets are not met in Tradition Hilton Head, total curtailment payments during 2008 could
amount to $34.2 million. In January 2008, a $14.9 million curtailment payment was paid and an
additional $19.3 million would be due in June 2008, if actual sales continue to be below the
contractual requirements of the development loan.
In March 2008, Core agreed to the termination of a $20 million line of credit after the lender
expressed its concern that Levitt and Sons bankruptcy may have resulted in a technical default by
virtue of language in the facility regarding affiliates. At December 31, 2007, no amounts were
outstanding under the $20 million facility other than a $122,000 outstanding letter of credit which
was secured by a cash deposit in March 2008. There have been no amounts drawn subsequent to December 31, 2007. The lender has agreed to honor two construction loans to a
subsidiary of Core totaling $11.7 million provided that the borrowings are paid in full at maturity
and has waived any technical defaults under the loans arising from Levitt and Sons bankruptcy
through the maturity dates of the loans.
14. Development Bonds Payable
In connection with the development of certain projects, community development, special
assessment or improvement districts have been established and may utilize tax-exempt bond financing
to fund construction or acquisition of certain on-site and off-site infrastructure improvements
near or at these communities. The obligation to pay principal and interest on the bonds issued by
the districts is assigned to each parcel within the district, and a priority assessment lien may be
placed on benefited parcels to provide security for the debt service. The bonds, including interest
and redemption premiums, if any, and the associated priority lien on the property are typically
payable, secured and satisfied by revenues, fees, or assessments levied on the property benefited.
The Company pays a portion of the revenues, fees, and assessments levied by the districts on the
properties the Company still owns that are benefited by the improvements. The Company may also
agree to pay down a specified portion of the bonds at the time of each unit or parcel closing.
These costs are capitalized to inventory during the development period and recognized as cost of
sales when the properties are sold.
The
bond financing at December 31, 2007 and 2006 consisted of
district bonds totaling $212.7 million and $62.8 million,
respectively, with outstanding amounts of approximately $82.9 million and
$50.4 million at December 31, 2007 and 2006, respectively.
Further, at December 31, 2007 and 2006, there was approximately
$129.5 million and $7.0 million, respectively, available
under these bonds to fund future development expenditures. Bond obligations at December 31, 2007
mature in 2035 and 2040. As of December 31, 2007, the Company owned approximately 11% of the
property within the community development district and approximately 91% of the property within the
special assessment district. During the year ended December 31, 2007, the Company recorded
approximately $1.3 million in assessments on property owned by the Company in the districts. The
Company is responsible for any assessed amounts until the underlying property is sold and will
continue to be responsible for the annual assessments if the property is never sold. In addition,
Core Communities has guaranteed payments for assessments under the district bonds in Tradition,
Florida which would require funding if future assessments to be allocated to property owners are
insufficient to repay the bonds. Management has evaluated this exposure based upon the criteria
in Statement of Financial Accounting Standards No. 5 Accounting for Contingencies, and has
determined that there have been no substantive changes to the projected density or land use in the
development subject to the bond which would make it probable that
Core would have to fund future shortfalls in assessments.
89
In accordance with Emerging Issues Task Force Issue 91-10, Accounting for Special Assessments
and Tax Increment Financing (EITF 91-10), the Company records a liability for the estimated
developer obligations that are fixed and determinable and user fees that are required to be paid or
transferred at the time the parcel or unit is sold to an end user. At December 31, 2006, we
recorded no liability associated with outstanding CDD bonds as the assessments were not both fixed
and determinable. At December 31, 2007, a liability of $3.3 million was recognized because the
special assessments related to the commercial leasing assets held for sale were fixed and
determinable as the final assessment was made during the fourth quarter of 2007. This liability is
included in the liabilities related to assets held for sale in the accompanying consolidated
statement of financial condition as of December 31, 2007, and includes amounts associated with Cores
ownership of the property.
15. Employee Benefit Plan
401(k) Plan
The Company has a defined contribution plan established pursuant to Section 401(k) of the
Internal Revenue Code. Employees who have completed three months of service and have reached the
age of 18 are eligible to participate. During the years ended December 31, 2007, 2006, and 2005,
the Companys employees participated in the Levitt Corporation Security Plus Plan and the Companys
contributions amounted to $1.1 million, $1.3 million, and $1.1 million, respectively. These amounts
are included in selling, general and administrative expenses in the accompanying consolidated
statements of operations.
16. Certain Relationships and Related Party Transactions
The Company and Bancorp are under common control. The
controlling shareholder of the Company and Bancorp is BFC. The majority of BFCs capital stock is owned or controlled by the Companys Chairman of the Board
and Chief Executive Officer, Alan B. Levan, and by the Companys Vice Chairman, John E. Abdo, both
of whom are also directors of the Company, and executive officers and directors of BFC, Bancorp and
BankAtlantic. Mr. Levan and Mr. Abdo are the Chairman and Vice Chairman, respectively, of
Bluegreen Corporation.
The Company occupied office space at BankAtlantics corporate headquarters through November
2006. In 2005, Bancorp provided this office space on a month-to-month basis and received
reimbursements for overhead based on market rates. In 2006, rent was paid to BFC on the same basis
for the first ten months of the year. Pursuant to the terms of a shared services agreement
between the Company and BFC, certain
administrative services, including human resources, risk management, and investor relations, are provided to the Company by BFC on a percentage
of cost basis. The total amounts paid for these services in 2007,
2006 and 2005 were $1.1 million, $912,000, and $127,000, respectively, and may not be representative of the amounts that would be
paid in an arms-length transaction. Separately, the Company paid certain fees to Bancorp and to
Bluegreen for services provided to the Company.
90
The following table sets forth fees paid to the indicated related parties (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
BFC |
|
$ |
1,057 |
|
|
|
912 |
|
|
|
127 |
|
Bancorp |
|
|
101 |
|
|
|
185 |
|
|
|
734 |
|
Bluegreen Corporation |
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
Total fees |
|
$ |
1,158 |
|
|
|
1,097 |
|
|
|
942 |
|
|
|
|
|
|
|
|
|
|
|
The amounts paid represent rent, amounts owed for services performed or expense
reimbursements.
Levitt and Sons utilized the services of Conrad & Scherer, P.A., a law firm in which William
R. Scherer, a member of the Companys Board of Directors, is a member. Levitt and Sons paid fees
aggregating $22,000, $470,000 and $914,000 to this firm during the years ended December 31, 2007,
2006 and 2005, respectively.
Certain of the Companys executive officers separately receive compensation from affiliates of
the Company for services rendered to those affiliates. Members of the Companys Board of Directors
and executive officers also have banking relationships with BankAtlantic in the ordinary course of
BankAtlantics business.
At December 31, 2007 and 2006, $6.1 million and $4.6 million, respectively, of cash and cash
equivalents were held on deposit by BankAtlantic, and included in the 2006 amount was $255,000 of
restricted cash, while no restricted cash was held on deposit by BankAtlantic at December 31,
2007. Interest on deposits held at BankAtlantic for each of the years ended December 31, 2007, 2006
and 2005 was approximately $147,000, $436,000 and $316,000, respectively.
During the year ended December 31, 2005, actions were taken by the Company with respect to the
development of certain property owned by BankAtlantic. The Companys efforts included the
successful rezoning of the property and obtaining the permits necessary to develop the property for
residential and commercial use. BankAtlantic reimbursed the Company during 2006 $438,000 for the
out-of-pocket costs incurred by it in connection with these efforts.
On October 1, 2007, the Company completed a Rights Offering to holders of common stock
providing each holder the right to purchase 5.0414 shares of Class A common stock at $2.00 per
share for each share of common stock held of record on August 27, 2007 (as described in Note 5).
BFC participated in this rights offering on the same terms as made available to all other
shareholders. BFC was issued an aggregate of 16,602,712 basic subscription rights of which
10,457,130 and 6,145,582 are attributable to BFCs holdings in the Companys Class A and Class B
Stock, respectively.
By letter dated September 27, 2007 (Letter Agreement), BFC agreed, subject to certain
limited exceptions, not to vote the 6,145,582 shares of Levitts Class A common stock that BFC
acquired upon exercise of its subscription rights in the rights offering associated with BFCs
holdings in Levitts Class B common stock. The Letter Agreement provides that any future sale of
shares of Levitts Class A common stock by BFC will reduce, on a share for share basis, the number
of shares of Levitts Class A common stock that BFC has agreed not to vote. BFCs acquisition of
the 16,602,712 shares of Levitts Class A common stock upon its exercise of its subscription
rights increased BFCs economic ownership interest in Levitt to 20.7% from 16.6% and increased
BFCs voting interest in Levitt excluding the 6,145,582 shares subject to the Letter Agreement, to
54.0% from 52.9%.
91
17. Commitments and Contingencies
The Companys rent expense for premises and equipment for the years ended December 31,
2007, 2006 and 2005 was $2.6 million, $2.7 million and $1.6 million, respectively. Approximate
minimum future rentals due under non-cancelable leases with a term remaining of at least one year
are as follows (in thousands):
|
|
|
|
|
Year ended December 31, |
|
|
|
|
2008 |
|
$ |
1,276 |
|
2009 |
|
|
993 |
|
2010 |
|
|
606 |
|
2011 |
|
|
343 |
|
2012 |
|
|
214 |
|
Thereafter |
|
|
1,282 |
|
|
|
|
|
|
|
$ |
4,714 |
|
|
|
|
|
Of the above lease payments, $1.0 million were accrued at December 31, 2007 due to managements decision to vacate the leased space. See Note 12 for further discussion.
Tradition Development Company, LLC, a wholly-owned subsidiary of Core Communities (TDC),
entered into an advertising agreement with the operator of a Major League Baseball team pursuant to
which, among other advertising rights, TDC obtained a royalty-free license to use, among others,
the trademark Tradition Field at the sports complex located in Port St. Lucie and the naming
rights to that complex. Unless otherwise renewed, the agreement terminates on December 31, 2013;
provided, however, upon payment of a specified buy-out fee and compliance with other contractual
procedures, TDC has the right to terminate the agreement on or after December 31, 2008. Required
cumulative payments under the agreement through December 31, 2013 are approximately $1.1 million.
At December 31, 2007, Core Communities had outstanding surety bonds and letters of credit of
approximately $2.8 million related primarily to its obligations to various governmental entities to
construct improvements in various of its communities. The Company estimates that approximately $2.7
million of work remains to complete these improvements. The Company does not believe that any
outstanding bonds or letters of credit will likely be drawn upon.
Levitt and Sons had $33.3 million in surety bonds related to its ongoing projects at the time
of the filing of the Chapter 11 Cases. In the event that these obligations are drawn and paid by
the surety, Levitt Corporation could be responsible for up to $12.0 million plus costs and expenses
in accordance with the surety indemnity agreement for these instruments. As of December 31, 2007,
the Company has recorded $1.8 million in surety bonds accrual at Levitt Corporation related to
certain bonds where management considers it probable that the Company will be required to reimburse
the surety under the indemnity agreement. See Note 12 for further discussion.
The Company entered into an indemnity agreement in April 2004 with a joint venture partner at
Altman Longleaf relating to, among other obligations, that partners guarantee of the joint
ventures indebtedness. The liability under the indemnity agreement is limited to the amount of
any distributions from the joint venture which exceeds our original capital and other
contributions. Original capital contributions were approximately $585,000 and the Company has
received approximately $1.2 million in distributions since 2004. Accordingly, the potential
obligation of indemnity at December 31, 2007 is approximately $664,000.
92
18. Income Taxes
The benefit (provision) for income tax expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Continuing operations |
|
$ |
23,277 |
|
|
|
5,758 |
|
|
|
(32,532 |
) |
Discontinued operations |
|
|
(1,108 |
) |
|
|
12 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
Total benefit
(provision) for income
taxes |
|
$ |
22,169 |
|
|
|
5,770 |
|
|
|
(32,436 |
) |
|
|
|
|
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Current tax benefit (provision): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
30,251 |
|
|
|
(7,360 |
) |
|
|
(24,792 |
) |
State |
|
|
19 |
|
|
|
(1,145 |
) |
|
|
(3,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
30,270 |
|
|
|
(8,505 |
) |
|
|
(28,330 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred income tax (provision) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(6,032 |
) |
|
|
13,060 |
|
|
|
(3,651 |
) |
State |
|
|
(961 |
) |
|
|
1,203 |
|
|
|
(551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,993 |
) |
|
|
14,263 |
|
|
|
(4,202 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (provision) |
|
$ |
23,277 |
|
|
|
5,758 |
|
|
|
(32,532 |
) |
|
|
|
|
|
|
|
|
|
|
The Companys benefit (provision) for income taxes differs from the
federal statutory tax rate of 35% due to the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Income tax benefit (provision) at expected federal
income tax rate of 35% |
|
$ |
90,881 |
|
|
|
5,215 |
|
|
|
(30,661 |
) |
Benefit (provision) for state taxes, net of federal
benefit |
|
|
9,483 |
|
|
|
936 |
|
|
|
(2,696 |
) |
Tax-exempt income |
|
|
425 |
|
|
|
489 |
|
|
|
492 |
|
Goodwill impairment adjustment |
|
|
|
|
|
|
(458 |
) |
|
|
|
|
Share-based compensation |
|
|
(134 |
) |
|
|
(317 |
) |
|
|
|
|
Increase in valuation allowance |
|
|
(76,730 |
) |
|
|
(425 |
) |
|
|
|
|
Other, net |
|
|
(648 |
) |
|
|
318 |
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes |
|
$ |
23,277 |
|
|
|
5,758 |
|
|
|
(32,532 |
) |
|
|
|
|
|
|
|
|
|
|
93
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Real estate held for sale capitalized for tax purposes in excess
of amounts capitalized for financial statement purposes |
|
$ |
2,016 |
|
|
|
6,205 |
|
Real estate valuation adjustments |
|
|
|
|
|
|
12,889 |
|
Investment in Levitt and Sons |
|
|
68,339 |
|
|
|
|
|
Share based compensation |
|
|
1,427 |
|
|
|
849 |
|
Accrued and other non-deductible expenses |
|
|
2,237 |
|
|
|
848 |
|
Purchase accounting adjustments from real estate acquisitions |
|
|
|
|
|
|
274 |
|
Federal net operating loss carryforward |
|
|
14,191 |
|
|
|
|
|
State net operating loss carryforward |
|
|
5,122 |
|
|
|
398 |
|
Income recognized for tax purposes and deferred for
financial statement purposes |
|
|
7,228 |
|
|
|
6,949 |
|
Other |
|
|
2,049 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
102,609 |
|
|
|
28,412 |
|
Valuation allowance |
|
|
(78,562 |
) |
|
|
(425 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
24,047 |
|
|
|
27,987 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Investment in Bluegreen |
|
|
21,768 |
|
|
|
19,501 |
|
Property and equipment |
|
|
496 |
|
|
|
985 |
|
Other |
|
|
1,783 |
|
|
|
866 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
24,047 |
|
|
|
21,352 |
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
|
|
6,635 |
|
Less the deferred income tax (assets) liabilities at beginning
of period |
|
|
(6,635 |
) |
|
|
7,028 |
|
Implementation of FIN 48 |
|
|
(1,798 |
) |
|
|
|
|
Deferred income taxes on Bluegreens unrealized
gains, losses and issuance of common stock |
|
|
894 |
|
|
|
600 |
|
|
|
|
|
|
|
|
(Provision) benefit for deferred income taxes |
|
|
(7,539 |
) |
|
|
14,263 |
|
Provision for deferred income taxes discontinued operations |
|
|
(546 |
) |
|
|
|
|
|
|
|
|
|
|
|
(Provision) benefit for deferred income taxes continuing
operations |
|
$ |
(6,993 |
) |
|
|
14,263 |
|
|
|
|
|
|
|
|
The net deferred tax asset of $6.6 million as of December 31, 2006 is presented in Other
Assets on the consolidated statements of financial condition. There was no net deferred tax asset
as of December 31, 2007.
Activity in the deferred tax valuation allowance was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
425 |
|
|
|
|
|
Increase in deferred tax valuation allowance |
|
|
76,730 |
|
|
|
425 |
|
Increase in deferred tax valuation allowance paid in capital |
|
|
1,407 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
78,562 |
|
|
|
425 |
|
|
|
|
|
|
|
|
SFAS
No. 109, Accounting for Income Taxes, requires that all available evidence, both
positive and negative, be considered to determine whether, based on the weight of that evidence, a
valuation allowance is needed. Future realization of the tax benefits of an existing deductible
temporary difference or carryforward ultimately depends on the existence of sufficient taxable
income of the appropriate character. Possible sources of taxable income that can be considered
include: (i) future reversals of existing taxable temporary differences; (ii) future taxable
income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in
prior carryback years; and (iv) tax planning strategies.
94
The Company has performed such an analysis, and a valuation allowance has been provided
against deferred tax assets to the extent they cannot be used to offset future income arising from
the expected reversal of taxable differences. The Company has therefore established a valuation
allowance for the entire deferred tax assets, net of the deferred tax liabilities. A valuation allowance of
$78.6 million and $425,000 as of December 31, 2007 and December 31, 2006, respectively, has been
provided due to the significance of the Companys losses, including losses generated by Levitt and
Sons, and significant uncertainties of its ability to realize these assets. The Company will be
required to update its estimates of future taxable income based upon additional information
management obtains and will continue to evaluate the realizability of the net deferred tax asset on
a quarterly basis.
Federal and state net operating loss carryforwards amount to approximately $40.5 million and
$88.9 million, respectively, and expire in the year 2027.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state
jurisdictions. The Company is no longer subject to U.S. federal or state and local income tax
examinations by tax authorities for tax years before 2004. The Internal Revenue Service (IRS)
commenced an examination of the Companys U.S. income tax return for 2004 in the fourth quarter of
2006 and completed its examination in the first quarter of 2008. The conclusion of the examination
resulted in a small refund expected to be received in the second quarter of 2008 and will have an
immaterial effect on the Companys results of operations or financial condition.
As a result of the implementation of FIN 48, the Company recognized a decrease of
approximately $260,000 in the liability for unrecognized tax benefits, which was accounted for as a
reduction to the January 1, 2007 balance of retained earnings. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
2,000 |
|
Additions based on tax positions related to the current year |
|
|
1,128 |
|
Additions for tax positions of prior years |
|
|
|
|
Reductions for tax positions of prior years |
|
|
(763 |
) |
Settlements |
|
|
|
|
Lapse of Statute of Limitations |
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
2,365 |
|
|
|
|
|
At December 31, 2007, the Company had gross tax affected unrecognized tax benefits of $2.4
million of which $248,000, if recognized, would affect the effective tax rate.
At December 31, 2007 the Company had a federal income tax receivable of $27.4 million as a
result of losses incurred, which is anticipated to be collected upon filing the 2007 consolidated
U.S. federal income tax return. The Creditors Committee in the Chapter 11 Cases has advised the
Company that they believe that the creditors are entitled to share in an unstated amount of the refund.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
tax expense. During the years ended December 31, 2007 and 2006, the Company recognized
approximately $168,000, and $168,000 in interest and penalties, respectively. The Company did not
recognize any interest and penalties for the year ended December 31, 2005. The Company had
approximately $336,000 and $168,000 for the payment of interest and penalties accrued at December
31, 2007 and 2006, respectively.
95
19. Other Revenues
The following table summarizes other revenues detail information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage & title operations |
|
$ |
2,243 |
|
|
|
4,070 |
|
|
|
3,750 |
|
Lease/rental income |
|
|
1,111 |
|
|
|
1,501 |
|
|
|
1,963 |
|
Marketing fees |
|
|
1,610 |
|
|
|
1,243 |
|
|
|
674 |
|
Irrigation revenue |
|
|
802 |
|
|
|
674 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,766 |
|
|
|
7,488 |
|
|
|
6,585 |
|
|
|
|
|
|
|
|
|
|
|
20. Other Expenses and Interest and Other Income, net of Interest Expense
Other expenses and interest and other income, net of interest expense are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Title and mortgage operations expense |
|
$ |
1,539 |
|
|
|
2,362 |
|
|
|
2,776 |
|
Loss on disposal of fixed assets |
|
|
564 |
|
|
|
|
|
|
|
|
|
Litigation settlement reserve |
|
|
|
|
|
|
|
|
|
|
830 |
|
Penalty on early debt repayment |
|
|
|
|
|
|
|
|
|
|
677 |
|
Hurricane expense, net of projected
recoveries |
|
|
|
|
|
|
8 |
|
|
|
572 |
|
Goodwill impairment |
|
|
|
|
|
|
1,307 |
|
|
|
|
|
Surety bond indemnification |
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
3,929 |
|
|
|
3,677 |
|
|
|
4,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net of interest
expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
4,046 |
|
|
|
2,882 |
|
|
|
2,520 |
|
Interest expense |
|
|
(3,807 |
) |
|
|
|
|
|
|
|
|
Contingent gain receipt |
|
|
|
|
|
|
|
|
|
|
500 |
|
Partial reversal of construction obligation |
|
|
|
|
|
|
|
|
|
|
6,765 |
|
Gain on sale of fixed assets |
|
|
30 |
|
|
|
1,329 |
|
|
|
|
|
Forfeited buyer deposits |
|
|
6,196 |
|
|
|
2,700 |
|
|
|
77 |
|
Other income |
|
|
974 |
|
|
|
905 |
|
|
|
427 |
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net of interest
expense |
|
$ |
7,439 |
|
|
|
7,816 |
|
|
|
10,289 |
|
|
|
|
|
|
|
|
|
|
|
Included in other expense in the year ended December 31, 2007 is $1.8 million associated
with Levitt Corporations potential surety bond obligation that the Company believes is probable
that the Company will be required to reimburse the surety under the indemnity agreement. See Note
12 for further discussion.
96
21. Estimated Fair Values of Financial Instruments
Estimated fair values of financial instruments are determined using available market
information and appropriate valuation methodologies. However, judgments are involved in
interpreting market data to develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could realize in a current market
exchange.
The following methods and assumptions were used to estimate fair value:
|
|
|
Carrying amounts of cash and cash equivalents, accounts payable and accrued liabilities
approximate fair value due to their short-term nature. |
|
|
|
|
Carrying amounts of notes receivable approximate fair values as they are tied to the
Prime Rate. |
|
|
|
|
Carrying amounts of notes and mortgage notes payable that provide for variable interest
rates approximate fair value after an adjustment to bring previous borrowing spreads in
line with current available spreads, as the terms of the credit facilities require
periodic market adjustment of interest rates. The fair value of the Companys fixed rate
indebtedness, including development bonds payable, was estimated using discounted cash
flow analyses, based on the Companys current borrowing rates for similar types of
borrowing arrangements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
December 31, 2006 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
(In thousands) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
195,181 |
|
|
|
195,181 |
|
|
|
48,391 |
|
|
|
48,391 |
|
Notes receivable |
|
|
3,985 |
|
|
|
3,985 |
|
|
|
6,888 |
|
|
|
6,888 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AP and accrued liabilities |
|
$ |
41,077 |
|
|
|
41,077 |
|
|
|
84,323 |
|
|
|
84,323 |
|
Notes payable associated with
assets held for sale |
|
|
78,970 |
|
|
|
77,620 |
|
|
|
27,338 |
|
|
|
27,338 |
|
Notes and mortgage notes payable |
|
|
274,820 |
|
|
|
258,763 |
|
|
|
588,365 |
|
|
|
588,911 |
|
22. Litigation
On November 9, 2007, the Debtors filed voluntary petitions for relief under the Chapter
11 Cases in the Bankruptcy Court. The Debtors commenced the Chapter 11 Cases in order to preserve
the value of their assets and to facilitate an orderly wind-down of their businesses and
disposition of their assets in a manner intended to maximize the recoveries of all constituents.
On November 27, 2007, the Office of United States Trustee (the U.S. Trustee), appointed an
official committee of unsecured creditors in the Chapter 11 Cases (the Creditors Committee). On
January 22, 2008, the U.S. Trustee appointed a Joint Home Purchase Deposit Creditors Committee of
Creditors Holding Unsecured Claims (the Deposit Holders Committee, and together with the
Creditors Committee, the Committees). The Committees have a right to appear and be heard in
the Chapter 11 Cases.
On November 27, 2007, the Bankruptcy Court granted the Debtors Motion for Authority to Incur
Chapter 11 Administrative Expense Claim (Chapter 11 Admin. Expense Motion) thereby authorizing
the Debtors to incur a post petition administrative expense claim in favor of the Company for Post
Petition Services. While the Bankruptcy Court approved the incurrence of the amounts as unsecured
post petition administrative expense claims, the cash payments of such claims is subject to
additional court approval. In addition to the unsecured administrative expense claims, the
Company has pre-petition secured and unsecured claims against the Debtors. The Debtors have
scheduled the amounts due to the Company in the Chapter 11 Cases. The unsecured pre-petition
claims of the Company scheduled by Levitt and Sons are approximately $67.3 million and the secured
pre-petition claim scheduled by Levitt and Sons is approximately $460,000. The Company has also
filed contingent claims with respect to any liability it may
97
have arising out of disputed indemnification obligations under certain surety bonds. Lastly, the
Company implemented an employee severance fund in favor of certain employees of the Debtor.
Employees who received funds as part of this program as of December 31, 2007, which totaled
approximately $600,000 paid as of that date, have assigned their unsecured claims to the Company.
There is no assurance that there will be any funds available to pay the Company these or any other
amounts associated with the Companys claims against the Debtors.
At December 31, 2007 the Company had a federal income tax receivable of $27.4 million as a
result of losses incurred, which is anticipated to be collected upon filing the 2007 consolidated
U.S. federal income tax return. The Creditors Committee has advised the Company that they believe
the creditors are entitled to share in an unstated amount of the refund.
Pursuant to the Bankruptcy Code, the Debtors have for a limited period subject to extension,
the exclusive right to file a plan of reorganization or liquidation (the Plan).
Class Action Lawsuit
On January 25, 2008, plaintiff Robert D. Dance filed a purported class action complaint as a
putative purchaser of the Companys securities against the Company and certain of its officers and
directors, asserting claims under the federal securities law and seeking damages. This action was
filed in the United States District Court for the Southern District of Florida and is captioned
Dance v. Levitt Corp. et al., No. 08-CV-60111-DLG. The securities litigation purports to be
brought on behalf of all purchasers of the Companys securities beginning on January 31, 2007 and
ending on August 14, 2007. The complaint alleges that the defendants violated Sections 10(b) and
20(a) of the Exchange Act and Rule 10b-5 promulgated there under by issuing a series of false
and/or misleading statements concerning the Companys financial results, prospects and condition.
The Company intends to vigorously defend this action.
23. 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 had four reportable
business segments during the year ended December 31, 2007: Land, Other Operations, Primary
Homebuilding and Tennessee Homebuilding. The Company evaluates segment performance primarily
based on pre-tax income. The information provided for segment reporting is based on managements
internal reports. The accounting policies of the segments are the same as those of the Company.
Eliminations consist primarily of the elimination of sales and profits on real estate transactions
between the Land and Primary Homebuilding segments, which were recorded based upon terms that
management believes would be attained in an arms-length transaction. The presentation and
allocation of assets, liabilities and results of operations may not reflect the actual economic
costs of the segments as stand-alone businesses. If a different basis of allocation were utilized,
the relative contributions of the segments might differ, but management believes that the relative
trends in segments would likely not be impacted.
The Companys Land Division segment consists of the operations of Core Communities and the
Other Operations segment consists of the activities of Levitt Commercial, the Companys parent
company operations, earnings from investments in Bluegreen and other real estate investments and
joint ventures. The Companys Homebuilding division consists of the Primary Homebuilding segment and the Tennessee
Homebuilding segment. The Primary and Tennessee Homebuilding segments were deconsolidated from our
results of operations on November 9, 2007 due to the Chapter 11 Cases. The results of operations
for the three year period ended December 31, 2007 include the results of operations for Levitt and
Sons through November 9, 2007. The Primary Homebuilding segment includes the operations of
Carolina Oak. The results of operations and financial condition of Carolina Oak as of and for the
three year period ended December 31, 2007 are included in the Primary Homebuilding segment because
it is engaged in homebuilding activities and because the financial metrics from this company are
similar in nature to the
other homebuilding projects within this segment that existed during these periods. Therefore, the
assets and liabilities noted below in the Primary Homebuilding segment represent the assets and
liabilities of Carolina Oak.
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The following tables present segment information for the years ended December 31, 2007, 2006
and 2005 (in thousands):
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Year Ended |
|
Primary |
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Tennessee |
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Other |
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December 31, 2007 |
|
Homebuilding |
|
|
Homebuilding |
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|
Land |
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|
Operations |
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Eliminations |
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Total |
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Revenues: |
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Sales of real estate |
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$ |
345,666 |
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|
|
42,042 |
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|
|
16,567 |
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