SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended March 31, 2003
or
|_| - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-8000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 12, 2003, there
were 27,343,428 shares of Common Stock, $.01 par value per share, issued,
2,755,300 treasury shares and 24,588,128 shares outstanding.
BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information (unaudited)
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets at
March 31, 2003 and December 31, 2002........................... 3
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2003 and 2002.................................. 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2003 and 2002.................................. 5
Notes to Condensed Consolidated Financial Statements ............... 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ................. 17
Item 3. Quantitative and Qualitative
Disclosures About Market Risk ................................. 31
Item 4. Controls and Procedures............................................. 31
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K ................................... 32
Signatures.................................................................. 33
Certifications.............................................................. 34
Note: The terms "Bluegreen" and "Bluegreen Vacation Club" are registered in the
U.S. Patent and Trademark office by Bluegreen Corporation.
2.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Condensed Consolidated Balance Sheets
(amounts in thousands, except per share data)
March 31, December 31,
2003 2002
---- ----
(unaudited) (Note)
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $27,127 and $20,551 million at
March 31, 2003 and December 31, 2002, respectively) .. $ 53,337 $ 46,905
Contracts receivable, net ............................... 19,165 16,230
Notes receivable, net ................................... 57,315 61,795
Prepaid expenses ........................................ 11,918 11,630
Inventory, net .......................................... 191,645 173,131
Retained interests in notes receivable sold ............. 49,985 44,228
Property and equipment, net ............................. 52,486 51,787
Intangible assets ....................................... 12,220 13,269
Other assets ............................................ 16,024 15,017
--------- ---------
Total assets ......................................... $ 464,095 $ 433,992
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ........................................ $ 6,602 $ 5,878
Accrued liabilities and other ........................... 42,843 31,537
Deferred income ......................................... 20,549 19,704
Deferred income taxes ................................... 32,673 31,208
Receivable-backed notes payable ......................... 14,063 5,360
Lines-of-credit and notes payable ....................... 39,128 34,409
10.50% senior secured notes payable ..................... 110,000 110,000
8.25% convertible subordinated debentures ............... 34,371 34,371
--------- ---------
Total liabilities .................................... 300,229 272,467
Commitments and contingencies
Minority interest ....................................... 3,523 3,242
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 27,343 shares issued at March 31, 2003 and
December 31, 2002, respectively ......................... 273 273
Additional paid-in capital .............................. 123,535 123,535
Treasury stock, 2,756 common shares at cost at both
March 31, 2003 and December 31, 2002 ................ (12,885) (12,885)
Accumulated other comprehensive income, net of income
taxes .............................................. 393 460
Retained earnings ....................................... 49,027 46,900
--------- ---------
Total shareholders' equity ........................... 160,343 158,283
--------- ---------
Total liabilities and shareholders' equity ........... $ 464,095 $ 433,992
========= =========
Note: The condensed consolidated balance sheet at December 31, 2002 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.
See accompanying notes to condensed consolidated financial statements.
3.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Revenues:
Sales ........................................................ $ 61,782 $ 55,925
Other resort and golf operations revenue ..................... 13,212 6,286
Interest income .............................................. 3,755 3,592
Gain on sale of notes receivable ............................. 1,561 2,066
Other income ................................................. 572 115
------------ ------------
80,882 67,984
Costs and expenses:
Cost of sales ................................................ 19,060 22,392
Cost of other resort and golf operations ..................... 14,147 5,700
Selling, general and administrative expenses ................. 39,230 33,899
Interest expense ............................................. 3,004 2,888
Provision for loan losses .................................... 1,526 1,168
------------ ------------
76,967 66,047
------------ ------------
Income before income taxes ...................................... 3,915 1,937
Provision for income taxes ...................................... 1,507 746
Minority interest in income of consolidated subsidiary .......... 281 142
------------ ------------
Net income ...................................................... $ 2,127 $ 1,049
============ ============
Income per common share:
Basic ........................................................... $ 0.09 $ 0.04
============ ============
Diluted ......................................................... $ 0.09 $ 0.04
============ ============
Pro forma effect of retroactive application of change in
accounting principle (Note 1):
Net loss ........................................................ $ (86)
============
Basic earnings per share ........................................ $ 0.00
============
Diluted earnings per share ...................................... $ 0.00
============
Weighted average number of common and common
equivalent shares:
Basic ........................................................... 24,588 24,304
============ ============
Diluted ......................................................... 24,687 24,407
============ ============
See accompanying notes to condensed consolidated financial statements.
4.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended
March 31, March 31,
2003 2002
-------- --------
Operating activities:
Net income ............................................................................. $ 2,127 $ 1,049
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in income of consolidated subsidiary .............................. 281 142
Depreciation and amortization ....................................................... 3,374 2,204
Amortization of discount on note payable ............................................ -- 64
Gain on sale of notes receivable .................................................... (1,561) (2,066)
(Gain) loss on sale of property and equipment ....................................... (218) 39
Provision for loan losses ........................................................... 1,526 1,168
Provision for deferred income taxes ................................................. 1,507 746
Interest accretion on retained interests in notes receivable sold ................... (1,314) (1,139)
Proceeds from sales of notes receivable ............................................. 24,427 27,817
Proceeds from borrowings collateralized by notes receivable ......................... 9,258 429
Payments on borrowings collateralized by notes receivable ........................... (433) (1,373)
Change in operating assets and liabilities:
Contracts receivable ................................................................ (2,935) (9,992)
Notes receivable .................................................................... (27,671) (21,275)
Inventory ........................................................................... (2,304) 9,584
Other assets ........................................................................ (756) (443)
Accounts payable, accrued liabilities and other ..................................... 12,875 5,074
-------- --------
Net cash provided by operating activities ................................................. 18,183 12,028
-------- --------
Investing activities:
Purchases of property and equipment .................................................... (1,974) (2,494)
Sales of property and equipment ........................................................ 138 10
Cash received from retained interests in notes receivable sold ......................... 1,146 4,304
-------- --------
Net cash provided (used) by investing activities .......................................... (690) 1,820
-------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable .................................................................. -- 13,322
Payments under line-of-credit facilities and other notes payable ....................... (10,015) (16,849)
Payment of debt issuance costs ......................................................... (1,046) (83)
-------- --------
Net cash used by financing activities ..................................................... (11,061) (3,610)
-------- --------
Net increase in cash and cash equivalents ................................................. 6,432 10,238
Cash and cash equivalents at beginning of period .......................................... 46,905 38,477
-------- --------
Cash and cash equivalents at end of period ................................................ 53,337 48,715
Restricted cash and cash equivalents at end of period ..................................... (27,127) (27,669)
-------- --------
Unrestricted cash and cash equivalents at end of period ................................... $ 26,210 $ 21,046
======== ========
See accompanying notes to condensed consolidated financial statements.
5.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows - - continued
(amounts in thousands)
(unaudited)
Three Months Ended
March 31, March 31,
2003 2002
---- ----
Supplemental schedule of non-cash operating, investing
and financing activities
Retained interests in notes receivable sold ............... $ 5,698 $ 7,513
========== ==========
Property and equipment acquired through financing ......... $ 463 $ 74
========== ==========
Inventory acquired through foreclosure or
deedback in lieu of foreclosure .......................... $ 1,939 $ 3,247
========== ==========
Inventory acquired through financing ...................... $ 14,271 $ --
========== ==========
See accompanying notes to condensed consolidated financial statements.
6.
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Bluegreen Corporation (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring accruals that, in the opinion of
management, are necessary for a fair presentation of the results for the
interim periods. The results of operations for the three months ended
March 31, 2003 are not necessarily indicative of the results to be
expected for the year ending December 31, 2003. For further information,
refer to the consolidated financial statements and notes thereto included
in the Company's Transitional Annual Report on Form 10-KT for the nine
months ended December 31, 2002.
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. Accordingly, the financial information presented in
the accompanying condensed consolidated financial statements is based on
the Company's new fiscal year.
Organization
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 (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 five 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 three months ended March 31, 2003, sales generated
by Bluegreen Resorts and Bluegreen Communities represented approximately
72% and 28%, 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 condensed consolidated financial statements include the accounts of
the Company, all of its wholly-owned subsidiaries and entities in which
the Company holds a controlling financial interest. The only non-wholly
owned subsidiary, Bluegreen/Big Cedar Vacations 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 condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the condensed consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
7.
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)
Cumulative Effect of Change in Accounting Principle
During the three months ended March 31, 2002, 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 pro forma
effect of a retroactive application of the change in accounting principle
on the operating results of the Company for the three months ended March
31, 2002 is presented on the condensed consolidated statement of income.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share,
but also gives effect to all dilutive stock options using the treasury
stock method and includes an adjustment, if dilutive, to both net income
and shares outstanding as if the Company's 8.25% convertible subordinated
debentures were converted into common stock at the beginning of the
periods presented. The Company excluded approximately 1.6 million and 1.8
million anti-dilutive stock options from its computations of earnings per
common share during the three months ended March 31, 2003 and 2002,
respectively.
The following table sets forth the computation of basic and diluted
earnings per share:
(in thousands, except per share data) Three Months Ended
March 31, March 31,
2003 2002
----------------------
Basic earnings per share - numerator:
Net income .................................................. $ 2,127 $ 1,049
========== ==========
Diluted earnings per share - numerator:
Net income - basic .......................................... $ 2,127 $ 1,049
Effect of dilutive securities (net of tax effects) .......... -- --
---------- ----------
Net income - diluted ....................................... $ 2,127 $ 1,049
========== ==========
Denominator:
Denominator for basic earnings per share -
weighted-average shares .................................... 24,588 24,304
Effect of dilutive securities:
Stock options ............................................ 99 103
Convertible securities ................................... -- --
---------- ----------
Dilutive potential common shares ............................... 99 103
---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions ................................................ 24,687 24,407
========== ==========
Basic earnings per common share ................................ $ 0.09 $ 0.04
========== ==========
Diluted earnings per common share .............................. $ 0.09 $ 0.04
========== ==========
Sales of Notes Receivable and Related Retained Interests
When the Company sells notes receivable either pursuant to its timeshare
receivables purchase facilities 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 and servicing rights, 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 fair value of the retained interests in the notes receivable sold 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. The Company revalues
its retained interests in notes receivable sold on a quarterly basis.
8.
The Company's retained interests in notes receivable sold are considered
to be available-for-sale investments and, accordingly, are carried at fair
value in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, unrealized holding gains or losses on retained
interests in notes receivable sold 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. Interest on the Company's
securities is accreted using the effective yield method.
Recent Accounting Pronouncements
On January 1, 2003, the Company adopted 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. 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 three months ended March 31, 2003.
On January 1, 2003, the Company adopted 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. 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 three months ended March 31,
2003.
On January 1, 2003, the Company adopted the accounting provisions of
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
("FIN 45"). The Company had previously adopted the disclosure requirements
of FIN 45 during the nine months ended December 31, 2002. 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 adoption of the accounting requirements of FIN 45 did not
have an impact on the Company's financial position or results of
operations as of and for the three months ended March 31, 2003.
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, such as the SPEs
created in connection with the Company's receivable purchase facilities)
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 did not and 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" and a proposed FASB
Statement, "Accounting for Real Estate Time-Sharing Transactions--an
amendment of FASB Statements No. 66 and No. 67." 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.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends
and clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003, except for certain hedging relationships
designated after June 30, 2003. The adoption of this statement is not
expected to have a material impact on the results of operations or
financial position of the Company.
9.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", encourages, but does not require companies to record
compensation cost for employee stock options at fair value. The Company
has elected to continue to account for stock options using the intrinsic
value method pursuant to Accounting Principles Board Opinion No. 25 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 grants of stock options to its employees
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 three months ended March 31, 2003 and 2002,
respectively: risk free investment rates of 2.8% and 5.5%; dividend yields
of 0% and 0%; a volatility factor of the expected market price of the
Company's common stock of .733 and .698; and a weighted average life of
the options of 5.0 years and 5.0 years, respectively. There were 517,508
stock options granted during the three months ended March 31, 2003.
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):
Three Months Ended
March 31, March 31,
2003 2002
------------------------
Net income as reported ................................ $ 2,127 $ 1,049
Pro forma stock-based employee compensation cost,
net of tax ..................................... (125) 712
---------- ----------
Pro forma net income .................................. $ 2,002 $ 1,761
========== ==========
Earnings per share as reported
Basic ............................................. $ 0.09 $ 0.04
Diluted ........................................... $ 0.09 $ 0.04
Pro forma earnings per share
Basic ............................................. $ 0.08 $ 0.07
Diluted ........................................... $ 0.08 $ 0.07
Other Comprehensive Income
Other comprehensive income on the condensed consolidated balance sheets is
comprised of net unrealized gains on retained interests in notes
receivable sold, which are held as available-for-sale investments.
The following table discloses the components of the Company's
comprehensive income for the periods presented (in thousands):
Three Months Ended
March 31, March 31,
2003 2002
------------------------
Net income ............................................ $ 2,127 $ 1,049
Net unrealized losses on retained interests in notes
receivable sold, net of income taxes ............. (67) (18)
---------- ----------
Total comprehensive income ............................ $ 2,060 $ 1,031
========== ==========
2. Acquisition
On October 2, 2002, Leisure Plan, Inc., a wholly-owned subsidiary of the
Company (the "Subsidiary"), acquired substantially all of the assets and
assumed certain liabilities of TakeMeOnVacation, LLC, RVM Promotions, LLC
and RVM Vacations, LLC (the "Acquisition"). The Subsidiary was a
newly-formed entity with no prior operations. As part of the Acquisition,
the Subsidiary paid $2.3 million in cash at the closing of the Acquisition
on October 2, 2002 (including a
10.
$292,000 payment for certain refundable deposits) and $500,000 in cash on
March 31, 2003. The Subsidiary also agreed to pay contingent consideration
up to a maximum 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 contingent
consideration be paid, the Company will record that amount as goodwill.
3. Sale of Notes Receivable
In June 2001, the Company executed agreements for a timeshare receivables
purchase facility (the "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 NV, 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 from CSFB. The Purchase Facility utilizes an owner's trust
structure, pursuant to which the Company sells receivables to Bluegreen
Receivables Finance Corporation V, a wholly-owned, 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 certain
representations and warranties at the time of sale. The Company did not
enter into any guarantees in connection with the Purchase Facility. 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 earns a
return equal to the London Interbank Offered Rate ("LIBOR") plus 1.00%
through April 15, 2003, and LIBOR plus 1.25% thereafter, subject to use of
alternate return rates in certain circumstances. In addition, ING received
a 0.25% annual facility fee through April 15, 2003. The ING Purchase
Facility also provides for the sale of land notes receivable, under
modified terms.
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
amount of receivables that were previously sold to ING under the ING
Purchase Facility; 2) $54.2 million in aggregate principal amount of
receivables that were previously sold to General Electric Capital Real
Estate ("GE") and Barclays Bank, PLC ("Barclays"), a completed purchase
facility (the "GE/Barclays Purchase Facility"); and 3) $7.6 million in
aggregate principal amount 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.
As a result of the 2002 Term Securitization, the availability under the
Purchase Facility, as amended, allowed for sales of additional notes
receivable for a cumulative purchase price of up to $75.0 million on a
revolving basis through July 23, 2003, at 85% of the principal balance,
subject to the eligibility requirements and certain conditions precedent.
During the three months ended March 31, 2003, the Company sold
approximately $28.7 million of aggregate principal balance of notes
receivable under the ING Purchase Facility for a purchase price of $24.4
million. As a result of the sale, the Company recognized a gain of
approximately $1.6 million and recorded retained interests in notes
receivable sold and servicing assets of approximately $5.7 million and
$290,000, respectively. As of March 31, 2003, the Finance Subsidiary could
sell an additional $32.6 million under the ING Purchase Facility (the
availability under the Purchase Facility increases as the principal
balance of the receivables sold is received from the customer).
The Company acts as servicer under the ING Purchase Facility for a fee.
11.
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 oSignificant Arrangemento),
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, (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 following assumptions were used to measure the initial fair value of
the retained interests for the sale completed in March 2003: Prepayment
rates ranging from 17% to 14% per annum as the portfolio matures; loss
severity rate of 45%; default rates ranging from 7% to 1% per annum as the
portfolios mature; and a discount rate of 14%.
4. Receivable-backed Notes Payable
On February 10, 2003, the Company entered into a $50.0 million revolving
timeshare receivables credit facility (the "GMAC Receivables Facility")
with Residential Funding Corporation, 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 bears
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. During
the three months ended March 31, 2003, the Company borrowed an aggregate
of $9.3 million pursuant to the GMAC Receivables Facility, with $9.2
million of such borrowings outstanding at March 31, 2003.
5. Lines-of-Credit and Notes Payable
On January 21, 2003, the Company borrowed $4.8 million pursuant to an
existing, now expired, credit facility with Finova Capital Corporation.
The proceeds from the borrowing were used to acquire 2,341 Timeshare
Interests in a resort called the Casa Del Mar(TM), located in Daytona
Beach, Florida for a total purchase price of $5.3 million. The borrowing
requires principal payments based on agreed-upon release prices as
Timeshare Interests are sold, subject to certain minimums, and bears
interest at the greater of 7% or the prime lending rate plus 2%, payable
monthly. The final maturity of this note payable is January 31, 2005.
On March 26, 2003, the Company borrowed $8.5 million pursuant to an
existing revolving credit facility with Foothill Capital Corporation. The
proceeds from the borrowing were used to acquire 1,142 acres of land in
Braselton, Georgia for the purpose of developing a golf course community
to be known as the Traditions of Braselton(TM). The total purchase price
of the land was $12.3 million. The borrowing requires principal payments
based on agreed-upon release prices as home sites are sold and bears
interest at the prime lending rate plus 1.25%, payable monthly. The final
maturity of the borrowing is March 10, 2006.
12.
6. Supplemental Guarantor Financial Information
On April 1, 1998, the Company consummated a private placement offering
(the "Offering") of $110 million in aggregate principal amount of 10.5%
senior secured notes due April 1, 2008 (the "Notes"). None of the assets
of Bluegreen Corporation secure its obligations under the Notes, and the
Notes are effectively subordinated to secured indebtedness of the Company
to any third party to the extent of assets serving as security therefore.
The Notes are unconditionally guaranteed, jointly and severally, by each
of the Company's subsidiaries (the "Subsidiary Guarantors"), with the
exception of Bluegreen/Big Cedar Vacations, LLC, Bluegreen Properties
N.V., Resort Title Agency, Inc., any special purpose finance subsidiary,
any subsidiary which is formed and continues to operate for the limited
purpose of holding a real estate license and acting as a broker, and
certain other subsidiaries which have individually less than $50,000 of
assets (collectively, "Non-Guarantor Subsidiaries"). Each of the note
guarantees cover the full amount of the Notes and each of the Subsidiary
Guarantors is 100% owned, directly or indirectly, by the Company.
Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is
presented below:
CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 31, 2003
COMBINED COMBINED
(UNAUDITED) BLUEGREEN NON-GUARANTOR SUBSIDIARY
(IN THOUSANDS) CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ......................... $ 22,353 $ 23,103 $ 7,881 $ -- $ 53,337
Contracts receivable, net ......................... -- 1,331 17,834 -- 19,165
Intercompany receivable ........................... 101,399 -- -- (101,399) --
Notes receivable, net ............................. 1,736 11,137 44,442 -- 57,315
Inventory, net .................................... -- 21,087 170,558 -- 191,645
Retained interests in notes receivable sold ....... -- 49,985 -- -- 49,985
Investments in subsidiaries ....................... 7,730 -- 3,230 (10,960) --
Property and equipment, net ....................... 9,905 1,895 40,686 -- 52,486
Other assets ...................................... 5,949 2,934 31,279 -- 40,162
--------- --------- --------- --------- ---------
Total assets ................................... $ 149,072 $ 111,472 $ 315,910 $(112,359) $ 464,095
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable, deferred income,
accrued liabilities and other .................... $ 11,724 $ 30,357 $ 27,913 $ -- $ 69,994
Intercompany payable .............................. -- 3,235 98,164 (101,399) --
Deferred income taxes ............................. (20,413) 25,957 27,129 -- 32,673
Lines-of-credit and receivable-backed
notes payable .................................... 2,260 11,424 39,507 -- 53,191
10.50% senior secured notes payable ............... 110,000 -- -- -- 110,000
8.25% convertible subordinated
debentures ...................................... 34,371 -- -- -- 34,371
--------- --------- --------- --------- ---------
Total liabilities .............................. 137,942 70,973 192,713 (101,399) 300,229
Minority interest ................................. -- -- -- 3,523 3,523
Total shareholders' equity ............................ 11,130 40,499 123,197 (14,483) 160,343
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity ............ $ 149,072 $ 111,472 $ 315,910 $(112,359) $ 464,095
========= ========= ========= ========= =========
13.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003
---------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
REVENUES
Sales ............................................. $ -- $ 6,427 $ 55,355 $ -- $ 61,782
Other resort and golf operations revenue .......... -- 1,145 12,067 -- 13,212
Management fees ................................... 7,141 -- -- (7,141) --
Interest income ................................... 73 1,808 1,874 -- 3,755
Gain on sale of notes receivable .................. -- 1,561 -- -- 1,561
Other income ...................................... 83 21 468 -- 572
--------- --------- --------- --------- ---------
7,297 10,962 69,764 (7,141) 80,882
COST AND EXPENSES
Cost of sales ..................................... -- 1,848 17,212 -- 19,060
Cost of other resort and golf operations .......... -- 421 13,726 -- 14,147
Management fees ................................... -- 211 6,930 (7,141) --
Selling, general and administrative expenses ...... 7,702 3,871 27,657 -- 39,230
Interest expense .................................. 2,372 88 544 -- 3,004
Provision for loan losses ......................... -- 342 1,184 -- 1,526
--------- --------- --------- --------- ---------
10,074 6,781 67,253 (7,141) 76,967
--------- --------- --------- --------- ---------
Income (loss) before income taxes ................. (2,777) 4,181 2,511 -- 3,915
Provision (benefit) for income taxes .............. (1,069) 1,293 1,283 -- 1,507
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 281 281
--------- --------- --------- --------- ---------
Net income (loss) ................................. $ (1,708) $ 2,888 $ 1,228 $ (281) $ 2,127
========= ========= ========= ========= =========
THREE MONTHS ENDED MARCH 31, 2002
---------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
REVENUES
Sales ............................................. $ -- $ 7,064 $ 48,861 $ -- $ 55,925
Other resort and golf operations revenue .......... -- 1,343 4,943 -- 6,286
Management fees ................................... 5,840 -- -- (5,840) --
Interest income ................................... 87 1,522 1,983 -- 3,592
Gain on sale of notes receivable .................. -- 2,066 -- -- 2,066
Other income (expense) ............................ 249 (330) 196 -- 115
--------- --------- --------- --------- ---------
6,176 11,665 55,983 (5,840) 67,984
COST AND EXPENSES
Cost of sales ..................................... -- 2,003 20,389 -- 22,392
Cost of other resort and golf operations .......... -- 380 5,320 -- 5,700
Management fees ................................... -- 261 5,579 (5,840) --
Selling, general and administrative expenses ...... 7,225 3,614 23,060 -- 33,899
Interest expense .................................. 2,119 118 651 -- 2,888
Provision for loan losses ......................... -- 102 1,066 -- 1,168
--------- --------- --------- --------- ---------
9,344 6,478 56,065 (5,840) 66,047
--------- --------- --------- --------- ---------
Income (loss) before income taxes ................. (3,168) 5,187 (82) -- 1,937
Provision (benefit) for income taxes .............. (1,220) 1,997 (31) -- 746
Minority interest in income of consolidated
subsidiary .................................... -- -- -- 142 142
--------- --------- --------- --------- ---------
Net income (loss) ................................. $ (1,948) $ 3,190 $ (51) $ (142) $ 1,049
========= ========= ========= ========= =========
14.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003
---------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
----------- ------------ ---------- ------------
Operating activities:
Net cash provided by operating activities .................................. $ 1,794 $ 4,915 $ 11,474 $ 18,183
---------- ---------- ---------- ----------
Investing activities:
Purchases of property and equipment ..................................... (216) (59) (1,699) (1,974)
Sales of property and equipment ......................................... -- -- 138 138
Cash received from retained interests in notes receivable sold .......... -- 1,146 -- 1,146
---------- ---------- ---------- ----------
Net cash provided (used) by investing activities ........................... (216) 1,087 (1,561) (690)
---------- ---------- ---------- ----------
Financing activities:
Payments under line-of-credit facilities and other notes payable ......... (1,547) -- (8,468) (10,015)
Payment of debt issuance costs ........................................... (51) (850) (145) (1,046)
---------- ---------- ---------- ----------
Net cash used by financing activities ...................................... (1,598) (850) (8,613) (11,061)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ....................... (20) 5,152 1,300 6,432
Cash and cash equivalents at beginning of period ........................... 22,373 17,951 6,581 46,905
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ................................. 22,353 23,103 7,881 53,337
Restricted cash at end of period ........................................... (173) (21,455) (5,499) (27,127)
---------- ---------- ---------- ----------
Unrestricted cash and cash equivalents at end of period .................... $ 22,180 $ 1,648 $ 2,382 $ 26,210
========== ========== ========== ==========
THREE MONTHS ENDED MARCH 31, 2002
---------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
----------- ------------ ---------- ------------
Operating activities:
Net cash provided (used) by operating activities ........................... $ 8,356 $ (449) $ 4,121 $ 12,028
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment ..................................... (723) (368) (1,403) (2,494)
Sales of property and equipment ......................................... 1 -- 9 10
Cash received from retained interests in notes receivable sold .......... -- 4,304 -- 4,304
-------- -------- -------- --------
Net cash provided (used) by investing activities ........................... (722) 3,936 (1,394) 1,820
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable ................................................... 9,850 -- 3,472 13,322
Payments under line-of-credit facilities and other notes payable ......... (9,821) (897) (6,131) (16,849)
Payment of debt issuance costs ........................................... (21) (51) (11) (83)
-------- -------- -------- --------
Net cash (used) provided by financing activities ........................... 8 (948) (2,670) (3,610)
-------- -------- -------- --------
Net increase in cash and cash equivalents .................................. 7,642 2,539 57 10,238
Cash and cash equivalents at beginning of period ........................... 10,969 19,036 8,472 38,477
-------- -------- -------- --------
Cash and cash equivalents at end of period ................................. 18,611 21,575 8,529 48,715
Restricted cash and cash equivalents at end of period ...................... -- (20,169) (7,500) (27,669)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period .................... $ 18,611 $ 1,406 $ 1,029 $ 21,046
======== ======== ======== ========
15.
7. Contingencies
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from time
to time, the Company becomes involved in disputes with existing and former
employees. The Company believes that substantially all of these 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 March 31, 2003, aggregate interest was approximately $1.9
million. The Company filed a Petition for Redetermination (the "Petition")
on October 19, 2000, and, if the Petition is unsuccessful, the Company
intends to vigorously appeal the assessment. The Company acquired the
subsidiaries that were the subject of the Notice in connection with the
acquisition of RDI Group, Inc. ("RDI") on September 30, 1997. Under the
RDI purchase agreement, the Company has the right to set off payments owed
by the Company to RDI's former stockholders pursuant to a $1.0 million
outstanding note payable balance and to make a claim against such
stockholders for $500,000 previously paid for any breach of
representations and warranties. (One of the former RDI stockholders is
currently employed by the Company as its Senior Vice President of Sales
for Bluegreen Resorts.) 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.
8. Business Segments
The Company has two reportable business segments. Bluegreen Resorts
acquires, develops and markets Timeshare Interests at the Company's
resorts and Bluegreen Communities acquires large tracts of real estate
that are subdivided, improved (in some cases to include a golf course and
related amenities on the property) and sold, typically on a retail basis.
Required disclosures for the Company's business segments are as follows
(in thousands):
Bluegreen Bluegreen
Resorts Communities Totals
--------------------------------------
As of and for the three months ended March 31, 2003
Sales $44,562 $ 17,220 $ 61,782
Other resort and golf operations revenue 11,933 1,279 13,212
Depreciation expense 795 398 1,193
Field operating profit 7,227 1,192 8,419
Inventory, net 75,979 115,666 191,645
As of and for the three months ended March 31, 2002
Sales $33,380 $ 22,545 $ 55,925
Other resort and golf operations revenue 5,674 612 6,286
Depreciation expense 712 275 987
Field operating profit 4,759 1,206 5,965
Inventory, net 88,288 101,400 187,688
16.
Field operating profit for reportable segments reconciled to consolidated
income before income taxes is as follows (in thousands):
Three Months Ended March 31
---------------------------
2003 2002
---------------------------
Field operating profit for reportable segments $ 8,419 $ 5,965
Interest income 3,755 3,592
Gain on sale of notes receivable 1,561 2,066
Other income 572 115
Corporate general and administrative expenses (5,862) (5,745)
Interest expense (3,004) (2,888)
Provision for loan losses (1,526) (1,168)
------- -------
Consolidated income before income taxes $ 3,915 $ 1,937
======= =======
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Bluegreen Corporation (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) Risks associated with 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) Risks associated with 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 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
17.
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) Risks associated with 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) Risks associated with a decreased willingness on the part of banks
to extend direct customer home site financing or an increased costs
thereof, which could result in the Company receiving less cash in
connection with the sales of real estate and/or lower sales;
h) Risks associated with 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) Risks associated with 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) Risks associated with 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) Risks associated with increase in costs to develop inventory for
sale and/or selling, general and administrative expenses which
impact the achievement of anticipated profit and operating margins;
l) Risks associated with 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 as such increases or decreases
could cause material fluctuations in period-to-period results of
operations;
m) Risks associated with 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;
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Bluegreen Vacation Club (the
oClubo) 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 currently proposed or future changes in accounting
principles will have an adverse impact on the Company;
18.
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 associated with the Company's significant investment in and
operation of golf courses, the profitability of which and potential
gain or loss upon the ultimate disposition of such golf courses
will be impacted by prevailing market conditions and other factors.
v) 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
changes in the future.
General
The Company operates throuogh two business segments. Bluegreen 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. 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 year. 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. 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. Management expects that the Company will continue to
invest in projects that will require substantial development (with
significant capital requirements), and hence the Company's results of
operations may fluctuate significantly between quarterly and annual
periods as a result of the required use of the percentage-of-completion
method of accounting.
The Company believes that inflation and changing prices have not had a
material impact on its revenues and results of operations during the three
months ended March 31, 2003 or March 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 the
La Cabana Beach Resort and Racquet Club(TM) in Aruba ("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.
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.
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
Condensed Consolidated Income Statement and the related retained interests
in the portfolios are recorded on its Condensed 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
19.
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
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
condensed 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 or 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 analyses, current delinquency rates, contractual payment
terms, loss severity rates along with present and expected
economic conditions. The Company reviews 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 receivable either pursuant to its
timeshare receivables purchase facilities or, in the case of
land mortgages receivable, private-placement REMICs, it
retains subordinated tranches, rights to excess interest
spread and servicing rights, 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
could be a reduction in the fair value of the retained
interests and the Company's results of operations and
financial condition would 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
20.
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 would be adversely impacted.
o Effective April 1, 2002, goodwill and intangible assets deemed
to have indefinite lives are not amortized but are subject to
annual impairment tests in accordance with SFAS No. 142,
"Accounting for Goodwill and Other Intangible Assets." Other
intangible assets are amortized over their useful lives.
Goodwill and other intangible assets are tested for impairment
on an annual basis by estimating the fair value of the
reporting unit (for the Company, either Bluegreen Resorts or
Bluegreen Communities) to which the goodwill or intangible
assets have been assigned. Should the Company's estimates of
the fair value of its reporting units change, the Company's
results of operations and financial condition could be
adversely impacted.
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 Financial Accounting
Standards Board in February 2002. Had the Company applied this
new method of accounting for these costs retroactively to the
three-month period ended March 31, 2002, pro forma net loss
would have been approximately $86,000 and basic and diluted
earnings per share would have been $0.00.
Results of Operations
Bluegreen Bluegreen
(Dollars in thousands) Resorts Communities Total
-----------------------------------------------------------------------
Three Months Ended March 31, 2003
Sales $ 44,562 100% $ 17,220 100% $ 61,782 100%
Cost of sales (9,640) (22) (9,420) (55) (19,060) (31)
-------- -------- --------
Gross profit 34,922 78 7,800 45 42,722 69
Other resort and golf operations revenue 11,933 27 1,279 7 13,212 21
Cost of other resort and golf operations (12,573) (28) (1,574) (9) (14,147) (23)
Selling and marketing expenses (23,496) (53) (3,920) (23) (27,416) (44)
Field general and administrative expenses (1) (3,559) (8) (2,393) (14) (5,952) (10)
-------- -------- --------
Field operating profit $ 7,227 16% $ 1,192 7% $ 8,419 14%
======== ======== ========
Three Months Ended March 31, 2002
Sales $ 33,380 100% $ 22,545 100% $ 55,925 100%
Cost of sales (7,862) (24) (14,530) (64) (22,392) (40)
-------- -------- --------
Gross profit 25,518 76 8,015 36 33,533 60
Other resort and golf operations revenue 5,674 17 612 3 6,286 11
Cost of resort and golf operations (4,860) (15) (840) (4) (5,700) (10)
Selling and marketing expenses (19,230) (58) (4,636) (21) (23,866) (43)
Field general and administrative expenses (1) (2,343) (7) (1,945) (9) (4,288) (8)
-------- -------- --------
Field operating profit $ 4,759 14% $ 1,206 5% $ 5,965 11%
======== ======== ========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $5.9 million and $5.7 million for the three months ended
March 31, 2003 and March 31, 2002, respectively.
Sales and Field Operations
Consolidated sales increased to $61.8 million from $55.9 million for the three
months ended March 31, 2003 (the "2003 Quarter") and March 31, 2002 (the "2002
Quarter"), respectively. Bluegreen Resorts and Bluegreen Communities sales
comprised 72% and 28%, respectively, of consolidated sales during the 2003
Quarter. Bluegreen Resorts and Bluegreen Communities sales comprised 60% and
40%, respectively, of consolidated sales during the 2002 Quarter.
21.
Bluegreen Resorts
During the 2003 Quarter and the 2002 Quarter, sales of Timeshare Interests
contributed $44.6 million and $33.4 million, respectively, of the Company's
total consolidated sales.
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.
Three Months Ended
March 31, March 31,
2003 2002
---- ----
Number of timeshare sale transactions 4,761 3,568
Average sales price per transaction $9,360 $9,072
Gross margin 78% 76%
The $11.2 million increase in Bluegreen Resorts' sales during the 2003 Quarter,
as compared to the 2002 Quarter, was primarily due to the opening of four new
sales sites, one in June 2002, two in November 2002 and one in March 2003.
The new sales sites, a sales office at the newly acquired Mountain Run at
Boyne(TM) resort in Boyne Mountain, Michigan, and three offsite sales operations
in Minneapolis, Minnesota, Daytona Beach, Florida and Harbor Springs, Michigan
(on the campus of the Boyne Highlands resort, pursuant to a marketing agreement
with Boyne USA Resorts), generated a combined $5.7 million of sales during the
2003 Quarter. Sales also increased due to a greater focus on marketing to the
Company's growing Club owner base and to sales prospects referred to the Company
by existing Club owners and other prospects. Sales to owner and referral
prospects increased by 43% and represented approximately 23% of sales during
both the 2003 Quarter and 2002 Quarter. This combined with a 32% overall
increase in the number of sales prospects seen by Bluegreen Resorts to
approximately 38,500 prospects during the 2003 Quarter from approximately 29,100
prospects during the 2002 Quarter, an increase in the sale-to-tour conversion
ratio. The increase in average sales price reflected in the above table also
contributed to the increase in sales during the 2003 Quarter as compared to the
2002 Quarter.
Gross margin percentages varied between periods based on the relative costs of
the specific Timeshare Interests sold in each respective period.
Other resort service revenues increased $6.2 million to $11.9 million from $5.7
million during the 2003 Quarter and the 2002 Quarter, respectively. On October
2, 2002, Leisure Plan, Inc. ("LPI"), a wholly-owned subsidiary of the Company,
acquired substantially all of the assets and assumed certain liabilities of
TakeMeOnVacation, LLC, RVM Promotions, LLC and RVM Vacations, LLC (collectively,
"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. During the 2003 Quarter, LPI generated $5.9 million of revenues,
which are included in other resort operations revenue on the condensed
consolidated statement of income.
Cost of other resort services increased $7.7 million to $12.6 million from $4.9
million during 2003 Quarter and 2002 Quarter, respectively, primarily as a
result of operating expenses of $7.7 million incurred by LPI during the 2003
Quarter. LPI's approximately $1.8 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."
Selling and marketing expenses for Bluegreen Resorts, which are primarily
variable with sales, decreased as a percentage of sales to 53% during the 2003
Quarter from 58% during the 2002 Quarter. The decrease is primarily due to the
increase in sales to the Company's Club owner base and to sales prospects
referred to the Company by existing Club owners and other prospects, as
previously discussed. Sales to these prospects have relatively low associated
marketing costs. In addition, the selling and marketing costs related to sales
made to prospects obtained through telemarketing programs was lower than usual
due to the write-off of all such previously deferred costs during the nine
months ended December 31, 2002. During the 2002 Quarter, 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 changed its accounting policy to expense such costs
as incurred, and hence wrote-off all previously deferred telemarketing costs.
This new policy was in place during the 2003 Quarter. Had the Company expensed
such telemarketing costs during the 2002 Quarter, selling and marketing expenses
for
22.
Bluegreen Resorts would have approximated 64% of sales. 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.
Field general and administrative expenses for Bluegreen Resorts increased 52% to
$3.6 million from $2.3 million during the 2003 Quarter and the 2002 Quarter,
respectively. This increase was due to the addition of the Minneapolis, Daytona
Beach and Harbor Springs (Boyne Highlands) offsite sales offices and the
Mountain Run at Boyne(TM) sales office and due to expenses associated with
potential real estate acquisitions during the 2003 Quarter, which were not
pursued.
Bluegreen Communities
During the 2003 Quarter and the 2002 Quarter, Bluegreen Communities contributed
$17.2 million and $22.5 million, respectively, of the Company's total
consolidated sales.
The table below sets forth the number of home sites sold by Bluegreen
Communities and the average sales price per home site for the periods indicated,
before giving effect to the percentage-of-completion method of accounting and
excluding sales of bulk parcels.
Three Months Ended
March 31, March 31,
2003 2002
---- ----
Number of home sites sold 417 548
Average sales price per home site $44,895 $54,818
Gross margin 45% 36%
Bluegreen Communities' sales decreased $5.3 million or 24% during the 2003
Quarter as compared to the 2002 Quarter due to decreased sales at The Preserve
at Jordan Lake(TM) golf course community ("The Preserve") in Chapel Hill, North
Carolina. The Preserve substantially sold out during the 2003 Quarter, with only
four unsold home sites left in inventory as of March 31, 2003. In March 2003,
Bluegreen Communities acquired 1,142 acres in Braselton, Georgia for the
development of a new golf course community to be known as the Traditions of
Braselton(TM). This new project began sales in April 2003, although a
significant portion of these sales will be deferred under
percentage-of-completion accounting.
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 a property for
the development of a new golf course community in the Southeastern United
States. There can be no assurances that this property will be acquired at
acceptable pricing or at all. During the 2003 Quarter, the Company's golf
communities and Texas regions comprised approximately 16% and 76%, respectively,
of Bluegreen Communities' sales.
The increase in gross margin during the 2003 Quarter as compared to the 2002
Quarter was primarily due to $2.6 million in impairment charges taken on the
Crystal Cove(TM) project in Tennessee during the 2002 Quarter. These impairment
charges reduced Bluegreen Communities' gross margin from approximately 47% to
36% during the 2002 Quarter.
Golf operations revenue increased $667,000 to $1.3 million from $612,000 and the
cost of golf operations increased $734,000 to $1.6 million from $840,000 during
the 2003 Quarter and the 2002 Quarter, respectively. These increases are due to
the opening of the golf courses at Brickshire(TM), located in New Kent,
Virginia, and The Preserve in March 2002 and August 2002, respectively. The
Company's golf courses generated a loss during the 2003 Quarter and the 2002
Quarter due to fixed operating expenses and low, seasonal revenues during the
periods. Also, two of the Company's golf courses were still in their first year
of operations during the 2003 Quarter. Management believes that the
profitability of these new courses should improve as these courses mature.
Selling and marketing expenses for Bluegreen Communities increased as a
percentage of sales to 23% from 21% during the 2003 Quarter and 2002 Quarter,
respectively, due to the substantial sell out of The Preserve during the 2003
Quarter. The Preserve generated lower selling and marketing expenses as a
percentage of sales due in part to its location near the Raleigh-Durham area,
which decreased overall selling and marketing expenses as a percentage of sales
for Bluegreen Communities during the 2002 Quarter.
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
23.
technology, mergers and acquisitions, mortgage servicing, treasury and legal.
Corporate G&A remained relatively constant at $5.9 million and $5.7 million
during the 2003 Quarter and the 2002 Quarter, respectively.
Interest Income
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. Interest income remained relatively constant at $3.8 million
and $3.6 million during the 2003 Quarter and the 2002 Quarter, respectively.
Gain on Sale of Notes Receivable
Sales of timeshare notes receivable were made 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 Resorts' Receivables and Inventories").
During the 2003 Quarter and the 2002 Quarter, the Company recognized gains on
the sale of notes receivable totaling $1.6 million and $2.1 million,
respectively. The 24% decrease in gain on sale of notes receivable during the
2003 Quarter, as compared to the 2002 Quarter, was commensurate with the
decrease in the principal amount of notes receivable sold ($28.7 million and
$33.5 million in the 2003 Quarter and 2002 Quarter, respectively). The amount of
notes receivable sold during a quarterly period depends on several factors
including, but not limited to, the amount of eligible receivables available for
sale, the Company's cash requirements, the covenants and other provisions of the
relevant timeshare receivables purchase facility (as described further below)
and management's discretion.
Other Income, Net
Other income, net of other expense, totaled $572,000 and $115,000 during the
2003 Quarter and the 2002 Quarter,
respectively. The increase in other income, net, during the 2003 Quarter was
primarily due to a lower amount of amortization expense related to deferred
facility fees on the Company's timeshare receivables purchase facility and a
gain recognized upon the disposition of a shared ownership interest in a
corporate airplane.
Interest Expense
Interest expense remained relatively constant at $3.0 million and $2.9 million
during the 2003 Quarter and the 2002 Quarter, respectively.
Provision for Loan Losses
The allowance for loan losses by division as of March 31, 2003 and December 31,
2002 is as follows (amounts in thousands):
Bluegreen Bluegreen
Resorts Communities Other Total
------------------------------------------------
March 31, 2003
Notes receivable $ 48,209 $ 11,916 $ 1,881 $ 62,006
Less: allowance for loan losses (4,132) (447) (112) (4,691)
-------- -------- -------- --------
Notes receivable, net $ 44,077 $ 11,469 $ 1,769 $ 57,315
======== ======== ======== ========
Allowance as a % of gross notes receivable 9% 4% 6% 8%
======== ======== ======== ========
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%
======== ======== ======== ========
The Company recorded provisions for loan losses totaling $1.5 million and $1.2
million during the 2003 Quarter and the 2002 Quarter, respectively. The increase
in the provision during the 2003 Quarter as compared to the 2002 Quarter, was
due in part to higher delinquency rates on timeshare notes receivable from
Venezuelan customers as the Venezuelan government has
24.
enacted restrictions on cash payments outside of their country. The Company
believes that its allowance for loan losses is an adequate reserve for future
losses on the Company's notes receivable portfolio as of March 31, 2003.
Other notes receivable at March 31, 2003 and December 31, 2002, primarily
consisted of a loan to Casa Grande Cooperative Association I, which is the
property owners' association that is responsible for the maintenance of La
Cabana.
Summary
Based on the factors discussed above, the Company's net income increased to $2.1
million during the 2003 Quarter from $1.0 million during the 2002 Quarter.
Changes in Financial Condition
Cash Flows From Operating Activities
Cash flows from operating activities increased $6.2 million to net cash inflows
of $18.2 million from $12.0 million during the 2003 Quarter and the 2002
Quarter, respectively. Proceeds from the sale of and borrowings collateralized
by notes receivable, net of payments on such borrowings, increased to $33.3
million from $26.9 million during the 2003 Quarter and the 2002 Quarter,
respectively. 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 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 decreased $2.5 million to net cash outflows
of $690,000 from net cash inflows of $1.8 million in the 2003 Quarter and the
2002 Quarter, respectively. The decrease was primarily due to less cash received
from the Company's retained interests in notes receivable sold. As a result of a
term securitization of previously sold notes receivable during the nine months
ended December 31, 2002 (see further discussion of this term securitization
under "Credit Facilities for Bluegreen Resorts' Receivables and Inventories,"
below), all cash generated by the securitized receivables that would normally be
received by the Company in connection with the retained interests is first being
used to fund required cash reserve accounts. It is anticipated that the Company
will begin to receive cash inflows relative to the retained interests in the
term securitization during the year ending December 31, 2003. The Company
received $1.1 million and $4.3 million of cash from its retained interests in
notes receivable sold during the 2003 Quarter and the 2002 Quarter,
respectively. This decrease was partially offset by lower cash expenditures for
property and equipment during the 2003 Quarter as compared to the 2002 Quarter.
Cash Flows from Financing Activities
Cash flows from financing activities decreased $7.5 million to net cash outflows
of $11.1 million from cash outflows of $3.6 million during the 2003 Quarter and
the 2002 Quarter, respectively. The Company did not receive any cash proceeds
from borrowings under line-of-credit facilities and other notes payable during
the 2003 Quarter as compared to proceeds from such borrowings of approximately
$13.3 million during the 2002 Quarter. This decrease in cash flow was partially
offset by a reduction in the amount of payments under line-of-credit facilities
and other notes payable as several debt obligations that were outstanding during
the 2002 Quarter had been fully repaid by the 2003 Quarter.
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) funding
operating expenses and (iv) satisfying the Company's debt, and other
obligations. The Company anticipates that it will
25.
continue to require external sources of liquidity to support its operations,
satisfy its debt and other obligations and to provide funds for future
acquisitions.
Credit Facilities for Bluegreen 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 2003 Quarter, approximated 61% 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.
In June 2001, the Company executed agreements for a timeshare receivables
purchase facility (the "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 NV, 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 from CSFB. The
Purchase Facility utilizes an owner's trust structure, pursuant to which the
Company sells receivables to Bluegreen 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 certain
representations and warranties at the time of sale. The Company did not enter
into any guarantees in connection with the Purchase Facility. 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 earns a return equal to the London Interbank Offered Rate
("LIBOR") plus 1.00% through April 15, 2003, and LIBOR plus 1.25% thereafter,
subject to use of alternate return rates in certain circumstances. In addition,
ING received a 0.25% annual facility fee through April 15, 2003. The ING
Purchase Facility also provides for the sale of land notes receivable, under
modified terms.
Through November 25, 2002, the Company had 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, 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 amount of receivables that were previously sold
to ING under the Purchase Facility; 2) $54.2 million in aggregate principal
amount of receivables that were previously sold to General Electric Capital Real
Estate ("GE") and Barclays Bank, PLC ("Barclays") under a previous timeshare
receivables purchase facility (the "GE/Barclays Facility"); and 3) $7.6 million
in aggregate principal amount 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.
As a result of the 2002 Term Securitization, the availability under the Purchase
Facility, as amended, allowed for sales of additional notes receivable for a
cumulative purchase price of up to $75.0 million on a revolving basis through
July 23, 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
31, 2003, the Subsidiary had $32.6 million available under the Purchase Facility
(the availability under the Purchase Facility increases as the principal balance
of the receivables sold is received from the customer).
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
26.
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.
The Purchase Facility discussed above, which is only available through July 23,
2003, 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. The Company is seeking
new timeshare receivable purchase facilities to replace expiring facilities. The
Company is currently discussing terms for a potential new timeshare receivable
purchase facility with an unaffiliated financial institution. 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.
The Company is also 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. In each securitization, the Company sold receivables
to a wholly-owned special purpose entity which, in turn, sold the receivables
either directly to third parties or to a trust established for the transaction.
In each transaction, the receivables were sold on a non-recourse basis (except
for breaches of certain representations and warranties) and the special purpose
entity has a retained interest in the receivables sold. 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 interests 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 interests in the receivables. Pursuant to the terms of
the transaction documents, however, to the extent the portfolio of receivables
fails to satisfy specified performance criteria (as may occur due to an increase
in default rates or loan loss severity) or 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 interests. Depending on the circumstances
and the transaction, the application of the accelerated payment formula may be
permanent or temporary until the trigger event is cured. If the accelerated
payment formula were to become applicable, the cash flow on the retained
interests in the receivables would be reduced until the outside investors were
paid or the regular payment formula was resumed. Such a reduction in cash flow
could cause a decline in the fair value of the Company's retained interests in
the receivables sold. Declines in fair value that are determined to be other
than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from 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.
27.
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 bears 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. At March 31, 2003, $9.2 million was outstanding under the GMAC
Receivables Facility. On May 5, 2003, the Company borrowed an additional $2.1
million under the GMAC Receivable Facility.
RFC has also provided the Company with a $15.0 million acquisition, development
and construction revolving credit facility for Bluegreen 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
May 12, 2003, the Company had not borrowed under the GMAC AD&C Facility.
GE previously 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 all outstanding
borrowings have been repaid. 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.
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 also borrow up to $10.0 million of the
facility collateralized by 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.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Company has a $30.0 million revolving credit facility with Foothill secured
by the pledge of Bluegreen Communities' receivables, with up to $10.0 million of
the total facility available for Bluegreen Communities' inventory borrowings and
up to $10.0 million of the total facility available for the pledge of Bluegreen
Resorts' receivables. On March 26, 2003, the Company borrowed $8.5 million
pursuant to the revolving credit facility for the purpose of acquiring 1,142
acres of land in Braselton, Georgia in connection with the development of a golf
course community to be known as the Traditions of Braselton(TM). The borrowing
requires principal payments based on agreed-upon release prices as home sites
are sold and bears interest at the prime lending rate plus 1.25%, payable
monthly. Outstanding indebtedness related to the Traditions of Braselton(TM)
borrowing is due on March 10, 2006. The interest rate charged on outstanding
receivable borrowings under the revolving credit facility, as amended, is the
prime lending rate plus .75% when the average monthly outstanding loan balance
is greater than or equal to $10.0 million. If the average monthly outstanding
loan balance is less $10.0 million, the interest rate is the greater of 7.00% or
the prime lending rate plus 1.00%. 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 for borrowings collateralized by receivables. At March 31,
2003, the outstanding principal balance under this facility was approximately
$13.1 million, $8.5 million of which related to the acquisition of the
Traditions of Braselton, $1.4 million of which related to Bluegreen Resorts'
receivables borrowings, as discussed above, and $3.2 million of which related to
Bluegreen Communities' receivables borrowings. On April 3, 2003, the Company
borrowed an additional $2.0 million under this facility through the pledge of
additional Bluegreen Communities receivables.
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"):
28.
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 is 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 March
31, 2003, $3.8 million was 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 an amount based on 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.
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 outstanding 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 March 31, 2003, no amounts were outstanding under the line, nor were there
any borrowings under the line through May 12, 2003. This line-of-credit has
historically been 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.
29.
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 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 March 31, 2003,
included the required payments due on its 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.
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 March 31, 2003, by period due (in
thousands):
Payments Due By Period
------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year Years Years Years
----- ------ ----- ----- -----
Receivable-backed notes payable $ 14,063 $ -- $ -- $ 4,557 $ 9,506
Lines-of-credit and notes payable 39,128 4,782 29,614 4,527 205
10.50% senior secured notes payable 110,000 -- -- -- 110,000
8.25% convertible subordinated debentures 34,371 -- 2,171 9,200 23,000
Noncancelable operating leases 15,042 3,616 4,599 2,468 4,359
-------- -------- -------- -------- --------
Total contractual obligations $212,604 $ 8,398 $ 36,384 $ 20,752 $147,070
======== ======== ======== ======== ========
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 was approximately $11.7 million as of
March 31, 2003. The Company estimates that the total cash required to complete
its Bluegreen Communities projects in which sales have occurred was
approximately $32.4 million as of March 31, 2003. 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; however,
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 expenditures 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 in the near term. The Company will also be
required to renew or replace its existing timeshare receivables purchase
facility on or before July 23, 2003. The Company will, in the future, also
require additional credit facilities or will be required to issue corporate debt
or equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by 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 is not able
to sell notes receivable or borrow under such facilities, the Company's ability
to satisfy its obligations would be materially adversely affected.
30.
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 the Company will not be required to seek waivers of such covenants
or 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 3. Quantitative and Qualitative Disclosures about Market Risk
For a complete description of the Company's foreign currency and interest rate
related market risks, see the discussion in the Company's Transitional Annual
Report on Form 10-KT for the nine months ended December 31, 2002. There has not
been a material change in the Company's exposure to foreign currency and
interest rate risks since December 31, 2002.
Item 4. Controls and Procedures
In May 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 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
31.
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 II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
10.115 Letter Amendment to Amended and Restated Note Purchase Agreement
dated April 1, 2003, among the Registrant, Bluegreen Receivables
Finance Corporation V, BXG Receivables Note Trust 2001-A, the
Purchasers Parties Hereto and ING Capital LLC.
10.129 Amendment No. 1 to Second Amended and Restated Credit Facility
Agreement entered into as of January 21, 2003, between Finova
Capital Corporation and the Registrant.
10.130 Promissory Note dated January 21, 2003 between Bluegreen Vacations
Unlimited, Inc. and Finova Capital Corporation.
10.133 Amendment Number Four to Loan and Security Agreement dated March
26, 2003, by and between the Registrant and Foothill Capital
Corporation.
10.134 Promissory Note dated March 26, 2003, by and between the
Registrant and Foothill Corporation.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
32.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the-
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: May 12, 2003 By: /S/ GEORGE F. DONOVAN
-----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: May 12, 2003 By: /S/ JOHN F. CHISTE
-----------------------------------
John F. Chiste
Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 2003 By: /S/ ANTHONY M. PULEO
-----------------------------------
Anthony M. Puleo
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
33.
I, George F. Donovan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluegreen
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 12, 2003 /S/ GEORGE F. DONOVAN
---------------------
George F. Donovan
Chief Executive Officer
34.
I, John F. Chiste, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluegreen
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 12, 2003 /S/ JOHN F. CHISTE
-----------------------
John F. Chiste
Chief Financial Officer
35.