UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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)
(561) 912-8000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated files. (See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act). (Check one):
Large accelerated filer |_| Accelerated filer [X] Non-accelerated filer |_|
Indicated the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 5, 2006, there
were 30,512,651 shares of the registrant's common stock, $.01 par value,
outstanding.
BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 2005 and March 31, 2006................... 3
Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2005 and 2006.... 4
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2006.... 5
Notes to Condensed Consolidated Financial Statements............................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 18
Item 4. Controls and Procedures......................................................................... 36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 37
Item 1A. Risk Factors.................................................................................... 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................... 37
Item 6. Exhibits........................................................................................ 37
Signatures................................................................................................. 39
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.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
2005 2006
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents (including restricted cash of approximately $18,321
and $23,717 at December 31, 2005 and March 31, 2006, respectively) ............. $ 84,704 $ 71,776
Contracts receivable, net ......................................................... 27,473 37,659
Notes receivable, net ............................................................. 127,783 126,962
Prepaid expenses .................................................................. 6,500 7,540
Other assets ...................................................................... 17,156 20,177
Inventory, net .................................................................... 240,969 277,738
Retained interests in notes receivable sold ....................................... 105,696 104,316
Property and equipment, net ....................................................... 79,634 82,872
Intangible assets and goodwill .................................................... 4,328 4,351
--------- ---------
Total assets ............................................................ $ 694,243 $ 733,391
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable .................................................................. $ 11,071 $ 16,188
Accrued liabilities and other ..................................................... 43,801 42,308
Deferred income ................................................................... 29,354 41,109
Deferred income taxes ............................................................. 75,404 75,648
Receivable-backed notes payable ................................................... 35,731 30,532
Lines-of-credit and notes payable ................................................. 61,428 89,444
10.50% senior secured notes payable ............................................... 55,000 55,000
Junior subordinated debentures .................................................... 59,280 59,280
--------- ---------
Total liabilities .............................................................. 371,069 409,509
Minority interest ................................................................. 9,508 9,366
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued ............. -- --
Common stock, $.01 par value, 90,000 shares authorized; 33,193 and 33,268
shares issued at December 31, 2005 and March 31, 2006, respectively ............ 333 333
Additional paid-in capital ........................................................ 169,684 170,143
Treasury stock, 2,756 common shares at both December 31, 2005 and
March 31, 2006, at cost ....................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ....................... 8,575 9,429
Retained earnings ................................................................. 147,959 147,496
--------- ---------
Total shareholders' equity ................................................... 313,666 314,516
--------- ---------
Total liabilities and shareholders' equity .............................. $ 694,243 $ 733,391
========= =========
Note: The condensed consolidated balance sheet at December 31, 2005 has been
derived from the audited consolidated financial statements at that date
but does not include all of the information and footnotes required by
United States generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
3
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31, March 31,
2005 2006
---- ----
Revenues:
Sales of real estate ................................................................. $ 104,021 $ 119,367
Other resort and communities operations revenue ...................................... 18,044 20,334
Interest income ...................................................................... 7,866 8,173
Gain on sales of notes receivable .................................................... 4,720 505
--------- ---------
134,651 148,379
Costs and expenses:
Cost of real estate sales ............................................................ 32,887 45,027
Cost of other resort and communities operations ...................................... 19,636 21,129
Selling, general and administrative expenses ......................................... 61,822 70,705
Interest expense ..................................................................... 3,581 3,306
Provision for loan losses ............................................................ 4,688 --
Other expense ........................................................................ 858 635
--------- ---------
123,472 140,802
--------- ---------
Income before minority interest and provision for income taxes .......................... 11,179 7,577
Minority interest in income of consolidated subsidiary .................................. 773 1,022
--------- ---------
Income before provision for income taxes and change in accounting principle ............. 10,406 6,555
Provision for income taxes .............................................................. 4,006 2,524
--------- ---------
Income before cumulative effect of change in accounting principle ....................... 6,400 4,031
Cumulative effect of change in accounting principle, net of tax ......................... -- (5,678)
Minority interest in income of cumulative effect of change in accounting principle ...... -- 1,184
--------- ---------
Net income (loss) ....................................................................... $ 6,400 $ (463)
========= =========
Income before cumulative effect of change in accounting principle
per common share:
Basic ............................................................................... $ 0.21 $ 0.13
========= =========
Diluted ............................................................................. $ 0.20 $ 0.13
========= =========
Cumulative effect of change in accounting principle, net of tax and net of
minority interest in income of cumulative effect of change in accounting
principle per common share:
Basic ............................................................................... $ -- $ (0.15)
========= =========
Diluted ............................................................................. $ -- $ (0.14)
========= =========
Net Income (loss) per common share:
Basic ............................................................................... $ 0.21 $ (0.02)
========= =========
Diluted ............................................................................. $ 0.20 $ (0.01)
========= =========
Weighted average number of common and common equivalent shares:
Basic ............................................................................... 30,316 30,513
========= =========
Diluted ............................................................................. 31,294 31,179
========= =========
See accompanying notes to condensed consolidated financial statements.
4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2005 2006
---- ----
Operating activities:
Net income (loss) ........................................................... $ 6,400 $ (463)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Cumulative effect of change in accounting principle, net ............... -- 5,678
Non-cash stock compensation expense .................................... -- 459
Minority interest in income of consolidated subsidiary ................. 773 (162)
Depreciation and amortization .......................................... 4,458 4,010
Gain on sale of notes receivable ....................................... (4,720) (7,011)
Loss on sale of property and equipment ................................. -- 75
Provision for loan losses .............................................. 4,688 10,630
Provision for deferred income taxes .................................... 4,006 2,524
Interest accretion on retained interests in notes receivable sold ...... (2,008) (2,578)
Proceeds from sales of notes receivable ................................ 38,183 36,805
Proceeds from borrowings collateralized by notes receivable ............ 10,103 --
Payments on borrowings collateralized by notes receivable .............. (16,417) (5,792)
Change in operating assets and liabilities:
Contracts receivable ..................................................... (13,066) (10,186)
Notes receivable ......................................................... (31,168) (47,464)
Inventory ................................................................ 2,219 (7,840)
Prepaid expenses and other assets ........................................ (1,327) (3,438)
Accounts payable, accrued liabilities and other .......................... 10,736 4,555
--------- ---------
Net cash provided by (used in) operating activities ............................ 12,860 (20,198)
--------- ---------
Investing activities:
Purchases of property and equipment ......................................... (3,524) (6,713)
Investment in statutory business trust ...................................... (696) --
Cash received from retained interests in notes receivable sold .............. 1,696 10,064
--------- ---------
Net cash (used in) provided by investing activities ............................ (2,524) 3,351
--------- ---------
Financing activities:
Borrowings under line-of-credit facilities and other notes payable .......... 2,219 11,169
Payments under line-of-credit facilities and other notes payable ............ (20,822) (6,014)
Proceeds from issuance of junior subordinated debentures .................... 23,196 --
Payment of debt issuance costs .............................................. (1,204) (1,236)
Proceeds from exercise of stock options ..................................... 648 --
--------- ---------
Net cash provided by financing activities ...................................... 4,037 3,919
--------- ---------
Net increase (decrease) in cash and cash equivalents ........................... 14,373 (12,928)
Cash and cash equivalents at beginning of period ............................... 100,565 84,704
--------- ---------
Cash and cash equivalents at end of period ..................................... 114,938 71,776
Restricted cash and cash equivalents at end of period .......................... (20,391) (23,717)
--------- ---------
Unrestricted cash and cash equivalents at end of period ........................ $ 94,547 $ 48,059
========= =========
See accompanying notes to condensed consolidated financial statements.
5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2005 2006
---- ----
Supplemental schedule of non-cash operating, investing
and financing activities:
Inventory acquired through financing ............................... $ 11,710 $ 22,827
======== ========
Inventory acquired through foreclosure or deedback in lieu of
foreclosure ..................................................... $ 3,076 $ 1,979
======== ========
Property and equipment acquired through financing .................. $ 232 $ --
======== ========
Retained interests in notes receivable sold ........................ $ 7,101 $ 4,718
======== ========
Net change in unrealized gains in retained interests in notes
receivable sold ............................................... $ 744 $ 1,388
======== ========
See accompanying notes to condensed consolidated financial statements.
6
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
1. Organization and Significant Accounting Policies
We have prepared the accompanying unaudited condensed consolidated
financial statements in accordance with United States generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by United States
generally accepted accounting principles for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring items that, in our opinion, are necessary for a
fair presentation of our financial position, results of operations and cash
flows for the interim periods. The results of operations for the three months
ended March 31, 2006, are not necessarily indicative of the results to be
expected for the year ending December 31, 2006. For further information, refer
to our audited consolidated financial statements for the year ended December 31,
2005, which are included in our 2005 Annual Report on Form 10-K.
Organization
We provide leisure products and lifestyle choices through our resorts and
residential communities businesses. Our resorts business ("Bluegreen Resorts")
acquires, develops, markets, sells and manages real estate based vacation
ownership interests ("VOIs") in resorts generally located in popular,
high-volume, "drive-to" vacation destinations. VOIs in many of our resorts
entitle the buyer to use resort accommodations through an annual or biennial
allotment of "points" which represent their ownership and beneficial rights in
perpetuity in our Bluegreen Vacation Club (supported by an underlying deeded
vacation ownership interest being held in trust for the buyer). Depending on the
extent of their ownership and beneficial rights, members in our Bluegreen
Vacation Club may stay in any of our participating resorts or take advantage of
other vacation options, including cruises and stays at approximately 3,700
resorts offered by a third-party, worldwide vacation ownership exchange network.
We are currently marketing and selling VOIs in 22 resorts located in the United
States and Aruba, 20 of which have active sales offices. We also sell VOIs at
seven off-site sales offices located in the United States. Our residential
communities business ("Bluegreen Communities") acquires, develops and subdivides
property and markets residential land homesites, the majority of which are sold
directly to retail customers who seek to build a home in a high quality
residential setting, in some cases on properties featuring a golf course and
other related amenities. During the three months ended March 31, 2006, sales
generated by Bluegreen Resorts comprised approximately 60% of our total sales of
real estate while sales generated by Bluegreen Communities comprised
approximately 40% 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, sales incentives provided to
buyers of VOIs, rental brokerage services, realty operations and daily-fee golf
course operations. We also generate significant interest income by providing
financing to individual purchasers of VOIs.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of
all of our wholly-owned subsidiaries and entities in which we hold a controlling
financial interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), as we hold a 51%
equity interest in the Joint Venture, have an active role as the day-to-day
manager of the Joint Venture's activities and have majority voting control of
the Joint Venture's management committee. Additionally, we do not consolidate
our wholly-owned statutory business trusts 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.
7
Use of Estimates
United States generally accepted accounting principles require us to make
estimates and assumptions that affect the amounts reported in our condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current period presentation.
Earnings (Loss) Per Common Share
We compute basic earnings (loss) per common share by dividing net income
(loss) by the weighted-average number of common shares outstanding. Diluted
earnings per common share is computed in the same manner as basic earnings
(loss) per share, but also gives effect to all dilutive stock options using the
treasury stock method. There were approximately 0.8 million stock options not
included in diluted earnings per common share during the three months ended
March 31, 2006, as the effect would be anti-dilutive. There were no
anti-dilutive stock options during the three months ended March 31, 2005.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
Three Months Ended
March 31, March 31,
2005 2006
----------------------
Basic earnings per share - numerator:
Net income (loss) ....................................... $ 6,400 $ (463)
======================
Diluted earnings per share - numerator:
Net income (loss) ....................................... $ 6,400 $ (463)
======================
Denominator:
Denominator for basic earnings per share -
weighted-average shares .............................. 30,316 30,513
Effect of dilutive securities:
Stock options ........................................ 978 666
----------------------
Dilutive potential common shares ........................... 978 666
----------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares .............................. 31,294 31,179
======================
Basic earnings (loss) per common share ..................... $ 0.21 $ (0.02)
======================
Diluted earnings (loss) per common share ................... $ 0.20 $ (0.01)
======================
Retained Interests in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation
ownership receivables purchase facilities (more fully described in Note 2) or
through term securitizations, we evaluate whether or not such transfers should
be accounted for as a sale pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, ("SFAS No. 140") and related
interpretations. The evaluation of sale treatment under SFAS No. 140 involves
legal assessments of the transactions, which include determining whether the
transferred assets have been isolated from us (i.e. put presumptively beyond our
reach and our creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the assets it
received, and ensuring that we do not maintain effective control over the
transferred assets through either an agreement that (1) both entitles and
obligates us to repurchase or redeem the assets before their maturity or (2)
provides us with the ability to unilaterally cause the holder to return the
assets (other than through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
8
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, unrealized holding gains or losses on our
retained interests in notes receivable sold are included in our shareholders'
equity, net of income taxes. Declines in fair value that are determined to be
other than temporary are charged to operations.
We measure the fair value of the retained interests in the notes
receivable sold initially and periodically based on the present value of future
expected cash flows estimated using our best estimates of the key assumptions -
prepayment rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. We revalue our retained interests in notes
receivable sold on a quarterly basis.
Interest on the retained interests in notes receivable sold is accreted
using the effective yield method.
Stock-Based Compensation
Effective January 1, 2006, we adopted the provisions of SFAS No. 123R,
Share-Based Payment, ("SFAS No. 123R") for our share-based compensation plans.
We previously accounted for these plans under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, ("APB 25") and related interpretations and disclosure
requirements established by SFAS No. 123, Accounting for Stock-based
Compensation, as amended by SFAS No. 148, Accounting for Stock Based
Compensation--Transition and Disclosure. Under APB 25, no compensation expense
was recorded in earnings for our stock-based options granted under the Bluegreen
Corporation 1995 Stock Incentive Plan, 1998 Non-Employee Director Stock Option
Plan or the Bluegreen Corporation 2005 Stock Incentive Plan (collectively, the
"Plans"). The pro forma effects on net income and earnings per share for the
awards issued under the Plans were instead disclosed in a footnote to the
financial statements. Under SFAS No. 123R, all share-based compensation is
measured at the grant date, based on the fair value of the award, and is
recognized as an expense in earnings over the requisite service period.
We adopted SFAS No. 123R using the modified prospective method. Under this
transition method, for all share-based awards granted prior to January 1, 2006
that were outstanding as of that date, compensation cost is recognized for the
unvested portion over the remaining requisite service period, using the
grant-date fair value measured under the original provisions of SFAS No. 123 for
proforma disclosure purposes. Compensation costs will also be recognized for any
awards issued, modified, repurchased, or canceled after January 1, 2006.
We utilized the Black-Scholes model for calculating the fair value pro
forma disclosures under SFAS No. 123 and will continue to use this model, which
is an acceptable valuation approach under SFAS No. 123R. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, this model requires the input of subjective assumptions, including the
expected price volatility of the underlying stock. Projected data related to the
expected volatility and expected life of stock options is based upon historical
and other information. Changes in these subjective assumptions can materially
affect the fair value of the estimate, and therefore, the existing valuation
models do not provide a precise measure of the fair value of our employee stock
options.
SFAS No. 123R also requires us to estimate forfeitures in calculating the
expense relating to stock-based compensation as opposed to accounting for
forfeitures as they occur, which was allowed under SFAS No. 123. We adjusted for
this effect with respect to unvested options as of January 1, 2006 in the
stock-based compensation expense recognized, which was recorded within selling,
general and administrative expense on our condensed consolidated statement of
operations. This adjustment was not recorded as a cumulative effect adjustment
because no compensation cost was recognized prior to the adoption of SFAS No.
123R. In addition, SFAS No. 123R requires us to reflect the tax savings
resulting from tax deductions in excess of expense reflected in its financial
statements as a financing cash flow rather than as an operating cash flow as in
prior periods.
Total compensation costs related to stock-based compensation charged
against income during the three months ended March 31, 2006 was $0.4 million.
There were no stock options granted to our employees or non-employee directors
during the three months ended March 31, 2005 or 2006.
The following table illustrates the effect on net income (loss) and
earnings (loss) per share as if we had applied the fair-value recognition
provisions of SFAS No. 123 to all of our share-based compensation awards for
periods prior to the adoption of SFAS No. 123R, and the actual effect on net
income (loss) and earnings (loss) per share for the period subsequent to the
adoption of SFAS No. 123R (in thousands, except per share data):
9
Three Months Ended
March 31, 2005 March 31, 2006
-------------- --------------
(Proforma)
Net income (loss), as reported ........................................................ $ 6,400 $ (463)
Add: Total stock-based compensation expense included in the determination of
reported net income (loss), net of related tax effects .......................... -- 282
Deduct: Total stock-based compensation expense determined under the fair
value-based method for all awards, net of related tax effects ................... (61) (282)
--------------------------
Pro forma net income (loss) ........................................................... $ 6,339 $ (463)
==========================
Earnings per share, as reported:
--------------------------
Basic .............................................................................. $ 0.21 $ (0.02)
==========================
Diluted ............................................................................ $ 0.20 $ (0.01)
==========================
Pro forma earnings per share:
Basic .............................................................................. $ 0.21 $ (0.02)
==========================
Diluted ............................................................................ $ 0.20 $ (0.01)
==========================
Comprehensive Income
Accumulated other comprehensive income on our condensed consolidated
balance sheets is comprised of net unrealized gains on retained interests in
notes receivable sold, which are held as available-for-sale investments. The
following table discloses the components of our comprehensive income for the
periods presented (in thousands):
Three Months Ended
March 31, 2005 March 31, 2006
-------------- --------------
Net income (loss) ................................... $ 6,400 $ (463)
Net unrealized gains on retained interests in
notes receivable sold, net of income taxes ....... 458 854
--------- ---------
Total comprehensive income .......................... $ 6,858 $ 391
========= =========
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152
Effective January 1, 2006, we adopted SFAS No. 152, Accounting for Real
Estate Time-Sharing Transactions. This statement amends SFAS No. 66, Accounting
for Sales of Real Estate, and SFAS No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, in association with the issuance of
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 04-2, Accounting for Real Estate Time-Sharing Transactions.
SFAS No. 152 was issued to address the diversity in practice resulting from a
lack of guidance specific to 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 and
presentation of uncollectible notes receivable, the recognition of changes in
inventory cost estimates, recovery or repossession of VOIs, selling and
marketing costs, operations during holding periods, developer subsidies to
property owners' associations and upgrade and reload transactions. Restatement
of previously reported financial statements is not permitted. Accordingly, as a
result of the adoption of SFAS No. 152, our financial statements for periods
beginning on or after January 1, 2006 are not comparable, in all respects, with
those prepared for periods ending prior to January 1, 2006.
Many sellers of timeshare interests provide incentives to customers as
motivation to purchase a VOI. Under SFAS No. 152, the value of such incentives
and other similarly treated items is separated from revenue from the sale of
VOIs and recorded on a different line item within the statement of operations,
in our case other resort and communities operations revenue. Furthermore, SFAS
No. 152 requires that incentives and other similarly treated items such as cash
credits earned through our Sampler program be considered in calculating the
buyer's down payment toward the buyer's commitment, as defined in SFAS No. 152,
in purchasing the VOI. Our Sampler Program provides purchasers with an
opportunity to utilize our vacation ownership product during a one year trial
period. 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
10
payment on the subsequent purchase. Under SFAS No. 152, the credit given is
treated similarly to a sales incentive. If after considering the sales incentive
the required buyer's commitment is not met, the VOI revenue and related cost of
sales and direct selling costs are deferred and recognized under the installment
method until the buyer's commitment test is satisfied, generally through the
receipt of required mortgage note payments from the buyer. The net deferred VOI
revenue and related costs are recorded as a component of deferred income in the
accompanying balance sheet as of March 31, 2006. Prior to the adoption of SFAS
No. 152, sales incentives were not recorded apart from VOI revenue and were not
considered in applying the customer down payment toward the buyer's commitment
in purchasing the VOIs.
SFAS No. 152 also amends the relative sales value method of recording VOI
cost of sales. Specifically, consideration is now given not only to the costs to
build or acquire a project and the total revenue expected to be earned on a
project, but also to the sales on recovered vacation ownership interests
reacquired on future cancelled or defaulted sales. The cost of VOI sales is
calculated by estimating these future costs and recoveries. Prior to the
adoption of SFAS No. 152, we did not include the recovery of VOIs in our
projected revenues in determining the related cost of the VOIs sold.
SFAS No. 152 changes the treatment of losses on vacation ownership notes
and contracts receivable and provides specific guidance on methods to estimate
losses. Specifically, SFAS No. 152 requires that the estimated losses on
originated mortgages exclude an estimate for the value of recoveries as the
recoveries are to be considered in inventory costing, as described above. In
addition, the standard requires a change in the classification of our provision
for loan losses for vacation ownership receivables that were historically
recorded as an expense, requiring that such amount be reflected as a reduction
of revenue. Furthermore, if we sell our vacation ownership notes receivables in
a transaction that qualifies for off-balance sheet sales treatment under SFAS
No. 140, the associated allowance for loan losses related to the sold
receivables is reversed and reflected as an increase to VOI sales. Prior to the
adoption of SFAS No. 152, the allowance on sold receivables was recorded as a
component of the gain on sale.
Under SFAS No.152, rental operations, like our Sampler program, are
accounted for as incidental operations whereby incremental costs in excess of
incremental revenue are charged to expense as incurred. Conversely, incremental
revenue in excess of incremental costs is recorded as a reduction to the cost of
any unsold VOIs. Incremental costs include costs that have been incurred by us
during the holding period of the unsold VOIs, such as developer subsidy and
maintenance fees. During the quarter ended March 31, 2006, all of our rental
revenue and Sampler revenue was recorded as an off-set to cost of other resort
and communities operations revenue as such amounts were less than the
incremental cost. Prior to the adoption of SFAS No. 152, rental revenues were
separately presented in the consolidated statements of operations as a component
of other resort and communities operations revenue and a portion of Sampler
proceeds were deferred until the buyer purchased a VOI or the Sampler usage
period expired.
The adoption of SFAS No. 152 on January 1, 2006 resulted in a net charge
of $4.5 million, which is presented as a cumulative effect of change in
accounting principle, net of the related tax benefit and the charge related to
minority interest.
2. Sales of Notes Receivable
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"). In addition, the 2005 Term Securitization allowed for us to
sell an additional $35.3 million in aggregate principal of our qualifying
vacation ownership receivables (the "Pre-funded Receivables"). On December 29,
2005, we sold $16.7 million in Pre-funded Receivables. On March 1, 2006, we sold
the $18.6 million balance of Pre-funded Receivables. With this sale we have
received the entire amount of proceeds remaining relating to the Pre-funded
Receivables.
On March 28, 2006, we sold $22.3 million in vacation ownership receivables
pursuant to a new vacation ownership receivables purchase facility (the "2006-A
GE Purchase Facility") with General Electric Real Estate ("GE"). Under the
2006-A GE Purchase Facility, a variable purchase price of approximately 90% of
the principal balance of the receivables sold, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as GE has received a specified return, a specified
over-collateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE earns a return equal to the applicable Swap Rate (which is 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. Subject to compliance with the terms and conditions of
funding, the 2006-A GE Purchase Facility allows for sales of notes receivable
for a cumulative purchase price of up to $125.0 million through March 2008. As
of March 31, 2006, the remaining availability under the 2006-A GE Purchase
Facility was $104.9 million, subject to eligibility requirements and fulfillment
of conditions precedent.
11
Sales of notes receivable under the above mentioned transactions were as
follows (in millions):
Aggregate Principal Initial Fair
Balance of Notes Purchase Gain Value of
Sale Facility Receivable Price Recognized Retained Interest
------------- ---------- ----- ---------- -----------------
2005 Term Securitization $ 18.6 $ 16.7 $ 3.6 $ 3.3
GE Purchase Facility 22.3 20.1 3.4 2.6
------ ------ ------ ------
Total $ 40.9 $ 36.8 $ 7.0 $ 5.9
====== ====== ====== ======
The following assumptions were used to measure the initial fair value of
the retained interest in notes receivable sold for each of the transactions
during the three months ended March 31, 2006: prepayment rates ranging from 9.0%
to 14.0% per annum as the portfolios mature; a loss severity rate ranging from
35.0% to 71.3%; default rates ranging from 1.0% to 10.0% per annum as the
portfolios mature; and a discount rate of 9.0%.
As a result of adopting SFAS No. 152, approximately $6.5 million of the
gain was recorded as an increase to VOI sales. The remaining $0.5 million of the
gain has been recorded as a gain on the sales of notes receivable on the
accompanying statement of operations.
3. Lines-of-Credit and Notes Payable
In February 2006, we increased our revolving acquisition, development and
construction credit facility for Bluegreen Resorts with GMAC Residential Funding
Corporation ("The GMAC AD&C Facility") from $75.0 million to $150.0 million. The
borrowing period 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. Indebtedness under the $150.0 million facility
bears interest at 30-day LIBOR plus 4.50%.
In February 2006, GMAC RFC extended the borrowing period to February 15,
2008 and the maturity date to February 15, 2015 on Bluegreen's existing $75.0
million revolving vacation ownership receivables credit facility ("The GMAC
Receivables Facility"). This facility is used to borrow funds collateralized by
our eligible vacation ownership receivables.
In March of 2006, we borrowed $18.2 million under an existing acquisition
and development credit facility with GMAC RFC ("The GMAC Communities Facility")
in connection with the acquisition by Bluegreen Communities of approximately
1,580 acres of land in Grayson County, Texas, for a total purchase price of
$25.9 million. In addition to the funds borrowed in connection with the land
purchase, we borrowed an additional $9.0 million for general corporate purposes.
4. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering of $110.0
million in aggregate principal amount of 10.5% senior secured notes due April 1,
2008 (the "Notes"). On June 27, 2005, we redeemed $55.0 million in aggregate
principal amount of the Notes at a redemption price of 101.75% plus accrued and
unpaid interest through June 26, 2005 of approximately $1.4 million. At March
31, 2006, $55.0 million of the Notes remained outstanding.
None of the assets of Bluegreen Corporation secures its obligations under
the Notes, and the Notes are effectively subordinated to our secured
indebtedness to any third party to the extent of assets serving as security
therefor. The Notes are unconditionally guaranteed, jointly and severally, by
each of our subsidiaries (the "Subsidiary Guarantors"), with the exception of
Bluegreen/Big Cedar Vacations, LLC, Bluegreen Properties N.V., Resort Title
Agency, Inc., any special purpose finance subsidiary, any subsidiary which is
formed and continues to operate for the limited purpose of holding a real estate
license and acting as a broker, and certain other subsidiaries which have
individually less than $50,000 of assets (collectively, "Non-Guarantor
Subsidiaries"). Each of the note guarantees covers the full amount of the Notes
and each of the Subsidiary Guarantors is 100% owned, directly or indirectly by
us. Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented
below:
12
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
December 31, 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) 141,398 (92,641) --
Deferred income taxes ................................ (21,798) 41,824 55,378 -- 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 88,528 256,879 (92,641) 371,069
Minority interest .................................... -- -- -- 9,508 9,508
Total shareholders' equity ........................... 313,666 106,559 171,202 (277,761) 313,666
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ...... $ 431,969 $ 195,087 $ 428,081 $(360,894) $ 694,243
========= ========= ========= ========= =========
March 31, 2006
(Unaudited)
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents .............................. $ 37,776 $ 14,303 $ 19,697 $ -- $ 71,776
Contracts receivable, net .............................. -- 2,657 35,002 -- 37,659
Intercompany receivable ................................ 120,430 3,003 -- (123,433) --
Notes receivable, net .................................. -- 47,505 79,457 -- 126,962
Other assets ........................................... 4,397 4,698 22,973 -- 32,068
Inventory, net ......................................... -- 17,505 260,233 -- 277,738
Retained interests in notes receivable sold ............ -- 104,316 -- -- 104,316
Investments in subsidiaries ............................ 261,067 -- 4,583 (265,650) --
Property and equipment, net ............................ 15,970 1,235 65,667 -- 82,872
--------- --------- --------- --------- ---------
Total assets .................................... $ 439,786 $ 195,222 $ 487,612 $(389,083) $ 733,391
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ...... $ 26,338 $ 16,729 $ 56,538 $ -- $ 99,605
Intercompany payable ................................. -- -- 123,433 (123,433) --
Deferred income taxes ................................ (20,471) 41,910 54,209 -- 75,648
Lines-of-credit and notes payable .................... 5,123 24,160 90,693 -- 119,976
10.50% senior secured notes payable .................. 55,000 -- -- -- 55,000
Junior subordinated debentures ....................... 59,280 -- -- -- 59,280
--------- --------- --------- --------- ---------
Total liabilities ............................... 125,270 82,799 322,016 (123,433) 409,509
Minority interest .................................... -- -- -- 9,366 9,366
Total shareholders' equity ........................... 314,516 109,420 165,596 (275,016) 314,516
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ...... $ 439,786 $ 195,222 $ 487,612 $(389,083) $ 733,391
========= ========= ========= ========= =========
13
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2005
-------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ........................................ $ -- $ 9,556 $ 94,465 $ -- $ 104,021
Other resort and communities operations revenue ............. -- 3,200 14,844 -- 18,044
Management fees ............................................. 11,538 -- -- (11,538) --
Equity income from subsidiaries ............................. 6,083 -- -- (6,083) --
Interest income ............................................. 206 4,232 3,428 -- 7,866
Gain on sales of notes receivable ........................... -- 4,720 -- -- 4,720
--------- --------- --------- --------- ---------
17,827 21,708 112,737 (17,621) 134,651
COSTS AND EXPENSES
Cost of real estate sales ................................... -- 2,580 30,307 -- 32,887
Cost of other resort and communities operations ............. -- 1,107 18,529 -- 19,636
Management fees ............................................. -- 264 11,274 (11,538) --
Selling, general and administrative expenses ................ 10,102 4,831 46,889 -- 61,822
Interest expense ............................................ 1,174 910 1,497 -- 3,581
Provision for loan losses ................................... -- 4,688 -- -- 4,688
Other (income) expense ...................................... (46) 795 109 -- 858
--------- --------- --------- --------- ---------
11,230 15,175 108,605 (11,538) 123,472
--------- --------- --------- --------- ---------
Income before minority interest and provision
for income taxes ........................................ 6,597 6,533 4,132 (6,083) 11,179
Minority interest in income of consolidated subsidiary ...... -- -- -- 773 773
--------- --------- --------- --------- ---------
Income before provision for income taxes .................... 6,597 6,533 4,132 (6,856) 10,406
Provision for income taxes .................................. 197 2,217 1,592 -- 4,006
--------- --------- --------- --------- ---------
Net income .................................................. $ 6,400 $ 4,316 $ 2,540 $ (6,856) $ 6,400
========= ========= ========= ========= =========
Three Months Ended March 31, 2006
-------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ........................................ $ -- $ 11,236 $ 108,131 $ -- $ 119,367
Other resort and communities operations revenue ............. -- 3,164 17,170 -- 20,334
Management fees ............................................. 13,095 -- -- (13,095) --
Interest income ............................................. 540 4,391 3,242 -- 8,173
Gain on sales of notes receivable ........................... -- 505 -- -- 505
--------- --------- --------- --------- ---------
13,635 19,296 128,543 (13,095) 148,379
COSTS AND EXPENSES
Cost of real estate sales ................................... -- 3,690 41,337 -- 45,027
Cost of other resort and communities operations ............. -- 1,333 19,796 -- 21,129
Management fees ............................................. -- 241 12,854 (13,095) --
Equity loss from subsidiaries ............................... 2,583 -- -- (2,583) --
Selling, general and administrative expenses ................ 9,330 5,804 55,571 -- 70,705
Interest expense ............................................ 988 770 1,548 -- 3,306
Other (income) expense ...................................... (130) 289 476 -- 635
--------- --------- --------- --------- ---------
12,771 12,127 131,582 (15,678) 140,802
--------- --------- --------- --------- ---------
Income (loss) before minority interest and provision
(benefit) for income taxes ............................... 864 7,169 (3,039) 2,583 7,577
Minority interest in income of consolidated subsidiary ...... -- -- -- 1,022 1,022
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes
and cumulative effect of change in accounting principle .. 864 7,169 (3,039) 1,561 6,555
Provision (benefit) for income taxes ........................ 1,327 2,366 (1,169) -- 2,524
--------- --------- --------- --------- ---------
(Loss) income before cumulative effect of change in
accounting principle ..................................... (463) 4,803 (1,870) 1,561 4,031
Cumulative effect of change in accounting principle,
net of tax ............................................... -- (1,942) (3,736) -- (5,678)
Minority interest in income of cumulative effect
of change in accounting principle ........................ -- -- -- 1,184 1,184
--------- --------- --------- --------- ---------
Net (loss) income ........................................... $ (463) $ 2,861 $ (5,606) $ 2,745 $ (463)
========= ========= ========= ========= =========
14
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2005
--------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ...................... $ (13,892) $ 4,532 $ 22,220 $ 12,860
Investing activities:
Purchases of property and equipment ................................. (301) 14 (3,237) (3,524)
Investment in statutory business trust .............................. (696) -- -- (696)
Cash received from retained interests in notes receivable sold ...... -- 1,696 -- 1,696
--------- --------- --------- ---------
Net cash (used) provided by investing activities ...................... (997) 1,710 (3,237) (2,524)
Financing activities:
Borrowings under line-of-credit facilities and notes payable ........ -- -- 2,219 2,219
Payments under line-of-credit facilities and notes payable .......... (23) (431) (20,368) (20,822)
Proceeds from issuance of junior subordinated debentures ............ 23,196 -- -- 23,196
Payment of debt issuance costs ...................................... (738) (1,150) 684 (1,204)
Proceeds from exercise of stock options ............................. 648 -- -- 648
--------- --------- --------- ---------
Net cash provided (used) by financing activities ...................... 23,083 (1,581) (17,465) 4,037
--------- --------- --------- ---------
Net increase in cash and cash equivalents ............................. 8,194 4,661 1,518 14,373
Cash and cash equivalents at beginning of period ...................... 70,256 18,793 11,516 100,565
--------- --------- --------- ---------
Cash and cash equivalents at end of period ............................ 78,450 23,454 13,034 114,938
Restricted cash and cash equivalents at end of period ................. (173) (11,074) (9,144) (20,391)
--------- --------- --------- ---------
Unrestricted cash and cash equivalents at end of period ............... $ 78,277 $ 12,380 $ 3,890 $ 94,547
--------- --------- --------- ---------
Three Months Ended March 31, 2006
--------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash (used) provided by operating activities ...................... $ (14,752) $ (10,516) $ 5,070 $ (20,198)
Investing activities:
Purchases of property and equipment ................................ (2,672) (28) (4,013) (6,713)
Cash received from retained interests in notes receivable sold ...... -- 10,064 -- 10,064
--------- --------- --------- ---------
Net cash (used) provided by investing activities ...................... (2,672) 10,036 (4,013) 3,351
Financing activities:
Borrowings under line-of-credit facilities and notes payable ........ -- -- 11,169 11,169
Payments under line-of-credit facilities and notes payable .......... (500) -- (5,514) (6,014)
Payment of debt issuance costs ...................................... (8) (660) (568) (1,236)
--------- --------- --------- ---------
Net cash (used) provided by financing activities ...................... (508) (660) 5,087 3,919
--------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents .................. (17,932) (1,140) 6,144 (12,928)
Cash and cash equivalents at beginning of period ...................... 55,708 15,443 13,553 84,704
--------- --------- --------- ---------
Cash and cash equivalents at end of period ............................ 37,776 14,303 19,697 71,776
Restricted cash and cash equivalents at end of period ................. (173) (13,248) (10,296) (23,717)
--------- --------- --------- ---------
Unrestricted cash and cash equivalents at end of period ............... $ 37,603 $ 1,055 $ 9,401 $ 48,059
========= ========= ========= =========
15
5. Business Segments
We have two reportable business segments. Bluegreen Resorts develops,
markets and sells VOIs in our resorts, through the Bluegreen Vacation Club, and
provides resort management services to resort property owners associations.
Bluegreen Communities acquires large tracts of real estate, which are
subdivided, improved (in some cases to include a golf course on the property)
and sold, typically on a retail basis as homesites. Disclosures for our business
segments are as follows (in thousands):
Bluegreen Bluegreen
Resorts Communities Totals
------- ----------- ------
For the three months ended March 31, 2005
Sales of real estate ................................. $ 65,644 $ 38,377 $104,021
Other resort and communities operations revenue ...... 16,562 1,482 18,044
Depreciation expense ................................. 1,676 418 2,094
Field operating profit ............................... 10,386 7,733 18,119
For the three months ended March 31, 2006
Sales of real estate ................................. $ 71,742 $ 47,625 $119,367
Other resort and communities operations revenue ...... 17,998 2,336 20,334
Depreciation expense ................................. 1,871 444 2,315
Field operating profit ............................... 3,136 9,779 12,915
Net inventory by business segment:
December 31, March 31,
2005 2006
------------ ------------
Bluegreen Resorts ........................ $ 173,338 $ 185,356
Bluegreen Communities .................... 67,631 92,382
--------- ---------
Total $ 240,969 $ 277,738
========= =========
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before provision for income taxes and minority interest is
as follows (in thousands):
Three Months Ended
March 31, 2005 March 31, 2006
-------------- --------------
Field operating profit for reportable segments ..... $ 18,119 $ 12,915
Interest income .................................... 7,866 8,173
Gain on sales of notes receivable .................. 4,720 505
Other expense ...................................... (858) (635)
Corporate general and administrative expenses ...... (10,399) (10,075)
Interest expense ................................... (3,581) (3,306)
Provision for loan losses .......................... (4,688) --
--------- ---------
Income before minority interest and
provision for income taxes ...................... $ 11,179 $ 7,577
========= =========
6. Contingencies
In March 2006, the Tennessee Audit Division (the "Division") advised us
that rather than follow through with its intention to impose a sales tax on
sales of VOI's in Tennessee, it intends to seek to impose a sales tax on the use
of accommodations in our Tennessee properties by our owners. The Division has
not commenced its audit of these transactions and has not yet identified the
years that they intend to audit. The Division's previous audits covered the
period from December 1, 2001 through December 31, 2004. The Division has not
formally assessed this accommodations tax yet, nor have they estimated the
amount they are intending to assess. While in the past the timeshare industry
has been successful in avoiding the imposition by various states of sales tax on
the reservation and use of accommodations by timeshare owners, there is no
assurance that such taxes will not be imposed. We intend to vigorously oppose
any assessment of accommodations tax by the Division.
Bluegreen Southwest One, L.P., ("Southwest") one of our subsidiaries, is
the developer of the Mountain Lakes subdivision in Texas. One of the lakes that
is an amenity in the development has not filled to the expected level. This
condition has resulted in consumer complaints from property owners. We are
investigating the causes for the failure of the lake to fill. We are unable to
predict the results of this investigation, the potential cost to correct the
condition or the consequences in the event that the condition cannot be
corrected.
Also related to the Mountain Lakes subdivision is litigation related to
the development of mineral rights within the subdivision. In April 2006, in
Lesley, et al v. Bluegreen Southwest One, L.P. acting through its General
Partner Bluegreen Southwest Land, Inc., et al, Cause No. 28006 District Court of
the 266th Judicial District, Erath County, Texas, plaintiffs filed a First
Amended Original Petition (April 2006). Pursuant to this First Amended Original
Petition Plaintiffs seek to develop mineral interests in the Mountain Lakes
subdivision and to recover damages from Southwest, alleging breach of contract,
breach of fiduciary duty, tortious interference with existing and prospective
relationships and intentional invasion or interference with property rights by
Southwest, for allegedly interfering with the development of mineral rights held
by plaintiffs. Plaintiffs' claims against Bluegreen Southwest One, L.P. total in
the aggregate $25 million. The Company is still in the process of reviewing
plaintiffs' allegations; however, based on the information currently available,
the Company believes that the claims lack merit and intends to defend itself
vigorously against them.
16
7. Subsequent Events
We have formed a statutory business trust, Business Statutory Trust IV
("BST IV") for the purpose of issuing trust preferred securities and investing
the proceeds thereof in junior subordinated debentures.
On April 24, 2006, BST IV issued $15.0 million of trust preferred
securities. BST IV used the proceeds from issuing the trust preferred securities
to purchase an identical amount of junior subordinated debentures from us.
Interest on the junior subordinated debentures and distributions on the trust
preferred securities will be payable quarterly in arrears at a fixed rate of
10.13% through June 30, 2011, and thereafter at a variable rate of interest, per
annum, reset quarterly, equal to the 3-month LIBOR plus 4.85% until the
scheduled maturity date of June 30, 2036. Distributions on the trust preferred
securities will be cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we invested $464,000 to BST IV in
exchange for its common securities, all of which are owned by us. Those proceeds
were also used to purchase an identical amount of junior subordinated debentures
from us. The terms of BST IV's common securities are nearly identical to the
trust preferred securities.
The issuances of trust preferred securities was part of a larger pooled
trust securities offerings which was not registered under the Securities Act of
1933. Proceeds will be used for general corporate purposes and debt repayment.
In April of 2006, we purchased a 3,200 acre track of land in New
Braunfels, Texas, which is located just outside San Antonio, for $27.3 million.
We borrowed $19.0 million under the GMAC Communities Facility for this
acquisition and an additional $9.0 million for general corporate purposes.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement Regarding Forward-Looking Statements and Risk Factors
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Quarterly
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You may identify these statements by forward-looking
words such as "may," "intend," "expect," "anticipate," "believe" "will,"
"should," "project," "estimate," "plan" or other comparable terminology or by
other statements that do not relate to historical facts. All statements, trend
analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations and other factors discussed
throughout our SEC filings all of which could cause our actual results,
performance or achievements, or industry trends, to differ materially from any
future results, performance, or achievements or trends expressed or implied
herein. Given these uncertainties, investors are cautioned not to place undue
reliance on these forward-looking statements and no assurance can be given that
the plans, estimates and expectations reflected herein will be achieved. Factors
that could adversely affect our future results can also be considered general
risk factors with respect to our business, whether or not they relate to a
forward-looking statement. We wish to caution you that the important factors set
forth below and elsewhere in this report in some cases have affected, and in the
future could affect, our actual results and could cause our actual consolidated
results to differ materially from those expressed in any forward-looking
statements.
o Our continued liquidity depends on our ability to sell or borrow
against our notes receivable.
o We depend on additional funding to finance our operations.
o Our success depends on our ability to market our products
efficiently.
o Increased a fuel prices could affect our ability to market VOIs and
residential homesite.
o We would incur substantial losses if the customers we finance
default on their obligations to pay the balance of the purchase
price.
o Our results of operations and financial condition could be adversely
impacted if our estimates concerning our notes receivable are
incorrect.
o Changes in United States generally accepted accounting principles,
especially those related to the sales of notes receivable and
accounting for real estate time-sharing transactions, could have a
material adverse impact on our results of operations.
o We are subject to the risks of the real estate market and the risks
associated with real estate development, including the risk and
uncertainties relating to the cost and availability of land, labor
and construction materials.
o We may not successfully execute our growth strategy.
o We may face a variety of risks when we expand our operations.
o Claims for development-related defects could adversely affect our
financial condition and operating results.
o We may face additional risks as we expand into new markets.
o The limited resale market for VOIs could adversely affect our
business.
o Extensive federal, state and local laws and regulations affect the
way we conduct our business. In addition, many states 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 prior to the completion of
construction and closing, the content and use of advertising
materials and promotional offers, the financing of sales, the
delivery of an offering memorandum and the creation and operation of
exchange programs and multi-site
18
timeshare plan reservation systems and some are seeking to impose
taxes on the sale or use of timeshare interest. 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. While that case reportedly
was resolved by means of a stipulated settlement, other cases may be
brought against other timeshare developers in South Carolina,
including Bluegreen. If such a case were to be brought against
Bluegreen and it is determined that Bluegreen is in violation of
South Carolina law, Bluegreen may be subject to fines and purchasers
of timeshare properties in South Carolina may have the right to
rescind their respective transactions and seek the satisfaction of
their related timeshare loan, all of which could have a material
adverse effect on Bluegreen's results of operations and financial
position.
o Environmental liabilities, including claims with respect to mold or
hazardous or toxic substances, could have a material adverse impact
on our business.
o We could incur costs to comply with laws governing accessibility of
facilities by disabled persons.
In addition to the foregoing, reference is also made to other risks and
factors detailed in reports filed by the Company with the Securities and
Exchange Commission including our Annual Report on Form 10-K for the year ended
December 31, 2005.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops, markets
and sells VOIs in our Bluegreen Vacation Club resorts, and provides resort
management services to resort property owners associations. Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis, as homesites.
We have historically experienced and expect to continue to experience seasonal
fluctuations in our gross revenues and net earnings. This seasonality may cause
significant fluctuations in our quarterly operating results, with the majority
of our gross revenues and net earnings historically occurring in the quarters
ending in June and September each year. However, as a result of the required
adoption of SFAS No. 152, 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 be recognized in the
quarters ending in September and December of each year, primarily due to the
deferral and subsequent recognition of VOI sales revenue. (See Note 1 of the
Notes to Consolidated Financial Statements for further discussion of SFAS No.
152). 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 as a consequence, our
results of operations may fluctuate significantly between quarterly and annual
periods as a result of the required use of the percentage-of-completion method
of accounting.
We believe that inflation and changing prices have historically materially
impacted our revenues and results of operations, specifically due to periodic
increases in the sales prices of our VOIs and homesites and continued increases
in construction and development costs. We expect construction and development
costs to continue to increase for the foreseeable future. There is no assurance
that we will be able to continue to increase our sales prices or that increased
construction costs will not have a material adverse impact on our gross profit.
Also, to the extent inflationary trends affect interest rates, a portion of our
debt service costs may be adversely affected.
19
We recognize revenue on homesite and VOI sales when a minimum of 10% of the
sales price has been received in cash, the refund or rescission period has
expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. Effective
January 1, 2006, the provisions of SFAS No. 152 require that incentives and
other similarly treated items such as customer down payment equity earned
through our Sampler program be considered in calculating the required down
payment. If, after considering the value of sales incentives provided, the
required 10% of sales price down payment threshhold is not met, the VOI sale and
related cost of sale and direct selling costs are deferred and not recognized
until the buyer's commitment test is satisfied, generally through the receipt of
required mortgage note payments from the buyer. 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 operations and the related retained interests in
the notes receivable sold are recorded on our consolidated balance sheet at the
time of sale. Effective January 1, 2006, the portion of these gains related to
the reversal of previously recorded allowances for loan losses on the
receivables sold is recorded as a component of revenue on sales of VOIs. The
amount of gains recognized and the fair value of the retained interests recorded
are based in part on management's best estimates of future prepayment, default
rates, loss severity rates, discount rates and other considerations in light of
then-current conditions. If actual prepayments with respect to loans occur more
quickly than we projected at the time such loans were sold, as can occur when
interest rates decline, interest would be less than expected and may cause a
decline in the fair value of the retained interests and a charge to operations.
If actual defaults or other factors discussed above with respect to loans sold
are greater than estimated, charge-offs would exceed previously estimated
amounts and the cash flow from the retained interests in notes receivable sold
would decrease. Also, to the extent the portfolio of receivables sold fails to
satisfy specified performance criteria (as may occur due to, for example, an
increase in default rates or loan loss severity) or certain other events occur,
the funds received from obligors must be distributed on an accelerated basis to
investors. If the accelerated payment formula were to become applicable, the
cash flow to us from the retained interests in notes receivable sold would be
reduced until the outside investors were paid or the regular payment formula was
resumed. If these situations were to occur on a material basis, it could cause a
decline in the fair value of the retained interests and a charge to earnings
currently. There is no assurance that the carrying value of our retained
interests in notes receivable sold will be fully realized or that future loan
sales will be consummated or, if consummated, result in gains. See "Vacation
Ownership Receivables Purchase Facilities - Off Balance Sheet Arrangements,"
below.
In addition, we have historically sold vacation ownership receivables to
financial institutions through warehouse purchase facilities to monetize the
receivables while accumulating receivables for a future term securitization
transaction. We currently intend to structure future warehouse purchase
facilities so that sales of 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 to the warehouse purchase facilities until such receivables are
subsequently included in a properly structured term securitization transaction.
We expect this may impact future quarterly earnings patterns as compared to
comparable prior periods.
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
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.
Effective January 1, 2006 the Company adopted the provisions of SFAS No. 152,
which changes the rules for many aspects of timeshare accounting, including
revenue recognition, inventory costing and incidental operations. (See Note 1 of
the Notes to Condensed Consolidated Financial Statements for more information on
SFAS No 152 and its impact on our financial statements). The adoption of SFAS
No. 152 during the first quarter of 2006 had the following impact on the results
of the Resort Division:
o Reduced Resorts sales recognized by a net $6.4 million, which
reflected:
20
- the net deferral of $3.2 million of VOI sales due to
treatment of the purchase incentives provided buyers and
the treatment of our Sampler program;
- the classification of $2.6 million of Resorts sales to
Other Resort Operations Revenue, associated with
providing buyers with certain purchase incentives;
- the classification of $6.5 million of the total $7.0
million of gain on sales of notes receivable as Resorts
sales;
- the netting of the $10.6 million provision for loan
losses against Resorts sales;
o Contributed to higher selling, general, and administrative expenses
as a percentage of sales. While SFAS No. 152 requires certain
Resorts sales be deferred, it does not allow the deferral of all
selling, general or administrative costs associated with those
sales;
o Decreased income before cumulative effect of change in accounting
principle by $1.5 million, or $0.05 per diluted share; and,
o Resulted in a one-time, non-cash charge reflected as the cumulative
effect of change in accounting principle of $4.5 million, or $0.14
per diluted share net of income taxes and minority interest,
consisting primarily of deferred Resorts sales, which are the result
of providing buyers with certain purchase incentives and the
treatment our Sampler program.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are
based upon our condense consolidated financial statements, which have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of commitments and
contingencies. On an ongoing basis, management evaluates its estimates,
including those that relate to the recognition of revenue, including revenue
recognition under the percentage-of-completion method of accounting; our
estimated development cost and future sales on recovered VOIs for the purpose of
recognizing cost of sales related to VOI sales; our estimate of fair value
related to stock-based compensation; our reserve for loan losses; the valuation
of retained interests in notes receivable sold and the related gains on sales of
notes receivable; the recovery of the carrying value of real estate inventories,
golf courses; intangible assets and other assets; and the estimate of contingent
liabilities related to litigation and other claims and assessments. Management
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates under different assumptions and
conditions. If actual results significantly differ from management's estimates,
our results of operations and financial condition could be materially, adversely
impacted. For a more detailed discussion of these critical accounting policies
see "Critical Accounting Policies and Estimates" in our Annual Report on Form
10-K for the year ended December 31, 2005.
Results of Operations
We review financial information, allocate resources and manage our business as
two segments, Bluegreen Resorts and Bluegreen Communities. The information
reviewed is based on internal reports and excludes general and administrative
expenses attributable to corporate overhead. The information provided is based
on a management approach and is used by us for the purpose of tracking trends
and changes in results. It does not reflect the actual economic costs,
contributions or results of operations of the segments as stand alone
businesses. If a different basis of presentation or allocation were utilized,
the relative contributions of the segments might differ but the relative trends,
in our view, would likely not be materially impacted. The table below sets forth
net revenue and income from operations by segment.
21
Bluegreen Bluegreen
Resorts Communities Total
------- ----------- -----
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
(dollars in thousands)
Three Months Ended March 31,
2005
Sales of real estate ................ $ 65,644 100% $ 38,377 100% $ 104,021 100%
Cost of real estate sales ........... (13,195) (20) (19,692) (51) (32,887) (32)
--------- --------- ---------
Gross profit ........................ 52,449 80 18,685 49 71,134 68
Other resort and communities
operations revenues .............. 16,562 25 1,482 4 18,044 17
Cost of other resort and
communities operations ........... (18,099) (28) (1,537) (4) (19,636) (19)
Selling and marketing
expenses ......................... (36,709) (56) (8,037) (21) (44,746) (43)
Field general and
administrative expenses (1) ...... (3,817) (6) (2,860) (7) (6,677) (6)
--------- --------- ---------
Field Operating Profit .............. $ 10,386 16% $ 7,733 20% $ 18,119 17%
========= ========= =========
Three Months Ended March 31,
2006
Sales of real estate ................ $ 71,742 100% $ 47,625 100% $ 119,367 100%
Cost of real estate sales ........... (17,047) (24) (27,980) (59) (45,027) (38)
--------- --------- ---------
Gross profit ........................ 54,695 76 19,645 41 74,340 62
Other resort and communities
operations revenues .............. 17,998 25 2,336 5 20,334 17
Cost of other resort and
communities operations ........... (18,361) (26) (2,768) (6) (21,129) (18)
Selling and marketing
expenses ......................... (44,995) (63) (6,977) (15) (51,972) (44)
Field general and
administrative expenses (1) ...... (6,201) (9) (2,457) (5) (8,658) (7)
--------- --------- ---------
Field Operating Profit .............. $ 3,136 4% $ 9,779 21% $ 12,915 11%
========= ========= =========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $10.4 million for the three months ended March 31, 2005
and $10.1 million for the three months ended March 31, 2006. (See
"Corporate General and Administrative Expenses," below, for further
discussion).
Sales and Field Operations. Consolidated sales increased $15.3 million or 15%
from $104.0 million during the three months ended March 31, 2005 to $119.4
million during the three months ended March 31, 2006. Excluding the impacts of
adopting SFAS No. 152, consolidated sales during the three months ended March
31, 2006 would have totaled $125.8 million.
Bluegreen Resorts. As further described above and in Note 1 of the Notes to
Condensed Consolidated Financial Statements, on January 1, 2006 the Company
adopted the provisions of SFAS No. 152 resulting in a net charge of $4.5
million, which is presented as a cumulative effect of change in accounting
principle in the accompanying statement of operations. In addition to the
cumulative charge, the new standard changed the treatment of sales incentives
provided by a seller to a buyer to consummate a sale of VOI, the calculation and
presentation 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.
These changes resulted in the deferral of the recognition of certain VOI sales,
changes in the allocation of cost of VOIs sales, as well as changes in the
classification of various line items throughout the statement of operations
including the classification of sales incentives from sales of real estate to
other resort and communities operations revenues. During the quarter ended March
31, 2005, sales incentives were included as a component of sales of real estate.
Accordingly, as a result of the adoption of SFAS No. 152, the Company's
financial statements for periods beginning on or after January 1, 2006 are not
comparable, in all respects, with those prepared for periods ending prior to
January 1, 2006. The table below sets forth the pro forma results of operations
for Bluegreen Resorts for the three months ended March 31, 2006, excluding the
impact of SFAS No. 152.
22
Three Months Ended
Three Months Ended March 31, 2006 March 31, 2005
-------------------------------------------------- ------------------------
Pro Forma Excluding
Impact of SFAS No. 152
------------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
Sales of real estate ................. $ 71,742 100% $ 78,139 100% $ 65,644 100%
Cost of real estate sales ............ (17,047) (24) (17,395) (22) (13,195) (20)
--------- --------- ---------
Gross profit ......................... 54,695 76 60,744 78 52,449 80
Other resort and communities
operations revenues ............... 17,998 25 15,951 20 16,562 25
Cost of other resort and
communities operations ............ (18,361) (26) (17,318) (22) (18,099) (28)
Selling and marketing
expenses .......................... (44,995) (63) (47,408) (61) (36,709) (56)
Field general and administrative
expenses .......................... (6,201) (9) (6,201) (8) (3,817) (6)
--------- --------- ---------
Field Operating Profit ............... $ 3,136 4% $ 5,768 7% $ 10,386 16%
========= ========= =========
During the three months ended March 31, 2005 and March 31, 2006, sales of VOIs
contributed $65.6 million (63%) and $71.7 million (60%) of our total
consolidated sales, respectively. Excluding the impact of SFAS No. 152, sales of
VOIs during the three months ended March 31, 2006 contributed $78.1 million
(62%) of our total consolidated sales.
The following table sets forth certain information for sales of VOIs for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting and sales deferred under SFAS No. 152.
Three Months Ended
March 31, 2005 March 31, 2006
--------------- --------------
Number of VOI sale transactions ........ 6,689 7,681
Average sales price per transaction .... $ 10,124 $ 10,664
Gross margin ........................... 80% 76%
Bluegreen Resorts' sales increased $6.1 million or 9% during the three months
ended March 31, 2006, as compared to the three months ended March 31, 2005.
Excluding the impact of SFAS No. 152, sales increased $12.5 million or 19%. The
increase was due primarily to same-resort sales increases at most of our sales
offices. Same-resort sales increased by approximately $12.9 million or 20%
during the three months ended March 31, 2006 as compared to the three months
ended March 31, 2005. This increase was also due to our continued focus on
marketing to our growing Bluegreen Vacation Club owner base. Sales to owners
increased by 59% during the three months ended March 31, 2006 as compared to the
three months ended March 31, 2005. This, combined with a 18% overall increase in
the number of sales prospects seen by Bluegreen Resorts from approximately
53,000 prospects during the three months ended March 31, 2005 to approximately
62,000 prospects during the three months ended March 31, 2006 and a consistent
sale-to-tour conversion ratio of 14% during these periods significantly
contributed to the overall sales increase during the three months ended March
31, 2006 as compared to the three months ended March 31, 2005. The increase in
the number of prospects seen by Bluegreen Resorts and the associated increase in
sales was partially due to our five new sales sites opened subsequent to March
31, 2005: an offsite sales office in Atlanta, Georgia (opened in November 2005),
an offsite office in Chicago, Illinois (opened in February 2006), and sales
offices located at three of our new resorts, the Carolina Grande in Myrtle
Beach, South Carolina (opened in March 2006), Daytona Seabreeze in Daytona
Shores, Florida (opened in December 2005), and the Suites at Hershey, in
Hershey, Pennsylvania (opened in June 2005). The increase in the average sales
price per transaction reflected in the above table also contributed to the
increase in sales.
Bluegreen Resorts' gross profit increased $2.2 million or 4% during the three
months ended March 31, 2006 compared to the same period in March 31, 2005.
Excluding the impact of SFAS No. 152, gross margin would have increased $8.3
million or 16%. However, as a percentage of sales, gross profit decreased during
the first quarter of 2006 compared to the same period in 2005 due to the sale of
vacation ownership interests in higher cost resorts as a result of rising
construction costs partially offset by increased sales of vacation ownership
interests in The Fountains resort, which has a relatively low
23
associated product cost, and a system-wide price increase that went into effect
January 1, 2006. We expect that gross margin will remain within the 75-77% range
during 2006.
Other resort operations revenues increased $1.4 million or 9% during the three
months ended March 31, 2006 as compared to the three months ended March 31,
2005. This increase primarily reflects the classification of sales incentives
provided to buyers to consummate a sale of VOI as other resort operations
revenue, partially off-set by the reclassification of rental proceeds from other
resort operations revenue to cost of other resort operations. Prior to the
adoption of SFAS No. 152, sales incentives were classified as a component of VOI
revenue. Excluding the impact of SFAS No. 152, other resort operations would
have revenue decreased $0.6 million or 4% as a result of lower sales of
mini-vacation packages on behalf of third parties, as well as slightly lower
fees earned by our wholly-owned title company for providing title processing
services on all of our VOI sales.
Cost of other resort operations increased $0.3 million or 1% during the three
months ended March 31, 2006 as compared to the three months ended March 31,
2005. The increase in the cost of other resort operations was due primarily to
classification of the cost of sales incentives to cost of other resort
operations as well as higher subsidies incurred relative to the property owners'
associations that maintain our resorts. These subsidies increased in the
aggregate due to the increase in our VOI inventory. These increases were
partially off-set by the reclassification of rental proceeds and the net
proceeds of the Sampler program as a reduction to cost of other resort
operations. Excluding the impact of SFAS No. 152, cost of other resort
operations would have decreased $0.8 million or 4%.
Selling and marketing expenses for Bluegreen Resorts increased $8.3 million or
23% during the three months ended March 31, 2006 as compared to the three months
ended March 31, 2005. This increase was primarily due to the increase in sales
of real estate. As a percentage of sales, selling and marketing expenses
increased from 56% during the three months ended March 31, 2005 to 63% during
the three months ended March 31, 2006 reflecting the marketing expenses
associated with the $3.2 million of revenue deferred under SFAS No. 152, a
general increase in overall marketing expenses, including start-up costs related
to new marketing alliances, and higher marketing expenses as a percentage of
sales at our newly opened off-site sales offices. Excluding the impact of SFAS
No. 152, selling and marketing expense would have increased $10.7 million or 29%
as prior to the first quarter of 2006, selling and marketing expenses included
the cost of sales incentives that per the provisions of SFAS No. 152, are now
classified as cost of other resort operations. Excluding the impact of SFAS No.
152, selling and marketing expenses were 61% of pro forma sales. We believe that
selling and marketing expenses as a percentage of sales is an important
indicator of the performance of Bluegreen Resorts and our performance as a
whole. No assurance can be given that selling and marketing expenses will not
increase as a percentage of sales in future periods.
Field general and administrative expenses for Bluegreen Resorts increased $2.4
million or 62% during the three months ended March 31, 2006, as compared to the
three months ended March 31, 2005, due primarily to incremental cost of opening
and operating our new sales offices.
As of December 31, 2005 and March 31, 2006, Bluegreen Resorts had no sales or
field operating profit deferred under percentage-of-completion accounting. As of
March 31, 2006 approximately $24.7 million and $14.2 million of sales and field
operating profit, respectively, were deferred under SFAS No. 152.
Bluegreen Communities. During the three months ended March 31, 2005 and March
31, 2006, Bluegreen Communities generated $38.4 million (37%) and $47.6 million
(40%) of our total consolidated sales, respectively.
The table below sets forth the number of homesites sold by Bluegreen Communities
and the average sales price per homesite for the periods indicated, before
giving effect to the percentage-of-completion method of accounting and excluding
sales of bulk parcels.
Three Months Ended
March 31, 2005 March 31, 2006
-------------- --------------
Number of homesites sold ................ 635 434
Average sales price per homesite ........ $ 75,498 $ 70,918
Gross margin ............................ 49% 41%
Bluegreen Communities' sales increased $9.2 million or 24% during the three
months ended March 31, 2006, as compared to the three months ended March 31,
2005, due to the recognition of approximately $4.5 million of sales previously
deferred under the percentage-of-completion method of accounting during the
three months ended March 31, 2006, compared to a $9.9 million deferral of sales
under percentage-of-completion during the comparable prior year period. Sales
24
in the first quarter of 2006 also benefited from a $7.0 million bulk sale of
property near San Diego, California. Sales increases at certain of our existing
communities and sales at communities which opened for sales after March 31, 2005
(the "New Communities") off-set sales decreases at substantially sold-out
communities. The New Communities were: Saddle Creek Forest, a community located
near Houston, Texas, which commenced sales in April 2005 and recognized $5.8
million of sales in the first quarter of 2006; The Settlement at Patriot Ranch,
located near San Antonio, which commenced sales in August 2005, and recognized
sales of $1.0 million during the first quarter of 2006; and, Havenwood at
Hunter's Crossing, located near San Antonio, Texas, which was purchased in July
2005 and recognized sales of $1.3 million in the first quarter of 2006. In
addition to the New Communities, we experienced sales increases at Catawba Falls
(Black Mountain, NC), Mystic Shores (Canyon Lake, TX), Lake Ridge at Joe Pool
Lake (Cedar Hill, TX), and Mountain Springs Ranch (Canyon Lake, TX) of $3.9
million, $2.6 million, $1.3 million, and $1.6 million, respectively. These
increases were offset by the substantial sell-out of Traditions of Braselton,
our golf course community in Braselton, Georgia, and Brickshire, our golf course
community located in New Kent, Virginia. There were no sales at Traditions of
Braselton during the three months ended March 31, 2006 as compared to $6.3
million during the three months ended March 31, 2005. Brickshire, which was
substantially sold-out prior to the first quarter of 2006, had sales of $3.2
million during the three months ended March 31, 2005. Sales recognized at
Sanctuary Cove at St. Andrews Sound, an approximately 500-acre golf course
community in Brunswick, Georgia, totaled $4.6 million during the three months
ended March 31, 2006 as compared to $14.3 million during the three months ended
March 31, 2005, due to the substantial sellout of two phases of the community.
The estimated sellout of the last phase of Sanctuary Cove is expected by June
2006. In March 2006 we completed the purchase of an approximately 1,580-acre
future golf community in Grayson County, Texas, which is located just outside of
Dallas, for $25.9 million. Additionally, in April of 2006, we completed the
purchase of a 3,200 acre parcel in New Braunfels, Texas, which is located just
outside San Antonio, for $27.3 million. We also completed the acquisition of 130
acres in April 2006 for $0.7 million to expand Saddle Creek Forest by
approximately 57 homesites. Based on our assessment of current estimated retail
prices and the expected number of homesites to be offered, we currently believe
that these recent acquisitions will, in the aggregate, generate estimated
life-of-project sales of approximately $318.2 million over an eight year period.
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' gross margin decreased from 49% during the three months
ended March 31, 2005 to 41% during the three months ended March 31, 2006, due
substantially to the impact of the bulk sale of land near San Diego, California
on a non-retail basis. Variations in cost structures and the market pricing of
projects available for sale as well as the opening of phases of projects which
include premium homesites (e.g., water frontage, preferred views, larger acreage
homesites, etc.) impact the gross margin of Bluegreen Communities from period to
period. These factors, as well as the impact of percentage-of-completion
accounting, will cause variations in gross margin between periods, although
Bluegreen Communities' gross margin has historically been between 44% and 51% of
sales and is expected to return to historical levels beginning in the second
quarter of 2006.
Selling and marketing expenses for Bluegreen Communities decreased $1.1 million
or 13.2% for the period ended March 31, 2006 as compared to March 31, 2005.
These expenditures decreased as a percentage of sales due to a lower average
sales price per homesite resulting in lower commissions on homesite sales, as
well as, a relatively lower commission on a bulk sale of property near San
Diego, California.
Bluegreen Communities' general and administrative expenses decreased $403,000 or
14.1% during the three months ended March 31, 2006 as compared to the three
months ended March, 31, 2005. This decrease in general and administrative
expenses was due to the closure of five sales offices in the second half of
2005. The offices at Silver Lakes Ranch, Mountain Lakes, Quail Springs,
Brickshire, and Braselton were closed as a result of the substantial sell out of
these locations. As a percentage of sales, Bluegreen Communities' general and
administrative expenses decreased to 5% from 8% for the three months ended March
31, 2006 as compared to the three months ended March 31, 2005, 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 March 31, 2006, Bluegreen Communities had $26.2 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, acquisition and
development, mortgage servicing, treasury and legal. Such expenses were $10.4
million and $10.1 million during the three months ended March 31, 2005 and March
31, 2006, respectively. As a percentage of sales of real estate, corporate
general and administrative expenses were 10.0% and 8.4% during the three months
ended March 31, 2005 and March 31, 2006, respectively.
25
For a discussion of field selling, general and administrative expenses, see
"Sales and Field Operations" above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold and cash and cash equivalents. Interest
income earned totaled $7.9 million and $8.2 million during the three months
ended March 31, 2005 and March 31, 2006, respectively.
The $300,000 or 4% increase in interest income during the three months ended
March 31, 2006 was due to higher interest income earned from retained interest
in notes receivable sold commensurate with the increased average balance of
retained interest in notes receivable sold during the three months ended March
31, 2006 as compared to the three months ended March 31, 2005.
Gain on Sales of Notes Receivable. During the three months ended March 31, 2005
and March 31, 2006, we sold $44.9 million and $40.9 million of vacation
ownership notes receivable, respectively. In connection with these sales, we
recognized gains on sales of notes receivable of $4.7 million and $7.0 million
during the three months ended March 31, 2005 and March 31, 2006, respectively.
As a result of adopting SFAS No. 152, approximately $6.5 million of the gain was
recorded as an adjustment of vacation ownership interest revenues during the
three months ended March 31, 2006.
The amount of gain recognized on sales of notes receivable during a period
depends on several factors, including the amount of availability, if any, under
receivables purchase facilities that qualify for off-balance sheet (or "sales")
treatment under SFAS No. 140, the amount of eligible receivables available for
sale, our cash requirements, the current cost of funds and other relevant
variables associated with the facility, the covenants and other provisions of
the relevant vacation ownership receivables purchase facility (as described
further below) and management's discretion as it relates to the timing and
amount of receivables to sell as well as management's selection of which
facility to utilize for such sale. The U.S. 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. For the
foreseeable future, we intend to structure certain of our vacation ownership
receivables purchase facilities, specifically those 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 No. 140. Accordingly, 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 $3.6 million and $3.3 million during the
three months ended March 31, 2005 and March 31, 2006, respectively. The $300,000
or 8% decrease during the three months ended March 31, 2006, as compared to the
three months ended March 31, 2005, was primarily as a result of lower average
debt outstanding and more interest being capitalized due to increased
construction activity.
Provision for Loan Losses. During the three months ended March 31, 2005, we
recorded a provision for loan loss of $4.7 million. This provision was based on
the Company's estimate of the expected performance of our vacation ownership
notes receivable generated during the first quarter of 2005, reduced by the
value of the underlying inventory that will be recovered upon default. Effective
January 1, 2006, SFAS No. 152 requires that the estimated losses on originated
mortgages exclude an estimate for the value of recoveries and further requires
that the provision for loan losses for vacation ownership receivables be
reflected as a reduction of revenue. Accordingly, during the three months ended
March 31, 2006, we recorded the loan loss provision on vacation ownership notes
receivable of $10.6 million as a reduction to revenue from sales of real estate.
26
The allowance for loan losses by division as of December 31, 2005 and March 31,
2006 was as follows:
Bluegreen Bluegreen
Resorts Communities Other Total
------- ----------- ----- -----
(dollars in thousands)
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%
========= ========= ========= =========
March 31, 2006:
Notes receivable ...................... $ 129,117 $ 7,699 $ 186 $ 137,002
Allowance for loan losses ............. (9,652) (202) (186) (10,040)
--------- --------- --------- ---------
Notes receivable, net ................. $ 119,465 $ 7,497 $ -- $ 126,962
========= ========= ========= =========
Allowance as a % of gross notes
receivable .......................... 7% 3% 100% 7%
========= ========= ========= =========
The allowance for loan loss for Bluegreen Resorts decreased as a percentage of
the notes receivable balance at March 31, 2006 compared to December 31, 2005 as
we did not provide an allowance for loan losses on receivables for which the
related sale has been deferred under SFAS No. 152.
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC (the
"Subsidiary"), our 51%-owned subsidiary, in our consolidated financial
statements. (See Note 1 of the Notes to Condensed Consolidated Financial
Statements). The minority interest in income of consolidated subsidiary is the
portion of our consolidated pre-tax income that is earned by Big Cedar, L.L.C.,
the unaffiliated 49% interest holder in the Subsidiary. Minority interest in
income of consolidated subsidiary was $773,000 and $1.0 million during the three
months ended March 31, 2005 and March 31, 2006, respectively.
Cumulative Effect of Change in Accounting Principle from the Adoption of SFAS
No. 152. The adoption of SFAS No. 152 on January 1, 2006 resulted in a net
charge of $4.5 million, which is presented as a cumulative effect of change in
accounting principle. The cumulative effect of change in accounting principle
primarily consists of the deferral of VOI sales and related costs for sales that
were previously recognized but did not meet the required down payment threshhold
at January 1, 2006, due to sales incentives provided to buyers and the treatment
of our Sampler program, and the related tax benefit, net of the cumulative
effect of change in accounting principle charge related to the minority interest
in the Subsidiary.
Summary. Based on the factors discussed above, our net income before the
cumulative effect of change in accounting principle was $6.4 million and $4.0
million during the three months ended March 31, 2005 and March 31, 2006,
respectively. Our net income was $6.4 million for the three months ended March
31, 2005 and was a net loss of $463,000 for the three months ended March 31,
2006.
Changes in Financial Condition
The following table summarizes our cash flows for the three months ended March
31, 2005 and March 31, 2006 (in thousands):
Three months ended
March 31, 2005 March 31, 2006
-------------- --------------
Cash flows provided by (used in) operating activities ..... $ 12,860 $(20,198)
Cash flows (used in) provided by investing activities ..... (2,524) 3,351
Cash flows provided by financing activities ............... 4,037 3,919
-------- --------
Net increase (decrease) in cash ........................... $ 14,373 $(12,928)
======== ========
Cash Flows From Operating Activities. Cash flows provided by operating
activities decreased $33.1 million or 257% from an inflow of $12.9 million
during the three months ended March 31, 2005 to an outflow of $20.2 million
during the three months ended March 31, 2006 as compared to. The decrease in
cash flows provided by operating activities during the three months ended March
31, 2006 compared to the same period the prior year was primarily driven by
higher development spending and an increase in notes receivable due to increased
VOI sales. Also contributing to the decrease in cash flows
27
from operations was lower proceeds from the sale of and borrowings
collateralized by notes receivable during the three months ended March 31, 2006
compared to the prior period.
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 used in investing activities
increased $5.9 million or 236% from an outflow of $2.5 million during the three
months ended March 31, 2005 to an inflow of $3.4 million during the three months
ended March 31, 2006, respectively. This increase was due primarily to higher
amounts of cash received from our retained interests in notes receivable sold
partially off-set by higher cash expenditures for property and equipment during
the three months ended March 31, 2006 as compared to the three months ended
March 31, 2006.
Cash Flows From Financing Activities. Cash flows provided by financing
activities decreased $118,000 or 3% from cash inflows of $4.0 million during the
three months ended March 31, 2005 to cash inflows of $3.9 million during the
three months ended March 31, 2006. This decrease was due primarily to the $23.2
million of cash received in connection with our issuance of the junior
subordinated debentures during the three months ended March 31, 2005, partially
offset by higher payments and lower borrowings on our lines-of-credit and note
payable during the three months ended March 31, 2005 as compared to the three
months ended March 31, 2006.
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
economic and competitive pressures; (iii) the financial covenants and other
restrictions contained in the indentures, the credit agreements and other
agreements relating to our indebtedness require us to meet certain financial
tests and restrict our ability to, among other things, borrow additional funds,
dispose of assets, make investments or pay cash dividends on, or repurchase,
preferred or common stock; and (iv) funds available for working capital, capital
expenditures, acquisitions and general corporate purposes may be limited.
Certain of our competitors operate on a less leveraged basis and have greater
operating and financial flexibility than we do.
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 March 31, 2006. These facilities do not
constitute all of our outstanding indebtedness as of March 31, 2006. Our other
28
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.
Vacation Ownership Receivables Purchase Facilities - Off-Balance Sheet
Arrangements
Our ability to sell and/or borrow against our notes receivable from VOI buyers
is a critical factor in our continued liquidity. When we sell VOIs, a financed
buyer is only required to pay a minimum of 10% of the purchase in cash at the
time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the three months ended March 31,
2006, approximated 71% 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 is entitled to receive a return equal to the applicable Swap Rate
(which is essentially a published interest swap arrangement rate as defined in
the GE Purchase Facility agreements) plus 2.35%, subject to use of alternate
return rates in certain circumstances. In addition, we paid GE a structuring fee
of approximately $437,500 in March 2006. Subject to the terms of the agreements,
will act as servicer under the 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.
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 or
similar proceedings; (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 representing unsold real estate timeshare
inventory falling below approximately 930.7 million; (xiii) our ceasing to
conduct the vacation ownership business or to originate vacation ownership
receivables or if certain changes in our ownership or control occur; (xiv) the
failure of certain of our resorts to be part of the Bluegreen Vacation Club or
be managed by us, one of our subsidiaries or another entity acceptable to GE;
(xv) operating budgets and reserve accounts maintained by the property owners'
associations responsible for maintaining certain of our resorts failing to
comply with applicable laws and governing documents; (xvi) our failure to
discharge, stay or bond pending appeal any final judgments for the payment of an
amount in excess of 2.5% of our Tangible Net Worth in a timely manner; (xvii)
our default under or breach of certain resort management or marketing contracts;
or (xviii) our failure to perform our servicing obligations, otherwise have our
servicing rights terminated or if we do not exercise the Servicer Purchase
Option pursuant to the terms of the GE Purchase Facility.
The 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 in March 2008. On
March 28, 2006, the Company sold $22.3 million in vacation ownership receivables
under the GE Purchase Facility. As of March 31, 2006, the remaining availability
under the 2006-A GE Purchase Facility was $104.9 million, subject to eligibility
requirements and fulfillment of conditions precedent.
29
The New BB&T Purchase Facility. We are currently documenting 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 No. 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 facility 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 or will be in a position 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 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, each
securitization facility provides that upon 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.
30
The following is a summary of significant financial information related to the
Purchase Facility and prior similar facilities during the periods presented (in
thousands):
December 31,2005 March 31, 2006
---------------- --------------
On Balance Sheet:
Retained interests in notes receivable sold ............................ $ 105,696 $ 104,316
Off Balance Sheet:
Notes receivable sold without recourse ................................. 429,403 438,899
Principal balance owed to note receivable purchasers ................... 396,679 408,991
Three Months Ended
March 31, 2005 March 31, 2006
-------------- --------------
(As Restated)
Income Statement:
Gain on sales of notes receivable ...................................... $ 4,720 $ 505
Interest accretion on retained interests in notes receivable sold ...... 2,008 2,578
Servicing fee income ................................................... 1,191 1,645
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 March 31, 2006 (see further
discussion below):
Outstanding Borrowings
Borrowings During the Advance Period
as of Period Ended Expiration; Borrowing Borrowing Current
Credit Facility March 31, 2006 March 31, 2006 Borrowing Maturity Limit Rate Rate
----------------------------------------------------------------------------------------------------------------------------------
The GMAC $22.4 million -- February 15, 2008; $75.0 30-day 8.83%
Receivables Facility February 15, 2015 million LIBOR +
4.00%
The GMAC AD&C $40.2 million $6.8 million February 15, 2008; $150.0 30-day 9.288
Facility August 15, 2013 million LIBOR +
4.50%
The RFL A&D -- -- January 10, 2007; $50.0 30-day 8.73%
Facility January 10, 2008 million LIBOR +
3.90% (Min.
6.90%)
The Foothill Facility $2.7 million -- December 31, 2006; $30.0 Prime + 8.00%
December 31, 2008 million 0.25% (Min. to
4.00%); 9.00%
to
Prime +
1.25%
The GMAC $24.3 million $27.2 September 30, 2008; $75.0 Prime + 8.75%
Communities million September 30, 2009 million 1.00%
Facility
31
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% (8.83% at March 31, 2006).
Interest payments are due monthly. During the period ended March 31, 2006, we
did not pledge any vacation ownership receivables under the GMAC Receivables
Facility. As of March 31, 2006, $22.4 million was outstanding under the GMAC
Receivables Facility.
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 February 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 February 2006. Interest payments are due monthly.
During the period ended March 31, 2006, we borrowed $6.8 million under the GMAC
AD&C Facility to fund the development of VOIs at The Fountains and the Carolina
Grande. As of March 31, 2006, $40.2 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 Resort Finance, LLC ("RFL") (the "RFL A&D Facility"). We
use the proceeds from the RFL A&D Facility to finance the acquisition and
development of vacation ownership resorts. The RFL A&D Facility is secured by 1)
a first mortgage and lien on all assets purchased with the RFL A&D Facility; 2)
a first assignment of all construction contracts, related documents, building
permits and completion bond; 3) a negative pledge of our interest in any
management, marketing, maintenance or service contracts; and 4) a first
assignment of all operating agreements, rents and other revenues at the vacation
ownership resorts which serve as collateral for the RFL A&D Facility, subject to
any requirements of the respective property owners' associations. Borrowings
under the RFL A&D Facility can be made through January 10, 2007. Principal
payments will be effected through agreed-upon release prices paid to RFL as
vacation ownership interests in the resorts that serve as collateral for the RFL
A&D Facility are sold. The outstanding principal balance of any borrowings under
the RFL A&D Facility must be repaid by January 10, 2008. Indebtedness under the
facility bears interest at 30-day LIBOR plus 3.90%, subject to a 6.90% floor
(8.73% at March 31, 2006). 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. There were
no outstanding amounts due under this facility as of March 31, 2006.
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. For further details on this facility, see
"Credit Facilities for Bluegreen Communities' Receivables and Inventories"
below.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We have a $30.0 million revolving credit facility with
Foothill secured by the pledge of Bluegreen Communities' receivables, with up to
$10.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and, as indicated above, up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables (the
"Foothill Facility"). The Foothill Facility requires principal payments based on
agreed-upon release prices as homesites in the encumbered communities are sold
and bears interest at the prime lending rate plus 1.25% (9.0% at March 31,
2006). 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% (8.0% at March 31, 2006) when the average
monthly outstanding loan balance is greater than or equal to $15.0 million. If
the average monthly outstanding loan balance is less than $15.0 million, the
interest rate is the greater of 4.00% or the prime lending rate plus 0.50%
(8.25% at March 31, 2006). All principal and interest payments received on
pledged receivables are applied to principal and interest due under the
32
Foothill Facility. Borrowings under the Foothill Facility are available through
December 31, 2006. Outstanding indebtedness collateralized by receivables is due
December 31, 2008. At March 31, 2006, the outstanding principal balance under
the facility was $2.7 million, approximately $1.9 million of which relate to
Bluegreen Communities' receivables borrowings and approximately $800,000 of
which relate 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 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); an as yet unnamed community purchased in Grayson County,
Texas (the "Grayson County Community"); and an as yet unnamed community
purchased in New Braunfels, Texas (the "New Braunfels Community"). 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 in conjunction with
these projects through September 30, 2008. Principal payments are effected
through agreed-upon release prices paid to Residential Funding Corporation
("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% (8.75% at March 31, 2006). 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 March 31, 2006, $24.3 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 $9.0 million for general
corporate purposes. In April of 2006, we borrowed $19.0 million for the purchase
of a 3,200 acre track of land in New Braunfels, Texas, and $9.0 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
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
33
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 March 31,
2006 (dollars in thousands):
Outstanding
Amount of Initial Beginning
Junior Equity Fixed Variable Optional
Subordinated To Issue Interest Interest Redemption Maturity
Trust Debentures Trust Date Rate(1) Rate(2) Date Date
---------------------------------------------------------------------------------------------------------------------
Bluegreen LIBOR +
Statutory Trust I $ 23,196 $ 696 3/15/05 9.160% 4.90% 3/30/10 3/30/35
Bluegreen
Statutory Trust II LIBOR +
25,774 774 5/4/05 9.158% 4.85% 7/30/10 7/30/35
Bluegreen
Statutory Trust III LIBOR +
10,310 310 5/10/05 9.193% 4.85% 7/30/10 7/30/35
-------- -------
$ 59,280 $ 1,780
======== =======
(1) Both the trust preferred securities and junior subordinated debentures
bear interest at a fixed interest rate from the issue date through the
beginning optional redemption date.
(2) Both the trust preferred securities and junior subordinated debentures
bear interest at a variable interest rate from the beginning optional
redemption date through the maturity date.
On April 24, 2006, another of our wholly-owned statutory business trusts, BST
IV, issued $15.0 million of trust preferred securities. BST IV used the proceeds
from issuing the trust preferred securities to purchase an identical amount of
junior subordinated debentures from us. Interest on the junior subordinated
debentures and distributions on the Trust Preferred Securities will be payable
quarterly in arrears at a fixed rate of 10.13% through June 30, 2011 and
thereafter at a floating rate of 4.85% over the 3-month LIBOR until the
scheduled maturity date of June 30, 2036. Distributions on the trust preferred
securities will be cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we contributed $464,000 to BST IV in
exchange for its common securities, all of which are owned by us, and those
proceeds were also used to purchase an identical amount of junior subordinated
debentures from us. The terms of BST IV's common securities are nearly identical
to the trust preferred securities
The issuances of trust preferred securities were part of larger pooled trust
securities offerings which were not registered under the Securities Act of 1933.
Proceeds will be used for general corporate purposes and debt repayment.
We 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 LIBOR plus 2.00% (6.83% at
March 31, 2006). Interest is due monthly and all outstanding amounts are due on
June 30, 2006. We can only borrow an amount under the line-of-credit which is
less than the remaining availability under our current, active vacation
ownership receivables purchase facilities plus availability under certain
receivables warehouse facilities, less any outstanding letters of credit. The
line-of-credit agreement contains certain covenants and conditions typical of
arrangements of this type. As of March 31, 2006, no borrowings were outstanding
under the line. However, an aggregate of $530,000 of irrevocable letters of
credit were provided under this line-of-credit which were required in connection
with the obtaining of plats for one of our Bluegreen Communities projects. These
letters of credit expire on December 31, 2006. This line-of-credit is an
available source of short-term liquidity for us, although we have not drawn any
borrowings under this facility recently.
34
Commitments
Our material commitments as of March 31, 2006 included the required payments due
on our receivable-backed debt, lines of credit and other notes and debentures
payable, commitments to complete our vacation ownership and communities projects
based on our sales contracts with customers and commitments under noncancelable
operating leases.
The following tables summarize the contractual minimum principal payments and
interest obligations required on all of our outstanding debt (including our
receivable-backed debt, lines-of-credit and other notes and debentures payable)
and our noncancelable operating leases as of March 31, 2006, by period due (in
thousands):
Payments Due by Period
-------------------------------------------------------------
Less than 1 -- 3 4 -- 5 After 5
Contractual Obligations 1 year Years Years Years Total
---------------------------- --------- --------- --------- --------- ---------
Receivable-backed notes payable ........ $ 21 $ 8,160 $ -- $ 22,351 $ 30,532
Lines-of-credit and notes payable ...... 22,752 34,815 31,877 -- 89,444
10.5% senior secured notes ............. -- 55,000 -- -- 55,000
Junior subordinated debentures ......... -- -- -- 59,280 59,280
Noncancelable operating leases ......... 7,616 13,353 8,356 5,142 34,467
--------- --------- --------- --------- ---------
Total contractual obligations .......... $ 30,389 $ 111,328 $ 40,233 $ 86,773 $ 268,723
========= ========= ========= ========= =========
Payments Due by Period
-------------------------------------------------------------
Less than 1 -- 3 4 -- 5 After 5
Interest Obligations (1) 1 year Years Years Years Total
---------------------------- --------- --------- --------- --------- ---------
Receivable-backed notes payable ........ $ 2,634 $ 4,956 $ 3,947 $ 4,770 $ 16,307
Lines-of-credit and notes payable ...... 7,719 10,934 1,569 -- 20,222
10.5% senior secured notes ............. 5,775 8,662 -- -- 14,437
Junior subordinated debentures ......... 5,433 10,866 10,866 131,493 158,658
--------- --------- --------- --------- ---------
Total contractual obligations .......... $ 21,561 $ 35,418 $ 16,382 $ 136,263 $ 209,624
========= ========= ========= ========= =========
(1) Interest on variable rate debt has assumed the weighted average interest
rate remains the same as the rate at March 31, 2006.
We intend to use cash flow from operations, including cash received from the
sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
principal payments in the Contractual Obligations. While we believe that we will
be able to meet all required debt payments when due, there can be no assurance
that this will be the case.
As noted above, we have $530,000 in letters-of-credit outstanding at March 31,
2006, all of which were issued under the unsecured line-of-credit with Wachovia
Bank, N.A. These letters-of-credit, which expire December 31, 2006, were
required in connection with obtaining governmental approval of plats for one of
our Bluegreen Communities projects.
We estimate that the total cash required to complete resort buildings in which
sales have occurred and resort amenities and other common costs in projects in
which sales have occurred to be approximately $17.6 million as of March 31,
2006. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $52.3
million as of March 31, 2006. 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
facility and one or more replacement facilities we will seek to put in place
will be sufficient to meet our anticipated working capital, capital expenditures
and debt service requirements for the foreseeable future. We will be required to
renew or replace credit and receivables purchase facilities that have expired or
that will expire in the near term. We will, in the future, also require
additional credit facilities or will be required to issue corporate debt or
equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us may be secured or unsecured, bear fixed or variable
rate interest and may be
35
subject to such terms as the lender may require and management deems prudent.
There can be no assurance that the credit facilities or receivables purchase
facilities which have expired or which are scheduled to, however, expire in the
near term will be renewed or replaced or that sufficient funds will be available
from operations or under existing, proposed or future revolving credit or other
borrowing arrangements or receivables purchase facilities to meet our cash
needs, including, our debt service obligations. To the extent we are not able to
sell notes receivable or borrow under such facilities, our ability to satisfy
our obligations would be materially adversely affected.
Our credit facilities, indentures, and other outstanding debt instruments, and
receivables purchase facilities which include customary conditions to funding,
eligibility requirements for collateral, cross-default and other acceleration
provisions, certain financial and other affirmative and negative covenants,
including, among others, limits on the incurrence of indebtedness, limits on the
repurchase of securities, payment of dividends, investments in joint ventures
and other restricted payments, the incurrence of liens, transactions with
affiliates, covenants concerning net worth, fixed charge coverage requirements,
debt-to-equity ratios, portfolio performance requirements and events of default
or termination. No assurance can be given that we will not be required to seek
waivers of such covenants or that such covenants will not limit our ability to
raise funds, sell receivables, satisfy or refinance our obligations or otherwise
adversely affect our operations. In addition, our future operating performance
and ability to meet our financial obligations will be subject to future economic
conditions and to financial, business and other factors, many of which will be
beyond our control.
Item 4. Controls and Procedures.
a) As of the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of
our principal executive officer and principal financial officer of
the effectiveness of our disclosure controls and procedures, as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of March
31, 2005. Based on such evaluation, such officers have concluded
that our disclosure controls and procedures are effective in timely
alerting them to material information relating to us that is
required to be included in our periodic SEC filings.
b) There has been no change in our internal control over financial
reporting during the quarter ended March 31, 2006 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In April 2006, in Lesley, et al v. Bluegreen Southwest One, L.P. acting
through its General Partner Bluegreen Southwest Land, Inc., et al, Cause No.
28006 District Court of the 266th Judicial District, Erath County, Texas,
plaintiffs filed a First Amended Original Petition (April 2006). Pursuant to
this First Amended Original Petition Plaintiffs seek to develop mineral
interests in the Mountain Lakes subdivision and to recover damages from
Southwest, alleging breach of contract, breach of fiduciary duty, tortious
interference with existing and prospective relationships and intentional
invasion or interference with property rights by Southwest, for allegedly
interfering with the development of mineral rights held by plaintiffs.
Plaintiffs' claims against Bluegreen Southwest One, L.P. total in the aggregate
$25 million. The Company is still in the process of reviewing plaintiffs'
allegations; however, based on the information currently available, the Company
believes that the claims lack merit and intends to defend itself vigorously
against them.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not purchase any of our equity securities registered pursuant to Section
12 of the Securities Exchange Act of 1934. From time to time, our Board of
Directors has adopted and publicly announced a share repurchase program.
Repurchases under such programs are subject to the price of our stock,
prevailing market conditions, our financial condition and available resources,
other investment alternatives and other factors. We are not required to seek
shareholder approval of share repurchase programs, have not done so in the past,
and do not anticipate doing so in the future, except to the extent we may be
required to do so under applicable law. We have not repurchased any shares since
the fiscal year ended April 1, 2001. As of March 31, 2006, there were 694,500
shares remaining for purchase under our current repurchase program, however we
have no present intention of acquiring these remaining shares.
Item 6. Exhibits.
Exhibits:
10.61 Amended and Restated Trust Agreement among Bluegreen
Corporation as depositor, Wilmington Trust Company as Property
Trustee and Delaware Trustee and various Administrative
Trustees, dated April 24, 2006 (Bluegreen Statutory Trust IV).
10.62 Junior Subordinated Indenture between Bluegreen Corporation
and Wilmington Trust Company as Trustee dated as of April 24,
2006.
10.82 Mandatory Distribution Amendment to Registrants' Retirement
Savings Plan dated as March 28, 2005.
10.160 Third Amendment to Loan Agreement and Other Loan Documents,
dated October 21, 2005 between Bluegreen Corporation of the
Rockies, Bluegreen Golf Clubs, Inc., Bluegreen Properties of
Virginia, Inc., Bluegreen Southwest One, L.P., Catawba Falls,
LLC, and RFC Construction Funding Corp., as successor in
interest to and assignee of Residential Funding Corporation.
10.175 Third Modification Agreement (AD&C Loan Agreement) dated
February 15th, 2006, between Bluegreen Vacations Unlimited,
Inc. and Residential Funding Corporation.
10.176 Third Modification Agreement (Receivables Loan and Security
Agreement dated February 15th, 2006 between Bluegreen
Vacations Unlimited, Inc. and Residential Funding Corporation.
10.180 BXG Receivables Owner Trust 2006-A Definition Annex,
Definitions and Interpretations, dated as of March 13, 2006.
10.181 Trust Agreement by and among Bluegreen Receivables Corporation
XI, GSS Holdings, Inc. and Wilmington Trust Company, dated as
of March 13, 2006.
10.182 Indenture between BXG Receivables Owner Trust 2006-A and U.S.
Bank National Association, dated as of March 13, 2006.
37
10.183 Sale and Servicing Agreement among BXG Receivables Owner Trust
2006-A, Bluegreen Receivables Finance Corporation XI, the
Trust Depositor, Concord Servicing Corporation, Vacation
Trust, Inc., U.S. Bank National Association and General
Electric Capital Corporation dated March 13, 2006.
10.184 Sale and Contribution Agreement among the Registrant and
Bluegreen Receivables Finance Corporation XI, dated March 13,
2006.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: May 10, 2006 By: /S/ GEORGE F. DONOVAN
-------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: May 10, 2006 By: /S/ ANTHONY M. PULEO
-------------------------------------
Anthony M. Puleo
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: May 10, 2006 By: /S/ RAYMOND S. LOPEZ
-------------------------------------
Raymond S. Lopez
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
39