SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended March 31, 2005
or
|_| - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
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 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of May 6, 2005, there were 30,342,296 shares of the registrant's common
stock, $.01 par value, outstanding.
BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information
Item 1. Financial Statements (Unaudited) Page
----
Condensed Consolidated Balance Sheets at December 31, 2004
and March 31, 2005..................................................................... 3
Condensed Consolidated Statements of Income - Three Months Ended
March 31, 2004 and 2005................................................................ 4
Condensed Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2004 and 2005................................................................ 5
Notes to Condensed Consolidated Financial Statements...................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 17
Item 4. Controls and Procedures................................................................... 33
Part II - Other Information
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.......... 33
Item 6. Exhibits.................................................................................. 33
Signatures........................................................................................... 34
Note: The terms "Bluegreen(R),""Bluegreen Communities(R)," and "Bluegreen
Vacation Club(R)" are registered in the U.S. Patent and Trademark Office by
Bluegreen Corporation.
The terms "La Cabana Beach and Racquet Club(TM)," "The Hammocks at Marathon
Resort(TM)," "Casa Del Mar Beach Resort(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside Resort(TM)," "Mountain Run at Boyne(TM)," "The Falls Village
Resort(TM)," "Big Cedar(R) Wilderness Club(TM)," "The Lodge Alley Inn(TM),"
"Harbour Lights Resort(TM)," "Shore Crest Vacation Villas(TM)," "Laurel Crest
Resort(TM)," "MountainLoft Resort(TM)," "Shenandoah Crossing Resort(TM),"
"Christmas Mountain Village(TM)," "Traditions of Braselton(TM)," "Sanctuary Cove
at St. Andrews Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes
Ranch(TM)," "Silver Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe
Pool Lake(TM)," "Ridge Lake Shores(TM)," "Mountain Springs Ranch(TM)," "Carolina
National(TM)," "Brickshire(TM)," "Golf Club at Brickshire(TM)," and "Preserve at
Jordan Lake(TM)" are trademarks or service marks of Bluegreen Corporation in the
United States.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
Office by Big Cedar, L.L.C.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and
Trademark Office by Bass Pro, Inc.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
2004 2005
---- ----
(Note) (Unaudited)
ASSETS
Cash and cash equivalents (including restricted cash of approximately $19,396
and $18,399 at December 31, 2004 and March 31, 2005, respectively) ............. $ 98,538 $ 112,946
Contracts receivable, net ......................................................... 28,085 41,151
Notes receivable, net ............................................................. 121,949 107,116
Prepaid expenses .................................................................. 7,810 7,381
Other assets ...................................................................... 22,359 24,945
Inventory, net .................................................................... 205,213 217,709
Retained interests in notes receivable sold ....................................... 72,099 80,473
Property and equipment, net ....................................................... 74,244 75,080
Intangible assets and goodwill .................................................... 4,512 4,465
--------- ---------
Total assets ............................................................ $ 634,809 $ 671,266
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable .................................................................. $ 11,552 $ 11,233
Accrued liabilities and other ..................................................... 44,351 49,138
Deferred income ................................................................... 24,235 30,396
Deferred income taxes ............................................................. 58,150 62,477
Receivable-backed notes payable ................................................... 43,696 40,324
Lines-of-credit and notes payable ................................................. 71,949 65,288
10.50% senior secured notes payable ............................................... 110,000 110,000
Junior subordinated debentures .................................................... -- 23,196
--------- ---------
Total liabilities .............................................................. 363,933 392,052
Minority interest ................................................................. 6,009 6,782
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued ............. -- --
Common stock, $.01 par value, 90,000 shares authorized; 32,990 and 33,097
shares issued at December 31, 2004 and March 31, 2005, respectively ............ 330 331
Additional paid-in capital ........................................................ 167,408 168,060
Treasury stock, 2,756 common shares at both December 31, 2004 and March 31,
2005, at cost .................................................................. (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ....................... 832 1,287
Retained earnings ................................................................. 109,182 115,639
--------- ---------
Total shareholders' equity ................................................... 264,867 272,432
--------- ---------
Total liabilities and shareholders' equity .............................. $ 634,809 $ 671,266
========= =========
Note: The condensed consolidated balance sheet at December 31, 2004 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.
See accompanying notes to condensed consolidated financial statements.
3
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31, March 31,
2004 2005
---- ----
Revenues:
Sales of real estate .............................................. $ 86,191 $104,021
Other resort and communities operations revenue ................... 13,552 18,044
Interest income ................................................... 5,021 6,542
Gain on sales of notes receivable ................................. 2,380 1,441
-------- --------
107,144 130,048
Costs and expenses:
Cost of real estate sales ......................................... 29,240 32,887
Cost of other resort and communities operations ................... 13,913 19,636
Selling, general and administrative expenses ...................... 50,449 62,033
Interest expense .................................................. 3,999 3,215
Provision for loan losses ......................................... 870 147
Other expense ..................................................... 201 858
-------- --------
98,672 118,776
-------- --------
Income before minority interest and provision for income taxes ....... 8,472 11,272
Minority interest in income of consolidated subsidiary ............... 829 773
-------- --------
Income before provision for income taxes ............................. 7,643 10,499
Provision for income taxes ........................................... 2,943 4,042
-------- --------
Net income ........................................................... $ 4,700 $ 6,457
======== ========
Income per common share:
Basic ............................................................ $ 0.19 $ 0.21
======== ========
Diluted .......................................................... $ 0.17 $ 0.21
======== ========
Weighted average number of common and common equivalent shares:
Basic ............................................................ 25,190 30,316
======== ========
Diluted .......................................................... 30,319 31,294
======== ========
See accompanying notes to condensed consolidated financial statements.
4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2004 2005
---- ----
Operating activities:
Net income ................................................................ $ 4,700 $ 6,457
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest in income of consolidated subsidiary ............... 829 773
Depreciation and amortization ........................................ 4,000 4,458
Gain on sale of notes receivable ..................................... (2,380) (1,441)
(Gain) loss on sale of property and equipment ........................ 24 --
Provision for loan losses ............................................ 870 147
Provision for deferred income taxes .................................. 2,943 4,042
Interest accretion on retained interests in notes receivable sold .... (1,838) (1,663)
Proceeds from sales of notes receivable .............................. 33,582 38,183
Proceeds from borrowings collateralized by notes receivable .......... 3,591 10,103
Payments on borrowings collateralized by notes receivable ............ (2,581) (13,475)
Change in operating assets and liabilities:
Contracts receivable .................................................... (15,633) (13,066)
Notes receivable ........................................................ (28,407) (32,932)
Inventory ............................................................... 9,797 2,290
Prepaid expenses and other assets ....................................... 113 (1,747)
Accounts payable, accrued liabilities and other ......................... 13,947 10,633
--------- ---------
Net cash provided by operating activities .................................... 23,557 12,762
--------- ---------
Investing activities:
Purchases of property and equipment ....................................... (4,593) (3,524)
Investment in statutory business trust .................................... -- (696)
Cash received from retained interests in notes receivable sold ............ 3,682 1,829
--------- ---------
Net cash used by investing activities ........................................ (911) (2,391)
--------- ---------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable ........ -- 2,219
Payments under line-of-credit facilities and other notes payable .......... (19,804) (20,822)
Proceeds from issuance of junior subordinated debentures .................. -- 23,196
Payment of debt issuance costs ............................................ (694) (1,204)
Proceeds from exercise of stock options ................................... 2,039 648
--------- ---------
Net cash (used) provided by financing activities ............................. (18,459) 4,037
--------- ---------
Net increase in cash and cash equivalents .................................... 4,187 14,408
Cash and cash equivalents at beginning of period ............................. 53,647 98,538
--------- ---------
Cash and cash equivalents at end of period ................................... 57,834 112,946
Restricted cash and cash equivalents at end of period ........................ (18,537) (18,399)
--------- ---------
Unrestricted cash and cash equivalents at end of period ...................... $ 39,297 $ 94,547
========= =========
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2004 2005
---- ----
Supplemental schedule of non-cash operating, investing
and financing activities:
Inventory acquired through financing ................................. $ 75 $11,710
======= =======
Inventory acquired through foreclosure or deedback in lieu of
foreclosure ........................................................ $ 1,848 $ 3,076
======= =======
Property and equipment acquired through financing .................... $ 49 $ 232
======= =======
Retained interests in notes receivable sold .......................... $ 7,978 $ 7,800
======= =======
Net change in unrealized losses in retained interests in notes
receivable sold ................................................ $ 560 $ 455
======= =======
Conversion of 8.25% convertible subordinated debentures .............. $ 3,245 $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
6
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
1. Organization and Significant Accounting Policies
We have prepared the accompanying unaudited condensed consolidated
financial statements in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring items that, in our opinion, are necessary for a
fair presentation of our financial position, results of operations and cash
flows for the interim periods. The results of operations for the three months
ended March 31, 2005 are not necessarily indicative of the results to be
expected for the year ending December 31, 2005. For further information, refer
to our audited consolidated financial statements for the year ended December 31,
2004, which are included in our Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 16, 2005.
Organization
We are a leading provider of leisure products and lifestyle choices
through our resorts and residential communities businesses. Our resorts business
("Bluegreen Resorts") acquires, develops and markets vacation ownership
interests ("VOIs") in resorts generally located in popular, high-volume,
"drive-to" vacation destinations. VOIs in any of our resorts entitle the buyer
to an annual allotment of "points" in perpetuity (supported by an underlying
deeded vacation ownership interest being held in trust for the buyer) in our
Bluegreen Vacation Club. Members in our Bluegreen Vacation Club may use their
points to stay in any of our participating resorts or for other vacation
options, including cruises and stays at approximately 3,700 resorts offered by
third-party, worldwide vacation ownership exchange networks. We are currently
marketing and selling VOIs in 18 resorts located in the United States and Aruba,
16 of which have active sales offices. We also sell VOIs at five off-site sales
offices located in the United States. Our residential communities business
("Bluegreen Communities(TM)") acquires, develops and subdivides property and
markets residential land homesites, the majority of which are sold directly to
retail customers who seek to build a home in a high quality residential setting,
in some cases on properties featuring a golf course and other related amenities.
During the three months ended March 31, 2005, sales generated by Bluegreen
Resorts comprised approximately 63% of our total sales of real estate while
sales generated by Bluegreen Communities comprised approximately 37% of our
total sales of real estate. Our other resort and communities operations revenues
consist primarily of mini-vacation package sales, vacation ownership tour sales,
resort property management services, resort title services, resort amenity
operations, rental brokerage services, realty operations and daily-fee golf
course operations. We also generate significant interest income by providing
financing to individual purchasers of VOIs.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of
all of our wholly-owned subsidiaries and entities in which we hold a controlling
financial interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), as we hold a 51%
equity interest in the Joint Venture, have an active role as the day-to-day
manager of the Joint Venture's activities and have majority voting control of
the Joint Venture's management committee. Additionally, we do not consolidate
our wholly owned statutory business trusts (see Note 4) formed to issue trust
preferred securities as these entities are each variable interest entities in
which we are not the primary beneficiary as defined by Financial Accounting
Standards Board ("FASB") Interpretation No. 46R. The statutory business trusts
are accounted for under the equity method of accounting. We have eliminated all
significant intercompany balances and transactions.
Use of Estimates
Accounting principles generally accepted in the United States require us
to make estimates and assumptions that affect the amounts reported in our
condensed consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
7
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current period presentation.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share, but
also gives effect to all dilutive stock options using the treasury stock method
and for the first quarter of 2004, includes an adjustment , to both net income
and shares outstanding as if approximately $31.1 million of 8.25% convertible
subordinated debentures, which were outstanding on March 31, 2004 but which were
redeemed prior to December 31, 2004, were converted into common stock at the
beginning of the periods presented. There were no anti-dilutive stock options
for the three months ended March 31, 2004 and 2005.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended
March 31, March 31,
2004 2005
-----------------------
Basic earnings per share - numerator:
Net income ............................................... $ 4,700 $ 6,457
=======================
Diluted earnings per share - numerator:
Net income - basic ....................................... $ 4,700 $ 6,457
Effect of dilutive securities, net of income taxes ....... 318 --
-----------------------
Net income - diluted .................................... $ 5,018 $ 6,457
=======================
Denominator:
Denominator for basic earnings per share -
weighted-average shares ............................... 25,190 30,316
Effect of dilutive securities:
Stock options ......................................... 1,022 978
Convertible securities ................................ 4,107 --
-----------------------
Dilutive potential common shares ............................ 5,129 978
-----------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions ....... 30,319 31,294
=======================
Basic earnings per common share ............................. $ 0.19 $ 0.21
=======================
Diluted earnings per common share ........................... $ 0.17 $ 0.21
=======================
Retained Interests in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation
ownership receivables purchase facilities (more fully described in Note 2) or
through term securitizations, we evaluate whether or not such transfers should
be accounted for as a sale pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" and related interpretations. The
evaluation of sale treatment under SFAS No. 140 involves legal assessments of
the transactions, which include determining whether the transferred assets have
been isolated from us (i.e. put presumptively beyond our reach and our
creditors, even in bankruptcy or other receivership), determining whether each
transferee has the right to pledge or exchange the assets it received, and
ensuring that we do not maintain effective control over the transferred assets
through either an agreement that (1) both entitles and obligates us to
repurchase or redeem the assets before their maturity or (2) provides us with
the ability to unilaterally cause the holder to return the assets (other than
through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
8
Accordingly, unrealized holding gains or losses on our retained interests in
notes receivable sold are included in our shareholders' equity, net of income
taxes. Declines in fair value that are determined to be other than temporary are
charged to operations.
We measure the fair value of the retained interests in the notes
receivable sold initially and periodically based on the present value of future
expected cash flows estimated using our best estimates of the key assumptions -
prepayment rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. We revalue our retained interests in notes
receivable sold on a quarterly basis.
Interest on the retained interests in notes receivable sold is accreted
using the effective yield method.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", encourages, but does not currently require companies to record
compensation cost for employee stock options at fair value. We continue to
account for our employee stock options using the intrinsic value method pursuant
to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost for our
employee stock options is measured as the excess, if any, of the quoted market
price of our stock at the date of the grant over the exercise price of the
option.
Pro forma information regarding net income and earnings per share as if we
had accounted for the grants of stock options to our employees under the fair
value method of SFAS No. 123 is presented below. There were no stock options
granted to our employees or non-employee directors during the three months ended
March 31, 2004 or 2005.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The effects
of applying SFAS No. 123 for the purpose of providing pro forma disclosures are
not likely to be representative of the effects on reported pro forma net income
for future years, due to the impact of the staggered vesting periods of our
stock option grants. Our pro forma information is as follows (in thousands,
except per share data).
Three Months Ended
March 31, 2004 March 31, 2005
-------------- --------------
Net income, as reported .................................. $ 4,700 $ 6,457
Pro forma stock-based employee compensation
cost, net of income taxes ............................. (64) (61)
--------- ---------
Pro forma net income ..................................... $ 4,636 $ 6,396
========= =========
Earnings per share, as reported:
Basic .................................................. $ 0.19 $ 0.21
Diluted ................................................ $ 0.17 $ 0.21
Pro forma earnings per share:
Basic .................................................. $ 0.18 $ 0.21
Diluted ................................................ $ 0.16 $ 0.20
See "Recent Accounting Pronouncements" for a discussion of SFAS No. 123
(revision) which we anticipate adopting as of January 1, 2006.
Comprehensive Income
Accumulated other comprehensive income on our condensed consolidated
balance sheets is comprised of net unrealized gains on retained interests in
notes receivable sold, which are held as available-for-sale investments. The
following table discloses the components of our comprehensive income for the
periods presented (in thousands):
Three Months Ended
March 31, 2004 March 31, 2005
-------------- --------------
Net income ............................................... $ 4,700 $6,457
Net unrealized (losses)/gains on retained interests in
notes receivable sold, net of income taxes ............ (344) 455
------- ------
Total comprehensive income ............................... $ 4,356 $6,912
======= ======
9
Recent Accounting Pronouncements
In December 2004, the FASB issued (revised 2004), Share-Based Payment, a
revision of SFAS No. 123, Accounting for Stock-Based Compensation. The revised
statement supersedes APB No. 25, Accounting for Stock-Based Compensation, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in the
revised statement is similar to the approach described in SFAS No. 123. However,
the revised statement requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure will no longer be an alternative. The
new standard will become effective for us on January 1, 2006. As permitted by
SFAS No. 123, we currently account for share-based payments to employees using
APB No. 25's intrinsic value method and, as such, generally recognize no
compensation cost for employee stock options. Accordingly, the adoption of the
revised statement's fair value method will likely have a significant impact on
our result of operations, although it will have no impact on our overall
financial position. The impact of adoption of the revised statement cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had we adopted the revised statement in the
periods presented, the impact of that standard on our results of operations
would have approximated the impact of SFAS No. 123 as described in the
disclosure of pro forma net income and earnings per share above (see "Stock
Based Compensation"). The revised statement also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While we cannot
estimate what those amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amount of operating
cash flows recognized in prior periods for such excess tax deductions have not
been material.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions. This statement amends SFAS No. 66, Accounting for
Sales of Real Estate, and No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, in association with the issuance of American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 04-2, Accounting for Real Estate Time-Sharing Transactions. SOP 04-2 was
issued to address the diversity in practice caused by a lack of guidance
specific to real estate time-sharing transactions. Areas of diversity in
practice have included accounting for uncollectible notes receivable, recovery
or repossession of VOIs, selling and marketing costs, operations during holding
periods, developer subsidies to property owners' associations and upgrade and
reload transactions. The provisions of SFAS No. 152 and SOP 04-2 become
effective for us on January 1, 2006. We have not yet completely evaluated the
impact of these standards on our financial position or results of operations.
2. Sales of Notes Receivable
On December 31, 2004, we executed agreements for a vacation ownership
receivables purchase facility (the "BB&T Purchase Facility") with Branch Banking
and Trust Company ("BB&T"). The BB&T Purchase Facility utilizes an owner's trust
structure, pursuant to which we sell receivables to Bluegreen Receivables
Finance Corporation IX, our wholly-owned, special purpose finance subsidiary
("BRFC IX"), and BRFC IX sells the receivables to an owner's trust (a qualified
special purpose entity) without recourse to us or BRFC IX except for breaches of
certain customary representations and warranties at the time of sale. We did not
enter into any guarantees in connection with the BB&T Purchase Facility. The
BB&T Purchase Facility has detailed requirements with respect to the eligibility
of receivables for purchase, and fundings under the BB&T Purchase Facility are
subject to certain conditions precedent. Under the BB&T Purchase Facility, a
variable purchase price of approximately 85.0% of the principal balance of the
receivables sold, subject to certain terms and conditions, is paid at closing in
cash. The balance of the purchase price is deferred until such time as BB&T has
received a specified return and all servicing, custodial, agent and similar fees
and expenses have been paid. BB&T earns a return equal to the commercial paper
rate plus an additional return of 1.15%, subject to use of alternate return
rates in certain circumstances. In addition, we paid BB&T structuring and other
fees totaling $1.1 million in December 2004. We act as servicer under the BB&T
Purchase Facility for a fee. The BB&T Purchase Facility allows for sales of
notes receivable for a cumulative purchase price of up to $140.0 million, the
commitment for $40.0 million of which expires on July 5, 2005, and the remainder
of which expires on December 30, 2005. The BB&T Purchase Facility includes
various conditions to purchase, covenants, trigger events and other provisions
customary for a transaction of this type. BB&T's obligation to purchase under
the BB&T Purchase Facility may terminate earlier than the dates noted above upon
the occurrence of certain specified events set forth in the BB&T Purchase
Facility agreement.
On March 31, 2005, we sold $44.9 million of aggregate principal balance of
notes receivable under the BB&T Purchase Facility for a cumulative purchase
price of $38.2 million. In connection with this transaction, we recognized an
aggregate gain of $1.4 million and recorded a retained interest in notes
receivable sold of $7.8 million and a servicing asset totaling $0.5 million. The
following assumptions were used to measure the initial fair value of the
retained interests in notes
10
receivable sold during the three months ended March 31, 2005: prepayment rates
ranging from 17% to 14% per annum as the portfolios mature; loss severity rate
of 45%; default rates ranging from 9% to 1% per annum as the portfolios mature;
and a discount rate of 12%.
The remaining availability under the BB&T Purchase Facility was $101.8
million at March 31, 2005.
3. Lines-of-Credit and Notes Payable
On January 11, 2005, we entered into a $50.0 million revolving credit
facility with Resort Finance, LLC ("RFL"). Borrowings from this facility (the
"RFL A&D Facility") will be used to finance the acquisition and development of
vacation ownership resorts . The RFL A&D Facility is secured by 1) a first
mortgage and lien on all assets purchased with the RFL A&D Facility; 2) a first
assignment of all construction contracts, related documents, building permits
and completion bond; 3) a negative pledge of our interest in any management,
marketing, maintenance or service contracts; and 4) a first assignment of all
operating agreements, rents and other revenues at the vacation ownership resorts
which serve as collateral for the RFL A&D Facility, subject to any requirements
of the respective property owners' associations. Borrowings under the RFL A&D
Facility can be made through January 10, 2007. Principal payments will be
effected through agreed-upon release prices paid to RFL as vacation ownership
interests in the resorts that serve as collateral for the RFL A&D Facility are
sold. The outstanding principal balance of any borrowings under the RFL A&D
Facility must be repaid by January 10, 2008. The interest charged on outstanding
borrowings will be the 30-day LIBOR plus 3.90%, subject to a 6.90% floor, and
will be payable monthly. We are required to pay a commitment fee equal to 1.00%
of the $50.0 million facility amount, which will be paid at the time of each
borrowing under the RFL A&D Facility as 1.00% of each borrowing with the balance
being paid on the unutilized facility amount on January 10, 2007. In addition,
we are required to pay a program fee equal to 0.125% of the $50.0 million
facility amount per annum, payable monthly. The RFL A&D Facility documents
include customary conditions to funding, acceleration provisions and certain
financial affirmative and negative covenants. On January 11, 2005, we borrowed
$9.5 million under the RFL A&D Facility in connection with the acquisition of
the Daytona Surfside Inn & Suites resort in Daytona Beach, Florida (the "Daytona
Resort"). As of March 31, 2005, the total commitment under the RFL A&D Facility
for the Daytona Resort was $14.7 million, the $5.2 million balance of which can
be borrowed during 2005 to fund refurbishment of the Daytona Resort.
Note 4. Trust Preferred Debt
We have formed statutory business trusts (collectively, the "Trusts") for
the purpose of issuing trust preferred securities and investing the proceeds
thereof in our junior subordinated debentures. The Trusts are variable interest
entities in which we are not the primary beneficiary as defined by FASB
Interpretation No. 46R. Accordingly, we do not consolidate the operations of the
Trusts; instead, the Trusts are accounted for under the equity method of
accounting.
On March 15, 2005, one of the Trusts ("BST I") issued $22.5 million of
trust preferred securities. BST I used the proceeds from issuing the trust
preferred securities to purchase an identical amount of junior subordinated
debentures from us. Interest on the junior subordinated debentures and
distributions on the trust preferred securities will be payable quarterly in
arrears at a fixed rate of 9.16% through March 30, 2010 and thereafter at a
floating rate of 4.90% over the 3-month LIBOR until the scheduled maturity date
of March 30, 2035. Distributions on the trust preferred securities will be
cumulative and based upon the liquidation value of the trust preferred security.
The trust preferred securities will be subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at maturity or
their earlier redemption. The junior subordinated debentures are redeemable five
years from the issue date or sooner following certain specified events. In
addition, we contributed $696,000 to BST I in exchange for its common
securities, all of which are owned by us, and those proceeds were also used to
purchase an identical amount of junior subordinated debentures from us. The
terms of BST I's common securities are nearly identical to the trust preferred
securities.
On May 4, 2005, one of the Trusts ("BST II") issued $25.0 million of trust
preferred securities. BST II used the proceeds from issuing the trust preferred
securities to purchase an identical amount of junior subordinated debentures
from us. Interest on the junior subordinated debentures and distributions on the
Trust Preferred Securities will be payable quarterly in arrears at a fixed rate
of 9.158% through July 30, 2010 and thereafter at a floating rate of 4.85% over
the 3-month LIBOR until the scheduled maturity date of July 30, 2035.
Distributions on the trust preferred securities will be cumulative and based
upon the liquidation value of the trust preferred security. The trust preferred
securities will be subject to mandatory redemption, in whole or in part, upon
repayment of the junior subordinated debentures at maturity or their earlier
redemption. The junior subordinated debentures are redeemable five years from
the issue date or sooner following certain specified events. In addition, we
contributed $774,000 to BST II in exchange for its common securities, all of
which are owned by us, and those proceeds were also used to purchase an
identical amount of junior subordinated debentures from us. The terms of BST
II's common securities are nearly identical to the trust preferred securities.
11
On May 10, 2005, one of the Trusts ("BST III") issued $10.0 million of
trust preferred securities. BST III used the proceeds from issuing the trust
preferred securities to purchase an identical amount of junior subordinated
debentures from us. Interest on the junior subordinated debentures and
distributions on the Trust Preferred Securities will be payable quarterly in
arrears at a fixed rate of 9.193% through July 30, 2010 and thereafter at a
floating rate of 4.85% over the 3-month LIBOR until the scheduled maturity date
of July 30, 2035. Distributions on the trust preferred securities will be
cumulative and based upon the liquidation value of the trust preferred security.
The trust preferred securities will be subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at maturity or
their earlier redemption. The junior subordinated debentures are redeemable five
years from the issue date or sooner following certain specified events. In
addition, we contributed $310,000 to BST III in exchange for its common
securities, all of which are owned by us, and those proceeds were also used to
purchase an identical amount of junior subordinated debentures from us. The
terms of BST III's common securities are nearly identical to the trust preferred
securities.
The issuances of trust preferred securities were part of larger pooled
trust securities offerings which were not registered under the Securities Act of
1933. Proceeds will be used for general corporate purposes and debt repayment.
Note 5. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). None of the assets of Bluegreen
Corporation secure its obligations under the Notes, and the Notes are
effectively subordinated to our secured indebtedness to any third party to the
extent of assets serving as security therefor. The Notes are unconditionally
guaranteed, jointly and severally, by each of our subsidiaries (the "Subsidiary
Guarantors"), with the exception of Bluegreen/Big Cedar Vacations, LLC,
Bluegreen Properties N.V., Resort Title Agency, Inc., any special purpose
finance subsidiary, any subsidiary which is formed and continues to operate for
the limited purpose of holding a real estate license and acting as a broker, and
certain other subsidiaries which have individually less than $50,000 of assets
(collectively, "Non-Guarantor Subsidiaries"). Each of the note guarantees covers
the full amount of the Notes and each of the Subsidiary Guarantors is 100%
owned, directly or indirectly, by us. Supplemental financial information for
Bluegreen Corporation, its combined Non-Guarantor Subsidiaries and its combined
Subsidiary Guarantors is presented below:
12
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
December 31, 2004
-------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................. $ 70,256 $ 16,766 $ 11,516 $ -- $ 98,538
Contracts receivable, net ............................. -- 1,365 26,720 -- 28,085
Intercompany receivable ............................... 73,778 -- -- (73,778) --
Notes receivable, net ................................. -- 31,958 89,991 -- 121,949
Other assets .......................................... 2,645 9,150 22,886 -- 34,681
Inventory, net ........................................ -- 20,605 184,608 -- 205,213
Retained interests in notes receivable sold ........... -- 72,099 -- -- 72,099
Investments in subsidiaries ........................... 213,011 -- 3,230 (216,241) --
Property and equipment, net ........................... 15,084 2,013 57,147 -- 74,244
--------- --------- --------- --------- ---------
Total assets ..................................... $ 374,774 $ 153,956 $ 396,098 $(290,019) $ 634,809
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ...... $ 12,353 $ 14,845 $ 52,940 $ -- $ 80,138
Intercompany payable ................................. -- 6,557 67,221 (73,778) --
Deferred income taxes ................................ (18,683) 34,210 42,623 -- 58,150
Lines-of-credit and notes payable .................... 6,237 26,141 83,267 -- 115,645
10.50% senior secured notes payable .................. 110,000 -- -- -- 110,000
--------- --------- --------- --------- ---------
Total liabilities ................................ 109,907 81,753 246,051 (73,778) 363,933
Minority interest .................................... -- -- -- 6,009 6,009
Total shareholders' equity ........................... 264,867 72,203 150,047 (222,250) 264,867
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ....... $ 374,774 $ 153,956 $ 396,098 $(290,019) $ 634,809
========= ========= ========= ========= =========
March 31, 2005
(Unaudited)
-------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................. $ 78,450 $ 21,462 $ 13,034 $ -- $ 112,946
Contracts receivable, net ............................. -- 2,243 38,908 -- 41,151
Intercompany receivable ............................... 94,720 -- -- (94,720) --
Notes receivable, net ................................. 32,685 74,431 -- 107,116
Other assets .......................................... 6,338 8,291 22,162 -- 36,791
Inventory, net ........................................ -- 22,240 195,469 -- 217,709
Retained interests in notes receivable sold ........... -- 80,473 -- -- 80,473
Investments in subsidiaries ........................... 219,607 -- 3,230 (222,837) --
Property and equipment, net ........................... 14,421 1,860 58,799 -- 75,080
--------- --------- --------- --------- ---------
Total assets ..................................... $ 413,536 $ 169,254 $ 406,033 $(317,557) $ 671,266
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ...... $ 20,134 $ 17,399 $ 53,234 $ -- $ 90,767
Intercompany payable ................................. -- 8,379 86,341 (94,720) --
Deferred income taxes ................................ (18,440) 36,748 44,169 -- 62,477
Lines-of-credit and notes payable .................... 6,214 29,697 69,701 -- 105,612
10.50% senior secured notes payable .................. 110,000 -- -- -- 110,000
Junior subordinated debentures ....................... 23,196 -- -- 23,196
--------- --------- --------- --------- ---------
Total liabilities ................................ 141,104 92,223 253,445 (94,720) 392,052
Minority interest .................................... -- -- -- 6,782 6,782
Total shareholders' equity ........................... 272,432 77,031 152,588 (229,619) 272,432
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ....... $ 413,536 $ 169,254 $ 406,033 $(317,557) $ 671,266
========= ========= ========= ========= =========
13
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2004
-------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ........................................ $ -- $ 8,307 $ 77,884 $ -- $ 86,191
Other resort and communities operations revenue ............. -- 2,049 11,503 -- 13,552
Management fees ............................................. 198 -- -- (198) --
Equity income from subsidiaries ............................. 11,297 -- -- (11,297) --
Interest income ............................................. 97 2,687 2,237 -- 5,021
Gain on sales of notes receivable ........................... -- 2,380 -- -- 2,380
--------- --------- --------- --------- ---------
11,592 15,423 91,624 (11,495) 107,144
COSTS AND EXPENSES
Cost of real estate sales ................................... -- 1,787 27,453 -- 29,240
Cost of other resort and communities operations ............. -- 1,181 12,732 -- 13,913
Management fees ............................................. -- 198 -- (198) --
Selling, general and administrative expenses ................ 8,137 4,573 37,739 -- 50,449
Interest expense ............................................ 2,555 389 1,055 -- 3,999
Provision for loan losses ................................... -- 274 596 -- 870
Other expense (income) ...................................... 329 332 (460) -- 201
--------- --------- --------- --------- ---------
11,021 8,734 79,115 (198) 98,672
--------- --------- --------- --------- ---------
Income before minority interest and provision
(benefit) for income taxes ............................... 571 6,689 12,509 (11,297) 8,472
Minority interest in income of consolidated subsidiary ...... -- -- -- 829 829
--------- --------- --------- --------- ---------
Income before provision (benefit) for income
taxes .................................................... 571 6,689 12,509 (12,126) 7,643
Provision (benefit) for income taxes ........................ (4,129) 2,256 4,816 -- 2,943
--------- --------- --------- --------- ---------
Net income .................................................. $ 4,700 $ 4,433 $ 7,693 $ (12,126) $ 4,700
========= ========= ========= ========= =========
Three Months Ended March 31, 2005
-------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ........................................ $ -- $ 9,556 $ 94,465 $ -- $ 104,021
Other resort and communities operations revenue ............. -- 3,200 14,844 -- 18,044
Management fees ............................................. 11,538 -- -- (11,538) --
Equity income from subsidiaries ............................. 6,141 -- -- (6,141) --
Interest income ............................................. 206 2,908 3,428 -- 6,542
Gain on sales of notes receivable ........................... -- 1,441 -- -- 1,441
--------- --------- --------- --------- ---------
17,885 17,105 112,737 (17,679) 130,048
COSTS AND EXPENSES
Cost of real estate sales ................................... -- 2,580 30,307 -- 32,887
Cost of other resort and communities operations ............. -- 1,107 18,529 -- 19,636
Management fees ............................................. -- 264 11,274 (11,538) --
Selling, general and administrative expenses ................ 10,102 5,042 46,889 -- 62,033
Interest expense ............................................ 1,174 544 1,497 -- 3,215
Provision for loan losses ................................... -- 147 -- -- 147
Other expense (income) ...................................... (46) 795 109 -- 858
--------- --------- --------- --------- ---------
11,230 10,479 108,605 (11,538) 118,776
--------- --------- --------- --------- ---------
Income before minority interest and provision
(benefit) for income taxes ............................... 6,655 6,626 4,132 (6,141) 11,272
Minority interest in income of consolidated subsidiary ...... -- -- -- 773 773
--------- --------- --------- --------- ---------
Income before provision (benefit) for income
taxes .................................................... 6,655 6,626 4,132 (6,914) 10,499
Provision for income taxes .................................. 197 2,253 1,592 -- 4,042
--------- --------- --------- --------- ---------
Net income .................................................. $ 6,458 $ 4,373 $ 2,540 $ (6,914) $ 6,457
========= ========= ========= ========= =========
14
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2004
-----------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash provided by operating activities .......................... $ 1,068 $ 2,423 $ 20,066 $ 23,557
--------- --------- --------- ---------
Investing activities:
Purchases of property and equipment ............................... (1,393) (288) (2,912) (4,593)
Cash received from retained interests in notes receivable sold .... -- 3,682 -- 3,682
--------- --------- --------- ---------
Net cash (used) provided by investing activities ................... (1,393) 3,394 (2,912) (911)
--------- --------- --------- ---------
Financing activities:
Payments under line-of-credit facilities and notes payable ........ (185) (2,244) (17,375) (19,804)
Payment of debt issuance costs .................................... (540) (191) 37 (694)
Proceeds from exercise of stock options ........................... 2,039 -- -- 2,039
--------- --------- --------- ---------
Net cash (used) provided by financing activities ................... 1,314 (2,435) (17,338) (18,459)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............... 989 3,382 (184) 4,187
Cash and cash equivalents at beginning of period ................... 29,872 8,716 15,059 53,647
--------- --------- --------- ---------
Cash and cash equivalents at end of period ......................... 30,861 12,098 14,875 57,834
Restricted cash and cash equivalents at end of period .............. (173) (6,327) (12,037) (18,537)
--------- --------- --------- ---------
Unrestricted cash and cash equivalents at end of period ............ $ 30,688 $ 5,771 $ 2,838 $ 39,297
========= ========= ========= =========
Three Months Ended March 31, 2005
-----------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ................... $ (13,892) $ 4,434 $ 22,220 $ 12,762
Investing activities:
Cash received from retained interests in notes receivable sold .... -- 1,829 -- 1,829
Investment in statutory business trust ............................ (696) -- -- (696)
Purchases of property and equipment ............................... (301) 14 (3,237) (3,524)
--------- --------- --------- ---------
Net cash (used) provided by investing activities ................... (997) 1,843 (3,237) (2,391)
Financing activities:
Payments under line-of-credit facilities and notes payable ........ (23) (431) (20,368) (20,822)
Payment of debt issuance costs .................................... (738) (1,150) 684 (1,204)
Borrowings under LOC facilities and N/P ........................... -- -- 2,219 2,219
Proceeds from junior subordinated debentures ...................... 23,196 -- -- 23,196
Proceeds from exercise of stock options ........................... 648 -- -- 648
--------- --------- --------- ---------
Net cash provided (used) by financing activities ................... 23,083 (1,581) (17,465) 4,037
--------- --------- --------- ---------
Net increase in cash and cash equivalents .......................... 8,194 4,696 1,518 14,408
Cash and cash equivalents at beginning of period ................... 70,256 16,766 11,516 98,538
--------- --------- --------- ---------
Cash and cash equivalents at end of period ......................... 78,450 21,462 13,034 112,946
Restricted cash and cash equivalents at end of period .............. (173) (9,082) (9,144) (18,399)
--------- --------- --------- ---------
Unrestricted cash and cash equivalents at end of period ............ $ 78,277 $ 12,380 $ 3,890 $ 94,547
========= ========= ========= =========
15
5. Business Segments
We have two reportable business segments. Bluegreen Resorts develops,
markets and sells VOIs in our resorts, through the Bluegreen Vacation Club, and
provides resort management services to resort property owners associations.
Bluegreen Communities acquires large tracts of real estate, which are
subdivided, improved (in some cases to include a golf course on the property)
and sold, typically on a retail basis as homesites. Required disclosures for our
business segments are as follows (in thousands):
Bluegreen Bluegreen
Resorts Communities Totals
------- ----------- ------
For the three months ended March 31, 2004
Sales of real estate .......................................... $ 53,147 $ 33,044 $ 86,191
Other resort and communities operations revenue ............... 12,205 1,347 13,552
Depreciation expense .......................................... 1,102 458 1,560
Field operating profit ........................................ 8,209 5,219 13,428
For the three months ended March 31, 2005
Sales of real estate .......................................... $ 65,644 $ 38,377 $104,021
Other resort and communities operations revenue ............... 16,562 1,482 18,044
Depreciation expense .......................................... 1,676 418 2,094
Field operating profit ........................................ 10,386 7,733 18,119
Net inventory by business segment:
December 31, March 31,
2004 2005
------------ ---------
Bluegreen Resorts ............................................ $126,238 $140,628
Bluegreen Communities ........................................ 78,975 77,081
-------- --------
Total ........................................................ $205,213 $217,709
======== ========
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before provision for income taxes and minority interest is
as follows (in thousands):
Three Months Ended
March 31, 2004 March 31, 2005
-------------- --------------
Field operating profit for reportable segments ............ $ 13,428 $ 18,119
Interest income ........................................... 5,021 6,542
Gain on sales of notes receivable ......................... 2,380 1,441
Other expense ............................................. (201) (858)
Corporate general and administrative expenses ............. (7,287) (10,610)
Interest expense .......................................... (3,999) (3,215)
Provision for loan losses ................................. (870) (147)
-------- --------
Consolidated income before minority interest and
provision for income taxes ............................. $ 8,472 $ 11,272
======== ========
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements and Risk Factors
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Quarterly
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and Section
21E of the Securities Exchange Act. You may identify these statements by
forward-looking words such as "may," "intend," "expect," "anticipate," "believe"
"will," "should," "project," "estimate," "plan" or other comparable terminology
or by other statements that do not relate to historical facts. All statements,
trend analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations, results of claims or
litigation pending or brought against us in the future and other factors
discussed throughout our SEC filings, all of which could cause our actual
results, performance or achievements, or industry trends, to differ materially
from any future results, performance, or achievements or trends expressed or
implied herein. Given these uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements and no assurance can be given
that the plans, estimates and expectations reflected herein will be achieved.
Factors that could adversely affect our future results can also be considered
general "risk factors" with respect to our business, whether or not they relate
to a forward-looking statement. We wish to caution you that the important
factors set forth below and elsewhere in this report are not exclusive an in
some cases have affected, and in the future could affect, our actual results and
could cause our actual consolidated results to differ materially from those
expressed in any forward-looking statements.
o Our continued liquidity depends on our ability to sell or borrow
against our notes receivable.
o We depend on additional funding to finance our operations.
o Our success depends on our ability to market our products
efficiently.
o We would incur substantial losses if the customers we finance
default on their obligations to pay the balance of the purchase
price.
o We are subject to the risks of the real estate market and the risks
associated with real estate development, including the risk and
uncertainties relating to the cost and availability of land and
construction materials.
o We may not successfully execute our growth strategy and we may face
additional risks as we expand into new markets.
o We may face a variety of risks when we expand our operations.
o Excessive claims for development-related defects could adversely
affect our financial condition and operating results.
o The limited resale market for VOIs could adversely affect our
business.
o Extensive federal, state and local laws and regulations affect the
way we conduct our business.
o Environmental liabilities, including claims with respect to mold or
hazardous or toxic substances, could have a material adverse impact
on our business.
o We could incur costs to comply with laws governing accessibility of
facilities by disabled persons.
o Our results of operations and financial condition could be adversely
impacted if our estimates concerning our notes receivable are
incorrect.
o Anticipated changes in generally accepted accounting principles,
especially those related to our resorts business and sales of notes
receivable, could have a material adverse impact on our results of
operations.
17
In addition to the foregoing, reference is also made to other risks and factors
detailed in reports filed by the Company with the Securities and Exchange
Commission including our Annual Report on Form 10-K for the year ended December
31, 2004.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops, markets
and sells VOIs in our Bluegreen Vacation Club resorts, and provides resort
management services to resort property owners associations. Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis, as homesites.
We have historically experienced and expect to continue to experience seasonal
fluctuations in our gross revenues and net earnings. This seasonality may cause
significant fluctuations in our quarterly operating results, with the majority
of our gross revenues and net earnings historically occurring in the quarters
ending in June and September each year. Other material fluctuations in operating
results may occur due to the timing of development and the requirement that we
use the percentage-of-completion method of accounting. Under this method of
income recognition, income is recognized as work progresses. Measures of
progress are based on the relationship of costs incurred to date to expected
total costs. We expect that we will continue to invest in projects that will
require substantial development (with significant capital requirements), and
hence that our results of operations may fluctuate significantly between
quarterly and annual periods as a result of the required use of the
percentage-of-completion method of accounting.
We do not believe that inflation and changing prices have historically had a
material impact on our revenues and results of operations. However, we
continually review and have historically increased the sales prices of our VOIs
annually and construction costs have increased and are expected to increase.
There is no assurance that we will be able to continue to increase our sales
prices or that increased construction costs will not have a material adverse
impact on our gross profit. To the extent inflationary trends affect interest
rates, a portion of our debt service costs may be adversely affected.
We recognize revenue on homesite and VOI sales when a minimum of 10% of the
sales price has been received in cash, the refund or rescission period has
expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. In cases
where all development has not been completed, we recognize income in accordance
with the percentage-of-completion method of accounting.
Costs associated with the acquisition and development of vacation ownership
resorts and residential communities, including carrying costs such as interest
and taxes, are capitalized as inventory and are allocated to cost of real estate
sold as the respective revenues are recognized.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The gains are recorded on
our consolidated statement of income and the related retained interests in the
notes receivable sold are recorded on our consolidated balance sheet at the time
of sale. The amount of gains recognized and the fair value of the retained
interests recorded are based in part on management's best estimates of future
prepayment, default rates, loss severity rates, discount rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to loans occur more quickly than we projected at the time such loans
were sold, as can occur when interest rates decline, interest would be less than
expected and may cause a decline in the fair value of the retained interests and
a charge to operations. If actual defaults or other factors discussed above with
respect to loans sold are greater than estimated, charge-offs would exceed
previously estimated amounts and the cash flow from the retained interests in
notes receivable sold would decrease. Also, to the extent the portfolio of
receivables sold fails to satisfy specified performance criteria (as may occur
due to, for example, an increase in default rates or loan loss severity) or
certain other events occur, the funds received from obligors must be distributed
on an accelerated basis to investors. If the accelerated payment formula were to
become applicable, the cash flow to us from the retained interests in notes
receivable sold would be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur on a
material basis, it could cause a decline in the fair value of the retained
interests and a charge to earnings currently. There is no assurance that the
carrying value of our retained interests in notes receivable sold will be fully
realized or that future loan sales will be consummated or, if consummated,
result in gains. See "Vacation Ownership Receivables Purchase Facilities -Off
Balance Sheet Arrangements," below.
We are spending a substantial amount of management time and resources to comply
with changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-
18
Oxley Act of 2002, new Securities and Exchange Commission regulations and New
York Stock Exchange rules. In particular, Section 404 of the Sarbanes-Oxley Act
of 2002 requires management's annual review and evaluation of our internal
control systems, and attestations as to the effectiveness of these systems by
our independent registered accounting firm. We expect to continue to expend
significant management time and resources documenting and testing our internal
control systems and procedures. If we fail to maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from
time to time, we may not be in a position to conclude on an ongoing basis that
we have effective internal control over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002. Failure to maintain an effective
internal control environment could have a material adverse effect on the market
price of our stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of commitments and contingencies. On an
ongoing basis, management evaluates its estimates, including those that relate
to the recognition of revenue, including revenue recognition under the
percentage-of-completion method of accounting; our reserve for loan losses; the
valuation of retained interests in notes receivable sold and the related gains
on sales of notes receivable; the recovery of the carrying value of real estate
inventories, golf courses, intangible assets and other assets; and the estimate
of contingent liabilities related to litigation and other claims and
assessments. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions. If actual results significantly differ
from management's estimates, our results of operations and financial condition
could be materially adversely impacted. For a more detailed discussion of these
critical accounting policies see "Critical Accounting Policies and Estimates"
appearing in our Annual Report on Form 10-K for the year ended December 31,
2004.
19
Results of Operations
We review financial information, allocate resources and manage our business as
two segments, Bluegreen Resorts and Bluegreen Communities. The information
reviewed is based on internal reports and excludes general and administrative
expenses attributable to corporate overhead. The information provided is based
on a management approach and is used by us for the purpose of tracking trends
and changes in results. It does not reflect the actual economic costs,
contributions or results of operations of the segments as stand alone
businesses. If a different basis of presentation or allocation were utilized,
the relative contributions of the segments might differ but the relative trends,
in our view, would likely not be materially impacted. The table below sets forth
net revenue and income from operations by segment.
Bluegreen Bluegreen
Resorts Communities Total
------- ----------- -----
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
(dollars in thousands)
Three Months Ended March 31, 2004
Sales of real estate .................. $ 53,147 100% $ 33,044 100% $ 86,191 100%
Cost of real estate sales ............. (10,859) (20) (18,381) (56) (29,240) (34)
--------- --------- ---------
Gross profit .......................... 42,288 80 14,663 44 56,951 66
Other resort and communities
operations revenues ................. 12,205 23 1,347 4 13,552 16
Cost of other resort and
communities operations .............. (12,442) (23) (1,471) (4) (13,913) (16)
Selling and marketing
expenses ............................ (29,535) (56) (6,798) (21) (36,333) (42)
Field general and
administrative expenses (1) ......... (4,307) (9) (2,522) (8) (6,829) (8)
--------- --------- ---------
Field Operating Profit ................ $ 8,209 15% $ 5,219 16% $ 13,428 16%
========= ========= =========
Three Months Ended March 31, 2005
Sales of real estate .................. $ 65,644 100% $ 38,377 100% $ 104,021 100%
Cost of real estate sales ............. (13,195) (20) (19,692) (51) (32,887) (32)
--------- --------- ---------
Gross profit .......................... 52,449 80 18,685 49 71,134 68
Other resort and communities
operations revenues ................. 16,562 25 1,482 4 18,044 17
Cost of other resort and
communities operations .............. (18,099) (28) (1,537) (4) (19,636) (19)
Selling and marketing
expenses ............................ (36,709) (56) (8,037) (21) (44,746) (43)
Field general and
administrative expenses (1) ......... (3,817) (6) (2,860) (7) (6,677) (6)
--------- --------- ---------
Field Operating Profit ................ $ 10,386 16% $ 7,733 20% $ 18,119 17%
========= ========= =========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $7.3 million for the three months ended March 31, 2004
and $10.6 million for the three months ended March 31, 2005. See
"Corporate General and Administrative Expenses," below, for further
discussion.
Sales and Field Operations. Consolidated sales increased $17.8 million or 21%
from $86.2 million during the three months ended March 31, 2004 to $104.0
million during the three months ended March 31, 2005.
Bluegreen Resorts. During the three months ended March 31, 2004 and March 31,
2005, sales of VOIs contributed $53.1 million (62%) and $65.6 million (63%) of
our total consolidated sales, respectively.
20
The following table sets forth certain information for sales of VOIs for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting.
Three Months Ended
------------------
March 31, March 31,
2004 2005
---- ----
Number of VOI sale transactions ........ 5,953 6,689
Average sales price per transaction .... $ 9,718 $10,124
Gross margin ........................... 80% 80%
The $12.5 million or 24% increase in Bluegreen Resorts' sales during the three
months ended March 31, 2005, as compared to the three months ended March 31,
2004, was due primarily to same-resort sales increases at our various sales
offices. Same-resort sales increased by approximately $9.0 million or 16% during
the three months ended March 31, 2005 as compared to the three months ended
March 31, 2004. The same-resort sales increase was primarily attributable to the
increase in sales at The Fountains resort, located in Orlando, Florida. The
Fountains(TM), which commenced sales operations in December 2003, generated $5.6
million in sales during the three months ended March 31, 2005 as compared to
$1.8 million during the three months ended March 31, 2004. The sales increase
was also due to our continued focus on marketing to our growing Bluegreen
Vacation Club owner base and to sales prospects referred to us by our existing
Bluegreen Vacation Club owners and other prospects. Sales to owner and referral
prospects increased by 35% during the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004. This, combined with a 9%
overall increase in the number of sales prospects seen by Bluegreen Resorts from
approximately 48,500 prospects during the three months ended March 31, 2004 to
approximately 53,000 prospects during the three months ended March 31, 2005 and
a relatively consistent sale-to-tour conversion ratio of 14% during these
periods significantly contributed to the overall sales increase during the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004. The increase in the number of prospects seen by Bluegreen Resorts and
consequently the increase in sales was partially due to our two new sales sites,
an offsite sales office in Dallas, Texas (opened in October 2004) and The
Hammocks at Marathon(TM) in Marathon, Florida (opened in August 2004). The
increase in the average sales price per transaction reflected in the above table
also contributed to the increase in sales.
Bluegreen Resorts' gross margin remained relatively constant during the three
months ended March 31, 2004 and March 31, 2005 at approximately 80%. Bluegreen
Resorts' gross margin more typically ranges between 75% and 77%. During the
three months ended March 3, 2004, our gross margin was favorably impacted by the
sale of relatively lower cost VOIs acquired through opportunistic acquisitions
in 2003. Approximately 144 VOIs were constructed and became available for sale
during the three months ended March 31, 2005 at the Fountains resort, one of our
opportunistic 2003 acquisitions which favorably impacted our gross margin during
the three months ended March 31, 2005. We anticipate that our gross margin will
return to historical levels in the future.
Other resort operations revenues increased $4.4 million or 36% during the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004. This increase was due primarily to increases in revenues from our
mini-vacation sales, vacation ownership tour and lead generation business, as
well as fees earned by our wholly-owned title company for providing title
processing services on all of our VOI sales.
Cost of other resort operations increased $5.7 million or 45% during the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004. The increase in the cost of other resort operations was due primarily to
increases in the related revenues discussed above as well as due to higher
subsidies incurred relative to the property owners' associations that maintain
our resorts. These subsidies increased in the aggregate due to the increase in
our VOI inventory.
Selling and marketing expenses for Bluegreen Resorts increased $7.2 million or
24% during the three months ended March 31, 2005 as compared to the three months
ended March 31, 2004. This increase was primarily related to the increase in
sales. As a percentage of sales, selling and marketing expenses remained
relatively consistent during the three months ended March 31, 2004 and March 31,
2005 at approximately 56%. We believe that selling and marketing expenses as a
percentage of sales is an important indicator of the performance of Bluegreen
Resorts and our performance as a whole. No assurance can be given that selling
and marketing expenses will not increase as a percentage of sales in future
periods.
21
Field general and administrative expenses for Bluegreen Resorts decreased
$490,000 or 11% during the three months ended March 31, 2005, as compared to the
three months ended March 31, 2004, due primarily to the consolidation of our
Harbor Springs (Boyne Highlands) sales office operations with our Mountain Run
at Boyne sales office in Boyne Falls, Michigan.
As of December 31, 2004 and March 31, 2005, Bluegreen Resorts had no sales or
Field Operating Profit deferred under percentage-of-completion accounting.
Bluegreen Communities. During the three months ended March 31, 2004 and March
31, 2005, Bluegreen Communities generated $33.0 million (38%) and $38.4 million
(37%) of our total consolidated sales, respectively.
The table below sets forth the number of homesites sold by Bluegreen Communities
and the average sales price per homesite for the periods indicated, before
giving effect to the percentage-of-completion method of accounting and excluding
sales of bulk parcels.
Three Months Ended
------------------
March 31, March 31,
2004 2005
---- ----
Number of homesites sold ........... 716 635
Average sales price per homesite ... $64,812 $75,498
Gross margin ....................... 44% 49%
Bluegreen Communities' sales increased $5.3 million or 16% during the three
months ended March 31, 2005, as compared to the three months ended March 31,
2004, due primarily to sales increases in our golf course communities. Sales
recognized at Sanctuary Cove at St. Andrews Sound, an approximately 500-acre
golf course community in Brunswick, Georgia, totaled $14.3 million during the
three months ended March 31, 2005 as compared to $5.8 million during the three
months ended March 31, 2004. Sales recognized at Traditions of Braselton(TM), a
1,142 acre golf course community in Braselton, Georgia, totaled $6.4 million
during the three months ended March 31, 2005 as compared to $4.3 million during
the three months ended March 31, 2004. In July 2004, we acquired and commenced
sales at our approximately 800-acre golf course community in Chatham County,
North Carolina known as Chapel Ridge. Chapel Ridge recognized sales of
approximately $5.3 million during the three months ended March 31, 2005. These
increases in sales as well as increases in sales at certain of our other
properties were partially offset by decreases in sales in projects that were
substantially sold out either during or prior to the three months ended March
31, 2005. Certain of our properties are expected to sell out earlier in 2005
than previously anticipated as a result of the continued strong demand for our
communities. Although there is no assurance that we will be successful, we are
currently pursuing the acquisition of several properties in order to replace
these sold-out projects. The increase in the average sales price per transaction
reflected in the above table also contributed to the increase in sales.
Bluegreen Communities' gross margin increased from 44% during the three months
ended March 31, 2004 to 49% during the three months ended March 31, 2005.
Variations in cost structures and the market pricing of projects available for
sale as well as the opening of phases of projects which include premium
homesites (e.g., water frontage, preferred views, larger acreage homesites,
etc.) impact the gross margin of Bluegreen Communities from period to period.
These factors, as well as the impact of percentage-of-completion accounting,
will cause variations in gross margin between periods, although the gross margin
of Bluegreen Communities has historically been between 44% and 51% of sales and
is expected to approximate these percentages for the foreseeable future.
Selling and marketing expenses for Bluegreen Communities increased $1.2 million
or 18% primarily as a result of the increase in sales. As a percentage of sales,
selling and marketing expenses remained relatively consistent during the three
months ended March 31, 2004 and March 31, 2005 at 21%.
As of December 31, 2004, Bluegreen Communities had $27.2 million of sales and
$10.9 million of Field Operating Profit deferred under percentage-of-completion
accounting. As of March 31, 2005, Bluegreen Communities had $37.2 million of
sales and $15.4 million of Field Operating Profit deferred under
percentage-of-completion accounting.
Corporate General and Administrative Expenses. Our corporate general and
administrative expenses consist primarily of expenses associated with
administering the various support functions at our corporate headquarters,
including accounting, human resources, information technology, mergers and
acquisitions, mortgage servicing, treasury and legal. Such expenses were $7.3
million and $10.6 million during the three months ended March 31, 2004 and March
31, 2005, respectively. As a
22
percentage of sales of real estate, corporate general and administrative
expenses were 9% and 10% during the three months ended March 31, 2004 and March
31, 2005, respectively.
The $3.3 million or 46% increase in corporate general and administrative
expenses during the three months ended March 31, 2005, as compared to the three
months ended March 31, 2004, was due primarily to the additional costs incurred
in connection with implementing the requirements associated with the
Sarbanes-Oxley Act of 2002 as well as higher personnel and other expenses
incurred in our information technology, accounting and acquisition and
development areas to support our growth.
For a discussion of field selling, general and administrative expenses, please
see "Sales and Field Operations," above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold and cash and cash equivalents. Interest
income earned totaled $5.0 million and $6.5 million during the three months
ended March 31, 2004 and March 31, 2005, respectively.
The $1.5 million or 30% increase in interest income during the three months
ended March 31, 2005 was due to higher interest income earned from our notes
receivable and our retained interests in notes receivable sold primarily as a
result of higher average aggregate notes receivable and retained interest in
notes receivable sold balances during the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004.
Gain on Sales of Notes Receivable. During the three months ended March 31, 2004
and March 31, 2005, we sold $39.5 million and $44.9 million, respectively, of
notes receivable pursuant to our vacation ownership receivables purchase
facilities in place during the respective periods. In connection with these
sales, we recognized gains on sales of notes receivable of $2.4 million and $1.4
million during the three months ended March 31, 2004 and March 31, 2005,
respectively.
The decrease of $939,000 or 39% in the gain on sale of notes receivable
recognized during the three months ended March 31, 2005, as compared to the
three months ended March 31, 2004, was due to an increase in the related cost of
funds and other relevant variables associated with the transaction during the
three months ended March 31, 2005 as compared to the transaction during the
three months ended March 31, 2004.
The amount of notes receivable sold during a period depends on several factors,
including the amount of availability, if any, under receivables purchase
facilities, the amount of eligible receivables available for sale, our cash
requirements, the covenants and other provisions of the relevant vacation
ownership receivables purchase facility (as described further below) and
management's discretion. We have recognized gains on sales of notes receivable
each quarter since the three months ended December 31, 2000 (18 consecutive
quarters). The generally accepted accounting principles governing our sale of
receivable transactions is evolving and structuring such transactions in order
to achieve off-balance sheet accounting treatment is becoming more difficult.
Should our ability to structure the monetization of our receivables through
off-balance sheet transactions be limited, gains on sales of receivables may not
be recognized consistently from quarter to quarter.
Interest Expense. Interest expense was $4.0 million and $3.2 million during the
three months ended March 31, 2004 and March 31, 2005, respectively. The $784,000
or 20% decrease during the three months ended March 31, 2005, as compared to the
three months ended March 31, 2004, was primarily as a result of lower average
debt outstanding and more interest being capitalized due to increased
construction activity.
Provision for Loan Losses. We recorded provisions for loan losses totaling
$870,000 and $147,000 during the three months ended March 31, 2004 and March 31,
2005, respectively. Our sale of vacation ownership notes receivable without
recourse on March 31, 2005 resulted in the reduction of our provision for loan
losses. Also, non-recourse sales of notes receivable pursuant to our vacation
ownership receivables purchase facilities were higher in the aggregate during
the three months ended March 31, 2005 as compared to the three months ended
March 31, 2004.
The allowance for loan losses by division as of December 31, 2004 and March 31,
2005 was as follows:
Bluegreen Bluegreen
Resorts Communities Other Total
------- ----------- ----- -----
(dollars in thousands)
December 31, 2004
Notes receivable ....................... $ 121,273 $ 10,901 $ 186 $ 132,360
Allowance for loan losses .............. (9,974) (251) (186) (10,411)
--------- --------- --------- ---------
Notes receivable, net .................. $ 111,299 $ 10,650 $ -- $ 121,949
========= ========= ========= =========
Allowance as a % of gross notes
receivable ........................... 8.2% 2.3% 100.0% 7.9%
========= ========= ========= =========
March 31, 2005
Notes receivable ....................... $ 105,016 $ 10,233 $ 186 $ 115,435
Allowance for loan losses .............. (7,786) (347) (186) (8,319)
--------- --------- --------- ---------
Notes receivable, net .................. $ 97,230 $ 9,886 $ -- $ 107,116
========= ========= ========= =========
Allowance as a % of gross notes
receivable ........................... 7.4% 3.4% 100.0% 7.2%
========= ========= ========= =========
23
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC (the
"Subsidiary"), our 51%-owned subsidiary, in our consolidated financial
statements (see Note 1 of the Notes to Condensed Consolidated Financial
Statements). The minority interest in income of consolidated subsidiary is the
portion of our consolidated pre-tax income that is earned by Big Cedar, L.L.C.,
the unaffiliated 49% interest holder in the Subsidiary. Minority interest in
income of consolidated subsidiary was $829,000 and $773,000 during the three
months ended March 31, 2004 and March 31, 2005, respectively.
Summary. Based on the factors discussed above, our net income was $4.7 million
and $6.5 million during the three months ended March 31, 2004 and March 31,
2005, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for the three months ended March
31, 2004 and March 31, 2005 (in thousands):
Three months ended
----------------------------
March 31, March 31,
2004 2005
----------------------------
Cash flows provided by operating activities $ 23,557 $ 12,762
Cash flows used by investing activities (911) (2,391)
Cash flows (used) provided by financing activities (18,459) 4,037
-------- --------
Net increase in cash $ 4,187 $ 14,408
======== ========
Cash Flows From Operating Activities. Cash flows provided by operating
activities decreased $13.1 million or 51% from $25.8 million to $12.7 million
during the three months ended March 31, 2005 as compared to the three months
ended March 31, 2004. This decrease was due primarily to increased construction
and development spending during the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004, and the fact that we had no
significant acquisitions of inventory during the three months ended March 31,
2004. During the three months ended March 31, 2005, we acquired the Daytona
Surfside Inn & Suites resort in Daytona Beach, Florida (the "Daytona Resort")
for $2.0 million in cash from operations plus a $9.5 million note payable and
1,053 acres of land for a Bluegreen Communities development to be known as
Saddle Creek Forrest in Magnolia, Texas for $500,000 in cash from operations
plus a $2.2 million note payable.
Cash Flows From Investing Activities. Cash flows used in investing activities
increased $1.5 million or 162% from $911,000 to $2.4 million during the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004. This increase was due primarily to lower amounts of cash received from our
retained interests in notes receivable sold, as we have not yet begun receiving
cash flows on our retained interest in a 2004 term securitization transaction
due to reserve funding requirements. In addition, during the three months ended
March 31, 2005, we capitalized $696,000 into a statutory business trust for the
purpose of issuing trust preferred securities and investing the proceeds thereof
in our junior subordinated debentures (see "Liquidity and Capital Resources.")
These increased expenditures were partially offset by lower cash expenditures
for property and equipment during the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004
Cash Flows From Financing Activities. Cash flows provided by financing
activities increased $22.5 million or 122% from cash outflows of $18.5 million
during the three months ended March 31, 2004 to cash inflows of $4.0 million
during the three months ended March 31, 2005. This increase was due primarily to
the $23.2 million of cash received in connection with our issuance of the junior
subordinated debentures partially offset by lower cash proceeds from the
exercise of stock options during the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004.
24
Liquidity and Capital Resources
Our capital resources are provided from both internal and external sources. Our
primary capital resources from internal operations are: (i) cash sales, (ii)
downpayments on homesite and VOI sales which are financed, (iii) proceeds from
the sale of, or borrowings collateralized by, notes receivable, including cash
received from our retained interests in notes receivable sold, (iv) principal
and interest payments on the purchase money mortgage loans and contracts for
deed owned arising from sales of VOIs and homesites and (v) net cash generated
from other resort services and other communities operations. Historically,
external sources of liquidity have included non-recourse sales of notes
receivable, borrowings under secured and unsecured lines-of-credit, seller and
bank financing of inventory acquisitions and the issuance of debt securities.
Our capital resources are used to support our operations, including (i)
acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) funding operating expenses and (iv) satisfying our debt and
other obligations. As we are continually selling and marketing real estate (VOIs
and homesites), it is necessary for us to continually acquire and develop new
resorts and communities in order to maintain adequate levels of inventory to
support operations. We anticipate that we will continue to require external
sources of liquidity to support our operations, satisfy our debt and other
obligations and to provide funds for future acquisitions.
Our level of debt and debt service requirements has several important effects on
our operations, including the following: (i) we have significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing our vulnerability to adverse economic and
industry conditions; (ii) our leveraged position increases our vulnerability to
competitive pressures; (iii) the financial covenants and other restrictions
contained in the indentures, the credit agreements and other agreements relating
to our indebtedness require us to meet certain financial tests and restrict our
ability to, among other things, borrow additional funds, dispose of assets, make
investments or pay cash dividends on, or repurchase, preferred or common stock;
and (iv) funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited. Certain of our competitors
operate on a less leveraged basis and have greater operating and financial
flexibility than we do.
We intend to continue to pursue a growth-oriented strategy, particularly with
respect to our Bluegreen Resorts business segment. In connection with this
strategy, we may from time to time acquire, among other things, additional
resort properties and completed but unsold VOIs; land upon which additional
resorts may be built; management contracts; loan portfolios of vacation
ownership mortgages; portfolios which include properties or assets which may be
integrated into our operations; interests in joint ventures; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to our operations in the
vacation ownership industry. In addition, we intend to continue to focus
Bluegreen Communities on larger, more capital intensive projects particularly in
those regions where we believe the market for our products is strongest, such as
new golf communities in the Southeast and other areas and continued growth in
our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that were
important sources of our liquidity as of March 31, 2005. These facilities do not
constitute all of our outstanding indebtedness as of March 31, 2005. Our other
indebtedness includes outstanding senior secured notes payable, borrowings
collateralized by real estate inventories that were not incurred pursuant to an
ongoing credit facility and capital leases.
Vacation Ownership Receivables Purchase Facilities -Off Balance Sheet
Arrangements
Our ability to sell and/or borrow against our notes receivable from VOI buyers
is a critical factor in our continued liquidity. When we sell VOIs, a financed
buyer is only required to pay a minimum of 10% of the purchase in cash at the
time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the three months ended March 31,
2005, approximated 62% of sales. Accordingly, having facilities available for
the hypothecation and sale of these vacation ownership receivables is a critical
factor to our ability to meet our short and long-term cash needs.
The RFL Purchase Facility. On October 8, 2003, RFL acquired and assumed the
rights, obligations and commitments of ING as initial purchaser in an existing
vacation ownership receivables purchase facility (the "RFL Purchase Facility")
originally executed between ING and us in April 2002. The RFL Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation V, our wholly-owned, special purpose
finance subsidiary ("BRFC V"), and BRFC V sells the receivables to an owners'
trust (a qualified special purpose entity) without recourse to us or BRFC V
except for breaches of certain representations and warranties at the time of
sale. We did not enter into any guarantees in connection with the RFL Purchase
Facility. The RFL Purchase Facility has detailed requirements with respect to
the eligibility of receivables for purchase, and fundings under the RFL Purchase
Facility are subject to certain conditions precedent. Under the RFL Purchase
Facility, a variable purchase price of 85.00% of the principal balance of the
receivables sold, subject to certain terms and conditions, is paid at closing in
cash. The balance of the purchase price is deferred until such time as RFL has
received a specified return and all servicing, custodial, agent and similar fees
and expenses have been paid.
25
On September 30, 2004, we executed an extension of the RFL Purchase Facility to
allow for sales of notes receivable for a cumulative purchase price of up to
$100.0 million on a revolving basis through September 29, 2005, at a variable
purchase price of 85.00% of the principal balance, subject to the eligibility
requirements and certain conditions precedent. RFL earns a return equal to the
one-month London Interbank Offered Rate ("LIBOR") plus an additional return of
3.25%, subject to use of alternate return rates in certain circumstances. In
addition, through September 2005, RFL receives a 0.25% annual program fee. We
act as servicer under the RFL Purchase Facility for a fee.
As of March 31, 2005, the remaining availability under the RFL Purchase Facility
was $80.9 million, subject to eligibility requirements and conditions precedent.
The RFL Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
RFL's obligation to purchase under the RFL Purchase Facility may terminate upon
the occurrence of specified events. These specified events, some of which are
subject to materiality qualifiers and cure periods, include, without limitation,
(i) our breach of the representations or warranties in the RFL Purchase
Facility; (ii) our failure to perform our covenants in the RFL Purchase
Facility, including, without limitation, a failure to pay principal or interest
due to RFL; (iii) our commencement of a bankruptcy proceeding or the like; (iv)
a material adverse change to us since December 31, 2001; (v) the amount borrowed
under the RFL Purchase Facility exceeding the borrowing base; (vi) significant
delinquencies or defaults on the receivables sold; (vii) a payment default by us
under any other borrowing arrangement of $5 million or more, or an event of
default under any indenture, facility or agreement that results in a default
under any borrowing arrangement; (viii) a default or breach under any other
agreement beyond the applicable grace period if such default or breach (a)
involves the failure to make a payment in excess of 5% of our tangible net worth
or (b) causes, or permits the holder of indebtedness to cause, an amount in
excess of 5% of our tangible net worth to become due; (ix) our tangible net
worth not equaling at least $110 million plus 50% of net income and 100% of the
proceeds from new equity financing following the first closing under the RFL
Purchase Facility; (x) the ratio of our debt to tangible net worth exceeding 6
to 1; or (xi) our failure to perform our servicing obligations.
The GE Purchase Facility. On August 3, 2004, we executed agreements for a
vacation ownership receivables purchase facility (the "GE Purchase Facility")
with General Electric Capital Corporation ("GE"). The GE Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation VII, our wholly-owned, special purpose
finance subsidiary ("BRFC VII"), and BRFC VII sells the receivables to an
owner's trust (a qualified special purpose entity) without recourse to us or
BRFC VII except for breaches of certain customary representations and warranties
at the time of sale. We did not enter into any guarantees in connection with the
GE Purchase Facility. The GE Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
GE Purchase Facility are subject to certain conditions precedent. Under the GE
Purchase Facility, a variable purchase price of approximately 89.5% of the
principal balance of the receivables sold (79.5% in the case of receivables
originated in Aruba), subject to adjustment under certain terms and conditions,
is paid at closing in cash. The balance of the purchase price is deferred until
such time as GE has received a specified return, a specified
overcollateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE earns a return equal to the applicable Swap Rate (which is essentially
a published interest swap arrangement rate as defined in the GE Purchase
Facility agreements) plus 3.50%, subject to use of alternate return rates in
certain circumstances. In addition, we paid GE a structuring fee of
approximately $938,000 in October 2004. We act as servicer under the GE Purchase
Facility for a fee.
The GE Purchase Facility allows for sales of notes receivable for a cumulative
purchase price of up to $125.0 million through October 2, 2006. As of March 31,
2005, the remaining availability under the GE Purchase Facility was $86.4
million, subject to eligibility requirements and conditions precedent.
The GE Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
GE's obligation to purchase under the GE Purchase Facility may terminate earlier
than the dates noted above upon the occurrence of certain specified events set
forth in the GE Purchase Facility agreements. These specified events, some of
which are subject to materiality qualifiers and cure periods, include, without
limitation, (i) the aggregate amount of all advances under the GE Purchase
Facility equaling $125.0 million; (ii) our breach of the representations or
warranties in the GE Purchase Facility; (iii) our failure to perform our
covenants in the GE Purchase Facility; (iv) our commencement of a bankruptcy
proceeding or the like; (v) failing to maintain a specified
overcollateralization amount; (vi) significant delinquencies or defaults on the
receivables sold; (vii) recovery rates falling below a pre-determined amount;
(viii) a default or breach under any other agreement beyond the applicable grace
period if such default or breach (a) involves the failure to make a payment in
excess of 5% of our Tangible Net Worth (as defined in the GE Purchase Facility
agreements to include our subordinated debentures) or (b) causes, or permits the
holder of indebtedness to cause, an amount in excess of 5% of our Tangible Net
Worth to become due; (ix) our Tangible Net Worth at the end of any calendar
quarter not equaling at least $185.0 million plus 50% of net income following
June 30, 2004; (x) the ratio of our debt (excluding our subordinated debentures
and, after the expiration of the funding period, up to $600.0
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million of receivable-backed indebtedness) to Tangible Net Worth exceeding 2.25
to 1; (xi) the ratio of our consolidated earnings before interest, taxes,
depreciation and amortization to our interest expense (net of interest income)
falling below 2.00 to 1; (xii) the number of points available in the Bluegreen
Vacation Club to be less than approximately 623.6 million; (xiii) our ceasing to
conduct the vacation ownership business and originate vacation ownership
receivables or if certain changes in our ownership or control occur; (xiv) the
failure of certain of our resorts to be part of the Bluegreen Vacation Club or
be managed by us, one of our subsidiaries or another entity acceptable to GE;
(xv) operating budgets and reserve accounts maintained by the property owners'
associations responsible for maintaining certain of our resorts failing to
comply with applicable laws and governing documents; (xvi) our failure to
discharge, stay or bond pending appeal any final judgments for the payment of an
amount in excess of 2.5% of our Tangible Net Worth in a timely manner; (xvii)
our default under or breach of certain resort management or marketing contracts;
or (xviii) our failure to perform our servicing obligations, otherwise have our
servicing rights terminated or if we do not exercise the Servicer Purchase
Option pursuant to the terms of the GE Purchase Facility.
The BB&T Purchase Facility. On December 31, 2004, we executed agreements for a
vacation ownership receivables purchase facility (the "BB&T Purchase Facility")
with Branch Banking and Trust Company ("BB&T"). The BB&T Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation IX, our wholly-owned, special purpose
finance subsidiary ("BRFC IX"), and BRFC IX sells the receivables to an owner's
trust (a qualified special purpose entity) without recourse to us or BRFC IX
except for breaches of certain customary representations and warranties at the
time of sale. We did not enter into any guarantees in connection with the BB&T
Purchase Facility. The BB&T Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
BB&T Purchase Facility are subject to certain conditions precedent. Under the
BB&T Purchase Facility, a variable purchase price of approximately 85.0% of the
principal balance of the receivables sold, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as BB&T has received a specified return and all
servicing, custodial, agent and similar fees and expenses have been paid. BB&T
earns a return equal to the commercial paper rate plus an additional return of
1.15%, subject to use of alternate return rates in certain circumstances. In
addition, we paid BB&T structuring and other fees totaling $1.1 million in
December 2004. We act as servicer under the BB&T Purchase Facility for a fee.
The BB&T Purchase Facility allows for sales of notes receivable for a cumulative
purchase price of up to $140.0 million on a revolving basis, the commitment for
$40.0 million of which expires on July 5, 2005, and the remainder of which
expires on December 30, 2005.
On March 31, 2005, we sold $44.9 million in vacation ownership receivables
pursuant to the BB&T Purchase Facility for a cumulative purchase price of $38.2
million. As a result of this sale, we recognized a gain of $1.4 million and
recorded a retained interest in notes receivable sold and a servicing asset of
$7.8 million and $470,000, respectively. As of March 31, 2005, the remaining
availability under the BB&T Purchase Facility was $101.8 million, subject to
eligibility requirements and conditions precedent.
The BB&T Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
BB&T's obligation to purchase under the BB&T Purchase Facility may terminate
earlier than the dates noted above upon the occurrence of certain specified
events set forth in the BB&T Purchase Facility agreements. These specified
events, some of which are subject to materiality qualifiers and cure periods,
include, without limitation, (i) our breach of the representations or warranties
in the BB&T Purchase Facility; (ii) our failure to perform our covenants in the
BB&T Purchase Facility, including, without limitation, a failure to pay
principal or interest due to BB & T; (iii) our commencement of a bankruptcy
proceeding or the like; (iv) a materially adverse change to us since December
31, 2004; (v) the amount funded under the BB&T Purchase Facility exceeding the
funding base; (vi) significant delinquencies or defaults on the receivables
sold, or serviced by us generally; (vii) a payment default by us under any other
borrowing arrangement when such arrangement is an obligation in excess of 5% of
our tangible net worth or an event of default under any indenture, facility or
agreement that causes or permits the holder of such obligation to cause such
financing arrangement to become due and payable; (viii) a default or breach
under any other agreement beyond the applicable grace period if such default or
breach (a) involves the failure to make a payment in excess of 5% of our
tangible net worth or (b) causes or permits the holder of indebtedness to cause,
an amount in excess of 5% of our tangible net worth to become due; (ix) our
tangible net worth not equaling at least 80% of our tangible net worth at
December 31, 2003 plus 80% of any increase in our tangible net worth thereafter;
(x) the ratio of our debt to tangible net worth exceeding 3 to 1; or (xi) our
failure to perform our servicing obligations.
We have chosen to monetize our receivables through the RFL Purchase Facility,
the GE Purchase Facility, the BB&T Purchase Facility (collectively, the
"Purchase Facilities") and, historically, other similar facilities, as these
off-balance sheet arrangements provide us with cash inflows both currently and
in the future at what we believe to be competitive rates without adding leverage
to our balance sheet or retaining recourse for losses on the receivables sold.
In addition, these sale transactions have generated gains on our income
statement on a quarterly basis, which would not be realized under a traditional
financing arrangement. The generally accepted accounting principles governing
the sales of notes receivable are evolving and it is becoming more difficult to
structure transactions in a manner that such transactions would be accounted
27
for off-balance sheet. Should we become unable to obtain off-balance sheet
treatment for future sales of receivables, while it would have minimal impact,
if any, on our liquidity, it could have a material adverse impact on our
quarterly results of operations and our debt level, which could adversely impact
our compliance with debt covenants in current or future debt arrangements.
The Purchase Facilities discussed above are the only ongoing receivables
purchase facilities under which we currently have the ability to sell
receivables. Factors which could adversely impact our ability to obtain new or
additional vacation ownership receivable purchase facilities include a downturn
in general economic conditions; negative trends in the commercial paper or LIBOR
markets; increases in interest rates; a decrease in the number of financial
institutions or other entities willing to enter into facilities with vacation
ownership companies; a deterioration in the performance of our vacation
ownership notes receivable or in the performance of portfolios sold in prior
transactions, specifically increased delinquency, default and loss severity
rates; and a deterioration in our performance generally. There can be no
assurance that we will obtain new purchase facilities to replace the Purchase
Facilities when these facilities are fully funded or expire. As indicated above,
our inability to sell vacation ownership receivables under a current or future
facility could have a material adverse impact on our liquidity. However,
management believes that to the extent we could not sell receivables under a
purchase facility, we could potentially mitigate the adverse impact on our
liquidity by using our receivables as collateral under existing or future credit
facilities.
Historically, we have also been a party to a number of securitization-type
transactions, all of which in our opinion utilize customary structures and terms
for transactions of this type. In each securitization-type transaction, we sold
receivables to a wholly-owned special purpose entity which, in turn, sold the
receivables either directly to third parties or to a trust established for the
transaction. In each transaction, the receivables were sold on a non-recourse
basis (except for breaches of certain representations and warranties) and the
special purpose entity has a retained interest in the receivables sold. We have
acted as servicer of the receivables pools in each transaction for a fee, with
the servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, make
interest and principal payments to investors, fund required reserves, if any,
and pay distributions in respect of the retained interests in the receivables.
Pursuant to the terms of the transaction documents, however, to the extent the
portfolio of receivables fails to satisfy specified performance criteria (as may
occur due to an increase in default rates or loan loss severity) or other
trigger events, the funds received from obligors are distributed on an
accelerated basis to investors. In effect, during a period in which the
accelerated payment formula is applicable, funds go to outside investors until
they receive the full amount owed to them and only then are payments made to our
subsidiary in its capacity as the holder of the retained interests. Depending on
the circumstances and the transaction, the application of the accelerated
payment formula may be permanent or temporary until the trigger event is cured.
If the accelerated payment formula were to become applicable, the cash flow on
the retained interests in the receivables would be reduced until the outside
investors were paid or the regular payment formula was resumed. Such a reduction
in cash flow could cause a decline in the fair value of our retained interests
in the receivables sold. Declines in fair value that are determined to be other
than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from our special purpose
subsidiary, the suspension or termination of that commitment. In addition, in
each securitization facility certain breaches of our obligations as servicer or
other events allow the indenture trustee to cause the servicing to be
transferred to a substitute third party servicer. In that case, our obligation
to service the receivables would terminate and we would cease to receive a
servicing fee.
The following is a summary of significant financial information related to the
Purchase Facility and prior similar facilities during the periods presented
below (in thousands):
December 31, March 31,
2004 2005
---------------------------------
On Balance Sheet:
Retained interests in notes receivable sold $ 72,099 $ 80,473
Servicing assets (included in other assets) 3,357 3,535
Off Balance Sheet:
Notes receivable sold without recourse 326,076 357,198
Principal balance owed to note receivable purchasers 297,122 314,155
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Three Months Ended
--------------------------
Income Statement: March 31, March 31,
2004 2005
--------------------------
Gain on sales of notes receivable $ 2,380 $ 1,441
Interest accretion on retained interests in notes
receivable sold 1,838 1,663
Servicing fee income 1,048 1,272
Amortization of servicing assets (228) (292)
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
In addition to the vacation ownership receivables purchase facilities discussed
above, we maintain various credit facilities with financial institutions that
provide receivable, acquisition and development financing for our vacation
ownership projects.
The GMAC Receivables Facility. In February 2003, we entered into a revolving
vacation ownership receivables credit facility (the "GMAC Receivables Facility")
with Residential Funding Corporation ("RFC"), an affiliate of GMAC. The
borrowing limit under the GMAC Receivables Facility, as increased by amendment,
is $75.0 million. The borrowing period on the GMAC Receivables Facility, as
amended, expires on September 15, 2006, and outstanding borrowings mature no
later than September 15, 2013. The GMAC Receivables Facility has detailed
requirements with respect to the eligibility of receivables for inclusion and
other conditions to funding. The borrowing base under the GMAC Receivables
Facility is 90% of the outstanding principal balance of eligible notes arising
from the sale of VOIs. The GMAC Receivables Facility includes affirmative,
negative and financial covenants and events of default. All principal and
interest payments received on pledged receivables are applied to principal and
interest due under the GMAC Receivables Facility. Indebtedness under the
facility bears interest at LIBOR plus 4.00% (6.86% at March 31, 2005). During
the three months ended March 31, 2005, we pledged approximately $6.6 million in
aggregate principal balance of vacation ownership receivables under the GMAC
Receivables Facility and received $6.0 million in cash borrowings. As of March
31, 2005, $31.7 million was outstanding under the GMAC Receivables Facility.
The GMAC AD&C Facility. RFC has also provided us with a $75.0 million
acquisition, development and construction revolving credit facility for
Bluegreen Resorts (the "GMAC AD&C Facility"). The borrowing period on the GMAC
AD&C Facility, as amended, expires on September 15, 2006, and outstanding
borrowings mature no later than September 15, 2010, although specific draws
typically are due four years from the borrowing date. Principal will be repaid
through agreed-upon release prices as VOIs are sold at the financed resorts,
subject to minimum required amortization. Indebtedness under the facility bears
interest at LIBOR plus 4.75% (7.61% at March 31, 2005). Interest payments are
due monthly. During the three months ended March 31, 2005, we borrowed $2.2
million under the GMAC AD&C Facility to fund the development of VOIs at The
Fountains. As of March 31, 2005, $29.9 million was outstanding under the GMAC
AD&C Facility.
The Textron Facility. During December 2003, we signed a combination $30.0
million Acquisition and Development and Timeshare Receivables facility with
Textron Financial Corporation (the "Textron Facility"). The borrowing period for
acquisition and development loans under the Textron Facility expired on October
1, 2004, and outstanding acquisition and development borrowings mature no later
than January 1, 2006. The borrowing period for vacation ownership receivables
loans under the Textron Facility expires on March 1, 2006, and outstanding
vacation ownership receivables borrowings mature no later than March 31, 2009.
Principal is being repaid semi-annually commencing September 14, 2004, subject
to minimum required amortization, with the balance due upon the earlier of i)
the date that 85% of the VOIs in the financed resort are sold or ii) the
maturity date. Acquisition and development indebtedness under the facility bears
interest at the prime lending rate plus 1.25%, subject to a minimum interest
rate of 6.25%. Interest payments are due monthly. Receivable-backed borrowings
under the Textron Facility bears interest at the prime lending rate plus 1.00%,
subject to a 6.00% minimum interest rate. During the three months ended March
31, 2005, we borrowed $3.4 million collateralized by $3.7 million of vacation
ownership receivables. As of March 31, 2005, $6.0 million was outstanding under
the Textron Facility.
The RFL A&D Facility. On January 11, 2005, we entered into a $50.0 million
revolving credit facility with RFL (the "RFL A&D Facility"). We use the proceeds
from the RFL A&D Facility to finance the acquisition and development of vacation
ownership resorts. The RFL A&D Facility is secured by 1) a first mortgage and
lien on all assets purchased with the RFL
29
A&D Facility; 2) a first assignment of all construction contracts, related
documents, building permits and completion bond; 3) a negative pledge of our
interest in any management, marketing, maintenance or service contracts; and 4)
a first assignment of all operating agreements, rents and other revenues at the
vacation ownership resorts which serve as collateral for the RFL A&D Facility,
subject to any requirements of the respective property owners' associations.
Borrowings under the RFL A&D Facility can be made through January 10, 2007.
Principal payments will be effected through agreed-upon release prices paid to
RFL as vacation ownership interests in the resorts that serve as collateral for
the RFL A&D Facility are sold. The outstanding principal balance of any
borrowings under the RFL A&D Facility must be repaid by January 10, 2008. The
interest charged on outstanding borrowings will be the 30-day LIBOR plus 3.90%,
subject to a 6.90% floor, and will be payable monthly. We are required to pay a
commitment fee equal to 1.00% of the $50.0 million facility amount, which will
be paid at the time of each borrowing under the RFL A&D Facility as 1.00% of
each borrowing with the balance being paid on the unutilized facility amount on
January 10, 2007. In addition, we are required to pay a program fee equal to
0.125% of the $50.0 million facility amount per annum, payable monthly. The RFL
A&D Facility documents include customary conditions to funding, acceleration
provisions and certain financial affirmative and negative covenants. On January
11, 2005, we borrowed $9.5 million under the RFL A&D Facility in connection with
the acquisition of the Daytona Resort. The total commitment under the RFL A&D
Facility for the Daytona Resort is $14.7 million, the $5.2 million balance of
which can be borrowed during 2005 to fund refurbishment of the Daytona Resort.
Under an existing $30.0 million revolving credit facility with Wells Fargo
Foothill, Inc. ("Foothill") primarily used for borrowings collateralized by
Bluegreen Communities receivables and inventory, we can also borrow up to $10.0
million of the facility collateralized by the pledge of vacation ownership
receivables. See "Credit Facilities for Bluegreen Communities' Receivables and
Inventories," below, for further details on this facility.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We have a $30.0 million revolving credit facility with
Foothill secured by the pledge of Bluegreen Communities' receivables, with up to
$10.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and, as indicated above, up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables (the
"Foothill Facility"). The Foothill Facility requires principal payments based on
agreed-upon release prices as homesites in the encumbered communities are sold
and bears interest at the prime lending rate plus 1.25% (7.00% at March 31,
2005), payable monthly. The interest rate charged on outstanding receivable
borrowings under the Foothill Facility, as amended, is the prime lending rate
plus 0.25% (6.00% at March 31, 2005) when the average monthly outstanding loan
balance is greater than or equal to $15.0 million. If the average monthly
outstanding loan balance is less than $15.0 million, the interest rate is the
greater of 4.00% or the prime lending rate plus 0.50% (6.25% at March 31, 2005).
All principal and interest payments received on pledged receivables are applied
to principal and interest due under the Foothill Facility. We can borrow under
the Foothill Facility through December 31, 2006. At March 31, 2005, the
outstanding principal balance under this facility was approximately $8.6
million, approximately $3.4 million of which is collateralized by our Traditions
of Braselton golf course community in Braselton, Georgia, $3.8 million of which
related to Bluegreen Communities' receivables borrowings and $1.4 million of
which related to Bluegreen Resorts' receivables borrowings. Outstanding
indebtedness related to the Traditions of Braselton borrowing is due on March
10, 2006 and the maturity date for borrowings collateralized by receivables is
December 31, 2008.
The GMAC Communities Facility. We have a $50.0 million revolving credit facility
with RFC (the "GMAC Communities Facility"). The GMAC Communities Facility is
secured by the real property homesites (and personal property related thereto)
at the following Bluegreen Communities projects, as well as any Bluegreen
Communities projects acquired by us with funds borrowed under the GMAC
Communities Facility (the "Secured Projects"): Brickshire (New Kent County,
Virginia); Mountain Lakes Ranch (Bluffdale, Texas); Ridge Lake Shores (Magnolia,
Texas); Riverwood Forest (Fulshear, Texas); Waterstone (Boerne, Texas); Catawba
Falls Preserve (Black Mountain, North Carolina); Lake Ridge at Joe Pool Lake
(Cedar Hill and Grand Prairie, Texas); Mystic Shores at Canyon Lake (Spring
Branch, Texas); and Yellowstone Creek Ranch (Pueblo, Colorado). In addition, the
GMAC Communities Facility is secured by our Carolina National and The Preserve
at Jordan Lake golf courses in Southport, North Carolina and Chapel Hill, North
Carolina, respectively. Borrowings can be drawn on such projects through
September 25, 2006. Principal payments are effected through agreed-upon release
prices paid to RFC as homesites in the Secured Projects are sold. The
outstanding principal balance of any borrowings under the GMAC Communities
Facility must be repaid by September 25, 2006. The interest charged on
outstanding borrowings is at the prime lending rate plus 1.00% (6.75% at March
31, 2005) and is payable monthly. The GMAC Communities Facility includes
customary conditions to funding, acceleration and event of default provisions
and certain financial affirmative and negative covenants. We use the proceeds
from the GMAC Communities Facility to repay outstanding indebtedness on
Bluegreen Communities projects, finance the acquisition and development of
Bluegreen Communities projects and for general corporate purposes. As of March
31, 2005, $1.6 million was outstanding under the GMAC Communities Facility. In
April 2005, we borrowed an additional $9.0 million under the GMAC Communities
Facility, approximately $2.4 million of which was used to repay a term loan with
another financial institution.
30
Over the past several years, substantially all of our homesite sales have been
for cash and we have not provided a significant amount of financing to homesite
purchasers. Accordingly, in recent years we have reduced the borrowing capacity
under credit agreements secured by Bluegreen Communities' receivables. We
attribute the significant volume of cash sales to an increased willingness on
the part of banks to extend direct customer homesite financing at attractive
interest rates. No assurances can be given that local banks will continue to
provide such customer financing.
Historically, we have funded development for road and utility construction,
amenities, surveys and engineering fees from internal operations and have
financed the acquisition of Bluegreen Communities properties through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be paid monthly and principal to be repaid
through homesite releases. The release price is usually an amount based on a
pre-determined percentage (typically 25% to 55%) of the gross selling price of
the homesites in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When we provide financing for our
customers (and therefore the release price is not available in cash at closing
to repay the lender), we are required to pay the lender with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Trust Preferred Debt
On March 15, 2005, one of our wholly-owned statutory business trusts, BST I,
issued $22.5 million of trust preferred securities. BST I used the proceeds from
issuing the trust preferred securities to purchase an identical amount of junior
subordinated debentures from us. Interest on the junior subordinated debentures
and distributions on the trust preferred securities will be payable quarterly in
arrears at a fixed rate of 9.16% through March 30, 2010 and thereafter at a
floating rate of 4.90% over the 3-month LIBOR until the scheduled maturity date
of March 30, 2035. Distributions on the trust preferred securities will be
cumulative and based upon the liquidation value of the trust preferred security.
The trust preferred securities will be subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at maturity or
their earlier redemption. The junior subordinated debentures are redeemable five
years from the issue date or sooner following certain specified events. In
addition, we contributed $696,000 to BST I in exchange for its common
securities, all of which are owned by us, and those proceeds were also used to
purchase an identical amount of junior subordinated debentures from us. The
terms of BST I's common securities are nearly identical to the trust preferred
securities.
On May 4, 2005, another of our wholly-owned statutory business trusts, BST II,
issued $25.0 million of trust preferred securities. BST II used the proceeds
from issuing the trust preferred securities to purchase an identical amount of
junior subordinated debentures from us. Interest on the junior subordinated
debentures and distributions on the Trust Preferred Securities will be payable
quarterly in arrears at a fixed rate of 9.158% through July 30, 2010 and
thereafter at a floating rate of 4.85% over the 3-month LIBOR until the
scheduled maturity date of July 30, 2035. Distributions on the trust preferred
securities will be cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we contributed $774,000 to BST II in
exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of BST II's common securities are nearly identical
to the trust preferred securities.
On May 10, 2005, another of our wholly-owned statutory business trusts, BST III,
issued $10.0 million of trust preferred securities. BST III used the proceeds
from issuing the trust preferred securities to purchase an identical amount of
junior subordinated debentures from us. Interest on the junior subordinated
debentures and distributions on the Trust Preferred Securities will be payable
quarterly in arrears at a fixed rate of 9.193% through July 30, 2010 and
thereafter at a floating rate of 4.85% over the 3-month LIBOR until the
scheduled maturity date of July 30, 2035. Distributions on the trust preferred
securities will be cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we contributed $310,000 to BST III in
exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of BST III's common securities are nearly
identical to the trust preferred securities.
The issuances of trust preferred securities were part of larger pooled trust
securities offerings which were not registered under the Securities Act of 1933.
Proceeds will be used for general corporate purposes and debt repayment.
We also expect to create similar trusts and participate in other pooled trust
preferred securities transactions in the future as a source of additional
financing.
Unsecured Credit Facility
We have a $15.0 million unsecured line-of-credit with Wachovia Bank, N.A.
Amounts borrowed under the line bear interest at LIBOR plus 2.00% (4.86% at
March 31, 2005). Interest is due monthly and all outstanding amounts are due on
June 30, 2006. We are only allowed to borrow under the line-of-credit in amounts
less than the remaining availability under our current, active vacation
ownership receivables purchase facilities plus availability under certain
receivables warehouse facilities, less any outstanding letters of credit. The
line-of-credit agreement contains certain covenants and conditions typical of
arrangements of this type. As of March 31, 2005, no borrowings were outstanding
under the line. There are an aggregate of $607,000 of irrevocable letters of
credit under this line-of-credit which were required in connection with the
obtaining of plats for one of our Bluegreen Communities projects. These letters
of credit expire on December 31, 2005. This line-of-credit is an available
source of short-term liquidity for us, although we have not drawn any borrowings
under this facility recently.
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Commitments
Our material commitments as of March 31, 2005 included the required payments due
on our receivable-backed debt, lines of credit and other notes and debentures
payable, commitments to complete our vacation ownership and communities projects
based on our sales contracts with customers and commitments under noncancelable
operating leases.
The following table summarizes the contractual minimum principal payments
required on all of our outstanding debt (including our receivable-backed debt,
lines-of-credit and other notes and debentures payable) and our noncancelable
operating leases as of March 31, 2005, by period due (in thousands):
Payments Due by Period
----------------------------------------------------------------------
Less
than 1 -- 3 4 -- 5 After 5
Contractual Obligations 1 year Years Years Years Total
----------------------- ------ ----- ----- ----- -----
Receivable-backed notes payable $ -- $ -- $ 8,615 $ 31,709 $ 40,324
Lines-of-credit and notes payable 29,191 36,069 28 -- 65,288
Junior subordinated debentures -- -- -- 23,196 23,196(1)
10.5% senior secured notes -- -- 110,000 -- 110,000(2)
Noncancelable operating leases 5,138 9,486 6,672 6,793 28,089
-------- -------- -------- -------- --------
Total contractual obligations $ 34,329 $ 45,555 $125,315 $ 61,698 $266,897
======== ======== ======== ======== ========
(1) This amount excludes the May 4, 2005 issuance of an additional
$25.8 million of junior subordinated debentures to one of our
statutory business trusts in connection with a concurrent
issuance by the trust of trust preferred securities. See also
"Liquidity and Capital Resources - Trust Preferred
Securities."
(2) The Notes are redeemable at our option, in whole or in part,
in cash, together with accrued and unpaid interest, if any, to
the date of redemption at the following redemption prices:
2005 -- 101.75% and 2006 and thereafter -- 100.00%.
We intend to use cash flow from operations, including cash received from the
sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
principal payments in the Contractual Obligations. While we believe that we will
be able to meet all required debt payments when due, there can be no assurance
that this will be the case.
As noted above, we have $607,000 in letters-of-credit outstanding at March 31,
2005, all of which were issued under the unsecured line-of-credit with Wachovia
Bank, N.A. These letters-of-credit, which expire on December 31, 2005, were
required in connection with the obtaining of governmental approval of plats for
one of our Bluegreen Communities projects.
We estimate that the total cash required to complete resort buildings in which
sales have occurred and resort amenities and other common costs in projects in
which sales have occurred to be approximately $20.2 million as of March 31,
2005. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $75.2
million as of March 31, 2005. These amounts assume that we are not obligated to
develop any building, project or amenity in which a commitment has not been made
through a sales contract to a customer; however, we anticipate that we will
incur such obligations in the future. We plan to fund these expenditures over
the next five years primarily with available capacity on existing or proposed
credit facilities and cash generated from operations. There can be no assurance
that we will be able to obtain the financing or generate the cash from
operations necessary to complete the foregoing plans or that actual costs will
not exceed those estimated.
During 2004, we executed various agreements with Carolinian Resort Development
LLC ("CRD") to develop a vacation ownership resort in Myrtle Beach, South
Carolina (the "Carolinian Resort"). CRD is obtaining zoning and other approvals
(collectively, the "Approvals") for this project and is responsible for
constructing the Carolinian Resort for sale to us upon its completion pursuant
to plans and specifications agreed-upon by us. The purchase price of the
completed Carolinian Resort is anticipated to be $20.6 million, $2.9 million of
which has been paid by us as a deposit and is being held in escrow as of March
31, 2005. Should CRD default under the agreements governing the construction and
sale of the Carolinian Resort to us, we may exercise certain remedies including
termination of the agreements and receiving a refund for our deposit or
obtaining specific performance. The Carolinian Resort is expected to be
completed in November 2005. RFC has agreed to provide financing to us for the
purchase of the Carolinian Resort under the GMAC AD&C Facility, and hence this
borrowing would mature in November 2009. See "Liquidity and Capital Resources --
Credit Facilities for Bluegreen Resorts' Receivables and Inventories" for a
discussion of the terms of the GMAC AD&C Facility.
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We believe that our existing cash, anticipated cash generated from operations,
anticipated future permitted borrowings under existing or proposed credit
facilities and anticipated future sales of notes receivable under the purchase
facility and one or more replacement facilities we will seek to put in place
will be sufficient to meet our anticipated working capital, capital expenditures
and debt service requirements for the foreseeable future. We will be required to
renew or replace credit and receivables purchase facilities that have expired or
that will expire in the near term. We will, in the future, also require
additional credit facilities or will be required to issue corporate debt or
equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us may be secured or unsecured, bear fixed or variable
rate interest and may be subject to such terms as the lender may require and
management deems prudent. There can be no assurance that the credit facilities
or receivables purchase facilities which have expired or which are scheduled to
expire in the near term will be renewed or replaced or that sufficient funds
will be available from operations or under existing, proposed or future
revolving credit or other borrowing arrangements or receivables purchase
facilities to meet our cash needs, including, our debt service obligations. To
the extent we are not able to sell notes receivable or borrow under such
facilities, our ability to satisfy our obligations would be materially adversely
affected.
We have a large number of credit facilities, indentures, and other outstanding
debt instruments, and receivables purchase facilities which include customary
conditions to funding, eligibility requirements for collateral, cross-default
and other acceleration provisions, certain financial and other affirmative and
negative covenants, including, among others, limits on the incurrence of
indebtedness, limits on the repurchase of securities, payment of dividends,
investments in joint ventures and other restricted payments, the incurrence of
liens, transactions with affiliates, covenants concerning net worth, fixed
charge coverage requirements, debt-to-equity ratios, portfolio performance
requirements and events of default or termination. No assurance can be given
that we will not be required to seek waivers of such covenants or that such
covenants will not limit our ability to raise funds, sell receivables, satisfy
or refinance our obligations or otherwise adversely affect our operations. In
addition, our future operating performance and ability to meet our financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond our control.
Item 4. CONTROLS AND PROCEDURES
a) As of the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of
our principal executive officer and principal financial officer of
the effectiveness of our disclosure controls and procedures, as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of March
31, 2005. Based on such evaluation, such officers have concluded
that our disclosure controls and procedures are effective in timely
alerting them to material information relating to us required to be
included in our periodic SEC filings.
b) There has been no change in our internal control over financial
reporting during the quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not purchase any of our equity securities registered pursuant to Section
12 of the Securities Exchange Act of 1934. From time to time, our Board of
Directors has adopted and publicly announced a share repurchase program.
Repurchases under such programs are subject to the price of our stock,
prevailing market conditions, our financial condition and available resources,
other investment alternatives and other factors. We are not required to seek
shareholder approval of share repurchase programs, have not done so in the past,
and do not anticipate doing so in the future, except to the extent we may be
required to do so under applicable law. We have not repurchased any shares since
the fiscal year ended April 1, 2001. As of March 31, 2005, there were 694,500
shares remaining for purchase under our current repurchase program, however we
have no present intention of acquiring these remaining shares.
Item 6. Exhibits
Exhibits:
10.1 Amended and Restated Trust Agreement among Bluegreen Corporation, as
Depositor, JPMorgan Chase Bank, National Association, as Property
Trustee, Chase Bank USA, National Association, as Delaware Trustee
and the Administrative Trustees Named Herein as Administrative
Trustees dated as of March 15, 2005.
10.2 Junior Subordinated Indenture between Bluegreen Corporation and
JPMorgan Chase Bank, National Association, as Trustee dated as of
March 15, 2005.
10.3 Amended and Restated Trust Agreement among Bluegreen Corporation, as
Depositor, Wilmington Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee and the Administrative Trustees
Named Herein as Administrative Trustees dated as of May 4, 2005.
10.4 Junior Subordinated Indenture between Bluegreen Corporation and
Wilmington Trust Company as Trustee dated as of May 4, 2005.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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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.
BLUEGREEN CORPORATION
(Registrant)
Date: May 6, 2005 By: /s/ George F. Donovan
-----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: May 6, 2005 By: /s/ Anthony M. Puleo
-----------------------------------
Anthony M. Puleo
Senior Vice President,
and Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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