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Home My WebLink About1977 11 15 - Florida Trend Article ResponseGeneral Development Corporation November 15, 1977 Mr. L. B. Vocelle City Attorney City of Sebastian Post Office Box 488 Vero Beach FL 32960 Re: Florida Trend Article Dear Mr. Vocelle: Wayne L. Allen Vice President and Assistant General Counsel In response to your request as to our position on the Florida Trend article, I am enclosing an internal memorandum from David Doheny to Lou Fischer dated November 4, 1977 and our Form 10-K. Since this is an internal memorandum and we have not publicly taken any position on the Florida Trend article as yet, I would appreciate your limiting circulation of this memorandum. I think these documents will answer your concerns and questions but if you want to discuss anything further, please contact me. WLA/hw Encls. Sincerely, 1111 South Bayshore Drive, Miami, Florida 33131 Telephone 305 350 1231 1 Development To: From Subject: Louis E. Fischer David A. Doheny I Nod 7 1977 r f"=sIL p& Memorandum November 4, 1977 J Florida Trend Article - "Does General Development 'dean Trouble for City Investing?" You have asked for my comments on the captioned article, which are as follows. The major premise of the article is that General Development is a "real sore spot" for --Ci_tX Investing since (a) the FTC may sue City Investing for "millions of -dollars" to recover restitution for General Development's customers allegedly the victims of unfair and deceptive trade practices, and (b) General is "unprofitable", "suffering" and "in trouble". Both bases of this premise are demonstrably false and indicate a complete failure of the author to grasp either the legal realities of the FTC situation, or General's financial condition. Excluding.questions of judgment with which we might disagree but are fairly debatable or in the range of fair journalistic comment, the article contains numerous factual errors, both large and small, which have apparently contributed significantly to the erroneous conclusions reached by the author_ (a) FTC Matter. 1. At no time has the FTC suggested that General Development, GDV or City Investing make customer restitution in the amount of "millions of dollars". The terms of the consent order under discussion with the Atlanta FTC office during the past two years relate almost entirely to the Company's prospective conduct of its sales activities, and center largely on additional items of disclosure to be made in contracts, pro- perty statements and other sales documents and in advertising materials. The only provision for customer restitution which the FTC people have raised is a requirement to offer refunds on cancellations of contracts entered into within three years prior to the effective date of the pro- posed agreement to purchasers whose contracts had been cancelled due to their default in payments and where the Company had retained upon such cancellation an amount greater than that which the FTC considers fair and reasonable. While we had agreed to such a refund provision in principle, no agreement was ever reached on the specific amount to be refunded. 2. The maximum amount of by the FTC during our negotiations the only restitution provision ever such customer restitution suggested would not exceed $1 million. This is discussed with the FTC or -.hick was 1i' Mr. Fischer November 4, 1977 Page 2 contemplated by them to the best of our knowledge. We are advised by our attorneys in this matter that on the basis of extensive trial and FTC practice, it is unlikely that any court would order refunds in ex- cess x-cess of $200,000 to $300,000. Accordingly, the statement contained in the article that the FTC"litigation" . "could cost General Develop- ment millions of dollars" is wholly without foundation. Furthermore, General's 10-K report for 1976 with which the author is obviously familiar, in describing the impact of the FTC matter, states (under penalties for violation of the Securities Laws) that the amount of such customer re- funds is "not expected to be material". A similar statement is con- tained in City Investing's recent SEC prospectus dated August 24, 1977. 3. Even assuming that the FTC were able to obtain a judgment of several millions of dollars against General, why would it be necessary to look to City Investing for payment? General alone has assets of over $300,000,000, and a net worth in excess of $120,000,000. For a company which had $99,000,000 in cash receipts and paid $87,000,000 in operating cash expenditures during 1976, restitution even in the "millions of dollars„range would not pose a major problem. For example, during 1976, General paid over $12,000,000 in income taxes and alrnost $5,000,000 in real property taxes alone. 4. Further assuming for the sake of argument that City Investing could be liable for General Development'.s FTC violations, any such liability, which would have arisen at the time the alleged violations were committed would not be cured by a divestiture of General Develop- ment at some subsequent date. Accordingly, the author's suggestion that City will sell General "in an effort to escape any financial responsibilities” from the FTC matter is naive in the extreme. 5. The article also states that "some months ago the FTC made public its investigation". This is not true. The initial publicity of the investigation was generated by a press account of the disclosure made by General Development in its public 10-K for 1976, filed late in March, 1977. At no time has the FTC issued any press release on the matter. Obviously it would be improper for it to.do so during the pen- dency of an ongoing investigation, and unless and until either a con- sent order has been provisionally accepted or a complaint has issued. Neither of these events has transpired. Incidentally, although the press accounts of General's disclosure first appeared in April of 1977, a clear disclosure of the pendency of the FTC matter has been included by General in its publicly filed 10-K for the past several years. (b) Financial Condition. 1. Although the article quotes various statistics relating to declining revenues, (the source of which is quoted as being Pir. Fischer November 4, 1977 Page 3 the SEC, but which is actually from General's 10-K) the article fails to mention the more significant fact that General has remained profit- able throughout and had an aggregate net income in an amount of $49,591,000 during that five-year period. Despite a decline in revenues between 1973 and 1976, from $172,399,000 to $91,486,000, the corres- onding decline in net income during that period was less than ponding $8,582,000. More significantly to City million, or $in ne ,000 to Investing, the decline in earnings per share was less than 100, from $1.03 per share in 1973 to $.93 per share in 1976. The fact that these levels of profitability were achieved by a company engaged in Florida real estate during the period which the article describes as "the biggest depression in Florida construction and.development since the 1930's" is totally ignored. Incidentally, interim results for the nine months ended Sept_ ofits0� 1977 for GDV showed a significant increase in both revenues during p the , with earnings per share at $.83 per share compared to $. g corresponding period of 1976. In the light of the foregoing facts all o` which were publicly disclosed in documents reviewed by the author, it is unbelievable that a publication which calls itself the "magazine of Florida business and P n a major never Florida business, finance" could publish an entire article o table and in fact never mentioning the fact that the business is profs creating exactly the opposite impression. 2. There are numerous other factual errors in the discussion of General's financial situation aat dcrt ofhe authorbutatotal rtsposture which failareindicate not only poor research on p grasp the essence of our business. No purpose would be served to list all of the flyspecks, but one mis- statement deserves comment - namely that "cancellations of contracts comment already written have also increased so sharply that by the end of 1976 cancellations outnumbered new site sales by 297 lots." The facts are that cancellations have not increased at all, and in fact have decreased over the past several yea=s. As set forth in the 1976 10-K, cancellations of homesite 360sales in 1in 1976 and 6e e re 5,806972ompared to 6,454 in 1975, 5,887 in 1974, 1. Even during the worst months of the Florida real estate depression of 1975 when new homesite sales dropped to _less than $1,000,000 per month, there were no significant increases in delinquencies in homesite con- tracts receivable, which have continuously remained at a status of over 90% current or prepaid for over three years. Fischer November 4, 1977 Page 4 Conclusion. The author has failed to perceive the true relationship between City Investing and General Development and has chosen to seriously dis- tort General's financial condition and the status of the FTC investi- gation. while City is a large company which has recently reported some sig- nificant revenue and income gains, its only significant Florida operation is its 59 ownership in General Development. (Incidentally, the article failed to mention that 41% of GDV is owned by some 10,000 individual shareholders independent of City Investing, many of whom are Floridians). It is mystifying why a Florida business magazine would publish an article which puts an important and successful Florida company in a bad light. DAD: j j