UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 8-K

 


CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

November 8, 2007

Date of Report (Date of Earliest Event Reported)

 


WCI COMMUNITIES, INC.

(Exact Name of Registrant as Specified in Charter)

 


 

DELAWARE)   001-31255   59-2857021

(State or Other Jurisdiction

of Incorporation or Organization

  (Commission File Number)  

(IRS Employer

Identification No.)

24301 Walden Center Drive

Bonita Springs, Florida 34134

(Address of Principal Executive Office)

(239) 947-2600

(Registrant’s Telephone Number, Including Area Code)

NOT APPLICABLE

(Former Name or Former Address, if Changed Since Last Report)

 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION; AND

 

ITEM 7.01 REGULATION FD DISCLOSURE

On November 8, 2007, WCI Communities, Inc. issued a press release announcing its earnings for the three and nine months ended September 30, 2007 (the “Press Release”). A copy of this Press Release is attached hereto as Exhibit 99.1.

The information in this Current Report on Form 8-K and the Exhibit attached hereto is being furnished shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

 

ITEM 9.01 EXHIBITS

(d) Exhibits

 

Exhibit
Number

  

Title

99.1

   Press Release of WCI Communities, Inc., dated November 8, 2007

 

2


SIGNATURE

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 hereunto duly authorized.

WCI COMMUNITIES, INC.

 

Date: November 8, 2007    

/ S / J AMES P. D IETZ

  Name:   James P. Dietz
  Title:   Executive Vice President and
    Chief Financial Officer

 

3

Exhibit 99.1

LOGO

 

    Investor and Media Contact:    Jim Dietz
       (239) 498-8302
       Jimdietz@wcicommunities.com

FOR IMMEDIATE RELEASE

WCI Reports Third Quarter 2007 Results

Third Quarter Financial Highlights:

 

 

Net loss: $69.7 million

 

 

Basic and diluted EPS: loss of $1.66

 

 

Recorded pre-tax impairments and write-offs of $35.9 million

 

 

Revenues: $166.0 million – down 61.0%

 

 

Gross new orders: $139.1 million – down 22.5%

 

 

Backlog at September 30, 2007: $517.0 million

Bonita Springs, FL (November 8, 2007) – WCI Communities, Inc. (NYSE: WCI), a leading builder of traditional and tower residences in highly amenitized lifestyle communities, today reported its results for the third quarter of 2007. For the three months ended September 30, 2007, WCI reported a net loss of $69.7 million, compared with net income of $10.7 million in the third quarter of 2006. Diluted earnings per share (EPS) from continuing operations was a loss of $1.66, compared to income of $0.24 for the same period a year ago. Revenues for the third quarter of 2007 were $166.0 million, compared with $425.6 million for the third quarter of 2006, a 61.0% decrease. Of this decrease, $88.9 million was due to reversal of Tower Homebuilding revenue related to defaults recorded this quarter.

Company gross margin for the third quarter of 2007 was negative $40.6 million versus positive $62.6 million, or 14.7% of revenue, for the third quarter of 2006, a decrease of $103.2 million. Of this decrease, $23.7 million was due to reversal of Tower Homebuilding gross margin related to defaults and default reserves recorded this quarter. Other unfavorable adjustments of estimates totaling $12.9 million were also recorded to the Tower Homebuilding gross margin this quarter. In addition, real estate inventory impairment charges and write-offs totaled $35.9 million in this third quarter. Excluding all of these items, Company gross margin would have totaled $31.9 million ($-40.6 million as reported plus $23.7 million, $12.9 million and $35.9 million), or 12.5% of $254.9 million of revenue before effect of the recorded contract defaults ($166.0 million as reported plus $88.9 million cited in the prior paragraph).

 

1


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

“Demand continues to be unpredictable from week to week and we saw an increase in defaults and cancellations during the third quarter,” said Jerry Starkey, President and CEO of WCI Communities. “We are focused on reducing our costs of operation and recently announced a restructuring that we expect will enable us to lower our annual salary and benefit expenses by about $46 million. As a part of this restructuring, we have combined geographic regions and retained the top talent capable of taking on expanded roles and responsibility during this downturn. During the quarter, we experienced higher tower defaults and increased our reserves for future tower defaults. This resulted in revenue and earnings reversals and had a negative impact on our financial performance during the period. We also wrote down our traditional and tower inventory to reflect impairments caused by expected lower prices and slower absorption in some product lines. While lower demand and increased defaults have severely hampered our earnings, we continue to expect significant cash flow in the fourth quarter to result in about $210 million to $460 million of cash flow for the full year ($200 million to $450 million from operating activities and $10 million from investing activities). The Company’s expected cash flow from operations includes 275 to 300 traditional homes closings in the fourth quarter. The backlog of 591 traditional homes as of September 30, 2007 includes 273 homes scheduled to close by year end.”

For the nine month period ended September 30, 2007, net loss totaled $118.8 million compared with net income of $73.6 million during the first nine months of 2006. Diluted EPS from continuing operations declined to a loss of $3.17 versus income of $1.64 for the same period a year ago. Revenues decreased 51.0% to $746.5 million from $1.52 billion for the nine months ended September 30, 2006.

For the three months ended September 30, 2007, gross new orders totaled 197 units, a decline of 13.6% compared to the same quarter in 2006, with a value for the third quarter of 2007 of $139.1 million, down 22.5% from 2006. Due largely to the reversal of orders upon recording tower defaults, aggregate net orders were a negative $14.3 million for this quarter, while the number of net unit orders declined 82.9% to 24.

 

2


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Traditional Homebuilding

Third quarter 2007 revenues for Traditional Homebuilding, including lot sales, fell 25.9% to $157.0 million from $211.9 million for the third quarter of 2006. The Company closed 212 homes compared with 279 for the same period a year ago. Florida revenues totaled $108.8 million, or 69.3% of total Traditional Homebuilding revenues, versus $159.9 million, or 75.5%, for the third quarter of 2006. Revenues from WCI’s Northeast Division accounted for 18.3% of Traditional Homebuilding revenues during the third quarter of 2007 vs. 4.7% during the same period a year ago and the Company’s Mid-Atlantic Division accounted for 12.4% and 19.8% of revenues for the third quarters of 2007 and 2006, respectively. Gross margin as a percentage of revenue for Traditional Homebuilding totaled 8.0% for the third quarter of 2007, down from 22.6% in the same period a year ago, due in large part to the greater extent of discounts and incentives that homebuyers now closing received at the point of sale and impairment charges of $4.9 million recorded this quarter to reflect lower anticipated selling prices on traditional home inventories and the utilization of significant discounts and incentives to sell finished spec inventory. Excluding impairments, gross margin as a percent of revenue would have been 11.1%.

For the nine month period ended September 30, 2007, Traditional Homebuilding revenues decreased 27.3% to $550.2 million. The Company closed 735 homes compared with 1,143 for the same period a year ago. Gross margin as a percentage of revenue declined to 9.1% vs. 22.0% for the first nine months of 2006. Excluding impairments, gross margin as a percent of revenue would have been 13.3%. The average price of traditional homes closed year to date was $715,000 in 2007 compared to $729,000 in 2006.

For the third quarter of 2007, the number of gross and net orders declined 13.7% and 27.1%, respectively. The value of Traditional Homebuilding gross orders declined 23.6% to $129.7 million and the value of net orders dropped 45.1% to $65.2 million. The cancellation rate for the third quarter of 2007 was 44.4%, down slightly from 47.8% in the second quarter of the 2007. Cancellations during the quarter totaled 84, up from 75 during the same period in 2006. The average price for Traditional Homebuilding gross orders for the third quarter of 2007 declined 11.5% to $686,000 compared with $775,000 for the third quarter of 2006, due to mix changes and a higher percentage of discounts and incentives during the quarter (approximately 25% compared to approximately 13% on orders in the same period a year ago). In total, 131 gross spec homes were sold during the quarter, with an average projected gross margin as a percent of revenues of 2.0%,

 

3


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

approximately 1490 basis points below the average gross margin percentage of 16.9% projected for the 58 gross to-be-built orders for the quarter. As of September 30, 2007, unsold finished or under construction homes totaled 568 units, a reduction of 43 units from June 30, 2007, reflecting reductions from gross sales net of defaults and cancellations during the quarter.

Tower Homebuilding

For the three months ended September 30, 2007, Tower Homebuilding reported negative revenue of $36.8 million as compared to revenue of $172.3 million for the same period a year ago, primarily due to the reversal of revenue during the quarter related to defaulted tower contracts, as well as a decrease in the number of towers under construction this quarter and limited progression of building percentage of completion among the towers under construction. There were 5 towers with a total projected sell-out value of $1.15 billion under construction during the quarter compared with 18 towers, with a projected total sellout value of $2.1 billion under construction and recognizing revenue during the third quarter 2006. Tower Homebuilding also reported a negative gross margin of $56.6 million for the third quarter of 2007, due principally to $31.1 million in finished unit impairment charges, reversal of gross margin related to defaulted tower contracts, an increase in the reserve for potential future defaults, and certain adjustments of estimates. During each quarter, the Company reviews the cost estimates for each tower under construction and makes adjustments to reflect actual increases or decreases in current and expected future costs. For the third quarter of 2007, $36.6 million of unfavorable adjustments (including adding $23.7 million to the default reserve) were made related to towers recently completed or under construction. In addition to increasing the default reserve, these adjustments included additional construction costs as a result of design revisions, additional estimated interest costs associated with longer tower construction cycles, increases in building insurance costs, and discounts and incentives anticipated in future periods given the current selling environment.

For the nine months ended September 30, 2007, revenues in Tower Homebuilding fell 93.5% to $39.3 million as the decrease in the number and value of towers under construction and the decrease in gross new tower orders was magnified by the reversal of revenue associated with contract defaults. Gross margin as a percentage of revenue turned negative from 21.5% in the same period last year , due principally to the finished unit impairment charges, the reversal of revenue and gross margin on defaulted units and the cost adjustments referenced above.

 

4


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Tower Homebuilding orders for the third quarter of 2007 were negative as the 89 defaults recorded during the quarter outnumbered 8 gross new orders. The average gross order price for Tower Homebuilding units sold in the third quarter of 2007 was $1.2 million compared with $1.1 million in the period a year ago, driven by changes in the mix of units sold. During the quarter, the Company completed and delivered two towers (Florencia and LeJardin), consisting of 142 units, and experienced 51 defaults out of 114 sold units in these towers through November 5, 2007. Another 30 sold units have yet to close in seven buildings completed during 2007, and the Company currently estimates 16 of those units may ultimately default. For the nine months ended September 30, 2007, 425 units were delivered in the seven completed buildings. Through nine months, the Company has recorded or reserved a total of 190 defaults related to completed buildings, which represents 29.6% of the number of sold units in the buildings completed this year. During the third quarter of 2007, 38 defaults were recorded in towers completed in the first and second quarters of 2007. Tower Homebuilding backlog at September 30, 2007 totaled $74.9 million, compared with $384.3 million at September 30, 2006. For the balance of the year, two towers, containing 506 units, of which 477 are sold, are expected to deliver units to buyers. One of these buildings, One Bal Harbour, received its temporary certificate of occupancy and began delivering units to buyers in late October 2007. The Watermark on Hudson is expected to be completed within the next month and to begin delivering units to residents in December.

Real Estate Services

Revenues for the Real Estate Services Division for the third quarter 2007 were $20.8 million, an 11.1% decrease from the $23.4 million recorded for the same period a year ago. The decline was primarily due to the slowing market for new and resale homes during the quarter. Gross margin as a percentage of revenue for the period was 0.9% compared with 0.5% in the third quarter 2006.

For the nine month period ended September 30, 2007, revenues in the Real Estate Services Division totaled $73.8 million, down 15.2% from the $87.1 million recorded for the nine months ended September 30, 2006. Gross margin as a percentage of revenue over the period decreased to 6.5% from 6.8% in the same period a year ago as the steps taken by these operations to reduce overhead and increase efficiency in the current market environment have not yet taken full effect.

 

5


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Other Items

Revenues for the Amenities Division for the third quarter 2007 were $18.0 million, an 24.3% increase from the $14.5 million recorded in the same period a year ago. Gross margin totaled a loss of $1.4 million for the third quarter 2007 versus a loss of $4.4 million in the third quarter of 2006.

Land sale revenues for the third quarter 2007 totaled $5.3 million compared with $1.4 million for the third quarter of 2006. Gross margin as a percentage of land sales revenue equaled 87.3% for the third quarter of 2007.

Other income for the third quarter of 2007 totaled $1.7 million versus $9.5 million for the third quarter of 2006. The 2006 amount included a $6.4 million settlement of claims related to hurricanes in 2005 and 2004 and a $2.4 million gain related to the sale of a joint venture interest in our previously wholly-owned mortgage company.

Selling, general, and administrative expenses including real estate taxes (SG&A) totaled $46.5 million for the third quarter 2007, up $1.6 million or 3.6% from the third quarter of 2006. For the nine months ended September 30, 2007, SG&A of $143.2 million was 3.7% lower than the total for the same period last year. During the third quarter, WCI incurred professional fees of approximately $4.0 million related to the Company’s recently settled proxy contest and preparations for a possible sale of the Company. WCI also incurred charges of approximately $1.1 million to cover severance costs associated with workforce reductions during the quarter. Similar charges were incurred during the prior two quarters of 2007. Real estate tax expense was $2.8 million higher for the quarter and $6.7 million higher for the nine month period than the same periods last year due to higher assessments on finished units and less capitalization of these payments. Each of these increased expenses have had the effect of offsetting savings from headcount reductions and other efficiency initiatives implemented during 2007.

Interest expense, net of $22.4 million for the quarter and $57.0 million for the nine month period, represents increases over comparable periods in 2006 and 2007 of $13.7 million and $37.9 million, respectively, primarily due to less interest capitalized as fewer projects are under development and, to a lesser degree, higher interest incurred as a result of greater debt balances in the first part of the year and increases in interest rates.

 

6


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Cash Flow/Financial Position

For the nine months ended September 30, 2007, cash flow from operating activities and investing activities totaled $59.5 million ($33.3 million from operating activities and $26.2 million from investing activities), compared with cash used of $650.1 million ($605.0 million used in operations and $45.1 million used for investing activities) in the same period a year ago.

On August 17, 2007, WCI amended its Senior Secured Revolving Credit Agreement (Credit Facility), the Term Loan Agreement (Term Loan) and the $390 million Revolving Tower Construction Loan Agreement (Tower Facility) to permit certain changes in the composition of WCI’s Board of Directors without triggering a change of control and to establish certain other modifications to the terms and financial covenants of the loans. For the quarter ended September 30, 2007, we were not able to comply with the modified Fixed Charge Coverage covenant under the Credit Facility and Term Loan. As a result, on November 7, 2007, we obtained a limited waiver of performance under this covenant of the Credit Facility and Term Loan which is effective through December 7, 2007. Following the filing of this quarterly report, we expect to finalize our discussions with the lead lenders under these facilities and submit a longer-term amendment that would provide financial flexibility, including suspension of the Fixed Charge Coverage covenant, for approval by the participating lenders in these facilities. As of September 30, 2007, the balance on the Credit Facility was $448.7 million, the balance on the Term Loan was $262.5 million, and the balance on the Tower Facility was $358.5 million.

At this time, it is not certain that we will reach agreement or obtain approval of the anticipated longer-term amendment. This amendment will be expensive and there can be no assurance that we will able to comply with the amended covenants and other requirements. If WCI is unable to obtain the amendment or comply with its terms, the lenders would have the right to exercise remedies specified in the loan agreements, including foreclosing on certain collateral and accelerating the maturity of the loans, which could result in the acceleration of substantially all of our other outstanding indebtedness. In such a situation, there can be no assurance that we would be able to obtain alternative financing. In addition, if the Company is determined to be in default of these loan agreements, it may be prohibited from drawing additional funds under the Credit Facility and the Tower Loan, which could impair our ability to maintain sufficient working capital. Either situation could have a material adverse affect on the solvency of the Company.

 

7


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Assuming a favorable resolution of the matter discussed in the preceding paragraph, total liquidity, measured as the sum of cash plus available capacity under the Credit Facility, totaled approximately $258.5 million at September 30, 2007. In addition, letters of credit of $49.6 million were outstanding as of September 30, 2007.

Conference Call

WCI will conduct a conference call today at 10:00 a.m. EST in conjunction with this news release. The call will be broadcast live at http://www.wcicommunities.com in the Investor Relations area or can be accessed by telephone at (303) 205-0044 and asking for the WCI Communities conference call. A replay will be available after the call for a period of 36 hours by dialing (303) 590-3000 and entering conference code 11100073. The replay will also be available on the Company’s website. A slide presentation will accompany the call and can be accessed on the Company’s website in the Investor Relations section.

About WCI

WCI Communities, Inc., named America’s Best Builder in 2004 by the National Association of Home Builders and Builder Magazine, has been creating amenity-rich, master-planned lifestyle communities since 1946. Florida-based WCI caters to primary, retirement, and second-home buyers in Florida, New York, New Jersey, Connecticut, Maryland and Virginia. The Company offers traditional and tower home choices with prices from the high-$100,000s to more than $10 million and features a wide array of recreational amenities in its communities. In addition to homebuilding, WCI generates revenues from its Prudential Florida WCI Realty Division, and title businesses, and its recreational amenities, as well as through land sales and joint ventures. The Company currently owns and controls developable land on which the Company plans to build over 18,500 traditional and tower homes.

###

For more information about WCI and its residential communities visit

www.wcicommunities.com

Forward-looking statements:

Certain information included herein and in other company reports, Securities and Exchange Commission filings, statements and presentations is forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about the company’s anticipated operating results, financial resources, ability to acquire land, ability to sell homes and properties, ability to deliver homes from backlog, and ability to secure materials and subcontractors. Such forward-looking information involves important risks and uncertainties that could significantly affect actual results and cause them to differ materially from expectations expressed herein and in other company reports, filings, statements and presentations. These risks and uncertainties include WCI’s ability to compete in real estate markets where we conduct business; WCI’s ability to pay principal and interest on its current and future debts; WCI’s ability to amend its bank agreements and obtain waivers as needed from time to time to obtain covenant relief and to avoid bank defaults during the market downturn; WCI’s ability to maintain or increase historical revenues and profit margins; WCI’s ability to collect contract receivables from buyers purchasing homes as investments; the availability and cost of land in desirable areas in its geographic markets and our ability to

 

8


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

expand successfully into those areas; WCI’s ability to obtain necessary permits and approvals for the development of its lands; the availability of capital to WCI and our ability to effect growth strategies successfully; availability of labor and materials and material increases in insurance, labor and material costs; increases in interest rates and availability of mortgage financing; the ability of prospective residential buyers to obtain mortgage financing due to tightening credit markets, appraisal problems or other factors; increases in construction and homeowner insurance and availability of insurance, the continuing negative buyer sentiment and erosion of consumer confidence; the negative impact of claims for contract rescission or increasing cancellation rates by contract purchasers; adverse legislation or regulations; adverse legal proceedings; the ability to retain employees; changes in generally accepted accounting principles; natural disasters; adverse weather conditions; and changes in general economic, real estate and business conditions and other factors over which the company has little or no control. If one or more of the assumptions underlying our forward-looking statements proves incorrect, then the company’s actual results, performance or achievements could differ materially from those expressed in, or implied by the forward-looking statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This statement is provided as permitted by the Private Securities Litigation Reform Act of 1995

 

9


WCI Reports Third Quarter 2007 Results

November 8, 2007

WCI Communities, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

 

     September 30,     December 31,  
     2007     2006  

Assets

    

Cash and cash equivalents

   $ 7,174     $ 41,876  

Contracts receivable

     787,208       1,269,549  

Real estate inventories

     1,995,953       1,955,793  

Property and equipment

     244,080       274,720  

Other assets

     344,801       289,921  
                

Total assets

   $ 3,379,216     $ 3,831,859  
                

Liabilities and Shareholders’ Equity

    

Accounts payable, accruals and other liabilities

   $ 601,480     $ 862,353  
                

Debt obligations:

    

Senior revolving credit facility

     448,700       503,846  

Senior term note

     262,500       300,000  

Mortgages and notes payable

     376,602       363,261  

Senior subordinated notes

     525,000       525,000  

Junior subordinated notes

     165,000       165,000  

Contingent convertible senior subordinated notes

     125,000       125,000  
                

Total debt obligations

     1,902,802       1,982,107  
                

Total shareholders’ equity

     874,934       987,399  
                

Total liabilities and shareholders’ equity

   $ 3,379,216     $ 3,831,859  
                

Other Balance Sheet Data

    

Debt

   $ 1,902,802     $ 1,982,107  

Shareholders’ equity

     874,934       987,399  
                

Capitalization

   $ 2,777,736     $ 2,969,506  
                

Ratio of debt to capitalization

     68.5 %     66.7 %

Debt, net of cash and cash equivalents

   $ 1,895,628     $ 1,940,231  

Shareholders’ equity

     874,934       987,399  
                

Capitalization, net of cash and cash equivalents

   $ 2,770,562     $ 2,927,630  
                

Ratio of net debt to net capitalization

     68.4 %     66.3 %

Shareholders’ equity per share

   $ 20.79     $ 23.57  

 

10


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

WCI Communities, Inc.

Selected Revenues and Earnings Information

(Dollars in thousands, except per share data)

 

    

For the three months ended

September 30,

   

For the nine months ended

September 30,

 
     2007     2006     2007     2006  

REVENUES

        

Homebuilding:

        

Homes

   $ 151,484     $ 203,477     $ 536,840     $ 737,538  

Lots

     5,533       8,420       13,328       19,473  
                                

Total traditional

     157,017       211,897       550,168       757,011  

Towers

     (36,788 )     172,324       39,326       606,153  
                                

Total homebuilding

     120,229       384,221       589,494       1,363,164  

Real estate services

     20,808       23,412       73,808       87,083  

Amenity membership and operations

     18,006       14,489       60,163       58,305  

Land sales

     5,337       1,401       17,934       7,517  

Other

     1,599       2,035       5,072       6,126  
                                

Total revenues

     165,979       425,558       746,471       1,522,195  
                                

GROSS MARGIN

        

Homebuilding:

        

Homes

     10,436       46,184       45,749       161,708  

Lots

     2,077       1,704       4,543       5,132  
                                

Total traditional

     12,513       47,888       50,292       166,840  

Towers

     (56,646 )     31,077       (72,533 )     130,105  
                                

Total homebuilding

     (44,133 )     78,965       (22,241 )     296,945  

Real estate services

     194       114       4,768       5,926  

Amenity membership and operations

     (1,438 )     (4,410 )     (843 )     (4,546 )

Land sales

     4,661       1,278       10,528       4,728  

Other

     73       (13,380 )     171       (13,336 )
                                

Total gross margin

     (40,643 )     62,567       (7,617 )     289,717  
                                

OTHER INCOME AND EXPENSES

        

Equity in losses (earnings) from joint ventures

     52       865       (443 )     814  

Other income

     (1,668 )     (3,090 )     (2,520 )     (5,248 )

Hurricane recoveries

     —         (6,437 )     (5,393 )     (6,435 )

Selling, general and administrative, including real estate taxes, net

     46,461       44,832       143,201       148,711  

Depreciation and amortization

     5,392       6,122       16,624       18,710  

Interest expense, net

     22,365       8,693       57,000       19,103  

Expenses related to early repayment of debt and related amendments

     3,583       —         3,583       455  
                                

(Loss) income from continuing operations before minority interests and income taxes

     (116,828 )     11,582       (219,669 )     113,607  

Minority interests

     1,666       1,525       2,488       259  

Income tax (benefit) expense

     (45,440 )     3,119       (84,212 )     42,194  
                                

(Loss) income from continuing operations

     (69,722 )     9,988       (132,969 )     71,672  

Income from discontinued operations, net of tax

     —         671       866       1,904  

Gain on sale of discontinued operations, net of tax

     —         —         13,353       —    
                                

Net (loss) income

   $ (69,722 )   $ 10,659     $ (118,750 )   $ 73,576  
                                

(LOSS) EARNINGS PER SHARE:

        

Basic:

        

From continuing operations

   $ (1.66 )   $ 0.24     $ (3.17 )   $ 1.67  

From discontinued operations

     —         0.02       0.34       0.04  
                                
   $ (1.66 )   $ 0.26     $ (2.83 )   $ 1.71  
                                

Diluted:

        

From continuing operations

   $ (1.66 )   $ 0.24     $ (3.17 )   $ 1.64  

From discontinued operations

     —         0.01       0.34       0.04  
                                
   $ (1.66 )   $ 0.25     $ (2.83 )   $ 1.68  
                                

WEIGHTED AVERAGE NUMBER OF SHARES

        

Basic

     42,030       41,730       41,980       42,919  

Diluted

     42,030       42,335       41,980       43,795  

OPERATING DATA

        

Interest incurred

   $ 37,608     $ 34,594     $ 107,541     $ 90,343  

Interest included in cost of sales

   $ 6,296     $ 17,099     $ 28,630     $ 50,464  

 

11


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

WCI Communities, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

    

For the nine months ended

September 30,

 
     2007     2006  

Cash flows from operating activities:

    

Net (loss) income

   $ (118,750 )   $ 73,576  

Asset impairment losses and land acquisition termination costs

     73,004       13,293  

Increase in real estate inventories

     (109,289 )     (383,158 )

Decrease (Increase) in contracts receivable

     482,341       (319,594 )

Decrease in customer deposits

     (139,558 )     (52,365 )

Decrease in restricted cash

     16,772       72,518  

Decrease in accounts payable and other liabilities

     (103,090 )     (67,024 )

All other

     (68,120 )     57,760  
                

Net cash provided by (used in) operating activities

     33,310       (604,994 )
                

Cash flows from investing activities:

    

Additions to property and equipment, net

     (21,296 )     (35,036 )

Proceeds from sale of property and equipment

     47,105       —    

Other

     398       (10,052 )
                

Net cash provided by (used in) investing activities

     26,207       (45,088 )
                

Cash flows from financing activities:

    

Net (repayments) borrowings under debt obligations

     (80,227 )     698,502  

All other

     (13,992 )     (79,550 )
                

Net cash (used in) provided by financing activities

     (94,219 )     618,952  
                

Net decrease in cash and cash equivalents

   $ (34,702 )   $ (31,130 )
                

 

12


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

WCI Communities, Inc.

Homebuilding Operational Data

(Dollars in thousands)

 

    

For the three months ended

September 30,

   

For the nine months ended

September 30,

 
     2007     2006     2007     2006  

Combined Traditional and Tower Homebuilding

        

Homes Closed (Units)*

     286       319       1,235       1,547  

Net New Orders (Units)

     24       140       311       829  

Net Contract Values of New Orders

   $ (14,270 )   $ 120,046     $ 150,891     $ 693,249  

Average Selling Price Per New Order, Gross

   $ 706     $ 788     $ 725     $ 791  

Traditional Homebuilding

   $ 686     $ 775     $ 695     $ 733  

Tower Homebuilding

   $ 1,177     $ 1,100     $ 1,409     $ 1,333  

Traditional Homebuilding

        

Homes Closed (Units)

        

Florida

     145       219       484       950  

Northeast U.S.

     53       20       200       119  

Mid-Atlantic U.S.

     14       40       51       74  
                                

Total

     212       279       735       1,143  
                                

Revenues, excluding lot revenues

        

Florida

   $ 103,515     $ 151,470     $ 363,320     $ 584,268  

Northeast U.S.

     28,716       9,993       109,389       63,988  

Mid-Atlantic U.S.

     19,253       42,014       64,131       89,282  
                                

Total

   $ 151,484     $ 203,477     $ 536,840     $ 737,538  
                                

Average Selling Price Per Home Closed

        

Florida

   $ 714     $ 692     $ 751     $ 615  

Northeast U.S.

     542       500       547       538  

Mid-Atlantic U.S.

     1,375       1,050       1,257       1,207  
                                

Total

   $ 715     $ 729     $ 730     $ 645  
                                

Gross New Orders (Units)

        

Florida

     143       160       490       695  

Northeast U.S.

     37       45       148       253  

Mid-Atlantic U.S.

     9       14       60       55  
                                

Total

     189       219       698       1,003  
                                

Cancellations (Units)

        

Florida

     (74 )     (60 )     (197 )     (205 )

Northeast U.S.

     (7 )     (8 )     (32 )     (32 )

Mid-Atlantic U.S.

     (3 )     (7 )     (13 )     (24 )
                                

Total

     (84 )     (75 )     (242 )     (261 )
                                

Net New Orders (Units)

        

Florida

     69       100       293       490  

Northeast U.S.

     30       37       116       221  

Mid-Atlantic U.S.

     6       7       47       31  
                                

Total

     105       144       456       742  
                                

Gross Contract Values of New Orders

        

Florida

   $ 102,244     $ 128,194     $ 335,766     $ 531,079  

Northeast U.S.

     20,127       25,875       84,605       131,606  

Mid-Atlantic U.S.

     7,312       15,618       64,738       72,889  
                                

Total

   $ 129,683     $ 169,687     $ 485,109     $ 735,574  
                                

Contract Values of Cancellations

        

Florida

   $ (54,452 )   $ (37,472 )   $ (162,634 )   $ (122,542 )

Northeast U.S.

     (3,758 )     (3,975 )     (17,184 )     (15,767 )

Mid-Atlantic U.S.

     (6,249 )     (9,472 )     (17,564 )     (31,939 )
                                

Total

   $ (64,459 )   $ (50,919 )   $ (197,382 )   $ (170,248 )
                                

Net Contract Values of New Orders

        

Florida

   $ 47,792     $ 90,722     $ 173,132     $ 408,537  

Northeast U.S.

     16,369       21,900       67,421       115,839  

Mid-Atlantic U.S.

     1,063       6,146       47,174       40,950  
                                

Total

   $ 65,224     $ 118,768     $ 287,727     $ 565,326  
                                

Gross Average Selling Price Per New Order

        

Florida

   $ 715     $ 801     $ 685     $ 764  

Northeast U.S.

     544       575       572       520  

Mid-Atlantic U.S.

     812       1,116       1,079       1,325  
                                

Total

   $ 686     $ 775     $ 695     $ 733  
                                

 

13


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

Tower Homebuilding

        

Homes Closed (Units)

        

Florida

     74       40       500       404  
                                

Total

     74       40       500       404  
                                

Revenues

        

Florida

   $ (45,797 )   $ 159,223     $ (7,442 )   $ 572,317  

Northeast U.S.

     9,009       13,101       46,768       33,836  
                                

Total

   $ (36,788 )   $ 172,324     $ 39,326     $ 606,153  
                                

Gross New Orders (Units)

        

Florida

     7       9       27       99  

Northeast U.S.

     1       —         4       7  
                                

Total

     8       9       31       106  
                                

Defaults (Units)

        

Florida

     (89 )     (13 )     (173 )     (19 )

Northeast U.S.

     —         —         (3 )     —    
                                

Total

     (89 )     (13 )     (176 )     (19 )
                                

Net New Orders (Units)

        

Florida

     (82 )     (4 )     (146 )     80  

Northeast U.S.

     1       —         1       7  
                                

Total

     (81 )     (4 )     (145 )     87  
                                

Gross Contract Values of New Orders

        

Florida

   $ 8,136     $ 9,869     $ 39,004     $ 129,266  

Northeast U.S.

     1,283       29       4,668       11,994  
                                

Total

   $ 9,419     $ 9,898     $ 43,672     $ 141,260  
                                

Contract Values of Defaults

        

Florida

   $ (88,913 )   $ (8,620 )   $ (178,020 )   $ (13,337 )

Northeast U.S.

     —         —         (2,488 )     —    
                                

Total

   $ (88,913 )   $ (8,620 )   $ (180,508 )   $ (13,337 )
                                

Net Contract Values of New Orders

        

Florida

   $ (80,777 )   $ 1,249     $ (139,016 )   $ 115,929  

Northeast U.S.

     1,283       29       2,180       11,994  
                                

Total

   $ (79,494 )   $ 1,278     $ (136,836 )   $ 127,923  
                                

Gross Average Selling Price Per New Order

        

Florida

   $ 1,162     $ 1,097     $ 1,445     $ 1,306  

Northeast U.S.

     1,283       —       $ 1,167     $ 1,713  
                                

Total

   $ 1,177     $ 1,100     $ 1,409     $ 1,333  
                                

Towers under construction recognizing revenue during the period

         11       24  
     September 30,        
     2007     2006    

Combined Traditional and Tower Homebuilding

      

Aggregate Backlog Contract Values,

      

Traditional and Tower Homebuilding

   $ 516,955     $ 1,407,092    

Traditional Homebuilding

      

Backlog (Units)

     591       1,296    

Backlog Contract Values

   $ 442,016     $ 1,022,829    

Tower Homebuilding

      

Cumulative Units in Backlog

     652       1,558    

Cumulative Contract Values

   $ 883,894     $ 1,834,572    

Less: Cumulative Revenues Recognized

     (808,955 )     (1,450,309 )  
                  

Backlog Contract Values

   $ 74,939     $ 384,263    
                  

* The Company uses the percentage of completion method to recognize revenue on sold tower units. Accordingly, the closing of tower homes corresponds with the collection of contracts receivable.

 

14


WCI Reports Third Quarter 2007 Results

November 8, 2007

WCI Communities, Inc.

Reconciliation of Gross Margin

(Dollars in thousands)

 

    

For the three months ended

September 30,

   

For the nine months ended

September 30,

 
      
     2007     2006     2007     2006  

Traditional Homebuilding

        

Revenue

   $ 157,017     $ 211,897     $ 550,168     $ 757,011  
                                

Gross margin

     12,513       47,888       50,292       166,840  

Add back impairment

     4,865       2,260       22,991       6,850  
                                

Gross margin excluding impairment

   $ 17,378     $ 50,148     $ 73,283     $ 173,690  
                                

Gross margin % as reported

     8.0 %     22.6 %     9.1 %     22.0 %

Gross margin % excluding impairment

     11.1 %     23.7 %     13.3 %     22.9 %

 

15


WCI Reports Third Quarter 2007 Results

November 8, 2007

 

     For the nine
months ended
9/30/07
 
EBITDA Calculation   

Loss from continuing operations before income taxes

   $ (217,181 )

Add back:

  

Pre-tax income from discontinued operations

     21,469  

Interest exp, net

     57,000  

Capitalized interest amortized

     28,630  

Depreciation and amortization

     15,952  

Stock-based compensation expense

     5,398  

Asset impairment and other non-cash expenses

     78,561  
        

EBITDA

   $ (10,171 )
        

Supplemental Information

  

Reconciliation of EBITDA to cash flows from operating activities:

  

EBITDA

   $ (10,171 )

Decrease in contracts receivable

     482,341  

Increase in real estate inventories

     (109,289 )

Decrease in accounts payable and other liabilities

     (103,090 )

Decrease in customer deposits

     (139,558 )

All other

     (86,923 )
        

Net cash provided by operating activities

   $ 33,310  
        

(1) Earning before interest, taxes, depreciation and amortization (EBITDA) is not generally accepted accounting principal (GAAP) financial statement measurement. EBITDA should not be considered an alternative to cash flow from operations determined in accordance with GAAP as a measure of liquidity. The Company’s management believes that EBITDA is an indication of the Company’s ability to generate funds from operations that are available to pay principal and interest on debt obligations and to meet other cash needs. A reconciliation of cash from EBITDA to operating activities, the most directly comparable GAAP measure, is provided above.
(2) In connection with the Company’s Revolving Credit Facility and Term Loan Agreement, the ratio of EBITDA to Fixed Charges is computed by dividing EBITDA, as defined in the loan agreements and generally consistent with the above amount, by Fixed Charges, which is also defined in the loan agreement and generally represents total interest incurred each period less the amount of interest that is charged on outstanding balances under the Tower Facility. The interest charged on the Tower Facility over the last four quarters has averaged about $6 million.

 

16


WCI Reports Third Quarter 2007 Results

November 8, 2007

Summary of Land Controlled

September 30, 2007

 

Region

   Remaining
Planned
Units
   Units in
Backlog as
of 9/30/07
   Value in
Backlog as
of 9/30/07
   Spec
Units
in WIP
   Finished
Spec and
Model
Units
   Total
Units
Remaining
   %
Owned
 

Traditional Homebuilding (Including Lots)

                    

Florida

                    

Miami / Ft. Lauderdale

   1,262    185    $ 158.5    41    115    921    100 %

Naples / Ft. Myers

   4,555    100      59.2    77    85    4,293    100 %

Palm Beach / Indian River

   169    4      9.1    1    16    148    100 %

Palm Coast / Jacksonville

   24    —        —      5    19    —      100 %

Perdido Key

   94    —        —      —      12    82    100 %

Tampa / Sarasota

   4,125    134      111.4    24    109    3,858    50 %

Mid-Atlantic

   368    26      31.0    10    15    317    78 %

Northeast

   2,061    148      77.7    27    13    1,873    76 %
                                      

Traditional Homebuilding Total

   12,658    597      446.9    185    384    11,492    79 %

Tower Homebuilding

                    

Florida

                    

Miami / Ft. Lauderdale

   1,150    418      33.4    69    2    661    85 %

Naples / Ft. Myers

   1,169    14      —      —      181    974    100 %

Palm Beach / Indian River

   429    7      —      —      42    380    45 %

Palm Coast / Jacksonville

   288    22      19.9    —      23    243    100 %

Perdido Key

   1,507    9      —      —      82    1,416    100 %

Tampa / Sarasota

   825    4      —      —      32    789    81 %

Mid-Atlantic

   284    —        —      —      —      284    100 %

Northeast

   480    178      21.7    28    —      274    43 %
                                      

Tower Homebuilding Total

   6,132    652      74.9    97    362    5,021    86 %

Total Homebuilding

                    

Florida

                    

Miami / Ft. Lauderdale

   2,412    603      191.9    110    117    1,582    93 %

Naples / Ft. Myers

   5,724    114      59.2    77    266    5,267    100 %

Palm Beach / Indian River

   598    11      9.1    1    58    528    61 %

Palm Coast / Jacksonville

   312    22      19.9    5    42    243    100 %

Perdido Key

   1,601    9      —      —      94    1,498    100 %

Tampa / Sarasota

   4,950    138      111.4    24    141    4,647    55 %

Mid-Atlantic

   652    26      31.0    10    15    601    88 %

Northeast

   2,541    326      99.4    55    13    2,147    70 %
                                      

Total Homebuilding Total

   18,790    1,249      521.8    282    746    16,513    81 %
                                      

Remaining Planned Units

September 30, 2007

 

     Owned    Optioned   

Total

Controlled

Traditional Homebuilding

   10,008    2,650    12,658

Tower Homebuilding

   5,296    836    6,132
              

Total Homebuilding

   15,304    3,486    18,790
              

 

17