UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission File Number: 0-19292
[BLUE GREEN(R) LOGO]
Bluegreen Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
----------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4960 Conference Way North, Suite 100,
Boca Raton, Florida 33431
----------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 912-8000
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(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated files. (See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act). (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated
filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 4, 2007, there
were 30,983,988 shares of the registrant's common stock, $0.01 par value,
outstanding.
2
BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets at December 31, 2006
and March 31, 2007 ........................................... 4
Condensed Consolidated Statements of Operations - Three months
ended March 31, 2006 and 2007 ................................ 5
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 2006 and 2007 ................................ 6
Notes to Condensed Consolidated Financial Statements ......... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 21
Item 4. Controls and Procedures ...................................... 39
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .. 40
Item 6. Exhibits ..................................................... 40
Signatures ............................................................. 42
TRADEMARKS
The terms "Bluegreen(R)," "Bluegreen Communities(R)," "Bluegreen Vacation
Club(R)," "Colorful Places To Live And Play(R)," "You're Going To Like What You
See!(R)," "Encore Rewards(R)," "Outdoor Traveler Logo(R)," and the "Bluegreen
Logo(R)" are registered in the U.S. Patent and Trademark Office by Bluegreen
Corporation.
The terms "The Hammocks at Marathon(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside(TM)," "Mountain Run at Boyne(TM)," "The Falls Village(TM),"
"Bluegreen Wilderness Club(TM)," "The Lodge Alley Inn(TM)," "Carolina
Grande(TM)," "Harbour Lights(TM)," "Patrick Henry Square(TM)," "SeaGlass
Tower(TM)," "Shore Crest Vacation Villas(TM)," "Laurel Crest(TM),"
"MountainLoft(TM)," "Daytona SeaBreeze(TM)," "Shenandoah Crossing(TM),"
"Christmas Mountain Village(TM)," "Traditions of Braselton(TM)," "Sanctuary Cove
at St. Andrews Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes
Ranch(TM)," "Silver Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe
Pool Lake(TM)," "Ridge Lake Shores(TM)," "Mountain Springs Ranch(TM),"
"Havenwood at Hunter's CrossingTM," "Vintage Oaks at the Vineyard(TM)," "The
Bridges at Preston Crossings(TM)," "Saddle Creek Forest(TM)," "The Settlement at
Patriot Ranch(TM)," "Carolina National(TM)," "Brickshire(TM)," "Golf Club at
Brickshire(TM)," "Preserve at Jordan Lake(TM)," "Encore Dividends(TM),"
Bluegreen Preferred(TM)," and "Bluegreen Traveler Plus(TM)," are trademarks or
service marks of Bluegreen Corporation in the United States.
The terms "Big Cedar(R)" and "Bass Pro Shops(R)" are 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.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
2006 2007
------------ -----------
(Unaudited)
ASSETS
Cash and cash equivalents (including restricted cash of $21,476
and $21,967 at December 31, 2006 and March 31, 2007, respectively) .. $ 71,148 $ 54,624
Contracts receivable, net .............................................. 23,856 24,841
Notes receivable (net of allowance of $13,499 and $12,156 at
December 31, 2006 and March 31, 2007, respectively) ................. 144,251 150,911
Prepaid expenses ....................................................... 10,800 12,483
Other assets ........................................................... 27,465 27,846
Inventory, net ......................................................... 349,333 385,817
Retained interests in notes receivable sold ............................ 130,623 133,717
Property and equipment, net ............................................ 92,445 92,852
Goodwill ............................................................... 4,291 4,291
------------ -----------
Total assets ..................................................... $ 854,212 $ 887,382
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ....................................................... $ 18,465 $ 24,029
Accrued liabilities and other .......................................... 49,458 44,787
Deferred income ........................................................ 40,270 42,728
Deferred income taxes .................................................. 87,624 90,767
Receivable-backed notes payable ........................................ 21,050 18,871
Lines-of-credit and notes payable ...................................... 124,412 124,730
10.50% senior secured notes payable .................................... 55,000 55,000
Junior subordinated debentures ......................................... 90,208 110,827
------------ -----------
Total liabilities ................................................... 486,487 511,739
Minority interest ...................................................... 14,702 16,336
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; 33,603 and
33,739 shares issued at December 31, 2006 and March 31, 2007,
respectively ........................................................ 336 337
Additional paid-in capital ............................................. 175,164 176,322
Treasury stock, 2,756 common shares at both December 31, 2006 and
March 31, 2007, at cost ............................................. (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ............ 12,632 12,424
Retained earnings ...................................................... 177,776 183,109
------------ -----------
Total shareholders' equity .......................................... 353,023 359,307
------------ -----------
Total liabilities and shareholders' equity ....................... $ 854,212 $ 887,382
============ ===========
Note: The condensed consolidated balance sheet at December 31, 2006 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.
4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
---------------------
2006 2007
--------- ---------
Revenues:
Sales of real estate ............................................................... $ 121,760 $ 122,022
Other resort and communities operations revenue .................................... 16,667 15,018
Interest income .................................................................... 8,173 9,842
Gain on sales of notes receivable .................................................. 505 --
--------- ---------
147,105 146,882
Costs and expenses:
Cost of real estate sales .......................................................... 45,222 36,732
Cost of other resort and communities operations .................................... 16,780 12,419
Selling, general and administrative expenses ....................................... 73,585 81,393
Interest expense ................................................................... 3,306 5,151
Other expense, net ................................................................. 635 951
--------- ---------
139,528 136,646
--------- ---------
Income before minority interest and provision for income taxes ........................ 7,577 10,236
Minority interest in income of consolidated subsidiary ................................ 1,022 1,634
--------- ---------
Income before provision for income taxes and change in accounting principle ........... 6,555 8,602
Provision for income taxes ............................................................ 2,524 3,269
--------- ---------
Income before cumulative effect of change in accounting principle ..................... 4,031 5,333
Cumulative effect of change in accounting principle, net of tax ....................... (5,678) --
Minority interest in income of cumulative effect of change in accounting principle .... 1,184 --
--------- ---------
Net (loss) income ..................................................................... $ (463) $ 5,333
========= =========
Income before cumulative effect of change in accounting principle per common share:
Basic .............................................................................. $ 0.13 $ 0.17
========= =========
Diluted ............................................................................ $ 0.13 $ 0.17
========= =========
Cumulative effect of change in accounting principle, net of tax and net of minority
interest in income of cumulative effect of change in accounting principle per common
share:
Basic .............................................................................. $ (0.15) $ --
========= =========
Diluted ............................................................................ $ (0.14) $ --
========= =========
Net (loss) income per common share:
Basic .............................................................................. $ (0.02) $ 0.17
========= =========
Diluted ............................................................................ $ (0.01) $ 0.17
========= =========
Weighted average number of common and common equivalent shares:
Basic .............................................................................. 30,513 30,889
========= =========
Diluted ............................................................................ 31,179 31,294
========= =========
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
2006 2007
--------- ---------
Operating activities:
Net (loss) income .................................................................. $ (463) $ 5,333
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Cumulative effect of change in accounting principle, net ........................ 5,678 --
Non-cash stock compensation expense ............................................. 459 613
Minority interest in (loss) income of consolidated subsidiary ................... (162) 1,634
Depreciation and amortization ................................................... 4,010 4,448
Gain on sale of notes receivable ................................................ (7,011) (7,967)
Loss on sale of property and equipment .......................................... 75 525
Provision for loan losses ....................................................... 10,630 11,362
Provision for deferred income taxes ............................................. 2,524 3,269
Interest accretion on retained interests in notes receivable sold ............... (2,578) (4,234)
Proceeds from sales of notes receivable ......................................... 36,805 46,026
Payments on borrowings collateralized by notes receivable ....................... (5,792) (2,631)
Change in operating assets and liabilities:
Contracts receivable ............................................................ (10,186) (985)
Notes receivable ................................................................ (47,464) (60,992)
Inventory ....................................................................... (7,840) (23,884)
Prepaid expenses and other assets ............................................... (3,438) (1,493)
Accounts payable, accrued liabilities and other ................................. 4,555 3,686
--------- ---------
Net cash used in operating activities ................................................. (20,198) (25,290)
--------- ---------
Investing activities:
Purchases of property and equipment ................................................ (6,713) (4,019)
Investment in statutory business trust ............................................. -- (619)
Cash received from retained interests in notes receivable sold ..................... 10,064 5,871
--------- ---------
Net cash provided by investing activities ............................................. 3,351 1,233
--------- ---------
Financing activities:
Borrowings under lines-of-credit facilities and other notes payable ................ 11,169 12,500
Payments under lines-of-credit facilities and other notes payable .................. (6,014) (25,448)
Proceeds from issuance of junior subordinated debentures ........................... -- 20,619
Payment of debt issuance costs ..................................................... (1,236) (684)
Proceeds from exercise of stock options ............................................ -- 546
--------- ---------
Net cash provided by financing activities ............................................. 3,919 7,533
--------- ---------
Net decrease in cash and cash equivalents ............................................. (12,928) (16,524)
Cash and cash equivalents at beginning of period ...................................... 84,704 71,148
--------- ---------
Cash and cash equivalents at end of period ............................................ 71,776 54,624
Restricted cash and cash equivalents at end of period ................................. (23,717) (21,967)
--------- ---------
Unrestricted cash and cash equivalents at end of period ............................... $ 48,059 $ 32,657
========= =========
See accompanying notes to condensed consolidated financial statements.
6
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
2006 2007
--------- ---------
Supplemental schedule of non-cash operating, investing and financing activities:
Inventory acquired through financing ............................................... $ 22,827 $ 12,600
========= =========
Property and equipment acquired through financing .................................. $ -- $ 629
========= =========
Retained interests in notes receivable sold ........................................ $ 4,718 $ 5,065
========= =========
Net change in unrealized gains in retained interests in notes receivable sold ...... $ 1,388 $ (334)
========= =========
See accompanying notes to condensed consolidated financial statements.
7
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(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 three months
ended March 31, 2007, are not necessarily indicative of the results to be
expected for the year ending December 31, 2007. For further information, refer
to our audited consolidated financial statements for the year ended December 31,
2006, which are included in our 2006 Annual Report on Form 10-K ("Annual
Report").
Organization
We provide colorful places to live and play through our resorts and
residential communities businesses. Our resorts business ("Bluegreen Resorts")
acquires, develops, markets, sells and manages real estate-based vacation
ownership interests ("VOIs") in resorts generally located in popular,
high-volume, "drive-to" vacation destinations. VOIs in our resorts typically
entitle the buyer to use resort accommodations through an annual or biennial
allotment of "points" which represent their ownership and beneficial rights in
perpetuity in our Bluegreen Vacation Club (supported by an underlying deeded VOI
held in trust for the buyer). Depending on the extent of their ownership and
beneficial rights, members in our Bluegreen Vacation Club may stay in any of our
participating resorts or take advantage of other vacation options, including
cruises and stays at approximately 3,700 resorts offered primarily by a
third-party world-wide vacation ownership exchange network. We are currently
marketing and selling VOIs in 21 resorts located in the United States and Aruba,
19 of which have active sales offices. We also sell VOIs at seven off-site sales
offices and on the campuses of two resorts under development located in the
United States. Our residential communities business ("Bluegreen Communities")
acquires, develops and subdivides property and markets residential homesites,
the majority of which are sold directly to retail customers who seek to build a
home in a high quality residential setting, in some cases on properties
featuring a golf course and other related amenities. During the three months
ended March 31, 2007, sales recognized by Bluegreen Resorts comprised
approximately 71% of our total sales of real estate while sales recognized by
Bluegreen Communities comprised approximately 29% of our total sales of real
estate. Our other resort and communities operations revenues consist primarily
of resort property management services, resort title services, resort amenity
operations, sales incentives provided to buyers of VOIs, 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 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 ("FIN No. 46R"). The statutory
business trusts are accounted for under the equity method of accounting. We have
eliminated all significant intercompany balances and transactions.
8
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.
Earnings Per Common Share
We compute basic earnings per common share 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.
During the three months ended March 31, 2007 a total of 136,313 common shares
were issued as a result of stock option exercises. There were approximately 0.8
million and 0.7 million stock options not included in diluted earnings per
common share during the three months ended March 31, 2006 and 2007,
respectively, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted (loss)
earnings per share (in thousands, except per share data):
Three Months Ended
March 31,
--------------------
2006 2007
-------- --------
Basic and diluted (loss) earnings per share -
numerator:
Net (loss) income ..................................... $ (463) $ 5,333
======== ========
Denominator:
Denominator for basic earnings per share -
weighted-average shares ............................... 30,513 30,889
-------- --------
Effect of dilutive securities:
Stock options ...................................... 666 405
-------- --------
Denominator for diluted earnings per share - adjusted
weighted-average shares ............................... 31,179 31,294
======== ========
Basic (loss) earnings per common share ................... $ (0.02) $ 0.17
======== ========
Diluted (loss) earnings per common share ................. $ (0.01) $ 0.17
======== ========
Retained Interests in Notes Receivable Sold
When we sell our notes receivable either pursuant to our VOI 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, ("SFAS No. 140") 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.
9
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. 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 on a quarterly basis based on the present value of
future expected cash flows estimated using our best estimates of the key
assumptions - prepayment rates, loss severity rates, default rates and discount
rates commensurate with the risks involved. Interest on the retained interests
in notes receivable sold is accreted using the effective yield method.
Stock-Based Compensation
We recognize stock-based compensation expense under the provisions of SFAS
No. 123R, Share-Based Payment (revised 2004), ("SFAS No. 123R"), which we
adopted January 1, 2006, utilizing the modified prospective method.
We utilize the Black-Scholes option pricing model for calculating the fair
value of each option granted. The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, this model
requires the input of subjective assumptions, including the expected price
volatility of the underlying stock. Projected data related to the expected
volatility and expected life of stock options is based upon historical and other
information. Changes in these subjective assumptions can materially affect the
fair value of the estimate, and therefore, the existing valuation models do not
provide a precise measure of the fair value of our employee stock options.
Additionally, SFAS No. 123R also requires us to estimate forfeitures in
calculating the expense relating to stock-based compensation.
Total compensation costs related to stock-based compensation charged
against income during the three months ended March 31, 2006 and 2007 was $0.4
million and $0.6 million, respectively. There were no stock options granted
during the three months ended March 31, 2006 or 2007. As of March 31, 2007,
there was $7.6 million of total unrecognized compensation cost related to
stock-based compensation arrangements, which is expected to be recognized over a
weighted average period of approximately 2.8 years.
Comprehensive Income
Accumulated other comprehensive income on our condensed consolidated
balance sheets is comprised of net unrealized gains on retained interests in
notes receivable sold, which are held as available-for-sale investments. The
following table discloses the components of our comprehensive income for the
periods presented (in thousands):
Three Months Ended
March 31,
------------------
2006 2007
------- -------
Net (loss) income ......................................... $ (463) $ 5,333
Change in net unrealized gains on retained interests
in notes receivable sold, net of income taxes ........... 854 (208)
------- -------
Total comprehensive income ................................ $ 391 $ 5,125
======= =======
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152
Effective January 1, 2006, we adopted SFAS No. 152, Accounting for Real
Estate Time-Sharing Transactions ("SFAS No. 152"). This statement amends SFAS
No. 66, Accounting for Sales of Real Estate, and SFAS 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. SFAS No. 152 was issued to address the diversity in practice
resulting from a lack of guidance specific to the timeshare industry. 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
and presentation of 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. Restatement
of previously reported financial statements is not permitted.
10
The adoption of SFAS No. 152 on January 1, 2006, resulted in a net charge
of $4.5 million, which is presented as a cumulative effect of change in
accounting principle, net of the related tax benefit and the charge related to
minority interest.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS No. 157"). SFAS No. 157 establishes a common definition for fair value
under United States generally accepted accounting principles guidance requiring
the use of fair value, establishes a framework for measuring fair value, and
expands disclosure about such fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157
effective January 1, 2008, and are currently assessing the impact the statement
will have on our financial condition, results of operations, cash flows or
disclosures.
In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS No. 159"). SFAS No. 159 allows
entities to voluntarily choose, at specified election dates, to measure many
financial assets and financial liabilities at fair value. The election is made
on an instrument-by-instrument basis and is irrevocable. Subsequent to the
adoption of SFAS No. 159, changes in fair value for the particular instruments
shall be reported in earnings. Upon initial adoption, SFAS No. 159 provides
entities with a one-time chance to elect the fair value option for existing
eligible items. The effect of the first measurement to fair value should be
reported as a cumulative-effect adjustment to the opening balance of retained
earnings in the year the Statement is adopted. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We have not completed our
analysis of the impact SFAS No. 159 will have on our financial condition,
results of operations, cash flows or disclosures.
2. Sales of Notes Receivable
During the first quarter of 2007, we sold $51.2 million in VOI receivables
pursuant to a receivables purchase facility (the "2006-A GE Purchase Facility")
with General Electric Capital Corporation ("GE"). Under the 2006-A GE Purchase
Facility, a variable purchase price of approximately 90% 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 GE has received a specified return, a specified over
collateralization 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 a published interest
swap arrangement rate as defined in the 2006-A GE Purchase Facility agreements)
plus 2.35%, subject to use of alternate return rates in certain circumstances.
Subject to compliance with the terms and conditions of funding, the 2006-A GE
Purchase Facility allows for sales of notes receivable for a cumulative purchase
price of up to $125.0 million through March 2008. As of March 31, 2007, the
remaining availability under the 2006-A GE Purchase Facility was $14.2 million
of aggregate purchase price, subject to eligibility requirements and fulfillment
of conditions precedent.
Sales of notes receivable during the three months ended March 31, 2007 and
2006 were as follows (in millions):
For the Three Months Ended March 31, 2007
Aggregate
Principal Initial Fair
Balance of Value of
Notes Purchase Gain Retained
Sale Facility Receivable Price Recognized Interest
--------------------------- ---------- -------- ---------- ------------
2006-A GE Purchase Facility $ 51.2 $ 46.0 $ 8.0 $ 6.2
========== ======== ========== ============
11
For the Three Months Ended March 31, 2006
Aggregate
Principal Initial Fair
Balance of Value of
Notes Purchase Gain Retained
Sale Facility Receivable Price Recognized Interest
--------------------------- ---------- -------- ---------- ------------
2005 Term Securitization $ 18.6 $ 16.7 $ 3.6 $ 3.3
GE Purchase Facility 22.3 20.1 3.4 2.6
---------- -------- ---------- ------------
Total $ 40.9 $ 36.8 $ 7.0 $ 5.9
========== ======== ========== ============
In accordance with SFAS No. 152, approximately $6.5 million and $8.0
million of the gain were recorded as an increase to VOI sales for the three
months ended March 31, 2006, and 2007, respectively. The remaining gain of $0.5
million during the three months ended March 31, 2006 was recorded as a gain on
the sales of notes receivable on the accompanying condensed consolidated
statement of income.
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the transactions
during the three months ended March 31, 2006: prepayment rates decreasing from
14.0% to 9.0% per annum as the portfolios mature; a loss severity rate ranging
from 35.0% to 71.3%; default rates decreasing from 10.0% to 1.0% per annum as
the portfolios mature; and a discount rate of 9.0%.
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the transactions
during the three months ended March 31, 2007: prepayment rates decreasing from
15.0% to 11.0% per annum as the portfolios mature; loss severity rate ranging
from 38% to 71.3%; default rates decreasing from 10.5% to 1.0% per annum as the
portfolios mature; and a discount rate of 9.0%.
3. Lines-of-Credit and Receivable-Backed Notes Payable
In February 2007, we borrowed $12.6 million under the GMAC Communities
Facility (this facility is described in more detail in our "Liquidity and
Capital Resources" section of our Management Discussion and Analysis) in
connection with the acquisition of 350 acres near St. Simons Island, Georgia,
for a property to be called Sanctuary River Club at St. Andrews Sound. As of
March 31, 2007, the GMAC Communities Facility had an outstanding balance of
$61.7 million bearing interest at 9.25%. The remaining availability under the
GMAC Communities Facility, subject to the terms and conditions of the facility,
was $13.3 million as of March 31, 2007.
Additionally, in February of 2007, we borrowed $12.5 million under the
GMAC Communities Facility for general corporate purposes.
Total interest expense capitalized to construction in progress was $2.6
million and $3.4 million for the three months ended March 31, 2006 and 2007,
respectively.
4. Trust Preferred Securities Offerings
We have formed business statutory trusts (collectively, the "Trusts") for
the purpose of issuing trust preferred securities and investing the proceeds
thereof in our junior subordinated debentures. The Trusts are variable interest
entities in which we are not the primary beneficiary as defined by FASB
Interpretation No. 46R. Accordingly, we do not consolidate the operations of the
Trusts; instead, the Trusts are accounted for under the equity method of
accounting.
On February 26, 2007, one of the Trusts, Bluegreen Statutory Trust VI
("BST VI") issued $20.0 million of trust preferred securities. BST VI used the
proceeds from issuing the trust preferred securities to purchase an identical
amount of junior subordinated debentures from us. Interest on the junior
subordinated debentures and distributions on the trust preferred securities will
be payable quarterly in arrears at a fixed rate of 9.84% through April 2012, and
thereafter at a variable rate of interest, per annum, reset quarterly, equal to
the 3-month LIBOR plus 4.80% until the scheduled maturity date of April 30,
2037. Distributions on the trust preferred securities will be cumulative and
12
based upon the liquidation value of the trust preferred security. The trust
preferred securities will be subject to mandatory redemption, in whole or in
part, upon repayment of the junior subordinated debentures at maturity or their
earlier redemption. The junior subordinated debentures are redeemable five years
from the issue date or sooner following certain specified events. In addition,
we contributed $619,000 to BST VI in exchange for its common securities, all of
which are owned by us. Those proceeds were also used by BST VI to purchase an
identical amount of junior subordinated debentures from us. The terms of BST
VI's common securities are nearly identical to the trust preferred securities.
The above issuances of trust preferred securities were part of larger
pooled trust securities offerings which were not registered under the Securities
Act of 1933. Proceeds were used for general corporate purposes and debt
repayment.
We had the following junior subordinated debentures outstanding at March
31, 2007 (dollars in thousands):
Outstanding
Amount of Initial Beginning
Junior Equity Fixed Optional
Subordinated To Issue Interest Variable Interest Redemption Maturity
Trust Debentures Trust (3) Date Rate (1) Rate (2) Date Date
-----------------------------------------------------------------------------------------------------------------------------------
Bluegreen Statutory Trust I ....... $ 23,196 $ 696 3/15/05 9.160% 3-month LIBOR + 4.90% 3/30/10 3/30/35
Bluegreen Statutory Trust II ...... 25,774 774 5/04/05 9.158% 3-month LIBOR + 4.85% 7/30/10 7/30/35
Bluegreen Statutory Trust III ..... 10,310 310 5/10/05 9.193% 3-month LIBOR + 4.85% 7/30/10 7/30/35
Bluegreen Statutory Trust IV ...... 15,464 464 4/24/06 10.130% 3-month LIBOR + 4.85% 6/30/11 6/30/36
Bluegreen Statutory Trust V ....... 15,464 464 7/21/06 10.280% 3-month LIBOR + 4.85% 9/30/11 9/30/36
Bluegreen Statutory Trust VI ...... 20,619 619 2/26/07 9.842% 3-month LIBOR + 4.80% 4/30/12 4/30/37
------------------------
$ 110,827 $ 3,327
========================
(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.
(3) Initial equity in trust is recorded as a component of Other assets
in our Condensed Consolidated Balance Sheets.
5. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering of $110.0
million in aggregate principal amount of 10.50% senior secured notes payable due
April 1, 2008 (the "Notes"). On September 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 September 26, 2005 of approximately $1.4
million. At March 31, 2007, $55.0 million of the Notes remained outstanding.
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
13
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:
14
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
December 31, 2006
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................... $ 36,316 $ 17,002 $ 17,830 $ -- $ 71,148
Contracts receivable, net ............................... -- 1,222 22,634 -- 23,856
Intercompany receivable ................................. 159,488 -- -- (159,488) --
Notes receivable, net ................................... -- 57,845 86,406 -- 144,251
Inventory, net .......................................... -- 17,967 331,366 -- 349,333
Retained interests in notes receivable sold ............. -- 130,623 -- -- 130,623
Property and equipment, net ............................. 16,110 933 75,402 -- 92,445
Investments in subsidiaries ............................. 296,593 -- 3,230 (299,823) --
Other assets ............................................ 7,860 4,582 30,114 -- 42,556
----------- ------------- ---------- ------------ ------------
Total assets ....................................... $ 516,367 $ 230,174 $ 566,982 $ (459,311) $ 854,212
=========== ============= ========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ....... $ 33,303 $ 20,717 $ 54,173 $ -- $ 108,193
Intercompany payable .................................. -- 2,458 157,030 (159,488) --
Deferred income taxes ................................. (19,813) 47,864 59,573 -- 87,624
Lines-of-credit and notes payable ..................... 4,646 18,914 121,902 -- 145,462
10.50% senior secured notes payable ................... 55,000 -- -- -- 55,000
Junior subordinated debentures ........................ 90,208 -- -- -- 90,208
----------- ------------- ---------- ------------ ------------
Total liabilities .................................. 163,344 89,953 392,678 (159,488) 486,487
Minority interest ..................................... -- -- -- 14,702 14,702
Total shareholders' equity ............................ 353,023 140,221 174,304 (314,525) 353,023
----------- ------------- ---------- ------------ ------------
Total liabilities and shareholders' equity ......... $ 516,367 $ 230,174 $ 566,982 $ (459,311) $ 854,212
=========== ============= ========== ============ ============
March 31, 2007
(Unaudited)
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................... $ 20,713 $ 17,348 $ 16,563 $ -- $ 54,624
Contracts receivable, net ............................... -- 1,457 23,384 -- 24,841
Intercompany receivable ................................. 181,729 20,149 -- (201,878) --
Notes receivable, net ................................... -- 60,924 89,987 -- 150,911
Inventory, net .......................................... -- 12,934 372,883 -- 385,817
Retained interests in notes receivable sold ............. -- 133,717 -- -- 133,717
Property and equipment, net ............................. 17,158 823 74,871 -- 92,852
Investments in subsidiaries ............................. 320,331 -- 3,230 (323,561) --
Other assets ............................................ 7,209 2,384 35,027 -- 44,620
----------- ------------- ---------- ------------ ------------
Total assets ....................................... $ 547,140 $ 249,736 $ 615,945 $ (525,439) $ 887,382
=========== ============= ========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ....... $ 36,901 $ 19,944 $ 54,699 $ -- $ 111,544
Intercompany payable .................................. -- -- 201,878 (201,878) --
Deferred income taxes ................................. (19,375) 50,946 59,196 -- 90,767
Lines-of-credit and notes payable ..................... 4,480 18,485 120,636 -- 143,601
10.50% senior secured notes payable ................... 55,000 -- -- -- 55,000
Junior subordinated debentures ........................ 110,827 -- -- -- 110,827
----------- ------------- ---------- ------------ ------------
Total liabilities .................................. 187,833 89,375 436,409 (201,878) 511,739
Minority interest ..................................... -- -- -- 16,336 16,336
Total shareholders' equity ............................ 359,307 160,361 179,536 (339,897) 359,307
----------- ------------- ---------- ------------ ------------
Total liabilities and shareholders' equity ......... $ 547,140 $ 249,736 $ 615,945 $ (525,439) $ 887,382
=========== ============= ========== ============ ============
15
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2006
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate .................................. $ -- $ 11,236 $ 110,524 $ -- $ 121,760
Other resort and communities operations revenue ....... -- 3,164 13,503 -- 16,667
Management fees ....................................... 13,095 -- -- (13,095) --
Interest income ....................................... 540 4,391 3,242 -- 8,173
Gain on sales of notes receivable ..................... -- 505 -- -- 505
----------- ------------- ---------- ------------ ------------
13,635 19,296 127,269 (13,095) 147,105
COSTS AND EXPENSES
Cost of real estate sales ............................. -- 3,690 41,532 -- 45,222
Cost of other resort and communities operations ....... -- 1,333 15,447 -- 16,780
Management fees ....................................... -- 241 12,854 (13,095) --
Equity loss from subsidiaries ......................... 2,583 -- -- (2,583) --
Selling, general and administrative expenses .......... 9,330 5,804 58,451 -- 73,585
Interest expense ...................................... 988 770 1,548 -- 3,306
Other (income) expense ................................ (130) 289 476 -- 635
----------- ------------- ---------- ------------ ------------
12,771 12,127 130,308 (15,678) 139,528
----------- ------------- ---------- ------------ ------------
Income (loss) before minority interest and provision
(benefit) for income taxes .......................... 864 7,169 (3,039) 2,583 7,577
Minority interest in income of consolidated
subsidiary .......................................... -- -- -- 1,022 1,022
----------- ------------- ---------- ------------ ------------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in accounting
principle ........................................... 864 7,169 (3,039) 1,561 6,555
Provision (benefit) for income taxes .................. 1,327 2,366 (1,169) -- 2,524
----------- ------------- ---------- ------------ ------------
(Loss) income before cumulative effect of change in
accounting principle ................................ (463) 4,803 (1,870) 1,561 4,031
Cumulative effect of change in accounting principle,
net of tax .......................................... -- (1,942) (3,736) -- (5,678)
Minority interest in income of cumulative effect of
change in accounting principle ...................... -- -- -- 1,184 1,184
----------- ------------- ---------- ------------ ------------
Net (loss) income ..................................... $ (463) $ 2,861 $ (5,606) $ 2,745 $ (463)
=========== ============= ========== ============ ============
Three Months Ended March 31, 2007
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate .................................. $ -- $ 13,464 $ 108,558 $ -- $ 122,022
Other resort and communities operations revenue ....... -- 3,149 11,869 -- 15,018
Management fees ....................................... 12,610 -- -- (12,610) --
Equity income from subsidiaries ....................... 4,618 -- -- (4,618) --
Interest income ....................................... 446 6,659 2,737 -- 9,842
----------- ------------- ---------- ------------ ------------
17,674 23,272 123,164 (17,228) 146,882
COSTS AND EXPENSES
Cost of real estate sales ............................. -- 3,547 33,185 -- 36,732
Cost of other resort and communities operations ....... -- 1,197 11,222 -- 12,419
Management fees ....................................... -- 294 12,316 (12,610) --
Selling, general and administrative expenses .......... 10,206 6,978 64,209 -- 81,393
Interest expense ...................................... 1,627 1,060 2,464 -- 5,151
Other expense, net .................................... 70 121 760 -- 951
----------- ------------- ---------- ------------ ------------
11,903 13,197 124,156 (12,610) 136,646
----------- ------------- ---------- ------------ ------------
Income (loss) before minority interest and provision
for income taxes .................................... 5,771 10,075 (992) (4,618) 10,236
Minority interest in income of consolidated
subsidiary .......................................... -- -- -- 1,634 1,634
----------- ------------- ---------- ------------ ------------
Income (loss) before provision for income taxes ....... 5,771 10,075 (992) (6,252) 8,602
Provision (benefit) for income taxes .................. 438 3,208 (377) -- 3,269
----------- ------------- ---------- ------------ ------------
Net income ............................................ $ 5,333 $ 6,867 $ (615) $ (6,252) $ 5,333
=========== ============= ========== ============ ============
16
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2006
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ....................... $ (14,752) $ (10,516) $ 5,070 $ (20,198)
----------- ------------- ---------- ------------
Investing activities:
Purchases of property and equipment .................................. (2,672) (28) (4,013) (6,713)
Cash received from retained interests in notes receivable sold ....... -- 10,064 -- 10,064
----------- ------------- ---------- ------------
Net cash (used) provided by investing activities ....................... (2,672) 10,036 (4,013) 3,351
----------- ------------- ---------- ------------
Financing activities:
Borrowings under line-of-credit facilities and notes payable ......... -- -- 11,169 11,169
Payments under line-of-credit facilities and notes payable ........... (500) -- (5,514) (6,014)
Payment of debt issuance costs ....................................... (8) (660) (568) (1,236)
----------- ------------- ---------- ------------
Net cash (used) provided by financing activities ....................... (508) (660) 5,087 3,919
----------- ------------- ---------- ------------
Net (decrease) increase in cash and cash equivalents ................... (17,932) (1,140) 6,144 (12,928)
Cash and cash equivalents at beginning of period ....................... 55,708 15,443 13,553 84,704
----------- ------------- ---------- ------------
Cash and cash equivalents at end of period ............................. 37,776 14,303 19,697 71,776
Restricted cash and cash equivalents at end of period .................. (173) (13,248) (10,296) (23,717)
----------- ------------- ---------- ------------
Unrestricted cash and cash equivalents at end of period ................ $ 37,603 $ 1,055 $ 9,401 $ 48,059
=========== ============= ========== ============
Three Months Ended March 31, 2007
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ....................... $ (32,986) $ (5,370) $ 13,066 $ (25,290)
----------- ------------- ---------- ------------
Investing activities:
Purchases of property and equipment .................................. (2,259) (13) (1,747) (4,019)
Investment in statutory business trusts .............................. (619) -- -- (619)
Cash received from retained interests in notes receivable sold ....... -- 5,871 -- 5,871
----------- ------------- ---------- ------------
Net cash (used) provided by investing activities ....................... (2,878) 5,858 (1,747) 1,233
----------- ------------- ---------- ------------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable ... -- -- 12,500 12,500
Payments under line-of-credit facilities and other notes payable ..... (281) (89) (25,078) (25,448)
Proceeds from issuance of junior subordinated debentures ............. 20,619 -- -- 20,619
Payments of debt issuance costs ...................................... (623) (53) (8) (684)
Proceeds from exercise of stock options .............................. 546 -- -- 546
----------- ------------- ---------- ------------
Net cash provided (used) by financing activities ....................... 20,261 (142) (12,586) 7,533
----------- ------------- ---------- ------------
Net (decrease) increase in cash and cash equivalents ................... (15,603) 346 (1,267) (16,524)
Cash and cash equivalents at beginning of period ....................... 36,316 17,002 17,830 71,148
----------- ------------- ---------- ------------
Cash and cash equivalents at end of period ............................. 20,713 17,348 16,563 54,624
Restricted cash and cash equivalents at end of period .................. (173) (7,623) (14,171) (21,967)
----------- ------------- ---------- ------------
Unrestricted cash and cash equivalents at end of period ................ $ 20,540 $ 9,725 $ 2,392 $ 32,657
=========== ============= ========== ============
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
other related amenities) and sold, typically on a retail basis as homesites.
Disclosures for our business segments are as follows (in thousands):
Bluegreen Bluegreen
Resorts Communities Total
--------- ----------- ---------
For the Three Months Ended March 31, 2006
Sales of real estate ................................. $ 74,135 $ 47,625 $ 121,760
Other resort and communities operations revenue ...... 14,331 2,336 16,667
Depreciation expense ................................. 1,871 444 2,315
Field operating profit ............................... 3,136 9,779 12,915
For the Three Months Ended March 31, 2007
Sales of real estate ................................. $ 87,148 $ 34,874 $ 122,022
Other resort and communities operations revenue ...... 12,838 2,180 15,018
Depreciation expense ................................. 2,117 426 2,543
Field operating profit ............................... 8,849 8,808 17,657
Net inventory by business segment (in thousands):
December 31, 2006 March 31, 2007
----------------- --------------
Bluegreen Resorts .......................... $ 233,290 $ 244,467
Bluegreen Communities ...................... 116,043 141,350
----------------- --------------
Total ...................................... $ 349,333 $ 385,817
================= ==============
Reconciliations to Consolidated Amounts:
Field operating profit for our reportable segments reconciled to our
consolidated income before minority interest and provision for income taxes is
as follows (in thousands):
For the Three Months
Ended March 31,
--------------------
2006 2007
--------- ---------
Field operating profit for reportable segments .......... $ 12,915 $ 17,657
Interest income ......................................... 8,173 9,842
Gain on sales of notes receivable ....................... 505 --
Other expense, net ...................................... (635) (951)
Corporate general and administrative expenses ........... (10,075) (11,161)
Interest expense ........................................ (3,306) (5,151)
--------- ---------
Consolidated income before minority interest and
provision for income taxes ............................ $ 7,577 $ 10,236
========= =========
7. Income Taxes
We or one of our subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With few exceptions,
we are no longer subject to U.S. federal, state and local, or non-U.S. income
tax examinations by tax authorities for years before 2003. The Internal Revenue
Service ("IRS") commenced an examination of our U.S. income tax returns for 2004
and 2005 in the first quarter of 2007 that is anticipated to be complete by the
end of 2007.
On July 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109, ("FIN
48") which clarifies the accounting for uncertainty in tax positions. Based on
an evaluation of uncertain tax provisions, we are required to measure the tax
benefit based on the largest amount of benefit that is greater than 50% likely
of being realized upon settlement. The adoption of FIN 48 on
18
January 1, 2007 did not have an impact on our financial position or results of
operations. As of March 31, 2007, we had no amounts recorded for uncertain tax
positions.
8. Contingencies
In 2005, the State of Tennessee Audit Division (the "Division") audited
Bluegreen Vacations Unlimited, our wholly owned Subsidiary, for the period from
December 1, 2001 through December 31, 2004. On September 23, 2006, the Division
issued a notice of assessment for $0.7 million of accommodations tax based on
the use of Bluegreen Vacation Club accommodations by Bluegreen Vacation Club
members purchased non-Tennessee property. We believe the attempt to impose such
a tax is contrary to Tennessee law, and we intend to vigorously oppose such
assessment by the Division. While the timeshare industry has been successful in
challenging the imposition of sales taxes on the use of accommodations by
timeshare owners, there is no assurance that we will be successful in contesting
the current assessment.
Bluegreen Southwest One, L.P., ("Southwest"), a subsidiary of Bluegreen
Corporation, is the developer of the Mountain Lakes subdivision in Texas. In
Cause No. 28006; styled Betty Yvon Lesley et a1 v. Bluff Dale Development
Corporation, Bluegreen Southwest One. L.P.et al. in the 266th Judicial District
Court, Erath County, Texas, the Plaintiffs filed a declaratory judgment action
against Southwest in which they seek to develop their prior reserved mineral
interests in, on and under the Mountain Lakes subdivision. Plaintiffs' claims
are based on property law, oil and gas law, contract and tort theories. The
property owners association and some of the individual landowners have filed
cross actions against Bluegreen, Southwest and individual directors of the
property owners association related to the mineral rights and related to certain
amenities in the subdivision as described in the following paragraph. The court
has ruled that the restrictions placed on the development that prohibited oil
and gas production and development were invalid and not enforceable as a matter
of law, that such restrictions do not prohibit the prior reserved mineral
interests of the plaintiffs from being developed and that a duty to exercise the
right to lease the minerals to third parties for development exists and has been
breached. The Court further ruled that Southwest is the sole holder of the right
to lease the minerals to third parties. The order granting the Plaintiffs motion
was severed into a new cause styled Cause No. 28769 Betty Yvon Lesley et a1 v.
Bluff Dale Development Corporation, Bluegreen Southwest One. L.P.et al. in the
266th Judicial District Court, Erath County, Texas. Southwest has appealed the
trial court's ruling and, at this time, is unable to predict the ultimate
resolution of the litigation. The appeal is styled, Bluegreen Southwest One, LP
et al. v. Betty Yvon Lesley et al.; in the 11th Court of Appeals, Eastland,
Texas. As of March 31, 2007, we have established a reserve of $1.3 million in
connection with the issues raised in these lawsuits.
One of the amenity lakes in the Mountain Lakes development has not reached
the expected level after construction was completed. Owners of homesites within
the Mountain Lakes subdivision and the Property Owners Association of Mountain
Lakes have asserted claims against Southwest and Bluegreen regarding such
failure as part of the Lesley litigation referenced above as well as in Cause
No. 067-223662-07; Property Owners Association of Mountain Lakes Ranch, Inc. v.
Bluegreen Southwest One, L. P., et al.; in the 67TH Judicial District Court of
Tarrant County, Texas. Southwest has been and continues to investigate the
causes and circumstances for the delay of the lake to fill and currently
estimates that the cost of remediating the condition will be approximately
$3,000,000 and as such was accrued during the year ended December 31, 2006.
We filed suit against the general contractor with regard to alleged
construction defects at our Shore Crest Vacation Villas resort in South
Carolina. Whether the matter is settled by litigation or by negotiation it is
possible that we may need to participate financially in some way to correct the
construction deficiencies. We can not predict the extent of the financial
obligation that we may incur.
In Michelle Alamo, Ernest Alamo, Toniann Quinn and Terrance Quinn v.
Vacation Station, LLC, LeisurePath Vacation Club, LeisurePath, Inc., Bluegreen
Corporation, Superior Court of New Jersey, Bergen County, Docket No. L-6716-05,
Civil Action, Plaintiffs filed a purported "Class Action Complaint" on September
23, 2005. The Complaint raises allegations concerning the marketing of the
LeisurePath Travel Services Network product to the public, and, in particular,
New Jersey residents by Vacation Station, LLC, an independent distributor of
travel products. Vacation Station, LLC purchased LeisurePath membership kits
from LeisurePath, Inc.'s Master Distributor, Mini Vacations, Inc. and then sold
the memberships to consumers. The initial Plaintiffs (none of whom actually
bought the Leisure Path product) assert claims for violations of the New Jersey
Consumer Fraud Act, fraud, nuisance, negligence and for equitable relief all
stemming from the sale and marketing by Vacation Station, LLC of the LeisurePath
Travel Services Network. Plaintiffs are seeking the gifts and prizes they were
allegedly told by Vacation Station, LLC that they won as part of the sales
promotion, and that they be given the opportunity to rescind their agreement
with LeisurePath along with a full refund. Plaintiffs further seek punitive
damages, compensatory
19
damages, attorney's fees and treble damages of unspecified amounts. In February
of 2007, the Plaintiffs amended the complaint to add two additional
Plaintiffs/proposed class representatives, Bruce Doxey and Karen Smith-Doxey.
Unlike the initial Plaintiffs who were first contacted by Vacation Station, LLC
some seven (7) months after LeisurePath terminated its relationship with
Vacation Station, LLC and did not purchase LeisurePath products, the Doxeys
purchased a participation in the LeisurePath Travel Services Network. On March
16, 2007, the Court denied a motion filed by Leisure Path and Bluegreen
Corporation to dismiss the Doxeys as parties to the lawsuit. Leisure Path and
Bluegreen Corporation intend to vigorously contest this action. Vacation
Station, LLC and its owner have each filed for bankruptcy protection.
9. Subsequent Events
In April 2007, we borrowed $10.9 million under the Textron Construction
Facility, a new $12.5 million facility. The borrowings under this facility are
primarily for the completion of development at The Grande Villas at World Golf
Village resort in St. Augustine, Florida.
In April 2007, the Joint Venture, entered into a $45.0 million revolving
VOI receivables credit facility (the "GE Big Cedar Receivables Facility") with
GE. This facility is further described in our "Liquidity and Capital Recourses"
section of our Management Discussion and Analysis. Additionally in April 2007,
the Joint Venture pledged $26.8 million in aggregate principal balance of VOI
receivables under the GE Big Cedar Receivables Facility and received $25.7
million in cash proceeds, net of issuance costs.
In April 2007, we transferred $20.4 million of VOI notes receivable to the
2006 BB&T Purchase Facility, an existing credit facility further described in
our "Liquidity and Capital Resources" section of our Management Discussion and
Analysis, and received $17.3 million in cash proceeds. Immediately following the
transaction, we had $120.2 million in remaining availability under the 2006 BB&T
Purchase Facility.
20
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 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 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 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
successfully and efficiently.
o The state of the economy generally, interest rates, the availability
of financing and increased fuel prices, in particular, could affect
our ability to market VOIs and residential homesites.
o We would incur substantial losses if the customers we finance
default on their obligations to pay the balance of the purchase
price.
o Our results of operations and financial condition could be adversely
impacted if our estimates concerning our notes receivable are
incorrect.
o We are subject to the risks of the real estate market and the risks
associated with real estate development, including the risks and
uncertainties relating to the cost and availability of land, labor
and construction materials.
o We may not successfully acquire additional inventory or execute our
growth strategy.
o We may face a variety of risks when we expand our operations.
o We may face additional risks when and if we expand into new markets.
o The limited resale market for VOIs could adversely affect our
business.
o We could incur losses based on the outcome of pending or future
litigation, claims, and assessments.
o Claims for development-related defects could adversely affect our
financial condition and operating results.
21
o We may be adversely affected by extensive federal, state and local
laws and regulations and changes in applicable laws and regulations,
including with respect to the imposition of additional taxes on
operations.
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.
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, 2006.
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 other related
amenities) and sold, typically on a retail basis, as homesites.
Effective January 1, 2006, we adopted the provisions of SFAS No. 152,
Accounting for Real Estate Time-Sharing Transactions, which changes the rules
for many aspects of timeshare accounting, including revenue recognition,
inventory costing and incidental operations. The adoption of SFAS No. 152
resulted in a $4.5 million or $0.14 per diluted share charge for the cumulative
effect of a change in accounting principle, net of income tax and minority
interest in 2006.
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 expected to occur
in the quarters ending in September and December each year. Although we expect
to see more potential customers at our sales offices during the quarters ending
in June and September, ultimate recognition of the resulting sales may be
delayed due to insufficient down payments on purchases under GAAP or due to the
timing of development and the requirement that we use the
percentage-of-completion method of accounting. We expect that we will continue
to invest in projects that will require substantial development (with
significant capital requirements), and as a consequence, 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 believe that inflation and changing prices have materially impacted our
revenues and results of operations, specifically due to periodic increases in
the sales prices of our VOIs and homesites and continued increases in
construction and development costs. We expect the increased construction and
development costs over the past few years to result in an increase in our cost
of sales for the foreseeable future. There is no assurance that we will be able
to continue to increase our sales prices or that increased construction costs
will not have a material adverse impact on our gross margin. In addition, to the
extent that inflation in general or increased prices for our VOI and homesites
would adversely impact consumer sentiment, our results of operations could be
adversely impacted. Also, to the extent inflationary trends affect interest
rates, a portion of our debt service costs may increase.
We recognize revenue on homesite and VOI sales when a minimum of 10% of
the sales price has been received in cash, the refund or rescission period has
expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. Refund or
rescission periods include those required by law and those provided for in our
sales contracts. With respect to VOI sales, the revenue recognition rules
require that incentives and other similarly treated items such as customer down
payment equity earned through our Sampler Program be considered in calculating
the required down payment for our VOI sales. If, after considering the value of
sales incentives provided, the required 10% of sales price down payment
threshold is not met, the VOI sale and the related cost of sale and direct
selling costs are deferred and not recognized until the buyer's commitment test
is satisfied, generally through the receipt of required mortgage note payments
from the buyer. Further, in cases where all development has not been completed,
recognition of income is subject to the percentage-of-completion method of
accounting.
22
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 operations and the related retained
interests in the notes receivable sold are recorded on our consolidated balance
sheet at the time of sale. Effective January 1, 2006, the portion of these gains
related to the reversal of previously recorded allowances for loan losses on the
receivables sold is now recorded as a component of revenue on sales of VOIs. 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 rates,
default rates, loss severity rates, discount rates and other considerations in
light of then-current conditions. If actual prepayments with respect to loans
occur more quickly than we projected at the time such loans were sold, as can
occur when interest rates decline, interest would be less than expected and may
cause a decline in the fair value of the retained interests and a charge to
operations. If actual defaults or other factors discussed above with respect to
loans sold are greater than estimated, charge-offs would exceed previously
estimated amounts and the cash flow from the retained interests in notes
receivable sold would decrease. Also, to the extent the portfolio of receivables
sold fails to satisfy specified performance criteria (as may occur due to, for
example, an increase in default rates or loan loss severity) or certain other
events occur, the funds received from obligors must be distributed on an
accelerated basis to investors. If the accelerated payment formula were to
become applicable, the cash flow to us from the retained interests in notes
receivable sold would be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur on a
material basis, it could cause a decline in the fair value of the retained
interests and a charge to earnings currently. There is no assurance that the
carrying value of our retained interests in notes receivable sold will be fully
realized or that future loan sales will be consummated or, if consummated,
result in gains. See "Vacation Ownership Receivables Purchase Facilities - Off
Balance Sheet Arrangements," below.
In addition, we have historically sold VOI receivables to financial
institutions through warehouse purchase facilities to monetize the receivables
while accumulating receivables for a future term securitization transaction. We
currently intend to structure future warehouse purchase facilities so that sales
of VOI receivables through these facilities will be accounted for as on-balance
sheet borrowings rather than as off-balance sheet sales. Therefore, we will not
recognize a gain on the sales of receivables sold to the warehouse purchase
facilities until such receivables are subsequently included in a properly
structured term securitization transaction. We expect this may impact future
quarterly earnings patterns as compared to comparable prior periods.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial
condition are based upon our condensed 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
estimated development cost and future sales on recovered VOIs for the purpose of
recognizing cost of sales related to VOI sales; our estimate of fair value
related to stock-based compensation; 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" in our Annual Report on Form
10-K for the year ended December 31, 2006.
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 an
23
allocation of general and administrative expenses attributable to corporate
overhead. The information provided is based on a management approach and is used
by us for the purpose of tracking trends and changes in results. It does not
reflect the actual economic costs, contributions or results of operations of the
segments as stand alone businesses. If a different basis of presentation or
allocation were utilized, the relative contributions of the segments might
differ but the relative trends, in our view, would likely not be materially
impacted. The table below sets forth net revenue and income from operations by
segment.
Bluegreen Resorts Bluegreen Communities Total
----------------------- ---------------------- ----------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
---------- ---------- --------- ---------- --------- ----------
Three Months Ended
March 31, 2006
Sales of real estate ............. $ 74,135 100% $ 47,625 100% $ 121,760 100%
Cost of real estate sales ........ (17,047) (23) (28,175) (59) (45,222) (37)
---------- --------- ---------
Gross profit ..................... 57,088 77 19,450 41 76,538 63
Other resort and communities
operations revenues ........... 14,331 19 2,336 5 16,667 14
Cost of other resort and
communities operations ........ (14,649) (20) (2,131) (4) (16,780) (14)
Selling and marketing
expenses ...................... (47,433) (64) (6,980) (15) (54,413) (45)
Field general and
administrative expenses (1) ... (6,201) (8) (2,896) (6) (9,097) (7)
---------- --------- ---------
Field Operating Profit ........... $ 3,136 4% $ 9,779 21% $ 12,915 11%
========== ========= =========
Three Months Ended
March 31, 2007
Sales of real estate ............. $ 87,148 100% $ 34,874 100% $ 122,022 100%
Cost of real estate sales ........ (18,877) (22) (17,855) (51) (36,732) (30)
---------- --------- ---------
Gross profit ..................... 68,271 78 17,019 49 85,290 70
Other resort and communities
operations revenues ........... 12,838 15 2,180 6 15,018 12
Cost of other resort and
communities operations ........ (10,029) (12) (2,390) (7) (12,419) (10)
Selling and marketing
expenses ...................... (55,301) (63) (5,068) (15) (60,369) (49)
Field general and
administrative expenses (1) ... (6,930) (8) (2,933) (8) (9,863) (8)
---------- --------- ---------
Field Operating Profit ........... $ 8,849 10% $ 8,808 25% $ 17,657 15%
========== ========= =========
(1) General and administrative expenses attributable to corporate
overhead have been excluded from the tables. Corporate general and
administrative expenses totaled $10.1 million for the three months
ended March 31 2006 and $11.2 million for the three months ended
March 31, 2007. (See "Corporate General and Administrative
Expenses," below, for further discussion).
Sales and Field Operations. Consolidated sales increased $262,000 from $121.8
million during the three months ended March 31, 2006 to $122.0 million during
the three months ended March 31, 2007.
Bluegreen Resorts
During the three months ended March 31, 2006 and 2007, Bluegreen Resorts
generated $74.1 million (61%) and $87.1 million (71%) of our total consolidated
sales, respectively.
24
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 and sales deferred under SFAS No. 152.
For the Three Months
Ended March 31,
-----------------------
2006 2007
--------- ----------
Number of VOI sales transactions 7,681 9,119
Average sales price per transaction $ 10,664 $ 10,566
Gross margin 77% 78%
Bluegreen Resorts' sales increased $13.0 million or 18% during the three
months ended March 31, 2007, as compared to the three months ended March 31,
2006. The increase was due primarily to an increase in same-resort sales at many
of our existing sales offices and, to a lesser extent, the opening of new sales
offices. Same-resort sales increased by approximately 15% during the three
months ended March 31, 2007, as compared to the three months ended March 31,
2006 and were highlighted by increased sales at The Fountains sales office in
Orlando, Florida, our Bluegreen Wilderness Club at Big Cedar sales office in
Ridgedale, Missouri, our MountainLoft sales office in Gatlinburg, Tennessee, our
Smoky Mountain Preview Center sales office in Sevierville, Tennessee, and our
Falls Village sales office in Branson, Missouri. The increase in sales also
reflects our continued focus on marketing to our growing Bluegreen Vacation Club
owner base. Sales to owners increased by 28% and accounted for approximately 38%
of Resort sales during the three months ended March 31, 2007, compared to 33%
during the three months ended March 31, 2006. The number of total prospects seen
by Bluegreen Resorts remained relatively constant in the first quarter of 2007
compared to the same period in 2006 at approximately 62,000 prospects in both
periods. However, our overall sale-to-tour conversion ratio increased from 14%
during the first quarter of 2006 to 15% during the first quarter of 2007. Our
sale-to-tour conversion ratio for new prospects (i.e., excluding sales to our
existing owners) was approximately 11% and 12% for the three months ended March
31, 2006 and 2007, respectively. We opened three new sales sites subsequent to
March 31, 2006: an offsite sales office in Las Vegas, Nevada (opened in July
2006), and sales offices located at our new properties in Wisconsin Dells,
Wisconsin (opened in July 2006) and Williamsburg, Virginia (opened August 2006).
The increase in the average sales price per transaction, primarily due to a
system-wide price increase during March 2007, also contributed to the overall
increase in resort sales.
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 months ended March 31, 2007, our gross margin was positively
impacted by approximately $1.2 million as a result of adjustments to cost of
real estate sales related to our retroactive application of the estimated gross
margins based on project lives as required by SFAS No. 152, and the previously
discussed price increase. These increases were partially off-set during the
three months ended March 31, 2007 by a higher proportion of sales of VOIs in
relatively higher cost resorts as a result of rising construction costs.
Other resort operations revenue decreased $1.5 million or 10% during the
three months ended March 31, 2007, as compared to the three months ended March
31, 2006. The decrease in 2007 represents minimal 2007 sales of mini-vacation
packages on behalf of third parties. During 2006, we began transitioning our
mini-vacation package business from primarily selling the packages to
third-parties to using the sales tours generated by mini-vacations primarily for
use at our own sales offices. This had the effect of increasing the
profitability of our other resort operations but increasing our selling and
marketing costs. The decrease was partially off-set by higher title processing
fees on our VOI sales earned by our wholly-owned title company as well as higher
resort management fees earned by our resort management company. Resort
management fees increased in the aggregate due to an increase in the number of
resorts to which management such services are provided.
Cost of other resort operations decreased $4.6 million or 32% during the
three months ended March 31, 2007, as compared to the three months ended March
31, 2006. The decrease during 2007 primarily reflects the lower cost of
mini-vacations sold on behalf of third parties due, as previously discussed, due
to the reduction in related revenues.
Selling and marketing expenses for Bluegreen Resorts increased $7.9
million or 17% during the three months ended March 31, 2007, as compared to the
three months ended March 31, 2006. As a percentage of sales, selling and
marketing expenses decreased from 64% during the three months ended March 31,
2006 to 63% during the three months ended March 31 2007. The increase in selling
and marketing expenses during the first quarter 2007 as compared to the same
period in 2006 reflects the overall increase in sales, higher marketing expenses
as a
25
percentage of sales at our newly opened off-site sales offices and the
previously discussed transition of our mini-vacations packages from being sold
externally to being used internally. As a percentage of sales, our marketing
costs decreased primarily a result of increased sales to owners, which generally
carry lower marketing costs. We believe that selling and marketing expenses as a
percentage of sales is an important indicator of the performance of Bluegreen
Resorts and our performance as a whole. No assurance can be given that selling
and marketing expenses will not increase as a percentage of sales in future
periods.
Field general and administrative expenses for Bluegreen Resorts increased
$729,000 or 12% during the three months March 31, 2007, as compared to the three
months ended March 31, 2006, reflecting the overall cost of operating additional
sales and support offices.
As of December 31, 2006 and March 31, 2007, Bluegreen Resorts had
$614,000, and $857,000, respectively, of sales and $345,000 and $490,000,
respectively of field operating profit deferred under percentage-of-completion
accounting. Additionally, as of March 31, 2007, approximately $32.8 million and
$18.4 million of sales and field operating profit, respectively, were deferred
under SFAS No. 152 because the buyers did not make the minimum required initial
investment as compared to $27.3 million and $15.3 million of sales and field
operating profit, respectively, as of December 31, 2006.
Bluegreen Communities
During the three months ended March 31, 2006 and 2007, Bluegreen
Communities generated $47.6 million (39%) and $34.9 million (29%) 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.
For the Three Months
Ended March 31,
-----------------------
2006 2007
------------ ---------
Number of homesites sold 434 324
Average sales price per homesite $ 70,918 $ 82,532
Gross margin 41% 49%
Bluegreen Communities' sales decreased $12.8 million or 27% during the
first quarter of 2007 as compared to the same period in 2006 as a result of
several of our more mature developments either approaching sell out or selling
out after March 31, 2006, partially offset by sales generated at new Bluegreen
Communities that commenced sales subsequent to the first quarter of 2006. Before
giving effect to the percentage-of-completion method of accounting, and the
legal rescission period, during the first quarter of 2007 we entered into
contracts to sell homesites totaling $32.8 million, as compared to $44.7 million
during the first quarter of 2006. These sales consisted of real estate sold at
the following properties:
Properties Not Substantially Sold Out
at March 31, 2007 (in 000's)
-------------------------------------
Project 2006 2007 Difference
----------------------------------- ------------ --------- ----------
Chapel Ridge ...................... $ 5,496 $ 5,016 $ (480)
Mystic Shores ..................... 9,150 7,557 (1,593)
Havenwood at Hunter's Crossing .... 2,327 4,377 2,050
Lake Ridge at Joe Pool Lake ....... 4,873 2,698 (2,175)
Vintage Oaks at the Vineyard ...... -- 4,497 4,497
The Bridges at Preston Crossings .. -- 2,702 2,702
SugarTree on the Brazos ........... 540 670 130
Saddle Creek Forest ............... 2,707 1,489 (1,218)
The Settlement at Patriot Ranch ... 895 1,617 722
King Oaks ......................... -- 1,906 1,906
------------ --------- ----------
Total .......................... $ 25,988 $ 32,529 $ 6,541
============ ========= ==========
26
Properties Substantially Sold Out
at March 31, 2007 (in 000's)
-------------------------------------
Project 2006 2007 Difference
--------------------------------- ------------ --------- ----------
Sanctuary Cove at St. Andrews
Sound ........................ $ 2,901 -- $ (2,901)
Fairway Crossings ............... 198 41 (157)
Mountain Springs Ranch .......... 4,987 -- (4,987)
Big Country ..................... 7,000 -- (7,000)
Catawba Falls Preserve .......... 2,376 -- (2,376)
Brickshire ...................... 544 188 (356)
Ridge Lake Shores ............... 577 37 (540)
Miscellaneous ................... 176 -- (176)
------------ --------- ----------
Total ........................ $ 18,759 $ 266 $ (18,493)
============ ========= ==========
Also contributing to lower sales in the first quarter of 2007 as compared
to 2006 was the 2006 bulk sale of Big Country, and the net recognition of
approximately $4.5 million in 2006 of revenue previously deferred as a result of
the application of the percentage-of-completion method of accounting. These
decreases were partially off-set by the recognition in the first quarter of 2007
of approximately $5.8 million of sales made in 2006 that were pending final
platting, net of revenue which was pending final platting in 2006 which was
deferred under the percentage-of-completion accounting at March 31, 2007.
As noted above, certain of our properties substantially sold out earlier
in 2006 than previously anticipated as a result of the strong demand for our
communities and our challenge to replace sold-out properties with new
communities with similar profit margins. 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 an attempt to maintain appropriate levels of properties in our
portfolio.
Bluegreen Communities' gross margin increased from 41% in 2006 to 49% in
2007. Variations in cost structures and the market pricing of projects available
for sale as well as the opening of phases of projects, which include premium
homesites (e.g., water frontage, preferred views, larger acreage homesites,
etc.) impact the gross margin of Bluegreen Communities from period to period.
These factors, as well as the impact of percentage-of-completion accounting,
will cause variations in gross margin between periods, although the gross margin
of Bluegreen Communities has historically been between 45% and 55% of sales and
is expected to approximate these percentages for the foreseeable future. In
addition, during the first quarter of 2006 our gross margin was negatively
impacted by the bulk sale of Big Country, which had a relatively low margin.
Selling and marketing expenses for Bluegreen Communities decreased $1.9
million or 27% during the three months ending March 31, 2007, as compared to the
same period in 2006. As a percentage of sales, selling and marketing expenses
for Bluegreen Communities was 15% during the three months ended March 31, 2007
and 2006. These expenditures decreased in total during the three months ended
March 31, 2007 due to lower commissions earned as a result of lower sales during
the first quarter of 2007 as compared to the first quarter of 2006.
Bluegreen Communities' general and administrative expenses remained
relatively constant from the three months ended March 31, 2007, as compared to
the three months ended March 31, 2006.
As of December 31, 2006, Bluegreen Communities had $18.6 million of sales
and $7.7 million of Field Operating Profit deferred under
percentage-of-completion accounting. As of March 31, 2007, Bluegreen Communities
had $19.0 million of sales and $7.6 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, resorts'
acquisition and development, mortgage servicing, treasury and legal. Such
expenses were $10.1 million and $11.2 million for the three months ended March
31, 2006 and 2007, respectively.
27
Corporate general and administrative expenses increased $1.1 million or
11% during the first quarter of 2007 as compared to the first quarter of 2006.
This increase was primarily driven by increased overhead cost such as
accounting, human resources, and legal fees partially off-set by higher fees
earned by our mortgage servicing business. As previously discussed, we earn fees
for servicing the notes receivable that we have sold in term securitization
transactions and through our VOI receivables purchase facilities.
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 totaled $8.2 million and $9.8 million during the three months ended March
31, 2006 and March 31, 2007, respectively. The increase in interest income
during the three months ended March 31, 2007, as compared to the same periods in
2006 was due primarily to higher interest accretion on our retained interest in
notes receivable sold and higher average vacation ownership notes receivable
balances during the first quarter of 2007 as compared to the same period in
2006.
Gain on Sales of Notes Receivable. During the three months ended March 31, 2006
and 2007, we sold $40.9 million and $51.2 million, respectively, of VOI notes
receivable that qualified for off-balance sheet sales treatment under SFAS No.
140. In connection with these sales, we recognized gains on sales of notes
receivable of $7.0 million and $8.0 million during the three months ended March
31, 2006 and 2007, respectively. As required under SFAS No. 152, approximately
$6.5 million and $8.0 million of the gains were recorded as an increase to VOI
sales for the three months ended March 31, 2006 and 2007, respectively.
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 VOI
receivables purchase facility (as described further below) and management's
discretion. The generally accepted accounting principles governing our sale of
receivable transactions is evolving and achieving off-balance sheet accounting
treatment is becoming more difficult. Due to the complexity of the accounting
rules surrounding such transactions, we have decided to limit the use of
off-balance sheet structures in the future. In 2006, we structured a VOI
receivables purchase facility that is used to accumulate receivables pending a
term securitization transaction in a manner so as to account for sales of
receivables under such facilities as on-balance sheet borrowings pursuant to
SFAS No. 140. No gains are recognized on the sales of receivables to this
facility until the receivables are included in an appropriately structured term
securitization transaction. We expect to continue this accounting treatment for
similarly structured facilities in the foreseeable future. As a result, we
expect that the volatility of our quarterly earnings will increase
prospectively, but we do not anticipate that this will materially impact annual
earnings, assuming the continued availability of the facilities and ultimate
securitizations.
Interest Expense. Interest expense was $3.3 million and $5.2 million during the
three months ended March 31, 2006 and 2007, respectively. The increase in
interest expense during the three months ended March 31, 2007, as compared to
2006, was primarily as a result of higher average debt outstanding and rising
interest rates partially offset by increased capitalized interest on current
development activity. Average debt outstanding during the first quarter of 2007
increased in part as a result of the issuance of $51.5 million in trust
preferred debt since March 31, 2006.
Total interest expense capitalized to construction in progress was $2.6
million and $3.4 million for the three months ended March 31, 2006 and 2007,
respectively.
Provision for Loan Losses. We recorded provisions for loan losses totaling $10.6
million and $11.4 million during the three months ended March 31, 2006 and 2007,
respectively. This provision was based on our estimated losses on originated VOI
receivables, excluding any benefit for the value of future recoveries, and is
reflected as a reduction of VOI sales. The 7% increase in the provision for loan
losses during the first quarter of 2007 compared to the first quarter of 2006
was primarily due to increases in Bluegreen Resorts sales, approximately 95% of
which are historically financed by us.
28
The allowance for loan losses by division as of December 31, 2006 and March 31,
2007 was as follows:
Bluegreen Bluegreen
Resorts Communities Other Total
----------- ----------- -------- -----------
(in thousands)
December 31, 2006:
Notes receivable ..................... $ 150,649 $ 6,915 $ 186 $ 157,750
Allowance for loan losses ............ (13,140) (173) (186) (13,499)
----------- ----------- -------- -----------
Notes receivable, net ................ $ 137,509 $ 6,742 $ -- $ 144,251
=========== =========== ======== ===========
Allowance as a % of gross notes
receivable ........................ 9% 3% 100% 9%
=========== =========== ======== ===========
March 31, 2007:
Notes receivable ..................... $ 156,174 $ 6,707 $ 186 $ 163,067
Allowance for loan losses ............ (11,761) (209) (186) (12,156)
----------- ----------- -------- -----------
Notes receivable, net ................ $ 144,413 $ 6,498 $ -- $ 150,911
=========== =========== ======== -----------
Allowance as a % of gross notes
receivable ........................ 8% 3% 100% 7%
=========== =========== ======== ===========
Other Expense, Net. Other expense, net was $635,000 for the three months ended
March 31, 2006 as compared to $951,000 for the three months ended March 31,
2007. The increase in other expense, net, during the three months ended March
31, 2007 compared to the same period in 2006 was primarily a result of a charge
of approximately $525,000 for the loss on disposal of various fixed assets.
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 $1.0 million and $1.6 million during the
three months ended March 31, 2006 and 2007, respectively, before the cumulative
effect of change in accounting principle.
Provision for Income Taxes. Based on our anticipated mix of taxable earnings
amongst states, we expect that our 2007 effective income tax rate will be
approximately 38.0%. Our effective income tax rate varies as our mix of taxable
earnings shifts amongst the various states in which we operate. Additionally, in
March of 2007, we received notice from the IRS that our 2004 federal income tax
return had been selected for examination.
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152. The adoption of SFAS No. 152 on January 1, 2006 resulted in a net
charge of $4.5 million, which is presented as a cumulative effect of change in
accounting principle. The cumulative effect of change in accounting principle
primarily consists of the deferral of VOI sales and related costs for sales that
were previously recognized but did not meet the required down payment threshold
at January 1, 2006, due to sales incentives provided to buyers and the treatment
of our Sampler Program, and the related tax benefit, net of the cumulative
effect of change in accounting principle charge, related to the minority
interest in the Subsidiary.
Summary. Based on the factors discussed above, our net (loss)/income was
$(463,000) and $5.3 million during the three months ended March 31, 2006 and
2007, respectively.
29
Changes in Financial Condition
The following table summarizes our cash flows for the three months ended
March 31, 2006 and 2007 (in thousands):
For the Three Months Ended
-------------------------------
March 31, 2006 March 31, 2007
-------------- --------------
Cash flows used in operating activities ...... $ (20,198) $ (25,290)
Cash flows provided by investing activities .. 3,351 1,233
Cash flows provided by financing activities .. 3,919 7,533
-------------- --------------
Net decrease in cash and cash equivalents .... $ (12,928) $ (16,524)
============== ==============
Cash Flows From Operating Activities. Cash flows used in operating activities
decreased $5.1 million or 25% from an outflow of $20.2 million during the three
months ended March 31, 2006 to an outflow of $25.3 million during the three
months ended March 31, 2007. The decrease in cash flows used in operating
activities during the three months ended March 31, 2007 compared to the same
period the prior year was primarily the result of higher inventory development
spending and an increase in notes receivable due to increased VOI sales.
Partially offsetting the decrease in cash flows from operations was higher
proceeds from the sale of notes receivable during the three months ended March
31, 2007, as compared to the same period in 2006.
We report cash flows from borrowings collateralized by notes receivable
and sales of notes receivable as operating activities in the consolidated
statements of cash flows. The majority of Bluegreen Resorts' sales result in the
origination of notes receivable from its customers. We believe that accelerating
the conversion of such notes receivable into cash, either through the pledge or
sale of our notes receivable, on a regular basis is an integral function of our
operations, and have therefore classified such activities as operating
activities.
Cash Flows From Investing Activities. Cash flows provided by investing
activities decreased $2.1 million or 64% from an inflow of $3.3 million during
the three months ended March 31, 2006 to an inflow of $1.2 million during the
three months ended March 31, 2007. This decrease was due primarily to lower
amounts of cash received from our retained interests in notes receivable sold.
The cash received on our retained interest varies based on the total retained
interest outstanding, whether or not a sufficient reserve balance has been met
(if required), and the timing of the actual cash distribution. During the three
months ended March 31, 2006, we received $7.8 million when we satisfied a unique
trigger in our 2004 Term Securitization transaction as cash was received on the
related retained interest in notes receivable sold from a general reserve
account. There are no similar triggers impacting our retained interests in notes
receivable sold at March 31, 2007. In addition, during the three months ended
March 31, 2007, we capitalized investments of $619,000 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"). No such amounts were capitalized during the three months
ended March 31, 2006.
Cash Flows From Financing Activities. Cash flows provided by financing
activities increased $3.6 million or 92% from a cash inflow of $3.9 million
during the three months ended March 31, 2006 to a cash inflow of $7.5 million
during the three months ended March 31, 2007. These increases were primarily
related to the receipt of $20.6 million of proceeds in connection with our
issuance of the junior subordinated debentures and higher borrowings under our
existing lines-of-credit during the period ended March 31, 2007. These increases
were partially offset by higher debt payments in 2007.
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) down payments 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
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
30
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 growth.
Our level of debt and debt service requirements have 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
economic and 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 the continued availability of financing and liquidity, we
currently 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' activities on larger, more capital intensive projects
particularly in those regions where we believe the market for our products is
strongest, such as new golf communities in the Southeast and other areas and
continued growth in our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that
were important sources of our liquidity as of March 31, 2007. These facilities
do not constitute all of our outstanding indebtedness as of March 31, 2007. Our
other indebtedness includes outstanding senior secured notes payable, junior
subordinated debentures, borrowings collateralized by real estate inventories
that were not incurred pursuant to an ongoing credit facility and capital
leases.
VOI Receivables Purchase Facilities - Off-Balance Sheet Arrangements
Our ability to sell and/or borrow against our notes receivable from VOI
buyers is a critical factor in our continued liquidity. When we sell VOIs, a
financed buyer is only required to pay a minimum of 10% of the purchase in cash
at the time of sale; however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the three months ended March 31,
2007, approximated 63% of sales. Accordingly, having facilities available for
the hypothecation or sale of these VOI receivables is a critical factor to our
ability to meet our short and long-term cash needs.
The 2006 GE Purchase Facility. In March 2006, we executed agreements for a
VOI receivables purchase facility (the "2006 GE Purchase Facility") with General
Electric Capital Corporation ("GE"). The 2006 GE Purchase Facility utilizes an
owner's trust structure, pursuant to which we sell receivables to Bluegreen
Receivables Finance Corporation XI, our wholly-owned, special purpose finance
subsidiary ("BRFC XI"), and BRFC XI sells the receivables to an owner's trust (a
qualified special purpose entity) without recourse to us or BRFC XI 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 2006 GE
Purchase Facility. The 2006 GE Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
2006 GE Purchase Facility are subject to certain conditions precedent. Under the
GE Purchase Facility, a variable purchase price of approximately 90% of the
principal balance of the receivables sold, 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 over collateralization ratio is achieved, a cash reserve account is
fully funded and all servicing, custodial, agent and similar fees and expenses
have been paid. GE is entitled to receive a return equal to the applicable Swap
Rate (which is essentially a published interest swap arrangement rate as defined
in the 2006 GE Purchase Facility agreements) plus 2.35%, subject to use of
alternate return rates in certain circumstances. In addition, we paid GE a
structuring fee of approximately $437,500 in March 2006, which is being
amortized on a
31
straight-line basis through March 2008. Subject to the terms of the agreements,
we act as servicer under the 2006 GE Purchase Facility for a fee.
The 2006 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 2006 GE Purchase Facility may
terminate earlier than the dates noted above upon the occurrence of certain
specified events set forth in the 2006 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 2006 GE Purchase Facility; (iii) our
failure to perform our covenants in the 2006 GE Purchase Facility; (iv) our
commencement of bankruptcy or similar proceedings; (v) the amount of any advance
under the 2006 GE Purchase Facility failing to meet a specified
overcollateralization amount; (vi) significant delinquencies or defaults on the
receivables sold; (vii) recovery rates falling below a pre-determined amount;
(viii) a default or breach under any other agreement beyond the applicable grace
period if such default or breach (a) involves the failure to make a payment in
excess of 5% of our Tangible Net Worth (as defined in the 2006 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 $303.3 million plus 50% of net income
following December 31, 2005; (x) the ratio of our debt (excluding our
subordinated debentures and receivable-backed debt of no more than $600 million)
to Tangible Net Worth exceeding 2.50 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 falling below approximately
930.7 million points; (xiii) our ceasing to conduct the VOI business or to
originate VOI 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 2006 GE
Purchase Facility.
The 2006 GE Purchase Facility allows for sales of notes receivable for a
cumulative purchase price of up to $125.0 million through March 2008. During the
first quarter of 2007, we sold $51.2 million in vacation ownership receivables
under the 2006 GE Purchase Facility for an aggregate purchase price of $46.0
million. As of March 31, 2007, the remaining availability under the 2006 GE
Purchase Facility was $14.2 million in cumulative purchase price, subject to
eligibility requirements and fulfillment of conditions precedent.
The 2006 GE Purchase Facility discussed above, the 2006 BB&T Purchase
Facility, the GMAC Receivables Facility, and the GE Bluegreen/Big Cedar Facility
discussed below under "Credit Facilities for Bluegreen Resorts' Receivables and
Inventories" are the only ongoing receivables facilities under which we
currently have the ability to monetize our VOI notes receivable. Factors which
could adversely impact our ability to obtain new or additional VOI 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 VOI companies; a deterioration in the performance of
our VOI 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 or will be in a position
to replace our existing purchase facilities when they are fully funded or
expire. As indicated above, our inability to sell VOI 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.
We have historically chosen to monetize our receivables through facilities
such as the 2006 GE Purchase Facility and through periodic term securitization
transactions, as these off-balance sheet arrangements provide us with cash
inflows both currently and in the future at what we believe to be competitive
rates without adding leverage to our balance sheet or retaining recourse for
losses on the receivables sold. In addition, these sale transactions have
generated gains on our income statement on a periodic basis, which would not be
realized under a traditional financing arrangement.
32
Historically, we have also been a party to a number of securitization-type
transactions, all of which in our opinion utilize customary structures and terms
for transactions of this type. In each securitization-type transaction, we sold
receivables to a wholly-owned special purpose entity which, in turn, sold the
receivables either directly to third parties or to a trust established for the
transaction. In each transaction, the receivables were sold on a non-recourse
basis (except for breaches of certain representations and warranties) and the
special purpose entity has a retained interest in the receivables sold. We have
acted as servicer of the receivables pools in each transaction for a fee, with
the servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, make
interest and principal payments to investors, fund required reserves, if any,
and pay distributions in respect of the retained interests in the receivables.
Pursuant to the terms of the transaction documents; however, to the extent the
portfolio of receivables fails to satisfy specified performance criteria (as may
occur due to an increase in default rates or loan loss severity) or other
trigger events, the funds received from obligors are distributed on an
accelerated basis to investors. In effect, during a period in which the
accelerated payment formula is applicable, funds go to outside investors until
they receive the full amount owed to them and only then are payments made to our
subsidiary in its capacity as the holder of the retained interests. Depending on
the circumstances and the transaction, the application of the accelerated
payment formula may be permanent or temporary until the trigger event is cured.
If the accelerated payment formula were to become applicable, the cash flow on
the retained interests in the receivables would be reduced until the outside
investors were paid or the regular payment formula was resumed. Such a reduction
in cash flow could cause a decline in the fair value of our retained interests
in the receivables sold. Declines in fair value that are determined to be other
than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from our special purpose
subsidiary, the suspension or termination of that commitment. In addition, in
each securitization facility certain breaches of our obligations as servicer or
other events allow the indenture trustee to cause the servicing to be
transferred to a substitute third party servicer. In that case, our obligation
to service the receivables would terminate and we would cease to receive a
servicing fee.
The following is a summary of significant financial information related to
the 2006 GE Purchase Facility and prior off-balance sheet, receivables purchase
facilities during the periods presented (in thousands):
December 31, March 31,
2006 2007
-------------- ----------
On Balance Sheet:
Retained interests in notes receivable sold ... $ 130,623 $ 133,717
Off Balance Sheet:
Notes receivable sold without recourse ........ 540,536 553,123
Principal balance owed to note receivable
purchasers ................................. 503,854 516,463
Three Months Ended
------------------------------
March 31, 2006 March 31, 2007
-------------- --------------
Income Statement:
Gain on sales of notes receivable (1) ......... $ 7,011 $ 7,967
Interest accretion on retained interests in
notes receivable sold ...................... 2,578 4,234
Servicing fee income .......................... 1,645 2,135
(1) Includes amounts classified as VOI sales, pursuant to SFAS No. 152.
As required under SFAS No. 152, approximately $6.5 million and $8.0
million of the gain were recorded as an increase to VOI sales for the three
months ended March 31, 2006 and 2007, respectively.
33
Credit Facilities for Bluegreen's Receivables and Inventories
In addition to the VOI receivables purchase facilities discussed above, we
maintain various credit facilities with financial institutions that provide
receivable, acquisition and development financing for our operations. We had the
following credit facilities, as of March 31, 2007 (see further discussion
below):
Outstanding
Borrowings Availability as Advance Period
as of March of March 31, Expiration; Borrowing Borrowing Current
Credit Facility 31, 2007 2007 Borrowing Maturity Limit Rate Rate
-------------------------------------------------------------------------------------------------------------------
The GMAC $ 15.1 million $ 59.9 million February 15, 2008; $ 75.0 million 30-day LIBOR 9.32%
Receivables February 15, 2015 + 4.00%
Facility
The GMAC $ 35.1 million $ 114.9 million February 15, 2008; $ 150.0 million 30-day LIBOR 9.82%
AD&C Facility August 15, 2013 + 4.50%
2006 BB&T $ -- $ 137.5 million May 25, 2008; $ 137.5 million 30-day LIBOR 6.57%
Purchase March 5, 2019 + 1.25%
Facility
The GMAC $ 61.7 million $ 13.3 million September 30, 2008; $ 75.0 million Prime + 1.00% 9.25%
Communities September 30, 2009
Facility
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
The GMAC Receivables Facility. In February 2003, we entered into a revolving VOI
receivables credit facility (the "GMAC Receivables Facility") with Residential
Funding Corporation ("RFC"), an affiliate of GMAC. 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. Interest
payments are due monthly. During the three months ended March 31, 2007, we did
not pledge any VOI receivables under the GMAC Receivables Facility.
The GMAC AD&C Facility. In September 2003, RFC also provided us with an
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 February 15, 2008, and outstanding
borrowings mature no later than August 15, 2013, 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. Interest payments are due monthly.
There were no borrowings under this facility during the three months ended March
31, 2007.
The 2006 BB&T Purchase Facility. In June 2006, we executed agreements for a VOI
receivables purchase facility (the "2006 BB&T Purchase Facility") with BB&T.
While ownership of the receivables is transferred for legal purposes, the
transfer of the receivables under the facility are accounted for as a financing
transaction for financial accounting purposes. Accordingly, the receivables will
continue to be reflected as assets and the associated obligations will be
reflected as liabilities on our balance sheet. The 2006 BB&T Purchase Facility
utilizes an owner's trust structure, pursuant to which we transfer receivables
to Bluegreen Timeshare Finance Corporation I, our wholly-owned, special purpose
finance subsidiary ("BTFC I"), and BTFC I subsequently transfers the receivables
to
34
an owner's trust without recourse to us or BTFC I, except for breaches of
certain customary representations and warranties at the time of transfer. We did
not enter into any guarantees in connection with the BB&T Purchase Facility. The
2006 BB&T Purchase Facility has detailed requirements with respect to the
eligibility of receivables, and fundings under the BB&T Purchase Facility are
subject to certain conditions precedent. Under the 2006 BB&T Purchase Facility,
a variable purchase price of approximately 85% of the principal balance of the
receivables transferred, 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 and other liquidity providers arranged by BB&T have in aggregate
received a specified return (the "Specified Return") and all servicing,
custodial, agent and similar fees and expenses have been paid. The Specified
Return is equal to either the commercial paper rate or LIBOR rate plus 1.25%,
subject to use of alternate return rates in certain circumstances. In addition,
we will pay BB&T structuring and other fees totaling $1.7 million over the term
of the facility and we will act as servicer under the 2006 BB&T Purchase
Facility for a fee. The BB&T Purchase Facility allows for transfers of notes
receivable for a cumulative purchase price of up to $137.5 million, on a
revolving basis, through May 2008.
There were no outstanding amounts due under this facility as of March 31,
2007. In April 2007, we transferred $20.4 million of VOI notes receivable to the
BB&T Purchase Facility and received $17.3 million in cash proceeds. Immediately
following the transaction, we had $120.2 million of remaining availability under
the BB&T Purchase Facility.
The GE Bluegreen/Big Cedar Facility. In April 2007, the Subsidiary entered into
a $45.0 million revolving VOI receivables credit facility (the "GE Bluegreen/Big
Cedar Receivables Facility") with GE. Bluegreen Corporation has guaranteed the
full payment and performance of the Subsidiary in connection with the GE
Bluegreen/Big Cedar Receivables Facility. The facility allows for advances on a
revolving basis through April 16, 2009 and all outstanding borrowings mature no
later than April 16, 2016. The facility has detailed requirements with respect
to the eligibility of receivables for inclusion and other conditions to funding.
The borrowing base under the facility ranges from 97% - 90% (based on the spread
between the weighted average note receivable coupon and GE's interest rate) of
the outstanding principal balance of eligible notes receivable arising from the
sale of VOIs. The 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
facility. Indebtedness under the facility bears interest adjusted monthly at the
one month LIBOR plus 1.75%. The Subsidiary was required to pay an upfront loan
commitment fee of $225,000 in connection with the GE Bluegreen/Big Cedar
Receivables Facility. On April 20, 2007, the Subsidiary pledged $26.8 million in
aggregate principal balance of notes receivable under the facility and received
$25.7 million in cash proceeds, net of issuance costs.
The Foothill Facility. We are currently seeking to renew a $30.0 million
revolving credit facility with Wells Fargo Foothill, Inc. ("Foothill") primarily
used for borrowings collateralized by Bluegreen Communities receivables and
inventory, but under which we could also borrow up to $10.0 million of the
facility collateralized by the pledge of VOI receivables. For further details on
this facility, see "Credit Facilities for Bluegreen Communities' Receivables and
Inventories" below.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We are currently seeking to renew 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% (9.5% at March 31, 2007). Interest payments are due monthly. Subject
to a minimum monthly interest charge of $15,000, the interest rate charged on
outstanding receivable borrowings under the Foothill Facility, as amended, is
the prime lending rate plus 0.25% (8.5% at March 31, 2007) 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%
(8.75% at March 31, 2007). All principal and interest payments received on
pledged receivables are applied to principal and interest due under the Foothill
Facility. There can be no assurances that we will renew the Foothill Facility on
favorable terms, if at all.
The GMAC Communities Facility. We have a revolving credit facility with RFC (the
"GMAC Communities Facility") for the purpose of financing our Bluegreen
Communities real estate acquisitions and development
35
activities. 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 (Walsenburg, Colorado); Havenwood at Hunter's Crossing
(New Braunfels, Texas); The Bridges at Preston Crossing (Grayson County, Texas);
King Oaks (College Station, Texas); Vintage Oaks at the Vineyard (New Braunfels,
Texas); and Sanctuary River Club at St. Andrews Sound (St. Simons Island,
Georgia). 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. Principal payments are
effected through agreed-upon release prices paid to RFC, as homesites in the
Secured Projects are sold. Interest payments are due monthly. The GMAC
Communities Facility includes customary conditions to funding, acceleration and
event of default provisions and certain financial affirmative and negative
covenants. We use the proceeds from the GMAC Communities Facility to repay
outstanding indebtedness on Bluegreen Communities projects, finance the
acquisition and development of Bluegreen Communities projects and for general
corporate purposes.
In February 2007, we acquired 350 acres near St. Simons Island, Georgia,
for $18.0 million for a new community to be called Sanctuary River Club at St.
Andrews Sound. We borrowed $12.6 million under the GMAC Communities Facility in
connection with the acquisition of this property.
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 amortization periodically. When we provide financing to 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
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 our 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.
36
On February 26, 2007, one of the Trusts, Bluegreen Statutory Trust VI
("BST VI") issued $20.0 million of trust preferred securities. BST VI used the
proceeds from issuing the trust preferred securities to purchase an identical
amount of junior subordinated debentures from us. Interest on the junior
subordinated debentures and distributions on the trust preferred securities will
be payable quarterly in arrears at a fixed rate of 9.84% through April 2012, and
thereafter at a variable rate of interest, per annum, reset quarterly, equal to
the 3-month LIBOR plus 4.80% until the scheduled maturity date of April 30,
2037. Distributions on the trust preferred securities will be cumulative and
based upon the liquidation value of the trust preferred security. The trust
preferred securities will be subject to mandatory redemption, in whole or in
part, upon repayment of the junior subordinated debentures at maturity or their
earlier redemption. The junior subordinated debentures are redeemable five years
from the issue date or sooner following certain specified events. In addition,
we contributed $619,000 to BST VI in exchange for its common securities, all of
which are owned by us. Those proceeds were also used by BST VI to purchase an
identical amount of junior subordinated debentures from us. The terms of BST
VI's common securities are nearly identical to the trust preferred securities.
We had the following junior subordinated debentures outstanding at March
31, 2007 (dollars in thousands):
Outstanding Initial
Amount of Equity Fixed Beginning
Junior To Interest Variable Optional
Subordinated Trust Issue Rate Interest Rate Redemption Maturity
Trust Debentures (3) Date (1) (2) Date Date
----------------------------------------------------------------------------------------------------------
Bluegreen Statutory 3-month
Trust I .................. $ 23,196 $ 696 3/15/05 9.160% LIBOR 3/30/10 3/30/35
+ 4.90%
Bluegreen Statutory 3-month
Trust II ................. 25,774 774 5/04/05 9.158% LIBOR 7/30/10 7/30/35
+ 4.85%
Bluegreen Statutory 3-month
Trust III ................ 10,310 310 5/10/05 9.193% LIBOR 7/30/10 7/30/35
+ 4.85%
Bluegreen Statutory 3-month
Trust IV ................. 15,464 464 4/24/06 10.130% LIBOR 6/30/11 6/30/36
+ 4.85%
Bluegreen Statutory 3-month
Trust V .................. 15,464 464 7/21/06 10.280% LIBOR 9/30/11 9/30/36
+ 4.85%
Bluegreen Statutory 3-month
Trust VI ................. 20,619 619 2/26/07 9.842% LIBOR 4/30/12 4/30/37
+ 4.80%
---------------------
$ 110,827 $ 3,327
=====================
(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.
(3) Initial equity in trust is recorded as part of Other assets in our
Condensed Consolidated Balance Sheets.
Unsecured Credit Facility
In July 2006, we executed agreements to renew our $15.0 million unsecured
line-of-credit with Wachovia Bank, N.A. Amounts borrowed under the line bear
interest at 30-day LIBOR plus 2.00% (7.32% at March 31, 2007). Interest is due
monthly and all outstanding amounts are due on June 30, 2007. We can only borrow
an amount under the line-of-credit 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 certain
covenants and conditions typical of arrangements of this type. As of March 31,
2007, no borrowings were outstanding under the line. However, an aggregate of
37
$463,000 of irrevocable letters of credit were provided under this
line-of-credit of which $428,000 was required in connection with the obtaining
of plats for one of our Bluegreen Communities projects. This line-of-credit is
an available source of short-term liquidity for us.
Commitments
Our material commitments as of March 31, 2007 include 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 tables summarize the contractual minimum principal payments
and interest obligations required on all of our outstanding debt (including our
receivable-backed debt, lines-of-credit and other notes and debentures payable)
and our noncancelable operating leases as of March 31, 2007, by period due (in
thousands):
Payments Due by Period
-----------------------------------------------------------
Contractual Obligations Less than 1 -- 3 4 -- 5 After 5
and Outstanding Debt 1 year Years Years Years Total
----------------------------------- --------- ---------- -------- ---------- ----------
Receivable-backed notes payable $ 17 $ 3,739 $ -- $ 15,115 $ 18,871
Lines-of-credit and notes payable 37,372 83,516 556 3,286 124,730
10.50% senior secured notes payable -- 55,000 -- -- 55,000
Junior subordinated debentures -- -- -- 110,827 110,827
Noncancelable operating leases 9,934 14,728 8,691 1,674 35,027
--------- ---------- -------- ---------- ----------
Total contractual obligations $ 47,323 $ 156,983 $ 9,247 $ 130,902 $ 344,455
========= ========== ======== ========== ==========
Payments Due by Period
-----------------------------------------------------------
Less than 1 -- 3 4 -- 5 After 5
Interest Obligations (1) 1 year Years Years Years Total
----------------------------------- --------- ---------- -------- ---------- ----------
Receivable-backed notes payable $ 1,746 $ 3,077 $ 2,818 $ 2,113 $ 9,754
Lines-of-credit and notes payable 9,662 11,204 522 4,584 25,972
10.50% senior secured notes payable 5,775 -- -- -- 5,775
Junior subordinated debentures 10,618 21,236 21,236 271,980 325,070
--------- ---------- -------- ---------- ----------
Total contractual obligations $ 27,801 $ 35,517 $ 24,576 $ 278,677 $ 366,571
========= ========== ======== ========== ==========
(1) For interest on variable rate debt, we have assumed that the interest rate
remains the same as the rate at March 31, 2007.
We intend to use cash flow from operations, including cash received from
the sale of VOI notes receivable, and cash received from new borrowings under
existing or future debt facilities in order to satisfy the principal payments in
the contractual obligations. While we believe that we will be able to meet all
required debt payments when due, there can be no assurance that this will be the
case.
As noted above, we have $463,000 in letters-of-credit outstanding at March
31, 2007, all of which were issued under the unsecured line-of-credit with
Wachovia Bank, N.A. The majority of these letters-of-credit are 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 $10.8 million as of
March 31, 2007. We estimate that the total cash required to complete our
Bluegreen Communities projects in which sales have occurred to be approximately
$39.6 million as of March 31, 2007. 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
38
generate the cash from operations necessary to complete the foregoing plans or
that actual costs will not exceed those estimated.
We believe that our existing cash, anticipated cash generated from
operations, anticipated new 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 deems prudent. There can be no assurance that the credit facilities
or receivables purchase facilities which have expired or which are scheduled to
expire in the near term will be renewed or replaced or that sufficient funds
will be available from operations or under existing, proposed or future
revolving credit or other borrowing arrangements or receivables purchase
facilities to meet our cash needs, including, our debt service obligations. To
the extent we are not able to sell notes receivable or borrow under such
facilities, our ability to satisfy our obligations would be materially adversely
affected.
Our credit facilities, indentures, and other outstanding debt instruments,
and receivables purchase facilities include customary conditions to funding,
eligibility requirements for collateral, cross-default and other acceleration
provisions, certain financial and other affirmative and negative covenants,
including, among others, limits on the incurrence of indebtedness, limits on the
repurchase of securities, payment of dividends, investments in joint ventures
and other restricted payments, the incurrence of liens, transactions with
affiliates, covenants concerning net worth, fixed charge coverage requirements,
debt-to-equity ratios, portfolio performance requirements and events of default
or termination. No assurance can be given that we will not be required to seek
waivers of such covenants or that such covenants will not limit our ability to
raise funds, sell receivables, satisfy or refinance our obligations or otherwise
adversely affect our operations. In addition, our future operating performance
and ability to meet our financial obligations will be subject to future economic
conditions and to financial, business and other factors, many of which will be
beyond our control.
Item 4. Controls and Procedures.
a) As of the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of
our principal executive officer and principal financial officer of
the effectiveness of our disclosure controls and procedures, as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of March
31, 2007. 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 that is
required to be included in our periodic SEC filings.
b) There has been no change in our internal control over financial
reporting during the quarter ended March 31, 2007, 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.
Bluegreen Southwest One, L.P., ("Southwest"), a subsidiary of Bluegreen
Corporation, is the developer of the Mountain Lakes subdivision in Texas. In
Cause No. 28006; styled Betty Yvon Lesley et a1 v. Bluff Dale Development
Corporation, Bluegreen Southwest One. L.P.et al. in the 266th Judicial District
Court, Erath County, Texas, the Plaintiffs filed a declaratory judgment action
against Southwest in which they seek to develop their prior reserved mineral
interests in, on and under the Mountain Lakes subdivision. Plaintiffs' claims
are based on property law, oil and gas law, contract and tort theories. The
property owners association and some of the individual landowners have filed
cross actions against Bluegreen, Southwest and individual directors of the
property owners association related to the mineral rights and related to certain
amenities in the subdivision as described in the following paragraph. The court
has ruled that the restrictions placed on the development that prohibited oil
and gas production and development were invalid and not enforceable as a matter
of law, that such restrictions do not prohibit the prior reserved mineral
interests of the plaintiffs from being developed and that a duty to exercise the
39
right to lease the minerals to third parties for development exists and has been
breached. The Court further ruled that Southwest is the sole holder of the right
to lease the minerals to third parties. The order granting the Plaintiffs motion
was severed into a new cause styled Cause No. 28769 Betty Yvon Lesley et a1 v.
Bluff Dale Development Corporation, Bluegreen Southwest One. L.P.et al. in the
266th Judicial District Court, Erath County, Texas. Southwest has appealed the
trial court's ruling and, at this time, is unable to predict the ultimate
resolution of the litigation. The appeal is styled, Bluegreen Southwest One, LP
et al. v. Betty Yvon Lesley et al.; in the 11th Court of Appeals, Eastland,
Texas.
One of the amenity lakes in the Mountain Lakes development has not reached
the expected level after construction was completed. Owners of homesites within
the Mountain Lakes subdivision and the Property Owners Association of Mountain
Lakes have asserted claims against Southwest and Bluegreen regarding such
failure as part of the Lesley litigation referenced above as well as in Cause
No. 067-223662-07; Property Owners Association of Mountain Lakes Ranch, Inc. v.
Bluegreen Southwest One, L. P., et al.; in the 67TH Judicial District Court of
Tarrant County, Texas. Southwest has been and continues to investigate the
causes and circumstances for the delay of the lake to fill and currently
estimates that the cost of remediating the condition will be approximately
$3,000,000 and as such was accrued during the year ended December 31, 2006.
In Michelle Alamo, Ernest Alamo, Toniann Quinn and Terrance Quinn v.
Vacation Station, LLC, LeisurePath Vacation Club, LeisurePath, Inc., Bluegreen
Corporation, Superior Court of New Jersey, Bergen County, Docket No. L-6716-05,
Civil Action, Plaintiffs filed a purported "Class Action Complaint" on September
23, 2005. The Complaint raises allegations concerning the marketing of the
LeisurePath Travel Services Network product to the public, and, in particular,
New Jersey residents by Vacation Station, LLC, an independent distributor of
travel products. Vacation Station, LLC purchased LeisurePath membership kits
from LeisurePath, Inc.'s Master Distributor, Mini Vacations, Inc. and then sold
the memberships to consumers. The initial Plaintiffs (none of whom actually
bought the Leisure Path product) assert claims for violations of the New Jersey
Consumer Fraud Act, fraud, nuisance, negligence and for equitable relief all
stemming from the sale and marketing by Vacation Station, LLC of the LeisurePath
Travel Services Network. Plaintiffs are seeking the gifts and prizes they were
allegedly told by Vacation Station, LLC that they won as part of the sales
promotion, and that they be given the opportunity to rescind their agreement
with LeisurePath along with a full refund. Plaintiffs further seek punitive
damages, compensatory damages, attorney's fees and treble damages of unspecified
amounts. In February of 2007, the Plaintiffs amended the complaint to add two
additional Plaintiffs/proposed class representatives, Bruce Doxey and Karen
Smith-Doxey. Unlike the initial Plaintiffs who were first contacted by Vacation
Station, LLC some seven (7) months after LeisurePath terminated its relationship
with Vacation Station, LLC and did not purchase LeisurePath products, the Doxeys
purchased a participation in the LeisurePath Travel Services Network. On March
16, 2007, the Court denied a motion filed by Leisure Path and Bluegreen
Corporation to dismiss the Doxeys as parties to the lawsuit. Leisure Path and
Bluegreen Corporation intend to vigorously contest this action. Vacation
Station, LLC and its owner have each filed for bankruptcy protection.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not repurchase any of our equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934. Our Board of Directors has
adopted and publicly announced a share repurchase program. Repurchases under
such programs from time to time are subject to the price of our stock,
prevailing market conditions, our financial condition and available resources,
other investment alternatives and other factors. We are not required to seek
shareholder approval of share repurchase programs, have not done so in the past,
and do not anticipate doing so in the future, except to the extent we may be
required to do so under applicable law. We have not repurchased any shares since
the fiscal year ended April 1, 2001. As of March 31, 2007, there were 694,500
shares remaining for purchase under our current repurchase program.
Item 6. Exhibits.
Exhibits:
10.87 Loan and Security Agreement, dated April 16, 2007 among
Bluegreen/Big Cedar Vacations, LLC, as borrower and General
Electric Capital Corporation, as Lender.
10.88 Revolving Promissory Note, dated April 16, 2007 from
Bluegreen/Big Cedar Vacations, LLC, as borrower to General
Electric Capital Corporation, as Lender.
40
10.150 Employment Letter Agreement, dated April 25, 2007, by and
between Bluegreen Corporation and David L. Pontius.
10.216 Construction Loan and Security Agreement by and among Textron
Financial Corporation and Bluegreen Vacations Unlimited, Inc.
and Bluegreen Corporation, as of March 23, 2007.
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.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: May 9, 2007 By: /S/ JOHN M. MALONEY, JR.
--------------------------------------------------
John M. Maloney, Jr.,
President and Chief Executive Officer
Date: May 9, 2007 By: /S/ ANTHONY M. PULEO
--------------------------------------------------
Anthony M. Puleo,
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Date: May 9, 2007 By: /S/ RAYMOND S. LOPEZ
--------------------------------------------------
Raymond S. Lopez,
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
42