UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-19292
BLUEGREEN 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)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange, Archipelago Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer (as defined in Rule
12b-2 of the Act).
Large Accelerated filer |_| Accelerated filer |X| Non-Accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes |_| No |X|
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant: $360,956,342 based upon the
closing sale price of the Company's Common Stock on the New York Stock Exchange
on June 30, 2005 ($17.41 per share). For this purpose, "affiliates" include
members of the Board of Directors of the Company, members of executive
management and all persons known to be the beneficial owners of more than 5% of
the Company's outstanding common stock.
As of March 14, 2006, there were 30,512,651 shares of the registrant's
common stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's definitive proxy
statement to be filed for its 2006 Annual Meeting of Shareholders (the "Proxy
Statement") are incorporated by reference into Part III hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
PAGE
Item 1. BUSINESS ........................................................ 1
Item 1A. RISK FACTORS .................................................... 27
Item 1B. UNRESOVLED STAFF COMMENTS........................................ 33
Item 2. PROPERTIES ...................................................... 33
Item 3. LEGAL PROCEEDINGS ............................................... 33
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 33
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ............. 33
Item 6. SELECTED FINANCIAL DATA ......................................... 35
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................... 38
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... 59
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... 61
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ...................................... 107
Item 9A. CONTROLS AND PROCEDURES ........................................ 107
Item 9B. OTHER INFORMATION .............................................. 108
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .............. 108
Item 11. EXECUTIVE COMPENSATION .......................................... 108
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS ............................... 108
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................. 108
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES .......................... 108
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ...................... 108
Signatures ............................................................... 110
Exhibit Index............................................................. 107
TRADEMARKS
The terms "Bluegreen(R)," "Bluegreen Communities(R)," and "Bluegreen
Vacation Club(R)" are registered in the U.S. Patent and Trademark Office by
Bluegreen Corporation.
The terms "The Hammocks at Marathon(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside(TM)," "Mountain Run at Boyne(TM)," "The Falls Village(TM),"
"Bluegreen Wilderness Club(TM) at Big Cedar(R)," "The Lodge Alley Inn(TM),"
"Carolina Grande(TM)" "Harbour Lights(TM)," "SeaGlass Tower(TM)" "Shore Crest
Vacation Villas(TM)," "Laurel Crest(TM)," "MountainLoft(TM)," "Daytona
SeaBreeze(TM)," "Shenandoah Crossing(TM)," "Christmas Mountain Village(TM),"
"Traditions of Braselton(TM)," "Sanctuary Cove at St. Andrews Sound(TM),"
"Catawba Falls Preserve(TM)," "Mountain Lakes Ranch(TM)," "Silver Lakes
Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe Pool Lake(TM)," "Ridge Lake
Shores(TM)," "Mountain Springs Ranch(TM)," "Saddle Creek Forest(TM),"
"Settlement at Patriot Ranch(TM)," "Carolina National(TM)," "Brickshire(TM),"
"Golf Club at Brickshire(TM)," and "Preserve at Jordan Lake(TM)" are trademarks
or service marks of Bluegreen Corporation in the United States.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
Office by Bass Pro Trademarks, LP.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and
Trademark Office by Bass Pro Trademarks, LP.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
MARKET AND INDUSTRY DATA
Market and industry data used throughout this Annual Report were obtained from
our internal surveys, industry publications, unpublished industry data and
estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"). Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but there can be no assurance as to the accuracy and
completeness of such information. We have not independently verified such market
data. Similarly, our internal surveys, while believed by us to be reliable, have
not been verified by any independent sources. Accordingly, no assurance can be
given that any such data will prove to be accurate.
PART I
Item 1. BUSINESS.
Introduction
We are a leading provider of vacation and residential lifestyle choices through
our resorts and residential community businesses. We are organized into two
divisions: Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts
acquires, develops and markets vacation ownership interests ("VOIs") in resorts
generally located in popular high-volume, "drive-to" vacation destinations.
Bluegreen Communities acquires, develops and subdivides property and markets
residential land homesites, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and related amenities. We also
generate significant interest income through our financing of individual
purchasers of VOIs and, to a nominal extent, homesites sold by Bluegreen
Communities.
Bluegreen Resorts
Bluegreen Resorts was founded in 1994 to capitalize on the growth of the
vacation ownership industry. As of December 31, 2005, we had approximately
153,000 VOI owners, including approximately 115,000 members in the Bluegreen
Vacation Club, which was established in 1997. We sell VOIs in the Bluegreen
Vacation Club through sales offices at all of our owned resorts and at our six
off-site sales offices in Indiana, Michigan, Minnesota, Texas, Pennsylvania and
Georgia. A VOI in any of our resorts entitles the buyer to an annual or biennial
allotment of "points" in perpetuity in our Bluegreen Vacation Club. Club members
may use their points to stay in one of 21 Bluegreen-owned resorts and 23 other
resorts or for other vacation options, including cruises and stays at
approximately 3,700 resorts offered through Resort Condominiums International,
LLC ("RCI") an external exchange network. The following table sets forth the
Bluegreen Vacation Club resorts:
Bluegreen-Owned Resorts (1) Location
----------------------------------------------- --------------------------------
Daytona SeaBreeze (3) Daytona Beach Shores, Florida
The Hammocks at Marathon (3) Marathon, Florida
The Fountains (3) Orlando, Florida
Orlando's Sunshine Resort (3) Orlando, Florida
Casa Del Mar Beach Resort Ormond Beach, Florida
Grande Villas at World Golf Village (3) St. Augustine, Florida
Solara Surfside (3) Surfside, Florida
Mountain Run at Boyne (3) Boyne Falls, Michigan
The Falls Village (3) Branson, Missouri
Bluegreen Wilderness Club at Big Cedar (3) (4) Ridgedale, Missouri
The Suites at Hershey (3) Hershey, Pennsylvania
The Lodge Alley Inn (3) Charleston, South Carolina
Carolina Grande (2) Myrtle Beach, South Carolina
Harbour Lights (3) Myrtle Beach, South Carolina
SeaGlass Tower (2) Myrtle Beach, South Carolina
Shore Crest Vacation Villas (3) North Myrtle Beach, South Carolina
MountainLoft (3) Gatlinburg, Tennessee
Laurel Crest (3) Pigeon Forge, Tennessee
Shenandoah Crossing (3) Gordonsville, Virginia
Christmas Mountain Village (3) Wisconsin Dells, Wisconsin
La Cabana Beach and Racquet Club (5) Oranjestad, Aruba
1
Other Resorts (1) Location
--------------------------------------- -----------------------
Paradise Isle Resort Gulf Shores, Alabama
Shoreline Towers Resort Gulf Shores, Alabama
Via Roma Beach Resort (3) Bradenton Beach, Florida
Dolphin Beach Club (3) Daytona Beach Shores, Florida
Fantasy Island Resort II (3) Daytona Beach Shores, Florida
Mariner's Boathouse and Beach Resort Fort Myers Beach, Florida
Tropical Sands Resort Fort Myers Beach, Florida
Windward Passage Resort Fort Myers Beach, Florida
Gulfstream Manor (3) Gulfstream, Florida
Resort Sixty-Six (3) Holmes Beach, Florida
Outrigger Beach Club (3) Ormond Beach, Florida
Landmark Holiday Beach Resort Panama City Beach, Florida
Ocean Towers Beach Club Panama City Beach, Florida
Panama City Resort & Club Panama City Beach, Florida
Surfrider Beach Club Sanibel Island, Florida
Tierra Verde Yacht & Tennis Resort Tierra Verde, Florida
Petit Crest Villas at Big Canoe Marble Hill, Georgia
Pono Kai Resort (3) Kapaa (Kauai), Hawaii
Lake Condominiums at Big Sky Big Sky, Montana
Foxrun Townhouses Lake Lure, North Carolina
Sandcastle Village New Bern, North Carolina
Waterwood Townhouses New Bern, North Carolina
Players Club (3) Hilton Head Island, South Carolina
----------
(1) Throughout this Annual Report on Form 10-K, any reference to resorts that
we "own" refers to resorts where we acquired or developed a significant
number of the VOIs associated with the resorts, even if substantially all
of the VOIs in the property have been sold to consumers. "Other Resorts"
refer to component sites within the Bluegreen Vacation Club where we did
not acquire or develop a significant number of the VOIs associated with
the resorts.
(2) We acquired this resort in 2005. We will begin selling VOIs in this resort
through the Bluegreen Vacation Club in 2006. The resort will be managed in
2006 by Bluegreen Resorts Management, Inc. one of our wholly-owned
subsidiaries.
(3) These resorts are managed by Bluegreen Resorts Management, Inc.
(4) This resort is being developed, marketed and sold by Bluegreen/Big Cedar
Vacations, LLC, a joint venture with Big Cedar, L.L.C. We own a 51%
interest in this joint venture and the joint venture's results of
operations, cash flows and financial position are included in our
consolidated financial statements. See Note 1 of the Notes to Consolidated
Financial Statements.
(5) As of December 2005, La Cabana Beach and Racquet Club is managed by Casa
Grande Cooperative Association I, which has subcontracted with Bluegreen
Resorts Management, Inc. to provide management consulting services to the
resort.
Throughout this report, "estimated remaining life-of-project sales" assumes
sales of the existing, currently under construction or development, and planned
VOIs or homesites, as the case may be, at current retail prices. "Field
Operating Profit" means the operating profit of one of our business segments
prior to the allocation of corporate overhead, interest income, gain on sales of
notes receivable, other income, provision for loan losses, interest expense,
income taxes, minority interest and cumulative effect of change in accounting
principle. See Note 19 of the Notes to Consolidated Financial Statements for
further information and a reconciliation of Field Operating Profit for our
business segments to consolidated income before income taxes.
2
Since our inception, we have generated over 178,000 VOI sales transactions.
Bluegreen Resorts' estimated remaining life-of-project sales were approximately
$2.0 billion at December 31, 2005. For the year ended December 31, 2005,
Bluegreen Resorts had sales and Field Operating Profit of $358.2 million and
$59.6 million, respectively.
Bluegreen Resorts uses a variety of techniques to attract prospective purchasers
of VOIs, including telemarketing of mini-vacations, marketing kiosks in retail
and hotel locations, targeted mailings, marketing to current owners of VOIs and
referrals. To support our marketing and sales efforts, we have developed and
continue to enhance our database to track our vacation ownership marketing and
sales programs. We believe that as our vacation ownership operations grow, this
database will position us to take advantage of, among other things, less costly
marketing and referral opportunities.
While historical growth rates may not continue, based on ARDA and other industry
data, we believe that vacation ownership has been one of the fastest growing
segments of the hospitality industry with 10.6% compound annual growth for sales
volume and 10.7% compound annual growth for number of VOI owners during the
period from 1990 to 2002. According to ARDA, the primary reason cited by
consumers for purchasing a VOI is the ability to exchange a VOI for
accommodations at other resorts through worldwide exchange networks.
Our affiliation with RCI, the largest worldwide vacation ownership exchange
company, entitles members of the Bluegreen Vacation Club to stay at
approximately 3,700 participating RCI resorts located in over 100 countries
worldwide. To further enhance the ability of our VOI owners to customize their
vacation experience, we also have implemented our Bluegreen Vacation Club
system, which permits our VOI owners to purchase a real estate timeshare
interest which provides them with an equivalent annual allotment of points which
can be redeemed for occupancy rights at the previously listed Bluegreen-owned
and other participating resorts. We also have implemented the Sampler program,
which allows Sampler package purchasers to enjoy substantially the same
amenities, activities and services offered to Bluegreen Vacation Club members
for a one-year trial period. We benefit from the Sampler program as it gives us
the opportunity to market our VOIs to customers when they use their trial
memberships at our resorts and to recapture some of the cost incurred relative
to the initial marketing of prospective customers.
Prior to acquiring a property for a resort, Bluegreen Resorts undertakes a
property review, which includes physical and environmental assessments. This
review is presented for approval to our Management Investment Committee, which
was established in 1990 and consists of certain key members of senior
management. Once approved by this committee, the acquisition is submitted to the
Investment Committee of our Board of Directors for final approval. During the
review process, we consider market, tourism and demographic data as well as the
quality and diversity of the location's existing amenities and attractions to
determine the potential strength of the vacation ownership market in the area
and the availability of a variety of recreational opportunities for prospective
VOI purchasers. Another important consideration when Bluegreen Resorts is
reviewing a resort location for potential acquisition is the demand for resorts
in specific geographic areas by existing Bluegreen Vacation Club members. We
periodically monitor this demand through surveys and other means. We generally
seek to acquire real estate or interests in real estate for Bluegreen Resorts in
markets that will provide incremental sales distribution opportunities and/or
satisfy our existing Bluegreen Vacation Club members desires for alternate
vacation destinations. We anticipate that our acquisition focus will be on
expansion opportunities in the western United States, although we may pursue
acquisitions in other areas. No assurance can be given that we will be able to
acquire property in our current target areas or be successful in our acquisition
strategy.
We have historically provided financing to approximately 95% of our vacation
ownership customers. Customers are required to make a downpayment of at least
10% of the VOI sales price and typically finance the balance of the sales price
over a period of ten years. As discussed in more detail in Note 1 of the Notes
to Consolidated Financial Statements, the Company adopted the American Institute
of Certified Public Accountants Statement of Position No. 04-2, "Accounting for
Real Estate Time-Sharing Transactions" ("SOP 04-2"). SOP 04-2 will, amount other
things, clarifies the 10% downpayment computation as it applies to revenue
recognition. As of December 31, 2005, our vacation ownership receivables
portfolio totaled approximately $131.1 million in principal amount, with a
weighted-average contractual yield of approximately 14.8% per annum. During the
year ended December 31, 2005, we maintained vacation ownership receivables
warehouse facilities and separate vacation ownership receivables purchase
facilities to maintain liquidity associated with our vacation ownership
receivables. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" for a further
discussion of our vacation ownership receivables facilities and certain risks
relating to such facilities.
3
Bluegreen Communities
Bluegreen Communities focuses on developing residential homesites near major
metropolitan centers or popular retirement areas. We believe that a majority of
our Communities customers seek a quality lifestyle improvement that is generally
unavailable in traditional, intensely subdivided suburban developments. As of
December 31, 2005, Bluegreen Communities was actively developing and selling
homesites directly to retail consumers in communities primarily located in
Texas, Georgia, North Carolina and Virginia. We had $67.6 million of inventory
for Bluegreen Communities on our balance sheet as of December 31, 2005 and
Bluegreen Communities' estimated remaining life-of-project sales were
approximately $302.9 million. For the year ended December 31, 2005 Bluegreen
Communities had sales and Field Operating Profit of $192.1 million and $47.2
million, respectively.
The objective of our marketing and sales program is to generate on-site sales
presentations to potential prospects through a combination of newspaper, direct
mail, television, billboard, Internet and radio advertising. In addition, we
believe Bluegreen Communities' customer relationship management computer
software system enables us to compile, process and maintain information
concerning future sales prospects within each of our operating regions with the
goal of tracking the effectiveness of advertising and marketing programs
relative to sales generated. We believe that we have been able to achieve an
attractive conversion ratio of sales to prospects receiving on-site sales
presentations, through these programs.
Bluegreen Communities acquires and develops land in two markets: (i) near major
metropolitan centers but outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, we consider market depth and attempt to forecast market absorption. In new
market areas, we typically engage a third-party to perform a market study in the
area to evaluate market response and price acceptance. Our sales and marketing
efforts begin as soon as practicable after we enter into an agreement to acquire
a parcel of land. Our ability to bond projects to completion generally allows us
to sell a portion of our residential land inventory on a pre-development basis,
thereby reducing the amount of external capital needed to complete improvements.
As is the case with Bluegreen Resorts, all acquisitions of properties by
Bluegreen Communities are subject to the approval of both our Management
Investment Committee and the Investment Committee of our Board of Directors.
In fiscal 1997, we began construction of our first daily-fee golf course. We
believe that daily-fee golf courses are an attractive amenity that increases the
marketability of adjacent homesites. We currently intend to expand our golf
course community residential land offerings into markets with attractive
demographics for such properties. There can be no assurance that our strategy
for this expansion will be successful.
Industry Overview
Bluegreen Resorts
The Market. The resorts component of the leisure industry is serviced primarily
by two separate alternatives for overnight accommodations: commercial lodging
establishments and vacation ownership resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. We believe that vacation ownership presents an
attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, vacation ownership has been one of
the fastest growing segments of the hospitality industry over the past two
decades. We believe that, based on ARDA reports and other industry data, the
following factors have contributed to the increased acceptance of the vacation
ownership concept among the general public and the substantial growth of the
vacation ownership industry:
o growing consumer awareness of the potential value and benefits of
vacation ownership, including the cost savings relative to certain
other lodging alternatives;
o increasing flexibility of vacation ownership due to the growth of
international exchange organizations such as RCI and Interval
International, and points-based vacation club systems (such as the
Bluegreen Vacation Club);
4
o the improving quality of the vacation ownership resorts and their
management; and
o growing consumer confidence resulting from enhanced consumer
protection regulation of the vacation ownership industry and the
entry of brand name national lodging companies to the vacation
ownership industry.
Historically, the vacation ownership industry was highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. We
believe that one of the most significant factors contributing to the current
success of the vacation ownership industry has been the entry into the market of
some of the world's major lodging, hospitality and entertainment companies, such
as Marriott International, Inc., the Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels
and Resorts Worldwide, Inc. and Cendant Corporation. Although vacation ownership
operations currently comprise only a portion of these companies' overall
operations, we believe that their involvement in the vacation ownership industry
has enhanced the industry's image with the general public.
We do not believe that the ongoing hostilities in the Middle East and other
world events that have decreased the amount of vacation air travel by Americans
have had a material adverse impact on our sales in our domestic sales offices.
We believe that this is due to the "drive-to" resort destinations in the
Bluegreen Vacation Club. In addition, we believe that, in general, Americans
still desire to take family vacations and that our vacation club is positioned
to benefit from consumer demand for family vacations. However, international
hostilities, economic conditions and the rising cost of gasoline may have an
adverse effect on our operations in the future.
The Consumer. According to information compiled by industry sources, customers
in our target demographic of 40 to 59 years old represented approximately 60% of
all VOI owners in the United States in 2002. According to the U.S. Census, the
45 to 54 age group is expected to grow 18% from 2000 through 2010. Historically,
the median age of a VOI buyer at the time of purchase was 51. The median annual
household income of VOI owners in the United States in 2002 was approximately
$85,000, with approximately 35% of all VOI owners having annual household
incomes greater than $100,000. Despite the industry's growth, VOI ownership has
achieved only an approximate 5% market penetration among United States
households with incomes above $50,000 per year.
VOI Ownership. The purchase of a fixed-week VOI typically entitles the buyer to
use a fully-furnished vacation residence, generally for a one-week period each
year in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant-in-common with other buyers of
interests in the property.
Under a points-based system, such as our Bluegreen Vacation Club, members
purchase a real estate interest in a specific VOI resort that is held in trust
on the member's behalf and provides the member with an annual or biennial
allotment of points that can be redeemed for occupancy rights at participating
resorts. Compared to other vacation ownership arrangements, the points-based
system offers members greater flexibility in planning their vacations. The
number of points required for a stay at any one resort varies, depending on a
variety of factors, including the resort location, the size of a unit, the
vacation season and the days of the week used. Under this system, members can
select vacations according to their schedules, space needs and available points.
Members' unused points are typically automatically saved for one year beyond the
year they were allotted, subject to certain usage restrictions. Members also
typically may "borrow" points from the next year, subject to certain
restrictions. Since January 2004, all of our sales offices have only sold VOIs
within our Bluegreen Vacation Club system.
The owners of VOIs manage the property through a nonprofit homeowners'
association, that is governed by a board of directors or trustees consisting of
representatives of the developer (as long as the developer owns VOIs in the
resort) and owners of VOIs at the resort. The board hires a management company
to which it delegates many of the rights and responsibilities of the homeowners'
association, including grounds landscaping, security, housekeeping and operating
supplies, garbage collection, utilities, insurance, laundry and repairs and
maintenance. As of December 31, 2005, we managed 30 resorts, including 28 of the
resorts in the Bluegreen Vacation Club.
Each VOI owner is required to pay the vacation club homeowners' association a
share of all costs of maintaining the properties in the Bluegreen Vacation Club
system. These charges generally consist of an annual maintenance fee plus
applicable real estate taxes and special assessments, assessed on an as-needed
basis. If the VOI owner does not pay such charges, such owner's use rights may
be suspended and the homeowners' association may foreclose on the owner's VOI.
5
Participation in Independent VOI Exchange Networks. We believe that our VOIs are
made more attractive by our affiliation with an international VOI exchange
network such as RCI. All of our VOI resorts are currently affiliated with RCI,
and most of our owned resorts have been awarded RCI's highest designation (Gold
Crown). A VOI owner's participation in the RCI exchange network allows such
owner to exchange his annual VOI for occupancy at approximately 3,700
participating resorts, based upon availability and the payment of a variable
exchange fee. RCI's participating resorts are located throughout the world in
over 100 countries. A Bluegreen Vacation Club owner may make a reservation for
occupancy in a club VOI and then may attempt to exchange this occupancy right
for one in another participating RCI resort. The owner lists his occupancy right
as available with RCI and requests occupancy at another participating resort,
indicating the particular resort or geographic area to which the owner desires
to travel, the size of the unit desired and the period during which occupancy is
desired. The exchange network assigns ratings to each listed VOI, based upon a
number of factors, including the location and size of the unit, the quality of
the resort and the period during which the VOI is available, and attempts to
satisfy the exchange request by providing an occupancy right in another VOI with
a similar rating. If the exchange network is unable to meet the member's initial
request, it suggests alternative resorts based on availability. No assurance can
be given that our resorts will continue to qualify for participation in
international exchange networks, or that our customers will continue to be
satisfied with these networks. Our failure or the failure of any of our resorts
to participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on us.
Bluegreen Communities
Bluegreen Communities operates within a specialized niche of the real estate
industry, which focuses on the sale of residential homesites to retail customers
who typically intend to build a home on such homesites at some point in the
future. The participants in this market are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region.
Unlike commercial homebuilders who focus on vertical development, such as the
construction of single and multi-family housing structures, Bluegreen
Communities focuses primarily on horizontal development activities, such as
grading, roads and utilities. As a result, the projects undertaken by us are
significantly less capital intensive than those generally undertaken by
commercial homebuilders. We believe that our market is also the beneficiary of a
number of trends, including the large number of people entering into the 40-59
year age bracket and the economic and population growth in certain of our
primary markets.
Bluegreen Communities also focuses on the development of daily-fee golf courses
and related amenities as the centerpieces of certain of our residential land
communities. As of December 31, 2005, we were marketing homesites in seven
communities that include golf courses developed either by us or third parties.
We currently intend to acquire and develop additional golf communities, as we
believe that the demographics and marketability of such properties are
consistent with our overall residential land strategy. Golf communities
typically are larger, multi-phase properties that require a greater capital
commitment than our single-phase residential land projects, but which also
typically realize higher gross margins. There can be no assurance that we will
be able to successfully implement our golf community strategy.
Bluegreen Communities also undertakes the development of large lakes in certain
of our projects as the centerpiece amenity. We believe that while these
development activities require a greater capital commitment than certain other
amenities that we may provide in our communities, we benefit from the
anticipated increased marketability and pricing of lakefront homesites.
6
Company Products
Bluegreen Resorts
Set forth below is a description of each of our owned vacation ownership
resorts. We consider resorts "owned" if we acquired or developed a significant
number of the VOIs associated with the resorts, even if we no longer own
substantial VOIs in the resorts. Units at most of the properties have certain
standard amenities, including a full kitchen, at least two televisions, a VCR
and a CD player. Some units have additional amenities, such as big screen
televisions, DVD players, fireplaces, whirlpool tubs and video game systems.
Most properties offer guests a clubhouse (with an indoor or outdoor pool, a game
room, exercise facilities and a lounge) and a hotel-type staff. We manage all of
our owned resorts, either directly or through a subcontract, with the exception
of the Casa del Mar Beach Resort. The Casa del Mar Beach Resort is managed by
The Amber Group, Inc., an unaffiliated third party that managed the resort prior
to our acquisition of Casa Del Mar's unsold VOI inventory in 2003.
Florida
Daytona SeaBreeze-- Daytona Beach Shores, Florida. This 7-story 79-unit resort
is located on the "World's Most Famous Beach." Amenities include private
ocean-front balconies, a heated outdoor swimming pool, a children's pool, a hot
tub, a fitness center, barbeque grill area and a game room. The resort is on a
barrier island less than six miles long and is located near the world-famous
Daytona International Speedway and DAYTONA USA(R).
The Hammocks at Marathon-- Marathon, Florida. The Hammocks at Marathon is
located in the Florida Keys within easy reach of both Miami and Key West,
Florida. This beachfront resort offers such amenities as a pool, boat slips, an
outside tiki bar and a variety of water sport recreational vehicle rentals.
The Fountains-- Orlando, Florida. This 54-acre resort is located on Lake Eve and
is minutes away from Central Florida's family attractions, including Walt Disney
World(R), SeaWorld(R) and Universal Studios(R). Amenities include a clubhouse
with a heated indoor/outdoor swimming pool, a pool bar, a massage room, steam
and sauna rooms, a family activity room and tennis and a basketball court.
Orlando's Sunshine Resort-- Orlando, Florida. Orlando's Sunshine Resort is
located on International Drive, near Wet'n'Wild(R) water park and Universal
Studios Florida(R). This property features an outdoor swimming pool, hot tub and
tennis courts.
Casa del Mar Beach Resort-- Ormond Beach, Florida. Casa del Mar is located
directly on the ocean and includes an outdoor pool and miniature golf. In nearby
Daytona Beach, guests can drive on the beach or visit the Daytona International
Speedway.
Grande Villas at World Golf Village-- St. Augustine, Florida. Grande Villas,
which is located minutes away from the Atlantic Ocean and next to the World Golf
Hall of Fame(R), features an extensive array of amenities, including, among
others, a golf course (separately owned and operated; separate fee required),
outdoor and indoor pools, a hot tub, a sauna and a playground.
Solara Surfside -- Surfside, Florida. This oceanfront resort is located in
Surfside, Florida, near Miami Beach. Solara Surfside captures the art deco style
of its surrounding area and features one and two bedroom vacation homes, a
swimming pool, sun deck and hot tub.
Michigan
Mountain Run at Boyne-- Boyne Falls, Michigan. Boyne Mountain is known for
skiing, snowboarding and tubing on more than 50 runs with convenient lift and
trail systems. In the summer, Boyne Mountain offers golf on near by world-class
courses designed by some of the game's masters, including Robert Trent Jones,
Arthur Hills, Donald Ross and others.
7
Missouri
The Falls Village-- Branson, Missouri. The Falls Village is located in the Ozark
Mountains. Fishing, boating and swimming are available at nearby Table Rock Lake
and Lake Taneycomo, and area theaters feature shows by renowned country music
stars. Most resort guests come from areas within an eight to ten hour drive of
Branson.
Bluegreen Wilderness Club at Big Cedar-- Ridgedale, Missouri. The Bluegreen
Wilderness Club at Big Cedar is a wilderness-themed resort adjacent to the world
famous Big Cedar Lodge luxury hotel resort. This vacation ownership resort is
being developed, marketed and sold by Bluegreen/Big Cedar Vacations LLC, a joint
venture between Big Cedar, L.L.C. and us, in which we own a 51% interest. The
resort is located on Table Rock Lake, and is near Dogwood Canyon. Guests staying
in the two bedroom cabins or one and two bedroom lodge villas enjoy fireplaces,
private balconies, full kitchens and Internet access. Amenities include, or are
expected to include indoor and outdoor swimming pools and hot tubs, a lazy
river, hiking trails, a campfire area, a beach and playground. Guests also have
access to certain of the luxury amenities at the Big Cedar Lodge, including the
Jack Nicklaus Signature Top of the Rock Par Three Golf Course, a marina,
horseback riding, tennis courts and a spa.
Pennsylvania
The Suites at Hershey-- Hershey, Pennsylvania. This 3.2-acre resort is located
near HersheyPark(R) and Hershey's(R) Chocolate World. Amenities include an
outdoor swimming pool, hot tub, playground, a picnic area with barbeque grills,
a game room, fitness center and indoor basketball courts.
South Carolina
The Lodge Alley Inn-- Charleston, South Carolina. Located in Charleston's
historic district, the Lodge Alley Inn includes one and two-bedroom suites, many
furnished with an equipped kitchen, a living room with fireplace, a dining room,
a whirlpool bath, pine wood floors and 18th century-style furniture
reproductions. The resort, which features the on-site High Cotton restaurant, is
within walking distance of many of Charleston's historical sites, open-air
markets and art galleries.
Carolina Grande-- Myrtle Beach, South Carolina. This 118-room, 20-story tower is
located across the street from the beach. An arrangement with The Carolinian
Beach Resort offers guests an accessible breezeway directly to the beach and
other amenities, including indoor and outdoor swimming pools, hot tubs, full
kitchens, washers and dryers, and views of the ocean and city from each room.
The resort is located near the Pavilion Amusement Park, NASCAR(R) SpeedPark,
Broadway at the BeachSM (a 350-acre complex featuring approximately 100
specialty shops, 20 restaurants, 15 attractions and 10 nightclubs), Myrtle Waves
Water Park, Carolina Opry, Dixie Stampede and the Convention Center. The
Carolina Grande opened for occupancy in February 2006.
Harbour Lights-- Myrtle Beach, South Carolina. Harbour Lights is located in the
Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater Row,
shopping, golf courses and restaurants. The resort's activities center overlooks
the Intracoastal Waterway.
SeaGlass Tower-- Myrtle Beach, South Carolina. The SeaGlass Tower is a 19-story,
142 unit mirrored tower located directly on the beach in Myrtle Beach. Amenities
include ocean views from its balconies, fully equipped kitchens, whirlpool baths
and other amenities, including an indoor and two outdoor swimming pools, a hot
tub, and two saunas. SeaGlass Tower is located near the Pavilion Amusement Park,
Broadway at the BeachSM, Myrtle Beach Convention Center, and the Myrtle Beach
International Airport. The resort is scheduled to open for occupancy in the
second quarter of 2006.
Shore Crest Vacation Villas-- North Myrtle Beach, South Carolina. Shore Crest
Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach, a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Tennessee
MountainLoft-- Gatlinburg, Tennessee. MountainLoft is located near the Great
Smoky Mountains National Park and is minutes from the family attractions of
Pigeon Forge, Tennessee. Units are located in individual chalets or mid-rise
villa
8
buildings. Each unit is fully furnished with a whirlpool bath and private
balconies, and certain units include gas fireplaces.
Laurel Crest-- Pigeon Forge, Tennessee. Laurel Crest is located in proximity to
the Great Smoky Mountains National Park and the Dollywood theme park. In
addition, visitors to Pigeon Forge can enjoy over 200 factory outlet stores and
music shows featuring renowned country music stars as well as partake in a
variety of outdoor activities, such as horseback riding, trout fishing, boating,
golfing and white water rafting.
Virginia
Shenandoah Crossing-- Gordonsville, Virginia. Shenandoah Crossing features an
18-hole golf course (which is owned and operated by an unaffiliated third
party), indoor and outdoor swimming pools, tennis courts, horseback riding
trails and a lake for fishing and boating.
Wisconsin
Christmas Mountain Village-- Wisconsin Dells, Wisconsin. Christmas Mountain
Village offers a 27-hole golf course and seven ski trails served by two chair
lifts. Other on-site amenities include horseback riding, tennis courts, a
five-acre lake with paddleboats and rowboats and four outdoor swimming pools.
Christmas Mountain Village attracts customers primarily from the greater Chicago
area and other locations within an eight to ten hour drive of Wisconsin Dells.
Aruba
La Cabana Beach Resort & Racquet Club-- Aruba. La Cabana is a 449-suite ocean
front resort that offers one, two and three-bedroom suites, garden suites and
penthouse accommodations. On-site amenities include racquetball, squash, a
casino, two pools and private beach cabanas, none of which are owned by us.
The following table describes the relative size, stage of development and amount
of remaining inventory at each of our owned resorts. Although all inventory is
sold as VOIs, we disclose the size and inventory information in terms of number
of vacation homes for ease of comparability between our resorts and those of
other companies in the industry. "Vacation homes" are individual lodging units
(e.g., condominium-style apartments, town homes, cabins, etc.).
9
The Orlando's Casa Del
Daytona Hammocks The Sunshine Mar Beach
Resort SeaBreeze At Marathon Fountains Resort Resort
------------------------------------------------------------------------------
Daytona
Location Beach Shores, Marathon, Orlando, Orlando, Ormond
FL FL FL FL Beach, FL
------------------------------------------------------------------------------
Year acquired (1) 2005 2003 2003 1997 2003
Number of vacation
homes completed 79 58 288 90 43
Number of vacation
homes under
construction -- -- 168 -- --
Number of future
vacation homes (2) -- -- 266 -- --
Total current and future
vacation homes 79 58 722 90 43
Percentage of total current
and future vacation
homes sold (3) 64% 86% 36% 93% 82%
Estimated remaining life-
of-project sales (in
millions) (4) $26.7 $10.7 $551.0 $4.9 $5.3
Bluegreen
Grande Villas Solara Wilderness
Resort at World Golf Surfside Mountain The Falls Club at Big
Village Resort Run at Boyne Village Resort Cedar
------------------------------------------------------------------------------
St. Augustine, Surfside, Boyne Falls, Branson, Ridgedale,
Location FL FL MI MO MO
------------------------------------------------------------------------------
Year acquired (1) 2003 2001 2002 1997 2000
Number of vacation
homes completed 102 58 104 132 185
Number of vacation
homes under
construction 60 -- -- -- 32
Number of future
vacation homes (2) 65 -- -- 114 107
Total current and future
vacation homes 227 58 104 246 324
Percentage of total current
and future vacation
homes sold (3) 40% 86% 30% 49% 35%
Estimated remaining life-
of-project sales (in
millions) (4) $141.8 $7.4 $36.0 $103.0 $174.6
10
The Suites at The Lodge Carolina Harbour SeaGlass
Resort Hershey Alley Inn Grande Lights Tower
------------------------------------------------------------------------------
Hershey, Charleston, Myrtle Beach, Myrtle Beach, Myrtle Beach,
Location PA SC SC SC SC
------------------------------------------------------------------------------
Year acquired (1) 2004 1998 2005 1997 2005
Number of vacation
homes completed 78 90 118 240 --
Number of vacation
homes under
construction -- -- -- -- 142
Number of future
vacation homes (2) -- -- -- 12 --
Total current and future
vacation homes 78 90 118 252 142
Percentage of total current
and future vacation
homes sold (3) 30% 96% 0% 87% 0%
Estimated remaining life-
of-project sales (in
millions) (4) $41.4 $2.6 $82.7 $15.2 $82.0
Shore Crest Christmas
Vacation Laurel Shenandoah Mountain
Resort Villas MountainLoft Crest Crossing Village
------------------------------------------------------------------------------
North Myrtle Gatlinburg, Pigeon Forge, Gordonsville, Wisconsin
Location Beach, SC TN TN VA Dells, WI
------------------------------------------------------------------------------
Year acquired (1) 1996 1994 1995 1997 1997
Number of vacation
homes completed 240 164 152 162 309
Number of vacation
homes under
construction -- -- -- -- --
Number of future
vacation homes (2) -- -- 50 100 130
Total current and future
vacation homes 240 164 202 262 439
Percentage of total current
and future vacation
homes sold (3) 95% 95% 65% 61% 66%
Estimated remaining life-
of-project sales (in
millions) (4) $8.9 $20.5 $65.1 $114.8 $184.8
11
La Cabana
Beach and
Resort Racquet Club
---------------
Oranjestad,
Location Aruba
---------------
Year acquired (1) 1997
Number of vacation
homes completed 449
Number of vacation
homes under
construction --
Number of future
vacation homes (2) --
Total current and future
vacation homes 449
Percentage of total current
and future vacation
homes sold (3) 92%
Estimated remaining life-
of-project sales (in
millions) (4) $23.4
(1) Year that we first acquired the land to develop each resort or the
year we first acquired existing VOIs at each resort, as applicable.
(2) Number of vacation homes that can be developed at each resort in the
future. We cannot provide any assurance that we will have the
resources, or will decide to commence or complete the development of
any of these future vacation homes or that the resulting VOIs will
be sold at favorable prices.
(3) This is the portion of each resort that has been sold through
December 31, 2005, including sales made by prior owners of the
resorts, if applicable. The unsold portion includes vacation homes
that are either completed, under construction or subject to future
development.
(4) Estimated remaining life-of-project sales as of December 31, 2005.
This table excludes VOI inventory that we own at several non-owned
resorts ("Miscellaneous Inventory"). The aggregate estimated
remaining life-of-project sales for our Miscellaneous Inventory as
of December 31, 2005 was $7.1 million or less than 1% of Bluegreen
Resorts' estimated remaining life-of-project sales. There is no
assurance that we will realize the estimated remaining life of
project sales.
The table also excludes planned VOI inventory to be developed on two parcels of
land in Eastern Tennessee (the "Future Tennessee Inventory") and one parcel in
Big Sky, Montana (the "Future Montana Inventory"), all of which was acquired in
2004. The aggregate estimated life-of-project sales for the Future Tennessee
Inventory and the Future Montana Inventory as of December 31, 2004 was $232.4
million and $85.9 million, respectively.
While there may be limits on the amount of insurance available and some policies
have significant deductibles, we believe that each of our resorts is adequately
covered by property and casualty insurance, in the case of our completed
resorts, or builder's risk insurance, in the case of resorts that are under
construction. In addition, we, or general contractors hired by us, purchase
performance bonds if required by the local jurisdictions in which we develop our
resorts.
12
Bluegreen Communities
Described below are the communities with the most significant estimated
remaining life-of-project sales marketed by Bluegreen Communities as of December
31, 2005.
Georgia
Sanctuary Cove at St. Andrew's Sound-- Waverly, Georgia. In November 2003, we
acquired 564 acres of land near St. Simons Island in Brunswick County, Georgia
for $11.3 million. Amenities at this golf community will include an 18-hole Fred
Couples Signature Golf Course to be designed by Love Golf Design, clubhouse and
swimming and tennis facilities. The golf course and clubhouse will be owned by
us and operated on a daily-fee basis. Sanctuary Cove adjoins approximately 1,000
acres of preserved saltwater marshes and coastal wetlands. General improvements
relative to the homesites at Sanctuary Cove being performed by us included, in
most cases, water, sewer, electric, telephone and cable television utilities as
well as selective homesite clearing. We began selling homesites at Sanctuary
Cove in December 2003.
North Carolina
Chapel Ridge-- Chatham County, North Carolina. In July 2004, we acquired
approximately 800 acres of land centrally located between Chapel Hill/Durham,
Cary/Apex, Sanford/Siler City and the Triad areas in Chatham County, North
Carolina for $5.5 million. Amenities at this golf community will include an
18-hole Fred Couples Signature Golf Course, a clubhouse and conservation areas.
The golf course and clubhouse will be owned by us and operated on a daily-fee
basis. General improvements relative to the homesites at Chapel Ridge being
performed by us included in most cases, water, sewer, electric, telephone and
cable television utilities as well as selective homesite clearing. We began
selling homesites at Chapel Ridge in July 2004.
Texas
Mystic Shores-- Canyon Lake, Texas. We acquired 6,966 acres located 25 miles
north of San Antonio, Texas in October 1999 for $14.9 million. On May 5, 2000,
we purchased an additional 435 acres for $2.7 million. The community includes
approximately 2,400 homesites, ranging in size from one to twenty acres. Mystic
Shores is situated on Canyon Lake and is in close proximity to the Guadeloupe
River, which is well known for fishing, rafting and water sports. The property
also features a junior Olympic swimming pool, bathhouse, open-air pavilion and
picnic area. General improvements on homesites at Mystic Shores performed by us
included, in most cases, water and selective homesite clearing, while some
sections of the community also include electric and telephone utilities. We
began selling homesites at Mystic Shores in March 2000.
Lake Ridge at Joe Pool Lake-- Cedar Hill, Texas. We acquired 1,400 acres located
approximately 19 miles outside of Dallas, Texas and 30 miles outside of Fort
Worth, Texas in April 1994 for $6.1 million. In fiscal 2000, we acquired an
additional 1,766 acres for $14.9 million. The property is located at Joe Pool
Lake and is atop the highest elevation within 100 miles. The lake has in excess
of 7,500 acres of water for boating, fishing, windsurfing and other water
activities. Adjacent amenities, not owned by us, include a 154-acre park with
baseball, football and soccer fields, camping areas and an 18-hole golf course.
The existing acreage will yield approximately 2,530 homesites, with most
homesites ranging in size from 1/4 to five acres. General improvements on the
homesites at Lake Ridge performed by us included, in most cases, water, sewer,
electric, telephone and cable television utilities as well as selective homesite
clearing. We began selling homesites at this community in April 1994.
Saddle Creek Forest-- Magnolia, Texas. In January 2005, we acquired
approximately 1,053 acres of land located near Houston, Texas in Montgomery
County for $2.7 million. Saddle Creek Forest features 464 heavily wooded,
private lake and creekside homesites, ranging in size from one to five acres.
General improvements on the homesites at Saddle Creek Forest being performed by
us include, in most cases, water and sewer utilities and selective homesite
clearing. We began sales of homesites at Saddle Creek Forest in August 2005.
Havenwood at Hunters Crossing-- New Braunfels, Texas. In July 2005 we acquired
approximately 1,263 acres of land with convenient access to Austin and San
Antonio, Texas in Comal County, Texas for $7.5 million. This gated community
offers premium hilltop homesites on one to three acres of land. Havenwood at
Hunters Crossing features
13
dense oaks and stunning views of the surrounding Hill Country. General
improvements on the homesites at Havenwood at Hunters Crossing being performed
by us included, in most cases, water, sewer, electric, telephone and cable
television utilities as well as selective homesite clearing. We began sales of
homesites at Havenwood at Hunters Crossing in January 2006.
SugarTree on the Brazos-- Parker County, Texas. In November 2004, we acquired
approximately 429 acres of land located near Fort Worth, Texas in Parker County,
Texas for $4.3 million. SugarTree is surrounded by a championship golf course
and is nestled along the shores of the Brazos River. Amenities at this community
will include a swimming center and clubhouse. General improvements on the
homesites at SugarTree being performed by us include, in most cases, water and
sewer utilities and selective homesite clearing. We began sales of homesites at
SugarTree in March 2005.
Mountain Springs Ranch-- Smithson Valley, Texas. In April 2003, we acquired
1,125 acres located approximately 15 miles north of San Antonio, Texas for $4.8
million. This master planned community offers wooded and acreage homesites with
views of the scenic Texas Hill Country. General improvements to the homesites in
Mountain Springs Ranch performed by us included, in most cases, water, selective
homesite clearing, electric and telephone. We began selling homesites at this
community in December 2003.
14
The following table provides additional information about the significant
Bluegreen Communities projects listed above:
Sanctuary
Cove at St. Chapel Mystic Lake Ridge at
Community Andrews Sound Ridge Shores Joe Pool Lake
----------------------------------------------------------------
Waverly, Chatham Canyon Lake, Cedar Hill,
Location GA County, NC TX TX
----------------------------------------------------------------
Year acquired (1) 2003 2004 1999 1994
Total acreage 500 800 7,401 3,166
Number of homesites
anticipated (2) 700 698 2,400 2,530
Percentage of anticipated
homesites sold (3) 95% 62% 68% 83%
Estimated remaining life-
of-project sales (in
millions) (4) $14.4 $30.8 $62.7 $51.3
Havenwood Mountain
Saddle Creek at Hunters SugarTree on Springs
Community Forest Crossing the Brazos Ranch
----------------------------------------------------------------
Magnolia, Cedar Hill, Parker County, Smithson
Location TX TX TX Valley, TX
----------------------------------------------------------------
Year acquired (1) 2005 2005 2004 2003
Total acreage 1,053 1,263 429 1,125
Number of homesites
anticipated (2) 464 238 463 625
Percentage of anticipated
homesites sold (3) 45% 0% 22% 59%
Estimated remaining life-
of-project sales (in
millions) (4) $19.3 $44.4 $20.3 $16.2
(1) Year that we first acquired the land to commence development of each
community. Certain communities were acquired in phases.
(2) Number of homesites anticipated within each community. We cannot
provide any assurance that we will have the resources, or will
decide, to develop such homesites at each community, that required
platting and other approvals will be obtained to develop such
homesites or that such homesites will be sold at favorable prices.
(3) This is the percentage of anticipated homesites sold through
December 31, 2005.
(4) Estimated remaining life-of-project sales as of December 31, 2005.
This table excludes certain projects currently being marketed by
Bluegreen Communities with an aggregate estimated remaining
life-of-project sales as of December 31, 2005 $43.5 million, or
approximately 14% of Bluegreen Communities total estimated remaining
life-of-project sales. There is no assurance that we will realize
the estimated remaining life of project sales.
While there may be limits on the amount of insurance available and some policies
have significant deductibles, we believe that each of our Bluegreen Communities
properties is adequately covered by builder's risk insurance during the
construction period or property and casualty insurance for our owned golf
amenities and homesites that are held in our inventory prior to sale to
consumers. Once a homesite is sold, the consumer assumes the risk of loss on
such homesite. In
15
addition, the applicable property owners' association bears the risk of loss on
any common amenities at each project and carries its own insurance on such
property.
We also purchase performance bonds in connection with the development of most of
our communities, in order to provide assurance to homesite buyers that
construction of the community will be completed. We believe that our ability to
obtain such performance bonds assists us in our pre-construction sales efforts.
Acquisition of Bluegreen Resorts and Bluegreen Communities Inventory
Bluegreen Resorts
We intend to continue to pursue growth by expanding or supplementing our
existing resorts operations through acquisitions in destinations that we believe
will complement such operations. We may consider acquiring additional VOI
inventory, operating companies, management contracts, VOI mortgage portfolios
and properties or other vacation ownership-related assets that may be integrated
into our operations.
We obtain information with respect to resort acquisition opportunities through
interaction by our management team with resort operators, lodging companies and
financial institutions with which we have established business relationships. We
evaluate the following factors, among others, to determine the viability of a
potential new vacation ownership resort:
o attractiveness of the market as a source of incremental sales;
o anticipated supply/demand ratio for VOIs in the relevant market;
o the market's potential growth as a vacation destination;
o competitive accommodation alternatives in the market;
o the uniqueness of location and demand for the location by existing
Bluegreen Vacation Club members;
o barriers to entry that would limit competition; and
o we believe will result in an acceptable profit margin and cash flow
to us based upon anticipated retail value.
Bluegreen Communities
Bluegreen Communities seeks to acquire property that:
o is located near a major population center but outside the perimeter
of intense subdivision development or in popular retirement areas;
o is suitable for subdivision;
o has attractive topographical features;
o for certain projects, could accommodate a golf course and related
amenities; and
o we believe will result in an acceptable profit margin and cash flow
to us based upon anticipated retail value.
Communities are generally subdivided for sale into homesites typically ranging
in size from 1/4 acre to 5 acres.
In connection with our review of potential Bluegreen Communities inventory, we
consider economic conditions in the area in which the parcel is located,
environmental sensitivity, availability of financing, whether the property is
consistent with our general policies and the anticipated ability of that
property to produce acceptable profit margins and cash flow. As part of our
long-term strategy for Bluegreen Communities, in recent years we have focused on
fewer, more capital-
16
intensive communities. We intend to continue to focus Bluegreen Communities on
those regions where we believe the market for our products is strongest, such as
the southeast and southwest regions of the United States and to replenish and
increase our residential land inventory in such regions as existing projects are
sold-out.
Bluegreen Communities has established contacts with numerous land owners and
real estate brokers in many of our market areas, and because of such contacts
and our long history of acquiring properties, we believe that we are generally
in a favorable position to learn of available properties, sometimes before the
availability of such properties is publicly known. In order to ensure such
access, we attempt to develop and maintain strong relationships with major
property owners and brokers in our markets.
Prior to acquiring property in new areas, we will generally conduct test
marketing for a prospective community to determine whether sufficient customer
demand exists for the community.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by limiting the amount of the downpayment upon signing a purchase
agreement, we are typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy helps Bluegreen
Communities to reduce:
o the time during which it actually owns specific communities between
initial acquisition and the ultimate sale;
o the market risk associated with holding such communities; and
o the risk of acquiring properties that may not be suitable for sale.
Marketing and Sale of Inventory
Bluegreen Resorts
Bluegreen Resorts uses a variety of methods to attract prospective purchasers of
VOIs, including selling discount mini-vacations through telemarketing methods or
at Bass Pro Shop locations (see further discussion of our relationship with Bass
Pro Shops, below), placing marketing kiosks in retail locations and acquiring
the right to market to prospective purchasers from third-party vendors. In
addition to attracting new customers, we seek additional sales to existing VOI
owners, such sales being called "upgrades", and referrals of prospective
purchasers from existing VOI owners and others. Upgrades involve relatively less
marketing expense and typically result in relative higher operating margins than
sales through other marketing channels. Bluegreen Resorts sometimes provides
hotel accommodations to prospective purchasers at reduced rates in exchange for
their touring one of our resorts. To support our marketing and sales efforts, we
have developed and work to continue to enhance our customer relationship
management methods, techniques and computer software tools to track our VOI
marketing and sales programs. We believe that as Bluegreen Resorts' operations
grow, this database will become an increasingly significant asset, positioning
us to focus our marketing and sales efforts to take advantage of, among other
things, less costly marketing and referral opportunities.
In recent years, we have been focusing on increasing Bluegreen Resorts use of
"permission" marketing and branding programs. "Permission" marketing methods
involve obtaining the prospective purchasers' permission, directly or
indirectly, to contact them in the future regarding an offer to purchase a
product or service. Branding involves forming alliances with third-party
entities that possess what we believe to be a nationally or regionally known
brand name, a good reputation and a customer base with similar demographic
characteristics to our target market.
In June 2000, we entered into an exclusive marketing agreement with Bass Pro,
Inc. and a joint venture with Big Cedar, L.L.C., a Bass Pro affiliate. Under the
terms of the ten-year agreement, we have the right to market our VOIs at each of
Bass Pro's retail locations, in Bass Pro's catalogs and on Bass Pro's website.
We believe that the branding aspects of this alliance are consistent with our
overall marketing strategy for Bluegreen Resorts. We compensate Bass Pro Inc.
for its successful marketing efforts. No compensation is paid to Bass Pro on
sales made by the Bluegreen Wilderness Club at Big Cedar sales office, as this
sales office is part of a joint venture between Big Cedar, L.L.C. and us. We
currently market discounted three-day, two-night mini-vacation packages at most
of Bass Pro's national retail locations. Most of these mini-vacation packages
require the buyer to participate in a sales presentation at either a Bluegreen
Vacation Club sales office or the Bluegreen Wilderness Club at Big Cedar sales
office. We also have an exclusive VOI marketing
17
presence on Bass Pro's website, which is linked to our website. We believe that
this arrangement results in effective and cost-efficient marketing for Bluegreen
Resorts.
On June 16, 2000, we prepaid $9.0 million to Bass Pro in connection with the
above marketing agreement. The prepayment was amortized from compensation earned
by Bass Pro and member distributions otherwise payable to Big Cedar, L.L.C. as a
member of the joint venture from the earnings of the joint venture. As of
December 31, 2005, the prepayment had been fully utilized. The marketing
agreement expires on the earlier of: (i) June 16, 2010 or (ii) such time as 90%
of the joint venture's proposed VOIs have been sold and conveyed.
On October 2, 2002, through our wholly-owned subsidiary, Great Vacation
Destinations, Inc. ("GVD"), we acquired substantially all of the assets and
assumed certain liabilities of TakeMeOnVacation, LLC and certain of its
affiliates ("TMOV"). Utilizing the assets acquired from TMOV, GVD generates
"permission" marketing sales leads for VOI sales utilizing various marketing
strategies. These leads are then contacted and given the opportunity to purchase
discount mini-vacation packages. These packages sometimes combine hotel stays,
cruises and gift premiums. Buyers of these mini-vacation packages are then
usually required to participate in a VOI sales presentation. GVD seeks to
generate sales prospects for our VOI sales business and for sales prospects that
will be sold to other VOI developers. We believe that GVD's "permission"
marketing lead generation programs and the potential benefits of tracking and
controlling the subsequent marketing efforts are consistent with Bluegreen
Resorts' overall marketing strategy.
Also in October 2002, in connection with the acquisition of certain land and
completed VOIs from Boyne USA Resorts ("Boyne"), we obtained the right to market
the Bluegreen Vacation Club at two of Boyne's resort properties: Boyne Mountain
and Boyne Highlands. In addition, Bluegreen Resorts entered into an exclusive
marketing arrangement with an affiliate of Boyne, Boyne Country Sports ("BCS").
BCS owns and operates six ski, snowboard and golf equipment retail stores
throughout Michigan. Bluegreen Resorts markets our vacation club through a
variety of programs directed to BCS's customer base, including lead generation
operations in four of BCS's locations and tour generation operations in two of
BCS's locations. We believe that these arrangements will allow Bluegreen Resorts
to benefit from marketing to customers that it believes are within our target
demographic through an affiliation with a known regional brand.
Our VOI resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are our
employees. We sponsor ongoing training for our personnel. During the year ended
December 31, 2005, total selling and marketing expense for Bluegreen Resorts was
$195.4 million or 55% of the division's $358.2 million in sales.
We require our sales staff to provide each VOI customer with a written
disclosure statement regarding the VOI to be sold prior to the time the customer
signs a purchase agreement. This disclosure statement explains relevant
information regarding VOI ownership at the resort and must be signed by every
purchaser. After deciding to purchase a VOI, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price (see Note 1 of the Notes to Consolidated Financial Statements for a
discussion of the impact of SOP 04-2 on the calculations of the amount of the
downpayment for purposes of generally accepted accounting principles).
Purchasers are entitled to cancel purchase agreements within required legal
rescission periods after execution in accordance with statutory requirements.
Substantially all VOI purchasers visit one of our resorts or one of our off-site
sales offices prior to purchasing.
In addition to sales offices located at our resorts, we also operate six
off-site sales offices serving the Indianapolis, Indiana; Detroit, Michigan;
Minneapolis, Minnesota; Dallas, Texas; King of Prussia, Pennsylvania and
Atlanta, Georgia markets. In March 2006, we opened a seventh off-site sales
office in Chicago, Illinois. Our off-site sales offices market and sell VOIs in
the Bluegreen Vacation Club, and allow us to bring our products to markets with
favorable demographics and low competition for prospective buyers. We continue
to evaluate our ongoing utilization of off-site sales operations and may elect
to open new locations or close existing locations in the future.
Bluegreen Communities
In general, as soon as practicable after agreeing to acquire a property and
during the time period that improvements are being completed, we establish
selling prices for the individual homesites. In pricing the homesites, we
attempt to into account such matters as regional economic conditions, quality as
a building site, scenic views, road frontage, golf course
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views (if applicable) and natural features such as lakes, mountains, streams,
ponds and wooded areas. We also consider recent sales of comparable parcels in
the area. Once selling prices are established, we commence our marketing
efforts.
The marketing method most widely used by Bluegreen Communities is advertising in
local newspapers and in major newspapers in metropolitan areas located within a
one to three hour drive from the community. In addition, we use our customer
relationship management system, which we believe enables us to identify
prospects that are most likely to be interested in a particular community.
Bluegreen Communities also conducts direct mail campaigns to market communities
through the use of brochures describing available homesites, as well as
television, billboard, Internet and radio advertising. A sales representative,
who is knowledgeable about the community, answers inquiries generated by our
marketing efforts, discusses the community with the prospective purchaser,
attempts to ascertain the purchaser's needs and arranges an appointment for the
purchaser to visit the community. Substantially all prospective purchasers
inspect a property before purchasing.
The success of our marketing efforts depends heavily on the knowledge and
experience of our sales personnel. We require that, prior to initiating the
marketing effort for a community, all sales representatives walk the community
and become knowledgeable about each homesite and applicable zoning, subdivision
and building code requirements. Continued training programs are conducted,
including training with regional office sales managers, weekly sales meetings
and frequent site visits by our executive officers. We believe we enhance our
sales and marketing organization through the Bluegreen Institute, a mandatory
training program that is designed to instill our marketing and customer service
philosophy in middle and lower-level management. Additionally, the sales staff
is evaluated against performance standards established by our executive
officers. Substantially all of a sales representative's compensation is
commission-based.
We require our sales staff to provide each prospective homesite purchaser with a
written disclosure statement regarding the property to be sold prior to the time
such purchaser signs a purchase agreement. This information statement, which is
either in the form of a U.S. Department of Housing and Urban Development ("HUD")
lot information statement, where required, or a "Vital Information Statement"
that we generate, states relevant information with respect to, and risks
associated with, the property , a receipt for which must be signed by each
purchaser.
After deciding to purchase a homesite, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers may cancel purchase agreements within specified periods after
execution in accordance with statutory requirements. The closing of a homesite
sale usually occurs two to eight weeks after payment of the deposit. Upon
closing of a homesite sale, we typically deliver a warranty deed and a recent
survey of the property to the purchaser. Title insurance is available at the
purchaser's expense.
Customer Financing
General
Approximately 95% of our VOI customers utilized our financing during the year
ended December 31, 2005. Sales of VOIs accounted for 65% of consolidated sales
during the year ended December 31, 2005. In recent years, the percentage of
Bluegreen Communities customers who utilized our financing has been less than 2%
of all homesite purchasers due to, among other things, an increased willingness
on the part of banks to extend direct homesite financing to purchasers.
We offer financing of up to 90% of the purchase price of our VOIs. The typical
financing extended by us on a VOI during the year ended December 31, 2005,
provided for a term of ten years and a fixed interest rate. In connection with
our VOI sales within our vacation club system, we deliver the deed on behalf of
the purchasers to the trustee of our vacation club and secure repayment of the
purchaser's obligation by obtaining a mortgage on the purchaser's VOI.
The weighted-average interest rate on our owned notes receivable by division was
as follows:
As of
-----------------------------------------
Division December 31, 2004 December 31, 2005
------------------------------- ----------------- -----------------
(As restated)
Bluegreen Resorts.............. 14.8% 14.8%
Bluegreen Communities.......... 9.2% 10.7%
Consolidated................... 14.4% 14.6%
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See "Sale of Receivables/Pledging of Receivables," below, for information
regarding our receivable financing activities.
Loan Underwriting
Bluegreen Resorts
Our VOI financing is not subject to any significant loan underwriting criteria.
Currently, customer financing on sales of VOIs typically requires (i) receipt of
a minimum downpayment of 10% of the purchase price, (ii) a note and mortgage and
(iii) other closing documents between the purchaser and ourselves. We encourage
purchasers to make higher (or deed of trust) downpayments by offering a lower
interest rate. In addition, purchasers who do not elect to participate in our
pre-authorized payment plan are charged interest at a rate which is 1% greater
than the otherwise prevailing rate, where allowed by applicable laws and
regulations. As of December 31, 2005, approximately 80% of our VOI notes
receivable serviced were on our pre-authorized payment plan.
Bluegreen Communities
At Bluegreen Communities, we have established loan underwriting criteria and
procedures designed to reduce credit losses. The loan underwriting process
undertaken by our credit department may include reviewing the applicant's credit
history, verifying employment and income as well as calculating certain
debt-to-income ratios. The primary focus of our underwriting review is to
determine the applicant's ability to repay the loan in accordance with our
terms.
Collection Policies
Bluegreen Resorts
Financed sales of VOIs through the Bluegreen Vacation Club are effected using a
note and mortgage arrangement. Collection efforts in substantially all cases and
delinquency information concerning Bluegreen Resorts' notes receivables are
managed at our corporate headquarters. A staff of experienced collectors,
assisted by a mortgage collection computer system, handles servicing of the
division's receivables. We generally make collection efforts by mail and
telephone. In addition to telephone contact commencing at sixteen days past due,
a 30-day collection letter is sent, advising the customer that such customer has
30 days within which to bring the account current. At sixty days delinquent, we
send a lockout letter to the customer advising them that they cannot make any
future reservations for lodging at a Resort. At ninety days past due, we stop
the accrual of interest on the note receivable and mail a Notice of Intent to
Cancel Membership, which informs the customer that unless the delinquency is
cured within 30 days, we will terminate the customer's VOI ownership. At this
point the account may be reviewed by the Collection Manager to determine if, in
certain limited circumstances, additional correspondence should be sent offering
repayment options. At approximately 120 days delinquent, we send a Termination
Letter, return receipt requested. If the customer fails to respond to the
correspondence with the given timeframe the loan will be defaulted and the
customers VOI terminated. The VOI is placed back into our inventory generally by
the calendar month following the return of the delivery receipt. We can then
resell the VOI to a new purchaser.
20
Bluegreen Communities
Collection efforts and delinquency information concerning Bluegreen Communities'
notes receivable are also managed at our corporate headquarters. A staff of
experienced collectors handles servicing of the division's receivables. We
generally make collection efforts by mail and telephone. Collection efforts
begin when an account is sixteen days past due, at which time we contact the
customer by telephone and attempt to determine the reason for the delinquency
and to bring the account current. The determination of how to handle a
delinquent loan is based upon many factors, including the customer's payment
history and the reason for the current inability to make timely payments. If no
agreement is reached or the customer does not abide by the agreement, collection
efforts continue until the account is either brought current or legal action is
commenced. If not accelerated sooner, we typically declare the loan in default
when the loan becomes 60 days delinquent. When the loan is 90 days past due, we
stop the accrual of interest (unless the loan is deemed to be an in-substance
foreclosure loan, in which case all accrued interest is reversed since our means
of recovery is determined through the resale of the underlying collateral and
not through collection on the note) and the Collection Manager determines the
action to be taken.
Loan Loss Reserves
The allowance for loan losses as a percentage of our outstanding notes
receivable was approximately 8% at both December 31, 2004 and 2005. We determine
the adequacy of our reserve for loan losses and review it on a regular basis
considering, among other factors, historical frequency of default, loss
experience, static pool analyses, estimated value of the underlying collateral,
present and expected economic conditions as well as other factors. During the
years ended December 31, 2003, 2004, and 2005, the average annual default rates
on Bluegreen Resorts' and Bluegreen Communities' receivables owned or serviced
by us were as follows:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Division 2003 2004 2005
------------------------------- ---- ---- ----
Bluegreen Resorts.............. 7.9% 8.5% 8.5%
Bluegreen Communities.......... 2.0% 1.9% 1.9%
Sales of Receivables/Pledging of Receivables
During the years ended December 31, 2003, 2004 and 2005, all of our notes
receivable sold and the majority of our notes receivable pledged consisted of
notes receivable generated by Bluegreen Resorts.
Since 1986, we have sold or pledged a significant amount of our receivables,
generally retaining the right and obligation to service such receivables. In the
case of Bluegreen Communities' receivables pledged to a financial institution,
we generally must maintain a debt to eligible collateral rate (based on the
outstanding principal balance of the pledged loans) of 90%. We are obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate.
Since fiscal 1999, we have maintained various vacation ownership receivables
purchase facilities with financial institutions. Our ability to sell and/or
borrow against our notes receivable from VOI buyers is a critical factor in our
continued liquidity. The vacation ownership business involves making sales of a
product pursuant to which a financed buyer is only required to pay a minimum of
10% of the purchase price up front, yet selling, marketing and administrative
expenses are primarily cash expenses, which, in our case for the year ended
December 31, 2005, approximated 61% of sales. Accordingly, having facilities for
the sale and hypothecation of these vacation ownership receivables is a critical
factor to our meeting our short- and long-term cash needs.
The vacation ownership receivables purchase facilities that we have historically
maintained have typically utilized an owner's trust structure, pursuant to which
we sell receivables to one of our wholly-owned, special purpose finance
subsidiaries. These subsidiaries then sell the receivables to an owners' trust
(a qualified special purpose entity) without recourse to us or our subsidiaries
except for breaches of certain representations and warranties at the time of
sale. We
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historically have not entered into any guarantees in connection with our
vacation ownership receivables purchase facilities. These facilities usually
have detailed requirements with respect to the eligibility of receivables for
purchase and fundings under these facilities are typically subject to certain
conditions precedent. Under such purchase facilities, a variable purchase price
of a portion of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of the
purchase price is deferred until such time as the purchaser of our vacation
ownership receivables has received a specified return and all servicing,
custodial, agent and similar fees and expenses have been paid. We have
historically acted as servicer of the vacation ownership receivables we have
sold under these purchase facilities for a fee.
Our vacation ownership receivables purchase facilities typically include various
conditions to purchase, covenants, trigger events and other provisions customary
for these types of transactions.
Although sales of our receivables pursuant to vacation ownership receivables
purchase facilities have historically been deemed "true sales" from a legal
perspective, the accounting for such transactions could be either as off-balance
sheet sales or as on-balance sheet borrowings, depending on the application of
the requirements of Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 140"). In our disclosures relative to each vacation
ownership receivables purchase facility, we indicate how these transactions are
accounted for under each facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Vacation Ownership Receivables Purchase Facilities - Off-Balance
Sheet Arrangements" for information about our current VOI receivables purchase
facilities.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and remitting
such funds to the owners, lenders or investors in such receivables, accounting
for principal and interest on such receivables, making advances when required,
contacting delinquent borrowers, foreclosing or terminating a membership in our
vacation club in the event that defaults are not remedied, and performing other
administrative duties. Our obligation to service the receivables and our right
to collect fees for a given pool of receivables are set forth in a servicing
agreement. We have the obligation and right to service all of the receivables we
originate and have retained the obligation and right with respect to the
receivables we have sold under any of our vacation ownership receivable purchase
facilities to date, although in certain circumstances the purchasers may elect
to appoint a new servicer. We typically receive an annual servicing fee ranging
from approximately 1.5% to 2.0% of the principal balance of the loans serviced
on behalf of others. During the years ended December 31, 2003, 2004 and 2005, we
recognized aggregate servicing fee income of $2.4 million, $2.9 million and $5.0
million, respectively.
Regulation
The vacation ownership and real estate industries are subject to extensive and
complex regulation. We are subject to compliance with various federal, state,
local and foreign environmental, zoning, consumer protection and other statutes
and regulations regarding the acquisition, subdivision and sale of real estate
and VOIs and various aspects of our financing operations. On a federal level,
the Federal Trade Commission has taken an active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or unfair
competition in interstate commerce. In addition to the laws applicable to our
customer financing and other operations discussed below, we are or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. We are also subject to various foreign laws with respect to La
Cabana. In addition, there can be no assurance that in the future, VOIs will not
be deemed to be securities subject to regulation as such, which could have a
material adverse effect on us. There is no assurance that the cost of complying
with applicable laws and regulations will not be significant or that we are in
compliance at all times with all applicable laws, including those discussed
below. Any failure to comply with current or future applicable laws or
regulations could have a material adverse effect on us.
Our sales and marketing of homesites are subject to various consumer protection
laws and to the Federal Interstate Land Sales Full Disclosure Act, which
establishes strict guidelines with respect to the marketing and sale of land in
interstate commerce. HUD has enforcement powers with respect to this statute. In
some instances, we have been exempt from HUD registration requirements because
of the size or number of the subdivided parcels and the limited nature of our
22
offerings. In those cases where we and our legal counsel determine parcels must
be registered to be sold, we file registration materials disclosing financial
information concerning the property, evidence of title and a description of the
intended manner of offering and advertising such property. We bear the cost of
such registration, which includes legal and filing fees. Many states also have
statutes and regulations governing the sale of real estate. Consequently, we
regularly consult with counsel for assistance in complying with federal, state
and local law. We must obtain the approval of numerous governmental authorities
for our acquisition and marketing activities; and, changes in local
circumstances or applicable laws may necessitate the application for, or the
modification of, existing approvals.
Our vacation ownership resorts are subject to various regulatory requirements
including state and local approvals. The laws of most states require us to file
with a designated state authority a detailed offering statement describing our
business and all material aspects of the project and sale of VOIs. Laws in each
state where we sell VOIs generally grant the purchaser of a VOI the right to
cancel a contract of purchase at any time within a specified rescission period
following the earlier of the date the contract was signed or the date the
purchaser has received the last of the documents required to be provided by us.
Most states have other laws that regulate our activities, including: real estate
licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws;
prize, gift and sweepstakes laws; and labor laws. In addition, certain state and
local laws may impose liability on property developers with respect to
construction defects discovered or repairs made by future owners of such
property. Under these laws, future owners may recover from us amounts in
connection with the repairs made to the developed property. As required by state
laws, we seek to provide our VOI purchasers with a public disclosure statement
that contains, among other items, detailed information about the surrounding
vicinity, the resort and the purchaser's rights and obligations as a VOI owner.
The development and management of our resorts is subject to various Federal,
state and local laws and regulations, including the Americans with Disabilities
Act.
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, the property, as well as related costs of investigation and
property damage. These laws often impose such liability without regard to
whether the owner knew of the presence of such hazardous or toxic substances.
The presence of these substances, or the failure to properly remediate these
substances, may adversely affect the owner's ability to sell or lease a property
or to borrow using the real property as collateral. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when this
material is in poor condition or in the event of construction, demolition,
remodeling or renovation. Other statutes may require the removal of underground
storage tanks. Noncompliance with these and other environmental, health or
safety requirements may result in the need to cease or alter operations at a
property.
Our customer financing activities are also subject to extensive regulation,
which may include, the Truth-in-Lending Act and Regulation Z, the Fair Housing
Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act
and Regulation B, the Electronic Funds Transfer Act and Regulation E, the Home
Mortgage Disclosure Act and Regulation C, Unfair or Deceptive Acts or Practices
and Regulation AA, the Patriot Act, the Right to Financial Privacy Act, the
Gramm-Leach-Bliley Act and anti-money laundering laws.
During the year ended December 31, 2005, approximately 12% of our VOI sales were
generated by marketing to prospective purchasers obtained through internal and
affiliated telemarketing efforts. In addition, approximately 14% of our VOI
sales during the year ended December 31, 2005, were generated by marketing to
prospective purchasers obtained from third-party VOI prospect vendors, many of
whom use telemarketing operations to generate these prospects. In recent years,
state regulators have increased legislation and enforcement regarding
telemarketing operations, including requiring the adherence to state "do not
call" lists. In addition, the Federal Trade Commission has implemented national
"do not call" legislation. While we continue to be subject to telemarketing
risks and potential liability, we believe that our exposure to adverse impacts
from this heightened telemarketing legislation and enforcement has been and will
continue to be mitigated in some instances by the use of "permission marketing"
techniques and branding, whereby prospective purchasers have granted us
permission to contact them in the future, and through our exclusive marketing
agreement with Bass Pro. We have implemented procedures which we believe will
help reduce the possibility that individuals who have formally requested to the
applicable federal or state regulators that they be placed on a "do not call"
list are not contacted through one of our in-house or third-party contracted
telemarketing operations, although there can be no assurance that such
procedures will be effective in ensuring regulatory compliance. These measures
have increased and are expected to continue to increase our marketing costs.
Through December 31, 2005, we have not been subject to any material fines or
penalties as a result of our telemarketing operations but from time to time
23
we have been the subject of proceedings for violation of the do-not-call laws..
There is no assurance that we will be able to efficiently or effectively market
to prospective purchasers through telemarketing operations in the future or that
we will be able to develop alternative sources of prospective purchasers of our
VOI products at acceptable costs.
Competition
Bluegreen Resorts competes with various high profile and well-established
operators. Many of the world's most recognized lodging, hospitality and
entertainment companies develop and sell VOIs in resort properties. Major
companies that now operate or are developing or planning to develop vacation
ownership resorts include Marriott International, Inc., the Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts,
Starwood Hotels and Resorts Worldwide, Inc. and Cendant Corporation. We also
compete with numerous other smaller owners and operators of vacation ownership
resorts. In addition to competing for sales leads and prospects, we compete with
other VOI developers for sales personnel. We believe that each of our vacation
ownership resorts faces the same general competitive conditions. Although, as
noted above, Bluegreen Resorts competes with various high profile and
well-established operators, we believe that we can compete on the basis of our
general reputation; the price, location and quality of our vacation ownership
resorts and the flexibility of our points-based Bluegreen Vacation Club product.
However. the development and operation of additional vacation ownership resorts
by competitors in our markets could have a material adverse impact on the demand
for our VOIs and our results of operations.
Bluegreen Communities competes with builders, developers and others for the
acquisition of property and with local, regional and national developers,
homebuilders and others with respect to the sale of homesites. We believe that
each of our Bluegreen Communities projects faces the same general competitive
conditions. We believe that we can compete on the basis of our reputation and
the price, location and quality of the products we offer for sale, as well as on
the basis of our experience in land acquisition, development and sale.
Our golf courses face competition for business from other operators of daily fee
and, to a lesser extent, private golf courses within the local markets where we
operate. Competition in these markets affects the rates that we charge per round
of golf, the level of maintenance on the golf courses and the types of
additional amenities available to golfers, such as food and beverage operations.
We do not believe that such competitive factors have a material adverse impact
on our results of operations or financial position.
In our customer financing activities, we compete with banks, mortgage companies,
other financial institutions and government agencies offering financing of real
estate. In recent years, we have experienced increased competition with respect
to the financing of Bluegreen Communities sales as evidenced by the low
percentage of homesite sales internally financed since 1995.
Website Access to Exchange Act Reports
We post publicly available reports required to be filed with the SEC ("Exchange
Act Reports") on our website, www.bluegreencorp.com, as soon as reasonably
practicable after filing such reports with the SEC. We also make available on
our website the beneficial ownership reports (Forms 3, 4 and 5) filed by our
officers, directors and other reporting persons under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Our website and the
information contained therein or connected thereto are not incorporated into
this Annual Report on Form 10-K.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The website address for this site is www.sec.gov.
Personnel
As of December 31, 2005, we had 4,789 employees of which 588 were located at our
headquarters in Boca Raton, Florida, and 4,201 in regional field offices
throughout the United States and Aruba (the field personnel include 317 field
employees supporting Bluegreen Communities and 3,884 field employees supporting
Bluegreen Resorts). Only our employees in Aruba are represented by a collective
bargaining unit. We believe that our relations with our employees are generally
good.
24
Executive Officers
The following table sets forth certain information regarding our executive
officers as of March 11, 2006.
Name Age Position
---------------------------- --- -------------------------------------
George F. Donovan .......... 67 President and Chief Executive Officer
John M. Maloney, Jr ........ 44 Executive Vice President and Chief
Operating Officer
Daniel C. Koscher .......... 48 Senior Vice President and Chief
Executive Officer - Bluegreen
Communities
Anthony M. Puleo ........... 38 Senior Vice President, Chief Financial
Officer and Treasurer
Sheila B. Donahoe .......... 41 Senior Vice President and Chief
Information Officer
Allan J. Herz .............. 46 Senior Vice President, Mortgage
Operations
Douglas O. Kinsey .......... 47 Senior Vice President, Acquisitions
and Development
Laurel M. Liber ............ 52 Senior Vice President, Owner Relations
James R. Martin ............ 58 Senior Vice President, General
Counsel and Clerk
Susan J. Saturday .......... 46 Senior Vice President and Chief Human
Resources Officer
Raymond S. Lopez ........... 30 Vice President and Chief Accounting
Officer
George F. Donovan joined us as a Director in 1991 and was appointed President
and Chief Operating Officer in October 1993. He became Chief Executive Officer
in December 1993. Mr. Donovan has served as an officer of a number of other
recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Mr. Donovan holds a B.S. in Electrical Engineering and is a Registered Resort
Professional.
John M. Maloney, Jr. joined us in 2001 as Senior Vice President of Operations
and Business Development for Bluegreen Resorts. In May 2002, Mr. Maloney was
named our Senior Vice President of the Company and President of Bluegreen
Resorts and he was elected Executive Vice President and Chief Operating Officer
in November 2005. From 1997 to 2000, Mr. Maloney served in various positions
with ClubCorp, most recently as the Senior Vice President of Sales and Marketing
for the Owners Club by ClubCorp. From 1994 to 1997, Mr. Maloney held various
positions with Hilton Grand Vacations Company, most recently as the Director of
Sales and Marketing for the South Florida area.
Anthony M. Puleo joined us in 1997 as Chief Accounting Officer. In 1998, Mr.
Puleo was elected Vice President and he was elected Senior Vice President in
2004. Mr. Puleo served as Interim Chief Financial Officer from April through
August 2005. In August 2005, he was elected Chief Financial Officer and
Treasurer. From December 1990 through
25
October 1997, Mr. Puleo held various positions with Ernst & Young LLP, most
recently serving as a Senior Manager in the Assurance and Advisory Business
Services group. Mr. Puleo holds a B.B.A. in Accounting and is a Certified Public
Accountant.
Daniel C. Koscher joined us in 1986. During his tenure, he has served in various
financial management positions including Chief Accounting Officer and Vice
President and Director of Planning/Budgeting. In 1996, he became Senior Vice
President of the Company and President of Bluegreen Communities. In November
2005, Mr. Koscher was elected Chief Executive Officer of Bluegreen Communities.
Prior to his employment with us, Mr. Koscher was employed by the William Carter
Company, a manufacturing company located in Needham, Massachusetts. He has also
been employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting and is a
Registered Resort Professional.
Sheila B. Donahoe joined us in 2004 as Senior Vice President and Chief
Information Officer. From 1997 to 1999, Mrs. Donahoe served as Vice President of
Information Technology for the North American Rental Group of AutoNation, Inc.,
a publicly held automobile retailer. From 1999 to 2003, Mrs. Donahoe was the
Senior Vice President and Chief Information Officer of Martha Stewart Living
Omnimedia, Inc., a publicly held, integrated content and commerce company that
creates "how-to" content and domestic merchandise for homemakers and other
consumers. Mrs. Donahoe holds a B.S. in Computer Science.
Allan J. Herz joined us in 1992 and was named Director of Mortgage Operations in
September 1992. Mr. Herz was elected Vice President in 1993 and Senior Vice
President in 2004. From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal
Savings Bank based in Miami, Florida. During his 10-year tenure with the bank,
he held various lending positions, the most recent being Division Vice President
in Consumer Lending. Mr. Herz holds a B.B.A. in Finance and Management and an
M.B.A.
Douglas O. Kinsey joined us in 2003 as Senior Vice President, Acquisitions and
Development. From 1997 to 2003, Mr. Kinsey served as Senior Vice President of
Real Estate Acquisitions for Fairfield Resorts, a vacation ownership resort
developer that was publicly-traded until its acquisition by another publicly
held company, Cendant Corporation. Mr. Kinsey holds a B.S.B.A. in finance.
Laurel M. Liber joined us in 2000 as Director of Bluegreen Vacation Rentals and
was elected Vice President of Resort Services in 2001. In 2004, Ms. Liber was
elected Senior Vice President of Owner Relations for Bluegreen Resorts and in
2005, she was named Senior Vice President of the Company. From 1997 to 2000, Ms.
Liber served as a Director at Sunterra Corporation where she was responsible for
the implementation of their points-based vacation club product and new resort
operating system.
James R. Martin joined us in 2004 as Senior Vice President, General Counsel and
Clerk. Prior to joining us, Mr. Martin was a partner with the law firm of Baker
& Hostetler LLP since 1985, focusing his practice on real estate, resort
development, vacation ownership, federal and state regulatory matters and
commercial and consumer law. Mr. Martin holds a B.A. and a Juris Doctorate.
Susan J. Saturday joined us in 1988. During her tenure, she has held various
management positions with us including Assistant to the Chief Financial Officer,
Divisional Controller and Director of Accounting. In 1995, she was elected Vice
President and Director of Human Resources and Administration. In 2004, Mrs.
Saturday was elected Senior Vice President and Chief Human Resources Officer.
From 1983 to 1988, Mrs. Saturday was employed by General Electric Company in
various financial management positions including the corporate audit staff. Mrs.
Saturday holds a Masters of Science in Human Resource Management and a B.B.A. in
Accounting.
Raymond S. Lopez joined us in 2004 as Controller. In August 2005, he was elected
Vice President and Chief Accounting Officer (Principal Accounting Officer).
Prior to joining us, Mr. Lopez served as Manager of External Reporting for
Office Depot, Inc., and as a Senior Auditor with Arthur Andersen LLP,
respectively. Mr. Lopez is a Certified Public Accountant and holds a B.S. in
Accounting.
Our by-laws provide that, except as otherwise provided by law or our charter and
by-laws, the President, Treasurer and the Clerk hold office until the first
meeting of the Board of Directors following the next annual meeting of
shareholders and
26
until their respective successors are chosen and qualified and that all other
officers hold office for the same period unless a shorter time is specified in
the vote appointing such officer or officers.
Item 1A. RISK FACTORS
We are subject to various risks and uncertainties relating to or arising out of
the nature of our business and general business, economic, financing, legal and
other factors or conditions that may affect us. Moreover, we operate in a very
competitive and rapidly changing environment. New risk factors emerge from time
to time and it is not possible for management to either predict all risk
factors, or assess the impact of all risk factors on our business or the extent
to which any factor, or combination of factors may affect our business.
Investors should also refer to our quarterly reports on Form 10-Q and current
reports on Form 8-K for future periods for updates to these risk factors. These
risks and uncertainties include but are not limited to those referred to under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the following:
Our continued liquidity depends on our ability to sell or borrow against our
notes receivable.
We offer financing of up to 90% of the purchase price to purchasers of VOIs and
homesites. Approximately 95% of our VOI customers and less than 1% of our
homesite customers utilized our in-house financing during the year ended
December 31, 2005. However, we incur selling, marketing and administrative cash
expenditures prior to and concurrent with the sale. These costs generally exceed
the downpayment we receive at the time of the sale. Accordingly, our ability to
borrow against or sell the notes receivable we receive from our customers is a
critical factor in our continued liquidity. We generally pledge the receivables
arising from our sales of VOIs to institutional lenders. We are also a party to
a number of customary securitization-type transactions under which we sell
receivables to a wholly-owned special purpose entity which, in turn, sells the
receivables either directly to third parties or to a trust established for the
transaction. If our pledged receivables facilities terminate or expire and we
are unable to replace them with comparable facilities, or if we are unable to
continue in our participation in securitizations on the terms currently
available to us, our liquidity and cash flow would be materially and adversely
affected. If any of our current facilities terminate or expire, there is no
assurance that we will be able to negotiate the pledge or sale of such customer
notes at favorable rates, or at all.
We depend on additional funding to finance our operations.
We anticipate that we will finance our future business activities, in whole or
in part, with indebtedness that we obtain pursuant to additional borrowings
under our existing credit facilities, under credit facilities that we may obtain
in the future, under securitizations in which we may participate in the future
or pursuant to other borrowing arrangements. However, we cannot assure you that
we will be able to obtain sufficient external sources of liquidity on attractive
terms, or at all. Moreover, we are, and will be, required to seek external
sources of liquidity to:
o support our operations;
o finance the acquisition and development of VOI inventory and
residential land;
o finance a substantial percentage of our sales; and
o satisfy our debt and other obligations.
Our ability to service or to refinance our indebtedness or to obtain additional
financing (including our ability to consummate future notes receivable
securitizations) depends on our future performance, which is subject to a number
of factors, including our business, results of operations, leverage, financial
condition and business prospects, prevailing interest rates, general economic
conditions and perceptions about the residential land and vacation ownership
industries.
Our success depends on our ability to market our products efficiently.
We compete for customers with other hotel and resort properties and vacation
ownership resorts. Accordingly, the identification of sales prospects and leads,
and the marketing of our products to them are essential to our success. We have
expended and expect to continue to expend significant amounts of our resources
to identify and capitalize on future
27
customers and upgrade opportunities. Among our marketing initiatives, we utilize
our proprietary computer software system to identify and target leads. The leads
we identify are then contacted and given the opportunity to purchase
mini-vacation packages which may sometimes combine hotel stays, cruises and gift
premiums. Buyers of these mini-vacation packages are then usually required to
participate in a vacation ownership sales presentation. We have incurred and
will incur the expenses associated with these and our other marketing programs
in advance of closing sales to the leads that we identify. If our lead
identification and marketing efforts do not yield enough leads that we are able
successfully to convert to a sufficient number of sales, we may be unable to
recover the expense of our marketing programs and systems and our business may
be adversely affected.
We would incur substantial losses if the customers we finance default on their
obligations to pay the balance of the purchase price.
Under the terms of our pledged receivables facilities, we may be required, under
certain circumstances, to replace receivables or to pay down the loan to within
permitted loan to value ratios if our pledged receivables reach certain levels
of delinquency. Additionally, the terms of our securitization-type transactions
require us to repurchase or replace loans if we breach any of the
representations and warranties we made at the time we sold the receivables, and
include provisions that would require substantially all of our cash flows from
the receivable portfolios sold to be diverted to the parties who purchased the
receivables from us should defaults exceed certain thresholds. Further, if
defaults and other performance criteria adversely differ from estimates used to
value our retained interests in notes receivable sold in the securitization
transactions, we may be required to write down these assets, which could have a
material adverse effect on our results of operations. As servicer of the notes,
we may also be required to advance delinquent payments to the extent we deem
them recoverable. Accordingly, we bear some risks of delinquencies and defaults
by buyers who finance the purchase of their VOIs or residential land through us,
regardless of whether or not we sell or pledge the customer's loan to a third
party.
As of December 31, 2005, approximately 6% of our vacation ownership receivables
and approximately 12% of residential land receivables which we held or which
third parties held under sales transactions which are serviced by us were more
than 30 days past due. The delinquency percentage for the overall portfolio
serviced was 6% as of December 31, 2005. Although in many cases we may have
recourse against a buyer for the unpaid purchase price, certain states have laws
that limit our ability to recover personal judgments against customers who have
defaulted on their loans or the cost of doing so may not be justified.
Historically, we have generally not exercised such recourse against our
customers. If we are unable to collect the defaulted amount or to obtain a
voluntary quitclaim to the interest, if applicable, we traditionally have
terminated the customer's interest in Bluegreen Vacation Club and then remarket
the recovered VOI. Irrespective of our remedy in the event of a default we
cannot recover the marketing, selling, and administrative costs associated with
the original sale, and we would have to incur such costs again to resell the VOI
or homesite.
Our results of operations and financial condition could be adversely impacted if
our estimates concerning our notes receivable are incorrect.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The amount of any gains
recognized and the fair value of the retained interests recorded are based in
part on management's best estimates of future prepayment, default and loss
severity rates, discount rates and other considerations in light of then-current
conditions. Our results of operations and financial condition could be adversely
affected if:
o actual prepayments with respect to loans sold occur more quickly
than was projected;
o actual defaults and/or loss severity rates with respect to loans
sold are greater than estimated; or
o the portfolio of receivables sold fails to satisfy specified
performance criteria or in certain other circumstances.
In any of these events, the cash flow on the retained interests in notes
receivable sold could be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur, it could
cause a decline in the fair value of the retained interests and a charge to
earnings currently.
28
We are subject to the risks of the real estate market and the risks associated
with real estate development, including the risks and uncertainties relating to
the cost and availability of land and construction materials.
Real estate markets are cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including:
o levels of unemployment;
o levels of discretionary disposable income;
o levels of consumer confidence;
o the availability of financing;
o overbuilding or decreases in demand; and
o interest rates;
A downturn in the economy in general or in the market for residential land or
VOIs could have a material adverse effect on our business.
In addition, the availability of land at favorable prices for the development of
our Bluegreen Resorts and Bluegreen Communities real estate projects is critical
to having adequate inventory to sustain our sales volume and maintain an
adequate gross profit on our sales to cover our significant selling, general and
administrative expenses, cost of capital and other expenses in order to generate
favorable results of operations. Land prices increased significantly in 2005. If
we were unable to acquire such land or, in the case of Bluegreen Resorts, resort
properties at a favorable cost, it could have an adverse impact on our results
of operations.
Another factor impacting the profitability of our real estate development
activities is the cost of construction materials and services. Should the cost
of construction materials and services rise, as recent trends have indicated,
the ultimate cost of our Bluegreen Resorts and Bluegreen Communities inventories
under development could increase and have a material, adverse impact on our
results of operations.
We may not successfully execute our growth strategy.
A principal component of our growth strategy is to acquire additional real
estate for the development of VOIs or completed VOIs, preferably in markets that
also provide us with incremental sales distribution opportunities. We seek to
acquire properties in destinations that we believe will complement our existing
operations. In addition, we have to continually acquire additional real estate
for Bluegreen Communities to develop and sell. Our ability to execute this
growth strategy will depend upon a number of factors, including the following:
o the availability of attractive real estate opportunities;
o our ability to acquire properties for such development opportunities
on economically feasible terms;
o our ability to market and sell VOIs at newly developed or acquired
resorts;
o our ability to manage newly developed or acquired resorts in a
manner that results in customer satisfaction;
o our ability to develop, market and sell acquired real estate for
Bluegreen Communities in a manner that results in customer
satisfaction; and.
o our capital structure.
29
In particular, the success of our Bluegreen Vacation Club will depend upon our
ability to continue to acquire and develop a sufficient number of participating
resorts to make membership interests attractive to consumers and to permit the
continued growth of our vacation club's membership. There is no assurance that
we will be successful with respect to any or all of these factors.
We may face a variety of risks when we expand our operations.
Our growth strategy includes the expansion of the number of our resorts. Risks
associated with such expansion include the following:
o construction costs may exceed original estimates;
o we may be unable to complete construction, conversion or required
legal registrations and approvals as scheduled;
o we may be unable to control the timing, quality and completion of
any construction activity;
o our quarterly results may fluctuate due to an increase or decrease
in the number of residential land or VOI projects subject to
"percentage of completion accounting," which requires that we
recognize profit on projects on a pro rata basis as development is
completed;
o market demand may not be present;
o the value of our inventories may decline; and
o increased regulation where initiating operations in new states.
Any of the foregoing could adversely affect profitability in a material way.
There is no assurance that we will complete all of our planned expansion of our
properties or, if completed, that such expansion will be profitable.
Moreover, to successfully implement our growth strategy, we must integrate the
newly acquired or developed properties into our existing sales and marketing
programs. During the start-up phase of a new resort or residential community
project, we could experience lower operating margins at that project until its
operations mature. The lower margins could be substantial and could negatively
impact our cash flow. We cannot provide assurance that we will maintain or
improve our operating margins as our projects achieve maturity and our new
resorts and communities may reduce our overall operating margins.
Claims for development-related defects could adversely affect our financial
condition and operating results.
We engage third-party contractors to construct our resorts and to develop our
communities. However, our customers may assert claims against us for
construction defects or other perceived development defects, including
structural integrity, the presence of mold as a result of leaks or other
defects, water intrusion, asbestos, electrical issues, plumbing issues, road
construction, water and sewer defects, etc. In addition, certain state and local
laws may impose liability on property developers with respect to development
defects discovered in the future. A significant number of claims for
development-related defects could adversely affect our liquidity, financial
condition, and operating results.
We may face additional risks as we expand into new markets.
We currently intend to acquire real estate for the development of VOIs or
completed VOIs for Bluegreen Resorts both in the geographic areas where
Bluegreen Resorts currently operates and in other areas. Bluegreen Communities
intends to acquire real estate in the geographic areas where it currently
operates as well as other areas where we anticipate successful sales of
homesites in residential communities. Our prior success in the markets in which
we currently operate does not ensure our continued success as we acquire,
develop or operate future projects in new markets. Accordingly, in
30
connection with expansion into new markets, we may be exposed to a number of
additional risks, including the following:
o our lack of familiarity and understanding of regional or local
consumer preferences;
o our inability to attract, hire, train, and retain additional sales,
marketing, and resort staff at competitive costs;
o our inability to obtain, or to obtain in a timely manner, necessary
permits and approvals from state and local government agencies and
qualified construction services at acceptable costs;
o our inability to capitalize on new marketing relationships and
development agreements; and
o the uncertainty involved in, and additional costs associated with,
marketing VOIs and homesites prior to completion of marketed units.
Bluegreen Communities primarily depends on third party lenders to finance the
purchase of homesites as the majority of our residential land sales are
currently financed by customers through local banks and finance companies. A
decrease in the willingness of such lenders to extend financing to our customers
could cause a decline in our sales or require material additional credit
facilities in order to enable us to provide financing to our customers.
The limited resale market for VOIs could adversely affect our business.
Based on our experience at our resorts and at destination resorts owned by third
parties, we believe that resales of VOIs generally are made at net sales prices
below their original customer purchase price. The relatively lower sales price
is partly attributable to the high marketing and sales costs associated with the
initial sales of such VOIs. Accordingly, the initial purchase of a VOI may be
less attractive to prospective buyers. Also, buyers who seek to resell their
VOIs compete with our efforts to sell our VOIs. While VOI resale clearing houses
or brokers currently do not have a material impact on our business, if a
secondary market for VOIs were to become more organized and liquid, the
resulting availability of resale VOIs at lower prices could adversely affect our
prices and the number of sales we can close, which in turn would adversely
affect our business and results of operations.
Extensive federal, state and local laws and regulations affect the way we
conduct our business.
The federal government and the states and local jurisdictions in which we
conduct business have enacted extensive regulations that affect the manner in
which we market and sell VOIs and homesites and conduct our other business
operations. In addition, many states have adopted specific laws and regulations
regarding the sale of VOIs and homesites. Many states including the states of
Florida and South Carolina, where some of the resorts are located, extensively
regulate the creation and management of timeshare resorts, the marketing and
sale of timeshare properties, the escrow of purchaser funds and other property
prior to the completion of construction and closing, the content and use of
advertising materials and promotional offers, the delivery of an offering
memorandum and the creation and operation of exchange programs and multi-site
timeshare plan reservation systems. Moreover, the South Carolina Supreme Court
has, through a series of cases, ruled that the closing of real estate and
mortgage loan transactions in the State of South Carolina must be conducted
under the supervision of an attorney licensed in that state. In March 2005, a
class action lawsuit was brought in the Court of Common Pleas for the 15th
Judicial Circuit in South Carolina against an unaffiliated South Carolina
timeshare developer alleging, among other things, that such timeshare developer
did not comply with the requirements of the South Carolina Supreme Court
decisions. That case remains pending and additional cases may be brought against
other timeshare developers in South Carolina, including us. If such a case were
to be brought against us and it is determined that we are in violation of South
Carolina law, we may be subject to fines and purchasers of timeshare properties
in South Carolina may have the right to rescind their respective transactions
and seek the satisfaction of their related timeshare loan, all of which could
have a material adverse effect on Bluegreen's results of operations and
financial position.
Most states also have other laws that regulate our activities, such as:
o timeshare project registration laws;
31
o real estate licensure laws;
o sellers of travel licensure laws;
o anti-fraud laws;
o consumer protection laws;
o telemarketing laws;
o prize, gift, and sweepstakes laws and
o consumer credit laws.
We currently are authorized to market and sell VOIs and homesites in all states
in which our operations are currently conducted. If our agents or employees
violate applicable regulations or licensing requirements, their acts or
omissions could cause the states where the violations occurred to revoke or
refuse to renew our licenses, which could materially and adversely affect our
business.
In addition, the federal government and the states and local jurisdictions in
which we conduct business have enacted extensive regulations relating to direct
marketing and telemarketing generally, including the federal government's
national "Do Not Call" list. The regulations have impacted our marketing of VOIs
and we have taken steps in an attempt to decrease our dependence on restricted
calls. However, these steps have increased and are expected to continue to
increase our marketing costs. We cannot predict the impact that these
legislative initiatives or any other legislative measures that may be proposed
or enacted now or in the future may have on our marketing strategies and
results. Further, from time to time complaints are filed against the Company by
individuals claiming that they received calls in violation of the regulation.
Currently, most states have taxed VOIs as real estate, imposing property taxes
that are billed to the respective property owners' associations that maintain
the related resorts and have not sought to impose sales tax upon the sale of the
VOI or accommodations tax upon the use of the VOI. From time to time, however,
various states have attempted to promulgate new laws or applying existing laws
impacting the taxation of vacation ownership interests, to require that sales
tax or accommodations be collected. Should new state or local laws be
implemented or interpreted to impose sales or accommodations taxes on VOIs, our
Resorts business could be materially adversely affected.
We believe we are in material compliance with applicable federal, state, and
local laws and regulations relating to the sale and marketing of VOIs and
homesites. From time to time, however, consumers file complaints against us in
the ordinary course of our business. We could be required to incur significant
costs to resolve these complaints. There is no assurance that we will remain in
material compliance with applicable federal, state and local laws and
regulations, or that violations of applicable laws will not have adverse
implications for us, including, negative public relations, potential litigation,
and regulatory sanctions. The expense, negative publicity, and potential
sanctions associated with any failure to comply with applicable laws or
regulations could have a material adverse effect on our results of operations,
liquidity or financial position.
Environmental liabilities, including claims with respect to mold or hazardous or
toxic substances, could have a material adverse impact on our business.
Under various federal, state and local laws, ordinances and regulations, as well
as common law, we may be liable for the costs of removal or remediation of
certain hazardous or toxic substances, including mold, located on, in, or
emanating from property that we own, lease, or operate, as well as related costs
of investigation and property damage at such property. These laws often impose
liability without regard to whether we knew of, or were responsible for, the
presence of the hazardous or toxic substances. The presence of such substances,
or the failure to properly remediate such substances, may adversely affect our
ability to sell or lease our property or to borrow money using such real
property as collateral. Noncompliance with environmental, health or safety
requirements may require us to cease or alter operations at one or more of our
properties. Further, we may be subject to common law claims by third parties
based on damages
32
and costs resulting from violations of environmental regulations or from
contamination associated with one or more of our properties.
We could incur costs to comply with laws governing accessibility of facilities
by disabled persons.
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although we believe our resorts are substantially in compliance with laws
governing accessibility by disabled persons, we may incur additional costs to
comply with such laws at our existing or subsequently acquired resorts.
Additional federal, state, and local legislation with respect to access by
disabled persons may impose further burdens or restrictions on us. We cannot
forecast the ultimate cost of compliance with such legislation, but such costs
could be substantial and, as a result, could have a material adverse effect on
our results of operations, liquidity or capital resources.
Item 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
Item 2. PROPERTIES.
Our principal executive office is located in Boca Raton, Florida in
approximately 125,000 square feet of leased space. On December 31, 2005, we also
maintained regional sales offices in the Northeastern, Mid-Atlantic,
Southeastern, Midwestern, Southwestern and Western regions of the United States
as well as the island of Aruba. For a further description of our resort and
communities properties, please see "Item 1. Business--Company Products."
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, marketing,
sale or financing of real estate. Additionally, from time to time, we become
involved in disputes with existing and former employees. We believe that these
claims are routine litigation incidental to our business and the resolution of
these matters is not expected to have a material adverse effect on our financial
position or results of operations.
On November 8, 2005, we received notice that the Tennessee Department of Revenue
is considering imposing an assessment for sales, use and other miscellaneous
business taxes for sales of timeshare interests in Bluegreen Vacation Club
within the state of Tennessee during the periods from January 2001 through
December 2004. We have been advised that the amounts that may be imposed by the
State of Tennessee may be as much as $28 million; however, no formal assessment
has been approved or made by the Tennessee Department of Revenue. We believe
that the assessments under consideration by the Tennessee Department of Revenue
are based on a preliminary, but mistaken, interpretation of the tax laws of the
state of Tennessee. We will be reviewing this matter further with
representatives of the Tennessee Department of Revenue, and we intend to
vigorously defend against any such claims or assessments.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER REPURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Archipelago Stock Exchange (formerly known as the Pacific Stock Exchange) under
the symbol "BXG". The Chief Executive Officer of the
33
Company has filed a certification which certified to the NYSE that as of the
date of the certification he was not aware of any violations by the Company of
the Corporate Governance Listing Standards of the NYSE. The following table sets
forth, for the periods indicated, the high and low closing price of our common
stock as reported on the NYSE:
34
Price Range Price Range
The Year Ended The Year Ended
December 31, 2004 High Low December 31, 2005 High Low
----------------- ---- --- ----------------- ---- ---
First Quarter $12.96 $ 6.25 First Quarter $24.68 $12.85
Second Quarter 13.99 10.28 Second Quarter 18.15 12.50
Third Quarter 13.77 9.61 Third Quarter 19.11 15.83
Fourth Quarter 20.07 10.48 Fourth Quarter 18.11 14.87
There were approximately 958 record holders of our common stock as of March 10,
2006. The number of record holders does not reflect the number of persons or
entities holding their stock in "street" name through brokerage firms or other
entities.
We did not pay any cash or stock dividends during the years ended December 31,
2004 and 2005. Our Board of Directors has discussed the possibility of paying
cash dividends at some point in the future. However, any decision by our Board
to pay dividends will be based on our cash position, operating and capital needs
and the restrictions discussed below, and there is no assurance that we will pay
cash dividends in the foreseeable future. Restrictions contained in the
Indenture related to our $55.0 million 10 1/2% Senior Secured Notes due 2008
issued in April 1998 restrict, and the terms of certain of our credit facilities
may, in certain instances, limit the payment of cash dividends on our common
stock and restrict our ability to repurchase shares.
From time to time, our Board of Directors has adopted and publicly announced a
share repurchase program. Repurchases under such programs are subject to the
price of our stock, prevailing market conditions, our financial condition and
available resources, other investment alternatives and other factors. We are not
required to seek shareholder approval of share repurchase programs, have not
done so in the past, and do not anticipate doing so in the future, except to the
extent we may be required to do so under applicable law. We have not repurchased
any shares since the fiscal year ended April 1, 2001. As of December 31, 2005,
there were 694,500 shares remaining for purchase under our current repurchase
program; however, we have no present intention of acquiring these remaining
shares in the foreseeable future.
Our shareholders have approved all of our equity compensation plans, which
consist of our 1995 Stock Incentive Plan, our 1988 Outside Directors' Stock
Option Plan, our 1998 Non-Employee Director Stock Option Plan and our 2005 Stock
Incentive Plan. Information about securities authorized for issuance under our
equity compensation plans as of December 31, 2005, is as follows (in thousands,
except per option data):
Number of Securities Remaining
Number of Securities to Weighted-Average Available for Future Issuance
be Issued Upon Exercise Exercise Price of Under Equity Compensation Plans
of Outstanding Stock Outstanding Stock (Excluding Outstanding Stock
Options Options Options)
-------------------------------------------------------------------------------
2,019 $10.62 1,191
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report (dollars in
thousands, except per share data). Financial data for the year ended March 31,
2002, the nine months ended December 31, 2002 and the years ended December 31,
2003 and 2004 have been restated as discussed in Note 2 of Notes to Consolidated
Financial Statements.
35
As of or for As of or for
the the
Year Nine Months As of or for the Years
Ended Ended Ended
--------------------------------------------------------------------------
March 31, December 31, December 31,
2002 2002 2003 2004 2005
--------------------------------------------------------------------------
(as restated) (as restated) (as restated) (as restated)
Income Statement Data
Sales of real estate ......... $242,657 $230,299 $359,344 $502,408 $550,335
Other resort and communities
operations revenues ......... 25,470 27,048 55,394 66,409 73,797
Interest income .............. 35,552 29,507 29,898 35,939 34,798
Gain on sales of notes
receivable .................. -- 20,026 -- 25,972 25,226
Other income ................. -- -- 457 -- --
-------- -------- -------- -------- --------
Total revenues ............... 303,679 306,880 445,093 630,728 684,156
Income before income taxes,
minority interest and
cumulative effect of change
in accounting principle(1) .. 6,370 39,037 35,585 73,266 80,532
Income before cumulative
effect of change in
accounting principle(1) ..... 3,668 24,783 19,837 42,559 46,551
Net income ................... 3,668 19,204 19,837 42,559 46,551
Earnings per share before
cumulative effect of change in
accounting principle (1):
Basic ....................... 0.15 1.01 0.80 1.62 1.53
Diluted ..................... 0.15 0.91 0.74 1.43 1.49
Earnings per common share:
Basic ....................... 0.15 0.78 0.80 1.62 1.53
Diluted ..................... 0.15 0.72 0.74 1.43 1.49
36
As of or for As of or for
the the
Year Nine Months As of or for the Years
Ended Ended Ended
-----------------------------------------------------------------------------
March 31, December 31, December 31,
2002 2002 2003 2004 2005
-----------------------------------------------------------------------------
(as restated) (as restated) (as restated) (as restated)
Balance Sheet Data
Notes receivable, net ....... 224,371 107,476 213,560 152,051 127,783
Inventory, net .............. 189,853 173,646 220,182 205,352 240,969
Total assets ................ 572,649 460,177 646,484 658,411 694,243
Shareholders' equity ........ 130,224 154,369 174,125 261,066 313,666
Book value per common
share ...................... 5.36 6.28 6.98 8.63 10.31
Selected Operating Data
Weighted-average interest
rate on notes receivable at
period end ................. 15% 14% 14% 14% 15%
Bluegreen Resorts statistics:
VOI sales .................. $146,255 $151,670 $254,971 $310,608 $358,240
Gross margin on VOI sales .. 77% 74% 80% 76% 78%
Selling, general and
administrative expenses
as a percentage of VOI
sales (1) ................. 64% 61% 59% 58% 61%
Field Operating Profit (2) . $ 20,884 $ 21,939 $ 50,110 $ 52,556 $ 59,578
Number of resorts at period
end ....................... 12 13 17 18 21
Number of VOI sale
Transactions (3) .......... 16,414 16,347 26,839 31,574 37,605
Bluegreen Communities
Statistics:
Homesite sales ............. $ 96,402 $ 78,629 $104,373 $191,800 $192,095
Gross margin on homesite
sales ..................... 45% 46% 45% 45% 48%
Selling, general and
administrative expenses
as a percentage of
homesite sales ............ 28% 28% 32% 25% 24%
Field Operating
Profit (2) ................ $ 15,415 $ 13,570 $ 12,580 $ 37,722 $ 47,227
Number of homesites
sold (3) .................. 1,640 1,242 1,962 2,765 2,287
(1) Effective April 1, 2002, we elected to change our accounting policy to
expense previously deferred costs of generating VOI tours through
telemarketing programs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(2) Field Operating Profit is operating profit prior to the allocation of
corporate overhead, interest income, gain on sales of notes receivable,
other income, provision for loan losses, interest expense, income taxes,
minority interest and cumulative effect of change in accounting
principles. See Note 19 of the Notes to Consolidated Financial Statements
for further information.
37
(3) "Number of VOI sale transactions" and "number of homesites sold" include
those sales made during the applicable period where recognition of revenue
is deferred under the percentage-of-completion method of accounting. See
"Revenue Recognition and Contracts Receivable" under Note 1 of the Notes
to Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain Definitions, Cautionary Statement Regarding Forward-Looking Statements
The following discussion of our results of operations and financial condition
should be read in conjunction with our Consolidated Financial Statements and
related Notes and other financial information included elsewhere in this Annual
Report. Unless otherwise indicated in this discussion (and throughout this
Annual Report), references to "real estate" and to "inventories" collectively
encompass the inventories held for sale by Bluegreen Resorts and Bluegreen
Communities.
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Annual
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You may identify these statements by forward-looking
words such as "may," "intend," "expect," "anticipate," "believe" "will,"
"should," "project," "estimate," "plan" or other comparable terminology or by
other statements that do not relate to historical facts. All statements, trend
analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations and other factors discussed
throughout our SEC filings, including the Risk Factor sction, all of which could
cause our actual results, performance or achievements, or industry trends, to
differ materially from any future results, performance, or achievements or
trends expressed or implied herein. Given these uncertainties, investors are
cautioned not to place undue reliance on these forward-looking statements and no
assurance can be given that the plans, estimates and expectations reflected
herein will be achieved. Factors that could adversely affect our future results
can also be considered general risk factors with respect to our business,
whether or not they relate to a forward-looking statement. We wish to caution
you that the important factors set forth below and elsewhere in this report in
some cases have affected, and in the future could effect, our actual results and
could cause our actual consolidated results to differ materially from those
expressed in any forward-looking statements.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops, markets
and sells VOIs in our Bluegreen Vacation Club resorts, and provides resort
management services to resort property owners associations. Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis, as homesites.
In connection with the securitization of certain of its receivables in December
2005, the Company undertook a review of the prior accounting treatment for
certain of its existing and prior notes receivable purchase facilities (together
the "Purchase Facilities"). As a result of that review, on December 15, 2005,
the Company determined that it would restate its consolidated financial
statements for the first three quarters of fiscal 2005 and the fiscal years
ended December 31, 2003 and 2004 due to certain misapplications of GAAP in the
accounting for sales of the Company's vacation ownership notes receivable and
other related matters. The following sections describe the restatement matters
in more detail. For a detailed discussion of the restatement see Note 2 of the
Notes of the Consolidated Financial Statements.
We have historically experienced and expect to continue to experience seasonal
fluctuations in our gross revenues and net earnings. This seasonality may cause
significant fluctuations in our quarterly operating results, with the majority
of our gross revenues and net earnings historically occurring in the quarters
ending in June and September each year.
38
However, as a result of the required adoption of Statement of Position 04-2,
"Accounting for Real Estate Time-sharing Transactions" ("SOP 04-2") effective
January 1, 2006, we anticipate that prospectively the majority of our gross
revenues and net earnings will occur in the quarters ending in September and
December each year, primarily due to the deferral and subsequent recognition of
VOI sales revenue (See Note 1 of Notes to Consolidated Financial Statements for
further discussion of SOP 04-2). Other material fluctuations in operating
results may occur due to the timing of development and the requirement that we
use the percentage-of-completion method of accounting. Under this method of
income recognition, income is recognized as work progresses. Measures of
progress are based on the relationship of costs incurred to date to expected
total costs. We expect that we will continue to invest in projects that will
require substantial development (with significant capital requirements), and
hence that our results of operations may fluctuate significantly between
quarterly and annual periods as a result of the required use of the
percentage-of-completion method of accounting.
We do not believe that inflation and changing prices have historically had a
material impact on our revenues and results of operations. However, we
continually review and have historically increased the sales prices of our VOIs
periodically and construction costs have increased and are expected to increase.
There is no assurance that we will be able to continue to increase our sales
prices or that increased construction costs will not have a material adverse
impact on our operating results. To the extent inflationary trends affect
interest rates, a portion of our debt service costs may be adversely affected,
including interest cost on our vacation ownership receivables purchase
facilities.
We recognize revenue on homesite and VOI sales when, subject to applicable
accounting rules, a minimum of 10% of the sales price has been received in cash,
the refund or rescission period has expired, collectibility of the receivable
representing the remainder of the sales price is reasonably assured and we have
completed substantially all of our obligations with respect to any development
of the real estate sold. In cases where all development has not been completed,
we recognize income in accordance with the percentage-of-completion method of
accounting.
Costs associated with the acquisition and development of vacation ownership
resorts and residential communities, including carrying costs such as interest
and taxes, are capitalized as inventory and are allocated to cost of real estate
sold as the respective revenues are recognized.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The gains are recorded on
our consolidated statement of income and the related retained interests in the
notes receivable sold are recorded on our consolidated balance sheet at the time
of sale. The amount of gains recognized and the fair value of the retained
interests recorded are based in part on management's best estimates of future
prepayment, default rates, loss severity rates, discount rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to loans occur more quickly than we projected at the time such loans
were sold, as can occur when interest rates decline, interest would be less than
expected and may cause a decline in the fair value of the retained interests and
a charge to operations. If actual defaults or other factors discussed above with
respect to loans sold are greater than estimated, charge-offs would exceed
previously estimated amounts and the cash flow from the retained interests in
notes receivable sold would decrease. Also, to the extent the portfolio of
receivables sold fails to satisfy specified performance criteria (as may occur
due to, for example, an increase in default rates or loan loss severity) or
certain other events occur, the funds received from obligors must be distributed
on an accelerated basis to investors. If the accelerated payment formula were to
become applicable, the cash flow to us from the retained interests in notes
receivable sold would be reduced until the outside investors are paid or the
regular payment formula is resumed. If these situations were to occur on a
material basis, it could cause a decline in the fair value of the retained
interests and a charge to earnings currently. There is no assurance that the
carrying value of our retained interests in notes receivable sold will be fully
realized or that future loan sales will be consummated or, if consummated,
result in gains. See "Vacation Ownership Receivables Purchase Facilities -Off
Balance Sheet Arrangements," below.
In addition, we have historically sold vacation ownership receivables to
financial institutions through warehouse purchase facilities to monetize the
receivables while accumulating enough receivables for a future term
securitization transaction. We currently intend to structure future warehouse
purchase facilities so that sales of vacation ownership receivables through
these facilities will be accounted for as on-balance sheet borrowings rather
than as off-balance sheet sales. Therefore, we will not recognize a gain on the
sales of receivables sold through the warehouse purchase facilities until such
receivables are included in a properly structured term securitization
transaction. We expect this may impact future quarterly earnings patterns as
compared to comparable prior periods.
39
We are spending a substantial amount of management time and resources to comply
with changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new Securities
and Exchange Commission regulations and New York Stock Exchange rules. In
particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management's
annual review and evaluation of our internal control systems, and attestations
as to the effectiveness of these systems by our independent registered public
accounting firm. We expect to continue to expend significant management time and
resources documenting and testing our internal control systems and procedures.
If we fail to maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be in a
position to conclude on an ongoing basis that we have effective internal control
over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act of 2002. Failure to maintain an effective internal control environment could
have a material adverse effect on the market price of our stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of commitments and contingencies. On an
ongoing basis, management evaluates its estimates, including those that relate
to the recognition of revenue, including revenue recognition under the
percentage-of-completion method of accounting; our reserve for loan losses; the
valuation of retained interests in notes receivable sold and the related gains
on sales of notes receivable; the recovery of the carrying value of real estate
inventories, golf courses, intangible assets and other assets; and the estimate
of contingent liabilities related to litigation and other claims and
assessments. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions. If actual results significantly differ
from management's estimates, our results of operations and financial condition
could be materially adversely impacted.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements (see also Note 1 of the Notes to Consolidated Financial
Statements):
o Revenue Recognition and Inventory Cost Allocation. In accordance
with the requirements of Statement of Financial Accounting Standards
("SFAS") No. 66, "Accounting for Sales of Real Estate," we recognize
revenue on VOI and homesite sales when a minimum of 10% of the sales
price has been received in cash, the legal rescission period has
expired, collectibility of the receivable representing the remainder
of the sales price is reasonably assured and we have completed
substantially all of our obligations with respect to any development
related to the real estate sold. We believe that we use a reasonably
reliable methodology to estimate the collectibility of the
receivables representing the remainder of the sales price of real
estate sold. See the further discussion of our policies regarding
the estimation of credit losses on our notes receivable, below.
Should our estimates regarding the collectibility of our receivables
change adversely, we may have to defer the recognition of sales and
our results of operations could be negatively impacted.
In cases where all development has not been completed, we recognize
revenue in accordance with the percentage-of-completion method of
accounting. Should our estimates of the total anticipated cost of
completing of our Bluegreen Resorts' or Bluegreen Communities'
projects increase, we may be required to defer a greater amount of
revenue or may be required to defer revenue for a longer period of
time, and thus our results of operations could be materially,
adversely impacted.
In accordance with SFAS No. 67, "Accounting for Costs and Initial
Rental Operations of Real Estate Projects," the capitalized costs of
our real estate projects are assigned to individual VOIs or
homesites in the projects based on the relative estimated sales
value of each VOI or homesite. Should our estimates of the sales
values of our VOI and homesite inventories differ materially from
their ultimate selling prices, our gross profit could be adversely
impacted.
o Allowance For Loan Losses. We estimate credit losses on our notes
receivable portfolios in accordance with SFAS No. 5, "Accounting for
Contingencies," as our notes receivable portfolios consist of a
large group of
40
smaller-balance, homogeneous loans. Consistent with Staff Accounting
Bulletin No. 102, "Selected Loan Loss Allowance Methodology and
Documentation Issues," we first segment our notes receivable by
identifying risk characteristics that are common to groups of loans
and then estimate credit losses based on the risks associated with
these segments. We consider many factors when establishing and
evaluating the adequacy of our reserve for loan losses. These
factors include recent and historical default rates, static pool
analyses, current delinquency rates, contractual payment terms, loss
severity rates along with present and expected economic conditions.
We review these factors and measure loan impairment by applying
historical loss rates, adjusted for relevant environmental and
collateral values, to the segments' aggregate loan balances. We
review our reserve for loan losses on at least a quarterly basis.
Should our estimates of these and other pertinent factors change,
our results of operations, financial condition and liquidity
position could be materially, adversely affected.
o Transfers of Financial Assets. When we transfer financial assets to
third parties, such as when we sell notes receivable pursuant to our
vacation ownership receivables purchase facilities, we evaluate
whether or not such transfer should be accounted for as a sale
pursuant to SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" and related
interpretations. The evaluation of sale treatment under SFAS No. 140
involves legal assessments of the transactions, which include
determining whether the transferred assets have been isolated from
us (i.e. put presumptively beyond our reach or the reach of our
creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the
assets it received, and ensuring that we do not maintain effective
control over the transferred assets through either (1) an agreement
that both entitles and obligates the transferor to repurchase or
redeem them before their maturity or (2) the ability to unilaterally
cause the holder to return specific assets (other than through a
cleanup call). We believe that we have obtained appropriate legal
opinions and other guidance deemed necessary to properly account for
our transfers of financial assets as sales in accordance with SFAS
No. 140.
In connection with the sales of notes receivable referred to above,
we retain subordinated tranches, rights to excess interest spread
and servicing rights, all of which are retained interests in the
notes receivable sold. Gain or loss on the sale of the notes
receivable depends in part on the allocation of the previous
carrying amount of the financial assets involved in the transfer
between the assets sold and the retained interests based on their
relative fair value at the date of transfer. We initially and
periodically estimate fair value based on the present value of
future expected cash flows using management's best estimates of the
key assumptions -- prepayment rates, loss severity rates, default
rates and discount rates commensurate with the risks involved.
Should our estimates of these key assumptions change or should the
portfolios sold fail to satisfy specified performance criteria and
therefore trigger provisions whereby outside investors in the
portfolios are paid on an accelerated basis, there could be a
reduction in the fair value of the retained interests and our
results of operations and financial condition could be adversely
impacted. During the year ended December 31, 2005, we recognized an
other-than-temporary decrease of approximately $539,000 in the fair
market value of our retained interest in a 2002 vacation ownership
receivables securitization, based on higher than anticipated default
rates in the portfolio sold.
o Asset Impairment. We periodically evaluate the recovery of the
carrying amounts of our long-lived assets including our real estate
properties under the guidelines of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Factors that we
consider in making this evaluation include the estimated remaining
life-of-project sales for each project based on current retail
prices and the estimated costs to complete each project. Should our
estimates of these factors change, our results of operations and
financial condition could be adversely impacted.
o Goodwill and Intangible Assets. Goodwill is not amortized but is
subject to an annual impairment test in accordance with SFAS No.
142, "Accounting for Goodwill and Other Intangible Assets." Other
intangible assets are amortized over their useful lives. Goodwill
and other intangible assets are tested for impairment on an annual
basis by estimating the fair value of the reporting unit to which
the goodwill or intangible assets have been assigned. As of December
31, 2005, only our Bluegreen Resorts reporting unit had any recorded
goodwill and intangible assets. Should our estimates of the fair
value of our reporting units change, our results of operations and
financial condition could be adversely impacted.
41
Results of Operations
We review financial information, allocate resources and manage our business as
two segments, Bluegreen Resorts and Bluegreen Communities. The information
reviewed is based on internal reports and excludes general and administrative
expenses attributable to corporate overhead. The information provided is based
on a management approach and is used by us for the purpose of tracking trends
and changes in results. It does not egreen Bluegreen reflect the actual economic
costs, sorts Communities a contributions or results of operations of the
segments as stand alone businesses. If a different basis of presentation or
allocation were utilized, the relative contributions of the segments might
differ but the relative trends, in our view, would likely not be materially
impacted. The table below sets forth net revenue and income from operations by
segment.
Bluegreen
Resorts Bluegreen Communities Total
------- --------------------- -----
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
(dollars in thousands)
Year Ended December 31, 2003
(as restated)
Sales of real estate ....... $ 254,971 100% $ 104,373 100% $ 359,344 100%
Cost of real estate sales .. (52,131) (20) (57,315) (55) (109,446) (30)
--------- --------- ---------
Gross profit ............... 202,840 80 47,058 45 249,898 70
Other resort and communities
operations revenues ....... 48,915 19 6,479 6 55,394 15
Cost of other resort and
communities operations .... (53,295) (21) (7,477) (7) (60,772) (17)
Selling and marketing
expenses .................. (132,050) (52) (23,223) (22) (155,273) (43)
Field general and
administrative expenses (1) (16,051) (6) (10,257) (10) (26,308) (7)
--------- --------- ---------
Field Operating Profit ..... $ 50,359 20% $ 12,580 12% $ 62,939 18%
========= ========= =========
Year Ended December 31, 2004
(as restated)
Sales of real estate ....... $ 310,608 100% $ 191,800 100% $ 502,408 100%
Cost of real estate sales .. (73,969) (24) (105,759) (55) (179,728) (36)
--------- --------- ---------
Gross profit ............... 236,639 76 86,041 45 322,680 64
Other resort and communities
operations revenues ....... 59,007 19 7,402 4 66,409 13
Cost of other resort and
communities operations .... (63,510) (20) (7,275) (4) (70,785) (14)
Selling and marketing
expenses .................. (165,162) (53) (36,766) (19) (201,928) (40)
Field general and
administrative expenses (1) (16,098) (5) (11,680) (6) (27,778) (6)
--------- --------- ---------
Field Operating Profit ..... $ 50,876, 16% $ 37,722 20% $ 88,598 18%
========= ========= =========
Year Ended December 31, 2005
Sales of real estate ....... $ 358,240 100% $ 192,095 100% $ 550,335 100%
Cost of real estate sales .. (77,455) (22) (100,345) (52) (177,800) (32)
--------- --------- ---------
Gross profit ............... 280,785 78 91,750 48 372,535 68
Other resort and communities
operations revenues ....... 64,276 18 9,521 5 73,797 13
Cost of other resort and
communities operations ..... (68,633) (19) (8,684) (5) (77,317) (14)
Selling and marketing
expenses .................. (195,407) (55) (33,588) (17) (228,995) (42)
Field general and
administrative expenses (1) (21,443) (6) (11,772) (6) (33,215) (6)
--------- --------- ---------
Field Operating Profit ..... $ 59,578 17% $ 47,227 25% $ 106,805 19%
========= ========= =========
42
----------
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $22.2 million, $32.7 million and $38.0 million for the
years ended December 31, 2003, 2004, and 2005, respectively. See
"Corporate General and Administrative Expenses," below, for further
discussion.
Sales and Field Operations. Consolidated sales were $359.3 million, $502.4
million and $550.3 million for 2003, 2004, and 2005, respectively. Consolidated
sales increased 40% from 2003 to 2004 and 10% from 2004 to 2005.
Bluegreen Resorts. During 2003, 2004 and 2005, sales of VOIs contributed $255.0
million (71%), $310.6 million (62%) and $358.2 million (65%) of our total
consolidated sales, respectively.
The following table sets forth certain information for sales of VOIs for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting.
Year Ended
----------------------------------------------
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
Number of VOI sale transactions ... 26,839 31,574 37,605
Average sales price per transaction $ 9,704 $10,025 $ 9,834
Gross margin ...................... 80% 76% 78%
The $47.6 million or 15% increase in Bluegreen Resorts' sales during the year
ended December 31, 2005, as compared to the year ended December 31, 2004, was
due primarily to same-site sales increases at our various sales offices.
Same-site sales increases aggregated $42.2 million and were highlighted by the
increase in sales at The Fountains sales office in Orlando, Florida ($18.0
million increase), our Dallas, Texas offsite sales office ($8.1 million
increase), our Harbour Lights sales office in Myrtle Beach, South Carolina ($6.5
million increase) and our Bluegreen Wilderness Club at Big Cedar sales office
($5.7 million increase). We opened four new sales sites in 2005, which generated
an aggregate $5.4 million in sales. Our new sales sites were our offsite sales
office in King of Prussia, Pennsylvania (opened March 2005), our sales office at
the Suites at Hershey resort (opened June 2005), our offsite sales office in
Atlanta, Georgia (opened November 2005) and our sales office at the Daytona
SeaBreeze resort (opened December 2005). The overall sales increase was also due
to our continued focus on marketing to our growing Bluegreen Vacation Club owner
base. Sales to owners increased to approximately 28% of Resorts' sales during
2005 as compared to 24% of Resorts' sales in 2004. This, combined with an 12%
overall increase in the number of sales prospects seen by Bluegreen Resorts from
approximately 257,000 prospects during 2004 to approximately 287,000 prospects
during 2005 and a slightly higher sale-to-tour conversion ratio during 2005
(increasing to 12.9% in 2005 from 12.4% in 2004) significantly contributed to
the overall sales increase during 2005 as compared to 2004.
The $55.6 million, or 22%, increase in Bluegreen Resorts' sales during 2004 as
compared to 2003, was due in part to the opening of five sales sites either
after or just prior to December 31, 2003: Grande Villas at World Golf Village
(opened in November 2003), The Fountains in Orlando, Florida (opened in December
2003), an off-site sales office in Destin, Florida (opened in July 2004, but
closed prior to December 31, 2004), the Hammocks at Marathon resort sales office
in Marathon, Florida (opened August 2004) and an off-site sales office in
Dallas, Texas (opened in October 2004). These new sales sites generated a
combined $21.0 million of incremental sales during 2004. The remainder of the
sales increase was due to same-store sales increases primarily as a result of
greater focus on marketing to our growing Bluegreen Vacation Club owner base.
Sales to owners increased to approximately 24% of Resorts' sales during 2004 as
compared to 19% of Resorts' sales during 2003. This, combined with an 18.3%
overall increase in the number of sales prospects seen by Bluegreen Resorts from
approximately 218,000 prospects during 2003 to approximately 257,000 prospects
during 2004 at a consistent sale-to-tour conversion ratio of 12.6% and 12.4%
during 2003 and 2004, respectively, significantly contributed to the overall
sales increase during 2004 as compared to 2003.
43
Bluegreen Resorts' gross margin percentages vary between periods based on the
relative costs of the specific VOIs sold in each respective period. During the
year ended December 31, 2005, our gross margin was favorably impacted by the
sale of relatively lower cost VOIs acquired through opportunistic acquisitions
in 2003. Approximately 144 condominium units in which are selling VOIs were
constructed and became available for sale at the beginning of 2005 at The
Fountains, which has a product cost of approximately 20% of sales price. We
anticipate that our gross margin will remain within the historical range of 75%
to 77% in 2006, despite rising construction costs and expected increases in the
cost of real estate for acquisition, due to an increase in the sales prices of
our VOIs effected in January 2006 and continued benefit from sales of higher
margin inventory, such as The Fountains.
Other resort operations revenues increased $5.3 million or 9% during 2005 as
compared to 2004. The increase was due to higher fees earned by our wholly-owned
title company for providing title processing services on all of our VOI sales,
commensurate with the increase in resort sales.
Other resort operations revenues increased $10.1 million or 21% during 2004 as
compared to 2003. These increases were due to increases in revenues from our
mini-vacation sales and vacation ownership tour generation business, our
vacation ownership resort interior purchasing and design business, title agency
fees, and fees earned for providing reservation services for the Bluegreen
Vacation Club.
Cost of other resort operations increased $5.1 million or 8% during 2005 as
compared to 2004. The increase in the cost of other resort operations was due
primarily to increases in the related revenues discussed above as well as due to
higher subsidies paid to the property owners' associations that maintain our
resorts. These subsidies increased in the aggregate based on an increase in our
VOI inventory.
Cost of other resort operations increased $10.2 million, or 19%, during 2004 as
compared to 2003. These increases were due primarily to subsidies and
maintenance fees paid to the property owners' associations that maintain our
resorts. These subsidies and fees increased in the aggregate due to the increase
in the number of our resorts since December 31, 2003 and due to increased
maintenance fees incurred on our remaining VOI inventory at the La Cabana Beach
and Racquet Club resort in Aruba. In addition, costs of other resort operations
increased due to the 2003 opening and subsequent expansion of our owner contact
center in Indianapolis, Indiana, which handles reservations and customer service
for members of the Bluegreen Vacation Club.
Selling and marketing expenses for Bluegreen Resorts increased $30.2 million or
18% during 2005 as compared to 2004. As a percentage of sales, selling and
marketing expenses increased to approximately 55% during the year ended December
31, 2005, as compared to 53% for the year ended December 31, 2004. The increase
in selling and marketing expenses as a percentage of sales was primarily a
result of start-up marketing costs incurred at our new sales offices, partially
offset by the favorable impact on selling and marketing cost of the increase in
sales to existing owners during 2005 as compared to 2004.
Selling and marketing expenses for Bluegreen Resorts increased $33.1 million or
25% during 2004 as compared to the 2003. As a percentage of sales, selling and
marketing expenses increased from 52% during 2003 to 53% during 2004. This
increase was primarily due to a decrease in the marketing efficiency of our
off-premises contact ("OPC") marketing programs. OPC marketing programs involve
making contact with individuals at tourist and other high-traffic locations in
the vacation destinations in proximity to our resorts and soliciting them to
take sales tours at one of our resort properties. OPC costs as a percentage of
related sales increased to 37% during 2004 from 30% during 2003, due to
increased competition for OPC locations and a decrease in the sale-to-tour
conversion ratio for our OPC tours.
We believe that selling and marketing expenses as a percentage of sales is an
important indicator of the performance of Bluegreen Resorts and our performance
as a whole. No assurances can be given that selling and marketing expenses will
not continue to increase as a percentage of sales in future periods.
Field general and administrative expenses for Bluegreen Resorts increased $5.3
million or 33% during 2005 as compared to 2004. The increase in field general
and administrative expenses was primarily a result of the cost of operating our
new sales offices.
44
Field general and administrative expenses stayed consistent at approximately
$16.1 million during both 2004 and 2003. These costs as a percentage of sales
decreased to 5% for 2004 from 6% during 2003.
As of December 31, 2004 and 2005, Bluegreen Resorts had no sales or Field
Operating Profit deferred under percentage-of-completion accounting. The
adoption of a SOP 04-2, effective January 1, 2006, will change our treatment of
sales incentives and the conversion of our Sampler packages to VOI sales, both
of which will result in the deferral of sales recognition of certain VOI sales
financed by the Company. We anticipate that all of our financed sales, other
than sales to owners, will be required to be deferred for periods ranging from
one to four months. See Note 1 of Notes to Consolidated Financial Statements for
further discussion of SOP 04-2.
Bluegreen Communities. During 2003, 2004 and 2005, Bluegreen Communities
generated $104.4 million (29%), $191.8 million (38%), and $192.1 million (35%),
of our total consolidated sales, respectively.
The table below sets forth the number of homesites sold by Bluegreen Communities
and the average sales price per homesite for the periods indicated, before
giving effect to the percentage-of-completion method of accounting and excluding
sales of bulk parcels.
Year Ended
--------------------------------------------
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
Number of homesites sold ....... 1,962 2,765 2,287
Average sales price per homesite $60,586 $69,136 $80,188
Gross margin ................... 45% 45% 48%
Bluegreen Communities' sales increased $295,000 or less than 1% during 2005 as
compared to 2004 due primarily to the sell-out of several communities during
2005. The primary reason for our slower growth in Communities was Traditions of
Braselton, a 1,142 acre golf course community in Braselton, Georgia, and
Brickshire, our golf course community located in New Kent Virginia was
substantially sold-out and higher sales were generated during the year..
Partially offsetting these declines were higher sales at many of our other
communities, including Sanctuary Cove at St. Andrews Sound, an approximately
500-acre golf course community in Brunswick, Georgia, and Chapel Ridge, our
approximately 800-acre golf course community in Chatham County, North Carolina.
During 2005 we commenced sales at Sugar Tree on the Brazos, a community located
outside Fort Worth, Texas, Saddle Creek Forest, a community located near
Houston, Texas and The Settlement at Patriot Ranch, our community located near
San Antonio, Texas. During 2005 we recognized aggregate sales at these three
communities of $14.4 million. In 2005 we also acquired a property near San
Antonio which we are developing as Havenwood at Hunters Crossing. Sales at
Havenwood at Hunters Crossing began in January 2006. In March 2006, we acquired
a 1,579-acre property near Dallas, Texas, which we believe will begin sales in
the fourth quarter of 2006.
As noted above, certain of our properties substantially sold out earlier in 2005
than previously anticipated as a result of the continued strong demand for our
communities. Although there is no assurance that we will be successful, we are
continually exploring the acquisition of properties in markets where we
currently conduct business, and in new regions of the country, in order to
maintain appropriate levels of properties in our portfolio.
Bluegreen Communities' sales increased $87.4 million or 84% during 2004 as
compared to 2003. In November 2003, we acquired and commenced sales at our
approximately 500-acre golf course community in Brunswick, Georgia known as
Sanctuary Cove at St. Andrews Sound. Sanctuary Cove recognized incremental sales
of approximately $23.9 million during 2004 as compared to 2003, as this project
had just opened for sales in December 2003. Sanctuary Cove had an additional
$7.6 million of sales deferred under the percentage-of-completion method of
accounting as of December 31, 2004. Our Brickshire golf course community, which
is located in New Kent, Virginia, recognized $11.1 million more sales during
2004 as compared to 2003, due primarily to increased effectiveness of sales
programs and price increases. In March 2003, Bluegreen Communities acquired
1,142 acres in Braselton, Georgia for the development of a new golf course
community known as the Traditions of Braselton. This project recognized
approximately $8.1 million more sales during 2004 as compared to 2003, due
primarily to the recognition of sales previously deferred under the
percentage-of-completion method of accounting. In July 2004, we acquired and
commenced sales at our approximately 800-acre golf course community in Chatham
County, North Carolina known as Chapel Ridge. Chapel Ridge recognized sales of
approximately $10.1 million during 2004, and had an additional $4.7 million of
sales deferred under the percentage-of-
45
completion method of accounting as of December 31, 2004. Mountain Springs Ranch,
our community in Smithson Valley, Texas (near San Antonio), recognized $7.7
million more sales during 2004 as compared to 2003, as this project had just
opened for sales in December 2003. The remaining sales increase was realized at
several of our other existing communities, including the following communities
in Texas:
o RidgeLake Shores, located in Magnolia, Texas (near Houston, Texas) -
$6.3 million increase in sales.
o Quail Springs Ranch, located in Peaster, Texas (near the Dallas/Fort
Worth Metroplex) - $5.4 million increase in sales.
o Mystic Shores, located in Spring Branch, Texas (near San Antonio) -
$5.3 million increase in sales.
Bluegreen Communities' gross margin increased from 45% in 2004 to 48% in 2005.
Variations in cost structures and the market pricing of projects available for
sale as well as the opening of phases of projects which include premium
homesites (e.g., water frontage, preferred views, larger acreage homesites,
etc.) will impact the gross margin of Bluegreen Communities from period to
period. These factors, as well as the impact of the percentage-of-completion
method of accounting, will cause variations in gross margin between periods,
although the annual gross margin has historically been between 45% and 51% of
sales and is expected to approximate these percentages for the foreseeable
future.
Other communities operations include the operation of our golf courses as well
as realty resale operations at several of our residential land communities.
Other communities' operations revenues increased $2.1 million or 28% from $7.4
million to $9.5 million and the related costs increased $1.4 million or 19% from
$7.3 million to $8.7 million during 2004 and 2005, respectively. This was
primarily due to increased play at our Traditions at Braselton and The Preserve
at Jordan Lake golf courses located in Georgia and North Carolina, respectively.
We are currently constructing a new daily-fee golf course in connection with the
development of Chapel Ridge, which is expected to open in the fall of 2006. Our
golf course at Sanctuary Cove opened for play in February of 2006.
Other communities' operations revenues increased $923,000 or 14% from $6.5
million to $7.4 million and the related costs decreased $202,000 or 3% from $7.5
million to $7.3 million during the years ended December 31, 2003 and December
31, 2004, respectively. These increases were primarily due to increased play at
our Brickshire and The Preserve at Jordan Lake golf courses located in New Kent,
Virginia and Chapel Hill, North Carolina, respectively.
Our golf course operations incurred aggregate losses of $1.2 million, $176,000,
and $380,000 during 2003, 2004 and 2005, respectively. The losses from golf
course operations are due to fixed operating expenses, low, seasonal revenues
during the winter months and high maintenance costs during periods when we are
marketing homesites in the surrounding community. Also, certain of our golf
courses are still in their early years of operations during the periods
presented. We believe that the operating results of these new courses should
improve as individuals who have purchased homesites in the communities in which
these courses are located build their homes and begin living in the community,
as this should increase the amount of play on our golf courses. However, there
is no assurance that such improvement in operating results will be achieved.
Selling and marketing expenses for Bluegreen Communities decreased as a
percentage of sales from 19% to 17% during 2004 and 2005, respectively. These
expenditures decreased as a percentage of sales due to a higher average sales
price per homesite coupled with relative advertising efficiencies at our new
golf course communities in Georgia as compared to our other projects.
Selling and marketing expenses for Bluegreen Communities decreased as a
percentage of sales from 22% to 19% during the 2003 and 2004, respectively, due
to the advertising efficiencies realized at several of our Bluegreen Golf
communities in 2004. Brickshire, Traditions of Braselton, Sanctuary Cove and
Chapel Ridge generated selling and marketing expenses of less than 18%,
collectively, as a percentage of sales due to the attractiveness of these golf
course communities to consumers in the markets where these communities are
located.
Bluegreen Communities' general and administrative expenses remained constant
from 2004 to 2005 and increased $1.4 million, or 14%, during 2004 as compared to
2003. This increase in general and administrative expenses was due to the fact
that the costs associated with new communities that opened for sales were
greater than the costs associated with communities which substantially sold out
during 2003. The increase in these costs was also due to higher performance
bonuses to Bluegreen Communities'
46
management, commensurate with the significant increase in the segment's field
operating profit during 2004 as compared to 2003. As a percentage of sales,
Bluegreen Communities' general and administrative expenses decreased to 6% from
10% for the 2004 and 2003, respectively.
As of December 31, 2005, Bluegreen Communities had $30.7 million of sales and
$12.4 million of Field Operating Profit deferred under percentage-of-completion
accounting. As of December 31, 2004, Bluegreen Communities had $27.2 million of
sales and $10.9 million of Field Operating Profit deferred under
percentage-of-completion accounting.
Corporate General and Administrative Expenses. Our corporate general and
administrative expenses consist primarily of expenses associated with
administering the various support functions at our corporate headquarters,
including accounting, human resources, information technology, Resorts
acquisition and development, mortgage servicing, treasury and legal. Such
expenses were $22.2 million, $32.7 million and $38.0 million for 2003, 2004 and
2005, respectively.
The $5.3 million or 16% increase in corporate general and administrative
expenses during 2005 as compared to 2004 was primarily due to:
o the expansion of our corporate facilities, as well as increased
personnel and other expenses in our information technology, resort
acquisitions and development, and accounting departments to support
our growth:
o increased accounting and auditing expenses of $1.8 million,
primarily incurred in connection with requirements associated with
the Sarbanes-Oxley Act of 2002:
o severance charges of approximately $1.0 million associated with the
departure of our former Chief Financial Officer;
These increases were partially off-set by lower legal expenses and higher
profits from our mortgage servicing operation realized during 2005 as compared
to 2004.
The $11.5 million or 52% increase in corporate general and administrative
expenses during 2004 as compared to 2003 was primarily due to:
o an aggregate increase of $3.2 million in personnel and other
expenses incurred in our information technology, resort
acquisitions/development, human resources, corporate headquarters
and mortgage areas to help support our growth;
o increased legal expenses due to the $1.5 million impact of the
settlement of a sales tax dispute with the state of Wisconsin and
approximately $1.2 million related to litigation settlements, one of
which is subject to court approval;
o increased accounting and auditing expenses of $2.0 million,
primarily incurred in connection with requirements associated with
the Sarbanes-Oxley Act of 2002; and
o an increase in corporate health and other insurance expenses of $1.5
million.
For a discussion of field selling, general and administrative expenses, please
see "Sales and Field Operations," above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold and cash and cash equivalents. Interest
income was $29.9 million, $35.9 million and $34.8 million for 2003, 2004 and
2005, respectively.
The decrease in interest income during 2005 was due to lower interest income
earned from our notes receivable commensurate with a lower average aggregate
notes receivable balance during the period as compared to 2004. In addition, we
recognized an other-than-temporary decrease of $539,000 in the fair value of our
retained interest in a 2002 vacation ownership receivables securitization
transaction, based on higher than projected default rates in the portfolio sold.
The increase in interest income during 2004 was due to higher interest income
earned from our notes receivable commensurate with a higher average aggregate
notes receivable balance during the period as compared to 2003
47
Gain on Sales of Notes Receivable. During 2004 and 2005, we recognized gains on
the sale of notes receivable totaling $26.0 million and $25.2 million,
respectively. We sell a portion of our vacation ownership notes receivable
pursuant to vacation ownership receivables securitization transactions or
through vacation ownership receivables purchase facilities that qualify for
sales treatment per SFAS 140. During 2003, all sales of notes receivable were
made to vacation ownership receivables purchase facilities, none of which
qualified for sales accounting treatment pursuant to SFAS 140. As such, there
were no gains on sales of notes receivables during 2003.
The amount of notes receivable sold during a period depends on several factors,
including the amount of availability, if any, under receivables purchase
facilities, the amount of eligible receivables available for sale, our cash
requirements, the covenants and other provisions of the relevant vacation
ownership receivables purchase facility (as described further below) and
management's discretion. The generally accepted accounting principles governing
our sale of receivable transactions is evolving and achieving off-balance sheet
accounting treatment is becoming more difficult. Due to the complexity of the
accounting rules surrounding such transactions, we have decided to limit the use
of off-balance sheet structures in the future. In 2006, we intend to structure
our vacation ownership receivables purchase facilities that are used to
accumulate receivables pending a term securitization transaction in a manner so
as to account for sales of receivables under such facilities as on-balance sheet
borrowings pursuant to SFAS 140. No gains will be recognized on the sales of
receivables to such facilities until the receivables are included in an
appropriately structured term securitization transaction. This accounting
treatment is expected to increase the volatility of our quarterly earnings
prospectively, but is not anticipated to materially impact annual earnings.
Interest Expense. Interest expense was $17.2 million, $18.4 million and $14.5
million for 2003, 2004 and 2005, respectively. The 21% decrease in interest
expense for 2005 as compared 2004, was primarily a result of lower average debt
outstanding and more interest being capitalized due to increased construction
activity, partially off-set by the impact of increased borrowing rates. The 7%
increase in interest expense in 2004 as compared to the 2003, was due to higher
average outstanding debt balances, primarily related to increased
receivable-backed debt, which was paid off in July 2004 by a term securitization
transaction.
Our effective cost of borrowing was 7.9%, 8.1%, and 8.9% for 2003, 2004 and
2005, respectively.
Provision for Loan Losses. We recorded provisions for loan losses totaling $18.2
million, $24.4 million and $27.6 million during 2003, 2004 and 2005,
respectively. The 34% and 13% increases in the provision for loan losses during
2004 and 2005, respectively, were primarily due to increases in Bluegreen
Resorts sales, approximately 95% of which were financed by us.
The following table summarizes our allowance for loan losses by division as of
December 31, 2004 and 2005 (in thousands):
Bluegreen Bluegreen
Resorts Communities Other Total
------- ----------- ----- -----
(dollars in thousands)
December 31, 2004 (as restated)
Notes receivable .............. $154,628 $10,901 $ 186 $ 165,715
Allowance for loan losses ..... (13,227) (251) (186) (13,664)
-------- ------- ----- ---------
Notes receivable, net ......... $141,401 $10,650 $ -- $ 152,051
======== ======= ===== =========
Allowance as a % of gross notes
receivable ................... 9% 2% 100% 8%
======== ======= ===== =========
December 31, 2005
Notes receivable .............. $131,058 $ 7,408 $ 186 $ 138,652
Allowance for loan losses ..... (10,466) (217) (186) (10,869)
-------- ------- ----- ---------
Notes receivable, net ......... $120,592 $ 7,191 $ -- $ 127,783
======== ======= ===== =========
Allowance as a % of gross notes
receivable ................... 8% 3% 100% 8%
======== ======= ===== =========
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC, our
51%-owned subsidiary, in our consolidated financial statements (see Note 1
48
of the Notes to Consolidated Financial Statements). The minority interest in
income of consolidated subsidiary is the portion of our consolidated pre-tax
income that is earned by Big Cedar, L.L.C., the unaffiliated 49% interest holder
in the subsidiary. Minority interest in income of consolidated subsidiary was
$3.3 million, $4.1 million and $4.8 million for 2003, 2004 and 2005,
respectively. Pre-tax income for the subsidiary has increased over the periods
presented as sales at the Bluegreen Wilderness Club at Big Cedar have increased.
Summary. Based on the factors discussed above, our net income was $19.8 million,
$42.6 million and $46.6 million for 2003, 2004 and 2005, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for 2003, 2004 and 2005 (in
thousands):
Year ended
--------------------------------------------
December 31, December 31, December 31,
2003 2004 2005
--------------------------------------------
Cash flows provided by operating activities $ 39,027 $ 91,756 $ 55,583
Cash flows used by investing activities (3,451) (10,538) (8,141)
Cash flows used by financing activities (11,273) (39,232) (63,303)
-------- -------- --------
Net increase (decrease) in cash $ 24,303 $ 41,986 $(15,861)
======== ======== ========
Cash Flows From Operating Activities. Cash flows from operating activities
increased $52.7 million or 135% from net cash inflows of $39.0 million to $91.8
million during the years ended December 31, 2003 and December 31, 2004,
respectively. Proceeds from the sale of and borrowings collateralized by notes
receivable, net of payments on such borrowings, increased $38.0 million from
$86.0 million to $124.0 million during the years ended December 31, 2003 and
December 31, 2004, respectively. The remainder of the increase in operating cash
flows during the year ended December 31, 2004 as compared to the year ended
December 31, 2003 was commensurate with the decrease in inventory, as a result
of our increased VOI and homesite sales.
Cash flows from operating activities decreased $36.2 million or 39% from net
cash inflows of $91.8 million to $55.6 million during the years ended December
31, 2004 and December 31, 2005, respectively. This decrease was due primarily to
higher construction and development spending during 2005 as compared to 2004.
Additionally, during 2005 we acquired land for three Bluegreen Communities
developments (Saddle Creek Forest, The Settlement at Patriot Ranch, and
Havenwood at Hunter's Crossing) and three vacation ownership resorts (Daytona
SeaBreeze, SeaGlass Towers, and Carolina Grande), as compared to the acquisition
of only one vacation ownership resort (the Suites at Hershey) and only two
communities (Sugar Tree on the Brazos and Chapel Ridge) during 2004. These
acquisition and related construction and development costs were paid with a
combination of cash and borrowings.
We report cash flows from borrowings collateralized by notes receivable and
sales of notes receivable as operating activities in the consolidated statements
of cash flows. The majority of Bluegreen Resorts' sales result in the
origination of notes receivable from its customers. We believe that accelerating
the conversion of such notes receivable into cash, either through the pledge or
sale of our notes receivable, on a regular basis is an integral function of our
operations, and have therefore classified such activities as operating
activities.
Cash Flows From Investing Activities. Cash flows from investing activities
decreased $7.1 million or 205% from net cash outflows of $3.5 million to $10.5
million for the years ended December 31, 2003 and December 31, 2004,
respectively. The decrease was primarily due to increased purchases of property
and equipment during the year ended December 31, 2004 as compared to the year
ended December 31, 2003
Cash flows from investing activities increased $2.4 million or 23% from net cash
outflows of $10.5 million to $8.1 million for the years ended December 31, 2004
and December 31, 2005, respectively. This increase was due primarily to higher
amounts of cash received in 2005 from our retained interests in notes receivable
sold, as we did not begin receiving cash flows on our retained interest in a
2004 Term Securitization transaction until the third quarter of 2005 due to
reserve funding requirements. The remainder of the increase in cash flows from
investing activities was due to lower expenditures in 2005 for property and
equipment as compared to 2004.
49
Cash Flows From Financing Activities. Cash flows from financing activities
decreased $28.0 million or 248% from net cash outflows of $11.3 million to $39.2
million during the years ended December 31, 2003 and December 31, 2004,
respectively. This decrease was due to increased payments under line-of-credit
facilities and notes payable, partially offset by increased proceeds from
borrowings under such facilities and notes.
Cash flows from financing activities decreased $24.1 million or 61% from net
cash outflows of $39.2 million to $63.3 million during the years ended December
31, 2004 and December 31, 2005, respectively. This increase was due primarily to
the redemption of $55.0 million of our senior secured notes as well as lower
borrowings under our credit facilities during 2005 as compared to 2004. These
outflows were partially offset by the receipt of $59.3 million of cash in
connection with our issuance of the junior subordinated debentures.
Liquidity and Capital Resources
Our capital resources are provided from both internal and external sources. Our
primary capital resources from internal operations are: (i) cash sales, (ii)
downpayments on homesite and VOI sales which are financed, (iii) proceeds from
the sale of, or borrowings collateralized by, notes receivable, including cash
received from our retained interests in notes receivable sold, (iv) principal
and interest payments on the purchase money mortgage loans and contracts for
deed owned arising from sales of VOIs and homesites and (v) net cash generated
from other resort services and other communities operations. Historically,
external sources of liquidity have included non-recourse sales of notes
receivable, borrowings under secured and unsecured lines-of-credit, seller and
bank financing of inventory acquisitions and the issuance of debt securities.
Our capital resources are used to support our operations, including (i)
acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) funding operating expenses and (iv) satisfying our debt and
other obligations. As we are continually selling and marketing real estate (VOIs
and homesites), it is necessary for us to continually acquire and develop new
resorts and communities in order to maintain adequate levels of inventory to
support operations. We anticipate that we will continue to require external
sources of liquidity to support our operations, satisfy our debt and other
obligations and to provide funds for future acquisitions.
Our level of debt and debt service requirements have several important effects
on our operations, including the following: (i) we have significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing our vulnerability to adverse economic and
industry conditions; (ii) our leveraged position increases our vulnerability to
competitive pressures; (iii) the financial covenants and other restrictions
contained in the indentures, the credit agreements and other agreements relating
to our indebtedness require us to meet certain financial tests and restrict our
ability to, among other things, borrow additional funds, dispose of assets, make
investments or pay cash dividends on, or repurchase, preferred or common stock;
and (iv) funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited. Certain of our competitors
operate on a less leveraged basis and have greater operating and financial
flexibility than we do.
We intend to continue to pursue a growth-oriented strategy, particularly with
respect to our Bluegreen Resorts business segment. In connection with this
strategy, we may from time to time acquire, among other things, additional
resort properties and completed but unsold VOIs; land upon which additional
resorts may be built; management contracts; loan portfolios of vacation
ownership mortgages; portfolios which include properties or assets which may be
integrated into our operations; interests in joint ventures; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to our operations in the
vacation ownership industry. In addition, we intend to continue to focus
Bluegreen Communities' activities on larger, more capital intensive projects
particularly in those regions where we believe the market for our products is
strongest, such as new golf communities in the Southeast and other areas and
continued growth in our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that were
important sources of our liquidity as of December 31, 2005. These facilities do
not constitute all of our outstanding indebtedness as of December 31, 2005. Our
other indebtedness includes outstanding senior secured notes payable, junior
subordinated debentures, borrowings collateralized by real estate inventories
that were not incurred pursuant to an ongoing credit facility and capital
leases.
50
Vacation Ownership Receivables Purchase Facilities -Off-Balance Sheet
Arrangements
Our ability to sell and/or borrow against our notes receivable from VOI buyers
is a critical factor in our continued liquidity. When we sell VOIs, a financed
buyer is only required to pay a minimum of 10% of the purchase in cash at the
time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the year ended December 31, 2005,
approximated 61% of sales. Accordingly, having facilities available for the
hypothecation or sale of these vacation ownership receivables is a critical
factor to our ability to meet our short and long-term cash needs.
The GE Purchase Facility. In March 2006 we executed agreements for a vacation
ownership receivables purchase facility (the "GE Purchase Facility") with
General Electric Capital Corporation ("GE"). The GE Purchase Facility utilizes
an owner's trust structure, pursuant to which we sell receivables to Bluegreen
Receivables Finance Corporation XI, our wholly-owned, special purpose finance
subsidiary ("BRFC XI"), and BRFC XI sells the receivables to an owner's trust (a
qualified special purpose entity) without recourse to us or BRFC XI except for
breaches of certain customary representations and warranties at the time of
sale. We did not enter into any guarantees in connection with the GE Purchase
Facility. The GE Purchase Facility has detailed requirements with respect to the
eligibility of receivables for purchase, and fundings under the GE Purchase
Facility are subject to certain conditions precedent. Under the GE Purchase
Facility, a variable purchase price of approximately 90% of the principal
balance of the receivables sold, subject to adjustment under certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as GE has received a specified return, a specified
overcollateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE earns a return equal to the applicable Swap Rate (which is essentially
a published interest swap arrangement rate as defined in the GE Purchase
Facility agreements) plus 2.35%, subject to use of alternate return rates in
certain circumstances. In addition, we will pay GE a structuring fee of
approximately $437,500 in March 2006. We will act as servicer under the GE
Purchase Facility for a fee.
The GE Purchase Facility allows for sales of notes receivable for a cumulative
purchase price of up to $125.0 million for a period which ends on in March 2008.
The GE Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
GE's obligation to purchase under the GE Purchase Facility may terminate earlier
than the dates noted above upon the occurrence of certain specified events set
forth in the GE Purchase Facility agreements. These specified events, some of
which are subject to materiality qualifiers and cure periods, include, without
limitation, (i) the aggregate amount of all advances under the GE Purchase
Facility equaling $125.0 million; (ii) our breach of the representations or
warranties in the GE Purchase Facility; (iii) our failure to perform our
covenants in the GE Purchase Facility; (iv) our commencement of a bankruptcy
proceeding or the like; (v) the amount of any advance under the GE Purchase
Facility failing to meet a specified overcollateralization amount; (vi)
significant delinquencies or defaults on the receivables sold; (vii) recovery
rates falling below a pre-determined amount; (viii) a default or breach under
any other agreement beyond the applicable grace period if such default or breach
(a) involves the failure to make a payment in excess of 5% of our Tangible Net
Worth (as defined in the GE Purchase Facility agreements to include our
subordinated debentures) or (b) causes, or permits the holder of indebtedness to
cause, an amount in excess of 5% of our Tangible Net Worth to become due; (ix)
our Tangible Net Worth at the end of any calendar quarter not equaling at least
$303.9 million plus 50% of net income following December 31, 2005; (x) the ratio
of our debt (excluding our subordinated debentures) to Tangible Net Worth
exceeding 2.50 to 1; (xi) the ratio of our consolidated earnings before
interest, taxes, depreciation and amortization to our interest expense (net of
interest income) falling below 2.00 to 1; (xii) the number of points available
in the Bluegreen Vacation Club to be less than approximately 930.7 million;
(xiii) our ceasing to conduct the vacation ownership business and originate
vacation ownership receivables or if certain changes in our ownership or control
occur; (xiv) the failure of certain of our resorts to be part of the Bluegreen
Vacation Club or be managed by us, one of our subsidiaries or another entity
acceptable to GE; (xv) operating budgets and reserve accounts maintained by the
property owners' associations responsible for maintaining certain of our resorts
failing to comply with applicable laws and governing documents; (xvi) our
failure to discharge, stay or bond pending appeal any final judgments for the
payment of an amount in excess of 2.5% of our Tangible Net Worth in a timely
manner; (xvii) our default under or breach of certain resort management or
marketing contracts; or (xviii) our failure to perform our servicing
obligations, otherwise have our servicing rights terminated or if we do not
exercise the Servicer Purchase Option pursuant to the terms of the GE Purchase
Facility.
51
The 2005 Term Securitization. On December 28, 2005, BB&T Capital Markets, a
division of Scott & Stringfellow, Inc., consummated a $203.8 million private
offering and sale of vacation ownership receivable-backed securities (the "2005
Term Securitization"). The $191.1 million in aggregate principal of vacation
ownership receivables offered and sold in the 2005 Term Securitization were
previously sold to a previous, off-balance sheet vacation ownership receivables
purchase facility with BB&T (the "BB&T Purchase Facility"). In addition, the
2005 Term Securitization allowed for an additional $35.3 million in aggregate
principal of our qualifying vacation ownership receivables (the "Pre-funded
Receivables") that could be sold by us through March 28, 2006 to Bluegreen
Receivables Finance Corporation X, our wholly-owned, special purpose finance
subsidiary ("BRFC X"), which would then sell the Pre-funded Receivables to BXG
Receivables Note Trust 2005-A ("2005-A"), a qualified special purpose entity,
without recourse to us or BRFC X, except for breaches of certain representations
and warranties at the time of sale. The proceeds of $31.8 million (at an advance
rate of 90%) as payment for the Pre-funded Receivables were deposited into an
escrow account by the indenture trustee of the 2005 Term Securitization until
such receivables are actually sold by us to BRFC X. If we don't sell the
Pre-funded Receivables to earn the entire amount of related proceeds held in
escrow, the remaining proceeds will be used to pay down amounts owed to
investors in the 2005 Term Securitization. On December 29, 2005, we sold $16.7
million in Pre-funded Receivables to BRFC X and the $15.1 million purchase price
was disbursed to us from the escrow account. On March 1, 2006, we sold $18.6
million in Pre-funded Receivables to BRFC X and the $16.7 million purchase price
was disbursed to us from the escrow account.
The proceeds of the 2005 Term Securitization were used to pay BB&T all amounts
outstanding under the BB&T Purchase Facility, pay Resort Finance, LLC all
amounts outstanding under a previous, on-balance sheet purchase facility, pay
fees associated with the transaction to third-parties, deposit initial amounts
in a required cash reserve account and the escrow accounts for the Pre-funded
Receivables and provide net cash proceeds of $1.1 million to us. We also
received a retained interest in the future cash flows from the 2005 Term
Securitization (including the future cash flows from the Pre-funded Receivables
actually sold).
The New BB&T Purchase Facility. We are currently in documentation for a new,
two-year $150 million vacation ownership receivables purchase facility with
BB&T. There can be no assurances that this new facility will be obtained on
favorable terms or at all. We anticipate accounting for sales of receivables
under this facility, if obtained, as on-balance sheet borrowings pursuant to
SFAS 140. This facility would be used to accumulate receivables in anticipation
of future term securitization transactions.
We have chosen to monetize our receivables through the GE Purchase Facility and
through periodic term securitization transactions historically, as these
off-balance sheet arrangements provide us with cash inflows both currently and
in the future at what we believe to be competitive rates without adding leverage
to our balance sheet or retaining recourse for losses on the receivables sold.
In addition, these sale transactions have generated gains on our income
statement on a quarterly basis, which would not be realized under a traditional
financing arrangement.
The GE Purchase Facility discussed above is the only ongoing receivables
purchase facilities under which we currently have the ability to sell
receivables. Factors which could adversely impact our ability to obtain new or
additional vacation ownership receivable purchase facilities include a downturn
in general economic conditions; negative trends in the commercial paper or LIBOR
markets; increases in interest rates; a decrease in the number of financial
institutions or other entities willing to enter into facilities with vacation
ownership companies; a deterioration in the performance of our vacation
ownership notes receivable or in the performance of portfolios sold in prior
transactions, specifically increased delinquency, default and loss severity
rates; and a deterioration in our performance generally. There can be no
assurance that we will obtain new purchase facilities to replace the GE Purchase
Facility when this facility is fully funded or expires. As indicated above, our
inability to sell vacation ownership receivables under a current or future
facility could have a material adverse impact on our liquidity. However,
management believes that to the extent we could not sell receivables under a
purchase facility, we could potentially mitigate the adverse impact on our
liquidity by using our receivables as collateral under existing or future credit
facilities.
Historically, we have also been a party to a number of securitization-type
transactions, all of which in our opinion utilize customary structures and terms
for transactions of this type. In each securitization-type transaction, we sold
receivables to a wholly-owned special purpose entity which, in turn, sold the
receivables either directly to third parties or to a trust established for the
transaction. In each transaction, the receivables were sold on a non-recourse
basis (except for
52
breaches of certain representations and warranties) and the special purpose
entity has a retained interest in the receivables sold. We have acted as
servicer of the receivables pools in each transaction for a fee, with the
servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, make
interest and principal payments to investors, fund required reserves, if any,
and pay distributions in respect of the retained interests in the receivables.
Pursuant to the terms of the transaction documents, however, to the extent the
portfolio of receivables fails to satisfy specified performance criteria (as may
occur due to an increase in default rates or loan loss severity) or other
trigger events, the funds received from obligors are distributed on an
accelerated basis to investors. In effect, during a period in which the
accelerated payment formula is applicable, funds go to outside investors until
they receive the full amount owed to them and only then are payments made to our
subsidiary in its capacity as the holder of the retained interests. Depending on
the circumstances and the transaction, the application of the accelerated
payment formula may be permanent or temporary until the trigger event is cured.
If the accelerated payment formula were to become applicable, the cash flow on
the retained interests in the receivables would be reduced until the outside
investors were paid or the regular payment formula was resumed. Such a reduction
in cash flow could cause a decline in the fair value of our retained interests
in the receivables sold. Declines in fair value that are determined to be other
than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from our special purpose
subsidiary, the suspension or termination of that commitment. In addition, in
each securitization facility certain breaches of our obligations as servicer or
other events allow the indenture trustee to cause the servicing to be
transferred to a substitute third party servicer. In that case, our obligation
to service the receivables would terminate and we would cease to receive a
servicing fee.
We recognized an other-than-temporary decrease of $539,000 during 2005, in the
fair value of our retained interest in a 2002 vacation ownership receivables
securitization transaction, based on higher than projected default rates in the
portfolio sold.
The following is a summary of significant financial information related to the
GE Purchase Facility and prior similar facilities during the periods presented
below (in thousands):
December 31, December 31,
2004 2005
---------------------------
On Balance Sheet: (as restated)
Retained interests in notes receivable sold $66,513 $105,696
Off-Balance Sheet:
Notes receivable sold without recourse 292,722 429,403
Principal balance owed to note receivable
purchasers 268,590 396,679
Year Ended
------------------------------------------
Income Statement: December 31, December 31, December 31,
2003 2004 2005
------------------------------------------
(as restated) (as restated)
Gain on sales of notes receivable $ -- $25,972 $25,226
Interest accretion on retained interests in notes
receivable sold 5,519 6,035 9,310
Servicing fee income 2,352 2,931 4,969
53
Credit Facilities for Bluegreen's Receivables and Inventories
In addition to the vacation ownership receivables purchase facilities discussed
above, we maintain various credit facilities with financial institutions that
provide receivable, acquisition and development financing for our operations. We
had the following credit facilities, as of December 31, 2005 (see further
discussion below):
Outstanding Borrowings
Borrowings During the
as of Year Ended Advance Period
December December Expiration; Borrowing Borrowing Current
Credit Facility 31, 2005 31, 2005 Borrowing Maturity Limit Rate Rate
----------------------------------------------------------------------------------------------------------------------
The GMAC $25.4 million $16.9 February 15, 2008; $75.0 30-day 8.34%
Receivables Facility million February 15, 2015 million LIBOR +
4.00%
The GMAC AD&C $33.4 million $33.1 February 15, 2008; $150.0 30-day 9.09%
Facility million August 15, 2013 million LIBOR +
4.75%
The RFL A&D -- $9.5 million January 10, 2007; $50.0 30-day 8.24%
Facility January 10, 2008 million LIBOR +
3.90% (Min.
6.90%)
The Foothill Facility $3.2 million -- December 31, 2006; $30.0 Prime + 7.50%
December 31, 2008 million 0.25% (Min. to
4.00%); 8.50%
to
Prime +
1.25%
The GMAC $1.8 million $16.5 September 30, 2007; $75.0 Prime + 8.25%
Communities million September 30, 2009 million 1.00%
Facility
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
The GMAC Receivables Facility. In February 2003, we entered into a revolving
vacation ownership receivables credit facility (the "GMAC Receivables Facility")
with Residential Funding Corporation ("RFC"), an affiliate of GMAC. The
borrowing limit under the GMAC Receivables Facility, as increased by amendment,
is $75.0 million. The borrowing period on the GMAC Receivables Facility, as
amended, expires on February 15, 2008, and outstanding borrowings mature no
later than February 15, 2015. The GMAC Receivables Facility has detailed
requirements with respect to the eligibility of receivables for inclusion and
other conditions to funding. The borrowing base under the GMAC Receivables
Facility is 90% of the outstanding principal balance of eligible notes arising
from the sale of VOIs. The GMAC Receivables Facility includes affirmative,
negative and financial covenants and events of default. All principal and
interest payments received on pledged receivables are applied to principal and
interest due under the GMAC Receivables Facility. Indebtedness under the
facility bears interest at 30-day LIBOR plus 4.00% (8.39% at December 31, 2005).
Interest payments are due monthly. During the year ended December 31, 2005, we
pledged approximately $18.8 million in aggregate principal balance of vacation
ownership receivables under the GMAC Receivables Facility and received $16.9
million in cash borrowings. As of December 31, 2005, $25.4 million was
outstanding under the GMAC Receivables Facility.
54
The GMAC AD&C Facility. In September 2003, RFC also provided us with a $75.0
million acquisition, development and construction revolving credit facility for
Bluegreen Resorts, which was increased to $150.0 million in March 2006 (the
"GMAC AD&C Facility"). The borrowing period on the GMAC AD&C Facility, as
amended, expires on February 15, 2008, and outstanding borrowings mature no
later than August 15, 2013, although specific draws typically are due four years
from the borrowing date. Principal will be repaid through agreed-upon release
prices as VOIs are sold at the financed resorts, subject to minimum required
amortization. Indebtedness under the facility bears interest at 30-day LIBOR
plus 4.50%, as amended in March 2006. Interest payments are due monthly. During
the year ended December 31, 2005, we borrowed $33.2 million under the GMAC AD&C
Facility to fund the development of VOIs at The Fountains and the acquisition of
Carolina Grande. As of December 31, 2005, $33.4 million was outstanding under
the GMAC AD&C Facility.
The RFL A&D Facility. In January 2005, we entered into a $50.0 million revolving
credit facility with RFL (the "RFL A&D Facility"). We use the proceeds from the
RFL A&D Facility to finance the acquisition and development of vacation
ownership resorts. The RFL A&D Facility is secured by 1) a first mortgage and
lien on all assets purchased with the RFL A&D Facility; 2) a first assignment of
all construction contracts, related documents, building permits and completion
bond; 3) a negative pledge of our interest in any management, marketing,
maintenance or service contracts; and 4) a first assignment of all operating
agreements, rents and other revenues at the vacation ownership resorts which
serve as collateral for the RFL A&D Facility, subject to any requirements of the
respective property owners' associations. Borrowings under the RFL A&D Facility
can be made through January 10, 2007. Principal payments will be effected
through agreed-upon release prices paid to RFL as vacation ownership interests
in the resorts that serve as collateral for the RFL A&D Facility. The
outstanding principal balance of any borrowings under the RFL A&D Facility must
be repaid by January 10, 2008. Indebtedness under the facility bears interest at
30-day LIBOR plus 3.90%, subject to a 6.90% floor (8.29% at December 31, 2005).
Interest payments are due monthly. We are required to pay a commitment fee equal
to 1.00% of the $50.0 million facility amount, which is paid at the time of each
borrowing under the RFL A&D Facility as 1.00% of each borrowing with the balance
being paid on the unutilized facility amount on January 10, 2007. In addition,
we are required to pay a program fee equal to 0.125% of the $50.0 million
facility amount per annum, payable monthly. The RFL A&D Facility documents
include customary conditions to funding, acceleration provisions and certain
financial affirmative and negative covenants. In January 2005, we borrowed $10.5
million under the RFL A&D Facility in connection with the acquisition of the
Daytona SeaBreeze resort, all of which had been repaid as of December 31, 2005.
The Foothill Facility. Under an existing $30.0 million revolving credit facility
with Wells Fargo Foothill, Inc. ("Foothill") primarily used for borrowings
collateralized by Bluegreen Communities receivables and inventory, we can also
borrow up to $10.0 million of the facility collateralized by the pledge of
vacation ownership receivables. See "Credit Facilities for Bluegreen
Communities' Receivables and Inventories," below, for further details on this
facility.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We have a $30.0 million revolving credit facility with
Foothill secured by the pledge of Bluegreen Communities' receivables, with up to
$20.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and, as indicated above, up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables (the
"Foothill Facility"). The Foothill Facility requires principal payments based on
agreed-upon release prices as homesites in the encumbered communities are sold
and bears interest at the prime lending rate plus 1.25% (8.50% at December 31,
2005). Interest payments are due monthly. The interest rate charged on
outstanding receivable borrowings under the Foothill Facility, as amended, is
the prime lending rate plus 0.25% (7.50% at December 31, 2005) when the average
monthly outstanding loan balance is greater than or equal to $15.0 million. If
the average monthly outstanding loan balance is less than $15.0 million, the
interest rate is the greater of 4.00% or the prime lending rate plus 0.50%
(7.75% at December 31, 2005). All principal and interest payments received on
pledged receivables are applied to principal and interest due under the Foothill
Facility. Borrowings under the Foothill Facility can be made through December
31, 2006. Outstanding indebtedness collateralized by receivables is due December
31, 2008. At December 31, 2005, the outstanding principal balance under the
facility was $3.2 million, approximately $2.2 million of which relates to
Bluegreen Communities' receivables borrowings and approximately $1.0 million of
which relates to Bluegreen Resorts' receivables borrowings under the Foothill
Facility.
The GMAC Communities Facility. In May 2005 and again in March 2006, we amended
our existing $75.0 million revolving credit facility with RFC (the "GMAC
Communities Facility"). The GMAC Communities Facility is secured by the real
property homesites (and
55
personal property related thereto) at the following Bluegreen Communities
projects, as well as any Bluegreen Communities projects acquired by us with
funds borrowed under the GMAC Communities Facility (the "Secured Projects"):
Brickshire (New Kent County, Virginia); Mountain Lakes Ranch (Bluffdale, Texas);
Ridge Lake Shores (Magnolia, Texas); Riverwood Forest (Fulshear, Texas);
Waterstone (Boerne, Texas); Catawba Falls Preserve (Black Mountain, North
Carolina); Lake Ridge at Joe Pool Lake (Cedar Hill and Grand Prairie, Texas);
Mystic Shores at Canyon Lake (Spring Branch, Texas); Yellowstone Creek Ranch
(Pueblo, Colorado); and Havenwood at Hunters' Crossing (New Braunfels, Texas)
(the "Texas Property"). In addition, the GMAC Communities Facility is secured by
our Carolina National and The Preserve at Jordan Lake golf courses in Southport,
North Carolina and Chapel Hill, North Carolina, respectively. Borrowings can be
drawn on such projects through September 30, 2007. Principal payments are
effected through agreed-upon release prices paid to RFC as homesites in the
Secured Projects are sold. The outstanding principal balance of any borrowings
under the GMAC Communities Facility must be repaid by September 30, 2009. The
interest charged on outstanding borrowings is at the prime lending rate plus
1.00% (8.25% at December 31, 2005). Interest payments are due monthly. The GMAC
Communities Facility includes customary conditions to funding, acceleration and
event of default provisions and certain financial affirmative and negative
covenants. We use the proceeds from the GMAC Communities Facility to repay
outstanding indebtedness on Bluegreen Communities projects, finance the
acquisition and development of Bluegreen Communities projects and for general
corporate purposes. In July 2005, we borrowed $7.5 million under the GMAC
Communities Facility in connection with the acquisition of Havenwood at Hunters
Crossing and an additional $9.0 million in April 2005 for general corporate
purposes. As of December 31, 2005, $1.8 million was outstanding under the GMAC
Communities Facility. In March 2006, we borrowed $18.2 million under the GMAC
Communities Facility for the acquisition of a new property in Grayson County,
Texas and an additional $9 million for general corporate purposes.
Over the past several years, substantially all of our homesite sales have been
for cash and we have not provided a significant amount of financing to homesite
purchasers. Accordingly, in recent years we have reduced the borrowing capacity
under credit agreements secured by Bluegreen Communities' receivables. We
attribute the significant volume of cash sales to an increased willingness on
the part of banks to extend direct customer homesite financing at attractive
interest rates. No assurances can be given that local banks will continue to
provide such customer financing.
Historically, we have funded development for road and utility construction,
amenities, surveys and engineering fees from internal operations and have
financed the acquisition of Bluegreen Communities properties through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be paid monthly and principal to be repaid
through homesite releases. The release price is usually an amount based on a
pre-determined percentage (typically 25% to 55%) of the gross selling price of
the homesites in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When we provide financing for our
customers (and therefore the release price is not available in cash at closing
to repay the lender), we are required to pay the lender with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Trust Preferred Securities Offerings
We have formed statutory business trusts (collectively, the "Trusts") and each
issued trust preferred securities and invested the proceeds thereof in our
junior subordinated debentures. The Trusts are variable interest entities in
which we are not the primary beneficiary as defined by FASB Interpretation No.
46R. Accordingly, we do not consolidate the operations of the Trusts; instead,
the Trusts are accounted for under the equity method of accounting. In each of
these transactions, the applicable Trust issued trust preferred securities as
part of a larger pooled trust securities offering which was not registered under
the Securities Act of 1933. The applicable Trust then used the proceeds from
issuing the trust preferred securities to purchase an identical amount of junior
subordinated debentures from us. Interest on the junior subordinated debentures
and distributions on the trust preferred securities are payable quarterly in
arrears at the same interest rate. Distributions on the trust preferred
securities are cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable in whole or in part at the Company's option at any
time after five years from the issue date or sooner following certain specified
events. In addition, we made an initial equity contribution to each Trust in
exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of each Trust's common securities are nearly
identical to the trust preferred securities.
56
We had the following junior subordinated debentures outstanding at December 31,
2005 (dollars in thousands):
Outstanding
Amount of Initial Fixed Variable Beginning
Junior Equity Interest Interest Optional
Subordinated To Issue Rate Rate Redemption Maturity
Trust Debentures Trust Date (1) (2) Date Date
-------------------------------------------------------------------------------------------------------------------
Bluegreen
Statutory Trust I $23,196 $ 696 3/15/05 9.160% LIBOR + 3/30/10 3/30/35
4.90%
Bluegreen
Statutory Trust II 25,774 774 5/4/05 9.158% LIBOR + 7/30/10 7/30/35
4.85%
Bluegreen
Statutory Trust III 10,310 310 5/10/05 9.193% LIBOR + 7/30/10 7/30/35
4.85%
--------------------
$59,280 $1,780
====================
(1) Both the trust preferred securities and junior subordinated
debentures bear interest at a fixed interest rate from the issue
date through the beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated
debentures bear interest at a variable interest rate from the
beginning optional redemption date through the maturity date.
We currently intend to seek to create similar trusts and to participate in other
pooled trust preferred securities transactions in the future as a source of
additional financing, subject to market conditions and other considerations.
Unsecured Credit Facility
We have a $15.0 million unsecured line-of-credit with Wachovia Bank, N.A.
Amounts borrowed under the line bear interest at one month LIBOR plus 2.00%
(6.34% at December 31, 2005). Interest is due monthly and all outstanding
amounts are due on June 30, 2006. Borrowings under the line-of-credit are
limited to an amount which is less than the remaining availability under our
current, active vacation ownership receivables purchase facilities plus
availability under certain receivables warehouse facilities, less any
outstanding letters of credit. The line-of-credit agreement contains covenants
and conditions typical of arrangements of this type. As of December 31, 2005, no
borrowings were outstanding under the line; however, an aggregate of $523,000 of
irrevocable letters of credit were outstanding under this line-of-credit at
December 31, 2005. These letters of credit expire on December 31, 2006. This
line-of-credit is an available source of short-term liquidity.
Commitments
Our material commitments as of December 31, 2005 included the required payments
due on our receivable-backed debt, lines of credit and other notes payable,
commitments to complete our vacation ownership and communities projects based on
our sales contracts with customers and commitments under noncancelable operating
leases.
The following table summarizes the contractual minimum principal payments
required on all of our outstanding debt (including our receivable-backed debt,
lines-of-credit and other notes and debentures payable) and our noncancelable
operating leases by period date, as of December 31, 2005 (in thousands):
57
Payments Due by Period
------------------------------------------------------
Contractual Obligations Less than 1 - 3 4 - 5 After 5
----------------------- 1 year Years Years Years Total
------ ----- ----- ----- -----
Receivable-backed notes payable $ 22 $10,288 $ -- $ 25,421 $ 35,731
Lines-of-credit and notes payable 21,459 32,181 7,788 -- 61,428
10.5% senior secured notes -- 55,000 -- -- 55,000
Jr. Subordinated debentures -- -- -- 59,280 59,280
Noncancelable operating leases 8,225 13,252 7,510 4,624 33,611
---------------------------------------------------
Total contractual obligations $29,707 $110,721 $15,298 $89,325 $245,051
======= ======== ======= ======= ========
The following table sets forth certain information regarding future interest
obligations on outstanding debt as of December 31, 2005 (in thousands):
Payments Due by Period
------------------------------------------------------
Interest Obligations (1) Less than 1 - 3 4 - 5 After 5
------------------------- 1 year Years Years Years Total
------ ----- ----- ----- -----
Receivable-backed notes payable $ 2,890 $ 5,414 $ 4,300 $ 5,628 $ 18,232
Lines-of-credit and notes payable 4,159 4,608 414 -- 9,181
10.5% senior secured notes 5,755 11,550 -- -- 17,305
Jr. Subordinated debentures 5,433 10,866 10,866 133,013 160,178
---------------------------------------------------
Total contractual obligations $18,237 $32,438 $15,580 $138,641 $204,896
======= ======= ======= ======== ========
(1) Interest on variable rate debt has assumed the weighted average interest
rate remains the same as the rate at December 31, 2005.
We intend to use cash flow from operations, including cash received from the
sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
principal payments required on contractual cbligations. While we believe that we
will be able to meet all required debt payments when due, there can be no
assurance that this will be the case.
As noted above, we have $530,000 in letters-of-credit outstanding at December
31, 2005, the majority of which were issued under the unsecured line-of-credit
with Wachovia Bank, N.A. These letters-of-credit, which expire in 2006, were
required in connection with the obtaining of governmental approval of plats for
one of our Bluegreen Communities projects.
We estimate that the total cash required to complete resort buildings in which
sales have occurred and resort amenities and other common costs in projects in
which sales have occurred to be approximately $17.5 million as of December 31,
2005. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $67.1
million as of December 31, 2005. These amounts assume that we are not obligated
to develop any building, project or amenity in which a commitment has not been
made through a sales contract to a customer; however, we anticipate that we will
incur such obligations in the future. We plan to fund these expenditures over
the next five years primarily with available capacity on existing or proposed
credit facilities and cash generated from operations. There can be no assurance
that we will be able to obtain the financing or generate the cash from
operations necessary to complete the foregoing plans or that actual costs will
not exceed those estimated.
We believe that our existing cash, anticipated cash generated from operations,
anticipated future permitted borrowings under existing or proposed credit
facilities and anticipated future sales of notes receivable under the purchase
facilities and one or more replacement facilities we will seek to put in place
will be sufficient to meet our anticipated working capital, capital expenditures
and debt service requirements for the foreseeable future. We will be required to
renew or replace credit and receivables purchase facilities that have expired or
that will expire in the near term. We will, in the future, also require
additional credit facilities or will be required to issue corporate debt or
equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us may be secured or unsecured, bear fixed or variable
rate interest and may be subject to such terms as the lender may require and
management believes acceptable. There can be no assurance that the credit
facilities or receivables purchase facilities which have expired or which are
scheduled to expire in the near term will be renewed or replaced or that
sufficient funds will be available from operations or under existing, proposed
or future revolving credit or other borrowing arrangements or receivables
purchase facilities to meet
58
our cash needs, including, our debt service obligations. To the extent we are
not able to sell notes receivable or borrow under such facilities, our ability
to satisfy our obligations would be materially adversely affected.
Most of our credit facilities, indentures, and other outstanding debt
instruments, and receivables purchase facilities which include customary
conditions to funding, eligibility requirements for collateral, cross-default
and other acceleration provisions, certain financial and other affirmative and
negative covenants, including, among others, limits on the incurrence of
indebtedness, limits on the repurchase of securities; restrictions on the
payment of dividends, investments in joint ventures and other restricted
payments; limitations on the incurrence of liens and transactions with
affiliates, covenants concerning net worth, fixed charge coverage requirements,
debt-to-equity ratios and portfolio performance requirements; and events of
default or termination. No assurance can be given that we will be in compliance
with such covenants, that we will not be required to seek waivers of such
covenants or that such covenants will not limit our ability to raise funds, sell
receivables, satisfy or refinance our obligations or otherwise adversely affect
our operations. In addition, our future operating performance and ability to
meet our financial obligations will be subject to future economic conditions and
to financial, business and other factors, many of which will be beyond our
control.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Risk
Our total revenues and net assets denominated in a currency other than U.S.
dollars during the year ended December 31, 2005 were less than 2% of
consolidated revenues and consolidated assets, respectively. Sales generated and
long-term debt incurred to date by Bluegreen Properties, N.V., our subsidiary in
Aruba, are transacted in U.S. dollars. The effects of changes in foreign
currency exchange rates have not historically been significant to our operations
or net assets.
Interest Rate Risk
We did not sell any vacation ownership notes receivable off-balance sheet in
2003 and sold, $215.5 million and $228.8 million of fixed-rate vacation
ownership notes receivable off-balance sheet during 2004 and 2005, respectively,
under various vacation ownership receivable purchase facilities and term
securitization transactions (see Note 5 of the Notes to Consolidated Financial
Statements). Our gains on sale recognized are generally based upon either fixed
or variable interest rates at the time of sale including the prevailing
weighted-average term treasury rate, commercial paper rates or LIBOR rates
(depending on the purchase facility in effect) and many other factors including,
but not limited to the weighted-average coupon rate and remaining contractual
life of the loans sold, and assumptions regarding the constant prepayment rate,
loss severity, annual default and discount rates. We believe that we have used
appropriate assumptions in valuing the residual interests retained in the
vacation ownership and land notes sold through our various off-balance sheet
vacation ownership receivables purchase facilities and term securitization
transactions and that such assumptions should mitigate the impact of a
hypothetical one-percentage point interest rate change on these valuations, but
there is no assurance that the assumptions will prove to be correct.
As of December 31, 2005, we had fixed interest rate debt of approximately $118.6
million and floating interest rate debt of approximately $92.9 million. In
addition, our notes receivable from VOI and homesite customers were comprised of
$128.8 million of fixed rate loans and $5.1 million of notes bearing floating
interest rates. The floating interest rates are based either upon the prevailing
prime or LIBOR interest rates. For floating rate financial instruments, interest
rate changes do not generally affect the market value of debt but do impact
future earnings and cash flows, assuming other factors are held constant.
Conversely, for fixed rate financial instruments, interest rate changes affect
the market value of the debt but do not impact earnings or cash flows.
A hypothetical one-percentage point increase in the prevailing prime or LIBOR
rates, as applicable, would decrease our after-tax earnings by an immaterial
amount per year, as a result of increased interest expense on variable rate
debt, partially offset by the increased interest income on variable rate
Bluegreen Communities notes receivable and cash and cash equivalents. A similar
change in interest rates would decrease the total fair value of our fixed rate
debt, excluding our 10.5% senior secured notes payable (the "Notes") by an
immaterial amount. The fact that the Notes are publicly traded in the
over-the-counter market makes it impractical to estimate the effect of the
hypothetical change in interest rates on the fair value of the Notes. Due to the
non-interest related factors involved in determining the fair value of these
publicly traded securities, their fair values have historically demonstrated
increased, decreased or at times contrary relationships to changes in interest
rates as compared to other types of fixed-rate debt securities. The analyses do
not
59
consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of such a change, we
would likely attempt to take actions to mitigate our exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in our
financial structure.
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BLUEGREEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, December 31,
2004 2005
---- ----
ASSETS (As Restated)
Cash and cash equivalents (including restricted cash of approximately $21,423
and $18,321 at December 31, 2004 and 2005, respectively) .................. $ 100,565 $ 84,704
Contracts receivable, net ................................................... 28,085 27,473
Notes receivable, net ....................................................... 152,051 127,783
Prepaid expenses ............................................................ 7,810 6,500
Other assets ................................................................ 19,279 17,156
Inventory, net .............................................................. 205,352 240,969
Retained interests in notes receivable sold ................................. 66,513 105,696
Property and equipment, net ................................................. 74,244 79,634
Intangible assets and goodwill .............................................. 4,512 4,328
------------- -------------
Total assets .......................................................... $ 658,411 $ 694,243
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ............................................................ $ 11,552 $ 11,071
Accrued liabilities and other ............................................... 44,323 43,801
Deferred income ............................................................. 24,235 29,354
Deferred income taxes ....................................................... 56,064 75,404
Receivable-backed notes payable ............................................. 73,213 35,731
Lines-of-credit and notes payable ........................................... 71,949 61,428
10.50% senior secured notes payable ......................................... 110,000 55,000
Junior subordinated debentures .............................................. -- 59,280
------------- -------------
Total liabilities ......................................................... 391,336 371,069
Minority interest ........................................................... 6,009 9,508
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued ....... -- --
Common stock, $.01 par value, 90,000 shares authorized; 32,990 and 33,193
shares issued at December 31, 2004 and 2005, respectively ................. 330 333
Additional paid-in capital .................................................. 167,408 169,684
Treasury stock, 2,756 common shares at both December 31, 2004 and 2005, at
cost ...................................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ................. 4,805 8,575
Retained earnings ........................................................... 101,408 147,959
------------- -------------
Total shareholders' equity ............................................... 261,066 313,666
------------- -------------
Total liabilities and shareholders' equity ............................ $ 658,411 $ 694,243
============= =============
See accompanying notes to consolidated financial statements.
61
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
Revenues: (As Restated) (As Restated)
Sales of real estate .................................. $ 359,344 $ 502,408 $ 550,335
Other resort and communities operations revenue ....... 55,394 66,409 73,797
Interest income ....................................... 29,898 35,939 34,798
Gain on sales of notes receivable ..................... -- 25,972 25,226
Other income .......................................... 457 -- --
------------ ------------ ------------
445,093 630,728 684,156
Cost and expenses:
Cost of real estate sales ............................. 109,446 179,728 177,800
Cost of other resort and communities operations ....... 60,772 70,785 77,317
Selling, general and administrative expenses .......... 203,808 262,424 300,239
Interest expense ...................................... 17,243 18,425 14,474
Provision for loan losses ............................. 18,239 24,434 27,587
Other expense ......................................... -- 1,666 6,207
------------ ------------ ------------
409,508 557,462 603,624
------------ ------------ ------------
Income before minority interest and provision for income
taxes ................................................ 35,585 73,266 80,532
Minority interest in income of consolidated subsidiary . 3,330 4,065 4,839
------------ ------------ ------------
Income before provision for income taxes ............... 32,255 69,201 75,693
Provision for income taxes ............................. 12,418 26,642 29,142
------------ ------------ ------------
Net income ............................................. $ 19,837 $ 42,559 $ 46,551
============ ============ ============
Earnings per common share:
Basic ................................................ $ 0.80 $ 1.62 $ 1.53
============ ============ ============
Diluted .............................................. $ 0.74 $ 1.43 $ 1.49
============ ============ ============
Weighted-average number of common and common
equivalent shares:
Basic ................................................ 24,671 26,251 30,381
============ ============ ============
Diluted .............................................. 29,263 30,677 31,245
============ ============ ============
See accompanying notes to consolidated financial statements.
62
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Additional Treasury Comprehensive
Shares Common Paid-in Stock at Income, Net of Retained
Issued Stock Capital Cost Income Taxes Earnings Total
------ ----- ------- ---- ------------ -------- -----
(As Restated) (As Restated) (As Restated)
Balance at December 31, 2002
(as previously reported) .......... 27,343 273 123,535 (12,885) 460 46,900 158,283
Restatement Adjustment ............. -- -- -- -- 3,974 (7,888) (3,914)
------ ---- -------- -------- ------ -------- --------
Restated Balance at December 31,
2002 .............................. 27,343 273 123,535 (12,885) 4,434 39,012 154,369
------ ---- -------- -------- ------ -------- --------
Net income ......................... 19,837 19,837
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes and
reclassification adjustments ...... -- -- -- -- (1,481) -- (1,481)
-------
Comprehensive income ............... 18,356
Shares issued upon exercise of
stock options ..................... 359 4 1208 -- -- -- 1,212
Income tax benefit from stock
options exercised ................. -- -- 188 -- -- -- 188
------ ---- -------- -------- ------ -------- --------
Restated Balance at December 31,
2003 .............................. 27,702 277 124,931 (12,885) 2,953 58,849 174,125
Net income ......................... -- -- -- -- -- 42,559 42,559
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes and
reclassification adjustments ...... -- -- -- -- 1,852 -- 1,852
Comprehensive income ............... 44,411
Shares issued upon exercise of
stock options ..................... 1,150 12 6,582 -- -- -- 6,594
Income tax benefit from stock
options exercised ................. -- -- 1,961 -- -- -- 1,961
Shares issued in connection with
conversion of 8.25% convertible
subordinated debentures ............ 4,138 41 33,934 -- -- -- 33,975
------ ---- -------- -------- ------ -------- --------
Restated Balance at December 31,
2004 .............................. 32,990 330 167,408 (12,885) 4,805 101,408 261,066
Net income ......................... -- -- -- -- -- 46,551 46,551
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes and
reclassification adjustments ...... -- -- -- -- 3,770 -- 3,770
-------
Comprehensive income ............... 50,321
Shares issued upon exercise of
stock options ..................... 196 3 1,403 -- -- -- 1,406
Modification of equity awards and
vesting of restricted stock ....... 6 -- 327 -- -- -- 327
Income tax benefit from stock
options exercised ................. -- -- 541 -- -- -- 541
Shares issued in connection with
conversion of 8.25% convertible
subordinated debentures ........... 1 -- 5 -- -- -- 5
------ ---- -------- -------- ------ -------- --------
Balance at December 31, 2005 ....... 33,193 $333 $169,684 $(12,885) $8,575 $147,959 $313,666
====== ==== ======== ======== ====== ======== ========
See accompanying notes to consolidated financial statements.
63
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Operating activities:
Net income .......................................................... $ 19,837 $ 42,559 $ 46,551
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest in income of consolidated subsidiary .......... 3,330 4,065 4,839
Depreciation .................................................... 7,811 9,769 12,332
Amortization .................................................... 5,054 3,849 5,807
Gain on sales of notes receivable ............................... -- (25,972) (25,226)
Loss (gain) on sales of property and equipment .................. (76) 455 94
Provision for loan losses ....................................... 18,239 24,434 27,587
Provision for deferred income taxes ............................. 8,894 18,664 16,979
Interest accretion on retained interests in notes receivable sold (5,519) (6,035) (9,310)
Other non-cash charges .......................................... -- -- 327
Proceeds from sales of notes receivable ......................... -- 192,580 198,260
Proceeds from borrowings collateralized by notes receivable ..... 123,897 105,680 24,772
Payments on borrowings collateralized by notes receivable ....... (37,881) (174,514) (64,714)
Changes in operating assets and liabilities:
Contracts receivable ............................................ (9,292) (2,563) 612
Notes receivable ................................................ (128,742) (170,282) (220,491)
Prepaid expenses ................................................ (227) (589) (30)
Inventory ....................................................... 12,433 47,032 29,022
Other assets .................................................... (3,903) 1,154 2,150
Accounts payable, accrued liabilities and other ................. 25,172 21,470 6,022
------------- ------------- -------------
Net cash provided by operating activities ........................... 39,027 91,756 55,583
------------- ------------- -------------
Investing activities:
Cash received from retained interests in notes receivable sold .... 7,402 8,688 11,016
Principal payments received on investment in note receivable ...... 456 -- --
Business acquisition .............................................. (500) (825) (675)
Investments in statutory business trusts .......................... -- -- (1,780)
Purchases of property and equipment ............................... (11,893) (18,409) (16,724)
Proceeds from sales of property and equipment ..................... 1,084 8 22
------------- ------------- -------------
Net cash used provided by investing activities ...................... (3,451) (10,538) (8,141)
------------- ------------- -------------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable .................................................. 40,125 60,657 26,382
Payments under line-of-credit facilities and notes payable ........ (49,978) (100,479) (92,071)
Payments on 10.50% senior secured notes ........................... -- -- (55,000)
Payment of 8.25% subordinated convertible debentures .............. -- (273) --
Proceeds from issuance of junior subordinated debentures .......... -- -- 59,280
Payment of debt issuance costs .................................... (2,632) (5,731) (3,300)
Proceeds from exercise of employee and director stock options ..... 1,212 6,594 1,406
------------- ------------- -------------
Net cash used by financing activities ............................... (11,273) (39,232) (63,303)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ................ 24,303 41,986 (15,861)
Cash and cash equivalents at beginning of period .................... 34,276 58,579 100,565
------------- ------------- -------------
Cash and cash equivalents at end of period .......................... 58,579 100,565 84,704
Restricted cash and cash equivalents at end of period ............... (19,088) (21,423) (18,321)
------------- ------------- -------------
Unrestricted cash and cash equivalents at end of period ............. $ 39,491 $ 79,142 $ 66,383
============= ============= =============
64
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Supplemental schedule of non-cash operating, investing and financing
activities:
Inventory acquired through foreclosure or deedback in lieu of foreclosure $ 6,570 $ 10,926 $ 10,585
============= ============= =============
Inventory acquired through financing ..................................... $ 52,399 $ 21,276 $ 54,054
============= ============= =============
Property and equipment acquired through financing ........................ $ 8,569 $ 2,637 $ 1.114
============= ============= =============
Offset of Joint Venture distribution of operating proceeds to minority
interest against the Prepayment (see Note 4) .......................... $ 1,932 $ 2,704 $ 1,340
============= ============= =============
Retained interests in notes receivable sold .............................. $ -- $ 32,816 $ 38,913
============= ============= =============
Notes receivable acquired through financing .............................. $ 2,334 $ -- $ --
============= ============= =============
Change in unrealized gains on retained interests in notes receivable sold,
net of income taxes and reclassification adjustments .................. $ 2,395 $ 2,998 $ 6,130
============= ============= =============
Conversion of 8.25% subordinated convertible debentures into common stock $ 2,334 $ 34,098 $ 5
============= ============= =============
Income tax benefit from stock options exercised .......................... $ 362 $ 1,961 $ 541
============= ============= =============
Supplemental schedule of operating cash flow information:
Interest paid, net of amounts capitalized .............................. $ 16,807 $ 19,324 $ 15,955
============= ============= =============
Income taxes paid ...................................................... $ 1,634 $ 6,055 $ 6,646
============= ============= =============
See accompanying notes to consolidated financial statements.
65
BLUEGREEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization
We provide leisure products and lifestyle choices through our resorts and
residential communities businesses. Our resorts business ("Bluegreen(R)
Resorts") acquires, develops and markets vacation ownership interests ("VOIs")
in resorts generally located in popular, high-volume, "drive-to" vacation
destinations. VOIs in any of our resorts entitle the buyer to an annual or
biennial allotment of "points" in perpetuity (supported by an underlying deeded
vacation ownership interest held in trust for the buyer) in our Bluegreen
Vacation Club(R). Members in our Bluegreen Vacation Club may use their points to
stay in any of our participating resorts or for other vacation options,
including cruises and stays at approximately 3,700 resorts offered by a
third-party world-wide vacation ownership exchange networks. We are currently
marketing and selling VOIs in 21 resorts located in the United States and Aruba,
19 of which have active sales offices. We also sell VOIs at five off-site sales
offices located in the United States. Our residential communities business
("Bluegreen Communities") acquires, develops and subdivides property and markets
residential homesites, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and other related amenities.
During the year ended December 31, 2005, sales generated by Bluegreen Resorts
comprised approximately 65% of our total sales of real estate while sales
generated by Bluegreen Communities comprised approximately 35% of our total
sales of real estate. Our other resort and communities operations revenues
consist primarily of mini-vacation package sales, vacation ownership tour sales,
resort property management services, resort title services, resort amenity
operations, rental brokerage services, realty operations and daily-fee golf
course operations. We also generate significant interest income by providing
financing to individual purchasers of VOIs.
Fiscal Year
On October 14, 2002, our Board of Directors approved a change in our
fiscal year from a 52- or 53-week period ending on the Sunday nearest the last
day of March in each year to the calendar year ending on December 31, effective
for the nine months ended December 31, 2002.
Principles of Consolidation
Our consolidated financial statements include the accounts of all of our
wholly-owned subsidiaries and entities in which we hold a controlling financial
interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), as we hold a 51%
equity interest in the Joint Venture, have an active role as the day-to-day
manager of the Joint Venture's activities, and have majority voting control of
the Joint Venture's management committee. Additionally, we do not consolidate
our wholly-owned statutory business trusts (see Note 10) formed to issue trust
preferred securities as these entities are each variable interest entities in
which we are not the primary beneficiary as defined by Financial Accounting
Standards Board ("FASB") Interpretation No. 46R. The statutory business trusts
are accounted for under the equity method of accounting. We have eliminated all
significant intercompany balances and transactions.
In December 2005, the Company concluded that it was necessary to restate
its consolidated financial statements for the years ended December 31, 2003 and
2004, as discussed in Note 20 to the Consolidated Financial Statements.
Use of Estimates
U.S. generally accepted accounting principles requires us to make
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
66
Cash and Cash Equivalents
We invest cash in excess of our immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities at the date of purchase of three months or less. We maintain cash and
cash equivalents with various financial institutions. These financial
institutions are located throughout the United States, Canada and Aruba. Our
policy is designed to limit exposure to any one institution. However, a
significant portion of our unrestricted cash is maintained with a single bank
and, accordingly, we are subject to credit risk. Periodic evaluations of the
relative credit standing of financial institutions maintaining our deposits are
performed to evaluate and mitigate, if necessary, credit risk.
Restricted cash consists primarily of customer deposits held in escrow
accounts and cash pledged to our various lenders in connection with our
receivable-backed notes payable credit arrangements.
Revenue Recognition and Contracts Receivable
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66, Accounting for Sales of Real Estate, we recognize
revenue on homesite sales and sales of VOIs when a minimum of 10% of the sales
price has been received in cash (buyer's initial commitment), the legal
rescission period has expired, collectibility of the receivable representing the
remainder of the sales price is reasonably assured and we have completed
substantially all of our obligations with respect to any development related to
the real estate sold. In cases where all of the development has not been
completed, we recognize revenue in accordance with the percentage-of-completion
method of accounting.
Sales, which do not meet the criteria for revenue recognition described
above, are deferred using the deposit method. Under the deposit method, cash
received from customers is classified as a refundable deposit in the liability
section of our consolidated balance sheets and profit recognition is deferred
until the requirements of SFAS No. 66 are met. Effective January 1, 2006, the
calculation of a buyer's initial commitment for sales of VOIs will change due to
the adoption of a new accounting standard. See Recent Accounting Pronouncements
below.
Contracts receivable consists of 1) amounts receivable from customers on
recent sales of VOIs pending recording of the customers' notes receivable in our
loan servicing system; 2) receivables related to unclosed retail homesite sales;
and 3) receivables from third-party escrow agents on recently closed retail
homesite sales. Contracts receivable are reflected net of an allowance for
cancellations of unclosed Bluegreen Communities' sales contracts, which totaled
approximately $480,000 and $332,000 at December 31, 2004 and 2005, respectively.
Contracts receivable are stated net of a reserve for loan losses of $676,000 and
$900,000 at December 31, 2004 and 2005, respectively.
Our other resort and communities operations revenues consist primarily of
sales and service fees from the activities listed below. The table provides a
brief description of the applicable revenue recognition policy:
Activity Revenue is recognized as:
-------- -------------------------
Mini-vacation package sales................... Mini-vacation packages are fulfilled (i.e., guests use mini-
vacation packages to stay at a hotel, take a cruise, etc.)
Vacation ownership tour sales................. Vacation ownership tour sales commissions are earned per contract
terms with third parties
Resort title fees............................. Escrow amounts are released and title documents are completed.
Management fees............................... Management services are rendered.
Rental commissions............................ Rental services are provided.
Rental income................................. Guests complete stays at the resorts.
Realty commissions............................ Sales of third-party-owned real estate are completed.
Golf course and ski hill daily fees........... Services are provided.
67
Our cost of other resort and communities operations consists of the costs
associated with the various revenues described above as well as developer
subsidies and maintenance fees on our unsold VOIs.
Notes Receivable
Our notes receivable are carried at amortized cost. Interest income is
suspended and previously accrued but unpaid interest income is reversed on all
delinquent notes receivable when principal or interest payments are more than
three months contractually past due and not resumed until such loans are less
than three months past due. As of December 31, 2004 and 2005, $7.3 million and
$8.0 million, respectively, of notes receivable were more than three months
contractually past due and, hence, were not accruing interest income.
We estimate credit losses on our notes receivable portfolios in accordance
with SFAS No. 5, Accounting for Contingencies, as our notes receivable
portfolios consist of a large group of smaller-balance, homogeneous loans.
Consistent with Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance
Methodology and Documentation Issues, we first segment our notes receivable by
identifying risk characteristics that are common to groups of loans and then
estimate credit losses based on the risks associated with these segments. We
consider many factors when establishing and evaluating the adequacy of our
reserve for loan losses. These factors include recent and historical default
rates, static pool analyses, current delinquency rates, contractual payment
terms, loss severity rates along with present and expected economic conditions.
We review these factors and measure loan impairment by applying historical loss
rates, adjusted for relevant environmental and collateral values, to the
segments' aggregate loan balances. We adjust our reserve for loan losses on at
least a quarterly basis. We generally charge off loans in the month subsequent
to when they become four months contractually past due.
Retained Interest in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation
ownership receivables purchase facilities (more fully described in Note 4) or
through term securitizations, we evaluate whether or not such transfers should
be accounted for as a sale pursuant to SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities and related
interpretations. The evaluation of sale treatment under SFAS No. 140 involves
legal assessments of the transactions, which include determining whether the
transferred assets have been isolated from us (i.e. put presumptively beyond our
reach and our creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the assets it
received, and ensuring that we do not maintain effective control over the
transferred assets through either an agreement that (1) both entitles and
obligates us to repurchase or redeem the assets before their maturity or (2)
provides us with the ability to unilaterally cause the holder to return the
assets (other than through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, unrealized gains or losses on our retained
interests in notes receivable sold are included in our shareholders' equity, net
of income taxes. Declines in fair value that are determined to be other than
temporary are charged to operations.
We measure the fair value of the retained interests in the notes
receivable sold initially and periodically based on the present value of future
expected cash flows estimated using our best estimates of the key assumptions -
prepayment rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. We revalue our retained interests in notes
receivable sold on a quarterly basis.
Interest on the retained interests in notes receivable sold is accreted
using the effective yield method.
68
Inventory
Our inventory consists of completed VOIs, VOIs under construction, land
held for future vacation ownership development and residential land acquired or
developed for sale. We carry our inventory at the lower of cost, including costs
of improvements and amenities incurred subsequent to acquisition, capitalized
interest, real estate taxes and other costs incurred during construction, or
estimated fair value, less costs to dispose. Homesites and VOIs reacquired
through foreclosure or deedback in lieu of foreclosure are recorded at the lower
of fair value, net of costs to dispose. We periodically evaluate the recovery of
the carrying amount of our individual resort and residential communities
properties under the guidelines of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, (see Note 6).
Property and Equipment
Our property and equipment are stated at cost. We record depreciation and
amortization in a manner that recognizes the cost of our depreciable assets in
operations over their estimated useful lives using the straight-line method.
Leasehold improvements are amortized over the shorter of the terms of the
underlying leases or the estimated useful lives of the improvements.
Depreciation expense includes the amortization of assets recorded under capital
leases.
Goodwill and Intangible Assets
We account for our goodwill and intangible assets under the provisions of
SFAS No. 142, Goodwill and Other Intangible Assets. This statement requires that
goodwill and intangible assets deemed to have indefinite lives not be amortized,
but rather be tested for impairment on an annual basis. Finite-lived intangible
assets are required to be amortized over their useful lives and are subject to
impairment evaluation under the provisions SFAS No. 144. Our intangible assets
relate to customer lists that were acquired in connection with a business
combination whereupon Great Vacation Destinations, Inc. ("GVD"), one of our
wholly-owned subsidiaries' acquired substantially all the assets and assumed
certain liabilities of TakeMeOnVacation, LLC, RVM Promotions, LLC, RVM
Vacations, LLC (collectively, "TMOV") in 2002. The customer lists are amortized
as the related leads and mini-vacation packages are fulfilled or become expired.
See Note 8 for further discussion.
Treasury Stock
We account for repurchases of our common stock using the cost method with
common stock in treasury classified in our consolidated balance sheets as a
reduction of shareholders' equity.
Advertising Expense
We expense advertising costs as incurred. Advertising expense was $70.8
million, $89.4 million, and $102.7 million for the years ended December 31,
2003, 2004, and 2005, respectively. Advertising expense is included in selling,
general and administrative expenses in our consolidated statements of income.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure,
encourages, but does not require companies to record compensation cost for
employee stock options at fair value. We continue to account for our employee
stock options using the intrinsic value method pursuant to Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, compensation cost for our employee stock
options is measured as the excess, if any, of the quoted market price of our
stock at the date of the grant over the exercise price of the option.
Pro forma information regarding net income and earnings per share as if we
had accounted for our employee stock options to our employees under the fair
value method of SFAS No. 123 is presented below.
There were 40,000 stock options granted to certain of our non-employee
directors during the year ended December 31, 2004. Such stock options had a
grant date fair value of $4.88 per share. There were 668,000 stock options
granted to our employees during the year ended December 31, 2005. There were
141,346 stock options granted to certain of our non-employee directors during
the year ended December 31, 2005. All stock options were granted with an
exercise price equal to the closing price of our common stock on the date of
grant.
69
The fair value for these options was estimated at the date of grant using
a Black-Scholes option-pricing model with the following weighted-average
assumptions:
Year Ended December 31,
2003 2004 2005
---- ---- ----
Risk free investment rate ................ 3.1% 2.1% 3.9%
Dividend yield ........................... 0.0% 0.0% 0.0%
Volatility factor of expected market price 69.7% 65.0% 61.0%
Life of option ........................... 5.9 years 3.0 years 5.5 years
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 for the purpose of providing pro forma disclosures are not
likely to be representative of the effects on reported pro forma net income for
future years, due to the impact of the staggered vesting periods of our stock
option grants. Our pro forma information is as follows (in thousands, except per
share data).
Year Ended December 31,
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Net income, as reported ........................... $19,837 $42,559 $ 46,551
Pro forma stock-based employee
compensation cost, net of income taxes .......... (399) (308) (1,286)
------- ------- --------
Pro forma net income .............................. $19,438 $42,251 $ 45,265
======= ======= ========
Earnings per share, as reported:
Basic ........................................... $ 0.80 $ 1.62 $ 1.53
Diluted ......................................... $ 0.74 $ 1.43 $ 1.49
Pro forma earnings per share:
Basic ........................................... $ 0.79 $ 1.61 $ 1.49
Diluted ......................................... $ 0.72 $ 1.42 $ 1.45
See "Recent Accounting Pronouncements" for a discussion of SFAS No. 123
(revision) which we adopted as of January 1, 2006.
Earnings Per Common Share
We compute basic earnings per common share by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share, but
also gives effect to all dilutive stock options using the treasury stock method
and during the years ended December 31, 2003 and 2004 includes an adjustment, if
dilutive, to both net income and shares outstanding as if our 8.25% convertible
subordinated debentures were converted into common stock at the beginning of the
periods presented. There were approximately 1.2 million and 0.8 million stock
options not included in diluted earnings per common share during the years ended
December 31, 2003 and 2005, respectively, as the effect would be anti-dilutive.
There were no anti-dilutive stock options during the year ended December 31,
2004.
70
The following table sets forth our computation of basic and diluted
earnings per common share (in thousands, except per share data):
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Basic earnings per common share -- numerator:
Net income ..................................... $ 19,837 $ 42,559 $ 46,551
============ ============ ============
Diluted earnings per common share -- numerator:
Net income -- basic ............................ $ 19,837 $ 42,559 $ 46,551
Effect of dilutive securities (net of income tax
effects) .................................... 1,749 1,357 --
------------ ------------ ------------
Net income -- diluted .......................... $ 21,586 $ 43,916 $ 46,551
============ ============ ============
Denominator:
Denominator for basic earnings per common
share-weighted-average shares ............... 24,671 26,251 30,381
Effect of dilutive securities:
Stock options .................................. 421 1,098 864
Convertible securities ......................... 4,171 3,328 --
------------ ------------ ------------
Dilutive potential common shares ............... 4,592 4,426 864
------------ ------------ ------------
Denominator for diluted earnings per common
share-adjusted weighted-average shares and
assumed conversions ......................... 29,263 30,677 31,245
============ ============ ============
Basic earnings per common share: ................ $ 0.80 $ 1.62 $ 1.53
============ ============ ============
Diluted earnings per common share: .............. $ 0.74 $ 1.43 $ 1.49
============ ============ ============
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, requires the change in net
unrealized gains or losses on our retained interests in notes receivable sold,
which are held as available-for-sale investments, to be included in other
comprehensive income. Comprehensive income is shown as a subtotal within our
consolidated statements of shareholders' equity for each period presented.
Recent Accounting Pronouncements
In December 2004, the FASB issued (revised 2004), Share-Based Payment, a
revision of SFAS No. 123, Accounting for Stock-Based Compensation. The revised
statement supersedes APB No. 25, Accounting for Stock-Based Compensation, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in the
revised statement is similar to the approach described in SFAS No. 123. However,
the revised statement requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure will no longer be an alternative. As
permitted by SFAS No. 123, we currently account for share-based payments to
employees using APB No. 25's intrinsic value method and, as such, generally
recognize no compensation cost for employee stock options. Accordingly, the
adoption of the revised statement's fair value method will likely have a
significant impact on our result of operations, although it will have no impact
on our overall financial position. The impact of adoption of the revised
statement cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. However, had we adopted the revised
statement in prior periods, the impact of that standard on our results of
operations would have approximated the impact of SFAS No. 123 as described in
the disclosure of pro forma net income and earnings per share in Note 1 to our
consolidated financial statements. The revised statement also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption.
While we cannot estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock options), the
amount of operating cash flows recognized in prior periods for such excess tax
71
deductions have not been material. On January 1, 2006 the Company adopted SFAS
No. 123R using the modified prospective method.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions. This statement amends SFAS No. 66, Accounting for
Sales of Real Estate, and No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, in association with the issuance of American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 04-2, Accounting for Real Estate Time-Sharing Transactions. SOP 04-2 was
issued to address the diversity in practice caused by a lack of guidance
specific to real estate time-sharing transactions. Among other things, the new
standard addresses the treatment of sales incentives provided by a seller to a
buyer to consummate a transaction, the calculation of accounting for
uncollectible notes receivable, the recognition of changes in inventory cost
estimates, recovery or repossession of VOIs, selling and marketing costs,
operations during holding periods, developer subsidies to property owners'
associations and upgrade and reload transactions. The new standard will also
require a change in the classification of our provision for loan losses for
vacation ownership receivables that are currently recorded as an expense,
requiring that such amount be reflected as a reduction of revenue.
The Company currently estimates that the adoption of the SOP will result
in one-time, non-cash, cumulative effect of change in accounting principle
charge in the first quarter of 2006. This charge will consist primarily of
deferred VOI sales, which are the result of providing buyers with certain
purchase incentives and the treatment of the Company's Sampler Program. The
Sampler Program provides purchasers with an opportunity to utilize the Company's
vacation ownership product through a one-year allotment of Bluegreen Vacation
Club points. In the event the Sampler purchaser subsequently purchases a
vacation ownership interest from us, a portion of the amount paid for their
Sampler Package is credited toward the down payment on this subsequent purchase.
Under the SOP, the credit given will result in the deferral of such sales until
the minimum down payment amounts are received from the purchaser, typically
through their required mortgage payments. Deferrals under the SOP are expected
to be ongoing, with deferred Resorts sales being recognized in subsequent
quarters once the required down payment amount is received. This charge had been
estimated to be $2.5 million to $4.0 million, or $.08 - $.13 per share; however
the actual cumulative effect adjustment will not be determined until the Company
finalizes its first quarter financial results. Therefore, this estimate remains
subject to change.
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current period presentation.
2. Restatement of Prior Period Financial Statements
In connection with the securitization of certain of its receivables in
December 2005, the Company undertook a review of the prior accounting treatment
for certain of its existing and prior notes receivable purchase facilities
(together the "Purchase Facilities"). As a result of that review, on December
15, 2005, the Company determined that it would restate its consolidated
financial statements for the first three quarters of fiscal 2005 and the fiscal
years ended December 31, 2003 and 2004 due to certain misapplications of GAAP in
the accounting for sales of the Company's vacation ownership notes receivable
and other related matters. The following sections describe the restatement
matters in more detail.
Sales of Vacation Ownership Notes Receivable to Certain Purchase Facilities
The restatement reflects the sales of notes receivable under three
separate Purchase Facilities as on-balance sheet financing transactions as
opposed to off-balance sheet sales transactions as the Company had originally
accounted for these transactions pursuant to Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 140"). Accordingly, the consolidated
financial statements have been restated to (1) remove the gain on sale of notes
receivable and retained interest in notes receivable sold previously recognized,
(2) re-recognize the original notes receivable sold and the related interest
income for the periods outstanding, (3) and recognize debt for the cash proceeds
received from the Purchase Facilities and the related interest expense for the
periods outstanding.
The Company consummated two term securitization transactions, one in
December 2002 and one in July 2004, which included substantially all of the
notes receivable that had been previously accounted for as having been sold
under
72
the Purchase Facilities. Both of these term securitization transactions have
been accounted for as sales pursuant to SFAS 140, and therefore the notes
receivable financed under the Purchase Facilities are considered to be sold in
the term securitization transactions, with resulting gains on sale recognized at
that time.
Valuation of Servicing Assets
In connection with the sales of notes receivable, we retain servicing
rights. Receivables servicing includes processing payments from borrowers,
accounting for principal and interest on such receivables, making advances when
required, performing collections efforts with delinquent borrowers, processing
defaults, reporting to investors and lenders on portfolio activity, and
performing other administrative duties. During the review of our accounting
policies related to the sales of notes receivables, the Company determined that
the servicing fees earned for servicing the sold notes receivable reflected fair
value (i.e adequate compensation) at the time of the transaction. Pursuant to
SFAS 140, a servicing asset exists when the benefits of servicing are more than
adequate compensation. Accordingly, the consolidated financial statements have
been restated to remove the original values recognized as servicing assets as
well as the related servicing asset amortization expense.
Computation of Gain on Sale
Also, as a part of its re-evaluation of these transactions, the Company
determined that the computation of the gains on sales of receivables in the
December 2002 and July 2004 term securitization transactions did not take into
account the fair value allocation of financial components methodology for
recording its retained interest as prescribed by SFAS 140. The impact of the
fair value allocation of financial components methodology is to reduce the gain
on sale, but once the retained interest is marked to market value immediately
thereafter, the impact will be to increase other comprehensive income in the
balance sheet.
As part of the restatement, the company recorded, as of the beginning of
fiscal 2004, a cumulative charge of $7.8 million to retained earnings and a $4.0
million increase to beginning other comprehensive income reflecting the impact
of the change in accounting for the above mentioned transactions originating in
prior periods. Also, the restatement resulted in a reduction of net income of
$6.0 million for fiscal 2003 and an increase of $6.1 million for fiscal 2004.
Other
The adjustments described above had the cumulative net impact of
decreasing our deferred tax liabilities as of December 31, 2004.
Additionally, in performing our restatement procedures we identified that
certain tax assets were incorrectly determined under SFAS 109 in periods prior
to the year ended March 31, 2002. As such, the Company determined that it was
necessary to increase the beginning balance of our deferred tax liabilities as
of January 1, 2003 by approximately $0.8 million.
The effects of the restatement on the company's consolidated financial
statements for the years ended December 31, 2003 and 2004 are included below:
73
2003 2004
As Previously 2003 As Previously 2004
Reported As Restated Reported As Restated
-------- ----------- -------- -----------
Revenues:
Sales of real estate ............................................ $ 358,312 $ 359,344 $ 502,396 $ 502,408
Other resort and communities operations revenue ................. 55,394 55,394 69,032 66,409
Interest income ................................................. 17,536 29,898 21,583 35,939
Gain on sales of notes receivable ............................... 6,563 -- 8,612 25,972
Other income .................................................... 649 457 -- --
------------- ------------- ------------- -------------
438,454 445,093 601,623 630,728
Cost and expenses:
Cost of real estate sales ....................................... 109,010 109,446 179,722 179,728
Cost of other resort and communities operations ................. 61,021 60,772 71,728 70,785
Selling, general and administrative expenses .................... 202,968 203,808 263,663 262,424
Interest expense ................................................ 14,036 17,243 15,046 18,425
Provision for loan losses ....................................... 6,094 18,239 7,154 24,434
Other expense ................................................... -- -- 969 1,666
------------- ------------- ------------- -------------
393,129 409,508 538,282 557,462
------------- ------------- ------------- -------------
Income before minority interest and provision for income taxes .... 45,325 35,585 63,341 73,266
Minority interest in income of consolidated subsidiary ............ 3,330 3,330 4,065 4,065
------------- ------------- ------------- -------------
Income before provision for income taxes .......................... 41,995 32,255 59,276 69,201
Provision for income taxes ........................................ 16,168 12,418 22,821 26,642
------------- ------------- ------------- -------------
Net income ........................................................ $ 25,827 $ 19,837 $ 36,455 $ 42,559
============= ============= ============= =============
Earnings per common share:
Basic ....................................................... $ 1.05 $ 0.80 $ 1.39 $ 1.62
============= ============= ============= =============
Diluted ..................................................... $ 0.94 $ 0.74 $ 1.23 $ 1.43
============= ============= ============= =============
Weighted-average number of common and common equivalent shares:
Basic ......................................................... 24,671 24,671 26,251 26,251
============= ============= ============= =============
Diluted ....................................................... 29,263 29,263 30,677 30,677
============= ============= ============= =============
74
2004
As Previously 2004
Reported As Restated
-------- -----------
ASSETS
Cash and cash equivalents (including restricted cash of approximately $21,423) $ 98,538 $ 100,565
Contracts receivable, net .................................................... 28,085 28,085
Notes receivable, net ........................................................ 121,949 152,051
Prepaid expenses ............................................................. 7,810 7,810
Other assets ................................................................. 22,359 19,279
Inventory, net ............................................................... 205,213 205,352
Retained interests in notes receivable sold .................................. 72,099 66,513
Property and equipment, net .................................................. 74,244 74,244
Intangible assets and goodwill ............................................... 4,512 4,512
------------ ------------
Total assets ........................................................... $ 634,809 $ 658,411
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ............................................................. $ 11,552 $ 11,552
Accrued liabilities and other ................................................ 44,351 44,323
Deferred income .............................................................. 24,235 24,235
Deferred income taxes ........................................................ 58,150 56,064
Receivable-backed notes payable .............................................. 43,696 73,213
Lines-of-credit and notes payable ............................................ 71,949 71,949
10.50% senior secured notes payable .......................................... 110,000 110,000
------------ ------------
Total liabilities .......................................................... 363,933 391,336
Minority interest ............................................................ 6,009 6,009
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued ........ -- --
Common stock, $.01 par value, 90,000 shares authorized; 32,990 and 33,193
shares issued at December 31, 2004 and 2005, respectively .................. 330 330
Additional paid-in capital ................................................... 167,408 167,408
Treasury stock, 2,756 common shares at both December 31, 2004 and 2005, at
cost ....................................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes .................. 832 4,805
Retained earnings ............................................................ 109,182 101,408
------------ ------------
Total shareholders' equity ................................................ 264,867 261,066
------------ ------------
Total liabilities and shareholders' equity ............................. $ 634,809 $ 658,411
============ ============
3. Joint Venture
On June 16, 2000, one of our wholly-owned subsidiaries entered into an
agreement with Big Cedar L.L.C. ("Big Cedar"), an affiliate of Bass Pro, Inc.
("Bass Pro"), to form the Joint Venture, a vacation ownership development,
marketing and sales limited liability company. The Joint Venture is developing,
marketing and selling VOIs at The Bluegreen Wilderness Club at Big Cedar, a
312-unit, wilderness-themed resort adjacent to the Big Cedar(R) Lodge, a luxury
hotel resort owned by Big Cedar, on the shores of Table Rock Lake in Ridgedale,
Missouri. During the year ended April 1, 2001, we made an initial cash capital
contribution to the Joint Venture of approximately $3.2 million, in exchange for
a 51% ownership interest in the Joint Venture. In exchange for a 49% interest in
the Joint Venture, Big Cedar has contributed approximately 46 acres of land with
a fair market value of $3.2 million to the Joint Venture. See Note 3 regarding
payment of profit distributions to Big Cedar.
75
In addition to its 51% ownership interest, we also receive a quarterly
management fee from the Joint Venture equal to 3% of the Joint Venture's net
sales in exchange for our involvement in the day-to-day operations of the Joint
Venture. We also service the Joint Venture's notes receivable in exchange for a
servicing fee.
Based on our role as the day-to-day manager of the Joint Venture, its
majority control of the Joint Venture's Management Committee and our controlling
financial interest in the Joint Venture, the accounts of the Joint Venture are
consolidated in our financial statements.
Because the Joint Venture has a finite life (i.e., the Joint Venture can
only exist through the earlier of: i) December 31, 2050; ii) the sale or
disposition of all or substantially all of the assets of the Joint Venture; iii)
a decision to dissolve the Joint Venture by us and Big Cedar; or iv) certain
other events described in the Joint Venture agreement), the minority interest in
the Joint Venture meets the definition of a mandatorily redeemable
non-controlling interest as specified in SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
settlement value of this mandatorily redeemable non-controlling interest at
December 31, 2004 and 2005 was $6.5 million and $9.8 million respectively, based
on the sale or disposition of all or substantially all of the assets of the
Joint Venture as of those respective dates.
During the years ended December 31, 2003, 2004, and 2005, the Joint
Venture paid approximately $832,000, $493,000, and $565,000 respectively, to
Bass Pro(R) and affiliates for construction management services and furniture
and fixtures in connection with the development of the Joint Venture's vacation
ownership resort and sales office. In addition, the Joint Venture paid Big Cedar
and affiliates approximately $1.0 million, $1.8 million and $2.0 million for
gift certificates and hotel lodging during the year ended December 31, 2003,
2004 and 2005, respectively, in connection with the Joint Venture's marketing
activities.
4. Marketing Agreement
On June 16, 2000, we entered into an exclusive, 10-year marketing
agreement with Bass Pro, a privately-held retailer of fishing, marine, hunting,
camping and sports gear. Bass Pro is an affiliate of Big Cedar (see Note 3).
Pursuant to the agreement, we have the right to market our VOIs at each of Bass
Pro's national retail locations (currently consisting of 26 stores), in Bass
Pro's catalogs and on its web site. We also have access to Bass Pro's customer
lists. In exchange for these services, we compensate Bass Pro based on the
overall success of their marketing activities through one of the Bass Pro
marketing channels described above. The amount of compensation is dependent on
the level of additional marketing efforts required by us to convert the prospect
into a sale and a defined time frame for such marketing efforts. No compensation
paid to Bass Pro on sales made by the Joint Venture.
On June 16, 2000, we prepaid $9.0 million to Bass Pro (the "Prepayment").
The Prepayment was fully amortized from compensation earned by Bass Pro and
future distributions otherwise payable to Big Cedar from the earnings of the
Joint Venture as a member thereof through December 31, 2005. Additional
compensation and member distributions will be paid in cash to Bass Pro or Big
Cedar. During the years ended December 31, 2004 and 2005, the Joint Venture made
member distributions of $5.5 million and $2.7 million, respectively, of which
$2.7 million and $1.3 million, respectively, were payable to Big Cedar and used
to pay down the balance of the Prepayment. As of December 31, 2004, the
unamortized balance of the Prepayment, included in prepaid expenses on our
consolidated balance sheets, was $2.6 million. As of December 31, 2005 the
Prepayment was fully amortized.
During the years ended December 31, 2003, 2004, and 2005, we paid an
affiliates of Bass Pro, approximately $2,000, $85,000, and $89,000,
respectively, for various services.
76
5. Notes Receivable and Note Receivable Purchase Facilities
The table below sets forth additional information relative to our notes
receivable (in thousands).
December 31, 2004 December 31, 2005
----------------- -----------------
(As Restated)
Notes receivable secured by VOIs .... $ 154,628 $ 131,058
Notes receivable secured by homesites 10,901 7,408
Other notes receivable .............. 186 186
--------- ---------
Notes receivable, gross ............. 165,715 138,652
Reserve for loan losses ............. (13,664) (10,869)
--------- ---------
Notes receivable, net ............... $ 152,051 $ 127,783
========= =========
The weighted-average interest rate on our notes receivable was 14.2% and
14.6% at December 31, 2004 and 2005, respectively. All of our vacation ownership
loans bear interest at fixed rates. The average interest rate charged on loans
secured by VOIs was 14.7% and 14.8% at December 31, 2004 and 2005, respectively.
Approximately 59.7% of our notes receivable secured by homesites bear interest
at variable rates, while the balance bears interest at fixed rates. The average
interest rate charged on loans secured by homesites was 9.2% and 10.7% at
December 31, 2004 and 2005, respectively.
Our vacation ownership loans are generally secured by property located in
Tennessee, Missouri, Wisconsin, Michigan, Florida, Virginia, Pennsylvania,
Aruba, and South Carolina. The majority of Bluegreen(R) Communities' notes
receivable are secured by homesites in Georgia, Virginia, and Texas.
The table below sets forth the activity in our reserve for loan losses as
restated for 2003 and 2004 (in thousands).
Reserve for loan losses at December 31, 2003 $ 22,439
Provision for loan losses .................. 24,434
Reserve for loan losses on sold loans ...... (21,006)
Charge-offs ................................ (12,204)
--------
Reserve for loan losses at December 31, 2004 13,663
Provision for loan losses on sold loans .... 27,587
Reserve for loan losses .................... (22,638)
Charge-offs ................................ (7,744)
--------
Reserve for loan losses at December 31, 2005 $ 10,868
========
Installments due on our notes receivable during each of the five years
subsequent to December 31, 2005, and thereafter, are set forth below (in
thousands).
2006............... $ 21,231
2007............... 9,684
2008............... 10,469
2009 .............. 10,997
2010 .............. 11,888
Thereafter......... 74,383
--------
Total.... $138,652
========
Sales of Notes Receivable
Sales of notes receivable during the years ended December 31, 2004 and 2005 were
as follows (in millions):
77
Year Ended
December 31, 2004
(As Restated)
Aggregate Principal Initial Fair Value
Balance of Notes Purchase Gain of Retained
Facility Receivable Sold Price Recognized Interest
-------- --------------- ----- ---------- --------
2004 Term Securitization $172.1 $156.6 $21.1 $33.3
GE Purchase Facility 43.4 38.6 4.9 6.1
------ ------ ----- -----
Total $215.5 $195.2 $26.0 $39.4
Year Ended
December 31, 2005
Aggregate Principal Initial Fair Value
Balance of Notes Purchase Gain of Retained
Facility Receivable Sold Price Recognized Interest
-------- --------------- ----- ---------- --------
BB&T Purchase Facility $211.9 $180.1 $25.0 $42.4*
2005 Term Securitization 16.7 15.1 0.2 3.0
------ ------ ----- -----
Total $228.6 $195.2 $25.2 $45.4
The following is a description of the facilities that were used to sell notes
receivable:
2004 Term Securitization
On July 8, 2004, BB&T Capital Markets, a division of Scott & Stringfellow,
Inc. consummated a $156.6 million private offering and sale of vacation
ownership receivable-backed securities on our behalf (the "2004 Term
Securitization"). The $172.1 million in aggregate principal of vacation
ownership receivables offered and sold in the 2004 Term Securitization included
$152.8 million in aggregate principal of qualified receivables that secured
receivable-backed notes payable and $19.3 million in aggregate principal of
qualified vacation ownership receivables that, as permitted in the 2004 Term
Securitization, were subsequently sold without recourse (except for breaches of
certain representations and warranties at the time of sale) in two separate
tranches on August 13, 2004 and August 24, 2004 to an owners' trust (a qualified
special purpose entity) through our wholly-owned, special purpose finance
subsidiary, Bluegreen Receivables Finance Corporation VIII. The proceeds from
the 2004 Term Securitization were used to pay Resort Finance, LLC all amounts
then outstanding under their receivable-backed notes payable facility, pay fees
associated with the transaction to third-parties and deposit initial amounts in
a required cash reserve account. We received net cash proceeds of $19.1 million.
We also recognized an aggregate gain of $21.1 million and recorded a retained
interest in the future cash flows of the notes receivable securitized of $33.3
million in connection with the 2004 Term Securitization.
2004 GE Purchase Facility
On August 3, 2004, we executed agreements for a vacation ownership
receivables purchase facility (the "2004 GE Purchase Facility") with General
Electric Capital Corporation ("GE"). The 2004 GE Purchase Facility utilized an
owners' trust structure, pursuant to which we sold receivables to Bluegreen
Receivables Finance Corporation VII, our wholly-owned, special purpose finance
subsidiary ("BRFC VII"), and BRFC VII sold the receivables to an owners' trust
(a qualified special purpose entity) without recourse to us or BRFC VII except
for breaches of certain customary representations and warranties at the time of
sale. We did not enter into any guarantees in connection with the 2004 GE
Purchase Facility. The 2004 GE Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
2004 GE Purchase Facility are subject to certain conditions precedent. Under the
2004 GE Purchase Facility, a variable purchase price of approximately 89.5% of
the principal balance of the receivables sold (79.5% in the case of receivables
originated in Aruba), subject to adjustment under certain terms and conditions,
was paid at closing in cash. The balance of the purchase price is deferred until
such time as GE has received a specified return, a specified
overcollateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE earns a return equal to the applicable Swap Rate (which is essentially
a published interest swap arrangement rate as defined in the 2004 GE Purchase
Facility agreements) plus 3.50%, subject to use of alternate return rates in
certain circumstances. In addition, we paid GE a structuring fee of
approximately $938,000 in October 2004. We act
78
as servicer under the 2004 GE Purchase Facility for a fee. The GE Purchase
Facility includes various conditions to purchase, covenants, trigger events and
other provisions customary for a transaction of this type. Receivables can be
sold under this new 2004 GE Purchase Facility through March 2008, subject to the
eligibility requirements and certain conditions precedent.
In March 2006, we executed agreements for a new $125.0 million vacation
ownership receivables facility with GE to replace the 2004 GE Purchase Facility.
The terms and structure of this new facility are similar to the 2004 GE Purchase
Facility, except the variable purchase price is approximately 90.0% and GE's
return will equal the applicable swap rate plus 2.35%.
The following assumptions were used to measure the initial fair value of
the retained interests in notes receivable sold or securitized during the year
ended December 31, 2004: Prepayment rates ranging from 17% to 13% per annum as
the portfolios mature; loss severity rates ranging from 40% to 73%; default
rates ranging of 10% to 1% per annum as the portfolios mature; and a discount
rate of 9%.
BB&T Purchase Facility
On December 31, 2004, we executed agreements for a vacation ownership
receivables purchase facility (the "BB&T Purchase Facility") with Branch Banking
and Trust Company ("BB&T"). The BB&T Purchase Facility utilized an owner's trust
structure, pursuant to which we sold receivables to Bluegreen Receivables
Finance Corporation IX, our wholly-owned, special purpose finance subsidiary
("BRFC IX"), and BRFC IX sold the receivables to an owner's trust (a qualified
special purpose entity) without recourse to us or BRFC IX except for breaches of
certain customary representations and warranties at the time of sale. We did not
enter into any guarantees in connection with the BB&T Purchase Facility. The
BB&T Purchase Facility had detailed requirements with respect to the eligibility
of receivables for purchase; and, fundings under the BB&T Purchase Facility were
subject to certain conditions precedent. Under the BB&T Purchase Facility, a
variable purchase price of approximately 85.0% of the principal balance of the
receivables sold, subject to certain terms and conditions, was paid at closing
in cash. The balance of the purchase price was deferred until such time as BB&T
had received a specified return and all servicing, custodial, agent and similar
fees and expenses had been paid. The specified return is equal to the commercial
paper rate or London Interbank Offered Rate ("LIBOR"), as applicable, plus an
additional return of 1.15%, subject to use of alternate return rates in certain
circumstances. In addition, we paid BB&T structuring and other fees totaling
$1.1 million in December 2004, which was expensed over the funding period of the
BB&T Purchase Facility. We acted as servicer under the BB&T Purchase Facility
for a fee. The BB&T Purchase Facility expired on December 30, 2005.
2005 Term Securitization
On December 28, 2005, BB&T Capital Markets, a division of Scott &
Stringfellow, Inc., consummated a $203.8 million private offering and sale of
vacation ownership receivable-backed securities (the "2005 Term
Securitization"). The $191.1 million in aggregate principal of vacation
ownership receivables offered and sold in the 2005 Term Securitization were
previously sold to BRFC IX. The proceeds of the 2005 Term Securitization were
used to pay BB&T all amounts outstanding under the BB&T Purchase Facility, pay
fees associated with the transaction to third-parties, deposit initial amounts
in a required cash reserve account and the escrow accounts for the Pre-funded
Receivables (see below) and provide net cash proceeds of $1.1 million to us.
In addition, the 2005 Term Securitization allowed for an additional $35.3
million in aggregate principal of our qualifying vacation ownership receivables
(the "Pre-funded Receivables") that could be sold by us through March 28, 2006
to Bluegreen Receivables Finance Corporation X, our wholly-owned, special
purpose finance subsidiary ("BRFC X"), which would then sell the Pre-funded
Receivables to BXG Receivables Note Trust 2005-A ("2005-A"), a qualified special
purpose entity, without recourse to us or BRFC X, except for breaches of certain
representations and warranties at the time of sale. The proceeds of $31.8
million (at an advance rate of 90%) as payment for the Pre-funded Receivables
were deposited into an escrow account by the Indenture Trustee of the 2005 Term
Securitization until such receivables were actually sold by us to BRFC X. On
December 29, 2005, we sold $16.7 million in Pre-funded Receivables to BRFC X and
the $15.1 million purchase price was disbursed to us from the escrow account. On
March 1, 2006, we sold the remaining $18.6 million in pre-funded receivables to
BRFC X and the $16.7 purchase price was disbursed to us from the escrow account.
79
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the 2005
transactions: prepayment rates ranging from 17% to 9% per annum as the
portfolios mature; loss severity rate ranging from 45% to 35%; default rates
ranging from 10% to 1% per annum as the portfolios mature; and discount rates
ranging from 9% to 12%.
Other Notes Receivable
On June 26, 2001, we loaned $1.7 million to the Casa Grande Resort
Cooperative Association I (the "Association"), the property owners' association
controlled by the vacation ownership owners at the La Cabana Beach and Racquet
Club(TM) ("La Cabana") resort in Aruba. During 2004, upon mutual agreement with
the Association, we offset the unpaid balance of $1.2 million on this unsecured
loan against maintenance fees we were assessed by the Association on our unsold
VOIs at the La Cabana resort.
6. Retained Interests in Notes Receivable Sold
Retained Interests in Notes Receivable Sold
Our retained interests in notes receivable sold, which are classified as
available-for-sale investments, and their associated unrealized gains and losses
are set forth below (in thousands).
Gross Gross
Amortized Unrealized Unrealized
December 31, 2004 (As Restated): Cost Gain Loss Fair Value
-------------------------------- ----------- ----------- ----------- -----------
2002 Term Securitization (see Note 5) .. $ 23,832 $ 1,527 $ -- $ 25,359
2004 Term Securitization (see Note 5) .. 29,339 5,756 -- 35,095
GE Purchase Facility (see Note 5) ...... 5,529 530 -- 6,059
----------- ----------- ----------- -----------
Total ........................ $ 58,700 $ 7,813 $ -- $ 66,513
=========== =========== =========== ===========
Gross Gross
Amortized Unrealized Unrealized
December 31, 2005: Cost Gain Loss Fair Value
------------------ ----------- ----------- ----------- -----------
2002 Term Securitization (see Note 5) .. $ 18,491 $ -- $ -- $ 18,491
2004 Term Securitization (see Note 5) .. 33,371 3,373 -- 36,744
GE Purchase Facility (see Note 5) ...... 6,284 500 -- 6,784
2005 Term Securitization (see Note 5) .. 33,606 10,071 -- 43,677
----------- ----------- ----------- -----------
Total ........................ $ 91,752 $ 13,944 $ -- $ 105,696
=========== =========== =========== ===========
The contractual maturities of our retained interest in notes receivable
sold as of December 31, 2005, based on the final maturity dates of the
underlying notes receivable , range from five to ten years.
Amortized
Cost Fair Value
----------- -----------
After one year but within five $ -- $ --
After five years but within ten 91,752 105,696
----------- -----------
Total .................... $ 91,752 $ 105,696
=========== ===========
The following assumptions were used to measure the fair value of the above
retained interests: prepayment rates ranging from 20% to 9% per annum as the
portfolios mature; loss severity rates ranging from 30% to 73%; default rates
ranging from 10% to 1% per annum as the portfolios mature; and discount rates
ranging from 8% to 9%.
The following table shows the hypothetical fair value of our retained
interests in notes receivable sold based on a 10% and a 20% adverse change in
each of the assumptions used to measure the fair value of those retained
interests (dollars in thousands):
80
Hypothetical Fair Value at December 31, 2005
--------------------------------------------
Adverse GE
Change 2002 Term 2004 Term Purchase 2005 Term
Percentage Securitization Securitization Facility Securitization
---------- -------------- -------------- -------- --------------
Prepayment rate: 10% $18,230 $36,219 $6,679 $ 43,090
20% 17,978 35,718 6,580 42,526
Loss severity rate: 10% 18,053 35,817 6,470 42,067
20% 17,615 34,891 6,156 40,462
Default rate: 10% 18,010 36,676 6,419 41,657
20% 17,537 34,628 6,061 39,689
Discount rate: 10% 18,158 35,246 6,595 41,539
20% 17,836 35,765 6,415 39,518
The table below summarizes certain cash flows received from and (paid to)
our qualifying special purpose finance subsidiaries (in thousands):
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Proceeds from new sales of receivables ..................... $ -- $ 192,580 $ 198,260
Collections on previously sold receivables ................. (55,182) (65,123) (104,863)
Servicing fees received .................................... 2,352 2,931 4,969
Purchases of foreclosed assets ............................. -- -- (3,074)
Resales of foreclosed assets ............................... (12,451) (16,886) (30,573)
Remarketing fees received .................................. 6,450 8,707 16,793
Cash received on retained interests in notes receivable sold 7,402 8,688 11,016
Cash paid to fund required reserve accounts ................ (3,939) (3,469) (6,445)
Quantitative information about the portfolios of vacation ownership notes
receivable previously sold without recourse in which we hold the above retained
interests is as follows (in thousands):
As of Year Ended
December 31, 2005 December 31, 2005
-------------------------------- -------------------
Total Principal
Amount
Principal of Loans
Amount of More than 60 Credit Losses, Net
Loans Days Past Due of Recoveries
---------- ------------- ------------------
2002 Term Securitization............... $ 70,307 $ 3,070 $ 3,959
2004 Term Securitization............... 115,997 4,290 6,303
2004 GE Purchase Facility.............. 33,184 1,126 --
2005 Term Securitization............... 209,915 5,302 --
The net unrealized gain on our retained interests in notes receivable
sold, which is presented as a separate component of our shareholders' equity, is
net of income taxes of approximately $1.7 million, $3.0 million and $5.4 million
as of December 31, 2003 , 2004 and 2005, respectively.
During the year ended December 31, 2005, we recorded an
other-than-temporary decrease of approximately $539,000 in the fair value of our
retained interest associated with the 2002 Term Securitization, based on higher
than projected default rates in the portfolio of receivables securitized. This
charge has been netted against interest income on our consolidated statements of
income.
81
7. Inventory
Our net inventory holdings, summarized by division, are set forth below
(in thousands).
December 31, 2004 December 31, 2005
----------------- -----------------
(As Restated)
Bluegreen Resorts................... $ 126,377 $ 173,338
Bluegreen Communities............... 78,975 67,631
--------- ---------
$ 205,352 $ 240,969
========== ==========
Bluegreen Resorts inventory as of December 31, 2004, consisted of land
inventory of $35.2 million, $32.1 million of construction-in-progress and $59.0
million of completed vacation ownership units. Bluegreen Resorts inventory as of
December 31, 2005, consisted of land inventory of $19.2 million, $54.2 million
of construction-in-progress and $99.9 million of completed vacation ownership
units.
Interest capitalized during the years ended December 31, 2003, 2004, and
2005 totaled $7.2 million, $7.9 million and $10.0 million, respectively. The
interest expense reflected in our consolidated statements of income is net of
capitalized interest.
8. Property and Equipment
The table below sets forth the property and equipment held by us (in
thousands).
Useful December 31, December 31,
Life 2004 2005
---- ---- ----
Office equipment, furniture and fixtures ............................................. 3-14 years $ 42,229 $ 50,720
Golf course land, land improvements, buildings and equipment ......................... 7-39 years 28,295 32,497
Land, buildings and building improvements ............................................ 3-31 years 25,370 25,902
Leasehold improvements ............................................................... 2-14 years 9,381 12,041
Aircraft ............................................................................. 5 years 1,415 1,415
Vehicles and equipment ............................................................... 3-5 years 978 1,129
---------- ----------
107,668 123,704
Accumulated depreciation and amortization of leasehold
improvements ...................................................................... (33,424) (44,070)
---------- ----------
Total ...................................................................... $ 74,244 $ 79,634
========== ==========
9. Goodwill and Intangible Assets
The table below sets forth our goodwill and intangible asset (in
thousands).
December 31, December 31,
2004 2005
---- ----
Intangible asset:
Customer list acquired in connection with the acquisition of
substantially all of the assets of TMOV ........................ $ 13,654 $ 13,654
Accumulated amortization ......................................... (13,433) (13,617)
------------ ------------
Net intangible asset ................................................ 221 37
Goodwill ............................................................ 4,291 4,291
------------ ------------
Total ........................................................... $ 4,512 $ 4,328
============ ============
Annual amortization expense relative to the intangible asset ........ $ 716 $ 150
============ ============
We estimate that the unamortized balance of the customer list intangible
asset will be amortized during 2006.
82
All of our goodwill relates to our Bluegreen Resorts division. Our
impairment tests during the years ended December 31, 2003, 2004, and 2005
determined that no goodwill impairment existed.
10. Receivable-Backed Notes Payable
The GMAC Receivables Facility. In February 2003, we entered into a
revolving vacation ownership receivables credit facility (the "GMAC Receivables
Facility") with Residential Funding Corporation ("RFC"), an affiliate of GMAC.
The borrowing limit under the GMAC Receivables Facility, as increased by
amendment, is $75.0 million. The borrowing period on the GMAC Receivables
Facility, as amended, expires on February 15, 2008, and outstanding borrowings
mature no later than February 15, 2015. The GMAC Receivables Facility has
detailed requirements with respect to the eligibility of receivables for
inclusion and other conditions to funding. The borrowing base under the GMAC
Receivables Facility is 90% of the outstanding principal balance of eligible
notes arising from the sale of VOIs. The GMAC Receivables Facility includes
affirmative, negative and financial covenants and events of default. All
principal and interest payments received on pledged receivables are applied to
principal and interest due under the GMAC Receivables Facility. Indebtedness
under the facility bears interest at the London Interbank Offered Rate ("LIBOR")
plus 4.00% (8.34% at December 31, 2005). During the year ended December 31,
2005, we pledged approximately $18.8 million in aggregate principal balance of
vacation ownership receivables under the GMAC Receivables Facility and received
$16.9 million in cash borrowings. As of December 31, 2005, $25.4 million was
outstanding under the GMAC Receivables Facility.
The Foothill Facility. We have a $30.0 million revolving credit facility
with Foothill secured by the pledge of Bluegreen Communities' receivables, with
up to $10.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and up to $10.0 million of the total facility available for
the pledge of Bluegreen Resorts' receivables (the "Foothill Facility"). The
Foothill Facility requires principal payments based on agreed-upon release
prices as homesites in the encumbered communities are sold and bears interest at
the prime lending rate plus 1.25% (8.50% at December 31, 2005), payable monthly.
The interest rate charged on outstanding receivable borrowings under the
Foothill Facility, as amended, is the prime lending rate plus 0.25% (7.5% at
December 31, 2005) when the average monthly outstanding loan balance is greater
than or equal to $15.0 million. If the average monthly outstanding loan balance
is less than $15.0 million, the interest rate is the greater of 4.00% or the
prime lending rate plus 0.50% (7.75% at December 31, 2005). All principal and
interest payments received on pledged receivables are applied to principal and
interest due under the Foothill Facility. We can borrow under the Foothill
Facility through December 31, 2006. There were no borrowings under the Foothill
Facility during the year ended December 31, 2005. At December 31, 2005, the
outstanding principal balance under this facility was approximately $3.2
million, approximately $2.2 million of which related to Bluegreen Communities'
receivables borrowings and $1.0 million of which related to Bluegreen Resorts'
receivables borrowings. Outstanding indebtedness collateralized by receivables
is due December 31, 2008.
The Textron Facility. During December 2003, we signed a combination $30.0
million Acquisition and Development and Timeshare Receivables facility with
Textron Financial Corporation (the "Textron Facility"). The borrowing period for
acquisition and development loans under the Textron Facility expired on October
1, 2004, The borrowing period for vacation ownership receivables loans under the
Textron Facility expired on March 1, 2006, and outstanding vacation ownership
receivables borrowings mature no later than March 31, 2009. Receivable-backed
borrowings under the Textron Facility bear interest at the prime lending rate
plus 1.00% (8.25% at December 31, 2005), subject to a 6.00% minimum interest
rate. During the year ended December 31, 2005, we borrowed $10.5 million
collateralized by $11.6 million of vacation ownership receivables. As of
December 31, 2005, $3.8 million was outstanding under the Textron Facility, all
of which was receivable -backed debt.
The Resort Finance Facility. On October 8, 2003, Resort Finance, LLC
("RFL") acquired and assumed the rights, obligations and commitments of ING
Capital, LLC ("ING") as initial purchaser in an existing vacation ownership
receivables purchase facility (the "RFL Facility") originally executed between
ING and us in April 2002. On September 30, 2004, we executed an extension of the
RFL Facility to allow for borrowings on notes receivable for a cumulative
advance amount of up to $100.0 million on a revolving basis through September
29, 2005. On September 29, 2005, we executed an extension of the RFL Facility to
December 29, 2005.
The RFL Facility utilized an owner's trust structure, pursuant to which we
pledged receivables to Bluegreen Receivables Finance Corporation V, one of our
wholly-owned, special purpose finance subsidiaries ("BRFC V"), and
83
BRFC V pledged the receivables to an owner's trust (a qualified special purpose
entity) without recourse to us or BRFC V except for breaches of certain
representations and warranties at the time of funding. We did not enter into any
guarantees in connection with the RFL Facility. Under the RFL Facility, a
variable advance rate of 85.00% of the principal balance of the receivables
pledged, subject to certain customary terms and conditions, was paid in cash at
funding. The balance of advance was deferred until such time as RFL had received
a specified return and all servicing, custodial, agent and similar fees and
expenses have been paid. RFL earned a return equal to LIBOR plus an additional
return ranging from 2.00% to 3.25% (based on the amount outstanding under the
RFL Facility) from October 8, 2003 through September 30, 2004, and earned a
return equal to LIBOR plus 3.25% through December 29, 2005, subject to the use
of alternate return rates in certain circumstances. In addition, RFL received a
0.25% annual facility fee. Notes receivable financed under the RFL Facility
qualify as legal sales but were are treated as borrowings in our consolidated
financial statements in compliance with SFAS No. 140.
On December 28, 2005, in connection with the 2005 Term Securitization (See
Note 5) we paid off $15.8 million of receivable-backed notes payable and sold
$17.5 million of aggregate principal balance of notes receivable previously
pledged to RFL. Our ability to borrow under the RFL Facility expired on December
29, 2005.
At December 31, 2005, $41.8 million in notes receivable secured our $35.7
million in receivable-backed notes payable.
11. Lines-of-Credit and Notes Payable
We have outstanding borrowings with various financial institutions and
other lenders, which have been used to finance the acquisition and development
of our inventory and to fund operations. Financial data related to our borrowing
facilities is set forth below (in thousands).
December 31, December 31,
2004 2005
---- ----
Lines-of-credit secured by inventory and golf courses with a carrying
value of $130.0 million at December 31, 2005. Interest rates range from
6.25% to 7.15% at December 31, 2004 and 8.13% to 9.09% at December 31,
2005. Maturities range from October 2007 to September 2009 ................ $50,024 $35,255
Notes and mortgage notes secured by certain inventory, property, equipment
and investments with an aggregate carrying value of $51.9 million at
December 31, 2005. Interest rates ranging from 3.31% to 7.04% at December
31, 2004 to 4.75% to 8.13% at December 31, 2005. Maturities range from on
demand to June 2009 ....................................................... 19,354 24,057
Lease obligations secured by the underlying assets with an aggregate
carrying value of $2.4 million at December 31, 2005. Imputed interest
rates ranging from 2.84% to 10.67% at December 31, 2004 and from 3.29% to
14.20% at December 31, 2005. Maturities range from March 2006 to October
2010 ...................................................................... 2,571 2,116
------- -------
Total.................................................................. $71,949 $61,428
======= =======
The table below sets forth the contractual minimum principal payments
required on our lines-of-credit and notes payable and capital lease obligations
for each year subsequent to December 31, 2005. Such minimum contractual payments
may differ from actual payments due to the effect of principal payments required
on a homesite or VOI release basis for certain of the above obligations (in
thousands).
2006.......... $21,459
2007.......... 20,971
2008.......... 11,210
2009.......... 7,731
2010.......... 57
-------
Total......... $61,428
=======
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The following is a discussion of our significant credit facilities and
significant new borrowings during the year ended December 31, 2005:
The GMAC AD&C Facility. In September 2003, RFC provided us with a $75.0 million
acquisition, development and construction revolving credit facility for
Bluegreen Resorts (the "GMAC AD&C Facility"). In March 2006 RFL expanded the
GMAC AD&C Facility to allow for a revolving facility limit of $150.0 million.
The borrowing period on the GMAC AD&C Facility, as amended, expires on February
15, 2008, and outstanding borrowings mature no later than August 15, 2013,
although specific draws typically are due four years from the borrowing date.
Principal will be repaid through agreed-upon release prices as VOIs are sold at
the financed resorts, subject to minimum required amortization. Through February
15, 2006, indebtedness under the facility beared interest at 30-day LIBOR plus
4.75% (9.09% at December 31, 2005). As amended, the GMAC AD&C Facility will bear
interest at LIBOR plus 4.50% after February 15,2006. Interest payments are due
monthly. During the year ended December 31, 2005, we borrowed $33.1 million
under the GMAC AD&C Facility to fund the development of VOIs at The Fountains
and the acquisition of Carolina Grande. As of December 31, 2005, $33.4 million
was outstanding under the GMAC AD&C Facility.
The RFL A&D Facility. In January 2005, we entered into a $50.0 million revolving
credit facility with RFL (the "RFL A&D Facility"). We use the proceeds from the
RFL A&D Facility to finance the acquisition and development of vacation
ownership resorts. The RFL A&D Facility is secured by 1) a first mortgage and
lien on all assets purchased with the RFL A&D Facility; 2) a first assignment of
all construction contracts, related documents, building permits and completion
bond; 3) a negative pledge of our interest in any management, marketing,
maintenance or service contracts; and 4) a first assignment of all operating
agreements, rents and other revenues at the vacation ownership resorts which
serve as collateral for the RFL A&D Facility, subject to any requirements of the
respective property owners' associations. Borrowings under the RFL A&D Facility
can be made through January 10, 2007. Principal payments will be effected
through agreed-upon release prices paid to RFL as vacation ownership interests
in the resorts that serve as collateral for the RFL A&D Facility. The
outstanding principal balance of any borrowings under the RFL A&D Facility must
be repaid by January 10, 2008. Indebtedness under the facility bears interest at
30-day LIBOR plus 3.90%, subject to a 6.90% floor (8.29% at December 31, 2005).
Interest payments are due monthly. We are required to pay a commitment fee equal
to 1.00% of the $50.0 million facility amount, which is paid at the time of each
borrowing under the RFL A&D Facility as 1.00% of each borrowing with the balance
being paid on the unutilized facility amount on January 10, 2007. In addition,
we are required to pay a program fee equal to 0.125% of the $50.0 million
facility amount per annum, payable monthly. The RFL A&D Facility documents
include customary conditions to funding, acceleration provisions and certain
financial affirmative and negative covenants. In January 2005, we borrowed $9.5
million under the RFL A&D Facility in connection with the acquisition of the
Daytona SeaBreeze resort in Daytona Beach Shores. As of December 31, 2005, there
were no amounts outstanding under the RFL A&D Facility.
The GMAC Communities Facility. In May 2005 and again in March 2006, we amended
our existing $75.0 million revolving credit facility with RFC (the "GMAC
Communities Facility"). The GMAC Communities Facility is secured by the real
property homesites (and personal property related thereto) at the following
Bluegreen Communities projects, as well as any Bluegreen Communities projects
acquired by us with funds borrowed under the GMAC Communities Facility (the
"Secured Projects"): Brickshire (New Kent County, Virginia); Mountain Lakes
Ranch (Bluffdale, Texas); Ridge Lake Shores (Magnolia, Texas); Riverwood Forest
(Fulshear, Texas); Waterstone (Boerne, Texas); Catawba Falls Preserve (Black
Mountain, North Carolina); Lake Ridge at Joe Pool Lake (Cedar Hill and Grand
Prairie, Texas); Mystic Shores at Canyon Lake (Spring Branch, Texas);
Yellowstone Creek Ranch (Pueblo, Colorado); and Havenwood at Hunters' Crossing
(New Braunfels, Texas) (the "Texas Property"). In addition, the GMAC Communities
Facility is secured by our Carolina National and The Preserve at Jordan Lake
golf courses in Southport, North Carolina and Chapel Hill, North Carolina,
respectively. Borrowings can be drawn on such projects through September 30,
2007. Principal payments are effected through agreed-upon release prices paid to
RFC as homesites in the Secured Projects are sold. The outstanding principal
balance of any borrowings under the GMAC Communities Facility must be repaid by
September 30, 2009. The interest charged on outstanding borrowings is at the
prime lending rate plus 1.00% (8.25% at December 31, 2005). Interest payments
are due monthly. The GMAC Communities Facility includes customary conditions to
funding, acceleration and event of default provisions and certain financial
affirmative and negative covenants. We use the proceeds from the GMAC
Communities Facility to repay outstanding indebtedness on Bluegreen Communities
projects, finance the acquisition and development of Bluegreen Communities
projects and for general corporate purposes. In July 2005, we borrowed an
additional $7.5 million under the GMAC Communities Facility in connection with
the acquisition of the Texas Property. As of December 31, 2005, $1.8 million was
outstanding under the
85
GMAC Communities Facility. In March 2006, we borrowed $27.2 million to fund the
acquisition of 1,579 acres in Grayson County, Texas, and for general operating
purposes.
The Wachovia Line-of-Credit. We have a $15.0 million unsecured line-of-credit
with Wachovia Bank, N.A. Amounts borrowed under the line bear interest at 30-day
LIBOR plus 2.00% (6.34% at December 31, 2005). Interest is due monthly and all
outstanding amounts are due on June 30, 2006. Borrowings under the
line-of-credit are limited to an amount which is less than the remaining
availability under our current, active vacation ownership receivables purchase
facilities plus availability under certain receivables warehouse facilities,
less any outstanding letters of credit. The line-of-credit agreement contains
covenants and conditions typical of arrangements of this type. As of December
31, 2005, no borrowings were outstanding under the line; however, an aggregate
of $523,000 of irrevocable letters of credit were outstanding under this
line-of-credit at December 30, 2005. These letters of credit expire on December
31, 2006. This line-of-credit is an available source of short-term liquidity.
12. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering (the "Offering")
of $110.0 million in aggregate principal amount of 10.50% senior secured notes
due April 1, 2008 (the "Notes"). On June 27, 2005, we used the proceeds from our
junior subordinated debentures to redeem $55.0 million in aggregate principal
amount of the Notes at a redemption price of 101.75% plus accrued and unpaid
interest through June 26, 2005 of approximately $1.4 million. Interest on the
Notes is payable semiannually on April 1 and October 1 of each year. The Notes
became redeemable at our option, in whole or in part, in cash, on April 1, 2003
and annually thereafter, together with accrued and unpaid interest, if any, to
the date of redemption at the following redemption prices: 2003 -- 105.25%; 2004
-- 103.50%; 2005 -- 101.75% and 2006 and thereafter -- 100.00%. As of December
31, 2005 the Notes totaled $55 million.
The Notes are our senior obligations and rank pari passu in right of
payment with all of our existing and future senior indebtedness and rank senior
in right of payment to all of our existing and future subordinated obligations.
None of the assets of Bluegreen Corporation secures its obligations under the
Notes, and the Notes are effectively subordinated to our secured indebtedness to
any third party to the extent of assets serving as security thereon. The Notes
are unconditionally guaranteed, jointly and severally, by each of our
subsidiaries (the "Subsidiary Guarantors"), with the exception of the Joint
Venture, Bluegreen Properties N.V., Resort Title Agency, Inc., any special
purpose finance subsidiary, any subsidiary which is formed and continues to
operate for the limited purpose of holding a real estate license and acting as a
broker, and certain other subsidiaries which have individually less than $50,000
of assets (collectively, "Non-Guarantor Subsidiaries"). Each of the note
guarantees covers the full amount of the Notes and each of the Subsidiary
Guarantors is 100% owned, directly or indirectly, by us. The Note guarantees are
senior obligations of each Subsidiary Guarantor and rank pari passu in right of
payment with all existing and future senior indebtedness of each such Subsidiary
Guarantor and senior in right of payment to all existing and future subordinated
indebtedness of each such Subsidiary Guarantor. The Note guarantees of certain
Subsidiary Guarantors are secured by a first mortgage (subject to customary
exceptions) or similar instrument (each, a "Mortgage") on certain Bluegreen
Communities properties of such Subsidiary Guarantors (the "Pledged Properties").
Absent the occurrence and the continuance of an event of default, the Notes
trustee is required to release its lien on the Pledged Properties as property is
sold and the Trustee does not have a lien on the proceeds of any such sale. As
of December 31, 2005, the Pledged Properties had an aggregate net carrying value
of approximately $757,000. The Notes' indenture includes certain negative
covenants including restrictions on the incurrence of debt and liens and on
payments of cash dividends.
Supplemental financial information for Bluegreen Corporation, our combined
Non-Guarantor Subsidiaries and our combined Subsidiary Guarantors is presented
below.
86
CONDENSED CONSOLIDATING BALANCE SHEETS
(dollars in thousands)
December 31, 2004 (As Restated)
--------------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ....................... $ 70,256 $ 18,793 $ 11,516 $ -- $ 100,565
Contracts receivable, net ....................... -- 1,365 26,720 -- 28,085
Intercompany receivable ......................... 69,977 -- -- (69,977) --
Notes receivable, net ........................... -- 62,060 89,991 -- 152,051
Other assets .................................... 2,645 6,070 22,886 -- 31,601
Inventory, net .................................. -- 20,744 184,608 -- 205,352
Retained interests in notes receivable sold ..... -- 66,513 -- -- 66,513
Investments in subsidiaries ..................... 213,011 -- 3,230 (216,241) --
Property and equipment, net ..................... 15,084 2,013 57,147 -- 74,244
------------- ------------- ------------- ------------- -------------
Total assets ............................. $ 370,973 $ 177,558 $ 396,098 $ (286,218) $ 658,411
============= ============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other $ 12,353 $ 14,817 $ 52,940 $ -- $ 80,110
Intercompany payable .......................... -- 6,557 63,420 (69,977) --
Deferred income taxes ......................... (18,683) 32,124 42,623 -- 56,064
Lines-of-credit and notes payable ............. 6,237 55,658 83,267 -- 145,162
10.50% senior secured notes payable ........... 110,000 -- -- -- 110,000
------------- ------------- ------------- ------------- -------------
Total liabilities ........................ 109,907 109,156 242,250 (69,977) 391,336
Minority interest ............................. -- -- -- 6,009 6,009
Total shareholders' equity .................... 261,066 68,402 153,848 (222,250) 261,066
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 370,973 $ 177,558 $ 396,098 $ (286,218) $ 658,411
============= ============= ============= ============= =============
87
December 31, 2005
--------------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ....................... $ 55,708 $ 15,443 $ 13,553 $ -- $ 84,704
Contracts receivable, net ....................... -- 1,801 25,672 -- 27,473
Intercompany receivable ......................... 92,641 -- -- (92,641) --
Notes receivable, net ........................... -- 48,294 79,489 -- 127,783
Other assets .................................... 4,028 4,666 19,290 -- 27,984
Inventory, net .................................. -- 17,857 223,112 -- 240,969
Retained interests in notes receivable sold ..... -- 105,696 -- -- 105,696
Investments in subsidiaries ..................... 265,023 -- 3,230 (268,253) --
Property and equipment, net ..................... 14,569 1,330 63,735 -- 79,634
------------- ------------- ------------- ------------- -------------
Total assets ............................. $ 431,969 $ 195,087 $ 428,081 $ (360,894) $ 694,243
============= ============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other $ 20,214 $ 68,397 $ (4,385) $ -- $ 84,226
Intercompany payable .......................... -- (48,757) 65,447 (92,641) --
Deferred income taxes ......................... (21,798) 41,824 89,364 -- 75,404
Lines-of-credit and notes payable ............. 5,607 27,064 64,488 -- 97,159
10.50% senior secured notes payable ........... 55,000 -- -- -- 55,000
Junior subordinated debentures ................ 59,280 -- -- -- 59,280
------------- ------------- ------------- ------------- -------------
Total liabilities ........................ 118,303 88,528 214,914 (92,641) 371,069
Minority interest ............................. -- -- -- 9,508 9,508
Total shareholders' equity .................... 313,666 106,559 213,167 (277,761) 313,666
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 431,969 $ 195,087 $ 428,081 $ (360,894) $ 694,243
============= ============= ============= ============= =============
88
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(dollars in thousands)
Year Ended December 31, 2003 (As Restated)
--------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $ 39,489 $ 319,855 $ -- $ 359,344
Other resort and communities operations revenue .... -- 7,394 48,000 -- 55,394
Management fees .................................... 38,855 -- -- (38,855) --
Equity income from subsidiaries .................... 19,979 -- -- (19,979) --
Interest income .................................... 282 20,065 9,551 -- 29,898
Gain on sales of notes receivable .................. -- -- -- -- --
Other income ....................................... 40 (191) 608 -- 457
------------ ------------ ------------ ------------ ------------
59,156 66,757 378,014 (58,834) 445,093
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 10,274 99,172 -- 109,446
Cost of other resort and communities operations .... -- 3,963 56,809 -- 60,772
Management fees .................................... -- 1,114 37,741 (38,855) --
Selling, general and administrative expenses ....... 29,589 21,244 152,975 -- 203,808
Interest expense ................................... 9,819 3,919 3,505 -- 17,243
Provision for loan losses .......................... -- 13,071 5,168 -- 18,239
------------ ------------ ------------ ------------ ------------
39,408 53,585 355,370 (38,855) 409,508
------------ ------------ ------------ ------------ ------------
Income before minority interest and (benefit)
provision for income taxes ...................... 19,748 13,172 22,644 (19,979) 35,585
Minority interest in income of consolidated
Subsidiary ...................................... -- -- -- 3,330 3,330
------------ ------------ ------------ ------------ ------------
Income before provision (benefit) for income taxes . 19,748 13,172 22,644 (23,309) 32,255
Provision (benefit) for income taxes ............... (89) 3,789 8,718 -- 12,418
------------ ------------ ------------ ------------ ------------
Net income ......................................... $ 19,837 $ 9,383 $ 13,926 $ (23,309) $ 19,837
============ ============ ============ ============ ============
89
Year Ended December 31, 2004 (As Restated)
--------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $ 48,572 $ 453,836 $ -- $ 502,408
Other resort and communities operations revenue .... -- 6,740 59,669 -- 66,409
Management fees .................................... 53,664 -- -- (53,664) --
Equity income from subsidiaries .................... 39,598 -- -- (39,598) --
Interest income .................................... 339 23,346 12,254 -- 35,939
Gain on sales of notes receivable .................. -- 25,972 -- -- 25,972
------------ ------------ ------------ ------------ ------------
93,601 104,630 525,759 (93,262) 630,728
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 13,702 166,026 -- 179,728
Cost of other resort and communities operations .... -- 4,574 66,211 -- 70,785
Management fees .................................... -- 1,088 52,576 (53,664) --
Selling, general and administrative expenses ....... 40,615 22,814 198,995 -- 262,424
Interest expense ................................... 8,452 4,994 4,979 -- 18,425
Provision for loan losses .......................... -- 18,474 5,960 -- 24,434
Other expense ...................................... 121 1,068 477 -- 1,666
------------ ------------ ------------ ------------ ------------
49,188 66,714 495,224 (53,664) 557,462
------------ ------------ ------------ ------------ ------------
Income before minority interest and provision
for income taxes ................................ 44,413 37,916 30,535 (39,598) 73,226
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 4,065 4,065
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes ........... 44,413 37,916 30,535 (43,663) 69,201
Provision for income taxes ......................... 1,854 13,032 11,756 -- 26,642
------------ ------------ ------------ ------------ ------------
Net income ......................................... $ 42,559 $ 24,884 $ 18,779 $ (43,663) $ 42,559
============ ============ ============ ============ ============
90
Year Ended December 31, 2005
--------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ................................. $ -- $ 55,007 $ 495,328 $ -- $ 550,335
Other resort and communities operations revenue ...... -- 13,236 60,561 -- 73,797
Management fees ...................................... 58,360 -- -- (58,360) --
Equity income from subsidiaries ...................... 52,045 -- -- (52,045) --
Interest income ...................................... 1,379 17,294 16,125 -- 34,798
Gain on sales of notes receivable .................... -- 25,226 -- -- 25,226
------------ ------------ ------------ ------------ ------------
111,784 110,763 572,014 (110,405) 684,156
COSTS AND EXPENSES
Cost of real estate sales ............................ -- 15,955 161,845 -- 177,800
Cost of other resort and communities operations ...... -- 5,056 72,261 -- 77,317
Management fees ...................................... -- 1,158 57,202 (58,360) --
Selling, general and administrative expenses ......... 61,934 27,297 211,008 -- 300,239
Interest expense ..................................... 4,446 2,875 7,153 -- 14,474
Provision for loan losses ............................ -- 1,416 26,171 -- 27,587
Other expense (income) ............................... 1,967 3,117 1,123 -- 6,207
------------ ------------ ------------ ------------ ------------
68,347 56,874 536,763 (58,360) 603,624
------------ ------------ ------------ ------------ ------------
Income before minority interest and provision
(benefit) for income taxes ........................ 43,437 53,889 35,251 (52,045) 80,532
Minority interest in income of consolidated subsidiary -- -- -- 4,839 4,839
------------ ------------ ------------ ------------ ------------
Income before provision (benefit) for income
taxes ............................................ 43,437 53,889 35,251 (56,884) 75,693
Provision (benefit) for income taxes ................. (3,114) 19,502 12,754 -- 29,142
------------ ------------ ------------ ------------ ------------
Net income (loss) .................................... $ 46,552 $ 34,387 $ 22,497 $ (56,884) $ 46,551
============ ============ ============ ============ ============
91
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31, 2003 (As Restated)
------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash provided (used) by operating activities ............. $ 9,928 $ (4,266) $ 33,365 $ 39,027
------------ ------------ ------------ ------------
Investing activities:
Cash received from retained interests in notes receivable sold -- 7,402 -- 7,402
Principal payments received on investment in note receivable . 456 -- -- 456
Business acquisition ......................................... -- -- (500) (500)
Purchases of property and equipment .......................... (3,310) (420) (8,163) (11,893)
Proceeds from sales of property and equipment ................ 854 -- 230 1,084
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities ............... (2,000) 6,982 (8,433) (3,451)
------------ ------------ ------------ ------------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ................................................ 7,000 8,125 25,000 40,125
Payments under line-of-credit facilities and notes payable ... (7,568) (1,384) (41,026) (49,978)
Payment of debt issuance costs ............................... (1,073) (631) (928) (2,632)
Proceeds from exercise of employee and director stock options 1,212 -- -- 1,212
------------ ------------ ------------ ------------
Net cash (used) provided by financing activities ............... (429) 6,110 (16,954) (11,273)
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents ...................... 7,499 8,826 7,978 24,303
Cash and cash equivalents at beginning of year ................. 22,373 4,822 7,081 34,276
------------ ------------ ------------ ------------
Cash and cash equivalents at end of year ....................... 29,872 13,648 15,059 58,579
Restricted cash and cash equivalents at end of year ............ (173) (7,085) (11,830) (19,088)
------------ ------------ ------------ ------------
Unrestricted cash and cash equivalents at end of year .......... $ 29,699 $ 6,563 $ 3,229 $ 39,491
============ ============ ============ ============
92
Year Ended December 31, 2004 (As Restated)
------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash provided by operating activities .................... $ 41,212 $ 6,366 $ 44,178 $ 91,756
------------ ------------ ------------ ------------
Investing activities:
Cash received from retained interests in notes receivable sold -- 8,688 -- 8,688
Business acquisition ......................................... -- -- (825) (825)
Purchases of property and equipment .......................... (5,380) (643) (12,386) (18,409)
Proceeds from sales of property and equipment ................ -- -- 8 8
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities ............... (5,380) 8,045 (13,203) (10,538)
------------ ------------ ------------ ------------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ................................................ -- 3,179 57,478 60,657
Payments under line-of-credit facilities and notes payable ... (1,769) (8,525) (90,185) (100,479)
Payment of 8.25% subordinated convertible debentures ......... (273) -- -- (273)
Payment of debt issuance costs ............................... -- (3,920) (1,811) (5,731)
Proceeds from exercise of employee and director stock options 6,594 -- -- 6,594
------------ ------------ ------------ ------------
Net cash (used) provided by financing activities ............... 4,552 (9,266) (34,518) (39,232)
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents ...................... 40,384 5,145 (3,543) 41,986
Cash and cash equivalents at beginning of year ................. 29,872 13,648 15,059 58,579
------------ ------------ ------------ ------------
Cash and cash equivalents at end of year ....................... 70,256 18,793 11,516 100,565
Restricted cash and cash equivalents at end of year ............ (173) (9,509) (11,741) (21,423)
------------ ------------ ------------ ------------
Unrestricted cash and cash equivalents at end of year .......... $ 70,083 $ 9,284 $ (225) $ 79,142
============ ============ ============ ============
93
Year Ended December 31, 2005
------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ............... $ (3,393) $ 27,668 $ 31,308 $ 55,583
------------ ------------ ------------ ------------
Investing activities:
Cash received from retained interests in notes receivable sold -- 11,016 -- 11,016
Investment in statutory business trust ....................... (1,780) -- -- (1,780)
Installment payments on business acquisition ................. -- -- (675) (675)
Purchases of property and equipment .......................... (5,112) (216) (11,396) (16,724)
Sales of property and equipment .............................. -- -- 22 22
------------ ------------ ------------ ------------
Net cash (used) provided by investing activities ............... (6,892) 10,800 (12,049) (8,141)
------------ ------------ ------------ ------------
Financing activities:
Proceeds from borrowings under line-of-credit facilities
and notes payable ........................................ -- -- 26,382 26,382
Payments under line-of-credit facilities and notes payable ... (1,071) (1,113) (89,887) (92,071)
Redemption of 10.50% senior secured notes payable ............ (55,000) -- -- (55,000)
Proceeds from issuance of junior subordinated debentures ..... 59,280 -- -- 59,280
Payment of debt issuance costs ............................... (1,862) (37) (1,401) (3,300)
Proceeds from exercise of employee and director stock options 1,406 -- -- 1,406
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities ............... 2,753 (1,150) (64,906) (63,303)
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents ........... (7,532) 37,318 (45,647) (15,861)
Cash and cash equivalents at beginning of period ............... 70,256 18,793 11,516 100,565
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period ..................... 55,708 15,443 13,553 84,704
Restricted cash and cash equivalents at end of period .......... (173) (6,709) (11,439) (18,321)
------------ ------------ ------------ ------------
Unrestricted cash and cash equivalents at end of period ........ $ 55,535 $ 8,734 $ 2,114 $ 66,383
============ ============ ============ ============
13. Convertible Subordinated and Junior Subordinated Debentures
Convertible Subordinated Debentures
Through November 18, 2004, $7.0 million of our 8.25% Convertible
Subordinated Debentures (the "Debentures") were voluntarily converted by the
holders of the Debentures at a conversion price of $8.24 per share. We called
the remaining balance of $27.4 million on November 19, 2004, which resulted in
the voluntary conversion of all but $273,000 of the Debentures at a conversion
price of $8.24 per share. We redeemed the remaining $273,000 for cash at a price
of 100% plus accrued and unpaid interest through the redemption date. The total
of such conversions resulted in the issuance of 4.1 million shares of our common
stock. In connection with this conversion, we wrote off approximately $414,000
of related debt issuance costs to additional paid-in capital. Accrued interest
forfeited by debenture holders upon conversion of approximately $282,000 was
credited to additional paid-in capital.
Trust Preferred Securities Offerings
We have formed statutory business trusts (collectively, the "Trusts") and each
issued trust preferred securities and invested the proceeds thereof in our
junior subordinated debentures. The Trusts are variable interest entities in
which we are not the primary beneficiary as defined by FASB Interpretation No.
46R. Accordingly, we do not consolidate the operations of the Trusts; instead,
the Trusts are accounted for under the equity method of accounting. In each of
these transactions, the applicable Trust issued trust preferred securities as
part of a larger pooled trust securities offering which was not registered under
the Securities Act of 1933. The applicable Trust then used the proceeds from
issuing the trust preferred securities to purchase an identical amount of junior
subordinated debentures from us. Interest on the junior
94
subordinated debentures and distributions on the trust preferred securities are
payable quarterly in arrears at the same interest rate. Distributions on the
trust preferred securities are cumulative and based upon the liquidation value
of the trust preferred security. The trust preferred securities are subject to
mandatory redemption, in whole or in part, upon repayment of the junior
subordinated debentures at maturity or their earlier redemption. The junior
subordinated debentures are redeemable in whole or in part at the Company's
option at any time after five years from the issue date or sooner following
certain specified events. In addition, we made an initial equity contribution to
each Trust in exchange for its common securities, all of which are owned by us,
and those proceeds were also used to purchase an identical amount of junior
subordinated debentures from us. The terms of each Trust's common securities are
nearly identical to the trust preferred securities.
We had the following junior subordinated debentures outstanding at December 31,
2005 (dollars in thousands):
Outstanding
Amount of Initial Fixed Variable Beginning
Junior Equity Interest Interest Optional
Subordinated To Issue Rate Rate Redemption Maturity
Trust Debentures Trust Date (1) (2) Date Date
-----------------------------------------------------------------------------------------------------------------
Bluegreen
Statutory Trust I $23,196 $ 696 3/15/05 9.160% LIBOR + 3/30/10 3/30/35
4.90%
Bluegreen
Statutory Trust II 25,774 774 5/4/05 9.158% LIBOR + 7/30/10 7/30/35
4.85%
Bluegreen
Statutory Trust III 10,310 310 5/10/05 9.193% LIBOR + 7/30/10 7/30/35
-------------------- 4.85%
$59,280 $1,780
====================
(1) Both the trust preferred securities and junior subordinated
debentures bear interest at a fixed interest rate from the issue
date through the beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated
debentures bear interest at a variable interest rate from the
beginning optional redemption date through the maturity date.
14. Fair Value of Financial Instruments
In estimating the fair values of our financial instruments, we used the
following methods and assumptions:
Cash and cash equivalents: The amounts reported in our consolidated
balance sheets for cash and cash equivalents approximate fair value.
Contracts receivable: The amounts reported in our consolidated balance
sheets for contracts receivable approximate fair value. Contracts receivable are
non-interest bearing and generally convert into cash or an interest-bearing
mortgage note receivable within thirty days.
Notes receivable: The amounts reported in our consolidated balance sheets
for notes receivable approximate fair value based on discounted future cash
flows using current rates at which similar loans with similar maturities would
be made to borrowers with similar credit risk.
Retained interests in notes receivable sold: Retained interests in notes
receivable sold are carried at fair value based on discounted cash flow
analyses.
Lines-of-credit, notes payable, receivable-backed notes payable and junior
subordinated debentures: The amounts reported in our consolidated balance sheets
approximate their fair value for indebtedness that provides for variable
interest rates. The fair value of our fixed-rate indebtedness was estimated
using discounted cash flow analyses, based on our current incremental borrowing
rates for similar types of borrowing arrangements.
10.50% senior secured notes payable: The fair value of our 10.50% senior
secured notes is based on the quoted market price in the over-the-counter bond
market.
95
December 31, 2004 December 31, 2005
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
(As Restated)
Cash and cash equivalents ..................... $ 100,565 $ 100,565 $ 84,704 $ 84,704
Contracts receivable, net ..................... 28,085 28,085 27,473 27,473
Notes receivable, net ......................... 152,051 152,051 127,783 127,783
Retained interests in notes receivable sold ... 66,513 66,513 105,696 105,696
Lines-of-credit, notes payable, and receivable-
backed notes payable ........................ 145,162 145,162 97,159 97,159
10.50% senior secured notes payable ........... 110,000 112,200 55,000 55,000
Junior subordinated debentures ................ -- -- 59,280 57,309
15. Common Stock and Stock Option Plans
Stock Option Plans
Under our employee stock option plans, options can be granted with various
vesting periods. All options granted to employees on or prior to December 31,
2002 vest ratably over a five-year period from the date of grant (20% per year).
Options granted to employees subsequent to December 31, 2002 vest 100% on the
five-year anniversary of the date of grant. Our options are granted at exercise
prices that either equal or exceed the quoted market price of our common stock
at the respective dates of grant. All of our options expire ten years from the
date of grant.
The stock option plan covering our non-employee directors provided for the
grant to our non-employee directors (the "Outside Directors") of non-qualified
stock options prior to the expiration of the ability to grant additional options
under this Plan in June 2003. All options granted to Outside Directors on or
prior to December 31, 2002 vested ratably over a three-year period while all
options granted after December 31, 2002 vested immediately upon grant. All
Outside Director stock options expire ten years from the date of grant, subject
to alternative expiration dates under certain circumstances. Due to a "change in
control" provision in the Outside Directors' stock option agreements, all
outstanding Outside Directors options as of April 10, 2002 immediately vested
when Levitt Corporation ("Levitt") (NYSE: LEV) acquired an aggregate of
approximately 8.0 million shares of our outstanding common stock from certain
real estate funds associated with Morgan Stanley Dean Witter and Company and
Grace Brothers, Ltd. in private transactions. As a result of these purchases and
the December 2003 transfer of BankAtlantic Bancorp, Inc.'s ownership interest in
our common stock to Levitt in connection with its spin-off, Levitt beneficially
owned approximately 31% of our outstanding common stock as of December 31, 2005.
Subsequent to the expiration of the ability to grant options under our
Outside Director stock option plan, we granted 55,000 and 141,346 stock options
in 2004 and 2005, respectively, to certain Outside Directors from our employee
stock option plan, which was consistent with the terms of our employee stock
option plan.
96
A summary of our stock option activity related to our Employee and Outside
Directors Plans is presented below (in thousands, except per share data).
Number of Shares Outstanding Exercise Price Number of Shares
Reserved Options Per Share Exercisable
-------- ------- --------- -----------
Employee Stock Option Plans:
Balance at December 31, 2003 .... 3,101 2,300 $ 2.26-$9.50 1,416
Granted ........................ -- 40 $10.98
Forfeited ...................... -- (20) $2.26
Exercised ...................... (966) (966) $ 2.26-$9.50
----- -----
Balance at December 31, 2004 .... 2,135 1,354 $ 2.29-$10.98 554
Approval of 2005 Stock Incentive 2,000 -- --
Plan
Cancellation of 1995 Plan ...... (781) -- --
Granted ........................ -- 809 $16.03-$18.36
Forfeited ...................... (78) (78) $ 3.48-$8.50
Exercised ...................... (131) (131) $ 3.13-$10.98
----- -----
Balance at December 31, 2005 .... 3,145 1,954 $ 2.29-$18.36 600
===== =====
Outside Directors Plans:
Balance at December 31, 2003 .... 492 492 $ 2.11-$9.31 492
Forfeited ...................... (17) (17) $3.50
Exercised ...................... (184) (184) $ 2.11-$9.31
----- -----
Balance at December 31, 2004 .... 291 291 $ 2.11-$9.31 291
Forfeited ...................... (81) (81) $ 3.13-$9.31
Exercised ...................... (145) (145) $ 3.13-$9.31
----- -----
Balance at December 31, 2005 .... 65 65 $ 2.11-9.31 65
===== =====
The weighted-average exercise prices and weighted-average remaining contractual
lives of our outstanding stock options at December 31, 2005 (grouped by range of
exercise prices) were:
Weighted-
Average Weighted-
Number Number of Remaining Weighted- Average
of Options Vested Options Contractual Life Average Exercise Price
(In 000's) (In 000's) (in years) Exercise Price (vested only)
----------- --------------- ----------------- -------------- ---------------
Employees Stock Option Plans:
$2.29-$3.13................ 47 37 3 $2.76 $2.89
$3.45-$4.88................ 658 82 6 $3.62 $4.65
$5.84-$5.89................ 115 15 8 $5.85 $5.89
$8.50-$10.98............... 325 325 4 $9.56 $9.56
$16.03-$18.36.............. 809 141 9 $18.30 $18.04
----- -----
1,954 600
===== =====
Weighted-
Average Weighted-
Number Number of Remaining Weighted- Average
of Options Vested Options Contractual Life Average Exercise Price
(In 000's) (In 000's) (in years) Exercise Price (vested only)
------------ ---------------- ---------------- ---------------- -----------------
Outside Directors Plans:
$2.11...................... 15 15 6 $2.11 $2.11
$3.48-$3.50................ 20 20 7 $3.49 $3.49
$5.94...................... 15 15 4 $5.94 $5.94
$9.31...................... 15 15 3 $9.31 $9.31
---- ---
65 65
==== ===
97
Common Stock Reserved For Future Issuance
As of December 31, 2005, common stock reserved for future issuance was
comprised of shares issuable (in thousands):
Upon exercise of employee stock options.................... 3,145
Upon exercise of outside director stock options............ 64
-----
3,209
=====
16. Commitments and Contingencies
At December 31, 2005, the estimated cost to complete development work in
subdivisions or resorts from which homesites or VOIs have been sold totaled
$73.8 million. Development is estimated to be completed within the next three
years and thereafter as follows: 2006 -- $35.0 million, 2007 -- $23.0 million,
2008 and beyond - $15.8 million.
We lease certain office space and equipment under various noncancelable
operating leases. Certain of these leases contain stated escalation clauses
while others contain renewal options.
Rent expense for the years ended December 31, 2003, 2004, and 2005 totaled
approximately $5.5 million, $6.3 million, and $8.5 million, respectively.
Lease commitments under these noncancelable operating leases for each of
the five years subsequent to December 31, 2005, and thereafter are as follows
(in thousands):
2006.............................................. $ 8,227
2007.............................................. 7,339
2008.............................................. 5,913
2009.............................................. 4,287
2010.............................................. 3,224
Thereafter........................................ 4,623
-------
Total future minimum lease payments............. $33,613
=======
We have approximately $530,000 in outstanding commitments under stand-by
letters of credit with banks, primarily related to obtaining governmental
approval of plats for one our Bluegreen Communities projects.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, sale or
financing of real estate. Additionally, from time to time, we become involved in
disputes with existing and former employees. We believe that these claims are
routine litigation incidental to our business.
On August 21, 2000, we received a notice of Field Audit Action (the "First
Notice") from the State of Wisconsin Department of Revenue (the "DOR") alleging
that two corporations purchased by us had failed to collect and remit sales and
use taxes totaling $1.9 million to the State of Wisconsin prior to the purchase
during the period from January 1, 1994 through September 30, 1997. On May 24,
2003, we received a second Notice of Field Audit Action (the "Second Notice")
from DOR alleging that the two subsidiaries failed to collect and remit sales
and use taxes to the State of Wisconsin during the period from April 1, 1998
through March 31, 2002 totaling $1.4 million. The majority of the assessment was
based on the subsidiaries not charging sales tax to purchasers of VOIs at our
Christmas Mountain Village(TM) resort during the period from January 1, 1994
through December 31, 1999. The statute requiring the assessment of sales tax on
sales of certain VOIs in Wisconsin was repealed in December 1999. We acquired
the subsidiaries that were the subject of the notices in connection with the
acquisition of RDI Group, Inc. ("RDI") on September 30, 1997. Under the RDI
purchase agreement, we had certain rights of offset for amounts owed the sellers
based on any breach of representations and warranties.
On August 31, 2004, we settled the sales tax assessments and all interest
and penalties for $2.3 million. Of this amount, $750,000 was already accrued in
connection with the indemnification by RDI's former stockholders and
98
approximately $210,000 will be reimbursed to us by certain property owners'
associations that serve the Christmas Mountain Village Resort. We recognized an
expense of $1.5 million from this settlement during the year ended December 31,
2004.
On November 8, 2005, we received notice that the Tennessee Department of
Revenue is considering imposing an assessment for sales, use and other
miscellaneous business taxes for sales of timeshare interests in Bluegreen
Vacation Club within the state of Tennessee during the periods from January 2001
through December 2004. We have been advised that the amounts that may be imposed
by the State of Tennessee may be as much as $28 million; however, no formal
assessment has been approved or made by the Tennessee Department of Revenue. We
believe that the assessments under consideration by the Tennessee Department of
Revenue are based on a preliminary, but mistaken, interpretation of the tax laws
of the state of Tennessee. We will be reviewing this matter further with
representatives of the Tennessee Department of Revenue, and we intend to
vigorously defend against any such claims or assessments.
17. Income Taxes
Our provision for income taxes consists of the following (in thousands):
Year Ended Year Ended Year Ended
December 31, 2003 December 31, 2004 December 31, 2005
----------------- ----------------- -----------------
(As Restated) (As Restated)
Federal:
Current ........ $ 3,524 $ 6,378 $ 9,418
Deferred ....... 8,085 16,967 15,600
------- ------- -------
11,609 23,345 25,018
State and other:
Current ........ -- 1,600 2,745
Deferred ....... 809 1,697 1,379
------- ------- -------
809 3,297 4,124
------- ------- -------
Total .......... $12,418 $26,642 $29,142
======= ======= =======
The reasons for the difference between our provision for income taxes and
the amount that results from applying the federal statutory tax rate to income
before provision for income taxes are as follows (in thousands):
December 31, December 31, December 31,
------------ ------------ ------------
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
------------- ------------- -------------
Income tax expense at statutory rate .... $11,609 $23,345 $25,019
Effect of state taxes, net of federal tax
benefit ................................ 809 3,297 4,123
------- ------- -------
$12,418 $26,642 $29,142
======= ======= =======
Our deferred income taxes consist of the following components (in
thousands):
December 31, December 31,
------------ ------------
2004 2005
---- ----
(As Restated)
Deferred federal and state tax liabilities (assets):
Installment sales treatment of notes ...................... $113,989 $150,146
Deferred federal and state loss carryforwards/AMT credits . (69,615) (89,035)
Book over tax carrying value of retained interests in notes
receivable sold ........................................ 6,281 9,526
Book reserves for loan losses and inventory ............... (6,689) (7,613)
Tax over book depreciation ................................ 7,335 6,119
Deferred tax liabilities on unrealized gains on retained
Interest (see Note 6) ..................................... 3,008 5,368
Other ..................................................... 1,755 893
-------- --------
Deferred income taxes ...................................... $ 56,064 $ 75,404
======== ========
Total deferred federal and state tax liabilities ........... $140,348 $174,055
Total deferred federal and state tax assets ................ (84,284) (98,651)
-------- --------
Deferred income taxes ......................................... $ 56,064 $ 75,404
======== ========
99
We have available federal net operating loss carryforwards of $158.9 million,
which expire beginning in 2021 through 2025, and alternative minimum tax credit
carryforwards of $22.5 million, which never expire. Additionally, we have
available state operating loss carryforwards of $307.1 million, which expire
beginning in 2008 through 2025. The income tax benefits from our state operating
loss carryforwards are net of a valuation allowance of $639,000.
18. Employee Retirement Savings Plan and Other Employee Matters
Our Employee Retirement Plan is a code section 401(k) Retirement Savings
Plan (the "Plan"). All employees at least 21 years of age with one year of
employment with us are eligible to participate in the Plan. The Plan, as
amended, provides an annual discretionary matching contribution and a fixed-rate
matching contribution equal to 50% of the first 3% of a participant's
contribution with an annual limit of $1,000 per participant. During the year
ended December 31, 2003, we accrued approximately $361,000 for a matching
contribution that we paid in February 2004 related to the Plan's year ended
December 31, 2003. During the year ended December 31, 2004, we accrued
approximately $554,000 for a matching contribution to be determined and paid in
March 2005 related to the Plan's year ended December 31, 2004. During the year
ended December 31, 2005, we accrued approximately $620,000 for a matching
contribution to be determined and paid in February 2006 related to the Plan's
year ended December 31, 2005.
Our employees in Aruba, which comprise approximately 2% of our total
workforce, are subject to the terms of a collective bargaining agreement.
19. Business Segments
We have two reportable business segments. Bluegreen Resorts develops,
markets and sells VOIs in our resorts, primarily through the Bluegreen Vacation
Club, and provides resort management services to resort property owners
associations. Bluegreen Communities acquires large tracts of real estate, which
are subdivided, improved (in some cases to include a golf course on the
property) and sold, typically on a retail basis as homesites. Our reportable
segments are business units that offer different products. The reportable
segments are each managed separately because they sell distinct products with
different development, marketing and selling methods.
We evaluate the performance and allocate resources to each business segment
based on its respective field operating profit. Field operating profit is
operating profit prior to the allocation of corporate overhead, interest income,
gain on sales of notes receivable, other income, provision for loan losses,
interest expense, income taxes, minority interest and cumulative effect of
change in accounting principle. Inventory is the only asset that we evaluate on
a segment basis -- all other assets are only evaluated on a consolidated basis.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies in Note 1.
Required disclosures for our business segments are as follows (in
thousands):
Bluegreen Bluegreen
Resorts Communities Totals
------- ----------- ------
As of and for the year ended December 31, 2003 (As Restated):
Sales of real estate ........................................ $254,971 $104,373 $359,344
Other resort and communities operations revenue ............. 48,915 6,479 55,394
Depreciation expense ........................................ 3,661 1,726 5,387
Field operating profit ...................................... 50,359 12,580 62,939
Inventory ................................................... 98,377 121,805 220,182
As of and for the year ended December 31, 2004 (As Restated):
Sales of real estate ........................................ $310,608 $191,800 $502,408
Other resort and communities operations revenue ............. 59,007 7,402 66,409
Depreciation expense ........................................ 5,138 1,788 6,926
Field operating profit ...................................... 50,876 37,722 88,598
Inventory ................................................... 126,377 78,975 205,352
As of and for the year ended December 31, 2005
Sales of real estate ........................................ $358,240 $192,095 $550,335
Other resort and communities operations revenue ............. 64,276 9,521 73,797
Depreciation expense ........................................ 7,161 1,684 8,845
Field operating profit ...................................... 59,578 47,227 106,805
Inventory ................................................... 173,338 67,631 240,969
100
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before provision for income taxes and minority interest is
as follows (in thousands):
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Field operating profit for reportable segments . $ 62,939 $ 88,598 $ 106,805
Interest income ................................ 29,898 35,939 34,798
Gain on sales of notes receivable .............. -- 25,972 25,226
Other income (expense), net .................... 457 (1,666) (6,207)
Corporate general and administrative expenses .. (22,227) (32,718) (38,029)
Interest expense ............................... (17,243) (18,425) (14,474)
Provision for loan losses ...................... (18,239) (24,434) (27,587)
-------- -------- ---------
Consolidated income before minority interest and
provision for income taxes ................... $ 35,585 $ 73,266 $ 80,532
======== ======== =========
Depreciation expense for our reportable segments reconciled to our
consolidated depreciation expense is as follows (in thousands):
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
Depreciation expense for reportable segments .. $5,387 $6,926 $ 8,845
Depreciation expense for corporate fixed assets 2,424 2,843 3,487
------ ------ -------
Consolidated depreciation expense ............. $7,811 $9,769 $12,332
====== ====== =======
Assets for our reportable segments reconciled to our consolidated assets
(in thousands):
December 31, December 31,
------------ ------------
2004 2005
---- ----
(As Restated)
Inventory for reportable segments ......... $205,352 $240,969
Assets not allocated to reportable segments 453,059 453,274
-------- --------
Total assets .............................. $658,411 $694,243
======== ========
Geographic Information
Sales of real estate by geographic area are as follows (in thousands):
101
Year Ended Year Ended Year Ended
December 31, December December
------------ -------- --------
2003 2004 2005
---- ---- ----
(As Restated) (As Restated)
United States ..................... $348,382 $491,948 $539,131
Aruba ............................. 10,949 10,460 11,204
Canada ............................ 13 -- --
-------- -------- --------
Consolidated totals ............... $359,344 $502,408 $550,335
======== ======== ========
Inventory by geographic area is as follows (in thousands):
December 31, December 31,
------------ ------------
2004 2005
---- ----
(As Restated)
United States ................................ $198,815 $235,340
Aruba ........................................ 6,527 5,619
Canada ....................................... 10 10
-------- --------
Consolidated totals .......................... $205,352 $240,969
======== ========
102
20. Quarterly Financial Information (Unaudited)
A summary of the restated quarterly financial information for the years
ended December 31, 2004 and 2005 is presented below (in thousands, except for
per share information). See Note 2 for additional information about the
restatement.
Three Months Ended
----------------------------------------------------------------
March 31, June 30, September 30, December 31,
2004 2004 2004 2004
------------- ------------- ------------- -------------
Sales of real estate (as reported) ................ $ 86,191 $ 128,314 $ 161,898 $ 125,993
Sales of real estate (as restated, see Note 2) .... 86,191 128,317 161,907 125,993
Gross profit (as reported) ........................ 56,951 84,488 103,111 78,124
Gross profit (as restated, see Note 2) ............ 56,951 84,489 103,116 78,124
Net income (as reported) .......................... 4,700 9,102 16,307 6,346
Net income (as restated, see Note 2) .............. 1,732 9,742 24,278 6,807
Earnings per common share (as previously reported):
Basic ........................................ $ .19 $ .35 $ .62 $ .23
Diluted ...................................... $ .17 $ .31 $ .54 $ .21
Earnings per common share (as restated, see Note 2):
Basic ........................................ $ .07 $ .38 $ .94 $ .25
Diluted ...................................... $ .07 $ .33 $ .80 $ .23
Three Months Ended
----------------------------------------------------------------
March 31, June 30, September 30, December 31,
2005 2005 2005 2005 (1)
------------- ------------- ------------- -------------
Sales of real estate (as reported) ................ $ 104,021 $ 159,208 $ 166,777 $ --
Sales of real estate (as restated, see Note 2) .... 104,021 159,208 166,777 120,329
Gross profit (as reported) ........................ 71,134 108,099 113,906 --
Gross profit (as restated, see Note 2) ............ 71,134 108,099 113,838 79,464
Net income (as reported) .......................... 6,457 14,325 18,665 --
Net income (as restated, see Note 2) .............. 6,400 14,910 18,332 6,910
Earnings per common share (as reported):
Basic ........................................ $ .21 $ .47 $ .61
Diluted ...................................... $ .21 $ .46 $ .60
Earnings per common share (as restated, see Note 2):
Basic ........................................ $ .21 $ .49 $ .60 $ .23
Diluted ...................................... $ .20 $ .48 $ .59 $ .22
(1) Amounts for the quarter ending December 31, 2005, have not been previously
reported and have been included in the "as restated" line to allow
agreement with the financial statements included in this report.
103
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Bluegreen Corporation:
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation (the Company) as of December 31, 2004 and 2005, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of three years in the period ended December 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bluegreen
Corporation at December 31, 2004 and 2005, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2005, in conformity with U.S. generally accepted accounting
principles.
As described in Note 2 to the consolidated financial statements, the
accompanying consolidated balance sheet as of December 31, 2004, and the related
consolidated statements of income, shareholders' equity and cash flow for each
of the two years in the period ended December 31, 2004 have been restated due to
certain misapplications of generally accepted accounting principles for sales of
the Company's vacation ownership notes receivable and other related matters. In
addition, the accompanying consolidated balance sheet as of December 31, 2004
was restated to increase the amount of deferred income tax liabilities related
to certain tax benefits that were incorrectly determined in periods prior to
2003.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Bluegreen
Corporation's internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 15, 2006 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Certified Public Accountants
March 15, 2006
Miami, Florida
104
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2005.
Our management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2005 has been audited by Ernst & Young
LLP, the independent registered public accounting firm that audited our
financial statements included in this Annual Report on Form 10-K, as stated in
their report which immediately follows this report.
GEORGE F. DONOVAN, President and Chief Executive Officer
ANTHONY M. PULEO, Senior Vice President, Chief Financial Officer and Treasurer
105
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Bluegreen Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Bluegreen
Corporation maintained effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Bluegreen Corporation's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Bluegreen Corporation maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Bluegreen Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Bluegreen Corporation (the "Company") as of December 31, 2004, and December 31,
2005, and the related consolidated statements of income, shareholders' equity
and cash flows for the three years in the period ended December 31, 2005 of
Bluegreen Corporation and our report dated March 15, 2006 expressed an
unqualified opinion thereon.
ERNST & YOUNG LLP
Certified Public Accountants
March 15, 2006
Miami, Florida
106
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures and internal
controls will prevent all errors and all improper conduct. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that we have detected all control
issues and instances of improper conduct, if any. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the design and operation of our "disclosure controls and
procedures", as such term is defined under Rule 13a-15(e) promulgated under the
Exchange Act as of December 31, 2005. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2005.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2005, in anticipation of the sale of certain of our
vacation ownership notes receivable, we implemented additional internal controls
relating to (1) the review and evaluation of sales of vacation ownership notes
receivable to determine if the proposed structures would allow for off-balance
sheet treatment under SFAS No. 140 and (2) the evaluation of the appropriate
initial and continuing accounting for such transactions. Specifically, in
addition to using internal resources to evaluate the treatment and related
accounting for securitization transactions, we also engaged a third party expert
to assist management with its evaluation. As the fourth quarter securitization
included a component of a previous purchase facility, a review was performed to
determine if the purchase facility was appropriately treated as a sale as
originally reported. Based on our review, we determined that, among other
things, the relevant provisions of the previous purchase facility were arguably
ambiguous and could be construed to allow the Company to substitute new notes
receivable for previously sold receivables for any reason. As such, we concluded
that the existence of the ambiguous provisions should have precluded notes
receivable sales under the purchase facility from being accounted for as
off-balance sheet sales transactions. As a result, the Company felt it was
prudent to reassess all prior securitizations and vacation ownership receivables
purchase facilities to determine if GAAP was applied appropriately. As a result
of this review, we identified that we had originally misapplied GAAP in various
purchase facilities during certain periods prior to the fourth quarter of 2005
and that there were material weaknesses in internal control over these types of
transactions. As a result, we determined that we would restate our consolidated
financial statements for the first three quarters of fiscal 2005 and the fiscal
years ended December 31, 2003 and 2004 (see Note 2 to the Consolidated Financial
Statements) to reflect the impact of treating such transactions as on-balance
sheet financings and to correct the initial gain computations and continuing
accounting on those transactions that were properly treated as off-balance sheet
transactions. We believe that, as of December 31, 2005, we had fully remediated
the control deficiencies relating to the sale of vacation ownership notes
receivable that led to the restatement of the periods prior to fourth quarter of
2005.
107
Management's Report on Internal Control Over Financial Reporting
Management's report and the Report of Independent Registered Public Accounting
Firm on internal control over financial reporting are set forth in Part II, Item
8 of this report.
Chief Executive Officer and Chief Financial Officer Certifications
Appearing as Exhibits 31.1 and 31.2 to this Annual Report are the Certifications
of the principal executive officer and the principal financial officer. The
Certifications are required in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002. This Item of this Annual Report is the information concerning the
evaluation referred to in the Section 302 Certifications and this information
should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to our Directors required by Item 10 is incorporated by
reference to our Proxy Statement for our 2006 Annual Meeting of Shareholders.
The information concerning our executive officers required by Item 10 is
contained in the discussion entitled "Executive Officers" in Item 1 of Part I
hereof.
Item 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to our Proxy
Statement for our 2006 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated by reference to our Proxy
Statement for our 2006 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to our Proxy
Statement for our 2006 Annual Meeting of Shareholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 is incorporated by reference to our Proxy
Statement for our 2006 Annual Meeting of Shareholders.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following of our Financial Statements and Notes thereto and the report
of independent registered public accounting firm relating thereto, are
included in Item 8.
108
Consolidated Balance Sheets as of December 31, 2004 and December 31, 2005
Consolidated Statements of Income for the years ended December 31, 2003,
2004 and 2005.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2003, 2004 and 2005.
Consolidated Statements of Cash Flows for the years ended December 31,
2003, 2004 and 2005.
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 107 through 116 hereof and are incorporated herein by
reference.
(b) Exhibits.
See (a)(3) above.
(c) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 15, 2006 By: /s/ GEORGE F. DONOVAN
-------------------------------------------------------
George F. Donovan,
President and Chief Executive Officer
Date: March 15, 2006 By: /s/ ANTHONY M. PULEO
-------------------------------------------------------
Anthony M. Puleo,
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
Date: March 15, 2006 By: /s/ RAYMOND S. LOPEZ
-------------------------------------------------------
Raymond S. Lopez,
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 15th day of March, 2006.
Signature Title
--------- -----
/s/ GEORGE F. DONOVAN President, Chief Executive Officer and
------------------------------- Director
George F. Donovan
/s/ ANTHONY M. PULEO Senior Vice President, Chief Financial
------------------------------- Officer and Treasurer
Anthony M. Puleo (Principal Financial Officer)
/s/ RAYMOND S. LOPEZ Vice President and Chief Accounting Officer
-------------------------------
Raymond S. Lopez (Principal Accounting Officer)
/s/ ALAN B. LEVAN Chairman of the Board of Directors
-------------------------------
Alan B. Levan
/s/ JOHN E. ABDO Vice Chairman of the Board of Directors
-------------------------------
John E. Abdo
/s/ NORMAN H. BECKER Director
-------------------------------
Norman H. Becker
/s/ LAWRENCE CIRILLO Director
-------------------------------
Lawrence Cirillo
/s/ ROBERT F. DWORS Director
-------------------------------
Robert F. Dwors
/s/ SCOTT W. HOLLOWAY Director
-------------------------------
Scott W. Holloway
/s/ JOHN LAGUARDIA Director
-------------------------------
John Laguardia
/s/ MARK A. NERENHAUSEN Director
-------------------------------
Mark A. Nerenhausen
/s/ J. LARRY RUTHERFORD Director
-------------------------------
J. Larry Rutherford
/s/ ARNOLD SEVELL Director
-------------------------------
Arnold Sevell
110
EXHIBIT INDEX
Number Description
------ -----------
3.1 - Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the year ended March 31, 1996).
3.2 - Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated September 30, 2005).
4.4 - Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
year ended April 2, 2000).
4.7 - Indenture dated as of April 1, 1998 by and among the Registrant,
certain subsidiaries of the Registrant, and SunTrust Bank, Central
Florida, National Association, as trustee, for the 101/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of
same designation to Registration Statement on Form S-4, File No.
333-50717).
4.8 - First Supplemental Indenture dated as of March 15, 1999 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 101/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 28, 1999).
4.9 - Second Supplemental Indenture dated as of December 31, 2000 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 101/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.10 - Third Supplemental Indenture dated as of October 31, 2001 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 101/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.11 - Fourth Supplemental Indenture dated as of December 31, 2001 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 101/2%
Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q dated
December 30, 2001).
4.12 - Fifth Supplemental Indenture dated as of July 31, 2002 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 101/2%
Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Transition Report on Form 10-KT for
the nine months ended December 31, 2002).
4.13 - Sixth Supplemental Indenture dated as of April 30, 2003 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and the SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 101/2%
Senior Secured Notes due
111
2008 (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated June 30, 2003).
4.14 - Seventh Supplemental Indenture dated as of February 29, 2004 to
the Indenture Dated as of April 1, 1998 among the Registrant,
certain of its subsidiaries and SunTrust Bank (formerly SunTrust
Bank, Central Florida, National Association), as Notes Trustee,
relating to the Company's $110 million aggregate principal amount
of 101/2% Senior Secured Notes due 2008 (incorporated by reference
to exhibit of same designation to Quarterly Report on Form 10-Q
dated June 30, 2004).
10.1 Amended and Restated Trust Agreement among Bluegreen Corporation,
as Depositor, JPMorgan Chase Bank, National Association as
Property Trustee, Chase Bank USA, National Association, as
Delaware Trustee and the Administrative Trustees Named Herein as
Administrative Trustees dated as of March 15, 2005 (incorporated
by reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated March 31, 2005).
10.2 Junior Subordinated Indenture between Bluegreen Corporation and
JPMorgan Chase Bank, National Association, as Trustee dated as of
March 15, 2005 (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated March 31,
2005).
10.3 Amended and Restated Trust Agreement among Bluegreen Corporation,
as Depositor, Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee and the
Administrative Trustees Named Herein as Administrative Trustees
dated as of May 4, 2005 (incorporated by reference to exhibit of
same designation to Quarterly Report on Form 10-Q dated March 31,
2005).
10.4 Junior Subordinated Indenture between Bluegreen Corporation and
Wilmington Trust Company as Trustee dated as of May 4, 2005
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated March 31, 2005).
10.5 Amended and Restated Trust Agreement among Bluegreen Corporation,
as Depositor, Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee and the
Administrative Trustees, dated as of May 10, 2005 (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated June 30, 2005).
10.6 Junior Subordinated Indenture between Bluegreen Corporation and
Wilmington Trust Company, as Trustee dated as of May 10, 2005
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated June 30, 2005).
10.7 Commitment Extension Letter to the Amended and Restated Note
Purchase Agreement among Bluegreen Corporation, as Seller and
Servicer, BXG Receivables Note Trust 2001-A, as Issuer, Bluegreen
Receivables Finance Corporation V, as Depositor, dated as of
September 2, 2005 (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated September 30,
2005).
10.78* - Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on
Form S-8, File No. 33-61687).
10.79* - Registrant's 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to exhibit 10.131 to Annual report on
Form 10-K for the year ended March 29, 1998).
10.80* - Registrant's 1995 Stock Incentive Plan, as amended (incorporated
by reference to exhibit 10.79 to Annual Report on Form 10-K for
the fiscal year ended March 29, 1998).
10.81* - Registrant's Retirement Savings Plan (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended March 31, 2002).
10.85 - Amended and Restated Sale and Contribution Agreement dated as of
October 1, 1999 by and
among Bluegreen Corporation Receivables Finance Corporation III
and BRFC III Deed Corporation (incorporated by reference to
exhibit 10.103 to Quarterly Report on Form 10-Q dated January 2,
2000).
10.86 - Amended and Restated Asset Purchase Agreement dated as of October
1, 1999 by and among Bluegreen Corporation, Bluegreen Receivables
Finance Corporation III, BRFC III Deed Corporation, Heller
Financial Inc., Vacation Trust, Inc. and U.S. Bank National
Association, as cash administrator, including Definitions Annex
(incorporated by reference to exhibit 10.104 to Quarterly Report
on Form 10-Q dated January 2, 2000).
112
10.94 - Purchase and Contribution Agreement dated November 15, 2002, by
and among the Registrant and Bluegreen Receivables Finance
Corporation VI (incorporated by reference to exhibit 10.115 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.95 - Sale Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI and BXG Receivables Note Trust
2002-A VI (incorporated by reference to exhibit 10.116 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.96 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Owner Trust 2000 and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.117 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.97 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Note Trust 2001-A and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.118 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.99 - Note Purchase Agreement dated December 3, 2002, between BXG
Receivables Note Trust 2002-A and ING Financial Markets LLC
(incorporated by reference to exhibit 10.119 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.100 - Trust Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI, GSS Holdings, Inc. and
Wilmington Trust Company (incorporated by reference to exhibit
10.120 to Transition Report on Form 10-KT for the nine months
ended December 31, 2002).
10.101 - Indenture dated November 15, 2002, between the Registrant, BXG
Receivables Note Trust 2002-A, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association
(incorporated by reference to exhibit 10.121 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.102 - Sale and Contribution Agreement among the Registrant and Bluegreen
Receivables Finance Corporation VII, dated as of August 3, 2004
(incorporated by reference to exhibit 10.105 to Quarterly Report
on Form 10-Q dated June 30, 2004).
10.103 - Sale and Servicing Agreement among BXG Receivables Owner Trust
2004-A, Bluegreen Receivables Finance Corporation VII, the
Registrant, Concord Servicing Corporation, Vacation Trust, Inc.,
U.S. Bank National Association and General Electric Capital
Corporation, dated as of August 3, 2004 (incorporated by reference
to exhibit 10.106 to Quarterly Report on Form 10-Q dated June 30,
2004).
10.104 - Trust Agreement by and among Bluegreen Receivables Finance
Corporation VII, GSS Holdings, Inc. and Wilmington Trust Company,
dated as of August 3, 2004 (incorporated by reference to exhibit
10.107 to Quarterly Report on Form 10-Q dated June 30, 2004).
10.105 - Indenture between BXG Receivables Owner Trust 2004-A and U.S. Bank
National Association, dated as of August 3, 2004 (incorporated by
reference to exhibit 10.108 to Quarterly Report on Form 10-Q dated
June 30, 2004).
113
10.106 - BXG Receivables Owner Trust 2004-A Definitions Annex, Definitions
and Interpretations, dated as of August 3, 2004 (incorporated by
reference to exhibit 10.109 to Quarterly Report on Form 10-Q dated
June 30, 2004).
10.107 - Note Purchase Agreement between BXG Receivables Note Trust 2004-B
and BB&T Capital Markets, dated as of July 1, 2004 (incorporated
by reference to exhibit 10.127 to Quarterly Report on Form 10-Q
dated June 30, 2004).
10.108 - Amended and Restated Trust Agreement by and among Bluegreen
Receivables Finance Corporation VIII, GSS Holdings, Inc. and
Wilmington Trust Company, dated as of July 8, 2004 (incorporated
by reference to exhibit 10.128 to Quarterly Report on Form 10-Q
dated June 30, 2004).
10.109 - Purchase and Contribution Agreement by and among the Registrant
and Bluegreen Receivables Finance Corporation VIII, dated as of
June 15, 2004 (incorporated by reference to exhibit 10.129 to
Quarterly Report on Form 10-Q dated June 30, 2004).
10.110 - Indenture between BXG Receivables Owner Trust 2004-B, the
Registrant, Vacation Trust, Inc., Concord Servicing Corporation
and U.S. Bank National Association, dated as of June 15, 2004
(incorporated by reference to exhibit 10.130 to Quarterly Report
on Form 10-Q dated June 30, 2004).
114
10.111 - Standard Definitions to Indenture between BXG Receivables Owner
Trust 2004-B, the Registrant, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association, dated as
of June 15, 2004 (incorporated by reference to exhibit 10.131 to
Quarterly Report on Form 10-Q dated June 30, 2004).
10.112 - Transfer Agreement by and among the Registrant, BXG Receivables
Note Trust 2001-A and Bluegreen Receivables Finance Corporation
VIII, dated as of June 15, 2004 (incorporated by reference to
exhibit 10.132 to Quarterly Report on Form 10-Q dated June 30,
2004).
10.113 - Sale Agreement by and among Bluegreen Receivables Finance
Corporation VIII and BXG Receivables Note Trust 2004-B, dated as
of June 15, 2004 (incorporated by reference to exhibit 10.133 to
Quarterly Report on Form 10-Q dated June 30, 2004).
10.134 - Exchange and Registration Rights Agreement dated April 1, 1998, by
and among the Registrant and the persons named therein, relating
to the 10 1/2 % Senior Secured Notes due 2008 (incorporated by
reference to exhibit 10.123 to Registration Statement on Form S-4,
File No. 333-50717).
10.135* - Employment Agreement between George F. Donovan and the Company
dated December 19, 2001 (incorporated by reference to exhibit
10.124 to Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
10.136* - Promissory Note dated July 1, 2002 between George F. Donovan and
Bluegreen Corporation (incorporated by reference to exhibit 10.148
to Quarterly Report on Form 10-Q dated June 30, 2002).
10.138* - Employment Agreement between Daniel C. Koscher and the Company
dated May 22, 2002 (incorporated by reference to exhibit 10.126 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.139 - Amended and Restated Loan and Security Agreement dated as of
September 23, 1997 between Foothill Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.130 to
Registration Statement on Form S-4, File No. 333-50717).
10.140 - Amendment Number One to Loan and Security Agreement dated December
1, 2000, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.140 to
Quarterly Report on Form 10-Q dated December 31, 2000).
10.141 - Amendment Number Two to Loan and Security Agreement dated as of
November 9, 2001, by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit 10.133
to Quarterly Report on Form 10-Q dated December 31, 2001).
10.142 - Amendment Number Three to Loan and Security Agreement dated August
28, 2002, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.132 to
Quarterly Report on Form 10-Q dated September 29, 2002).
10.143 - Amendment Number Four to Loan and Security Agreement dated March
26, 2003, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended December 31, 2003).
115
10.144 - Amendment Number Five to Loan and Security Agreement dated
September 1, 2003, by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation) (incorporated
by reference to exhibit of same designation to Annual Report on
Form 10-K for the fiscal year ended December 31, 2003).
10.145 - Amendment Number Six to Loan and Security Agreement dated April 2,
2004 by and between the Registrant and Wells Fargo Foothill, Inc.
(f/k/a Foothill Capital Corporation) (Incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K dated
December 31, 2004).
10.146 - Amendment Number Seven to Loan and Security Agreement dated
September 21, 2004 by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation). (incorporated
by reference to exhibit 10.140 to Quarterly Report on Form 10-Q
dated December 31, 2000). (Incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K dated December 31,
2004).
10.147 - Amendment Number Eight to Loan and Security Agreement dated
October 5, 2004 by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation). (Incorporated
by reference to exhibit of same designation to Annual Report on
Form 10-K dated December 31, 2004).
10.148 - Amendment Number Nine to Loan and Security Agreement dated
December 23, 2004 by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation). (Incorporated
by reference to exhibit of same designation to Annual Report on
Form 10-K dated December 31, 2004).
10.149 - Promissory Note dated March 26, 2003, by and between the
Registrant and Foothill Corporation (incorporated by reference to
exhibit 10.134 to Quarterly Report on Form 10-Q dated March 31,
2003). (Incorporated by reference to exhibit of same designation
to Annual Report on Form 10-K dated December 31, 2004).
10.150 - Loan Agreement dated January 10, 2005, between Resort Finance LLC
and Bluegreen Vacations Unlimited, Inc. (Incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K dated
December 31, 2004).
10.151 - Revolving Promissory Note dated January 10, 2005, between Resort
Finance LLC and Bluegreen Vacations Unlimited, Inc. (Incorporated
by reference to exhibit of same designation to Annual Report on
Form 10-K dated December 31, 2004).
10.152 - Construction Mortgage, Security Agreement and Financing Statement
dated as of January 10, 2005, by Bluegreen Vacations Unlimited,
Inc. in favor of Resort Finance LLC. (Incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K dated
December 31, 2004).
10.153 - Guaranty Agreement dated January 10, 2005, by the Registrant in
favor of Resort Finance LLC. (Incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K dated December
31, 2004).
10.156 - Loan Agreement dated as of September 25, 2002, between Bluegreen
Corporation of the Rockies, Bluegreen Golf Clubs, Inc., Bluegreen
Properties of Virginia, Inc., Bluegreen Southwest One, L.P. and
Residential Funding Corporation (incorporated by reference to
exhibit 10.149 to Current Report on Form 8-K dated September 25,
2002).
10.157 - Revolving Promissory Note dated as of September 25, 2002, between
Bluegreen Corporation of the Rockies, Bluegreen Golf Clubs, Inc.,
Bluegreen Properties of Virginia, Inc., Bluegreen Southwest One,
L.P. and Residential Funding Corporation (incorporated by
reference to exhibit 10.150 to Current Report on Form 8-K dated
September 25, 2002).
116
10.158 - Fourth Amended and Restated Loan Agreement dated December 31, 2004
by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the $15.0
million, unsecured, revolving line-of-credit due June 30, 2006.
(Incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K dated December 31, 2004).
10.159 - Fourth Amended and Restated Promissory Note dated December 31,
2004 by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the $15.0
million, unsecured, revolving line-of-credit due June 30, 2006.
(Incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K dated December 31, 2004).
10.162 - Loan Agreement dated February 10, 2003, between Bluegreen
Vacations Unlimited, Inc. and Residential Funding Corporation
(incorporated by reference to exhibit 10.155 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.163 - Modification Agreement (AD&C Loan Agreement) dated September 10,
2003, between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation (incorporated by reference to exhibit 10.164
to Annual Report on Form 10-K for the fiscal year ended December
31, 2003)..
10.164 - Revolving Promissory Note (AD&C Loan) dated February 10, 2003,
between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation (incorporated by reference to exhibit 10.156
to Transition Report on Form 10-KT for the nine months ended
December 31, 2002).
10.165 - Amendment No. 1 to Revolving Promissory Note (AD&C Loan) dated as
of September 10, 2003 between Bluegreen Vacations Unlimited, Inc.
and Residential Funding Corporation (incorporated by reference to
exhibit 10.157 to Quarterly Report on Form 10-Q dated September
30, 2003).
10.166 - Amendment No. 2 to Revolving Promissory Note (AD&C Loan) dated as
of September 15, 2004 between Bluegreen Vacations Unlimited, Inc.
and Residential Funding Corporation (incorporated by reference to
exhibit 10.167 to Quarterly Report on Form 10-Q dated September
30, 2004).
10.167 - Loan and Security Agreement dated February 10, 2003, between the
Registrant, Residential Funding Corporation, Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC
(incorporated by reference to exhibit 10.157 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.168 - Modification Agreement (Receivables Loan and Security Agreement)
dated September 10, 2003, between the Registrant, Residential
Funding Corporation, Bluegreen Vacations Unlimited, Inc. and
Bluegreen/Big Cedar Vacations, LLC (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).
117
10.169 - Second Modification Agreement (Receivables Loan and Security
Agreement) dated September 15, 2004, between the Registrant,
Residential Funding Corporation, Bluegreen Vacations Unlimited,
Inc. and Bluegreen/Big Cedar Vacations, LLC.
10.170 - Project Commitment (Big Cedar Wilderness Club) dated October 1,
2003 by and between Bluegreen Vacations Unlimited, Inc.,
Blugreen/Big Cedar Vacations LLC and Residential Funding
Corporation (incorporated by reference to exhibit 10.169 to Annual
Report on Form 10-K for the fiscal year ended December 31, 2003).
10.171 - Revolving Promissory Note (Receivables Loan) dated February 10,
2003, between the Registrant, Residential Funding Corporation,
Bluegreen Vacations Unlimited, Inc. and Bluegreen/Big Cedar
Vacations, LLC (incorporated by reference to exhibit 10.158 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.172 - Amendment No. 1 to Revolving Promissory Note (Receivables Loan)
dated as of September 10, 2003 between Bluegreen Corporation,
Bluegreen Vacations Unlimited, Inc., Bluegreen/Big Cedar
Vacations, LLC and Residential Funding Corporation (incorporated
by reference to exhibit 10.160 to Quarterly Report on Form 10-Q
dated September 30, 2003).
10.173 - Full Guaranty dated February 10, 2003, by the Registrant in favor
of Residential Funding Corporation (incorporated by reference to
exhibit 10.159 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.174 - Acquisition, Construction and Receivable Loan, Security and Agency
Agreement dated as of December 22, 2003 by and among Bluegreen
Vacations Unlimited, Inc., Bluegreen Corporation and Textron
Financial Corporation (incorporated by reference to exhibit 10.173
to Annual Report on Form 10-K for the fiscal year ended December
31, 2003).
10.200 - Marketing and Promotions Agreement dated as of June 16, 2000, by
and between Big Cedar L.L.C., Bass Pro, Inc., Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.201 - Advertising Advance Loan dated as of June 16, 2000 by and between
Big Cedar L.L.C., as Maker, and Bluegreen Vacations Unlimited,
Inc., as Holder (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.202 - Website Hyperlink License Agreement dated as of June 16, 2000 by
and between Bluegreen Vacations Unlimited, Inc. (as User), Bass
Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Owners)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
118
10.203 - Website Hyperlink License Agreement dated as of June 16, 2000 by
and between Bluegreen Vacations Unlimited, Inc. (as Owner), Bass
Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Users)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.204 - Contribution Agreement dated as of June 16, 2000 by and between
Bluegreen Vacations Unlimited, Inc. and Big Cedar L.L.C.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.205 - Operating Agreement of Bluegreen/Big Cedar Vacations, LLC dated as
of June 16, 2000 by and among Bluegreen Vacations Unlimited, Inc.
and Big Cedar L.L.C. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.206 - Administrative Services Agreement dated as of June 16, 2000 by and
among Bluegreen/Big Cedar Vacations, LLC and Bluegreen Vacations
Unlimited, Inc. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.207 - Servicing Agreement dated as of June 16, 2000 by and among the
Registrant, Bluegreen/Big Cedar Vacations, LLC and Big Cedar
L.L.C. (incorporated by reference to exhibit of same designation
to Quarterly Report on Form 10-Q dated July 2, 2000).
10.209 Omnibus Amendment by and among Bluegreen Corporation and Bluegreen
Receivables Finance Corporation IX, as Depositor and BXG
Receivables Note Trust 2004-C, as Issuer, Vacation Trust, Inc., as
Club Trustee, Concord Servicing Corporation, as Backup Servicer,
U.S. Bank National Association, as Indenture Trustee and Branch
Banking and Trust Company, as Agent, dated as of June 30,
2005(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated June 30, 2005).
10.210 Registrant's 2005 Stock Incentive Plan.* (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated June 30, 2005).
18 - Letter re: Change in Accounting Principle (incorporated by
reference to exhibit of same designation to Transition Report on
Form 10-KT for the nine months ended December 31, 2002).
21.1 - List of Subsidiaries.
23.1 - Consent of Independent Registered Public Accounting Firm.
31.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to Securities Exchange Act Rules 13a-15(c) and
15d-15(c), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 - Certification of Anthony M. Puleo, Senior Vice President, Chief
Financial Officer and Treasurer, pursuant to Securities Exchange
Act Rules 13a-15(c) and 15d-15(c), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of Anthony M. Puleo, Senior Vice President, Chief
Financial Officer and Treasurer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* - Compensation plan or arrangement.
119