SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
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(Address of principal executive offices) (Zip Code)
(561) 912-8000
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(Registrant's telephone number, including area code)
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(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. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in 12b-2 of the Exchange Act). |X| Yes |_| 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 November 4, 2005, there were 30,387,651 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
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 2004 and September 30, 2005 ....................... 3
Condensed Consolidated Statements of Income - Three Months Ended September 30, 2004 and 2005 ............ 4
Condensed Consolidated Statements of Income - Nine Months Ended September 30, 2004 and 2005 ............. 5
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2004 and 2005 ......... 6
Notes to Condensed Consolidated Financial Statements .................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 20
Item 4. Controls and Procedures ................................................................................. 37
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ....................................................................................... 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ............................................. 38
Item 6. Exhibits ................................................................................................ 38
Signatures ........................................................................................................ 39
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)," "Bluegreen Wilderness Club(TM) at Big Cedar(R)," "The
Lodge Alley Inn(TM)," "Harbour Lights Resort(TM)," "Shore Crest Vacation
Villas(TM)," "Laurel Crest Resort(TM)," "MountainLoft Resort(TM)," "Daytona
Seabreeze(TM)," "Shenandoah Crossing Resort(TM)," "Christmas Mountain
Village(TM)," "The Fountains Resort (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)," "Saddle Creek Forest(TM)," "Settlement at Patriot 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 Bass Pro Trademarks, LP.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and
Trademark Office by Bass Pro Trademarks, LP.
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, September 30,
2004 2005
------------ -------------
(Note) (Unaudited)
ASSETS
Cash and cash equivalents (including restricted cash of $19,396 and $20,678
at December 31, 2004 and September 30, 2005, respectively) ................... $ 98,538 $ 88,628
Contracts receivable, net ....................................................... 28,085 43,758
Notes receivable, net ........................................................... 121,949 131,563
Prepaid expenses ................................................................ 7,810 7,594
Other assets .................................................................... 22,359 23,753
Inventory, net .................................................................. 205,213 214,958
Retained interests in notes receivable sold ..................................... 72,099 96,744
Property and equipment, net ..................................................... 74,244 79,541
Intangible assets and goodwill .................................................. 4,512 4,376
--------- ---------
Total assets .............................................................. $ 634,809 $ 690,915
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ................................................................ $ 11,552 $ 10,836
Accrued liabilities and other ................................................... 44,351 44,429
Deferred income ................................................................. 24,235 32,709
Deferred income taxes ........................................................... 58,150 83,711
Receivable-backed notes payable ................................................. 43,696 36,815
Lines-of-credit and notes payable ............................................... 71,949 51,971
10.50% senior secured notes payable ............................................. 110,000 55,000
Junior subordinated debentures .................................................. -- 59,280
--------- ---------
Total liabilities ............................................................ 363,933 374,751
Minority interest ............................................................... 6,009 9,314
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 33,143
shares issued at December 31, 2004 and September 30, 2005, respectively ..... 330 331
Additional paid-in capital ...................................................... 167,408 168,559
Treasury stock, 2,756 common shares at December 31, 2004 and September 30, 2005,
at cost ...................................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ..................... 832 2,216
Retained earnings ............................................................... 109,182 148,629
--------- ---------
Total shareholders' equity ................................................... 264,867 306,850
--------- ---------
Total liabilities and shareholders' equity ................................ $ 634,809 $ 690,915
========= =========
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
United States generally accepted accounting principles 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
September 30,
---------------------
2004 2005
--------- ---------
Revenues:
Sales of real estate .......................................... $ 161,898 $ 166,772
Other resort and communities operations revenue ............... 19,167 21,191
Interest income ............................................... 5,743 8,214
Gain on sales of notes receivable ............................. 3,333 2,271
--------- ---------
190,141 198,448
Costs and expenses:
Cost of real estate sales ..................................... 58,787 52,866
Cost of other resort and communities operations ............... 20,104 20,149
Selling, general and administrative expenses .................. 77,937 86,645
Interest expense .............................................. 3,242 3,027
Provision for loan losses ..................................... 2,603 2,843
Other expense, net ............................................ 591 984
--------- ---------
163,264 166,514
--------- ---------
Income before minority interest and provision for income taxes ... 26,877 31,934
Minority interest in income of consolidated subsidiary ........... 360 1,584
--------- ---------
Income before provision for income taxes ......................... 26,517 30,350
Provision for income taxes ....................................... 10,208 11,685
--------- ---------
Net income ....................................................... $ 16,309 $ 18,665
========= =========
Income per common share:
Basic ......................................................... $ 0.62 $ 0.61
========= =========
Diluted ....................................................... $ 0.54 $ 0.60
========= =========
Weighted average number of common and common equivalent shares:
Basic ......................................................... 26,298 30,385
========= =========
Diluted ....................................................... 30,646 31,220
========= =========
See accompanying notes to condensed consolidated financial statements.
4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
---------------------
2004 2005
--------- ---------
Revenues:
Sales of real estate .......................................... $ 376,403 $ 430,001
Other resort and communities operations revenue ............... 50,444 58,003
Interest income ............................................... 15,484 20,439
Gain on sales of notes receivable ............................. 6,929 5,323
--------- ---------
449,260 513,766
Costs and expenses:
Cost of real estate sales ..................................... 131,853 136,862
Cost of other resort and communities operations ............... 52,580 59,148
Selling, general and administrative expenses .................. 194,778 229,991
Interest expense .............................................. 11,339 9,824
Provision for loan losses ..................................... 6,502 5,826
Other expense, net ............................................ 556 4,669
--------- ---------
397,608 446,320
--------- ---------
Income before minority interest and provision for income taxes ... 51,652 67,446
Minority interest in income of consolidated subsidiary ........... 2,692 3,305
--------- ---------
Income before provision for income taxes ......................... 48,960 64,141
Provision for income taxes ....................................... 18,849 24,694
--------- ---------
Net income ....................................................... $ 30,111 $ 39,447
========= =========
Income per common share:
Basic ......................................................... $ 1.16 $ 1.30
========= =========
Diluted ....................................................... $ 1.02 $ 1.26
========= =========
Weighted average number of common and common
equivalent shares:
Basic ......................................................... 25,858 30,350
========= =========
Diluted ....................................................... 30,563 31,239
========= =========
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2004 2005
--------- ---------
Operating activities:
Net income ................................................................. $ 30,111 $ 39,447
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest in income of consolidated subsidiary ............... 2,692 3,305
Depreciation and amortization ........................................ 10,521 14,828
Gain on sales of notes receivable .................................... (6,929) (5,323)
Loss on disposal of property and equipment ........................... 384 61
Provision for loan losses ............................................ 6,502 5,826
Provision for deferred income taxes .................................. 18,849 24,694
Interest accretion on retained interests in notes receivable sold .... (3,988) (4,078)
Other non-cash charges ............................................... -- 313
Proceeds from sales of notes receivable .............................. 92,730 125,358
Proceeds from borrowings collateralized by notes receivable .......... 16,365 27,341
Payments on borrowings collateralized by notes receivable ............ (8,840) (36,029)
Change in operating assets and liabilities:
Contracts receivable .................................................... (18,109) (15,673)
Notes receivable ........................................................ (140,407) (170,005)
Inventory ............................................................... 34,177 26,762
Prepaid expenses and other assets ....................................... (2,780) (1,829)
Accounts payable, accrued liabilities and other ......................... 24,125 10,148
--------- ---------
Net cash provided by operating activities ..................................... 55,403 45,146
--------- ---------
Investing activities:
Purchases of property and equipment ........................................ (14,676) (13,607)
Sales of property and equipment ............................................ 8 7
Installment payments on business acquisition ............................... (575) (500)
Investments in statutory business trusts ................................... -- (1,780)
Cash received from retained interests in notes receivable sold ............. 11,231 7,989
--------- ---------
Net cash used by investing activities ......................................... (4,012) (7,891)
--------- ---------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable ......... 57,640 25,548
Payments under line-of-credit facilities and other notes payable ........... (75,778) (74,574)
Payments on 10.50% senior secured notes .................................... -- (55,000)
Proceeds from issuance of junior subordinated debentures ................... -- 59,280
Payment of debt issuance costs ............................................. (3,219) (3,253)
Proceeds from exercise of stock options .................................... 2,556 834
--------- ---------
Net cash used by financing activities ......................................... (18,801) (47,165)
--------- ---------
Net increase (decrease) in cash and cash equivalents .......................... 32,590 (9,910)
Cash and cash equivalents at beginning of period .............................. 53,647 98,538
--------- ---------
Cash and cash equivalents at end of period .................................... 86,237 88,628
Restricted cash and cash equivalents at end of period ......................... (19,533) (20,678)
--------- ---------
Unrestricted cash and cash equivalents at end of period ....................... $ 66,704 $ 67,950
========= =========
6
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2004 2005
--------- ---------
Supplemental schedule of non-cash operating, investing
and financing activities:
Inventory acquired through financing ....................................... $ 4,440 $ 28,282
========= =========
Inventory acquired through foreclosure or deedback in lieu of
foreclosure ............................................................. $ 7,440 $ 8,225
========= =========
Property and equipment acquired through financing .......................... $ 169 $ 766
========= =========
Retained interests in notes receivable sold ................................ $ 19,094 $ 26,305
========= =========
Net change in unrealized gains and losses in retained interests in notes
receivable sold ......................................................... $ 1,224 $ 2,251
========= =========
Settlement of business acquisition purchase price .......................... $ 925 $ --
========= =========
Conversion of 8.25% convertible subordinated debentures .................... $ 6,781 $ --
========= =========
See accompanying notes to condensed consolidated financial statements.
7
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
1. Organization and Significant Accounting Policies
We have prepared the accompanying unaudited condensed consolidated
financial statements in accordance with United States generally accepted
accounting principles 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 United States
generally accepted accounting principles 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 nine months
ended September 30, 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 provide 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 or biennial allotment
of "points" in perpetuity in our Bluegreen Vacation Club (supported by an
underlying deeded vacation ownership interest being held in trust for the
buyer). 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 a third-party,
worldwide vacation ownership exchange network. 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") 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 nine
months ended September 30, 2005, sales generated by Bluegreen Resorts comprised
approximately 64% of our total sales of real estate while sales generated by
Bluegreen Communities comprised approximately 36% 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
United States generally accepted accounting principles 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.
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current period presentation.
8
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 includes an adjustment, if dilutive, to both net income and shares
outstanding as if our 8.25% convertible subordinated debentures were converted
into common stock at the beginning of the periods presented.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2005 2004 2005
-------- -------- -------- --------
Basic earnings per share - numerator:
Net income ........................................... $ 16,309 $ 18,665 $ 30,111 $ 39,447
======== ======== ======== ========
Diluted earnings per share - numerator:
Net income - basic ................................... $ 16,309 $ 18,665 $ 30,111 $ 39,447
Effect of dilutive securities, net of income taxes ... 353 -- 1,109 --
-------- -------- -------- --------
Net income - diluted ................................. $ 16,662 $ 18,665 $ 31,220 $ 39,447
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share -
weighted-average shares ........................... 26,298 30,385 25,858 30,350
-------- -------- -------- --------
Effect of dilutive securities:
Stock options ..................................... 990 835 1,053 889
Convertible securities ............................ 3,358 -- 3,652 --
-------- -------- -------- --------
Dilutive potential common shares ....................... 4,348 835 4,705 889
-------- -------- -------- --------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions ... 30,646 31,220 30,563 31,239
======== ======== ======== ========
Basic earnings per common share ........................ $ 0.62 $ 0.61 $ 1.16 $ 1.30
======== ======== ======== ========
Diluted earnings per common share ...................... $ 0.54 $ 0.60 $ 1.02 $ 1.26
======== ======== ======== ========
There were approximately 1.4 million stock options not included in diluted
earnings per common share during the three and nine months ended September 30,
2005 as the effect would be anti-dilutive. There were no anti-dilutive stock
options during the three and nine months ended September 30, 2004.
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." 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
9
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 40,000 stock options
granted to our non-employee directors during the nine months ended September 30,
2004. There were 668,000 stock options granted to our employees during the three
and nine months ended September 30, 2005. There were 136,300 stock options
granted to certain of our non-employee directors during the three and nine
months ended September 30, 2005. All stock options were granted with an exercise
price equal to the closing price of our common stock on the date of grant. The
fair value of the options granted during the nine months ended September 30,
2005 and 2004 was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2005
------------------ ------------------
Dividend yield .............................. 0.00% 0.00%
Risk-free investment rate ................... 2.12% 3.98%
Volatility factor of expected market price .. 0.65 0.61
Life ........................................ 3.0 years 5.5 years
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 Nine Months Ended
September 30, September 30,
------------------- --------------------
2004 2005 2004 2005
-------- -------- -------- ---------
Net income, as reported .............................. $ 16,309 $ 18,665 $ 30,111 $ 39,447
Pro forma stock-based employee compensation
cost, net of income taxes ......................... (60) (824) (257) (946)
-------- -------- -------- --------
Pro forma net income ................................. $ 16,249 $ 17,841 $ 29,854 $ 38,501
======== ======== ======== ========
Earnings per share, as reported:
Basic ............................................. $ 0.62 $ 0.61 $ 1.16 $ 1.30
Diluted ........................................... $ 0.54 $ 0.60 $ 1.02 $ 1.26
Pro forma earnings per share:
Basic ............................................. $ 0.62 $ 0.59 $ 1.15 $ 1.27
Diluted ........................................... $ 0.54 $ 0.57 $ 1.01 $ 1.23
See "Recent Accounting Pronouncements" for a discussion of SFAS No. 123
(revision) which we anticipate adopting as of January 1, 2006.
10
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 Nine Months Ended
September 30, September 30,
------------------- --------------------
2004 2005 2004 2005
-------- -------- -------- ---------
Net income ........................................... $ 16,309 $ 18,665 $ 30,111 $ 39,447
Net unrealized (losses) gains on retained interests in
notes receivable sold, net of income taxes ........ (935) 591 (783) 1,384
-------- -------- -------- --------
Total comprehensive income ........................... $ 15,374 $ 19,256 $ 29,328 $ 40,831
======== ======== ======== ========
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. Among other things, the new
standard addresses the treatment of sales incentives provided by a seller to a
buyer to consummate a transaction, the calculation of accounting for
uncollectible notes receivable, the recognition of changes in inventory cost
estimates, 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 new standard will also
require a change in the classification of our provision for loan losses for
vacation ownership receivables that are currently recorded as an expense,
requiring that such amount be reflected as a reduction of revenue.
We expect the most significant change under the new standard will be the
treatment of VOI sales purchased by customers of our Sampler program. Our
Sampler program gives purchasers an opportunity to try our vacation ownership
product through a one-year allotment of Bluegreen Vacation Club points that can
be used for stays at Bluegreen resorts. In addition, we allow Sampler purchasers
a credit of certain amounts paid on their Sampler package towards a down payment
on the purchase of a vacation ownership interest. Under the new standard, this
credit will result in the deferral of such sales until additional amounts are
received from the purchaser, typically through their required mortgage payments.
We estimate that the initial adoption of SFAS No. 152 and SOP 04-2 on
January 1, 2006, which we will report as a cumulative effect of a change in
accounting principle, will result in a one-time, non-cash after-tax charge of
approximately $2.5 million to $4.0 million, or $0.08 to $0.13 per diluted share.
The adoption of the SOP is not anticipated to impact our cash flows or financial
condition.
11
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. The specified return is equal to the commercial
paper rate or London Interbank Offered Rate ("LIBOR"), as applicable, 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, which is being expensed over the funding period
of the BB&T Purchase Facility. We act as servicer under the BB&T Purchase
Facility for a fee. The BB&T Purchase Facility originally allowed for sales of
notes receivable for a cumulative purchase price of up to $140.0 million, but
$40 million of the commitment expired on July 5, 2005. The remainder of the
committed facility 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.
Sales of notes receivable under the BB&T Purchase Facility were as follows
during 2005 (in millions):
Aggregate Principal
Balance of Notes Initial Fair Value of Servicing
Date of Sale Receivable Purchase Price Gain Recognized Retained Interest Asset
------------------ ------------------- -------------- --------------- --------------------- ---------
March 31, 2005 $ 44.9 $ 38.2 $ 1.4 $ 7.8 $ 0.5
June 28, 2005 45.0 38.2 1.6 8.1 0.5
September 27, 2005 57.6 49.0 2.3 10.4 0.6
------- ------- ----- ------ -----
Total $ 147.5 $ 125.4 $ 5.3 $ 26.3 $ 1.6
======= ======= ===== ====== =====
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the 2005
transactions: prepayment rates ranging from 17% to 14% per annum as the
portfolios mature; a loss severity rate of 45%; default rates ranging from 9% to
1% per annum as the portfolios mature; and a discount rate of 12%.
As of September 30, 2005, the remaining availability under the BB&T
Purchase Facility was $15.1 million, subject to eligibility requirements and
fulfillment of conditions precedent.
As of September 29, 2005, the commitment expiration date under our Resort
Finance, LLC ("RFL") note purchase agreement was extended three months from
September 29, 2005 to December 29, 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 ("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 at the collateral property; 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 at a rate equal to 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, which has been renamed Daytona Seabreeze, in Daytona Beach
12
Shores, Florida (the "Daytona Resort"). The total commitment under the RFL A&D
Facility for the Daytona Resort was $14.7 million and the $5.2 million balance
of the commitment can be borrowed during 2005 to fund refurbishment of the
Daytona Resort. As of September 30, 2005, the outstanding principal balance of
borrowings under the RFL A&D Facility was $7.3 million.
4. Trust Preferred Securities Offerings
We have formed statutory business trusts (collectively, the "Trusts") and
each issued trust preferred securities and invested 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. In each of
these transactions, the applicable Trust issued trust preferred securities as
part of a larger pooled trust securities offering which was not registered under
the Securities Act of 1933. The applicable Trust then 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 are payable quarterly in
arrears at the same interest rate. Distributions on the trust preferred
securities are cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities are 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 in whole or in part at the Company's option at any
time after five years from the issue date or sooner following certain specified
events. In addition, we made an initial equity contribution to each Trust 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 each Trust's common securities are nearly
identical to the trust preferred securities.
We had the following junior subordinated debentures outstanding at
September 30, 2005 (dollars in thousands):
Outstanding
Amount of Fixed Beginning
Junior Initial Interest Variable Optional
Subordinated Equity Issue Rate Interest Rate Redemption Maturity
Trust Debentures To Trust Date (1) (2) Date Date
----------------------------------------------------------------------------------------------------------
Bluegreen Statutory
Trust I $ 23,196 $ 696 3/15/05 9.160% LIBOR + 4.90% 3/30/10 3/30/35
Bluegreen Statutory
Trust II 25,774 774 5/4/05 9.158% LIBOR + 4.85% 7/30/10 7/30/35
Bluegreen Statutory
Trust III 10,310 310 5/10/05 9.193% LIBOR + 4.85% 7/30/10 7/30/35
-----------------------
$ 59,280 $ 1,780
=======================
(1) Both the trust preferred securities and junior subordinated
debentures bear interest at a fixed interest rate from the issue
date through the beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated
debentures bear interest at a variable interest rate from the
beginning optional redemption date through the maturity date.
5. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering (the
"Offering") of $110.0 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). On June 27, 2005, we redeemed
$55.0 million in aggregate principal amount of the Notes at a redemption price
of 101.75% plus accrued and unpaid interest through June 26, 2005 of
approximately $1.4 million. In connection with the redemption, we recorded a
charge of approximately $1.7 million representing the prepayment penalty and a
proportionate share of the debt issuance costs related to the principal amount
of the redeemed Notes. The remaining balance of debt issuance costs will
continue to be amortized through the maturity date of the Notes.
None of the assets of Bluegreen Corporation secures 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:
13
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
Inventory, net ...................................... -- 20,605 184,608 -- 205,213
Retained interests in notes receivable sold ......... -- 72,099 -- -- 72,099
Property and equipment, net ......................... 15,084 2,013 57,147 -- 74,244
Investments in subsidiaries ......................... 213,011 -- 3,230 (216,241) --
Other assets ........................................ 2,645 9,150 22,886 -- 34,681
--------- --------- ---------- ---------- ---------
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
========= ========= ========== ========== =========
September 30, 2005
(Unaudited)
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents ........................... $ 51,065 $ 20,695 $ 16,868 $ -- $ 88,628
Contracts receivable, net ........................... -- 3,304 40,454 -- 43,758
Intercompany receivable ............................. 108,003 -- -- (108,003) --
Notes receivable, net ............................... -- 39,563 93,245 -- 132,808
Inventory, net ...................................... -- 19,256 195,702 -- 214,958
Retained interests in notes receivable sold ......... -- 96,744 -- -- 96,744
Property and equipment, net ......................... 14,528 1,475 63,538 -- 79,541
Investments in subsidiaries ......................... 247,422 -- 3,230 (250,652) --
Other assets ........................................ 3,590 8,818 22,070 -- 34,478
--------- --------- ---------- ---------- ---------
Total assets .................................. $ 424,608 $ 189,855 $ 435,107 $ (358,655) $ 690,915
========= ========= ========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other .. $ 12,422 $ 17,362 $ 58,190 $ -- $ 87,974
Intercompany payable ............................. -- 12,142 95,862 (108,004) --
Deferred income taxes ............................ (14,833) 43,062 55,482 -- 83,711
Lines-of-credit and notes payable ................ 5,889 29,847 53,050 -- 88,786
10.50% senior secured notes payable .............. 55,000 -- -- -- 55,000
Junior subordinated debentures ................... 59,280 -- -- -- 59,280
--------- --------- ---------- ---------- ---------
Total liabilities ............................. 117,758 102,413 262,584 (108,004) 374,751
Minority interest ................................ -- -- -- 9,314 9,314
Total shareholders' equity ....................... 306,850 87,442 172,523 (259,965) 306,850
--------- --------- ---------- ---------- ---------
Total liabilities and shareholders' equity .... $ 424,608 $ 189,855 $ 435,107 $ (358,655) $ 690,915
========= ========= ========== ========== =========
14
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three Months Ended September 30, 2004
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................. $ -- $ 11,040 $ 150,858 $ -- $ 161,898
Other resort and communities operations revenue .. -- 2,359 16,808 -- 19,167
Management fees .................................. 17,508 -- -- (17,508) --
Equity income from subsidiaries .................. 14,223 -- -- (14,223) --
Interest income .................................. 70 1,777 3,896 -- 5,743
Gain on sale of notes receivable ................. -- 3,333 -- -- 3,333
--------- --------- ---------- ---------- ---------
31,801 18,509 171,562 (31,731) 190,141
--------- --------- ---------- ---------- ---------
COSTS AND EXPENSES
Cost of real estate sales ........................ -- 3,602 55,185 -- 58,787
Cost of other resort and communities operations .. -- 1,423 18,681 -- 20,104
Management fees .................................. -- 302 17,204 (17,506) --
Selling, general and administrative expenses ..... 12,854 5,905 59,178 -- 77,937
Interest expense ................................. 1,293 376 1,573 -- 3,242
Provision for loan losses ........................ -- 410 2,193 -- 2,603
Other expense, net ............................... 38 38 515 -- 591
--------- --------- ---------- ---------- ---------
14,185 12,056 154,529 (17,506) 163,264
--------- --------- ---------- ---------- ---------
Income before minority interest and provision
for income taxes .............................. 17,616 6,453 17,033 (14,225) 26,877
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 360 360
--------- --------- ---------- ---------- ---------
Income before provision for income taxes ......... 17,616 6,453 17,033 (14,585) 26,517
Provision for income taxes ....................... 1,307 2,361 6,540 -- 10,208
--------- --------- ---------- ---------- ---------
Net income ....................................... $ 16,309 $ 4,092 $ 10,493 $ (14,585) $ 16,309
========= ========= ========== ========== =========
Three Months Ended September 30, 2005
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................. $ -- $ 16,662 $ 150,110 $ -- $ 166,772
Other resort and communities operations revenue .. -- 3,559 17,632 -- 21,191
Management fees .................................. 14,466 -- -- (14,466) --
Equity income from subsidiaries .................. 17,539 -- -- (17,539) --
Interest income .................................. 245 3,679 4,290 -- 8,214
Gain on sales of notes receivable ................ -- 2,271 -- -- 2,271
--------- --------- ---------- ---------- ---------
32,250 26,171 172,032 (32,005) 198,448
--------- --------- ---------- ---------- ---------
COSTS AND EXPENSES
Cost of real estate sales ........................ -- 5,076 47,790 -- 52,866
Cost of other resort and communities operations .. -- 1,432 18,717 -- 20,149
Management fees .................................. -- 336 17,203 (17,539) --
Selling, general and administrative expenses ..... 9,886 7,521 69,238 -- 86,645
Interest expense ................................. 1,125 841 1,061 -- 3,027
Provision for loan losses ........................ -- 473 2,370 -- 2,843
Other expense, net ............................... 94 685 205 -- 984
--------- --------- ---------- ---------- ---------
11,105 16,364 156,584 (17,539) 166,514
--------- --------- ---------- ---------- ---------
Income before minority interest and provision
for income taxes .............................. 21,145 9,807 15,448 (14,466) 31,934
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 1,584 1,584
--------- --------- ---------- ---------- ---------
Income before provision for income taxes ......... 21,145 9,807 15,448 (16,050) 30,350
Provision for income taxes ....................... 2,480 4,010 5,195 -- 11,685
--------- --------- ---------- ---------- ---------
Net income ....................................... $ 18,665 $ 5,797 $ 10,253 $ (16,050) $ 18,665
========= ========= ========== ========== =========
15
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2004
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................. $ -- $ 32,711 $ 343,692 $ -- $ 376,403
Other resort and communities operations revenue .. -- 6,673 43,771 -- 50,444
Management fees .................................. 40,599 -- -- (40,599) --
Equity income from subsidiaries .................. 28,347 -- -- (28,347) --
Interest income .................................. 227 6,450 8,807 -- 15,484
Gain on sales of notes receivable ................ -- 6,929 -- -- 6,929
--------- --------- --------- --------- ---------
69,173 52,763 396,270 (68,946) 449,260
--------- --------- --------- --------- ---------
COSTS AND EXPENSES
Cost of real estate sales ........................ -- 8,704 123,149 -- 131,853
Cost of other resort and communities operations .. -- 3,942 48,638 -- 52,580
Management fees .................................. -- 779 39,820 (40,599) --
Selling, general and administrative expenses ..... 31,294 17,390 146,094 -- 194,778
Interest expense ................................. 6,287 1,064 3,988 -- 11,339
Provision for loan losses ........................ -- 848 5,654 -- 6,502
Other (income) expense, net ...................... 377 354 (175) -- 556
--------- --------- --------- --------- ---------
37,958 33,081 367,168 (40,599) 397,608
--------- --------- --------- --------- ---------
Income before minority interest and provision
for income taxes .............................. 31,215 19,682 29,102 (28,347) 51,652
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 2,692 2,692
--------- --------- --------- --------- ---------
Income before provision for income taxes ......... 31,215 19,682 29,102 (31,039) 48,960
Provision for income taxes ....................... 1,104 6,541 11,204 -- 18,849
--------- --------- --------- --------- ---------
Net income ....................................... $ 30,111 $ 13,141 $ 17,898 $ (31,039) $ 30,111
========= ========= ========= ========= =========
Nine Months Ended September 30, 2005
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................. $ -- $ 39,589 $ 390,412 $ -- $ 430,001
Other resort and communities operations revenue .. -- 10,149 47,854 -- 58,003
Management fees .................................. 33,028 -- -- (33,028) --
Equity income from subsidiaries .................. 45,849 -- -- (45,849) --
Interest income .................................. 980 8,247 11,212 -- 20,439
Gain on sales of notes receivable ................ -- 5,323 -- -- 5,323
--------- --------- --------- --------- ---------
79,857 63,308 449,478 (78,877) 513,766
--------- --------- --------- --------- ---------
COSTS AND EXPENSES
Cost of real estate sales ........................ -- 11,503 125,359 -- 136,862
Cost of other resort and communities operations .. -- 3,850 55,298 -- 59,148
Management fees .................................. -- 901 44,948 (45,849) --
Selling, general and administrative expenses ..... 30,929 19,602 179,460 -- 229,991
Interest expense ................................. 3,786 2,049 3,989 -- 9,824
Provision for loan losses ........................ -- 1,190 4,636 -- 5,826
Other expense, net ............................... 1,845 2,372 452 -- 4,669
--------- --------- --------- --------- ---------
36,560 41,467 414,142 (45,849) 446,320
--------- --------- --------- --------- ---------
Income before minority interest and provision
for income taxes .............................. 43,297 21,841 35,336 (33,028) 67,446
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 3,305 3,305
--------- --------- --------- --------- ---------
Income before provision for income taxes ......... 43,297 21,841 35,336 (36,333) 64,141
Provision for income taxes ....................... 3,850 7,985 12,859 -- 24,694
--------- --------- --------- --------- ---------
Net income ....................................... $ 39,447 $ 13,856 $ 22,477 $ (36,333) $ 39,447
========= ========= ========= ========= =========
16
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2004
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash provided by operating activities ........... $ 27,003 $ 5,212 $ 23,188 $ 55,403
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment .............. (4,365) (607) (9,704) (14,676)
Sales of property and equipment .................. -- -- 8 8
Installment payments on business acquisition ..... -- -- (575) (575)
Cash received from retained interests in notes
receivable sold ............................... -- 11,231 -- 11,231
-------- -------- -------- --------
Net cash (used) provided by investing activities .... (4,365) 10,624 (10,271) (4,012)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and notes payable .................. -- 3,179 54,461 57,640
Payments under line-of-credit facilities and
notes payable ................................. (1,480) (7,733) (66,565) (75,778)
Payment of debt issuance costs ................... (2,678) (21) (520) (3,219)
Proceeds from exercise of stock options .......... 2,556 -- -- 2,556
-------- -------- -------- --------
Net cash used by financing activities ............... (1,602) (4,575) (12,624) (18,801)
-------- -------- -------- --------
Net increase in cash and cash equivalents .......... 21,036 11,261 293 32,590
Cash and cash equivalents at beginning of period .... 29,872 8,716 15,059 53,647
-------- -------- -------- --------
Cash and cash equivalents at end of period .......... 50,908 19,977 15,352 86,237
Restricted cash and cash equivalents at end of
period ........................................... (173) (5,432) (13,928) (19,533)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of
period ........................................... $ 50,735 $ 14,545 $ 1,424 $ 66,704
======== ======== ======== ========
Nine Months Ended September 30, 2005
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash (used) provided by operating activities .... $(15,971) $ (2,965) $ 64,082 $ 45,146
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment .............. (3,924) (60) (9,623) (13,607)
Sales of property and equipment .................. -- -- 7 7
Installment payments on business acquisition ..... -- -- (500) (500)
Investment in statutory business trust ........... (1,780) -- -- (1,780)
Cash received from retained interests in notes
receivable sold ............................... -- 7,989 -- 7,989
-------- -------- -------- --------
Net cash (used) provided by investing activities .... (5,704) 7,929 (10,116) (7,891)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and notes payable .................. -- -- 25,548 25,548
Payments under line-of-credit facilities and notes
payable ....................................... (775) (998) (72,801) (74,574)
Redemption of 10.50% senior secured notes
payable ....................................... (55,000) -- -- (55,000)
Proceeds from issuance of junior subordinated
debentures .................................... 59,280 -- -- 59,280
Payment of debt issuance costs ................... (1,855) (37) (1,361) (3,253)
Proceeds from exercise of stock options .......... 834 -- -- 834
-------- -------- -------- --------
Net cash provided (used) by financing activities .... 2,484 (1,035) (48,614) (47,165)
-------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents ...................................... (19,191) 3,929 5,352 (9,910)
Cash and cash equivalents at beginning of period .... 70,256 16,766 11,516 98,538
-------- -------- -------- --------
Cash and cash equivalents at end of period .......... 51,065 20,695 16,868 88,628
Restricted cash and cash equivalents at end of
period ........................................... (174) (6,709) (13,795) (20,678)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of
period ........................................... $ 50,891 $ 13,986 $ 3,073 $ 67,950
======== ======== ======== ========
17
6. 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 September 30, 2004
Sales of real estate .............................. $ 96,104 $ 65,794 $ 161,898
Other resort and communities operations revenue ... 17,287 1,880 19,167
Depreciation expense .............................. 1,387 426 1,813
Field operating profit ............................ 19,210 15,584 34,794
For the three months ended September 30, 2005
Sales of real estate .............................. $ 114,371 $ 52,401 $ 166,772
Other resort and communities operations revenue ... 18,368 2,823 21,191
Depreciation expense .............................. 1,790 415 2,205
Field operating profit ............................ 23,070 13,566 36,636
For the nine months ended September 30, 2004
Sales of real estate .............................. $ 235,888 $ 140,515 $ 376,403
Other resort and communities operations revenue ... 44,892 5,552 50,444
Depreciation expense .............................. 3,689 1,341 5,030
Field operating profit ............................ 43,245 28,173 71,418
For the nine months ended September 30, 2005
Sales of real estate .............................. $ 277,034 $ 152,967 $ 430,001
Other resort and communities operations revenue ... 50,586 7,417 58,003
Depreciation expense .............................. 5,198 1,258 6,456
Field operating profit ............................ 50,743 39,253 89,996
Net inventory by business segment:
December 31, September 30,
2004 2005
------------ -------------
Bluegreen Resorts .............. $ 126,238 $ 152,111
Bluegreen Communities .......... 78,975 62,847
--------- ---------
Total $ 205,213 $ 214,958
========= =========
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 Nine Months Ended
September 30, September 30,
--------------------------------------------
2004 2005 2004 2005
--------- -------- --------- ---------
Field operating profit for reportable segments ..... $ 34,794 $ 36,636 $ 71,418 $ 89,996
Interest income .................................... 5,743 8,214 15,484 20,439
Gain on sales of notes receivable .................. 3,333 2,271 6,929 5,323
Other expense, net ................................. (591) (984) (556) (4,669)
Corporate general and administrative expenses ...... (10,557) (8,333) (23,782) (27,993)
Interest expense ................................... (3,242) (3,027) (11,339) (9,824)
Provision for loan losses .......................... (2,603) (2,843) (6,502) (5,826)
--------- -------- --------- ---------
Consolidated income before minority interest and
provision for income taxes ....................... $ 26,877 $ 31,934 $ 51,652 $ 67,446
========= ======== ========= =========
18
7. Contingencies
On November 8, 2005, we received notice that the Tennessee Department of Revenue
is considering imposing an assessment for sales, use and other miscellaneous
business taxes for sales of timeshare interests in Bluegreen Vacation Club
within the State of Tennessee during the period from 2001 through 2004. We have
been advised that the amounts that may be imposed by the state of Tennessee may
be as much as $28 million; however, no formal assessment has been approved or
made by the Tennessee Department of Revenue. We believe that the assessments
under consideration by the Tennessee Department of Revenue are based on a
preliminary, but mistaken, interpretation of the tax laws of the state of
Tennessee. We will be reviewing this matter further with representatives of the
Tennessee Department of Revenue, and we intend to vigorously defend against any
such claims or assessments.
In an unrelated matter, the South Carolina Supreme Court has, through a series
of cases, ruled that the closing of real estate and mortgage loan transactions
in the state of South Carolina must be conducted under the supervision of an
attorney licensed in the that state. In March 2005, a class action lawsuit was
brought in the Court of Common Pleas for the 15th Judicial Circuit in South
Carolina against an unaffiliated South Carolina timeshare developer alleging,
among other things, that such timeshare developer did not comply with the
requirements of the South Carolina Supreme Court decisions. That case remains
pending and additional cases may be brought against other timeshare developers
in South Carolina, including Bluegreen. If such a case were to be brought
against Bluegreen and it is determined that Bluegreen is in violation of South
Carolina law, Bluegreen may be subject to fines and purchasers of timeshare
properties in South Carolina may have the right to rescind their respective
transactions and seek the satisfaction of their related timeshare loan, all of
which could have a material adverse effect on Bluegreen's results of operations
and financial position.
19
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 and 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. In addition, many states including the
states of Florida and South Carolina, where some of the Resorts are
located, extensively regulate the creation and management of
timeshare resorts, the marketing and sale of timeshare properties,
the escrow of purchaser funds and other property prior to the
completion of construction and closing, the content and use of
advertising materials and promotional offers, the delivery of an
offering memorandum and the creation and operation of exchange
programs and multi-site timeshare plan reservation systems.
Moreover, the South Carolina Supreme Court has, through a series of
cases, ruled that the closing of real estate and mortgage loan
transactions must be conducted under the supervision of an attorney
licensed in the State of South Carolina. In March 2005, a class
action lawsuit was brought in the Court of Common Pleas for the 15th
Judicial Circuit in South Carolina against an unaffiliated South
Carolina timeshare operator alleging, among other things, that such
timeshare operator did not comply with the requirements of the South
Carolina Supreme Court decisions. That case remains pending and
additional cases may be brought against other timeshare operators in
South Carolina, including Bluegreen. If such a case were to be
brought against Bluegreen and it is determined that Bluegreen is in
violation of South Carolina law, Bluegreen may be subject to fines
and purchasers of timeshare properties in South Carolina may have
the right to rescind their respective transactions and seek the
satisfaction of their related timeshare loan, all of which could
have a material adverse effect on Bluegreen's results of operations
and financial position.
20
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 The effect of the adoption of SOP 04-2 and SFAS No. 152 could differ
from that anticipated or could have a materially adverse impact on
the operations of Resort segment.
o Anticipated changes in United States generally accepted accounting
principles, especially those related to the sales of notes
receivable, could have a material adverse impact on our results of
operations.
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 operating results. To the extent inflationary trends affect
interest rates, a portion of our debt service costs may be adversely affected,
including interest cost on our vacation ownership receivables purchase
facilities.
We recognize revenue on homesite and VOI sales when, subject to applicable
accounting rules, 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
21
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 are paid or the regular payment formula is
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-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 public
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.
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.
22
Bluegreen Bluegreen
Resorts Communities Total
------------------------ ----------------------- ----------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
----------- ---------- ---------- ---------- --------- ----------
(dollars in thousands)
Three Months Ended September 30, 2004
Sales of real estate ................ $ 96,104 100% $ 65,794 100% $ 161,898 100%
Cost of real estate sales ........... (23,873) (25) (34,914) (53) (58,787) (36)
----------- ---------- ---------
Gross profit ........................ 72,231 75 30,880 47 103,111 64
Other resort and communities
operations revenues .............. 17,287 18 1,880 3 19,167 12
Cost of other resort and
communities operations ........... (18,071) (19) (2,033) (3) (20,104) (12)
Selling and marketing expenses ...... (48,154) (50) (11,796) (18) (59,950) (37)
Field general and administrative
expenses (1) ..................... (4,083) (4) (3,347) (5) (7,430) (5)
----------- ---------- ---------
Field Operating Profit .............. $ 19,210 20% $ 15,584 24% $ 34,794 22%
=========== ========== =========
Three Months Ended September 30, 2005
Sales of real estate ................ $ 114,371 100% $ 52,401 100% $ 166,772 100%
Cost of real estate sales ........... (24,974) (22) (27,892) (53) (52,866) (32)
----------- ---------- ---------
Gross profit ........................ 89,397 78 24,509 47 113,906 68
Other resort and communities
operations revenues .............. 18,368 16 2,823 5 21,191 13
Cost of other resort and
communities operations ........... (17,605) (15) (2,544) (5) (20,149) (12)
Selling and marketing expenses ...... (60,396) (53) (8,353) (16) (68,749) (41)
Field general and administrative
expenses (1) ..................... (6,694) (6) (2,869) (5) (9,563) (6)
----------- ---------- ---------
Field Operating Profit .............. $ 23,070 20% $ 13,566 26% $ 36,636 22%
=========== ========== =========
Nine Months Ended September 30, 2004
Sales of real estate ................ $ 235,888 100% $ 140,515 100% $ 376,403 100%
Cost of real estate sales ........... (55,479) (24) (76,374) (54) (131,853) (35)
----------- ---------- ---------
Gross profit ........................ 180,409 76 64,141 46 244,550 65
Other resort and communities
operations revenues .............. 44,892 19 5,552 4 50,444 13
Cost of other resort and
communities operations ........... (47,112) (20) (5,468) (4) (52,580) (14)
Selling and marketing expenses ...... (122,722) (52) (27,341) (19) (150,063) (40)
Field general and administrative
expenses (1) ..................... (12,222) (5) (8,711) (6) (20,933) (6)
----------- ---------- ---------
Field Operating Profit .............. $ 43,245 18% $ 28,173 20% $ 71,418 17%
=========== ========== =========
23
Bluegreen Bluegreen
Resorts Communities Total
------------------------ ----------------------- ----------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
----------- ---------- ---------- ---------- --------- ----------
(dollars in thousands)
Nine Months Ended September 30, 2005
Sales of real estate ................ $ 277,034 100% $ 152,967 100% $ 430,001 100%
Cost of real estate sales ........... (58,064) (21) (78,798) (52) (136,862) (32)
----------- ---------- ---------
Gross profit ........................ 218,970 79 74,169 48 293,139 68
Other resort and communities
operations revenues .............. 50,586 18 7,417 5 58,003 13
Cost of other resort and
communities operations ........... (52,699) (19) (6,449) (4) (59,148) (14)
Selling and marketing expenses ...... (150,220) (54) (26,837) (18) (177,057) (41)
Field general and administrative
expenses (1) ..................... (15,894) (6) (9,047) (6) (24,941) (6)
----------- ---------- ---------
Field Operating Profit .............. $ 50,743 18% $ 39,253 26% $ 89,996 21%
=========== ========== =========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $10.6 million for the three months ended September 30,
2004 and $8.3 million for the three months ended September 30, 2005.
Corporate general and administrative expenses totaled $23.8 million for
the nine months ended September 30, 2004 and $28.0 million for the nine
months ended September 30, 2005. See "Corporate General and Administrative
Expenses," below, for further discussion.
Sales and Field Operations. Consolidated sales of real estate increased $4.9
million or 3% from $161.9 million during the three months ended September 30,
2004 to $166.8 million during the three months ended September 30, 2005.
Consolidated sales increased 14% from $376.4 million during the nine months
ended September 30, 2004 to $430.0 million during the nine months ended
September 30, 2005.
Bluegreen Resorts. During the three months ended September 30, 2004 and
September 30, 2005, sales of VOIs contributed $96.1 million (59%) and $114.4
million (69%) of our total consolidated sales, respectively. During the nine
months ended September 30, 2004 and September 30, 2005, sales of VOIs
contributed $235.9 million (63%) and $277.0 million (64%) of our total
consolidated sales, respectively.
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 Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2004 2005 2004 2005
------------- ------------- ------------- -------------
Number of VOI sales transactions 9,735 11,861 24,258 28,719
Average sales price per transaction $ 10,171 $ 9,931 $ 10,043 $ 9,967
Gross margin 75% 78% 76% 79%
The $18.3 million or 19% increase in Bluegreen Resorts' sales during the three
months ended September 30, 2005, as compared to the three months ended September
30, 2004, was due primarily to same-site sales increases at our various sales
offices. Same-site sales increased by approximately $13.0 million or 14% during
the three months ended September 30, 2005 as compared to the three months ended
September 30, 2004. The same-site sales increase was primarily attributable to
the increase in sales at The Fountains resort, located in Orlando, Florida. The
Fountains generated $9.4 million in sales during the three months ended
September 30, 2005 as compared to $3.9 million during the three months ended
September 30, 2004. Sales also increased due to our continued focus on marketing
to our growing Bluegreen Vacation Club owner base. Sales to owners increased by
42% during the three months ended September 30, 2005 as compared to the three
months ended September 30, 2004. This, combined with a 12% overall increase in
the number of sales prospects seen by Bluegreen Resorts from approximately
79,000 prospects during the three months ended September 30, 2004 to
approximately 88,000 prospects during the three months ended September 30, 2005
and a slightly higher sale-to-tour conversion ratio during 2005, significantly
contributed to the overall sales increase during the three months ended
24
September 30, 2005 as compared to the three months ended September 30, 2004. The
increase in the number of prospects seen by Bluegreen Resorts and consequently
the increase in sales was also partially due to our five new sales sites, an
offsite sales office in Dallas, Texas (opened in October 2004), an offsite sales
office in King of Prussia, Pennsylvania (opened in March 2005), The Hammocks at
Marathon in Marathon, Florida (opened in August 2004), The Suites at Hershey in
Hershey, Pennsylvania (opened in June, 2005), and Daytona SeaBreeze in Daytona
Shores, Florida (opened in August, 2005).
The $41.1 million or 17% increase in Bluegreen Resorts' sales during the nine
months ended September 30, 2005, as compared to the nine months ended September
30, 2004, was due primarily to same-site sales increases at our various sales
offices. Same-site sales increased by approximately $29.6 million or 13% during
the nine months ended September 30, 2005 as compared to the nine months ended
September 30, 2004. The same-site sales increase was primarily attributable to
the increase in sales at The Fountains resort, which generated $24.3 million in
sales during the nine months ended September 30, 2005 as compared to $9.0
million during the nine months ended September 30, 2004. The sales increase was
also due to our continued focus on marketing to our growing Bluegreen Vacation
Club owner base. Sales to owners increased by 37% during the nine months ended
September 30, 2005 as compared to the nine months ended September 30, 2004.
This, combined with an 11% overall increase in the number of sales prospects
seen by Bluegreen Resorts from approximately 199,000 prospects during the nine
months ended September 30, 2004 to approximately 222,000 prospects during the
nine months ended September 30, 2005 and a slightly higher sale-to-tour
conversion ratio during 2005 significantly contributed to the overall sales
increase during the nine months ended September 30, 2005 as compared to the nine
months ended September 30, 2004. The increase in the number of prospects seen by
Bluegreen Resorts and consequently the increase in sales was partially due to
our five new sales sites, as described above.
Bluegreen Resorts' gross margin percentages vary between periods based on the
relative costs of the specific VOIs sold in each respective period. Bluegreen
Resorts' gross margin more typically ranges between 75% and 77%. During the
three and nine months ended September 30, 2005, our gross margin was favorably
impacted by the sale of relatively lower cost VOIs acquired through
opportunistic acquisitions in 2003. Approximately 144 condominium units in which
we will sell vacation ownership units were constructed and became available for
sale at the beginning of 2005 at the Fountains Resort, which has a product cost
of approximately 20% of sales price. We anticipate that our gross margin will
return to historical levels in the future, due to rising construction costs and
expected increase in the cost of real estate for acquisition.
Other resort operations revenues increased $1.1 million or 6% during the three
months ended September 30, 2005 as compared to the three months ended September
30, 2004 and increased $5.7 million or 13% during the nine months ended
September 30, 2005, as compared to the nine months ended September 30, 2004. The
increases during both the three and nine months ended September 30, 2005 as
compared to the same periods the prior year were due primarily to increases in
revenues from our resort management business, as well as higher fees earned by
our wholly-owned title company for providing title processing services on all of
our VOI sales, commensurate with the increases in resort sales.
Cost of other resort operations remained consistent during the three months
ended September 30, 2005 as compared to the three months ended September 30,
2004 and increased $5.6 million or 12% during the nine months ended September
30, 2005, as compared to the nine months ended September 30, 2004. The increase
in the cost of other resort operations during the nine months ended September
30, 2005 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 based on an increase in our VOI inventory.
Selling and marketing expenses for Bluegreen Resorts increased $12.2 million or
25% during the three months ended September 30, 2005 as compared to the three
months ended September 30, 2004. During the nine months ended September 30, 2005
as compared to the nine months ended September 30, 2004, selling and marketing
expenses for Bluegreen Resorts increased $27.5 million or 22%. These increases
were primarily related to the increase in sales, as most of these expenses are
variable with sales. As a percentage of sales, selling and marketing expenses
increased to approximately 53% and 54% during the three months and nine months
ended September 30, 2005 as compared to 50% and 52% of sales during the three
and nine months ended September 30, 2004, respectively, primarily a result of
start-up marketing costs incurred at our new sales offices.
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 assurances can be given that selling and marketing expenses will
not continue to increase as a percentage of sales in future periods.
Field general and administrative expenses for Bluegreen Resorts increased $2.6
million or 64% during the three months ended September 30, 2005, as compared to
the three months ended September 30, 2004. Field general and administrative
expenses for Bluegreen Resorts increased $3.7 million or 30% during the nine
months ended September 30, 2005 as compared to the nine months ended September
30, 2004. The increase in field general and administrative expenses was
primarily a result of the cost of operating our new sales offices.
25
As of December 31, 2004 and September 30, 2005, Bluegreen Resorts had no sales
or Field Operating Profit deferred under percentage-of-completion accounting. As
discussed in further detail in the Notes to Condensed Consolidated Financial
Statements, the adoption of a new accounting pronouncement, effective January 1,
2006, will change our treatment of sales incentives and other similarly treated
items and will result in the deferral of sales recognition of certain VOI sales
financed by the Company.
Bluegreen Communities. During the three months ended September 30, 2004 and
September 30, 2005, Bluegreen Communities generated $65.8 million (41%) and
$52.4 million (31%) of our total consolidated sales, respectively. During the
nine months ended September 30, 2004 and September 30, 2005, Bluegreen
Communities generated $140.5 million (37%) and $153.0 million (36%) 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 Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2004 2005 2004 2005
------------- ------------- ------------- -------------
Number of homesites sold 816 469 2,191 1,880
Average sales price per homesite $ 72,662 $ 82,426 $ 69,212 $ 80,388
Gross margin 47% 47% 46% 48%
Bluegreen Communities' sales decreased $13.4 million or 20% during the three
months ended September 30, 2005, as compared to the three months ended September
30, 2004, due primarily to the sell-out of six Communities properties during or
prior to the third quarter of 2005. The largest contributors to the decline were
the substantial sell-out of Traditions of Braselton, a 1,142 acre golf course
community in Braselton, Georgia, and Brickshire, our golf course community
located in New Kent Virginia. Sales at Traditions of Braselton were only $0.9
million during the three months ended September 30, 2005 as compared to $13.4
million during the three months ended September 30, 2004. Brickshire, which was
sold-out prior to the third quarter of 2005, had sales of $10.5 during the three
months ended September 30, 2004. Partially offsetting these declines were higher
sales at many of our other properties. Sales recognized at Sanctuary Cove at St.
Andrews Sound, an approximately 500-acre golf course community in Brunswick,
Georgia, totaled $16.8 million during the three months ended September 30, 2005
as compared to $5.8 million during the three months ended September 30, 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 $13.1 million during the three months
ended September 30, 2005 as compared to $4.2 million during the three months
ended September 30, 2004. During the first half of 2005 we commenced sales at
Sugar Tree on the Brazos, a community located outside Fort Worth, Texas, and at
Saddle Creek Forest, a community located near Houston, Texas. During the third
quarter of 2005 we recognized sales at these two communities of $1.5 million and
$0.6 million, respectively. Also, in the summer of 2005, we acquired two
additional properties in Texas totaling approximately 2,600 acres. One of these
projects, The Settlement at Patriot Ranch near San Antonio, commenced sales in
August 2005, and recognized sales of $1.0 million during the third quarter of
2005. The second community, Havenwood at Hunters Crossing, also near San
Antonio, is expected to commence sales in early 2006.
Bluegreen Communities' sales increased $12.5 million or 9% during the nine
months ended September 30, 2005 as compared to the nine months ended September
30, 2004. Sanctuary Cove recognized sales of approximately $43.7 million during
the nine months ended September 30, 2005 compared to $15.6 million during the
nine months ended September 30, 2004. Chapel Ridge recognized sales of
approximately $25.6 million during the nine months ended September 30, 2005
compared to $4.2 millions during the nine months ended September 30, 2004. Sales
at Mystic Shores, located in the Texas Hill Country, totaled $19.6 million
during the nine months ended September 30, 2005 as compared to $16.6 million
during the nine months ended September 30, 2004. Chapel Ridge, Sugar Tree on the
Brazo and Saddle Creek Forest recognized sales of approximately $25.6 million,
$4.9 million, and $3.6 million during the nine months ended September 30, 2005,
respectively. 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 nine months ended
September 30, 2005.
Certain of our properties substantially sold 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 continually
exploring the acquisition of properties in markets where we currently conduct
business, and in new regions of the country, in order to maintain appropriate
levels of properties in our portfolio.
Bluegreen Communities' gross margin remained constant at 47% during the three
months ended September 30, 2004 and 2005 and increased from 46% during the nine
months ended September 30, 2004 to 48% during the nine months ended September
30, 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
26
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 decreased as a
percentage of sales from 18% to 16% during the three months ended September 30,
2004 and September 30, 2005, respectively. Selling and marketing expenses for
Bluegreen Communities decreased as a percentage of sales from 19% to 18% during
the nine months ended September 30, 2004 and September 30, 2005, respectively.
These expenditures decreased as a percentage of sales due to a higher average
sales price per homesite coupled with relatively lower selling and marketing
expenses at our new golf course communities in Georgia as compared to our other
projects.
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 September 30, 2005, Bluegreen Communities had $37.8 million of
sales and $16.0 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 $10.6
million and $8.3 million during the three months ended September 30, 2004 and
September 30, 2005, respectively. As a percentage of sales of real estate,
corporate general and administrative expenses were 7% and 5% during the three
months ended September 30, 2004 and September 30, 2005, respectively. Corporate
general and administrative expenses were $23.8 million and $28.0 million for the
nine months ended September 30, 2004 and September 30, 2005, respectively. As a
percentage of sales of real estate, corporate general and administrative
expenses were approximately 6% and 7% during the nine months ended September 30,
2004 and September 30, 2005, respectively.
The decrease in corporate general and administrative expenses during the three
months ended September 30, 2005 as compared to the three months ended September
30, 2004 was due in part to an expense incurred in the third quarter of 2004
related to the settlement of a sales tax dispute with the State of Wisconsin.
The increase in corporate general and administrative expenses during the nine
months ended September 30, 2005 as compared to the nine months ended September
30, 2004, was due primarily to the additional costs incurred in connection with
the implementation of and continuing compliance with the requirements associated
with the Sarbanes-Oxley Act of 2002, severance costs associated with the
departure of our former Chief Financial Officer, as well as increased 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 $5.7 million and $8.2 million during the three months
ended September 30, 2004 and September 30, 2005, respectively. Interest income
was $15.5 million for the nine months ended September 30, 2004 and $20.4 million
for the nine months ended September 30, 2005.
The increases in interest income during the three and nine months ended
September 30, 2005 as compared to the comparable periods ended September 30,
2004 were 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 and nine months ended September 30, 2005, as
compared to the comparable periods ended September 30, 2004. Interest income was
reduced by $0.7 million and $1.7 million during the three and nine months ended
September 30, 2004, respectively, and $1.6 million during the nine months ended
September 30, 2005 for other-than-temporary decreases in the fair value of our
retained interest in a 2002 vacation ownership receivables securitization
transaction as a result of higher than projected default rates in the portfolio
sold.
Gain on Sales of Notes Receivable. During the three months ended September 30,
2004 and September 30, 2005, we sold $25.9 million and $57.6 million,
respectively, of notes receivable pursuant to 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 $0.7 million
and $2.3 million during the three months ended September 30, 2004 and September
30, 2005, respectively. We also recognized an aggregate gain of $2.6 million in
connection with a 2004 term securitization transaction (the "2004 Term
Securitization") during the three months ended September 30, 2004.
During the nine months ended September 30, 2004 and September 30, 2005, we sold
$86.7 million and $147.5 million, respectively, of notes receivable pursuant to
our vacation ownership receivables purchase facilities in place during the
respective periods and recognized gains totaling $4.3 million and $5.3 million,
respectively. We also recognized an aggregate gain of $2.6 million in connection
with the 2004 Term Securitization during the nine months ended September 30,
2004.
27
Excluding the gain recognized in connection with the 2004 Term Securitization,
the increase in the gain on sale of notes receivable recognized during the three
and nine months ended September 30, 2005, as compared to comparable periods
ended September 30, 2004, reflects a larger amount of receivables being sold
during 2005, partially off-set by higher cost of funds and other relevant
variables associated with the transactions during the nine months ended
September 30, 2005.
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 (20 consecutive
quarters). The generally accepted accounting principles governing our sale of
receivable transactions is evolving and achieving off-balance sheet accounting
treatment is becoming more difficult. Should our ability to monetize our
receivables through off-balance sheet transactions be limited, it may not be
possible to achieve gains on sales of receivables in future periods on a
quarterly basis.
Interest Expense. Interest expense was $3.2 million and $3.0 million during the
three months ended September 30, 2004 and September 30, 2005, respectively.
Interest expense was $11.3 million and $9.8 million for the nine months ended
September 30, 2004 and September 30, 2005, respectively. The decrease in
interest expense during the three- and nine-month periods ended September 30,
2005 as compared to the comparable periods ended September 30, 2004, was
primarily as a result of lower average debt outstanding and more interest being
capitalized due to increased construction activity, partially off-set by
increased borrowing rates.
Provision for Loan Losses. We recorded provisions for loan losses totaling $2.6
and $2.8 during the three months ended September 30, 2004 and September 30,
2005, respectively. The provisions for loan losses for the nine months ended
September 30, 2004 and September 30, 2005 were $6.5 million and $5.8 million,
respectively. The decrease in the provision for loan losses during the nine
months ended September 30, 2005 as compared to the comparable period ended
September 30, 2004 was primarily a result of higher non-recourse sales of notes
receivable pursuant to our vacation ownership receivables purchase facilities.
The allowance for loan losses by division as of December 31, 2004 and September
30, 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%
========= ========= ========= =========
September 30, 2005
Notes receivable ................... $ 132,945 $ 9,202 $ 186 $ 142,333
Allowance for loan losses .......... (10,397) (187) (186) (10,770)
--------- --------- --------- ---------
Notes receivable, net .............. $ 122,548 $ 9,015 $ -- $ 131,563
========= ========= ========= =========
Allowance as a % of gross notes
receivable ....................... 7.8% 2.0% 100.0% 7.6%
========= ========= ========= =========
Other Expense, net. The increase in other expense, net, during the three and
nine months ended September 30, 2005 as compared to the comparable periods ended
September 30, 2004, was primarily a result of higher amortization of legal and
other expenses related to our vacation ownership receivables purchase
facilities. This is a result of having more facilities available during the
three and nine months ended September 30, 2005 as compared to the comparable
periods ended September 30, 2004. The nine months ended September 30, 2005 also
includes the recognition of a $1.7 million loss on the early extinguishment of
$55.0 million of our 10.5% Senior Secured Notes.
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 $0.4 million and $1.6 during the three
months ended
28
September 30, 2004 and September 30, 2005, respectively. Minority interest in
income of consolidated subsidiary was $2.7 million and $3.3 million for the nine
months ended September 30, 2004 and September 30, 2005, respectively.
Summary. Based on the factors discussed above, our net income was $16.3 million
and $18.7 million for the three months ended September 30, 2004 and September
30, 2005, respectively, and was $30.1 million and $39.4 million for the nine
months ended September 30, 2004 and September 30, 2005, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for the nine months ended
September 30, 2004 and September 30, 2005 (in thousands):
Nine months ended
-----------------------------
September 30, September 30,
2004 2005
-----------------------------
Cash flows provided by operating activities $ 55,403 $ 45,146
Cash flows used by investing activities (4,012) (7,891)
Cash flows used by financing activities (18,801) (47,165)
----------- ----------
Net increase (decrease) in cash and cash equivalents $ 32,590 $ (9,910)
=========== ==========
Cash Flows From Operating Activities. Cash flows provided by operating
activities decreased $10.3 million or 19% from $55.4 million during the nine
months ended September 30, 2004 to $45.1 million during the nine months ended
September 30, 2005. This decrease was due primarily to higher construction and
development spending during the nine months ended September 30, 2005 as compared
to the nine months ended September 30, 2004. Additionally, during the nine
months ended September 30, 2005 we acquired land for three Bluegreen Communities
developments (Saddle Creek Forest, Patriot Ranch, and Havenwood at Hunter's
Crossing) and two vacation ownership resorts (Daytona SeaBreeze and SeaGlass
Towers), as compared to the acquisition of only one vacation ownership resort
(the Suites at Hershey) during the nine months ended September 30, 2004. These
acquisition and related construction and development costs were paid with a
combination of cash and financing. These cash out flows were partially offset by
higher net income and higher proceeds from sales of notes receivable during the
nine months ended September 30, 2005 as compared to the nine months ended
September 30, 2004.
Cash Flows From Investing Activities. Cash flows used by investing activities
increased $3.9 million or 97% from $4.0 million during the nine months ended
September 30, 2004 to $7.9 million during the nine months ended September 30,
2005. This increase was due primarily to lower amounts of cash received from our
retained interests in notes receivable sold, as we did not begin receiving cash
flows on our retained interest in the 2004 Term Securitization until the third
quarter of 2005 due to reserve funding requirements. In addition, during the
nine months ended September 30, 2005, we capitalized investments of $1.8 million
into statutory business trusts for the purpose of issuing trust preferred
securities and investing the proceeds thereof in our junior subordinated
debentures (see "Liquidity and Capital Resources").
Cash Flows From Financing Activities. Cash flows used by financing activities
increased $28.4 million or 151% from $18.8 million during the nine months ended
September 30, 2004 to $47.2 million during the nine months ended September 30,
2005. This increase was due primarily to the redemption of $55.0 million of our
senior secured notes as well as lower borrowings under our credit facilities
during the nine months ended September 30, 2005 as compared to the nine months
ended September 30, 2004. These outflows were partially offset by the receipt of
$59.3 million of cash in connection with our issuance of the junior subordinated
debentures.
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.
29
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.
Subject to available financing and cash, 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 September 30, 2005. These facilities do
not constitute all of our outstanding indebtedness as of September 30, 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, for the nine months ended September 30, 2005, these
expenses approximated 60% of sales. Accordingly, the availability of facilities
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 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, which is being amortized over the
funding period of the facility. 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 September
30, 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
30
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 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. The
specified return is equal to the commercial paper rate or London Interbank
Offered Rate ("LIBOR"), as applicable, 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,
which are being amortized over the funding period of the facility. 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
expired on July 5, 2005, and the remainder of which expires on December 30,
2005. We are currently negotiating a new vacation ownership receivables facility
with BB&T. There can be no assurance that any facility will be obtained on
favorable terms, if at all.
Through September 30, 2005, we sold $147.5 million of aggregate principal
balance of notes receivable under the BB&T Purchase Facility for a cumulative
purchase price of $125.4 million. As of September 30, 2005, the remaining
availability under the BB&T Purchase Facility was $15.1 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 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 recourse
for losses on the receivables sold. In addition, these sale transactions have
generated gains on our income statement on a quarterly
31
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 achieving off-balance sheet accounting treatment is
becoming more difficult. 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 finance arrangements.
The Purchase Facilities discussed above are the only ongoing receivables
purchase facilities under which we currently have the intent and 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-type 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 generally 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-type 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 Facilities and prior similar facilities for the periods presented below
(in thousands):
December 31, September 30,
2004 2005
-----------------------------
On Balance Sheet:
Retained interests in notes receivable sold $ 72,099 $ 96,744
Servicing assets (included in other assets) 3,357 3,917
Off Balance Sheet:
Notes receivable sold without recourse 326,076 416,099
Principal balance due to note receivable purchasers 297,122 356,998
32
Three Months Ended
-----------------------------
Income Statement: September 30, September 30,
2004 2005
-----------------------------
Gains on sales of notes receivable $ 3,333 $ 2,271
Interest accretion on retained interests in notes
receivable sold 1,122 2,084
Servicing fee income 1,074 1,339
Amortization of servicing assets (301) (328)
Nine Months Ended
-----------------------------
September 30, September 30,
2004 2005
-----------------------------
Gains on sales of notes receivable $ 6,929 $ 5,323
Interest accretion on retained interests in notes
receivable sold 3,988 4,078
Servicing fee income 3,253 3,875
Amortization of servicing assets (769) (970)
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% (7.86% at September 30, 2005).
During the nine months ended September 30, 2005, we pledged approximately $18.8
million in aggregate principal balance of vacation ownership receivables under
the GMAC Receivables Facility and received $16.9 million in cash borrowings. As
of September 30, 2005, $28.2 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% (8.61% at September 30, 2005). Interest payments
are due monthly. During the nine months ended September 30, 2005, we borrowed
$9.6 million under the GMAC AD&C Facility to fund the development of VOIs at The
Fountains. As of September 30, 2005, $10.8 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.
Acquisition and development 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
33
Facility bear interest at the prime lending rate plus 1.00% (7.75% at September
30, 2005), subject to a 6.00% minimum interest rate. During the nine months
ended September 30, 2005, we borrowed $10.5 million collateralized by $11.6
million of vacation ownership receivables. As of September 30, 2005, $4.5
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 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 to
fund refurbishment of the Daytona Resort. As of September 30, 2005, the
outstanding principal balance of borrowings under the RFL A&D Facility was $7.3
million.
The Foothill Facility. 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% (8.00% at September 30,
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% (7.00% at September 30, 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% (7.25% at September 30,
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 September 30, 2005,
the outstanding principal balance under this facility was approximately $4.0
million, approximately $2.9 million of which related to Bluegreen Communities'
receivables borrowings and $1.1 million of which related to Bluegreen Resorts'
receivables borrowings. Outstanding indebtedness collateralized by receivables
is due December 31, 2008.
The GMAC Communities Facility. We have a $75.0 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); Yellowstone Creek Ranch (Pueblo, Colorado); and Havenwood at
Hunters' Crossing (New Braunfels, Texas) (the "Texas Property"). 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 30, 2007. 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 30, 2009. The interest charged on
outstanding borrowings is at the prime lending rate plus 1.00% (7.75% at
September 30, 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
34
corporate purposes. On July 20, 2005, we borrowed an additional $7.5 million
under the GMAC Communities Facility in connection with the acquisition of the
Texas Property. As of September 30, 2005, $7.5 million was outstanding under the
GMAC Communities Facility.
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 Securities Offerings
We have formed statutory business trusts (collectively, the "Trusts") and each
issued trust preferred securities and invested 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. In each of
these transactions, the applicable Trust issued trust preferred securities as
part of a larger pooled trust securities offering which was not registered under
the Securities Act of 1933. The applicable Trust then 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 are payable quarterly in
arrears at the same interest rate. Distributions on the trust preferred
securities are cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities are 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 in whole or in part at the Company's option at any
time after five years from the issue date or sooner following certain specified
events. In addition, we made an initial equity contribution to each Trust 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 each Trust's common securities are nearly
identical to the trust preferred securities.
We had the following junior subordinated debentures outstanding at September 30,
2005 (dollars in thousands):
Outstanding
Amount of Fixed Beginning
Junior Initial Interest Variable Optional
Subordinated Equity Issue Rate Interest Rate Redemption Maturity
Trust Debentures To Trust Date (1) (2) Date Date
----------------------------------------------------------------------------------------------------------------------
Bluegreen Statutory Trust I $ 23,196 $ 696 3/15/05 9.160% LIBOR + 4.90% 3/30/10 3/30/35
Bluegreen Statutory Trust II 25,774 774 5/4/05 9.158% LIBOR + 4.85% 7/30/10 7/30/35
Bluegreen Statutory Trust III 10,310 310 5/10/05 9.193% LIBOR + 4.85% 7/30/10 7/30/35
-----------------------
$ 59,280 $ 1,780
=======================
(1) Both the trust preferred securities and junior subordinated
debentures bear interest at a fixed interest rate from the issue
date through the beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated
debentures bear interest at a variable interest rate from the
beginning optional redemption date through the maturity date.
We currently intend to seek to create similar trusts and to participate in other
pooled trust preferred securities transactions in the future as a source of
additional financing, subject to market conditions and other considerations.
35
Senior Secured Note Redemption
On June 27, 2005, we used the proceeds from junior subordinated debentures to
redeem $55.0 million in aggregate principal amount of our 10.50% senior secured
notes payable due April 1, 2008 at a redemption price of 101.75% plus accrued
and unpaid interest through June 26, 2005 of approximately $1.4 million.
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% (5.86% at
September 30, 2005). Interest is due monthly and all outstanding amounts are due
on June 30, 2006. Borrowings under the line-of-credit are limited to an amount
which is 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 covenants and conditions typical of
arrangements of this type. As of September 30, 2005, no borrowings were
outstanding under the line; however, an aggregate of $607,000 of irrevocable
letters of credit were outstanding under this line-of-credit at September 30,
2005. These letters of credit expire on December 31, 2005. This line-of-credit
is an available source of short-term liquidity.
Commitments
Our material commitments as of September 30, 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 September 30, 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 $ 28 $ -- $ 8,546 $ 28,241 $ 36,815
Lines-of-credit and notes payable 20,910 23,499 7,562 -- 51,971
10.5% senior secured notes -- 55,000 -- -- 55,000
Junior subordinated debentures -- -- -- 59,280 59,280
Noncancelable operating leases 5,249 10,733 6,812 6,795 29,589
--------- --------- --------- --------- ---------
Total contractual obligations $ 26,187 $ 89,232 $ 22,920 $ 94,316 $ 232,655
========= ========= ========= ========= =========
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 on 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 September
30, 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 obtaining 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 $21.3 million as of September 30,
2005. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $76.3
million as of September 30, 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 $21.0
36
million, $2.9 million of which has been paid by us as a deposit and is being
held in escrow as of September 30, 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 a refund
for our deposit or 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 when
financed under this facility, 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.
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
facilities 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 believes acceptable. 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; restrictions on the
payment of dividends, investments in joint ventures and other restricted
payments; limitations on the incurrence of liens and transactions with
affiliates, covenants concerning net worth, fixed charge coverage requirements,
debt-to-equity ratios and portfolio performance requirements; and events of
default or termination. No assurance can be given that we will be in compliance
with such covenants, 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
September 30, 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 September 30, 2005 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
On November 8, 2005, we received notice that the Tennessee Department of Revenue
is considering imposing an assessment for sales, use and other miscellaneous
business taxes for sales of timeshare interests in Bluegreen Vacation Club
during the period from 2001 through 2004. We have been advised that the amounts
that may be imposed by the state of Tennessee may be as much as $28 million;
however, no formal assessment has been approved or made by the Tennessee
Department of Revenue. We believe that the assessments under consideration by
the Tennessee Department of Revenue are based on a preliminary, but mistaken,
interpretation of the tax laws of the state of Tennessee. We will be reviewing
this matter further with representatives of the Tennessee Department of Revenue,
and we intend to vigorously defend against any such claims or assessments.
37
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 September 30, 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
3.2 Amended and Restated Bylaws of Bluegreen Corporation, as of
October 14, 2002, filed as exhibit (Exhibit 3.2) to Form 10-Q
on November 13, 2002 inadvertently omitted Article VIII
Director Emeritus. A complete copy of the bylaws of Bluegreen
Corporation is filed herewith.
10.7 Commitment Extension Letter to the Amended and Restated Note
Purchase Agreement among Bluegreen Corporation, as Seller and
Servicer, BXG Receivables Note Trust 2001-A, as Issuer,
Bluegreen Receivables Finance Corporation V, as Depositor,
dated as of September 2, 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.
38
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: November 9, 2005 By: /S/ GEORGE F. DONOVAN
-----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 9, 2005 By: /S/ ANTHONY M. PULEO
-----------------------------------
Anthony M. Puleo
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: November 9, 2005 By: /S/ RAYMOND S. LOPEZ
-----------------------------------
Raymond S. Lopez
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
39