LEVITT CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2004

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number
001-31931

Levitt Corporation

(Exact name of registrant as specified in its Charter)


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 offices)		(Zip Code)

(954) 760-5200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding for each of the Registrant’s classes of common stock, as of August 9, 2004:


Class of Common Stock		Shares Outstanding

Class A common stock, $0.01 par value		18,597,166
Class B common stock, $0.01 par value		1,219,031

Levitt Corporation

Consolidated Statements of Financial Condition — Unaudited

(In thousands except share data)


	June 30,			December 31,
	2004			2003
Assets
Cash and cash equivalents	$	118,971			35,965
Restricted cash		4,997			3,384
Notes receivable		5,782			5,163
Inventory of real estate		383,999			257,556
Investments in real estate joint ventures		3,671			4,106
Investment in Bluegreen Corporation		75,678			70,852
Other assets		16,465			15,034
Goodwill		1,541			—
Deferred tax asset, net		—			654

Total assets	$	611,104			392,714

Liabilities and Shareholders’ Equity
Accounts payable and accrued liabilities	$	50,598			39,987
Customer deposits		58,236			52,134
Current income tax payable		4,995			1,024
Notes and mortgage notes payable		175,180			111,625
Notes and mortgage notes payable to affiliates		52,939			61,618
Development bonds payable		459			850
Deferred tax liability, net		1,790			—

Total liabilities		344,197			267,238
Minority interest in consolidated joint venture		(38	)		24
Shareholders’ equity:
Preferred stock, $0.01 par value
Authorized: 5,000,000 shares
Issued and outstanding: no shares		—			—
Common stock, Class A, $0.01 par value
Authorized: 50,000,000 shares
Issued and outstanding: 18,597,166 and 13,597,166 shares, respectively		186			136
Common stock, Class B, $0.01 par value
Authorized: 10,000,000 shares
Issued and outstanding: 1,219,031 and 1,219,031 shares, respectively		12			12
Additional paid-in capital		182,542			67,855
Retained earnings		83,762			57,020
Accumulated other comprehensive income		443			429

Total shareholders’ equity		266,945			125,452

Total liabilities and shareholders’ equity	$	611,104			392,714

See accompanying notes to unaudited consolidated financial statements.

Levitt Corporation

Consolidated Statements of Operations — Unaudited

(In thousands, except per share data)


	Three Months					Six Months
	Ended June 30,					Ended June 30,
	2004			2003		2004		2003
Revenues:
Sales of real estate	$	142,530			67,039		241,053		120,003
Title and mortgage operations		1,339			577		2,309		981

Total revenues		143,869			67,616		243,362		120,984

Costs and expenses:
Cost of sales of real estate		107,676			49,151		177,341		88,675
Selling, general and administrative expenses		18,888			10,482		32,935		18,502
Interest expense, net		—			8		58		249
Other expenses		778			376		1,394		668
Minority interest		(1	)		28		24		149

Total costs and expenses		127,341			60,045		211,752		108,243

		16,528			7,571		31,610		12,741
Earnings from Bluegreen Corporation		2,775			1,940		4,861		1,806
Earnings (loss) from real estate joint ventures		2,130			231		5,737		(82	)
Interest and other income		849			621		1,327		1,267

Income before income taxes		22,282			10,363		43,535		15,732
Provision for income taxes		8,595			3,997		16,793		6,072

Net income	$	13,687			6,366		26,742		9,660

Earnings per common share:
Basic	$	0.70			0.43		1.55		0.65
Diluted	$	0.68			0.42		1.53		0.64
Weighted average common shares outstanding:
Basic		19,596			14,816		17,206		14,816
Diluted		19,638			14,816		17,245		14,816

See accompanying notes to unaudited consolidated financial statements.

Levitt Corporation

Consolidated Statements of Comprehensive Income — Unaudited

(In thousands)


	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2004		2003		2004		2003
Net income	$	13,687		6,366		26,742		9,660
Other comprehensive income:
Pro-rata share of unrealized gain recognized by Bluegreen Corporation on retained interests in notes receivable sold, net of tax		106		257		14		663

Comprehensive income	$	13,793		6,623		26,756		10,323

See accompanying notes to unaudited consolidated financial statements.

Levitt Corporation

Consolidated Statements of Shareholders’ Equity — Unaudited

For the Six Months Ended June 30, 2004
(In thousands)


										Accumulated
										Compre-
	Class A		Class B		Additional					hensive
	Common		Common		Paid-In			Retained		Income
	Stock		Stock		Capital			Earnings		(Loss)		Total
Balance at December 31, 2003	$	136		12		67,855			57,020		429		125,452
Net income		—		—		—			26,742		—		26,742
Other comprehensive income		—		—		—			—		14		14
Issuance of common stock, net of stock issuance costs		50		—		114,719			—		—		114,769
Issuance of Bluegreen Corporation common stock, net of tax		—		—		(32	)		—		—		(32	)

Balance at June 30, 2004	$	186		12		182,542			83,762		443		266,945

See accompanying notes to unaudited consolidated financial statements.

Levitt Corporation

Consolidated Statements of Cash Flows — Unaudited

(In thousands)


	Six Months
	Ended June 30,
	2004			2003
Operating activities:
Net income	$	26,742			9,660
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		308			149
Minority interest expense		24			149
Increase in deferred income taxes		1,692			1,876
Earnings from Bluegreen Corporation		(4,861	)		(1,806	)
(Earnings) loss from real estate joint ventures		(5,737	)		82
Gain on sale of building		(2,162	)		—
Changes in operating assets and liabilities:
Increase in restricted cash		(1,613	)		(579	)
(Increase) decrease in notes receivable		(619	)		83
Increase in inventory of real estate		(104,516	)		(20,347	)
Increase (decrease) in other assets		241			(2,136	)
Increase in accounts payable, accrued expenses and other liabilities		17,083			9,031

Net cash used in operating activities		(73,418	)		(3,838	)

Investing activities:
Investment in real estate joint ventures		(35	)		(800	)
Distributions from real estate joint ventures		6,410			1,031
Partial sale of joint venture interest		305			—
Purchase of Bowden Building Corporation, net of cash received		(6,109	)		—
Proceeds from sale of building		5,315			—
Other		(1,905	)		(262	)

Net cash provided by (used in) investing activities		3,981			(31	)

Financing activities:
Proceeds from notes and mortgage notes payable		157,136			73,102
Proceeds from notes and mortgage notes payable to affiliates		18,771			19,012
Repayment of notes and mortgage notes payable		(110,306	)		(54,155	)
Repayment of notes and mortgage notes payable to affiliates		(27,450	)		(20,008	)
Repayment of development bonds payable		(391	)		(2,025	)
Proceeds from issuance of common stock, net of issuance costs		114,769			—
Change in minority interest in consolidated joint ventures		(86	)		(70	)

Net cash provided by financing activities		152,443			15,856

Increase in cash and cash equivalents		83,006			11,987
Cash and cash equivalents at the beginning of period		35,965			16,014

Cash and cash equivalents at end of period	$	118,971			28,001

(Continued on next page)

Levitt Corporation
Consolidated Statements of Cash Flows — Unaudited
(In thousands)


	Six Months
	Ended June 30,
	2004			2003
Supplemental cash flow information
Interest paid on borrowings	$	4,181			4,205
Income taxes paid		13,480			5,372
Supplemental disclosure of non-cash activities:
Change in shareholder’s equity resulting from the change in other comprehensive gain, net of taxes	$	14			663
Change in shareholder’s equity from the net effect of Bluegreen’s capital transactions, net of taxes		(32	)		—
Assumption of development bonds payable		—			(1,190	)
Decrease in notes receivable from assumption of development bonds payable		—			1,190
Increase in joint venture investment resulting from unrealized gain on non-monetary exchange		508			—
Fair value of assets acquired from acquisition of Bowden Building Corporation		26,696
Fair value of liabilities assumed from acquisition of Bowden Building Corporation		20,587			—

See accompanying notes to unaudited consolidated financial statements.

Levitt Corporation

Notes to Unaudited Consolidated Financial Statements

1. Presentation of Interim Financial Statements

Levitt Corporation (including its subsidiaries, the “Company”) engages in real estate activities through its Homebuilding and Land Development Divisions and other operations. The Homebuilding Division operates through Levitt and Sons, LLC (“Levitt and Sons”) and Bowden Building Corporation (“Bowden”), developers of single family home, town home and condominium communities. The Land Development Division consists of the operations of Core Communities, LLC, a land and master-planned community developer (“Core Communities”). Other Operations includes Levitt Commercial, LLC, a developer of commercial properties (“Levitt Commercial”); an equity investment in Bluegreen Corporation, a New York Stock Exchange-listed company engaged in the acquisition, development, marketing and sale of ownership interests in primarily drive-to vacation resorts, and the development and sale of golf communities and residential land (“Bluegreen”); and investments in real estate and real estate joint ventures.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. Certain items in prior period financial statements have been reclassified to conform to the current presentation. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003 and quarterly report on Form 10-Q for the quarter ended March 31, 2004.

2. Stock Based Compensation

The Company accounts for stock option grants under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of the Company’s stock on the date of grant.

The following table illustrates the effect on net earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure, to stock-based employee compensation (in thousands, except per share data):


	For the Three Months					For the Six Months
	Ended June 30,					Ended June 30,
	2004			2003		2004			2003
Pro forma net income
Net income, as reported	$	13,687			6,366		26,742			9,660
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax effects and minority interest		(137	)		—		(544	)		—

Pro forma net income	$	13,550			6,366		26,198			9,660

Basic earnings per share:
As reported	$	0.70			0.43		1.55			0.65
Pro forma	$	0.69			0.43		1.52			0.65
Diluted earnings per share:
As reported	$	0.68			0.42		1.53			0.64
Pro forma	$	0.68			0.42		1.50			0.64

3. Inventory of Real Estate

Inventory of real estate is summarized as follows (in thousands):


	June 30,		December 31,
	2004		2003
Land and land development costs	$	269,219		174,142
Construction costs		101,469		67,895
Other costs		13,311		15,519

	$	383,999		257,556

4. Interest

Interest incurred relating to land under development and construction is capitalized to real estate inventories during the active development period. Interest is capitalized as a component of inventory at the effective rates paid on borrowings during the pre-construction and planning stage and the periods that projects are under development. Capitalization of interest is discontinued if development ceases at a project. Interest is amortized to cost of sales as related homes, land and units are sold. The following table is a summary of interest incurred on notes and mortgage notes payable and the amounts capitalized (in thousands):


	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Interest incurred to non-affiliates	$	1,821			1,349			3,181			2,905
Interest incurred to affiliates		561			600			1,195			1,200
Interest capitalized		(2,382	)		(1,941	)		(4,318	)		(3,856	)

Interest expense, net	$	—			8			58			249

Interest included in cost of sales	$	2,779			1,222			4,579			2,424

5. Investment in Bluegreen Corporation

The Company accounts for its investment in Bluegreen under the equity method. As of June 30, 2004, the Company owned approximately 9.5 million shares, or approximately 36% of Bluegreen’s outstanding common stock.

Bluegreen’s condensed balance sheets and condensed statements of income are as follows (in thousands):

Condensed Consolidated Balance Sheet


	June 30,		December 31,
	2004		2003
Total assets	$	599,251		570,406

Total liabilities	$	382,295		378,878
Minority interest		6,980		4,648
Total shareholders’ equity		209,976		186,880

Total liabilities and shareholders’ equity	$	599,251		570,406

Condensed Consolidated Statements of Income


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2004		2003		2004		2003
Revenues and other income	$	153,374		106,843		260,591		187,725
Cost and other expenses		137,078		96,001		235,823		172,968

Income before minority interest and provision for income taxes		16,296		10,842		24,768		14,757
Minority interest		1,503		266		2,332		723

Income before provision for income taxes		14,793		10,576		22,436		14,034
Provision for income taxes		5,695		4,350		8,638		5,681

Net income	$	9,098		6,226		13,798		8,353

6. Notes and Mortgage Notes Payable

On September 30, 2003 the SEC declared effective the Company’s Registration Statement on Form S-1 for the public offering of up to $100 million of unsecured subordinated investment notes. The investment notes are unsecured obligations and are subordinated to substantially all other liabilities. In March 2004, the unsold notes were deregistered. Approximately $3.2 million of investment notes were outstanding as of June 30, 2004.

7. Commitments and Contingencies

At June 30, 2004, the Company had $100.5 million of commitments to purchase properties for development. Approximately $25.8 million of such commitments are subject to due diligence and satisfaction of certain requirements and conditions, including financing contingencies. The following table summarizes certain information relating to outstanding purchase and option contracts.

Purchase

Units/

Expected

Price

Acres

Closing

Homebuilding Division

99.6 million

5,579 units

2004

Other

836,000

22 units

2004

At June 30, 2004, cash deposits and option payments of approximately $3.5 million secured the Company’s commitments under these contracts.

8. Litigation

On December 29, 2000, Smith & Company, Inc. (“Smith”) filed a law suit against, among others, Levitt-Ansca Towne Partnership, a Florida limited partnership (“Partnership”), and Bellaggio by Levitt Homes, Inc., a Florida corporation and a wholly owned subsidiary of Levitt and Sons, LLC (“BLHI”). The suit alleged, among other things, wrongful termination, breach and failure to pay for extra work performed outside the scope of the contract. The case was tried before a jury, and on March 7, 2002 the jury returned a verdict against the Partnership and awarded Smith $4.4 million, which amount included interest and attorneys’ fees. BLHI’s potential liability was estimated at $2.6 million. The Partnership appealed the verdict, and on April 14, 2004 the Fourth District Court of Appeal of the


PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements:
		Consolidated Statements of Financial Condition as of June 30, 2004 and December 31, 2003 — Unaudited
		Consolidated Statements of Operations for the three and six month periods ended June 30, 2004 and 2003 — Unaudited
		Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2004 and 2003 — Unaudited
		Consolidated Statements of Shareholders’ Equity for the six month period ended June 30, 2004 — Unaudited
		Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 — Unaudited
		Notes to Unaudited Consolidated Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures about Market Risk
Item 4.		Controls and Procedures
PART II.		OTHER INFORMATION
Item 4.		Submission of Matters to a Vote of Security Holders
Item 6.		Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION PURSUANT TO SECTION 302
CERTIFICATION PURSUANT TO SECTION 302
CERTIFICATION PURSUANT TO SECTION 906
CERTIFICATION PURSUANT TO SECTION 906

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