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| WDGH.PK > SEC Filings for WDGH.PK > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
• the market for real estate in the areas where the Company has developments, including the impact of market conditions on the Company's margins and the fair value of its real estate inventory;
• the risk that the value of the property held by Core Communities and Carolina Oak may decline, including as a result of the current downturn in the residential and commercial real estate and homebuilding industries;
• the impact of the factors negatively impacting the homebuilding and residential real estate industries on the market and values of commercial property;
• the risk that the downturn in the credit markets may adversely affect Core's commercial leasing projects, including the ability of current and potential tenants to secure financing which may, in turn, negatively impact long-term rental and occupancy;
• the risks relating to Core's dependence on certain key tenants in its commercial leasing projects, including the risk that current adverse conditions and the economy in general and/or adverse developments in the businesses of these tenants could have a negative impact on Core's financial condition;
• the risk that the development of parcels and master-planned communities will not be completed as anticipated;
• continued declines in the estimated fair value of our real estate inventory and the potential for write-downs or impairment charges;
• the effects of increases in interest rates on us and the availability and cost of credit to buyers of our inventory;
• the impact of the problems in financial and credit markets on the ability of buyers of our inventory to obtain financing on acceptable terms, if at all, and the risk that we will be unable to obtain financing and to renew existing credit facilities on acceptable terms, if at all;
• the risks relating to Core's liquidity, cash position and ability to satisfy required payments under its debt facilities, including the risk that Woodbridge may not provide funding to Core;
• the risk that we may be required to make accelerated principal payments on our debt obligations due to re-margining or curtailment payment requirements, which may negatively impact our financial condition and results of operations;
• the Company's ability to access additional capital on acceptable terms, if at all;
• risks associated with the securities owned by the Company, including the risk that the Company may record further impairment charges with respect to such securities in the event trading prices continue to decline;
• the risks associated with the businesses in which the Company holds investments;
• risks associated with the Company's business strategy, including the Company's ability to successfully make investments notwithstanding adverse conditions in the economy and the credit markets;
• the Company's success in pursuing strategic alternatives that could enhance liquidity;
• the impact on the price and liquidity of the Company's Class A Common Stock and on the Company's ability to obtain additional capital in the event the Company chooses to de-register its securities; 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
We continue to focus on managing our real estate holdings during this
challenging period for the real estate industry, and on efforts to bring costs
in line with our strategic objectives. We have taken steps to align our staffing
levels and compensation with these objectives. Our goal is to pursue
acquisitions and investments in diverse industries, including investments in
affiliates, using a combination of our cash and stock and third party equity and
debt financing. This business strategy may result in acquisitions and
investments both within and outside of the real estate industry. We also intend
to explore a variety of funding structures which might leverage or capitalize on
our available cash and other assets currently owned by us. We may acquire entire
businesses, or majority or minority, non-controlling interests in companies.
Under this business model, we likely will not generate a consistent earnings
stream and the composition of our revenues may vary widely due to factors
inherent in a particular investment, including the maturity and cyclical nature
of, and market conditions relating to, the business invested in. We expect that
net investment gains and other income will depend on the success of our
investments as well as overall market conditions. We also intend to pursue
strategic initiatives with the goal of enhancing liquidity. These initiatives
may include pursuing alternatives to monetize a portion of our interests in
certain of Core's assets through sale, possible joint ventures or other
strategic relationships.
Our operations have historically been concentrated in the real estate
industry which is cyclical in nature. Our largest subsidiary is Core
Communities, a developer of master-planned communities, which sells land to
residential builders as well as to commercial developers, and internally
develops, constructs and leases income producing commercial real estate. In
addition, our Other Operations segment includes an equity investment in
Bluegreen, a NYSE-listed company, which represents approximately 31% of
Bluegreen's outstanding common stock, and a cost method investment in Office
Depot, a NYSE-listed company in which we own less than 1% of the outstanding
common stock. Bluegreen is engaged in the acquisition, development, marketing
and sale of ownership interests in primarily "drive-to" vacation resorts, and
the development and sale of golf communities and residential land. We are
currently working with Bluegreen Corporation to explore avenues in assisting
Bluegreen in obtaining liquidity in the securitization of their receivables,
which may include, among other potential alternatives, Woodbridge forming a
broker dealer to raise capital through private or public offerings. Our Other
Operations segment also includes the operations of Pizza Fusion, which is a
restaurant franchise operating within the quick service and organic food
industries, and the activities of Carolina Oak, which engaged in homebuilding
activities at Tradition Hilton Head prior to the suspension of those activities
in the fourth quarter of 2008.
Financial and Non-Financial Metrics
We evaluate our performance and prospects using a variety of financial and
non-financial metrics. The key financial metrics utilized to evaluate historical
operating performance include revenues from sales of real estate, margin (which
we measure as revenues from sales of real estate minus cost of sales of real
estate), margin percentage (which we measure as margin divided by revenues from
sales of real estate), income before taxes, net income and return on equity. We
also continue to evaluate and monitor selling, general and administrative
expenses as a percentage of revenue. In evaluating our future prospects,
management considers non-financial information such as acres in backlog (which
we measure as 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 development trends. Our ratio of debt to shareholders' equity and cash
requirements are also considered when evaluating our future prospects, as are
general economic factors and interest rate trends. Each of the above metrics is
discussed in the following sections as it relates to our operating results,
financial position and liquidity. These metrics are not an exhaustive list, and
management may from time to time utilize different financial and non-financial
information or may not use all of the metrics mentioned above.
Going forward, under the terms and conditions of the new executive
compensation program, all of the Company's investments are or will be held by
individual limited partnerships or other legal entities established for such
purpose. The executive officer participants may have interests tied both to the
performance of a particular investment as well as interests relating to the
performance of the portfolio of investments as a whole. The Company will
evaluate these investments based on certain performance criteria and other
financial metrics established by the Company in its capacity as investor in the
program.
Land Division Overview
Core Communities develops master-planned communities and is currently
developing Tradition, Florida, which is located in Port St. Lucie, Florida, and
Tradition Hilton Head, which is located in Hardeeville, South Carolina.
Tradition, Florida encompasses approximately 8,200 total acres. Core has sold
approximately 1,800 acres to date and has approximately 3,800 net saleable acres
remaining in inventory. No acres were subject to sales contracts as of March 31,
2009. Tradition Hilton Head encompasses approximately 5,400 total acres, of
which 175 acres have been sold to date. Approximately 2,800 net saleable acres
are remaining at Tradition Hilton Head. No acres were subject to sales contracts
as of March 31, 2009. Acres sold to date in Tradition Hilton Head include the
intercompany sale of 150 acres owned by Carolina Oak.
We plan to continue to focus on our Land Division's commercial operations
through sales to developers and the internal development of certain projects for
leasing to third parties. Core is currently pursuing the sale of two of its
commercial leasing projects. Conditions in the commercial real estate market
have deteriorated and financing is not as readily available in the current
market, which may adversely impact both Core's ability to complete sales and the
profitability of any sales.
In addition, the overall slowdown in the real estate markets and disruptions
in credit markets continue to have a negative effect on demand for residential
land in our Land Division which historically was partially mitigated by
increased commercial leasing revenue. Traffic at both the Tradition, Florida and
Tradition Hilton Head information centers remains slow, reflecting the overall
state of the real estate market.
Other Operations Overview
Other Operations consist of the operations of our Parent Company, Carolina
Oak, and Pizza Fusion, activities through Cypress Creek Capital and Snapper
Creek, our equity investment in Bluegreen and an investment in Office Depot.
During 2008, we began evaluating our investment in Bluegreen for
other-than-temporary impairment in accordance with Financial Accounting
Standards Board ("FASB") Staff Position FAS 115-1/FAS 124-1, "The Meaning of
Other-than-Temporary Impairment and Its Application to Certain Investments",
Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock", and Securities and Exchange Commission Staff
Accounting Bulletin No. 59 as the fair value of the Bluegreen stock had fallen
below the carrying value of our investment in Bluegreen. We analyzed various
quantitative and qualitative factors including our intent and ability to hold
the investment, the severity and duration of the impairment and the prospects
for the improvement of fair value. The Company valued Bluegreen's common stock
using a market approach valuation technique and Level 1 valuation inputs under
SFAS No. 157. As a result of the impairment evaluations performed in the third
and fourth quarters of 2008, we recorded other-than-temporary impairments of
$53.6 million and $40.8 million for the quarters ended September 30, 2008 and
December 31, 2008, respectively.
We again performed an impairment review of our investment in Bluegreen as of
March 31, 2009 and, as part of that review, evaluated various qualitative and
quantitative factors relating to the performance of Bluegreen and its current
stock price. As a result of the evaluation, based on, among other things, the
continued decline of Bluegreen's common stock price, we determined that an
other-than-temporary impairment was necessary and, accordingly, recorded a
$20.4 million impairment charge (calculated based upon the $1.74 closing price
of Bluegreen's common stock on the New York Stock Exchange on March 31, 2009)
and adjusted the carrying value of our investment in Bluegreen to its fair value
of $16.6 million at March 31, 2009. On May 7, 2009, the closing price of
Bluegreen's common stock was $1.75 per share.
During December 2008, we performed an impairment analysis of our investment
in Office Depot's common stock. We concluded that there was an
other-than-temporary impairment associated with our investment in Office Depot
based on the severity of the decline of the fair value of our investment, the
length of time the stock price had been below the carrying value of our
investment, the continued decline in the overall economy and credit markets, and
the unpredictability of the recovery of Office Depot's stock price. Accordingly,
we recorded an other-than-temporary impairment charge of approximately
$12.0 million representing the difference of the average cost of $11.33 per
share and the fair value of $2.98 per share as of December 31, 2008 multiplied
by the number of shares of Office Depot common stock owned by us at that date.
Further, we performed an impairment analysis at March 31, 2009 and, based on,
among other factors, the continued decline of Office Depot's stock price, we
determined that an additional other-than-temporary impairment charge was
required. As a result, we recorded a $2.4 million impairment charge relating to
our investment in Office Depot in the three months ended March 31, 2009, which
decreased the carrying value of our investment in Office Depot from $4.3 million
as of December 31, 2008 to $1.9 million as of March 31, 2009. On May 7, 2009,
the closing price of Office Depot's common stock was $3.45 per share.
Critical Accounting Policies and Estimates
Critical accounting policies are those policies that are important to the
understanding of our financial statements and may also involve estimates and
judgments about inherently uncertain matters. In preparing our financial
statements, management makes estimates and assumptions that affect the amounts
reported in the financial statements. 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 revenue and cost recognition on percent complete projects,
reserves and accruals, impairment reserves of assets, valuation of real estate,
estimated costs to complete construction, reserves for litigation and
contingencies and deferred tax valuation allowances. The accounting policies
that we have identified as critical to the portrayal of our financial condition
and results of operations are: (a) fair value measurements; (b) investments;
(c) goodwill and intangible assets; (d) revenue recognition; (e) income taxes;
and (f) loss in excess of investment in Levitt and Sons. For a more detailed
discussion of these critical accounting policies see "Critical Accounting
Policies and Estimates" appearing in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of our Annual Report
on Form 10-K for the year ended December 31, 2008.
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