SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KT
(Mark One)
|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the nine months ended December 31, 2002
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock, $.01 par value New York Stock Exchange,
Pacific Stock Exchange
8.25% Convertible Subordinated Debentures due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant: $45,624,703 based upon the closing sale price
of the Company's Common Stock on the New York Stock Exchange on September 30,
2002 ($3.10 per share). For this purpose, "affiliates" include members of the
Board of Directors of the Company, members of executive management and all
persons known to be the beneficial owners of more than 5% of the Company's
outstanding common stock. The market value of voting stock held by
non-affiliates excludes any shares issuable upon conversion of any 8.25%
Convertible Subordinated Debentures which are convertible at a current
conversion price of $8.24 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 24,
2003, there were 24,588,128 shares of the registrant's common stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's definitive proxy
statement to be filed for its Annual Meeting of Shareholders to be held on May
29, 2003 (the "Proxy Statement") are incorporated by reference into Part III
hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-KT
PART I
PAGE
Item 1. BUSINESS.......................................................... 1
Item 2. PROPERTIES........................................................ 22
Item 3. LEGAL PROCEEDINGS................................................. 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 23
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................... 23
Item 6. SELECTED FINANCIAL DATA........................................... 25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION....................................... 26
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 45
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 46
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 87
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 87
Item 11. EXECUTIVE COMPENSATION............................................ 87
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 87
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 87
Item 14. CONTROLS AND PROCEDURES........................................... 87
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 87
Signatures................................................................. 89
Exhibit Index.............................................................. 92
Note: The term "Bluegreen(R)" is registered in the U.S. Patent and Trademark
office by Bluegreen Corporation.
The term "Bluegreen Vacation Club(R)" is registered in the U. S. Patent
and Trademark office by Bluegreen Corporation.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
office by Big Cedar L.L.C.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and
Trademark office by Bass Pro, Inc.
PART I
Item 1. BUSINESS.
Introduction
Bluegreen(R) Corporation (the "Company") is a leading marketer of vacation
and residential lifestyle choices through its resorts and residential land and
golf businesses. The Company's resorts business ("Bluegreen Resorts") acquires,
develops and markets timeshare interests in resorts generally located in popular
high-volume, "drive-to" vacation destinations. "Timeshare Interests" are of two
types: one which entitles the buyer of the Company's points-based Bluegreen
Vacation Club(R) (the "Club") product to an annual allotment of "points" in
perpetuity (supported by an underlying deeded fixed timeshare week being held in
trust for the buyer) and the second which entitles the fixed-week buyer to a
fully-furnished vacation residence for an annual one-week period in perpetuity.
"Points" may be exchanged by the buyer in various increments for lodging for
varying lengths of time in fully-furnished vacation residences at any of the
Company's participating resorts. A Timeshare Interest also entitles the buyer to
access approximately 3,700 resorts worldwide through the Company's participation
in timeshare exchange networks. The Company currently develops, markets and
sells Timeshare Interests in 12 resorts located in the United States and one
resort located in the Caribbean. In addition, the Company also markets and sells
Timeshare Interests at four off-site sales offices. Prior to investing in new
timeshare projects, the Company performs market research and testing and, prior
to completion of development, seeks to pre-sell a significant portion of its
Timeshare Interests inventory. The Company's residential land and golf business
( "Bluegreen Communities", formerly referred to as the Residential Land & Golf
Division) acquires, develops and subdivides property and markets the subdivided
residential lots (hereinafter referred to as "home sites") to retail customers
seeking to build a home in a high quality residential setting, in some cases on
properties featuring a golf course and related amenities. Bluegreen Communities'
strategy is to locate its projects (i) near major metropolitan centers but
outside the perimeter of intense subdivision development or (ii) in popular
retirement areas. The Company has focused Bluegreen Communities' activities in
certain core markets in which the Company believes it has substantial marketing
expertise and a strong track record of success. Prior to acquiring properties,
Bluegreen Communities typically utilizes market research, conducts due diligence
and, in the case of new project locations, engages in pre-marketing techniques
to evaluate market response and price acceptance. Once a parcel of property is
acquired, the Company seeks to pre-sell a significant portion of its planned
home sites on such property prior to extensive capital investment, which has
been possible by the Company's ability to bond its projects to completion. The
Company also generates significant interest income through its financing of
individual purchasers of Timeshare Interests and, to a lesser extent, home sites
sold by Bluegreen Communities.
For the purposes of this discussion, "estimated remaining life-of-project
sales" assumes sales of the existing, currently under construction or
development, and planned Timeshare Interests or home sites, as the case may be,
at current retail prices. No assurances can be given that actual sales will meet
expectations.
Market and industry data used throughout this Form 10-KT were obtained
from internal Company surveys, industry publications, unpublished industry data
and estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"), a non-profit industry organization.
Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but there can be no
assurances as to the accuracy and completeness of such information. The Company
has not independently verified such market data. Similarly, internal Company
surveys, while believed by the Company to be reliable, have not been verified by
any independent sources. Accordingly, no assurance can be given that any such
data will prove to be accurate.
Bluegreen Resorts. Bluegreen Resorts was founded in 1994 to capitalize on
the growth of the timeshare industry. While historical growth rates may not
continue, according to ARDA and other industry sources, timeshare industry sales
grew at growth rates ranging from 14% to 17% annually during the period from
1992 through 2001. The Company currently markets and sells Timeshare Interests
in 13 resorts located in the Smoky Mountains of Tennessee (two resorts); Myrtle
Beach (two resorts) and Charleston, South Carolina; Orlando and Surfside,
Florida; Branson and Ridgedale, Missouri; Gordonsville, Virginia; Wisconsin
Dells, Wisconsin; Boyne Mountain, Michigan and Aruba. The Company also markets
and sells Timeshare Interests at four off-site sales locations serving the
Indianapolis, Indiana; Detroit, Michigan; Minneapolis, Minnesota; and Daytona
Beach, Florida markets. Through December 31, 2002, the Company has generated
approximately 83,000 Timeshare Interests sales transactions at its resorts. As
of December 31, 2002, the Company had 76,134 completed Timeshare Interests at
its resorts, 10,816 Timeshare Interests under construction or development and
plans to develop approximately 72,996 additional Timeshare Interests at existing
resorts. Based on the foregoing, Bluegreen Resorts' estimated remaining
life-of-project sales were approximately $841 million as of December 31, 2002,
based on retail prices at that date. The Company also manages 20 timeshare
resorts (including 11 of its own resorts) with an aggregate of approximately
97,000 members.
1
Bluegreen(R) Resorts uses a variety of techniques to attract prospective
purchasers of Timeshare Interests, including telemarketing mini-vacations,
marketing kiosks in retail and hotel locations, targeted mailings, marketing to
current owners of Timeshare Interests and referrals. To support its marketing
and sales efforts, the Company has developed and continues to enhance its
database to track its timeshare marketing and sales programs. Management
believes that, as the Company's timeshare operations grow, this database will
become an increasingly significant asset, enabling it to take advantage of,
among other things, less costly marketing and referral opportunities.
According to ARDA, the primary reason cited by consumers for purchasing a
Timeshare Interest is the ability to exchange a Timeshare Interest for
accommodations at other resorts through worldwide exchange networks. Each of the
Company's timeshare resorts is affiliated with either Resort Condominium
International(R), Inc. ("RCI") or Interval International(R) ("II"), the two
largest worldwide timeshare exchange companies. Participation in an exchange
network entitles owners to exchange their annual Timeshare Interests for
occupancy at approximately 3,700 participating RCI resorts or approximately
1,900 participating II resorts located in over 100 countries worldwide. To
further enhance the ability of its Timeshare Interest owners to customize their
vacation experience, the Company has also implemented the Club system which
permits its Timeshare Interest owners to purchase an annual allotment of points
which can be redeemed for occupancy rights at most Company-owned and certain
participating managed resorts. At December 31, 2002, the Company's approximately
61,000 Club members could choose to use their points at 32 resorts in the
Bluegreen system. The Company also has implemented the Sampler program, which
allows Sampler package purchasers to enjoy substantially the same amenities,
activities and services offered to the regular Club members for a one-year trial
period. The Company also has the Sampler Plus program, which provides Sampler
Plus package purchasers with the same benefits of the Sampler package, plus a
three-year travel discount program with exclusive website access to purchasing
hotel and resort condo stays, cruises, rental cars, etc. The Company benefits
from the Sampler and Sampler Plus programs by recapturing some of the costs
incurred in initially marketing to prospective customers through the price of
the Sampler and Sampler Plus packages and having the opportunity to remarket the
Company's Timeshare Interests to these customers when they use their trial
memberships at the Company's resorts.
Prior to acquiring property for resorts, Bluegreen Resorts undertakes a
full property review, including physical and environmental assessments, which is
presented for approval to the Company's Investment Committee, which was
established in 1990 and consists of certain key members of senior management.
During the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's existing
amenities and attractions to determine the potential strength of the timeshare
market in such area and the availability of a variety of recreational
opportunities for prospective Timeshare Interest purchasers. Another important
consideration when Bluegreen Resorts is reviewing a resort location for
potential acquisition is the demand for resorts in specific geographic areas by
existing Club members, which the Company periodically monitors through surveys
and other means. The geographic areas in which the Company currently intends to
pursue the acquisition of real estate or interests in real estate for Bluegreen
Resorts are the areas in which Bluegreen Resorts currently operates, as noted
above (with a current emphasis on beachfront resorts), the northeastern and
western United States, although the Company may pursue acquisitions in other
areas. No assurances can be given that the Company will be able to acquire
property in its current target areas or be successful in its acquisitions
strategy.
The Company has historically provided financing to approximately 95% of
its timeshare customers. Customers are required to make a downpayment of at
least 10% of the Timeshare Interest sales price and typically finance the
balance of the sales price over a period of seven or ten years. As of December
31, 2002, the Company had a timeshare receivables portfolio totaling
approximately $53.0 million in principal amount, with a weighted-average
contractual yield of approximately 15.3% per annum. During the nine months ended
December 31, 2002, the Company maintained a timeshare receivables warehouse
facility and a separate timeshare receivables purchase facility to accelerate
cash flows from the Company's timeshare receivables. See "Liquidity and Capital
Resources" for further discussion of the Company's timeshare receivable
facilities and certain risks relating to such facilities.
Bluegreen Communities. Bluegreen Communities is focused primarily on land
and golf community projects located in states in which the Company has developed
marketing expertise and has a track record of success, such as Texas, North
Carolina and Virginia. The aggregate carrying amount of Bluegreen Communities'
inventory at December 31, 2002, was $102.0 million. Bluegreen Communities'
estimated remaining life-of-project sales were approximately $335.2 million at
December 31, 2002, based on retail prices at that date. The Company believes no
other company in the United States of comparable size or financial resources
markets and sells residential home sites directly to retail customers.
Bluegreen Communities targets customers seeking a quality lifestyle
improvement, which is generally unavailable in traditional, intensely subdivided
suburban developments. Through its experience in marketing and selling home
sites to its target customers, the Company has developed a marketing and sales
program that generates a significant number of on-site sales presentations to
potential prospects through low-cost, high-yield newspaper advertising. In
addition, Bluegreen Communities' customer relationship management computer
software system
2
enables the Company to compile, process and maintain information concerning
future sales prospects within each of its operating regions with the goal of
tracking the effectiveness of advertising and marketing programs relative to
sales generated. Through the Company's targeted sales and marketing program, the
Company believes that it has been able to achieve an attractive conversion ratio
of sales to prospects receiving on-site sales presentations.
Bluegreen(R) Communities acquires and develops land in two markets: (i)
near major metropolitan centers but outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, the Company researches market depth and forecasts market absorption. In
new market areas, the Company typically supplements its research with a
structured classified advertisement test marketing system that evaluates market
response and price acceptance. The Company's sales and marketing efforts begin
as soon as practicable after the Company enters into an agreement to acquire a
parcel of land. The Company's ability to bond projects to completion generally
allows it to sell a significant portion of its residential land inventory on a
pre-development basis, thereby reducing the amount of external capital needed to
complete improvements. As is the case with Bluegreen Resorts, all acquisitions
of properties by Bluegreen Communities are subject to Investment Committee
approval.
In fiscal 1997, the Company began construction of its first daily-fee golf
course as part of its long-term plan to participate in the growing daily-fee
golf market. The Company believes that daily-fee golf courses are an attractive
amenity that increases the marketability of the Company's adjacent home sites in
certain projects. The Company's first golf course, the Carolina National(TM)
Golf Club ("Carolina National"), is located near Southport, North Carolina, just
30 miles north of Myrtle Beach, South Carolina, one of the nation's most popular
golf destinations, and was designed by Masters Champion Fred Couples. The
Company opened the first 18 holes of Carolina National for play in July 1998. In
fiscal 2000, the Company opened an additional nine holes at Carolina National
along with a new clubhouse, featuring food and beverage operations and an
expanded pro shop. In fiscal 2000, the Company began construction at
Brickshire(TM), a new residential land and golf course community in New Kent
County, Virginia. Brickshire opened its 18-hole golf course, designed by
two-time U.S. Open Champion Curtis Strange, in March 2002. In the year ended
April 1, 2001, the Company began construction of an 18-hole golf course designed
by PGA Champion Davis Love III adjacent to its residential land project near
Chapel Hill, North Carolina, known as The Preserve at Jordan Lake(TM) ("the
Preserve"). The Preserve opened for play in August 2002. The Company currently
intends to expand its golf course community residential land offerings into
markets with attractive demographics for such properties. There can be no
assurances that the Company's strategy for this expansion will be successful.
The Company's business involves certain risks and uncertainties and this
Annual Report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1999. Please see Item 7
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" ("MD&A") for further discussion of these risks and uncertainties and
factors that could cause the Company's actual results to differ materially from
those suggested in the forward-looking statements. Securities and Exchange
Commission ("SEC") rules require certain disclosure from real estate investment
trusts and other companies whose business is primarily that of acquiring, and
holding for investment, real estate. Because the Company is not a real estate
investment trust and its business is not primarily acquiring and holding real
estate for investment, the Company believes that these disclosure rules do not
apply to it. Nonetheless, the SEC is now encouraging the Company to provide
certain information called for by this disclosure, and the Company has done so
throughout this report as applicable. Part of this disclosure relates to whether
the Company has policies with respect to the issuing of senior securities,
investing in the securities of other companies for the purpose of exercising
control, underwriting securities of other companies, or offering securities in
exchange for property. The Company does not have policies covering these matters
and believes that such policies, while common and important for real estate
investment trusts, are not customary for companies in its industry. Any
decisions related to these or similar matters would likely be addressed on a
case-by-case basis by the Company's Board of Directors. To the extent the Board
does act on any of these matters in the future, the Board would, as with all
matters, make decisions based on what it believes to be the best interests of
the Company's shareholders and would not submit these matters to shareholders
for approval unless required to do so by applicable law or exchange rules.
The Company's executive offices are located at 4960 Conference Way North,
Suite 100, Boca Raton, Florida 33431. The Company's telephone number at such
address is (561) 912-8000. The Company's web site address is
www.bluegreenonline.com.
See also MD&A and Note 19 of Notes to Consolidated Financial Statements
for additional financial information on the Company's business segments.
3
Industry Overviews
Bluegreen(R) Resorts
The Market. The resorts component of the leisure industry is serviced
primarily by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. The Company believes that Timeshare Interest
ownership presents an attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, Timeshare Interest ownership
has been one of the fastest growing segments of the hospitality industry over
the past two decades. The Company believes that, based on ARDA reports and other
industry data, the following factors have contributed to the increased
acceptance of the timeshare concept among the general public and the substantial
growth of the timeshare industry:
o Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to certain other
lodging alternatives;
o Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as RCI and II and
points-based vacation club systems;
o The quality of the timeshare resorts and their management;
o Consumer confidence resulting from consumer protection regulation of
the timeshare industry and an influx of brand name national lodging
companies to the timeshare industry; and
o Availability of consumer financing for purchasers of Timeshare
Interests.
The timeshare industry historically was highly fragmented and dominated by
a large number of local and regional resort developers and operators, each with
small resort portfolios generally of differing quality. The Company believes
that one of the most significant factors contributing to the current success of
the timeshare industry has been the entry into the market of some of the world's
major lodging, hospitality and entertainment companies, such as Marriott(R)
International, Inc. ("Marriott"); the Walt Disney(R) Company ("Disney");
Hilton(R) Hotels Corporation ("Hilton"); Hyatt(R) Corporation ("Hyatt"); Four
Seasons(R) Hotels and Resorts ("Four Seasons"); Starwood(R) Hotels and Resorts
Worldwide, Inc. ("Starwood"); Carlson(R) Hotels Worldwide ("Carlson"); and
Cendant(R) Corporation ("Cendant"). Although timeshare operations currently
comprise only a portion of these companies' overall operations, the Company
believes that their involvement in the timeshare industry has enhanced the
industry's image with the general public.
Since the September 11th terrorist attacks, the leisure and travel
industries, including the timeshare industry, have been adversely impacted by a
reduction in air travel by Americans. The Company believes that it has been
somewhat less affected by this adverse economic impact due to the 12 "drive-to"
resort destinations in its portfolio of 13 timeshare properties. The Company
believes that, in general, Americans still desire to take family vacations and
that the Club, which consists entirely of "drive-to" resorts, is positioned to
benefit from consumer demand for family vacations in the post-September 11th
environment. However, international hostilities, economic conditions and the
rising cost of gasoline may have an adverse effect on our operations.
The Consumer. According to information compiled by industry sources,
customers in the 40-49 year age range represented approximately 25% of all
Timeshare Interest owners in the United States in 2000. Historically, the median
age of a Timeshare Interest buyer at the time of purchase was 48. The median
annual household income of Timeshare Interest owners in the United States in
2000 was approximately $79,000, with approximately 29% of all Timeshare Interest
owners having annual household incomes greater than $100,000. The Company
believes that, despite the industry's growth, Timeshare Interest ownership has
achieved only an approximate 5% market penetration among United States
households with incomes above $50,000 per year.
Timeshare Interest Ownership. The purchase of a Timeshare Interest
typically entitles the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity. Typically, the buyer
acquires an ownership interest in the vacation residence, which is often held as
tenant-in-common with other buyers of interests in the property. Under a
points-based vacation club system, members purchase an annual allotment of
points
4
that can be redeemed for occupancy rights at participating resorts. Compared to
other vacation ownership arrangements, the points-based system offers members
greater flexibility in planning their vacations. The number of points that are
required for a stay at any one resort varies, depending on a variety of factors,
including the resort location, the size of a unit, the vacation season and the
days of the week used. Under this system, members can select vacations according
to their schedules, space needs and available points. Subject to certain
restrictions, members are typically allowed to carry over for one year any
unused points and to "borrow" points from the next year. In addition, members
are required to pay annual fees for certain maintenance and management costs
associated with the operation of the resorts based on the number of points to
which they are entitled. As of December 31, 2002, all of the Company's sales
offices, with the exception of its La Cabana Beach and Racquet Club(TM) ("La
Cabana") sales office in Aruba, were only selling Timeshare Interests within the
Club system.
The owners of Timeshare Interests manage the property through a nonprofit
homeowners' association, which is governed by a board of directors or trustees
consisting of representatives of the developer and owners of Timeshare Interests
at the resort. The board hires a management company to which it delegates many
of the rights and responsibilities of the homeowners' association, including
grounds landscaping, security, housekeeping and operating supplies, garbage
collection, utilities, insurance, laundry and repairs and maintenance. As of
December 31, 2002, the Company managed 20 resorts (including 11 of the Company's
resorts) and served an owner base of approximately 97,000.
Each Timeshare Interest owner is required to pay the homeowners'
association a share of all costs of maintaining the property. These charges can
consist of an annual maintenance fee plus applicable real estate taxes and
special assessments, assessed on an as-needed basis. If the Timeshare Interest
owner does not pay such charges, such owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Timeshare Interest.
Participation in Independent Timeshare Interest Exchange Networks. The
Company believes that its Timeshare Interests are made more attractive by the
Company's affiliation with Timeshare Interest exchange networks operated by RCI
and II, the two largest timeshare exchange companies worldwide. Eleven of the
Company's timeshare resorts are affiliated with RCI. Eight of the Company's
timeshare resorts have been awarded RCI's highest designation (Gold Crown) and
three have been awarded the second highest designation (Resort of International
Distinction). Mountain Run at Boyne(TM), once constructed, will be affiliated
with RCI. La Cabana is affiliated with II. A Timeshare Interest owner's
participation in the RCI or II exchange network allows such owner to exchange
their annual Timeshare Interest for occupancy at approximately 3,700
participating resorts in the case of RCI and approximately 1,900 participating
resorts in the case of II, based upon availability and the payment of a variable
exchange fee. RCI and II's participating resorts are located throughout the
world in over 100 countries. A member may exchange their Timeshare Interest for
an occupancy right in another participating resort by listing his Timeshare
Interest as available with the exchange organization and by requesting occupancy
at another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired and the
period during which occupancy is desired. The exchange network assigns ratings
to each listed Timeshare Interest, based upon a number of factors, including the
location and size of the unit, the quality of the resort and the period during
which the Timeshare Interest is available, and attempts to satisfy the exchange
request by providing an occupancy right in another Timeshare Interest with a
similar rating. If the exchange network is unable to meet the member's initial
request, it suggests alternative resorts based on availability. No assurances
can be given that the Company's resorts will continue to qualify for
participation in RCI or II, or that the Company's customers will continue to be
satisfied with these networks. The failure of the Company or any of its resorts
to participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on the Company.
Bluegreen(R) Communities
Bluegreen Communities operates within a specialized niche of the real
estate industry, which focuses on the sale of residential home sites to retail
customers who intend to build a home on such home sites at some point in the
future. The participants in this market are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region. Although no specific data is available
regarding this market niche, the Company believes that no other company in the
United States of comparable size or financial resources currently markets and
sells residential land directly to retail customers.
Unlike commercial homebuilders who focus on vertical development, such as
the construction of single and multi-family housing structures, Bluegreen
Communities focuses primarily on horizontal development activities, such as
grading, roads and utilities. As a result, the projects undertaken by the
Company are significantly less capital intensive than those undertaken by the
commercial homebuilders. See "MD&A" for a discussion of risks the Company has as
a result of holding real estate inventory. The Company believes that its market
is also the beneficiary of a
5
number of trends, including the large number of people entering into the 45 to
60 year age bracket and the economic and population growth in certain of its
primary markets.
Bluegreen(R) Communities is also focused on the development of golf
courses and related amenities as the centerpieces of certain of its residential
land properties. As of December 31, 2002, the Company was marketing home sites
in six projects that include golf courses developed either by the Company or a
third party. The Company currently intends to acquire and develop additional
golf communities, as management believes that the demographics and marketability
of such properties are consistent with the Company's overall residential land
strategy. Golf communities typically are larger, multi-phase properties, which
require a greater capital commitment than the Company's single-phase residential
land projects. There can be no assurances that the Company will be able to
successfully implement its golf community strategy.
Bluegreen Communities also has undertaken the development of large lakes
in certain of its projects as the centerpiece amenity. The Company believes that
while such development activities require a greater capital commitment than
certain other amenities that Bluegreen Communities may provide in its projects,
the Company benefits from the anticipated increased marketability and pricing of
lakefront home sites.
Company Products
Timeshare Interests
All of the Company's resorts, with the exception of La Cabana, are part of
the Club. Buyers of Timeshare Interests in the Club receive an annual allotment
of "points" in perpetuity (supported by an underlying deeded fixed timeshare
week held in trust for the buyer). "Points" may be exchanged by the buyer in
various increments for lodging for varying lengths of time in fully-furnished
vacation residences at the Company's participating resorts. In addition to 11 of
the Company's resorts (all except La Cabana, which is not part of the Club and
Mountain Run at Boyne(TM), for which construction of any units had not yet been
completed as of December 31, 2002), Club owners can use their points to stay at
21 additional resorts not owned by the Company, primarily located in Florida. By
selling points in the Club, the Company has the flexibility to deed Timeshare
Interests in its resorts at any of its sales locations, both on-site (i.e.,
located on a resort property) and off-site.
Buyers of Timeshare Interests in La Cabana receive an ownership interest
in La Cabana, which provides them the use of a vacation residence at La Cabana
for a one-week period each year in perpetuity. Ownership of a Timeshare Interest
in La Cabana is not interchangeable with ownership of a Timeshare Interest at
one of the Company's other resorts which are part of the Club, or vice versa.
Real estate taxes at the Company's timeshare resorts are the
responsibility of the applicable property owners' association for each resort.
Other than to the extent that the Company pays the resort property owners'
associations annual developer subsidies or maintenance fees for the Timeshare
Interests that the Company holds in inventory, the Company has no direct
obligation for real estate taxes on its resorts.
Set forth below is a description of each of the Company's timeshare
resorts. Units at most of the properties have certain standard amenities,
including a full kitchen, at least two televisions, a VCR player and a CD
player. Some units have additional amenities, such as big screen televisions,
fireplaces, Jacuzzi(R) tubs and video game systems. Most properties offer guests
a clubhouse (with an indoor and/or outdoor pool, a game room, exercise
facilities and a lounge) and a hotel-type staff. The Company manages all of its
resorts with the exception of La Cabana and Mountain Run at Boyne(TM). La Cabana
is managed by Optima Hotel Exploitatiemaatschappij N.V., an unaffiliated third
party that managed the resort prior to the Company's acquisition of La Cabana's
unsold Timeshare Inventory in 1997. The first vacation home at the Mountain Run
at Boyne resort is currently under construction.
Please see page 8 below for additional disclosure about the individual
resorts, including the number of Timeshare Interests completed, under
construction and sold at each of the Company's resorts.
MountainLoft(TM)--Gatlinburg, Tennessee. The MountainLoft Resort in
Gatlinburg, Tennessee is located near the Great Smoky Mountains National Park
and is minutes from the family attractions of Pigeon Forge, Tennessee. Units are
located in individual chalets or mid-rise villa buildings. Each unit is fully
furnished with a whirlpool bath and private balconies, and certain units include
gas fireplaces.
Laurel Crest(TM)--Pigeon Forge, Tennessee. Laurel Crest is located in
proximity to the Great Smoky Mountains National Park and the Dollywood theme
park. In addition, visitors to Pigeon Forge can enjoy over 200
6
factory outlet stores and music shows featuring renowned country music stars as
well as partake in a variety of outdoor activities, such as horseback riding,
trout fishing, boating, golfing and white water rafting.
Shore Crest(TM) Vacation Villas--North Myrtle Beach, South Carolina. Shore
Crest Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Harbour Lights(TM)--Myrtle Beach, South Carolina. Harbour Lights is
located in the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are
Theater Row, shopping, golf and restaurants. The resort's Activities Center
overlooks the Intracoastal Waterway.
The Falls Village(TM)--Branson, Missouri. The Falls Village is located in
the Ozark Mountains. Fishing, boating and swimming are available at nearby Table
Rock Lake and Lake Taneycomo, and area theaters feature shows by renowned
country music stars. Most resort customers come from areas within an eight to
ten hour drive of Branson.
Christmas Mountain Village(TM)--Wisconsin Dells, Wisconsin. Christmas
Mountain Village offers a 27-hole golf course and seven ski trails served by two
chair lifts. Other on-site amenities include horseback riding, tennis courts, a
five-acre lake with paddleboats and rowboats and four outdoor swimming pools.
Christmas Mountain Village attracts customers primarily from the greater Chicago
area and other locations within an eight to ten hour drive of Wisconsin Dells.
Orlando's Sunshine(TM)--Orlando, Florida. Orlando's Sunshine Resort is
located on International Drive, near Wet'n'Wild(R) water park and Universal
Studios Florida(R). This property features an outdoor swimming pool, hot tub and
tennis courts.
La Cabana Beach Resort & Racquet Club(TM)--Aruba. Bluegreen Properties
N.V. ("BPNV") acquired the unsold Timeshare Interest inventory of La Cabana
(approximately 8,000 Timeshare Interests) in December 1997 and additional
Timeshare Interests from time to time thereafter. Established in 1989, La Cabana
is a 449-suite ocean front property, which offers one-, two- and three-bedroom
suites, garden suites and penthouse accommodations. On-site amenities include
tennis, racquetball, squash, a casino, two pools and private beach cabanas, none
of which are owned or managed by the Company.
Shenandoah Crossing(TM)--Gordonsville, Virginia. Shenandoah Crossing
features an 18-hole golf course, indoor and outdoor pools, tennis courts,
horseback riding trails and a lake for swimming, fishing and boating.
The Lodge Alley Inn(TM)--Charleston, South Carolina. Located in
Charleston's historic district, the Lodge Alley Inn includes one- and
two-bedroom suites, many furnished with an equipped kitchen, living room with
fireplace, dining room, Jacuzzi(R), pine wood floors, and 18th century-style
furniture reproductions. The resort, which features the on-site High Cotton
restaurant, is within walking distance of many of Charleston's historical sites,
open-air markets and art galleries.
The Big Cedar Wilderness Club(TM)--Ridgedale, Missouri. In the year ended
April 1, 2001, Bluegreen/Big Cedar Vacations(TM) LLC, a joint venture between a
wholly-owned subsidiary of the Company and Big Cedar(R), L.L.C., with 51% and
49% ownership, respectively, began developing the Big Cedar Wilderness Club, a
300-unit, wilderness-themed resort adjacent to the world famous Big Cedar Lodge
luxury hotel resort. (The Big Cedar Lodge is owned and operated by Big Cedar,
L.L.C., an affiliate of Bass Pro Shops(R), a privately-held retailer of fishing,
marine, hunting, camping and sports gear.) The Big Cedar Wilderness Club is
located on Table Rock Lake, and is near Dogwood Canyon. Guests staying in the
two bedroom cabins or one and two bedroom lodge villas will enjoy fireplaces,
private balconies, full kitchens and Internet access. Amenities include or are
expected to include indoor and outdoor swimming pools and hot tubs, lazy river,
hiking trails, campfire area, beach and playground. Guests also have access to
certain of the luxury amenities at the Big Cedar Lodge, including the Jack
Nicklaus Signature Top of the Rock Par Three Golf Course, a marina, horseback
riding, tennis and spa.
Solara Surfside(TM)--Surfside, Florida. In June 2001, the Company acquired
the unsold Timeshare Interest inventory (approximately 6,001 Timeshare
Interests, as further described in the table below) at an existing vacation
ownership property located in Surfside, Florida, near Miami Beach. Solara
Surfside is located directly on the beach and features one and two bedroom
vacation homes. Sales of Timeshare Interests in this resort commenced in May
2002. The Company completed renovations of the resort's units, common areas and
amenities in November 2002.
Mountain Run at Boyne(TM)--Boyne Mountain, Michigan. In October 2002, the
Company acquired approximately 11 acres of land to build and develop 64 vacation
homes at Boyne Mountain in northern Michigan. In connection with this
acquisition, the Company also acquired an option to purchase land contiguous to
the 11 acres on which it could, at its discretion, build approximately an
additional 100 timeshare units. Boyne Mountain is known for
7
skiing, snowboarding and tubing on 62 runs with convenient lift and trail
systems. In the summer, Boyne Mountain offers 162 holes on world-class golf
courses designed by some of the game's masters, including Robert Trent Jones,
Arthur Hills, Donald Ross and, soon, Pete Dye. Sales commenced at Mountain Run
at Boyne(TM) in November 2002. The Company expects to complete construction of
the first 16 vacation homes at Mountain Run at Boyne during the year ending
December 31, 2003, although there can be no assurances that construction will be
completed as anticipated.
The following table sets forth additional data with respect to each of the
Company's resorts:
Laurel Shore Harbour The Christmas La Cabana
Mountain- Crest(TM) Crest(TM) Lights(TM) Falls Mountain Beach &
Loft(TM) Pigeon Myrtle Myrtle Village(TM) Village(TM) Racquet
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin, Club(TM),
Location TN TN SC SC MO Dells, WI Aruba
------------------------------------------------------------------------------------------------------------------------------------
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 1/98
Number of Timeshare
Interests completed
as of December 31,
2002 (1) 14,248 12,064 12,480 4,992 3,979 3,208 8,511
Number of Timeshare
Interests under
Construction as of
December 31, 2002
(1) (2) -- 3,640 -- -- 312 1,040 --
Number of
additional
Timeshare Interests
Planned (1) (2) 4,680 5,200 -- 8,736 8,944 11,324 --
Number of Timeshare
Interests in
inventory at
December 31, 2002 (3) 790 921 1,894 513 362 675 3,548
Average sales price
Per transaction
(4) (5) $10,830 $12,287 $12,317 $10,604 $13,750 $10,557 $ 9,425
Number of Timeshare
Sales transactions
(5)
Through December
31, 2002 13,965 10,898 15,887 6,987 5,032 5,129 6,521
Shenandoah The Big Cedar Mountain Run
Crossing Orlando's Lodge Wilderness Solara At Boyne
Farm & Club(TM) Sunshine(TM) Alley Inn(TM) Club(TM) (6) Surfside(TM) Boyne
Gordonsville, Orlando, Charleston, Ridgedale, Surfside, Mountain,
VA FL SC MO FL MI
Date sales commenced 4/98 12/98 2/99 11/00 5/02 (7)
Number of Timeshare
Interests completed
as of December 31,
2002 (1) 2,123 3,120 4,680 728 6,001 --
Number of Timeshare
Interests under
Construction as
of December 31, 2002
(1) (2) -- -- -- 5,824 -- --
Number of
additional
Timeshare Interests
Planned (1) (2) 10,400 -- -- 20,384 -- 3,328
Number of Timeshare
Interests in
inventory at
December 31, 2002 (3) 364 507 434 5,448 1,373 --
Average sales price
Per transaction
(4) (5) $10,744 $13,083 $12,347 $12,567 $11,634 --
Number of Timeshare
Sales transactions
(5)
Through December
31, 2002 2,621 5,388 5,467 1,983 3,017 --
(1) The number of Timeshare Interests completed, under construction or planned
are intended to be sold in 52 weekly intervals per vacation home for the
Company's Shore Crest, Harbour Lights, Orlando's Sunshine, La Cabana and
Lodge Alley Inn resorts. The amounts for the remaining resorts include
some vacation homes that can be subdivided and sold either as two smaller
vacation homes ("lock-out units") or, as in the case of the Solara
Surfside resort, as two Timeshare Interests per week (Monday through
Thursday and Friday through Sunday), each of which consists of 104
Timeshare Interests per vacation home.
8
(2) There can be no assurances that the Company will have the resources, or
will decide, to complete all such planned Timeshare Interests or that such
Timeshare Interests will be sold at favorable prices.
(3) The number of Timeshare Interests in inventory at December 31, 2002,
reflects the number of Timeshare Interests completed or under construction
that are currently available for sale. In addition to full Timeshare
Interests, as defined elsewhere herein, the Company also sells biennial
Timeshare Interests, which entitle the buyer of points in the Club with
the use of those points every other year. Biennial Timeshare Interests
held in the Company's inventory are counted as 1/2 of a Timeshare Interest
for the purposes of this disclosure.
(4) The average sales price per transaction is for sales during the nine
months ended December 31, 2002.
(5) The Company reacquires previously-sold Timeshare Interests in its resorts
in various transactions including foreclosures, deedback in lieu of
foreclosure and equity trade-ins of one Timeshare Interest towards the
purchase of a higher priced Timeshare Interest, subject to the Company's
policies and applicable laws and regulations. The Company sells reacquired
Timeshare Interests through its sales outlets at then-current retail
prices. For the purposes of this disclosure, each sale, including the sale
of a reacquired or a biennial Timeshare Interest, is counted as one
timeshare sales transaction. The sales price on a transaction with an
equity trade-in, however is not presented net of the equity trade-in
allowance granted the customer.
(6) Bluegreen/Big Cedar(TM) LLC, in which the Company owns a 51% interest, is
developing The Big Cedar Wilderness Club(TM).
(7) Sales of Timeshare Interests in the Mountain Run at Boyne(TM) resort had
not commenced as of March 24, 2003. Sales of Timeshare Interests in the
Company's other Club resorts began at the Mountain Run at Boyne location
in November 2002.
The Company believes that each of its resorts is adequately covered by
property and casualty insurance, in the case of the Company's completed resorts,
and builder's risk insurance, in the case of resorts that are under
construction. In addition, the Company, or general contractors hired by the
Company, as applicable, purchase performance bonds if required by the local
jurisdictions in which the Company develops its resorts.
Certain Bluegreen(R) Communities Projects
Set forth below is a description of the seven largest projects currently
marketed by Bluegreen Communities, which are representative of the types of
projects that the Company has been focusing on since 1993. These properties
represented approximately 82% of Bluegreen Communities' estimated remaining
life-of-project sales at December 31, 2002.
Mystic Shores(TM)--Canyon Lake, Texas. The Company acquired 6,966 acres
located 25 miles north of San Antonio, Texas in October 1999 for $14.9 million.
On May 5, 2000, the Company purchased an additional 435 acres for $2.7 million.
The project includes approximately 2,400 home sites, ranging in size from one to
twenty acres. Mystic Shores is situated on Canyon Lake and is in close proximity
to the Guadeloupe River, which is well known for fishing, rafting and water
sports. The property will also feature a junior Olympic swimming pool,
bathhouse, open-air pavilion, picnic area and boat ramps. General improvements
on home sites at Mystic Shores performed by the Company include, in most cases,
water and lot clearing, while some sections of the project also include
underground electric and telephone utilities. Aggregate development costs
through December 31, 2002, were $21.5 million, with projected remaining
expenditures to complete development at the project of $20.2 million. The
Company began selling home sites in March 2000, with aggregate sales of
approximately $45.9 million through December 31, 2002. Estimated remaining
life-of-project sales were approximately $84.9 million as of December 31, 2002,
based on retail selling prices as of that date. As of December 31, 2002, the
Company had sold 655 home sites at this project and had a total of 1,718 home
sites remaining available for sale.
Lake Ridge(TM) at Joe Pool Lake -- Cedar Hill, Texas. The Company acquired
1,400 acres located approximately 19 miles outside of Dallas, Texas and 30 miles
outside of Fort Worth, Texas in April 1994 for $6.1 million. In fiscal 2000, the
Company acquired an additional 1,766 acres for $14.9 million. The property is
located at Joe Pool Lake and is atop the highest elevation within 100 miles. The
lake has in excess of 7,500 acres of water for boating, fishing, windsurfing and
other water activities. Adjacent amenities (not owned or managed by the Company)
include a 154-acre park with baseball, football and soccer fields, a fishing
pool with a pier, camping areas and an 18-hole golf course. The existing acreage
will yield approximately 2,530 home sites, with most home sites ranging in size
from 1/4 to five acres. General improvements on the home sites at Lake Ridge
performed by the Company include, in most cases, water, sewer, electric,
telephone and cable television utilities as well as lot clearing. The Company
began selling home sites in April 1994 and aggregate sales through December 31,
2002 were $105.2 million. Aggregate development costs through December 31, 2002
were $34.9 million, and the Company anticipates that the remaining capital
expenditures to complete development at the project will be $16.4 million.
Estimated remaining life-of-project sales for this project were approximately
$72.1 million as of December 31, 2002, based on retail selling prices as of that
date. As of December 31, 2002, the Company had sold 1,583 home sites at this
project and had a total of 947 home sites remaining available for sale.
Brickshire(TM) -- New Kent, Virginia. The Company acquired 1,135 acres
located 20 miles from Williamsburg and Richmond, Virginia, in September 1999 for
$4.4 million. The property will consist of approximately 1,065 home sites,
ranging in size from 1/4 to 2.5 acres, and features an 18-hole golf course
designed by U.S. Open champion Curtis Strange. The property will also offer
residents a community club and pool, tennis courts and scenic walking trails.
General improvements on the home sites at Brickshire performed by the Company
9
include, in most cases, water and sewer utilities. Aggregate development costs
through December 31, 2002 were $19.6 million, with projected remaining
expenditures of $12.7 million. The Company began selling home sites in December
1999, with aggregate sales of $27.1 million through December 31, 2002. Estimated
remaining life-of-project sales were approximately $42.2 million as of December
31, 2002, based on retail selling prices as of that date. As of December 31,
2002, the Company had sold 432 home sites at this project and had a total of 633
home sites remaining available for sale.
Silver Lakes Ranch(TM)--Bowie, Texas. The Company acquired 2,463 acres
located approximately 35 miles northwest of Fort Worth, Texas, in October 2002
for $3.7 million. The property will feature a swimming pool, picnic area, park,
lakes, ponds and a recreational vehicle park for use by the purchasers of home
sites in the community. The existing acreage will yield approximately 661 home
sites, with most home sites ranging in size from 1 to 10 acres. General
improvements on the home sites at Silver Lakes Ranch that may be performed by
the Company include, in most cases, water, electric and telephone as well as lot
clearing. The Company began selling home sites at Silver Lakes Ranch during
March 2003. Aggregate development costs through December 31, 2002 were $255,000
and the Company anticipates that the remaining capital expenditures to complete
development at the project will be $6.1 million. Estimated remaining
life-of-project sales for this project were approximately $21.8 million as of
December 31, 2002, based on retail selling prices as of that date.
Catawba Falls Preserve(TM)--Black Mountain, North Carolina. The Company
acquired approximately 785 acres located in Black Mountain, North Carolina
(approximately 18 miles from Asheville, North Carolina) for $2.6 million in June
2002. The project will include horse and hiking trails, a swimming hole, picnic
area, playground area and trail access to Pisgah National Forest and Catawba
Falls. The Company anticipates that the project will consist of a total of
approximately 238 home sites, which range in size from approximately 1 acre to
16 acres. The Company began selling home sites at Catawba Falls Preserve in
January 2003. Aggregate development costs through December 31, 2002 were $1.3
million and the Company anticipates that the aggregate capital expenditures to
complete development at the project will be $4.2 million. Estimated remaining
life-of-project sales for this project were approximately $18.6 million as of
December 31, 2002, based on retail selling prices as of that date.
Ridge Lake Shores(TM) -- Magnolia, Texas. In February 2001, the Company
acquired 1,152 acres located approximately 25 minutes drive from Houston, Texas
for $3.2 million. This property is anticipated to include approximately 700 home
sites, ranging in size from one to four acres, and will feature two private
fishing lakes, boat ramps, open-air pavilions, bathhouses, playgrounds and a
beach area. General improvements to the home sites in Ridge Lake Shores
performed by the Company include, in most cases, water and lot clearing, while
some sections of the project have electric, cable, telephone and/or gas
utilities. The Company began selling home sites in May 2001, with aggregate
sales of $9.9 million through December 31, 2002. Aggregate development costs
through December 31, 2002 were $5.2 million and the Company anticipates that
future capital expenditures to complete development at the project will be $5.7
million. Estimated remaining life-of-project sales for Ridge Lake Shores were
$17.3 million as of December 31, 2002, based on retail prices at that date. As
of December 31, 2002, the Company had sold 300 home sites at this project and
had a total of 402 home sites remaining available for sale.
Mountain Lakes Ranch(TM) -- Bluffdale, Texas. The Company acquired 4,100
acres located approximately 45 miles from Fort Worth, Texas in October 1998 for
$3.1 million. The property features rolling terrain with hilltop views, tree
coverage and ample area to create private lakes. The Company anticipates that
the property will yield approximately 1,290 home sites ranging in size from one
to five acres, including both lakefront and waterview parcels. General
improvements on the home sites at Mountain Lakes Ranch performed by the Company
include, in most cases, water, electric and telephone utilities. The Company
began selling home sites in March 2000, with aggregate sales of $24.7 million
through December 31, 2002. Aggregate development costs through December 31, 2002
were $20.3 million and the Company anticipates that future capital expenditures
to complete development at the project will be $2.2 million. Estimated remaining
life-of-project sales for Mountain Lakes Ranch were $16.4 million as of December
31, 2002, based on retail prices at that date. As of December 31, 2002, the
Company had sold 766 home sites at this project and had a total of 523 home
sites remaining available for sale.
The Company believes that each of its Bluegreen(R) Communities projects
are adequately covered by builder's risk insurance during the construction
period and property and casualty insurance for home sites that are held in the
Company's inventory prior to sale to consumers. Once a home site is sold, the
consumer assumes the risk of loss on such home site. In addition, the applicable
property owners' association bears the risk of loss on any common amenities at
each project.
The Company also purchases performance bonds on most of its projects, to
provide assurance to home site buyers that construction of the project will be
completed. The Company believes that its ability to obtain such performance
bonds assists the Company in its pre-construction sales efforts.
10
Acquisition of Bluegreen(R) Resorts and Bluegreen Communities Inventory
In order to provide centralized and uniform controls on the type, location
and amount of timeshare and residential land and golf inventory that the Company
acquires, all such inventory acquisitions have required the approval of the
Investment Committee since 1990. The Investment Committee currently consists of
George F. Donovan, President and Chief Executive Officer; John F. Chiste, Senior
Vice President, Treasurer and Chief Financial Officer; Daniel C. Koscher, Senior
Vice President--President, Bluegreen Communities; John M. Maloney, Jr., Senior
Vice President--President, Bluegreen Resorts; and Randi S. Tompkins, Vice
President, Director of Corporate Legal Affairs and Clerk. The Investment
Committee reviews each proposed inventory acquisition to determine whether the
property meets certain criteria, including estimated cash flows and anticipated
gross profit margins. In addition to being subject to Investment Committee
review, all significant potential inventory acquisitions are subject to approval
by the Company's Board of Directors.
Please see "Liquidity and Capital Resources", below, for discussion of the
Company's methods and available resources for financing acquisition and
development efforts for its timeshare and land projects.
Bluegreen Resorts
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, lodging companies and financial institutions with which the Company
has established business relationships. Prior to acquiring property for future
resorts, Bluegreen Resorts undertakes a full property review, including an
environmental assessment, which is presented to the Investment Committee for
approval. During the review process, acquisition specialists analyze market,
tourism and demographic data as well as the quality and diversity of the
location's existing amenities and attractions to determine the potential
strength of the timeshare market in such area and the availability of a variety
of recreational opportunities for prospective Timeshare Interest purchasers.
Specifically, the Company evaluates the following factors, among others, to
determine the viability of a potential new timeshare resort: (i) anticipated
supply/demand ratio for Timeshare Interests in the relevant market, (ii) the
market's potential growth as a vacation destination, (iii) competitive
accommodation alternatives in the market, (iv) the uniqueness of location and
demand for the location by existing Club owners and (v) barriers to entry that
would limit competition.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that the Company believes will complement such existing operations.
Acquisitions the Company may consider include acquiring additional Timeshare
Interest inventory, operating companies, management contracts, Timeshare
Interest mortgage portfolios and properties or other timeshare-related assets
that may be integrated into the Company's operations. The geographic areas in
which the Company currently intends to pursue the acquisition of real estate or
interests in real estate for Bluegreen Resorts are the areas in which Bluegreen
Resorts currently operates, as noted above with a current emphasis on beachfront
resorts, the northeastern and western United States, although the Company may
pursue acquisitions in other areas. No assurances can be given that the Company
will be successful in its acquisition strategy.
Bluegreen Communities
Bluegreen Communities, through the Company's regional offices, and subject
to Investment Committee review and approval, typically acquires inventory that
(i) is located near a major population center but outside the perimeter of
intense subdivision development or in popular retirement areas, (ii) is suitable
for subdivision, (iii) has attractive topographical features, (iv) for certain
projects, could accommodate a golf course and related amenities and (v) the
Company believes will result in an acceptable profit margin and cash flow to the
Company based upon anticipated retail value. Properties are generally subdivided
for resale into home sites typically ranging in size from 1/4 acre to twenty
acres. During the nine months ended December 31, 2002, the Company acquired
3,740 acres in three transactions for a total purchase price of approximately
$6.7 million or $1,800 per acre. During the year ended March 31, 2002, the
Company acquired 1,280 acres in one transaction for a total purchase price of
approximately $1.2 million or $938 per acre. During the year ended April 1,
2001, the Company acquired 4,879 acres in five separate transactions for a total
purchase price of $15.2 million, or $3,114 per acre.
In connection with its review of potential Bluegreen Communities
inventory, the Investment Committee considers such established criteria as the
economic conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. As part of its long-term
strategy for Bluegreen Communities, the Company in recent years has focused on
fewer, more capital-intensive projects. The Company intends to continue to focus
Bluegreen Communities on those regions where the Company believes the
11
market for its products is strongest, such as the Southeast and Southwest
regions of the United States and to replenish its residential land inventory in
such regions as existing projects are sold-out.
Bluegreen(R) Communities has established contacts with numerous land
owners and real estate brokers in many of its market areas, and because of such
contacts and its long history of acquiring properties, the Company believes that
it is generally in a favorable position to learn of available properties,
sometimes before the availability of such properties is publicly known. In order
to ensure such access, the Company attempts to develop and maintain strong
relationships with major property owners and brokers. Regional offices regularly
contact property owners, such as timber companies, financial institutions and
real estate brokers, by a combination of telephone, mail and personal visits. To
date, the Company's regional offices generally have been able to locate and
acquire adequate quantities of inventory that meet the criteria established by
the Investment Committee to support their operational activities. In certain
cases, however, the Company has experienced short-term shortages of
ready-for-sale inventory due to either difficulties in acquiring property or
delays in the approval and/or development process. Shortfalls in ready-for-sale
inventory may materially adversely affect the Company's business, operating
results and financial position. See "MD&A".
Prior to acquiring property in new areas, the Company will generally
conduct test marketing for a prospective project before entering into an
acquisition agreement to determine whether sufficient customer demand exists for
the project. Once a desirable property is identified, the Company completes its
initial due diligence procedures and enters into a purchase agreement with the
seller to acquire the property. It is generally the Company's policy to advance
only a small downpayment of 1%-3% of the purchase price upon signing the
purchase agreement and to limit the liquidated damages associated with such
purchase agreement to the amount of its downpayment and any preliminary
development costs. In most cases, the Company is not required to advance the
full purchase price or enter into a note payable obligation until regulatory
approvals for the subdivision and sale of at least the initial phase of the
project have been obtained. While local approvals are being sought, the Company
typically engages in pre-marketing techniques and, with the consent of the
seller and the knowledge of prospective purchasers, occasionally attempts to
pre-sell parcels, subject to closing its purchase of the property. When the
necessary regulatory approvals have been received, the closing on the property
occurs and the Company obtains title to the property. The time between execution
of a purchase agreement and closing on a property has generally been six to 12
months. Although the Company generally retains the right to cancel purchase
agreements without any loss beyond forfeiture of the downpayment and preliminary
development costs, few purchase agreements have been canceled historically.
By requiring, in most cases, that regulatory approvals be obtained prior
to closing and by limiting the amount of downpayments upon signing purchase
agreements, the Company is typically able to place a number of properties under
contract without expending significant amounts of cash. This strategy helps
Bluegreen Communities to reduce (i) the time during which it actually owns
specific properties, (ii) the market risk associated with holding such
properties and (iii) the risk of acquiring properties that may not be suitable
for sale. In certain circumstances, however, the Company has acquired properties
and strategically held such projects until their prime marketing seasons. Please
see MD&A and the discussion of risks related to holding real estate inventory.
Prior to closing on a purchase of property for Bluegreen Communities, the
Company's policy is to complete its own environmental assessment of the
property. The purpose of the Company's assessment is to evaluate the impact the
proposed subdivision will have on such items as flora and fauna, wetlands,
endangered species, open space, scenic vistas, recreation, transportation and
community growth and character. If the Company's environmental assessment
indicates that the proposed subdivision meets environmental criteria and
complies with zoning, building, health and other laws, the Company will develop
a formal land use plan, which will form a basis for determining an appropriate
acquisition price. The Company attempts, where possible, to accommodate the
existing topographical features of the land, such as streams, hills, wooded
areas, stone walls, farm buildings and roads. Prior to closing on an
acquisition, the Company will typically have the property surveyed by a
professional surveyor and have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company obtains
title insurance on the property.
Marketing and Sale of Inventory
Bluegreen Resorts
Bluegreen Resorts uses a variety of methods to attract prospective
purchasers of Timeshare Interests, including selling discount mini-vacations
through telemarketing methods or at Bass Pro Shop(R) locations (see further
discussion of the Company's relationship with Bass Pro Shops, below), placing
marketing kiosks in retail locations, acquiring the right to market to
prospective purchasers from third-party vendors, marketing to current owners of
Timeshare Interests and encouraging referrals. Bluegreen Resorts provides hotel
accommodations to prospective purchasers at reduced rates in exchange for their
touring one of the Company's timeshare resorts. To support its marketing and
sales efforts, the Company has developed and works to continue to enhance its
customer
12
relationship management methods, techniques and computer software tools to track
its timeshare marketing and sales programs. Management believes that, as
Bluegreen(R) Resorts' operations grow, this database will become an increasingly
significant asset, enabling the Company to focus its marketing and sales efforts
to take advantage of, among other things, less costly marketing and referral
opportunities.
In recent years, the Company has been focusing on increasing Bluegreen
Resorts use of "permission" marketing and branding programs. "Permission"
marketing methods involve obtaining the prospective purchasers' permission,
directly or indirectly, to contact them in the future regarding an offer to
purchase a product or service. Branding involves forming alliances with
third-party entities that possess what the Company believes to be a nationally
or regionally known brand name, a good reputation and a customer base with a
similar demographic qualities to the Company's target market.
In June 2000, the Company entered into an exclusive marketing agreement
with Big Cedar(R) Lodge and Bass Pro(R), Inc. ("Bass Pro") of Springfield,
Missouri. Under the terms of the 10-year agreement, which expires in June 2010,
the Company will market the Club product to Bass Pro's estimated 30 million
annual retail customers and 34 million catalog subscribers. The Company now
markets discounted three-day, two-night mini-vacation packages at most of Bass
Pro's national retail locations. Each mini-vacation package requires the buyer
to participate in a sales presentation at either a Club sales office or the Big
Cedar Wilderness Club(TM) sales office, which is a "permission" marketing
technique. The Company also has an exclusive timeshare marketing presence on
Bass Pro's web site, which is linked to the Company's web site. The Company
believes that this arrangement will result in more effective and cost-efficient
marketing for Bluegreen Resorts, although there can be no assurances that such
effectiveness and efficiency will be achieved. Pursuant to the marketing
agreement with Bass Pro, the Company has the right to market its Timeshare
Interests at each of Bass Pro's national retail locations (currently 15 stores,
of which the Company actively markets in 11), in Bass Pro's catalogs and on its
web site. The Company also has access to Bass Pro's customer mailing lists. The
Company believes that the branding aspects of this alliance are consistent with
its overall marketing strategy for Bluegreen Resorts. In exchange for these
services, the Company agreed to pay Bass Pro a commission of either 7.0% or
3.5%, depending on certain circumstances, on each sale of a Timeshare Interest,
net of cancellations and defaults, that is made as a result of one of the Bass
Pro marketing channels described above (the "Commission"). The amount of the
Commission is dependent on the level of additional marketing efforts required by
the Company to convert the prospect into a sale and a defined time frame for
such marketing efforts. There is no Commission paid to Bass Pro on sales made by
the Big Cedar Wilderness Club sales office, as this sales office is part of a
joint venture between an affiliate of Bass Pro, Big Cedar L.L.C., and the
Company (the "Joint Venture").
On June 16, 2000, the Company prepaid $9 million to Bass Pro (the
"Prepayment") in connection with the aforementioned marketing agreement. The
Prepayment is amortized from future Commissions earned by Bass Pro and future
member distributions otherwise payable to Big Cedar, L.L.C. from the earnings of
the Joint Venture as a member thereof. No additional Commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, L.L.C.,
respectively, until the Prepayment has been fully utilized. As of December 31,
2002, the unamortized balance of the Prepayment was approximately $8.5 million.
The marketing agreement expires on the earlier of: (i) June 16, 2010 or
(ii) such time as ninety percent (90%) of the Joint Venture's proposed Timeshare
Interests have been sold and conveyed.
On October 2, 2002, Leisure Plan(TM), Inc., a wholly-owned subsidiary (the
"Subsidiary") of the Company, acquired substantially all of the assets and
assumed certain liabilities (the "Acquisition") of TakeMeOnVacation(TM), LLC;
RVM Promotions, LLC; and RVM Vacations, LLC (collectively, "TMOV"). TMOV
generates "permission" marketing sales leads for Timeshare Interest sales
utilizing various marketing strategies. Through the application of a
proprietary, computer software system, these leads are then contacted and given
the opportunity to purchase mini-vacation packages. These packages sometimes
combine hotel stays, cruises and gift premiums. Buyers of these mini-vacation
packages are then usually required to participate in a timeshare sales
presentation. The Subsidiary intends to use the assets acquired to generate
sales prospects for the Company's timeshare sales business and for sales
prospects that will be sold to other timeshare developers. The Company believes
that TMOV's "permission" marketing lead generation programs and the perceived
benefits of tracking and controlling the subsequent marketing efforts are
consistent with Bluegreen Resorts overall marketing strategy.
Also in October 2002, in connection with the acquisition of land and
completed Timeshare Interests from Boyne USA Resorts ("BUR"), the Company
obtained the right to market the Club at two of BUR's resort properties: Boyne
Mountain and Boyne Highlands. In addition, Bluegreen Resorts entered into an
exclusive marketing agreement with an affiliate of BUR, Boyne Country Sports
("BCS"). BCS owns and operates eight ski, snowboard
13
and golf equipment retail stores throughout Michigan. Bluegreen(R) Resorts
intends to market the Club through a variety of programs directed to BCS's
customer base. The Company believes that these agreements will allow Bluegreen
Resorts to benefit from marketing to customers which it believes are within its
target demographic through an affiliation with a known regional brand.
Timeshare resorts are staffed with sales representatives, sales managers
and an on-site manager who oversees the day-to-day operations, all of whom are
employees of the Company. Sales personnel are generally experienced in resort
sales and undergo ongoing Company-sponsored training. During the nine months
ended December 31, 2002, total marketing expense for Bluegreen Resorts was $41.6
million or 28.9% of the division's $144.0 million in sales. During the year
ended March 31, 2002, total marketing expense for Bluegreen Resorts was $42.6
million or 29.6% of the division's $144.2 million in sales. During the year
ended April 1, 2001, total marketing expense for Bluegreen Resorts was $46.0
million or approximately 32.7% of the division's $141.0 million in sales. See
"MD&A" for a discussion of the Company's sales, general and administrative
expenses.
The Company requires its sales staff to provide each timeshare customer
with a written disclosure statement regarding the Timeshare Interest to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding timeshare ownership at the
resort and must be signed by every purchaser. The Company believes that this
information statement contains all material and relevant information a customer
requires to make an informed decision as to whether or not to purchase a
Timeshare Interest at one of its resorts.
After deciding to purchase a Timeshare Interest, a purchaser enters into a
purchase agreement and is required to pay the Company a deposit of at least 10%
of the purchase price. Purchasers are entitled to cancel purchase agreements
within specified rescission periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit one of the Company's
resorts or one of the Company's off-site sales offices prior to purchasing.
In addition to sales offices located at its resorts, the Company also
operates four off-site sales offices serving the Indianapolis, Indiana; Detroit,
Michigan; Minneapolis, Minnesota; and Daytona Beach, Florida markets. The
Company closed its off-site sales offices serving the Cleveland, Ohio and
Louisville, Kentucky markets during the years ended March 31, 2002 and April 1,
2001, respectively, due to low operating margins being generated by the sites.
These off-site sales offices market and sell Timeshare Interests in the Club,
and allow the Company to bring its products to markets with favorable
demographics and low competition for prospective buyers. The Daytona Beach sales
office opened in June 2002. The Minneapolis office, which is located near the
Mall of America, opened for sales in November 2002. During the nine months ended
December 31, 2002, the Indianapolis, Detroit, Daytona and Minneapolis sales
offices generated an aggregate $12.7 million and $1.6 million in sales and field
operating profit, respectively. During the year ended March 31, 2002, the
Indianapolis and Detroit sales offices generated an aggregate $16.7 million and
$2.9 million in sales and field operating profit, respectively. The Company
continues to evaluate its ongoing utilization of off-site sales operations and
may elect to open new locations and/or close existing locations in the future.
The Company believes that the attractiveness of Timeshare Interest
ownership has been enhanced significantly by the Club program and the
availability of exchange networks that allow Timeshare Interest owners to
exchange the occupancy right in their Timeshare Interests in a particular year,
for an occupancy right at another participating network resort at either the
same or a different time. La Cabana is affiliated with the timeshare exchange
network operated by II, while the Company's twelve other resorts are affiliated
with RCI's timeshare exchange network. If the Company's resorts cease to qualify
for the exchange networks or such networks cease to operate effectively, the
Company's sales of Timeshare Interests and the performance of its timeshare
receivables could be materially adversely affected.
For further information on sales and other financial information
(including segment information) attributable to Bluegreen Resorts, see "MD&A"
and the Company's consolidated financial statements and the related Notes.
Bluegreen Communities
In general, as soon as practicable after agreeing to acquire a property
and during the time period that appropriate improvements are being completed,
the Company establishes selling prices for the individual home sites taking into
account such matters as regional economic conditions, quality as a building
site, scenic views, road frontage, golf course views (if applicable) and natural
features such as lakes, mountains, streams, ponds and wooded areas. The Company
also considers recent sales of comparable parcels in the area. Initial decisions
on pricing of home sites in a given area are made by the Company's regional
managers and, in all cases, are subject to approval by the Investment Committee.
Once such selling prices are established the Company commences its marketing
efforts.
14
The marketing method most widely used by Bluegreen(R) Communities is
advertising in local newspapers and in major newspapers in metropolitan areas
located within a one to three hour drive from the property. In addition, the
Company uses its customer relationship management system, which enables the
Company to identify prospects who the Company believes are most likely to be
interested in a particular project. Bluegreen Communities also conducts direct
mail campaigns to market property through the use of brochures describing
available home sites, as well as television and radio advertising. Through this
sales and marketing program, the Company believes that it has been able to
achieve a high conversion ratio of sales to prospects receiving on-site sales
presentations. The Company estimates that the conversion ratio of sales to
prospects receiving on-site sales presentations has historically been
approximately 20%. A sales representative who is knowledgeable about the
property answers inquiries generated by the Company's marketing efforts,
discusses the property with the prospective purchaser, attempts to ascertain the
purchaser's needs and determines whether the parcel would be suitable for that
person, and arranges an appointment for the purchaser to visit the property.
Substantially all prospective purchasers inspect a property before purchasing.
During the nine months ended December 31, 2002, Bluegreen Communities incurred
$6.3 million in advertising expense, or 8.0% of such division's $78.6 million in
sales. During the year ended March 31, 2002, Bluegreen Communities incurred $8.0
million in advertising expense, or 8.3% of such division's $96.4 million in
sales. During the year ended April 1, 2001, Bluegreen Communities incurred $8.6
million in advertising expense, or approximately 9.6% of such division's $88.9
million in sales.
The success of the Company's marketing efforts depends heavily on the
knowledge and experience of its sales personnel. The Company requires that,
prior to initiating the marketing effort for a property, all sales
representatives walk the property and become knowledgeable about each parcel and
applicable zoning, subdivision and building code requirements. Continued
training programs are conducted, including training with regional office sales
managers, weekly sales meetings and frequent site visits by an executive officer
of the Company. The Company enhances its sales and marketing organization
through the Bluegreen Institute, a mandatory training program, which is designed
to instill the Company's marketing and customer service philosophy in middle and
lower-level management. Additionally, the sales staff is evaluated against
performance standards established by the executive officers of the Company.
Substantially all of a sales representative's compensation is commission-based.
The Company requires its sales staff to provide each prospective purchaser
with a written disclosure statement regarding the property to be sold prior to
the time such purchaser signs a purchase agreement. This information statement,
which is either in the form of a U.S. Department of Housing and Urban
Development ("HUD") lot information statement, where required, or a Company
generated "Vital Information Statement," sets forth relevant information with
respect to, and risks associated with, the property and must be signed by each
purchaser. The Company believes that these information statements contain all
material and relevant information necessary for a prospective purchaser to make
an informed decision as to whether or not to purchase such property, including
the availability and estimated cost of utilities, restrictions regarding
property usage, status of access roads and information regarding rescission
rights.
After deciding to purchase a home site, a purchaser enters into a purchase
agreement and is required to pay the Company a deposit of at least 10% of the
purchase price. Purchasers are entitled to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a home site sale usually occurs two to eight weeks after payment of
the deposit. Upon closing of a home site sale, the Company typically delivers a
warranty deed and a recent survey of the property to the purchaser. Title
insurance is available at the purchaser's expense.
For further information on sales and other financial information
(including industry segment information) attributable to Bluegreen Communities,
please see "MD&A" and the Company's consolidated financial statements and the
related Notes.
Customer Financing
General
During the nine months ended December 31, 2002, the year ended March 31,
2002 and the year ended April 1, 2001, the Company financed 67%, 62% and 62%,
respectively, of the aggregate purchase price of its sales of Timeshare
Interests and home sites to customers that closed during these periods and
received cash for the remaining balance of the purchase price. The increase in
the percentage of sales financed by the Company since the year ended April 1,
2001 is primarily attributable to an increase in the sales of Timeshare
Interests over the same period. Sales of Timeshare Interests accounted for 65%,
60% and 61% of consolidated sales during the nine months ended December 31,
2002, the year ended March 31, 2002 and the year ended April 1, 2001,
respectively. Approximately 95% of all purchasers of Timeshare Interests
financed with the Company (compared to approximately 6% of home site
15
purchasers) during the nine months ended December 31, 2002. In recent years, the
percentage of Bluegreen(R) Communities customers who utilized the Company's
financing has declined materially due to, among other things, an increased
willingness on the part of banks to extend direct lot financing to purchasers.
The Company believes that its financing is attractive to purchasers who
find it convenient to handle all facets of the purchase of home sites and
Timeshare Interests through a single source and because the downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
The Company offers financing of up to 90% of the purchase price of its
Timeshare Interests. The typical financing extended by the Company on a
Timeshare Interest during the nine months ended December 31, 2002, the year
ended March 31, 2002 and the year ended April 1, 2001, provided for terms of
seven or ten years and a fixed interest rate. In connection with the Company's
Timeshare Interest sales within the Club system, the Company delivers the deed
on behalf of the purchasers to the trustee of the Club and secures repayment of
the purchaser's obligation by obtaining a mortgage on the purchaser's Timeshare
Interest. Prior to the Company converting its sales operations to sell the Club,
the Company and the purchaser of a fixed-week Timeshare Interest executed a
contract for deed agreement. After the contract for deed obligation is paid in
full, the Company delivers a deed to the purchaser.
The Company also offers financing of up to 90% of the purchase price of
all home sites sold by Bluegreen Communities to all purchasers who qualify for
such financing. The term of repayment on such financing has historically ranged
from five to 20 years although the Company, by offering reduced interest rates,
has been successful in encouraging customers during recent years to finance
their purchases over shorter terms with increased downpayments. An average note
receivable underwritten by the Company during the nine months ended December 31,
2002, and the two years ended March 31, 2002, had a term of ten years. Most
Bluegreen Communities notes receivable bear interest at a variable interest rate
and are secured by a first lien on the land.
The weighted-average interest rate on the Company's notes receivable by
division was as follows:
As of
-------------------------------------------
Division December 31, 2002 March 31, 2002
-------- ----------------- --------------
Bluegreen Resorts 15.3% 15.4%
Bluegreen Communities 10.2% 11.1%
Consolidated 14.4% 14.7%
Please see 'Sale of Receivables/Pledging of Receivables', below, for
information regarding the Company's receivable financing activities.
Loan Underwriting
Bluegreen Resorts. Consistent with industry practice, the Company's
Timeshare Interest financing is not subject to extensive loan underwriting
criteria. Currently, customer financing on sales of Timeshare Interests
typically requires (i) receipt of a minimum downpayment of 10% of the purchase
price, (ii) a note and mortgage and (iii) other closing documents between the
Company and the purchaser. The Company encourages purchasers to make increased
downpayments by offering a lower interest rate. In addition, purchasers who do
not elect to participate in the Company's pre-authorized payment plan are
charged interest at a rate which is one percent greater than the otherwise
prevailing rate. As of December 31, 2002, approximately 71% of the Company's
timeshare notes receivable serviced were on the Company's pre-authorized payment
plan.
Bluegreen Communities. The Company has established loan underwriting
criteria and procedures designed to reduce credit losses on its Bluegreen
Communities loan portfolio. The loan underwriting process undertaken by the
Company's credit department includes reviewing the applicant's credit history,
verifying employment and income as well as calculating certain debt-to-income
ratios. The primary focus of the Company's underwriting review is to determine
the applicant's ability to repay the loan in accordance with its terms. This
assessment is based on a number of factors, including the relationship of the
applicant's required monthly payment to disposable income. The Company also
examines the applicant's credit history through one or more credit reporting
agencies. In order to verify an applicant's employment status, the Company
generally contacts the applicant's employer. The Company also obtains current
pay stubs, recent tax returns and other tax forms from the applicant, as
applicable.
In order to obtain financing from Bluegreen Communities, a prospective
purchaser must submit a completed and signed credit application, purchase and
sale agreement and pre-authorized checking agreement accompanied by a voided
check, if applicable, to the Company's credit department. All credit decisions
are made at the Company's corporate headquarters. Loan amounts under $50,000 are
approved by designated personnel located in the Company's
16
corporate headquarters, while loan amounts of $50,000 or more require approval
from a senior executive officer. In addition, rejected applications and any
material exceptions to the underwriting policy are also reviewed by a senior
executive officer. Customers are notified of the reasons for credit denial by
mail.
The Company encourages customers to increase their downpayment and reduce
the loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate that is one
percent greater than the prevailing rate.
After the credit decision has been made, the credit department categorizes
the file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer. Closings
are typically conducted at the office of the Company's local attorney or
settlement agent, although in some cases the closing may take place at the sales
site or by mail.
When the original closing documents are received from the closing agent,
the Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that required
documents have been received and that they have been prepared and executed
correctly. If any revisions are required, notification is sent to the regional
office.
A loan file typically includes a copy of the signed security instrument,
the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
Collection Policies
Bluegreen(R) Resorts. Prior to fiscal 1999, the Company's timeshare
receivables were documented by contracts for deed, which allows the Company to
retain title to the Timeshare Interest until the obligation is paid in full,
thereby eliminating the need to foreclose in the event of a default. Collection
efforts and delinquency information concerning Bluegreen Resorts are managed at
the Company's corporate headquarters. Servicing of the division's receivables is
handled by a staff of experienced collectors, assisted by a mortgage collection
computer system. Unless circumstances otherwise dictate, collection efforts are
generally made by mail and telephone. If a contract for deed becomes delinquent
for ten days, telephone contact commences with the customer. If the customer
fails to bring the account current, a late notice is mailed when the account is
16 days delinquent. After an account is 30 days delinquent, the Company
typically sends a second letter advising the customer that such customer has 30
days within which to bring the account current. Under the terms of the contract
for deed, the borrower is in default when the account becomes 60 days
delinquent. At this time a default letter is sent advising the customer that he
or she has 30 days to bring the account current or lose his or her contractual
interest in the timeshare unit. When the account becomes 90 days delinquent, the
Company forwards a final letter informing the customer that the contract for
deed has been terminated. At such time, the Timeshare Interest can be resold to
a new purchaser.
In fiscal 1999, in connection with the implementation of the Club system,
the Company converted to a note and mortgage arrangement. In addition to the 16
and 30-day collection correspondence outlined above, at 60 days delinquent, a
lock-out letter is sent to the Club customer prohibiting such customer from
making a reservation for lodging at a resort property. If the default continues,
at 90 days delinquent, a Notice of Intent to Cancel Membership is mailed and the
accrual of interest on the note receivable is stopped. This informs the customer
that unless the default is cured within 30 days, membership in the Club will be
terminated. If the default is not cured, a Termination Letter is sent, typically
at 120 days. At such time, the Timeshare Interest can be resold to a new
purchaser.
Bluegreen Communities. Collection efforts and delinquency information
concerning Bluegreen Communities are also managed at the Company's corporate
headquarters. A staff of experienced collectors, handles servicing of the
division's receivables. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. Collection efforts begin when
an account is ten days past due, at which time the Company contacts the customer
by telephone. Attempts are then made to contact the customer via telephone to
determine the reason for the delinquency and to bring the account current. The
determination of how to handle a delinquent loan is based upon many factors,
including the customer's payment history and the reason for the current
inability to make timely payments. If no agreement is reached or the customer
does not abide by the agreement, collection efforts continue until the account
is either brought current or legal action is commenced. If not accelerated
sooner, the Company typically declares the loan in default when the loan becomes
60 days delinquent. When the loan is 90 days past due, the accrual
17
of interest is stopped (unless the loan is considered an in-substance
foreclosure loan, in which case all accrued interest is reversed since the
Company's means of recovery is determined through the resale of the underlying
collateral and not through collection on the note) and the Credit/Collection
Manager determines the action to be taken.
Loan Loss Reserves. The reserve for loan losses as a percentage of
outstanding notes receivable was approximately 7% at both December 31, 2002 and
March 31, 2002. The adequacy of the Company's reserve for loan losses is
determined by management and reviewed on a regular basis considering, among
other factors, historical frequency of default, loss experience, estimated value
of the underlying collateral, present and expected economic conditions as well
as the quality of the receivables. (See "MD&A" for further discussion of the
Company's provision for loan losses.) During the nine months ended December 31,
2002, the year ended March 31, 2002 and the year ended April 1, 2001, the
default rates on Bluegreen(R) Resorts' and Bluegreen Communities' receivables
owned or serviced by the Company were as follows:
Nine Months
Ended Year Ended
---------------------------------------------
December 31, March 31, April 1,
Division 2002 2002 2001
-------- ---- ---- ----
Bluegreen Resorts 4.4% 8.1% 7.1%
Bluegreen Communities 2.2% 2.0% 2.6%
The default rate for Bluegreen Resorts was lower during the nine months
ended December 31, 2002 as compared to the years ended March 31, 2002 and April
1, 2001, as the months of January through March each year historically have had
higher default rates than other months during the year.
Sales of Receivables/Pledging of Receivables
During the nine months ended December 31, 2002, the year ended March 31,
2002 and the year ended April 1, 2001, all of the Company's notes receivable
sold and the majority of the Company's notes receivable pledged consisted of
notes receivable generated by Bluegreen Resorts.
Since 1986, the Company has sold or pledged a significant amount of its
receivables, generally retaining the right and obligation to service such
receivables. In the case of Bluegreen Communities' receivables, the Company
historically transferred the receivables to a special purpose finance subsidiary
once a sufficient pool of receivables was generated, and the subsidiary in turn
entered into a receivables securitization. The receivables were typically sold
by such subsidiary with limited or no recourse. In the case of receivables
pledged to a financial institution, the Company generally must maintain a debt
to eligible collateral rate (based on the outstanding principal balance of the
pledged loans) of 90%. The Company is obligated to pledge additional eligible
receivables or make additional principal payments in order to maintain this
collateralization rate. Repurchases and additional principal payments have not
been material to date.
Although private placement Real Estate Mortgage Investment Conduit
("REMIC") financings of Bluegreen Communities receivables provided substantial
capital resources to the Company during the early to mid-1990's, the Company has
not completed a REMIC financing since December 1996, due to the decrease in land
sales financed by the Company. Under the terms of these transactions, the
receivables are sold to a REMIC trust and the Company has no obligation to
repurchase the receivables due to default by the borrowers. The Company does,
however, have the obligation to repurchase the receivables in the event that
there was any material defect in the loan documentation and related
representations and warranties as of the time of sale.
Since fiscal 1999, the Company has maintained timeshare receivables
purchase facilities with financial institutions. Under the current purchase
facility (the "Purchase Facility"), a special purpose finance subsidiary of the
Company, Bluegreen Receivables Finance Corporation V, had sold approximately
$83.2 million aggregate principal amount of timeshare receivables in
securitization transactions to Credit Suisse First Boston ("CSFB") and
approximately $84.6 million to ING Capital, LLC ("ING"), an affiliate of ING
Bank NV, through December 31, 2002. ING acquired the Purchase Facility from CSFB
in April 2002. Receivables are sold under the Purchase Facility without recourse
to the Company or its special purpose finance subsidiary except for breaches of
representations and warranties made at the time of sale. The Company acts as
servicer under the Purchase Facility for a fee. On December 13, 2002, ING
Financial Markets, LLC ("IFM"), an affiliate of ING, consummated a $170.2
million private offering and sale of timeshare loan-backed securities on behalf
of the Company (the "2002 Term Securitization"). As a result of the 2002 Term
Securitization, the Subsidiary may sell up to an additional $57.0 million
aggregate principal amount of timeshare receivables, on a revolving basis,
through April 16, 2003. The Company did not guarantee the
18
payment of any amounts by obligors on the receivables or otherwise enter into
any payment guarantees in connection with the Purchase Facility. See "Liquidity
and Capital Resources" for further discussion of the Purchase Facility. The
Company is currently negotiating an extended term and increased availability
under the Purchase Facility. There can be no assurances that the Company's
negotiations will result in the Company obtaining the desired extension and
increase on acceptable terms to the Company, if at all. The Company is also
currently negotiating another timeshare receivables purchase facility with
another financial institution, although there can be no assurances that the
Company will obtain such a facility on acceptable terms, if at all. The
Company's liquidity and financial condition could be materially adversely
affected if it is not able to sell a material portion of the receivables it
generates under its current or one or more future facilities. In obtaining such
facilities, the Company is subject to factors impacting the securitization
markets generally and to factors affecting the sale of timeshare receivables in
particular, including the performance of the Company's receivables.
For a further discussion of the terms of the Purchase Facility and the
Company's existing receivables warehouse and hypothecation facilities please see
"Liquidity and Capital Resources" under Item 7, below.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing, or terminating a
contract for deed or membership in the Club in the event that defaults are not
remedied and performing other administrative duties. The Company's obligation to
provide receivables servicing and its rights to collect fees for a given pool of
receivables are set forth in a servicing agreement. The Company has the
obligation and right to service all of the receivables it originates and retains
the obligation and right with respect to the receivables it sells through REMICs
and all of the receivables sold under any of the Company's timeshare receivable
purchase facilities to date, although in certain circumstances the purchasers
may elect to appoint a new servicer. The Company typically receives an annual
servicing fee ranging from approximately .5% to 2.0% of the principal balance of
the loans serviced on behalf of others. During the nine months ended December
31, 2002, and the years ended March 31, 2002 and April 1, 2001, the Company
recognized aggregate servicing fee income of $2.5 million, $2.7 million and $1.9
million, respectively.
Regulation
The timeshare and real estate industries are subject to extensive and
complex regulation. The Company is subject to compliance with various federal,
state, local and foreign environmental, zoning, consumer protection and other
statutes and regulations regarding the acquisition, subdivision and sale of real
estate and Timeshare Interests and various aspects of its financing operations.
On a federal level, the Federal Trade Commission has taken an active regulatory
role through the Federal Trade Commission Act, which prohibits unfair or
deceptive acts or competition in interstate commerce. In addition to the laws
applicable to the Company's customer financing and other operations discussed
below, the Company is or may be subject to the Fair Housing Act and various
other federal statutes and regulations. The Company is also subject to various
foreign laws with respect to La Cabana. In addition, there can be no assurance
that in the future, Timeshare Interests will not be deemed to be securities
subject to regulation as such, which could have a material adverse effect on the
Company. The Company believes that it is in compliance in all material respects
with applicable regulations. However, no assurance can be given that the cost of
complying with applicable laws and regulations will not be significant or that
the Company is in fact in compliance with all applicable laws, including those
discussed below in this section. Any failure to comply with current or future
applicable laws or regulations could have a material adverse effect on the
Company.
The Company's sales and marketing of home sites are subject to various
consumer protection laws and to the Interstate Land Sales Full Disclosure Act,
which establishes strict guidelines with respect to the marketing and sale of
land in interstate commerce. HUD has enforcement powers with respect to this
statute. In some instances, the Company has been exempt from HUD registration
requirements because of the size or number of the subdivided parcels and the
limited nature of its offerings. The Company, at its discretion, may formally
request an exemption advisory opinion from HUD to confirm the exempt status of
any particular offering. Several such exemption requests have been submitted to,
and approved by, HUD. In those cases where the Company and its legal counsel
determine parcels must be registered to be sold, the Company files registration
materials disclosing financial information concerning the property, evidence of
title and a description of the intended manner of offering and advertising such
property. The Company bears the cost of such registration, which includes legal
and filing fees. Many states also have statutes and regulations governing the
sale of real estate. Consequently, the Company regularly consults with counsel
for assistance in complying with federal, state and local law. The Company must
obtain the approval of numerous governmental authorities for its acquisition and
marketing activities and changes in local circumstances or applicable laws may
necessitate the application for, or the modification of, existing approvals.
19
The Company's timeshare resorts are subject to various regulatory
requirements including state and local approvals. The laws of most states
require the Company to file with a designated state authority for its approval a
detailed offering statement describing the Company and all material aspects of
the project and sale of Timeshare Interests. Laws in each state where the
Company sells Timeshare Interests generally grant the purchaser of a Timeshare
Interest the right to cancel a contract of purchase at any time within a
specified period following the earlier of the date the contract was signed or
the date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, including: real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Pursuant to such laws, future
owners may recover from the Company amounts in connection with the repairs made
to the developed property. As required by state laws, the Company provides its
timeshare purchasers with a public disclosure statement that contains, among
other items, detailed information about the surrounding vicinity, the resort and
the purchaser's rights and obligations as a Timeshare Interests owner.
Under various federal, state and local laws, ordinances and regulations,
the owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow using such real property as collateral. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
The Company's customer financing activities are also subject to extensive
regulation, which may include, the Truth-in-Lending Act and Regulation Z, the
Fair Housing Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and the Right to Financial Privacy
Act.
During the nine months ended December 31, 2002, the year ended March 31,
2002 and the year ended April 1, 2001, approximately 11%, 17% and 22%,
respectively, of the Company's timeshare sales were generated by marketing to
prospective purchasers obtained through internal and affiliated telemarketing
efforts. In addition, approximately 18%, 21% and 15% of the Company's timeshare
sales during the nine months ended December 31, 2002 and the years ended March
31, 2002 and April 1, 2001, respectively, were generated by marketing to
prospective purchasers obtained from third-party timeshare prospect vendors,
many of whom use telemarketing operations to generate these prospects. In recent
years, state regulators have increased legislation and enforcement regarding
telemarketing operations including requiring the adherence to state "do not
call" lists. In addition, the Federal Trade Commission has implemented national
"do not call" legislation. The Company believes that its exposure to adverse
impacts from this heightened telemarketing legislation and enforcement has been
and will continue to be mitigated in some instances by the use of "permission
marketing" techniques, whereby prospective purchasers have directly or
indirectly granted the Company permission to contact them in the future, and
through its exclusive marketing agreement with Bass Pro(R). The Company has
implemented procedures which it believes will help ensure that individuals who
have formally requested to their state regulators that they be placed on a "do
not call" list are not contacted through one of its inhouse or third-party
contracted telemarketing operations, although there can be no assurances that
such procedures are 100% effective in ensuring regulatory compliance. Through
December 31, 2002, the Company has not been subject to any material fines or
penalties as a result of its telemarketing operations. There can be no
assurances that the Company will be able to efficiently or effectively market to
prospective purchasers through telemarketing operations in the future or that
the Company will be able to develop alternative sources of prospective
purchasers of its timeshare products at acceptable costs.
Other than as described above, management is not aware of any pending
regulatory contingencies that are expected to have a material adverse impact on
the Company.
Competition
The real estate industry is highly competitive. In each of its markets,
the Company competes against numerous developers and others in the real estate
business. Bluegreen(R) Resorts competes with various high profile and
well-established operators. Many of the world's most recognized lodging,
hospitality and entertainment companies develop and sell Timeshare Interests in
resort properties. Major companies that now operate or are developing or
20
planning to develop timeshare resorts include Marriott, Disney, Hilton, Hyatt,
Four Seasons, Starwood, Carlson and Cendant. The Company also competes with
numerous other smaller owners and operators of timeshare resorts. In addition to
competing for sales leads and prospects, the Company competes with other
timeshare developers for sales personnel. The Company believes that each of its
timeshare resorts face the same general competitive conditions. Although, as
noted above, Bluegreen(R) Resorts competes with various high profile and
well-established operators, the Company believes that it can compete on the
basis of its general reputation and the price, location and quality of its
timeshare resorts. The development and operation of additional timeshare resorts
in the Company's markets could have a material adverse impact on the demand for
the Company's Timeshare Interests and its results of operations.
Bluegreen Communities competes with builders, developers and others for
the acquisition of property and with local, regional and national developers,
housebuilders and others with respect to the sale of home sites. Competition may
be generally smaller with respect to the Company's home site sales in the more
rural markets in which it operates. The Company believes that each of its
Bluegreen Communities projects faces the same general competitive conditions.
The Company believes that it can compete on the basis of its reputation and the
price, location and quality of the products it offers for sale, as well as on
the basis of its experience in land acquisition, development and sale.
The Company's golf courses face competition for business from other
operators of daily fee and, to a lesser extent, private golf courses within the
local markets where the Company operates. Competition in these markets affects
the rates that the Company charges per round of golf, the level of maintenance
on the golf courses and the types of additional amenities available to golfers,
such as food and beverage operations. The Company does not believe that such
competitive factors have a material adverse impact on its results of operations
or financial position.
In its customer financing activities, the Company competes with banks,
mortgage companies, other financial institutions and government agencies
offering financing of real estate. In recent years, the Company has experienced
increased competition with respect to the financing of Bluegreen Communities
sales as evidenced by the low percentage of home site sales internally financed
since 1995. The Company believes that, based on its interest rates and repayment
schedules, the financing packages it offers are convenient for customers and
competitive with those of other institutions which offer such financing.
Website Access to Exchange Act Reports
It is the Company's policy to post publicly available reports required to
be filed with the SEC ("Exchange Act Reports") on the Company's website,
www.bluegreenonline.com, as soon as reasonably practicable after filing such
reports with the SEC. During the nine months ended December 31, 2002, a one-time
technical error occurred regarding the investor relations portion of the
Company's website which prevented Exchange Act Reports from being posted on the
Company's website. This technical error has now been corrected.
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The website address for this site is www.sec.gov.
Personnel
As of December 31, 2002, the Company had 2,632 employees. Of the 2,632
employees, 311 were located at the Company's headquarters in Boca Raton,
Florida, and 2,321 in regional field offices throughout the United States and
Aruba (the field personnel include 306 field employees supporting Bluegreen
Communities and 2,015 field employees supporting Bluegreen Resorts). Only the
Company's employees in Aruba are represented by a collective bargaining unit,
and the Company believes that relations with its employees generally are good.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida
in approximately 74,000 square feet of leased space. On December 31, 2002, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern and Western regions of the
United States as well as the Province of Ontario, Canada and the island of
Aruba. For a further description of the Company's resort and land properties
please see "Item 1. Business--Company Products."
21
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the above are incidental to its
business.
The Company became a defendant in an action that was filed in Colorado
state court against the Company on December 15, 1998 (the Company has removed
the action to the Federal District Court in Denver). The plaintiff had asserted
that the Company was in breach of its obligations under, and had made certain
misrepresentations in connection with, a contract under which the Company acted
as marketing agent for the sale of undeveloped property owned by the plaintiff.
The plaintiff also alleged fraud, negligence and violation by the Company of an
alleged fiduciary duty owed to plaintiff. Among other things, the plaintiff
alleged that the Company failed to meet certain minimum sales requirements under
the marketing contract and failed to commit sufficient resources to the sale of
the property. The original complaint sought damages in excess of $18 million and
certain other remedies, including punitive damages. In December 2002, the
Company settled all claims with the plaintiffs for $300,000.
On August 21, 2000, the Company received a Notice of Field Audit Action
(the "Notice") from the State of Wisconsin Department of Revenue (the "DOR")
alleging that two corporations now owned by the Company failed to collect and
remit sales and use taxes to the State of Wisconsin during the period from
January 1, 1994 through September 30, 1997 totaling $1.9 million. The majority
of the assessment is based on the subsidiaries not charging sales tax to
purchasers of Timeshare Interests at the Company's Christmas Mountain
Village(TM) resort. In addition to the assessment, the Notice indicated that
interest would be charged, but no penalties would be assessed. As of December
31, 2002, aggregate interest was approximately $1.8 million. The Company filed a
Petition for Redetermination (the "Petition") on October 19, 2000, and, if the
Petition is unsuccessful, the Company intends to vigorously appeal the
assessment. The Company acquired the subsidiaries that were the subject of the
Notice in connection with the acquisition of RDI Group, Inc.(TM) ("RDI") on
September 30, 1997. Under the RDI purchase agreement, the Company has the right
to set off payments owed by the Company to RDI's former stockholders pursuant to
a $1.0 million outstanding note payable balance and to make a claim against such
stockholders for $500,000 previously paid to them for any breach of
representations and warranties (one of the former RDI stockholders is currently
employed by the Company as the Senior Vice President of Sales for Bluegreen(R)
Resorts.). The Company has notified the former stockholders that it intends to
exercise these rights to mitigate any settlement with the DOR in this matter. In
addition, the Company believes that, if necessary, amounts paid to the State of
Wisconsin pursuant to the Notice, if any, may be further funded through
collections of sales tax from the consumers who effected the assessed timeshare
sales with RDI without paying sales tax on their purchases. Based on
management's assessment of the Company's position in the Petition, the Company's
right of set off with the former RDI stockholders and other factors discussed
above, management does not believe that the possible sales tax pursuant to the
Notice will have a material adverse impact on the Company's results of
operations or financial position, and therefore no amounts have been accrued
related to this matter.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange
("NYSE") and the Pacific Stock Exchange under the symbol "BXG". The following
table sets forth, for the periods indicated, the high and low closing price of
the common stock as reported on the NYSE:
Price Range Price Range
High Low High Low
---------------------------------------------------------------------------------------------
The Nine Months Ended The Year Ended
December 31, 2002 March 31, 2002
----------------- --------------
First Quarter $5.38 $3.38 First Quarter $2.29 $1.60
Second Quarter 3.53 2.75 Second Quarter 2.20 1.71
Third Quarter 3.90 3.08 Third Quarter 2.20 1.75
Fourth Quarter 4.99 2.00
22
There were approximately 1,302 record holders of the Company's common
stock as of March 24, 2003. The number of record holders does not reflect the
number of persons or entities holding their stock in "street" name through
brokerage firms or other entities.
The Company did not pay any cash or stock dividends during the nine months
ended December 31, 2002, or the year ended March 31, 2002. The Board of
Directors of the Company has discussed the possibility of paying cash dividends
during the year ending December 31, 2004, subject to the Company's cash position
and operating needs at that time, the Company's results of operations for the
year ending December 31, 2003, and limitations on the payment of dividends
discussed below. If cash dividends are paid, the Company does not anticipate
that they would be significant in relation to the Company's stock price. There
can be no assurances that the Company will pay cash dividends in the foreseeable
future. Restrictions contained in the Indenture related to the Company's $110
million 10 1/2% Senior Secured Notes due 2008 issued in April 1998 restrict, and
the terms of certain of the Company's credit facilities may, in certain
instances, limit the payment of cash dividends on its common stock and restrict
the Company's ability to repurchase shares.
On April 10, 2002, Levitt Companies, LLC ("Levitt"), a subsidiary of
BankAtlantic Bancorp, Inc. (NYSE: BBX), acquired an aggregate of approximately 8
million shares of the Company's outstanding common stock from certain real
estate funds affiliated with Morgan Stanley Dean Witter & Company, Inc. and
Grace Brothers, Ltd. in private transactions. As a result of these purchases,
combined with prior holdings in the Company, Levitt and BankAtlantic Bancorp,
Inc. now own approximately 40% of the Company's outstanding common stock.
From time to time, the Company's Board of Directors has adopted and
publicly announced a share repurchase program. Repurchases under such programs
are subject to the price of the Company's stock, prevailing market conditions,
the Company's financial condition and available resources, other investment
alternatives and other factors. The Company is not required to seek shareholder
approval of share repurchase programs, has not done so in the past, and does not
anticipate doing so in the future, except to the extent it may be required to do
so under applicable law. The Company did not repurchase any shares during the
nine months ended December 31, 2002, or the year ended March 31, 2002. During
the year ended April 1, 2001, the Company repurchased 198,000 shares under share
repurchase programs at an aggregate cost of $572,000. As of December 31, 2002
there were 694,500 shares remaining for purchase under the Company's current
repurchase program, although the Company has no present intention of acquiring
these remaining shares in the foreseeable future.
The shareholders of the Company have approved all of the Company's equity
compensation plans, which consist of the 1985 Employee Stock Option Plan, the
1995 Stock Incentive Plan, the 1988 Outside Directors' Stock Option Plan and the
1998 Non-Employee Director Stock Option Plan. Information about securities
authorized for issuance under the Company's equity compensation plans as of
December 31, 2002, is as follows (in thousands, except per option data):
Number of Securities Remaining
Number of Securities to be Weighted-Average Available for Future Issuance Under
Issued Upon Exercise of Exercise Price of Equity Compensation Plans (Excluding
Outstanding Stock Options Outstanding Stock Options Outstanding Stock Options)
----------------------------------------------------------------------------------------------
2,309 $5.62 1,734
23
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report.
As of or for
the Nine As of or for the Year Ended,
Months Ended -----------------------------------------------
December 31, March 31, April 1, April 2, March 28,
(dollars in thousands, except per share data) 2002 2002 2001 2000 1999
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Sales $222,655 $240,628 $229,874 $214,488 $225,816
Other resort and golf operations revenues 27,048 25,470 24,649 21,745 14,881
Interest income 12,235 15,447 17,317 15,652 14,804
Gain on sales of notes receivable 10,035 6,280 3,281 2,063 3,692
Other income -- -- -- 192 168
-------- -------- -------- -------- --------
Total revenues 271,973 287,825 275,121 254,140 259,361
Income before income taxes, minority
interest and cumulative effect of change
in accounting principle (2) 24,671 19,482 3,002 10,565 31,917
Income before cumulative effect of change
in accounting principle (2) 15,376 11,732 2,717 6,777 17,040
Net income 9,797 11,732 2,717 6,777 17,040
Earnings per share before cumulative effect
of change in accounting principle (2):
Basic 0.63 0.48 0.11 0.29 0.77
Diluted 0.58 0.46 0.11 0.28 0.66
Earnings per common share:
Basic 0.40 0.48 0.11 0.29 0.77
Diluted 0.39 0.46 0.11 0.28 0.66
BALANCE SHEET DATA:
Notes receivable, net $ 61,795 $ 55,648 $ 74,796 $ 70,114 $ 64,380
Inventory, net 173,131 187,688 193,634 197,093 142,984
Total assets 433,992 435,161 419,681 413,983 347,318
Shareholders' equity 158,283 149,656 136,790 134,044 119,349
Book value per common share 6.44 6.16 5.65 5.50 4.95
OTHER DATA:
Weighted-average interest rate on notes
receivable at period end 14.4% 14.7% 15.2% 15.1% 15.0%
Bluegreen(R) Resorts statistics:
Resort sales $144,026 $144,226 $140,975 $117,271 $103,127
Number of resorts at period end 13 12 11 10 10
Gross margin on resort sales 75% 77% 78% 77% 76%
Number of timeshare sale transactions (1) 16,347 16,414 16,240 13,518 11,764
Bluegreen Communities statistics:
Home site sales $ 78,629 $ 96,402 $ 88,899 $ 97,217 $122,689
Gross margin on sales of home sites 46% 45% 46% 51% 54%
Number of home sites sold (1) 1,242 1,640 1,614 1,846 2,380
(1) Unit sales data includes those sales made during the applicable period
where recognition of revenue is deferred under the
percentage-of-completion method of accounting (see "Contracts Receivable
and Revenue Recognition" under Note 1 of Notes to Consolidated Financial
Statements.)
(2) Effective April 1, 2002, the Company elected to change its accounting
policy to expense previously deferred costs of generating timeshare tours
through telemarketing programs. See "Critical Accounting Policies and
Estimates" under MD&A and Note 1 of Notes to Consolidated Financial
Statements for further information.
24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Certain Definitions, Cautionary Statement Regarding Forward-Looking
Statements and Risk Factors
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes and other financial
information included elsewhere in this Annual Report. Unless otherwise
indicated in this discussion (and throughout this Annual Report),
references to "real estate" and to "inventories" collectively encompass
the Company's inventories held for sale by Bluegreen(R) Resorts and
Bluegreen Communities. "Timeshare Interests" are of two types: one which
entitles the buyer of the Club product with an annual allotment of
"points" in perpetuity (supported by an underlying deeded fixed timeshare
week being held in trust for the buyer) and the second which entitles the
fixed-week buyer to a fully-furnished vacation residence for an annual
one-week period in perpetuity. "Points" may be exchanged by the buyer in
various increments for lodging for varying lengths of time in
fully-furnished vacation residences at the Company's participating
resorts. "Estimated remaining life-of-project sales" assumes sales of the
existing, currently under construction or development, and planned
Timeshare Interests or home sites, as the case may be, at current retail
prices.
Market and industry data used throughout this Annual Report were
obtained from internal Company surveys, industry publications, unpublished
industry data and estimates, discussions with industry sources and
currently available information. The sources for this data include,
without limitation, ARDA, a non-profit industry organization. Industry
publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but there can be no
assurance as to the accuracy and completeness of such information. The
Company has not independently verified such market data. Similarly,
internal Company surveys, while believed by the Company to be reliable,
have not been verified by any independent sources. Accordingly, no
assurance can be given that any such data will prove to be accurate.
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Reform Act of 1995 (the "Act") and is making the
following statements pursuant to the Act to do so. Certain statements herein and
elsewhere in this report and the Company's other filings with the Securities and
Exchange Commission constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company may also make written
or oral forward-looking statements in its annual report to stockholders, in
press releases and in other written materials, and in oral statements made by
its officers, directors and employees. Such statements may be identified by
forward-looking words such as "may", "intend", "expect", "anticipate,"
"believe," "will," "should," "project," "estimate," "plan" or other comparable
terminology or by other statements that do not relate to historical facts. All
statements, trend analyses and other information relative to the market for the
Company's products, the Company's expected future sales, financial position,
operating results and liquidity and capital resources and its business strategy,
financial plan and expected capital requirements and trends in the Company's
operations or results are forward-looking statements. Such forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond the Company's control, that could cause the actual results,
performance or achievements of the Company, or industry trends, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Given these uncertainties, investors
are cautioned not to place undue reliance on such forward-looking statements and
no assurance can be given that the plans, estimates and expectations reflected
in such statements will be achieved. Factors that could adversely affect the
Company's future results can also be considered general "risk factors" with
respect to the Company's business, whether or not they relate to a
forward-looking statement. The Company wishes to caution readers that the
following important factors, among other risk factors, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company:
a) Changes in national, international or regional economic conditions that
can adversely affect the real estate market, which is cyclical in nature
and highly sensitive to such changes, including, among other factors,
levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in or the interpretation of any environmental, zoning or other
laws and regulations that govern the acquisition, subdivision and sale of
real estate and various aspects of the Company's financing operation or
the failure of the Company to comply with any
25
law or regulation. Also the risks that changes in or the failure of the
Company to comply with laws and regulations governing the marketing
(including telemarketing) of the Company's inventories and services will
adversely impact the Company's ability to make sales in any of its current
or future markets at its current relative marketing cost.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions and that the
development, financing and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the Company's
principal markets.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing the
Company's operations, adverse weather conditions, natural disasters or
changes in the availability of development financing on terms acceptable
to the Company.
f) Changes in applicable usury laws or the availability of interest
deductions or other provisions of federal or state tax law, which may
limit the effective interest rates that the Company may charge on its
notes receivable.
g) A decreased willingness on the part of banks to extend direct customer
home site financing, which could result in the Company receiving less cash
in connection with the sales of real estate and/or lower sales.
h) The fact that the Company requires external sources of liquidity to
support its operations, acquire, carry, develop and sell real estate and
satisfy its debt and other obligations, and the Company may not be able to
locate external sources of liquidity on favorable terms or at all.
i) The inability of the Company to locate sources of capital on favorable
terms for the pledge and/or sale of land and timeshare notes receivable,
including the inability to consummate or fund securitization transactions
or to consummate fundings under facilities.
j) An increase in prepayment rates, delinquency rates or defaults with
respect to Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure, which could, among other
things, reduce the Company's interest income, increase loan losses and
make it more difficult and expensive for the Company to sell and/or pledge
receivables and reduce cash flow on and the fair value of retained
interests on notes receivable sold.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or (ii)
levels necessary in order for the Company to achieve anticipated profit
and operating margins or be profitable.
l) An increase or decrease in the number of land or resort properties subject
to percentage-of-completion accounting, which requires deferral of profit
recognition on such projects until development is substantially complete.
Such increases or decreases could cause material fluctuations in
period-to-period results of operations.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments, and/or other credit
agreements, which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens, make investments, pay
dividends or repurchase debt or equity. In addition, the failure to
satisfy certain covenants contained in the Company's receivable purchase
facilities could materially defer or reduce future cash receipts on the
Company's retained interests in notes receivable sold. Any such failure
could impair the fair value of the retained interests in notes receivable
sold and materially, adversely impact the Company's liquidity position and
its results of operations.
n) The risk of the Company incurring an unfavorable judgment in any
litigation, and the impact of any related monetary or equity damages.
o) Risks associated with selling Timeshare Interests in foreign countries
including, but not limited to, compliance with legal regulations, labor
relations and vendor relationships.
26
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Club is not accepted by consumers or
imposes limitations on the Company's operations, or is adversely impacted
by legal or other requirements.
q) The risk that any contemplated transactions currently under negotiation
will not close or conditions to funding under existing or future
facilities will not be satisfied.
r) Risks relating to any joint venture that the Company is a party to,
including risks that a dispute may arise with a joint venture partner,
that the Company's joint ventures will not be as successful as anticipated
and that the Company will be required to make capital contributions to
such ventures in amounts greater than anticipated.
s) Risks that any currently proposed or future changes in accounting
principles will have an adverse impact on the Company.
t) Risks that a short-term or long-term decrease in the amount of vacation
travel (whether as a result of economic, political or other factors),
including, but not limited to, air travel, by American consumers will have
an adverse impact on the Company's timeshare sales.
u) Risks that the acquisition of a business by the Company will result in
unforeseen liabilities, decreases of net income and/or cash flows of the
Company, or otherwise prove to be less successful than anticipated.
The Company does not undertake and expressly disclaims any duty to update
or revise forward-looking statements, even if the Company's situation may change
in the future.
General
The Company's real estate operations are managed under two business
segments. Bluegreen(R) Resorts develops, markets and sells Timeshare Interests
in the Company's resorts, primarily through the Club, and provides resort
management services to resort property owners associations and 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 home sites.
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net earnings. This
seasonality may cause significant fluctuations in the quarterly operating
results of the Company, with the majority of the Company's gross revenues and
net earnings historically occurring in the quarters ending in June and September
each fiscal year. As the Company's timeshare revenues grow as a percentage of
total revenues, the Company believes that the fluctuations in revenues due to
seasonality may be mitigated in part. In addition, other material fluctuations
in operating results may occur due to the timing of development and the
Company's use of the percentage-of-completion method of accounting. Management
expects that the Company will continue to invest in projects that will require
substantial development (with significant capital requirements).
The Company believes that inflation and changing prices have not had a
material impact on its revenues and results of operations during the nine months
ended December 31, 2002, other than to the extent that the Company continually
reviews and has historically increased the sales prices of its Timeshare
Interests annually. Based on prior history, the Company does not expect that
inflation will have a material impact on the Company's revenues or results of
operations in the foreseeable future, although there is no assurance that the
Company will be able to continue to increase prices. To the extent inflationary
trends affect short-term interest rates, a portion of the Company's debt service
costs may be affected as well as the interest rate the Company charges on its
new receivables from its customers.
The Company believes that the terrorist attacks on September 11, 2001 in
the United States, the recent hostilities in the Middle East and other world
events that have decreased the amount of vacation air travel by Americans have
not, to date, had a material adverse impact on the Company's sales in its
domestic sales offices. With the exception of La Cabana, guests at the Company's
Club destination resorts more typically drive, rather than fly, to these resorts
due to the accessibility of the resorts. There can be no assurances, however,
that a long-term decrease in air travel or increase in anxiety regarding actual
or possible future terrorist attacks or other world events will not have a
material adverse impact on the Company's results of operations in future
periods.
27
The Company recognizes revenue on home site and Timeshare Interest sales
when a minimum of 10% of the sales price has been received in cash, the refund
or rescission period has expired, collectibility of the receivable representing
the remainder of the sales price is reasonably assured and the Company has
completed substantially all of its obligations with respect to any development
relating to the real estate sold. In cases where all development has not been
completed, the Company recognizes income in accordance with the
percentage-of-completion method of accounting. Under this method of income
recognition, income is recognized as work progresses. Measures of progress are
based on the relationship of costs incurred to date to expected total costs.
Costs associated with the acquisition and development of timeshare 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 the Company's revenues historically has been and, although no
assurances can be given, is expected to continue to be comprised of gains on
sales of notes receivable. The gains are recorded on the Company's Consolidated
Income Statement and the related retained interests in the portfolios are
recorded on its Consolidated Balance Sheet at the time of sale. The amount of
gains and the fair value of the retained interests recorded are based in part on
management's estimates of future prepayment, default and loss severity rates and
other considerations in light of then-current conditions. If actual prepayments
with respect to loans occur more quickly than was projected at the time such
loans were sold, as can occur when interest rates decline, interest would be
less than expected and may cause a decline in the fair value of the retained
interests and a charge to earnings currently. 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 cash flow from the
retained interests in notes receivable sold will decrease. This may cause a
decline in the fair value of the retained interests and a charge to earnings
currently. There can be no assurances that the carrying value of the Company's
retained interests in notes receivable sold will be fully realized or that
future loan sales will be consummated or, if consummated, result in gains. See
"Credit and Purchase Facilities for Bluegreen(R) Resorts' Receivables and
Inventories" below.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its results of operations and
financial condition are based upon its condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. 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 recognition under the percentage-of-completion method of
accounting; the Company's 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,
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, the Company's
results of operations and financial condition could be materially adversely
impacted.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:
o In accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 66 "Accounting for Sales of Real
Estate," the Company recognizes revenue on retail land sales and
sales of Timeshare Interests when a minimum of 10% of the sales
price has been received in cash, the legal rescission period has
expired, collectibility of the receivable representing the remainder
of the sales price is reasonably assured and the Company has
completed substantially all of its obligations with respect to any
development related to the real estate sold. In cases where all
development has not been completed, the Company recognizes revenue
in accordance with the percentage-of-completion method of
accounting. Should the Company's estimates regarding the
collectibility of its receivables change adversely or the Company's
estimates of the total anticipated cost of its timeshare and
Bluegreen Communities projects increase, the Company's results of
operations could be adversely impacted.
o The Company considers many factors when establishing and evaluating
the adequacy of its reserve for loan losses. These factors include
recent and historical default rates, static pool
28
analyses, current delinquency rates, contractual payment terms, loss
severity rates along with present and expected economic conditions.
The Company examines these factors and adjusts its reserve for loan
losses on at least a quarterly basis. Should the Company's estimates
of these and other pertinent factors change, the Company's results
of operations, financial condition and liquidity position could be
adversely affected.
o When the Company sells notes receivables either pursuant to its
timeshare receivables purchase facilities or, in the case of land
mortgages receivable, private-placement REMICs, it retains a
residual interest, subordinated tranches, rights to excess interest
spread and servicing, all of which are retained interests in the
sold notes receivable. Gain or loss on 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. The Company initially and periodically
estimates fair value based on the present value of future expected
cash flows using management's best estimates of the key assumptions
- prepayment rates, loss severity rates, default rates and discount
rates commensurate with the risks involved. Should the Company's
estimates of these key assumptions change there would be a reduction
in the fair value of the retained interests and the Company's
results of operations and financial condition could be adversely
impacted.
o The Company periodically evaluates the recovery of the carrying
amount of individual resort and residential land properties under
the guidelines of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." Factors that the Company considers
in making this evaluation include the estimated remaining
life-of-project sales for each project based on current retail
prices and the estimated costs to complete each project. Should the
Company's estimates of these factors change, the Company's results
of operations and financial condition could be adversely impacted.
o In June 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 142, "Accounting for Goodwill and Other Intangible
Assets", effective April 1, 2002 for the Company. Under the new
rules, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but will be subject to annual
impairment tests in accordance with SFAS No. 142. Other intangible
assets will continue to be amortized over their useful lives. The
Company applied the new rules on accounting for goodwill and other
intangible assets during the nine months ended December 31, 2002.
The adoption of SFAS No. 142 did not have a material impact on the
Company's results of operations or financial condition.
o During the years ended March 31, 2002 and April 1, 2001, the Company
deferred the cost of generating timeshare tours through
telemarketing programs until such time as these tours were
conducted, based on an accepted industry accounting principle.
Effective April 1, 2002, the Company elected to change its
accounting policy to expense such costs as incurred. The Company
believes that the new method of accounting for these costs is
preferable over the Company's previous method and has been applied
prospectively. The Company believes accounting for these costs as
period expenses results in improved financial reporting and
consistency with the proposed timeshare Statement of Position
("SOP"), "Accounting for Real Estate Time-Sharing Transactions",
that was exposed for public comment by the FASB in February 2002.
The cumulative effect of this change in accounting principle was
additional expenses of $5.9 million, net of tax.
29
Results of Operations
(in thousands) Bluegreen Bluegreen(R)
Resorts Communities Total
----------- ------------------------- -----------------------
Nine Months Ended December 31, 2002
Sales $ 144,026 100% $ 78,629 100% $ 222,655 100%
Cost of sales (35,560) (25) (42,363) (54) (77,923) (35)
--------- --------- ---------
Gross profit 108,466 75 36,266 46 144,732 65
Other resort and golf operations revenues 23,520 16 3,528 4 27,048 12
Cost of resort and golf operations (22,921) (16) (3,974) (5) (26,895) (12)
Selling and marketing expenses (82,946) (58) (15,698) (20) (98,644) (44)
Field general and administrative expenses (1) (8,901) (6) (6,552) (8) (15,453) (7)
--------- --------- ---------
Field operating profit $ 17,218 12% $ 13,570 17% $ 30,788 14%
========= ========= =========
Nine Months Ended December 30, 2001
Sales $ 110,846 100% $ 73,857 100% $ 184,703 100%
Cost of sales (25,726) (23) (38,407) (52) (64,133) (35)
--------- --------- ---------
Gross profit 85,120 77 35,450 48 120,570 65
Other resort and golf operations revenues 17,475 16 1,709 2 19,184 10
Cost of resort and golf operations (15,646) (14) (2,198) (3) (17,844) (9)
Selling and marketing expenses (64,021) (58) (14,572) (20) (78,593) (43)
Field general and administrative expenses (1) (7,958) (7) (6,180) (8) (14,138) (8)
--------- --------- ---------
Field operating profit $ 14,970 14% $ 14,209 19% $ 29,179 16%
========= ========= =========
Year Ended March 31, 2002
Sales $ 144,226 100% $ 96,402 100% $ 240,628 100%
Cost of sales (33,588) (23) (52,937) (55) (86,525) (36)
--------- --------- ---------
Gross profit 110,638 77 43,465 45 154,103 64
Other resort and golf operations revenues 23,149 16 2,321 2 25,470 11
Cost of resort and golf operations (20,506) (14) (3,038) (3) (23,544) (10)
Selling and marketing expenses (83,251) (58) (19,208) (20) (102,459) (43)
Field general and administrative expenses (1) (10,301) (7) (8,125) (8) (18,426) (8)
--------- --------- ---------
Field operating profit $ 19,729 14% $ 15,415 16% $ 35,144 15%
========= ========= =========
Year Ended April 1, 2001
Sales $ 140,975 100% $ 88,899 100% $ 229,874 100%
Cost of sales (31,049) (22) (47,746) (54) (78,795) (34)
--------- --------- ---------
Gross profit 109,926 78 41,153 46 151,079 66
Other resort and golf operations revenues 22,762 16 1,887 2 24,649 11
Cost of resort and golf operations (22,068) (16) (2,883) (3) (24,951) (11)
Selling and marketing expenses (89,028) (63) (18,756) (21) (107,784) (47)
Field general and administrative expenses (1) (11,868) (8) (8,410) (9) (20,278) (8)
--------- --------- ---------
Field operating profit $ 9,724 7% $ 12,991 15% $ 22,715 10%
========= ========= =========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $14.2 million, $13.6 million, $19.4 million and $19.5
million for the nine months ended December 31, 2002, the nine months ended
December 30, 2001, the year ended March 31, 2002 and the year ended April
1, 2001, respectively.
Sales and Field Operations
Consolidated sales were $222.7 million for the nine months ended December
31, 2002, $184.7 million for the nine months ended December 30, 2001, $240.6
million for the year ended March 31, 2002 and $229.9 million for the year ended
April 1, 2001. Consolidated sales increased 21% from the nine months ended
December 30, 2001 to the nine months ended December 31, 2002 and 5% from the
year ended April 1, 2001 to the year ended March 31, 2002.
Bluegreen Resorts
During the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, sales of Timeshare Interests contributed $144.0 million or
65% and $110.8 million or 60%, respectively, of the Company's total consolidated
sales. During the year ended March 31, 2002 and the year ended April 1, 2001,
sales of Timeshare Interests contributed $144.2 million or 60% and $141.0
million or 61%, respectively, of the Company's total consolidated sales.
30
The following table sets forth certain information for sales of Timeshare
Interests for the periods indicated, before giving effect to the
percentage-of-completion method of accounting.
Nine Months Ended Year Ended
----------------- ----------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
---- ---- ---- ----
Number of timeshare sale transactions 16,347 12,846 16,414 16,240
Average sales price per transaction $ 9,311 $ 8,966 $ 8,989 $ 8,743
Gross margin 75% 77% 77% 78%
The $33.2 million increase in Bluegreen(R) Resorts' sales during the nine
months ended December 31, 2002, as compared to the nine months ended December
30, 2001, was primarily due to an increased focus on marketing to the Company's
growing Club owner base and to sales prospects referred to the Company by
existing Club owners or other prospects. Sales to owner and referral prospects
increased by 62% and represented 25% and 20% of sales during the nine months
ended December 31, 2002 and the nine months ended December 30, 2001,
respectively. This combined with a 22% overall increase in the number of sales
prospects seen by Bluegreen Resorts to approximately 145,000 prospects during
the nine months ended December 31, 2002 from approximately 119,000 prospects
during the nine months ended December 30, 2001, a 9% increase in the
sale-to-tour conversion ratio and the increase in average sales price reflected
in the above table resulted in the increase in sales during the nine months
ended December 31, 2002, as compared to the nine months ended December 30, 2001.
During the nine months ended December 31, 2002, the Company only opened three
new sales sites, one in June 2002 and two in November 2002. The new sales sites,
a sales office at the newly acquired Mountain Run at Boyne(TM) resort at Boyne
Mountain, Michigan, and two offsite sales operations in Minneapolis, Minnesota
and Daytona Beach, Florida, generated a combined $2.5 million of sales during
the nine months ended December 31, 2002. Accordingly, the majority of Bluegreen
Resorts sales growth during the nine months ended December 31, 2002, was due to
same-site sales increases.
The $3.2 million increase in Bluegreen Resorts sales during the year ended
March 31, 2002 as compared to the year ended April 1, 2001 was primarily due to
a $9.7 million increase in sales at the Company's 51%-owned Big Cedar Wilderness
Club(TM), as this resort had just commenced sales in the year ended April 1,
2001 and was in the start-up phase. This increase was partially offset by the
closure of the offsite sales office serving the Cleveland, Ohio market in May
2001, due to low profitability. The Cleveland sales office generated $1.2
million in sales prior to its closure in the year ended March 31, 2002, as
compared to $8.4 million in the year ended April 1, 2001.
Gross margin percentages vary between periods based on the relative costs
of the specific Timeshare Interests sold in each respective period. During the
nine months ended December 31, 2002, a higher percentage of Bluegreen Resorts'
sales were of lower gross margin inventory, primarily the Lodge Alley Inn(TM)
and Solara Surfside(TM) resorts, than during the nine months ended December 30,
2001.
Other resort service revenues increased 35% to $23.5 million from 17.5
million during the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, respectively. On October 2, 2002, LPI, a wholly-owned
subsidiary of the Company, acquired substantially all of the assets and assumed
certain liabilities of TMOV. LPI was a newly-formed entity with no prior
operations. Utilizing the assets acquired from TMOV, LPI generates sales leads
for timeshare interest sales utilizing various marketing strategies. Through the
application of a proprietary computer software system, these leads are then
contacted and given the opportunity to purchase mini-vacation packages. These
packages sometimes combine hotel stays, cruises and gift premiums. Buyers of
these mini-vacation packages are then usually required to participate in a
timeshare sales presentation. LPI generates sales prospects for the Company's
timeshare sales business and for sales prospects that will be sold to other
timeshare developers. Since October 2, 2002, LPI generated $6.3 million of
revenues, all included in other resort service revenues on the consolidated
income statement, resulting in the overall increase in other resort service
revenues during the nine months ended December 31, 2002.
Cost of other resort services increased 46% to $22.9 million from $15.6
million during the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, respectively, primarily as a result of operating expenses of
$7.3 million incurred by LPI since October 2, 2002. LPI's approximately $1.0
million loss is primarily due to the impact of applying fair market valuations
to TMOV's assets based on purchase accounting required by SFAS No. 141,
"Business Combinations".
31
Gross profit from other resort services increased $1.9 million or 281% to
$2.6 million from $694,000 during the year ended March 31, 2002 as compared to
the year ended April 1, 2001, respectively. The increase was primarily due to
$2.6 million in increased profits related to management and other fee income
earned for services provided to Club members, due to an increase in members from
38,000 to 51,000 members at April 1, 2001 and March 31, 2002, respectively. This
increase was partially offset by additional costs incurred in connection with
the expansion of Bluegreen(R) Resorts's customer service area. As the Club
member base increases, the Company anticipates increased gross profits from the
related management fees, although there can be no assurances that the member
base will continue to increase or that such increased management fees will be
realized.
Selling and marketing expenses for Bluegreen Resorts, which are primarily
variable with sales, remained constant as a percentage of sales at 58% during
the nine months ended December 31, 2002 and the nine months ended December 30,
2001. Selling and marketing expenses as a percentage of sales is an important
indicator of the performance of Bluegreen Resorts and the Company as a whole. No
assurances can be given that selling and marketing expenses will not increase as
a percentage of sales in future periods.
The reduction in selling and marketing expenses as a percentage of
Bluegreen Resorts' sales to 58% from 63% during the year ended March 31, 2002 as
compared to the year ended April 1, 2001, respectively, was primarily due to the
Company's focused efforts on increasing tour flow from Bluegreen Resorts'
inhouse, referral and owner marketing programs as well as a new compensation
plan which tied the Company's regional sales and marketing directors'
compensation to profitability. Another factor believed to have resulted in the
decrease of selling and marketing expenses was a new, standardized commissions
plan for Bluegreen Resorts sales personnel implemented in the year ended March
31, 2002 as well as the centralization of commission processing and monitoring
at the Company's corporate headquarters.
Field general and administrative expenses for Bluegreen Resorts increased
12% to $8.9 million from $8.0 million during the nine months ended December 31,
2002 and the nine months ended December 30, 2001, respectively. This increase
was due to the addition of the Minneapolis and Daytona Beach offsite sales
offices and the Mountain Run at Boyne(TM) sales offices, and due to the expenses
associated with potential acquisitions during the nine months ended December 31,
2002, which were not pursued.
Field general and administrative expenses for Bluegreen Resorts decreased
13% to $10.3 million from $11.9 million during the year ended March 31, 2002 and
the year ended April 1, 2001, respectively. This decrease was primarily due to
the closure of the Cleveland offsite sales office in May 2001 and other overhead
reductions effected during the year ended March 31, 2002.
Bluegreen Communities
During the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, Bluegreen Communities contributed $78.6 million or 35% and
$73.9 million or 40%, respectively, of the Company's total consolidated sales.
During the year ended March 31, 2002 and the year ended April 1, 2001, Bluegreen
Communities contributed $96.4 million or 40% and $88.9 million or 39%,
respectively, of the Company's total consolidated sales.
The table set forth below outlines the number of home sites sold and the
average sales price per home site for Bluegreen Communities for the periods
indicated, before giving effect to the percentage-of-completion method of
accounting and excluding sales of bulk parcels.
Nine Months Ended Year Ended
----------------- ----------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
---- ---- ---- ----
Number of home sites sold 1,242 1,092 1,640 1,614
Average sales price per home site $57,096 $60,028 $58,287 $57,191
Gross margin 46% 48% 45% 46%
Bluegreen Communities' sales increased $4.7 million or 6% during the nine
months ended December 31, 2002 as compared to the nine months ended December 30,
2001 due to increased sales at Ridge Lake Shores(TM), a 1,152 acre property
acquired in February 2001 in Magnolia, Texas, and Mountain Lakes Ranch(TM), a
4,100 acre property acquired in October 1998 in Bluffdale, Texas. Ridge Lake
Shores had just opened for sale during the nine months ended December 30, 2001
and started achieving a post-start-up sales pace during the nine months ended
December 31, 2002. Mountain Lakes Ranch benefited from a more mature marketing
program and continued development.
32
Bluegreen(R) Communities' sales increased $7.5 million in the year ended
March 31, 2002 as compared to the year ended April 1, 2001 due primarily to
$17.5 million of increased sales at The Preserve at Jordan Lake(TM), a golf
course community located near the Raleigh-Durham area of North Carolina. The
Preserve at Jordan Lake had just commenced sales and development during the year
ended April 1, 2001, and therefore had a significant portion of its sales during
this start-up year deferred under percentage-of-completion accounting. This
increase was partially offset by an $8.5 million decrease in sales in the
Company's Arizona region due to the two main projects in this region being
substantially sold out in the year ended April 1, 2001. The remaining offsetting
decrease was due to a $1.4 million sale of a bulk tract of land in the year
ended April 1, 2001 by the Company, with no such corresponding sale in the year
ended March 31, 2002.
Bluegreen Communities intends to primarily focus its resources on
developing new golf communities and continuing to support its successful regions
in Texas. Bluegreen Communities is currently negotiating the acquisition of
properties for the development of two new golf course communities in the
Southeastern United States. There can be no assurances that these properties
will be acquired at acceptable pricing or at all. During the nine months ended
December 31, 2002, the Company's golf communities and Texas regions comprised
approximately 41% and 46%, respectively, of Bluegreen Communities' sales.
The decrease in gross margin during the nine months ended December 31,
2002 as compared to the nine months ended December 30, 2001 was due in part to
the lower average sales price per home site as the types of properties sold
during each respective period varied. Also, the cost basis of the Company's
Preserve at Jordan Lake increased during the nine months ended December 31, 2002
due to cost overruns. Finally, the Company recognized a $750,000 impairment
charge on the Bluegreen Communities Crystal Cove(TM) project in Tennessee.
Additional development expenditures required for road and utility work at the
project exceeded the Company's original estimates. The Company believes that
this charge is adequate to reduce the carrying value of this project to its fair
value less estimated selling costs.
The decrease in gross margin during the year ended March 31, 2002 as compared to
the year ended April 1, 2001, was primarily due to $4.1 million in impairment
charges taken on the Crystal Cove project.
Golf operations revenue increased 106% to $3.5 million from $1.7 million
and the cost of golf operations increased 81% to $4.0 million from $2.2 million
during the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, respectively. These increases are due to the opening of the
golf courses at Brickshire(TM), located in New Kent, Virginia, and The Preserve
at Jordan Lake in March 2002 and August 2002, respectively.
The gross loss from golf operations decreased $279,000 or 28% during the
year ended March 31, 2002 as compared to the year ended April 1, 2001, due to
decreased losses from the operations at Carolina National(TM), as the operation
continues to mature.
Selling and marketing expenses for Bluegreen Communities remained
relatively constant at approximately 20% of sales during all periods presented.
Interest Income
Interest income was $12.2 million and $11.9 million for the nine months
ended December 31, 2002 and the nine months ended December 30, 2001,
respectively. Interest income was $15.4 million and $17.3 million for the year
ended March 31, 2002 and the year ended April 1, 2001, respectively. The
Company's interest income is earned from its notes receivable, retained
interests in notes receivable sold (including REMIC transactions) and cash and
cash equivalents.
The decrease in interest income during the year ended March 31, 2002 was
due to due to lower average cash balances on hand, lower interest rates on cash
balances and Bluegreen Communities mortgages held and lower timeshare notes
receivables held due to increased sales of timeshare notes receivable during the
year ended March 31, 2002 as compared to the year ended April 1, 2001.
Gain on Sale of Notes Receivable
During the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, the Company recognized gains on the sale of notes receivable
totaling $10.0 million and $4.2 million, respectively. In the
33
year ended March 31, 2002 and the year ended April 1, 2001, the Company
recognized $6.3 million and $3.3 million in such gains, respectively. The sale
of timeshare notes receivable was pursuant to timeshare receivables purchase
facilities in place during the respective periods (the current timeshare
receivables purchase facility is more fully described below under "Credit
Facilities for Bluegreen(R) Resorts' Receivables and Inventories").
The 138% increase in gain on sale of notes receivable during the nine
months ended December 31, 2002, as compared to the nine months ended December
30, 2001, was primarily due to a $4.7 million gain recorded in connection with
the December 13, 2002 private offering and sale (as a term securitization) of
$170.2 million in aggregate purchase price of timeshare receivables, including
receivables previously sold to ING, General Electric Capital Real Estate/Heller
Financial, Inc. ("GE") and Barclays Bank, PLC ("Barclays") and receivables
previously pledged to GE. Please see "Credit Facilities for Bluegreen Resorts'
Receivables and Inventories," below, for further details on the December 13,
2002 term securitization. The remaining increase in the gain on sale of notes
receivable was due to the sale of timeshare receivables in the normal course of
business with aggregate principal balances of $84.6 million and $67.4 million
during the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, respectively.
The amount of gain increased in the year ended March 31, 2002, as compared
to the year ended April 1, 2001, commensurate with the increase in the principal
amount of notes receivable sold ($100.9 million and $77.8 in the year ended
March 31, 2002 and the year ended April 1, 2001, respectively). Another factor
that increased the gain on sale of these receivables during the year ended March
31, 2002 as compared to the year ended April 1, 2001 was the decrease in
commercial paper rates during the respective periods. The return earned by the
parties who purchased these fixed rate (approximately 15%) receivables is based
on variable commercial paper rates, so as interest rates decrease the available
interest spread increases which in turn increases the value of the Company's
retained interest in the receivable pools sold and hence increases the Company's
gain on sale.
Corporate General and Administrative Expenses
For a discussion of field selling, general and administrative expenses,
please see "Sales and Field Operations", above.
The Company's corporate general and administrative ("G&A") expenses
consist primarily of expenses incurred to administer the various support
functions at the Company's corporate headquarters, including accounting, human
resources, information technology, mergers and acquisitions, mortgage servicing,
treasury and legal. Corporate G&A increased 4% to $14.2 million from $13.6
million during the nine months ended December 31, 2002 and the nine months ended
December 30, 2001, respectively. Corporate G&A remained relatively constant at
$19.4 million and $19.5 million during the year ended March 31, 2002 and the
year ended April 1, 2001, respectively.
Interest Expense
Interest expense was $9.8 million and $10.1 million for the nine months
ended December 31, 2002 and the nine months ended December 30, 2001,
respectively. Interest expense totaled $13.0 million and $15.5 million for the
year ended March 31, 2002 and the year ended April 1, 2001, respectively. The
16.0% decrease in the year ended March 31, 2002 was due to lower outstanding
balances on the Company's acquisition and development loans borrowed in prior
years and lower interest rates on variable-rate facilities.
The effective cost of borrowing (when adding back capitalized interest)
was 9.1%, 9.1% and 9.5% for the nine months ended December 31, 2002, the year
ended March 31, 2002 and the year ended April 1, 2001, respectively.
34
Provision for Loan Losses
The allowance for loan losses by division as of December 31, 2002 and
March 31, 2002 was (amounts in thousands):
Bluegreen(R) Bluegreen
Resorts Communities Other Total
December 31, 2002
Notes receivable $ 53,029 $ 11,559 $ 1,896 $ 66,484
Less: allowance for loan losses (4,081) (496) (112) (4,689)
-------- -------- -------- --------
Notes receivable, net $ 48,948 $ 11,063 $ 1,784 $ 61,795
======== ======== ======== ========
Allowance as a % of gross notes receivable 8% 4% 6% 7%
======== ======== ======== ========
March 31, 2002
Notes receivable $ 50,892 $ 7,079 $ 1,884 $ 59,855
Less: allowance for loan losses (3,782) (313) (112) (4,207)
-------- -------- -------- --------
Notes receivable, net $ 47,110 $ 6,766 $ 1,772 $ 55,648
======== ======== ======== ========
Allowance as a % of gross notes receivable 7% 4% 6% 7%
======== ======== ======== ========
The Company recorded provisions for loan losses totaling $2.8 million and
$3.7 million during the nine months ended December 31, 2002 and the nine months
ended December 30, 2001, respectively. The provisions of loan losses were $4.9
million each year for both the year ended March 31, 2002 and the year ended
April 1, 2001. The 23% decrease in the provision during the nine months ended
December 31, 2002 as compared to the nine months ended December 30, 2001, was
due to increased, non-recourse sales of notes receivable pursuant to the
Company's timeshare receivables purchase facility during the nine months ended
December 31, 2002 (see "Liquidity and Capital Resources"). Despite the lower
provision for loan losses during the nine months ended December 31, 2002, the
allowance for loan losses for the Company's Bluegreen Resorts notes receivable
as of December 31, 2002 increased as a percentage of related gross notes
receivable as compared to this same ratio at March 31, 2002. The Company
believes that its allowance for loan losses as of December 31, 2002 is an
adequate reserve for future losses on the Company's notes receivable portfolio
as of December 31, 2002, although there can be no assurances that such future
losses will not exceed the allowance for loan losses.
Other notes receivable at December 31, 2002 and March 31, 2002, primarily
consists of a loan to the property owners' association that is responsible for
the maintenance of La Cabana, Casa Grande Cooperative Association I (see Note 5
of Notes to Consolidated Financial Statements).
Other Expense, Net
Other expense, net of other income, totaled $1.5 million and $277,000 for
the nine months ended December 31, 2002 and the nine months ended December 30,
2001, respectively. Other expense, net of other income, totaled $162,000 and
$400,000 for the year ended March 31, 2002 and the year ended April 1, 2001,
respectively. The increase in other expense, net, during the nine months ended
December 31, 2002 was primarily due to the write-off of accumulated foreign
currency translation adjustments related to the substantive cessation of the
Company's operations in Canada.
Provision for Income Taxes
The provision for income taxes was 35.6% and 38.5% of income before taxes
for the nine months ended December 31, 2002 and the nine months ended December
30, 2001. The provision for income taxes was 38.5% of income before taxes for
both the year ended March 31, 2002 and the year ended April 1, 2001. The lower
effective income tax rate for the nine months ended December 31, 2002 was due to
the application of state net operating losses.
Cumulative Effect of Change in Accounting Principle, Net of Tax
During the years ended March 31, 2002 and April 1, 2001, the Company
deferred the costs of generating timeshare tours through telemarketing programs
until the earlier of such time as the tours were conducted or the related
mini-vacation packages expired, based on an accepted industry accounting
principle. Effective April 1, 2002, the Company elected to change its accounting
policy to expense such costs as incurred. The Company believes that the new
method of accounting for these costs is preferable over the Company's previous
method and
35
has been applied prospectively. The Company believes accounting for these costs
as period expenses results in improved financial reporting and consistency with
the proposed timeshare SOP, "Accounting for Real Estate Time-Sharing
Transactions", that was exposed for public comment by the FASB in February 2003.
The cumulative effect of this change in accounting principle was additional
expense of $5.9 million, net of tax.
Summary
Based on the factors discussed above, the Company's net income decreased
to $9.8 million for the nine months ended December 31, 2002 from $10.7 million
for the nine months ended December 30, 2001. Net income increased to $11.7
million in the year ended March 31, 2002 from $2.7 million in the year ended
April 1, 2001.
Changes in Financial Condition
Cash Flows From Operating Activities
Cash flows from operating activities decreased $12.6 million to net cash
inflows of $7.0 million from $19.6 million in the nine months ended December 31,
2002 and the nine months ended December 30, 2001, respectively. The Company's
notes receivable increased $99.9 million as compared to an increase of $76.5
million during the nine months ended December 31, 2002 and December 30, 2001,
respectively, primarily due to increased sales of Timeshare Interests. Also,
proceeds from the sale of and borrowings collateralized by notes receivable, net
of payments on such borrowings, decreased to $63.5 million from $65.7 million
during the nine months ended December 31, 2002 and December 30, 2001,
respectively. In addition, the gain on sale of notes receivable increased to
$10.0 million from $4.2 million, during the nine months ended December 31, 2002
and the nine months ended December 30, 2001, respectively. These decreases to
net cash provided by operations were partially offset by the excess of the $22.4
million net inventory decrease in the nine months ended December 31, 2002 over
the $4.0 million net inventory decrease in the nine months ended December 30,
2001.
Cash flows from operating activities increased $29.6 million to net cash
inflows of $31.7 million from $2.1 million in the year ended March 31, 2002 and
the year ended April 1, 2001, respectively. The increase was primarily due to a
$9.0 million increase in net income. The increase in operating cash flows was
also due to a $12.7 million increase in net cash provided from the sale of
timeshare notes receivable. The Company sold $100.9 million and $77.8 million of
timeshare notes receivable at advance rates of 85% and 95% under various
timeshare receivable purchase facilities in the year ended March 31, 2002 and
the year ended April 1, 2001, respectively. See "Liquidity and Capital
Resources" for further discussion of the Company's note receivable purchase
facilities. Also, the year ended April 1, 2001 cash flows were impacted by a $9
million prepayment of commissions and joint venture distributions to Bass Pro(R)
(see Note 4 of Notes to Consolidated Financial Statements), which is anticipated
to be a one-time event.
The Company reports 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 the Company's sales for
Bluegreen(R) Resorts result in the origination of notes receivable from its
customers. Management believes that accelerating the conversion of such notes
receivable into cash, either through the pledge or sale of the Company's notes
receivable, on a regular basis is an integral function of the Company's
operations, and has therefore classified such activities as operating
activities.
Cash Flows From Investing Activities
Cash flows from investing activities increased $11.8 million to net cash
inflows of $7.9 million from net cash outflows of $3.9 million in the nine
months ended December 31, 2002 and the nine months ended December 30, 2001,
respectively. The increase was primarily due to more cash received from the
Company's retained interests in notes receivable sold, as the amount of these
retained interests grew during the nine months ended December 31, 2002. The
Company received $14.6 million and $3.6 million of cash from its retained
interest in notes receivable sold during the nine months ended December 31, 2002
and nine months ended December 30, 2001, respectively.
Cash flows from investing activities increased $5.4 million to net cash
outflows of $2.1 million from $7.5 million in the year ended March 31, 2002 and
the year ended April 1, 2001, respectively. The increase was primarily due to a
$4.7 million loan made to Napa Partners, LLC during the year ended April 1, 2001
that was collected by the Company in the year ended March 31, 2002 (see Note 5
of Notes to Consolidated Financial Statements). This increase was partially
offset by a $3.4 million increase in purchases of property and equipment.
36
Cash Flows from Financing Activities
Cash flows from financing activities increased $480,000 to net cash
outflows of $16.8 million from $17.3 million in the nine months ended December
31, 2002 and the nine months ended December 30, 2001, respectively. The increase
is due to an increase in proceeds from the exercise of employee and director
stock options during the nine months ended December 31, 2002 as compared to the
nine months ended December 30, 2001. Net cash outflows from the Company's other
financing activities, primarily related to borrowings under and payments made on
lines-of-credit facilities and other notes payable, were approximately the same
during both the nine months ended December 31, 2002 and the nine months ended
December 30, 2001.
Cash flows from financing activities decreased $760,000 to net cash
outflows of $20.9 million from $20.1 million in the year ended March 31, 2002
and the year ended April 1, 2001, respectively. The decrease is due to payments
in excess of borrowings under acquisition and development line-of-credit
facilities and notes payable of $19.5 million as compared to $18.0 million in
the year ended March 31, 2002 and the year ended April 1, 2001, respectively.
This decrease was partially offset by the fact that the Company did not
repurchase any common stock in the year ended March 31, 2002 as compared to
common stock repurchases of $572,000 in the year ended April 1, 2001.
Liquidity and Capital Resources
The Company's capital resources are provided from both internal and
external sources. The Company's primary capital resources from internal
operations are: (i) cash sales, (ii) down payments on home site and timeshare
sales which are financed, (iii) proceeds from the sale of, or borrowings
collateralized by, notes receivable including cash received from the Company's
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 Timeshare Interests and home sites and (v) net cash
generated from other resort services and golf 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. The
Company's capital resources are used to support the Company's operations,
including (i) acquiring and developing inventory, (ii) providing financing for
customer purchases, (iii) meeting operating expenses and (iv) satisfying the
Company's debt, and other obligations. The Company anticipates that it will
continue to require external sources of liquidity to support its operations,
satisfy its debt and other obligations and to provide funds for future
acquisitions.
Note Offering
On April 1, 1998, the Company consummated a Rule 144A private placement
offering (the "Offering") of $110.0 million in aggregate principal amount of
10.5% senior secured notes due April 1, 2008 (the "Notes"). The net proceeds of
the Offering were approximately $106.3 million. In the Offering, the Company
initially sold the Notes to NatWest Capital Markets Limited and McDonald &
Company Securities, Inc. (the "Initial Purchasers") in a private transaction
exempt from the registration requirements of the Securities Act of 1933 by
virtue of the exemption from registration contained in Section 4(2) thereof, and
the Initial Purchasers resold the Notes in compliance with the exemption from
registration contained in Rule 144A under the Securities Act. In the Purchase
Agreement executed with the Initial Purchasers, the Initial Purchasers made
investment representations which are customary for private placement
transactions with institutional investors and agreed to comply with Rule 144A in
connection with any resales. The Company subsequently exchanged the privately
placed Notes for registered Notes. The net proceeds of the Offering were used to
repay certain outstanding debt obligations of the Company and for working
capital purposes (see Note 12 of Notes to Consolidated Financial Statements).
Credit Facilities for Bluegreen(R) Resorts' Receivables and Inventories
The Company maintains various credit and purchase facilities with
financial institutions that provide for receivable financing for its timeshare
projects.
The Company's ability to sell and/or borrow against its notes receivable
from timeshare buyers is a critical factor in the Company's continued liquidity.
The timeshare business involves making sales of a product pursuant to which a
financed buyer is only required to pay 10% of the purchase in cash up front, yet
selling, marketing and administrative expenses are primarily cash expenses and
which, in the Company's case for the nine months ended December 31, 2002,
approximated 64% of sales. Accordingly, having facilities for the sale and
hypothecation of these timeshare receivables is a critical factor to the Company
meeting its short and long-term cash needs.
37
In June 2001, the Company executed agreements for a timeshare receivables
purchase facility (the "Purchase Facility") with CSFB acting as the initial
purchaser. In April 2002, ING acquired and assumed CSFB's rights, obligations
and commitments as initial purchaser in the Purchase Facility by purchasing the
outstanding principal balance under the facility of $64.9 million from CSFB. In
connection with its assumption of the Purchase Facility, ING expanded and
extended the Purchase Facility's size and term. The Purchase Facility utilizes
an owner's trust structure, pursuant to which the Company sells receivables to
Bluegreen(R) Receivables Finance Corporation V, a wholly-owned, special purpose
finance subsidiary of the Company (the "Subsidiary"), and the Subsidiary sells
the receivables to an owners' trust without recourse to the Company or the
Subsidiary except for breaches of customary representations and warranties at
the time of sale. The Company did not enter into any guarantees in connection
with the Purchase Facility. Pursuant to the agreements that constitute the
Purchase Facility (collectively, the "Purchase Facility Agreements"), the
Subsidiary could receive $125.0 million of cumulative purchase price (as more
fully described below) on sales of timeshare receivables to the owner's trust on
a revolving basis, as the principal balance of receivables sold amortizes, in
transactions through April 16, 2003 (subject to certain conditions as more fully
described in the Purchase Facility Agreements). The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase and fundings under the Purchase Facility are subject to certain
conditions precedent. Under the Purchase Facility, a variable purchase price of
85.00% of the principal balance of the receivables sold, subject to certain
terms and conditions, is paid at closing in cash. The balance of the purchase
price will be deferred until such time as ING has received a specified return
and all servicing, custodial, agent and similar fees and expenses have been
paid. ING shall earn a return equal to the London Interbank Offered Rate
("LIBOR") plus 1.00%, subject to use of alternate return rates in certain
circumstances. In addition, ING will receive a 0.25% facility fee during the
term of the facility. The Purchase Facility also provides for the sale of land
notes receivable, under modified terms.
The Company acts as servicer under the Purchase Facility for a fee. The
Purchase Facility Agreements include various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
ING's obligation to purchase under the Purchase Facility may terminate upon the
occurrence of specified events. These specified events, some of which are
subject to materiality qualifiers and cure periods, include, without limitation,
(1) a breach by the Company of the representations or warranties in the Purchase
Facility Agreements, (2) a failure by the Company to perform its covenants in
the Purchase Facility Agreements, including, without limitation, a failure to
pay principal or interest due to ING, (3) the commencement of a bankruptcy
proceeding or the like with respect to the Company, (4) a material adverse
change to the Company since December 31, 2001, (5) the amount borrowed under the
Purchase Facility exceeding the borrowing base, (6) significant delinquencies or
defaults on the receivables sold, (7) a payment default by the Company under any
other borrowing arrangement of $5 million or more (a "Significant Arrangement"),
or an event of default under any indenture, facility or agreement that results
in a default under any Significant Arrangement, (8) 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 the Company's
tangible net worth or (b) causes, or permits the holder of indebtedness to
cause, an amount in excess of 5% of the Company's tangible net worth to become
due, (9) the Company's tangible net worth not equaling at least $110 million
plus 50% of net income and 100% of the proceeds from new equity financing
following the first closing under the Purchase Facility, (10) the ratio of the
Company's debt to tangible net worth exceeding 6 to 1, or (11) the failure of
the Company to perform its servicing obligations.
Through November 25, 2002, the Company sold $145.7 million of aggregate
principal balance of notes receivable under the Purchase Facility for a
cumulative purchase price of $123.9 million.
On December 13, 2002, IFM, an affiliate of ING, consummated a $170.2
million private offering and sale of timeshare loan-backed securities on behalf
of the Company (the "2002 Term Securitization"). The $181.0 million in aggregate
principal of timeshare receivables included in the 2002 Term Securitization
included qualified receivables from three sources: 1) $119.2 million in
aggregate principal of receivables that were previously sold to ING under the
Purchase Facility; 2) $54.2 million in aggregate principal of receivables that
were previously sold to GE and Barclays under a previous timeshare receivables
purchase facility (the "GE/Barclays Facility"); and 3) $7.6 million in aggregate
principal of receivables that were previously hypothecated with GE under a
timeshare receivables warehouse facility (the "GE Warehouse Facility"). The
proceeds from the 2002 Term Securitization were used to pay ING, GE and Barclays
all amounts outstanding under the Purchase Facility, the GE/Barclays Facility
and the GE Warehouse Facility. The Company received net cash proceeds of $2.1
million, Timeshare Interests with a carrying value of $1.4 million, timeshare
notes receivable with an estimated net realizable value of $3.1 million and
recorded a retained interest in the future cash flows from the 2002 Term
Securitization of $36.1 million. The Company also recognized a gain of $4.7
million in connection with the 2002 Term Securitization.
38
As a result of the 2002 Term Securitization, the Subsidiary may sell
additional notes receivable for a cumulative purchase price of up to $75.0
million under the Purchase Facility, on a revolving basis, prior to April 16,
2003, at 85% of the principal balance, subject to the eligibility requirements
and certain conditions precedent. On December 23, 2002, the Company sold $22.1
million of aggregate principal balance of notes receivable under the Purchase
Facility for a purchase price of $18.7 million. On March 19, 2003, the Company
sold $28.7 million of aggregate principal balance of notes receivable under the
Purchase Facility for a purchase price of $24.4 million. As of March 24, 2003,
the Subsidiary could sell an additional $32.6 million under the Purchase
Facility. The Company is currently negotiating an increase and extension of the
Purchase Facility to $125.0 million cumulative purchase price, on a revolving
basis, through April 16, 2004. There can be no assurances that such an increase
and extension will be obtained on attractive terms if at all.
In addition to the Purchase Facility, the Company is a party to a number
of securitization transactions, all of which in the Company's opinion utilize
customary structures and terms for transactions of this type. (The ING Purchase
Facility discussed above is the only timeshare receivables purchase facility in
which the Company currently has the ability to sell receivables, with the
Company's ability to sell receivables under prior facilities having expired.) In
each securitization, the Company sells receivables to a wholly-owned special
purpose entity which, in turn, sells the receivables either directly to third
parties or to a trust established for the transaction. In each transaction, the
receivables are sold on a non-recourse basis (except for breaches of customary
representations and warranties) and the special purpose entity has a retained
interest in the receivables sold. The Company has 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
the Company's special purpose subsidiary as the holder of the retained interest
in the receivables according to one of two specified formulas. In general,
available funds are applied monthly to pay fees to service providers, interest
and principal payments to investors, and distributions in respect of the
retained interest 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 there are 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 the Company's subsidiary in its capacity as the holder
of the retained interest. 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 interest 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 the Company's retained interest 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 the Company's special purpose subsidiary, the suspension or
termination of that commitment. In addition, in each securitization facility
certain breaches by the Company of its obligations as servicer or other events
allow the investor to cause the servicing to be transferred to a substitute
third party servicer. In that case, the Company's obligation to service the
receivables would terminate and it would cease to receive a servicing fee.
The Company is seeking new timeshare receivable purchase facilities to
replace expiring facilities. As indicated above, the Purchase Facility will
expire on April 16, 2003. The Company is currently discussing terms for a
potential new timeshare receivable purchase facility with an unaffiliated
financial institution and is negotiating an extension and increase to the
Purchase Facility. Factors which could adversely impact the Company's ability to
obtain new or additional timeshare receivable purchase facilities include, but
are not limited to, 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 willing to engage in such
facilities in the timeshare area; a deterioration in the performance of the
Company's timeshare notes receivable or in the performance of portfolios sold in
prior transactions, specifically increased delinquency, default and loss
severity rates; and a deterioration in the Company's performance generally.
There can be no assurances that the Company will obtain a new purchase facility
to replace the Purchase Facility when it is completed or expires. As indicated
above, the Company's inability to sell timeshare receivables under a current or
future facility could have a material adverse impact on the Company's liquidity
and operations.
39
In February 2003, the Company entered into a $50.0 million revolving
timeshare receivables credit facility (the "GMAC Receivables Facility") with
Residential Funding Corporation ("RFC"), an affiliate of General Motors
Acceptance Corporation. The borrowing period on the GMAC Receivables Facility
expires on March 10, 2005, and outstanding borrowings mature no later than March
10, 2012. 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 Timeshare
Interests. 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 will bear
interest at LIBOR plus 4%. The Company was required to pay an upfront loan fee
of $375,000 in connection with the GMAC Receivables Facility. On March 10, 2003,
the Company pledged $10.3 million in aggregate principal balance of timeshare
receivables under the GMAC Receivables Facility and received $9.3 million in
cash borrowings.
RFC has also provided the Company with a $15.0 million acquisition,
development and construction revolving credit facility for Bluegreen(R) Resorts
(the "GMAC AD&C Facility"). The borrowing period on the GMAC AD&C Facility
expires on February 10, 2005 and outstanding borrowings mature no later than
February 10, 2009. Principal will be repaid through agreed-upon release prices
as Timeshare Interests are sold at the financed resort, subject to minimum
required amortization. Indebtedness under the facility will bear interest at
LIBOR plus 4.75%. Interest payments are due monthly. The Company was required to
pay an upfront loan fee of $112,500 in connection with the GMAC AD&C Facility.
As of March 24, 2003, the Company had not borrowed under the GMAC AD&C Facility.
GE has provided the Company with a $28.0 million acquisition and
development facility for its timeshare inventories (the "GE A&D Facility"). The
borrowing period on the GE A&D Facility has expired and outstanding borrowings
mature no later than January 2006. Principal will be repaid through agreed-upon
release prices as Timeshare Interests are sold at the financed resort, subject
to minimum required amortization. The indebtedness under the facility bears
interest at LIBOR plus 3%. On September 14, 1999, the Company borrowed
approximately $14.0 million under the GE A&D facility. This borrowing was
collateralized by the Company's Lodge Alley Inn(TM) resort and has since been
paid in full. On December 20, 1999, the Company borrowed approximately $13.9
million under the acquisition and development facility. The principal of this
loan must be repaid by January 1, 2006, through agreed-upon release prices as
Timeshare Interests in phase two of the Company's Shore Crest(TM) resort are
sold, subject to minimum required amortization. The outstanding balance under
the GE A&D Facility at December 31, 2002 was $1.2 million, which was completely
repaid by March 24, 2003. The Company is currently negotiating a new acquisition
and development credit facility with GE. There can be no assurances that the
Company's negotiations will be successful.
On April 8, 2002, the Company entered into a $9.8 million, acquisition and
development line-of-credit with Marshall, Miller and Schroeder Investments
Corporation ("MM&S"). Borrowings under the line are collateralized by Timeshare
Interests in the Company's Solara Surfside(TM) resort in Surfside, Florida (near
Miami Beach). Borrowings occur as MM&S directly pays third-party contractors,
vendors and suppliers who have been engaged by the Company to perform renovation
work on Solara Surfside. The final draw on the loan was released after the
completion of all renovation work, in December 2002. Principal is repaid through
agreed-upon release prices as Timeshare Interests in Solara Surfside are sold,
subject to minimum required amortization. The indebtedness under the facility
bears interest at the prime lending rate plus 1.25%, subject to a minimum
interest rate of 7.50%, and all amounts borrowed are due no later than April 1,
2004. As of December 31, 2002, $1.5 million was outstanding under the MM&S
line-of-credit. As of March 24, 2003, approximately $55,000 was outstanding
under the MM&S line-of-credit.
Under an existing, $30.0 million revolving credit facility with Foothill
Capital Corporation ("Foothill") primarily for the use of borrowing against
Bluegreen Communities receivables, the Company can use up to $10.0 million of
the facility for the pledge of timeshare receivables. During the nine months
ended December 31, 2002, the Company borrowed $1.7 million under this facility
by pledging approximately $1.9 million in aggregate principal of timeshare
receivables at a 90% advance rate. See the next paragraph for further details on
this facility.
40
Credit Facilities for Bluegreen(R) Communities' Receivables and Inventories
The Company has a $30.0 million revolving credit facility with Foothill
for the pledge of Bluegreen Communities' receivables, with up to $10.0 million
of the total facility available for Bluegreen Communities' inventory borrowings
and up to $10.0 million of the total facility available for the pledge of
Bluegreen Resorts' receivables. The interest rate charged on outstanding
borrowings ranges from the prime interest rate plus 0.5% to 1.0%, with 7.0%
being the minimum interest rate. At December 31, 2002, the outstanding principal
balance under this facility was approximately $5.0 million, $1.4 million of
which related to Bluegreen Resorts' receivables borrowings, as discussed above,
and $3.6 million of which related to Bluegreen Communities' receivables
borrowings. All principal and interest payments received on pledged receivables
are applied to principal and interest due under the facility. In March 2003,
Foothill extended the Company's ability to borrow under the facility through
December 31, 2005, and extended the maturity date to December 31, 2007.
On September 25, 2002, certain direct and indirect wholly-owned
subsidiaries of the Company entered into a $50 million revolving credit facility
(the "GMAC Communities Facility") with RFC. The Company is the guarantor on the
GMAC Communities Facility. The GMAC Communities Facility is secured by the real
property home sites (and personal property related thereto) at the following
Bluegreen Communities projects of the Company, as well as any Bluegreen
Communities projects acquired by the Company with funds borrowed under the GMAC
Communities Facility (the "Secured Projects"): Brickshire(TM) (New Kent County,
Virginia); Mountain Lakes Ranch(TM) (Bluffdale, Texas); Ridge Lake Shores(TM)
(Magnolia, Texas); Riverwood Forest(TM) (Fulshear, Texas); Waterstone(TM)
(Boerne, Texas) and Yellowstone Creek Ranch(TM) (Pueblo, Colorado). In addition,
the GMAC Communities Facility is secured by the Company's Carolina National(TM)
and The Preserve at Jordan Lake(TM) golf courses in Southport, North Carolina
and Chapel Hill, North Carolina, respectively. Borrowings under the GMAC
Communities Facility can be drawn through September 25, 2004. Principal payments
are effected through agreed-upon release prices paid to RFC as home sites in the
Secured Projects are sold. The outstanding principal balance of any borrowings
under the GMAC Communities Facility must be repaid by September 25, 2006. The
interest charged on outstanding borrowings is at the prime lending rate plus
1.00% and will be payable monthly. The Company is required to pay an annual
commitment fee equal to 0.33% of the $50 million GMAC Communities Facility
amount. The GMAC Communities Facility includes customary conditions to funding,
acceleration and event of default provisions and certain financial affirmative
and negative covenants. On September 25, 2002, the Company borrowed $11 million
under the GMAC Communities Facility and received cash proceeds of approximately
$9 million. The $2 million deducted from the cash proceeds related to the
repayment of existing debt on the Secured Projects of approximately $1.5 million
and debt issuance costs totaling $500,000 including the first annual commitment
fee, as described above. The Company uses 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. As of December 31, 2002, there was $7.5 million
outstanding under the GMAC Communities Facility.
The Company is currently negotiating with an unaffiliated financial
institution and has received a term sheet regarding a $10 million, revolving
line-of-credit that would be collateralized by Bluegreen Communities'
receivables. There can be no assurances that this line-of-credit will be
obtained on attractive terms or at all.
Over the past several years, the Company has received approximately 90% to
99% of its home site sales proceeds in cash. Accordingly, in recent years the
Company has reduced the borrowing capacity under credit agreements secured by
Bluegreen Communities' receivables. The Company attributes the significant
volume of cash sales to an increased willingness on the part of banks to extend
direct customer home site financing. No assurances can be given that local banks
will continue to provide such customer financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys and engineering fees from internal operations
and has financed the acquisition of 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 home site releases. The release price is usually defined as a
pre-determined percentage of the gross selling price (typically 25% to 55%) of
the home sites in the subdivision. In addition, the agreements generally call
for minimum cumulative annual amortization. When the Company provides financing
for its customers (and therefore the release price is not available in cash at
closing to repay the lender), it is required to pay the creditor with cash
derived from other operating activities, principally from cash sales or the
pledge of receivables originated from earlier property sales.
41
Unsecured Credit Facility
The Company has a $12.5 million unsecured line-of-credit with Wachovia
Bank, N.A. Amounts borrowed under the line bear interest at LIBOR plus 2%.
Interest is due monthly and all principal amounts are due on December 31, 2003.
The Company is only allowed to borrow under the line-of-credit in amounts less
than the remaining availability under its current, active timeshare receivables
purchase facility plus availability under certain receivable 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 December 31, 2002, there was no amount outstanding under the line, nor
have there been any borrowings under the line through March 24, 2003. This
line-of-credit is an important source of short-term liquidity for the Company.
Summary
The Company requires external sources of liquidity in order to support its
operations and satisfy its debt and other obligations. The Company's level of
debt and debt service requirements have several important effects on its
operations, including the following: (i) the Company has significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing the Company's vulnerability to adverse
economic and industry conditions; (ii) the Company's leveraged position
increases its vulnerability to competitive pressures; (iii) the financial
covenants and other restrictions contained in the indentures, the credit
agreements and other agreements relating to the Company's indebtedness require
the Company to meet certain financial tests and restrict its 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 the Company's competitors operate
on a less leveraged basis and have greater operating and financial flexibility
than the Company.
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Bluegreen(R) Resorts business segment. In
connection with this strategy, the Company may from time to time acquire, among
other things, additional resort properties and completed but unsold Timeshare
Interests; land upon which additional resorts may be built; management
contracts; loan portfolios of Timeshare Interest mortgages; portfolios which
include properties or assets which may be integrated into the Company's
operations; interests in joint ventures; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry. In addition, the Company intends to continue to focus Bluegreen
Communities on larger, more capital intensive projects particularly in those
regions where the Company believes the market for its products is strongest,
such as new golf communities in the Southeast and other areas and continued
growth in the Company's successful regions in Texas.
The Company's material commitments for capital resources as of December
31, 2002, included the required payments due on it's receivable-backed debt,
lines of credit and other notes and debentures payable, commitments to complete
its timeshare and communities projects based on its sales contracts with
customers and commitments under noncancelable operating leases.
42
The following table summarizes the contractual minimum principal payments
required on all of the Company's outstanding debt (including its
receivable-backed debt, lines-of-credit and other notes and debentures payable)
and its noncancelable operating leases as of December 31, 2002 by period due (in
thousands):
Payments Due By Period
----------------------------------------------------------------
Contractual Less than 1 - 3 4 - 5 After 5
Obligations Total 1 year Years Years Years
----------- ----- ------ ----- ----- -----
Receivable-backed notes payable $ 5,360 $ -- $ 4,989 $ -- $ 371
Lines-of-credit and notes payable 34,409 5,604 20,188 8,059 558
10.50% senior secured notes
payable 110,000 -- -- -- 110,000
8.25% convertible subordinated
debentures 34,371 -- 6,371 8,000 20,000
Noncancelable operating leases 15,101 3,444 4,625 2,436 4,596
-------- -------- -------- -------- --------
Total contractual obligations $199,241 $ 9,048 $ 36,173 $ 18,495 $135,525
======== ======== ======== ======== ========
The Company intends to use cash flow from operations, including cash
received from the sale of timeshare notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
above principal payments. While the Company believes that it will be able to
meet all required debt payments when due, there can be no assurances that this
will be the case.
The Company estimates 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 is approximately $6.2 million as
of December 31, 2002. The Company estimates that the total cash required to
complete its Bluegreen(R) Communities projects in which sales have occurred is
approximately $28.7 million as of December 31, 2002. These amounts assume that
the Company is not obligated to develop any building, project or amenity in
which a commitment has not been made through a sales contract to a customer; the
Company anticipates that it will incur such obligations in the future. The
Company plans 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 assurances that the Company will be able to
obtain the financing or generate the cash from operations necessary to complete
the foregoing plans or that actual costs will not exceed those estimated.
The Company believes that its existing cash, anticipated cash generated
from operations, anticipated future permitted borrowings under existing or
proposed credit facilities and anticipated future sales of notes receivable
under the Purchase Facility and one or more replacement facilities the Company
will seek to put in place will be sufficient to meet the Company's anticipated
working capital, capital expenditure and debt service requirements for the
foreseeable future. The Company will be required to renew or replace credit
facilities that have expired or that will expire during the next 26 months. The
Company will also be required to renew or replace its existing timeshare
receivables purchase facility on or before April 16, 2003. The Company will, in
the future, also require additional credit facilities or issuances of other
corporate debt or equity securities in connection with acquisitions or
otherwise. Any debt incurred or issued by the Company may be secured or
unsecured, bear fixed or variable rate interest and may be subject to such terms
as the lender may require and management deems prudent. There can be no
assurances that the credit facilities or receivables purchase facilities which
have expired or which are scheduled to expire in the near term will be renewed
or replaced or that sufficient funds will be available from operations or under
existing, proposed or future revolving credit or other borrowing arrangements or
receivables purchase facilities to meet the Company's cash needs, including,
without limitation, its debt service obligations. To the extent the Company was
not able to sell notes receivable or borrow under such facilities, the Company's
ability to satisfy its obligations would be materially adversely affected.
43
The Company has a large number of credit facilities, indentures, 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 assurances can
be given that such covenants will not limit the Company's ability to raise
funds, sell receivables, satisfy or refinance its obligations or otherwise
adversely affect the Company's operations. In addition, the Company's future
operating performance and ability to meet its financial obligations will be
subject to future economic conditions and to financial, business and other
factors, many of which will be beyond the Company's control.
The Company's ability to service or to refinance its indebtedness or to
obtain additional financing (including its ability to consummate future notes
receivable securitizations) depends, among other things, on its future
performance, which is subject to a number of factors, including the Company's
business, results of operations, leverage, financial condition and business
prospects, the performance of its receivables, prevailing interest rates,
general economic conditions and perceptions about the residential land and
timeshare industries, some of which are beyond the Company's control. If the
Company's cash flow and capital resources are insufficient to fund its debt
service obligations and support its operations, the Company, among other
consequences, may be forced to reduce or delay planned capital expenditures,
reduce its financing of sales, sell assets, obtain additional equity capital or
refinance or restructure its debt. The Company cannot provide any assurance that
it will be able to obtain sufficient external sources of liquidity on attractive
terms, or at all. In addition, many of the Company's obligations under our debt
arrangements contain cross-default or cross-acceleration provisions. As a
result, if the Company defaults under one debt arrangement, other lenders might
be able to declare amounts due under their arrangements, which would have a
material adverse effect on the Company's business.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Risk
The Company's total revenues and net assets denominated in a currency
other than U.S. dollars during the nine months ended December 31, 2002 were less
than 1% of consolidated revenues and consolidated assets, respectively. Sales
generated and long-term debt incurred to date by BPNV, the Company's subsidiary
in Aruba, are transacted in U.S. dollars. The effects of changes in foreign
currency exchange rates have not historically been significant to the Company's
operations or net assets.
Interest Rate Risk
The Company sold $125.6 million, $100.9 million and $77.8 million of
fixed-rate timeshare notes receivable during the nine months ended December 31,
2002, the year ended March 31, 2002 and the year ended April 1, 2001,
respectively, under the Purchase Facility, the 2002 Term Securitization and
previous timeshare receivable purchase facilities (see "Credit Facilities for
Bluegreen(R) Resorts' Receivables and Inventories" and Note 5 of Notes to
Consolidated Financial Statements). The gain on sale recognized by the Company
is generally based upon variable interest rates at the time of sale including
the prevailing weighted-average term treasury rate, commercial paper rates or
LIBOR rates (depending on the purchase facility in effect) and many other
factors including, but not limited to the weighted-average coupon rate and
remaining contractual life of the loans sold, and assumptions regarding the
constant prepayment rate, loss severity, annual default and discount rates. The
Company also retains residual interests in pools of fixed and variable rate
Bluegreen Communities notes receivable sold in private placement REMIC
transactions. The Company believes that it has used conservative assumptions in
valuing the residual interests retained in the timeshare and land notes sold
through the Purchase Facility and REMIC transactions, respectively, and that
such assumptions should mitigate the impact of a hypothetical one-percentage
point interest rate change on these valuations. There can be no assurances that
the assumptions will prove to be correct.
As of December 31, 2002, the Company had fixed interest rate debt of
approximately $149.6 million and floating interest rate debt of approximately
$34.6 million. In addition, the Company's notes receivable from timeshare and
home site customers were comprised of $54.1 million of fixed rate loans and $6.1
million of notes bearing floating interest rates. The floating interest rates
are based either upon the prevailing prime or three-month LIBOR interest rates.
For floating rate financial instruments, interest rate changes do not generally
affect the market
44
value of debt but do impact future earnings and cash flows, assuming other
factors are held constant. Conversely, for fixed rate financial instruments,
interest rate changes do affect the market value of debt but do not impact
earnings or cash flows.
A hypothetical one-percentage point increase in the prevailing prime or
LIBOR rates, as applicable, would decrease after-tax earnings of the Company by
an immaterial amount per year, based on the impact of increased interest expense
on variable rate debt, partially offset by the increased interest income on
variable rate Bluegreen Communities notes receivable and cash and cash
equivalents. A similar change in the interest rate would decrease the total fair
value of the Company's fixed rate debt, excluding the Company's 8.25%
convertible, subordinated debentures (the "Debentures") and the Notes, by an
immaterial amount. The fact that the Debentures are publicly traded and
convertible into the Company's common stock makes it impractical to estimate the
effect of the hypothetical change in interest rates on the fair value of the
Debentures. In addition, the fact that the Notes (see "Note Offering") are
publicly traded in the over-the-counter market makes it impractical to estimate
the effect of the hypothetical change in interest rates on the fair value of the
Notes. Due to the non-interest related factors involved in determining the fair
value of these publicly traded securities, their fair values have historically
demonstrated increased, decreased or at times contrary relationships to changes
in interest rates as compared to other types of fixed-rate debt securities.
These analyses do not consider the effects of the reduced level of overall
economic activity that could exist in such an environment. Further, in the event
of such a change, management may likely take actions to mitigate its exposure to
the change. However, due to the uncertainty of the specific actions that would
be taken and their possible effects, the sensitivity analysis assumes no changes
in the Company's financial structure.
45
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BLUEGREEN(R) CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, March 31,
2002 2002
---- ----
ASSETS
Cash and cash equivalents (including restricted cash of approximately $20.6 million
and $27.7 million at December 31, 2002 and March 31, 2002, respectively) ........ $ 46,905 $ 48,715
Contracts receivable, net .......................................................... 16,230 21,818
Notes receivable, net .............................................................. 61,795 55,648
Prepaid expenses ................................................................... 11,630 11,634
Inventory, net ..................................................................... 173,131 187,688
Retained interests in notes receivable sold ........................................ 44,228 38,560
Property and equipment, net ........................................................ 51,787 49,338
Intangible assets .................................................................. 10,838 --
Goodwill ........................................................................... 2,431 2,431
Other assets ....................................................................... 15,017 19,329
--------- ---------
Total assets ............................................................. $ 433,992 $ 435,161
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ................................................................... $ 5,878 $ 4,700
Accrued liabilities and other ...................................................... 31,537 39,112
Deferred income .................................................................... 19,704 5,043
Deferred income taxes .............................................................. 31,208 28,299
Receivable-backed notes payable .................................................... 5,360 14,628
Lines-of-credit and notes payable .................................................. 34,409 40,262
10.50% senior secured notes payable ................................................ 110,000 110,000
8.00% convertible subordinated notes payable to related parties .................... -- 6,000
8.25% convertible subordinated debentures .......................................... 34,371 34,371
--------- ---------
Total liabilities ............................................................... 272,467 282,415
Minority interest .................................................................. 3,242 3,090
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; 27,343 and 27,059 shares
issued at December 31, 2002 and March 31, 2002, respectively .................... 273 271
Additional paid-in capital ......................................................... 123,535 122,734
Treasury stock, 2,756 common shares at both December 31, 2002 and March 31, 2002,
at cost ......................................................................... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ........................ 460 2,433
Retained earnings .................................................................. 46,900 37,103
--------- ---------
Total shareholders' equity .................................................... 158,283 149,656
--------- ---------
Total liabilities and shareholders' equity ............................... $ 433,992 $ 435,161
========= =========
See accompanying notes to consolidated financial statements.
46
BLUEGREEN(R) CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Nine Months Ended Year Ended
-------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
-------------------------------------------------
Revenues: (Unaudited)
Sales ........................................... $ 222,655 $ 184,703 $ 240,628 $ 229,874
Other resort and golf operations ................ 27,048 19,184 25,470 24,649
Interest income ................................. 12,235 11,855 15,447 17,317
Gain on sales of notes receivable ............... 10,035 4,214 6,280 3,281
--------- --------- --------- ---------
271,973 219,956 287,825 275,121
Cost and expenses:
Cost of sales ................................... 77,923 64,133 86,525 78,795
Cost of other resort and golf operations ........ 26,895 17,844 23,544 24,951
Selling, general and administrative expenses .... 128,308 106,345 140,244 147,592
Interest expense ................................ 9,824 10,129 13,017 15,494
Provision for loan losses ....................... 2,832 3,683 4,851 4,887
Other expense ................................... 1,520 277 162 400
--------- --------- --------- ---------
247,302 202,411 268,343 272,119
--------- --------- --------- ---------
Income before provision for income taxes and
minority interest .............................. 24,671 17,545 19,482 3,002
Provision for income taxes ........................ 8,793 6,755 7,501 1,156
Minority interest in income (loss) of consolidated
subsidiary ..................................... 502 107 249 (871)
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle ........................... 15,376 10,683 11,732 2,717
Cumulative effect of change in accounting
principle, net of income taxes (see Note 1) .... (5,929) -- -- --
Minority interest in cumulative effect of change
in accounting principle, net of income taxes ... (350) -- -- --
--------- --------- --------- ---------
Net income ........................................ $ 9,797 $ 10,683 $ 11,732 $ 2,717
========= ========= ========= =========
Earnings per common share:
Basic:
Income before cumulative effect of change in
accounting principle ........................ $ .63 $ .44 $ .48 $ .11
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................... (.23) -- -- --
--------- --------- --------- ---------
Net income .................................... $ .40 $ .44 $ .48 $ .11
========= ========= ========= =========
Diluted:
Income before cumulative effect of change in
accounting principle ........................ $ .58 $ .41 $ .46 $ .11
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................... (.19) -- -- --
--------- --------- --------- ---------
Net income .................................. $ .39 $ .41 $ .46 $ .11
========= ========= ========= =========
Pro forma effects of retroactive application of
change in accounting principle:
Net income ..................................... $ 7,571 $ 7,484 $ 1,634
========= ========= =========
Basic earnings per share ....................... $ .31 $ .31 $ .07
========= ========= =========
Diluted earnings per share ..................... $ .30 $ .31 $ .07
========= ========= =========
Weighted-average number of common and common
equivalent shares:
Basic ........................................... 24,472 24,240 24,256 24,242
========= ========= ========= =========
Diluted ......................................... 28,783 29,968 29,993 24,316
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
47
BLUEGREEN(R) CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Additional Treasury Comprehensive
Shares Common Paid-in Stock at Income, Net of Retained
Issued Stock Capital Cost Income Taxes Earnings Total
------ ----- ------- ---- ------------ -------- -----
Balance at April 3, 2000 ............ 26,935 $ 269 $ 122,533 $ (12,313) $ 901 $ 22,654 $ 134,044
Net income .......................... -- -- -- -- -- 2,717 2,717
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes ................ -- -- -- -- 570 -- 570
---------
Comprehensive income ................ 3,287
Shares issued to employees and
directors upon exercise of stock
options ............................ 11 -- 28 -- -- -- 28
Income tax benefit from stock
options exercised .................. -- -- 3 -- -- -- 3
Shares repurchased for treasury stock -- -- -- (572) -- -- (572)
------ --------- --------- --------- --------- --------- ---------
Balance at April 1, 2001 ............ 26,946 269 122,564 (12,885) 1,471 25,371 136,790
Net income .......................... -- -- -- -- -- 11,732 11,732
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes ................ -- -- -- -- 962 -- 962
---------
Comprehensive income ................ 12,694
Shares issued to employees and
directors upon exercise of stock
options ............................ 113 2 154 -- -- -- 156
Income tax benefit from stock
options exercised .................. -- -- 16 -- -- -- 16
------ --------- --------- --------- --------- --------- ---------
Balance at March 31, 2002 ........... 27,059 271 122,734 (12,885) 2,433 37,103 149,656
Net income .......................... -- -- -- -- -- 9,797 9,797
Realization of net unrealized gains
on retained interests in notes
receivable sold, net of income taxes -- -- -- -- (1,973) -- (1,973)
---------
Comprehensive income ................ 7,824
Shares issued to employees and
directors upon exercise of stock
options ............................ 284 2 681 -- -- -- 683
Income tax benefit from stock
options exercised .................. -- -- 120 -- -- -- 120
------ --------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 ........ 27,343 $ 273 $ 123,535 $ (12,885) $ 460 $ 46,900 $ 158,283
====== ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
48
BLUEGREEN(R) CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended Year Ended
------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
------------------------------------------------
(Unaudited)
Operating activities:
Net income ................................................. $ 9,797 $ 10,683 $ 11,732 $ 2,717
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle, net . 5,929 -- -- --
Minority interest in income (loss) of consolidated
subsidiary ............................................ 152 107 249 (871)
Depreciation ........................................... 4,597 3,857 5,280 4,263
Amortization ........................................... 5,741 2,225 3,006 2,463
Amortization of discount on note payable ............... 40 310 374 708
Gain on sale of notes receivable ....................... (10,035) (4,214) (6,280) (3,281)
Loss on sale of property and equipment ................. 218 127 166 45
Gain on exchange of REMIC certificates ................. (409) -- -- --
Provision for loan losses .............................. 2,832 3,683 4,851 4,887
Provision for deferred income taxes .................... 4,127 6,755 7,895 5,801
Interest accretion on investments in securities ........ (4,417) (2,615) (3,754) (2,627)
Proceeds from sale of notes receivable ................. 72,418 58,158 85,975 73,244
Proceeds from borrowings collateralized by notes
receivable ............................................ 2,746 22,734 23,163 34,634
Payments on borrowings collateralized by notes
receivable ............................................ (11,681) (15,227) (16,600) (35,964)
Changes in operating assets and liabilities, net of the
effects of business acquisitions:
Contracts receivable ................................... 5,655 6,681 (3,311) (10,588)
Notes receivable ....................................... (99,868) (76,520) (97,795) (89,786)
Prepaid expenses ....................................... 322 1,576 959 (8,592)
Inventory .............................................. 22,378 3,958 13,542 21,500
Other assets ........................................... (4,462) (4,597) (4,423) (1,096)
Accounts payable, accrued liabilities and other ........ 957 1,941 6,621 4,615
-------- -------- -------- --------
Net cash provided by operating activities .................. 7,037 19,622 31,650 2,072
-------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes receivable
sold .................................................. 14,555 3,552 7,856 6,890
Investment in note receivable ............................ -- (1,685) (1,685) (4,711)
Principal payments received on investment in note
receivable ............................................ -- 4,643 4,643 68
Business and minority interest acquisitions .............. (2,292) -- -- (250)
Purchases of property and equipment ...................... (4,379) (10,446) (12,940) (9,549)
Proceeds from sales of property and equipment ............ 48 34 44 79
-------- -------- -------- --------
Net cash provided (used) by investing activities ........... 7,932 (3,902) (2,082) (7,473)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities
and notes payable ..................................... 18,696 46,548 59,870 11,121
Payments under line-of-credit facilities and notes payable (27,470) (62,478) (79,327) (29,135)
Payment of 8% convertible, subordinated notes payable to
related parties ....................................... (6,000) -- -- --
Payment of debt issuance costs ........................... (2,688) (1,485) (1,568) (1,551)
Proceeds from exercise of employee and director stock
options ............................................... 683 156 156 28
Payments for treasury stock .............................. -- -- -- (572)
-------- -------- -------- --------
Net cash used by financing activities ...................... (16,779) (17,259) (20,869) (20,109)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ....... (1,810) (1,539) 8,699 (25,510)
Cash and cash equivalents at beginning of period ........... 48,715 40,016 40,016 65,526
-------- -------- -------- --------
Cash and cash equivalents at end of period ................. 46,905 38,477 48,715 40,016
Restricted cash and cash equivalents at end of period ...... (20,551) (24,456) (27,669) (22,363)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period .... $ 26,354 $ 14,021 $ 21,046 $ 17,653
======== ======== ======== ========
49
BLUEGREEN(R) CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(in thousands)
Nine Months Ended Year Ended
---------------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
---------------------------------------------------------
(Unaudited)
Supplemental schedule of non-cash operating, investing
and financing activities
Inventory acquired through foreclosure or deedback in
lieu of foreclosure ................................. $ 3,951 $ 4,349 $ 7,596 $ 5,859
======== ======== ======== ========
Inventory acquired through financing ................... $ 2,336 $ -- $ -- $ 8,952
======== ======== ======== ========
Contribution of timeshare inventory (raw land) by
minority interest ................................... $ -- $ -- $ -- $ 3,230
======== ======== ======== ========
Exchange of REMIC certificates for notes receivable and
inventory in connection with termination of REMIC ... $ 2,047 $ -- $ -- $ --
======== ======== ======== ========
Property and equipment acquired through financing ...... $ 545 $ 353 $ 427 $ 891
======== ======== ======== ========
Retained interests in notes receivable sold ............ $ 18,085 $ 13,694 $ 21,207 $ 7,903
======== ======== ======== ========
Net change in unrealized gains on investments .......... $ 2,997 $ -- $ 1,557 $ 928
======== ======== ======== ========
Supplemental schedule of operating cash flow information
Interest paid, net of amounts capitalized ............ $(13,455) $(13,676) $(11,947) $(14,474)
======== ======== ======== ========
Income taxes refunded (paid) ......................... $ (745) $ 2,261 $ 2,014 $ (316)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
50
BLUEGREEN(R) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization
Bluegreen Corporation (the "Company") is a leading marketer of vacation
and residential lifestyle choices through its resort and residential land and
golf communities businesses, which are located predominantly in the
Southeastern, Southwestern and Midwestern United States. The Company's resort
business ("Bluegreen Resorts") acquires, develops and markets Timeshare
Interests in resorts generally located in popular, high-volume, "drive-to"
vacation destinations. "Timeshare Interests" are of two types: one which
entitles the buyer of the points-based Bluegreen Vacation Club(R) (the "Club")
product to an annual allotment of "points" in perpetuity (supported by an
underlying deeded fixed timeshare week being held in trust for the buyer) and
the second which entitles the fixed-week buyer to a fully-furnished vacation
residence for an annual one-week period in perpetuity. "Points" may be exchanged
by the buyer in various increments for lodging for varying lengths of time in
fully-furnished vacation residences at the Company's participating resorts. The
Company currently develops, markets and sells Timeshare Interests in 13 resorts
located in the United States and Aruba. The Company also markets and sells
Timeshare Interests in its resorts at four off-site sales locations. The
Company's residential land and golf communities business ("Bluegreen
Communities") acquires, develops and subdivides property and markets the
subdivided residential home sites to retail customers seeking to build a home in
a high quality residential setting, in some cases on properties featuring a golf
course and related amenities. During the nine months ended December 31, 2002,
sales generated by Bluegreen Resorts and Bluegreen Communities comprised
approximately 65% and 35%, respectively, of the Company's total sales. The
Company's other resort and golf operations revenues are generated from
mini-vacation package sales, timeshare tour sales, resort property management
services, resort title services, resort amenity operations, hotel operations and
daily-fee golf course operations. The Company also generates significant
interest income by providing financing to individual purchasers of Timeshare
Interests and, to a nominal extent, home sites sold by Bluegreen Communities.
Principles of Consolidation
The consolidated financial statements include the accounts of Bluegreen
Corporation, all of its wholly-owned subsidiaries and entities in which the
Company holds a controlling financial interest. The only non-wholly owned
subsidiary, Bluegreen/Big Cedar Vacations(TM) LLC (the "Joint Venture"), is
consolidated as the Company holds a 51% equity interest in the Joint Venture,
has an active role as the day-to-day manager of the Joint Venture's activities
and has majority voting control of the Joint Venture's management committee. All
significant intercompany balances and transactions are eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Fiscal Year
On October 14, 2002, the Company's Board of Directors approved a change in
the Company's fiscal year from a 52- or 53-week period ending on the Sunday
nearest the last day of March in each year to the calendar year ending on
December 31, effective for the nine months ended December 31, 2002.
The years ended March 31, 2002 and April 1, 2001 were each 52 weeks long.
Information for the nine months ended December 30, 2001, presented
throughout these consolidated financial statements, including in the notes
thereto, is unaudited.
Cash and Cash Equivalents
The Company invests cash in excess of immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities of three months or less. The Company maintains cash and cash
51
equivalents with various financial institutions. These financial institutions
are located throughout the United States, Canada and Aruba. The Company's policy
is designed to limit exposure to any one institution. However, a significant
portion of the Company's unrestricted cash is maintained with a single bank and,
accordingly, the Company is subject to credit risk. Periodic evaluations of the
relative credit standing of financial institutions maintaining Company deposits
are performed to evaluate and mitigate, if necessary, credit risk.
Restricted cash consists of funds collected as servicer of notes
receivable owned by other parties and customer deposits held in escrow accounts.
As of December 31, 2002 and March 31, 2002, the Company held $12.4 million and
$19.2 million, respectively, of funds collected as servicer of notes receivable
owned by or pledged to other parties, primarily notes receivable previously sold
to these other parties by the Company. All such funds are held in separate
custodial bank accounts. In the case of notes receivable previously sold, funds
collected and held in these accounts are periodically transferred to third-party
cash administrators, who in turn make payments to the owners of the notes
receivable and to the Company for servicing fees and payments on any retained
interests in the notes receivable sold. The Company has recorded a corresponding
liability, which is included in accrued liabilities on the consolidated balance
sheet, for its restricted cash held in connection with its servicing activities
for previously sold notes receivable. In the case of notes receivable previously
pledged, funds collected and held in these accounts are periodically transferred
to the lenders as payment on the Company's receivable-backed notes payable
Contracts Receivable and Revenue Recognition
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66 "Accounting for Sales of Real Estate", the Company
recognizes revenue on retail land sales and sales of Timeshare Interests when a
minimum of 10% of the sales price has been received in cash, the legal
rescission period has expired, collectibility of the receivable representing the
remainder of the sales price is reasonably assured and the Company has completed
substantially all of its obligations with respect to any development related to
the real estate sold. In cases where all development has not been completed, the
Company recognizes revenue in accordance with the percentage-of-completion
method of accounting.
Sales which do not meet the criteria for revenue recognition described
above are deferred using the deposit method. Under the deposit method, cash
received from customers is classified as a refundable deposit in the liability
section of the consolidated balance sheets and profit recognition is deferred
until the requirements of SFAS No. 66 are met.
Contracts receivable is net of an allowance for cancellations of
Bluegreen(R) Communities' sale contracts amounting to approximately $286,000 and
$469,000 at December 31, 2002 and March 31, 2002, respectively.
Other resort and golf operations revenues consist primarily of sales and
service fees from the activities listed below together with a brief description
of the applicable revenue recognition policy:
Activity Revenue is recognized as:
-------- -------------------------
Mini-vacation package sales Mini-vacation packages are fulfilled (i.e., guests use
mini-vacation packages to stay at a hotel, take a cruise,
etc.)
Timeshare tour sales Timeshare tour sales commissions are earned per contract terms
Resort title fees Escrow amounts are released and title documents are completed.
Club and other resort management fees Management services are performed.
Rental commissions Rental services are provided.
Rental of Company-owned Timeshare Interests Guests complete stays at the resorts.
Golf course and ski hill daily fees Services are provided.
Retail merchandise, food and beverage sales Sales are consummated.
52
Notes Receivable
Notes receivable are carried at amortized cost. Interest income is
suspended on all delinquent notes receivable when principal or interest payments
are more than three months contractually past due and not resumed until such
loans are less than three months past due. As of December 31, 2002 and March 31,
2002, $9.1 million and $4.5 million, respectively, of notes receivable were more
than three months contractually past due and, hence, were not accruing interest
income.
The Company typically defaults notes receivable for Club loans after such
notes are delinquent for at least 120 days. Other notes receivable are typically
defaulted after being delinquent for 60 or 90 days.
The Company considers many factors when establishing and evaluating the
adequacy of its reserve for loan losses. These factors include recent and
historical default rates, static pool analyses, current delinquency rates,
contractual payment terms, loss severity rates along with present and expected
economic conditions. The Company examines these factors and adjusts its reserve
for loan losses on at least a quarterly basis.
Retained Interest in Notes Receivable Sold
When the Company sells notes receivables either pursuant to its timeshare
receivables purchase facilities (more fully described in Note 5) or, in the case
of land mortgages receivable, private-placement Real Estate Mortgage Investment
Conduits ("REMICs"), it retains subordinated tranches, rights to excess interest
spread, servicing rights and in some cases a cash reserve account, all of which
are retained interests in the sold notes receivable. Gain or loss on 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.
The Company estimates fair value based on the present value of future expected
cash flows using management's best estimates of the key assumptions - prepayment
rates, loss severity rates, default rates and discount rates commensurate with
the risks involved.
The Company's retained interests in notes receivable sold are considered
available-for-sale securities and, accordingly, are carried 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
available-for-sale investments are included in shareholders' equity, net of
income taxes. Declines in fair value that are determined to be other than
temporary are charged to operations.
Fair value of these securities is initially and periodically measured
based on the present value of future expected cash flows estimated using
management's best estimates of the key assumptions - prepayment rates, loss
severity rates, default rates and discount rates commensurate with the risks
involved.
Interest on the Company's securities is accreted using the effective yield
method.
Inventory
Inventory consists of completed Timeshare Interests, Timeshare Interests
under construction, land held for future timeshare development and residential
land acquired or developed for sale. Inventory is carried at the lower of cost,
including costs of improvements and amenities incurred subsequent to
acquisition, capitalized interest, real estate taxes and other costs incurred
during construction, or estimated fair value, less costs to dispose. Home sites
and Timeshare Interests reacquired through foreclosure or deedback in lieu of
foreclosure are recorded at the lower of fair value, net of costs to dispose, or
the original cost of the inventory. The Company periodically evaluates the
recovery of the carrying amount of individual resort and residential land
properties under the guidelines of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (see Note 7).
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method based on the estimated useful lives of the related assets
or, in the case of leasehold improvements, over the term of the related lease,
if shorter. Depreciation expense includes the amortization of assets recorded
under capital leases.
53
Goodwill and Intangible Assets
The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets" as of April 1, 2002. This statement requires that goodwill
and other intangible assets with indefinite lives not be amortized, but rather
be tested for impairment on an annual basis. Upon adoption of SFAS No. 142, the
Company discontinued amortization of all goodwill. The adoption of SFAS No. 142
did not have a material impact on the Company's financial position or results of
operations as of or for the nine months ended December 31, 2002. The Company's
intangible assets relate to customer lists and were acquired in connection with
the business combination discussed in Note 2. The customer lists are being
amortized over approximately a one-year period as the Company directly markets
to these customers. During the years ended March 31, 2002 and April 1, 2001,
goodwill was amortized over periods ranging from 8 to 25 years using the
straight-line method. See Note 9 for further discussion.
Treasury Stock
The Company accounts for repurchases of its common stock using the cost
method with common stock in treasury classified in the consolidated balance
sheets as a reduction of shareholders' equity.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense
was $47.9 million and $39.3 million for the nine months ended December 31, 2002
and December 30, 2001, respectively, and was $50.6 million and $54.6 million for
the years ended March 31, 2002 and April 1, 2001, respectively. Advertising
expense is included in selling, general and administrative expenses in the
consolidated statements of income.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require companies to record compensation cost for employee stock
options at fair value. The Company has elected to continue to account for stock
options using the intrinsic value method pursuant to Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the exercise price of the option.
Pro forma information regarding net income and earnings per share as if
the Company had accounted for its employee stock options under the fair value
method of SFAS No. 123 is presented below. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the years ended March 31, 2002
and April 1, 2001, respectively: risk free investment rates of 2.0% and 5.5%;
dividend yields of 0% and 0%; a volatility factor of the expected market price
of the Company's common stock of .698 and .532; and a weighted average life of
the options of 5.0 years and 5.0 years, respectively. There were no stock option
grants during the nine months ended December 31, 2002.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 for the purpose of providing pro forma disclosures are not
likely to be representative of the effects on reported pro forma net income for
future years, due to the impact of the staggered vesting periods of the
Company's stock option grants. The Company's pro forma information is as follows
(in thousands, except per share data).
---------------------------------------
Nine Months
Ended Years Ended
---------------------------------------
December 31, March 31, April 1,
2002 2002 2001
---- ---- ----
Net income, as reported in the Consolidated
Statements of Income ...................... $ 9,797 $ 11,732 $ 2,717
Pro forma stock-based employee compensation
cost, net of tax .......................... (189) (26) (844)
-------- -------- --------
Pro forma net income ......................... $ 9,608 $ 11,706 $ 1,873
======== ======== ========
54
------------------------------------------
Nine Months
Ended Years Ended
------------------------------------------
December 31, March 31, December 31,
2002 2002 2002
---- ---- ----
Earnings per share, as reported in the
Consolidated Statements of Income:
Basic .............................. $ .40 $ .48 $ .11
Diluted ............................ $ .39 $ .46 $ .11
Pro forma earnings per share:
Basic .............................. $ .39 $ .48 $ .08
Diluted ............................ $ .38 $ .46 $ .08
Cumulative Effect of Change in Accounting Principle
During the years ended March 31, 2002 and April 1, 2001, the Company
deferred the costs of generating timeshare tours through telemarketing programs
until the earlier of such time as the tours were conducted or the related
mini-vacation packages expired, based on an accepted industry accounting
principle. Effective April 1, 2002, the Company elected to change its accounting
policy to expense such costs as incurred. The Company believes that the new
method of accounting for these costs is preferable over the Company's previous
method and has been applied prospectively. The Company believes accounting for
these costs as period expenses results in improved financial reporting and
consistency with the proposed timeshare Statement of Position ("SOP"),
"Accounting for Real Estate Time-Sharing Transactions", that was exposed for
public comment by the Financial Accounting Standards Board (the "FASB") in
February 2003.
The cumulative effect of this change in accounting principle was an
additional expense of $9.2 million, net of taxes of $3.3 million and minority
interest's share of the loss of $350,000. The cumulative effect of this change
in accounting principle reduced diluted earnings per share by $0.19. The effect
of adopting this new accounting principle on income before cumulative effect of
change in accounting principle and net income for the nine months ended December
31, 2002 was additional expense of approximately $1.2 million or $0.04 per
diluted share.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per common share is computed in the same manner as basic earnings per
share, but also gives effect to all dilutive stock options using the treasury
stock method and includes an adjustment, if dilutive, to both net income and
weighted-average common shares outstanding as if the Company's 8.00% convertible
subordinated notes payable (after-tax impact of $295,000 on net income and 1.5
million shares) and 8.25% convertible subordinated debentures (after-tax impact
of $1.7 million on net income and 4.2 million shares) were converted into common
stock at the beginning of the earliest period presented below, for periods
during which these convertible debt issues were outstanding. The Company
excluded approximately 1.6 million, 2.8 million, 2.5 million and 3.1 million
anti-dilutive stock options from its computations of earnings per common share
for the nine months ended December 31, 2002, the nine months ended December 30,
2001, the year ended March 31, 2002 and the year ended April 1, 2001,
respectively.
55
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Nine Months Ended Year Ended
---------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
---------------------------------------------------
(Unaudited)
Basic earnings per share - numerators:
Income before cumulative effect of change in
accounting principle ...................... $ 15,376 $ 10,683 $ 11,732 $ 2,717
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................. (5,579) -- -- --
---------------------------------------------------
Net income .................................. $ 9,797 $ 10,683 $ 11,732 $ 2,717
===================================================
Diluted earnings per share - numerators:
Income before cumulative effect of change in
accounting principle - basic .............. $ 15,376 $ 10,683 $ 11,732 $ 2,717
Effect of dilutive securities (net of income
tax effects) ............................... 1,379 1,529 2,039 --
---------------------------------------------------
Income before cumulative effect of change in
accounting principle - diluted ............ 16,755 12,212 13,771 2,717
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................. (5,579) -- -- --
---------------------------------------------------
Net income - diluted ........................ $ 11,176 $ 12,212 $ 13,771 $ 2,717
===================================================
Denominator:
Denominator for basic earnings per
share-weighted-average shares .............. 24,472 24,240 24,256 24,242
Effect of dilutive securities:
Stock options ............................ 140 26 35 74
Convertible securities ................... 4,171 5,702 5,702 --
---------------------------------------------------
Dilutive potential common shares ............ 4,311 5,728 5,737 74
---------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average shares and
assumed conversions ........................ 28,783 29,968 29,993 24,316
===================================================
Basic earnings per common share:
Income before cumulative effect of change in
accounting principle ...................... $ .63 $ .44 $ .48 $ .11
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................. (.23) -- -- --
---------------------------------------------------
Net income .................................. $ .40 $ .44 $ .48 $ .11
===================================================
Diluted earnings per common share:
Income before cumulative effect of change in
accounting principle ...................... $ .58 $ .41 $ .46 $ .11
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................. (.19) -- -- --
---------------------------------------------------
Net income .................................. $ .39 $ .41 $ .46 $ .11
===================================================
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", requires unrealized gains
or losses on the Company's available-for-sale securities to be included in other
comprehensive income. Comprehensive income is shown as a subtotal within the
consolidated statements of shareholders' equity in each year presented.
56
Recent Accounting Pronouncements
The Company adopted SFAS No. 141, "Business Combinations," and SFAS No.
142, "Accounting for Goodwill and Other Intangible Assets," during the nine
months ended December 31, 2002. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives are no longer to be amortized but are
instead subject to annual impairment tests in accordance with SFAS No. 142.
Other intangible assets will continue to be amortized over their useful lives.
The Company applied the new rules on accounting for goodwill and other
intangible assets effective April 1, 2002. Application of the nonamortization
provisions of SFAS No. 142 resulted in an increase to net income of
approximately $114,000 (less than $0.01 per share) during the nine months ended
December 31, 2002. The Company did not incur any impairment charges as a result
of adopting SFAS No. 142 during the nine months ended December 31, 2002.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," during the nine months ended December 31, 2002.
The FASB's new rules on asset impairment supersede SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and provide a single accounting model for long-lived assets to be disposed
of. The adoption of the new statement did not have an impact on the Company's
financial position or results of operations as of and for the nine months ended
December 31, 2002.
The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections"
during the nine months ended December 31, 2002. SFAS No. 145 requires gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under SFAS No. 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS
No. 13 to require certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). SFAS No. 145 was effective
for transactions occurring after May 15, 2002, and did not have a material
impact on the Company's financial position or results of operations as of and
for the nine months ended December 31, 2002.
The Company adopted SFAS No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure" during the nine months ended December 31, 2002.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. SFAS No. 148 does not require
companies to account for employee stock options using the fair value method
proscribed by SFAS No. 123. The adoption of the new statement did not have an
impact on the Company's financial position or results of operations as of and
for the nine months ended December 31, 2002.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. This statement is effective for the Company's fiscal year ending
December 31, 2003. The statement is not expected to have a material impact on
the results of operations or financial position of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002, and is not expected to have a
material impact on the results of operations or financial position of the
Company.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that certain
guarantees be initially recorded at fair value, which is different from the
general current practice of recording a liability only when a loss is probable
and reasonably estimable. FIN 45 also requires a guarantor to make significant
new disclosures for virtually all guarantees. The Company adopted the disclosure
requirements
57
under FIN 45 for the year ended December 31, 2002 and will adopt the initial
recognition and initial measurement provisions for any guarantees issued or
modified after December 31, 2002. The adoption of FIN 45 is not expected to have
a material impact on the results of operations or financial position of the
Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities - an interpretation of ARB No. 51" ("FIN 46"), which
addresses consolidation of variable interest entities. FIN 46 expands the
criteria for consideration in determining whether a variable interest entity
should be consolidated by a business entity, and requires existing
unconsolidated variable interest entities (which include, but are not limited
to, Special Purpose Entities, or SPEs) to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among parties
involved. This interpretation applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The adoption of FIN 46 is not expected to have a
material impact on the results of operations or financial position of the
Company.
In February 2003, the FASB released for public comment an exposure draft
of an American Institute of Certified Public Accountants ("AICPA") SOP,
"Accounting for Real Estate Time-Sharing Transactions." The proposed SOP, if
adopted by the FASB, would primarily impact the Company's recognition of certain
sales of Timeshare Interests and the manner in which the Company accounts for
the cost of sales of Timeshare Interests. Currently, it appears that a final
pronouncement on timeshare transactions would not be effective for the Company
until the year ending December 31, 2005. The Company has not as yet evaluated
the impact of the proposed SOP on its results of operations or financial
position.
Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the current year presentation.
2. Acquisition
On October 2, 2002, Leisure Plan(TM), Inc., a wholly-owned subsidiary (the
"Subsidiary") of the Company, acquired substantially all of the assets and
assumed certain liabilities (the "Acquisition") of TakeMeOnVacation(TM), LLC;
RVM Promotions, LLC; and RVM Vacations, LLC (collectively, "TMOV"). The
Subsidiary was a newly-formed entity with no prior operations. As part of the
Acquisition, the Subsidiary agreed to pay to TMOV:
o $2.3 million, which was paid in cash at the closing of the
Acquisition on October 2, 2002 (including a $292,000 payment for
certain refundable deposits);
o $500,000 payable in cash on March 31, 2003; and
o Additional contingent consideration up to a maximum amount of $12.5
million through December 31, 2007, based on the Subsidiary's Net
Operating Profit (as that term is defined in Section 1.49 of the
Asset Purchase Agreement), as follows:
(i) 75% of the Subsidiary's Net Operating Profit, until the
cumulative amount paid under this clause is $2.5 million;
(ii)with respect to additional Net Operating Profit not
included in the calculation under clause (i), 50% of the
Subsidiary's Net Operating Profit, until the cumulative amount
paid under this clause (ii) is $5.0 million; and
(iii) with respect to additional Net Operating Profit not
included in the calculation under clauses (i) and (ii), 25% of
the Subsidiary's Net Operating Profit, until the cumulative
amount paid under this clause (iii) is $5.0 million.
Applicable payments will be made after the end of each calendar year,
commencing with the year ending December 31, 2003. Should any additional
contingent consideration be paid (over the $500,000 payable on March 31, 2003),
the Company will recognize that amount as goodwill. In addition to the purchase
price, the Subsidiary assumed certain liabilities of TMOV.
The $2.3 million paid at the closing was funded from the Company's
operations. The Company anticipates that the Subsidiary will pay the contingent
consideration, if earned pursuant to the Asset Purchase Agreement, from
operations. The Company has guaranteed the payment by the Subsidiary if earned
by TMOV
58
pursuant to the Asset Purchase Agreement. The Company, if made to pay the
contingent consideration, expects that it would fund the additional
consideration from operations or from borrowings under one or more of the
Company's existing or future credit facilities or timeshare receivable purchase
facilities or from a combination thereof.
TMOV generates sales leads for Timeshare Interest sales utilizing various
marketing strategies. Through the application of a proprietary computer software
system, these leads are then contacted and given the opportunity to purchase
mini-vacation packages. These packages sometimes combine hotel stays, cruises
and gift premiums. Buyers of these mini-vacation packages are then usually
required to participate in a timeshare sales presentation. The Subsidiary
intends to use the assets acquired to generate sales prospects for the Company's
timeshare sales business and for sales prospects that will be sold to other
timeshare developers.
The assets acquired include prospects that purchased mini-vacation
packages from TMOV. These prospects will become sales leads for timeshare
interest sales for pre-determined, third-party developers when these vacations
are taken. Additional assets acquired include customer lists for future
mini-vacation package sales, property and equipment (including the
aforementioned computer software system), trademarks and servicemarks and
accounts receivable. The liabilities assumed include trade accounts payable and
commissions payable related to the assets acquired. As a result of the
acquisition, the Company recognized a nominal amount of negative goodwill, which
has been accrued as contingent consideration.
The effective date of the Acquisition is deemed to be September 30, 2002,
in accordance with the Asset Purchase Agreement. The Acquisition was accounted
for using the purchase method; therefore the results of operations of the
Subsidiary have been included in the Company's consolidated results for the
three months ended December 31, 2002.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed in the Acquisition as of September 30, 2002:
As of September 30, 2002
(in thousands)
Prepaid expenses............................................................ $ 318
Property and equipment...................................................... 2,388
Intangible assets:
Customer list - vacation packages sold (a) ........................... 13,654
Customer list - telemarketing leads (b) .............................. 316
------
13,970
Other assets............................................................... 802
--------
Total assets acquired................................................. 17,478
Accounts payable and accrued liabilities................................... 1,829
Deferred income (c)........................................................ 12,290
Deferred income taxes...................................................... 506
--------
Total liabilities assumed............................................. 14,625
--------
Net assets acquired................................................... $ 2,853
========
(a) - To be amortized as the vacation packages are fulfilled or expire.
This amortization period is estimated to be approximately one year.
(b) - To be amortized as the telemarketing leads are used. This
amortization period is estimated to be approximately four months.
(c) - To be recognized as other resort operations revenues as the
vacation packages are fulfilled or expire. The recognition period is
estimated to be approximately one year.
59
Supplemental pro forma information presenting the results of operations
for the nine months ended December 31, 2002 and the year ended March 31, 2002 as
though the Acquisition had occurred at the beginning of each respective period
is as follows (in thousands, except per share data):
Nine Months
Ended Year Ended
December 31, March 31,
(Unaudited) 2002 2002
-----------------------------
Total revenues ....................................................... $ 294,134 $ 312,552
Income before cumulative effect of change in accounting principle .... 15,719 8,621
Net income ........................................................... 10,140 8,621
Basic earnings per common share:
Income before cumulative effect of change in accounting principle $ .64 $ .36
Cumulative effect of change in accounting principle, net of
income taxes ................................................... (.23) --
-----------------------------
Net income ....................................................... $ .41 $ .36
=============================
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle $ .59 $ .35
Cumulative effect of change in accounting principle, net of
income taxes ................................................... (.19) --
-----------------------------
Net income ...................................................... $ .40 $ .35
=============================
3. Joint Ventures
On June 16, 2000, a wholly-owned subsidiary of the Company entered into an
agreement with Big Cedar(R) L.L.C. ("Big Cedar"), an affiliate of Bass Pro(R),
Inc. ("Bass Pro"), to form the Joint Venture, a timeshare development, marketing
and sales company. The Joint Venture is developing, marketing and selling
Timeshare Interests in a 300-unit, wilderness-themed resort adjacent to the Big
Cedar Lodge, a luxury hotel resort owned by Big Cedar, on the shores of Table
Rock Lake in Ridgedale, Missouri. During the year ended April 1, 2001, the
Company made an initial cash capital contribution to the Joint Venture of
approximately $3.2 million, in exchange for a 51% ownership interest in the
Joint Venture. In exchange for a 49% interest in the Joint Venture, Big Cedar
has contributed approximately 46 acres of land with a fair market value of $3.2
million to the Joint Venture. See Note 4 regarding payment of profit
distributions to Big Cedar.
In addition to its 51% ownership interest, the Company also receives a
quarterly management fee from the Joint Venture equal to 3% of the Joint
Venture's net sales in exchange for the Company's involvement in the day-to-day
operations of the Joint Venture. The Company also services the Joint Venture's
note receivable in exchange for a servicing fee.
Based on the Company's role as the day-to-day manager of the Joint
Venture, its majority control of the Joint Venture's Management Committee and
its controlling financial interest in the Joint Venture, the accounts of the
Joint Venture are included in the Company's consolidated financial statements.
During the nine months ended December 31, 2002 and the years ended March
31, 2002 and April 1, 2001, the Joint Venture paid approximately $577,000,
$785,000 and $354,000, respectively, to Bass Pro and affiliates for construction
management services and furniture and fixtures in connection with the
development of the Joint Venture's timeshare resort and sales office. In
addition, the Joint Venture paid Big Cedar and affiliates approximately
$993,000, $925,000 and $51,000 for gift certificates and hotel lodging during
the nine months ended December 31, 2002, and the years ended March 31, 2002 and
April 1, 2001, respectively, in connection with the Joint Venture's timeshare
marketing activities.
On December 15, 1997, the Company invested $250,000 of capital in
Bluegreen(R) Properties N.V. ("BPNV"), an entity organized in Aruba that
previously had no operations, in exchange for a 50% ownership interest.
Concurrently, the Company and an affiliate of the other 50% owner of BPNV (who
is not an affiliate of the Company), each loaned BPNV $3 million pursuant to
promissory notes due on December 15, 2000 and bearing
60
interest at the prime rate plus 1%. BPNV then acquired from a third party
approximately 8,000 unsold timeshare intervals at the La Cabana Beach & Racquet
Club(TM), a fully developed timeshare resort in Oranjestad, Aruba, in exchange
for $6 million cash and the assumption of approximately $16.6 million of
interest-free debt from a bank in Aruba. The debt was recorded by BPNV at
approximately $12.5 million, which reflects a discount based on an imputed
interest rate of 12%. The debt was repaid by December 31, 2002, through
release-prices as intervals were sold, subject to minimum monthly principal
payments of approximately $278,000.
On August 25, 2000, the Company acquired the 50% minority ownership
interest in BPNV. The minority interest was acquired for $250,000 in cash, which
approximated the book value of the minority interest on the acquisition date.
Subsequent to the acquisition, the Company also repaid the $3.0 million loan to
an affiliate of the former joint venture partner in BPNV and wrote off
approximately $368,000 of forgiven accrued interest. The Company now owns 100%
of BPNV.
4. Marketing Agreement
On June 16, 2000, the Company entered into an exclusive, 10-year marketing
agreement with Bass Pro(R), a privately-held retailer of fishing, marine,
hunting, camping and sports gear. Bass Pro is an affiliate of Big Cedar(R) (see
Note 3). Pursuant to the agreement, the Company has the right to market its
Timeshare Interests at each of Bass Pro's national retail locations (currently
consisting of 15 stores), in Bass Pro's catalogs and on its web site. The
Company also has access to Bass Pro's customer lists. In exchange for these
services, the Company agreed to pay Bass Pro a commission ranging from 3.5% to
7.0% on each sale of a Timeshare Interest, net of cancellations and defaults,
that is made to a customer as a result of one of the Bass Pro marketing channels
described above (the "Commission"). The amount of the Commission is dependent on
the level of additional marketing efforts required by the Company to convert the
prospect into a sale and a defined time frame for such marketing efforts. There
is no Commission paid to Bass Pro on sales made by the Joint Venture.
On June 16, 2000, the Company prepaid $9.0 million to Bass Pro (the
"Prepayment"). The Prepayment is amortized from future Commissions earned by
Bass Pro and future member distributions otherwise payable to Big Cedar from the
earnings of the Joint Venture as a member thereof. No additional Commissions or
member distributions will be paid in cash to Bass Pro or Big Cedar,
respectively, until the Prepayment has been fully utilized. The Company
periodically evaluates the Prepayment for any indications of impairment. The
Prepayment is included in prepaid expenses on the Consolidated Balance Sheets.
As of December 31, 2002 and March 31, 2002, the unamortized balance of the
Prepayment was approximately $8.5 million and $8.9 million, respectively.
During the nine months ended December 31, 2002 and the years ended March
31, 2002 and April 1, 2001, the Company paid Bass Pro Trademarks L.L.C., an
affiliate of Bass Pro, approximately $19,000, $333,000 and $35,000,
respectively, for advertising services.
5. Notes Receivable and Note Receivable Sale Facilities
The table below sets forth additional information relating to the
Company's notes receivable (in thousands).
December 31, March 31,
2002 2002
---- ----
Notes receivable secured by Timeshare Interests .. $ 53,029 $ 50,892
Notes receivable secured by land ................. 11,559 7,079
Other notes receivable ........................... 1,896 1,884
-------- --------
Notes receivable, gross .......................... 66,484 59,855
Reserve for loan losses .......................... (4,689) (4,207)
-------- --------
Notes receivable, net ............................ $ 61,795 $ 55,648
======== ========
The weighted-average interest rate on notes receivable from customers was
14.4% and 14.7% at December 31, 2002 and March 31, 2002, respectively. All of
the Company's timeshare loans bear interest at fixed rates. The average interest
rate charged on loans secured by Timeshare Interests was 15.3% and 15.4% at
December 31, 2002 and March 31, 2002, respectively. Approximately 53.0% of the
Company's notes receivable secured by land bear interest at variable rates,
while approximately 47.0% bear interest at fixed rates. The average interest
rate charged on loans secured by land was 10.2% and 11.1% at December 31, 2002
and March 31, 2002, respectively.
61
The Company's timeshare receivables are generally secured by property
located in Tennessee, Missouri, Wisconsin, Florida, Virginia and South Carolina.
The majority of Bluegreen(R) Communities' notes receivable are secured by home
sites in Texas.
The table below sets forth activity in the reserve for loan losses (in
thousands).
Reserve for loan losses, April 2, 2001 ..................... $ 3,586
Provision for loan losses .................................. 4,851
Charge-offs ................................................ (4,230)
-------
Reserve for loan losses, March 31, 2002 .................... 4,207
Provision for loan losses .................................. 2,832
Charge-offs ................................................ (2,350)
-------
Reserve for loan losses, December 31, 2002 ................. $ 4,689
=======
Installments due on notes receivable held by the Company during each of
the five fiscal years subsequent to December 31, 2002, and thereafter, are set
forth below (in thousands).
2003 ..... $ 6,994
2004 ..... 5,890
2005 ..... 7,077
2006 ..... 5,868
2007 ..... 8,616
Thereafter 32,039
-------
Total $66,484
=======
The GE/Barclays Purchase Facility
In October 2000, the Company executed agreements for a timeshare
receivables purchase facility (the "GE/Barclays Purchase Facility") with two
financial institutions, including Barclays Bank, PLC (the "Senior Purchaser")
and GE (the "Subordinated Purchaser") (collectively, the "Purchasers"). The
GE/Barclays Purchase Facility utilized an owner's trust structure, pursuant to
which the Company sold $95.4 million aggregate principal amount of timeshare
receivables to a special purpose finance subsidiary of the Company (the
"Subsidiary") and the Subsidiary sold the receivables to an owner's trust, which
fully utilized the GE/Barclays Purchase Facility. Receivables were sold without
recourse except for breaches of customary representations and warranties at the
time of sale. Under the GE/Barclays Purchase Facility, a purchase price equal to
95.00% (subject to adjustment in 0.50% increments down to 87.50% depending on
the difference between the weighted-average interest rate on the notes
receivable sold and the sum of the returns to the Purchasers plus the servicing
fee, as more fully defined below) of the principal balance of the receivables
sold was paid at closing in cash. For eligible notes generated by BPNV, the
Company's subsidiary in Aruba, the purchase price paid in cash at closing was
equal to 85.00% (subject to adjustment in 0.50% increments down to 77.00%
depending on the difference between the weighted-average interest rate on the
notes receivable sold and the sum of the returns to the Purchasers plus the
servicing fee) of the principal balance of the receivables sold. The balance of
the purchase price was to be deferred until such time as the Purchasers had
received a specified return, all servicing, custodial and similar fees and
expenses had been paid and a cash reserve account had been funded. The 95.00%
purchase price was funded 71.58% by the Senior Purchaser and 28.42% by the
Subordinated Purchaser. For the Aruba receivables, the 85.00% purchase price was
funded 70.00% by the Senior Purchaser and 30.00% by the Subordinated Purchaser.
The Senior Purchaser earned a return equal to the rate equivalent to its
borrowing cost (based on then applicable commercial paper rates) plus 0.60%,
subject to use of alternate return rates in certain circumstances. The
Subordinated Purchaser earned a return equal to one-month LIBOR plus 4.00%,
subject to use of alternate return rates in certain circumstances. The Company
acted as servicer under the GE/Barclays Purchase Facility for a fee equal to
1.5% of the principal amount of the receivables serviced, and was required to
make advances to the Purchasers to the extent it believed such advances were
recoverable. The GE/Barclays Purchase Facility Agreement included various
conditions to purchase, covenants, trigger events and other provisions customary
for a transaction of this type.
During the years ended March 31, 2002 and April 1, 2001, the Company sold
approximately $17.6 million and $77.7 million, respectively, in aggregate
principal amount of timeshare receivables under the GE/Barclays Purchase
Facility for aggregate purchase prices of $16.8 million and $73.2 million,
respectively, and recognized aggregate gains of $978,000 and $3.3 million,
respectively. As a result of all receivables sold under the GE/Barclays
62
Purchase Facility, the Company recorded aggregate retained interests in notes
receivable sold of $10.3 million and servicing assets totaling $726,000.
See the discussion regarding the 2002 Term Securitization (as defined
below), for further discussion of the GE/Barclays Purchase Facility.
The ING Purchase Facility
In June 2001, the Company executed agreements for a new timeshare
receivables purchase facility (the "ING Purchase Facility") with Credit Suisse
First Boston ("CSFB") acting as the initial purchaser. In April 2002, ING
Capital, LLC ("ING"), an affiliate of ING Bank N.V., acquired and assumed CSFB's
rights, obligations and commitments as initial purchaser in the ING Purchase
Facility by purchasing the outstanding principal balance under the facility of
$64.9 million from CSFB. In connection with its assumption of the ING Purchase
Facility, ING expanded and extended the ING Purchase Facility's size and term.
The ING Purchase Facility utilizes an owner's trust structure, pursuant to which
the Company sells receivables to a special purpose finance subsidiary of the
Company (the "Finance Subsidiary") and the Finance Subsidiary sells the
receivables to an owners' trust without recourse to the Company or the Finance
Subsidiary except for breaches of customary representations and warranties at
the time of sale. The Company did not enter into any guarantees in connection
with the ING Purchase Facility. Pursuant to the agreements that constitute the
ING Purchase Facility (collectively, the "Purchase Facility Agreements"), the
Finance Subsidiary could receive $125.0 million of cumulative purchase price (as
more fully described below) on sales of timeshare receivables to the owner's
trust on a revolving basis, as the principal balance of receivables sold
amortizes, in transactions through April 16, 2003 (subject to certain conditions
as more fully described in the Purchase Facility Agreements). The ING Purchase
Facility has detailed requirements with respect to the eligibility of
receivables for purchase and fundings under the ING Purchase Facility are
subject to certain conditions precedent. Under the ING Purchase Facility, a
variable purchase price expected to approximate 85.00% of the principal balance
of the receivables sold, subject to certain terms and conditions, is paid at
closing in cash. The balance of the purchase price will be deferred until such
time as ING has received a specified return and all servicing, custodial, agent
and similar fees and expenses have been paid. ING shall earn a return equal to
the London Interbank Offered Rate ("LIBOR") plus 1.00%, subject to use of
alternate return rates in certain circumstances. In addition, ING will receive a
0.25% facility fee during the term of the facility. The ING Purchase Facility
also provides for the sale of land notes receivable, under modified terms.
ING's obligation to purchase under the ING Purchase Facility may terminate
upon the occurrence of specified events. These specified events, some of which
are subject to materiality qualifiers and cure periods, include, without
limitation, (1) a breach by the Company of the representations or warranties in
the Purchase Facility Agreements, (2) a failure by the Company to perform its
covenants in the Purchase Facility Agreements, including, without limitation, a
failure to pay principal or interest due to ING, (3) the commencement of a
bankruptcy proceeding or the like with respect to the Company, (4) a material
adverse change to the Company since December 31, 2001, (5) the amount borrowed
under the ING Purchase Facility exceeding the borrowing base, (6) significant
delinquencies or defaults on the receivables sold, (7) a payment default by the
Company under any other borrowing arrangement of $5 million or more (a
"Significant Arrangement"), or an event of default under any indenture, facility
or agreement that results in a default under any Significant Arrangement, (8) 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 the Company's tangible net worth or (b) causes, or permits the holder
of indebtedness to cause, an amount in excess of 5% of the Company's tangible
net worth to become due, (9) the Company's tangible net worth not equaling at
least $110 million plus 50% of net income and 100% of the proceeds from new
equity financing following the first closing under the ING Purchase Facility, or
(10) the ratio of the Company's debt to tangible net worth exceeding 6 to 1, or
(11) the failure of the Company to perform its servicing obligations.
The Company acts as servicer under the ING Purchase Facility for a fee.
The Purchase Facility Agreement includes various conditions to purchase,
covenants, trigger events and other provisions customary for a transaction of
this type.
During the year ended March 31, 2002, the Company sold $83.2 million of
aggregate principal balance of notes receivable under the ING Purchase Facility
for a cumulative purchase price of $70.7 million. In connection with these
sales, the Company recognized an aggregate $5.2 million gain and recorded
retained interests in notes receivable sold of $18.8 million and servicing
assets totaling $800,000.
63
From April 1, 2002 through November 25, 2002, the Company sold $62.5
million of aggregate principal balance of notes receivable under the ING
Purchase Facility for a cumulative purchase price of $51.6 million.
On December 13, 2002, ING Financial Markets, LLC ("IFM"), an affiliate of
ING, consummated a $170.2 million private offering and sale of timeshare
loan-backed securities on behalf of the Company (the "2002 Term
Securitization"). The $181.0 million in aggregate principal of timeshare
receivables included in the 2002 Term Securitization included qualified
receivables from three sources: 1) $119.2 million in aggregate principal of
receivables that were previously sold to ING under the ING Purchase Facility; 2)
$54.2 million in aggregate principal of receivables that were previously sold
under the GE/Barclays Purchase Facility; and 3) $7.6 million in aggregate
principal of receivables that were previously hypothecated with GE under a
timeshare receivables warehouse facility (the "GE Warehouse Facility"). The
proceeds from the 2002 Term Securitization were used to pay ING, GE and Barclays
all amounts then outstanding under the ING Purchase Facility, the GE/Barclays
Purchase Facility and the GE Warehouse Facility. The Company received net cash
proceeds of $2.1 million, Timeshare Interests with a carrying value of $1.4
million, timeshare notes receivable with an estimated net realizable value of
$3.1 million and recorded a retained interest in the future cash flows from the
2002 Term Securitization of $36.1 million. The Company also recognized a gain of
$4.7 million in connection with the 2002 Term Securitization, which has been
included in gain on sales of notes receivable on the consolidated income
statement, and recorded a servicing asset of $2.1 million, which has been
included in other assets on the consolidated balance sheet.
As a result of the 2002 Term Securitization, the Finance Subsidiary may
sell additional notes receivable for a cumulative purchase price of up to $75.0
million under the ING Purchase Facility, on a revolving basis, prior to April
16, 2003, at 85% of the principal balance, subject to the eligibility
requirements and certain conditions precedent. On December 23, 2002, the Company
sold $22.1 million of aggregate principal balance of notes receivable under the
ING Purchase Facility for a purchase price of $18.7 million. As a result of
sales of notes receivable under the ING Purchase Facility during the nine months
ended December 31, 2002, the Company recognized gains of $5.3 million and
recorded retained interests in notes receivable sold and servicing assets of
$18.1 million and $864,000, respectively. As of December 31, 2002, the Finance
Subsidiary could sell an additional $56.3 million under the ING Purchase
Facility.
The following assumptions were used to measure the initial fair value of
the retained interests for the above sales under the ING Purchase Facility and
the 2002 Term Securitization: Prepayment rates ranging from 17% to 11% per annum
as the portfolios mature; loss severity rate of 45%; default rates ranging from
7% to 1% per annum as the portfolios mature; and discount rates ranging from 14%
to 11%.
Other Notes Receivable
On June 26, 2001, the Company loaned $1.7 million to the Casa Grande
Resort Cooperative Association I (the "Association"), the property owners'
association controlled by the timeshare owners at the La Cabana Beach and
Racquet Club(TM) resort in Aruba. This unsecured loan bears interest at Prime
plus 1%, payable in semi-annual installments and matures on June 26, 2003.
On December 15, 2000, the Company loaned $4.7 million to Napa Partners,
LLC ("Napa"), a real estate company in Napa, California (the "Napa Loan"). Napa
used the proceeds to acquire approximately 32 acres of undeveloped land in Napa,
California. On January 4, 2001, Napa repaid approximately $68,000 in principal
of the Napa Loan. In May 2001, Napa repaid the remaining outstanding principal
balance on the Napa Loan and all accrued interest.
64
6. Retained Interests in Notes Receivable Sold and Servicing Assets
Retained Interests in Notes Receivable Sold
The Company's retained interests in notes receivable sold, which are
classified as available-for-sale investments, and associated unrealized gains
and losses are set forth below (in thousands).
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
---- ---- ---- ----------
December 31, 2002
1996 REMIC retained interests ............ $ 1,028 $ 43 $ -- $ 1,071
GE/Wachovia Purchase Facility retained
interest 1,231 705 -- 1,936
ING Purchase Facility retained interest
(see Note 5) 4,662 -- -- 4,662
2002 Term Securitization retained
interest (see Note 5) 36,559 -- -- 36,559
------- ------- ------- -------
Total $43,480 $ 748 $ -- $44,228
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
---- ---- ---- ----------
March 31, 2002
1995 REMIC retained interest .............. $ 2,066 $ 442 $ -- $ 2,508
1996 REMIC retained interests ............. 1,248 65 -- 1,313
GE/Wachovia Purchase Facility retained
interest 4,462 -- 96 4,366
GE/Barclays Purchase Facility retained
interest (see Note 5) 9,201 2,198 -- 11,399
ING Purchase Facility retained interest
(see Note 5) 17,602 1,372 -- 18,974
------- ------- ------- -------
Total $34,579 $ 4,077 $ 96 $38,560
======= ======= ======= =======
Contractual maturities as of December 31, 2002, are set forth below (in
thousands), based on the final maturity dates of the underlying notes receivable
sold:
Amortized
Cost Fair Value
---- ----------
After one year but within five .................. $ 2,259 $ 3,007
After five years but within ten ................. 41,221 41,221
------- -------
Total $43,480 $44,228
======= =======
The following assumptions were used to measure the fair value of the above
retained interests: prepayment rates ranging from 23% to 11% per annum as the
portfolios mature; loss severity rates of 25% to 45%; default rates ranging from
9% to 0.75% per annum as the portfolios mature; and discount rates ranging from
11% to 15%.
65
The following table shows the hypothetical fair value of the Company's
retained interests in notes receivable sold based on a 10% and a 20% adverse
change in each of the assumptions used to measure the fair value of those
retained interests (the impacts on the fair value of the 1996 REMIC retained
interest were not material) (in thousands):
Hypothetical Fair Value at December 31, 2002 of:
------------------------------------------------
GE/Wachovia ING 2002 Term
Assumption Purchase Facility Purchase Facility Securitization
Retained Interest Retained Interest Retained Interest
----------------- ----------------- -----------------
Prepayment rate: 10% adverse change $1,913 $4,581 $35,832
20% adverse change 1,896 4,502 35,153
Loss severity rate: 10% adverse change 1,744 4,555 35,588
20% adverse change 1,552 4,448 34,616
Default rate: 10% adverse change 1,727 4,486 35,130
20% adverse change 1,520 4,310 33,661
Discount rate: 10% adverse change 1,924 4,487 35,390
20% adverse change 1,910 4,321 34,275
The table below summarizes certain cash flows received from and (paid to)
special purpose finance subsidiaries of the Company (in thousands):
Nine Months
Ended Year Ended
December 31, March 31,
2002 2002
---- ----
Proceeds from new sales of receivables $ 72,418 $ 85,975
Collections on previously sold receivables (55,253) (61,862)
Servicing fees received 2,498 2,693
Purchases of foreclosed assets (614) (632)
Resales of foreclosed assets (13,298) (4,403)
Remarketing fees received 5,723 1,812
Cash received on investment in securities 14,555 7,856
Cash paid to fund required reserve accounts (1,865) --
Quantitative information about the portfolios of notes receivable
previously sold without recourse in which the Company holds the above retained
interests as investments in securities is as follows (in thousands):
For the nine months
ended
As of December 31, 2002 December 31, 2002
--------------------------------------------------------
Total Principal Amount
Principal of Loans More Than Credit Losses, Net
Amount of Loans 60 Days Past Due of Recoveries
--------------- ---------------- -------------
1996 REMIC - land mortgages 2,043 112 1
GE/Wachovia Purchase Facility - timeshare receivables 29,002 1,912 --
ING Purchase Facility - timeshare receivables 21,797 -- 589
2002 Term Securitization - timeshare receivables 176,094 4,413 --
The net unrealized gain on available-for-sale securities, presented as a
separate component of shareholders' equity, is net of income taxes of
approximately $288,000, $1.6 million and $953,000 as of December 31, 2002, March
31, 2002 and April 1, 2001, respectively.
66
In connection with the 2002 Term Securitization (see Note 5), the Company
recognized a $4.7 million gain and reversed previously recorded unrealized gains
related to the GE/Barclays Purchase Facility and the ING Purchase Facility
totaling $3.6 million.
During the nine months ended December 31, 2002, the Company exchanged its
retained interest in a 1995 REMIC transaction for the underlying mortgages. The
1995 REMIC retained interest was exchanged in connection with the termination of
the REMIC, as all of the senior 1995 REMIC security holders had received all of
the required cash flows pursuant to the terms of their REMIC certificates. The
Company realized a $409,000 gain on the exchange, based on the net realizable
value of the mortgages received and the amortized cost of the retained interest.
The Company had previously recorded an unrealized gain of $244,000 on this
available-for-sale security.
Servicing Assets
The changes in the Company's servicing assets, included in other assets in
the Consolidated Balance Sheets, for the nine months ended December 31, 2002,
and the year ended March 31, 2002, were as follows (in thousands):
Balance at April 2, 2001 .................................. $ 562
Additions ................................................. 932
Less: amortization ........................................ (305)
Balance at March 31, 2002 ................................. 1,189
Additions ................................................. 2,981
Less: Disposal in 2002 Term Securitization (see
Note 5) ................................................ (1,504)
Less: amortization ........................................ (372)
Balance at December 31, 2002 .............................. $ 2,294
The estimated fair value of the servicing assets approximated their
carrying amounts as of December 31, 2002 and March 31, 2002. Fair value is
estimated by discounting estimated future cash flows from the servicing assets
using discount rates and the other assumptions used to measure the fair value of
the Company's retained interests for portfolios of notes receivable sold. A
valuation allowance is recorded where the fair value of the servicing assets is
below the related carrying amount. As of December 31, 2002 and March 31, 2002,
no such valuation allowance was necessary.
7. Inventory
The Company's net inventory holdings, summarized by division, are set
forth below (in thousands).
December 31, March 31,
2002 2002
Bluegreen(R)Resorts .................... $ 71,097 $ 86,288
Bluegreen Communities .................. 102,034 101,400
-------- --------
$173,131 $187,688
======== ========
Bluegreen Resorts inventory as of December 31, 2002, consisted of land
inventory of $9.4 million, $27.0 million of construction-in-progress and $34.7
million of completed units. Bluegreen Resorts inventory as of March 31, 2002,
consisted of land inventory of $10.0 million, $31.0 million of
construction-in-progress and $45.3 million of completed units.
Interest capitalized during the nine months ended December 31, 2002, the
nine months ended December 30, 2001, the year ended March 31, 2002 and year
ended April 1, 2001, totaled approximately $4.7 million, $6.1 million, $8.0
million and $7.5 million, respectively. Interest expense in the consolidated
statements of income is net of capitalized interest.
During the nine months ended December 31, 2002, the year ended March 31,
2002 and year ended April 1, 2001, the Company recognized impairment charges of
$750,000, $4.1 million and $2.0 million, respectively, on the Company's Crystal
Cove(TM) residential land project in Rockwood, Tennessee. These impairment
charges are included in cost of sales in the consolidated statements of income.
Certain aspects of the Crystal Cove project have required
67
changes in planned development methods, which are expected to be more costly
than the Company's original estimates. The fair value of the Crystal Cove
project was determined based on the estimated aggregate retail sales prices of
the home sites in the project.
8. Property and Equipment
The table below sets forth the property and equipment held by the Company
(in thousands).
Useful December 31, March 31,
Life 2002 2002
---- ---- ----
Office equipment, furniture and fixtures.............. 3-14 years $ 27,348 $ 23,225
Golf course land, land improvements, buildings
and equipment....................................... 10-30 years 25,958 24,958
Land, buildings and building improvements............. 10-30 years 12,119 11,171
Leasehold improvements................................ 3-14 years 5,152 5,245
Aircraft.............................................. 3-5 years 1,285 1,070
Vehicles and equipment................................ 3-5 years 694 618
--------- ---------
72,556 66,287
Accumulated depreciation and amortization of leasehold
improvements....................................... (20,769) (16,949)
--------- ---------
Total $ 51,787 $ 49,338
========= =========
9. Goodwill and Intangible Assets
The table below sets forth the intangible assets held by the Company as of
or for the nine months ended December 31, 2002 (in thousands).
Gross Carrying Accumulated
Amount Amortization
------ ------------
Amortized intangible assets:
Customer list - vacation packages sold .... $ 13,654 $ (2,883)
Customer list - telemarketing leads ....... 316 (249)
-------- --------
$ 13,970 $ (3,132)
======== ========
Aggregate amortization expense ................. $ 3,132
========
Estimated amortization expense:
For the year ended December 31, 2003 .. $ 10,838
========
Goodwill was $2.4 million at both December 31, 2002 and March 31, 2002.
All goodwill relates to Bluegreen(R) Resorts.
See also Note 2, for further discussion of intangible assets acquired
during the nine months ended December 31, 2002.
10. Receivable-Backed Notes Payable
In connection with the 2002 Term Securitization (see Note 5), the Company
paid the $7.1 million balance outstanding under the GE Warehouse Facility. The
GE Warehouse Facility expired on April 16, 2002.
The Company has a $30.0 million revolving credit facility with Foothill
Capital Corporation ("Foothill") for the pledge of Bluegreen Communities'
receivables, with up to $10.0 million of the total facility available for
Bluegreen Communities' inventory borrowings and up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables. The
interest rate charged on outstanding borrowings ranges from prime plus 0.5% to
1.0%, with 7.0% being the minimum interest rate. At December 31, 2002, the
outstanding principal balance under this facility was approximately $5.0
million, $1.4 million of which related to Bluegreen Resorts' receivables
borrowings and $3.6 million of which related to Bluegreen Communities'
receivables borrowings. At March 31, 2002, the outstanding principal balance
under this facility was approximately $4.1 million, all of which related to
Bluegreen Communities' receivables borrowings. All principal and interest
payments received on pledged receivables are applied to principal
68
and interest due under the facility. The ability to borrow under the facility
expires on December 31, 2003. Any outstanding indebtedness is due on December
31, 2005.
The remaining $370,000 of receivable-backed notes payable balances is
related to notes receivable sold by RDI Group(TM), Inc. ("RDI") with recourse,
prior to the acquisition of RDI by the Company in September 1997.
At December 31, 2002, $7.1 million in notes receivable secured the
Company's $5.4 million in receivable-backed notes payable.
11. Lines-of-Credit and Notes Payable
The Company has outstanding borrowings with various financial institutions
and other lenders, which have been used to finance the acquisition and
development of inventory and to fund operations. Financial data related to the
Company's borrowing facilities is set forth below (in thousands).
December 31, March 31,
2002 2002
---- ----
Lines-of-credit secured by inventory and golf courses with a carrying value of
$97.2 million at December 31, 2002. Interest rates range from 4.38% to 7.50% at
December 31, 2002 and from 4.88% to 6.00% at March 31, 2002. Maturities range
from March 2003 to September 2006 ............................................... $24,522 $27,954
Notes and mortgage notes secured by certain inventory, property and equipment
and investments with an aggregate carrying value of $13.5 million at December
31, 2002. Interest rates ranging from 4.25% to 10.00% at December 31, 2002 and
from 4.75% to 12.00% at March 31, 2002. Maturities range from April 2003 to
September 2015 .................................................................. 8,600 10,977
Unsecured notes payable to former stockholders of RDI. Interest rate of 9.00%.
Matured in October 1999 (see Note 16) ........................................... 1,000 1,000
Lease obligations with imputed interest rates ranging from 2.89% to 5.75%.
Maturities range from May 2003 to February 2005 ................................. 287 331
------- -------
Total $34,409 $40,262
======= =======
The table below sets forth the contractual minimum principal payments
required on the Company's lines-of-credit and notes payable for each of the five
fiscal years subsequent to December 31, 2002. Such minimum contractual payments
may differ from actual payments due to the effect of principal payments required
on a home site or timeshare interval release basis for certain of the above
obligations (in thousands).
2003 ................................................ $ 5,604
2004 ................................................ 15,799
2005 ................................................ 4,389
2006 ................................................ 7,772
2007 ................................................ 287
Thereafter .......................................... 558
-------
Total ............................................. $34,409
=======
The following is a discussion of the Company's significant credit
facilities and material new borrowings during the year ended December 31, 2002:
The Company has a $35.0 million revolving credit facility, the draw period
for which ended in March 2002, with Finova Capital Corporation. The Company used
this facility to finance the acquisition and development of Bluegreen(R)
Communities projects. The facility is secured by the real property (and personal
property related thereto) with respect to which borrowings are made. The
interest charged on outstanding borrowings is prime plus 1.25%. On September 14,
1999, in connection with the acquisition of 1,550 acres adjacent to Bluegreen
Communities' Lake Ridge(TM) at Joe Pool Lake project in Dallas, Texas ("Lake
Ridge II"), the Company borrowed approximately $12.0 million under the revolving
credit facility. Principal payments are effected through agreed-upon release
prices as home
69
sites in Lake Ridge(TM) II and in another recently purchased section of Lake
Ridge are sold. The principal of this loan must be repaid by September 14, 2004.
On October 6, 1999, in connection with the acquisition of 6,966 acres for
Bluegreen(R) Communities' Mystic Shores(TM) project in Canyon Lake, Texas, the
Company borrowed $11.9 million under the revolving credit facility. On May 5,
2000, the Company borrowed an additional $2.1 million under this facility in
order to purchase an additional 435 acres for the Mystic Shores project.
Principal payments on these loans are effected through agreed-upon release
prices as home sites in Mystic Shores are sold. The principal under the $11.9
million and $2.1 million loans for Mystic Shores must be repaid by October 6,
2004 and May 5, 2004, respectively. The aggregate outstanding balance on the
revolving credit facility was $14.4 million at December 31, 2002
On September 25, 2002, certain direct and indirect wholly-owned
subsidiaries of the Company entered into a $50 million revolving credit facility
(the "GMAC Facility") with Residential Funding Corporation ("RFC"), an affiliate
of General Motors Acceptance Corporation. The Company is the guarantor on the
GMAC Facility. The GMAC Facility is secured by the real property home sites (and
personal property related thereto) at the following residential land projects of
the Company, as well as any residential land projects acquired by the Company
with funds borrowed under the GMAC Facility (the "Secured Projects"):
Brickshire(TM) (New Kent County, Virginia); Mountain Lakes Ranch(TM) (Bluffdale,
Texas); Ridge Lake Shores(TM) (Magnolia, Texas); Riverwood Forest(TM) (Fulshear,
Texas); Waterstone(TM) (Boerne, Texas) and Yellowstone Creek Ranch(TM) (Pueblo,
Colorado). In addition, the Facility is secured by the Company's Carolina
National(TM) and The Preserve at Jordan Lake(TM) golf courses in Southport,
North Carolina and Chapel Hill, North Carolina, respectively. Borrowings under
the GMAC Facility, which are subject to certain conditions, can be made through
September 25, 2004. Principal payments are effected through agreed-upon release
prices paid to RFC as home sites in the Secured Projects are sold. The
outstanding principal balance of any borrowings under the GMAC Facility must be
repaid by September 25, 2006. The interest charged on outstanding borrowings is
prime plus 1.00% and is payable monthly. The Company is required to pay an
annual commitment fee equal to 0.33% of the $50 million GMAC Facility amount.
The GMAC Facility documents include customary conditions to funding,
acceleration provisions and certain financial affirmative and negative
covenants. On September 25, 2002, the Company borrowed $11 million under the
GMAC Facility and received cash proceeds of approximately $9 million. The $2
million deducted from the cash proceeds related to the repayment of existing
debt on the Secured Projects of approximately $1.5 million and debt issuance
costs totaling $500,000 including the first annual commitment fee, as described
above. The Company intends to use the proceeds from the GMAC Facility to repay
outstanding indebtedness on Bluegreen(R) Communities' projects, finance the
acquisition and development of Bluegreen Communities' projects and for general
corporate purposes. As of December 31, 2002, $7.5 million was outstanding under
the GMAC Facility.
On September 24, 1999, the Company obtained a $4.2 million line-of-credit
with Branch Banking and Trust Company for the purpose of developing a golf
course on the Brickshire property (the "Golf Course Loan"). During the years
ended March 31, 2002 and April 1, 2001, the Company borrowed $1.4 million and
$2.6 million, respectively, under the Golf Course Loan. The outstanding balances
under the Golf Course Loan bears interest at prime plus 0.5% and interest is due
monthly. Principal payments are payable in equal monthly installments of
$35,000. The principal must be repaid by October 1, 2005. The loan is secured by
the Brickshire golf course property. As of December 31, 2002, $3.4 million was
outstanding under the Golf Course Loan.
In October 2002, the Company borrowed $2.3 million from Bank One, in
connection with the acquisition of 2,463 acres of land for Bluegreen
Communities. Bluegreen Communities is developing its Silver Lakes Ranch(TM)
community on this land. Principal payments of approximately $195,000 and
interest at the prime lending rate are due quarterly. The final maturity of this
note payable is October 2005. As of December 31, 2002, $2.2 million was
outstanding under this loan.
During the nine months ended September 29, 2002, the Company borrowed $7.7
million under a $9.8 million, acquisition and development line-of-credit with
Marshall, Miller and Schroeder Investments Corporation ("MM&S"). Borrowings
under the line are collateralized by Timeshare Interests in the Company's Solara
Surfside(TM) resort in Surfside, Florida (near Miami Beach). Borrowings occurred
as MM&S directly paid third-party contractors, vendors and suppliers who were
engaged by the Company to perform renovation work on Solara Surfside. The final
draw on the loan was released during December 2002. Principal is repaid through
agreed-upon release prices as Timeshare Interests in Solara Surfside are sold,
subject to minimum required amortization. The indebtedness under the facility
bears interest at the prime lending rate plus 1.25%, subject to a minimum
interest rate of 7.50%, and all amounts borrowed are due no later than April 1,
2004, however the loan will be paid in full on March 31, 2003, due to the
minimum required amortization. The outstanding balance on the MM&S loan was $1.5
million as of December 31, 2002.
70
In addition, GE has provided the Company with a $28.0 million acquisition
and development facility for its timeshare inventories (the "A&D Facility"). The
draw down period on the A&D Facility has expired and outstanding borrowings
under the A&D Facility mature no later than July 2006. Principal will be repaid
through agreed-upon release prices as Timeshare Interests are sold at the
financed resorts, subject to minimum required amortization. The indebtedness
under the facility bears interest at LIBOR plus 3%. On September 14, 1999, the
Company borrowed approximately $14.0 million under the A&D facility. The
outstanding principal of this loan was paid in full during the nine months ended
December 31, 2002, through agreed-upon release prices as Timeshare Interests in
the Company's Lodge Alley Inn(TM) resort in Charleston, South Carolina were
sold, subject to minimum required amortization. On December 20, 1999, the
Company borrowed approximately $13.9 million under the acquisition and
development facility. The principal of this loan must be repaid by January 1,
2006, through agreed-upon release prices as Timeshare Interests in the Company's
Shore Crest(TM) II resort are sold, subject to minimum required amortization.
The outstanding balance under the A&D Facility at December 31, 2002 was $1.2
million.
On August 2, 2001, the Company obtained a revolving line-of-credit with
IndyMac Bank F.S.B. ("IndyMac") for the purpose of developing the Company's golf
course community in Chapel Hill, North Carolina known as The Preserve at Jordan
Lake(TM). The draw down period on the IndyMac line-of-credit has expired.
Through March 2002, the Company borrowed an aggregate $7.9 million under the
line-of-credit, on a revolving basis. The outstanding balances under the
line-of-credit bore interest at prime plus 1.0%, which was due monthly.
Principal payments were effected through agreed-upon release prices as home
sites in The Preserve at Jordan Lake were sold. The outstanding balance under
the IndyMac line-of-credit was paid in full during the nine months ended
December 31, 2002.
The Company has a $12.5 million unsecured line-of-credit with Wachovia
Bank, N.A. Amounts borrowed under the line bear interest at LIBOR plus 2%.
Interest is due monthly and all principal amounts are due on December 31, 2003.
The Company is only allowed to borrow under the line-of-credit in amounts less
than the remaining availability under its current, active timeshare receivables
purchase facility plus availability under certain receivable 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 December 31, 2002, there was no amount outstanding under the line.
12. Note Offering
On April 1, 1998, the Company consummated a private placement offering
(the "Offering") of $110 million in aggregate principal amount of 10.50% senior
secured notes due April 1, 2008 (the "Notes"). Interest on the Notes is payable
semiannually on April 1 and October 1 of each year. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003 - 105.25%; 2004 - 103.50%;
2005 - 101.75% and 2006 and thereafter - 100.00%. The Notes are senior
obligations of the Company and rank pari passu in right of payment with all
existing and future senior indebtedness of the Company and rank senior in right
of payment to all existing and future subordinated obligations of the Company.
None of the assets of Bluegreen(R) Corporation secure its obligations under the
Notes, and the Notes are effectively subordinated to secured indebtedness of the
Company to any third party to the extent of assets serving as security therefor.
The Notes are unconditionally guaranteed, jointly and severally, by each
of the Company's existing and future subsidiaries (the "Subsidiary Guarantors"),
with the exception of the Joint Venture, BPNV, Resort Title Agency(TM), 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").
71
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 the
Company. The Note guarantees are senior obligations of each Subsidiary Guarantor
and rank pari passu in right of payment with all existing and future senior
indebtedness of each such Subsidiary Guarantor and senior in right of payment to
all existing and future subordinated indebtedness of each such Subsidiary
Guarantor. The Note guarantees of certain Subsidiary Guarantors are secured by a
first (subject to customary exceptions) mortgage or similar instrument (each, a
"Mortgage") on certain Bluegreen(R) Communities properties of such Subsidiary
Guarantors (the "Pledged Properties"). Absent the occurrence and the continuance
of an event of default, the Notes trustee is required to release its lien on the
Pledged Properties as property is sold and the Trustee does not have a lien on
the proceeds of any such sale. As of December 31, 2002, the Pledged Properties
had an aggregate carrying value of approximately $9.7 million. The Notes'
indenture includes certain negative covenants including restrictions on the
incurrence of debt and liens and on payments of cash dividends.
Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented
below:
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, 2002
-------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------
ASSETS
Cash and cash equivalents .................. $ 22,373 $ 17,951 $ 6,581 $ -- $ 46,905
Contracts receivable, net .................. 1,457 14,773 -- 16,230
Intercompany receivable .................... 101,549 (101,549)
Notes receivable, net ...................... 1,740 9,434 50,621 -- 61,795
Inventory, net ............................. 19,440 153,691 -- 173,131
Retained interests in notes receivable sold 44,228 -- 44,228
Investments in subsidiaries ................ 7,730 3,230 (10,960)
Property and equipment, net ................ 9,791 1,959 40,037 -- 51,787
Other assets ............................... 6,576 1,792 31,548 -- 39,916
--------- --------- --------- --------- ---------
Total assets ............................ $ 149,759 $ 96,261 $ 300,481 $(112,509) $ 433,992
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities
and other .............................. $ 8,510 $ 22,485 $ 26,124 $ -- $ 57,119
Intercompany payable ....................... 8,392 93,157 (101,549)
Deferred income taxes ...................... (19,344) 24,706 25,846 -- 31,208
Lines-of-credit and notes payable .......... 3,384 3,000 33,385 -- 39,769
10.50% senior secured notes payable ........ 110,000 -- -- -- 110,000
8.25% convertible subordinated
debentures ................................ 34,371 -- -- -- 34,371
--------- --------- --------- --------- ---------
Total liabilities ....................... 136,921 58,583 178,512 (101,549) 272,467
Minority interest ............................ 3,242 3,242
Total shareholders' equity ................... 12,838 37,678 121,969 (14,202) 158,283
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 149,759 $ 96,261 $ 300,481 $(112,509) $ 433,992
========= ========= ========= ========= =========
72
MARCH 31, 2002
--------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
ASSETS
Cash and cash equivalents ................. $ 18,611 $ 21,575 $ 8,529 $ -- $ 48,715
Contracts receivable, net ................. -- 605 21,213 -- 21,818
Intercompany receivable ................... 113,436 -- -- (113,436) --
Notes receivable, net ..................... 1,749 6,367 47,532 -- 55,648
Inventory, net ............................ -- 19,456 168,232 -- 187,688
Retained interests in notes receivable sold -- 38,560 -- -- 38,560
Investments in subsidiaries ............... 7,730 -- 3,230 (10,960) --
Property and equipment, net ............... 10,009 2,017 37,312 -- 49,338
Other assets .............................. 6,968 2,663 23,763 -- 33,394
--------- --------- --------- --------- ---------
Total assets ........................... $ 158,503 $ 91,243 $ 309,811 $(124,396) $ 435,161
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities
and other ............................. $ 11,074 $ 21,138 $ 16,643 $ -- $ 48,855
Intercompany payable ...................... -- 12,267 101,169 (113,436) --
Deferred income taxes ..................... (18,799) 23,173 23,925 -- 28,299
Lines-of-credit and notes payable ......... 3,476 5,649 45,765 -- 54,890
10.50% senior secured notes payable ....... 110,000 -- -- -- 110,000
8.00% convertible subordinated notes
payable to related parties ............... 6,000 -- -- -- 6,000
8.25% convertible subordinated
debentures ............................... 34,371 -- -- -- 34,371
--------- --------- --------- --------- ---------
Total liabilities ...................... 146,122 62,227 187,502 (113,436) 282,415
Minority interest ........................... -- -- 3,090 3,090
Total shareholders' equity .................. 12,381 29,016 122,309 (14,050) 149,656
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity ............................ $ 158,503 $ 91,243 $ 309,811 $(124,396) $ 435,161
========= ========= ========= ========= =========
73
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------------
REVENUES
Sales ................................ $ -- $ 18,561 $ 204,094 $ -- $ 222,655
Other resort and golf operations ..... -- 1,901 25,147 -- 27,048
Management fees ...................... 24,148 -- -- (24,148) --
Interest income ...................... 239 5,652 6,344 -- 12,235
Gain on sales of notes receivable .... -- 10,035 -- -- 10,035
--------- --------- --------- --------- ---------
24,387 36,149 235,585 (24,148) $ 271,973
--------- --------- --------- --------- ---------
COSTS AND EXPENSES
Cost of sales ........................ -- 5,103 72,820 -- 77,923
Cost of other resort and golf
operations ......................... -- 782 26,113 -- 26,895
Management fees ...................... -- 589 23,559 (24,148) --
Selling, general and administrative
expenses ............................ 17,518 11,204 99,586 -- 128,308
Interest expense ..................... 7,389 319 2,116 -- 9,824
Provision for loan losses ............ -- 399 2,433 -- 2,832
Other expense (income) ............... (137) 1,156 501 -- 1,520
--------- --------- --------- --------- ---------
24,770 19,552 227,128 (24,148) 247,302
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest ................... (383) 16,597 8,457 -- 24,671
Provision (benefit) for income taxes . (137) 5,348 3,582 -- 8,793
Minority interest in income of
consolidated subsidiary .......... -- -- -- 502 502
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle ... (246) 11,249 4,875 (502) 15,376
Cumulative effect of change in
accounting principle, net of income
taxes ............................. -- (714) (5,215) -- (5,929)
Minority interest in cumulative effect
of change in accounting principle,
net of income taxes ................. -- -- -- (350) (350)
--------- --------- --------- --------- ---------
Net income (loss) .................... $ (246) $ 10,535 $ (340) $ (152) $ 9,797
========= ========= ========= ========= =========
74
NINE MONTHS ENDED DECEMBER 30, 2001
(UNAUDITED) ---------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------
REVENUES
Sales .............................. $ -- $ 14,540 $ 170,163 $ -- $ 184,703
Management fees .................... 20,293 -- -- (20,293) --
Other resort and golf operations
revenue .......................... -- 2,600 16,584 -- 19,184
Interest income .................... 477 3,446 7,932 -- 11,855
Gain on sale of notes receivable ... -- 4,214 -- -- 4,214
--------- --------- --------- --------- ---------
20,770 24,800 194,679 (20,293) 219,956
COST AND EXPENSES
Cost of sales ...................... -- 4,603 59,530 -- 64,133
Cost of other resort and golf
operations ....................... -- 1,152 16,692 -- 17,844
Management fees .................... -- 825 19,468 (20,293) --
Selling, general and administrative
expenses .......................... 18,461 8,620 79,264 -- 106,345
Interest expense ................... 6,252 460 3,417 -- 10,129
Provision for loan losses .......... -- 140 3,543 -- 3,683
Other expense (income) ............. 10 775 (508) -- 277
--------- --------- --------- --------- ---------
24,723 16,575 181,406 (20,293) 202,411
--------- --------- --------- --------- ---------
Income (loss) before income taxes .. (3,953) 8,225 13,273 -- 17,545
Provision (benefit) for income taxes (1,522) 3,226 5,051 -- 6,755
Minority interest in income of
consolidated subsidiary ........... -- -- -- 107 107
--------- --------- --------- --------- ---------
Net income (loss) .................. $ (2,431) $ 4,999 $ 8,222 $ (107) $ 10,683
========= ========= ========= ========= =========
YEAR ENDED MARCH 31, 2002
----------------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------------------
REVENUES
Sales.................................. $ -- $ 21,604 $219,024 $ -- $ 240,628
Other resort and golf operations....... -- 3,943 21,527 -- 25,470
Management fees........................ 26,133 -- -- (26,133) --
Interest income........................ 564 4,968 9,915 -- 15,447
Gain on sales of notes receivable...... -- 6,280 -- -- 6,280
--------- -------- -------- ---------- ---------
26,697 36,795 250,466 (26,133) 287,825
COSTS AND EXPENSES
Cost of sales.......................... -- 6,606 79,919 -- 86,525
Cost of other resort and golf
operations........................... -- 1,532 22,067 -- 23,599
Management fees........................ -- 1,086 25,047 (26,133) --
Selling, general and administrative
expenses............................ 25,686 12,234 102,269 -- 140,189
Interest expense....................... 8,371 578 4,068 -- 13,017
Provision for loan losses.............. -- 242 4,609 -- 4,851
Other expense (income) ................ (239) 1,105 (704) -- 162
--------- -------- -------- ---------- ---------
33,818 23,383 237,275 (26,133) 268,343
--------- -------- -------- ---------- ---------
Income (loss) before income taxes and
minority interest ...................... (7,121) 13,412 13,191 -- 19,482
Provision (benefit) for income taxes... (2,742) 4,846 5,397 -- 7,501
Minority interest in income of
consolidated subsidiary............. -- -- -- 249 249
--------- -------- -------- ---------- ---------
Net income (loss)...................... $ (4,379) $ 8,566 $ 7,794 $ (249) $ 11,732
========= ======== ======== ========== =========
75
YEAR ENDED APRIL 1, 2001
--------------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------------
REVENUES
Sales.................................. $ 58 $ 11,107 $ 218,709 $ -- $ 229,874
Other resort and golf operations....... -- 3,508 21,141 -- 24,649
Management fees........................ 25,163 -- -- (25,163) --
Interest income........................ 1,378 4,155 11,784 -- 17,317
Gain on sales of notes receivable...... -- 3,281 -- -- 3,281
--------- --------- --------- ----------- ----------
26,599 22,051 251,634 (25,163) 275,121
COSTS AND EXPENSES
Cost of sales.......................... -- 3,270 75,525 -- 78,795
Cost of other resort and golf operations -- 1,577 23,374 -- 24,951
Management fees........................ -- -- 25,163 (25,163) --
Selling, general and administrative
expenses.............................. 27,085 7,138 113,369 -- 147,592
Interest expense....................... 10,189 941 4,364 -- 15,494
Provision for loan losses.............. -- 69 4,818 -- 4,887
Other expense (income) 44 885 (529) -- 400
--------- --------- --------- ----------- ----------
37,318 13,880 246,084 (25,163) 272,119
--------- --------- --------- ----------- ----------
Income (loss) before income taxes and
minority interest .................... (10,719) 8,171 5,550 -- 3,002
Provision (benefit) for income taxes... (4,127) 3,644 1,639 -- 1,156
Minority interest in loss of
consolidated subsidiary............ -- -- -- (871) (871)
--------- --------- --------- ----------- ----------
Net income (loss)...................... $ (6,592) $ 4,527 $ 3,911 $ 871 $ 2,717
========= ========= ========= =========== ==========
76
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------
Operating activities:
Net cash provided (used) by operating activities .... $ 10,471 $(14,917) $ 11,483 $ -- $ 7,037
-------- -------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes
receivable sold ................................ -- 14,555 -- -- 14,555
Investment in subsidiary ......................... (100) -- -- 100 --
Business acquisition ............................. -- -- (2,292) -- (2,292)
Purchases of property and equipment .............. (1,285) (315) (2,779) -- (4,379)
Proceeds from sales of property and equipment .... -- -- 48 -- 48
-------- -------- -------- -------- --------
Net cash provided (used) by investing activities .... (1,385) 14,240 (5,023) 100 7,932
-------- -------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and notes payable ................... -- -- 18,696 -- 18,696
Payments under line-of-credit facilities and
notes payable .................................. (7) (1,692) (25,771) -- (27,470)
Payment of 8% convertible, subordinated notes
payable to related parties ..................... (6,000) -- -- -- (6,000)
Payment of debt issuance costs ................... -- (1,355) (1,333) -- (2,688)
Proceeds from capitalization of subsidiary ....... -- 100 -- (100) --
Proceeds from exercise of employee and director
stock options .................................. 683 -- -- -- 683
-------- -------- -------- -------- --------
Net cash used by financing activities ............... (5,324) (2,947) (8,408) (100) (16,779)
-------- -------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents 3,762 (3,624) (1,948) -- (1,810)
Cash and cash equivalents at beginning of year ...... 18,611 21,575 8,529 -- 48,715
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year ............ 22,373 17,951 6,581 -- 46,905
Restricted cash and cash equivalents at end of year . (173) (13,797) (6,581) -- (20,551)
-------- -------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year $ 22,200 $ 4,154 $ -- $ -- $ 26,354
======== ======== ======== ======== ========
77
NINE MONTHS ENDED DECEMBER 30, 2001
(UNAUDITED) ---------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
---------------------------------------------------------
Operating activities:
Net cash provided (used) by operating activities ................... $ (3,095) $ 3,556 $ 19,161 $ 19,622
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment ............................. (1,999) (1,104) (7,343) (10,446)
Sales of property and equipment ................................. 3 -- 31 34
Cash received from retained interests in notes receivable sold .. -- 3,552 -- 3,552
Investment in note receivable ................................... (1,685) -- -- (1,685)
Principal payments received on investment in note receivable .... 4,643 -- -- 4,643
-------- -------- -------- --------
Net cash provided (used) by investing activities ................... 962 2,448 (7,312) (3,902)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and other
notes payable ................................................. 40,375 -- 6,173 46,548
Payments under line-of-credit facilities and other notes payable . (40,626) (2,979) (18,873) (62,478)
Payment of debt issuance costs ................................... (93) (1,114) (278) (1,485)
Proceeds from the exercise of employee and director stock options 156 -- -- 156
-------- -------- -------- --------
Net cash used by financing activities .............................. (188) (4,093) (12,978) (17,259)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ............... (2,321) 1,911 (1,129) (1,539)
Cash and cash equivalents at beginning of period ................... 13,290 17,125 9,601 40,016
-------- -------- -------- --------
Cash and cash equivalents at end of period ......................... 10,969 19,036 8,472 38,477
Restricted cash and cash equivalents at end of period .............. -- (17,459) (6,997) (24,456)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period ............ $ 10,969 $ 1,577 $ 1,475 $ 14,021
======== ======== ======== ========
YEAR ENDED MARCH 31, 2002
--------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
--------------------------------------------------------
Operating activities:
Net cash provided by operating activities ..................... $ 5,261 $ 3,107 $ 23,282 $ 31,650
-------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes receivable sold -- 7,856 -- 7,856
Investment in note receivable ................................ (1,685) -- -- (1,685)
Principal payments received on investment in note receivable . 4,643 -- -- 4,643
Purchases of property and equipment .......................... (2,722) (1,472) (8,746) (12,940)
Proceeds from sales of property and equipment ................ 4 -- 40 44
-------- -------- -------- --------
Net cash (used) provided by investing activities ................. 240 6,384 (8,706) (2,082)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ............................................... 50,225 -- 9,645 59,870
Payments under line-of-credit facilities and notes payable ... (50,447) (3,876) (25,004) (79,327)
Payment of debt issuance costs ............................... (114) (1,165) (289) (1,568)
Proceeds from exercise of employee and
director stock options ................................. 156 -- -- 156
-------- -------- -------- --------
Net cash used by financing activities ............................ (180) (5,041) (15,648) (20,869)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ............. 5,321 4,450 (1,072) 8,699
Cash and cash equivalents at beginning of year ................... 13,290 17,125 9,601 40,016
-------- -------- -------- --------
Cash and cash equivalents at end of year ......................... 18,611 21,575 8,529 48,715
Restricted cash and cash equivalents at end of year .............. -- (20,199) (7,470) (27,669)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year ............ $ 18,611 $ 1,376 $ 1,059 $ 21,046
======== ======== ======== ========
78
YEAR ENDED APRIL 1, 2001
-----------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN(R) NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------
Operating activities:
Net cash provided (used) by operating activities .... $(24,250) $ 2,312 $ 24,010 $ -- $ 2,072
-------- -------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes
receivable sold ................................ -- 6,890 -- -- 6,890
Investment in note receivable ..................... (4,711) -- -- -- (4,711)
Principal payments received on investment in note
receivable ..................................... 68 -- -- -- 68
Acquisition of minority interest ................. -- -- (250) -- (250)
Investment in joint venture ...................... -- -- (3,230) 3,230 --
Purchases of property and equipment .............. (1,539) (739) (7,271) -- (9,549)
Proceeds from sales of property and equipment .... -- -- 79 -- 79
-------- -------- -------- -------- --------
Net cash (used) provided by investing activities .... (6,182) 6,151 (10,672) 3,230 (7,473)
-------- -------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and notes payable ................... 6,500 645 3,976 -- 11,121
Payments under line-of-credit facilities and
notes payable .................................. (5,282) (6,303) (17,550) -- (29,135)
Payment of debt issuance costs ................... (45) (1,368) (138) -- (1,551)
Proceeds from capitalization of joint venture .... -- 3,230 -- (3,230) --
Proceeds from exercise of employee and director
stock options .................................. 28 -- -- -- 28
Payments for treasury stock ...................... (572) -- -- -- (572)
-------- -------- -------- -------- --------
Net cash (used) provided by financing activities .... 629 (3,796) (13,712) (3,230) (20,109)
-------- -------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents (29,803) 4,667 (374) -- (25,510)
Cash and cash equivalents at beginning of year ...... 43,093 12,458 9,975 -- 65,526
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year ............ 13,290 17,125 9,601 -- 40,016
Restricted cash and cash equivalents at end of year . -- (15,961) (6,402) -- (22,363)
-------- -------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year $ 13,290 $ 1,164 $ 3,199 $ -- $ 17,653
======== ======== ======== ======== ========
13. Convertible Subordinated Notes Payable and Debentures
Notes Payable
On September 11, 2002, the Company's 8% convertible subordinated
promissory notes in the aggregate principal amount of $6 million were paid in
full to two former members of the Company's Board of Directors and an affiliate
of a former member of the Board of Directors.
Debentures
The Company had $34.4 million of its 8.25% Convertible Subordinated
Debentures (the "Debentures") outstanding at both December 31, 2002 and March
31, 2002. The Debentures are convertible at any time prior to maturity (2012),
unless previously redeemed, into common stock of the Company at a current
conversion price of $8.24 per share, subject to adjustment under certain
conditions. The Debentures are redeemable at any time, at the Company's option,
in whole or in part at 100% of the face amount. The Company is obligated to
redeem annually 10% of the principal amount of the Debentures originally issued,
commencing May 15, 2003, net of previous redemptions of approximately $5.6
million (therefore the first actual redemptions will occur on May 15, 2004).
Such redemptions are calculated to retire 90% of the principal amount of the
Debentures prior to maturity. The Debentures are unsecured and subordinated to
all senior indebtedness of the Company. Interest is payable semi-annually on May
15 and November 15.
79
Under financial covenants of the Indenture pursuant to which the
Debentures were issued, the Company is required to maintain net worth of not
less than $29.0 million. Should net worth fall below $29.0 million for two
consecutive quarters, the Company is required to make an offer to purchase 20%
of the outstanding Debentures at par, plus accrued interest.
14. Fair Value of Financial Instruments
In estimating the fair values of its financial instruments, the Company
used the following methods and assumptions:
Cash and cash equivalents: The amounts reported in the Consolidated
Balance Sheets for cash and cash equivalents approximate fair value.
Contracts receivable: The amounts reported in the Consolidated Balance
Sheets for contracts receivable approximate fair value. Contracts receivable are
non-interest bearing and generally convert into cash or an interest-bearing
mortgage note receivable within thirty days.
Notes receivable: The amounts reported in the Consolidated Balance Sheets
for notes receivable approximate fair value based on discounted future cash
flows using current rates at which similar loans with similar maturities would
be made to borrowers with similar credit risk.
Retained interests in notes receivable sold: Retained interests in notes
receivable sold are carried at fair value based on discounted cash flow
analyses.
Lines-of-credit, notes payable and receivable-backed notes payable: The
amounts reported in the Consolidated Balance Sheets approximate their fair value
for indebtedness that provides for variable interest rates. The fair value of
the Company's fixed-rate indebtedness was estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
10.50% senior secured notes payable: The fair value of the Company's
10.50% senior secured notes is based on the quoted market price in the
over-the-counter bond market.
8.00% convertible subordinated notes payable to related parties: The fair
value of the Company's $6 million notes was estimated using a discounted cash
flow analysis, based on the Company's incremental borrowing rate at March 31,
2002, for similar types of borrowing arrangements.
8.25% convertible subordinated debentures: The fair value of the Company's
8.25% convertible subordinated debentures is based on the quoted market price as
reported on the New York Stock Exchange.
December 31, 2002 March 31, 2002
---------------------------------------------------
(in thousands) Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents ..................... $ 46,905 $ 46,905 $ 48,715 $ 48,715
Contracts receivable, net ..................... 16,230 16,230 21,818 21,818
Notes receivable, net ......................... 61,795 61,795 55,648 55,648
Retained interests in notes receivable sold ... 44,228 44,228 38,560 38,560
Lines-of-credit, notes payable, and receivable-
backed notes payable ........................ 39,769 39,837 54,890 54,890
10.50% senior secured notes payable ........... 110,000 90,200 110,000 85,800
8.00% convertible subordinated notes payable to
related parties ............................. -- -- 6,000 6,084
8.25% convertible subordinated debentures ..... 34,371 29,215 34,371 25,091
80
15. Common Stock and Stock Option Plans
Treasury Stock
During the year ended April 1, 2001, the Company repurchased approximately
198,000 common shares at an aggregate cost of $572,000 under a repurchase plan
approved by the Company's Board of Directors during the year ended March 28,
1999 and expanded during the year ended April 2, 2000. No common stock was
repurchased during the nine months ended December 31, 2002 or the year ended
March 31, 2002.
Stock Option Plans
Under the Company's employee stock option plans, options can be granted
with various vesting periods. All options granted to employees prior to December
31, 2002, vest ratably over a five-year period and expire ten years from the
date of grant. All options were granted at exercise prices that either equaled
or exceeded fair market value at the respective dates of grant.
The stock option plan covering the Company's non-employee directors
provides for the grant to the Company's non-employee directors (the "Outside
Directors") of non-qualified stock options. All options granted to Outside
Directors prior to December 31, 2002 vest ratably over a three-year period and
expire ten years from the date of grant. Due to a "change in control" provision
in the Outside Directors' stock option agreements, all outstanding Outside
Directors options as of April 10, 2002 immediately vested when Levitt Companies,
LLC ("Levitt"), a subsidiary of BankAtlantic Bancorp, Inc. (NYSE: BBX), acquired
an aggregate of approximately 8 million shares of the Company's outstanding
common stock from certain real estate funds associated with Morgan Stanley Dean
Witter and Company and Grace Brothers, Ltd. in private transactions. As a result
of these purchases, combined with prior holdings in the Company, Levitt and
BankAtlantic Bancorp, Inc. now own approximately 40% of the Company's
outstanding common stock.
A summary of stock option activity related to the Company's Employee and
Outside Directors Plans is presented below (in thousands, except per share
data).
Number of Shares Outstanding Exercise Price Number of Shares
Reserved Options Per Share Exercisable
Employee Stock Option Plans
Balance at April 3, 2000 ... 3,645 2,829 $1.25-$9.50 1,288
Granted ................ -- 60 $2.26-$3.00
Forfeited .............. (5) (185) $3.13-$8.50
Exercised .............. (11) (11) $3.13
----- -----
Balance at April 1, 2001 ... 3,629 2,693 $1.25-$9.50 1,637
Granted ................ -- 50 $2.29
Forfeited .............. (81) (654) $2.29-$9.50
Exercised .............. (78) (78) $1.25-$1.46
----- -----
Balance at March 31, 2002 .. 3,470 2,011 $1.46-$9.50 1,457
Forfeited .............. (10) (145) $2.60-$8.50
Exercised .............. (72) (72) $1.46-$3.13
----- -----
Balance at December 31, 2002 3,388 1,794 $2.26-$9.50 1,489
===== =====
Outside Directors Plans
Balance at April 3, 2000 .. 903 613 $1.46-$9.31 408
Granted ................ -- 105 $2.88
----- -----
Balance at April 1, 2001 ... 903 718 $1.46-$9.31 503
Granted ................ -- 120 $2.11
Forfeited .............. (2) (30) $2.88
Exercised .............. (36) (36) $1.46
----- -----
Balance at March 31, 2002 .. 865 772 $1.77-$9.31 562
Forfeited .............. -- (45) $2.88-$5.94
Exercised .............. (212) (212) $1.77-$3.50
----- -----
Balance at December 31, 2002 653 515 $2.11-$9.31 515
===== =====
81
The weighted-average exercise prices and weighted-average remaining
contractual lives of the Company's outstanding stock options at December 31,
2002 (grouped by range of exercise prices) were:
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------- -------------- -------------
(In 000's)
----------
Employees:
$2.26-$3.13 470 384 5 $2.88 $3.01
$3.58-$4.88 598 567 3 $4.18 $4.14
$8.50-$9.50 726 538 6 $9.21 $9.26
----- -----
1,794 1,489
===== =====
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------- -------------- -------------
(In 000's)
----------
Directors:
$2.11 30 30 9 $2.11 $2.11
$2.82-$3.80 305 305 3 $3.27 $3.27
$5.94 90 90 4 $5.94 $5.94
$9.31 90 90 4 $9.31 $9.31
--- ---
515 515
=== ===
Common Stock Reserved For Future Issuance
As of December 31, 2002, common stock reserved for future issuance was
comprised of shares issuable (in thousands):
Upon conversion of 8.25% debentures ............................. 4,171
Upon exercise of employee stock options ......................... 3,388
Upon exercise of outside director stock options ................. 653
-----
8,212
=====
16. Commitments and Contingencies
At December 31, 2002, the estimated cost to complete development work in
subdivisions or resorts from which lots or Timeshare Interests have been sold
totaled $34.9 million. Development is estimated to be completed within the next
three fiscal years and thereafter as follows: 2003--$27.6 million, 2004--$3.0
million, 2005--$2.5 million, Thereafter--$1.8 million.
The Company leases certain office space and equipment under various
noncancelable operating leases. Certain of these leases contain stated
escalation clauses while others contain renewal options.
Rent expense for the nine months ended December 31, 2002, the year ended
March 31, 2002 and the year ended April 1, 2001, totaled approximately $3.6
million, $4.4 million and $4.2 million, respectively.
82
Lease commitments under these noncancelable operating leases for each of
the five fiscal years subsequent to December 31, 2002, and thereafter are as
follows (in thousands):
2003 ........................................................ $ 3,444
2004 ........................................................ 2,799
2005 ........................................................ 1,826
2006 ........................................................ 1,341
2007 ........................................................ 1,095
Thereafter .................................................. 4,596
-------
Total future minimum lease payments ....................... $15,101
=======
The Company has $1.4 million in outstanding commitments under stand-by
letters of credit with banks, primarily related to obtaining an insurance bond
regarding the development of project expected to be acquired during the year
ending December 31, 2003, by Bluegreen(R) Communities.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the claims and proceedings are
incidental to its business.
On August 21, 2000, the Company received a Notice of Field Audit Action
(the "Notice") from the State of Wisconsin Department of Revenue (the "DOR")
alleging that two subsidiaries now owned by the Company failed to collect and
remit sales and use taxes to the State of Wisconsin during the period from
January 1, 1994 through September 30, 1997 totaling $1.9 million. The majority
of the assessment is based on the subsidiaries not charging sales tax to
purchasers of Timeshare Interests at the Company's Christmas Mountain
Village(TM) resort. In addition to the assessment, the Notice indicated that
interest would be charged, but no penalties would be assessed. As of December
31, 2002, aggregate interest was approximately $1.8 million. The Company filed a
Petition for Redetermination (the "Petition") on October 19, 2000, and, if the
Petition is unsuccessful, the Company intends to vigorously appeal the
assessment. The Company acquired the subsidiaries that were the subject of the
Notice in connection with the acquisition of RDI on September 30, 1997. Under
the RDI purchase agreement, the Company has the right to set off payments owed
by the Company to RDI's former stockholders pursuant to a $1.0 million
outstanding note payable balance and to make a claim against such stockholders
for $500,000 previously paid for any breach of representations and warranties.
(One of the former RDI stockholders is currently employed by the Company in a
key management position.) The Company has notified the former RDI stockholders
that it intends to exercise these rights to mitigate any settlement with the DOR
in this matter. In addition, the Company believes that, if necessary, amounts
paid to the State of Wisconsin pursuant to the Notice, if any, may be further
funded through collections of sales tax from the consumers who effected the
assessed timeshare sales with RDI without paying sales tax on their purchases.
Based on management's assessment of the Company's position in the Petition, the
Company's right of set off with the former RDI stockholders and other factors
discussed above, management does not believe that the possible sales tax
pursuant to the Notice will have a material adverse impact on the Company's
results of operations or financial position, and therefore no amounts have been
accrued related to this matter.
17. Income Taxes
The provision for income taxes consists of the following (in thousands):
----------------------------------------------------------------
Nine Months Ended Year Ended
----------------------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
------- ------- ------- -------
(Unaudited)
Federal:
Current ............... $ 4,666 $ -- $ (394) $(4,645)
Deferred .............. 3,792 6,114 7,254 5,481
------- ------- ------- -------
8,458 6,114 6,860 836
State and other:
Current ............... -- -- -- --
Deferred .............. 335 641 641 320
------- ------- ------- -------
335 641 641 320
------- ------- ------- -------
Total .................... $ 8,793 $ 6,755 $ 7,501 $ 1,156
======= ======= ======= =======
83
The reasons for the difference between the provision for income taxes and
the amount that results from applying the federal statutory tax rate to income
before provision for income taxes and minority interest are as follows (in
thousands):
----------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
------ ------ ------ ------
(Unaudited)
Income tax expense at statutory rate $8,635 $6,141 $6,819 $1,051
Effect of state taxes, net of federal
tax benefit ....................... 158 614 682 105
------ ------ ------ ------
$8,793 $6,755 $7,501 $1,156
====== ====== ====== ======
At December 31, 2002 and March 31, 2002, deferred income taxes consist of
the following components (in thousands):
December 31, March 31,
2002 2002
---- ----
Deferred federal and state tax liabilities (assets):
Installment sales treatment of notes................................. $ 68,500 $ 53,115
Deferred federal and state loss carryforwards/AMT credits............ (38,939) (29,588)
Book over tax carrying value of retained interests in notes
receivable sold................................................... 6,587 2,863
Book reserves for loan losses and inventory.......................... (5,271) (3,972)
Deferral of telemarketing costs incurred............................. -- 2,431
Tax over book depreciation........................................... 1,411 1,721
Other................................................................ (1,080) 1,729
-------- --------
Deferred income taxes $ 31,208 $ 28,299
======== ========
Total deferred federal and state tax liabilities $ 81,385 $ 62,286
Total deferred federal and state tax assets (50,177) (33,987)
-------- --------
Deferred income taxes $ 31,208 $ 28,299
======== ========
The Company has available net operating loss carryforwards of $84.3
million, which expire in 2021, 2022 and 2023, and alternative minimum tax credit
carryforwards of $6.9 million, that never expire.
18. Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) Retirement
Savings Plan (the "Plan"). All employees at least 21 years of age with one year
of employment with the Company are eligible to participate in the Plan. During
the nine months ended December 31, 2002, the Company did not make a matching
contribution to the Plan, but has accrued approximately $270,000 for a matching
contribution to be determined and paid in April 2003 related to the Plan's
fiscal year ended December 31, 2002. During the year ended March 31, 2002, the
Plan was amended when the Company agreed to make a minimum matching contribution
to the Plan of $226,000, which was equivalent to 50% of the first 3% of each
participating employee's contribution to the Plan. During the year ended April
1, 2001, employer contributions to the Plan were at the sole discretion of the
Company and no such contributions were made.
19. Business Segments
The Company has two reportable business segments. Bluegreen(R) Resorts
develops, markets and sells Timeshare Interests in the Company's resorts,
primarily through the Club, and provides resort management services to resort
property owners associations and 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 home sites. The
Company's reportable segments are business units that offer different products.
The reportable segments are each managed separately because they sell distinct
products with different development, marketing and selling methods.
84
The Company evaluates performance and allocates resources based on field
operating profit. Field operating profit is operating profit prior to the
allocation of corporate overhead, interest income, gain on sale of receivables,
other income, provision for loan losses, interest expense, income taxes,
minority interest and cumulative effect of change in accounting principle.
Inventory is the only asset that the Company evaluates on a segment basis - all
other assets are only evaluated on a consolidated basis. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies (see Note 1).
Required disclosures for the Company's business segments are as follows
(in thousands):
As of and for the nine months ended December 31, 2002
Bluegreen(R) Bluegreen
Resorts Communities Totals
------- ----------- ------
Sales................................................ $144,026 $ 78,629 $222,655
Other resort and golf operations revenues............ 23,520 3,528 27,048
Depreciation expense................................. 2,100 1,053 3,153
Field operating profit............................... 17,218 13,570 30,788
Inventory............................................ 71,097 102,034 173,131
As of and for the nine months ended December 30, 2001 (Unaudited)
Sales................................................ $110,846 $ 73,857 $184,703
Other resort and golf operations revenues............ 17,475 1,709 19,184
Depreciation expense................................. 1,820 802 2,622
Field operating profit............................... 14,970 14,209 29,179
Inventory............................................ 88,726 105,299 194,025
As of and for the year ended March 31, 2002
Sales................................................ $144,226 $96,402 $240,628
Other resort and golf operations revenues............ 23,149 2,321 25,470
Depreciation expense................................. 2,532 1,077 3,609
Field operating profit............................... 19,729 15,415 35,144
Inventory............................................ 86,288 101,400 187,688
As of and for the year ended April 1, 2001
Sales................................................ $140,975 $ 88,899 $229,874
Other resort and golf operations revenues............ 22,762 1,887 24,649
Depreciation expense................................. 1,986 873 2,859
Field operating profit............................... 9,724 12,991 22,715
Inventory............................................ 97,012 96,622 193,634
85
Reconciliations to Consolidated Amounts
Field operating profit for reportable segments reconciled to consolidated
income before provision for income taxes and minority interest (in thousands):
Nine Months Ended Year Ended
------------------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
------------------------------------------------------------
(Unaudited)
Field operating profit for reportable segments $ 30,788 $ 29,179 $ 35,144 $ 22,715
Interest income ............................... 12,235 11,855 15,447 17,317
Gain on sales of notes receivable ............. 10,035 4,214 6,280 3,281
Other expense ................................. (1,520) (277) (162) (400)
Corporate general and administrative expenses . (14,211) (13,614) (19,359) (19,530)
Interest expense .............................. (9,824) (10,129) (13,017) (15,494)
Provision for loan losses ..................... (2,832) (3,683) (4,851) (4,887)
-------- -------- -------- --------
Consolidated income before provision for income
taxes and minority interest ................ $ 24,671 $ 17,545 $ 19,482 $ 3,002
======== ======== ======== ========
Depreciation expense for reportable segments reconciled to consolidated
depreciation expense (in thousands):
Nine Months Ended Year Ended
----------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
----------------------------------------------------
(Unaudited)
Depreciation expense for reportable segments .. $3,153 $2,622 $3,609 $2,859
Depreciation expense for corporate fixed assets 1,444 1,235 1,671 1,404
------ ------ ------ ------
Consolidated depreciation expense ............. $4,597 $3,857 $5,280 $4,263
====== ====== ====== ======
Assets for reportable segments reconciled to consolidated assets (in
thousands):
----------------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
----------------------------------------------------------
(Unaudited)
Inventory for reportable segments ......... $173,131 $194,025 $187,688 $193,634
Assets not allocated to reportable segments 260,861 238,663 247,473 226,047
-------- -------- -------- --------
Total assets .............................. $433,992 $432,688 $435,161 $419,681
======== ======== ======== ========
Geographic Information
Sales by geographic area are as follows (in thousands):
Nine Months Ended Year Ended
---------------------------------------------------------
December 31, December 30, March 31, April 1,
2002 2001 2002 2001
-------- -------- -------- --------
(Unaudited)
United States ..... $216,973 $176,846 $230,179 $219,885
Aruba ............. 5,671 7,849 10,441 9,964
Canada ............ 11 8 8 25
-------- -------- -------- --------
Consolidated totals $222,655 $184,703 $240,628 $229,874
======== ======== ======== ========
86
Inventory by geographic area is as follows (in thousands):
December 31, March 31,
2002 2002
-------- --------
United States $163,606 $177,575
Aruba 9,521 10,107
Canada 4 6
-------- --------
Consolidated totals $173,131 $187,688
======== ========
20. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the nine months ended
December 31, 2002 and the year ended March 31, 2002, is presented below (in
thousands, except for per share information). Each quarter presented reflects
the results of operations for a 13-week period.
Three Months Ended
--------------------------------------------------
June 30, September 29, December 31,
2002 2002 2002
---- ---- ----
(Restated) (Restated)
Sales ...................................... $ 71,113 $ 83,386 $ 68,156
Gross profit ............................... 46,146 54,377 44,209
Income before cumulative effect of change in
accounting principle .................... 4,159 5,080 6,137
Net income (loss) .......................... (1,420) 5,080 6,137
Earnings per common share before cumulative
effect of change in accounting principle:
Basic ................................ 0.17 0.21 0.25
Diluted .............................. 0.17 0.19 0.23
Earnings (loss) per common share:
Basic ................................ (0.06) 0.21 0.25
Diluted .............................. (0.06) 0.19 0.23
Three Months Ended
----------------------------------------------------
July 1, September 30, December 30, March 31,
2001 2001 2001 2002
---- ---- ---- ----
Sales .................... $60,183 $69,235 $55,285 $55,925
Gross profit ............. 40,112 45,157 35,301 33,533
Net income ............... 4,135 4,577 1,972 1,048
Earnings per common share:
Basic ................. 0.17 0.19 0.08 0.04
Diluted ............... 0.16 0.17 0.08 0.04
87
Income before cumulative effect of change in accounting principle and net
income (loss) for the three months ended June 30, 2002 and September 29, 2002,
as presented above, has been restated from the amounts previously disclosed in
the Company's Quarterly Reports on Form 10-Q for those periods to reflect the
impact of the change in accounting principle discussed in Note 1. Net income as
previously disclosed in the Company's Quarterly Reports on Form 10-Q reconciled
to the restated amounts above for the three month periods ended June 30, 2002
and September 29, 2002, is as follows (in thousands, except per share data):
Three Months Ended
----------------------------
June 30, September 29,
2002 2002
------- ---------
Net income, as previously reported ............. $ 5,158 $ 5,723
Impact of expensing telemarketing costs that
were previously deferred in the computation
of net income, as previously reported, net of
income taxes and minority interest .......... (999) (643)
------- ---------
Income before cumulative effect of change in
accounting principle ........................ 4,159 5,080
------- ---------
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest .................................... (5,579) --
------- ---------
Net income (loss), as restated ................. $(1,420) $ 5,080
======= =========
Earnings per common share, as previously
reported:
Basic .................................... $ 0.21 $ 0.23
Diluted .................................. 0.19 0.21
Earnings (loss) per common share, as restated:
Basic .................................... (0.06) 0.21
Diluted .................................. (0.06) 0.19
21. Subsequent Event
In February 10, 2003, the Company entered into a $50.0 million revolving
timeshare receivables credit facility (the "GMAC Receivables Facility") with
RFC. The borrowing period on the GMAC Receivables Facility expires on March 10,
2005, and outstanding borrowings mature no later than March 10, 2012. 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 Timeshare Interests. 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 will bear interest at LIBOR plus 4%.
The Company was required to pay an upfront loan fee of $375,000 in connection
with the GMAC Receivables Facility.
88
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation as of December 31, 2002 and March 31, 2002, and the related
consolidated statements of income, shareholders' equity and cash flows for the
nine-month period ended December 31, 2002 and each of the two years in the
period ended March 31, 2002. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bluegreen
Corporation at December 31, 2002 and March 31, 2002, and the consolidated
results of its operations and its cash flows for the nine-month period ended
December 31, 2002 and each of the two years in the period ended March 31, 2002,
in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 to the consolidated financial statements, in the
nine-month period ended December 31, 2002, the Company changed its method of
accounting for the cost associated with generating timeshare tours.
ERNST & YOUNG LLP
West Palm Beach, Florida
January 24, 2003, except for Note 21, as to which the date is February 10, 2003
89
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the
information provided under the headings "Proposal 1 - Election of Nominees for
Director" and "Certain Relationships and Other Transactions" in the Proxy
Statement, which sections are incorporated herein by reference.
The following table sets forth certain information regarding the executive
officers of the Company as of March 1, 2002.
Name Age Position
---- --- --------
George F. Donovan 64 President and Chief Executive Officer
John F. Chiste 46 Senior Vice President, Chief Financial Officer and Treasurer
Daniel C. Koscher 45 Senior Vice President - President, Bluegreen(R)Communities
John M. Maloney, Jr. 41 Senior Vice President - President, Bluegreen Resorts
Mark T. Ryall 43 Senior Vice President and Chief Information Officer
Allan J. Herz 43 Vice President and Director of Mortgage Operations
Susan J. Milanese 43 Vice President and Director of Human Resources and Administration
Anthony M. Puleo 34 Vice President and Chief Accounting Officer
Randi S. Tompkins 42 Vice President, Director of Corporate Legal Affairs and Clerk
George F. Donovan joined the Company as a Director in 1991 and was
appointed President and Chief Operating Officer in October 1993. He became Chief
Executive Officer in December 1993. Mr. Donovan has served as an officer of a
number of other recreational real estate corporations, including Leisure
Management International, of which he was President from 1991 to 1993, and
Fairfield Communities, Inc., of which he was President from April 1979 to
December 1985. Mr. Donovan holds a B.S. in Electrical Engineering and is a
Registered Resort Professional.
John F. Chiste joined the Company in July 1997 as Treasurer and Chief
Financial Officer. In 1998, Mr. Chiste was also named Senior Vice President.
From January 1997 to June 1997, Mr. Chiste was the Chief Financial Officer of
Compscript, Inc., an entity that provides institutional pharmacy services to
long-term health care facilities. From December 1992 to January 1997, he served
as the Chief Financial Officer, Secretary and Treasurer of Computer Integration
Corporation, a publicly-held distribution company that provides information
products and services to corporations nationwide. From 1983 through 1992, Mr.
Chiste held various positions with Ernst & Young LLP, most recently serving as a
Senior Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified
Public Accountant.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has
served in various financial management positions including Chief Accounting
Officer and Vice President and Director of Planning/Budgeting. In 1996, he
became Senior Vice President - President, Bluegreen Communities. Prior to his
employment with the Company, Mr. Koscher was employed by the William Carter
Company, a manufacturing company located in Needham, Massachusetts. He has also
been employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting and is a
Registered Resort Professional.
John M. Maloney, Jr. joined the Company in May 2001 as Senior Vice
President of Operations and Business Development for Bluegreen Resorts. In May
2002, Mr. Maloney was named Senior Vice President of the Company and President
of Bluegreen Resorts. From 1997 to 2000 Mr. Maloney served in various positions
with ClubCorp, most recently as the Senior Vice President of Sales and Marketing
for the Owners Club by ClubCorp. From 1994 to 1997, Mr. Maloney held various
positions with Hilton Grand Vacations Company, most recently as the Director of
Sales and Marketing for the South Florida area. Mr. Maloney holds a bachelors
degree in Economics.
Mark T. Ryall joined the Company in October 2000 as Chief Information
Officer. In November 2000, Mr. Ryall was also named Senior Vice President. From
1997 through 2000, Mr. Ryall was Vice President and Chief Information Officer at
AHL Services, Inc., a publicly held provider of outsourcing solutions based in
Atlanta, Georgia. From 1990 to 1997, Mr. Ryall served as Group Project Manager,
Management Information Systems, at Ryder System, Inc., a publicly held provider
of logistics, supply chain and transportation management solutions worldwide,
based in
90
Miami, Florida. From 1983 through 1990, Mr. Ryall held various positions with
Andersen Consulting, an international technology-consulting firm now known as
Accenture. Mr. Ryall holds a B.S.B.A. in Financial Management and an M.B.A.
Allan J. Herz joined the Company in 1992 and was named Director of
Mortgage Operations in September 1992. Mr. Herz was also elected Vice President
in 1993. From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank
based in Miami, Florida. During his 10-year tenure with the bank, he held
various lending positions, the most recent being Division Vice President in
Consumer Lending. Mr. Herz holds a B.B.A. and an M.B.A.
Susan J. Milanese joined the Company in 1988. During her tenure, she has
held various management positions in the Company including Assistant to the
Chief Financial Officer, Divisional Controller and Director of Accounting. In
1995, she was elected Vice President and Director of Human Resources and
Administration. From 1983 to 1988, Ms. Milanese was employed by General Electric
Company in various financial management positions including the corporate audit
staff. Ms. Milanese holds a B.B.A. in Accounting.
Anthony M. Puleo joined the Company in October 1997 as Chief Accounting
Officer. In 1998, Mr. Puleo was also elected Vice President. From December 1990
through October 1997, Mr. Puleo held various positions with Ernst & Young LLP,
most recently serving as a Senior Manager in the Assurance and Advisory Business
Services group. Mr. Puleo holds a B.B.A. in Accounting and is a Certified Public
Accountant.
Randi S. Tompkins joined the Company in 1998 as Assistant Director of
Legal Affairs and was elected Vice President and Director of Corporate Legal
Affairs and Clerk in 2002. From March 1995 to October 1998, Ms. Tompkins was a
sole practitioner attorney, specializing in commercial transactions and
commercial and residential real estate matters. Concurrent with her law
practice, Ms. Tompkins owned and operated a real estate title insurance company.
From 1989 to 1994, Ms. Tompkins was an attorney with the law firm of Michael S.
Weiner and Associates. Ms. Tompkins holds a B.A. in American Studies along with
a J.D.
The Company's By-Laws provide that, except as otherwise provided by law or
the charter and by-laws of the Company, the President, Treasurer and the Clerk
hold office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
Section 16 Compliance
The information provided under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposal 1- Election of
Nominees for Director," "Board of Directors and its Committees," "Compensation
Committee Report on Executive Compensation", "Compensation of Chief Executive
Officer", "Executive Compensation" and "Certain Relationships and Other
Transactions" in the Company's Proxy Statement is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information provided under the heading "Proposal 1 - Election of
Nominees for Director" in the Proxy Statement is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided under the headings "Proposal 1 - Election of
Nominees for Director," "Executive Compensation" and "Certain Relationships and
Other Transactions" in the Proxy Statement is incorporated herein by reference.
Item 14. CONTROLS AND PROCEDURES.
In March 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
its Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of its disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14 and 15d-14(c). Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that
91
our disclosure controls and procedures are effective to assure that the Company
records, processes, summarizes and reports in a timely manner the material
information that must be included in the Company's reports that are filed with
or submitted to the Securities and Exchange Commission.
In addition, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that the Company's disclosure controls and procedures
and internal controls will prevent all error and all improper conduct. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of improper conduct, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Chief Executive Officer and Chief Financial Officer Certifications
Appearing immediately following the "Signatures" section of this report,
there are Certifications of the principal executive officer and the principal
financial officer. The Certifications are required in accordance with Section
302 of the Sarbanes-Oxley Act of 2002. This Item of this report, which you are
currently reading, is the information concerning the evaluation referred to in
the Section 302 Certifications and this information should be read in
conjunction with the Section 302 Certifications for a more complete
understanding of the topics presented.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements and Notes thereto of the
Company and its subsidiaries and the report of independent certified
public accountants relating thereto, are included in Item 8.
Consolidated Balance Sheets as of December 31, 2002 and March 31, 2002
Consolidated Statements of Income for the nine months ended December 31,
2002, the nine months ended December 30, 2001 and each of the two years
in the period ended March 31, 2002
Consolidated Statements of Shareholders' Equity for the nine months ended
December 31, 2002 and each of the two years in the period ended March
31, 2002
Consolidated Statements of Cash Flows for the nine months ended December
31, 2002, the nine months ended December 30, 2001 and each of the two
years in the period ended March 31, 2002
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
92
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-KT
or which are incorporated herein by reference are set forth in the Exhibit Index
which appears at pages 92 through 98 hereof and are incorporated herein by
reference.
(b) Reports on Form 8-K.
On October 17, 2002, the Company filed a Current Report on Form 8-K
dated October 2, 2002, reporting the acquisition of substantially all of the
assets and certain liabilities of TakeMeOnVacation(TM), LLC, RVM Promotions, LLC
and RVM Vacations, LLC, discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements. This event was reported under Item 2, "Acquisition of
Assets." This same Form 8-K also reported the Company's change in fiscal year
end under Item 8, "Change in Fiscal Year" and discussed above under Item 5,
"Other Information."
On December 16, 2002, the Company filed an amendment to the
aforementioned Form 8-K, which included the following Combined Financial
Statements and Notes thereto of TMOV and the report of independent certified
public accountants relating thereto:
o Combined Balance Sheet as of December 31, 2001
o Combined Statement of Income for the year ended December 31, 2001
o Combined Statement of Members' Deficit for the year ended December
31, 2001
o Combined Statement of Cash Flows for the year ended December 31,
2001
o Notes to Combined Financial Statements
The amendment also included pro forma financial information
regarding the acquisition of TMOV, as required under Article 11 of Regulation
S-X.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of the
schedules or the required information is presented in the Consolidated Financial
Statements or related notes.
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BLUEGREEN(R) CORPORATION
(Registrant)
Date: March 25, 2003 By: /S/ GEORGE F. DONOVAN
-----------------------------------------
George F. Donovan,
President and Chief Executive Officer
Date: March 25, 2003 By: /S/ JOHN F. CHISTE
-----------------------------------------
John F. Chiste,
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: March 25, 2003 By: /S/ ANTHONY M. PULEO
-----------------------------------------
Anthony M. Puleo,
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 25th day of March, 2003.
Signature Title
--------- -----
/S/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
------------------------------
George F. Donovan
/S/ JOHN F. CHISTE Senior Vice President, Treasurer and Chief Financial Officer
------------------------------ (Principal Financial Officer)
John F. Chiste
/S/ ANTHONY M. PULEO Vice President and Chief Accounting Officer
------------------------------ (Principal Accounting Officer)
Anthony M. Puleo
/S/ ALAN B. LEVAN Chairman of the Board of Directors
------------------------------
Alan B. Levan
/S/ JOHN E. ABDO Vice Chairman of the Board of Directors
------------------------------
John E. Abdo
/S/ NORMAN H. BECKER Director
------------------------------
Norman H. Becker
/S/ JOHN LAGUARDIA Director
------------------------------
John Laguardia
/S/ J. LARRY RUTHERFORD Director
------------------------------
J. Larry Rutherford
/S/ ARNOLD SEVELL Director
------------------------------
Arnold Sevell
94
I, George F. Donovan, certify that:
1. I have reviewed this transitional annual report on Form 10-KT of
Bluegreen(R) Corporation;
2. Based on my knowledge, this transitional annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this transitional annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this transitional annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
transitional annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
transitional annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within ninety (90) days prior to the
filing date of this transitional annual report (the "Evaluation
Date"); and
c) presented in this transitional annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
transitional annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 25, 2003 /S/ GEORGE F. DONOVAN
--------------------------
George F. Donovan
Chief Executive Officer
95
I, John F. Chiste, certify that:
1. I have reviewed this transitional annual report on Form 10-KT of
Bluegreen(R) Corporation;
2. Based on my knowledge, this transitional annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this transitional annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this transitional annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
transitional annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
transitional annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within ninety (90) days prior to the
filing date of this transitional annual report (the "Evaluation
Date"); and
c) presented in this transitional annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
transitional annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 25, 2003 /S/ JOHN F. CHISTE
--------------------------
John F. Chiste
Chief Financial Officer
96
EXHIBIT INDEX
Number Description
3.1 - Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on
Form 10-K for the year ended March 31, 1996).
3.2 - Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated September 29, 2002).
4.4 - Specimen of Common Stock Certificate (incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K
for the year ended April 2, 2000).
4.6 - Form of Indenture dated as of May 15, 1987 relating to the
Company's 8.25% Convertible Subordinated Debentures Due 2012,
including Form of Debenture (incorporated by reference to
exhibit of same designation to Registration Statement on Form
S-1, File No. 33-13753).
4.7 - Indenture dated as of April 1, 1998 by and among the
Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as
trustee, for the 10 1/2% Senior Secured Notes due 2008.
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717).
4.8 - First Supplemental Indenture dated as of March 15, 1999 by and
among the Registrant, certain subsidiaries of the Registrant,
and SunTrust Bank, Central Florida, National Association, as
trustee, for the 10 1/2% Senior Secured Notes due 2008
(incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 28,
1999).
4.9 - Second Supplemental Indenture dated as of December 31, 2000 by
and among the Registrant, certain subsidiaries of the
Registrant, and SunTrust Bank, Central Florida, National
Association, as trustee, for the 10 1/2% Senior Secured Notes
due 2008 (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
4.10 - Third Supplemental Indenture dated as of October 31, 2001 by
and among the Registrant, certain subsidiaries of the
Registrant, and SunTrust Bank, Central Florida, National
Association, as trustee, for the 10 1/2% Senior Secured Notes
due 2008 (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
4.11 - Fourth Supplemental Indenture dated as of December 31, 2001 to
the Indenture Dated as of April 1, 1998 among the Registrant,
certain of its subsidiaries and SunTrust Bank (formerly
SunTrust Bank, Central Florida, National Association), as Notes
Trustee, relating to the Company's $110 million aggregate
principal amount of 10 1/2% Senior Secured Notes due 2008
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated December 30, 2001).
4.12 - Fifth Supplemental Indenture dated as of July 31, 2002 to the
Indenture Dated as of April 1, 1998 among the Registrant,
certain of its subsidiaries and SunTrust Bank (formerly
SunTrust Bank, Central Florida, National Association), as Notes
Trustee, relating to the Company's $110 million aggregate
principal amount of 10 1/2% Senior Secured Notes due 2008.
10.24 - Form of Agreement dated June 27, 1989 between the Registrant
and Peoples Heritage Savings Bank relating to sale of mortgage
notes receivable (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended April 2, 1989).
97
10.78 - Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement
on Form S-8, File No. 33-61687).
10.79 - Registrant's 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to exhibit 10.131 to Annual report
on Form 10-K for the year ended March 29, 1998).
10.80 - Registrant's 1995 Stock Incentive Plan, as amended
(incorporated by reference to exhibit 10.79 to Annual Report on
Form 10-K for the fiscal year ended March 29, 1998).
10.81 - Registrant's Retirement Savings Plan (incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 31, 2002).
10.98 - Pooling and Servicing Agreement dated as of June 15, 1995,
among Patten Receivables Finance Corporation X, the Registrant,
Patten Corporation REMIC Trust, Series 1995-1 and First Trust
National Association, as Trustee (incorporated by reference to
exhibit to Current Report on Form 8-K dated July 12, 1995).
10.99 - Pooling and Servicing Agreement dated as of April 15, 1996,
among Bluegreen Receivables Finance Corporation I, the
Registrant, Bluegreen Corporation REMIC Trust, Series 1996-1
and First Trust National Association, as Trustee (incorporated
by reference to exhibit to Current Report on Form 8-K dated May
15, 1996).
10.100 - Pooling and Servicing Agreement dated as of November 15, 1996,
among Bluegreen Receivables Finance Corporation II, the
Registrant, Bluegreen Corporation REMIC Trust, Series 1996-2
and First Trust National Association, as Trustee (incorporated
by reference to exhibit to Current Report on Form 8-K dated
December 11, 1996).
10.102 - Amended and Restated Sale and Contribution Agreement dated as
of October 1, 1999 by and among Bluegreen Corporation
Receivables Finance Corporation III and BRFC III Deed
Corporation (incorporated by reference to exhibit 10.103 to
Quarterly Report on Form 10-Q dated January 2, 2000).
10.104 - Amended and Restated Asset Purchase Agreement dated as of
October 1, 1999 by and among Bluegreen Corporation, Bluegreen
Receivables Finance Corporation III, BRFC III Deed Corporation,
Heller Financial Inc., Vacation Trust, Inc. and U.S. Bank
National Association, as cash administrator, including
Definitions Annex (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated January 2,
2000).
10.105 - Sale and Contribution Agreement dated as of September 1, 2000,
among the Registrant and Bluegreen Receivables Finance
Corporation IV (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated October 1,
2000).
10.106 - Sale and Servicing Agreement dated as of September 1, 2000,
among the Registrant, BXG Receivables Owner Trust 2000,
Bluegreen Receivables Finance Corporation IV, Concord Servicing
Corporation, Vacation Trust, Inc., U.S. Bank Trust National
Association, Heller Financial, Inc. and Barclays Bank PLC
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated October 1, 2000).
10.107 - Indenture dated as of September 1, 2000, between BXG
Receivables Owner Trust 2000 and U.S. Bank Trust National
Association (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated October 1,
2000).
10.108 - BXG Receivables Owner Trust 2000 Definitions Annex dated as of
September 1, 2000 (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated October 1,
2000).
98
10.109 - Class A Note dated as of October 16, 2000, among BXG
Receivables Owner Trust 2000, U.S. Bank Trust National
Association and Barclays Bank PLC (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q
dated October 1, 2000).
10.110 - Class B Note dated as of October 16, 2000, among BXG
Receivables Owner Trust 2000, U.S. Bank Trust National
Association and Heller Financial, Inc. (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated October 1, 2000).
10.111 - Amended and Restated Sale and Servicing Agreement dated April
17, 2002, among the Registrant, Bluegreen Receivables Finance
Corporation V, BXG Receivables Note Trust 2001-A, Concord
Servicing Corporation, Vacation Trust, Inc. and U.S. Bank Trust
National Association (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal
year ended March 31, 2002).
10.112 - Amended and Restated Note Purchase Agreement dated April 17,
2002, among the Registrant, Bluegreen Receivables Finance
Corporation V, BXG Receivables Note Trust 2001-A, the
Purchasers Parties Hereto and ING Capital LLC (incorporated by
reference to exhibit of same designation to Annual Report on
Form 10-K for the fiscal year ended March 31, 2002).
10.113 - Amended and Restated Indenture dated April 17, 2002, between
BXG Receivables Note Trust 2001-A and U.S. Bank Trust National
Association (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
10.114 - Amended and Restate Trust Agreement dated April 17, 2002, by
and among Bluegreen Receivables Finance Corporation V, GSS
Holdings, Inc. and Wilmington Trust Company (incorporated by
reference to exhibit of same designation to Annual Report on
Form 10-K for the fiscal year ended March 31, 2002).
10.115 - Purchase and Contribution Agreement dated November 15, 2002, by
and among the Registrant and Bluegreen Receivables Finance
Corporation VI.
10.116 - Sale Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI and BXG Receivables Note
Trust 2002-A.
10.117 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Owner Trust 2000 and Bluegreen
Receivables Finance Corporation VI.
10.118 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Note Trust 2001-A and Bluegreen
Receivables Finance Corporation VI.
10.119 - Note Purchase Agreement dated December 3, 2002, between BXG
Receivables Note Trust 2002-A and ING Financial Markets LLC.
10.120 - Trust Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI, GSS Holdings, Inc. and
Wilmington Trust Company.
10.121 - Indenture dated November 15, 2002, between the Registrant, BXG
Receivables Note Trust 2002-A, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association.
99
10.122 - Exchange and Registration Rights Agreement dated April 1, 1998,
by and among the Registrant and the persons named therein,
relating to the 10 1/2% Senior Secured Notes due 2008
(incorporated by reference to exhibit 10.123 to Registration
Statement on Form S-4, File No. 333-50717).
10.123 - Employment Agreement between George F. Donovan and the Company
dated December 19, 2001 (incorporated by reference to exhibit
10.124 to Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
10.124 - Promissory Note dated July 1, 2002 between George F. Donovan
and Bluegreen Corporation (incorporated by reference to exhibit
10.148 to Quarterly Report on Form 10-Q dated June 30, 2002).
10.125 - Employment Agreement between John F. Chiste and the Company
dated December 27, 2001 (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the
fiscal year ended March 31, 2002).
10.126 - Employment Agreement between Daniel C. Koscher and the Company
dated May 22, 2002 (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal
year ended March 31, 2002).
10.127 - Amended and Restated Credit Facility Agreement entered into as
of April 16, 1998 between Finova Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.129 to
Registration Statement on Form S-4, File No. 333-50717).
10.128 - Second Amended and Restated Credit Facility Agreement entered
into as of September 14, 1999, between Finova Capital
Corporation and the Registrant (incorporated by reference to
exhibit 10.130 to Quarterly Report on Form 10-Q dated October
3, 1999).
10.129 - Amended and Restated Loan and Security Agreement dated as of
September 23, 1997 between Foothill Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.130 to
Registration Statement on Form S-4, File No. 333-50717).
10.130 - Amendment Number One to Loan and Security Agreement dated
December 1, 2000, by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit
10.140 to Quarterly Report on Form 10-Q dated December 31,
2000).
10.131 - Amendment Number Two to Loan and Security Agreement dated as of
November 9, 2001, by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit
10.133 to Quarterly Report on Form 10-Q dated December 31,
2001).
10.132 - Amendment Number Three to Loan and Security Agreement dated
August 28, 2002, by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit of
same designation to Quarterly Report on Form 10-Q dated
September 29, 2002).
10.133 - Loan and Security Agreement dated October 20, 1998, by the
Registrant and Bluegreen Resorts, Inc. as Borrowers and Heller
Financial, Inc. as Lender (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated
December 27, 1998).
10.134 - Amended and Restated Loan and Security Agreement dated as of
June 30, 1999, among the Registrant, Bluegreen Vacations
Unlimited, Inc. and Heller Financial, Inc. (incorporated by
reference to exhibit 10.138 to Quarterly Report on Form 10-Q
dated July 2, 2000).
100
10.135 - Amended and Restated Loan and Security Agreement dated as of
June 29, 2000, among the Registrant, Bluegreen Vacations
Unlimited, Inc. and Heller Financial, Inc. (incorporated by
reference to exhibit 10.139 to Quarterly Report on Form 10-Q
dated July 2, 2000).
10.136 - Third Amendment to Amended and Restated Loan and Security
Agreement dated as of October 16, 2000, among the Registrant,
Bluegreen Vacations Unlimited, Inc. and Heller Financial, Inc.
(incorporated by reference to exhibit 10.140 to Quarterly
Report on Form 10-Q dated October 1, 2000).
10.137 - Fourth Amendment to Amended and Restated Loan and Security
Agreement dated as of October 16, 2001, among the Registrant,
Bluegreen Vacations Unlimited, Inc. and Heller Financial, Inc.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated September 30, 2001).
10.138 - Fifth Amendment to Amended and Restated Loan and Security
Agreement dated as of February 16, 2002, among the Registrant,
Bluegreen Vacations Unlimited, Inc. and Heller Financial, Inc.
(incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.139 - Master Bluegreen Resort Loan Facility dated October 20, 1998,
by and between the Registrant and Heller Financial, Inc.
(incorporated by reference to exhibit 10.134 to Quarterly
Report on Form 10-Q dated December 27, 1998).
10.140 - Acquisition Cost Reimbursement Loan Agreement dated as of
September 14, 1999, by and between Bluegreen Vacations
Unlimited, Inc. and Heller Financial, Inc. (incorporated by
reference to exhibit 10.135 to Quarterly Report on Form 10-Q
dated October 3, 1999).
10.141 - Acquisition and Construction Cost Reimbursement Loan Agreement
dated as of December 1, 1999, by and between Bluegreen
Vacations Unlimited, Inc. and Heller Financial, Inc.
(incorporated by reference to exhibit 10.136 to Quarterly
Report on Form 10-Q dated January 2, 2000).
10.142 - Letter dated December 1, 1999, amending the Master Bluegreen
Resort Facility, dated as of October 20, 1998, between
Bluegreen Corporation and Heller Financial, Inc. (incorporated
by reference to exhibit 10.137 to Quarterly Report on Form 10-Q
dated January 2, 2000).
10.145 - Loan Agreement dated as of September 24, 1999, between
Bluegreen Properties of Virginia, Inc. and Branch Banking and
Trust Company (incorporated by reference to exhibit 10.140 to
Quarterly Report on Form 10-Q dated October 3, 1999).
10.146 - Construction Loan Agreement dated April 8, 2002, between
Bluegreen Vacations Unlimited, Inc. and Marshall, Miller &
Shroeder Investments Corporation (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q
dated June 30, 2002).
10.147 - Promissory Note dated April 8, 2002, between Bluegreen
Vacations Unlimited, Inc. and Marshall, Miller & Shroeder
Investments Corporation (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated June
30, 2002).
10.149 - Loan Agreement dated as of September 25, 2002, between
Bluegreen Corporation of the Rockies, Bluegreen Golf Clubs,
Inc., Bluegreen Properties of Virginia, Inc., Bluegreen
Southwest One, L.P. and Residential Funding Corporation
(incorporated by reference to exhibit of same designation to
Current Report on Form 8-K dated September 25, 2002).
101
10.150 - Revolving Promissory Note dated as of September 25, 2002,
between Bluegreen Corporation of the Rockies, Bluegreen Golf
Clubs, Inc., Bluegreen Properties of Virginia, Inc., Bluegreen
Southwest One, L.P. and Residential Funding Corporation
(incorporated by reference to exhibit of same designation to
Current Report on Form 8-K dated September 25, 2002).
10.153 - Second Amended and Restated Loan Agreement dated December 31,
2002 by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the
$12.5 million, unsecured, revolving line-of-credit due December
31, 2003.
10.154 - Second Amended and Restated Promissory Note dated December 31,
2002 by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the
$12.5 million, unsecured, revolving line-of-credit due December
31, 2003.
10.155 - Loan Agreement dated February 10, 2003, between Bluegreen
Vacations Unlimited, Inc. and Residential Funding Corporation.
10.156 - Revolving Promissory Note (AD&C Loan) dated February 10, 2003,
between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation.
10.157 - Loan and Security Agreement dated February 10, 2003, between
the Registrant, Residential Funding Corporation, Bluegreen
Vacations Unlimited, Inc. and Bluegreen/Big Cedar Vacations,
LLC.
10.158 - Revolving Promissory Note (Receivables Loan) dated February 10,
2003, between the Registrant, Residential Funding Corporation,
Bluegreen Vacations Unlimited, Inc. and Bluegreen/Big Cedar
Vacations, LLC.
10.159 - Full Guaranty dated February 10, 2003, by the Registrant in
favor of Residential Funding Corporation.
10.200 - Marketing and Promotions Agreement dated as of June 16, 2000,
by and between Big Cedar L.L.C., Bass Pro, Inc., Bluegreen
Vacations Unlimited, Inc. and Bluegreen/Big Cedar Vacations,
LLC. (incorporated by reference to exhibit of same designation
to Quarterly Report on Form 10-Q dated July 2, 2000).
10.201 - Advertising Advance Loan dated as of June 16, 2000 by and
between Big Cedar L.L.C., as Maker, and Bluegreen Vacations
Unlimited, Inc., as Holder (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q
dated July 2, 2000).
10.202 - Website Hyperlink License Agreement dated as of June 16, 2000
by and between Bluegreen Vacations Unlimited, Inc. (as User),
Bass Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Owners)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.203 - Website Hyperlink License Agreement dated as of June 16, 2000
by and between Bluegreen Vacations Unlimited, Inc. (as Owner),
Bass Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Users)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
102
10.204 - Contribution Agreement dated as of June 16, 2000 by and between
Bluegreen Vacations Unlimited, Inc. and Big Cedar L.L.C.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.205 - Operating Agreement of Bluegreen/Big Cedar Vacations, LLC dated
as of June 16, 2000 by and among Bluegreen Vacations Unlimited,
Inc. and Big Cedar L.L.C. (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated July
2, 2000).
10.206 - Administrative Services Agreement dated as of June 16, 2000 by
and among Bluegreen/Big Cedar Vacations, LLC and Bluegreen
Vacations Unlimited, Inc. (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated July
2, 2000).
10.207 - Servicing Agreement dated as of June 16, 2000 by and among the
Registrant, Bluegreen/Big Cedar Vacations, LLC and Big Cedar
L.L.C. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2,
2000).
10.208 - Asset Purchase Agreement dated as of September 30, 2002, by and
among TakeMeOnVacation, LLC, RVM Promotions, LLC, RVM
Vacations, LLC and Leisure Plan, Inc. (incorporated by
reference to exhibit of same designation to Current Report on
Form 8-K dated October 2, 2002).
18 - Letter re: Change in Accounting Principle.
21.1 - List of Subsidiaries.
23.1 - Consent of Ernst & Young LLP.
99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
103