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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 September 30, 2004 [  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number
001-31931 Levitt Corporation  Florida
(State or other jurisdiction of
incorporation or organization)
    
    11-3675068
(I.R.S. Employer
Identification No.)1750 East Sunrise Boulevard
Ft. Lauderdale, Florida
(Address of principal executive offices)
    
    33304
(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 [  ] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X] Indicate the number of shares outstanding for each of the Registrants classes
of common stock, as of November 9, 2004: Class of Common Stock
    
    Shares OutstandingClass A common stock, $0.01 par value
    
    
    18,597,166Class B common stock, $0.01 par value
    
    
    1,219,031
 1




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Levitt Corporation and Subsidiaries
Index to Unaudited Consolidated Financial Statements PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Statements of Financial Condition as of
September 30, 2004 and December 31, 2003  UnauditedConsolidated Statements of Operations for the three
and nine month periods ended September 30, 2004 and
2003 - UnauditedConsolidated Statements of Comprehensive Income for
the three and nine month periods ended September 30,
2004 and 2003 - UnauditedConsolidated Statements of Shareholders Equity for
the nine month period ended September 30, 2004 -
UnauditedConsolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003  UnauditedNotes to Unaudited Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial
Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 6. ExhibitsSIGNATURESCEO Certification pursuant to Section 302CFO Certification pursuant to Section 302CEO Certification pursuant to Section 906CFO Certification pursuant to Section 906
  2




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Levitt Corporation 
 Consolidated
Statements of Financial Condition - Unaudited
 (In thousands except share data)
 September 30,
    
    December 31,2004
    
    2003AssetsCash and cash equivalents
    
    $
    109,746
    
    
    
    35,965Restricted cash
    
    
    2,525
    
    
    
    3,384Notes receivable
    
    
    5,729
    
    
    
    5,163Inventory of real estate
    
    
    428,304
    
    
    
    257,556Investments in real estate joint ventures
    
    
    1,550
    
    
    
    4,106Investment in Bluegreen Corporation
    
    
    80,752
    
    
    
    70,852Other assets
    
    
    21,990
    
    
    
    15,034Goodwill
    
    
    1,541
    
    
    
    Deferred tax asset, net
    
    
    
    
    
    
    654Total assets
    
    $
    652,137
    
    
    
    392,714Liabilities and Shareholders EquityAccounts payable and accrued liabilities
    
    $
    53,962
    
    
    
    40,011Customer deposits
    
    
    52,945
    
    
    
    52,134Current income tax payable
    
    
    244
    
    
    
    1,024Notes and mortgage notes payable
    
    
    210,777
    
    
    
    111,625Notes and mortgage notes payable to affiliates
    
    
    49,128
    
    
    
    61,618Development bonds payable
    
    
    441
    
    
    
    850Deferred tax liability, net
    
    
    4,871
    
    
    
    Total liabilities
    
    
    372,368
    
    
    
    267,262Shareholders equity:Preferred
stock, $0.01 par value
Authorized: 5,000,000 shares
Issued and outstanding: no shares
    
    
    
    
    
    
    Class A
Common Stock, $0.01 par value
Authorized: 50,000,000 shares
Issued and outstanding: 18,597,166 and 13,597,166 shares,
respectively
    
    
    186
    
    
    
    136Class B
Common Stock, $0.01 par value
Authorized: 10,000,000 shares
Issued and outstanding: 1,219,031 and 1,219,031 shares, respectively
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    182,313
    
    
    
    67,855Retained earnings
    
    
    97,026
    
    
    
    57,020Accumulated other comprehensive income
    
    
    232
    
    
    
    429Total shareholders equity
    
    
    279,769
    
    
    
    125,452Total liabilities and shareholders equity
    
    $
    652,137
    
    
    
    392,714
 See accompanying notes to unaudited consolidated financial statements. 3




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Levitt Corporation 
 Consolidated Statements of Operations  Unaudited
 (In thousands, except per share data)
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Sales of real estate
    
    $
    132,893
    
    
    
    64,930
    
    
    
    373,946
    
    
    
    184,933Title and mortgage operations
    
    
    1,164
    
    
    
    607
    
    
    
    3,473
    
    
    
    1,588Total revenues
    
    
    134,057
    
    
    
    65,537
    
    
    
    377,419
    
    
    
    186,521Costs and expenses:Cost of sales of real estate
    
    
    98,513
    
    
    
    46,487
    
    
    
    275,854
    
    
    
    135,162Selling, general and
administrative expenses
    
    
    17,298
    
    
    
    10,210
    
    
    
    50,233
    
    
    
    28,712Interest expense, net
    
    
    178
    
    
    
    
    
    
    
    236
    
    
    
    249Other expenses
    
    
    3,594
    
    
    
    379
    
    
    
    4,988
    
    
    
    1,047Minority interest
    
    
    (50
    )
    
    
    (22
    )
    
    
    (26
    )
    
    
    127Total costs and expenses
    
    
    119,533
    
    
    
    57,054
    
    
    
    331,285
    
    
    
    165,29714,524
    
    
    
    8,483
    
    
    
    46,134
    
    
    
    21,224Earnings from Bluegreen Corporation
    
    
    5,790
    
    
    
    3,350
    
    
    
    10,651
    
    
    
    5,156(Loss) earnings from real estate joint ventures
    
    
    (25
    )
    
    
    (16
    )
    
    
    5,712
    
    
    
    (98
    )Interest and other income
    
    
    1,979
    
    
    
    663
    
    
    
    3,306
    
    
    
    1,930Income before income taxes
    
    
    22,268
    
    
    
    12,480
    
    
    
    65,803
    
    
    
    28,212Provision for income taxes
    
    
    8,608
    
    
    
    4,819
    
    
    
    25,401
    
    
    
    10,891Net income
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321Earnings per common share:Basic
    
    $
    0.69
    
    
    
    0.52
    
    
    
    2.23
    
    
    
    1.17Diluted
    
    $
    0.66
    
    
    
    0.50
    
    
    
    2.18
    
    
    
    1.14Weighted average common shares outstanding:Basic
    
    
    19,816
    
    
    
    14,816
    
    
    
    18,083
    
    
    
    14,816Diluted
    
    
    19,872
    
    
    
    14,816
    
    
    
    18,127
    
    
    
    14,816Dividends declared per common share:Class A common stock
    
    $
    0.02
    
    
    
    
    
    
    
    0.02
    
    
    
    Class B common stock
    
    $
    0.02
    
    
    
    
    
    
    
    0.02
    
    
    
    
 See accompanying notes to unaudited consolidated financial statements. 4




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Levitt Corporation 
 Consolidated
Statements of Comprehensive Income - Unaudited
 (In thousands)
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321Other comprehensive income:Pro-rata share of unrealized (loss) gain
recognized by Bluegreen on retained
interests in notes receivable sold, net of tax
    
    
    (211
    )
    
    
    112
    
    
    
    (197
    )
    
    
    775Comprehensive income
    
    $
    13,449
    
    
    
    7,773
    
    
    
    40,205
    
    
    
    18,096
 See accompanying notes to unaudited consolidated financial statements. 5




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Levitt Corporation 
 Consolidated Statement
of Shareholders Equity - Unaudited
 For the Nine Months Ended September 30, 2004
(In thousands)
 AccumulatedCompre-Class A
    
    Class B
    
    Additional
    
    
    
    
    
    hensiveCommon
    
    Common
    
    Paid-In
    
    Retained
    
    IncomeStock
    
    Stock
    
    Capital
    
    Earnings
    
    (Loss)
    
    TotalBalance at December 31, 2003
    
    $
    136
    
    
    
    12
    
    
    
    67,855
    
    
    
    57,020
    
    
    
    429
    
    
    
    125,452Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,402
    
    
    
    
    
    
    
    40,402Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (197
    )
    
    
    (197
    )Issuance of common stock,
net of stock issuance costs
    
    
    50
    
    
    
    
    
    
    
    114,719
    
    
    
    
    
    
    
    
    
    
    
    114,769Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    
    
    
    
    (396
    )Issuance of Bluegreen common
stock, net of tax
    
    
    
    
    
    
    
    
    
    
    (261
    )
    
    
    
    
    
    
    
    
    
    
    (261
    )Balance at September 30, 2004
    
    $
    186
    
    
    
    12
    
    
    
    182,313
    
    
    
    97,026
    
    
    
    232
    
    
    
    279,769
 See accompanying notes to unaudited consolidated financial statements. 6




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Levitt Corporation 
 Consolidated
Statements of Cash Flows - Unaudited
 (In thousands)
 Nine MonthsEnded September 30,2004
    
    2003Operating activities:Net income
    
    $
    40,402
    
    
    
    17,321Adjustments to reconcile net income to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    439
    
    
    
    226Increase in deferred income taxes
    
    
    5,049
    
    
    
    3,078Earnings
from Bluegreen Corporation
    
    
    (10,651
    )
    
    
    (5,156
    )(Earnings) loss from real estate joint ventures
    
    
    (5,712
    )
    
    
    99Gain on sale of building
    
    
    (2,162
    )
    
    
    Changes in operating assets and liabilities:Restricted cash
    
    
    859
    
    
    
    (313
    )Notes receivable
    
    
    (566
    )
    
    
    919Inventory of
real estate
    
    
    (148,821
    )
    
    
    (36,728
    )Other assets
    
    
    (5,275
    )
    
    
    (2,405
    )Accounts
payable, accrued expenses and other liabilities
    
    
    10,480
    
    
    
    27,931Net cash (used in) provided by operating activities
    
    
    (115,958
    )
    
    
    4,972Investing activities:Investment in real estate joint ventures
    
    
    (127
    )
    
    
    (905
    )Distributions from real estate joint ventures
    
    
    8,464
    
    
    
    1,196Proceeds from partial sale of joint venture interest
    
    
    340
    
    
    
    Purchase of Bowden Building Corporation, net of cash acquired
    
    
    (6,109
    )
    
    
    Proceeds from sale of building
    
    
    5,315
    
    
    
    Other
    
    
    (2,045
    )
    
    
    (343
    )Net cash provided by (used in) investing activities
    
    
    5,838
    
    
    
    (52
    )Financing activities:Proceeds from notes and mortgage notes payable
    
    
    240,878
    
    
    
    97,784Proceeds from notes and mortgage notes payable to affiliates
    
    
    26,482
    
    
    
    28,571Repayment of notes and mortgage notes payable
    
    
    (158,451
    )
    
    
    (74,820
    )Repayment of notes and mortgage notes payable to affiliates
    
    
    (38,972
    )
    
    
    (32,834
    )Repayment of development bonds payable
    
    
    (409
    )
    
    
    (3,590
    )Proceeds from issuance of common stock, net of issuance costs
    
    
    114,769
    
    
    
    Cash dividends paid
    
    
    (396
    )
    
    
    Net cash provided by financing activities
    
    
    183,901
    
    
    
    15,111Increase in cash and cash equivalents
    
    
    73,781
    
    
    
    20,031Cash and cash equivalents at the beginning of period
    
    
    35,965
    
    
    
    16,014Cash and cash equivalents at end of period
    
    $
    109,746
    
    
    
    36,045
 (Continued on next page) 7




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Levitt Corporation
Consolidated Statements of Cash Flows - Unaudited
(In thousands) Nine MonthsEnded September 30,2004
    
    2003Supplemental cash flow informationInterest paid on borrowings
    
    $
    7,190
    
    
    
    6,090Income taxes paid
    
    
    21,921
    
    
    
    8,081Supplemental disclosure of non-cash operating,
investing and financing activities:Change in shareholders equity resulting from the change
in other comprehensive (loss) gain, net of taxes
    
    
    (197
    )
    
    
    775Change in shareholders equity from the net effect
of Bluegreens capital transactions, net of taxes
    
    
    (261
    )
    
    
    (106
    )Increase in joint venture investment resulting from
unrealized gain on non-monetary exchange
    
    
    409
    
    
    
    Fair value of assets acquired from acquisition of Bowden Building Corporation
    
    
    26,696
    
    
    
    Fair value of liabilities acquired from acquisition of Bowden Building Corporation
    
    
    20,587
    
    
    
    
 See accompanying notes to unaudited consolidated financial statements. 8




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Levitt Corporation 
 Notes to Unaudited
Consolidated Financial Statements
 1. Presentation of Interim Financial Statements Levitt Corporation (including its subsidiaries, the Company) engages in
real estate activities through its Homebuilding and Land Divisions and other
operations. The Homebuilding Division operates through Levitt and Sons, LLC
(Levitt and Sons) and Bowden Building Corporation (Bowden), developers of
single family home, townhome and condominium communities. The Land 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 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. All significant
inter-segment transactions have been eliminated in consolidation. The
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 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 reports
on Forms 10-Q for the quarters ended March 31, 2004 and June 30, 2004. 9




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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 income and 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): Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Pro forma net incomeNet income, as reported
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related income tax
effects and minority interest
    
    
    (149
    )
    
    
    
    
    
    
    (748
    )
    
    
    Pro forma net income
    
    $
    13,511
    
    
    
    7,661
    
    
    
    39,654
    
    
    
    17,321Basic earnings per share:As reported
    
    $
    0.69
    
    
    
    0.52
    
    
    
    2.23
    
    
    
    1.17Pro forma
    
    
    0.68
    
    
    
    0.52
    
    
    
    2.19
    
    
    
    1.17Diluted earnings per share:As reported
    
    $
    0.66
    
    
    
    0.50
    
    
    
    2.18
    
    
    
    1.14Pro forma
    
    
    0.66
    
    
    
    0.50
    
    
    
    2.14
    
    
    
    1.14
 3. Inventory of Real Estate Inventory of real estate is summarized as follows (in thousands): September 30,
    
    December 31,2004
    
    2003Land and land development costs
    
    $
    292,982
    
    
    
    174,142Construction costs
    
    
    123,288
    
    
    
    67,895Other costs
    
    
    12,034
    
    
    
    15,519$
    428,304
    
    
    
    257,556
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4. Interest Interest incurred relating to land under development and construction is
capitalized to real estate inventory during the active development period.
Interest is capitalized as a component of inventory at the effective rates paid
on borrowings during the pre-construction and planning stages and the periods
that projects are under development. Capitalization of interest is
discontinued if development ceases at a project. Capitalized interest is
expensed as a component of cost of sales as related homes, land and units are
sold. The following table is a summary of interest incurred on notes and
mortgage notes payable and the amounts capitalized (in thousands): Three Months ended
    
    Nine Months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Interest incurred to non-affiliates
    
    $
    2,479
    
    
    
    1,349
    
    
    
    5,660
    
    
    
    4,254Interest incurred to affiliates
    
    
    584
    
    
    
    545
    
    
    
    1,779
    
    
    
    1,745Interest capitalized
    
    
    (2,885
    )
    
    
    (1,894
    )
    
    
    (7,203
    )
    
    
    (5,750
    )Interest expense, net
    
    $
    178
    
    
    
    
    
    
    
    236
    
    
    
    249Interest expensed in cost of sales
    
    $
    2,306
    
    
    
    1,451
    
    
    
    6,885
    
    
    
    3,875
 5. Other Expenses and Interest and Other Income Other expenses and interest and other income are summarized as follows (in
thousands): Three
Months ended
    
    Nine Months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Other expensesTitle and mortgage operations expenses
    
    $
    709
    
    
    
    379
    
    
    
    2,103
    
    
    
    1,047Hurricane expense, net of projected
insurance recoveries
    
    
    2,885
    
    
    
    
    
    
    
    2,885
    
    
    
    Total other expenses
    
    $
    3,594
    
    
    
    379
    
    
    
    4,988
    
    
    
    1,047Interest and other incomeInterest income
    
    $
    408
    
    
    
    190
    
    
    
    885
    
    
    
    651Reversal of litigation reserve (see Note 9)
    
    
    1,440
    
    
    
    
    
    
    
    1,440
    
    
    

    Other income
    
    
    131
    
    
    
    473
    
    
    
    981
    
    
    
    1,279Total interest and other income
    
    $
    1,979
    
    
    
    663
    
    
    
    3,306
    
    
    
    1,930
 11




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6. Investment in Bluegreen Corporation The Company accounts for its investment in Bluegreen under the equity
method. At September 30, 2004, the Company owned approximately 9.5 million
shares, or approximately 36%, of Bluegreens outstanding common stock. Bluegreens condensed consolidated balance sheets and condensed
consolidated statements of income are as follows (in thousands): Condensed Consolidated Balance Sheets September 30,
    
    December 31,2004
    
    2003Total assets
    
    $
    648,500
    
    
    
    570,406Total liabilities
    
    
    414,835
    
    
    
    378,878Minority interest
    
    
    7,340
    
    
    
    4,648Total shareholders equity
    
    
    226,325
    
    
    
    186,880Total liabilities and shareholders equity
    
    $
    648,500
    
    
    
    570,406
 Condensed Consolidated Statements of Income Three Months ended
    
    Nine Months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues and other income
    
    $
    190,636
    
    
    
    128,407
    
    
    
    451,192
    
    
    
    315,617Cost and other expenses
    
    
    163,760
    
    
    
    111,119
    
    
    
    399,541
    
    
    
    283,572Income before minority interest and
provision for income taxes
    
    
    26,876
    
    
    
    17,288
    
    
    
    51,651
    
    
    
    32,045Minority interest
    
    
    360
    
    
    
    699
    
    
    
    2,692
    
    
    
    1,875Income before provision for income
taxes
    
    
    26,516
    
    
    
    16,589
    
    
    
    48,959
    
    
    
    30,170Provision for income taxes
    
    
    10,209
    
    
    
    6,387
    
    
    
    18,849
    
    
    
    11,615Net income
    
    $
    16,307
    
    
    
    10,202
    
    
    
    30,110
    
    
    
    18,555
 7. Notes and Mortgage Notes Payable At September 30, 2004, the Company has approximately $3.2 million of
outstanding unsecured subordinated investment notes sold by the Company in a
registered offering during 2003 and the first three months of 2004. In March
2004, the unsold notes under the original registration were deregistered. 12




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8. Commitments and Contingencies At September 30, 2004, the Company had approximately $182.6 million of
commitments to purchase properties for development. Approximately $114.7
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/
    
    ExpectedPrice
    
    Acres
    
    ClosingHomebuilding Division
    
    $182.6 million
    
    6,752 units
    
    
    2004-2006
 At September 30, 2004, cash deposits of approximately $6.4 million secured
the Companys commitments under these contracts. At September 30, 2004 the Company had outstanding surety bonds and letters
of credit of approximately $26.0 million related primarily to its obligations
to various governmental entities to construct improvements in the Companys
various communities. The Company estimates that approximately $9.0 million of
work remains to complete these improvements. The Company does not believe that
any outstanding bonds or letters of credit will likely be drawn upon. 9. 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. (BLHI), a Florida
corporation and a wholly owned subsidiary of Levitt and Sons. The suit alleged,
among other things, wrongful termination, breach and failure to pay for extra
work performed outside the scope of the contract. A jury awarded Smith $4.4
million of which BLHIs liability was estimated at $2.6 million. The
Partnership appealed the verdict, and in April 2004 the Fourth District Court
of Appeal of the State of Florida reversed the trial courts previous award of
damages in its entirety and remanded the matter to the trial court for a new
trial on damages. The appeal bond previously posted was released in August
2004. The Company therefore reduced its litigation reserve by $1.4 million
reflecting the Companys assessment of potential liability. The $1.4 million
reduction was recorded as interest and other income in the accompanying
statement of operations for the three and nine months ended September 30, 2004. 13




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##### Table of Contents



10. Segment Reporting Operating segments are components of an enterprise about which separate
financial information is available that is regularly reviewed by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company has three reportable business segments: Homebuilding,
Land and Other Operations. The Company evaluates segment performance primarily
based on net income. The information provided for segment reporting is based on
managements internal reports. The accounting policies of the segments are
generally the same as those described in the summary of significant accounting
policies. Eliminations consist primarily of the elimination of sales and
profits on real estate transactions between the Land and Homebuilding
Divisions, which were recorded based upon terms that management believes would
be attained in an arms-length transaction. The presentation and allocation of
assets, liabilities and results of operations may not reflect the actual
economic costs of the segments as stand-alone businesses. If a different basis
of allocation were utilized, the relative contributions of the segments might
differ, but management believes that the relative trends in segments would
likely not be impacted. The Companys Homebuilding segment consists of the operations of Levitt
and Sons and Bowden while the Land segment consists of the operations of Core
Communities. The Other Operations segment consists of the activities of Levitt
Commercial, the Companys parent company operations and earnings from
investments in Bluegreen and other real estate investments and joint ventures. The following tables present unaudited segment information as of and for
the three and nine months ended September 30, 2004 and 2003 (in thousands). 14




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##### Table of Contents



OtherThree Months EndedSeptember 30, 2004
    
    Homebuilding
    
    Land
    
    Operations
    
    Eliminations
    
    TotalRevenuesSales of real estate
    
    $
    112,431
    
    
    
    20,163
    
    
    
    779
    
    
    
    (480
    )
    
    
    132,893Title and mortgage operations
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,164Total revenues
    
    
    113,595
    
    
    
    20,163
    
    
    
    779
    
    
    
    (480
    )
    
    
    134,057Costs and expensesCost of sales of real estate
    
    
    88,499
    
    
    
    10,085
    
    
    
    1,118
    
    
    
    (1,189
    )
    
    
    98,513Selling, general and administrative expenses
    
    
    12,269
    
    
    
    2,652
    
    
    
    2,377
    
    
    
    
    
    
    
    17,298Interest expense, net
    
    
    177
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    178Other expenses
    
    
    3,094
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    3,594Minority interest
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )Total costs and expenses
    
    
    103,989
    
    
    
    13,237
    
    
    
    3,496
    
    
    
    (1,189
    )
    
    
    119,5339,606
    
    
    
    6,926
    
    
    
    (2,717
    )
    
    
    709
    
    
    
    14,524Earnings from Bluegreen Corporation
    
    
    
    
    
    
    
    
    
    
    5,790
    
    
    
    
    
    
    
    5,790Earnings (loss) from joint ventures
    
    
    18
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (25
    )Interest and other income
    
    
    1,539
    
    
    
    315
    
    
    
    125
    
    
    
    
    
    
    
    1,979Income before income taxes
    
    
    11,163
    
    
    
    7,241
    
    
    
    3,155
    
    
    
    709
    
    
    
    22,268Provision for income taxes
    
    
    4,318
    
    
    
    2,799
    
    
    
    1,217
    
    
    
    274
    
    
    
    8,608Net income
    
    $
    6,845
    
    
    
    4,442
    
    
    
    1,938
    
    
    
    435
    
    
    
    13,660Inventory of real estate
    
    $
    309,841
    
    
    
    123,893
    
    
    
    12,153
    
    
    
    (17,583
    )
    
    
    428,304Total assets
    
    $
    357,893
    
    
    
    179,049
    
    
    
    132,778
    
    
    
    (17,583
    )
    
    
    652,137Notes, mortgage notes, and bonds payable
    
    $
    164,706
    
    
    
    48,696
    
    
    
    46,944
    
    
    
    
    
    
    
    260,346
 OtherThree Months EndedSeptember 30, 2003
    
    Homebuilding
    
    Land
    
    Operations
    
    Eliminations
    
    TotalRevenuesSales of real estate
    
    $
    52,516
    
    
    
    12,414
    
    
    
    
    
    
    
    
    
    
    
    64,930Title and mortgage operations
    
    
    607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    607Total revenues
    
    
    53,123
    
    
    
    12,414
    
    
    
    
    
    
    
    
    
    
    
    65,537Costs and expensesCost of sales of real estate
    
    
    41,201
    
    
    
    5,197
    
    
    
    409
    
    
    
    (320
    )
    
    
    46,487Selling, general and administrative expenses
    
    
    7,183
    
    
    
    2,072
    
    
    
    955
    
    
    
    
    
    
    
    10,210Other expenses
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379Minority interest
    
    
    (25
    )
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (22
    )Total costs and expenses
    
    
    48,738
    
    
    
    7,269
    
    
    
    1,367
    
    
    
    (320
    )
    
    
    57,0544,385
    
    
    
    5,145
    
    
    
    (1,367
    )
    
    
    320
    
    
    
    8,483Earnings from Bluegreen Corporation
    
    
    
    
    
    
    
    
    
    
    3,350
    
    
    
    
    
    
    
    3,350(Loss) earnings from joint ventures
    
    
    (75
    )
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    (16
    )Interest and other income
    
    
    162
    
    
    
    486
    
    
    
    15
    
    
    
    
    
    
    
    663Income before income taxes
    
    
    4,472
    
    
    
    5,631
    
    
    
    2,057
    
    
    
    320
    
    
    
    12,480Provision for income taxes
    
    
    1,725
    
    
    
    2,176
    
    
    
    795
    
    
    
    123
    
    
    
    4,819Net income
    
    $
    2,747
    
    
    
    3,455
    
    
    
    1,262
    
    
    
    197
    
    
    
    7,661Inventory of real estate
    
    $
    186,404
    
    
    
    50,159
    
    
    
    4,512
    
    
    
    (6,221
    )
    
    
    234,854Total assets
    
    $
    210,592
    
    
    
    80,926
    
    
    
    70,364
    
    
    
    (5,359
    )
    
    
    356,523Notes, mortgage notes, and bonds payable
    
    $
    107,139
    
    
    
    15,230
    
    
    
    40,216
    
    
    
    
    
    
    
    162,585
 15




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##### Table of Contents



OtherNine Months EndedSeptember 30, 2004
    
    Homebuilding
    
    Land
    
    Operations
    
    Eliminations
    
    TotalRevenuesSales of real estate
    
    $
    316,100
    
    
    
    77,061
    
    
    
    4,908
    
    
    
    (24,123
    )
    
    
    373,946Title and mortgage operations
    
    
    3,473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,473Total revenues
    
    
    319,573
    
    
    
    77,061
    
    
    
    4,908
    
    
    
    (24,123
    )
    
    
    377,419Costs and expensesCost of sales of real estate
    
    
    248,830
    
    
    
    33,755
    
    
    
    5,325
    
    
    
    (12,056
    )
    
    
    275,854Selling, general and administrative expenses
    
    
    35,406
    
    
    
    7,930
    
    
    
    6,897
    
    
    
    
    
    
    
    50,233Interest expense, net
    
    
    177
    
    
    
    58
    
    
    
    1
    
    
    
    
    
    
    
    236Other expenses
    
    
    4,488
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    4,988Minority interest
    
    
    (50
    )
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    (26
    )Total costs and expenses
    
    
    288,851
    
    
    
    42,243
    
    
    
    12,247
    
    
    
    (12,056
    )
    
    
    331,28530,722
    
    
    
    34,818
    
    
    
    (7,339
    )
    
    
    (12,067
    )
    
    
    46,134Earnings from Bluegreen Corporation
    
    
    
    
    
    
    
    
    
    
    10,651
    
    
    
    
    
    
    
    10,651Earnings from joint ventures
    
    
    3,350
    
    
    
    
    
    
    
    2,362
    
    
    
    
    
    
    
    5,712Interest and other income
    
    
    1,654
    
    
    
    1,332
    
    
    
    320
    
    
    
    
    
    
    
    3,306Income before income taxes
    
    
    35,726
    
    
    
    36,150
    
    
    
    5,994
    
    
    
    (12,067
    )
    
    
    65,803Provision for income taxes
    
    
    13,790
    
    
    
    13,954
    
    
    
    2,312
    
    
    
    (4,655
    )
    
    
    25,401Net income
    
    $
    21,936
    
    
    
    22,196
    
    
    
    3,682
    
    
    
    (7,412
    )
    
    
    40,402Inventory of real estate
    
    $
    309,841
    
    
    
    123,893
    
    
    
    12,153
    
    
    
    (17,583
    )
    
    
    428,304Total assets
    
    $
    357,893
    
    
    
    179,049
    
    
    
    132,778
    
    
    
    (17,583
    )
    
    
    652,137Notes, mortgage notes, and bonds payable
    
    $
    164,706
    
    
    
    48,696
    
    
    
    46,944
    
    
    
    
    
    
    
    260,346
 OtherNine Months EndedSeptember 30, 2003
    
    Homebuilding
    
    Land
    
    Operations
    
    Eliminations
    
    TotalRevenuesSales of real estate
    
    $
    135,107
    
    
    
    45,019
    
    
    
    4,807
    
    
    
    
    
    
    
    184,933Title and mortgage operations
    
    
    1,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,588Total revenues
    
    
    136,695
    
    
    
    45,019
    
    
    
    4,807
    
    
    
    
    
    
    
    186,521Costs and expensesCost of sales of real estate
    
    
    105,073
    
    
    
    25,484
    
    
    
    4,925
    
    
    
    (320
    )
    
    
    135,162Selling, general and administrative expenses
    
    
    19,774
    
    
    
    5,770
    
    
    
    3,168
    
    
    
    
    
    
    
    28,712Interest expense, net
    
    
    
    
    
    
    224
    
    
    
    25
    
    
    
    
    
    
    
    249Other expenses
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,047Minority interest
    
    
    (75
    )
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    127Total costs and expenses
    
    
    125,819
    
    
    
    31,478
    
    
    
    8,320
    
    
    
    (320
    )
    
    
    165,29710,876
    
    
    
    13,541
    
    
    
    (3,513
    )
    
    
    320
    
    
    
    21,224Earnings from Bluegreen Corporation
    
    
    
    
    
    
    
    
    
    
    5,156
    
    
    
    
    
    
    
    5,156(Loss) earnings from joint ventures
    
    
    (120
    )
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    (98
    )Interest and other income
    
    
    432
    
    
    
    1,339
    
    
    
    159
    
    
    
    
    
    
    
    1,930Income before income taxes
    
    
    11,188
    
    
    
    14,880
    
    
    
    1,824
    
    
    
    320
    
    
    
    28,212Provision for income taxes
    
    
    4,319
    
    
    
    5,744
    
    
    
    705
    
    
    
    123
    
    
    
    10,891Net income
    
    $
    6,869
    
    
    
    9,136
    
    
    
    1,119
    
    
    
    197
    
    
    
    17,321Inventory of real estate
    
    $
    186,404
    
    
    
    50,159
    
    
    
    4,512
    
    
    
    (6,221
    )
    
    
    234,854Total assets
    
    $
    210,592
    
    
    
    80,926
    
    
    
    70,364
    
    
    
    (5,359
    )
    
    
    356,523Notes, mortgage notes, and bonds payable
    
    $
    107,139
    
    
    
    15,230
    
    
    
    40,216
    
    
    
    
    
    
    
    162,585
 16




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##### Table of Contents



11. Parent Company Financial Statements Condensed Statements of Financial Condition at September 30, 2004 and
December 31, 2003, and Condensed Statements of Operations for the three and
nine months ended September 30, 2004 and 2003 are shown below (in thousands): Condensed Statements of Financial Condition September 30,
    
    December 31,2004
    
    2003Total assets
    
    $
    256,286
    
    
    
    181,808Total liabilities
    
    
    54,797
    
    
    
    56,356Total shareholders equity
    
    
    201,489
    
    
    
    125,452Total liabilities and shareholders equity
    
    $
    256,286
    
    
    
    181,808
 Condensed Statements of Operations Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    43
    
    
    
    12
    
    
    
    156
    
    
    
    34Costs and expenses
    
    
    2,390
    
    
    
    1,339
    
    
    
    6,979
    
    
    
    3,740Loss before income taxes
    
    
    (2,347
    )
    
    
    (1,327
    )
    
    
    (6,823
    )
    
    
    (3,706
    )Benefit for income taxes
    
    
    (905
    )
    
    
    (509
    )
    
    
    (2,632
    )
    
    
    (1,427
    )Loss before earnings from wholly owned
subsidiaries, net of tax
    
    
    (1,442
    )
    
    
    (818
    )
    
    
    (4,191
    )
    
    
    (2,279
    )Earnings from wholly owned subsidiaries, net of tax
    
    
    11,572
    
    
    
    6,384
    
    
    
    36,612
    
    
    
    16,419Earnings from Bluegreen Corporation, net of tax
    
    
    3,556
    
    
    
    2,058
    
    
    
    6,542
    
    
    
    3,167(Loss) earnings from real estate joint ventures, net of tax
    
    
    (26
    )
    
    
    37
    
    
    
    1,439
    
    
    
    14Net income
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321
 Cash dividends received from subsidiaries for the nine months ended
September 30, 2004 and 2003 were $7.1 million and $4.3 million, respectively.
Some subsidiaries borrowings contain covenants that, among other things, may
have the effect of limiting dividends that can be paid to Levitt Corporation. 17




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##### Table of Contents



12. Earnings per Share Basic earnings per common share is computed by dividing earnings
attributable to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per common share is
computed in the same manner as basic earnings per share, but it also gives
consideration to dilutive stock options using the treasury stock method and the
pro rata impact of Bluegreens dilutive securities (stock options and
convertible securities) on the amount of Bluegreens earnings that the Company
recognizes. There were no stock options of the Company granted in the three and
nine months ended September 30, 2003 or outstanding at September 30, 2003. The following table presents the computation of basic and diluted earnings per
common share (in thousands, except for per share data): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Numerator:Basic earnings per common share:Net income  basic
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321Diluted earnings per common share:Net income  basic
    
    $
    13,660
    
    
    
    7,661
    
    
    
    40,402
    
    
    
    17,321Pro rata share of the net effect of
Bluegreen dilutive securities
    
    
    (452
    )
    
    
    (276
    )
    
    
    (803
    )
    
    
    (376
    )Net income  diluted
    
    $
    13,208
    
    
    
    7,385
    
    
    
    39,599
    
    
    
    16,945Denominator:Basic average shares outstanding
    
    
    19,816
    
    
    
    14,816
    
    
    
    18,083
    
    
    
    14,816Net effect of stock options assumed
to be exercised
    
    
    56
    
    
    
    
    
    
    
    44
    
    
    
    Diluted average shares outstanding
    
    
    19,872
    
    
    
    14,816
    
    
    
    18,127
    
    
    
    14,816Earnings per common share:Basic
    
    $
    .69
    
    
    
    .52
    
    
    
    2.23
    
    
    
    1.17Diluted
    
    
    .66
    
    
    
    .50
    
    
    
    2.18
    
    
    
    1.14
 13. Dividends On July 26, 2004 the Companys Board of Directors declared a cash dividend
of $0.02 per share on its Class A common stock and Class B common stock. The
dividend was paid on August 16, 2004 to all shareholders of record on August 9,
2004. On October 25, 2004 the Companys Board of Directors declared a cash
dividend of $0.02 per share on its Class A common stock and Class B common
stock. The Board set the payment date for November 15, 2004, to all
shareholders of record on November 8, 2004. The Company has not adopted a policy of regular dividend payments. The
payment of dividends in the future is subject to approval by the Board of
Directors and will depend upon, among other factors, the Companys results of
operations and financial condition. 18




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##### Table of Contents



14. Equity Transactions In April 2004 the Company sold 5,000,000 shares of its Class A common
stock pursuant to a registered underwritten offering at $24.50 per share. Net
proceeds from the sale totaled approximately $114.8 million, after underwriting
discounts, commissions and offering expenses. Approximately $12.0 million of
the net proceeds of the offering were used to repay indebtedness, $7.4 million
were used to fund the Bowden acquisition, and $67.0 million were transferred to
the Companys operating subsidiaries. The Companys management expects to use
the balance of the proceeds to fund the Companys operations and growth and for
general corporate purposes. 15. Acquisition On April 28, 2004 the Company acquired Bowden for approximately $7.4
million in cash. The acquisition was accounted for under the purchase method
of accounting. Under this method the assets acquired and the liabilities
assumed were recorded at their estimated fair value. The amount of the purchase
price in excess of the estimated fair value of net assets acquired, recorded as
goodwill, was approximately $1.5 million. The following table summarizes the
fair value of the assets acquired and liabilities assumed in connection with
the purchase of all of Bowdens capital stock (in thousands): Cash, cash equivalents and restricted cash
    
    $
    1,335Inventory
    
    
    21,927Other assets
    
    
    3,228Goodwill
    
    
    1,541Fair value of assets acquired
    
    
    28,031Accounts payable and accrued liabilities
    
    
    2,806Customer deposits
    
    
    287Notes payable
    
    
    16,725Deferred tax liability
    
    
    769Fair value of liabilities assumed
    
    
    20,587Purchase price
    
    
    7,444Cash acquired
    
    
    (1,335
    )Purchase of Bowden, net of cash acquired
    
    $
    6,109
 19




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS The objective of the following discussion is to provide an understanding
of the financial condition and results of operations of Levitt Corporation and
its wholly owned subsidiaries (Levitt, or the Company) as of and for the
three and nine months ended September 30, 2004 and 2003, respectively. The
Company may also be referred to as we, us, or our. We engage in
homebuilding, land development and other real estate activities through Levitt
and Sons, LLC (Levitt and Sons), Bowden Building Corporation (Bowden), Core
Communities, LLC (Core Communities) and other operations, which include
Levitt Commercial, LLC (Levitt Commercial), an investment in Bluegreen
Corporation (Bluegreen) and investments in real estate projects through
subsidiaries and joint ventures. Levitt and Sons is a developer of
single-family home and townhome communities and condominium and rental
apartment complexes. Levitt and Sons and its predecessors have built more than
200,000 homes since 1929. Acquired in April 2004, Bowden is a builder of
single family homes based in Memphis, Tennessee. Core Communities is currently
developing Tradition, its second master-planned community, which is located in
St. Lucie County, Florida. Tradition is planned to include approximately five
miles of frontage on Interstate 95 and more than 9,000 total acres, including
more than 6,500 net saleable acres. Levitt Commercial specializes in the
development and management of industrial, commercial and retail properties.
Bluegreen is a New York Stock Exchange-listed company engaged in the
acquisition, development, marketing and sale of ownership interests in vacation
resorts, and the development and sale of golf communities and residential land. Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), that involve substantial risks and uncertainties. Some of the
forward-looking statements can be identified by the use of words such as
anticipate, believe, estimate, may, intend, expect, will,
should, seeks or other similar expressions. Forward-looking statements
are based largely on managements expectations and involve inherent risks and
uncertainties including certain risks described in this report. When
considering those forward-looking statements, you should keep in mind the
risks, uncertainties and other cautionary statements made 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: the impact of economic,
competitive and other factors affecting the Company and its operations,
including the impact of hurricanes and tropical storms in the areas in which
we operate, and that the recent hurricanes may have a greater impact on
operations than currently anticipated or that damage to our homes and property
may be greater than currently anticipated; the market for real estate
generally and in the areas where the Company has developments, including the
impact of market conditions on the Companys margins; the availability and
price of land suitable for development; shortages and increased costs of
construction materials and labor; the effects of increases in interest rates;
environmental factors, the impact of governmental regulations and requirements
(including delays in obtaining necessary permits and approvals as a result of
the reallocation of government resources based on hurricane related issues in
the areas in which we operate); the Companys ability to successfully
integrate the operations of Bowden Homes; the Companys ability to timely
deliver homes from backlog and successfully manage growth; that our 20




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internal controls over financial reporting are found not to be effective
as required under Section 404 of the Sarbanes-Oxley Act of 2002; and the
Companys success at managing the risks involved in the foregoing. Many of
these factors are beyond our control. The Company cautions that the foregoing
factors are not exclusive. Executive Overview Management evaluates the performance and prospects of the Company and its
subsidiaries using a variety of financial and non-financial measures. The key
financial measures utilized to evaluate historical operating performance
include revenues from sales of real estate, cost of sales of real estate,
margin (which we measure as revenues from sales of real estate minus cost of
sales of real estate), margin percentage (which we measure as margin divided by
revenues from sales of real estate), income before taxes and net income.
Non-financial measures used to evaluate historical performance include the
number and value of new orders executed, the number of housing starts and the
number of homes delivered. In evaluating the Companys future prospects,
management considers non-financial information such as the number of homes and
acres in backlog (which we measure as homes or land subject to an executed
sales contract) and the aggregate value of those contracts. Additionally, we
monitor the number of properties remaining in inventory and under contract to
be purchased relative to our sales and construction trends. The Companys
ratio of debt to shareholders equity and cash requirements are also considered
by management when evaluating the Companys future prospects, as are general
economic factors and interest rate trends. Each of the above measures is
discussed in the following sections as it relates to our operating results,
financial position and liquidity. The list of measures 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 measures listed
above. Impact of Florida Hurricanes in 2004 The majority of our business operations are located in the State of
Florida, which is subject to hurricanes and other tropical weather systems. In
the months of August and September 2004, five named storms made landfall in the
State of Florida  Tropical Storm Bonnie and Hurricanes Charley, Frances, Ivan
and Jeanne. Hurricane Charley passed through the southwestern and central
areas of Florida, including areas where we have significant homebuilding
operations (Ft. Myers, Sarasota and Orlando). Hurricanes Frances and Jeanne
both made landfall on the east coast of the state near our St. Lucie County
homebuilding and land development operations before passing to the northwest
over Orlando. These three hurricanes caused property damage in several of the
communities we are currently developing, however our losses were primarily
related to landscaping, fences, lake beds and building materials. Our
consolidated statements of operations for the three and nine months ended
September 30, 2004 include charges, recorded as other expenses, related to
hurricane damage of approximately $2.9 million, net of projected insurance
recoveries. In addition to property damage, hurricanes may cause disruptions to our
business operations. New home buyers cannot obtain insurance until after named
storms have passed, creating delays in new home deliveries. Approaching storms
require that sales, development and construction operations be suspended in
favor of storm preparation activities such as securing construction materials
and equipment. After a storm has passed, construction-related resources such
as sub-contracted labor and building materials are likely to be redeployed to
hurricane recovery efforts around the state. Governmental permitting and
inspection activities may similarly be focused primarily on returning displaced
residents to homes damaged by the storms, rather than on new construction
activity. Depending on the severity of the damage caused by the storms,
disruptions such as these could last for several months. We have experienced a
number of these disruptions following the unprecedented 21




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series of hurricanes which struck Florida in 2004. Although the disruptions
are not expected to have a material impact on the profitability of our
operations over the long term, we do expect the delays in new home deliveries
and governmental permitting and inspection activities resulting from the
hurricanes to continue through the first quarter of 2005. Impact of Materials Costs, Interest Rates and Local Government Regulation Our business operations are impacted by competition for raw materials,
supply and delivery issues. Throughout 2004, supply and delivery issues have
resulted in higher prices of some building materials. The costs of lumber,
steel, concrete, asphalt and other building materials all have risen
significantly this year. We compete with other real estate
developersregionally, nationally and globallyfor raw materials. Chinese
demand for cement combined with supply bottlenecks and rising prices in global
shipping have contributed to regional shortages in cement. Historically we
have managed our costs, in part, by entering into short-term, fixed-price
materials contracts with our subcontractors and our material suppliers. We may
be unable to achieve cost containment in the future by using fixed-price
contracts. Without corresponding increases in the sales prices of our real
estate inventories (both land and finished homes), increasing materials costs
associated with land development and home building could negatively affect our
results of operations. Rising construction costs and delays in the delivery of homes may
negatively affect our margins in the future, because we enter into fixed-priced
sales contracts for most of our homes before we start construction. Owing to
the strong demand for our housing products and the overall robust condition of
the real estate markets where we build, historically we have been able to
offset increases in construction costs and land prices by periodically raising
the prices on our homes. However, if we are unable to raise our home prices to
offset increased costs of production in the future, our operating results would
be adversely affected. We rely on third party financing of our land purchases, land development,
and product development costs. The majority of our financing consists of
variable rate debt and rising interest rates therefore increase our borrowing
costs. Historically, rising interest rates have also negatively impacted
housing demand. Were demand for housing to decline, land may remain in our
inventory longer and our corresponding borrowing costs would increase. Also,
rising interest rates increase the mortgage costs of our customers who finance
their purchases of our homes. Similarly, rising interest rates may affect our
customers ability to sell the homes they currently occupy, the proceeds of
which may be needed to fund, in whole or in part, their purchases of our homes.
Although we are not currently experiencing any adverse effects from higher
interest rates, higher rates may adversely affect our results of operations in
the future. We are required to obtain various permitting approvals of numerous
governmental authorities in developing a project and building homes. Local
governments have had difficulty responding to the rapid growth and continued
demand for land and housing in the real estate markets in which we operate,
resulting in delays in permitting approvals. In the aftermath of the Florida
hurricanes, the demands on local government were intensified as government
staff mobilized to support construction repairs, restore basic community
services and emergency relief. Delays in permitting approvals will affect our
business, as well as the businesses of our Land Divisions customers, and may
affect our results of operations in the future. 22




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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 our
financial statements, management is required to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. These estimates require the exercise of judgment, as future events
cannot be determined with certainty. Accordingly, actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in subsequent periods relate to the
determination of the valuation of real estate, the estimation of costs required
to complete development of a property, the valuation of investments in real
estate 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. The accounting policies
that we have identified as critical to the portrayal of our financial condition
and results of operations are: (i) real estate inventories; (ii) investments in
real estate joint ventures and other equity investments; (iii) revenue
recognition; (iv) capitalized interest; and (v) income taxes. For a more
detailed discussion of these critical accounting policies see Critical
Accounting Policies appearing in our Annual Report on Form 10-K for the year
ended December 31, 2003. 23




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CONSOLIDATED RESULTS OF OPERATIONS Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    Change(In thousands, except per share data)
    
    (Unaudited)
    
    (Unaudited)RevenuesSales of real estate
    
    $
    132,893
    
    
    
    64,930
    
    
    
    67,963
    
    
    
    373,946
    
    
    
    184,933
    
    
    
    189,013Title and mortgage operations
    
    
    1,164
    
    
    
    607
    
    
    
    557
    
    
    
    3,473
    
    
    
    1,588
    
    
    
    1,885Total revenues
    
    
    134,057
    
    
    
    65,537
    
    
    
    68,520
    
    
    
    377,419
    
    
    
    186,521
    
    
    
    190,898Costs and expensesCost of sales of real estate
    
    
    98,513
    
    
    
    46,487
    
    
    
    52,026
    
    
    
    275,854
    
    
    
    135,162
    
    
    
    140,692Selling, general and administrative expenses
    
    
    17,298
    
    
    
    10,210
    
    
    
    7,088
    
    
    
    50,233
    
    
    
    28,712
    
    
    
    21,521Interest expense, net
    
    
    178
    
    
    
    
    
    
    
    178
    
    
    
    236
    
    
    
    249
    
    
    
    (13
    )Other expenses
    
    
    3,594
    
    
    
    379
    
    
    
    3,215
    
    
    
    4,988
    
    
    
    1,047
    
    
    
    3,941Minority interest
    
    
    (50
    )
    
    
    (22
    )
    
    
    (28
    )
    
    
    (26
    )
    
    
    127
    
    
    
    (153
    )Total costs and expenses
    
    
    119,533
    
    
    
    57,054
    
    
    
    62,479
    
    
    
    331,285
    
    
    
    165,297
    
    
    
    165,98814,524
    
    
    
    8,483
    
    
    
    6,041
    
    
    
    46,134
    
    
    
    21,224
    
    
    
    24,910Earnings from Bluegreen Corporation
    
    
    5,790
    
    
    
    3,350
    
    
    
    2,440
    
    
    
    10,651
    
    
    
    5,156
    
    
    
    5,495(Loss) earnings from joint ventures
    
    
    (25
    )
    
    
    (16
    )
    
    
    (9
    )
    
    
    5,712
    
    
    
    (98
    )
    
    
    5,810Interest and other income
    
    
    1,979
    
    
    
    663
    
    
    
    1,316
    
    
    
    3,306
    
    
    
    1,930
    
    
    
    1,376Income before income taxes
    
    
    22,268
    
    
    
    12,480
    
    
    
    9,788
    
    
    
    65,803
    
    
    
    28,212
    
    
    
    37,591Provision for income taxes
    
    
    8,608
    
    
    
    4,819
    
    
    
    3,789
    
    
    
    25,401
    
    
    
    10,891
    
    
    
    14,510Net income
    
    $
    13,660
    
    
    
    7,661
    
    
    
    5,999
    
    
    
    40,402
    
    
    
    17,321
    
    
    
    23,081Basic earnings per share
    
    $
    0.69
    
    
    
    0.52
    
    
    
    0.17
    
    
    
    2.23
    
    
    
    1.17
    
    
    
    1.06Diluted earnings per share
    
    $
    0.66
    
    
    
    0.50
    
    
    
    0.16
    
    
    
    2.18
    
    
    
    1.14
    
    
    
    1.04Weighted average shares outstanding
    
    
    19,816
    
    
    
    14,816
    
    
    
    5,000
    
    
    
    18,083
    
    
    
    14,816
    
    
    
    3,267Diluted shares outstanding
    
    
    19,872
    
    
    
    14,816
    
    
    
    5,056
    
    
    
    18,127
    
    
    
    14,816
    
    
    
    3,311
 For the Three Months Ended September 30, 2004 Compared to the Same 2003 Period: Consolidated net income increased $6.0 million, or 78% for the three
months ended September 30, 2004 as compared to the same period in 2003. The
increase in net income primarily resulted from an increase in sales of real
estate by our Homebuilding and Land Divisions and from higher earnings from
Bluegreen Corporation. Our revenues from sales of real estate increased 105% to $132.9 million
for the quarter ended September 30, 2004 from $64.9 million for the same 2003
period. This increase was attributable primarily to an increase in home
deliveries from 247 homes delivered in the third quarter of 2003 to 534 homes
delivered in the third quarter of 2004. Profits on inter-segment transactions
are deferred until the properties are delivered to unaffiliated parties, at
which time the deferred profit is applied against consolidated cost of sales.
Consolidated cost of sales was reduced by approximately $1.2 million in the
third quarter of 2004 reflecting the recognition of previously deferred profits
related to sales of land between our Land and Homebuilding Divisions. No
similarly deferred profits were recognized during the third quarter of 2003. Selling, general and administrative expenses increased during the third
quarter of 2004 compared to the same 2003 period primarily as a result of
higher employee compensation and benefits 24




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(including sales commissions), and increased advertising expenses. The
increase in employee compensation and benefits and advertising expenses was
directly related to our new development projects in Central and South Florida,
the expansion of homebuilding activities into North Florida and Georgia, the
addition of Bowden and the increase in our home deliveries. The number of our
full time employees increased to 479 at September 30, 2004 from 316 at
September 30, 2003, and the number of part time employees increased to 35 at
September 30, 2004 from 33 at September 30, 2003. As a percentage of total
revenues, selling, general and administrative expenses declined to 13% in the
third quarter of 2004 from 16% in the third quarter of 2003. Interest incurred on notes and development bonds payable totaled $3.1
million and $1.9 million for the 2004 period and 2003 period, respectively.
Interest incurred was higher due to higher outstanding balances of notes and
mortgage notes payable. Interest capitalized was $2.9 million and $1.9 million
for the 2004 and 2003 periods, respectively. At the time of home closings and
land sales, the capitalized interest allocated to such inventory is charged to
cost of sales. Cost of sales of real estate for the three months ended
September 30, 2004 and 2003 included previously capitalized interest of
approximately $2.3 million and $1.5 million, respectively. The increase in other expenses was primarily attributable to a $2.9
million charge, net of projected insurance recoveries, recorded to account for
the estimated costs of remediating hurricane-related damage in our Florida
Homebuilding and Land operations, as previously discussed. Bluegreens reported net income for the three months ended September 30,
2004 was $16.3 million, as compared to $10.2 million for the same period in
2003. Our interest in Bluegreens earnings, net of purchase accounting
adjustments, was $5.8 million for the third quarter of 2004 versus $3.4 million
for the third quarter of 2003. For the three months ended September 30, 2004
and 2003, we owned 9.5 million shares and 8.3 million shares, respectively, of
Bluegreens common stock, which represented approximately 36% and 34%,
respectively, of the weighted average outstanding shares of Bluegreen. The increase in interest and other income is primarily related to a $1.4
million reduction of a litigation reserve as a result of the Companys
successful appeal of a 2002 judgment, as discussed in the Notes to our
unaudited consolidated financial statements. For the Nine Months Ended September 30, 2004 Compared to the Same 2003 Period: Consolidated net income increased $23.1 million, or 133% for the nine
months ended September 30, 2004 as compared to the same period in 2003. The
increase in net income primarily resulted from an increase in sales of real
estate by our Homebuilding and Land Divisions, from higher earnings from
Bluegreen Corporation and from an increase in our earnings from our real estate
joint venture activities. Our revenues from sales of real estate increased 102% to $373.9 million
for the nine months ended September 30, 2004 from $184.9 million for the same
2003 period. This increase is attributable primarily to an increase in home
deliveries from 619 homes delivered in the first nine months of 2003 to 1,451
homes delivered in the first nine months of 2004. Consolidated cost of sales
was reduced by approximately $3.1 million in the first nine months of 2004 as a
result of the recognition of previously deferred profits related to sales of
land by our Land Division to our Homebuilding Division. No similarly deferred
profits were recognized during the first nine months of 2003. Selling, general and administrative expenses increased during the first
nine months of 2004 compared to the same 2003 period primarily as a result of
higher employee compensation and benefits 25




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(including sales commissions), and increased advertising expenses as
described above. As a percentage of total revenues, selling, general and
administrative expenses declined to 13% in the first nine months of 2004 from
15% in the first nine months of 2003. Interest incurred on notes and development bonds payable totaled $7.4
million and $6.0 million for the 2004 period and 2003 period, respectively.
Interest incurred was higher due to higher outstanding balances of notes and
mortgage notes payable related to increases in our inventory of real estate.
Interest capitalized was $7.2 million for the 2004 period and $5.7 million for
the 2003 period. Cost of sales of real estate for the nine months ended
September 30, 2004 and 2003 included previously capitalized interest of
approximately $6.9 million and $3.9 million, respectively. Bluegreens reported net income for the nine months ended September 30,
2004 was $30.1 million, as compared to $18.6 million for the same period in
2003. Our interest in Bluegreens earnings, net of purchase accounting
adjustments, was $10.7 million for the first nine months of 2004 versus $5.2
million for the first nine months of 2003. Earnings from real estate joint ventures were $5.7 million during the
first nine months of 2004 as compared to a loss of $98,000 during the 2003
period. This increase in earnings in our real estate joint venture activities
primarily resulted from gains recognized upon the sale of a joint ventures
property in Vero Beach, Florida, earnings associated with the delivery of
condominium units by a joint venture project in Boca Raton, Florida and
earnings associated with the delivery of homes by a joint venture project in
West Palm Beach, Florida. We do not believe that the level of earnings from
real estate joint ventures recognized in the first nine months of 2004 is
indicative of the results expected for the entire year because all three joint
venture projects are almost sold out and their operations are essentially
completed. 26




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##### Table of Contents



HOMEBUILDING DIVISION RESULTS OF OPERATIONS Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    Change(In thousands)
    
    
    
    
    
    (Unaudited)
    
    
    
    
    
    
    
    
    
    (Unaudited)RevenuesSales of real estate
    
    $
    112,431
    
    
    
    52,516
    
    
    
    59,915
    
    
    
    316,100
    
    
    
    135,107
    
    
    
    180,993Title and mortgage operations
    
    
    1,164
    
    
    
    607
    
    
    
    557
    
    
    
    3,473
    
    
    
    1,588
    
    
    
    1,885Total revenues
    
    
    113,595
    
    
    
    53,123
    
    
    
    60,472
    
    
    
    319,573
    
    
    
    136,695
    
    
    
    182,878Costs and expensesCost of sales of real estate
    
    
    88,499
    
    
    
    41,201
    
    
    
    47,298
    
    
    
    248,830
    
    
    
    105,073
    
    
    
    143,757Selling, general and administrative expenses
    
    
    12,269
    
    
    
    7,183
    
    
    
    5,086
    
    
    
    35,406
    
    
    
    19,774
    
    
    
    15,632Interest expense, net
    
    
    177
    
    
    
    
    
    
    
    177
    
    
    
    177
    
    
    
    
    
    
    
    177Other expenses
    
    
    3,094
    
    
    
    379
    
    
    
    2,715
    
    
    
    4,488
    
    
    
    1,047
    
    
    
    3,441Minority interest
    
    
    (50
    )
    
    
    (25
    )
    
    
    (25
    )
    
    
    (50
    )
    
    
    (75
    )
    
    
    25Total costs and expenses
    
    
    103,989
    
    
    
    48,738
    
    
    
    55,251
    
    
    
    288,851
    
    
    
    125,819
    
    
    
    163,0329,606
    
    
    
    4,385
    
    
    
    5,221
    
    
    
    30,722
    
    
    
    10,876
    
    
    
    19,846Earnings (loss) from joint ventures
    
    
    18
    
    
    
    (75
    )
    
    
    93
    
    
    
    3,350
    
    
    
    (120
    )
    
    
    3,470Interest and other income
    
    
    1,539
    
    
    
    162
    
    
    
    1,377
    
    
    
    1,654
    
    
    
    432
    
    
    
    1,222Income before income taxes
    
    
    11,163
    
    
    
    4,472
    
    
    
    6,691
    
    
    
    35,726
    
    
    
    11,188
    
    
    
    24,538Provision for income taxes
    
    
    4,318
    
    
    
    1,725
    
    
    
    2,593
    
    
    
    13,790
    
    
    
    4,319
    
    
    
    9,471Net income
    
    $
    6,845
    
    
    
    2,747
    
    
    
    4,098
    
    
    
    21,936
    
    
    
    6,869
    
    
    
    15,067DomesticHomes delivered
    
    
    534
    
    
    
    247
    
    
    
    287
    
    
    
    1,451
    
    
    
    619
    
    
    
    832Construction starts
    
    
    461
    
    
    
    465
    
    
    
    (4
    )
    
    
    1,945
    
    
    
    1,105
    
    
    
    840Average selling price of homes delivered
    
    $
    211
    
    
    
    213
    
    
    
    (2
    )
    
    
    218
    
    
    
    218
    
    
    
    Margin percentage on homes delivered
    
    
    21.3
    %
    
    
    21.5
    %
    
    
    -0.2
    %
    
    
    21.3
    %
    
    
    22.2
    %
    
    
    -0.9
    %New orders (units)
    
    
    357
    
    
    
    739
    
    
    
    (382
    )
    
    
    1,365
    
    
    
    1,767
    
    
    
    (402
    )New orders (value)
    
    $
    87,194
    
    
    
    170,016
    
    
    
    (82,822
    )
    
    
    351,354
    
    
    
    397,512
    
    
    
    (46,158
    )Backlog of homes (units)
    
    
    2,175
    
    
    
    1,972
    
    
    
    203
    
    
    
    2,175
    
    
    
    1,972
    
    
    
    203Backlog of homes (value)
    
    $
    528,281
    
    
    
    429,997
    
    
    
    98,284
    
    
    
    528,281
    
    
    
    429,997
    
    
    
    98,284Joint Ventures:Homes delivered
    
    
    6
    
    
    
    
    
    
    
    6
    
    
    
    146
    
    
    
    
    
    
    
    146Construction starts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    (43
    )New orders (units)
    
    
    
    
    
    
    7
    
    
    
    (7
    )
    
    
    42
    
    
    
    42
    
    
    
    New orders (value)
    
    $
    
    
    
    
    2,192
    
    
    
    (2,192
    )
    
    
    13,967
    
    
    
    10,141
    
    
    
    3,826Backlog of homes (units)
    
    
    
    
    
    
    103
    
    
    
    (103
    )
    
    
    
    
    
    
    103
    
    
    
    (103
    )Backlog of homes (value)
    
    $
    
    
    
    
    26,168
    
    
    
    (26,168
    )
    
    
    
    
    
    
    26,168
    
    
    
    (26,168
    )
 At September 30, 2004, our Homebuilding Division had a delivery backlog of
2,175 homes representing $528.3 million of future sales. The average sales
price of the homes in backlog at September 30, 2004 is approximately 8% higher
than the average sales price of the homes in backlog at December 31, 2003.
While the strong demand and backlog are encouraging for our 2004 and 2005
results, potential economic trends and developments could impact our
Homebuilding Division in future periods. 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 cannot be increased
and the margins on the delivery of homes in backlog may be adversely affected
by this trend. 27




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##### Table of Contents



We believe we own or control sufficient land to meet our long-term growth
goals. In the shorter-term, we expect the number of signed new orders for homes
in our Florida operations to level off and perhaps decline slightly through the
first quarter of 2005 as we transition from the older, established communities
at which sales are reaching completion to new communities that we expect will
open for sale to the public in the next six to 18 months. Our sales
performance in Florida over the past twelve months exceeded our projections; as
a result, we are currently focused on building homes to meet the 12-month
delivery time frame projected by us at the time of sale. We believe that
active growth management will permit us to increase customer satisfaction and
reduce the amount of time contracted homes are in backlog, thereby reducing our
exposure to rising costs. We are also currently expanding our homebuilding activities to the
Jacksonville, Florida, Atlanta, Georgia and Nashville, Tennessee markets. We
have not previously operated in these markets and may not recognize any
revenues from these operations during the next twelve months or longer. As a
result, any costs associated with this expansion prior to revenue recognition
may adversely affect our operating results. For the Three Months Ended September 30, 2004 Compared to the Same 2003 Period: The value of new orders declined to $87.2 million for the three months
ended September 30, 2004, from $170.0 million in the three months ended
September 30, 2003. The decline in new orders was primarily the result of: the
unprecedented string of four hurricanes in Florida during August and September;
the absence of new community openings to offset stronger than expected order
growth in prior periods; and our intentional slowing of the pace of new home
orders to help assure high levels of customer satisfaction by meeting delivery
schedules acceptable to our customers. Some of our Florida communities sold out
faster than originally anticipated and new communities were not yet ready for
sales. While this strengthened our backlog, we experienced a short-term
decline in saleable inventory. This impacted Florida homebuilding operations in
the third quarter of 2004, when new orders were placed for 232 homes, as
compared with the record 739 new orders placed in the third quarter of 2003. As
discussed above, we believe that our inventory of homes available for sale and
new orders should improve as we open new communities to the public. Revenues from home sales increased 114% to $112.4 million during the three
months ended September 30, 2004, as compared to the same 2003 period. This was
primarily due to an increase in home deliveries in communities that commenced
deliveries in 2003 and from Bowdens operations. During the three months ended
September 30, 2004, 534 homes were delivered as compared to 247 homes delivered
during the three months ended September 30, 2003. The average selling price of
homes delivered in the three months ended September 30, 2004 declined to
$211,000 from $213,000 in the three months ended September 30, 2003 as
increased prices in our Florida homebuilding operations were offset by the
inclusion of home deliveries by Bowden, which has historically sold lower
priced homes than Levitt and Sons. Cost of sales increased 115% to $88.5 million during the three months
ended September 30, 2004, as compared to the same 2003 period. The increase in
cost of sales was primarily due to the increase in home deliveries. Included
in cost of sales for the three months ended September 30, 2004 are
approximately $428,000 of purchase accounting adjustments relating to the
Bowden acquisition. Selling, general and administrative expenses increased 71% to $12.3
million during the three months ended September 30, 2004, as compared to the
same 2003 period. The increase in selling, general and administrative expenses
primarily resulted from the increase in home deliveries and the addition of
Bowden, as well as an increase in compensation and benefits resulting from the
continued 28




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##### Table of Contents



expansion of our homebuilding operations. As a percentage of total
revenues, selling, general and administrative expenses declined to 11% in the
third quarter of 2004 from 14% in the third quarter of 2003. The improvement
in selling, general and administrative expenses as a percentage of revenues
reflects increased revenue levels. Interest incurred totaled $1.9 million and $1.3 million for the three
months ended September 30, 2004 and 2003, respectively. The increase in the
amount of interest incurred in the period related primarily to the assumption
of debt related to the acquisition of Bowden. Interest capitalized for the
quarters ended September 30, 2004 and 2003 totaled $1.7 million and $1.3
million, respectively. Cost of sales of real estate for the three months ended
September 30, 2004 and 2003 included previously capitalized interest of
approximately $1.9 million and $1.0 million, respectively. The increase in other expenses was primarily attributable to a $2.4
million charge, net of projected insurance recoveries, recorded to account for
the estimated costs of remediating hurricane-related damage in the Homebuilding
Divisions Florida operations, as previously discussed. The increase in earnings from real estate joint ventures was the result of
the delivery of the final six residential condominium units by a joint venture
that is developing a condominium complex. No units were delivered by that
joint venture in the third quarter of 2003. As of September 30, 2004, there
were no residential units remaining to be delivered from that joint venture
property. Accordingly, the results of our Homebuilding Divisions joint venture
operations for the three months ended September 30, 2004 are not indicative of
the results that are to be expected for the remainder of the year or future
periods. The increase in interest and other income is primarily related to a $1.4
million reduction of a previously accrued litigation reserve as a result of the
Companys successful appeal of a 2002 judgment against a partnership in which a
subsidiary is a partner, as discussed in the Notes to our unaudited
consolidated financial statements. For the Nine Months Ended September 30, 2004 Compared to the Same 2003 Period: For the nine months ended September 30, 2004, the value of new orders
declined to $351.4 million from $397.5 million in the nine months ended
September 30, 2003. In addition to the impact of the hurricanes in the third
quarter, the decline in new orders for the first nine months of 2004 was
primarily the result of the absence of new community openings to offset
stronger than expected order growth in prior periods and our intentional
slowing of the pace of new home orders to help assure high levels of customer
satisfaction by meeting delivery schedules acceptable to our customers. Some of
our Florida communities sold out faster than originally anticipated and new
communities were not yet ready for sales. Revenues from home sales increased
134% to $316.1 million during the nine months ended September 30, 2004, as
compared to the same 2003 period. This increase is attributable primarily to
an increase in home deliveries in communities that commenced deliveries in 2003
and from Bowdens operations. During the nine months ended September 30, 2004,
1,451 homes were delivered as compared to 619 homes delivered during the nine
months ended September 30, 2003. The average selling price of homes delivered
in the nine months ended September 30, 2004 and 2003 remained stable at
$218,000, as higher selling prices at Levitt and Sons were offset by the
inclusion of home deliveries by Bowden, which has historically sold lower
priced homes than Levitt and Sons. Cost of sales increased 137% to $248.8 million during the nine months
ended September 30, 2004, as compared to the same 2003 period. The increase in
cost of sales was primarily due to the increase in home deliveries. Cost of
sales as a percentage of related revenue was 79% and 78% for the nine months
ended September 30, 2004 and 2003, respectively. Included in cost of sales for
the nine 29




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##### Table of Contents



months ended September 30, 2004 are approximately $1.7 million of purchase
accounting adjustments relating to the acquisition of Bowden. Selling, general and administrative expenses increased 79% to $35.4
million during the nine months ended September 30, 2004, as compared to the
same 2003 period. The increase in selling, general and administrative expenses
primarily resulted from the increase in home deliveries, as well as an increase
in compensation and benefits resulting from the continued expansion of
homebuilding operations. As a percentage of total revenues, selling, general
and administrative expenses declined to 11% in the first nine months of 2004
from 14% in the first nine months of 2003. Interest incurred totaled $4.5 million and $3.7 million for the nine
months ended September 30, 2004 and 2003, respectively. The increase in the
amount of interest incurred in the period related primarily to the assumption
of debt related to the acquisition of Bowden. Interest capitalized for the
nine month periods ended September 30, 2004 and 2003 totaled $4.3 million and
$3.7 million, respectively. Cost of sales of real estate for the nine months
ended September 30, 2004 and 2003 included previously capitalized interest of
approximately $5.5 million and $2.7 million, respectively. The increase in earnings from real estate joint ventures was the result of
the delivery of 146 units by the condominium joint venture in Boca Raton,
Florida. No units were delivered by that joint venture during the first nine
months of 2003. 30




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##### Table of Contents



LAND DIVISION RESULTS OF OPERATIONS Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    Change(In thousands)
    
    
    
    
    
    (Unaudited)
    
    
    
    
    
    
    
    
    
    (Unaudited)RevenuesSales of real estate
    
    $
    20,163
    
    
    
    12,414
    
    
    
    7,749
    
    
    
    77,061
    
    
    
    45,019
    
    
    
    32,042Total revenues
    
    
    20,163
    
    
    
    12,414
    
    
    
    7,749
    
    
    
    77,061
    
    
    
    45,019
    
    
    
    32,042Costs and expensesCost of sales of real estate
    
    
    10,085
    
    
    
    5,197
    
    
    
    4,888
    
    
    
    33,755
    
    
    
    25,484
    
    
    
    8,271Selling, general and administrative expenses
    
    
    2,652
    
    
    
    2,072
    
    
    
    580
    
    
    
    7,930
    
    
    
    5,770
    
    
    
    2,160Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    224
    
    
    
    (166
    )Other expenses
    
    
    500
    
    
    
    
    
    
    
    500
    
    
    
    500
    
    
    
    
    
    
    
    500Total costs and expenses
    
    
    13,237
    
    
    
    7,269
    
    
    
    5,968
    
    
    
    42,243
    
    
    
    31,478
    
    
    
    10,7656,926
    
    
    
    5,145
    
    
    
    1,781
    
    
    
    34,818
    
    
    
    13,541
    
    
    
    21,277Interest and other income
    
    
    315
    
    
    
    486
    
    
    
    (171
    )
    
    
    1,332
    
    
    
    1,339
    
    
    
    (7
    )Income before income taxes
    
    
    7,241
    
    
    
    5,631
    
    
    
    1,610
    
    
    
    36,150
    
    
    
    14,880
    
    
    
    21,270Provision for income taxes
    
    
    2,799
    
    
    
    2,176
    
    
    
    623
    
    
    
    13,954
    
    
    
    5,744
    
    
    
    8,210Net income
    
    $
    4,442
    
    
    
    3,455
    
    
    
    987
    
    
    
    22,196
    
    
    
    9,136
    
    
    
    13,060Acres sold
    
    
    133
    
    
    
    57
    
    
    
    76
    
    
    
    919
    
    
    
    1,268
    
    
    
    (349
    )Margin percentage
    
    
    50.0
    %
    
    
    58.1
    %
    
    
    -8.1
    %
    
    
    56.2
    %
    
    
    43.4
    %
    
    
    12.8
    %Unsold acres
    
    
    8,384
    
    
    
    4,937
    
    
    
    3,447
    
    
    
    8,384
    
    
    
    4,937
    
    
    
    3,447Acres subject to firm sales contracts
    
    
    711
    
    
    
    871
    
    
    
    (160
    )
    
    
    711
    
    
    
    871
    
    
    
    (160
    )Acres subject to firm sales contracts (value)
    
    
    58,657
    
    
    
    62,506
    
    
    
    (3,849
    )
    
    
    58,657
    
    
    
    62,506
    
    
    
    (3,849
    )
 Land Division revenues are generated from two master-planned communities
located in St. Lucie County, Florida  St. Lucie West and Tradition.
Development activity in St. Lucie West is winding down, with 41 acres of
inventory remaining at September 30, 2004, of which 21 acres were subject to
firm sales contracts as of that date. With the acquisition of approximately
4,450 acres during the second quarter of this year, the Tradition
master-planned community now encompasses more than 9,000 total acres, including
approximately 6,500 net saleable acres. Approximately 1,650 acres have been
sold or were subject to firm sales contracts with various homebuilders as of
September 30, 2004. Notwithstanding the sustained interest and activity at
Tradition, a significant reduction of demand in the residential real estate
market could negatively impact our land development operations. We have historically realized between 40% and 60% margin on Land Division
sales. Margins fluctuate based upon changing sales prices and costs
attributable to the land sold. The sales price of land sold varies depending
upon: the location; the parcel size; whether the parcel is sold as raw land,
partially developed land or individually developed lots; the degree to which
the land is entitled; and whether the ultimate use of land is residential or
commercial. The cost of sales of real estate is dependent upon the original
cost of the land acquired, the timing of the acquisition of the land, and the
amount of development and carrying costs capitalized to the particular land
parcel. Future margins will continue to vary in response to these and other
market factors. For the Three Months Ended September 30, 2004 Compared to the Same 2003 Period: Revenues increased 59% to $19.7 million during the three months ended
September 30, 2004, as compared to $12.4 million during the same 2003 period.
During the third quarter of 2004, 133 acres were sold with an average margin of
50%, as compared to 57 acres sold with an average margin of 31




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##### Table of Contents



58% in the same 2003 period. The decrease in margin percentage is attributable
primarily to changes in the mix of location and approved use of the properties
sold. Selling, general and administrative expenses increased 28% to $2.7 million
during the three months ended September 30, 2004 as compared to $2.1 million
for the same 2003 period. As a percentage of total revenues, selling, general
and administrative expenses declined to 14% in the third quarter of 2004 from
17% in the third quarter of 2003. The improvement in selling, general and
administrative expenses as a percentage of revenues is a reflection of the
increased revenue levels for the division. The increase in other expenses for the 2004 period was primarily
attributable to a $500,000 charge, net of projected insurance recoveries,
recorded to account for the estimated costs of remediating hurricane-related
damage, as previously discussed. Interest incurred for the three months ended September 30, 2004 and 2003
was $592,000 and $167,000, respectively. Interest capitalized for the quarters
ended September 30, 2004 and 2003 totaled $592,000 and $167,000, respectively.
Cost of sales of real estate for the three months ended September 30, 2004
included previously capitalized interest of approximately $35,000, as compared
to $24,000 for the three months ended September 30, 2003. For the Nine months Ended September 30, 2004 Compared to the Same 2003 Period: Revenues increased 69% to $76.3 million during the nine months ended
September 30, 2004, as compared to $45.0 million during the same 2003 period.
During the first nine months of 2004, 919 acres were sold with an average
margin of 56%, as compared to 1,268 acres sold with an average margin of 43% in
the same 2003 period. The lower margin percentage in the first nine months of
2003 was primarily the result of the sale of approximately 1,000 acres of
undeveloped land adjacent to Tradition in a single transaction to a developer
that we believe will utilize the property for the development of one or more
golf courses. During the nine months ended September 30, 2004, the Land
Division sold approximately 448 acres in Tradition to the Homebuilding Division
which, for segment reporting purposes, generated revenue of $23.4 million and
margin of $14.4 million. This transaction, which is included in the above
table, is eliminated in consolidation. Selling, general and administrative expenses increased 37% to $7.9 million
during the nine months ended September 30, 2004 as compared to $5.8 million for
the same 2003 period. As a percentage of total revenues, selling, general and
administrative expenses declined to 10% in the first nine months of 2004 from
13% in the first nine months of 2003. Interest incurred for the nine months ended September 30, 2004 and 2003
was $1.2 million and $1.0 million, respectively. Interest capitalized for the
nine months ended September 30, 2004 and 2003 totaled $1.2 million and
$763,000, respectively. Cost of sales of real estate for the nine months ended
September 30, 2004 and 2003 included previously capitalized interest of
approximately $77,000 and $98,000, respectively. 32




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##### Table of Contents



OTHER OPERATIONS RESULTS OF OPERATIONS Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    Change(In thousands)
    
    
    
    
    
    (Unaudited)
    
    
    
    
    
    
    
    
    
    (Unaudited)RevenuesSales of real estate
    
    $
    779
    
    
    
    
    
    
    
    779
    
    
    
    4,908
    
    
    
    4,807
    
    
    
    101Total revenues
    
    
    779
    
    
    
    
    
    
    
    779
    
    
    
    4,908
    
    
    
    4,807
    
    
    
    101Costs and expensesCost of sales of real estate
    
    
    1,118
    
    
    
    409
    
    
    
    709
    
    
    
    5,325
    
    
    
    4,925
    
    
    
    400Selling, general and
administrative expenses
    
    
    2,377
    
    
    
    955
    
    
    
    1,422
    
    
    
    6,897
    
    
    
    3,168
    
    
    
    3,729Interest expense, net
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    25
    
    
    
    (24
    )Minority interest
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    24
    
    
    
    202
    
    
    
    (178
    )Total costs and expenses
    
    
    3,496
    
    
    
    1,367
    
    
    
    2,129
    
    
    
    12,247
    
    
    
    8,320
    
    
    
    3,927(2,717
    )
    
    
    (1,367
    )
    
    
    (1,350
    )
    
    
    (7,339
    )
    
    
    (3,513
    )
    
    
    (3,826
    )Earnings from Bluegreen Corporation
    
    
    5,790
    
    
    
    3,350
    
    
    
    2,440
    
    
    
    10,651
    
    
    
    5,156
    
    
    
    5,495(Loss) earnings from joint ventures
    
    
    (43
    )
    
    
    59
    
    
    
    (102
    )
    
    
    2,362
    
    
    
    22
    
    
    
    2,340Interest and other income
    
    
    125
    
    
    
    15
    
    
    
    110
    
    
    
    320
    
    
    
    159
    
    
    
    161Income before income taxes
    
    
    3,155
    
    
    
    2,057
    
    
    
    1,098
    
    
    
    5,994
    
    
    
    1,824
    
    
    
    4,170Provision for income taxes
    
    
    1,217
    
    
    
    795
    
    
    
    422
    
    
    
    2,312
    
    
    
    705
    
    
    
    1,607Net income
    
    $
    1,938
    
    
    
    1,262
    
    
    
    676
    
    
    
    3,682
    
    
    
    1,119
    
    
    
    2,563
 Other Operations include all other Company operations, including Levitt
Commercial, Levitt Corporation general and administrative expenses, earnings
from our investment in Bluegreen and earnings from investments in various real
estate projects. We currently own approximately 9.5 million shares of the
common stock of Bluegreen, which represented approximately 36% of Bluegreens
outstanding shares as of September 30, 2004. 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; therefore, our earnings represent only our claim
to the future distributions of Bluegreens earnings. Accordingly, we record a
tax liability on our portion of Bluegreens net income. 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 future results of operations. For the Three Months Ended September 30, 2004 Compared to the Same 2003 Period: During the three months ended September 30, 2004, sales of real estate
represented three flex warehouse units delivered by Levitt Commercial, while no
units were delivered during the three months ended September 30, 2003. Cost of
sales of real estate in Other Operations includes amortization of interest
previously capitalized in this business segment, which totaled $366,000 and
$410,000 for the three months ended September 30, 2004 and 2003, respectively.
Bluegreens reported net income for the three months ended September 30, 2004
was $16.3 million as compared to $10.2 million for the same period of 2003.
Our ownership interests in Bluegreens earnings during the three month periods
ended September 30, 2004 and 2003 were approximately $5.8 million and $3.4
million, respectively, net of purchase accounting adjustments. Purchase
accounting adjustments decreased our interest in Bluegreens earnings by
$26,000 for the third quarter of 2004, whereas purchase accounting adjustments
decreased our interest in Bluegreens earnings by $34,000 for the third quarter
of 2003. 33




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##### Table of Contents



Selling, general and administrative and other expenses increased to $2.4
million during the three months ended September 30, 2004 as compared to $1.0
million during the three months ended September 30, 2003. This increase was
primarily associated with increases in employee compensation and benefits, fees
paid by the Company for administrative and other services provided pursuant to
an agreement with BankAtlantic Bancorp, and other expenses related to being a
public company. We did not incur significant costs associated with being a
public company in the third quarter of 2003 because we were not subject to SEC
reporting regulations at that time, including the requirements of the
Sarbanes-Oxley Act of 2002. Our real estate joint ventures generated a loss of $43,000 in the third
quarter of 2004 as compared to a gain of $59,000 in the third quarter of 2003.
The loss was due to the wind-down of operations following the completion of the
two joint venture projects discussed below. Interest incurred in Other Operations was approximately $562,000 and
$409,000 for the three months ended September 30, 2004 and 2003, respectively.
The increase in interest incurred was primarily associated with an increase in
mortgage notes payable associated with Levitt Commercials development
activities. Interest capitalized for this business segment totaled $562,000
and $419,000 for the three months ended September 30, 2004 and 2003,
respectively. Those amounts include adjustments to reconcile the amount of
interest eligible for capitalization on a consolidated basis with the amounts
capitalized in the Companys other business segments. For the Nine Months Ended September 30, 2004 Compared to the Same 2003 Period: During the nine months ended September 30, 2004, Levitt Commercial
delivered 16 flex warehouse units as compared to 11 units delivered during the
nine months ended September 30, 2003. Cost of sales of real estate includes
amortization of interest previously capitalized in this business segment. The
amount of previously capitalized interest amortized in cost of sales for the
nine months ended September 30, 2004 and 2003 was $1.3 million and $1.0
million, respectively. Bluegreens reported net income for the nine months
ended September 30, 2004 and 2003 was $30.1 million and $18.6 million,
respectively. Our ownership interest in Bluegreens earnings during the nine
month periods ended September 30, 2004 and 2003 was approximately $10.7 million
and $5.2 million, respectively, net of purchase accounting adjustments.
Purchase accounting adjustments decreased our interest in Bluegreens earnings
by $526,000 for the first nine months of 2004, as compared to a $1.1 million
reduction of earnings for the first nine months of 2003. Selling, general and administrative and other expenses increased to $6.9
million during the nine months ended September 30, 2004 as compared to $3.2
million during the nine months ended September 30, 2003, due primarily to the
factors discussed above. Earnings from real estate joint ventures in the first nine months of 2004
were $2.4 million as compared to $22,000 in the first nine months of 2003. The
increase in earnings was due primarily to the gain recognized by a joint
venture on the sale of a rental apartment project in Vero Beach, Florida and
earnings associated with the delivery of homes by a joint venture project in
West Palm Beach, Florida. Earnings from real estate joint ventures recognized
in the first nine months of 2004 are not indicative of the results expected for
the remainder of the year or future periods because both joint venture projects
are sold out and their operations are essentially completed. Interest incurred in Other Operations was approximately $1.7 million and
$1.3 million for the nine months ended September 30, 2004 and 2003,
respectively. The increase in interest incurred was primarily associated with
the increase in mortgage notes payable discussed above. Interest capitalized 34




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##### Table of Contents



for this business segment totaled $1.7 million and $1.3 million for the
nine months ended September 30, 2004 and 2003, respectively. Those amounts
include adjustments to reconcile the amount of interest eligible for
capitalization on a consolidated basis with the amounts capitalized in the
Companys other business segments. FINANCIAL CONDITION September 30, 2004 compared to December 31, 2003 Our total assets at September 30, 2004 and December 31, 2003 were $652.1
million and $392.7 million, respectively. The increase in total assets
primarily resulted from:  
    
    a net increase in cash and cash equivalents of $73.8 million,
which resulted primarily from $114.8 million of net proceeds from
the underwritten public sale of 5,000,000 shares of common stock
described below, offset in part by cash used in operations;
    
    a net increase in inventory of real estate of approximately
$170.7 million resulting from land acquisitions in Florida by Core
Communities and Levitt and Sons, the acquisition of Bowden, land
acquisitions in Tennessee by Bowden and increases in land
development and construction costs. These increases in inventory of
real estate were partially offset by sales of homes and land;
    
    an increase of approximately $9.9 million in our investment
in Bluegreen Corporation associated primarily with our equity in
earnings and unrealized gains associated with Bluegreens other
comprehensive income; and
    
    an increase of $8.5 million in other assets resulting from
$4.8 million of goodwill and other assets associated with the Bowden
acquisition, and a $1.4 million insurance receivable for claims
associated with Hurricanes Frances and Jeanne. Total liabilities at September 30, 2004 and December 31, 2003 were $372.4
million and $267.2 million, respectively. The increase in total liabilities primarily resulted from:  
    
    increases in accounts payable and accrued liabilities of
$14.0 million related to increased construction and development
activity, as well as the assumption of liabilities in connection
with the Bowden acquisition and liabilities recorded relating to
Hurricanes Frances and Jeanne, offset in part by a $1.4 million
reversal of a litigation reserve related to the successful appeal of
a 2002 lawsuit;
    
    a net increase in notes and mortgage notes payable of $86.7
million, primarily related to the land acquisitions described above
and the assumption of debt in connection with the Bowden
acquisition; and
    
    an increase in the deferred tax liability of approximately
$4.9 million which was primarily associated with our earnings from
Bluegreen. LIQUIDITY AND CAPITAL RESOURCES Management assesses the Companys liquidity in terms of its ability to
generate cash to fund its operating and investment activities. For the nine
months ended September 30, 2004, our primary source of funds was the
underwritten public offering of our common stock described below, as well as
proceeds from the sale of real estate inventory, distributions from real estate
joint ventures and borrowings from financial institutions. These funds were
utilized primarily for the acquisition, 35




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development and construction of our real estate, to service and repay
borrowings, to acquire Bowden and to pay general and administrative expenses. In April 2004 we sold 5,000,000 shares of Class A common stock in an
underwritten public offering at a price of $24.50 per share. Net proceeds from
the sale totaled approximately $114.8 million, after underwriting discounts,
commissions and offering expenses. Approximately $12.0 million of the net
proceeds of the offering were used to repay indebtedness, $7.4 million were
used to fund the Bowden acquisition and $67.0 million were transferred to our
operating subsidiaries (including Bowden) to provide funds for their growth.
The balance of the funds will be used to fund our operations and growth and for
general corporate purposes. In addition to the liquidity provided by the stock sale, we expect to
continue to fund our short-term liquidity requirements through net cash
provided by operations and financing activities. We expect to meet our
long-term liquidity requirements for items such as acquisitions and debt
service and repayment obligations primarily with net cash provided by
operations, long-term secured and unsecured indebtedness and the remaining
proceeds of the stock sale. As of September 30, 2004 and December 31, 2003, we
had cash and cash equivalents of $109.7 million and $36.0 million,
respectively. At September 30, 2004, our consolidated debt was approximately $260.3
million. Our principal payment obligations with respect to our debt for the 12
months beginning September 30, 2004 are anticipated to total approximately
$33.3 million. Some of our borrowing agreements contain provisions that, among
other things, require us to maintain certain financial ratios and a minimum net
worth. These requirements may limit the amount of debt that we can incur in the
future and restrict the payment of dividends to us by our subsidiaries. At
September 30, 2004, we were in compliance with all loan agreement financial
requirements and covenants. On July 26, 2004 our Board of Directors declared a cash dividend of $0.02
per share on our Class A common stock and Class B common stock which was paid
on August 16, 2004 to all shareholders of record on August 9, 2004. On October
25, 2004 the Board of Directors declared a cash dividend of $0.02 per share on
our Class A and Class B common stock. The Board set the payment date for
November 15, 2004, to all shareholders of record on November 8, 2004. The
Board has not adopted a policy of regular dividend payments. The payment of
dividends in the future is subject to approval by our Board of Directors and
will depend upon, among other factors, our results of operation and financial
condition. Off Balance Sheet Arrangements and Contractual Obligations In connection with the development of certain of our communities, we
establish community development districts to access bond financing for the
funding of infrastructure development and other projects within the community.
If we were not able to establish community development districts, we would
need to fund community infrastructure development out of operating income or
through other sources of financing or capital. The bonds issued are
obligations of the community development district and are repaid through
assessments on property within the district. To the extent that we own
property within a district when assessments are levied, we will be obligated to
pay such assessments when they are due. As of September 30, 2004, development
districts in Tradition had $62.8 million of community development district
bonds outstanding for which no assessments had been levied. As of September
30, 2004, we owned approximately 71% of the property in the districts. We have entered into an indemnity agreement with a joint venture partner
relating to that 36




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partners guarantee of the joint ventures indebtedness. Our maximum
exposure under the indemnity agreement is estimated to be approximately
$500,000. Based on the joint venture assets securing the indebtedness, we do
not believe it is reasonably likely that any payment will be required under the
indemnity agreement. The following table summarizes our contractual obligations as of September
30, 2004 (in thousands): Payments due by periodLess than
    
    2 - 3
    
    4 - 5
    
    More thanCategory
    
    Total
    
    1 year
    
    Years
    
    Years
    
    5 yearsLong-term debt obligations
    
    $
    259,905
    
    
    
    33,274
    
    
    
    88,169
    
    
    
    90,462
    
    
    
    48,000Operating lease obligations
    
    
    4,017
    
    
    
    1,096
    
    
    
    1,670
    
    
    
    1,139
    
    
    
    112Purchase obligations
    
    
    182,621
    
    
    
    149,256
    
    
    
    33,365
    
    
    
    
    
    
    
    Total Obligations
    
    $
    446,543
    
    
    
    183,626
    
    
    
    123,204
    
    
    
    91,601
    
    
    
    48,112
 Long-term debt obligations consist of notes, mortgage notes and bonds
payable. Operating lease obligations consist of rent commitments. Purchase
obligations consist of contracts to acquire real estate properties for
development and sale; however our liability for not completing the purchase of
any such property is generally limited to the deposit we made under the
relevant contract. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is defined as the risk of loss arising from adverse changes in
market valuations that arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. We have a risk of loss
associated with our borrowings as we are subject to interest rate risk on our
long-term debt. At September 30, 2004, we had $253.6 million in borrowings with
adjustable rates tied to the prime rate and/or LIBOR rates and $6.8 million in
borrowings with fixed rates. Consequently, the impact on our variable rate
debt from changes in interest rates may affect our earnings and cash flows but
would generally not impact the fair value of such debt. With respect to fixed
rate debt, changes in interest rates generally affect the fair market value of
the debt but not our earnings or cash flow. Assuming the variable rate debt balance of $253.6 million outstanding at
September 30, 2004 were to remain constant, each one percentage point increase
in interest rates would increase the interest incurred by us by approximately
$2.5 million per year. NEW ACCOUNTING PRONOUNCEMENTS None. 
 Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures under the supervision and with the participation of our
principal executive officer and principal financial officer. Based on the
results of this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC reports. 37




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Changes in Internal Controls In addition, we reviewed our internal control over financial reporting,
and there have been no significant changes in our internal control over
financial reporting or in other factors that could significantly affect those
controls subsequent to the date of the last evaluation. Limitations on the Effectiveness of Controls Our management, including our principal executive officer and principal
financial officer, does not expect that our disclosure controls and procedures
and internal controls over financial reporting will prevent all possible errors
nor prevent all possible misconduct. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of improper
conduct, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Additionally, it is possible that controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. Further, the design of any system of controls is based, in part, upon
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Due to the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and may not be detected. CEO and CFO Certifications Appearing as Exhibits 31.1 and 31.2 to this quarterly report are
Certifications of the principal executive officer and the principal financial
officer. The Certifications are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002. This Item of this report, which you are currently
reading, is the information concerning the evaluation referred to in the
Section 302 Certifications and this information should be read in conjunction
with the Section 302 Certifications for a more complete understanding of the
topics presented. 38




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PART II - OTHER INFORMATION 
 Item 6. Exhibits Index to Exhibits Exhibit 31.1
    
    Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 39




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. LEVITT CORPORATIONDate: November 12, 2004
    By:

/s/  Alan B. LevanAlan B. Levan, Chief Executive Officer Date: November 12, 2004
    By:

/s/  George P. ScanlonGeorge P. Scanlon, Executive Vice President,Chief Financial Officer 40