Levitt Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
Amendment No. 2
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Year Ended December 31, 2006
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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
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11-3675068 |
| (State or other jurisdiction of
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(I.R.S. Employer |
| incorporation or organization)
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Identification No.) |
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| 2200 West Cypress Creek Road |
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| Ft. Lauderdale, Florida
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33309 |
| (Address of principal executive offices)
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(Zip Code) |
(954) 958-1800
(Registrant’s 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
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New York Stock Exchange |
| (Title of Each Class)
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(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 þ
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 þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark 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 registrant’s 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of June 30, 2006, the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was $263.0 million based on the $15.92 closing sale price as
reported on the New York Stock Exchange.
The number of shares outstanding for each of the Registrant’s classes of common stock, as of June
27, 2007 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
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18,616,665 |
| Class B common stock, $0.01 par value
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1,219,031 |
DOCUMENTS INCORPORATED BY REFERENCE
The restated financial statements of Bluegreen Corporation are incorporated in Part II of this
report and are filed as an exhibit to this report.
EXPLANATORY NOTE
We are filing this Amendment No. 2 to Form 10-K for the year ended December 31, 2006 for the
purpose of revising the disclosure in Item 1. Business, Item 6. Selected Financial Data, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8.
Financial Statements Notes 1, 7, 11 and 21. The items have been revised to correctly present all
information required by SFAS 131 in our Segment Disclosures by including Tennessee Homebuilding as
a reportable operating segment, add additional disclosure in the critical accounting policy section relating
to the assumptions used in the inventory impairment analysis and include restated financial
statements of Bluegreen Corporation which are incorporated by reference in Part II of this report and are filed as an exhibit.
Subsequent to the issuance of our audited consolidated financial statements for the year ended
December 31, 2006, we revised our disclosure of reportable operating segments by adding Tennessee
Homebuilding as a reportable operating segment. Additionally, we provided more specific disclosure
on our methodology for evaluating projects for impairment and the factors influencing the
assumptions utilized by us in that analysis. These additional disclosures were added to
Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes
to the Financial Statements. Lastly, we included as an exhibit the restated financial statements
of Bluegreen which were filed by Bluegreen in its Amendment No. 1 to its Annual Report on Form 10-K
for the year ended December 31, 2006 to restate Bluegreen’s Consolidated Statements of Cash Flows
and corresponding financial information for the years ended December 31, 2004, 2005 and 2006 with
conforming changes to Bluegreen’s Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Neither the restatement by Bluegreen nor the changes contained in this Amendment No. 2 affect our
consolidated financial condition at December 31, 2006, 2005, or 2004 or results of operations and
related earnings per share amounts or cash flows for the years ended December 31, 2006 or 2005.
This Amendment No. 2 on Form 10-K/A does not reflect events occurring after the filing of the
Company’s Annual Report on Form 10-K on March 16, 2007 or include, or otherwise modify or update
the disclosures contained therein in any way other than to reflect the additional disclosures as
described above. Accordingly, this Amendment No. 2 should be read in conjunction with our filings
made with the SEC subsequent to the filing of our original Form 10-K on March 16, 2007.
In addition, in accordance with Rule 12b-15 promulgated under the Securities Exchange Act of 1934,
as amended, this Amendment No. 2 also includes current dated certifications from the Company’s
Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer as required by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Company’s Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer are attached to this Form
10-K/A as Exhibits 31.1 and 32.1, 31.2 and 32.2, and 31.3 and 32.3, respectively.
Levitt Corporation
Annual Report on Form 10-K/A Amendment No. 2
for the year ended December 31, 2006
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 management’s 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 the original Form 10-K filed on March 16, 2007,
including those identified under Item 1A. ¯ Risk Factors. These risks are subject to change based
on factors which are, in many instances, beyond the Company’s 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 Company’s margins and the fair value of our real estate inventory; the accuracy
of the estimated fair value of our real estate inventory and the potential for further impairment
charges; the need to offer additional incentives to buyers to generate sales; the effects of
increases in interest rates; cancellations of existing sales contracts and the ability to
consummate sales contracts included in the Company’s backlog; the Company’s ability to realize the
expected benefits of its expanded platform, technology investments, growth initiatives and
strategic objectives; the Company’s ability to timely deliver homes from backlog, shorten delivery
cycles and improve operational and construction efficiency; the realization of cost savings
associated with reductions of workforce and the ability to limit overhead and costs commensurate
with sales; the Company’s ability to maintain sufficient liquidity in the event of a prolonged
downturn in the housing market and the Company’s 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
We are a homebuilding and real estate development company with activities throughout the
Southeastern United States. We were organized in December 1982 under the laws of the State of
Florida.
Our principal real estate activities are primarily conducted through our wholly owned
subsidiaries Levitt and Sons, LLC, (“Levitt and Sons”) and Core Communities, LLC (“Core
Communities”), which operate our Homebuilding Division and Land Division, respectively. Atg
December 31, 2006 our Homebuilding Division consisted of two reportable operating segments, the
Primary Homebuilding segment and the Tennessee Homebuilding segment which report on our business
of developing single and multi-family homes. In our single-family home communities, we specialize
in serving active adults and families. The standard base price for the homes we sell varies by
location and ranges between $110,000 and $650,000. For 2006, the average closing price of the
homes we delivered was $302,000. The Land Division which is treated as one reportable operating
segment, develops master-planned communities, generates revenue from developing, marketing and
selling large acreage and raw and finished lots to third-party residential, commercial and
industrial developers and internally developing certain commercial projects for leasing. The Land
Division also sells land to our Primary Homebuilding segment, which develops both active adult and
family communities in our master-planned communities. We are also engaged in commercial real
estate activities through our wholly owned subsidiary, Levitt Commercial, LLC (“Levitt
Commercial”), and we invest in other real estate projects through subsidiaries and various joint
ventures. In addition, we own approximately 31% of the outstanding common stock of Bluegreen
Corporation (“Bluegreen”, NYSE: BXG), which acquires, develops, markets and sells vacation
ownership
1
interests in “drive-to” vacation resorts as well as residential home sites around golf courses or
other amenities.
Our Homebuilding Division, comprised of our wholly owned subsidiary Levitt and Sons, is
primarily a real estate developer of single and multi-family home and townhome communities
specializing in both active adult and family communities in Florida, Georgia, South Carolina and
Tennessee. The Primary Homebuilding segment, which operates in Florida, Georgia and South
Carolina, and the Tennessee Homebuilding segment, which consists of the acquired entity Bowden
Building Corporation (“Bowden”) and all operations in Tennessee, both operate within Levitt and
Sons. Levitt and Sons and its predecessors have built more than 200,000 homes since 1929. It has
strong brand awareness as America’s oldest homebuilder and is recognized nationally for having
built the Levittown communities in New York, New Jersey and Pennsylvania. We acquired Levitt and
Sons in December 1999 and Bowden was acquired in May 2004. In the second quarter of 2006 we
conducted an impairment review to determine whether the decline in profitability and cash flows in
our Tennessee Homebuilding operations had reached a level where the carrying value of the assets
exceeded their estimated fair value. As a result of this review, the $1.3 million of goodwill
recorded in connection with the Bowden acquisition was fully written off in 2006.
Our Land Division, comprised of our wholly-owned subsidiary Core Communities, develops
master-planned communities and is currently developing Tradition™, Florida, which is located in
Port St. Lucie, Florida and Tradition, South Carolina, which is located in Hardeeville, South
Carolina. Our original community is St. Lucie West. Substantially completed in 2006, it is a
4,600 acre community located in Port St. Lucie, Florida consisting of approximately 6,000 built and
occupied homes, numerous businesses, a university campus and the New York Mets’ spring training
facility. Our second master-planned community, Tradition, Florida also located in Port St. Lucie,
Florida, encompasses more than 8,200 total acres, including approximately five miles of frontage on
Interstate 95 and will have approximately 18,000 residential units and 8.5 million square feet of
commercial space. Our Tradition, South Carolina development consists of approximately 5,400 acres,
and is currently entitled for up to 9,500 residential units, with 1.5 million square feet of
commercial space, in addition to recreational areas, educational facilities and emergency services.
Land sales commenced in Tradition, South Carolina in the fourth quarter 2006.
Recent Developments
Merger Agreement with BFC
On January 31, 2007, we announced that we had entered into a definitive merger agreement with
BFC Financial Corporation, a Florida corporation (“BFC”) which owns shares representing
approximately 17% of our total equity and 53% of our total voting power, pursuant to which we
would, upon consummation of the merger, become a wholly owned subsidiary of BFC. Under the terms
of the merger agreement, holders of our Class A Common Stock (other than BFC) will be entitled to
receive 2.27 shares of BFC Class A Common Stock for each share of our Class A Common Stock held by
them and cash in lieu of any fractional shares of BFC Class A Common Stock that they otherwise
would be entitled to receive. Further, under the terms of the merger agreement, options to
purchase shares, and restricted stock awards, of our Class A Common Stock will be converted into
options to purchase, and restricted stock awards, as applicable, of shares of BFC Class A Common
Stock with appropriate adjustments to reflect the exchange ratio. BFC Class A Common Stock is
listed for trading on the NYSE Arca Stock Exchange under the symbol “BFF,” and on January 30, 2007,
its closing price on such exchange was $6.35. The merger agreement contains certain customary
representations, warranties and covenants on the part of us and BFC, and the consummation of the
merger is subject to a number of customary closing and termination conditions as well as the
approval of both the Company’s and BFC’s shareholders. Further, in addition to the shareholder
approvals required by Florida law, the merger will also be subject to the approval of the holders
of our Class A Common Stock other than BFC and certain other shareholders. The merger is subject
to a number of risks and uncertainties, including, without limitation, the risk that the market
price of BFC Class A Common Stock as quoted on the NYSE Arca Stock Exchange might decrease during
the interim period between the date of the merger agreement and the date on which the merger is
completed, thereby decreasing the value of the consideration to be received by holders of our Class
A Common Stock in connection with the merger, and the risk that the merger may not be completed as
contemplated, or at all.
2
The merger is currently expected to close during 2007. If the merger is completed, all of our
common stock will be canceled and our Class A Common Stock will no longer be listed on the New York
Stock Exchange. While we are optimistic that the merger will be approved, the merger is subject to
a number of conditions, including shareholder approval. In the event that the merger is not
approved by shareholders, or not consummated for any other reason, it is our current intention to
pursue a rights offering to holders of Levitt’s Class A Common Stock.
Impairment charges
The trends in the homebuilding industry were unfavorable in 2006. Demand has slowed significantly
as evidenced by fewer new orders, lower conversion rates and higher cancellations in the markets in
which we operate. Market conditions have been particularly difficult in Florida, which we believe
are the result of changing homebuyer sentiment, reluctance of buyers to commit to a new home
purchase because of uncertainty in their ability to sell their existing home, few homebuyers
purchasing properties as investments, rising mortgage financing expenses, and an increase in both
existing and new homes available for sale. In addition, higher sales prices, increases in property
taxes and higher insurance rates in Florida have impacted affordability for buyers. As a result
of these market conditions, we evaluated the real estate inventory reflected on our balance sheet
for impairment on a project by project basis throughout 2006. Based on this assessment, we
recorded $36.8 million of impairment charges for the year ended December 31, 2006 which are
included in cost of sales in the consolidated statements of operations. Included in this amount are
pretax charges of approximately $28.9 million and $5.4 million for inventory impairments relating
to the Primary Homebuilding segment and Tennessee Homebuilding segment, respectively, and $2.5
million of write-offs of deposits and pre-acquisition costs related to land under option that we do
not intend to purchase, $2.2 million of which related to the Primary Homebuilding segment and
$300,000 of which related to the Tennessee Homebuilding segment.
Reduction in Force
Based on an ongoing evaluation of costs in view of current market conditions, we reduced our
headcount in February by 89 employees resulting in a $440,000 severance charge to be recorded in
the first quarter of 2007. It is expected that annual cash savings from the reduction in force
will be approximately $3.9 million.
Business Strategy
Our business strategy involves the following principal goals:
Implement initiatives to increase sales and focus on improving customer service and quality
control. Currently, we sell homes throughout Florida, Georgia, South Carolina and Tennessee.
While the trends in the homebuilding industry were unfavorable in 2006, management is focused on
cost control and initiatives to improve sales. Costs are being reviewed on an ongoing basis to
align spending with new orders and home closings. We are also attempting to reduce our costs from
our subcontractors and contain costs by using fixed price contracts. However, we remain committed
to our strategic initiatives including our focus on customer service, marketing initiatives, and
improvements in quality and construction cycle time. Advertising, outside broker commissions and
other marketing costs have increased as competition for buyers has intensified. Continued
aggressive marketing expenditures and customer incentives are expected to continue until the market
stabilizes. We believe that these initiatives will prove advantageous in the current market as
well as contribute to achieving long term profitability when the market returns to normal levels of
growth.
Operate more efficiently and effectively. We have recently taken steps which we believe will
improve our operating efficiencies. We are working diligently to align our staffing levels with
current and anticipated future market conditions and will continue to focus on implementing expense
management initiatives throughout the organization. We have hired additional experienced
operating and financial professionals throughout the organization, increased accountability
throughout the organization and implemented a new technology platform for all of our operating
entities, other than our Tennessee
3
Homebuilding operations. We intend to continue our focus on improving our operating
effectiveness in 2007 by continuing programs such as reducing our construction cycle time.
Continue to develop master-planned communities in desirable markets for sale and leasing. The
Land Division is actively developing and marketing its master-planned communities in Florida and
South Carolina. In addition to sales of parcels to homebuilders, the Land Division continues to
expand its commercial operations through sales to developers and through its efforts to internally
develop certain projects for leasing to third parties. In 2006 we expanded our commercial
development and leasing activities with the construction and development of a “Power Center” at
Tradition, Florida. The Power Center is substantially leased primarily to several “big box”
retailers and is expected to open in the fall of 2007. We view our commercial projects
opportunistically and intend to periodically evaluate the short and long term benefits of retention
or disposition. Historically, land sale revenues have been sporadic and fluctuated more
dramatically than home sale revenues, but land sale transactions result in higher margins, which
historically have varied between 40% and 60%. 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. Our land development activities in our master-planned
communities complement our homebuilding activities by offering a source of land for future
homebuilding. At the same time, our homebuilding activities have complemented our master-planned
community development activities since we believe that Levitt and Sons’ strong merchandising and
quality developments have tended to support future land sales in our master-planned communities.
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. As
these parcels become available for sale, Levitt and Sons will have an opportunity to develop them.
Our strategy is to review whether the allocation of the land to Levitt and Sons maximizes both the
community as a whole and our overall business goals. In December 2006, Levitt and Sons acquired
the first 150 acres in Tradition South Carolina from our Land Division and currently plans to
acquire an additional 312 acres in stages through 2009. 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. Therefore, we will review each parcel as it is ready for development
to determine if it should be developed by Levitt and Sons, sold to a third party, or internally
developed for leasing.
Improve
our financial strength. We are focusing our efforts on improving our
financial condition including enhancing our liquidity, preserving our borrowing capacity, and
monitoring expenses. In addition to expense management, we are reviewing our land positions to
ensure that our land portfolio is fairly valued and appropriately aligned with our expectations of
future housing demand. Further, in January 2007, we announced that we entered into a definitive
merger agreement pursuant to which we will become a wholly-owned subsidiary of BFC. We believe
this merger, if consummated, will provide opportunities to strengthen our balance sheet as BFC has
no debt at the holding company level and we believe is better positioned to access other financial
resources. We are currently reviewing and in the process of selling certain of our land inventory.
We suspended additional land acquisitions in the year ended December 31, 2006 and we wrote off
approximately $2.5 million of pre-acquisition costs and deposits relating to properties that we
decided not to acquire. Our current inventory is expected to yield sufficient usable homesites for
the next five to six years and could last longer if current absorption levels persist.
Maintain a conservative risk profile. Our goal is to maintain a disciplined risk management
approach to our business activities. Other than our model homes, the majority of our homes are
pre-sold before construction begins. We generally require customer deposits of 5% to 10% of the
base sales price of our homes, and we require a higher percentage deposit for design customizations
and upgrades in order to minimize the risk of cancellations. We continue to seek to maintain our
homebuilding land inventory at levels that can be absorbed within five to six years. Our master
planned communities are long term projects with development cycles in excess of 10 years. We
believe that we mitigate the risk inherent in our investments in our planned communities through
careful site selection and market research in collaboration with our Homebuilding Division. We
periodically sell both raw and developed parcels to our Homebuilding Division as well as other
commercial and residential developers.
Utilize community development districts to fund development costs. We establish community
4
development districts to access tax-exempt bond financing to fund infrastructure and other
projects at our master-planned community developments 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 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.
Business Segments
Management reports results of operations through four segments: Primary Homebuilding,
Tennessee Homebuilding, Land Division and Other Operations. The presentation and allocation of the
assets, liabilities and results of operations of each 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 management’s view, the relative
trends in segments would not likely be impacted. See Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations and Item 8. Financial Statements Note 21 to our
audited consolidated financial statements for discussion of trends, results of operations and
further discussion on each segment.
Homebuilding Division — Primary Homebuilding Segment
The Primary Homebuilding segment of our Homebuilding Division develops both active adult and
family planned communities in Florida, Georgia and South Carolina. Our average contract price for
new home orders in 2006, which includes the base price and buyer selected options and upgrades, was
approximately $383,000. The communities currently under development or under contract and relevant
data as of December 31, 2006 are as follows:
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Number of |
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Planned |
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Closed |
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Sold |
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Net Units |
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Communities |
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Units (a) |
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Units |
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Inventory |
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Backlog |
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Available |
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Active Adult Communities |
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| Current Developments
(includes optioned
lots) |
|
|
15 |
|
|
|
10,629 |
|
|
|
3,262 |
|
|
|
7,367 |
|
|
|
767 |
|
|
|
6,600 |
|
| Properties Under
Contract to be Acquired
(b) |
|
|
1 |
|
|
|
690 |
|
|
|
0 |
|
|
|
690 |
|
|
|
0 |
|
|
|
690 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Active Adult |
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|
16 |
|
|
|
11,319 |
|
|
|
3,262 |
|
|
|
8,057 |
|
|
|
767 |
|
|
|
7,290 |
|
|
|
|
|
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|
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Family Communities |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Current Developments
(includes optioned
lots) |
|
|
11 |
|
|
|
4,268 |
|
|
|
1,675 |
|
|
|
2,593 |
|
|
|
359 |
|
|
|
2,234 |
|
Properties Under
Contract to be Acquired
(b) |
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|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total Family |
|
|
11 |
|
|
|
4,268 |
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|
|
1,675 |
|
|
|
2,593 |
|
|
|
359 |
|
|
|
2,234 |
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Total |
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|
|
|
|
|
|
|
|
|
Current Developments
(includes optioned
lots) |
|
|
26 |
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|
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14,897 |
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|
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4,937 |
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|
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9,960 |
|
|
|
1,126 |
|
|
|
8,834 |
|
Property Under Contract
to be Acquired (b) |
|
|
1 |
|
|
|
690 |
|
|
|
0 |
|
|
|
690 |
|
|
|
0 |
|
|
|
690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
TOTAL PRIMARY
HOMEBUILDING |
|
|
27 |
|
|
|
15,587 |
|
|
|
4,937 |
|
|
|
10,650 |
|
|
|
1,126 |
|
|
|
9,524 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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| (a) |
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Actual number of units may vary from original project plan due to engineering and architectural changes. |
| |
| (b) |
|
There can be no assurance that the current property under contract will be acquired. |
The property under contract listed above represents a property for which due diligence
had been
completed as of December 31, 2006. Our Primary Homebuilding operation has the right to acquire the
property at an aggregate purchase price of $14.2 million. Management will continue to evaluate
market conditions and decide whether it is prudent to acquire this property in 2007, if at all. If
a decision is made not to purchase this property amounts deposited or expended for due diligence
will be written off. At December 31, 2006, we had $400,000 in deposits securing this purchase
obligation and we are currently
5
evaluating this obligation and intend to acquire the land
associated with this purchase obligation.
At December 31, 2006, our Primary Homebuilding segment’s backlog was 1,126 units, valued at
$411.6 million. Backlog represents the number of units subject to pending sales contracts. Homes
in backlog include homes that have been completed, but on which title has not been transferred,
homes not yet completed and homes on which construction has not begun. There is no assurance that
buyers will choose to complete the purchase of homes under contract and our remedy upon such
failure to close is generally limited to retaining the buyers’ deposits or seeking specific
performance of the sales contracts.
Homebuilding Division -Tennessee Homebuilding Segment
Our Tennessee Homebuilding segment of our Homebuilding Division develops family communities in
Tennessee. Our average contract price for new home orders in 2006, which includes the base price
and buyer selected options and upgrades, was approximately $215,000. Our communities are designed
to serve families of various ranges of incomes. The communities currently under development or
under contract and relevant data as of December 31, 2006 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Planned |
|
|
Closed |
|
|
|
|
|
|
Sold |
|
|
Net Units |
|
| |
|
Communities |
|
|
Units (a) |
|
|
Units |
|
|
Inventory |
|
|
Backlog |
|
|
Available |
|
Family Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Developments (includes optioned lots) |
|
|
22 |
|
|
|
3,003 |
|
|
|
1,525 |
|
|
|
1,478 |
|
|
|
122 |
|
|
|
1,356 |
|
Properties Under Contract to be Acquired |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Family |
|
|
22 |
|
|
|
3,003 |
|
|
|
1,525 |
|
|
|
1,478 |
|
|
|
122 |
|
|
|
1,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Developments (includes optioned lots) |
|
|
22 |
|
|
|
3,003 |
|
|
|
1,525 |
|
|
|
1,478 |
|
|
|
122 |
|
|
|
1,356 |
|
Properties Under Contract to be Acquired |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL TENNESSEE HOMEBUILDING |
|
|
22 |
|
|
|
3,003 |
|
|
|
1,525 |
|
|
|
1,478 |
|
|
|
122 |
|
|
|
1,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Actual number of units may vary from original project plan due to engineering and architectural changes. |
Tennessee Homebuilding operations have no properties under contract.
At December 31, 2006, our Tennessee Homebuilding segment’s backlog was 122 units, valued at
$26.7 million. Backlog represents the number of units subject to pending sales contracts. Homes
in backlog include homes that have been completed, but on which title has not been transferred,
homes not yet completed and homes on which construction has not begun. There is no assurance that
buyers will choose to complete the purchase of homes under contract and our remedy upon such
failure to close is generally limited to retaining the buyers’ deposits or seeking specific
performance of the sales contracts.
Land Division
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 Tradition, Florida and in Tradition, South Carolina. 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 (including Levitt and Sons) and commercial, industrial and
institutional end-users; and (iv) the development and leasing of commercial space to commercial,
industrial and institutional end-users.
Our completed development, 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 Florida’s Turnpike to
the east. St. Lucie West contains residential, commercial and industrial developments. Within the
community, residents are close to recreational and entertainment facilities, houses of worship,
retail businesses, medical facilities and schools. PGA of America owns and operates a golf course
and a country club on an adjacent parcel.
6
The community’s 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, located approximately two miles south of St. Lucie West, includes
approximately five miles of frontage on I-95, and encompasses more than 8,200 total acres (with
approximately 5,800 saleable acres of which approximately 1,800 acres have been sold). Tradition,
Florida is planned to include a corporate park, educational and health care facilities, commercial
properties, residential homes and other uses in a series of mixed-use parcels. Community
Development District special assessment bonds are being utilized to provide financing for certain
infrastructure developments when applicable.
We acquired our newest master-planned community, Tradition, South Carolina, in 2005. It
consists of approximately 5,400 total acres, including approximately 3,000 saleable acres of which
160 acres were sold in 2006. 150 of these acres were sold to the Homebuilding Division. This
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.
Development commenced in the first quarter of 2006 and land sales commenced in South Carolina in
the fourth quarter of 2006.
At December 31, 2006, our Land Division owned approximately 6,500 gross acres in Tradition,
Florida including approximately 4,100 saleable acres. Through December 31, 2006, Core Communities
had entered into contracts for the sale of a total of 1,794 acres in the first phase residential
development at Tradition, Florida of which 1,757 acres had been delivered at December 31, 2006.
Our backlog contains contracts for the sale of 37 acres, although there is no assurance that the
consummation of those transactions will occur. Delivery of these acres is expected to be completed
in 2007. At December 31, 2006, our Land Division additionally owned approximately 5,230 gross acres
in Tradition, South Carolina including approximately 2,800 saleable acres. Through December 31,
2006, Core Communities had entered into a contract with Levitt and Sons for the sale of a total of
462 acres in the first phase residential development at Tradition, South Carolina of which 150
acres had been delivered at December 31, 2006. Our third party backlog in Tradition South Carolina
contains contracts for the sale of 37 acres.
Our Land Division’s land in development and relevant data as of December 31, 2006 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
party |
|
|
|
|
| |
|
Date |
|
|
Acres |
|
|
Closed |
|
|
Current |
|
|
Saleable |
|
|
Saleable |
|
|
Backlog |
|
|
Acres |
|
| |
|
Acquired |
|
|
Acquired |
|
|
Acres |
|
|
Inventory |
|
|
Acres (a) |
|
|
Acres (a) |
|
|
(b) |
|
|
Available |
|
Currently in Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradition, Florida |
|
|
1998 – 2004 |
|
|
|
8,246 |
|
|
|
1,757 |
|
|
|
6,489 |
|
|
|
2,431 |
|
|
|
4,058 |
|
|
|
37 |
|
|
|
4,021 |
|
Tradition, South Carolina |
|
|
2005 |
|
|
|
5,390 |
|
|
|
160 |
|
|
|
5,230 |
|
|
|
2,417 |
|
|
|
2,813 |
|
|
|
37 |
|
|
|
2,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Currently in Development |
|
|
|
|
|
|
13,636 |
|
|
|
1,917 |
|
|
|
11,719 |
|
|
|
4,848 |
|
|
|
6,871 |
|
|
|
74 |
|
|
|
6,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
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 and other public
purposes. |
| |
| (b) |
|
Acres under contract to Third Parties |
Other Operations
Other operations consist of Levitt Commercial, our investment in Bluegreen Corporation,
investments in joint ventures, other real estate interests, and holding company operations.
Levitt Commercial
Levitt Commercial was formed in 2001 to develop industrial, commercial, retail and residential
properties. As of December 31, 2006 Levitt Commercial has one remaining flex warehouse project
with a total of 17 units in the sales backlog which closed in the first quarter of 2007.
7
Investment in Bluegreen Corporation
We own approximately 9.5 million shares of the outstanding common stock of Bluegreen, which
represents approximately 31% of that company’s 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.
Other Investments and Joint Ventures
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 Company moved the senior
management of Levitt and Sons and all Other Operations employees into this building in 2006, and it
now serves as the Corporate Headquarters for Levitt Corporation and Levitt and Sons.
From time to time, we seek to mitigate the risk 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, 2006.
We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman
Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s
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% partnership interest in Altman Longleaf, LLC, which owns a 20%
interest in this joint venture. This 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 were approximately $585,000. In 2004, we received an additional distribution that
totaled approximately $1.1 million. In January 2006, we received a distribution of approximately
$138,000. Accordingly, our potential obligation of indemnity after the January 2006 distribution
is approximately $664,000. 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.
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 homes under contract. In the fourth
quarter of 2006, we implemented a fully integrated operating and financial system in order to have
all operating entities, with the exception of the Tennessee Homebuilding operations, on one
platform and to have all field personnel use a standardized construction scheduling system that
aims to improve the management of cycle time, subcontractor relationships and efficiencies
throughout the field operations. These systems are expected to enable information to be shared and
utilized throughout our company and enable us to better manage, optimize and leverage our employees
and management.
Seasonality
8
We have historically experienced volatility but not necessarily seasonality, in our results of
operations from quarter-to-quarter due to the nature of the homebuilding business. We are focusing
our efforts on our homebuilding sales and construction process with the overall objective of
achieving more consistent levels of production. Our new financial systems improved our capabilities
in construction scheduling and homebuilding operations which should assist us in managing and
improving cycle times. However, due to the uncertainty in the homebuilding market, we expect to
continue to experience high volatility in our starts and deliveries throughout 2007.
Competition
The real estate development and homebuilding industries are highly competitive and fragmented.
Overbuilding and excess supply conditions could, among other competitive factors, materially
adversely affect homebuilders in the affected market and our ability to sell homes. Further, if
our competitors lower prices or offer incentives, we may be required to do so as well to maintain
sales and in such case our margins and profitability would be impacted. We have begun to offer
sales incentives to attract buyers which include price reductions, option discounts, closing costs
reduction programs and mortgage fee incentives and these programs will adversely affect our
margins. Homebuilders compete for financing, raw materials and skilled labor, as well as for the
sale of homes. We also 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 and construct products that are superior or
substantially similar to our products. A substantial portion of our operations are in Florida,
where some of the most attractive markets in the nation have historically been located, and
therefore we expect to continue to face additional competition from new entrants into our markets.
Employees
As of December 31, 2006, we employed a total of 666 full-time employees and 32 part-time
employees. The breakdown of employees by segment was as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Full |
|
|
Part |
|
| |
|
Time |
|
|
Time |
|
Primary Homebuilding |
|
|
512 |
|
|
|
24 |
|
Tennessee Homebuilding |
|
|
32 |
|
|
|
1 |
|
Land |
|
|
59 |
|
|
|
7 |
|
Other Operations |
|
|
63 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
666 |
|
|
|
32 |
|
|
|
|
|
|
|
|
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 SEC. Our Internet website and the
information contained in or connected to our website are not incorporated into this Form 10-K/A.
9
Our website also includes printable versions of our Corporate Governance Guidelines, our code
of Business Conduct and Ethics and the charters for each of our Audit, Compensation and Nominating
Committees of our Board of Directors.
10
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of and for the
years ended December 31, 2006 through 2002. Certain selected financial data presented
below as of December 31, 2006, 2005, 2004, 2003 and 2002 and for each of the years in the
five-year period ended December 31, 2006, are derived from our audited consolidated
financial statements. This table is a summary and should be read in conjunction with the
consolidated financial statements and related notes thereto which are included elsewhere in
this report.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
|
(Dollars in thousands, except per share, unit and average price data) |
|
|
|
|
|
Consolidated Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
566,086 |
|
|
|
558,112 |
|
|
|
549,652 |
|
|
|
283,058 |
|
|
|
207,808 |
|
Cost of sales of real estate (a) |
|
|
482,961 |
|
|
|
408,082 |
|
|
|
406,274 |
|
|
|
209,431 |
|
|
|
159,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
|
83,125 |
|
|
|
150,030 |
|
|
|
143,378 |
|
|
|
73,627 |
|
|
|
48,133 |
|
Earnings from Bluegreen Corporation |
|
|
9,684 |
|
|
|
12,714 |
|
|
|
13,068 |
|
|
|
7,433 |
|
|
|
4,570 |
|
Selling, general & administrative expenses |
|
|
121,151 |
|
|
|
87,639 |
|
|
|
71,001 |
|
|
|
42,027 |
|
|
|
30,549 |
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
26,820 |
|
|
|
19,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.46 |
) |
|
|
2.77 |
|
|
|
3.10 |
|
|
|
1.81 |
|
|
|
1.32 |
|
Diluted (loss) earnings per share (b) |
|
$ |
(0.47 |
) |
|
|
2.74 |
|
|
|
3.04 |
|
|
|
1.77 |
|
|
|
1.30 |
|
Basic weighted average common shares
outstanding (thousands) |
|
|
19,823 |
|
|
|
19,817 |
|
|
|
18,518 |
|
|
|
14,816 |
|
|
|
14,816 |
|
Diluted weighted average common shares
outstanding (thousands) |
|
|
19,823 |
|
|
|
19,929 |
|
|
|
18,600 |
|
|
|
14,816 |
|
|
|
14,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.08 |
|
|
|
0.08 |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin percentage (c) |
|
|
14.7 |
% |
|
|
26.9 |
% |
|
|
26.1 |
% |
|
|
26.0 |
% |
|
|
23.2 |
% |
SG&A expense as a percentage of total revenues |
|
|
21.1 |
% |
|
|
15.5 |
% |
|
|
12.8 |
% |
|
|
14.7 |
% |
|
|
14.6 |
% |
Return on average shareholders’ equity,
annualized (d) |
|
|
(2.6 |
%) |
|
|
17.0 |
% |
|
|
27.3 |
% |
|
|
23.0 |
% |
|
|
22.0 |
% |
Ratio of debt to shareholders’ equity |
|
|
179.4 |
% |
|
|
116.6 |
% |
|
|
91.0 |
% |
|
|
138.8 |
% |
|
|
137.1 |
% |
Ratio of debt to total capitalization (e) |
|
|
64.2 |
% |
|
|
53.8 |
% |
|
|
47.6 |
% |
|
|
58.1 |
% |
|
|
57.8 |
% |
Ratio of net debt to total capitalization (e)(f) |
|
|
59.2 |
% |
|
|
38.9 |
% |
|
|
25.3 |
% |
|
|
46.1 |
% |
|
|
51.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
48,391 |
|
|
|
113,562 |
|
|
|
125,522 |
|
|
|
35,965 |
|
|
|
16,014 |
|
Inventory of real estate |
|
$ |
822,040 |
|
|
|
611,260 |
|
|
|
413,471 |
|
|
|
254,992 |
|
|
|
198,126 |
|
Investment in Bluegreen Corporation |
|
$ |
107,063 |
|
|
|
95,828 |
|
|
|
80,572 |
|
|
|
70,852 |
|
|
|
57,332 |
|
Total assets |
|
$ |
1,090,666 |
|
|
|
895,673 |
|
|
|
678,467 |
|
|
|
393,505 |
|
|
|
295,461 |
|
Total debt |
|
$ |
615,703 |
|
|
|
407,970 |
|
|
|
268,226 |
|
|
|
174,093 |
|
|
|
147,445 |
|
Total liabilities |
|
$ |
747,427 |
|
|
|
545,887 |
|
|
|
383,678 |
|
|
|
268,053 |
|
|
|
187,928 |
|
Shareholders’ equity |
|
$ |
343,239 |
|
|
|
349,786 |
|
|
|
294,789 |
|
|
|
125,452 |
|
|
|
107,533 |
|
11
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
|
|
|
|
|
(Dollars in thousands, except per share, unit and average price data) |
|
|
|
|
|
Primary Homebuilding (g): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
424,420 |
|
|
|
352,723 |
|
|
|
418,550 |
|
|
|
222,257 |
|
|
|
162,359 |
|
Cost of sales of real estate (a) |
|
|
367,252 |
|
|
|
272,680 |
|
|
|
323,366 |
|
|
|
173,072 |
|
|
|
131,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
57,168 |
|
|
|
80,043 |
|
|
|
95,184 |
|
|
|
49,185 |
|
|
|
31,078 |
|
Margin percentage (c) |
|
|
13.5 |
% |
|
|
22.7 |
% |
|
|
22.7 |
% |
|
|
22.1 |
% |
|
|
19.1 |
% |
Construction starts |
|
|
1,445 |
|
|
|
1,212 |
|
|
|
1,893 |
|
|
|
1,593 |
|
|
|
796 |
|
Homes delivered |
|
|
1,320 |
|
|
|
1,338 |
|
|
|
1,783 |
|
|
|
1,011 |
|
|
|
740 |
|
Average selling price of homes delivered |
|
$ |
322,000 |
|
|
|
264,000 |
|
|
|
235,000 |
|
|
|
220,000 |
|
|
|
219,000 |
|
Net orders (units) |
|
|
847 |
|
|
|
1,289 |
|
|
|
1,378 |
|
|
|
2,240 |
|
|
|
980 |
|
Net orders (value) |
|
$ |
324,217 |
|
|
|
448,207 |
|
|
|
376,435 |
|
|
|
513,436 |
|
|
|
204,730 |
|
Backlog of homes (units) |
|
|
1,126 |
|
|
|
1,599 |
|
|
|
1,648 |
|
|
|
2,053 |
|
|
|
824 |
|
Backlog of homes (sales value) |
|
$ |
411,578 |
|
|
|
512,140 |
|
|
|
416,656 |
|
|
|
458,771 |
|
|
|
167,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee Homebuilding (j): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
76,299 |
|
|
|
85,644 |
|
|
|
53,746 |
|
|
|
— |
|
|
|
— |
|
Cost of sales of real estate (a) |
|
|
72,807 |
|
|
|
74,328 |
|
|
|
47,731 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
3,492 |
|
|
|
11,316 |
|
|
|
6,015 |
|
|
|
— |
|
|
|
— |
|
Margin percentage (c) |
|
|
4.6 |
% |
|
|
13.2 |
% |
|
|
11.2 |
% |
|
|
— |
|
|
|
— |
|
Construction starts |
|
|
237 |
|
|
|
450 |
|
|
|
401 |
|
|
|
— |
|
|
|
— |
|
Homes delivered |
|
|
340 |
|
|
|
451 |
|
|
|
343 |
|
|
|
— |
|
|
|
— |
|
Average selling price of homes delivered |
|
$ |
224,000 |
|
|
|
190,000 |
|
|
|
157,000 |
|
|
|
— |
|
|
|
— |
|
Net orders (units) |
|
|
269 |
|
|
|
478 |
|
|
|
301 |
|
|
|
— |
|
|
|
— |
|
Net orders (value) |
|
$ |
57,776 |
|
|
|
98,838 |
|
|
|
51,481 |
|
|
|
— |
|
|
|
— |
|
Backlog of homes (units) |
|
|
122 |
|
|
|
193 |
|
|
|
166 |
|
|
|
— |
|
|
|
— |
|
Backlog of homes (sales value) |
|
$ |
26,662 |
|
|
|
45,185 |
|
|
|
31,991 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Division (h): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sales of real estate |
|
$ |
69,778 |
|
|
|
105,658 |
|
|
|
96,200 |
|
|
|
55,037 |
|
|
|
53,919 |
|
Cost of sales of real estate |
|
|
42,662 |
|
|
|
50,706 |
|
|
|
42,838 |
|
|
|
31,362 |
|
|
|
28,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin (a) |
|
$ |
27,116 |
|
|
|
54,952 |
|
|
|
53,362 |
|
|
|
23,675 |
|
|
|
25,197 |
|
Margin percentage (c) |
|
|
38.9 |
% |
|
|
52.0 |
% |
|
|
55.5 |
% |
|
|
43.0 |
% |
|
|
46.7 |
% |
Acres sold |
|
|
371 |
|
|
|
1,647 |
|
|
|
1,212 |
|
|
|
1,337 |
|
|
|
1,715 |
|
Inventory of real estate (acres) (i) |
|
|
6,871 |
|
|
|
7,287 |
|
|
|
5,965 |
|
|
|
6,837 |
|
|
|
5,853 |
|
Inventory of real estate (book value) |
|
$ |
176,356 |
|
|
|
150,686 |
|
|
|
122,056 |
|
|
|
43,906 |
|
|
|
59,520 |
|
Acres subject to sales contracts – Third parties |
|
|
74 |
|
|
|
246 |
|
|
|
1,833 |
|
|
|
1,433 |
|
|
|
1,845 |
|
Aggregate sales price of acres subject to sales
contracts to third parties |
|
$ |
21,124 |
|
|
|
39,283 |
|
|
|
121,095 |
|
|
|
103,174 |
|
|
|
72,767 |
|
|
|
|
| (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 year ended December 31, 2006 are homebuilding
inventory impairment charges and write-offs of deposits and pre-acquisition costs of $31.1 million in our Primary Homebuilding segment and $5.7 million in the Tennessee Homebuilding
segment. |
| |
| (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 Bluegreen’s common stock. |
| |
| (c) |
|
Margin percentage is calculated by dividing margin by sales of real estate. |
| |
| (d) |
|
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. |
| |
| (e) |
|
Total capitalization is calculated as total debt plus total shareholders’ equity. |
| |
| (f) |
|
Net debt is calculated as total debt minus cash. |
| |
| (g) |
|
Excludes joint ventures. |
| |
| (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. |
| |
| (i) |
|
Estimated net saleable acres (subject to final zoning, permitting, and other governmental regulations / approvals). |
| |
| (j) |
|
Bowden was acquired in May 2004. The Company had no homebuilding operations in Tennessee in 2003 and 2002. |
12
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Executive Overview
Our operations are concentrated in the real estate industry, which is cyclical by nature. In
addition, the majority of our assets are located in the State of Florida. Our homebuilding
operations sell residential housing, while our land development business sells land to residential
builders as well as commercial developers, and on occasion internally develops commercial real
estate and enters into lease arrangements. The homebuilding industry is going through a dramatic
slowdown after years of strong growth. Excess supply, particularly in previously strong markets
like Florida, in part driven by speculative activity by investors, has led to downward pressure on
pricing for residential homes and land. Accordingly, we have increased our focus on alternative
strategies under various economic scenarios with a view to maintaining sufficient liquidity to
withstand a prolonged downturn. Capital for land development and community amenities is being
closely monitored and we are attempting to pace expenditures in line with current absorption rates.
Outlook
During 2006, management continued to focus on improving organizational and infrastructure
processes and procedures. We made substantial investments in our information systems, personnel
and practices to strengthen the management team, increase field construction capacity and
competency and standardize policies and procedures to enhance operational efficiency and
consistency. While we made these organizational changes, the market conditions in the homebuilding
industry deteriorated and we have not yet seen meaningful evidence of any improvement to date in
2007. As a result of these deteriorating conditions, we incurred higher selling expenses for
advertising, outside broker commissions and other sales and marketing incentives in an effort to
remain competitive and attract buyers during 2006 and expect to continue to do so in 2007.
Our Land Division entered the year with three active projects, St. Lucie West, Tradition,
Florida and Tradition, South Carolina. During 2006, we finished development in St. Lucie West,
continued our development and sales activities in Tradition, Florida, and started our development
in Tradition, South Carolina. As a result, we incurred higher general and administrative expenses
in the Land Division due to this expansion into the South Carolina market. 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 in connection with the
overall slowdown in the homebuilding market.
As we enter 2007, our strategy will focus on our balance sheet, including efforts to enhance
our liquidity and preserve our borrowing capacity, as well as to bring costs in line with our
orders, closings and strategic objectives. We have been taking steps to align our staffing levels
with current and anticipated future market conditions and will continue to focus on implementing
expense management initiatives throughout the organization. We have reviewed and continue to
review our land positions to align our position with our requirements and expectations of future
demand. In order to remain competitive in our markets, we are aggressively offering sales
incentives to customers while working to preserve the conversion rate in our backlog. These
initiatives will lead to lower gross margins on home sales. We are attempting to mitigate the
impact of this margin compression by reducing general and administrative expenses, shortening cycle
time to lower construction and carry costs, negotiating lower prices from our suppliers and in the
short term curtailing land acquisitions in most of our markets. While there is clearly a slowdown
in the homebuilding sector, interest in commercial property in our Land Division has remained
strong, and interest in the South Carolina market does not appear to be impacted as severely as the
Florida residential market. The Land Division expects to continue developing and selling land in
its master-planned communities in South Carolina and Florida. In addition to sales of parcels to
homebuilders, the Land Division plans to continue to expand its commercial operations through sales
to developers and to internally develop certain projects for leasing to third parties. In
addition to sales to third party homebuilders and commercial developers, the Land Division
anticipates that it will continue to periodically sell residential land to Levitt and Sons.
13
Financial and Non-Financial Metrics
We evaluate our performance and prospects using a variety of financial and non-financial
metrics. The key financial metrics utilized to evaluate historical operating performance include
revenues from sales of real estate, margin (which we measure as revenues from sales of real estate
minus cost of sales of real estate), margin percentage (which we measure as margin divided by
revenues from sales of real estate), (loss) income before taxes, net (loss) income and return on
equity. We also continue to evaluate and monitor selling, general and administrative expenses as
a percentage of revenue. Non-financial metrics used to evaluate historical performance include the
number and value of new orders executed, the number of cancelled contracts and resulting spec
inventory, the number of housing starts and the number of homes delivered. In evaluating our
future prospects, management considers non-financial information such as the number of homes and
acres in backlog (which we measure as homes or land subject to an executed sales contract) and the
aggregate value of those contracts as well as cancellation rates of homes in backlog.
Additionally, we monitor the number of properties remaining in inventory and under contract to be
purchased relative to our sales and construction trends. Our ratio of debt to shareholders’ equity
and cash requirements are also considered when evaluating our future prospects, as are general
economic factors and interest rate trends. Each of the above metrics is discussed in the following
sections as it relates to our operating results, financial position and liquidity. These metrics
are not an exhaustive list, and management may from time to time utilize different financial and
non-financial information or may not use all of the metrics mentioned above.
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 the 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 statements of
operations for the periods presented. Material estimates that are particularly susceptible to
significant change in subsequent periods 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 of construction, litigation and contingencies and the amount
of the deferred tax asset valuation allowance. 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.
We have identified the following accounting policies that management views as critical to the
accurate portrayal of our financial condition and results of operations.
Inventory of Real Estate
Inventory of real estate includes land, land development costs, interest and other
construction costs and is stated at accumulated cost or, when circumstances indicate that the
inventory is impaired, at estimated fair 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.
Land and indirect land development costs are allocated to various parcels or housing units
using either the specific identification method or appropriate apportionment factors, including the
relative sales values and unit counts. Direct construction costs are assigned to housing units
based on specific identification. Construction costs primarily include direct construction costs
and capitalized field overhead.
14
Other costs are comprised of tangible selling costs, prepaid local government fees and
capitalized real estate taxes. Tangible selling costs are capitalized by project and represent
costs incurred throughout the selling period to aid in the sale of housing units, such as model
furnishings and decorations, sales office furnishings and facilities, exhibits, displays and
signage. These tangible selling costs are capitalized and expensed to selling, general and
administrative expense at the time the revenue associated with the benefited home is recorded.
Start-up costs and other selling costs are expensed as incurred.
The expected future costs of development in our Land Division are analyzed at least annually
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 more relative volatility than similar costs in
homebuilding, where projects typically last between four and seven years. 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.
We review 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). The homebuilding industry is currently experiencing a
slowdown after years of strong growth. Excess supply, particularly in previously strong markets
like Florida has led to downward pressure on pricing for residential homes and land. As of December
31, 2006, we assessed all of our projects, which included housing projects and land held for
development and sale, to identify underperforming projects and land investments that may not be
recoverable through future cash flows. We measure the recoverability of assets by comparing the
carrying amount of an asset to the estimated future undiscounted net cash flows.
Each project was assessed individually and as a result, the assumptions used to derive future
cash flows varied by project. For land held for sale that is being remarketed, we used contract
proposals from third parties or market assessments. For homebuilding projects, we used a variety of
assumptions. These key assumptions are dependent on project-specific conditions and are inherently
uncertain. Local market and project-specific factors that may influence our assumptions include:
| |
• |
|
historical project performance, including traffic trends and conversions rates, sales,
selling prices, including incentive and discount programs, and cancellation trends, |
| |
| |
• |
|
competitors’ presence and their competitive actions, |
| |
| |
• |
|
project specific attributes such as location desirability, market segment (active adult
vs. family) and product type (single family detached vs. town home), and |
| |
| |
• |
|
current local market economic and demographic conditions, including interest rates,
in-migration trends and job growth, and related trends and forecasts. |
After considering these factors and based on specific assumptions, we project future cash
flows for the project until the project is expected to be sold out. If the resulting carrying
amount of the project exceeds the estimated undiscounted cash flows from the project, an impairment
charge is recognized to reduce the carrying value of the project to fair value. Fair value is
determined by applying a risk based discount rate, currently 15%, to the future estimated cash
flows for a project. Assumptions are updated on a quarterly basis to reflect current market
trends as well as updated pricing information including any sales incentives or discounts.
We had 22 projects in the Tennessee Homebuilding segment
with inventory available for sale at December 31, 2006 that
are generally smaller and of a shorter duration than projects in the Primary Homebuilding segment. The projects in Tennessee
are expected to sell out over the next two years. Levitt used certain assumptions in its impairment
evaluation for the Tennessee projects at December 31, 2006. For Tennessee projects with less than
25 units remaining to be sold, a total of 13 projects, our assumptions regarding projected sales
prices, unit sales and margin percentage resulted in projected negative margins ranging between 10%
and 15%, and for Tennessee projects with more than 25 units remaining to be sold, which represented
9 projects, our assumptions regarding projected sales prices, unit sales and margin percentage
resulted in projected negative margins ranging between 12.5% and 20%.
15
The homebuilding projects outside of Tennessee are generally larger and many are in the early
stages of development. Accordingly the projections extend for 4-7 years into the future,
inherently increasing the uncertainty involved in the projections.
Specific assumptions for projected unit sales and margin percentage on delivered units for
homebuilding projects outside of Tennessee include:
| |
• |
|
estimates of average future selling prices based on current selling prices and
speculative inventory with average sales price declines in 2007 and 2008, followed by
average sales price increases ranging from 2% to 13% in 2009 and beyond; |
| |
| |
• |
|
estimates of future construction and land development costs were kept relatively
consistent throughout the entire project; |
| |
| |
• |
|
estimates of average (unweighted) gross margin percentages ranging between 2% and 5% in
the early years and approximately 15% in 2010 and beyond; and |
| |
| |
• |
|
estimated future sales rates resulted in a decline in 2007 which projected sales at over
75% of projects averaging less than 80 units per year; improvement in 2008 but 50% of
projects are projected to have sales of less than 80 units per year; and continued
improvement in 2009 with only 25% of projects having projected sales of less than 80 units
per year. Sales are projected to flatten beyond 2009 based on project completions. |
During the year ended December 31, 2006, we recorded impairments on 5 projects in Florida and
on 14 projects in Tennessee because the undiscounted cash flows were less than the carrying value
of those assets. These impaired projects resulted in $34.3 million of impairment charges. An
additional $2.5 million of write-offs of deposits and pre-acquisition costs related to land under
option that we do not intend to purchase was also recorded. At December 31, 2006 we had total
homebuilding inventory of $664.6 million, of which $113.6 million, or 17.1%, was recorded at fair
value, which was less than cost. The balance was recorded at cost.
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 management’s assumptions and
estimates and may result in future material inventory impairment charges to be recorded in the
future. For example, if the assumed revenue per unit in each project was reduced by 10% for each
year through 2009, impairment charges for the year ended December 31, 2006 would have increased by
approximately $73 million.
Investments in Unconsolidated Subsidiaries
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 venture’s earnings or losses. Distributions received reduce
the carrying amount of the investment. We evaluate our 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”. These investments are
evaluated annually or as events or circumstances warrant for other than temporary declines in
value. Evidence of other than temporary declines includes the inability of the joint venture or
investee to sustain an earnings capacity that would justify the carrying amount of the investment
and consistent joint venture operating losses. The evaluation is based on available information
including condition of the property and current and anticipated real estate market conditions.
Homesite Contracts and Consolidation of Variable Interest Entities
In the ordinary course of business we enter into contracts to purchase homesites and land held
for
16
development. Option contracts allow us to control significant homesite 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
deposits, which are usually less than 20% of the underlying purchase price. We do not have legal
title to these assets. However, if certain conditions are met under the requirements of FASB
Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, the Company’s land
contracts may create a variable interest for the Company, with the Company being identified as the
primary beneficiary. If these conditions are met, Interpretation No. 46 requires us to consolidate
the assets (homesites) at their fair value. At December 31, 2006 there were no assets under these
contracts consolidated in our financial statements.
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”. In order to properly match
revenues with expenses, we estimate construction and land development costs 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. 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. We do not expect the estimation process to change in the future.
Revenue is recognized from 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 seller’s 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 contract revenue and 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 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.
Effective January 1, 2006, Bluegreen adopted AICPA Statement of Position 04-02 Accounting for
Real Estate Time-Sharing Transactions (“SOP 04-02”). This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-02. 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 inventories during the active development period. Interest is capitalized as a component of
inventory at the effective rates paid on borrowings during the pre-construction and planning stage
and during the periods that projects are under development. Capitalization of interest is
discontinued if development ceases at a project. Interest is amortized to cost of sales on the
relative sales value method as related homes and land are sold.
17
Income Taxes
The Company utilizes the asset and liability method to account for income taxes. Under the
asset and liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the period that
includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when
it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Stock-based Compensation
The Company adopted SFAS 123R as of January 1, 2006 and elected the modified-prospective
method, under which prior periods are not restated. Under the fair value recognition provisions of
this statement, stock-based compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense on a straight-line basis over the requisite service
period, which is the vesting period.
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” we conduct a review of our goodwill on at
least an annual basis 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 our goodwill
may be impaired and written down. In the year ended December 31, 2006, we conducted an impairment
review of the goodwill related to our Tennessee Homebuilding operations associated with our
acquisition of Bowden in 2004. The profitability and estimated cash flows of Bowden were
determined to have declined to a point where the carrying value of the assets exceeded their
estimated fair market value. We used a discounted cash flow methodology to determine the amount of
impairment which resulted in the complete write-off of the $1.3 million of goodwill in the year
ended December 31, 2006. The write-off is included in other expenses in the consolidated
statements of operations in the year ended December 31, 2006.
18
Consolidated Results of Operations
| |
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|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
| |
|
Year Ended December 31, |
|
|
vs. 2005 |
|
|
vs. 2004 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
Change |
|
| |
|
(In thousands, except per share data) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
566,086 |
|
|
|
558,112 |
|
|
|
549,652 |
|
|
|
7,974 |
|
|
|
8,460 |
|
Other revenues (b) |
|
|
9,241 |
|
|
|
6,772 |
|
|
|
6,184 |
|
|
|
2,469 |
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
575,327 |
|
|
|
564,884 |
|
|
|
555,836 |
|
|
|
10,443 |
|
|
|
9,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
482,961 |
|
|
|
408,082 |
|
|
|
406,274 |
|
|
|
74,879 |
|
|
|
1,808 |
|
Selling, general and administrative expenses |
|
|
121,151 |
|
|
|
87,639 |
|
|
|
71,001 |
|
|
|
33,512 |
|
|
|
16,638 |
|
Other expenses |
|
|
3,677 |
|
|
|
4,855 |
|
|
|
7,600 |
|
|
|
(1,178 |
) |
|
|
(2,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
607,789 |
|
|
|
500,576 |
|
|
|
484,875 |
|
|
|
107,213 |
|
|
|
15,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
9,684 |
|
|
|
12,714 |
|
|
|
13,068 |
|
|
|
(3,030 |
) |
|
|
(354 |
) |
(Loss) earnings from joint ventures |
|
|
(416 |
) |
|
|
69 |
|
|
|
6,050 |
|
|
|
(485 |
) |
|
|
(5,981 |
) |
Interest and other income (b) |
|
|
8,260 |
|
|
|
10,256 |
|
|
|
3,233 |
|
|
|
(1,996 |
) |
|
|
7,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(14,934 |
) |
|
|
87,347 |
|
|
|
93,312 |
|
|
|
(102,281 |
) |
|
|
(5,965 |
) |
Benefit (provision) for income taxes |
|
|
5,770 |
|
|
|
(32,436 |
) |
|
|
(35,897 |
) |
|
|
38,206 |
|
|
|
3,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
(64,075 |
) |
|
|
(2,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.46 |
) |
|
$ |
2.77 |
|
|
$ |
3.10 |
|
|
$ |
(3.23 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share (a) |
|
$ |
(0.47 |
) |
|
$ |
2.74 |
|
|
$ |
3.04 |
|
|
$ |
(3.21 |
) |
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
19,823 |
|
|
|
19,817 |
|
|
|
18,518 |
|
|
|
6 |
|
|
|
1,299 |
|
Diluted weighted average shares outstanding |
|
|
19,823 |
|
|
|
19,929 |
|
|
|
18,600 |
|
|
|
(106 |
) |
|
|
1,329 |
|
|
|
|
| (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 Bluegreen’s common stock and (ii) the dilutive
effect of our stock options and restricted stock using the treasury stock method. |
| |
| (b) |
|
The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues
from Interest and other income. See Note 1 — Consolidation Policy. |
For the Year Ended December 31, 2006 Compared to the Same 2005 Period
We incurred a consolidated net loss of $9.2 million for the year ended December 31, 2006 which
represented a decrease in consolidated net income of $64.1 million, or 116.7%, for the year ended
December 31, 2006 compared to the same period in 2005. This decrease was the result of decreased
margins on sales of real estate across all Divisions 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 was no inventory impairments recorded in the prior year,
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 the same period in 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
19
$438.4 million for the year ended December 31, 2005 to $500.7 million for the same period in 2006.
During the year ended December 31, 2006, 1,660 homes were delivered compared to 1,789 homes
delivered during the same period in 2005, however the average selling price of deliveries increased
to $302,000 for the year ended December 31, 2006 from $245,000 for the same period in 2005. The
increase in the average price of our homes delivered was the result of price increases initiated
throughout 2005 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 for the same period 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 for the same period in 2006. Revenues for
2005 also reflect sales of flex warehouse properties as Levitt Commercial delivered 44 flex
warehouse units at two of its development projects, generating revenues of $14.7 million. Levitt
Commercial delivered 29 units during the year ended December 31, 2006 recording $11.0 million in
revenues.
Other Revenues increased from $6.8 million during the year ending December 31, 2005 to $9.2
million during the same period in 2006. This change was primarily related to an increase in lease
and irrigation revenue associated with our Land Division’s 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 the same period in 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 were discounted and used to determine the
estimated impairment charge. These adjustments were calculated based on current market conditions
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 operations 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 experienced a downward trend in home deliveries in our Tennessee
Homebuilding operations 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 these 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% for the same period 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 $33.5 million to $121.2 million during
the year ended December 31, 2006 compared to $87.6 million during the same period in 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 the same period in 2006.
This increase relates 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 the same period 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
the same period in 2005 due to increased advertising costs for new communities opened during 2006
and increased advertising and increased costs to outside brokers associated with efforts
20
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 21.1% during the year ended December 31, 2006,
from 15.5% 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 $42.0 million for the year ended December 31, 2006
compared to $19.3 million for the same period 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 year
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 operations. 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.
Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as
compared to net income of $46.6 million for the same period in 2005. Our interest in Bluegreen’s
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 cumulative
effect of 2005 restatement.
Interest and other income decreased from $10.3 million during the year ending December 31,
2005 to $8.3 million during the same period in 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.
For the Year Ended December 31, 2005 Compared to the Same 2004 Period
Consolidated net income decreased
$2.5 million, or 4.4%, for the year ended December 31, 2005
as compared to 2004. The decrease in net income primarily resulted from an increase in overall selling,
general and administrative expenses in all segments associated with our expansion into new markets, increased
headcount, and our
21
efforts to improve our organizational structure, production and operational practices. The impact
of lower homebuilding revenue, higher spending on overhead, technology, training and infrastructure
and lower earnings from joint ventures was partially mitigated by increases in sales by our Land
Division and Levitt Commercial, as well as an increase in interest and other income.
Our consolidated revenues from sales of real estate increased 1.5% to $558.1 million for the
year ended December 31, 2005 from $549.7 million for the same 2004 period. This increase was
attributable primarily to an increase in consolidated revenue from the Land Division which
increased to $105.7 million in 2005 and an increase at Levitt Commercial from $5.6 million in 2004
to $14.7 million in 2005. These increases were partially offset by a decrease of $33.9 million in
Homebuilding Division revenues as a result of fewer deliveries. The Land Division’s segment
revenues of $96.2 million in 2004 included $24.4 million of sales to the Homebuilding Division
which were eliminated in consolidation because they represent inter-company sales. The increase in
the Land Division revenue was attributable primarily to the first quarter 2005 bulk sale for $64.7
million of five non-contiguous parcels of land consisting of 1,294 acres adjacent to our Tradition,
Florida master-planned community.
Selling, general and administrative expenses increased 23.4% to $87.6 million during 2005
compared to $71.0 million for the same 2004 period primarily as a result of higher employee
compensation and benefits expenses and an increase in professional fees. As a percentage of total
revenues, our selling, general and administrative expenses increased to 15.5% for 2005 from 12.8%
for the year ended December 31, 2004. The increase in compensation expense was attributable to an
increase in employee headcount associated with new hires in Central and South Florida (including
the Company’s headquarters) and the continued expansion of homebuilding activities into North
Florida, Georgia and South Carolina. Further, we incurred start-up costs such as advertising and
administrative expenses associated with launching new projects in Atlanta, Georgia, Myrtle Beach,
South Carolina and Nashville, Tennessee. The number of our employees increased to 668 at December
31, 2005, from 559 as of December 31, 2004. In addition, expenses incurred during the year ended
December 31, 2005 reflected a full year of Bowden’s operations which was acquired in May
2004. In connection with our initiatives to improve infrastructure, we incurred expenses
associated with technology upgrades, training and human resource development and communications.
We engaged consultants in 2005 to assist us in a detailed operational and organizational
review. Following that detailed evaluation, we concluded that additional infrastructure investment
and organizational change would be necessary in order to support growth objectives of the
Homebuilding Division. As a result, we were organizationally restructured into regional teams with
matrixed, multi-functional relationships. At the same time, we implemented numerous initiatives to
support the increased infrastructure investment, which included
recruiting additional managers, particularly in field operations; the evaluation, documentation,
and implementation of industry best practices; the selection and implementation of a common
technology platform; the development of curriculum and training programs; and formalized management
communications relating to strategies and priorities. Overhead expense associated with this broad
range of organizational and operational initiatives increased, reflecting higher employee
headcount, retention of outside consultants and other direct program costs.
Interest incurred totaled $19.3 million and $11.1 million for 2005 and 2004, respectively.
Interest incurred was higher due to higher outstanding balances of notes and mortgage notes payable
related to increases in our inventory of real estate and to an increase in interest rates
associated with rising interest rate indices which impacted our variable rate indebtedness.
Interest capitalized was $19.3 million for 2005 and $10.8 million for 2004. Cost of sales of real
estate for the year ended December 31, 2005 and 2004 included previously capitalized interest of
approximately $9.0 million and $9.9 million, respectively.
The decrease in other expenses was primarily attributable to a decrease in hurricane expenses,
net of insurance recoveries. Expenses associated with the estimated costs of remediating
hurricane-related damage were $572,000 in 2005 compared with $4.4 million in 2004. This decrease
in expense was partially offset by a one time additional reserve recorded to account for our share
of costs associated with a litigation settlement, and a debt prepayment penalty incurred during the
first quarter of 2005 at our Land Division.
22
We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during
the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.
Bluegreen restated its financial statements for the first three quarters of fiscal 2005 and
the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the
accounting for sales of Bluegreen’s vacation ownership notes receivable and other related matters.
The restatement accounts for the sales of notes receivable as on-balance sheet financing
transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally
accounted for these transactions. The cumulative effect of the restatement is reflected in our
financial statements for the year ended December 31, 2005. This cumulative adjustment resulted in
a $2.4 million reduction of our earnings from Bluegreen and a $1.1 million increase in our pro-rata
share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million
reduction to our investment in Bluegreen.
Earnings from real estate joint ventures were $69,000 during 2005 compared to earnings of $6.0
million for 2004. In 2004, earnings from real estate joint ventures included the sale of an
apartment complex and deliveries of homes and condominium units. During the year ended December 31,
2005, there were no unit deliveries by the Company’s joint ventures which were winding down
operations.
The increase in interest and other income of $7.0 million for the 2005 year was primarily
related to higher balances of interest-earning deposits at various financial institutions, a
non-recurring contingent termination payment received from a previously dissolved partnership, and
the reversal of a $6.8 million construction related obligation associated with certain future
infrastructure development requirements in our Land Division. The total increase in these items of
approximately $8.5 million was offset by the absence of a one time $1.4 million reduction of a
litigation reserve which was recorded in 2004. The $1.4 million reduction of a litigation reserve
was the result of our successful appeal of a 2002 judgment which reversed the damages awarded by
the trial jury and ordered a new trial to determine damages. The litigation reserve was reduced
based on our assessment of the potential liability.
23
Primary Homebuilding Segment Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
| |
|
Year Ended December 31, |
|
|
vs. 2005 |
|
|
vs. 2004 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
Change |
|
| |
|
(Dollars in thousands, except average price data) |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
424,420 |
|
|
|
352,723 |
|
|
|
418,550 |
|
|
|
71,697 |
|
|
|
(65,827 |
) |
Other revenues |
|
|
4,070 |
|
|
|
3,750 |
|
|
|
4,798 |
|
|
|
320 |
|
|
|
(1,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
428,490 |
|
|
|
356,473 |
|
|
|
423,348 |
|
|
|
72,017 |
|
|
|
(66,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
367,252 |
|
|
|
272,680 |
|
|
|
323,366 |
|
|
|
94,572 |
|
|
|
(50,686 |
) |
Selling, general and administrative expenses |
|
|
65,052 |
|
|
|
46,917 |
|
|
|
44,421 |
|
|
|
18,135 |
|
|
|
2,496 |
|
Other expenses |
|
|
2,362 |
|
|
|
3,606 |
|
|
|
6,817 |
|
|
|
(1,244 |
) |
|
|
(3,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
434,666 |
|
|
|
323,203 |
|
|
|
374,604 |
|
|
|
111,463 |
|
|
|
(51,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from joint ventures |
|
|
(279 |
) |
|
|
104 |
|
|
|
3,535 |
|
|
|
(383 |
) |
|
|
(3,431 |
) |
Interest and other income |
|
|
3,261 |
|
|
|
535 |
|
|
|
1,776 |
|
|
|
2,726 |
|
|
|
(1,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(3,194 |
) |
|
|
33,909 |
|
|
|
54,055 |
|
|
|
(37,103 |
) |
|
|
(20,146 |
) |
Benefit (provision) for income taxes |
|
|
1,508 |
|
|
|
(12,270 |
) |
|
|
(20,819 |
) |
|
|
13,778 |
|
|
|
8,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,686 |
) |
|
|
21,639 |
|
|
|
33,236 |
|
|
|
(23,325 |
) |
|
|
(11,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered |
|
|
1,320 |
|
|
|
1,338 |
|
|
|
1,783 |
|
|
|
(18 |
) |
|
|
(445 |
) |
Construction starts |
|
|
1,445 |
|
|
|
1,212 |
|
|
|
1,893 |
|
|
|
233 |
|
|
|
(681 |
) |
Average selling price of homes delivered |
|
$ |
322,000 |
|
|
|
264,000 |
|
|
|
235,000 |
|
|
|
58,000 |
|
|
|
29,000 |
|
Margin percentage on homes delivered (a) |
|
|
13.5 |
% |
|
|
22.7 |
% |
|
|
22.7 |
% |
|
|
(9.2 |
)% |
|
|
— |
|
Gross sales contracts (units) |
|
|
1,108 |
|
|
|
1,398 |
|
|
|
1,490 |
|
|
|
(290 |
) |
|
|
(92 |
) |
Sales contracts cancellations (units) |
|
|
261 |
|
|
|
109 |
|
|
|
112 |
|
|
|
152 |
|
|
|
(3 |
) |
Net orders (units) |
|
|
847 |
|
|
|
1,289 |
|
|
|
1,378 |
|
|
|
(442 |
) |
|
|
(89 |
) |
Net orders (value) |
|
$ |
324,217 |
|
|
|
448,207 |
|
|
|
376,435 |
|
|
|
(123,990 |
) |
|
|
71,772 |
|
Backlog of homes (units) |
|
|
1,126 |
|
|
|
1,599 |
|
|
|
1,648 |
|
|
|
(473 |
) |
|
|
(49 |
) |
Backlog of homes (value) |
|
$ |
411,578 |
|
|
|
512,140 |
|
|
|
416,656 |
|
|
|
(100,562 |
) |
|
|
95,484 |
|
Joint Ventures (excluded from above): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered |
|
|
— |
|
|
|
— |
|
|
|
146 |
|
|
|
— |
|
|
|
(146 |
) |
Construction starts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net orders (units) |
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
— |
|
|
|
(42 |
) |
Net orders (value) |
|
$ |
— |
|
|
|
— |
|
|
|
13,967 |
|
|
|
— |
|
|
|
(13,967 |
) |
Backlog of homes (units) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Backlog of homes (value) |
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
| (a) |
|
Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of
real estate. |
In the year ended December 31, 2006 the Primary Homebuilding segment incurred a net loss
of $1.7 million compared to net income of $21.6 million in 2005, primarily due to $31.1 million of
inventory impairment charges and inventory related valuation adjustments which were included in
cost of sales. Increased cost of sales resulted in a gross margin of 13.5% for the year ended
December 31, 2006 compared to 22.7% in 2005. There were no impairment charges recorded in 2005,
although we did write-off $457,000 in deposits. Excluding homebuilding inventory impairment
charges, gross margin would have declined from 22.7% in 2005 to 20.8% in 2006. The decline was
associated with higher construction costs in 2006 compared to 2005, as well as a shift in
geographic mix resulting in a higher proportion of units
24
delivered from lower margin communities. Due to the Company’s sales performance in Florida in
2004 and 2005 and production issues associated with our expansion, our delivery cycle in 2005 and
2006 extended beyond our 12-month target, and the number of homes we closed in 2006 remained
relatively flat as compared to 2005. We have implemented changes to our organizational structure,
production and operational practices in an attempt to shorten cycle times to enable us to deliver
homes within 12 months. We believe that shorter delivery cycles will increase customer
satisfaction and the productivity of our overall construction practices and reduce our
vulnerability to rising costs.
At December 31, 2006, our Primary Homebuilding operations had a delivery backlog of 1,126
homes representing $411.6 million of future sales. The average sales price of the homes in backlog
at December 31, 2006 of $366,000 is approximately 14.1% higher than the average sales price of the
homes in backlog at December 31, 2005. This increase is attributable to the particular markets
generating the backlog, and the Primary Homebuilding operations current pricing, which has held
consistent with the price increases implemented in 2005. We do not believe that we will be able to
maintain these prices in 2007 due to current market conditions, and that more aggressive pricing
will be necessary to generate future sales and reduce spec inventory. While we believe that our
management team, information systems and practices and procedures have been effectively
strengthened to allow us to compete in the current market, the condition in the homebuilding
industry, adverse trends in the broader economy, continued inflationary pressures and labor
shortages could adversely impact our Primary Homebuilding operations in future periods. Our
pricing of homes is limited by the current market demand, and the sales prices of homes in our
backlog cannot be maintained. As such, we expect that the margins on the delivery of homes in 2007
will continue to reflect downward pressure.
Our Primary Homebuilding operating results reflect the deterioration of conditions in the
homebuilding industry characterized by record levels of new and existing homes available for sale,
reduced affordability and diminished buyer confidence. The slowdown in the housing market has
led to increased sales incentives, increased pressure on margins, higher cancellation rates,
increased advertising expenditures, increased broker commissions and increased inventories. As a
result, we expect our gross margin on home sales to be negatively impacted until market conditions
stabilize.
For the Year Ended December 31, 2006 Compared to the Same 2005 Period
Revenues from home sales in our Primary Homebuilding operations increased 20.3% to $424.4
million during the year ended December 31, 2006, from $352.7 million during the same period in
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 the same
period in 2005. Since our typical sale to delivery cycle lasts 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 the same period in 2005.
The value of net orders in our Primary Homebuilding operations decreased to $324.2 million
during the year ended December 31, 2006, from $448.2 million during the same period in 2005.
During the year ended December 31, 2006, net unit orders decreased to 847 units, from 1,289 units
during the same period in 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 during the same period 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 (a 8%
cancellation rate) for the 2005 period. The increase in cancellations is pervasive in our Florida
markets and can be attributed to the current market conditions in Florida and the overall
residential market.
Cost of sales in our Primary Homebuilding operations increased $94.6 million to $367.3 million
25
during the year ended December 31, 2006, from $272.7 million during the same period in 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 the same period in 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% compared to a gross margin of 22.7% for the same period in 2005. The decline
was associated with higher construction costs in 2006 compared to 2005.
Selling, general and administrative expenses in our Primary Homebuilding operations increased
38.7% to $65.1 million during the year ended December 31, 2006, as compared to $46.9 million during
the same period in 2005 primarily as a result of higher employee compensation and benefits expense,
recruiting costs, higher outside sales commissions, increased advertising, and costs of expansion
throughout Florida, Georgia and South Carolina. Employee compensation costs increased by
approximately $4.5 million, from $26.1 million during the year ended December 31, 2005 to $30.6
million for the same period 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 the year we reduced headcount throughout the
Primary Homebuilding operations 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 the same period in 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 in our various locations
increased for the year ended December 31, 2006 as compared to the same period in 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% for the same period in 2005.
Other expenses decreased 34.6% to $2.4 million during the year ended December 31, 2006 from
$3.6 million in the same period in 2005. The decrease in other expenses related to a $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 during the same period in 2005.
Interest incurred increased as a result of an increase in the average interest rate on our
variable-rate borrowings as well as a $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 for the same period in
2005.
For the Year Ended December 31, 2005 Compared to the Same 2004 Period
The value of net orders in our Primary Homebuilding operations increased to $448.2 million for
2005 from $376.4 million in 2004 as a result of higher average sales prices partially offset by a
decreased number of orders. Higher selling prices were primarily a reflection of the continued
strength of the Florida market during the period. Net unit orders modestly decreased to 1,289
units in 2005, from 1,378 units during 2004. Due in large part to stronger than expected sales of
new homes in 2004, we experienced production challenges in some of our homebuilding projects and
our inventory of homes available for sale was diminished. The increased 2004 sales led to extended
delivery cycles in 2004 and 2005 beyond our 12-month target. As a result of the extended delivery
cycles and our depleted inventory levels, we slowed the pace of sales and therefore starts
throughout our projects in the Primary Homebuilding segment beginning in late 2004 and extending
through 2005, and focused on acquiring land to develop for future projects. Cancellations for the
year ended December 31, 2005 totaled 109 units compared to 112 in the same 2004 period.
26
Revenues from home sales decreased 15.7% to $352.7 million in 2005 from $418.6 million in
2004, due primarily to decreased home deliveries, which decreased from 1,783 units delivered to
1,338 units during the same 2004 period. The decrease in deliveries was attributable to the lower
backlog at December 31, 2004, an increased emphasis on quality and customer service which delayed
closings, as well as a reduction in construction starts as discussed above. Construction cycle
times generally improved, although some projects continued to experience subcontractor delays and
project-related management issues.
Cost of sales decreased by approximately 15.7% to $272.7 million in 2005 from $323.4 million
in 2004. The decrease in cost of sales was attributable to fewer deliveries as margin remained
consistent at 22.7% for 2004 and 2005.
Selling, general and administrative expenses increased 5.6% to $46.9 million in 2005 from
$44.4 million for 2004. In connection with our detailed operational and organizational review, we
made significant expenditures during 2005 for infrastructure investment which we believed necessary
to support growth objectives. We increased headcount and continued a plan towards market
expansion. As a percentage of total revenues, our selling, general and administrative expense was
approximately 13.2% during the twelve months ended December 31, 2005, compared to 10.5% during the
same 2004 period. The increase was specifically attributable to increased employee compensation
and benefits costs associated with new hires in Central and South Florida, and the continued
expansion of homebuilding activities into the Jacksonville, Atlanta, and Myrtle Beach markets,
incurring administrative start-up costs, including advertising.
Interest incurred and capitalized on notes and mortgages payable totaled $11.0 million during
2005, compared to $5.3 million during the same 2004 period. Interest incurred increased as a
result of an increase in the average interest rate on our variable-rate borrowings and an increase
in borrowings in 2005 associated with the Company’s purchases of land to replenish its inventory of
homesites. At the time of a home sale, the related capitalized interest is charged to cost of
sales. Cost of sales of real estate during 2005 and 2004 included previously capitalized interest
of $4.7 million and $7.2 million, respectively.
The decrease in other expenses of $3.2 million was primarily attributable to certain
non-recurring expenses recorded in 2004, including a charge of $3.9 million, net of insurance
recoveries, to account for the costs of remediating hurricane related damage in the Primary
Homebuilding segment. In 2005, the Primary Homebuilding operations did not incur any hurricane
related expense. For 2005, other expenses were comprised of mortgage operations expense and an
additional reserve recorded for our share of costs associated with a litigation settlement reached
in a matter in which we were a joint venture partner.
The decrease in interest and other income in 2005 was primarily related to a $1.4 million
reduction of a litigation reserve recorded in 2004 as a result of our successful appeal of a 2002
judgment. The appellate court reversed the damages awarded by the trial jury and ordered a new
trial to determine damages. The litigation reserve was reduced based on the final settlement
liability.
We did not enter into any new joint venture development or other joint venture agreements in
2005. The decrease in earnings in joint ventures resulted primarily from the completion of unit
deliveries in 2004 by a joint venture developing a condominium complex in Boca Raton, Florida.
That joint venture delivered the final 146 condominium units during 2004. The final 4,100 square
feet of commercial space in the project was delivered during the year ended December 31, 2005.
27
Tennessee Homebuilding Segment Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
| |
|
Year Ended December 31, |
|
|
vs. 2005 |
|
|
vs. 2004 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
Change |
|
| |
|
(Dollars in thousands, except average price data) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
76,299 |
|
|
|
85,644 |
|
|
|
53,746 |
|
|
|
(9,345 |
) |
|
|
31,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
76,299 |
|
|
|
85,644 |
|
|
|
53,746 |
|
|
|
(9,345 |
) |
|
|
31,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
72,807 |
|
|
|
74,328 |
|
|
|
47,731 |
|
|
|
(1,521 |
) |
|
|
26,597 |
|
Selling, general and administrative expenses |
|
|
12,806 |
|
|
|
10,486 |
|
|
|
6,385 |
|
|
|
2,320 |
|
|
|
4,101 |
|
Other expenses |
|
|
1,307 |
|
|
|
— |
|
|
|
198 |
|
|
|
1,307 |
|
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
86,920 |
|
|
|
84,814 |
|
|
|
54,314 |
|
|
|
2,106 |
|
|
|
30,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from joint ventures |
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
17 |
|
Interest and other income |
|
|
127 |
|
|
|
188 |
|
|
|
168 |
|
|
|
(61 |
) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(10,494 |
) |
|
|
1,018 |
|
|
|
(417 |
) |
|
|
(11,512 |
) |
|
|
1,435 |
|
Benefit (provision) for income taxes |
|
|
3,241 |
|
|
|
(421 |
) |
|
|
161 |
|
|
|
3,662 |
|
|
|
(582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(7,253 |
) |
|
|
597 |
|
|
|
(256 |
) |
|
|
(7,850 |
) |
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered |
|
|
340 |
|
|
|
451 |
|
|
|
343 |
|
|
|
(111 |
) |
|
|
108 |
|
Construction starts |
|
|
237 |
|
|
|
450 |
|
|
|
401 |
|
|
|
(213 |
) |
|
|
49 |
|
Average selling price of homes delivered |
|
$ |
224,000 |
|
|
|
190,000 |
|
|
|
157,000 |
|
|
|
34,000 |
|
|
|
33,000 |
|
Margin percentage on homes delivered (a) |
|
|
4.6 |
% |
|
|
13.2 |
% |
|
|
11.2 |
% |
|
|
(8.6 |
)% |
|
|
2.0 |
% |
Gross sales contracts (units) |
|
|
412 |
|
|
|
641 |
|
|
|
492 |
|
|
|
(229 |
) |
|
|
149 |
|
Sales contracts cancellations (units) |
|
|
143 |
|
|
|
163 |
|
|
|
191 |
|
|
|
(20 |
) |
|
|
(28 |
) |
Net orders (units) |
|
|
269 |
|
|
|
478 |
|
|
|
301 |
|
|
|
(209 |
) |
|
|
177 |
|
Net orders (value) |
|
$ |
57,776 |
|
|
|
98,838 |
|
|
|
51,481 |
|
|
|
(41,062 |
) |
|
|
47,357 |
|
Backlog of homes (units) |
|
|
122 |
|
|
|
193 |
|
|
|
166 |
|
|
|
(71 |
) |
|
|
27 |
|
Backlog of homes (value) |
|
$ |
26,662 |
|
|
|
45,185 |
|
|
|
31,991 |
|
|
|
(18,523 |
) |
|
|
13,194 |
|
|
|
|
| (a) |
|
Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of
real estate. |
During the year ended December 31, 2006 our Tennessee Homebuilding segment delivered
lower than expected margins, had key management personnel leave the Company and continued to
experience significant start-up costs associated with expansion from the Memphis to the Nashville
market. These issues, in the face of a general downward trend in home deliveries, caused management
to evaluate various strategies for our assets in our Tennessee Homebuilding segment.
In the year ended December 31, 2006, the Tennessee Homebuilding operations incurred a net loss
of $7.3 million compared to net income of $597,000 in 2005, primarily due to $5.7 million of
inventory impairment charges and inventory related valuation adjustments which were included in
cost of sales. Increased cost of sales resulted in a gross margin of 4.6% for the year ended
December 31, 2006 compared to 13.2% in 2005. There were no impairment charges recorded in 2005,
although we did write-off $10,000 in deposits. Excluding inventory impairment charges, gross margin
still would have declined from 13.2% in 2005 to 12.0% in 2006, due to increased construction costs
and construction related delays encountered in 2006.
28
At December 31, 2006, our Tennessee Homebuilding operations had a delivery backlog of 122
homes which decreased 36.8% from the 193 units for the year ended December 31, 2005. The value of
the backlog as of December 31, 2006 was $26.7 million, decreasing 41.0% from $45.2 million for the
same period in 2005. This decrease is attributable in part to the market conditions present in the
Tennessee markets where there were lower demand levels. We anticipate similar declines in 2007 due
to current market conditions, and that more aggressive pricing will be necessary to generate future
sales and reduce inventory.
Our Tennessee Homebuilding operations reflect the deterioration of conditions in the
homebuilding industry characterized by record levels of new and existing homes available for sale,
reduced affordability and diminished buyer confidence. Similar to the slowdown in the overall
housing market, the current market conditions in Tennessee have led to increased sales incentives,
increased pressure on margins, higher cancellation rates and longer delivery cycles. As we expect
this trend to continue in the Tennessee market for the near term, we expect our gross margin on
home sales to be negatively impacted until market conditions stabilize.
For the Year Ended December 31, 2006 Compared to the Same 2005 Period
Revenues from home sales decreased 10.9% to $76.3 million during the year ended December 31,
2006, from $85.6 million during the same period in 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 the same period in 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 the same period in 2005.
The value of net orders decreased to $57.8 million during the year ended December 31, 2006,
from $98.8 million during the same period in 2005. During the year ended December 31, 2006, net
unit orders decreased to 269 units, from 478 units during the same period in 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 the same period in 2005. Higher average selling prices are
primarily a reflection of the homes sold in certain projects in 2006. In 2006, Tennessee
Homebuilding operations 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
the 2005 period.
Cost of sales decreased $1.5 million to $72.8 million during the year ended December 31, 2006,
from $74.3 million during the same period in 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
the same period in 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% for the same period 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 the same period in 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 the year we reduced headcount in the
Tennessee Homebuilding operations 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% for the same period in 2005.
29
Other expense of $1.3 million for the year ended December 31, 2006 related to the goodwill
write-off on 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 during the same period in 2005.
Interest incurred increased as a result of an increase in the average interest rate on our
variable-rate borrowings. 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 the same period in 2005.
For the Year Ended December 31, 2005 Compared to the Same 2004 Period
The value of net orders increased to $98.8 million for 2005 from $51.5 million in 2004 as a
result of higher average sales prices and an increased number of orders. Higher selling prices
were primarily a reflection of a shift away from the first-time entry level buyer to a higher end
customer. Net unit orders increased to 478 units in 2005, from 301 units during 2004 as additional
inventory became available for sale and reflecting a full year of activity in 2005. Further, our
expanded presence in Tennessee contributed to new order flow. Construction starts increased in
2005 primarily due to the increase in sales activity.
Revenues from home sales increased 59.4% to $85.6 million in 2005 from $53.7 million in 2004,
primarily due to increased home deliveries. Home deliveries increased to 451 units delivered from
343 units delivered during 2004, reflecting a full year of operations in 2005, as compared to only
eight months in 2004.
Cost of sales increased by approximately 55.7% to $74.3 million in 2005 from $47.7 million in
2004. The increase in cost of sales was attributable to increased deliveries. Cost of sales as a
percentage of related revenue was approximately 86.8% for the year ended December 31, 2005, as
compared to approximately 88.8% for the year ended December 31, 2004. The slight increase in
margins was attributable to the shift away from the first-time entry level buyer to a higher end
customer. We also shifted our strategy in the Tennessee Homebuilding operations from acquiring
finished lots for smaller subdivisions to acquiring and developing raw land for “signature
projects” which resemble our projects in our Primary Homebuilding operations.
Selling, general and administrative expenses increased 64.2% to $10.5 million in 2005 from
$6.4 million for 2004. The higher expenses reflect a full year of operations in 2005 compared with
only eight months in 2004, and the higher costs associated with increased headcount and expansion
into the Nashville market. As a percentage of total revenues, our selling, general and
administrative expense was approximately 12.2% during the year ended December 31, 2005, compared to
11.9% during the same 2004 period. The increase was specifically attributable to increased
employee compensation and benefits costs associated with new hires and the continued expansion into
the Nashville market, incurring certain administrative start-up costs.
Interest incurred and capitalized on notes and mortgages payable totaled $1.1 million during
2005, compared to $1.2 million incurred and $1.0 million capitalized during the same 2004 period.
Interest incurred increased as a result of an increase in the average interest rate on our
variable-rate borrowings and an increase in borrowings in 2005 associated with our purchases of
land to replenish our inventory of homesites. At the time of a home sale, the related capitalized
interest is charged to cost of sales. Cost of sales of real estate during 2005 and 2004 included
previously capitalized interest of $1.6 million and $827,000, respectively.
30
Land Division Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
| |
|
Year Ended December 31, |
|
|
Vs. 2005 |
|
|
vs. 2004 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
Change |
|
| |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
69,778 |
|
|
|
105,658 |
|
|
|
96,200 |
|
|
|
(35,880 |
) |
|
|
9,458 |
|
Other revenues (b) |
|
|
3,816 |
|
|
|
1,111 |
|
|
|
927 |
|
|
|
2,705 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
73,594 |
|
|
|
106,769 |
|
|
|
97,127 |
|
|
|
(33,175 |
) |
|
|
9,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
42,662 |
|
|
|
50,706 |
|
|
|
42,838 |
|
|
|
(8,044 |
) |
|
|
7,868 |
|
Selling, general and administrative expenses |
|
|
15,119 |
|
|
|
12,395 |
|
|
|
10,373 |
|
|
|
2,724 |
|
|
|
2,022 |
|
Other expenses |
|
|
— |
|
|
|
1,177 |
|
|
|
561 |
|
|
|
(1,177 |
) |
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
57,781 |
|
|
|
64,278 |
|
|
|
53,772 |
|
|
|
(6,497 |
) |
|
|
10,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (b) |
|
|
2,650 |
|
|
|
7,897 |
|
|
|
744 |
|
|
|
(5,247 |
) |
|
|
7,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,463 |
|
|
|
50,388 |
|
|
|
44,099 |
|
|
|
(31,925 |
) |
|
|
6,289 |
|
Provision for income taxes |
|
|
(6,936 |
) |
|
|
(18,992 |
) |
|
|
(17,031 |
) |
|
|
12,056 |
|
|
|
(1,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,527 |
|
|
|
31,396 |
|
|
|
27,068 |
|
|
|
(19,869 |
) |
|
|
4,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres sold |
|
|
371 |
|
|
|
1,647 |
|
|
|
1,212 |
|
|
|
(1,276 |
) |
|
|
435 |
|
Margin percentage (a) |
|
|
38.9 |
% |
|
|
52.0 |
% |
|
|
55.5 |
% |
|
|
(13.1 |
)% |
|
|
(3.5 |
)% |
Unsold saleable acres |
|
|
6,871 |
|
|
|
7,287 |
|
|
|
5,965 |
|
|
|
(416 |
) |
|
|
1,322 |
|
Acres subject to sales contracts — Third
parties |
|
|
74 |
|
|
|
246 |
|
|
|
1,833 |
|
|
|
(172 |
) |
|
|
(1,587 |
) |
Aggregate sales price of acres subject to
sales contracts to third parties |
|
|
21,124 |
|
|
|
39,283 |
|
|
|
121,095 |
|
|
|
(18,159 |
) |
|
|
(81,812 |
) |
|
|
|
| (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) |
|
The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing
revenue to Other revenues from Interest and other income. See Note 1 — Consolidation Policy. |
Due to the nature and size of individual land transactions, our Land Division results are
subject to significant volatility. We have historically realized between 40.0% and 60.0% margin on
Land Division sales. However, in 2006 our margin percentage was 38.9%, which is indicative of the
margin percentage we expect in the next 12-18 months based on current market conditions. Margins
were higher in the past because of the St. Lucie West commercial land which generated higher
margins. Margins will fluctuate based upon changing sales prices and costs attributable to the land
sold, as well as the potential impact of revenue deferrals associated with percentage of completion
accounting. The sales price of land sold varies depending upon: the location; the parcel size;
whether the parcel is sold as raw land, partially developed land or individually developed lots;
the degree to which the land is entitled; and whether the designated use of land is residential or
commercial. The cost of sales of real estate is dependent upon the original cost of the land
acquired, the timing of the acquisition of the land, and the amount of land development, interest
and real estate tax costs capitalized to the particular land parcel during active development.
Allocations to costs of sales involve management judgments and 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 management’s control. Future margins will continue to
vary based on these and other market factors.
The value of acres subject to third party sales contracts decreased from $39.3 million at
December
31
31, 2005 to $21.1 million at December 31, 2006. 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, 2006 Compared to the Same 2005 Period
Revenues decreased 34.0% to $69.8 million during the year ended December 31, 2006, from $105.7
million during the same period in 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 the
same 2005 period. 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
sold to the Homebuilding Division. Profits recognized by the Land Division from sales to the
Homebuilding Division are deferred until the Homebuilding Division delivers homes 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 Division’s sales to the Homebuilding
Division amounted to $18.8 million, of which the $3.3 million profit was deferred at December 31,
2006, as compared to no sales between the divisions in the year ended December 31, 2005.
The increase in other revenues from $1.1 million for the year ended December 31, 2005 to $3.8
million for the same period 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 for the same period 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% for the same period in 2005.
Selling, general and administrative expenses increased 22.0% to $15.1 million during the year
ended December 31, 2006, from $12.4 million during the same period in 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 the decrease in profitability in the year ended December 31,
2006 compared to the same period in 2005. As a percentage of total revenues, our selling, general
and administrative expenses increased to 20.5% during the year ended December 31, 2006, from 11.6%
during the same period in 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 Division’s expenses.
Interest incurred and capitalized during the year ended December 31, 2006 and 2005 was $6.7
million and $2.8 million, respectively. Interest incurred was higher due to higher outstanding
balances of notes and mortgage notes payable, as well as increases in the average interest rate on
our variable-rate debt. 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 the same period
in 2005.
The decrease in interest and other income from $7.9 million for the year ended December 31,
2005 to $2.7 million for the same period 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.
32
For the Year Ended December 31, 2005 Compared to the Same 2004 Period
Revenues from land sales increased 9.8% to $105.7 million in 2005 from $96.2 million in 2004.
Margin on land sales in 2005 was approximately $55.0 million as compared to $53.4 million in 2004.
During 2005, 1,647 acres were sold with an average margin of 52.0%, as compared to 1,212 acres sold
with an average margin of 55.5% in 2004. The decline in average selling price per acre is
attributable to the stage of entitlements of the parcels sold. We sold a greater percentage of
undeveloped and unentitled land in 2005 relative to 2004. The decrease in margin is also
attributable to the mix of acreage sold, with a decrease in commercial property sales at St. Lucie
West. The margin percentage on the Tradition, Florida acreage tends to be lower due to the stage
of the development and the higher proportion of residential sales (which generally have a lower
margin) to commercial sales in the same period. While yielding a slightly lower margin percentage,
the Land Division generated increased revenue which enhanced overall profitability. The most
notable transaction during 2005 was the bulk sale for $64.7 million in the first quarter of five
non-contiguous parcels of land adjacent to Tradition, Florida consisting of a total of 1,294 acres.
During 2004, the Company sold 448 acres in Tradition, Florida to the Homebuilding Division which
generated revenue of $23.4 million and margin of $14.4 million. This transaction, which is
included in the above table for 2004, was eliminated in consolidation, and the associated profit
was deferred. There were no land sales to the Homebuilding Division in 2005.
Selling, general and administrative expenses increased 19.5% to $12.4 million during the year
ended December 31, 2005 compared to $10.4 million for the same 2004 period. As a percentage of
total revenues, selling, general and administrative expenses remained relatively flat increasing to
11.6% in 2005 from 10.7% in 2004. The slight increase was due to increased headcount as the number
of Land Division employees increased to 48 in 2005 from 35 as of December 31, 2004 largely
associated with our expansion at both Tradition, Florida and Tradition, South Carolina.
Interest incurred for 2005 and 2004 was approximately $2.8 million and $2.0 million,
respectively. The increase in interest incurred was primarily due to an increase in outstanding
borrowings related to acquisition of land for Tradition, South Carolina. During 2005, interest
capitalized was approximately $2.8 million, as compared with $1.9 million for 2004. At the time of
land sales, the related capitalized interest is charged to cost of sales. Cost of sales of real
estate for 2005 and 2004 included previously capitalized interest of approximately $743,000 and
$87,000, respectively.
The increase in other expenses was primarily attributable to a $677,000 pre-payment penalty on
debt repayment incurred during the first quarter of 2005. We repaid indebtedness under a line of
credit using a portion of the proceeds of the bulk sale described above.
The increase in interest and other income of $7.2 million was primarily related to the
reversal of certain accrued construction obligations. During the fourth quarter of 2005, we
reversed approximately $6.8 million in accrued construction obligations. These accrued
construction obligations were recorded as property was sold to recognize our obligations to comply
with future infrastructure development requirements of governmental entities. The reversal of
these construction obligations was the result of changes made to the infrastructure development
requirements by such governmental entities for certain projects. All payments and obligations
related to the infrastructure development requirements for these projects were fulfilled as of
December 31, 2005.
33
Other Operations Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
| |
|
Year Ended December 31, |
|
|
Vs. 2005 |
|
|
Vs. 2004 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
Change |
|
| |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
11,041 |
|
|
|
14,709 |
|
|
|
5,555 |
|
|
|
(3,668 |
) |
|
|
9,154 |
|
Other revenues (a) |
|
|
1,435 |
|
|
|
1,963 |
|
|
|
459 |
|
|
|
(528 |
) |
|
|
1,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
12,476 |
|
|
|
16,672 |
|
|
|
6,014 |
|
|
|
(4,196 |
) |
|
|
10,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
11,649 |
|
|
|
12,520 |
|
|
|
6,255 |
|
|
|
(871 |
) |
|
|
6,265 |
|
Selling, general and administrative expenses |
|
|
28,174 |
|
|
|
17,841 |
|
|
|
9,822 |
|
|
|
10,333 |
|
|
|
8,019 |
|
Other expenses |
|
|
8 |
|
|
|
72 |
|
|
|
24 |
|
|
|
(64 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
39,831 |
|
|
|
30,433 |
|
|
|
16,101 |
|
|
|
9,398 |
|
|
|
14,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
9,684 |
|
|
|
12,714 |
|
|
|
13,068 |
|
|
|
(3,030 |
) |
|
|
(354 |
) |
(Loss) earnings from joint ventures |
|
|
(137 |
) |
|
|
(35 |
) |
|
|
2,532 |
|
|
|
(102 |
) |
|
|
(2,567 |
) |
Interest and other income (a) |
|
|
4,196 |
|
|
|
2,143 |
|
|
|
545 |
|
|
|
2,053 |
|
|
|
1,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(13,612 |
) |
|
|
1,061 |
|
|
|
6,058 |
|
|
|
(14,673 |
) |
|
|
(4,997 |
) |
Benefit (provision) for income taxes |
|
|
5,639 |
|
|
|
(378 |
) |
|
|
(2,198 |
) |
|
|
6,017 |
|
|
|
1,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(7,973 |
) |
|
|
683 |
|
|
|
3,860 |
|
|
|
(8,656 |
) |
|
|
(3,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
The years ended December 31, 2005 and 2004 reflect the reclassification of leasing revenue to Other revenues from
Interest and other income. See Note 1 — Consolidation Policy. |
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 Bluegreen’s outstanding shares as of December 31, 2006. Under equity method accounting, we
recognize our pro-rata share of Bluegreen’s 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 Bluegreen’s earnings. Accordingly, we
record a tax liability on our portion of Bluegreen’s net income. Our earnings in Bluegreen
increase or decrease concurrently with Bluegreen’s reported results. Furthermore, a significant
reduction in Bluegreen’s financial position could potentially result in an impairment charge on our
investment against our future results of operations. For a complete discussion of Bluegreen’s
results of operations and financial position, we refer you to Bluegreen’s Annual Report on Form
10-K for the year ended December 31, 2006, as filed with the SEC.
For the Year Ended December 31, 2006 Compared to the Same 2005 Period
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.
As of December 31, 2006 Levitt Commercial has one remaining flex warehouse project with a total of
17 units in the sales backlog which closed in the first quarter of 2007.
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
34
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 for the same period in 2005. Our interest in Bluegreen’s
earnings, net of purchase accounting adjustments, was $9.7 million for the year ended December 31,
2006 compared to $12.7 million for the same period 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 the same period in 2005. The increase is a
result of higher employee compensation and benefits, recruiting expenses, and professional services
expenses. Employee compensation costs increased by approximately $4.4 million from $7.4 million
during the year ended December 31, 2005 to $11.8 million for the same period in 2006. The increase
relates 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 the same
period 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 financial 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 or 56.1% 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.
For the Year Ended December 31, 2005 Compared to the Same 2004 Period
During the year ended 2005, Levitt Commercial delivered 44 flex warehouse units at two of its
projects, generating revenues of $14.7 million as compared to 18 flex warehouse units in 2004,
generating revenues of $5.6 million.
We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during
the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.
Bluegreen restated its financial statements for the first three quarters of fiscal 2005 and
the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the
accounting for sales of the Company’s vacation ownership notes receivable and other related
matters. The restatement accounts for the sales of notes receivable as on-balance sheet financing
transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally
accounted for these transactions. We 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
our earnings from Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains
recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction to our investment
in Bluegreen.
Selling, general and administrative and other expenses increased to $17.8 million during the
year ended December 31, 2005 as compared to $9.8 million during the year ended December 31, 2004.
In 2005, we incurred professional fees associated with the organizational review of production and
operational practices and procedures as previously discussed. Also contributing to the increase in
selling, general and administrative expenses during the year ended 2005 were additional audit fees
associated with Sarbanes Oxley. The increase in selling, general and administrative expenses is
also attributable to increased compensation expense resulting from an increase from 22 employees in
this segment at year end 2004 to 46
35
employees at year end 2005. The increased headcount was primarily related to parent company
staffing in Human Resources, Project Management and administrative functions in preparation for our
implementation of the Company’s strategic initiatives. In addition, incentives for all employees
associated with achieving identified customer service goals were accrued in the fourth quarter of
2005. Finally, in the fourth quarter of 2005, we incurred expenses associated with several
company-wide information meetings regarding the various organizational, information system, and
operational changes scheduled to occur in 2005 and 2006.
Losses from real estate joint ventures in 2005 were $35,000 as compared to $2.5 million of
earnings in 2004. The earnings during 2004 were primarily related to the gain recognized by the
sale of Grand Harbor, a rental apartment property in Vero Beach, Florida and earnings associated
with the delivery of homes by a joint venture project in West Palm Beach, Florida. During 2005,
the joint ventures in which this operating segment participates had essentially completed their
operations and were winding down as discussed above.
Interest incurred in other operations was approximately $4.4 million and $2.6 million for the
year ended December 31, 2005 and 2004, respectively. The increase in interest incurred was
primarily associated with an increase in debentures at the parent company associated with our trust
preferred securities offerings and an increase in the average interest rate on our borrowings.
Interest capitalized for this business segment totaled $4.4 million and $2.6 million for the year
ended December 31, 2005 and 2004, 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.
FINANCIAL CONDITION
We are taking steps to address the current challenging residential real estate environment and
are working to improve operational cash flows and increase our sources of financing. 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, joint ventures, and issuances of debt or equity, will provide
for our current liquidity.
Our total assets at December 31, 2006 and 2005 were $1.1 billion and $895.7 million,
respectively. The increase in total assets primarily resulted from:
| |
• |
|
a net increase in inventory of real estate of approximately $210.8 million, which
includes approximately $64.8 million in land acquisitions; |
| |
| |
• |
|
an increase of $34.4 million in property and equipment associated with increased
investment in commercial properties under construction by our Land Division, support
for infrastructure in our master planned communities, and $3.5 million in hardware and
software acquired for our implementation of our new financial and operating system ; |
| |
| |
• |
|
a net increase of approximately $11.2 million in our investment in Bluegreen
Corporation associated primarily with $9.7 million of earnings from Bluegreen (net of
purchase accounting adjustments), $1.3 million from our pro rata share of unrealized
gains associated with Bluegreen’s other comprehensive income and $287,000 associated
with Bluegreen’s capital transactions; and |
| |
| |
• |
|
the above increases in assets were partially offset by a net decrease in cash and
cash equivalents of $65.2 million, which resulted from cash used in operations and
investing activities of $268.3 million, partially offset by an increase in cash
provided by financing activities of $203.1 million. |
Total liabilities at December 31, 2006 and December 31, 2005 were $747.4 million and $545.9
million, respectively. The material changes in the composition of total liabilities primarily
resulted from:
| |
• |
|
a net increase in notes and mortgage notes payable of $176.8 million, primarily
related to project debt associated with 2006 land acquisitions and land development
activities; |
| |
| |
• |
|
an increase of $30.9 million in junior subordinated debentures ; |
36
| |
• |
|
a decrease of $9.0 million in customer deposits due to a smaller backlog at
December 31, 2006; |
| |
| |
• |
|
an increase of $18.5 million in accruals as a result of increased construction
costs, accrued professional services related to our systems implementation and legal
and valuation services accruals related to the proposed merger with BFC; and |
| |
| |
• |
|
a decrease in tax liability of approximately $7.0 million relating primarily to our
pre-tax loss and the timing of estimated tax payments. |
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating and
investment activities. During the year ended December 31, 2006, our primary sources of funds were
proceeds from the sale of real estate inventory, the issuance of trust preferred securities and
borrowings from financial institutions. These funds were utilized primarily to acquire, develop and
construct real estate, to service and repay borrowings and to pay operating expenses. As of
December 31, 2006 and December 31, 2005, we had cash and cash equivalents of $48.3 million and
$113.6 million, respectively. Our cash declined $65.2 million during the year ended December 31,
2006 primarily as a result of our continued investment in inventory, principally in the Primary Homebuilding segment and Land Division, in combination with a decline in operating performance. The Company
primarily utilized borrowings to finance the growth in inventory. Total debt increased to $615.7
million at December 31, 2006 compared with $407.8 million at December 31, 2005. Debt to total
capitalization increased from 53.8% to 64.2% during the same period.
The downturn in the homebuilding industry combined with the timing of inventory acquisitions
has increased our supply of land and substantially increased the amount of debt. We have
substantially curtailed our acquisition of new land, and are closely monitoring expenditures for
land development and community amenities in light of current market conditions. The majority of
our Homebuilding inventory was purchased during the peak of the historic high demand in the
homebuilding market cycle and remains vulnerable to future additional impairments should market
conditions not improve. Additionally, demand for residential property in Florida, where the
majority of our inventory is located, has declined significantly, and we have experienced a record
number of contract cancellations as customers have elected to forfeit their deposits and not
fulfill their purchase commitments. We expect that pricing pressures will erode future margins as
we attempt to improve sales through various sales incentives. We do not believe there is any
meaningful evidence to suggest market conditions will improve in the near term.
Due to current market conditions and the uncertain duration of the industry downturn, there is
no assurance that operating cash flows will adequately support operations, and accordingly, we
anticipate seeking additional capital. Sources for additional capital include proceeds from the
disposition of certain properties or investments, joint venture partners, as well as issuances of
debt or equity. In addition, as discussed in Item 1. -Business-Recent Developments, the decision
to enter into an agreement to merge with BFC Financial was predicated in part on the anticipated
need for additional capital, and the recognition that BFC provides potential additional access to
financial resources. The merger is subject to a number of conditions, including shareholder
approval. In the event that the merger is not approved by shareholders, or not consummated for any
other reason, it is our current intention to pursue a rights offering to holders of Levitt’s Class
A common stock giving each then current holder of Levitt Class A common stock the right to purchase
a proportional number of additional shares of Levitt Class A common stock. There is no assurance
that we will be able to successfully raise additional capital on acceptable terms, if at all.
37
At December 31, 2006, our consolidated debt totaled $615.7 million under total borrowing
facilities of up to $904.4 million, of which $527.7 was secured by various assets. Those loans are
secured by mortgages on various properties. Approximately $70.4 million was available under the
facilities at December 31, 2006 subject to qualifying assets and fulfillment of conditions
precedent. The detail of debt instruments at December 31, 2006 and 2005 was as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
| |
|
|
Mortgage notes payable |
|
$ |
67,504 |
|
|
|
127,061 |
|
Mortgage notes payable to BankAtlantic |
|
|
— |
|
|
|
223 |
|
Borrowing base facilities |
|
|
348,600 |
|
|
|
143,100 |
|
Land acquisition and construction
mortgage
notes payable |
|
|
1,641 |
|
|
|
3,875 |
|
Land acquisition mortgage notes payable |
|
|
66,932 |
|
|
|
48,936 |
|
Construction mortgage notes payable |
|
|
28,884 |
|
|
|
13,012 |
|
Lines of credit |
|
|
14,000 |
|
|
|
14,500 |
|
Subordinated investment notes |
|
|
2,489 |
|
|
|
3,132 |
|
Unsecured junior subordinated debentures |
|
|
85,052 |
|
|
|
54,124 |
|
Other borrowings |
|
|
601 |
|
|
|
7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding Debt |
|
$ |
615,703 |
|
|
$ |
407,970 |
|
|
|
|
|
|
|
|
Additional detail on the above borrowings is provided in Item 8 Note 11.
Operating Activities. During the year ended December 31, 2006, we used $240.1 million of cash
in our operating activities, as compared to $132.5 million of cash used in such activities during
2005 and $78.9 million used in 2004. The net cash used in operations during fiscal 2006 was
primarily the result of cash used to increase inventories in our Primary Homebuilding segment and
Land Division, as well as a net loss for 2006 compared to net income during 2005. The net cash
used in operations during fiscal 2005 and fiscal 2004 was the result of cash provided from net
income and an increase in accounts payable, accrued expenses and other liabilities, offset by cash
used to increase real estate inventory.
The decision to fund additional inventory growth in the past few years was based on
strong market demand and the need to replenish inventory in certain markets, as well as
management’s decision to diversify into new markets. In addition to the costs of land acquisition,
we incur significant land development expenditures to prepare the land for the construction of
homes. In addition, many of the projects in the Primary Homebuilding segment provide amenities to
residents which include gated entryways, clubhouses, swimming pools and tennis courts. As a result,
we incur significant costs which are not recovered until homes are delivered. Depending upon the
size of the project, product type and ability to obtain permits and required approvals from
governmental authorities, the time between land acquisition and the delivery of the first completed
home can take in excess of two years, exposing us to the volatility of demand in the homebuilding
market. A reduction in sales activity results in a lower realized rate of return and a longer than
anticipated breakeven period for cash flow, placing additional stress on the balance sheet as
higher debt levels are maintained. The homebuilding market changed noticeably in early 2006 and
further deteriorated throughout the year. The majority of our inventory is located in Florida,
which is among many states experiencing challenges in the homebuilding industry associated with
excess inventory supply and intense price competition. As a result, it is expected that Florida
will lag the overall market recovery until supply is more aligned with market demand.
In light of these challenging market conditions, we modified our land acquisition plans in
2006 and substantially curtailed our planned purchases of new land after the first quarter. Land
acquired from third parties, the majority of which was outside the state of Florida, totaled $64.8
million in 2006, compared with $197.4 million in 2005. Our inventory growth in 2006 was primarily
associated with land development and
38
construction activities on land purchases made in 2005 as well as land acquisitions made in
the first quarter of the year. We will continue to invest in our existing projects in 2007, many
of which require further investment in land development, amenities including entryways and
clubhouse facilities, as well as model homes and sales facilities. As a result, we are not
expecting a meaningful decline in inventory during the year. At this time, no significant land
purchases are contemplated in 2007 based on current market conditions.
We also utilize deposits from customers who enter into purchase contracts to support our
working capital needs. These deposits totaled $42.7 million at December 31, 2006 and represented
10% of our homebuilding backlog value. In comparison, deposits at year end 2005 were $51.7 million
and represented 9% of our homebuilding backlog value. The decline in deposits reflects a reduction
in the backlog, as well as a decision in late 2006 to reduce the required deposits in certain
communities to 5% of base price, and tier the required deposits on selected options. In 2006,
$2.7 million in deposits were retained by us as a result of forfeitures by buyers as cancellations
grew compared with $77,000 in 2005. If we are unable to increase sales during the same period, the
amount of deposits will decline as we deliver homes from backlog.
Investing Activities. In fiscal 2006 and 2005, cash used in investing activities represented
net purchases of property and equipment, primarily associated with commercial development
activities and utility services at Tradition, Florida. In addition, we invested in new technology
systems and capitalized related expenses for software, hardware and certain implementation costs.
In 2004, we received distributions from a real estate joint venture for the Boca Grande project
Financing Activities The majority of our financing needs are funded with cash generated
from operations, secured financing principally through commercial banks, and Trust Preferred
securities. We have also issued common equity in the public markets, and continue to evaluate
various sources of capital from both public and private investors to ensure we maintain sufficient
liquidity to deal with the potential of a prolonged slowdown in the residential real estate markets
where we operate. Cash provided through financing activities totaled $203.1 million in 2006,
compared with $134.7 million in 2005 and $191.4 million in 2004.
Certain of our borrowings require us to repay specified amounts upon a sale of portions of the
property securing the debt. These amounts would be in addition to our scheduled payments over the
next twelve months. While homes in backlog are subject to sales contracts, there can be no
assurance that these homes will be delivered as evidenced by the escalation of our cancellation
rates. Upon cancellation, such homes become spec units and are aggressively marketed to new buyers.
Our borrowing base facilities include project limitations on the number and holding period, as well
as the overall dollar amount of spec units, and accordingly, if that limitation is exceeded, the
underlying assets no longer qualify for financing. In that event, our available borrowings are
reduced, and depending upon that status of other qualifying assets in the borrowing base, we may be
required to repay the lender prior to scheduled payment dates for funds advanced on that particular
property. We communicate with our lenders regarding limitations on spec houses, and in the past
have received increased spec allowances, but there can be no assurance we will receive such
flexibility in the future. Accordingly, our cash flow and liquidity would be adversely impacted
should spec inventory continue to rise as a result of customer cancellations and we are unable to
obtain waivers from our lenders.
Certain of our borrowings may require additional principal payments in the event that sales
and starts are substantially below those agreed to at the inception of the borrowing. There is no
assurance that these additional principal payments will not be required. A curtailment schedule is
established for each project when that project is included as a qualifying project under a
borrowing base facility. The curtailment schedule specifies minimum debt pay downs based on
projected construction starts. If the construction starts do not commence, we remain obligated to
make the payments. Such obligations total $84.5 million in 2007. We periodically discuss these
curtailment requirements as well as current market activity and revised project budgets with our
lenders. If we are unable to meet required construction starts and are not able to defer or
eliminate curtailment requirements, significant additional funds will be needed to meet the
required debt payments.
39
Some of our subsidiaries have borrowings which contain covenants that, among other things,
require the subsidiary to maintain financial ratios, including minimum working capital, maximum
leverage and minimum net worth. These covenants may have the effect of limiting the amount of debt
that the subsidiaries can incur. At December 31, 2006, we were in compliance with all loan
agreement financial covenants. There can be no assurance we will remain in compliance in the
future should the homebuilding market remain in a prolonged downturn. Noncompliance with financial
covenants may result in pressure on earnings and cash flow, and the risk of additional impairments.
The risk of additional impairments could adversely impact the subsidiary’s net worth which would
require additional capital from the parent and restrict the payment of dividends from that
subsidiary to the parent.
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. 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 cannot give assurance that we will declare additional cash dividends in the future.
Off Balance Sheet Arrangements and Contractual Obligations
In connection with the development of certain of our communities, we establish community
development districts to access bond financing for the funding of infrastructure development and
other projects within the community. If we were not able to establish community development
districts, we would need to fund community infrastructure development out of operating income or
through other sources of financing or capital. The bonds issued are obligations of the community
development district and are repaid through assessments on property within the district. To the
extent that we own property within a district when assessments are levied, we will be obligated to
pay the assessments as they are due. As of December 31, 2006, development districts in Tradition,
Florida had $50.4 million of community development district bonds outstanding and we owned
approximately 36% of the property in those districts. During the year ended December 31, 2006, we
recorded approximately $1.7 million in assessments on property we owned in the districts. These
costs were capitalized to inventory as development costs and will be recognized as cost of sales
when the assessed properties are sold to third parties.
We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman
Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s
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, 2006.
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.
40
The following table summarizes our contractual obligations as of December 31, 2006 (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 |
|
$ |
615,703 |
|
|
|
46,016 |
|
|
|
304,341 |
|
|
|
146,706 |
|
|
|
118,640 |
|
Interest payable on long-term debt |
|
|
268,250 |
|
|
|
46,487 |
|
|
|
78,738 |
|
|
|
25,791 |
|
|
|
117,234 |
|
Operating lease obligations |
|
|
8,531 |
|
|
|
2,287 |
|
|
|
3,466 |
|
|
|
1,323 |
|
|
|
1,455 |
|
Purchase obligations |
|
|
14,220 |
|
|
|
14,220 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
$ |
906,704 |
|
|
|
109,010 |
|
|
|
386,545 |
|
|
|
173,820 |
|
|
|
237,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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. Purchase obligations consist of contracts to acquire real estate properties
for development and sale for which due diligence has been completed and our deposit is
committed; however our liability for not completing the purchase of any such property is
generally limited to the deposit made under the relevant contract. At December 31, 2006,
we had $400,000 in deposits securing such purchase obligations and we currently intend to
acquire the land associated with these purchase obligations, subject to market conditions
and the Company’s financial condition. |
| |
| (2) |
|
In addition to the above scheduled payments, certain of our borrowings require
repayments of specified amounts upon a sale of portions of the property securing the debt. |
At December 31, 2006, we had outstanding surety bonds and letters of credit of approximately
$139.4 million related primarily to obligations to various governmental entities to construct
improvements in our various communities. We estimate that approximately $68.6 million of work
remains to complete these improvements. We do not believe that any outstanding bonds or letters of
credit will likely be drawn upon.
41
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, 2006 (dollars in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Market |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at |
| |
|
Payments due by year |
|
December 31, |
| |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
|
2006 |
Fixed rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and mortgage
payable (a) |
|
|
2,303 |
|
|
|
980 |
|
|
|
328 |
|
|
|
256 |
|
|
|
264 |
|
|
|
101,208 |
|
|
|
105,339 |
|
|
|
105,885 |
|
Average interest rate |
|
|
8.03 |
% |
|
|
8.03 |
% |
|
|
8.09 |
% |
|
|
8.10 |
% |
|
|
8.11 |
% |
|
|
5.27 |
% |
|
|
7.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and mortgage payable |
|
|
43,713 |
|
|
|
24,951 |
|
|
|
278,082 |
|
|
|
100,312 |
|
|
|
45,874 |
|
|
|
17,432 |
|
|
|
510,364 |
|
|
|
510,364 |
|
Average interest rate |
|
|
7.73 |
% |
|
|
7.69 |
% |
|
|
7.68 |
% |
|
|
7.73 |
% |
|
|
7.90 |
% |
|
|
7.28 |
% |
|
|
7.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt obligations |
|
|
46,016 |
|
|
|
25,931 |
|
|
|
278,410 |
|
|
|
100,568 |
|
|
|
46,138 |
|
|
|
118,640 |
|
|
|
615,703 |
|
|
|
616,249 |
|
|
|
|
| (a) |
|
Fair value calculated based upon recent borrowings in same category of this debt. |
Assuming the variable rate debt balance of $510.4 million outstanding at December 31, 2006
(which does not include approximately $85.1 million of initially fixed-rate obligations which will
not become floating rate during 2007) were to remain constant, each one percentage point increase
in interest rates would increase the interest incurred by us by approximately $5.1 million per
year.
Impact of Inflation
The financial statements and related financial data and notes 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 increasing costs of land, materials and
labor result in a need to increase the sales prices of homes. In addition, inflation is often
accompanied by higher interest rates which could have a negative impact on housing demand and the
costs of financing land development activities and housing construction. Rising interest rates as
well as increased materials and labor costs may reduce margins.
Given market conditions we do not believe that we will be able to raise prices or generate
sales at levels recorded in 2004 and 2005. Further, our Homebuilding Division generally enters
into sales contracts prior to construction and unanticipated cost increases due to inflation during
the construction period will negatively impact our margins and profitability.
New Accounting Pronouncements
In June 2006, the FASB issued FIN No. 48 (“Accounting for Uncertainty in Income Taxes – an
interpretation of FASB No. 109”.) FIN 48 provides guidance for how a company should recognize,
measure, present and disclose in its financial statements uncertain tax positions that a company
has taken or expects to take on a tax return. FIN 48 substantially changes the accounting policy
for uncertain tax positions and is likely to cause greater volatility in our provision for income
taxes. The interpretation also revises disclosure requirements including a tabular roll-forward
of unrecognized tax benefits. The interpretation is effective as of January 1, 2007 and we do not
expect a material adjustment upon adoption of this interpretation.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 which established an approach to quantify errors in financial statements. The
SEC’s new approach to quantifying errors in the financial statements is called the dual-approach.
This approach
42
quantifies the errors under two common approaches requiring the registrant to adjust its
financial statements when either approach results in a material error after considering all
quantitative and qualitative factors. Adoption of this bulletin did not affect our financial
condition or results of operations.
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. We are currently
reviewing the effect of this Statement on our consolidated financial statements and do not expect
the adoption to have an effect on our financial condition or results of operations.
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, Applicability of
the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales
of Real Estate, for Sales of Condominiums, (“EITF 06-8”). EITF 06-8 establishes that a company
should evaluate the adequacy of the buyer’s 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 December 1,
2007). The effect of this EITF is not expected to be material to our consolidated financial
statements.
43
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Levitt Corporation
Bluegreen Corporation
The financial statements of Bluegreen Corporation, which is considered a significant subsidiary,
are required to be included in this report. The restated financial statements of Bluegreen
Corporation for the three years ended December 31, 2006, including the Report of Bluegreen’s
Independent Registered Certified Public Accounting Firm, Ernst & Young LLP, are included as exhibit
99.1 to this report.
44
Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and Shareholders of Levitt Corporation:
We have completed integrated audits of Levitt Corporation’s consolidated financial statements and
of its internal control over financial reporting as of December 31, 2006, in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on
our audits and the report of other auditors, are presented below.
Consolidated financial statements
In our opinion, based on our audits and the report of other auditors, the consolidated financial
statements listed in the accompanying index present fairly, in all material respects, the financial
position of Levitt Corporation and its subsidiaries at December 31, 2006 and 2005, and the results
of their operations and their cash flows for each of the three years in the period ended December
31, 2006 in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Bluegreen Corporation, an approximate 31 percent-owned equity
investment, which were audited by other auditors whose report thereon has been furnished to us.
Our opinion expressed herein, insofar as it relates to the Company’s net investment in
(approximately $107.1 million and $95.8 million at December 31, 2006 and 2005, respectively) and
equity in the net earnings of (approximately $9.7 million, $12.7 million, and $13.1 million for the
years ended December 31, 2006, 2005 and 2004, respectively) Bluegreen Corporation, is based solely
on the report of the other auditors. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit of financial statements
includes 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. We believe that our
audits and the report of other auditors provide a reasonable basis for our opinion.
As discussed in Note 4 to the consolidated financial statements, the Company changed the
manner in which it accounts for stock-based compensation in 2006.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control
Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal
control over financial reporting as of December 31, 2006 based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006, based on criteria established in Internal
Control — Integrated Framework issued by the COSO. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes obtaining an
understanding of internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the
45
design and operating effectiveness of internal control, and performing such other procedures as we
consider necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinions.
A company’s 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
company’s 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 company’s 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.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 14, except for the change in the composition of reportable segments discussed in Note 21, as
to which the date is July 3, 2007.
46
Levitt Corporation
Consolidated Statements of Financial Condition
December 31, 2006 and 2005
(In thousands, except share data)
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
48,391 |
|
|
|
113,562 |
|
Restricted cash |
|
|
1,397 |
|
|
|
1,818 |
|
Inventory of real estate |
|
|
822,040 |
|
|
|
611,260 |
|
Investment in Bluegreen Corporation |
|
|
107,063 |
|
|
|
95,828 |
|
Property and equipment, net |
|
|
78,675 |
|
|
|
44,250 |
|
Other assets |
|
|
33,100 |
|
|
|
28,955 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,090,666 |
|
|
|
895,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
| |
Accounts payable, accrued liabilities and other |
|
$ |
85,123 |
|
|
|
66,652 |
|
Customer deposits |
|
|
42,696 |
|
|
|
51,686 |
|
Current income tax payable |
|
|
3,905 |
|
|
|
12,551 |
|
Notes and mortgage notes payable |
|
|
530,651 |
|
|
|
353,846 |
|
Junior subordinated debentures |
|
|
85,052 |
|
|
|
54,124 |
|
Deferred tax liability, net |
|
|
— |
|
|
|
7,028 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
747,427 |
|
|
|
545,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
50,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: 18,609,024 and 18,604,053 shares,
respectively |
|
|
186 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
Class B Common Stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 10,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: 1,219,031 and 1,219,031 shares, respectively |
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
184,401 |
|
|
|
181,084 |
|
Unearned compensation |
|
|
— |
|
|
|
(110 |
) |
Retained earnings |
|
|
156,219 |
|
|
|
166,969 |
|
Accumulated other comprehensive income |
|
|
2,421 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
343,239 |
|
|
|
349,786 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
1,090,666 |
|
|
|
895,673 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
47
Levitt Corporation
Consolidated Statements of Operations
For each of the years in the three year period ended December 31, 2006
(In thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
566,086 |
|
|
|
558,112 |
|
|
|
549,652 |
|
Other revenues |
|
|
9,241 |
|
|
|
6,772 |
|
|
|
6,184 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
575,327 |
|
|
|
564,884 |
|
|
|
555,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
482,961 |
|
|
|
408,082 |
|
|
|
406,274 |
|
Selling, general and administrative
expenses |
|
|
121,151 |
|
|
|
87,639 |
|
|
|
71,001 |
|
Other expenses |
|
|
3,677 |
|
|
|
4,855 |
|
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
607,789 |
|
|
|
500,576 |
|
|
|
484,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
9,684 |
|
|
|
12,714 |
|
|
|
13,068 |
|
(Loss) earnings from real estate joint ventures |
|
|
(416 |
) |
|
|
69 |
|
|
|
6,050 |
|
Interest and other income |
|
|
8,260 |
|
|
|
10,256 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(14,934 |
) |
|
|
87,347 |
|
|
|
93,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes |
|
|
5,770 |
|
|
|
(32,436 |
) |
|
|
(35,897 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.46 |
) |
|
|
2.77 |
|
|
|
3.10 |
|
Diluted |
|
$ |
(0.47 |
) |
|
|
2.74 |
|
|
|
3.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
19,823 |
|
|
|
19,817 |
|
|
|
18,518 |
|
Diluted |
|
|
19,823 |
|
|
|
19,929 |
|
|
|
18,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
$ |
0.08 |
|
|
|
0.08 |
|
|
|
0.04 |
|
Class B common stock |
|
$ |
0.08 |
|
|
|
0.08 |
|
|
|
0.04 |
|
See accompanying notes to consolidated financial statements
48
Levitt Corporation
Consolidated Statements of Comprehensive (Loss) Income
For each of the years in the three year period ended December 31, 2006
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized gain (loss)
recognized by Bluegreen Corporation on retained
interests in notes receivable sold |
|
|
1,263 |
|
|
|
2,420 |
|
|
|
(441 |
) |
(Provision) benefit for income taxes |
|
|
(487 |
) |
|
|
(933 |
) |
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
Pro-rata share of unrealized gain (loss)
recognized by Bluegreen Corporation on retained
interests in notes receivable sold (net of tax) |
|
|
776 |
|
|
|
1,487 |
|
|
|
(271 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(8,388 |
) |
|
|
56,398 |
|
|
|
57,144 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
49
Levitt Corporation
Consolidated Statements of Shareholders’ Equity
For each of the years in the three year period ended December 31, 2006
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Shares of Common |
|
|
Class A |
|
|
Class B |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Compre- |
|
|
|
|
| |
|
Stock Outstanding |
|
|
Common |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Unearned |
|
|
hensive |
|
|
|
|
| |
|
Class A |
|
|
Class B |
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Compensation |
|
|
Income (loss) |
|
|
Total |
|
Balance at December 31, 2003 |
|
|
13,597 |
|
|
|
1,219 |
|
|
$ |
136 |
|
|
|
12 |
|
|
|
67,855 |
|
|
|
57,020 |
|
|
|
— |
|
|
|
429 |
|
|
|
125,452 |
|
Issuance of Class A common
stock, net of stock issuance
costs |
|
|
5,000 |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
114,719 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
114,769 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57,415 |
|
|
|
— |
|
|
|
— |
|
|
|
57,415 |
|
Pro-rata share of unrealized loss
recognized by Bluegreen on sale of
retained interests, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(271 |
) |
|
|
(271 |
) |
Issuance of Bluegreen common
stock, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,784 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,784 |
) |
Cash dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(792 |
) |
|
|
|
|
|
|
— |
|
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
50
Levitt Corporation
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2006
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,703 |
|
|
|
1,681 |
|
|
|
753 |
|
Change in deferred income taxes |
|
|
(14,263 |
) |
|
|
4,202 |
|
|
|
3,195 |
|
Earnings from Bluegreen Corporation |
|
|
(9,684 |
) |
|
|
(12,714 |
) |
|
|
(13,068 |
) |
Earnings from unconsolidated trusts |
|
|
(178 |
) |
|
|
(95 |
) |
|
|
— |
|
Loss (earnings) from real estate joint ventures |
|
|
417 |
|
|
|
(69 |
) |
|
|
(6,050 |
) |
Share-based compensation expense related to stock options and restricted stock |
|
|
3,250 |
|
|
|
— |
|
|
|
— |
|
Gain on sale of property and equipment |
|
|
(1,329 |
) |
|
|
— |
|
|
|
— |
|
Write off of property and equipment |
|
|
245 |
|
|
|
— |
|
|
|
— |
|
Impairment of inventory and long lived assets |
|
|
38,083 |
|
|
|
— |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
421 |
|
|
|
199 |
|
|
|
1,367 |
|
Inventory of real estate |
|
|
(255,968 |
) |
|
|
(199,598 |
) |
|
|
(136,552 |
) |
Notes receivable |
|
|
(1,640 |
) |
|
|
(764 |
) |
|
|
— |
|
Other assets |
|
|
5,174 |
|
|
|
2,413 |
|
|
|
(2,152 |
) |
Customer deposits |
|
|
(8,990 |
) |
|
|
8,664 |
|
|
|
(9,112 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
9,824 |
|
|
|
8,633 |
|
|
|
25,318 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(240,099 |
) |
|
|
(132,537 |
) |
|
|
(78,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate joint ventures |
|
|
(469 |
) |
|
|
(50 |
) |
|
|
(127 |
) |
Distributions from real estate joint ventures |
|
|
576 |
|
|
|
365 |
|
|
|
9,744 |
|
Partial sale of joint venture interest |
|
|
— |
|
|
|
— |
|
|
|
340 |
|
Investments in unconsolidated trusts |
|
|
(928 |
) |
|
|
(1,624 |
) |
|
|
— |
|
Distributions from unconsolidated trusts |
|
|
178 |
|
|
|
82 |
|
|
|
— |
|
Purchase of Bowden Building Corporation, net of cash received |
|
|
— |
|
|
|
— |
|
|
|
(6,109 |
) |
Proceeds from sale of property and equipment |
|
|
1,943 |
|
|
|
— |
|
|
|
— |
|
Capital expenditures |
|
|
(29,476 |
) |
|
|
(12,857 |
) |
|
|
(26,790 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(28,176 |
) |
|
|
(14,084 |
) |
|
|
(22,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
379,732 |
|
|
|
381,345 |
|
|
|
317,988 |
|
Proceeds from notes and mortgage notes payable to affiliates |
|
|
— |
|
|
|
9,767 |
|
|
|
33,135 |
|
Proceeds from junior subordinated debentures |
|
|
30,928 |
|
|
|
54,124 |
|
|
|
— |
|
Repayment of notes and mortgage notes payable |
|
|
(202,704 |
) |
|
|
(249,327 |
) |
|
|
(224,733 |
) |
Repayment of notes and mortgage notes payable to affiliates |
|
|
(223 |
) |
|
|
(56,165 |
) |
|
|
(48,132 |
) |
Repayment of development bonds payable |
|
|
— |
|
|
|
— |
|
|
|
(850 |
) |
Payments for debt issuance costs |
|
|
(3,043 |
) |
|
|
(3,498 |
) |
|
|
— |
|
Payments for stock issue costs |
|
|
— |
|
|
|
— |
|
|
|
(7,731 |
) |
Proceeds from issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
122,500 |
|
Cash dividends paid |
|
|
(1,586 |
) |
|
|
(1,585 |
) |
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
203,104 |
|
|
|
134,661 |
|
|
|
191,385 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(65,171 |
) |
|
|
(11,960 |
) |
|
|
89,557 |
|
Cash and cash equivalents at the beginning of period |
|
|
113,562 |
|
|
|
125,522 |
|
|
|
35,965 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
48,391 |
|
|
|
113,562 |
|
|
|
125,522 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
51
Levitt Corporation
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2006
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on borrowings, net of amounts capitalized |
|
$ |
963 |
|
|
|
(1,285 |
) |
|
|
153 |
|
Income taxes paid |
|
|
17,140 |
|
|
|
19,214 |
|
|
|
29,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating,
investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in shareholders’ equity resulting from the change
in other comprehensive gain (loss), net of taxes |
|
$ |
776 |
|
|
|
1,487 |
|
|
|
(271 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in shareholders’ equity from the net effect
of Bluegreen’s capital transactions, net of taxes |
|
|
177 |
|
|
|
74 |
|
|
|
(1,784 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in inventory from reclassification to property and equipment |
|
|
8,412 |
|
|
|
1,809 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in joint venture investment resulting from
unrealized gain on non-monetary exchange |
|
|
|
|
|
|
— |
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired from acquisition of Bowden Building Corporation, net of
cash acquired of $1,335 |
|
|
|
|
|
|
— |
|
|
|
26,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liabilities assumed from acquisition of Bowden Building Corporation |
|
|
|
|
|
|
— |
|
|
|
20,354 |
|
See accompanying notes to consolidated financial statements.
52
Levitt Corporation
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Revisions to Consolidated Financial Statements
The consolidated financial statements have been revised to correctly present all information
required by SFAS 131 in the Company’s Segment Disclosures by including Tennessee Homebuilding as a
reportable operating segment as more fully described in Note 21. The accompanying notes have been revised
to reflect the additional disclosures required when presenting the expanded segment disclosures and
to provide additional disclosures about the Company’s Real Estate Held for Development and Sale
relating to the assumptions used in the Company’s real estate inventory impairment analysis.
Organization and Business
Levitt Corporation (including its subsidiaries, the “Company”) engages in real estate
activities through its Homebuilding and Land Divisions, and Other Operations. The Homebuilding
Division operates through Levitt and Sons, LLC (“Levitt and Sons”) and consists of two reportable
operating segments, the Primary Homebuilding segment and Tennessee Homebuilding segment which primarily
develop single and multi-family home and townhome communities specializing in both active adult and
family communities in Florida, Georgia, Tennessee and South Carolina. The Land Division consists
of the operations of Core Communities, LLC (“Core Communities”), which develops master-planned
communities. Other Operations includes Levitt Commercial, LLC (“Levitt Commercial”), a developer
of industrial properties; investments in real estate and real estate joint ventures; and an equity
investment in Bluegreen Corporation (“Bluegreen”), a New York Stock Exchange-listed company engaged
in the acquisition, development, marketing and sale of vacation ownership interests in primarily
“drive-to” resorts, as well as residential home sites located around golf courses and other
amenities.
Consolidation Policy
The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. In addition, see accounting policy related to Investments in
Unconsolidated Subsidiaries. All significant inter-company transactions have been eliminated in
consolidation. Certain items in prior period financial statements have been reclassified to
conform to the current presentation.
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
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.
Cash Equivalents
Cash equivalents include liquid investments with original maturities of three months or less.
Restricted Cash
53
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
Inventory of real estate includes land, land development costs, interest and other
construction costs and is stated at accumulated cost or, when circumstances indicate that the
inventory is impaired, at estimated fair 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.
Land and indirect land development costs are allocated to various parcels or housing units
using either the specific identification method or appropriate apportionment factors, including the
relative sales values and unit counts. Direct construction costs are assigned to housing units
based on specific identification. Construction costs primarily include direct construction costs
and capitalized field overhead. Other costs are comprised of tangible selling costs, prepaid local
government fees and capitalized real estate taxes. Tangible selling costs are capitalized by
project and represent costs incurred throughout the selling period to aid in the sale of housing
units, such as model furnishings and decorations, sales office furnishings and facilities,
exhibits, displays and signage. These tangible selling costs are capitalized and expensed to
selling, general and administrative expense at the time the revenue associated with the benefited
home is recorded. Start-up costs and other selling costs are expensed as incurred.
The expected future costs of development in the Land Division are analyzed at least annually
to determine the appropriate allocation factors to charge to cost of sales when such inventory is
sold 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 reviewed the 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). As of December 31, 2006, the Company assessed
all of its projects, which included housing projects and land held for development and sale, to
identify underperforming projects and land investments that may not be recoverable through future
cash flows. The Company measures the recoverability of assets by comparing the carrying amount of
an asset to the estimated future undiscounted net cash flows.
Each project was assessed individually and as a result, the assumptions used to derive future
cash flows varied by project. For land held for sale that is being remarketed, contract proposals
from third parties or market assessments were used. For homebuilding projects, a variety of
assumptions were used. These key assumptions are dependent on project-specific conditions and are
inherently uncertain. Local market and project-specific factors that may influence the assumptions
include:
| |
• |
|
historical project performance, including traffic trends and conversions rates, sales,
selling prices including incentive and discount programs, and cancellation trends, |
| |
| |
• |
|
competitors’ presence and their competitive actions, |
| |
| |
• |
|
project specific attributes such as location desirability, market segment (active adult
vs. family) and product type (single family detached vs. town home), and |
| |
| |
• |
|
current local market economic and demographic conditions, including interest rates,
in-migration trends and job growth, and related trends and forecasts. |
After considering these factors and based on specific assumptions, the Company projected
future cash flows for the balance of the project until the project is expected to be sold out. If
the resulting carrying amount of the project exceeds the estimated undiscounted cash flows from the
project, an impairment charge is recognized to reduce the carrying value of the project to fair
value. Fair value is determined by applying a risk based discount rate, currently 15%, to the
future estimated cash flows for a project.
54
Assumptions are updated on a quarterly basis to reflect current market trends as well as
updated pricing information including any sales incentives or discounts.
Levitt had 22 projects in the Tennessee Homebuilding segment with
inventory available for sale at December 31, 2006 in
projects that are generally smaller and of a shorter duration than projects in the Primary Homebuilding segment.
The projects in Tennessee are expected to sell out over the next two years. Levitt used certain assumptions in
its impairment evaluation for the Tennessee projects at December 31, 2006. For Tennessee projects
with less than 25 units remaining to be sold, a total of 13 projects, Levitt’s assumptions
regarding projected sales prices, unit sales and margin percentage resulted in projected negative
margins ranging between 10% and 15%, and for Tennessee projects with more than 25 units remaining
to be sold, which represented 9 projects, Levitt’s assumptions regarding projected sales prices,
unit sales and margin percentage resulted in projected negative margins ranging
between 12.5% and 20%.
The Company’s homebuilding projects outside of Tennessee are generally larger and many are in
the early stages of development. Accordingly the projections will extend for 4-7 years into the
future, inherently increasing the uncertainty involved in the projections. Specific assumptions
for projected unit sales and margin percentage on delivered units for homebuilding projects
excluding Tennessee include:
| |
• |
|
estimates of average future selling prices based on current selling prices and
speculative inventory with average sales price declines in 2007 and 2008, followed by
average sales price increases ranging from 2% to 13% in 2009 and beyond; |
| |
| |
• |
|
estimates of future construction and land development costs were kept relatively
consistent throughout the entire project; |
| |
| |
• |
|
estimates of average (unweighted) gross margin percentages ranging between 2% and 5% in
the early years and approximately 15% in 2010 and beyond; and |
| |
| |
• |
|
estimated future sales rates resulted in a decline in 2007 which projected sales at over
75% of projects averaging less than 80 units per year; improvement in 2008 but 50% of
projects are projected to have sales of less than 80 units per year; and continued
improvement in 2009 with only 25% of projects having projected sales of less than 80 units
per year. Sales are projected to flatten beyond 2009 based on project completions. |
During the year ended December 31, 2006, the Company recorded impairments on 5 projects in
Florida and on 14 projects in Tennessee because the undiscounted cash flows were less than the
carrying value of those assets. These impaired projects resulted in $34.3 million of impairment
charges. An additional $2.5 million of write-offs of deposits and pre-acquisition costs related to
land under option that we do not intend to purchase was also recorded. At December 31, 2006 total
homebuilding inventory was $664.6 million, of which $113.6 million, or 17.1%, was recorded at fair
value. The balance was recorded at cost.
Investments in Unconsolidated Subsidiaries
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 Company’s share of the joint venture’s earnings or losses. Distributions received
reduce the carrying amount of the investment. The Company evaluates our 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”.
These investments are evaluated annually or as events or circumstances warrant for other than
temporary declines in value. Evidence of other than temporary declines includes the inability of
the joint venture or investee to sustain an earnings capacity that would justify the carrying
amount of the investment and consistent joint venture operating losses. The evaluation is based on
available information including condition of the property and current and anticipated real estate
market conditions.
55
Homesite Contracts and Consolidation of Variable Interest Entities
In December 2003, FASB Interpretation No. 46(R) (‘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 VIE’s expected losses, receives a majority of the VIE’s expected residual returns,
or both, is determined to be the primary beneficiary of the VIE and must consolidate the entity.
In the ordinary course of business the Company enters into contracts to purchase homesites and
land held for development. Option contracts allow the Company to control significant homesite
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 deposits, and are usually less than 20% of the underlying purchase price. 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 Company’s land contracts may create a variable interest, with the
Company being identified as the primary beneficiary. If these certain conditions are met, FIN No.
46(R) requires us to consolidate the assets (homesites) at their fair value. At December 31, 2006
there were no assets under these contracts consolidated in the Company’s financial statements.
Capitalized Interest
Interest incurred relating to land under development and construction is capitalized to real
estate inventories during the active development period. Interest is capitalized as a component of
inventory at the effective rates paid on borrowings during the pre-construction and planning stage
and the periods that projects are under development. Capitalization of interest is discontinued if
development ceases at a project. Interest is amortized to cost of sales on the relative sales value
method as related homes and land are sold.
The following table is a summary of interest incurred on notes and mortgage notes payable and
the amounts capitalized (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Interest incurred to non-affiliates |
|
$ |
41,999 |
|
|
|
18,372 |
|
|
|
8,725 |
|
Interest incurred to affiliates |
|
|
3 |
|
|
|
892 |
|
|
|
2,374 |
|
Interest capitalized |
|
|
(42,002 |
) |
|
|
(19,264 |
) |
|
|
(10,840 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
— |
|
|
|
— |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest included in cost of sales |
|
$ |
15,358 |
|
|
|
8,959 |
|
|
|
9,872 |
|
|
|
|
|
|
|
|
|
|
|
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 39 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.
56
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”. In order to
properly match revenues with expenses, the Company estimates construction and land development
costs 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. 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 recognition for certain land sales are recognized on the percentage-of-completion
method where land sales take 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 seller’s continuing involvement. In the case
of land sales, this involvement typically consists of final development. The Company recognizes
revenue and related costs as work progresses using the percentage of completion method, which
relies on contract revenue and 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 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.
Effective January 1, 2006, Bluegreen adopted AICPA Statement of Position 04-02 Accounting for
Real Estate Time-Sharing Transactions (“SOP 04-02”). This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-02. 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.
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 expected period of performance. 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.
Other income consists primarily of interest income, forfeited deposits and other miscellaneous
income.
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
57
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 SFAS 123R as of January 1, 2006 and elected the modified-prospective
method, under which prior periods are not restated. Under the fair value recognition provisions of
this statement, stock-based compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense on a straight-line basis over the requisite service
period, which is the vesting period. The Company currently uses the Black-Scholes option-pricing
model to determine the fair value of stock options.
Income Taxes
The Company utilizes the asset and liability method to account for income taxes. Under the
asset and liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the period that
includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when it
is more likely than not that all or a portion of the deferred tax asset will not be realized.
(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 18,609,024 shares at December 31, 2006 are issued and outstanding. The Company
also has Class B common stock which is held exclusively by BFC Financial Corporation, the Company’s
controlling shareholder. As of December 31, 2006, BFC Financial Corporation owned 1,219,031 shares
of the Company’s Class B common stock.
While the Company has two classes of common stock outstanding, the two-class method is not
presented because the Company’s 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 Company’s stock options and restricted stock using the treasury stock method and (b)
the pro rata impact of Bluegreen’s dilutive securities (stock options and convertible securities)
on the amount of Bluegreen’s earnings that the Company recognizes.
New Accounting Pronouncements
58
In June 2006, the FASB issued FIN No. 48 (“Accounting for Uncertainty in Income Taxes — an
interpretation of FASB No. 109”.) FIN 48 provides guidance for how a company should recognize,
measure, present and disclose in its financial statements uncertain tax positions that a company
has taken or expects to take on a tax return. FIN 48 substantially changes the accounting policy
for uncertain tax positions and is likely to cause greater volatility in our provision for income
taxes. The interpretation also revises disclosure requirements including a tabular roll-forward
of unrecognized tax benefits. The interpretation is effective as of January 1, 2007 and the
Company does not expect a material adjustment upon adoption of this interpretation.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 which established an approach to quantify errors in financial statements. The
SEC’s new approach to quantifying errors in the financial statements is called the dual-approach.
This approach quantifies the errors under two common approaches requiring the registrant to adjust
its financial statements when either approach results in a material error after considering all
quantitative and qualitative factors. Adoption of this bulletin did not affect the Company’s
financial condition or results of operations. .
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS
157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year
beginning January 1, 2008), and interim periods within those fiscal years. The Company is currently
reviewing the effect of this Statement and does not expect the adoption to have an effect on the
financial condition or results of operations of the Company.
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, Applicability of
the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales
of Real Estate, for Sales of Condominiums, (“EITF 06-8”). EITF 06-8 establishes that a company
should evaluate the adequacy of the buyer’s 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 December 1,
2007). The effect of this EITF is not expected to be material to the Company’s consolidated
financial statements.
2. (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
earnings per share, but it also gives consideration to (a) the dilutive effect of the Company’s
stock options and restricted stock using the treasury stock method and (b) the pro rata impact of
Bluegreen’s dilutive securities (stock options and convertible securities) on the amount of
Bluegreen’s earnings that the Company recognizes. For the year ended December 31, 2006, common
stock equivalents related to the Company’s stock options and unvested restricted stock amounted to
6,095 shares and were not considered because their effect would have been antidilutive. In
addition for the years ended December 31, 2006, 2005 and 2004, 1,897,944, 1,311,951 and 725,168
shares of common stock equivalents, respectively, at various prices were not included in the
computation of diluted (loss) earnings per common share because the exercise prices were greater
than the average market price of the common shares and, therefore, their effect would be
antidilutive.
59
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, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income — basic |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income — basic |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
Pro rata share of the net effect of Bluegreen
dilutive securities |
|
|
(100 |
) |
|
|
(251 |
) |
|
|
(882 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income — diluted |
|
$ |
(9,264 |
) |
|
|
54,660 |
|
|
|
56,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
19,823 |
|
|
|
19,817 |
|
|
|
18,518 |
|
Net effect of stock options assumed to be exercised |
|
|
— |
|
|
|
112 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
19,823 |
|
|
|
19,929 |
|
|
|
18,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.46 |
) |
|
|
2.77 |
|
|
|
3.10 |
|
Diluted |
|
$ |
(0.47 |
) |
|
|
2.74 |
|
|
|
3.04 |
|
3. Dividends
Cash dividends declared by the Company’s Board of Directors are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Classes of |
|
Dividend |
|
|
| Declaration Date |
|
Record Date |
|
Common Stock |
|
per share |
|
Payment Date |
July 26, 2004
|
|
August 9, 2004
|
|
Class A, Class B
|
|
$0.02
|
|
August 16, 2004 |
| October 25, 2004
|
|
November 8, 2004
|
|
Class A, Class B
|
|
$0.02
|
|
November 15, 2004 |
| 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 Company’s results of operations and financial condition.
4. Stock Based Compensation
60
On May 11, 2004, the Company’s shareholders approved the 2003 Levitt Corporation Stock
Incentive Plan (“Plan”). In March 2006, subject to shareholder approval, the Board of Directors of
the Company approved the amendment and restatement of the Company’s 2003 Stock Incentive Plan to
increase the maximum number of shares of the Company’s 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 Company’s shareholders approved the Amended and Restated 2003
Stock Incentive Plan on May 16, 2006.
The maximum term of options granted under the 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 Plan there have been no expired stock options.
In January 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (“FAS 123R”). 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
eliminates the alternative to use the intrinsic method of accounting provided for in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), which
generally resulted in no compensation expense recorded in the financial statements related to the
granting of stock options to employees if certain conditions were met.
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 years ended December 31, 2005 and
2004 are as follows and has been disclosed to be consistent with prior accounting rules (in
thousands, except per share data):
61
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
Year Ended |
| |
|
December 31, |
|
December 31, |
| |
|
2005 |
|
2004 |
| |
|
|
Pro forma net income: |
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
54,911 |
|
|
|
57,415 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related income tax effect |
|
|
(1,416 |
) |
|
|
(1,171 |
) |
| |
| |
|
|
Pro forma net income |
|
$ |
53,495 |
|
|
|
56,244 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
2.77 |
|
|
|
3.10 |
|
Pro forma |
|
$ |
2.70 |
|
|
|
3.04 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
2.74 |
|
|
|
3.04 |
|
Pro forma |
|
$ |
2.68 |
|
|
|
2.99 |
|
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 Company’s
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:
| |
|
|
|
|
| |
|
|
|
Years ended |
| |
|
Year ended |
|
December 31, 2005 |
| |
|
December 31, 2006 |
|
and 2004 |
Expected volatility |
|
37.37%-39.80% |
|
37.99%-50.35% |
Expected dividend yield |
|
0.39%-0.61% |
|
0.00%-0.33% |
Risk-free interest rate |
|
4.57%-5.06% |
|
4.02%-4.40% |
Expected life |
|
5-7.5 years |
|
7.5 years |
Forfeiture rate -
executives |
|
5% |
|
— |
Forfeiture rate -
non-executives |
|
10% |
|
— |
Expected volatility is based on the historical volatility of the Company’s 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 Company’s expected volatility assumption.
The expected dividend yield is based on an expected quarterly dividend of $.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 No. 107. Due to the limited history of stock option activity,
forfeiture rates are estimated based on historical employee turnover rates.
Non-cash stock compensation expense for the year ended December 31, 2006 related to unvested
stock options amounted to $3.1 million, with an expected or estimated income tax benefit of
$849,000. The impact of adopting SFAS No. 123R on diluted earnings per share year ended December
31, 2006 was $0.16 per share. At December 31, 2006, the Company had approximately $10.2 million of
unrecognized stock
62
compensation expense related to outstanding stock option awards which is expected to be recognized
over a weighted-average period of 3.5 years.
Stock option activity under the Plan for the year ended December 31, 2006 was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
| |
|
of Options |
|
|
Price |
|
|
Term |
|
|
(thousands) |
|
Options outstanding at December
31, 2005 |
|
|
1,305,176 |
|
|
$ |
25.59 |
|
|
|
|
|
|
$ |
— |
|
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 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested & expected to vest
in the future at December 31, 2006 |
|
|
1,558,860 |
|
|
$ |
20.73 |
|
|
8.34 years |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December
31, 2006 |
|
|
99,281 |
|
|
$ |
19.56 |
|
|
8.28 years |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock available for equity
compensation grants at December
31, 2006 |
|
|
1,107,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Company’s non-vested shares activity for the years ended December 31, 2005 and
2006 was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
| |
|
|
|
|
|
Average Grant |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
|
|
|
|
Date |
|
|
Contractual |
|
|
Value (in |
|
| |
|
Shares |
|
|
Fair Value |
|
|
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 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding as of December 31, 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options Outstanding |
|
|
|
|
| |
|
|
|
Number of |
|
|
Remaining |
|
|
|
|
| Range of |
|
|
|
Stock |
|
|
Contractual |
|
|
Options Exercisable |
|
| Exercise Price |
|
|
|
Options |
|
|
Life |
|
|
Options |
|
|
Exercise Price |
|
| $ 9.64-$12.85 |
|
|
|
|
15,000 |
|
|
|
9.85 |
|
|
|
— |
|
|
|
— |
|
| $12.86-$16.07 |
|
|
|
|
658,300 |
|
|
|
9.46 |
|
|
|
— |
|
|
|
— |
|
| $16.08-$19.28 |
|
|
|
|
51,605 |
|
|
|
9.50 |
|
|
|
44,105 |
|
|
$ |
16.09 |
|
63
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options Outstanding |
|
|
|
|
| |
|
|
|
Number of |
|
|
Remaining |
|
|
|
|
| Range of |
|
|
|
Stock |
|
|
Contractual |
|
|
Options Exercisable |
|
| Exercise Price |
|
|
|
Options |
|
|
Life |
|
|
Options |
|
|
Exercise Price |
|
| $19.29-$22.49 |
|
|
|
|
612,100 |
|
|
|
7.11 |
|
|
|
45,000 |
|
|
$ |
20.15 |
|
| $22.50-$25.70 |
|
|
|
|
70,750 |
|
|
|
6.89 |
|
|
|
— |
|
|
|
— |
|
| $25.71-$32.13 |
|
|
|
|
484,426 |
|
|
|
8.39 |
|
|
|
10,176 |
|
|
$ |
31.95 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
1,892,181 |
|
|
|
8.33 |
|
|
|
99,281 |
|
|
$ |
9.56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2004, the Company granted no restricted stock.
During the year ended December 31, 2005, the Company granted 6,887 restricted shares of Class A
common stock to non-employee directors under the Plan, having a market price on date of grant of
$31.95. 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 Plan, having a market price on date of
grant of $16.09. The restricted stock vests monthly over a 12 month period. Non-cash stock
compensation expense for the year ended December 31, 2006 and 2005 related to restricted stock
awards amounted to $150,000 and $110,000, respectively.
Total non- cash stock compensation expense related to stock options and restricted stock
awards for the years ended December 31, 2006 and 2005 amounted to $3.3 million and $110,000,
respectively. Stock compensation expense is included in selling, general and administrative
expenses in the audited consolidated statements of operations.
5. Notes Receivable
Notes receivable, which is included in other assets, amounted to $6.9 million and $5.2
million as of December 31, 2006 and 2005, respectively which represent 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 6.74% and 5.19% as of December 31, 2006 and 2005,
respectively, and the notes are due at various dates through March 2022. During the first quarter
of 2007, approximately $4.1 million in notes receivable maturing in 2022 was paid in full. The
remaining notes receivable balances are short term in nature and will be paid in 2007.
6. 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 the second quarter of
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. The Tennessee
Homebuilding segment in the Homebuilding Division completely wrote off the $1.3 million of goodwill
recorded in connection with the Bowden Building Corporation acquisition which 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.
7. Inventory of Real Estate
At December 31, 2006 and 2005, inventory of real estate is summarized as
follows (in thousands):
64
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Land and land development costs |
|
$ |
566,459 |
|
|
|
457,826 |
|
Construction cost |
|
|
172,682 |
|
|
|
112,566 |
|
Capitalized interest |
|
|
47,752 |
|
|
|
21,108 |
|
Other costs |
|
|
35,147 |
|
|
|
19,760 |
|
|
|
|
|
|
|
|
|
|
$ |
822,040 |
|
|
|
611,260 |
|
|
|
|
|
|
|
|
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. 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 2004 and 2005, fair market value was based on
the sales prices of similar real estate inventory and the reviews resulted in no impairment.
The Homebuilding Division has experienced lower than expected margins during the last six
months of 2006 and is also experiencing a downward trend in the number of net orders. In the second
quarter of 2006, the Company recorded inventory impairment charges related to the Tennessee
Homebuilding segment, which had delivered lower than expected margins, faced increased start-up
costs in the Nashville market and experienced a downward trend in home deliveries. As a result of
these factors, an impairment charge was recorded in the amount of approximately $4.7 million. In
the fourth quarter of 2006, we recorded additional impairments in the Primary Homebuilding segment
and Tennessee Homebuilding segment due to the continued downward trend in these homebuilding
markets. During the year ended December 31, 2006, the Company recorded $34.3 million of
impairment charges and $2.5 million of write-offs of deposits and pre-acquisition costs related to
land under option that the Company does not intend to purchase. Of these amounts, $5.4 million of
the inventory impairment charges and $300,000 of write-offs related to the Tennessee Homebuilding
segment while $28.9 million of the inventory impairment charges and $2.2 million of write-offs
related to the Primary Homebuilding segment. Projections of future cash flows were discounted and
used to determine the estimated impairment charge.
8. Property and Equipment
Property and equipment at December 31, 2006 and 2005 is summarized as follows
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, |
|
| |
|
Depreciable Life |
|
|
2006 |
|
|
2005 |
|
Land, buildings |
|
30 years |
|
$ |
61,882 |
|
|
|
34,848 |
|
Water and irrigation facilities |
|
30 years |
|
|
6,588 |
|
|
|
7,150 |
|
Furniture and fixtures and equipment |
|
3-10 years |
|
|
16,321 |
|
|
|
6,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,791 |
|
|
|
48,576 |
|
Accumulated depreciation |
|
|
|
|
|
|
(6,116 |
) |
|
|
(4,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
$ |
78,675 |
|
|
|
44,250 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $2.6 million, $1.6 million and $748,000 for the years ended
December 31, 2006, 2005 and 2004, respectively, and is included in selling, general and
administrative expenses in the accompanying consolidated statements of 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. For the three year period ending December 31, 2006, fair market value was based on
disposals of similar assets and the review resulted in no impairment.
65
9. Investment in Bluegreen Corporation
The Company owns approximately 9.5 million shares of the common stock of Bluegreen
Corporation representing approximately 31% of Bluegreen’s 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 Company’s interest in Bluegreen’s earnings or
losses. The difference between a) the Company’s ownership percentage in Bluegreen multiplied by
its earnings and b) the amount of the Company’s 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 Bluegreen’s stock and to the cumulative adjustment discussed
below. Bluegreen issued approximately 4.1 million shares of common stock during 2004 in connection
with the call for redemption of $34.1 million of its 8.25% Convertible Subordinated Debentures (the
“Debentures”). In addition, during the year ended December 31, 2004, approximately 1.2 million
shares of Bluegreen common stock were issued upon the exercise of stock options. The issuance of
these approximately 5.3 million shares reduced the Company’s ownership interest in Bluegreen from
38% to 31%. The Company’s investment in Bluegreen was reduced by approximately $2.9 million
primarily to reflect the dilutive effect of these transactions.
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 Bluegreen’s 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 Company’s earnings from
Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains recognized by
Bluegreen. These adjustments resulted in a $1.3 million reduction in the investment in Bluegreen.
Effective January 1, 2006, Bluegreen adopted Statement of Position 04-02 Accounting for Real
Estate Time-Sharing Transactions (“SOP 04-02”), which resulted in a one-time, non-cash, cumulative
effect of change in accounting principle charge of $4.5 million to Bluegreen for the year ended
December 31, 2006 and reduced the earnings in Bluegreen recorded by the Company by approximately
$1.4 million, or $.04 earnings per share, for the same period.
Bluegreen’s condensed consolidated financial statements are presented below (in thousands):
Condensed Consolidated Balance Sheet
(In thousands)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Total assets |
|
$ |
854,212 |
|
|
|
694,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
486,487 |
|
|
|
371,069 |
|
Minority interest |
|
|
14,702 |
|
|
|
9,508 |
|
Total shareholders’ equity |
|
|
353,023 |
|
|
|
313,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’
equity |
|
$ |
854,212 |
|
|
|
694,243 |
|
|
|
|
|
|
|
|
66
Condensed Consolidated Statements of Income
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues and other income |
|
$ |
673,373 |
|
|
|
684,156 |
|
|
|
630,728 |
|
Cost and other expenses |
|
|
610,882 |
|
|
|
603,624 |
|
|
|
557,462 |
|
| |
|
|
Income before minority interest and provision for income taxes |
|
|
62,491 |
|
|
|
80,532 |
|
|
|
73,266 |
|
Minority interest |
|
|
7,319 |
|
|
|
4,839 |
|
|
|
4,065 |
|
| |
|
|
Income before provision for income taxes |
|
|
55,172 |
|
|
|
75,693 |
|
|
|
69,201 |
|
Provision for income taxes |
|
|
(20,861 |
) |
|
|
(29,142 |
) |
|
|
(26,642 |
) |
| |
|
|
Income before cumulative effect of change in accounting principle |
|
|
34,311 |
|
|
|
46,551 |
|
|
|
42,559 |
|
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 |
|
$ |
29,817 |
|
|
|
46,551 |
|
|
|
42,559 |
|
|
|
|
|
|
|
|
|
|
|
10. Accounts Payable, Accrued Liabilities and Other
Accounts payable, accrued liabilities and other at December 31, 2006 and 2005 are
summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Trade and retention payables |
|
$ |
34,758 |
|
|
|
28,119 |
|
Accrued compensation |
|
|
7,399 |
|
|
|
13,254 |
|
Accrued construction obligations |
|
|
21,299 |
|
|
|
10,855 |
|
Deferred revenue |
|
|
12,255 |
|
|
|
8,863 |
|
Accrued hurricane reserve |
|
|
— |
|
|
|
192 |
|
Accrued litigation reserve |
|
|
320 |
|
|
|
225 |
|
Other liabilities |
|
|
9,092 |
|
|
|
5,144 |
|
|
|
|
|
|
|
|
|
|
$ |
85,123 |
|
|
|
66,652 |
|
|
|
|
|
|
|
|
11. Notes and Mortgage Notes Payable
Notes and mortgages payable at December 31, 2006 and 2005 are summarized as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
Interest Rate |
|
Maturity Date |
Primary Homebuilding Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable (a) |
|
$ |
48,633 |
|
|
$ |
74,306 |
|
|
From Prime - 0.50% to Prime + 0.50% |
|
Range from July 2007 to September 2009 |
Mortgage notes payable to BankAtlantic
(a) |
|
|
— |
|
|
|
223 |
|
|
Prime |
|
March 2006 |
Borrowing base facilities (b) |
|
|
316,000 |
|
|
|
140,000 |
|
|
From LIBOR + 2.00% to LIBOR + 2.40% |
|
Range from August 2009 to January 2010 |
Line of credit (c) |
|
|
14,000 |
|
|
|
14,500 |
|
|
Prime |
|
September 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,633 |
|
|
|
229,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee Homebuilding Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable (a) |
|
|
6,674 |
|
|
|
40,381 |
|
|
From Prime - 0.25% to Prime + 0.50% |
|
Range from March 2007 to March 2008 |
Borrowing base facilities (b) |
|
|
32,600 |
|
|
|
3,100 |
|
|
From LIBOR + 2.00% to LIBOR + 2.40% |
|
December 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,274 |
|
|
|
43,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
Interest Rate |
|
Maturity Date |
Land Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land acquisition mortgage notes payable (d) |
|
|
66,932 |
|
|
|
48,936 |
|
|
From Fixed 6.88% to LIBOR + 2.80% |
|
Range from June 2011 to October 2019 |
Construction mortgage notes payable (d) |
|
|
28,884 |
|
|
|
13,012 |
|
|
From LIBOR + 1.70% to LIBOR + 2.00% |
|
Range from May 2007 to June 2009 |
Other borrowings |
|
|
164 |
|
|
|
7 |
|
|
Fixed from 5.99% to 7.48% |
|
Range from April 2007 to August 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,980 |
|
|
|
61,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
Land acquisition and construction
mortgage notes
payable |
|
|
1,641 |
|
|
|
3,875 |
|
|
LIBOR + 2.75% |
|
September 2007 |
Mortgage notes payable (e) |
|
|
12,197 |
|
|
|
12,374 |
|
|
Fixed 5.47% |
|
April 2015 |
Subordinated investment notes |
|
|
2,489 |
|
|
|
3,132 |
|
|
Fixed from 8.00% to 8.75% |
|
Range from December 2006 to February 2008 |
Promissory note payable |
|
|
437 |
|
|
|
— |
|
|
Fixed 2.44% |
|
July 2009 |
Levitt Capital Trust I
Unsecured junior subordinated debentures
(f) |
|
|
23,196 |
|
|
|
23,196 |
|
|
From fixed 8.11% to LIBOR + 3.85% |
|
March 2035 |
Levitt Capital Trust II
Unsecured junior subordinated debentures
(g) |
|
|
30,928 |
|
|
|
30,928 |
|
|
From fixed 8.09% to LIBOR + 3.80% |
|
July 2035 |
Levitt Capital Trust III
Unsecured junior subordinated debentures
(h) |
|
|
15,464 |
|
|
|
— |
|
|
From fixed 9.25% to LIBOR + 3.80% |
|
June 2036 |
Levitt Capital Trust IV
Unsecured junior subordinated debentures
(i) |
|
|
15,464 |
|
|
|
— |
|
|
From fixed 9.35% to LIBOR + 3.80% |
|
September 2036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,816 |
|
|
|
73,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes and Mortgage Notes Payable (j) |
|
$ |
615,703 |
|
|
$ |
407,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Levitt and Sons has entered into various loan agreements to provide financing for the
acquisition, site improvements and construction of residential units. As of December 31,
2006 and 2005, these loan agreements provided for advances on a revolving loan basis up to
a maximum outstanding balance of $79.2 million and $147.2 million, respectively. The loans
are collateralized by inventory of real estate with net carrying values aggregating $100.4
million and $168.9 million at December 31, 2006 and 2005, respectively. Certain mortgage
notes contain provisions for accelerating the payment of principal as individual homes are
sold. Certain notes and mortgage notes also provide that events of default may include a
change in ownership, management or executive management. |
| |
| (b) |
|
In 2005, Levitt and Sons entered into revolving credit facilities with third party
lenders for borrowings of up to $210.0 million, subject to borrowing base limitations
based on the value and type of collateral provided. During 2006, Levitt and Sons entered
into a revolving credit facility and amended certain of the existing credit facilities
increasing the amount available for borrowings under these facilities to $450.0 million
and amended certain of the initial credit agreement’s definitions. Advances under these
facilities bear interest, at Levitt and Sons’ option; at either (i) the lender’s 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. Accrued interest is due monthly and these lines mature
at various dates ranging from 2009 to 2010. 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 are 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. |
| |
| (c) |
|
Levitt and Sons has 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 currently matures
September 2007, and is guaranteed by Levitt Corporation. The guarantee is collateralized
by Levitt Corporation’s pledge of its membership interest in Levitt and Sons, LLC. On or
before June 30th of each calendar year, the financial institution may at its
sole discretion offer |
68
|
|
|
| |
|
the option to extend the term of the loan for a one-year period. The
Company has pledged a first priority security interest on the Company’s equity interest in
Levitt and Sons to secure the loan. |
| |
| (d) |
|
Core Communities notes and mortgage notes payable are collateralized by inventory of
real estate and property and equipment with net carrying values aggregating $186.7 million
and $129.0 million as of December 31, 2006 and 2005, respectively. Included in these
balances is a construction loan with a third party executed in 2006 for up to $60.9
million. The loan accrues interest at 30-day LIBOR plus a spread of
170 basis points and is due and payable on June 26, 2009. At December 31, 2006, Core had
$14.1 million outstanding on this loan. On January 23, 2007, the loan was amended for the
development of a commercial project. The amendment increased the loan amount to $64.3
million, amended the financial ratio and allowed for principal payments on or before the
election to extend the loan such that the resized loan amount would comply with financial
ratios in the credit agreement. All other material terms of this credit agreement remain
unchanged. In September of 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, 2006, $37.9 million is outstanding, and the
entire $51.0 million remaining under the line is currently available for borrowing based
on available collateral. |
| |
| (e) |
|
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 Company’s
purchase of the office building in Fort Lauderdale. This note payable is collateralized
by the office building that the Company currently utilizes as its principal executive
offices, which was occupied by the Company in November 2006. The note payable contains a
balloon payment provision of approximately $10.4 million at the maturity date in April
2015. |
| |
| (f) |
|
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 London
Interbank Offered Rate (“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. |
| |
| (g) |
|
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. |
| |
| (h) |
|
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. |
| |
| (i) |
|
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 |
69
|
|
|
| |
|
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) |
|
At December 31, 2006, 2005 and 2004 the Prime Rate as reported by the Wall Street
Journal was 8.25%, 7.25% and 5.25%, respectively, and the three-month LIBOR Rate was
5.36%, 4.53% and 2.56%, respectively. |
Some of the Company’s 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, 2006, the
Company was in compliance with all loan agreement financial requirements and covenants.
At December 31, 2006, the aggregate required scheduled principal payment of indebtedness in
each of the next five years is approximately as follows (in thousands):
| |
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
Year ended December 31, |
|
|
|
|
2007 |
|
$ |
46,016 |
|
2008 |
|
|
25,931 |
|
2009 |
|
|
278,410 |
|
2010 |
|
|
100,568 |
|
2011 |
|
|
46,138 |
|
Thereafter |
|
|
118,640 |
|
|
|
|
|
|
|
$ |
615,703 |
|
|
|
|
|
In addition to the above scheduled payments, certain of the Company’s borrowings require
repayments of specified amounts upon a sale of portions of the property securing the debt.
On February 28, 2007, Core Communities of South Carolina, LLC a wholly owned subsidiary of
Core Communities, LLC, our wholly owned subsidiary, entered into a $50 million revolving credit
facility for construction financing for the development of the Tradition South Carolina master
planned community. The facility is due and payable on February 28, 2009 and is subject to a one
year extension upon compliance with the conditions set forth in the agreement. The loan is secured
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, LLC.
The loan accrues interest at the bank’s Prime Rate and is payable monthly. The loan documents
include customary conditions to funding, collateral release and acceleration provisions and
financial, affirmative and negative covenants.
70
12. Development Bonds Payable
In connection with the development of certain projects, community development 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 amount of community development district and improvement district bond obligations issued
and outstanding with respect to our communities totaled $50.4 million and $81.8 million at December
31, 2006 and 2005, respectively. Bond Obligations at December 31, 2006 mature in 2035.
In accordance with Emerging Issues Task Force Issue 91-10 (“EITF 91-10”), Accounting for
Special Assessments and Tax Increment Financing, 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 and 2005,
we recorded no liability associated with outstanding CDD bonds as the assessments were not both
fixed and determinable.
13. 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, 2006, 2005, and 2004,
the Company’s employees participated in the Levitt Corporation Security Plus Plan and the Company’s
contributions amounted to $1.3 million, $1.1 million, and $857,000, respectively. These amounts are
included in selling, general and administrative expense in the accompanying consolidated statements
of operations.
14. Certain Relationships and Related Party Transactions
The Company and BankAtlantic Bancorp, Inc. (“Bancorp”) are under common control. The
controlling shareholder of the Company and Bancorp is BFC Financial Corporation (“BFC”). Bancorp
is the parent company of BankAtlantic. The majority of BFC’s capital stock is owned or controlled
by the Company’s Chairman and Chief Executive Officer, Alan B. Levan, and by the Company’s Vice
Chairman, John E. Abdo, both of whom are also directors of the Company, and executive officers and
directors of BFC, of Bancorp and of BankAtlantic. Mr. Levan and Mr. Abdo are the Chairman and Vice
Chairman, respectively, of Bluegreen Corporation.
The Company occupied office space at BankAtlantic’s 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 transitional services agreement between the Company and Bancorp,
Bancorp or its subsidiary, BankAtlantic, provided certain administrative services, including
human
71
resources, investor and public relations on a percentage of cost basis. The total amounts
for occupancy and these services paid in 2006 and 2005 were $185,000 and $734,000, 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 BFC and to Bluegreen for services provided to the
Company.
The following table sets forth fees paid to the indicated related parties (in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
BFC Financial Corporation |
|
$ |
912 |
|
|
|
127 |
|
|
|
311 |
|
BankAtlantic Bancorp |
|
|
185 |
|
|
|
734 |
|
|
|
499 |
|
Bluegreen Corporation |
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total fees |
|
$ |
1,097 |
|
|
|
942 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
The amounts paid represent rent, amounts owed for services performed or expense
reimbursements.
Levitt and Sons, LLC utilizes the services of Conrad & Scherer, P.A., a law firm in which
William R. Scherer, a member of the Company’s Board of Directors, is a member. Levitt and Sons
paid fees aggregating $470,000, $914,000 and $110,000 to this firm during the years ended December
31, 2006, 2005 and 2004, respectively.
Certain of the Company’s executive officers separately receive compensation from affiliates of
the Company for services rendered to those affiliates. Members of the Company’s Board of Directors
and executive officers also have banking relationships with BankAtlantic in the ordinary course of
BankAtlantic’s business.
At December 31, 2006 and 2005, $4.6 million and $5.1 million, respectively, of cash and cash
equivalents were held on deposit by BankAtlantic. Interest on deposits held at BankAtlantic for
each of the years ended December 31, 2006, 2005 and 2004 was approximately $436,000, $316,000 and
$230,000, respectively. Included in these amounts were $255,000 and $25,000, respectively, for
restricted cash.
During the year ended December 31, 2005 and 2004, actions were taken by the Company with
respect to the development of certain property owned by BankAtlantic. The Company’s efforts
included the successful rezoning of the property and obtaining the permits necessary to develop the
property for residential and commercial use. At December 31, 2005, BankAtlantic had agreed to
reimburse the Company $438,000 for the out-of-pocket costs incurred by it in connection with these
efforts. As of December 31, 2006 this balance had been paid in full and no other amounts remain
outstanding.
15. Commitments and Contingencies
The Company is obligated to fund homeowner association operating deficits incurred by its
communities under development. This obligation ends upon turnover of the association to the
residents of the community.
The Company’s rent expense for premises and equipment for the years ended December 31, 2006,
2005 and 2004 was $2.7 million, $1.6 million and $1.3 million, respectively. At December 31, 2006,
Levitt and Sons is committed under long-term leases for office and showroom space expiring at
various dates through August 2010. Approximate minimum future rentals due under non-cancellable
leases with a term remaining of at least one year are as follows (in thousands):
| |
|
|
|
|
| Year ended December 31, |
|
|
|
|
2007 |
|
$ |
2,286 |
|
2008 |
|
|
1,989 |
|
2009 |
|
|
1,477 |
|
2010 |
|
|
787 |
|
2011 |
|
|
536 |
|
Thereafter |
|
|
1,456 |
|
|
|
|
|
|
|
$ |
8,531 |
|
|
|
|
|
72
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 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 $2.3
million.
The Company is subject to obligations associated with entering into contracts for the
purchase, development and sale of real estate in the routine conduct of its business. At December
31, 2006, the Company had a commitment to purchase property for development for an agreed upon
price of $14.2 million. The following table summarizes certain information relating to outstanding
purchase contracts:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Purchase |
|
Units/ |
|
Expected |
| |
|
Price |
|
Acres |
|
Closing |
| |
|
|
|
|
|
(unaudited) |
|
(unaudited) |
Primary Homebuilding segment |
|
$14.2 million |
|
690 Units |
|
|
2007 |
|
At December 31, 2006, cash deposits of approximately $400,000 secured the Company’s
commitments under this contract.
At December 31, 2006 the Company had outstanding surety bonds and letters of credit of
approximately $139.4 million related primarily to its obligations to various governmental entities
to construct improvements in the Company’s various communities. The Company estimates that
approximately $68.6 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.
The Company entered into an indemnity agreement in April 2004 with a joint venture partner at
Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint
venture’s 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. In 2004, the Company
received a distribution that totaled approximately $1.1 million. In January 2006, the Company
received an additional distribution of approximately $138,000. Accordingly, the potential
obligation of indemnity after the January 2006 distribution is approximately $664,000.
73
16. Income Taxes
The benefit (provision) for income tax expense consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current tax provision
Federal |
|
$ |
(7,350 |
) |
|
|
(24,710 |
) |
|
|
(27,998 |
) |
State |
|
|
(1,143 |
) |
|
|
(3,524 |
) |
|
|
(4,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,493 |
) |
|
|
(28,234 |
) |
|
|
(32,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit (provision) |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
13,060 |
|
|
|
(3,651 |
) |
|
|
(2,829 |
) |
State |
|
|
1,203 |
|
|
|
(551 |
) |
|
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,263 |
|
|
|
(4,202 |
) |
|
|
(3,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (provision) |
|
$ |
5,770 |
|
|
|
(32,436 |
) |
|
|
(35,897 |
) |
|
|
|
|
|
|
|
|
|
|
The Company’s benefit (provision) for income taxes differs from the federal statutory tax
rate of 35% due to the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income tax benefit (provision) at expected federal
income tax rate of 35% |
|
$ |
5,227 |
|
|
|
(30,572 |
) |
|
|
(32,659 |
) |
Benefit (provision) for state taxes, net of federal
benefit |
|
|
936 |
|
|
|
(2,689 |
) |
|
|
(3,333 |
) |
Tax-exempt income |
|
|
489 |
|
|
|
492 |
|
|
|
— |
|
Goodwill impairment adjustment |
|
|
(458 |
) |
|
|
— |
|
|
|
— |
|
Share based compensation |
|
|
(317 |
) |
|
|
— |
|
|
|
— |
|
Increase in state valuation allowance |
|
|
(425 |
) |
|
|
— |
|
|
|
— |
|
Other, net |
|
|
318 |
|
|
|
333 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes |
|
$ |
5,770 |
|
|
|
(32,436 |
) |
|
|
(35,897 |
) |
|
|
|
|
|
|
|
|
|
|
74
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, |
|
| |
|
2006 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Real estate held for sale capitalized for tax purposes in excess
of amounts capitalized for financial statement purposes |
|
$ |
6,205 |
|
|
|
4,627 |
|
Real estate valuation adjustments |
|
|
12,889 |
|
|
|
— |
|
Share based compensation |
|
|
849 |
|
|
|
— |
|
Accrued litigation reserve and other non-deductible expenses |
|
|
848 |
|
|
|
954 |
|
Purchase accounting adjustments from real estate acquisitions |
|
|
274 |
|
|
|
399 |
|
State net operating loss carryforward |
|
|
398 |
|
|
|
— |
|
Income recognized for tax purposes and deferred for
financial statement purposes |
|
|
6,949 |
|
|
|
4,426 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
28,412 |
|
|
|
10,406 |
|
Valuation allowance |
|
|
(425 |
) |
|
|
— |
|
Total deferred tax assets |
|
|
27,987 |
|
|
|
10,406 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Investment in Bluegreen |
|
|
19,501 |
|
|
|
15,167 |
|
Property and equipment |
|
|
985 |
|
|
|
1,397 |
|
Other |
|
|
866 |
|
|
|
870 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
21,352 |
|
|
|
17,434 |
|
|
|
|
|
|
|
|
Net deferred tax assets( liabilities) |
|
|
6,635 |
|
|
|
(7,028 |
) |
Deferred income tax (liabilities) assets at beginning of period |
|
|
(7,028 |
) |
|
|
1,845 |
|
Deferred income taxes on Bluegreen’s unrealized
gains, losses and issuance of common stock |
|
|
600 |
|
|
|
981 |
|
|
|
|
|
|
|
|
Benefit (provision) for deferred income taxes |
|
$ |
14,263 |
|
|
|
(4,202 |
) |
|
|
|
|
|
|
|
This net deferred tax asset of $6.6 million as of December 31, 2006 is presented in Other
Assets on the consolidated statement of financial condition.
Except as discussed below, management believes that the Company will have sufficient taxable
income of the appropriate character in future and prior carryback years to realize the net deferred
income tax asset. In evaluating the expectation of sufficient future taxable income, management
considered the future reversal of temporary differences and available tax planning strategies that
could be implemented, if required. A valuation allowance was required at December 31, 2006 as it
was management’s assessment that, based on available information, it is more likely than not that
certain State net operating loss carryforwards (“NOL”) and other temporary differences attributed
to the Homebuilding operations in Tennessee that are included in the Company’s deferred tax assets
will not be realized. A change in the valuation allowance occurs if there is a change in
management’s assessment of the amount of the net deferred income tax asset that is expected to be
realized.
At December 31, 2006, the Company had NOL’s of $10.0 million for state tax purposes primarily
associated with the Homebuilding operations in Georgia, South Carolina and Tennessee. The Company
files separate State income tax returns in each of these states. Based on current projections,
the Company expects the Tennessee operations to continue to generate operating losses into the
foreseeable future based on the current projects and available backlog. As a consequence,
management believes that it is more likely than not that the State NOL associated with the
Tennessee Homebuilding operations will not be realized.
75
17. Other Revenues
For the year ended December 31, 2006, the Company classified lease and rental income,
marketing fees and irrigation revenue as other revenues. Prior periods have been reclassified to
conform to the current year presentation. The following table summarizes other revenues detail
information (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage & title operations |
|
$ |
4,070 |
|
|
|
3,750 |
|
|
|
4,798 |
|
Lease/rental income |
|
|
3,254 |
|
|
|
2,150 |
|
|
|
681 |
|
Marketing fees |
|
|
1,243 |
|
|
|
674 |
|
|
|
705 |
|
Irrigation revenue |
|
|
674 |
|
|
|
198 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,241 |
|
|
|
6,772 |
|
|
|
6,184 |
|
|
|
|
|
|
|
|
|
|
|
18. Other Expenses and Interest and Other Income
Other expenses and interest and other income are summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended |
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Title and mortgage operations expense |
|
$ |
2,362 |
|
|
|
2,776 |
|
|
|
2,967 |
|
Litigation settlement reserve |
|
|
— |
|
|
|
830 |
|
|
|
— |
|
Penalty on early debt repayment |
|
|
— |
|
|
|
677 |
|
|
|
— |
|
Hurricane expense, net of projected recoveries |
|
|
8 |
|
|
|
572 |
|
|
|
4,400 |
|
Goodwill impairment |
|
|
1,307 |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
3,677 |
|
|
|
4,855 |
|
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
2,910 |
|
|
|
2,556 |
|
|
|
1,338 |
|
Reversal of litigation reserve |
|
|
— |
|
|
|
— |
|
|
|
1,440 |
|
Contingent gain receipt |
|
|
— |
|
|
|
500 |
|
|
|
— |
|
Partial reversal of construction obligation |
|
|
— |
|
|
|
6,765 |
|
|
|
— |
|
Gain on sale of fixed assets |
|
|
1,329 |
|
|
|
— |
|
|
|
— |
|
Forfeited buyer deposits |
|
|
2,700 |
|
|
|
77 |
|
|
|
13 |
|
Other income |
|
|
1,321 |
|
|
|
358 |
|
|
|
412 |
|
Management and development fees |
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
8,260 |
|
|
|
10,256 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
76
19. Estimated Fair Value 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. |
| |
| |
• |
|
Carrying amounts of notes and mortgage notes payable that provide for variable interest
rates approximate fair value, as the terms of the credit facilities require periodic
market adjustment of interest rates. The fair value of the Company’s fixed rate
indebtedness, including development bonds payable, was estimated using discounted cash
flow analyses, based on the Company’s current borrowing rates for similar types of
borrowing arrangements. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2006 |
|
December 31, 2005 |
| |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| (In thousands) |
|
Amount |
|
Value |
|
Amount |
|
Value |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
48,391 |
|
|
|
48,391 |
|
|
|
113,562 |
|
|
|
113,562 |
|
Notes receivable |
|
|
6,888 |
|
|
|
6,888 |
|
|
|
5,248 |
|
|
|
5,248 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and mortgage notes payable |
|
$ |
615,703 |
|
|
|
616,249 |
|
|
|
407,970 |
|
|
|
403,925 |
|
77
20. Litigation
On May 26, 2005, a suit was filed in the 9th Judicial Circuit in and for Orange County,
Florida against the Company in Frank Albert, Dorothy Albert, et al. v. Levitt and Sons, LLC, a
Florida limited liability company, Levitt Homes, LLC, a Florida limited liability company, Levitt
Corporation, a Florida corporation, Levitt Construction Corp. East, a Florida corporation and
Levitt and Sons, Inc., a Florida corporation. The suit purports to be a class action on behalf of
residents in one of the Company’s communities in Central Florida. The complaint alleges, among
other claims, construction defects and unspecified damages ranging from $50,000 to $400,000 per
house. While there is no assurance that the Company will be successful, the Company believes it has
valid defenses and is engaged in a vigorous defense of the action. The amount of loss related to
this matter is estimated to be $320,000 which is recorded in the consolidated statement of
financial condition as of December 31, 2006 as an accrued expense.
On December 12, 2006 Levitt Corporation received a letter from the Internal Revenue Service
advising that Levitt and its subsidiaries has been selected for an examination of the tax period
ending December 31, 2004. The scope of the examination was not indicated in the letter.
The Company is a party to additional various claims and lawsuits which arise in the ordinary
course of business. Although the specific allegations in the lawsuits differ, most of them involve
claims that the Company failed to construct buildings in particular communities in accordance with
plans and specifications or applicable construction codes and seek reimbursement for sums allegedly
needed to remedy the alleged deficiencies, assert contract issues or relate to personal injuries.
Lawsuits of these types are common within the homebuilding industry. The Company does not believe
that the ultimate resolution of these claims or lawsuits will have a material adverse effect on its
business, financial position, results of operations or cash flows.
21. Segment Reporting
Operating segments are components of an enterprise about which separate financial
information is available that is regularly reviewed by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company has four reportable
business segments: Primary Homebuilding, Tennessee Homebuilding, Land and Other Operations. The
Company evaluates segment performance primarily based on pre-tax income. The information provided
for segment reporting is based on management’s 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
arm’s-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 Company’s Homebuilding segments consist of the Primary Homebuilding and Tennessee
Homebuilding while the Land segment consists of the operations of Core Communities. The Other
Operations segment consists of the activities of Levitt Commercial, the Company’s parent company
operations, earnings from investments in Bluegreen and other real estate investments and joint
ventures.
78
The following tables present segment information for the years ended December 31, 2006, 2005
and 2004 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| December 31, 2006 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
424,420 |
|
|
|
76,299 |
|
|
|
69,778 |
|
|
|
11,041 |
|
|
|
(15,452 |
) |
|
|
566,086 |
|
Other revenues |
|
|
4,070 |
|
|
|
— |
|
|
|
3,816 |
|
|
|
1,435 |
|
|
|
(80 |
) |
|
|
9,241 |
|
| |
|
|
Total revenues |
|
|
428,490 |
|
|
|
76,299 |
|
|
|
73,594 |
|
|
|
12,476 |
|
|
|
(15,532 |
) |
|
|
575,327 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
367,252 |
|
|
|
72,807 |
|
|
|
42,662 |
|
|
|
11,649 |
|
|
|
(11,409 |
) |
|
|
482,961 |
|
Selling, general and administrative
expenses |
|
|
65,052 |
|
|
|
12,806 |
|
|
|
15,119 |
|
|
|
28,174 |
|
|
|
— |
|
|
|
121,151 |
|
Other expenses |
|
|
2,362 |
|
|
|
1,307 |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
3,677 |
|
| |
|
|
Total costs and expenses |
|
|
434,666 |
|
|
|
86,920 |
|
|
|
57,781 |
|
|
|
39,831 |
|
|
|
(11,409 |
) |
|
|
607,789 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,684 |
|
|
|
— |
|
|
|
9,684 |
|
Loss from joint ventures |
|
|
(279 |
) |
|
|
— |
|
|
|
— |
|
|
|
(137 |
) |
|
|
— |
|
|
|
(416 |
) |
Interest and other income |
|
|
3,261 |
|
|
|
127 |
|
|
|
2,650 |
|
|
|
4,196 |
|
|
|
(1,974 |
) |
|
|
8,260 |
|
| |
|
|
(Loss) income before income taxes |
|
|
(3,194 |
) |
|
|
(10,494 |
) |
|
|
18,463 |
|
|
|
(13,612 |
) |
|
|
(6,097 |
) |
|
|
(14,934 |
) |
Benefit (provision) for income taxes |
|
|
1,508 |
|
|
|
3,241 |
|
|
|
(6,936 |
) |
|
|
5,639 |
|
|
|
2,318 |
|
|
|
5,770 |
|
| |
|
|
Net (loss) income |
|
$ |
(1,686 |
) |
|
|
(7,253 |
) |
|
|
11,527 |
|
|
|
(7,973 |
) |
|
|
(3,779 |
) |
|
|
(9,164 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
608,358 |
|
|
|
56,214 |
|
|
|
176,356 |
|
|
|
13,269 |
|
|
|
(32,157 |
) |
|
|
822,040 |
|
| |
|
|
Total assets |
|
$ |
644,447 |
|
|
|
62,065 |
|
|
|
271,169 |
|
|
|
146,116 |
|
|
|
(33,131 |
) |
|
|
1,090,666 |
|
| |
|
|
Notes, mortgage notes, and bonds payable |
|
$ |
378,633 |
|
|
|
39,274 |
|
|
|
95,980 |
|
|
|
101,816 |
|
|
|
— |
|
|
|
615,703 |
|
| |
|
|
79
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| December 31, 2005 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
| |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
352,723 |
|
|
|
85,644 |
|
|
|
105,658 |
|
|
|
14,709 |
|
|
|
(622 |
) |
|
|
558,112 |
|
Other revenues |
|
|
3,750 |
|
|
|
— |
|
|
|
1,111 |
|
|
|
1,963 |
|
|
|
(52 |
) |
|
|
6,772 |
|
| |
|
|
Total revenues |
|
|
356,473 |
|
|
|
85,644 |
|
|
|
106,769 |
|
|
|
16,672 |
|
|
|
(674 |
) |
|
|
564,884 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
272,680 |
|
|
|
74,328 |
|
|
|
50,706 |
|
|
|
12,520 |
|
|
|
(2,152 |
) |
|
|
408,082 |
|
Selling, general and administrative
expenses |
|
|
46,917 |
|
|
|
10,486 |
|
|
|
12,395 |
|
|
|
17,841 |
|
|
|
— |
|
|
|
87,639 |
|
Other expenses |
|
|
3,606 |
|
|
|
— |
|
|
|
1,177 |
|
|
|
72 |
|
|
|
— |
|
|
|
4,855 |
|
| |
|
|
Total costs and expenses |
|
|
323,203 |
|
|
|
84,814 |
|
|
|
64,278 |
|
|
|
30,433 |
|
|
|
(2,152 |
) |
|
|
500,576 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,714 |
|
|
|
— |
|
|
|
12,714 |
|
Earnings (loss) from joint ventures |
|
|
104 |
|
|
|
— |
|
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
69 |
|
Interest and other income |
|
|
535 |
|
|
|
188 |
|
|
|
7,897 |
|
|
|
2,143 |
|
|
|
(507 |
) |
|
|
10,256 |
|
| |
|
|
Income before income taxes |
|
|
33,909 |
|
|
|
1,018 |
|
|
|
50,388 |
|
|
|
1,061 |
|
|
|
971 |
|
|
|
87,347 |
|
Provision for income taxes |
|
|
(12,270 |
) |
|
|
(421 |
) |
|
|
(18,992 |
) |
|
|
(378 |
) |
|
|
(375 |
) |
|
|
(32,436 |
) |
| |
|
|
Net income |
|
$ |
21,639 |
|
|
|
597 |
|
|
|
31,396 |
|
|
|
683 |
|
|
|
596 |
|
|
|
54,911 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
406,821 |
|
|
|
59,738 |
|
|
|
150,686 |
|
|
|
11,608 |
|
|
|
(17,593 |
) |
|
|
611,260 |
|
| |
|
|
Total assets |
|
$ |
437,392 |
|
|
|
68,953 |
|
|
|
228,756 |
|
|
|
318,762 |
|
|
|
(158,190 |
) |
|
|
895,673 |
|
| |
|
|
Notes, mortgage notes, and bonds payable |
|
$ |
229,029 |
|
|
|
43,481 |
|
|
|
61,955 |
|
|
|
73,505 |
|
|
|
— |
|
|
|
407,970 |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
|
Primary |
|
|
Tennessee |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| December 31, 2004 |
|
Homebuilding |
|
|
Homebuilding |
|
|
Land |
|
|
Operations |
|
|
Eliminations |
|
|
Total |
|
| |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
418,550 |
|
|
|
53,746 |
|
|
|
96,200 |
|
|
|
5,555 |
|
|
|
(24,399 |
) |
|
|
549,652 |
|
Other revenues |
|
|
4,798 |
|
|
|
— |
|
|
|
927 |
|
|
|
459 |
|
|
|
— |
|
|
|
6,184 |
|
| |
|
|
Total revenues |
|
|
423,348 |
|
|
|
53,746 |
|
|
|
97,127 |
|
|
|
6,014 |
|
|
|
(24,399 |
) |
|
|
555,836 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
323,366 |
|
|
|
47,731 |
|
|
|
42,838 |
|
|
|
6,255 |
|
|
|
(13,916 |
) |
|
|
406,274 |
|
Selling, general and administrative expenses |
|
|
44,421 |
|
|
|
6,385 |
|
|
|
10,373 |
|
|
|
9,822 |
|
|
|
— |
|
|
|
71,001 |
|
Other expenses |
|
|
6,817 |
|
|
|
198 |
|
|
|
561 |
|
|
|
24 |
|
|
|
— |
|
|
|
7,600 |
|
| |
|
|
Total costs and expenses |
|
|
374,604 |
|
|
|
54,314 |
|
|
|
53,772 |
|
|
|
16,101 |
|
|
|
(13,916 |
) |
|
|
484,875 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Bluegreen Corporation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,068 |
|
|
|
— |
|
|
|
13,068 |
|
Earnings (loss) from joint ventures |
|
|
3,535 |
|
|
|
(17 |
) |
|
|
— |
|
|
|
2,532 |
|
|
|
— |
|
|
|
6,050 |
|
Interest and other income |
|
|
1,776 |
|
|
|
168 |
|
|
|
744 |
|
|
|
545 |
|
|
|
— |
|
|
|
3,233 |
|
| |
|
|
Income (loss) before income taxes |
|
|
54,055 |
|
|
|
(417 |
) |
|
|
44,099 |
|
|
|
6,058 |
|
|
|
(10,483 |
) |
|
|
93,312 |
|
(Provision) benefit for income taxes |
|
|
(20,819 |
) |
|
|
161 |
|
|
|
(17,031 |
) |
|
|
(2,198 |
) |
|
|
3,990 |
|
|
|
(35,897 |
) |
| |
|
|
Net income (loss) |
|
$ |
33,236 |
|
|
|
(256 |
) |
|
|
27,068 |
|
|
|
3,860 |
|
|
|
(6,493 |
) |
|
|
57,415 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
$ |
255,674 |
|
|
|
40,277 |
|
|
|
122,056 |
|
|
|
13,939 |
|
|
|
(18,475 |
) |
|
|
413,471 |
|
| |
|
|
Total assets |
|
$ |
295,815 |
|
|
|
49,875 |
|
|
|
194,825 |
|
|
|
156,427 |
|
|
|
(18,475 |
) |
|
|
678,467 |
|
| |
|
|
Notes, mortgage notes, and bonds payable |
|
$ |
116,759 |
|
|
|
33,559 |
|
|
|
52,729 |
|
|
|
65,179 |
|
|
|
— |
|
|
|
268,226 |
|
| |
|
|
80
22. Parent Company Financial Statements
Subordinated Debentures are direct unsecured obligations of Levitt Corporation, are not
guaranteed by the Company’s subsidiaries and are not secured by any assets of the Company or its
subsidiaries. The Parent Company relies on dividends from its subsidiaries to fund its operations,
including debt service obligations relating to the Investment Notes and Junior Subordinated
Debentures. The Company would be restricted from paying dividends to its common shareholders in
the event of a default on either the Investment Notes or Junior Subordinated Debentures, and
restrictions on the Company’s subsidiaries’ ability to remit dividends to Levitt Corporation could
result in such a default if the Company does not have available funds to service those obligations.
Some of the Company’s subsidiaries have borrowings which contain covenants that, among other
things, require the subsidiary to maintain certain financial ratios and minimum net worth. These
covenants may have the effect of limiting the amount of debt that the subsidiaries can incur in the
future and restricting the payment of dividends from subsidiaries to the Company. At December 31,
2006 under the most restrictive of these covenants, approximately $132.1 million of the
subsidiaries’ net assets were not available to transfer funds to the Company in the form of loans,
advances or dividends, and $139.5 million was available for these transfers. At December 31, 2006
the Company and its subsidiaries were in compliance with all loan agreement financial covenants. At
December 31, 2006 consolidated retained earnings includes approximately $29.8 million which
represents undistributed earnings recognized by the equity method.
Some of the Company’s subsidiaries have borrowings which contain covenants that, among other
things, require the subsidiary to maintain certain financial ratios and minimum net worth. These
covenants may have the effect of limiting the amount of debt that the subsidiaries can incur in the
future and restricting the payment of dividends from subsidiaries to the Company. At December 31,
2006 and 2005, the Company was in compliance with all loan agreement financial covenants.
81
The accounting policies for the parent company are generally the same as those policies
described in the summary of significant accounting policies. The parent company’s interests in its
consolidated subsidiaries are reported under equity method accounting for purposes of this
presentation.
Condensed Statements of Financial Condition at December 31, 2006 and 2005 and Condensed
Statements of Operations and Condensed Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2006 are shown below:
Levitt Corporation (Parent Company Only)
Condensed Statements of Financial Condition
(In thousands except share data)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,900 |
|
|
|
43,817 |
|
Inventory of real estate |
|
|
7,717 |
|
|
|
4,165 |
|
Investments in real estate joint ventures |
|
|
— |
|
|
|
2 |
|
Investment in Bluegreen Corporation |
|
|
107,063 |
|
|
|
95,828 |
|
Investment in Unconsolidated Trusts |
|
|
2,565 |
|
|
|
1,637 |
|
Investment in wholly-owned subsidiaries |
|
|
258,353 |
|
|
|
270,788 |
|
Other assets |
|
|
69,476 |
|
|
|
19,556 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
454,074 |
|
|
|
435,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
4,255 |
|
|
|
13,699 |
|
Notes payable |
|
|
2,925 |
|
|
|
3,132 |
|
Junior subordinated debentures |
|
|
85,052 |
|
|
|
54,124 |
|
Deferred tax liability, net |
|
|
18,603 |
|
|
|
15,052 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
110,835 |
|
|
|
86,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 5,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: no shares |
|
|
— |
|
|
|
— |
|
Common stock, Class A, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 50,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: 18,609,024 and 18,604,053
shares, respectively |
|
|
186 |
|
|
|
186 |
|
Common stock, Class B, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized: 10,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding: 1,219,031 shares, respectively |
|
|
12 |
|
|
|
12 |
|
Additional paid-in capital |
|
|
184,401 |
|
|
|
181,084 |
|
Unearned compensation |
|
|
— |
|
|
|
(110 |
) |
Retained earnings |
|
|
156,219 |
|
|
|
166,969 |
|
Accumulated other comprehensive income |
|
|
2,421 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
343,239 |
|
|
|
349,786 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
454,074 |
|
|
|
435,793 |
|
|
|
|
|
|
|
|
82
Levitt Corporation (Parent Company Only)
Condensed Statements of Income
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Earnings from Bluegreen Corporation |
|
$ |
9,684 |
|
|
|
12,713 |
|
|
|
13,068 |
|
Other revenues |
|
|
3,497 |
|
|
|
2,015 |
|
|
|
2,601 |
|
Costs and expenses |
|
|
28,158 |
|
|
|
16,550 |
|
|
|
10,002 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(14,977 |
) |
|
|
(1,822 |
) |
|
|
5,667 |
|
Benefit (provision) for income taxes |
|
|
6,162 |
|
|
|
674 |
|
|
|
(2,103 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income before undistributed earnings from
subsidiaries |
|
|
(8,815 |
) |
|
|
(1,148 |
) |
|
|
3,564 |
|
(Loss) earnings from consolidated subsidiaries, net of income taxes |
|
|
(349 |
) |
|
|
56,059 |
|
|
|
53,851 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
|
|
|
|
|
|
|
|
|
|
83
Levitt Corporation (Parent Company Only)
Condensed Statements of Cash Flows
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
2004 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,164 |
) |
|
|
54,911 |
|
|
|
57,415 |
|
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
1,352 |
|
|
|
113 |
|
|
|
— |
|
Increase in deferred income taxes |
|
|
2,953 |
|
|
|
5,057 |
|
|
|
5,314 |
|
Equity from earnings in Bluegreen Corporation |
|
|
(9,684 |
) |
|
|
(12,714 |
) |
|
|
(13,068 |
) |
Equity from earnings in consolidated subsidiaries |
|
|
349 |
|
|
|
(56,059 |
) |
|
|
(53,851 |
) |
Equity from loss (earnings) in joint ventures |
|
|
2 |
|
|
|
47 |
|
|
|
(2,329 |
) |
Equity in earnings from unconsolidated trusts |
|
|
(178 |
) |
|
|
(95 |
) |
|
|
— |
|
Share-based compensation expense related to stock options and restricted stock |
|
|
3,250 |
|
|
|
— |
|
|
|
— |
|
Dividends received from consolidated subsidiaries |
|
|
12,086 |
|
|
|
17,805 |
|
|
|
10,685 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of real estate |
|
|
(3,552 |
) |
|
|
(2,470 |
) |
|
|
(409 |
) |
Decrease (increase) in other assets |
|
|
1,404 |
|
|
|
(123 |
) |
|
|
1,862 |
|
Increase (decrease) in accounts
payable and accrued expenses and other
liabilities |
|
|
(9,444 |
) |
|
|
6,813 |
|
|
|
5,701 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(10,626 |
) |
|
|
13,285 |
|
|
|
11,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate joint ventures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distributions and advances from real estate joint ventures |
|
|
153 |
|
|
|
37 |
|
|
|
1,768 |
|
Investment in unconsolidated trusts |
|
|
(928 |
) |
|
|
(1,624 |
) |
|
|
— |
|
Distributions from unconsolidated trusts |
|
|
178 |
|
|
|
82 |
|
|
|
— |
|
Investment in consolidated subsidiaries |
|
|
— |
|
|
|
(3,549 |
) |
|
|
(75,142 |
) |
Purchase of property, plant and equipment |
|
|
(7,895 |
) |
|
|
(1,082 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,492 |
) |
|
|
(6,136 |
) |
|
|
(73,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes and mortgage notes payable |
|
|
479 |
|
|
|
43 |
|
|
|
18,423 |
|
Repayment of notes and mortgage notes payable to affiliates |
|
|
— |
|
|
|
(38,000 |
) |
|
|
(5,500 |
) |
Repayment of notes and mortgage notes payable |
|
|
(686 |
) |
|
|
(19,001 |
) |
|
|
(8,542 |
) |
Proceeds from junior subordinated notes |
|
|
30,928 |
|
|
|
54,124 |
|
|
|
— |
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
122,500 |
|
Payments for debt offering cost |
|
|
(1,077 |
) |
|
|
(1,686 |
) |
|
|
— |
|
Payments for stock issuance costs |
|
|
— |
|
|
|
— |
|
|
|
(7,731 |
) |
Net increase in intercompany due |
|
|
(43,858 |
) |
|
|
1,032 |
|
|
|
(16,454 |
) |
Cash dividends paid |
|
|
(1,585 |
) |
|
|
(1,585 |
) |
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(15,799 |
) |
|
|
(5,073 |
) |
|
|
101,904 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(34,917 |
) |
|
|
2,076 |
|
|
|
39,850 |
|
Cash and cash equivalents at the beginning of period |
|
|
43,817 |
|
|
|
41,741 |
|
|
|
1,891 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
8,900 |
|
|
|
43,817 |
|
|
|
41,741 |
|
|
|
|
|
|
|
|
|
|
|
23. Selected Quarterly Financial Data (unaudited)
The following tables summarize the quarterly results of operations for the years ended
December 31, 2006 and 2005. Due to rounding and changes in the number of shares outstanding, the
sum of the quarterly (loss) earnings per share amounts may not equal the (loss) earnings per share
reported for the year (in thousands, except per share data):
84
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2006 |
|
| |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Total |
|
| |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
2006 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
125,543 |
|
|
|
130,658 |
|
|
|
130,939 |
|
|
|
178,946 |
|
|
|
566,086 |
|
Other revenues |
|
|
1,951 |
|
|
|
2,556 |
|
|
|
2,276 |
|
|
|
2,458 |
|
|
|
9,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
127,494 |
|
|
|
133,214 |
|
|
|
133,215 |
|
|
|
181,404 |
|
|
|
575,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
102,055 |
|
|
|
105,652 |
|
|
|
104,520 |
|
|
|
170,734 |
|
|
|
482,961 |
|
Other costs and expenses |
|
|
27,381 |
|
|
|
32,389 |
|
|
|
33,351 |
|
|
|
31,707 |
|
|
|
124,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
129,436 |
|
|
|
138,041 |
|
|
|
137,871 |
|
|
|
202,441 |
|
|
|
607,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)earnings from Bluegreen
Corporation |
|
|
(49 |
) |
|
|
2,152 |
|
|
|
6,923 |
|
|
|
658 |
|
|
|
9,684 |
|
Other income |
|
|
889 |
|
|
|
1,583 |
|
|
|
2,101 |
|
|
|
3,271 |
|
|
|
7,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
(1,102 |
) |
|
|
(1,092 |
) |
|
|
4,368 |
|
|
|
(17,108 |
) |
|
|
(14,934 |
) |
Benefit (provision) for income taxes |
|
|
442 |
|
|
|
355 |
|
|
|
(1,395 |
) |
|
|
6,368 |
|
|
|
5,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(660 |
) |
|
|
(737 |
) |
|
|
2,973 |
|
|
|
(10,740 |
) |
|
|
(9,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.03 |
) |
|
|
(0.04 |
) |
|
|
0.15 |
|
|
|
(0.54 |
) |
|
|
(0.46 |
) |
Fully diluted (loss) earnings per
share |
|
$ |
(0.03 |
) |
|
|
(0.04 |
) |
|
|
0.15 |
|
|
|
(0.54 |
) |
|
|
(0.47 |
) |
Weighted average shares outstanding |
|
|
19,821 |
|
|
|
19,823 |
|
|
|
19,824 |
|
|
|
19,825 |
|
|
|
19,823 |
|
Fully diluted shares outstanding |
|
|
19,821 |
|
|
|
19,823 |
|
|
|
19,831 |
|
|
|
19,825 |
|
|
|
19,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2005 |
|
| |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Total |
|
| |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of real estate |
|
$ |
198,866 |
|
|
|
107,094 |
|
|
|
128,520 |
|
|
|
123,632 |
|
|
|
558,112 |
|
Other revenues |
|
|
1,697 |
|
|
|
1,613 |
|
|
|
1,490 |
|
|
|
1,972 |
|
|
|
6,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
200,563 |
|
|
|
108,707 |
|
|
|
130,010 |
|
|
|
125,604 |
|
|
|
564,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of real estate |
|
|
130,589 |
|
|
|
84,547 |
|
|
|
98,455 |
|
|
|
94,491 |
|
|
|
408,082 |
|
Other costs and expenses |
|
|
24,462 |
|
|
|
20,085 |
|
|
|
21,518 |
|
|
|
26,429 |
|
|
|
92,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
155,051 |
|
|
|
104,632 |
|
|
|
119,973 |
|
|
|
120,920 |
|
|
|
500,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from Bluegreen
Corporation |
|
|
2,138 |
|
|
|
4,729 |
|
|
|
5,951 |
|
|
|
(104 |
) |
|
|
12,714 |
|
Other income |
|
|
663 |
|
|
|
829 |
|
|
|
1,189 |
|
|
|
7,644 |
|
|
|
10,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
48,313 |
|
|
|
9,633 |
|
|
|
17,177 |
|
|
|
12,224 |
|
|
|
87,347 |
|
Provision for income taxes |
|
|
(18,495 |
) |
|
|
(3,581 |
) |
|
|
(6,469 |
) |
|
|
(3,891 |
) |
|
|
(32,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
29,818 |
|
|
|
6,052 |
|
|
|
10,708 |
|
|
|
8,333 |
|
|
|
54,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.50 |
|
|
|
0.31 |
|
|
|
0.54 |
|
|
|
0.42 |
|
|
|
2.77 |
|
Fully diluted earnings per share |
|
$ |
1.49 |
|
|
|
0.30 |
|
|
|
0.53 |
|
|
|
0.42 |
|
|
|
2.74 |
|
Weighted average shares outstanding |
|
|
19,816 |
|
|
|
19,816 |
|
|
|
19,817 |
|
|
|
19,819 |
|
|
|
19,817 |
|
Fully diluted shares outstanding |
|
|
19,965 |
|
|
|
19,949 |
|
|
|
19,944 |
|
|
|
19,843 |
|
|
|
19,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.08 |
|
In the fourth quarter of 2006, the Company recorded $31.1 million of impairment charges
which included $29.7 million of homebuilding inventory impairment charges and $1.4 million of
write-offs of deposits and pre-acquisition costs related to land under option that the Company does
not intend to
85
purchase. Projections of future cash flows related to the remaining assets were
discounted and used to determine the estimated impairment charge.
The 2006 quarters and year ended December 31, 2005 reflect the reclassification of irrigation,
leasing and marketing revenue to Other revenues from Interest and other income.
24. Subsequent Events
Merger Agreement with BFC
On January 31, 2007, Levitt Corporation announced that the Company had entered into a
definitive merger agreement with BFC Financial Corporation, a Florida corporation (“BFC”), pursuant
to which the Company would, upon consummation of the merger, become a wholly owned subsidiary of
BFC. Under the terms of the merger agreement, holders of the Company’s Class A Common Stock (other
than BFC) will be entitled to receive 2.27 shares of BFC Class A Common Stock for each share of the
Company’s Class A Common Stock held by them and cash in lieu of any fractional shares of BFC Class
A Common Stock that they otherwise would be entitled to receive in connection with the merger.
Further, under the terms of the merger agreement, options to purchase, and restricted stock awards,
of shares of the Company’s Class A Common Stock will be converted into options to purchase, and
restricted stock awards, as applicable, of shares of BFC Class A Common Stock with appropriate
adjustments. BFC Class A Common Stock is listed for trading on the NYSE Arca Stock Exchange under
the symbol “BFF,” and on January 30, 2007, its closing price on such exchange was $6.35. The merger
agreement contains certain customary representations, warranties and covenants on the part the
Company and BFC, and the consummation of the merger is subject to a number of customary closing and
termination conditions as well as the approval of both the Company’s and BFC’s shareholders.
Further, in addition to the shareholder approvals required by Florida law, the merger will also be
subject to the approval of the holders of the Company’s Class A Common Stock other than BFC and
certain other shareholders.
Reduction in force
Based on an ongoing evaluation of costs in view of current market conditions, the Company
reduced its headcount in February by 89 employees resulting in a $440,000 severance charge to be
recorded in the first quarter of 2007.
86
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K/A, we carried out an
evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended). In designing and evaluating our disclosure
controls and procedures, our management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives and are subject to certain limitations, including the exercise of judgment by
individuals, the difficulty in identifying unlikely future events and the difficulty in eliminating
misconduct completely. Based upon that evaluation, our Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer, have concluded that, our disclosure controls and procedures
were effective to ensure the information required to be disclosed in the reports that we file or
submit under the Exchange Act were recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission and that such
information was accumulated and communicated to our management, including our Chief Executive
Officer, Chief Financial Officer and our Chief Accounting Officer, to allow for timely decisions
regarding required disclosures.
Our management, including our Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer, re-evaluated our disclosure controls and procedures as of the end of the period
covered by this report to determine whether the revisions in this Annual Report on Form 10-K/A
impacted our prior conclusion regarding the effectiveness of our disclosure controls and
procedures, and determined that such revisions do not change our conclusion that our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended) were effective as of December 31, 2006.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. Levitt Corporation’s internal control over financial
reporting includes those policies and procedures that:
| |
(a) |
|
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the Company; |
| |
| |
(b) |
|
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and |
| |
| |
(c) |
|
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have
a material affect on the financial statements. |
As of the end of the period covered by this report, management conducted an evaluation of the
87
effectiveness of the design and operation of the Company’s internal control over financial
reporting. In making this assessment, management used the criteria set forth by the COSO in
Internal Control – Integrated Framework. Based on this evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2006.
Pricewaterhouse Coopers LLP, our independent registered certified public accounting firm, has
audited management’s assessment of the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2006 as stated in their report which appears in this Annual
Report on Form 10-K/A. See “Financial Statements.”
Changes in Internal Control Over Financial Reporting
There was no changes in the Company’s internal control over financial reporting that occurred during
the quarter ended December 31, 2006 that has materially affected, or reasonably likely to
materially affect, the Company’s internal control over financial reporting.
/s/ Alan B. Levan
Alan B. Levan
Chief Executive Officer
July 3, 2007
/s/ George P. Scanlon
George P. Scanlon
Chief Financial Officer
July 3, 2007
/s/ Jeanne T. Prayther
Jeanne T. Prayther
Chief Accounting Officer
July 3, 2007
88
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) |
|
Documents Filed as Part of this Report: |
| |
(1) |
|
Financial Statements |
| |
| |
|
|
The following consolidated financial statements of Levitt Corporation and its
subsidiaries are included herein under Part II, Item 8 of this Report. |
| |
|
|
Report of Independent Registered Certified Public Accounting Firm |
| |
| |
|
|
Consolidated Statements of Financial Condition as of December 31, 2006 and
2005. |
| |
| |
|
|
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 2006. |
| |
| |
|
|
Consolidated Statements of Comprehensive (Loss) Income for each of the
years in the three year period ended December 31, 2006. |
| |
| |
|
|
Consolidated Statements of Shareholders’ Equity for each of the years in
the three year period ended December 31, 2006. |
| |
| |
|
|
Consolidated Statements of Cash Flows for each of the years in the three
year period ended December 31, 2006. |
| |
| |
|
|
Notes to Consolidated Financial Statements for each of the years in the
three year period ended December 31, 2006. |
| |
(2) |
|
Financial Statement Schedules |
| |
| |
|
|
All schedules are omitted as the required information is either not applicable or
presented in the financial statements or related notes. |
89
| |
(3) |
|
Exhibits |
| |
| |
|
|
The following exhibits are either filed as a part of or furnished with this Annual
Report on Form 10-K/A Amendment No. 2: |
| |
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
Description |
|
Reference |
| |
23.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
Filed with this Report. |
|
|
|
|
|
23.2
|
|
Consent of Ernst & Young LLP
|
|
Filed with this Report. |
|
|
|
|
|
31.1
|
|
Certification pursuant to Section
302 of the Sarbanes-Oxley Act of
2002
|
|
Filed with this Report. |
|
|
|
|
|
31.2
|
|
Certification pursuant to Section
302 of the Sarbanes-Oxley Act of
2002
|
|
Filed with this Report. |
|
|
|
|
|
31.3
|
|
Certification pursuant to Section
302 of the Sarbanes-Oxley Act of
2002
|
|
Filed with this Report. |
|
|
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
Furnished with this Report. |
|
|
|
|
|
32.2
|
|
Certification pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
Furnished with this Report. |
|
|
|
|
|
32.3
|
|
Certification pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
Furnished with this Report. |
|
|
|
|
|
99.1
|
|
Restated audited financial
statements of Bluegreen Corporation
for the three years ended December
31, 2006
|
|
Filed with this Report. |
90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
|
|
|
|
| |
|
LEVITT CORPORATION |
|
|
|
|
|
|
|
July 3, 2007
|
|
By:
|
|
/s/Alan B. Levan |
|
|
|
|
|
|
|
|
|
| |
|
Alan B. Levan |
|
|
| |
|
Chairman of the Board of Directors, |
|
|
| |
|
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/ Alan B. Levan
|
|
Chairman of the Board and Chief Executive
|
|
July 3, 2007 |
|
|
Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ John E. Abdo
John E. Abdo
|
|
Vice-Chairman of the Board
|
|
July 3, 2007 |
|
|
|
|
|
/s/ Seth M. Wise
Seth M. Wise
|
|
President
|
|
July 3, 2007 |
|
|
|
|
|
/s/ George P. Scanlon
|
|
Executive Vice President and Chief Financial
|
|
July 3, 2007 |
|
|
Officer
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ Jeanne T. Prayther
|
|
Chief Accounting Officer
|
|
July 3, 2007 |
|
|
Officer
(Accounting Officer) |
|
|
91
| |
|
|
|
|
| SIGNATURE |
|
TITLE |
|
DATE |
/s/ James Blosser
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Darwin C. Dornbush
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ S. Lawrence Kahn, III
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
S. Lawrence Kahn, III |
|
|
|
|
|
|
|
|
|
/s/ Alan Levy
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Joel Levy
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ William R. Nicholson
William R. Nicholson
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
/s/ William R. Scherer
|
|
Director
|
|
July 3, 2007 |
|
|
|
|
|
92