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 September 30, 2001
or
[_] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN(R) CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-8000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of November 12, 2001, there were 27,058,950 shares of Common Stock, $.01
par value per share, issued, 2,755,300 treasury shares and 24,303,650 shares
outstanding.
BLUEGREEN(R) CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information (unaudited)
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets at
April 1, 2001 and September 30, 2001 3
Condensed Consolidated Statements of Income - Three Months
Ended October 1, 2000 and September 30, 2001 4
Condensed Consolidated Statements of Income - Six Months
Ended October 1, 2000 and September 30, 2001
5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended October 1, 2000 and September 30, 2001 6
Notes to Condensed Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition 17
Item 3 Quantitative and Qualitative
Disclosures About Market Risk 28
Part II - Other Information
Item 1 Legal Proceedings 28
Item 2 Changes in Securities 28
Item 3 Defaults Upon Senior Securities 28
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits and Reports on Form 8-K 29
Signatures 30
Note: The term "Bluegreen" is registered in the U.S. Patent and Trademark office
by Bluegreen Corporation. The term "Big Cedar" is registered in the U.S.
Patent and Trademark office by Big Cedar L.L.C.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Condensed Consolidated Balance Sheets
(amounts in thousands, except per share data)
April 1, September 30,
2001 2001
---- ----
(Note) (unaudited)
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $22.4 million and $30.0 million at
April 1, 2001 and September 30, 2001, respectively) $ 40,016 $ 38,635
Contracts receivable, net 18,507 14,723
Notes receivable, net 74,796 86,262
Prepaid expenses 13,595 11,732
Inventory, net 193,634 192,508
Retained interests in notes receivable sold 19,898 26,098
Property and equipment, net 41,462 46,505
Other assets 17,773 20,920
--------- ---------
Total assets $ 419,681 $ 437,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 6,245 $ 3,695
Accrued liabilities and other 31,171 37,243
Deferred income 5,314 6,470
Deferred income taxes 19,329 24,882
Receivable-backed notes payable 8,702 17,850
Lines-of-credit and notes payable 58,918 48,208
10.50% senior secured notes payable 110,000 110,000
8.00% convertible subordinated notes payable to related
parties 6,000 6,000
8.25% convertible subordinated debentures 34,371 34,371
--------- ---------
Total liabilities 280,050 288,719
Contingencies
Minority interest 2,841 3,027
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized;
none issued -- --
Common stock, $.01 par value, 90,000 shares authorized;
26,946 and 27,035 shares issued, respectively, at
April 1, 2001 and September 30, 2001 269 270
Additional paid-in capital 122,564 122,699
Treasury stock, 2,756 common shares at cost at both
April 1, 2001 and September 30, 2001 (12,885) (12,885)
Other comprehensive income 1,471 1,471
Retained earnings 25,371 34,082
--------- ---------
Total shareholders' equity 136,790 145,637
--------- ---------
Total liabilities and shareholders' equity $ 419,681 $ 437,383
========= =========
Note: The condensed consolidated balance sheet at April 1, 2001 has been derived
from the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
October 1, September 30,
2000 2001
-------- -------
Revenues:
Sales $ 65,600 $69,235
Other resort and golf operations revenue 7,070 6,987
Interest income 5,317 4,017
Gain on sale of notes receivable -- 1,051
Other income, net -- 210
-------- -------
77,987 81,500
Costs and expenses:
Cost of sales 20,895 24,078
Cost of other resort and golf operations 6,620 6,202
Selling, general and administrative expenses 42,569 38,496
Interest expense 3,623 3,362
Provision for loan losses 1,456 1,605
Other expense, net 71 --
-------- -------
75,234 73,743
-------- -------
Income before income taxes 2,753 7,757
Provision for income taxes 1,060 2,986
Minority interest in income (loss) of
consolidated subsidiaries (308) 194
-------- -------
Net income $ 2,001 $ 4,577
======== =======
Income per common share:
Basic $ 0.08 $ 0.19
======== =======
Diluted $ 0.08 $ 0.17
======== =======
Weighted average number of common and common
equivalent shares:
Basic 24,226 24,235
======== =======
Diluted 25,857 29,978
======== =======
See accompanying notes to condensed consolidated financial statements.
4
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
Six Months Ended
October 1, September 30,
2000 2001
--------- --------
Revenues:
Sales $ 128,764 $129,418
Other resort and golf operations revenue 13,830 13,577
Interest income 9,575 8,079
Gain on sale of notes receivable -- 2,029
Other income, net 122 --
--------- --------
152,291 153,103
Costs and expenses:
Cost of sales 42,779 44,149
Cost of other resort and golf operations 13,214 11,895
Selling, general and administrative expenses 79,328 72,406
Interest expense 7,264 7,097
Provision for loan losses 2,491 2,895
Other expense, net -- 194
--------- --------
145,076 138,636
--------- --------
Income before income taxes 7,215 14,467
Provision for income taxes 2,778 5,570
Minority interest in income (loss) of consolidated subsidiaries (576) 186
--------- --------
Net income $ 5,013 $ 8,711
========= ========
Income per common share:
Basic $ 0.21 $ 0.36
========= ========
Diluted $ 0.20 $ 0.32
========= ========
Weighted average number of common and common
equivalent shares:
Basic 24,293 24,212
========= ========
Diluted 25,940 29,947
========= ========
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Six Months Ended
October 1, September 30,
2000 2001
-------- --------
Operating activities:
Net income $ 5,013 $ 8,711
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Minority interest in income (loss) of consolidated subsidiaries (576) 186
Depreciation and amortization 2,778 4,096
Amortization of discount on note payable 387 229
Gain on sale of notes receivable -- (2,029)
Loss on sale of property and equipment 9 111
Provision for loan losses 2,491 2,895
Provision for deferred income taxes 2,778 5,570
Interest accretion on retained interests in notes receivable sold (1,188) (1,559)
Proceeds from sales of notes receivable -- 30,832
Proceeds from borrowings collateralized by notes
receivable 20,681 22,734
Payments on borrowings collateralized by notes receivable (4,886) (13,267)
Change in operating assets and liabilities:
Contracts receivable (5,467) 3,784
Notes receivable (53,894) (57,110)
Inventory 17,308 3,871
Other assets (996) (2,279)
Accounts payable, accrued liabilities and other 4,100 4,678
-------- --------
Net cash provided (used) by operating activities (11,462) 11,453
-------- --------
Investing activities:
Purchases of property and equipment (4,884) (7,410)
Sales of property and equipment 34 43
Cash received from retained interest in notes receivable sold 2,162 1,599
Long-term prepayment to Bass Pro, Inc. (9,000) --
Acquisition of minority interest (250) --
Principal payments received on investment in note receivable -- 4,643
-------- --------
Net cash used by investing activities (11,938) (1,125)
-------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable 6,500 12,818
Payments under line-of-credit facilities and other notes payable (12,903) (24,054)
Payment of debt issuance costs (129) (593)
Payments for treasury stock (527) --
Proceeds from exercise of employee and director stock options 34 120
-------- --------
Net cash used by financing activities (7,025) (11,709)
-------- --------
Net decrease in cash and cash equivalents (30,425) (1,381)
Cash and cash equivalents at beginning of period 65,526 40,016
-------- --------
Cash and cash equivalents at end of period 35,101 38,635
Restricted cash and cash equivalents at end of period (20,095) (29,756)
-------- --------
Unrestricted cash and cash equivalents at end of period $ 15,006 $ 8,879
======== ========
See accompanying notes to condensed consolidated financial statements.
6
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows - - continued
(amounts in thousands)
(unaudited)
Six Months Ended
------------------------
October 1, September 30,
2000 2001
------ ------
Supplemental schedule of non-cash operating, investing
and financing activities
Retained interests in notes receivable sold $ -- $6,240
====== ======
Inventory acquired through financing $2,112 $ --
====== ======
Property and equipment acquired through financing $ 891 $ 297
====== ======
Inventory acquired through foreclosure or
deedback in lieu of foreclosure $3,708 $2,745
====== ======
Contribution of land inventory by minority
interest $3,230 $ --
====== ======
See accompanying notes to condensed consolidated financial statements.
7
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring accruals that, in the opinion of management,
are necessary for a fair presentation of the results for the interim
periods. The results of operations for the three- and six- month periods
ended September 30, 2001 are not necessarily indicative of the results to
be expected for the fiscal year ending March 31, 2002. For further
information, refer to the consolidated financial statements and notes
thereto included in Bluegreen Corporation's (the "Company's") Annual Report
to Shareholders for the fiscal year ended April 1, 2001.
Organization
The Company is a leading marketer of vacation and residential lifestyle
choices through its resort and residential land and golf businesses, which
are located predominantly in the southeastern, southwestern and midwestern
United States. The Company's resort business (the "Resorts Division")
acquires, develops and markets Timeshare Interests in resorts generally
located in popular, high-volume, "drive-to" vacation destinations.
"Timeshare Interests" are of two types: one which entitles the fixed-week
buyer to a fully-furnished vacation residence for an annual one-week period
in perpetuity and the second which entitles the buyer of the points-based
Bluegreen Vacation Club(TM) product to an annual allotment of "points" in
perpetuity (supported by an underlying deeded fixed timeshare week being
held in trust for the buyer). "Points" may be exchanged by the buyer in
various increments for lodging for varying lengths of time in
fully-furnished vacation residences at the Company's participating resorts.
The Company currently develops, markets and sells Timeshare Interests in
twelve resorts located in the United States and Aruba. The Company also
markets and sells Timeshare Interests in its resorts at two off-site sales
locations. The Company's residential land and golf business (the
"Residential Land and Golf Division") acquires, develops and subdivides
property and markets the subdivided residential lots to retail customers
seeking to build a home in a high quality residential setting, in some
cases on properties featuring a golf course and related amenities. During
the six months ended September 30, 2001, sales generated by the Company's
Resorts Division and Residential Land and Golf Division comprised
approximately 61% and 39%, respectively, of the Company's total sales. The
Company's other resort and golf operations revenues are generated from
resort property management services, resort title services, resort amenity
operations, hotel operations and daily-fee golf course operations. The
Company also generates significant interest income by providing financing
to individual purchasers of Timeshare Interests and, to a nominal extent,
land sold by the Residential Land and Golf Division.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company, all of its wholly-owned subsidiaries and entities in which the
Company holds a controlling financial interest. All significant
intercompany balances and transactions are eliminated.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the condensed consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share,
but also gives effect to all dilutive stock options using the treasury
stock method and includes an adjustment, if dilutive, to both net income
and shares outstanding as if the Company's 8.00% convertible subordinated
notes payable and 8.25% convertible subordinated debentures were converted
into common stock at the beginning of the periods presented.
8
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Six Months Ended
October 1, September 30, October 1, September 30,
(in thousands, except per share data) 2000 2001 2000 2001
---- ---- ---- ----
Basic earnings per share - numerator:
Net income $2,001 $4,577 $5,013 $8,711
====== ====== ====== ======
Diluted earnings per share - numerator:
Net income - basic $2,001 $4,577 $5,013 $8,711
Effect of dilutive securities (net of tax effects) 74 510 148 1,020
------ ------ ------ ------
Net income - diluted $2,075 $5,087 $5,161 $9,731
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share -
weighted-average shares 24,226 24,235 24,293 24,212
Effect of dilutive securities:
Stock options 100 41 116 33
Convertible securities 1,531 5,702 1,531 5,702
------ ------ ------ ------
Dilutive potential common shares 1,631 5,743 1,647 5,735
------ ------ ------ ------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions 25,857 29,978 25,940 29,947
====== ====== ====== ======
Basic earnings per common share $ 0.08 $ 0.19 $ 0.21 $ 0.36
====== ====== ====== ======
Diluted earnings per common share $ 0.08 $ 0.17 $ 0.20 $ 0.32
====== ====== ====== ======
Sales of Notes Receivable and Related Retained Interests
When the Company sells notes receivable on a non-recourse basis through
either a timeshare receivables purchase facility or a REMIC transaction
(land notes receivable), it retains a residual interest in the future cash
flows from the portfolio sold. Gain or loss on sale of the receivables
depends in part on the previous carrying amount of the notes receivable
sold, allocated between the notes sold and the retained interests based on
their relative fair value at the date of transfer.
The Company's retained interests in the portfolios of notes receivable sold
are carried at fair market value as available-for-sale investments.
Unrealized holding gains or losses on retained interests in notes
receivable sold are included in shareholders' equity, net of income taxes.
The Company typically will revalue its retained interests in notes
receivable sold on a semi-annual basis. Declines in the fair value of the
retained interests that are determined to be other than temporary are
charged to operations.
To obtain fair values on the retained interests (both at the point of the
related receivable sale and periodically thereafter), the Company generally
estimates fair value based on the present value of future expected cash
flows estimated using management's best estimates of the key
assumptions--default rates, rates of prepayment, loss severity and discount
rates commensurate with the risks involved.
Recent Accounting Pronouncements
In 1997, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") began a
project to address the accounting for timeshare transactions. The proposed
guidance is currently in the drafting stage of the promulgation process and
no formal exposure draft has been issued to date; therefore, the Company is
unable to assess the possible impact of this proposed guidance. Currently,
it appears that a final pronouncement on timeshare transactions would not
be effective until the Company's fiscal year 2005.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". SFAS No. 133 is
effective for the Company's fiscal year 2002 (beginning April 2, 2001). The
adoption of SFAS No. 133 had no impact on the Company's results of
operations and financial position during the three- and six-month periods
ended September 30, 2001.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 140 changes certain provisions of SFAS No. 125. SFAS No. 140 is
effective
9
for transfers of financial assets occurring after March 31, 2001. The
adoption of SFAS No. 140 had no impact on the Company's results of
operations and financial position during the three- and six- month periods
ended September 30, 2001.
In September 2000, the Emerging Issues Task Force ("EITF") of the FASB
issued EITF Issue No. 99-20, "Recognition of Interest Income and Impairment
on Purchased and Retained Beneficial Interests in Securitized Financial
Assets." The Issue discusses how a transferor that retains an interest in
securitized financial assets should assess impairment and account for
interest income. EITF Issue No. 99-20 became effective for the Company on
April 2, 2001. The adoption of the Issue had no impact on the Company's
results of operations and financial position during the three- and
six-month periods ended September 30, 2001.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets",
effective for the Company's fiscal year 2003. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with
SFAS No. 142. Other intangible assets will continue to be amortized over
their useful lives. The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of
fiscal 2003 (beginning April 1, 2002). Application of the nonamortization
provisions of the Statement is expected to result in an increase to net
income of $44,000 (less than $0.01 per share) per year. During fiscal 2003,
the Company will perform the first of the required impairment tests of
goodwill as of April 1, 2002 and has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement requires entities to record the
fair value of a liability for an asset retirement obligation in the period
in which it is incurred. This statement is effective for the Company's
fiscal year 2004. The new statement is not expected to have a material
impact on the results of operation or financial position of the Company.
In September 2001, the FASB issued SFAS No. 144 on asset impairment that is
applicable to the Company's fiscal 2003 financial statements. The FASB's
new rules on asset impairment supersede FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", and provide a single accounting model for long-lived assets
to be disposed of. The new statement is not expected to have a material
impact on the results of operation or financial position of the Company.
Other Comprehensive Income
Other comprehensive income on the condensed consolidated balance sheet is
comprised of net unrealized gains on retained interests in notes receivable
sold, which are available-for-sale investments. For the three- and
six-month periods ended October 1, 2000 and September 30, 2001, total
comprehensive income equaled net income.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Notes Receivable
In October 2000, the Company entered into a timeshare receivables purchase
facility (the "Former Purchase Facility") with two financial institutions.
On June 29, 2001, a subsidiary of the Company sold $17.6 million of
timeshare receivables under the Former Purchase Facility. Gross proceeds
from the sale of these receivables were approximately $16.8 million, of
which $10.8 million was used to pay down the Company's timeshare
receivables warehouse facility loan (see Note 4). The Company recognized a
$978,000 gain on the sale of the receivables and recorded a $2.4 million
retained interest in notes receivable sold and a $133,000 servicing asset,
which is included in Other Assets on the condensed consolidated balance
sheet.
In June 2001, the Company executed agreements for a new timeshare
receivables purchase facility (the "Purchase Facility") with a financial
institution acting as the initial purchaser (the "Initial Purchaser"). At
the end of the facility term (August 13, 2002), the Initial Purchaser will
attempt to securitize and sell the receivable portfolio that it purchased.
The Purchase Facility utilizes an owner's trust structure, pursuant to
which the Company sells receivables to a special purpose finance subsidiary
of the Company (the "Subsidiary") and the Subsidiary sells the receivables
to an owners' trust without recourse to the Company or the Subsidiary
except for breaches of customary representations and warranties at the time
of sale. Pursuant to the agreements that constitute the Purchase Facility
(collectively, the "Purchase Facility Agreements"), the Subsidiary may
receive $75 million of cumulative purchase price (as more fully described
below) on sales of timeshare receivables to the owner's trust on a
revolving basis, as the principal balance of receivables sold amortizes, in
transactions
10
through August 13, 2002 (subject to certain conditions as more fully
described in the Purchase Facility Agreements). The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase and fundings under the Purchase Facility (including the initial
funding) are subject to certain conditions precedent. Under the Purchase
Facility, a variable purchase price expected to approximate 85.00% of the
principal balance of the receivables sold, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price
will be deferred until such time as the Initial Purchaser has received a
specified return and all servicing, custodial, agent and similar fees and
expenses have been paid. The Initial Purchaser shall earn a return equal to
the rate equivalent to its borrowing cost (based on then applicable
commercial paper rates) plus 1.05%, subject to use of alternate return
rates in certain circumstances. In addition, the Initial Purchaser will
receive a 0.25% facility fee during the term of the facility. The Purchase
Facility also provides for the sale of land notes receivable, under
modified terms.
The Purchasers' obligation to purchase under the Purchase Facility will
terminate upon the occurrence of specified events. The Company acts as
servicer under the Purchase Facility for a fee. The Purchase Facility
Agreement includes various conditions to purchase, covenants, trigger
events and other provisions customary for a transaction of this type.
On September 6, 2001, a subsidiary of the Company sold $17.0 million of
timeshare receivables under the Purchase Facility. Gross proceeds from the
sale of these receivables were approximately $14.4 million. The Company
recognized a $1.1 million gain on the sale of the receivables and recorded
a $3.8 million retained interest in notes receivable sold and a $139,000
servicing asset, which is included in Other Assets on the condensed
consolidated balance sheet.
The following assumptions were used to measure the initial fair value of
the retained interests for the above sales under both the Former Purchase
Facility and the Purchase Facility: Prepayment rates ranging from 17% to
14% per annum as the portfolios mature; loss severity rate of 45%; default
rates ranging from 6% to 1% per annum as the portfolios mature; and a
discount rate of 14%.
In May 2001, Napa Partners, LLC, a real estate company in Napa, California,
repaid the remaining $4.6 million balance of its loan from the Company and
all accrued interest.
On June 26, 2001, the Company loaned $1.7 million to the Casa Grande Resort
Cooperative Association I (the "Association"), the property owners'
association controlled by the timeshare owners at the La Cabana Beach and
Racquet Club resort in Aruba. This unsecured loan bears interest at Prime
plus 1%, payable in semi-annual installments commencing on December 26,
2001, and matures on June 26, 2003.
3. Inventory
On June 8, 2001, the Company acquired approximately 3,000 Timeshare
Interests at an existing timeshare resort in Surfside, Florida. The
purchase price for the inventory was $7.1 million, which was paid in cash.
Renovations of the property are estimated at $4.5 million and the Company
expects to complete the initial renovations by March 2002. The Company
anticipates that sales of this new inventory will commence in the fiscal
quarter ending December 30, 2001. The resort will be known as the Solara
Surfside ResortT.
4. Receivable-backed Notes Payable
During the six months ended September 30, 2001, the Company borrowed an
aggregate $22.2 million pursuant to a timeshare receivables financing
warehouse facility with a financial institution (the "Loan"). The Loan was
collateralized by timeshare receivables and is due, as extended, in
February 2002. The Loan bears interest at LIBOR plus 3.5%, which is paid on
a weekly basis. The Company has repaid approximately $11.7 million of the
Loan by using cash generated from principal and interest payments on the
underlying loans and proceeds from the sale of the underlying receivables
(see Note 2).
5. Line of Credit Borrowing
In May 2001, the Company borrowed $10 million under its $10 million,
unsecured line-of-credit with a bank and repaid said loan in August 2001.
The borrowing bore interest at LIBOR plus 2%. The proceeds were used to
fund the acquisition of Timeshare Interests in Surfside, Florida (see Note
3) and for operations.
6. Supplemental Guarantor Financial Information
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). None of the assets of
Bluegreen Corporation
11
secure its obligations under the Notes, and the Notes are effectively
subordinated to secured indebtedness of the Company to any third party to
the extent of assets serving as security therefore. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of
Bluegreen/Big Cedar Vacations, LLC(TM), Bluegreen Properties N.V. (TM),
Resort Title Agency, Inc. (TM), any special purpose finance subsidiary, any
subsidiary which is formed and continues to operate for the limited purpose
of holding a real estate license and acting as a broker, and certain other
subsidiaries which have individually less then $50,000 of assets
(collectively, "Non-Guarantor Subsidiaries"). Supplemental financial
information for Bluegreen Corporation, its combined Non-Guarantor
Subsidiaries and its combined Subsidiary Guarantors is presented below:
CONDENSED CONSOLIDATING BALANCE SHEET AT SEPTEMBER 30, 2001
(UNAUDITED) COMBINED COMBINED
(IN THOUSANDS) BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents $ 8,171 $ 22,067 $ 8,397 $ -- $ 38,635
Contracts receivable, net -- 127 14,596 -- 14,723
Intercompany receivable 123,020 -- -- (123,020) --
Notes receivable, net 1,901 6,746 77,615 -- 86,262
Inventory, net -- 17,870 174,638 -- 192,508
Retained interests in notes receivable -- 26,098 -- -- 26,098
sold
Investments in subsidiaries 7,730 -- 3,230 (10,960) --
Property and equipment, net 9,404 1,191 35,910 -- 46,505
Other assets 13,612 1,753 17,287 -- 32,652
--------- --------- --------- --------- ---------
Total assets $ 163,838 $ 75,852 $ 331,673 $(133,980) $ 437,383
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable, deferred income,
accrued liabilities and other $ 13,290 $ 20,909 $ 13,209 $ -- $ 47,408
Intercompany payable -- 4,711 118,309 (123,020) --
Deferred income taxes (18,144) 19,832 23,194 -- 24,882
Lines-of-credit and receivable-backed
notes payable 3,506 7,450 55,102 -- 66,058
10.50% senior secured notes payable 110,000 -- -- -- 110,000
8.00% convertible subordinated notes
payable to related parties 6,000 -- -- -- 6,000
8.25% convertible subordinated debentures 34,371 -- -- -- 34,371
--------- --------- --------- --------- ---------
Total liabilities 149,023 52,902 209,814 (123,020) 288,719
Minority interest -- -- -- 3,027 3,027
Total shareholders' equity 14,815 22,950 121,859 (13,987) 145,637
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity . $ 163,838 $ 75,852 $ 331,673 $(133,980) $ 437,383
========= ========= ========= ========= =========
12
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED OCTOBER 1, 2000
----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales $ 360 $ 2,033 $ 63,207 $ -- $ 65,600
Management fee revenue 6,990 -- -- (6,990) --
Other resort and golf operations revenue -- 1,187 5,883 -- 7,070
Interest income 314 1,120 3,883 -- 5,317
Other (expense) income (152) 23 58 -- (71)
--------- --------- --------- --------- ---------
7,512 4,363 73,031 (6,990) 77,916
COST AND EXPENSES
Cost of sales -- 557 20,338 -- 20,895
Cost of other resort and golf operations -- 389 6,231 -- 6,620
Management fees -- -- 6,990 (6,990) --
Selling, general and administrative expenses 6,925 1,831 33,813 -- 42,569
Interest expense 1,582 1 2,040 -- 3,623
Provision for loan losses -- -- 1,456 -- 1,456
--------- --------- --------- --------- ---------
8,507 2,778 70,868 (6,990) 75,163
--------- --------- --------- --------- ---------
Income (loss) before income taxes (995) 1,585 2,163 -- 2,753
Provision (benefit) for income taxes (383) 701 742 -- 1,060
Minority interest in loss of consolidated
subsidiary -- -- -- (308) (308)
--------- --------- --------- --------- ---------
Net income (loss) $ (612) $ 884 $ 1,421 $ 308 $ 2,001
========= ========= ========= ========= =========
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales $ -- $ 4,925 $ 64,310 $ -- $ 69,235
Management fees 7,583 -- -- (7,583) --
Other resort and golf operations revenue -- 961 6,026 -- 6,987
Interest income 109 1,076 2,832 -- 4,017
Gain on sale of notes receivable -- 1,051 -- -- 1,051
--------- --------- --------- --------- ---------
7,692 8,013 73,168 (7,583) 81,290
COST AND EXPENSES
Cost of sales -- 1,548 22,530 -- 24,078
Cost of other resort and golf operations -- 427 5,775 -- 6,202
Management fees -- 266 7,317 (7,583) --
Selling, general and administrative expenses 6,955 2,811 28,730 -- 38,496
Interest expense 1,954 278 1,130 -- 3,362
Provision for loan losses -- 26 1,579 -- 1,605
Other expense -- (73) (137) -- (210)
--------- --------- --------- --------- ---------
8,909 5,283 66,924 (7,583) 73,533
--------- --------- --------- --------- ---------
Income (loss) before income taxes (1,217) 2,730 6,244 -- 7,757
Provision (benefit) for income taxes (470) 1,001 2,455 -- 2,986
Minority interest in income of consolidated
subsidiary -- -- -- 194 194
--------- --------- --------- --------- ---------
Net income (loss) $ (747) $ 1,729 $ 3,789 $ (194) $ 4,577
========= ========= ========= ========= =========
13
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED OCTOBER 1, 2000
--------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales $ 360 $ 3,472 $ 124,932 $ -- $ 128,764
Management fee revenue 14,362 -- -- (14,362) --
Other resort and golf operations revenue -- 1,908 11,922 -- 13,830
Interest income 778 2,032 6,765 -- 9,575
Other income 2 43 77 -- 122
--------- --------- --------- --------- ---------
15,502 7,455 143,696 (14,362) 152,291
COST AND EXPENSES
Cost of sales -- 988 41,791 -- 42,779
Cost of other resort and golf operations -- 722 12,492 -- 13,214
Management fees -- -- 14,362 (14,362) --
Selling, general and administrative expenses 12,679 3,427 63,222 -- 79,328
Interest expense 3,882 465 2,917 -- 7,264
Provision for loan losses -- 122 2,369 -- 2,491
--------- --------- --------- --------- ---------
16,561 5,724 137,153 (14,362) 145,076
--------- --------- --------- --------- ---------
Income (loss) before income taxes (1,059) 1,731 6,543 -- 7,215
Provision (benefit) for income taxes (408) 786 2,400 -- 2,778
Minority interest in loss of consolidated
subsidiary -- -- -- (576) (576)
--------- --------- --------- --------- ---------
Net income (loss) $ (651) $ 945 $ 4,143 $ 576 $ 5,013
========= ========= ========= ========= =========
SIX MONTHS ENDED SEPTEMBER 30, 2001
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales $ -- $ 10,677 $ 118,741 $ -- $ 129,418
Management fees 14,239 -- -- (14,239) --
Other resort and golf operations revenue -- 1,820 11,757 -- 13,577
Interest income 362 2,111 5,606 -- 8,079
Gain on sale of notes receivable -- 2,029 -- -- 2,029
--------- --------- --------- --------- ---------
14,601 16,637 136,104 (14,239) 153,103
COST AND EXPENSES
Cost of sales -- 3,434 40,715 -- 44,149
Cost of other resort and golf operations -- 792 11,103 -- 11,895
Management fees -- 629 13,610 (14,239) --
Selling, general and administrative expenses 13,533 5,856 53,017 -- 72,406
Interest expense 4,173 340 2,584 -- 7,097
Provision for loan losses -- 100 2,795 -- 2,895
Other expense (income) -- (76) 270 -- 194
--------- --------- --------- --------- ---------
17,706 11,075 124,094 (14,239) 138,636
--------- --------- --------- --------- ---------
Income (loss) before income taxes (3,105) 5,562 12,010 -- 14,467
Provision (benefit) for income taxes (1,195) 2,100 4,665 -- 5,570
Minority interest in income of consolidated
subsidiary -- -- -- 186 186
--------- --------- --------- --------- ---------
Net income (loss) $ (1,910) $ 3,462 $ 7,345 $ (186) $ 8,711
========= ========= ========= ========= =========
14
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED OCTOBER 1, 2000
--------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
Operating activities:
Net cash (used) provided by operating activities $ (36,215) $ 1,633 $ 23,120 $ -- $ (11,462)
--------- --------- --------- --------- ---------
Investing activities:
Acquisition of minority interest -- -- (250) -- (250)
Investment in joint venture -- -- (323) 323 --
Purchases of property and equipment (448) (277) (4,159) -- (4,884)
Sales of property and equipment -- -- 34 -- 34
Cash received from investments in securities -- 2,162 -- -- 2,162
Long-term prepayment to Bass Pro, Inc. -- -- (9,000) -- (9,000)
--------- --------- --------- --------- ---------
Net cash (used) provided by investing activities (448) 1,885 (13,698) 323 (11,938)
--------- --------- --------- --------- ---------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and other notes payable 6,500 -- -- -- 6,500
Payments under line-of-credit facilities and
other notes payable (130) (4,662) (8,111) -- (12,903)
Payment of debt issuance costs (3) (126) -- -- (129)
Payments for treasury stock (527) -- -- -- (527)
Proceeds from issuance of membership interest
in joint venture -- 323 -- (323) --
Proceeds from the exercise of employee and
director stock options 34 -- -- -- 34
--------- --------- --------- --------- ---------
Net cash (used) provided by financing activities 5,874 (4,465) (8,111) (323) (7,025)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash
equivalents (30,789) (947) 1,311 -- (30,425)
Cash and cash equivalents at beginning of period 43,093 12,458 9,975 -- 65,526
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period 12,304 11,511 11,286 -- 35,101
Restricted cash and cash equivalents at end of
period (62) (11,511) (8,522) -- (20,095)
--------- --------- --------- --------- ---------
Unrestricted cash and cash equivalents at end of
period $ 12,242 $ -- $ 2,764 $ -- $ 15,006
========= ========= ========= ========= =========
SIX MONTHS ENDED SEPTEMBER 30, 2001
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
Operating activities:
Net cash provided (used) by operating activities $ (8,419) $ 6,053 $ 13,819 $ 11,453
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment (1,342) (460) (5,608) (7,410)
Sales of property and equipment -- -- 43 43
Cash received from retained interests in notes receivable sold -- 1,599 -- 1,599
Principal payments received on investment in note receivable 4,643 -- -- 4,643
-------- -------- -------- --------
Net cash provided (used) by investing activities 3,301 1,139 (5,565) (1,125)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable 10,301 -- 2,517 12,818
Payments under line-of-credit facilities and other notes payable (10,363) (1,948) (11,743) (24,054)
Payment of debt issuance costs (60) (302) (231) (593)
Proceeds from the exercise of employee and director stock
options 120 -- -- 120
-------- -------- -------- --------
Net cash used by financing activities (2) (2,250) (9,457) (11,709)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (5,120) 4,942 (1,203) (1,381)
Cash and cash equivalents at beginning of period 13,290 17,125 9,601 40,016
-------- -------- -------- --------
Cash and cash equivalents at end of period 8,170 22,067 8,398 38,635
Restricted cash and cash equivalents at end of period (1,685) (20,599) (7,472) (29,756)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period $ 6,485 $ 1,468 $ 926 $ 8,879
======== ======== ======== ========
15
7. Contingencies
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from time
to time, the Company becomes involved in disputes with existing and former
employees. The Company believes that substantially all of the claims and
proceedings are incidental to its business.
In addition to its other ordinary course litigation, the Company became a
defendant in two proceedings during fiscal 1999. First, an action was filed
against the Company on December 15, 1998. The plaintiff has asserted that
the Company is in breach of its obligations under, and has made certain
misrepresentations in connection with, a contract under which the Company
acted as marketing agent for the sale of undeveloped property owned by the
plaintiff. The plaintiff also alleges fraud, negligence and violation by
the Company of an alleged fiduciary duty owed to plaintiff. Among other
things, the plaintiff alleges that the Company failed to meet certain
minimum sales requirements under the marketing contract and failed to
commit sufficient resources to the sale of the property. The original
complaint sought damages in excess of $18 million and certain other
remedies, including punitive damages. Subsequently, based on the testimony
of the plaintiff's expert witnesses, the sought damages were reduced to
approximately $15 million. During fiscal 2001, the court dismissed the
plaintiff's claims related to promissory estoppel, covenant of good faith
and fair dealing, breach of fiduciary duty and negligence. In addition, the
court dismissed the claims alleged by a sister company of the plaintiff.
The dismissals discussed above further reduced the plaintiff's claims for
damages to approximately $8 million, subject to the plaintiff's right of
appeal. The Company is continuing to evaluate this action and its potential
impact, if any, on the Company and accordingly cannot predict the outcome
with any degree of certainty. However, based upon all of the facts
presently under consideration of management, the Company believes that it
has substantial defenses to the allegations in this action and intends to
defend this matter vigorously. The Company does not believe that any likely
outcome of this case will have a material adverse effect on the Company's
financial condition or results of operations.
Second, an action was filed on July 10, 1998 against two subsidiaries of
the Company and various other defendants. The Company itself is not named
as a defendant. The Company's subsidiaries acquired certain real property
(the "Property"). The Property was acquired subject to certain alleged oil
and gas leasehold interests and rights (the "Interests") held by the
plaintiffs in the action (the "Plaintiffs"). The Company's subsidiaries
developed the Property and have resold parcels to numerous customers. The
Plaintiffs allege, among other things, breach of contract, slander of title
and that the Company's subsidiaries and their purchasers have unlawfully
trespassed on easements and otherwise violated and prevented the Plaintiffs
from exploiting the Interests. The Plaintiffs claim damages in excess of
$40 million, as well as punitive or exemplary damages in an amount of at
least $50 million and certain other remedies. During fiscal 2001, the court
advised the parties in open court that the Company's motion for summary
judgment was granted, thus dismissing all of the Plaintiff's claims for
damages, subject to the Plaintiffs' right of appeal.
On August 21, 2000, the Company received a Notice of Field Audit Action
(the "Notice") from the State of Wisconsin Department of Revenue (the
"DOR") alleging that two subsidiaries now owned by the Company failed to
collect and remit sales and use taxes to the State of Wisconsin during the
period from January 1, 1994 through September 30, 1997 totaling $1.9
million. The majority of the assessment is based on the subsidiaries not
charging sales tax to purchasers of Timeshare Interests at the Company's
Christmas Mountain Village(TM) resort. In addition to the assessment, the
Notice indicated that interest would be charged, but no penalties would be
assessed. As of September 30, 2001, aggregate interest was approximately
$1.3 million. The Company filed a Petition for Redetermination (the
"Petition") on October 19, 2000, and, if the Petition is unsuccessful, the
Company intends to vigorously appeal the assessment. The Company acquired
the subsidiaries that were the subject of the Notice in connection with the
acquisition of RDI Group, Inc. ("RDI") on September 30, 1997. Under the RDI
purchase agreement, the Company has the right to set off payments owed by
the Company to RDI's former stockholders pursuant to a $1.0 million
outstanding note payable balance and to make a claim against such
stockholders for $500,000 previously paid for any breach of representations
and warranties. The Company has notified the former stockholders that it
intends to exercise these rights to mitigate any settlement with the DOR in
this matter. In addition, the Company believes that, if necessary, amounts
paid to the State of Wisconsin pursuant to the Notice, if any, may be
further funded through collections of sales tax from the consumers who
effected the assessed timeshare sales with RDI without paying sales tax on
their purchases. Based on management's assessment of the Company's position
in the Petition, the Company's right of set off with the former RDI
stockholders and other factors discussed above, management does not believe
that the possible sales tax pursuant to the Notice will have a material
adverse impact on the Company's results of operations or financial
position, and therefore no amounts have been accrued related to this
matter.
16
8. Business Segments
The Company has two reportable business segments. The Resorts Division
acquires, develops and markets Timeshare Interests at the Company's resorts
and the Residential Land and Golf Division acquires large tracts of real
estate that are subdivided, improved (in some cases to include a golf
course and related amenities on the property) and sold, typically on a
retail basis.
Required disclosures for the Company's business segments are as follows (in
thousands):
Residential
Resorts Land and Golf Totals
------- ------------- ------
As of and for the three months ended October 1, 2000
Sales $ 44,410 $ 21,190 $ 65,600
Other resort and golf operations revenue 6,726 344 7,070
Depreciation expense 446 237 683
Field operating profit 4,771 2,678 7,449
Inventory, net 102,515 85,736 188,251
As of and for the three months ended September 30, 2001
Sales $ 41,312 $ 27,923 $ 69,235
Other resort and golf operations revenue 6,505 482 6,987
Depreciation expense 615 252 867
Field operating profit 6,477 5,746 12,223
Inventory, net 92,602 99,906 192,508
As of and for the six months ended October 1, 2000
Sales $ 79,718 $ 49,046 $128,764
Other resort and golf operations revenue 12,816 1,014 13,830
Depreciation expense 855 448 1,303
Field operating profit 7,600 8,692 16,292
As of and for the six months ended September 30, 2001
Sales $ 78,574 $ 50,844 $129,418
Other resort and golf operations revenue 12,466 1,111 13,577
Depreciation expense 1,181 516 1,697
Field operating profit 13,353 10,368 23,721
Field operating profit for reportable segments reconciled to consolidated
income before income taxes is as follows (in thousands):
Three Months Ended Six Months Ended
------------------------ -------------------------
October 1, September 30, October 1, September 30,
2000 2001 2000 2001
-------- -------- -------- --------
Field operating profit for reportable segments $ 7,449 $ 12,223 $ 16,292 $ 23,721
Interest income 5,317 4,017 9,575 8,079
Gain on sale of notes receivable -- 1,051 -- 2,029
Other income (expense) (71) 210 122 (194)
Corporate general and administrative expenses (4,863) (4,777) (9,019) (9,176)
Interest expense (3,623) (3,362) (7,264) (7,097)
Provision for loan losses (1,456) (1,605) (2,491) (2,895)
-------- -------- -------- --------
Consolidated income before income taxes $ 2,753 $ 7,757 $ 7,215 $ 14,467
======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Reform Act of 1995 (the "Act") and is making the
following statements pursuant to the Act in order to do so. Certain
statements herein and elsewhere in this report and the Company's other
filings with the Securities and Exchange Commission constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. Such statements may be identified by forward-looking
words such as "may", "intend", "expect", "anticipate", "believe", "will",
"should", "project", "estimate", "plan" or other comparable terminology.
17
All statements, trend analyses and other information relative to the market
for the Company's products and trends in the Company's operations or
results are forward-looking statements. Such forward-looking statements are
subject to known and unknown risks and uncertainties, many of which are
beyond the Company's control, that could cause the actual results,
performance or achievements of the Company, or industry trends, to differ
materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Given these uncertainties,
investors are cautioned not to place undue reliance on such forward-looking
statements and no assurance can be given that the plans, estimates and
expectations reflected in such statements will be achieved. The Company
wishes to caution readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company:
a) Changes in national, international or regional economic conditions
that can affect the real estate market, which is cyclical in nature
and highly sensitive to such changes, including, among other factors,
levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the
result of changes in any environmental, zoning or other laws and
regulations that govern the acquisition, subdivision and sale of real
estate and various aspects of the Company's financing operation or the
failure of the Company to comply with any law or regulation.
c) Risks associated with a large investment in real estate inventory at
any given time (including risks that real estate inventories will
decline in value due to changing market and economic conditions and
that the development and carrying costs of inventories may exceed
those anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the
Company's principal markets.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing
the Company's operations, adverse weather conditions or changes in the
availability of development financing on terms acceptable to the
Company.
f) Changes in applicable usury laws or the availability of interest
deductions or other provisions of federal or state tax law.
g) A decreased willingness on the part of banks to extend direct customer
lot financing, which could result in the Company receiving less cash
in connection with the sales of real estate and/or lower sales.
h) The inability of the Company to locate external sources of liquidity
on favorable terms to support its operations, acquire, carry and
develop land and timeshare inventories and satisfy its debt and other
obligations.
i) The inability of the Company to locate sources of capital on favorable
terms for the pledge and/or sale of land and timeshare notes
receivable, including the inability to consummate or fund
securitization transactions.
j) An increase in prepayment rates, delinquency rates or defaults with
respect to Company-originated loans or an increase in the costs
related to reacquiring, carrying and disposing of properties
reacquired through foreclosure or deeds in lieu of foreclosure.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or
(ii) levels necessary in order for the Company to be profitable.
l) An increase or decrease in the number of land or resort properties
subject to percentage-of-completion accounting, which requires
deferral of profit recognition on such projects until development is
substantially complete.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments and/or other
credit agreements, which, among other things, place certain
restrictions on the Company's ability to incur debt, incur liens, make
investments and pay dividends.
n) The risk of the Company incurring an unfavorable judgement in any
litigation, and the impact of any related monetary or equity damages.
o) Risks associated with selling Timeshare Interests in foreign countries
including, but not limited to, compliance with legal regulations,
labor relations and vendor relationships.
18
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Bluegreen Vacation Club(TM) is not
accepted by consumers or imposes limitations on the Company's
operations, or is adversely impacted by legal or other requirements.
q) The risk that any contemplated transactions currently under
negotiation will not close or conditions to funding under existing
facilities will not be satisfied.
r) Risks that the Company's joint ventures will not be as successful as
anticipated and that the Company will be required to make capital
contributions to such ventures in amounts greater than anticipated.
s) Risks that any currently proposed or future changes in accounting
principles will have an adverse impact on the Company.
t) Risks that a short-term or long-term decrease in the amount of
vacation travel, including but not limited to air travel, by American
consumers will have an adverse impact on the Company's timeshare
sales.
The Company does not undertake and expressly disclaims any duty to
update or revise forward-looking statements, even if the Company's
situation may change in the future.
General
Real estate markets are cyclical in nature and highly sensitive to changes
in national, regional and international economic conditions, including,
among other factors, levels of employment and discretionary disposable
income, consumer confidence, available financing and interest rates. While
a downturn in the economy in general or in the market for real estate could
have a material adverse effect on the Company, the Company does not believe
that current general economic conditions have materially impacted the
Company's financial position or results of operations as of and for the
three- and six-month periods ended September 30, 2001.
The Company recognizes revenue on residential land and Timeshare Interest
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 the Company has completed substantially all of its obligations
with respect to any development relating to the real estate sold. In cases
where all development has not been completed, the Company recognizes income
in accordance with the percentage-of-completion method of accounting. Under
this method of income recognition, income is recognized as work progresses.
Measures of progress are based on the relationship of costs incurred to
date to expected total costs. The Company has been dedicating greater
resources to more capital-intensive residential land and timeshare
projects. As development on more of these larger projects is begun, and
based on the Company's strategy to pre-sell projects when minimal
development has been completed, the amount of income deferred under the
percentage-of-completion method of accounting may increase significantly.
Costs associated with the acquisition and development of timeshare resorts
and residential land properties, 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.
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net earnings.
This seasonality may cause significant fluctuations in the quarterly
operating results of the Company, with the majority of the Company's gross
revenues and net earnings historically occurring in the first and second
quarters of the fiscal year. As the Company's timeshare revenues grow as a
percentage of total revenues, the Company believes that the fluctuations in
revenues due to seasonality may be mitigated in part. In addition, other
material fluctuations in operating results may occur due to the timing of
development and the Company's use of the percentage-of-completion method of
accounting. Management expects that the Company will continue to invest in
projects that will require substantial development (with significant
capital requirements). There can be no assurances that historical seasonal
trends in quarterly revenues and earnings will continue or be mitigated by
the Company's efforts.
The Company believes that inflation and changing prices have not had a
material impact on its revenues and results of operations during the three-
or six-month periods ended October 1, 2000 or September 30, 2001. Based on
prior history, the Company does not expect that inflation and changing
prices will have a material impact on the Company's revenues or results of
operations in the foreseeable future. To the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service
costs may be affected as well as the interest rate the Company charges on
its new receivables from its customers.
19
The Company believes that the terrorist attacks on September 11, 2001 in
the United States and subsequent events that have decreased the amount of
vacation air travel by Americans have not, to date, had a material adverse
impact on the Company's sales in its domestic sales offices. With the
exception of the La Cabana Beach and Racquet Club(TM) in Aruba, guests at
the Company's Bluegreen Vacation Club(TM) destination resorts more
typically drive, rather than fly, to these resorts due to the accessibility
of the resorts. While there was an adverse impact on sales at the La Cabana
resort in September, based on current conditions the Company does not
believe that there will be a long-term adverse impact on its sales in Aruba
from decreased air travel, partially due to the fact that a significant
portion of Aruba's tourist traffic comes from South America. There can be
no assurances, however, that a long-term decrease in air travel or increase
in anxiety regarding actual or possible future terrorist attacks would not
have a material adverse impact on the Company's results of operations in
some future period.
The Company's real estate operations are managed under two divisions. The
Resorts Division manages the Company's timeshare operations and the
Residential Land and Golf Division acquires large tracts of real estate,
which are subdivided, improved (in some cases to include a golf course on
the property) and sold, typically on a retail basis.
Inventory is carried at the lower of cost, including costs of improvements
and amenities incurred subsequent to acquisition, or fair value, net of
costs to dispose.
A portion of the Company's revenues historically has been and, although no
assurances can be given, is expected to continue to be comprised of gains
on sales of loans. The gains are recorded in the Company's revenues and
retained interests in the portfolio are recorded on its balance sheet at
the time of sale. The amount of gains recorded is based in part on
management's estimates of future prepayment, default and loss severity
rates and other considerations in light of then-current conditions. If
actual prepayments with respect to loans occur more quickly than was
projected at the time such loans were sold, as can occur when interest
rates decline, interest would be less than expected and earnings would be
charged in the future when the retained interests are realized, except for
the effect of reduced interest accretion on the Company's retained
interest, which would be recognized each period the retained interests are
held. 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 earnings would be charged in the future when the
retained interests are realized. There can be no assurances that the
carrying value of the Company's retained interests in notes receivable sold
will be fully realized or that future loan sales will result in gains.
Declines in the fair value of the retained interests that are determined to
be other than temporary are charged to operations.
Results of Operations
(Dollars in thousands) Residential
Resorts Land and Golf Total
------- ------------- -----
Three Months Ended October 1, 2000
Sales $ 44,410 100% $ 21,190 100% $ 65,600 100%
Cost of sales (9,380) (21) (11,515) (54) (20,895) (32)
-------- -------- ---------
Gross profit 35,030 79 9,675 46 44,705 68
Other resort and golf operations revenue 6,726 15 344 2 7,070 11
Cost of other resort and golf operations (5,920) (13) (700) (3) (6,620) (10)
Selling and marketing expenses (27,807) (63) (4,521) (21) (32,328) (49)
Field general and administrative expenses(1) (3,258) (7) (2,120) (10) (5,378) (8)
-------- -------- ---------
Field operating profit $ 4,771 11% $ 2,678 13% $ 7,449 11%
======== ======== =========
Three Months Ended September 30, 2001
Sales $ 41,312 100% $ 27,923 100% $ 69,235 100%
Cost of sales (9,741) (24) (14,337) (51) (24,078) (35)
-------- -------- ---------
Gross profit 31,571 76 13,586 49 45,157 65
Other resort and golf operations revenue 6,505 16 482 2 6,987 10
Cost of resort and golf operations (5,473) (13) (729) (3) (6,202) (9)
Selling and marketing expenses (23,226) (56) (5,604) (20) (28,830) (42)
Field general and administrative expenses(1) (2,900) (7) (1,989) (7) (4,889) (7)
-------- -------- ---------
Field operating profit $ 6,477 16% $ 5,746 21% $ 12,223 18%
======== ======== =========
20
(Dollars in thousands) Residential
Resorts Land and Golf Total
------- ------------- -----
Six Months Ended October 1, 2000
Sales $ 79,718 100% $ 49,046 100% $ 128,764 100%
Cost of sales (17,288) (22) (25,491) (52) (42,779) (33)
-------- -------- ---------
Gross profit 62,430 78 23,555 48 85,985 67
Other resort and golf operations revenue 12,816 16 1,014 2 13,830 11
Cost of other resort and golf operations (11,718) (15) (1,496) (3) (13,214) (10)
Selling and marketing expenses (49,731) (62) (9,939) (20) (59,670) (46)
Field general and administrative expenses(1) (6,197) (8) (4,442) (9) (10,639) (8)
-------- -------- ---------
Field operating profit $ 7,600 10% $ 8,692 18% $ 16,292 13%
======== ======== =========
Six Months Ended September 30, 2001
Sales $ 78,574 100% $ 50,844 100% $ 129,418 100%
Cost of sales (18,088) (23) (26,061) (51) (44,149) (34)
-------- -------- ---------
Gross profit 60,486 77 24,783 49 85,269 66
Other resort and golf operations revenue 12,466 16 1,111 2 13,577 10
Cost of resort and golf operations (10,555) (13) (1,340) (3) (11,895) (9)
Selling and marketing expenses (43,680) (56) (10,222) (20) (53,902) (42)
Field general and administrative expenses(1) (5,364) (7) (3,964) (8) (9,328) (7)
-------- -------- ---------
Field operating profit $ 13,353 17% $ 10,368 20% $ 23,721 18%
======== ======== =========
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables. Corporate general and administrative
expenses totaled $4.9 million and $4.8 million for the three months ended
October 1, 2000 and September 30, 2001, respectively, and $9.0 million and
$9.2 million for the six months ended October 1, 2000 and September 30,
2001, respectively.
Sales
Consolidated sales increased 6% from $65.6 million for the three months ended
October 1, 2000 (the "2001 Quarter") to $69.2 million for the three months ended
September 30, 2001 (the "2002 Quarter"). Consolidated sales increased 1% from
$128.8 million for the six months ended October 1, 2000 (the "2001 Period") to
$129.4 million for the six months ended September 30, 2001 (the "2002 Period").
Increases in Residential Land and Golf Division sales during the 2002 Quarter
and 2002 Period were partially offset by decreased Resorts Division sales.
As of September 30, 2001, approximately $6.5 million in estimated income on
sales of $14.2 million was deferred under percentage-of-completion accounting.
At April 1, 2001, approximately $5.3 million in estimated income on sales of
$11.5 million was deferred. All such amounts are included on the Condensed
Consolidated Balance Sheets under the caption Deferred Income. The Company
believes that such deferred income reflects its ability to acquire inventory,
provide customers with the assurance that the projects have insurance bonds for
the completion of development and pre-sell to customers prior to expending a
significant portion of the projects' development costs. Based on current
development schedules, the Company expects that a portion of the currently
recorded deferred income will be recognized during the year ending March 31,
2002, although no assurances can be given as to the amount that will be
recognized.
Resorts Division. During the 2001 Quarter and the 2002 Quarter, the Resorts
Division contributed $44.4 million or 68% and $41.3 million or 60%,
respectively, of the Company's total consolidated sales. During the 2001 Period
and the 2002 Period, the Resorts Division contributed $79.7 million or 62% and
$78.6 million or 61%, respectively, of the Company's total consolidated sales.
The table set forth below outlines the number of timeshare sales transactions
and the average sales price per sale for the Resorts Division for the periods
indicated, before giving effect to the percentage-of-completion method of
accounting.
Three Months Ended Six Months Ended
------------------------- -------------------------
October 1, September 30, October 1, September 30,
2000 2001 2000 2001
---- ---- ---- ----
Number of timeshare sales transactions 4,834 4,011 8,503 7,773
Average sales price per timeshare sale $9,140 $10,639 $9,195 $10,414
Gross margin 79% 76% 78% 77%
The decreases in sales during the 2002 Quarter and 2002 Period were primarily
due to the Company closing its offsite sales office serving the Cleveland, Ohio
market in the first quarter of fiscal 2002. Sales generated by the Cleveland
office during the 2001 Quarter and 2001 Period were approximately $2.5 million
and $4.8 million, respectively, as compared to $0 and $1.3 million during the
2002 Quarter and 2002 Period, respectively. In addition, the 2001 Quarter and
2001 Period
21
included $2.2 million and $3.5 million, respectively, of sales from the
Company's offsite sales office serving the Louisville, Kentucky market with no
corresponding sales during the 2002 Quarter and 2002 Period as the Louisville
office was closed during fiscal 2001 due to continued operating losses. These
decreases were partially offset by the $2.9 million and $5.5 million of sales in
the 2002 Quarter and 2002 Period, respectively, at the Big Cedar Wilderness
Club(TM), which is being developed and sold by a 51%-owned subsidiary of the
Company, with no comparable sales in the 2001 Quarter and 2001 Period. The
Company's remaining resort sales offices had fewer timeshare sales transactions,
but at a higher average sales price per transaction due in part to a price
increase in fiscal 2002 as well as the Company's ability to sell higher
point-valued inventory through the Bluegreen Vacation Club(TM).
The Resorts Division's gross margin decreased by 3%-points during the 2002
Quarter as compared to the 2001 Quarter and by 1%-point during the 2002 Period
as compared to the 2001 Period. These decreases are due to the relative costs of
the specific resort inventory mix being sold in the respective periods.
Selling and marketing expenses for the Resorts Division decreased as a
percentage of sales for the Resorts Division from 63% and 62% during the 2001
Quarter and 2001 Period, respectively, to 56% during both the 2002 Quarter and
2002 Period. The decrease is due to the Company adopting a plan which is
intended to improve the efficiencies of its marketing programs within the
Resorts Division, including but not limited to fully implementing its marketing
agreement with Bass Pro, Inc., a privately-held retailer of fishing, marine,
hunting, camping and sports gear; the centralization of most resort marketing
operations at the Company's headquarters; the continued centralization of the
Company's telemarketing operations in South Florida; the implementation of a
centralized resort marketing customer relationship management system; continuing
to monitor and, if necessary, eliminate marginally performing sales operations;
and implementing a Company-wide initiative to reduce costs and increase
efficiency in all areas. There can be no assurances that the Company's efforts
in this regard will be successful or that selling and marketing expenses for the
Resorts Division will not increase as a percentage of sales. Another
contributing factor for the decrease in these expenses during the 2002 Period
was that the selling and marketing expenses for the previously closed Louisville
and Cleveland sales offices were 87% and 69%, respectively, of that office's
respective sales during the 2001 Period.
Field general and administrative expenses for the Resorts Division decreased 11%
and 13% during the 2002 Quarter and 2002 Period, respectively, as compared to
the 2001 Quarter and 2001 Period, respectively, primarily due to closing of the
Louisville and Cleveland offices and the Company's cost control efforts.
Residential Land and Golf Division. During the 2001 Quarter and the 2002
Quarter, residential land and golf sales contributed $21.1 million or 32% and
$27.9 million or 40%, respectively, of the Company's total consolidated sales.
During the 2001 Period and the 2002 Period, residential land and golf sales
contributed $49.0 million or 38% and $50.8 million or 39%, respectively, of the
Company's total consolidated sales. As noted below, the number of parcels sold
decreased during the 2002 Quarter as compared to the 2001 Quarter. However, the
increase in the Residential Land and Golf Division's sales was primarily due to
the impact of the percentage-of-completion method of accounting and adjustments
for sales in the rescission period, which had an aggregate positive $7.0 million
impact on sales in the 2002 Quarter as opposed to a negative $1.1 million impact
on sales in the 2001 Quarter. The timing of the recognition of sales under the
percentage-of-completion method of accounting coincides with the periods when
development takes place on the Company's projects as opposed to when sales are
made or sales proceeds are received.
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for the Residential Land and Golf Division for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting, rescission period adjustments and bulk sales.
Three Months Ended Six Months Ended
------------------ ----------------
October 1, September 30, October 1, September 30,
2000 2001 2000 2001
---- ---- ---- ----
Number of parcels sold 404 337 828 818
Average sales price per parcel $55,087 $62,065 $53,883 $59,161
Gross margin 46% 49% 48% 49%
The aggregate number of parcels sold decreased during the 2002 Quarter as
compared to the 2001 Quarter due primarily to certain projects in the Company's
Arizona region approaching sell-out and therefore generating fewer sales and due
to projects in the Texas Hill Country area which sold out during fiscal 2001 and
therefore generated no sales during the 2002 Quarter and 2002 Period. Also, the
Company generated decreased sales at two of its larger projects, specifically
the Lake Ridge at Joe Pool Lake(TM) project near Dallas, Texas and the Winding
River Plantation(TM) project in Bolivia, North Carolina. These decreases were
partially offset by sales generated at The Preserve at Jordan Lake(TM) near
Chapel Hill, North Carolina,
22
which opened in December 2000. The project will surround an 18-hole, Davis Love
III signature championship golf course. The Preserve at Jordan Lake(TM) is the
Company's latest addition to its Bluegreen Golf portfolio of properties and it
generated sales of $5.1 million and $11.9 million during the 2002 Quarter and
2002 Period, respectively.
Average sales price per parcel increased during the 2002 Quarter and 2002 Period
as compared to the comparable prior year period, primarily due to sales at The
Preserve at Jordan Lake(TM), which averaged approximately $93,000 per lot during
the 2002 Period, and sales at The Waterstone(TM) project in Boerne, Texas, which
began sales during the latter part of fiscal 2001 and had an average sales price
per parcel sold of approximately $105,000 during the 2002 Period.
Selling and marketing expenses for the Residential Land & Golf Division remained
consistent as a percentage of sales during all periods presented at
approximately 20%.
Field general and administrative expenses for the Residential Land & Golf
Division decreased 6% and 11% during the 2002 Quarter and 2002 Period,
respectively, as compared to the 2001 Quarter and 2001 Period, respectively,
primarily due to the Company's cost control efforts.
Interest Income
Interest income was $5.3 million and $4.0 million for the 2001 Quarter and 2002
Quarter, respectively and was $9.6 million and $8.1 million for the 2001 Period
and 2002 Period, respectively. The Company's interest income is earned from its
notes receivable, securities retained pursuant to sales of notes receivable
(including REMIC transactions) and cash and cash equivalents. The decrease is
due to the Company carrying a higher average note receivable balance, which
generated higher interest income, during the 2001 Period as the Company did not
sell any timeshare notes receivable through its timeshare receivables purchase
facility until the third quarter of fiscal 2001.
Gain on Sale of Notes Receivables
The Company recognized a $1.1 million and $2.0 million gain on the sale of
timeshare notes receivables during the 2002 Quarter and 2002 Period,
respectively, with no corresponding gains in the 2001 Quarter or 2001 Period.
The Company sold $17.0 million and $34.6 million of timeshare notes receivable
during the 2002 Quarter and 2002 Period (see Note 2 of Notes to Condensed
Consolidated Financial Statements) with no corresponding sales during the 2001
Quarter and 2001 Period.
Corporate General and Administrative Expenses
The Company's corporate general and administrative ("G&A") expenses consist
primarily of expenses incurred to administer the various support functions at
the Company's corporate headquarters, including accounting, human resources,
information technology, mergers and acquisitions, mortgage servicing, treasury,
etc.. Corporate G&A totaled $4.9 million and $4.8 million during the 2001
Quarter and 2002 Quarter, respectively, and $9.0 million and $9.2 million during
the 2001 Period and 2002 Period, respectively. The increase during the 2002
Period is primarily due to planned expansion of the Company's information
technology support staff and infrastructure.
Interest Expense
Interest expense was $3.6 million and $3.4 million for the 2001 Quarter and 2002
Quarter, respectively, and was $7.3 million and $7.1 million for the 2001 Period
and 2002 Period, respectively.
23
Provision for Loan Losses
The Company recorded a provision for loan losses totaling $1.5 million and $1.6
million during the 2001 Quarter and 2002 Quarter, respectively, and totaling
$2.5 million and $2.9 million during the 2001 Period and 2002 Period,
respectively.
The allowance for loan losses by division as of April 1, 2001 and September 30,
2001 was (amounts in thousands):
Residential
Resorts Land and
Division Golf Division Other Total
-------- ------------- ----- -----
April 1, 2001
-------------
Notes receivable $ 64,245 $ 9,001 $ 5,136 $ 78,382
Less: allowance for loan losses (3,058) (416) (112) (3,586)
-------- ------- ------- --------
Notes receivable, net $ 61,187 $ 8,585 $ 5,024 $ 74,796
======== ======= ======= ========
Allowance as a % of gross notes receivable 4.8% 4.6% 2.2% 4.6%
======== ======= ======= ========
September 30, 2001
------------------
Notes receivable $ 80,694 $ 8,071 $ 2,059 $ 90,824
Less: allowance for loan losses (4,089) (361) (112) (4,562)
-------- ------- ------- --------
Notes receivable, net $ 76,605 $ 7,710 $ 1,947 $ 86,262
======== ======= ======= ========
Allowance as a % of gross notes receivable 5.1% 4.5% 5.4% 5.0%
======== ======= ======= ========
Other notes receivable primarily consists of the loan to Casa Grande Cooperative
Association I (see Note 2 of Notes to Condensed Consolidated Financial
Statements).
Minority Interest in Income (Loss) of Consolidated Subsidiaries
Minority interest in income (loss) of consolidated subsidiaries represents the
portion of the Company's consolidated income after income taxes that is not
included in retained earnings as these earnings belong to a third-party that
owns a minority interest in a consolidated subsidiary. During the 2001 Period,
the Company consolidated two subsidiaries which were partially owned by minority
interests, specifically Bluegreen Properties N.V. ("BPNV"), the subsidiary which
owns and sells timeshare interests at the La Cabana Beach and Racquet Club(TM)
in Aruba, in which the Company then owned a 50% ownership interest, and
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), the developer of the
Big Cedar Wilderness Club(TM) in Ridgedale, Missouri, in which the Company holds
a 51% ownership interest. By the 2002 Period, the Company had purchased the
minority interest in BPNV, and therefore the only subsidiary that was still
partially owned by a minority interest during the 2002 Period was the Joint
Venture.
Minority interest operations changed from a minority interest loss of $308,000
to a minority interest income of $194,000 in the 2001 Quarter and 2002 Quarter,
respectively, and from a minority interest loss of $576,000 to a minority
interest income of $186,000 in the 2001 Period and 2002 Period, respectively.
This change is primarily due to the aforementioned purchase of the minority
ownership interest in BPNV during fiscal 2001, as BPNV generated losses during
the 2001 Period. The minority interest income (which decreases the Company's
consolidated net income) in the 2002 Quarter and 2002 Period was due to the
profitability of the Joint Venture during the respective periods.
Summary
Based on the factors discussed above, the Company's net income increased 129%
from $2.0 million to $4.6 million in the 2001 Quarter and 2002 Quarter,
respectively, and 74% from $5.0 million to $8.7 million in the 2001 Period and
2002 Period, respectively.
Changes in Financial Condition
Consolidated assets of the Company increased $17.7 million from April 1, 2001 to
September 30, 2001. This increase is primarily due to the $11.5 million increase
in notes receivable due to new notes generated from the $78.6 million in
timeshare sales during the 2002 Period (97% of which are financed with the
Company) and partially offset by the sale of $34.6 million of notes receivable
sold during the 2002 Period (see Note 2 of Notes to Condensed Consolidated
Financial Statements) and payments from customers received on notes receivable.
Also, retained interests in notes receivable sold increased by a net $6.2
million related primarily to the retained interest in the $34.6 million of
timeshare receivables sold during the 2002 Period (see Note 2 of Notes to
Condensed Consolidated Financial Statements).
24
Consolidated liabilities increased $8.7 million from April 1, 2001 to September
30, 2001. The increase is primarily due to $22.2 million in borrowings pursuant
to a timeshare receivables financing facility with a financial institution, net
of $11.7 million of payments made on this debt (see Note 4 of Notes to Condensed
Consolidated Financial Statements).
Total shareholders' equity increased $8.8 million during the 2002 Period,
primarily due to net income. The Company's book value per common share increased
from $5.65 to $6.00 at April 1, 2001 and September 30, 2001, respectively. The
debt-to-equity ratio decreased from 1.60:1 to 1.49:1 at April 1, 2001 and
September 30, 2001, respectively.
Liquidity and Capital Resources
The Company's capital resources are provided from both internal and external
sources. The Company's primary capital resources from internal operations are:
(i) cash sales, (ii) down payments on lot and timeshare sales which are
financed, (iii) proceeds from the sale of, or borrowings collateralized by,
notes receivable, (iv) principal and interest payments on the purchase money
mortgage loans and contracts for deed arising from sales of Timeshare Interests
and residential land lots (collectively "Receivables") and (v) net cash
generated from other resort services and golf operations. Historically, external
sources of liquidity have included non-recourse sales of Receivables, borrowings
under secured and unsecured lines-of-credit, seller and bank financing of
inventory acquisitions and the issuance of debt securities. The Company's
capital resources are used to support the Company's operations, including (i)
acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) meeting operating expenses and (iv) satisfying the Company's
debt, and other obligations. The Company anticipates that it will continue to
require external sources of liquidity to support its operations, satisfy its
debt and other obligations and to provide funds for future strategic
acquisitions, primarily for the Resorts Division.
Credit Facilities for Timeshare Receivables and Inventories
The Company maintains various credit facilities with financial institutions that
provide for receivable financing for its timeshare projects.
In June 2001, the Company executed agreements for a new timeshare receivables
purchase facility (the "Purchase Facility") with a financial institution acting
as the initial purchaser (the "Initial Purchaser"). At the end of the facility
term (August 13, 2002), the Initial Purchaser will attempt to securitize and
sell the receivable portfolio that it purchased. The Purchase Facility utilizes
an owner's trust structure, pursuant to which the Company sells receivables to a
special purpose finance subsidiary of the Company (the "Subsidiary") and the
Subsidiary sells the receivables to an owners' trust without recourse to the
Company or the Subsidiary except for breaches of customary representations and
warranties at the time of sale. Pursuant to the agreements that constitute the
Purchase Facility (collectively, the "Purchase Facility Agreements"), the
Subsidiary may receive $75 million of cumulative purchase price (as more fully
described below) on sales of timeshare receivables to the owner's trust on a
revolving basis, as the principal balance of receivables sold amortizes, in
transactions through August 13, 2002 (subject to certain conditions as more
fully described in the Purchase Facility Agreements). The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase and fundings under the Purchase Facility are subject to certain
conditions precedent. Under the Purchase Facility, a variable purchase price
expected to approximate 85.00% of the principal balance of the receivables sold,
subject to certain terms and conditions, is paid at closing in cash. The balance
of the purchase price will be deferred until such time as the Initial Purchaser
has received a specified return and all servicing, custodial, agent and similar
fees and expenses have been paid. The Initial Purchaser shall earn a return
equal to the rate equivalent to its borrowing cost (based on then applicable
commercial paper rates) plus 1.05%, subject to use of alternate return rates in
certain circumstances. In addition, the Initial Purchaser will receive a 0.25%
facility fee during the term of the facility. The Purchase Facility also
provides for the sale of land notes receivable, under modified terms.
The Purchasers' obligation to purchase under the Purchase Facility may terminate
upon the occurrence of specified events. The Company acts as servicer under the
Purchase Facility for a fee. The Purchase Facility Agreement includes various
conditions to purchase, covenants, trigger events and other provisions customary
for a transaction of this type. Through November 12, 2001, the Company sold
$35.3 million of aggregate principal balance of notes receivable under the
Purchase Facility for a cumulative purchase price of $30.0 million.
The Company has a timeshare receivables warehouse loan facility, which, as
extended expires on February 16, 2002, with a financial institution (the
"Warehouse Facility"). Loans under the Warehouse Facility bear interest at LIBOR
plus 3.5%. The Warehouse Facility has detailed requirements with respect to the
eligibility of receivables for inclusion and other conditions to funding. The
borrowing base under the Warehouse Facility is 90% of the outstanding principal
balance of eligible notes arising from the sale of Timeshare Interests except
for eligible notes generated by Bluegreen Properties N.V. (TM), for which the
borrowing base is 80%. The Warehouse Facility includes affirmative, negative and
financial covenants and events of default.
25
During the 2002 Period, the Company borrowed an aggregate $22.2 million under
the Warehouse Facility, of which the Company repaid an aggregate $11.7 million
by using cash generated from principal and interest payments on the underlying
loans and proceeds from the sale of the underlying receivables under a previous
timeshare receivables purchase facility with the same financial institution. The
remaining balance of the Warehouse Facility, as well as any such future
borrowings, will be repaid as principal and interest payments are collected on
the timeshare notes receivable, but in no event later than February 16, 2002.
The maximum principal amount that may be outstanding prospectively under the
Warehouse Facility is $15.0 million. As of September 30, 2001, there was $11.9
million outstanding under the Warehouse Facility. The Company is currently
negotiating an extension and increase of the Warehouse Facility. There can be no
assurances that the Company's negotiations will be successful.
In addition, the lender under the Warehouse Facility has provided the Company
with a $28.0 million acquisition and development facility for its timeshare
inventories (the "A&D Facility"). The draw down period on the A&D Facility has
expired and outstanding borrowings under the A&D Facility mature no later than
July 2006. Principal will be repaid through agreed-upon release prices as
Timeshare Interests are sold at the financed resort, subject to minimum required
amortization. The indebtedness under the facility bears interest at LIBOR plus
3%. On September 14, 1999, the Company borrowed approximately $14.0 million
under the A&D facility. The outstanding principal of this loan must be repaid by
November 1, 2005, through agreed-upon release prices as Timeshare Interests in
the Company's Lodge Alley Inn(TM) resort in Charleston, South Carolina are sold,
subject to minimum required amortization. On December 20, 1999, the Company
borrowed approximately $13.9 million under the acquisition and development
facility. The principal of this loan must be repaid by January 1, 2006, through
agreed-upon release prices as Timeshare Interests in the Company's Shore Crest
II(TM) resort are sold, subject to minimum required amortization. The
outstanding balance under the A&D Facility at September 30, 2001 was $14.6
million. The Company is currently negotiating an extension and increase of the
A&D Facility. There can be no assurances that the Company's negotiations will be
successful.
Credit Facilities for Residential Land and Golf Receivables and Inventories
The Company has a $30.0 million revolving credit facility with a financial
institution for the pledge of Residential Land and Golf Division receivables,
with up to $10 million of the total facility available for Land and Golf
Division inventory borrowings. The interest rate charged on outstanding
borrowings ranges from prime plus 0.5% to 1.0%, with 8.0% being the minimum
interest rate. At September 30, 2001, the outstanding principal balance under
this facility was approximately $5.0 million, all of which related to
receivables borrowings. All principal and interest payments received on pledged
receivables are applied to principal and interest due under the facility. The
ability to borrow under the facility expires on July 1, 2003. Any outstanding
indebtedness is due on July 1, 2005. The Company is currently negotiating to
also be able to pledge Resorts Division receivables under this facility. There
can be no assurances that the Company's negotiations will be successful.
The Company has a $35.0 million revolving credit facility, which expires in
March 2002, with a financial institution. The Company uses this facility to
finance the acquisition and development of residential land projects and,
potentially, to finance land receivables. The facility is secured by the real
property (and personal property related thereto) with respect to which
borrowings are made, with the lender required to advance up to a specified
percentage of the value of the mortgaged property and eligible pledged
receivables, provided that the maximum outstanding amount secured by pledged
receivables may not exceed $20.0 million. The interest charged on outstanding
borrowings is prime plus 1.25%. On September 14, 1999, in connection with the
acquisition of 1,550 acres adjacent to the Company's Lake Ridge at Joe Pool
Lake(TM) residential land project in Dallas, Texas ("Lake Ridge II"), the
Company borrowed approximately $12.0 million under the revolving credit
facility. Principal payments are effected through agreed-upon release prices as
lots in Lake Ridge II and in another recently purchased section of Lake Ridge
are sold. The principal of this loan must be repaid by September 14, 2004. On
October 6, 1999, in connection with the acquisition of 6,966 acres for the
Company's Mystic Shores(TM) residential land project in Canyon Lake, Texas, the
Company borrowed $11.9 million under the revolving credit facility. On May 5,
2000, the Company borrowed an additional $2.1 million under this facility in
order to purchase an additional 435 acres for the Mystic Shores(TM) project.
Principal payments on these loans are effected through agreed-upon release
prices as lots in Mystic Shores(TM) are sold. The principal under the $11.9
million and $2.1 million loans for Mystic Shores(TM) must be repaid by October
6, 2004 and May 5, 2004, respectively. The aggregate outstanding balance on the
revolving credit facility was $18.0 million at September 30, 2001.
On September 24, 1999, the Company obtained two lines-of-credit with a bank for
the purpose of acquiring and developing a new residential land and golf course
community in New Kent County, Virginia, known as Brickshire(TM). The
lines-of-credit have an aggregate borrowing capacity of approximately $15.8
million. On September 27, 1999, the Company borrowed approximately $2.0 million
under one of the lines-of-credit in connection with the acquisition of the
Brickshire(TM) property. During December 2000, the Company borrowed an
additional $2.0 million under the lines-of-credit. The outstanding balances
under the lines-of-credit bear interest at prime plus 0.5% and interest is due
monthly. Principal payments are effected through agreed-upon release prices as
lots in Brickshire(TM) are sold, subject to minimum required quarterly
amortization commencing on
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April 30, 2002. All borrowings under the lines-of-credit must be repaid by
January 31, 2004. The loan is secured by the Company's residential land lot
inventory in Brickshire(TM). As of September 30, 2001, there was no balance
outstanding on the lines-of-credit.
Concurrent with obtaining the Brickshire(TM) lines-of-credit discussed above,
the Company also obtained from the same bank a $4.2 million line-of-credit for
the purpose of developing a golf course on the Brickshire(TM) property (the
"Golf Course Loan"). In December 2000, the Company borrowed $2.6 million under
the Golf Course Loan. The outstanding balances under the Golf Course Loan bears
interest at prime plus 0.5% and interest is due monthly. Principal payments will
be payable in equal monthly installments of $35,000 commencing September 1,
2001. The principal must be repaid by October 1, 2005. The loan is secured by
the Brickshire(TM) golf course property. As of September 30, 2001, $2.6 million
was outstanding under the Golf Course Loan.
On August 2, 2001, the Company obtained a revolving line-of-credit with a bank
for the purpose of developing the Company's golf course community in Raleigh,
North Carolina known as The Preserve at Jordan Lake(TM). The line-of-credit has
an aggregate borrowing capacity of approximately $6.7 million. On August 16,
2001, the Company borrowed approximately $2.5 million under the line-of-credit.
The outstanding balances under the lines-of-credit bear interest at prime plus
1.0% and interest is due monthly. Principal payments are effected through
agreed-upon release prices as lots in The Preserve at Jordan Lake(TM) are sold.
All borrowings under the lines-of-credit must be repaid by July 30, 2003,
assuming that the Company pays an additional $75,000 fee by July 30, 2002. The
loan is secured by the Company's residential land lot inventory in The Preserve
at Jordan Lake (TM). As of September 30, 2001, there was $849,000 outstanding on
the line-of-credit.
Over the past three years, the Company has received approximately 90% to 99% of
its land sales proceeds in cash. Accordingly, in recent years the Company has
reduced the borrowing capacity under credit agreements secured by land
receivables. The Company attributes the significant volume of cash sales to an
increased willingness on the part of certain local banks to extend more direct
customer lot financing. No assurances can be given that local banks will
continue to provide such customer financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys and engineering fees from internal operations
and has financed the acquisition of residential land and golf 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 lot releases. The release price is usually defined as a pre-determined
percentage of the gross selling price (typically 25% to 50%) of the parcels in
the subdivision. In addition, the agreements generally call for minimum
cumulative annual amortization. When the Company provides financing for its
customers (and therefore the release price is not available in cash at closing
to repay the lender), it is required to pay the creditor with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Other Credit Facility
The Company has a $10 million unsecured line-of-credit with a bank. Amounts
borrowed under the line bear interest at LIBOR plus 2%. Interest is due monthly
and all principal amounts are due on December 31, 2001. As of September 30,
2001, there was no amount outstanding under the line, however the Company
borrowed $10 million under the line in October 2001. The Company is currently
negotiating an extension and increase of the line. There can be no assurances
that the Company's negotiations will be successful.
Summary
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon which
additional resorts may be built; management contracts; loan portfolios of
Timeshare Interest mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; interests in joint
ventures; and operating companies providing or possessing management, sales,
marketing, development, administration and/or other expertise with respect to
the Company's operations in the timeshare industry. In addition, the Company
intends to continue to focus the Residential Land and Golf Division on larger,
more capital intensive projects particularly in those regions where the Company
believes the market for its products is strongest, such as new golf communities
in the Southeast and other areas and continued growth in the Company's
successful regions in Texas.
The Company estimates that the total cash required to complete preparation for
the sale of its residential land and golf and timeshare property inventory as of
September 30, 2001 is approximately $274.3 million (based on current costs) with
such amount expected to be incurred over a five-year period. The Company plans
to fund these expenditures primarily with available capacity on existing or
proposed credit facilities, receivables purchase facilities and cash generated
from operations.
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There can be no assurances that the Company will be able to obtain the financing
or generate the cash from operations necessary to complete the foregoing plans
or that actual costs will not exceed those estimated.
The Company believes that its existing cash, anticipated cash generated from
operations, anticipated future permitted borrowings under existing or proposed
credit facilities and anticipated future sales of notes receivable under the
timeshare receivables purchase facility (or any replacement facility) will be
sufficient to meet the Company's anticipated working capital, capital
expenditure and debt service requirements for the foreseeable future. The
Company will be required to renew or replace credit facilities that will expire
in fiscal 2002. The Company will, in the future, also require additional credit
facilities or issuances of other corporate debt or equity securities in
connection with acquisitions or otherwise. Any debt incurred or issued by the
Company 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 assurances 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 the Company's
cash needs, including, without limitation, its debt service obligations.
The Company's credit facilities, indentures, receivables purchase facilities and
other outstanding debt instruments include customary conditions to funding,
eligibility requirements for collateral, 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 and events of default or
termination. No assurances can be given that such covenants will not limit the
Company's ability to raise funds, satisfy or refinance its obligations or
otherwise adversely affect the Company's operations. In addition, the Company's
future operating performance and ability to meet its financial obligations will
be subject to future economic conditions and to financial, business and other
factors, many of which will be beyond the Company's control.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For a complete description of the Company's foreign currency and interest rate
related market risks, see the discussion in the Company's Annual Report on Form
10-K for the year ended April 1, 2001. There has not been a material change in
the Company's exposure to foreign currency and interest rate risks since April
1, 2001.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business, the Company from time to time becomes
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of real estate. Additionally, from time to time, the Company
becomes involved in disputes with existing and former employees. The Company
believes that substantially all of the above are incidental to its business.
Certain other litigation involving the Company is described in the Company's
Annual Report on Form 10-K for the year ended April 1, 2001. Subsequent to the
filing of such Form 10-K, there have been no material developments with respect
to such litigation.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on August 2, 2001, the
shareholders voted on the matters listed below and in the proxy materials
dated July 3, 2001. The results of voting were as follows:
Shares Voted
-----------------------------------------
For Against Abstain Total
Elect each of the following persons as
directors of the Company for a
three year term:
George F. Donovan 16,871,329 422,772 - 17,294,101
Michael J. Franco 17,112,536 181,565 - 17,294,101
Bradford T. Whitmore 16,892,191 401,910 - 17,294,101
Ratify the appointment of Ernst & Young
LLP as independent auditors of the
Company for the fiscal year ending
March 31, 2002 17,246,665 33,130 14,306 17,294,101
The Company has a classified Board of Directors.
Item 5. Other Information
On July 2, 2001, the Company solicited consents from the holders of its
10.5% Senior Secured Notes due April 1, 2008 (the "Notes") regarding
certain proposed amendments to the Indenture for the Notes. The consents
are being sought to provide the Company with greater flexibility in the
financing of its Bluegreen/Big Cedar Vacations LLC(TM) joint venture and
with future securitization transactions. If adopted by the note holders,
the proposed amendments to the Indenture would:
o provide that Bluegreen/Big Cedar Vacations, LLCO, the Company's
51%-owned joint venture that sells Timeshare Interests in the Big
Cedar Wilderness ClubO resort, may incur indebtedness without being
required to guarantee the Notes;
o provide that any Receivables Subsidiary (as defined in the Indenture)
may incur debt arising in connection with any receivables
securitization or financing transactions; and
o permit certain arm's-length transactions between the Company and
Bluegreen/Big Cedar Vacations, LLCO to proceed without the potentially
expensive and time-consuming requirement that the Company obtain a
written fairness opinion from an independent investment banking,
accounting or appraisal firm.
The consent solicitation is scheduled to expire at 5:00 p.m., New York City
time, on Saturday, November 17, 2001.
Item 6. Exhibits and Reports on Form 8-K
10.137 - Fourth Amendment to Amended and Restated Loan and Security
Agreement dated as of October 16, 2001, among the Registrant,
Bluegreen Vacations Unlimited, Inc.(TM)and Heller Financial, Inc.
10.142 - Building Loan Agreement dated July 31, 2001, between Jordan Lake
Preserve Corporation and IndyMac Bank F.S.B. d.b.a. Construction
Lending Corporation of America.
10.143 - Revolving Line of Credit Promissory Note dated July 31, 2001,
between Jordan Lake Preserve Corporation and IndyMac Bank F.S.B.
d.b.a. Construction Lending Corporation of America.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the-
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: November 12, 2001 By: /S/ GEORGE F. DONOVAN
-----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 12, 2001 By: /S/ JOHN F. CHISTE
-----------------------------------
John F. Chiste
Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: November 12, 2001 By: /S/ ANTHONY M. PULEO
-----------------------------------
Anthony M. Puleo
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
30