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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 2003
| | 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)
FLORIDA 11-3675068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(Address of principal executive (Zip Code)
offices)
(954) 760-5200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$0.01 PER SHARE
(Title of Each Class) (Name of Each Exchange on Which Registered)
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 10K or any
amendment to this Form 10K. |X|
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO | |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES | | NO |X|
The aggregate market value of the voting common equity held by
non-affiliates was $0 on June 30, 2003.
The number of shares of Registrant's Class A Common Stock outstanding on
March 24, 2004 was 13,597,166. The number of shares of Registrant's Class B
Common Stock outstanding on March 24, 2004 was 1,219,031.
Portions of the Proxy Statement of Registrant relating to the Annual
Meeting of shareholders are incorporated in Part III of this report.
1
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"). Some of
the forward-looking statements can be identified by the use of words such as
"anticipate," "believe," "estimate," "may," "intend," "expect," "will,"
"should," "seeks" or other similar expressions. Forward-looking statements are
based largely on the expectations of Levitt Corporation ("the Company",
"Levitt", or "Registrant", which may be referred to as "we", "us" or "our") and
involve inherent risks and uncertainties including certain risks described in
this report or other documents incorporated herein by reference. When
considering those forward-looking statements, you should keep in mind the risks,
uncertainties and other cautionary statements made or incorporated by reference
in this report. You should not place undue reliance on any forward-looking
statement, which speaks only as of the date made. In addition to the risks
identified below, you should refer to our periodic and current reports filed
with the United States Securities and Exchange Commission (the "SEC") for
specific risks which could cause actual results to be significantly different
from those expressed or implied by those forward-looking statements. Some
factors which may affect the accuracy of the forward-looking statements apply
generally to the real estate industry, while other factors apply directly to us.
Any number of important factors which could cause actual results to differ
materially from those in the forward-looking statements include: general
economic and market conditions, including interest rate levels; our ability to
service our substantial indebtedness; inherent risks in investment in real
estate; fluctuations in operating results; our anticipated growth strategies;
shortages and increased costs of labor and building materials; competition in
the real estate development industry; availability and cost of land in desirable
areas; natural disasters; our ability to raise debt and equity capital and grow
our operations on a profitable basis; and our continuing relationship with
affiliates. Many of these factors are beyond our control. In addition to the
risks and factors identified above, reference is also made to other risks and
factors detailed in reports filed by the Company with the SEC. 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 Florida. We were organized in December 1982 under the laws of the
State of Florida. Until December 31, 2003, we were a wholly owned subsidiary of
BankAtlantic Bancorp, Inc, a diversified financial services holding company
("BankAtlantic Bancorp"). We refer you to the discussion below for a description
of our spin-off on December 31, 2003 from BankAtlantic Bancorp.
We primarily develop single-family home and master-planned communities,
but we also develop, on a limited basis, commercial and industrial properties
and multi-family complexes. In our single-family communities, we specialize in
serving homebuyers in the active adult and the primary, family-oriented markets
who desire significant customization to our standard production homes. The
standard base price for the homes we sell is between $135,000 and $325,000, but
our closing price is usually higher due to design modifications, customizations
and lot premiums. For 2003, the average selling price of our homes was $220,000.
Through our master-planned communities, we generate substantial long-term
revenue from large acreage sales to third-party residential, commercial and
industrial developers, as well as create opportunities for our homebuilding
activities.
Our principal real estate activities are conducted through Levitt and
Sons, LLC, our wholly-owned homebuilding subsidiary ("Levitt and Sons") and Core
Communities, LLC, our wholly-owned master-planned community development
subsidiary ("Core Communities"). We also engage in commercial real estate
activities through Levitt Commercial, LLC, our wholly-owned commercial
development subsidiary ("Levitt Commercial"), and we invest with third parties
in joint ventures which develop rental and single-family residential properties.
In addition, we own approximately 38% of publicly traded Bluegreen Corporation
("Bluegreen", NYSE: BXG), which acquires, develops, markets and sells vacation
ownership interests in "drive-to" vacation resorts and residential home sites
around golf courses or other amenities.
Levitt and Sons is a real estate developer and residential homebuilder
specializing in single-family home communities and condominiums. 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.
Core Communities develops master-planned communities and has two existing
communities in South Florida. Our original and best-known community, St Lucie
West, has been the fastest growing community on Florida's Treasure
2
Coast since we acquired it in October 1997 and was ranked by Robert
Charles Lesser & Co. as the 6th fastest selling master-planned community in the
United States for 2003. St. Lucie West is a 4,600-acre community with
approximately 5,000 built and occupied homes, numerous businesses, a university
campus and the New York Mets' spring training facility. Our second
master-planned community, Tradition, is planned to include over 15,000
residences, a corporate park, a K-12 charter / lab school, commercial properties
and mixed-used parcels. We currently own approximately 4,700 acres in Tradition
and have options to acquire approximately 4,500 additional acres, which would
provide us with a total of approximately five miles of frontage along I-95, a
major north/south interstate highway.
Spin-off from BankAtlantic Bancorp
On December 31, 2003, BankAtlantic Bancorp, Inc. completed the spin-off of
Levitt Corporation by means of a pro rata distribution to its shareholders of
all of our issued and outstanding capital stock. Prior to the spin-off, we were
a wholly owned subsidiary of BankAtlantic Bancorp. As a result of the spin-off,
BankAtlantic Bancorp no longer owns any shares of our capital stock. However, at
the time of the spin-off, BFC Financial Corporation was the holder of all of the
issued and outstanding shares of BankAtlantic Bancorp's Class B common stock and
approximately 15.3% of the issued and outstanding shares of BankAtlantic
Bancorp's Class A common stock. As a result of the spin-off, BFC Financial
Corporation now holds the same relative percentages of our Class A and Class B
Common stock. In the aggregate, BFC Financial Corporation's investment
represents approximately 55% of the total voting power of all of our common
stock.
In connection with the spin-off, the $30.0 million demand note owed by us
to BankAtlantic Bancorp was converted to a five year term note due December 30,
2008 with interest only payable monthly initially at the prime rate and
thereafter at the prime rate plus increments of an additional 0.25% every six
months starting June 2004. Prior to the spin-off, BankAtlantic Bancorp also
transferred to us its 1.2 million shares of Bluegreen common stock in exchange
for a $5.5 million note and additional shares of our common stock (which were
included in the spin-off). This $5.5 million note is due on December 30, 2004,
with principal and interest payable monthly and bearing interest at the prime
rate. Additionally, prior to the spin-off, we declared an $8.0 million dividend
to BankAtlantic Bancorp payable in the form of a five-year term note with the
same payment terms as the $30.0 million note described above.
Proposed Equity Offering
On February 23, 2004, Levitt Corporation filed a Form S-3 registration
statement with the SEC registering the sale in a proposed underwritten public
offering of 5,000,000 shares of the Company's Class A common stock (5,750,000
shares if the underwriters exercise their over-allotment option). The net
proceeds of the offering, if completed, will be used to repay approximately
$13.9 million of indebtedness (including the $5.5 million note described above),
to fund our growth, both internally and through acquisitions, and for general
corporate purposes. Please see "Liquidity and Capital Resources."
BUSINESS STRATEGY
Our business strategy involves the following principal elements:
Build and sell homes profitably in strong growth markets throughout
Florida. Currently, we build homes throughout Florida. Our markets are expected
to remain strong due to favorable demographic and economic trends, such as
retiring "Baby Boomers" and continuing new employment opportunities. As we
complete existing developments in these markets, we expect to acquire new land
that will not only replenish but also increase our inventory.
Continue to acquire land and to develop master-planned communities in
desirable markets. We intend to acquire land parcels in desirable markets that
are suited for developing large master-planned communities. Generally, land sale
revenues tend to be sporadic and fluctuate more than home sale revenues, but
land sale transactions result in higher margins, which typically exceed 40%. Our
land development activities in our master-planned communities complement our
homebuilding activities by offering a potential source of land for future
homebuilding. At the same time, Levitt and Sons' homebuilding activities
complement our master-planned community development activities since we believe
that its strong merchandising and quality developments support future land sales
in our master-planned communities. We expect that Levitt and Sons will continue
to purchase land for its residential home developments in our master-planned
communities in the future.
Explore joint ventures and/or acquisitions to expand our penetration
throughout the United States. We believe that our brand and our core competence
as a homebuilder and real estate developer can be extended to new markets both
3
inside and outside of Florida. Our strength in developing active adult
communities and our brand awareness positions us to pursue joint venture
opportunities in new markets.
Maintain a conservative risk profile. We attempt to apply a disciplined
risk management approach to our business activities. Other than our model
homes, substantially all of our homes are pre-sold before construction begins.
We require customer deposits of at least 5% to 10% of the base sales price of
our homes, and we require a higher percentage deposit for design customizations
and upgrades. As a result, we strengthen our backlog and lower our cancellation
rates. We seek to maintain our land inventory at Levitt and Sons at levels that
can be absorbed within three years. While our land inventory in Tradition, our
newest master-planned community, can support eight to ten years of development,
we can mitigate the risk associated with this investment by selling parcels to
other developers throughout the development period. Alternatively, early sales
can provide us with funds that allow us to assemble substantially more acreage
with less required additional capital investment. We can also utilize this early
sales strategy to improve the attractiveness of the development. For instance,
we sold approximately 1,000 acres adjacent to Tradition which we expect to be
developed with one or more golf courses, thereby adding an attractive amenity to
the area near the development.
Utilize community development districts to fund development costs. We
establish community development or improvement districts to access bond
financing to fund infrastructure and other projects at our master-planned
community developments. The ultimate owners of the property within the district
are responsible for amounts owed on these bonds as part of an assessment on
their tax bills. Generally, no payments under the bonds are required from
property owners during the first two years after issuance. While we are
responsible for these amounts until the affected property is sold, this strategy
allows us to more effectively manage the cash required to fund development of
the project.
Pursue other strategic real estate opportunities. Currently, we own
approximately 38% of the outstanding common stock of Bluegreen. Bluegreen is an
independently operated company that primarily acquires, develops, markets and
sells vacation ownership interests in "drive-to" resorts and develops and sells
residential home sites around golf courses or other amenities. We believe that
our investment in Bluegreen will be beneficial over time since Bluegreen's
current customers are potential future homebuyers in our active adult
communities and because the investment diversifies our real estate activities.
In the future, we may pursue strategic investments in other real estate related
businesses.
BUSINESS SEGMENTS
Management reports results of operations through four segments: Levitt and
Sons, Core Communities, Investment in Bluegreen and Other Operations. The
presentation and allocation of the assets, liabilities and results of operations
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
4
LEVITT AND SONS
Levitt and Sons develops planned communities featuring homes with average
closing prices ranging from $167,000 to $273,000. While in prior years Levitt
and Sons focused on active adult communities, Levitt and Sons recently expanded
into developing communities for the primary, family-oriented market. At December
31, 2003, Levitt and Sons had eleven communities under development.
Additionally, through a joint venture Levitt and Sons is constructing a 164-unit
condominium project. The communities currently under development or under
contract and relevant data as of December 31, 2003 are as follows:
TYPE OF SALES PLANNED CLOSED CONTRACTED UNSOLD
COMMUNITY LOCATION COMMUNITY COMMENCED UNITS (A) UNITS UNITS BALANCE
--------- -------- --------- --------- ---------- ---------- ---------- ----------
CURRENTLY IN DEVELOPMENT
Cascades (b) St. Lucie West Active Adult 2000 1,158 660 400 98
Summit Greens Clermont Active Adult 2000 770 449 188 133
Bellaggio Boynton Beach Active Adult 2001 537 314 156 67
Cascades Estero Active Adult 2002 521 111 266 144
Cascades Sarasota Active Adult 2003 466 -- 76 390
---------- ---------- ---------- ----------
TOTAL ACTIVE ADULT 3,452 1,534 1,086 832
---------- ---------- ---------- ----------
Avalon Park Orlando Family 2002 806 84 274 448
Magnolia Lakes (b) St. Lucie West Family 2002 479 75 372 32
Regency Hills Clermont Family 2002 265 61 143 61
Summerport Windermere Family 2003 481 22 178 281
Riomar Sarasota Family 2004 154 -- -- 154
Hunter's Creek Orange County Family 2004 111 -- -- 111
---------- ---------- ---------- ----------
TOTAL FAMILY 2,296 242 967 1,087
---------- ---------- ---------- ----------
TOTAL CURRENTLY
IN DEVELOPMENT 5,748 1,776 2,053 1,919
---------- ---------- ---------- ----------
PROPERTIES UNDER CONTRACT
TO BE ACQUIRED (c)
Cascades Estero Active Adult 83 -- -- 83
Cascades Groveland Active Adult 999 -- -- 999
Cascades (b) Tradition Active Adult 1,200 -- -- 1,200
---------- ---------- ---------- ----------
TOTAL PROPERTIES
UNDER CONTRACT 2,282 -- -- 2,282
---------- ---------- ---------- ----------
TOTAL PROPERTIES 8,030 1,776 2,053 4,201
========== ========== ========== ==========
(a) Represents the number of residential units planned to be built on the
property. Actual number of units may vary from original project plan due
to engineering and architectural changes.
(b) Acquired or under contract to be acquired from Core Communities
(c) There can be no assurance that current property contracts will be
consummated.
All of the above communities are located within the State of Florida.
The properties under contract listed above represent properties Levitt and
Sons has the right to acquire and currently intends to purchase for which due
diligence has been completed as of December 31, 2003 and represent an aggregate
purchase price of $32.7 million. While financing is not yet finalized for these
properties, all of these transactions are expected to close by the end of 2004.
At December 31, 2003, Levitt and Sons also had contracts to acquire three
additional properties for which due diligence had not been completed. These
additional properties, which are not included in the above table, would provide
a total of 1,674 homesites for an aggregate purchase price of approximately
$29.9 million.
Levitt and Sons is also participating in a joint venture that is
constructing a 164 unit condominium project known as Boca Grand in which Levitt
and Sons has a 47.5% interest. At December 31, 2003, 18 units had been
delivered, 104 units were in the venture's backlog, and the remaining 42 units
were available for sale.
5
At December 31, 2003, Levitt and Sons' backlog (excluding joint ventures)
was 2,053 units, or $458.8 million. Backlog represents the number of units
subject to pending sales contracts. Homes included in the 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. Information
regarding closed units and backlog units, excluding joint ventures, since our
acquisition of Levitt and Sons is as follows:
CLOSED BACKLOG
UNITS UNITS
----- -----
As of and for the year ended December 31, 2000 441 487
As of and for the year ended December 31, 2001 597 584
As of and for the year ended December 31, 2002 740 824
As of and for the year ended December 31, 2003 1,011 2,053
CORE COMMUNITIES
Core Communities was founded in May 1996 to develop the master-planned
community now known as St. Lucie West. It is currently developing the
master-planned community known as Tradition. As a master-planned community
developer, Core Communities engages in three primary activities: (i) the
acquisition of large tracts of raw land; (ii) planning, entitlement and
infrastructure development; and (iii) the sale of entitled land and/or developed
lots to homebuilders (including Levitt and Sons) and commercial, industrial and
institutional end-users.
St. Lucie West is a 4,600 acre master-planned community located in St.
Lucie County, Florida. It is bordered by Interstate 95 to the west and 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. The community's baseball stadium serves as the spring
training headquarters for the New York Mets. There are approximately 5,000 homes
in St. Lucie West housing nearly 8,000 residents. At December 31, 2003,
approximately 123 acres remained available for sale in this project.
Tradition is located approximately two miles south of St. Lucie West, and
will encompass more than 9,000 acres if all properties under contract are
acquired, including approximately five miles of frontage on Interstate 95.
Tradition is being developed as a master-planned community including a corporate
park, a K-12 charter/lab school, 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.
At December 31, 2003, Core Communities owned 4,704 acres in Tradition.
Core Communities also has under contract additional parcels contiguous to the
existing land totaling approximately 4,456 acres for an aggregate purchase price
of $80.6 million. The contracts for these parcels are expected to begin closing
in May 2004. During June 2003, Core Communities acquired a 1,706-acre parcel
adjacent to Tradition and subsequently sold 979 of those acres in a single
transaction to a developer. This sale was profitable as well as strategic since
we anticipate that the construction of one or more golf courses on the land will
be considered attractive local amenities to new homeowners in our community.
First phase development is underway at the Tradition project and is
expected to continue through 2004. First phase development includes the
construction of primary access to I-95 and of connector roadways from the
interior of Tradition out to the highway, construction of the storm water
infrastructure, commercial pod development, and traditional and neo-traditional
residential lot development. Through December 31, 2003, Core Communities has
entered into contracts with eight homebuilders for the sale of a total of 1,531
acres in the first phase residential development. While there is no assurance
that all of these transactions will be consummated, 139 of the contracted acres
had been delivered as of December 31, 2003.
In September 2001, Core Communities acquired a 1,285-acre tract of land
known as Live Oak Preserve in Hillsborough County on the west coast of Florida
for approximately $17.0 million. During October 2002, Core Communities sold
1,267 acres of this property, representing all of the residential land, in a
single transaction for approximately $25.0 million. The remaining 18 acres of
land represented land zoned for commercial property and were sold in September
2003 for approximately $5.9 million.
6
Core Communities' land in development or under contract and relevant data
as of December 31, 2003 were as follows:
TYPE OF SALEABLE CLOSED CONTRACTED UNSOLD
PROJECT LOCATION PROJECT ACQUIRED ACRES (A) ACRES ACRES BALANCE
------- -------- ------- -------- ---------- ---------- ----------- ----------
CURRENTLY IN
DEVELOPMENT
St. Lucie West St. Lucie County Mixed Use 1997 (b) 1,970 1,806 41 123
---------- ---------- ---------- ----------
TOTAL ST. LUCIE WEST 1,970 1,806 41 123
---------- ---------- ---------- ----------
Tradition St. Lucie County Mixed Use 1998 2,033 139 958 936
Tradition St. Lucie County Mixed Use 2002 1,826 -- 434 1,392
Tradition St. Lucie County Mixed Use 2003 984 -- -- 984
---------- ---------- ---------- ----------
TOTAL TRADITION 4,843 139 1,392 3,312
---------- ---------- ---------- ----------
TOTAL CURRENTLY IN
DEVELOPMENT 6,813 1,945 1,433 3,435
---------- ---------- ---------- ----------
PROPERTIES UNDER
CONTRACT TO BE
ACQUIRED(c)
Tradition St. Lucie County Mixed Use 4,456 -- -- 4,456
---------- ---------- ---------- ----------
TOTAL PROPERTIES
UNDER CONTRACT 4,456 -- -- 4,456
---------- ---------- ---------- ----------
TOTAL PROPERTIES 11,269 1,945 1,433 7,891
========== ========== ========== ==========
(a) Actual saleable acres may vary from original plan due to changes in
zoning, project design, or other factors.
(b) Land inventory as of date of acquisition of Core Communities.
(c) There can be no assurance that current property contracts will be
consummated.
BLUEGREEN CORPORATION
We currently own approximately 9.7 million shares, or 38% of the
outstanding common stock of Bluegreen. Bluegreen is a leading provider of
vacation and residential lifestyle choices through its vacation ownership and
residential land businesses. Bluegreen is organized into two divisions:
Bluegreen Resorts and Bluegreen Communities.
Bluegreen Resorts acquires, develops and markets vacation ownership
interests in resorts generally located in popular, high-volume, "drive-to"
vacation destinations. Bluegreen sells vacation ownership interests in its
Bluegreen Vacation Club(R) product through sales offices at all of its owned
resorts and at four off-site sales offices. A vacation ownership interest in any
of Bluegreen's resorts entitles the buyer to an annual allotment of "points" in
perpetuity in the Bluegreen Vacation Club.(R) These points may be exchanged for
stays at any of Bluegreen's participating, fully-furnished vacation resorts or
for other vacation options, including cruises and stays at approximately 3,700
resorts offered by a worldwide vacation ownership exchange network. Bluegreen
currently develops, markets and sells vacation ownership interests in 16 resorts
located in the United States and one resort located in the Caribbean.
Bluegreen Communities acquires, develops and subdivides property and
markets the subdivided residential homesites to retail customers seeking to
build a home in a high quality residential setting. In some cases these
properties feature a golf course and/or other amenities. The strategy of this
division is to locate its projects (i) near major metropolitan centers (but
outside the perimeter of intense subdivision development) or (ii) in popular
retirement areas. Bluegreen has focused this division's activities in certain
core markets in which Bluegreen has developed substantial marketing expertise
and has a strong track record of success.
Bluegreen also generates significant interest income through its financing
of individual purchasers of vacation ownership interests and, to a lesser
extent, homesites sold by its Bluegreen Communities division.
OTHER OPERATIONS
Other operations consists of Levitt Commercial, investments in joint
ventures and other real estate interests and holding company operations.
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Levitt Commercial
Levitt Commercial was formed in 2001 to develop industrial and retail
properties. Levitt Commercial currently has four projects under development. The
first project, developed by a joint venture of which Levitt Commercial is an 82%
owner, is the High Ridge Commerce Center located in Boynton Beach, Florida. This
is a 70,000 square foot flex industrial building with 800 feet of frontage on
I-95. The project is divided into 14 bays averaging 5,000 square feet. The other
three projects, which are wholly-owned by Levitt Commercial, include Phase 2 and
3 of the High Ridge Commerce Center, the Plaza at Boynton Commerce Center, also
located in Boynton Beach, and the Andrews Business Center, which is located in
Pompano Beach, Florida. The three newer projects will total 89 flex warehouse
bays, averaging 2,975 square feet each.
Levitt Commercial is also participating in a joint venture known as the
Preserve at Long Leaf, which is developing a 298-unit apartment complex in
Melbourne, Florida. Levitt Commercial owns a 50% interest in the land for the
apartment complex, which was acquired by the joint venture in October 2002, and
a 20% interest in costs related to the further development of the project. An
affiliate of our joint venture partner will be the general contractor and we
anticipate construction to commence during 2004.
Additionally, at December 31, 2003, Levitt Commercial had a contract to
acquire one additional property to develop flex industrial space for a land
acquisition cost of approximately $3.5 million, however that contract was
cancelled in January 2004.
Levitt Commercial's projects currently under development or under contract
and relevant data as of December 31, 2003 are as follows:
TYPE OF SALES TOTAL CLOSED CONTRACTED UNSOLD
PROJECT LOCATION PROJECT COMMENCED UNITS (a) UNITS UNITS BALANCE
------- -------- ------- --------- ---------- ---------- ---------- ----------
CURRENTLY IN DEVELOPMENT
High Ridge Commerce Center Boynton Beach Flex 2002 14 13 -- 1
High Ridge Commerce Center 2 & 3 Boynton Beach Flex 2003 40 -- 15 25
The Plaza at Boynton Commerce Center Boynton Beach Flex 2003 21 -- -- 21
Andrews Business Center Pompano Beach Flex 2004 28 -- -- 28
---------- ---------- ---------- ----------
TOTAL PROPERTIES 103 13 15 75
========== ========== ========== ==========
(a) Actual number of units may vary from original project plan due to
engineering and architectural changes.
Other Joint Ventures
From time to time, we seek to defray portions of risk associated with
certain real estate projects by entering into joint ventures. For example, we
currently own an interest in Brittany Bay at Andros Isles, Ltd., a Florida
limited partnership formed to develop a single family attached (duplex)
residential development consisting of 222 units located in West Palm Beach,
Florida. At December 31, 2003, the venture had closed on 203 units and had
entered into contracts to sell the remaining 19 units. We own a 39.9% limited
partnership interest in this venture and BankAtlantic Venture Partners 3, Inc.,
our subsidiary and a co-general partner, owns a 0.1% general partnership
interest. The remaining partnership interests are held by unaffiliated third
parties.
Additionally, we own an interest in Fairways at Grand Harbor, Ltd., a
Florida limited partnership organized to develop 257 luxury rental apartments in
Vero Beach, Florida. We own a 44.5% limited partnership interest in this venture
and BankAtlantic Venture Partners 2, Inc., our subsidiary and a co-general
partner, owns a 0.5% general partnership interest. The remaining partnership
interests are held by unaffiliated third parties. The rental apartment property
was sold to an unaffiliated third party in January 2004. The partnership
continues to provide rental management services at neighboring Grand Harbor.
8
Real Estate Industry Risks
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Factors which adversely affect the real estate and
homebuilding industries, many of which are beyond our control include:
- the availability and cost of financing;
- unfavorable interest rates and increases in inflation;
- overbuilding or decreases in demand;
- changes in the general availability of land and competition for
available land;
- construction defects and warranty claims arising in the ordinary
course of business, including mold related property damage and
bodily injury claims and homeowner and homeowner association
lawsuits;
- changes in national, regional and local economic conditions;
- cost overruns, inclement weather, and labor and material shortages;
- the impact of present or future environmental legislation, zoning
laws and other regulations;
- availability, delays and costs associated with obtaining permits,
approvals or licenses necessary to develop property; and
- increases in real estate taxes and other governmental fees.
In addition, we currently develop and sell properties solely in Florida.
The market in which we operate is subject to the risks of natural disasters such
as hurricanes and tropical storms and we will be subject to adverse changes in
the economy in Florida.
Levitt Corporation Risks
We have a significant amount of debt. At December 31, 2003, our
consolidated debt was approximately $174.1 million, including the $13.5 million
of indebtedness incurred in connection with our spin-off from BankAtlantic
Bancorp. The amount of our debt could have important consequences. For example,
it could:
- limit our ability to obtain future financing for working capital,
capital expenditures, acquisitions, debt service requirements or
other requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payment of or on our debt and reduce our ability to
use our cash flow for other purposes;
- impact our flexibility in planning for, or reacting to, the changes
in our business;
- place us at a competitive disadvantage if we have more debt than our
competitors; and
- make us more vulnerable in the event of a downturn in our business
or in general economic conditions.
Our ability to meet our debt service and other obligations, to refinance
our indebtedness and to fund planned capital expenditures will depend upon our
future performance. We are engaged in businesses that are substantially affected
by changes in economic cycles. Our revenues and earnings vary with the level of
general economic activity in the markets we serve. Our businesses are also
affected by financial, political, business and other factors, many of which are
beyond our control. The factors that affect our ability to generate cash can
also affect our ability to raise additional funds for these purposes through the
sale of equity securities, the refinancing of debt, or the sale of assets.
Changes in prevailing interest rates may affect our ability to meet our debt
service obligations, because borrowings under a significant portion of our debt
instruments bear interest at floating rates.
Our anticipated debt payment obligations for the 12 months beginning
December 31, 2003 total $20.2 million. Our business may not generate sufficient
cash flow from operations, and future borrowings may not be available under our
existing credit facilities or any other financing sources in an amount
sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. We may need to refinance all or a portion of our debt on or
before maturity, which we may not be able to do on favorable terms or at all.
As of December 31, 2003, BFC Financial Corporation owned 1,219,031 shares
of our Class B common stock, which represented all of our issued and outstanding
Class B common stock, and 2,074,244 shares, or approximately 15%, of our issued
and outstanding Class A common stock. In the aggregate these shares represent
approximately 55% of our total voting power. Since the Class A common stock and
Class B common stock vote as a single group on most matters, BFC Financial
Corporation is in a position to control our company and elect a majority of our
Board of Directors. Additionally, Alan B. Levan, our Chairman and Chief
Executive Officer, and John E. Abdo, our Vice Chairman and
9
President, beneficially own approximately 46% and 23% of the shares of BFC
Financial Corporation, respectively. As a consequence, Alan B. Levan and John E.
Abdo effectively have the voting power to control the outcome of any shareholder
vote of Levitt Corporation, except in those limited circumstances where Florida
law mandates that the holders of our Class A common stock vote as a separate
class. BFC Financial Corporation's interests may conflict with the interests of
our other shareholders, and BFC Financial Corporation's control position may
have an adverse effect on the market price of our Class A common stock.
COMPETITION
The real estate development and homebuilding industries are highly
competitive and fragmented. Competitive overbuilding in local markets, among
other competitive factors, could materially adversely affect homebuilders in the
affected market. Homebuilders compete for financing, raw materials and skilled
labor, as well as for the sale of homes. Additionally, competition for prime
properties is intense and the acquisition of such properties may become more
expensive in the future to the extent demand and competition increase. 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.
We currently build solely in Florida, which contains some of the top markets in
the nation, and therefore we expect to continue to face additional competition
from new entrants into our markets.
EMPLOYEES
As of December 31, 2003, we employed a total of 353 full-time employees
and 34 part-time employees. The breakdown of employees by entity is as follows:
Full Part
Time Time
---- ----
Levitt Corporation 8 --
Core Communities 26 3
Levitt and Sons 312 31
Other Subsidiaries 7 --
---- ----
Total 353 34
==== ====
Our employees are not represented by any collective bargaining agreement,
and we have never experienced a work stoppage. We believe our employee relations
are good.
Our future success is heavily dependent upon our ability to hire and
retain qualified marketing, sales and management personnel. The competition for
such personnel is intense in the real estate industry. There can be no assurance
that we will be able to continue to attract and retain qualified management and
other personnel.
CYCLICALITY; SEASONALITY
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Factors which adversely affect the real estate and
homebuilding industries, many of which are beyond our control, include changes
in national, regional and local economic conditions; cost overruns; inclement
weather, and labor and material shortages;
GOVERNMENTAL AND ENVIRONMENTAL MATTERS
We are subject to laws, ordinances and regulations of various federal,
state and local governmental entities and agencies concerning, among other
things:
- environmental matters, including the presence of hazardous or toxic
substances;
- wetland preservation;
10
- health and safety;
- zoning, land use and other entitlements;
- building design; and
- density levels.
In developing a project and building homes or apartments, we may be
required to obtain the approval of numerous governmental authorities regulating
matters such as:
- installation of utility services such as gas, electric, water and
waste disposal;
- the dedication of acreage for open space, parks and schools;
- permitted land uses; and
- the construction design, methods and materials used.
These laws or regulations could, among other things:
- establish building moratoriums;
- limit the number of homes, apartments or commercial properties that
may be built;
- change building codes and construction requirements affecting
property under construction;
- increase the cost of development and construction;
- delay development and construction; and
- otherwise have a material adverse effect on the real estate industry
in general and on our business, financial condition and results of
operations, specifically.
We may also at times not be in compliance with all regulatory
requirements. If we are not in compliance with regulatory requirements, we may
be subject to penalties or we may be forced to incur significant expenses to
cure any noncompliance. In addition, some of our land and some of the land that
we may acquire has not yet received planning approvals or entitlements necessary
for planned development or future development. Failure to obtain entitlements
necessary for further development of this land on a timely basis or to the
extent desired may adversely affect our future results and prospects.
Several governmental authorities have also imposed impact fees as a means
of defraying the cost of providing certain governmental services to developing
areas, and many of these fees have increased significantly during recent years.
We consider the costs of compliance with environmental regulations to be
part of the ordinary course of our business, and such compliance has not had any
material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company's principal and executive offices are located at 1750 East
Sunrise Boulevard, Fort Lauderdale, Florida 33304. Levitt Corporation occupies
these offices pursuant to an agreement with BFC Financial Corporation, which
leases the property from BankAtlantic. BankAtlantic has purchased another
property to be used as its executive offices, and it is expected that Levitt
Corporation will also move to that building under a new lease in the fall of
2004. In addition, the Company and its subsidiaries occupy administrative space
in various locations in Florida under leases that expire at various dates
through 2006.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various litigation matters arising
in the ordinary course of our business. We do not expect the outcome of any such
matters to materially impact our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's spin-off from BankAtlantic Bancorp and
the listing of the Company's Class A common stock on the NYSE, the Company's
board of directors recommended to its then sole shareholder, BankAtlantic
11
Bancorp, the adoption of certain amendments to the Company's organizational
instruments, as more fully described below, and the approval of the 2003 Levitt
Corporation Stock Incentive Plan.
On December 2, 2003, at a special meeting of the Company's sole
shareholder, BankAtlantic Bancorp voted to approve the following:
Amended and Restated Articles of Incorporation
BankAtlantic Bancorp voted to approve the Company's Amended and Restated
Articles of Incorporation pursuant to which the Company recapitalized its
capital stock with 50,000,000 shares of Class A common stock, 10,000,000 shares
of Class B common stock and 5,000,000 shares of preferred stock, and to provide
for the terms of the capital stock so that the Company's capital structure
closely resembled the capital structure of BankAtlantic Bancorp.
Amended and Restated Bylaws
BankAtlantic Bancorp voted to approve the Company's Amended and Restated
Bylaws pursuant to which, among other things, the Company's board of directors
was divided into three classes, with one class elected annually. Pursuant to the
Company's Amended and Restated Bylaws, S. Lawrence Kahn, III, William Scherer
and Joel Levy were elected as Class I directors whose terms of office expire at
the Company's annual meeting in 2004; John E. Abdo and William Nicholson were
elected as Class II directors, whose terms of office expire at the Company's
annual meeting in 2005; and Alan B. Levan, James Blosser and Darwin Dornbush
were elected as Class III directors, whose terms of office expire at the
Company's annual meeting in 2006:
On December 18, 2003, at a special shareholder's meeting, BankAtlantic
Bancorp approved the terms and conditions of the 2003 Levitt Corporation Stock
Incentive Plan and the reservation of 1,500,000 shares of Class A common stock
for future issuance thereunder.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Class A common stock is listed on the New York Stock Exchange under
the symbol "LEV." BFC Financial Corporation ("BFC") is the sole holder of the
Company's Class B common stock and there is no trading market for the Company's
Class B common stock. The Class B common stock may only be owned by BFC or its
affiliates and is convertible into Class A common stock at the discretion of the
holder on a one-for-one basis.
From January 2, 2004, the date our Class A common stock first began
regular way trading on the New York Stock Exchange, through March 24, 2004, the
high and low sale prices of our Class A common stock as reported by the New York
Stock Exchange were $26.22 and $16.00, respectively. The stock prices do not
include retail mark-ups, mark-downs or commissions. On March 24, 2004, the
closing sale price of our Class A common stock as reported on the New York Stock
Exchange was $25.05 per share.
Holders
On March 24, 2004, there were approximately 14,850 holders and 13,597,166
shares of the Class A common stock issued and outstanding. In addition, there
were 1,219,031 shares of Class B common stock outstanding at March 24, 2004.
Dividends
We have never paid cash dividends on our common stock. From time to time,
we intend to evaluate the payment of regular cash dividends on our common stock
based upon our results of operations, financial condition, cash requirements and
prospects. We cannot assure you that we will declare any cash dividends in the
foreseeable future.
Our ability to pay dividends is restricted by certain covenant
restrictions contained in the indentures and loan agreements that govern the
terms of our debt.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table contains information, as of December 31, 2003,
concerning our equity compensation plans for which we have previously obtained
shareholder approval and those equity compensation plans for which we have not
previously obtained shareholder approval:
Number of securities to Weighted average exercise
be issued upon exercise price of outstanding Number of securities
of outstanding options, options, warrants and remaining available for
warrants or rights rights future issuance
Plan Category (a) (b) (c)
- ----------------------------- ----------------------- ------------------------- --------------------------
Equity compensation plans -0- n/a 1,500,000
approved by security holders
Equity compensation plans
not approved by security -0- n/a -0-
holders
---------- ---------- ----------
Total -0- n/a 1,500,000
========== ========== ==========
13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for the years ended December 31, 1999 through 2003. Certain selected
financial data presented below as of December 31, 2003, 2002, 2001, 2000, and
1999 and for each of the years in the five-year period ended December 31, 2003,
are derived from our audited consolidated financial statements. Our financial
statements were audited by KPMG LLP, independent certified public accountants,
with respect to 2001, 2000 and 1999, and by PricewaterhouseCoopers LLP,
independent certified public accountants, with respect to 2003 and 2002. 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.
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2003 2002 2001 2000 (a) 1999
-------- -------- -------- -------- --------
(dollars in thousands, except per share, unit and average
price data)
STATEMENT OF OPERATIONS DATA:
REVENUES
Sales of real estate $283,058 207,808 143,140 100,322 18,499
Other revenues 2,466 1,595 1,106 5,664 --
-------- -------- -------- -------- --------
Total Revenues 285,524 209,403 144,246 105,986 18,499
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales of real estate 209,431 159,675 111,685 79,029 9,437
Other costs and expenses 43,951 32,059 27,697 21,770 6,976
-------- -------- -------- -------- --------
Total Costs and Expenses 253,382 191,734 139,382 100,799 16,413
-------- -------- -------- -------- --------
32,142 17,669 4,864 5,187 2,086
Earnings from Bluegreen Corporation
(b) 7,433 4,570 -- -- --
Other income 3,645 3,527 6,776 4,976 3,514
-------- -------- -------- -------- --------
Income before income taxes 43,220 25,766 11,640 10,163 5,600
Provision for income taxes 16,400 6,254 4,118 3,208 1,568
-------- -------- -------- -------- --------
Net income $ 26,820 19,512 7,522 6,955 4,032
======== ======== ======== ======== ========
Basic earnings per share $ 1.81 1.32 0.51 0.47 0.27
Diluted earnings per share (c) $ 1.77 1.30 0.51 0.47 0.27
Weighted average shares outstanding 14,816 14,816 14,816 14,816 14,816
Diluted shares outstanding 14,816 14,816 14,816 14,816 14,816
OTHER DATA:
Consolidated margin (d) 73,627 48,133 31,455 21,293 9,062
Consolidated margin percentage (e) 26.0% 23.2% 22.0% 21.2% 49.0%
LEVITT AND SONS (a)(f)
Homes delivered 1,011 740 597 441 --
Average selling price of homes
delivered $220,000 219,000 195,000 190,000 --
Margin percentage on homes delivered 22% 19% 19% 15% --
Backlog of homes (units) 2,053 824 584 487 329
Backlog of homes (value) $458,771 167,526 125,041 94,751 64,116
CORE COMMUNITIES:
Acres sold 1,337 1,715 253 145 312
Average selling price of acres sold $ 41,000 31,000 85,000 110,000 59,000
Margin percentage on land sales 43.0% 46.7%(g) 51.0% 56.3% 49.0%
Acres acquired 1,963 1,826 1,285 -- --
Average purchase price of acres
acquired $ 7,500 10,000 13,200 -- --
Unsold acres 4,868 4,242 4,131 3,099 3,244
14
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2003 2002 2001 2000 (a) 1999
-------- -------- -------- -------- --------
(dollars in thousands, except per share, unit and average
price data)
BALANCE SHEET DATA:
Inventory of real estate $257,556 198,126 142,433 110,390 105,524
Investment in Bluegreen 70,852 57,332 -- -- --
Total assets 392,714 295,461 196,193 168,863 154,831
Notes payable to non-affiliates 111,625 85,359 55,625 41,047 50,631
Notes payable to affiliates 61,618 57,505 27,870 27,796 20,653
Development bonds payable 850 4,581 8,635 9,891 7,533
Total liabilities 267,238 187,774 126,254 105,874 98,659
Shareholders' equity 125,452 107,533 70,028 62,506 55,551
FINANCIAL STATISTICS:
Return on average shareholders'
equity (h) 23.0% 22.0% 11.4% 11.8% 8.0%
Ratio of total debt to shareholders'
equity 1.39 1.37 1.32 1.26 1.42
- -----------------
(a) Levitt Corporation acquired Levitt and Sons in December 1999.
(b) Levitt Corporation acquired its interest in Bluegreen Corporation in April
2002.
(c) Diluted earnings per share takes into account 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.
(d) Margin is calculated as sales of real estate minus cost of sales of real
estate.
(e) Margin percentage is calculated by dividing margin by sales of real
estate.
(f) Excludes joint ventures.Backlog includes all homes subject to sales
contracts.
(g) Land sales to Levitt and Sons for the year ended December 31, 2002 equaled
$8.5 million and the net gain recognized was $6.5 million. These
inter-company transactions were eliminated in consolidation.
(h) Calculated by dividing net income by average shareholders' equity. Average
shareholders' equity is calculated by averaging beginning and end of
period shareholders' equity balances.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We engage in real estate activities through Levitt and Sons, Core
Communities, Levitt Commercial, an investment in Bluegreen and investments in
real estate projects in Florida through subsidiaries and joint ventures. Levitt
and Sons is a developer of single-family home communities and condominium and
rental apartment complexes in Florida. Core Communities owns the unsold land and
other entitlements of the 4,600 acre master-planned community known as St. Lucie
West in St. Lucie County, Florida. Core Communities also owns approximately
4,700 acres in Tradition, our second master-planned community, and has options
to acquire an additional 4,500 acres which will provide Tradition with more than
9,000 acres, including approximately five miles of frontage on Interstate 95.
Tradition is in the initial development stage in St. Lucie County, Florida.
On December 31, 2003, BankAtlantic Bancorp completed the spin-off of the
Company, and BankAtlantic Bancorp no longer owns any shares of our capital
stock. As a result of the spin-off, our reported financial information may not
be necessarily indicative of our future operating results or of our future
financial condition because the consummation of the spin-off has resulted in
$13.5 million of additional indebtedness and our ownership of an additional 1.2
million shares of Bluegreen. These factors will cause an increase in interest
expense of almost $600,000 per year, and allow us to pick up an additional 4.8%
of Bluegreen's earnings. Additionally, we may not be able to borrow money at the
same rates, we will incur greater costs and expenses for general and
administrative services provided by our affiliates and we will incur greater
costs and expenses of reporting and compliance associated with being a public
company.
In April 2002, we acquired 8.3 million shares of the outstanding common
stock of Bluegreen for approximately $53.8 million. In connection with the
spin-off, BankAtlantic Bancorp transferred 1.2 million shares of Bluegreen's
common stock to us in exchange for a $5.5 million promissory note and additional
shares of our common stock (which additional shares were subsequently
distributed in the spin-off). Bluegreen is a New York Stock Exchange-listed
company that acquires, develops, markets and sells vacation ownership interests
in "drive-to" resorts and develops and sells residential homesites around golf
courses or other amenities. The investment in Bluegreen was recorded at cost and
the carrying amount of the investment is adjusted to recognize our interest in
the earnings or loss of Bluegreen after the acquisition date. At December 31,
2003 and December 31, 2002, our investment in Bluegreen was approximately $70.9
million and $57.3 million, respectively. The 9.5 million shares of Bluegreen
common stock that we own comprises approximately 38% of the common stock of
Bluegreen outstanding as of December 31, 2003.
EXECUTIVE OVERVIEW
Management evaluates the performance and prospects of the Company and its
subsidiaries using a variety of financial and non-financial metrics. The key
financial measures utilized to evaluate historical operating performance include
revenues from sales of real estate, cost of sales of real estate, margin, margin
percentage, income before taxes and net income. Non-financial measures used to
evaluate historical performance include the number of homes delivered, number
and value of sales contracts executed, and the number of housing starts. To
evaluate the Company's future prospects, management uses non-financial
information such as the number of homes and acres in backlog (where we have a
property subject to a pending sales contract), and the aggregate value of those
contracts. Additionally, we monitor the number of properties remaining in
inventory and under contract to be purchased relative to our sales and
construction trends. Financial information utilized to evaluate the Company's
future prospects are the Company's ratio of debt to shareholders' equity and
cash requirements. General economic factors and interest rate trends are also
monitored as they may have an impact on the Company's prospects. Each of the
above metrics is discussed in the following sections as it relates to our
operating results, financial position and liquidity. The list of metrics above
is not an exhaustive list, and management may from time to time utilize
additional financial and non-financial information or may not use the metrics
listed 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. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in subsequent periods relate
to the determination of the valuation of real estate, the
16
valuation of carrying values of investments in joint ventures, the valuation of
the fair market value of assets and liabilities in the application of the
purchase method of accounting and the amount of the deferred tax asset valuation
allowance. We have identified the following accounting policies that management
views as critical to the portrayal of our financial condition and results of
operations.
Real Estate Inventories and Investment in Joint Ventures
Our inventory of real estate includes land acquisition costs, land
development costs, interest and other construction costs, all of which are
accounted for in our financial statements at accumulated cost or, when
circumstances indicate that the inventory is impaired, at estimated fair value.
Estimated fair value is based on disposition of real estate in the normal course
of business under existing and anticipated market conditions. The evaluation
takes into consideration the current status of the property, various
restrictions, carrying costs, costs of disposition and any other circumstances
that may affect fair value, including management's plans for the property. Due
to the large acreage of land holdings, disposition in the normal course of
business is expected to extend over a number of years. Uncertainties associated
with the economy, interest rates and the real estate market in general may
significantly change the valuation of our real estate investments.
Land and indirect land development costs are accumulated and allocated to
various parcels or housing units using specific identification and allocation
based upon the relative sales value, unit or area methods. Direct construction
costs are assigned to housing units based on specific identification. Other
capitalized costs consist of capitalized interest, real estate taxes, tangible
selling costs, local government fees and field overhead incurred during the
development and construction period. Start-up costs and selling expenses are
expensed as incurred. 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.
We account for joint ventures in which we have a 50% or less ownership
interest or a less than controlling interest using the equity method of
accounting. 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. Joint venture investments and
our investment in Bluegreen are evaluated annually for other than temporary
declines in value. Evidence of other than temporary declines in value includes
the inability of the 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. At
December 31, 2003, December 31, 2002 and December 31, 2001, the combined
balances of inventory of real estate, investments in real estate joint ventures
and investment in Bluegreen were $332.5 million and $259.7 million and $150.8
million, respectively.
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
when other sale and profit recognition criteria are satisfied as required under
accounting principles generally accepted in the United States of America for
real estate transactions. 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 nor do we expect actual
results to materially differ from such estimates.
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 sale as related homes, land and units 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.
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2003 2002
----------------------------- AND 2002 AND 2001
2003 2002 2001 CHANGE CHANGE
-------- -------- -------- -------- --------
(dollars in thousands, except per share data)
REVENUES
Sales of real estate $283,058 207,808 143,140 75,250 64,668
Title and mortgage operations 2,466 1,595 1,106 871 489
-------- -------- -------- -------- --------
Total revenues 285,524 209,403 144,246 76,121 65,157
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales of real estate 209,431 159,675 111,685 49,756 47,990
Selling, general and administrative expenses 41,794 30,359 26,031 11,435 4,328
Interest expense, net 233 389 180 (156) 209
Other expenses 1,838 1,311 930 527 381
Minority interest 86 -- 556 86 (556)
-------- -------- -------- -------- --------
Total costs and expenses 253,382 191,734 139,382 61,648 52,352
-------- -------- -------- -------- --------
32,142 17,669 4,864 14,473 12,805
Earnings from Bluegreen Corporation (a) 7,433 4,570 -- 2,863 4,570
Earnings from joint ventures 483 849 2,888 (366) (2,039)
Interest and other income 3,162 2,678 3,888 484 (1,210)
-------- -------- -------- -------- --------
Income before income taxes 43,220 25,766 11,640 17,454 14,126
Provision for income taxes 16,400 6,254 4,118 10,146 2,136
-------- -------- -------- -------- --------
NET INCOME $ 26,820 19,512 7,522 7,308 11,990
======== ======== ======== ======== ========
Basic earnings per share $ 1.81 1.32 0.51 0.49 0.81
Diluted earnings per share (b) $ 1.77 1.30 0.51 0.47 0.79
Weighted average shares outstanding 14,816 14,816 14,816 -- --
Diluted shares outstanding 14,816 14,816 14,816 -- --
(a) Levitt Corporation acquired its interest in Bluegreen Corporation in April
2002.
(b) Diluted earnings per share takes into account 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.
For the Year Ended December 31, 2003 Compared to the Same 2002 Period
Consolidated net income increased $7.3 million, or 37%, to $26.8 million
for the year ended December 31, 2003 from $19.5 million for the same 2002
period. The increase in net income resulted primarily from an increase in sales
of real estate by Levitt and Sons, Core Communities, and Levitt Commercial, as
well as from increased earnings from Bluegreen Corporation. These increases in
income were partially offset by a decrease in earnings in joint ventures of
$366,000, an increase in selling, general and administrative expenses of $11.4
million, and an increase in the provision for income taxes of $10.1 million.
18
Revenues from sales of real estate increased $75.3 million, or 36%, to
$283.1 million for the year ended December 31, 2003 from $207.8 million for the
same 2002 period. Levitt and Sons' home deliveries in 2003 increased 37% to
1,011 homes from 740 homes delivered in the first nine months of 2002. This
increase in deliveries resulted in a $59.9 million increase in revenues from
sales of real estate at Levitt and Sons over the corresponding periods. Core
Communities' revenues from land sales in 2003 increased to $55.0 million from
$53.9 million in 2002. Core Communities 2002 revenues include sales to Levitt
and Sons of $8.5 million. These inter-company transactions were eliminated in
consolidation. Consolidated cost of sales in 2003 was reduced by $1.0 million as
previously deferred profits on inter-company transactions were recognized at the
time of home sales to third parties. Levitt Commercial commenced deliveries of
its flex warehouse units in 2003, and revenues from sales of these units in 2003
totaled $5.8 million. Earnings from Bluegreen for the year ended December 31,
2003 were $7.4 million, as compared with $4.6 million for the period of our
ownership in 2002. Bluegreen's net income for 2003 was $25.8 million, as
compared to $15.4 million for the period of our ownership ended December 31,
2002.
The increase in selling, general and administrative expenses for the year
ended December 31, 2003 as compared to 2002 primarily related to higher employee
compensation and benefits, increased advertising expenses and costs relating to
our public offering of investment notes. The increase in employee compensation
and benefits and advertising expenses was directly related to our new
development projects in central and southeast Florida and to the increase in
home deliveries at Levitt and Sons. As a result of these new projects and higher
number of home deliveries, our full time employees increased to 353 at December
31, 2003 from 221 at December 31, 2002, and the number of part time employees
increased to 34 at December 31, 2003 from 28 at December 31, 2002.
Interest incurred totaled $7.9 million and $8.1 million for 2003 and 2002,
respectively. The decrease in interest incurred was primarily due to a decline
in average interest rates from 6.0% for 2002 to 4.8% for 2003. These decreases
were partially offset by increases in borrowings associated with several new
development projects as well as interest accruing on the Company's $30.0 million
note payable to BankAtlantic Bancorp for twelve months in 2003, as compared to
only nine months in 2002. Interest capitalized totaled $7.7 million for both
2003 and 2002. Cost of sales of real estate for the years ended December 31,
2003 and 2002 included previously capitalized interest of approximately $6.4
million and $6.2 million, respectively.
Earnings from joint ventures decreased $366,000 in 2003 as compared to
2002. The decrease in earnings from joint ventures primarily resulted from
completion of a joint venture project during 2002.
The provision for income taxes increased $10.1 million, or 62% to $16.4
million for 2003, due to increased earnings before taxes, and an increase in the
effective tax rate from 24.2% in 2002 to 37.9% in 2003. The provision for income
taxes for the years ended December 31, 2003 and 2002 was net of a reduction in
the deferred tax asset valuation allowance of approximately $418,000 and $2.6
million, respectively. Reductions in the deferred tax asset valuation allowance
reduce the provision for income taxes for the year, thereby reducing the
effective tax rate.
For the Year Ended December 31, 2002 Compared to the Same 2001 Period
Consolidated net income increased $12.0 million, or 159%, to $19.5 million
for the year ended December 31, 2002 from $7.5 million for the same 2001 period.
This increase primarily resulted from an increase in the margin on the sales of
real estate of $16.7 million, an increase in title and mortgage operations of
$500,000 and earnings in Bluegreen of $4.6 million. These increases in income
were partially offset by decreases in earnings in joint ventures of $2.0
million, interest and other revenues of $1.2 million, an increase in selling,
general and administrative expenses of $4.3 million and an increase in the
provision for income taxes of $2.1 million.
Margin from sales of real estate primarily reflect the activities of
Levitt and Sons and Core Communities. During the year ended December 31, 2002,
Core Communities' margin on land sales was $18.7 million as compared to $11.0
million in 2001. Core Communities' 2002 margin on land sales excludes sales to
Levitt and Sons of $6.5 million. This inter-company transaction was eliminated
in consolidation. Core Communities' increases in sales revenue and gross profit
are primarily attributable to an increase in commercial land sales and
residential lot sales in 2002. During the 2002 period, net gains from home sales
at Levitt and Sons were $31.1 million as compared to $22.1 million during the
same 2001 period. This was primarily due to increases in the volume of home
deliveries and the average closing price of homes delivered. In 2001, we
recognized a gain of $680,000 from the sale of a marine rental property.
The increase in selling, general and administrative expenses primarily
resulted from the addition of several new development projects and an increase
in home deliveries at Levitt and Sons, as well as an increase in compensation
and
19
benefits associated with increases in incentive accruals and personnel resulting
from the addition of several new development projects. The number of full time
employees increased to 221 at December 31, 2002 from 202 at December 31, 2001.
Interest incurred totaled $8.1 million and $6.2 million for the 2002
period and 2001 period, respectively. The increase in interest incurred was
primarily due to increases in borrowings associated with several new development
projects. This increase in interest incurred was partially offset by a decline
in average interest rates from 7.5% for the 2001 period to 6.0% for the 2002
period. Capitalized interest totaled $7.7 million and $6.0 million for the 2002
period and 2001 period, respectively. At the time of home sale closings and land
sales the capitalized interest allocated to such property is charged to cost of
sales. Cost of sales of real estate for the year ended December 31, 2002 and
2001 included previously capitalized interest of approximately $6.2 million and
$4.8 million, respectively.
Minority interest declined due to the sale of the marine rental property
and the sell-out of a development in which we had a majority joint venture
interest.
Our income from Bluegreen for the year ended December 31, 2002 was $4.6
million. The earnings from Bluegreen included approximately $353,000 of
amortization associated with purchase accounting adjustments. Bluegreen's income
before the cumulative effect of a change in accounting principle for the year
ended December 31, 2002 was $15.4 million and net income was $9.8 million.
Earnings in joint ventures decreased $2.0 million in 2002 as compared to
2001. The decrease in earnings in joint ventures primarily resulted from
declines in home deliveries from 282 in 2001 to 140 in 2002 because a joint
venture project was nearing sell-out of its inventory in 2002.
Interest and other income consisted of interest income from interest on
deposits from BankAtlantic and other financial institutions, loans receivable
interest income, and other income. The decline in interest and other income was
primarily associated with a decrease in interest income resulting from lower
average deposit balances and yields and lower rental income as a result of our
disposition of a marine rental property in May 2001.
The provision for income taxes for the years ended December 31, 2002 and
2001 included a reduction in the deferred tax asset valuation allowance of
approximately $2.6 million and $1.3 million, respectively. On January 1, 2002,
Levitt Corporation converted from a subchapter C corporation to a limited
liability company. In connection with the conversion, Levitt Corporation
established a valuation allowance of approximately $840,000 at December 31,
2001. Effective July 1, 2002, Levitt Corporation elected to be treated as an
association taxable as a corporation.
20
LEVITT AND SONS RESULTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2003 2002
------------------------------ AND 2002 AND 2001
2003 2002 2001 CHANGE CHANGE
-------- -------- -------- -------- --------
(in thousands)
REVENUES
Sales of real estate $222,257 162,359 117,663 59,898 44,696
Title and mortgage operations 2,466 1,595 1,106 871 489
-------- -------- -------- -------- --------
Total revenues 224,723 163,954 118,769 60,769 45,185
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales of real estate 173,072 131,281 95,553 41,791 35,728
Selling, general and administrative
expenses 29,478 21,100 18,454 8,378 2,646
Other expenses 1,606 1,121 830 485 291
Minority interest (113) -- 150 (113) (150)
-------- -------- -------- -------- --------
Total costs and expenses 204,043 153,502 114,987 50,541 38,515
-------- -------- -------- -------- --------
20,680 10,452 3,782 10,228 6,670
Earnings from joint ventures 480 1,171 2,766 (691) (1,595)
Interest and other income 560 1,053 1,460 (493) (407)
-------- -------- -------- -------- --------
Income before income taxes 21,720 12,676 8,008 9,044 4,668
Provision for income taxes 7,964 3,364 2,916 4,600 448
-------- -------- -------- -------- --------
NET INCOME $ 13,756 9,312 5,092 4,444 4,220
======== ======== ======== ======== ========
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------
2003 2002 2001
-------- -------- --------
(dollars in thousands, except
average price data)
LEVITT AND SONS:
Homes delivered 1,011 740 597
Construction starts 1,593 796 584
Average selling price of homes delivered $220,000 219,000 195,000
Margin percentage on sales of homes 22.1% 19.1% 18.8%
New sales contracts (units) 2,240 980 694
New sales contracts (value) $513,436 204,730 146,869
Backlog of homes (units) 2,053 824 584
Backlog of homes (value) $458,771 167,526 125,041
LEVITT AND SONS JOINT VENTURES:
Homes delivered 18 140 282
Construction starts 1,593 796 279
New sales contracts (units) 61 61 206
New sales contracts (value) $ 15,957 16,027 44,934
Backlog of homes (units) 104 61 140
Backlog of homes (value) $ 27,478 16,027 29,052
At December 31, 2003, Levitt and Sons had a delivery backlog of 2,053
homes representing $458.8 million of future sales. The number of homes in
backlog is at a five-year high and is higher than the number of units delivered
in 2001 and 2002 combined. The number of homes in backlog is 149% higher than at
year-end 2002, and the average sales price of the homes under contract is
approximately 10% higher than the year-end 2002 backlog. While the strong
backlog is encouraging for our 2004 results, potential economic trends and
developments could impact our home sales operations. In recent months, the costs
of lumber, steel, concrete and other building materials have risen
significantly. While we may be able to increase our selling prices to absorb
these increased costs in future sales, the sales prices of homes in our backlog
are set. Accordingly, we expect that the margins on the delivery of homes in
backlog may be adversely affected by this trend.
21
For the Year Ended December 31, 2003 Compared to the Same 2002 Period
Levitt and Sons' revenues from home sales increased 37% to $222.3 million
in 2003 from $162.4 million in 2002, due primarily to increased home deliveries.
The increase in homes delivered was the result of communities nearing completion
and the introduction of new projects and product lines. During 2003, 1,011 homes
were delivered at an average selling price of approximately $220,000, as
compared to 740 homes delivered in 2002 at an average selling price of
approximately $219,000.
Cost of sales increased by approximately 32% to $173.1 million in 2003
from $131.3 million in 2002. The increase in cost of sales was associated
primarily with the increased number of home deliveries. Cost of sales as a
percentage of related revenue was approximately 78% for the year ended December
31, 2003, as compared to approximately 81% for the year ended December 31, 2002.
The improvement in margin as a percentage of sales was primarily due to changes
in product mix and the higher average selling price.
Selling, general and administrative expenses increased 40% to $29.5
million in 2003 from $21.1 million for 2002. The increase in selling, general
and administrative expenses was primarily associated with the increase in sales
and the addition of several new development projects in central and southwest
Florida, as well as an increase in employee compensation and benefits resulting
from the addition of several new projects. As a percentage of revenues, selling
general and administrative expense was approximately 13% of total revenues in
both 2003 and 2002.
Interest incurred totaled $5.0 million and $4.1 million for 2003 and 2002,
respectively. The increase in interest incurred was primarily due to the
increases in borrowings associated with new development projects. This increase
was partially offset by a decline in average interest rates from 5.5% for 2002
to 4.9% for 2003 as a result of a decrease in the interest rates applicable to
our variable interest rate debt. Interest capitalized for 2003 and 2002 totaled
$5.0 million and $4.1 million, respectively. Throughout 2003 and 2002, real
estate inventory under active development was greater than the interest-bearing
debt. Therefore, all interest incurred during both 2003 and 2002 was
capitalized. At the time of a home sale, the related capitalized interest is
charged to cost of sales. Cost of sales of real estate for 2003 and 2002
included previously capitalized interest of approximately $4.3 million and $3.6
million, respectively.
The decrease in earnings in joint ventures resulted primarily from the
completion of home deliveries by one joint venture. The joint venture's initial
inventory was 600 units and the last 140 homes were delivered during 2002.
For the Year Ended December 31, 2002 Compared to the Same 2001 Period
Levitt and Sons revenues from home sales increased 38% to $162.4 million
in 2002 from $117.7 million in 2001. This was primarily due to increased home
deliveries, as well as an increase in the average selling price of homes. The
increases in homes delivered and average selling price were the result of
communities nearing completion and the introduction of new projects and product
lines. During 2002, 740 homes were delivered as compared to 597 homes in 2001.
The average selling price of homes sold during the 2002 period was approximately
$219,000, increasing 12% from $195,000 in 2001.
Cost of sales increased by approximately 37% to $131.3 million in 2002
from $95.6 million in 2001. The increase in cost of sales was primarily
associated with the increased number of home sales. Cost of sales as a
percentage of home sales revenue was 81% for both the year ended December 31,
2002 and the year ended December 31, 2001.
Selling, general and administrative expenses increased 14%, to $21.1
million in 2002 from $18.5 million in 2001. The increase in selling, general and
administrative expenses was primarily associated with the increase in sales and
the addition of several new development projects in central and southwest
Florida, as well as an increase in employee compensation and benefits resulting
from the addition of several new projects. As a percentage of revenues, selling
general and administrative expense declined from approximately 16% of total
revenues in 2001 to approximately 13% of total revenues in 2002. The decrease in
selling, general and administrative expenses as a percentage of total revenue
primarily reflects economies of scale realized as a result of increased revenue
levels.
Interest incurred totaled $4.1 million and $3.8 million for 2002 and 2001,
respectively. The increase in interest incurred was primarily due to the
increases in borrowings associated with several new development projects. This
increase was partially offset by a decline in average interest rates from 7.4%
for the 2001 period to 5.5% for the 2002 period as interest rates declined
generally. Capitalized interest for the 2002 and 2001 periods totaled $4.1
million and $3.8 million,
22
respectively. Throughout 2002 and 2001, real estate inventory was greater than
the interest-bearing debt. Therefore, all interest incurred during the 2002 and
2001 periods was capitalized. At the time of a home sale, the related
capitalized interest is charged to cost of sales. Cost of sales of real estate
for 2002 and 2001 included previously capitalized interest of approximately $3.6
million and $2.5 million, respectively.
The decrease in earnings in joint ventures primarily resulted from
declines in home deliveries by one joint venture as that joint venture's
development neared completion. The joint venture's initial inventory was 600
units, and home deliveries during 2002 and 2001 were 140 and 282, respectively.
The joint venture entered into contracts for most of its inventory during the
1999 and 2000 periods, and contracts for all remaining inventory were entered
into by the fourth quarter of 2001.
The provision for income taxes for the years ended December 31, 2002 and
2001 included a reduction in the deferred tax asset valuation allowance and a
change in state tax valuation which aggregated approximately $1.5 million and
$240,000, respectively.
CORE COMMUNITIES RESULTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2003 2002
----------------------------------- AND 2002 AND 2001
2003 2002 2001 CHANGE CHANGE
-------- -------- -------- -------- --------
(in thousands)
REVENUES
Sales of real estate $ 55,037 53,919(a) 21,555 1,118 32,364
-------- -------- -------- -------- --------
Total revenues 55,037 53,919 21,555 1,118 32,364
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales of real estate 31,362 28,722(a) 10,570 2,640 18,152
Selling, general and administrative
expenses 7,549 5,867 5,774 1,682 93
Interest expense, net 224 451 1,644 (227) (1,193)
Minority interest -- -- 6 -- (6)
-------- -------- -------- -------- --------
Total costs and expenses 39,135 35,040 17,994 4,095 17,046
-------- -------- -------- -------- --------
15,902 18,879 3,561 (2,977) 15,318
Interest and other income 2,261 1,413 2,039 848 (626)
-------- -------- -------- -------- --------
Income before income taxes 18,163 20,292 5,600 (2,129) 14,692
Provision for income taxes 7,149 5,414 2,078 1,735 3,336
-------- -------- -------- -------- --------
NET INCOME $ 11,014 14,878 3,522 (3,864) 11,356
======== ======== ======== ======== ========
(a) Includes land sales to Levitt and Sons which were eliminated in
consolidation.
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-------------------------------------
2003 2002 2001
-------- -------- --------
(dollars in thousands)
CORE COMMUNITIES:
Acres sold 1,337 1,715 253
Margin percentage on land sales 43.0% 46.7%(a) 51.0%
Unsold acres 4,868 4,242 4,131
Acres subject to sales contracts 1,433 1,845 469
Acres subject to sales contracts (value) $103,174 $ 72,767 $ 27,234
(a) Includes land sales to Levitt and Sons which were eliminated in
consolidation.
Operations at Core Communities remained strong in 2003. Development
activity in St. Lucie West entered its final stages in 2003, with only 164 acres
of acreage inventory available at December 31, 2003. Home sales remain strong in
St. Lucie West, as homebuilders within that community sold almost 1,600 homes
during 2003. Building on the success
23
of St. Lucie West, land development has commenced in Tradition, Core
Communities' newest master planned community project in St. Lucie County,
Florida. Currently, Tradition includes more than 4,800 acres, 1,531 of which had
already been contracted to homebuilders as of December 31, 2003. Additionally,
Core Communities has contracts to acquire approximately 4,500 additional acres
adjacent to Tradition. Notwithstanding the sustained interest and activity at
both St. Lucie West and Tradition, any reduction of demand in the residential
real estate market could negatively impact Core Communities' operations.
For the Year Ended December 31, 2003 Compared to the Same 2002 Period
Core Communities' revenues from land sales increased 2% to $55.0 million
in 2003 from $53.9 million in 2002. Margin on land sales in 2003 was
approximately $23.7 million as compared to $25.2 million in 2002. The decrease
in margin was primarily attributable to an increase in sales of residential land
and residential lots in 2003 as compared to 2002. This was primarily a result of
growth in the residential home sales market during 2003. The proportional
increase in residential property sales in 2003 has resulted in a decrease in
margin as a percentage of revenue, as commercial and industrial properties
generally provide a higher margin than residential properties. In the year ended
December 31, 2002, land sales to Levitt and Sons equaled $8.5 million and the
gain recognized was $6.5 million. These inter-company transactions were
eliminated in consolidation. There were no sales to Levitt and Sons in 2003.
Selling, general and administrative expenses increased 29% to $7.5 million
during the year ended December 31, 2003 as compared to 2002. This increase was
primarily associated with an increase in advertising expenses as a result of the
launch of the Tradition community during the first quarter of 2003.
Interest incurred for 2003 and 2002 was approximately $1.2 million and
$2.4 million, respectively. The decrease in interest incurred was primarily due
to the satisfaction of indebtedness formerly associated with Live Oak Preserve,
which was repaid in 2002 as discussed below. During 2003, interest capitalized
was approximately $927,000, as compared with $1.9 million for 2002. At the time
of land sales, the related capitalized interest is charged to cost of sales.
Cost of sales of real estate for 2003 and 2002 included previously capitalized
interest of approximately $318,000 and $980,000, respectively.
For the Year Ended December 31, 2002 Compared to the Same 2001 Period
Core Communities' revenues from land sales increased 150% to $53.9 million
in 2002 from $21.6 million in 2001. Margin on the 2002 land sales was
approximately $25.2 million as compared to $11.0 million in 2001. The increases
in sales revenue and margin were primarily attributable to an increase in
commercial land sales and residential lot sales in St. Lucie West in 2002 as
compared to 2001. This was primarily a result of growth in the residential home
sales market during 2002. In 2002, land sales to Levitt and Sons equaled $8.5
million and the net gain recognized was $6.5 million. This inter-company
transaction was eliminated in consolidation.
Interest incurred for 2002 and 2001 was approximately $2.4 million and
$1.6 million, respectively. The increase in interest incurred was primarily due
to an increase in borrowings associated with the purchase in September 2001 of a
tract of land known as Live Oak Preserve located in Hillsborough County,
Florida. The borrowings associated with the acquisition were fully repaid in
October 2002 as a result of the sale of all of the residential land in Live Oak
Preserve to a single homebuilder. During the 2002 period, capitalized interest
was approximately $1.9 million for interest costs incurred on real estate
inventory components. At the time of land sales, the related capitalized
interest is charged to cost of sales. Cost of sales of real estate for 2002
included previously capitalized interest of approximately $980,000. During 2001,
no capitalization of interest was recorded, as Core Communities had no project
under active development at that time.
The provision for income taxes for the years ended December 31, 2002 and
2001 included a reduction in the deferred tax asset valuation allowance and the
change in state tax valuation of approximately $1.9 million and $212,000,
respectively.
24
INVESTMENT IN BLUEGREEN RESULTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2003
-------------------- AND 2002
2003 2002 CHANGE
-------- -------- --------
(in thousands)
Earnings from Bluegreen Corporation $ 7,433 4,570(a) 2,863
-------- -------- --------
Income before income taxes 7,433 4,570 2,863
Provision for income taxes 2,867 1,763 1,104
-------- -------- --------
NET INCOME $ 4,566 2,807 1,759
======== ======== ========
(a) Levitt Corporation acquired its interest in Bluegreen Corporation in April
2002
We currently own approximately 38% of the outstanding common stock of
Bluegreen Corporation. Under equity method accounting, we recognize our pro-rata
share of Bluegreen's net income or loss (net of purchase accounting adjustments)
as pre-tax earnings. Bluegreen has not paid dividends to its shareholders, and
our earnings therefore represent only our claim on the future distributions of
Bluegreen's earnings. Should Bluegreen's financial performance deteriorate, our
earnings in Bluegreen would deteriorate concurrently and our results of
operations would be adversely affected. Furthermore, a significant reduction in
Bluegreen's financial position might require that we test our investment in
Bluegreen for impairment, which could result in charges against our 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, 2003, as filed with the SEC and incorporated herein
by reference.
During April 2002, we acquired approximately 8.3 million shares of the
outstanding common stock of Bluegreen for an aggregate purchase price of
approximately $53.8 million. The investment in Bluegreen was recorded at cost
and the carrying amount of the investment is adjusted to recognize our interest
in the earnings or loss of Bluegreen after the acquisition date. The funds for
the investment in Bluegreen were obtained through $30 million of borrowings from
BankAtlantic Bancorp, an $18.6 million capital contribution from BankAtlantic
Bancorp and $5.2 million of working capital. Our carrying amount in the
Bluegreen investment was in the aggregate $4.2 million greater than our
ownership percentage in the underlying equity in the net assets of Bluegreen. Of
such amount, $4.1 million was allocated to goodwill, $1.6 million to deferred
taxes, and the balance of $1.7 million was assigned to various assets and
liabilities of Bluegreen, which will be amortized into the statement of
operations as an adjustment to income from equity method investment. On December
22, 2003, in connection with our spin-off from BankAtlantic Bancorp, we acquired
an additional 1.2 million shares of Bluegreen's common stock from BankAtlantic
Bancorp in exchange for a $5.5 million promissory note and additional shares of
our common stock (which were subsequently distributed in the spin-off).
For the Year Ended December 31, 2003 Compared to the Same 2002 Period
Bluegreen's reported net income for the year ended December 31, 2003 was
$25.8 million and, for the period of our ownership during 2002, income before
the cumulative effect of a change in accounting principle was $15.4 million. Our
ownership interest in Bluegreen's earnings during 2003 was approximately $7.4
million, as compared to $4.6 million for the period of our ownership in 2002.
Our interest in Bluegreen's earnings was reduced by $1.1 million in 2003 due to
the effects of purchase accounting adjustments, as compared with a reduction of
$353,000 during the period of our ownership from April to December 2002. The
purchase accounting adjustments for 2002 primarily related to Bluegreen's sale
of notes receivable which existed at the acquisition date. At the acquisition
date, the notes receivable were adjusted to reflect unrealized gain in our
carrying amount of the asset, and accordingly, when such gain was recorded by
Bluegreen, we recognized no gain. The purchase accounting adjustments for 2003
primarily related to Bluegreen's sale of retained interests in notes receivable
which existed at the acquisition date. As with the underlying notes receivable,
at the acquisition date the retained interests were adjusted to reflect
unrealized gain in our carrying amount of the asset, and, when such gain was
recorded by Bluegreen, we recognized no gain.
25
OTHER OPERATIONS RESULTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2003 2002
---------------------------------- AND 2002 AND 2001
2003 2002 2001 CHANGE CHANGE
-------- -------- -------- -------- --------
(in thousands)
REVENUES
Sales of real estate $ 5,764 -- 3,922 5,764 (3,922)
COSTS AND EXPENSES
Cost of sales of real estate 6,021 1,601 5,562 4,420 (3,961)
Selling, general and administrative
expenses 4,767 3,392 1,803 1,375 1,589
Interest expense, net 9 (6) (1,022) 15 1,016
Other expenses 232 190 100 42 90
Minority interest 199 -- 400 199 (400)
-------- -------- -------- -------- --------
Total costs and expenses 11,228 5,177 6,843 6,051 (1,666)
-------- -------- -------- -------- --------
(5,464) (5,177) (2,921) (287) (2,256)
Earnings (loss) from joint ventures 3 (322) 122 325 (444)
Interest and other income 341 268 1,031 73 (763)
-------- -------- -------- -------- --------
Loss before income taxes (5,120) (5,231) (1,768) 111 (3,463)
Income tax benefit (1,975) (1,940) (799) (35) (1,141)
-------- -------- -------- -------- --------
NET INCOME $ (3,145) (3,291) (969) 146 (2,322)
======== ======== ======== ======== ========
Other operations consists of Levitt Commercial, investments in joint
ventures and other real estate interests and holding company operations.
For the Year Ended December 31, 2003 Compared to the Same 2002 Period
During the first quarter of 2003, Levitt Commercial commenced the delivery
of its flex warehouse units and the revenue and margin on the sales of its
inventory for the year ended December 31, 2003 was approximately $5.8 million
and $1.2 million, respectively. No sales of real estate were recognized by this
business segment in 2002. Cost of sales of real estate includes the amortization
of interest previously capitalized in this business segment. The amount of
previously capitalized interest amortized in cost of sales for 2003 and 2002 was
$1.5 million and $1.6 million, respectively.
Selling, general and administrative and other expenses in this segment
primarily relate to holding company operations and expenses incurred by Levitt
Commercial. Selling, general and administrative and other expenses increased to
$6.0 million during the year ended December 31, 2003 as compared to $1.6 million
for 2002. This increase was primarily associated with increases in employee
compensation and benefits relating to our expansion and costs related to our
public offering of investment notes.
Interest incurred was approximately $1.7 million and $1.6 million for the
year ended December 31, 2003 and 2002, respectively. The increase in interest
incurred is primarily associated with a $30.0 million loan from BankAtlantic
Bancorp in connection with the acquisition of Levitt Corporation's investment in
Bluegreen Corporation, which was outstanding for the entire twelve months of
2003 as compared with only nine months during 2002. Partially offsetting this
increase was a reduction in average interest rates for 2003 to approximately
4.1%, as compared to 5.3% for 2002. Interest capitalized for this business
segment totaled $1.7 million and $1.6 million for the year ended December 31,
2003 and 2002, respectively. Interest capitalized in this business segment
includes adjustments to reconcile the amount of interest eligible for
capitalization on a consolidated basis with the amounts capitalized in the other
business segments.
Mi