SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
For the year ended December 31, 2004
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange, Archipelago Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant: $228,746,137 based upon the closing sale price
of the Company's Common Stock on the New York Stock Exchange on June 30, 2004
($13.80 per share). For this purpose, "affiliates" include members of the Board
of Directors of the Company, members of executive management and all persons
known to be the beneficial owners of more than 5% of the Company's outstanding
common stock.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 11,
2005, there were 30,317,296 shares of the registrant's common stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's definitive proxy
statement to be filed for its 2005 Annual Meeting of Shareholders (the "Proxy
Statement") are incorporated by reference into Part III hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
PAGE
----
Item 1. BUSINESS...................................................... 1
Item 2. PROPERTIES.................................................... 27
Item 3. LEGAL PROCEEDINGS............................................. 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 27
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.......... 27
Item 6. SELECTED FINANCIAL DATA....................................... 28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 30
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 60
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 62
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 102
Item 9A. CONTROLS AND PROCEDURES....................................... 102
Item 9B. OTHER INFORMATION............................................. 103
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 103
Item 11. EXECUTIVE COMPENSATION........................................ 103
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS................. 103
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 103
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES........................ 103
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.................... 103
Signatures............................................................... 105
Exhibit Index............................................................ 107
TRADEMARKS
The terms "Bluegreen(R)," "Bluegreen Communities(R)," and "Bluegreen
Vacation Club(R)" are registered in the U.S. Patent and Trademark Office by
Bluegreen Corporation.
The terms "La Cabana Beach and Racquet Club(TM)," "The Hammocks at Marathon
Resort(TM)," "Casa Del Mar Beach Resort(TM)," "Orlando's Sunshine Resort(TM),"
"Solara Surfside Resort(TM)," "Mountain Run at Boyne(TM)," "The Falls Village
Resort(TM)," "Big Cedar(R) Wilderness Club(TM)," "The Lodge Alley Inn(TM),"
"Harbour Lights Resort(TM)," "Shore Crest Vacation Villas(TM)," "Laurel Crest
Resort(TM)," "MountainLoft Resort(TM)," "Shenandoah Crossing Resort(TM),"
"Christmas Mountain Village(TM)," "Traditions of Braselton(TM)," "Sanctuary Cove
at St. Andrews Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes
Ranch(TM)," "Silver Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe
Pool Lake(TM)," "Ridge Lake Shores(TM)," "Mountain Springs Ranch(TM)," "Carolina
National(TM)," "Brickshire(TM)," "Golf Club at Brickshire(TM)," and "Preserve at
Jordan Lake(TM)" are trademarks or service marks of Bluegreen Corporation in the
United States.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
Office by Big Cedar, L.L.C.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and Trademark
Office by Bass Pro, Inc.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
MARKET AND INDUSTRY DATA
Market and industry data used throughout this Annual Report were obtained from
our internal surveys, industry publications, unpublished industry data and
estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"). Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but there can be no assurance as to the accuracy and
completeness of such information. We have not independently verified such market
data. Similarly, our internal surveys, while believed by us to be reliable, have
not been verified by any independent sources. Accordingly, no assurance can be
given that any such data will prove to be accurate.
PART I
Item 1. BUSINESS.
Introduction
We are a leading provider of vacation and residential lifestyle choices through
our resorts and residential community businesses. We are organized into two
divisions: Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts
acquires, develops and markets vacation ownership interests ("VOIs") in resorts
generally located in popular high-volume, "drive-to" vacation destinations.
Bluegreen Communities acquires, develops and subdivides property and markets
residential land homesites, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and related amenities. We also
generate significant interest income through our financing of individual
purchasers of VOIs and, to a nominal extent, homesites sold by Bluegreen
Communities.
Bluegreen Resorts
Bluegreen Resorts was founded in 1994 to capitalize on the growth of the
vacation ownership industry. As of December 31, 2004, we had approximately
134,000 VOI owners, including approximately 95,000 members in the Bluegreen
Vacation Club, which was established in 1997. We sell VOIs in the Bluegreen
Vacation Club through sales offices at all of our owned resorts and at our four
off-site sales offices in Indiana, Michigan, Minnesota, and Texas. A VOI in any
of our resorts entitles the buyer to an annual allotment of "points" in
perpetuity in our Bluegreen Vacation Club. Club members may use their points to
stay in one of 18 Bluegreen-owned resorts and 18 other resorts or for other
vacation options, including cruises and stays at approximately 3,700 resorts
offered by our affiliated worldwide vacation ownership exchange network, Resorts
Condominium International ("RCI"). The following table sets forth the Bluegreen
Vacation Club resorts:
Bluegreen-Owned Resorts(1) Location
--------------------------------------- ----------------------------------
The Hammocks at Marathon (3) Marathon, Florida
The Fountains (3) Orlando, Florida
Orlando's Sunshine Resort (3) Orlando, Florida
Casa Del Mar Beach Resort Ormond Beach, Florida
Grande Villas at World Golf Village (3) St. Augustine, Florida
Solara Surfside Resort (3) Surfside, Florida
Mountain Run at Boyne (3) Boyne Falls, Michigan
The Falls Village Resort (3) Branson, Missouri
Big Cedar Wilderness Club (3)(4) Ridgedale, Missouri
The Suites at Hershey (2)(3) Hershey, Pennsylvania
The Lodge Alley Inn (3) Charleston, South Carolina
Harbour Lights (3) Myrtle Beach, South Carolina
Shore Crest Vacation Villas (3) North Myrtle Beach, South Carolina
MountainLoft (3) Gatlinburg, Tennessee
Laurel Crest (3) Pigeon Forge, Tennessee
Shenandoah Crossing (3) Gordonsville, Virginia
Christmas Mountain Village (3) Wisconsin Dells, Wisconsin
La Cabana Beach and Racquet Club Oranjestad, Aruba
1
Other Resorts (5) Location
--------------------------------------- -----------------------------
Paradise Isle Resort Gulf Shores, Alabama
Shoreline Towers Resort Gulf Shores, Alabama
Via Roma Resort (3) Bradenton Beach, Florida
Dolphin Beach Club (3) Daytona Beach Shores, Florida
Fantasy Island Resort II (3) Daytona Beach, Florida
Mariner's Boathouse Resort Fort Myers Beach, Florida
Tropical Sands Resort Fort Myers Beach, Florida
Windward Passage Resort Fort Myers Beach, Florida
Gulfstream Manor (3) Gulfstream, Florida
Resort Sixty-Six (3) Holmes Beach, Florida
Outrigger Beach Club (3) Ormond Beach, Florida
Landmark Holiday Beach Resort Panama City Beach, Florida
Ocean Towers Beach Club Panama City Beach, Florida
Panama City Resort & Beach Club Panama City Beach, Florida
Petit Crest Villas Marble Hill, Georgia
Pono Kai Resort (3) Kauai, Hawaii
Lake Condominiums at Big Sky Big Sky, Montana
Players Club (3) Hilton Head, South Carolina
----------
(1) Throughout this Annual Report on Form 10-K, any reference to resorts that
we "own" refers to resorts where we acquired or developed a significant
number of the VOIs associated with the resorts, even if substantially all
of the VOIs in the property have been sold to consumers.
(2) We acquired this resort in 2004. We will begin selling VOIs in this resort
through the Bluegreen Vacation Club in 2005.
(3) These resorts are managed by Bluegreen Resorts Management, Inc., one of our
wholly-owned subsidiaries.
(4) This resort is being developed, marketed and sold by Bluegreen/Big Cedar
Vacations, LLC, a joint venture with Big Cedar, L.L.C. We own a 51%
interest in this joint venture and the joint venture's results of
operations, cash flows and financial position are included in our
consolidated financial statements. See Note 1 of the Notes to Consolidated
Financial Statements.
(5) A portion of the VOIs in these resorts were marketed and sold by us or RDI
Group, Inc., which was purchased by us in 1997.
Throughout this report, "estimated remaining life-of-project sales" assumes
sales of the existing, currently under construction or development, and planned
VOIs or homesites, as the case may be, at current retail prices. "Field
Operating Profit" means the operating profit of one of our business segments
prior to the allocation of corporate overhead, interest income, gain on sales of
notes receivable, other income, provision for loan losses, interest expense,
income taxes, minority interest and cumulative effect of change in accounting
principle. See Note 19 of the Notes to Consolidated Financial Statements for
further information and a reconciliation of Field Operating Profit for our
business segments to consolidated income before income taxes.
Since our inception, we have generated over 140,000 VOI sales transactions.
Bluegreen Resorts' estimated remaining life-of-project sales were approximately
$2.0 billion at December 31, 2004. For the year ended December 31, 2004,
Bluegreen Resorts had sales and Field Operating Profit of $310.6 million and
$52.6 million, respectively.
2
Bluegreen Resorts uses a variety of techniques to attract prospective purchasers
of VOIs, including telemarketing of mini-vacations, marketing kiosks in retail
and hotel locations, targeted mailings, marketing to current owners of VOIs and
referrals. To support our marketing and sales efforts, we have developed and
continue to enhance our database to track our vacation ownership marketing and
sales programs. We believe that as our vacation ownership operations grow, this
database will enable us to take advantage of, among other things, less costly
marketing and referral opportunities.
While historical growth rates may not continue, based on ARDA and other industry
data, we believe that vacation ownership has been one of the fastest growing
segments of the hospitality industry with 10.6% compound annual growth for sales
volume and 10.7% compound annual growth for number of VOI owners during the
period from 1990 to 2002. According to ARDA, the primary reason cited by
consumers for purchasing a VOI is the ability to exchange a VOI for
accommodations at other resorts through worldwide exchange networks.
Our affiliation with RCI, the largest worldwide vacation ownership exchange
company, entitles members of the Bluegreen Vacation Club to stay at
approximately 3,700 participating RCI resorts located in 100 countries
worldwide. To further enhance the ability of our VOI owners to customize their
vacation experience, we also have implemented our Bluegreen Vacation Club
system, which permits our VOI owners to purchase an annual allotment of points
which can be redeemed for occupancy rights at most Bluegreen-owned and certain
other participating resorts. We also have implemented the Sampler program, which
allows Sampler package purchasers to enjoy substantially the same amenities,
activities and services offered to the regular Bluegreen Vacation Club members
for a one-year trial period. We benefit from the Sampler program as it gives us
the opportunity to market our VOIs to customers when they use their trial
memberships at our resorts and to recapture some of the cost incurred relative
to the initial marketing of prospective customers.
Prior to acquiring property for resorts, Bluegreen Resorts undertakes a property
review, which includes physical and environmental assessments. This review is
presented for approval to our Management Investment Committee, which was
established in 1990 and consists of certain key members of senior management.
Once so approved, the acquisition is submitted to the Investment Committee of
our Board of Directors for final approval. During the review process, we
consider market, tourism and demographic data as well as the quality and
diversity of the location's existing amenities and attractions to determine the
potential strength of the vacation ownership market in the area and the
availability of a variety of recreational opportunities for prospective VOI
purchasers. Another important consideration when Bluegreen Resorts is reviewing
a resort location for potential acquisition is the demand for resorts in
specific geographic areas by existing Bluegreen Vacation Club members. We
periodically monitor this demand through surveys and other means. We intend to
pursue the acquisition of real estate or interests in real estate for Bluegreen
Resorts in the geographic areas in which Bluegreen Resorts currently operates,
with possible expansion into the western United States, although we may pursue
acquisitions in other areas. No assurance can be given that we will be able to
acquire property in our current target areas or be successful in our acquisition
strategy.
We have historically provided financing to approximately 95% to 99% of our
vacation ownership customers. Customers are required to make a downpayment of at
least 10% of the VOI sales price and typically finance the balance of the sales
price over a period of ten years. As of December 31, 2004, our vacation
ownership receivables portfolio totaled approximately $121.3 million in
principal amount, with a weighted-average contractual yield of approximately
14.7% per annum. During the year ended December 31, 2004, we maintained vacation
ownership receivables warehouse facilities and separate vacation ownership
receivables purchase facilities to maintain liquidity associated with our
vacation ownership receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a further discussion of our vacation ownership receivables
facilities and certain risks relating to such facilities.
3
Bluegreen Communities
Bluegreen Communities focuses on developing residential homesites located near
major metropolitan centers or popular retirement areas. We believe that a
majority of our customers seek a quality lifestyle improvement that is generally
unavailable in traditional, intensely subdivided suburban developments. As of
December 31, 2004, Bluegreen Communities was actively developing and selling
homesites directly to retail consumers in communities primarily located in
Texas, Georgia and North Carolina. We had $77.1 million of inventory for
Bluegreen Communities on our balance sheet as of December 31, 2004 and Bluegreen
Communities' estimated remaining life-of-project sales were approximately $362.0
million. For the year ended December 31, 2004 we had sales and Field Operating
Profit in our Bluegreen Communities division of $191.8 million and $37.7
million, respectively.
We have developed a marketing and sales program that generates a significant
number of on-site sales presentations to potential prospects through a
combination of newspaper, direct mail, television, billboard, Internet and radio
advertising. In addition, we believe Bluegreen Communities' customer
relationship management computer software system enables us to compile, process
and maintain information concerning future sales prospects within each of our
operating regions with the goal of tracking the effectiveness of advertising and
marketing programs relative to sales generated. Through our targeted sales and
marketing programs, we believe that we have been able to achieve an attractive
conversion ratio of sales to prospects receiving on-site sales presentations.
Bluegreen Communities acquires and develops land in two markets: (i) near major
metropolitan centers but outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, we consider market depth and attempt to forecast market absorption. In new
market areas, we typically engage a third-party to perform a market study in the
area to evaluate market response and price acceptance. Our sales and marketing
efforts begin as soon as practicable after we enter into an agreement to acquire
a parcel of land. Our ability to bond projects to completion generally allows us
to sell a portion of our residential land inventory on a pre-development basis,
thereby reducing the amount of external capital needed to complete improvements.
As is the case with Bluegreen Resorts, all acquisitions of properties by
Bluegreen Communities are subject to the approval of both our Management
Investment Committee and the Investment Committee of our Board of Directors.
In fiscal 1997, we began construction of our first daily-fee golf course. We
believe that daily-fee golf courses are an attractive amenity that increases the
marketability of adjacent homesites. We currently intend to expand our golf
course community residential land offerings into markets with attractive
demographics for such properties. There can be no assurance that our strategy
for this expansion will be successful.
Industry Overview
Bluegreen Resorts
The Market. The resorts component of the leisure industry is serviced primarily
by two separate alternatives for overnight accommodations: commercial lodging
establishments and vacation ownership resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. We believe that vacation ownership presents an
attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, vacation ownership has been one of
the fastest growing segments of the hospitality industry over the past two
decades. We believe that, based on ARDA reports and other industry data, the
following factors have contributed to the increased acceptance of the vacation
ownership concept among the general public and the substantial growth of the
vacation ownership industry:
4
o growing consumer awareness of the potential value and benefits of
vacation ownership, including the cost savings relative to certain
other lodging alternatives;
o increasing flexibility of vacation ownership due to the growth of
international exchange organizations such as RCI and Interval
International, and points-based vacation club systems;
o the improving quality of the vacation ownership resorts and their
management; and
o growing consumer confidence resulting from enhanced consumer
protection regulation of the vacation ownership industry and the entry
of brand name national lodging companies to the vacation ownership
industry.
Historically, the vacation ownership industry was highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. We
believe that one of the most significant factors contributing to the current
success of the vacation ownership industry has been the entry into the market of
some of the world's major lodging, hospitality and entertainment companies, such
as Marriott International, Inc., the Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels
and Resorts Worldwide, Inc. and Cendant Corporation. Although vacation ownership
operations currently comprise only a portion of these companies' overall
operations, we believe that their involvement in the vacation ownership industry
has enhanced the industry's image with the general public.
We believe that the ongoing hostilities in the Middle East and other world
events that have decreased the amount of vacation air travel by Americans have
not, to date, had a material adverse impact on our sales in our domestic sales
offices. We believe that this is due to the "drive-to" resort destinations in
the Bluegreen Vacation Club. In addition, we believe that, in general, Americans
still desire to take family vacations and that our vacation club is positioned
to benefit from consumer demand for family vacations. However, international
hostilities, economic conditions and the rising cost of gasoline may have an
adverse effect on our operations in the future.
The Consumer. According to information compiled by industry sources, customers
in the 40-59 year old age range represented approximately 60% of all VOI owners
in the United States in 2002. Historically, the median age of a VOI buyer at the
time of purchase was 51. The median annual household income of VOI owners in the
United States in 2002 was approximately $85,000, with approximately 35% of all
VOI owners having annual household incomes greater than $100,000. Despite the
industry's growth, VOI ownership has achieved only an approximate 5% market
penetration among United States households with incomes above $50,000 per year.
VOI Ownership. The purchase of a fixed-week VOI typically entitles the buyer to
use a fully-furnished vacation residence, generally for a one-week period each
year in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant-in-common with other buyers of
interests in the property.
Under a points-based system, such as our Bluegreen Vacation Club, members
purchase an annual allotment of points that can be redeemed for occupancy rights
at participating resorts. Compared to other vacation ownership arrangements, the
points-based system offers members greater flexibility in planning their
vacations. The number of points required for a stay at any one resort varies,
depending on a variety of factors, including the resort location, the size of a
unit, the vacation season and the days of the week used. Under this system,
members can select vacations according to their schedules, space needs and
available points. Members' unused points are typically automatically saved for
one year beyond the year they were allotted, subject to certain usage
restrictions. Members also typically may "borrow" points from the next year,
subject to certain restrictions. Owners of VOIs in the Bluegreen Vacation Club
have an underlying deeded real estate interest in a specific VOI resort that is
held in trust on the owner's behalf. As of December 31, 2004, all of our sales
offices were only selling VOIs within our Bluegreen Vacation Club system.
5
The owners of VOIs manage the property through a nonprofit homeowners'
association, which is governed by a board of directors or trustees consisting of
representatives of the developer (as long as the developer owns VOIs in the
resort) and owners of VOIs at the resort. The board hires a management company
to which it delegates many of the rights and responsibilities of the homeowners'
association, including grounds landscaping, security, housekeeping and operating
supplies, garbage collection, utilities, insurance, laundry and repairs and
maintenance. As of December 31, 2004, we managed 24 resorts.
Each VOI owner is required to pay the vacation club homeowners' association a
share of all costs of maintaining the properties in the Bluegreen Vacation Club
system. These charges can consist of an annual maintenance fee plus applicable
real estate taxes and special assessments, assessed on an as-needed basis. If
the VOI owner does not pay such charges, such owner's use rights may be
suspended and the homeowners' association may foreclose on the owner's VOI.
Participation in Independent VOI Exchange Networks. We believe that our VOIs are
made more attractive by our affiliation with an international VOI exchange
network such as RCI. All of our VOI resorts are currently affiliated with RCI,
and most of our VOI resorts have been awarded RCI's highest designation (Gold
Crown). A VOI owner's participation in the RCI exchange network allows such
owner to exchange his annual VOI for occupancy at approximately 3,700
participating resorts, based upon availability and the payment of a variable
exchange fee. RCI's participating resorts are located throughout the world in
100 countries. A Bluegreen Vacation Club owner may make a reservation for
occupancy in a club VOI and then may attempt to exchange this occupancy right
for one in another participating RCI resort. The owner lists his occupancy right
as available with RCI and requests occupancy at another participating resort,
indicating the particular resort or geographic area to which the owner desires
to travel, the size of the unit desired and the period during which occupancy is
desired. The exchange network assigns ratings to each listed VOI, based upon a
number of factors, including the location and size of the unit, the quality of
the resort and the period during which the VOI is available, and attempts to
satisfy the exchange request by providing an occupancy right in another VOI with
a similar rating. If the exchange network is unable to meet the member's initial
request, it suggests alternative resorts based on availability. No assurance can
be given that our resorts will continue to qualify for participation in
international exchange networks, or that our customers will continue to be
satisfied with these networks. Our failure or the failure of any of our resorts
to participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on us.
Bluegreen Communities
Bluegreen Communities operates within a specialized niche of the real estate
industry, which focuses on the sale of residential homesites to retail customers
who typically intend to build a home on such homesites at some point in the
future. The participants in this market are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region. Unlike commercial homebuilders who focus
on vertical development, such as the construction of single and multi-family
housing structures, Bluegreen Communities focuses primarily on horizontal
development activities, such as grading, roads and utilities. As a result, the
projects undertaken by us are significantly less capital intensive than those
generally undertaken by commercial homebuilders. We believe that our market is
also the beneficiary of a number of trends, including the large number of people
entering into the 40-59 year age bracket and the economic and population growth
in certain of our primary markets.
Bluegreen Communities also focuses on the development of daily-fee golf courses
and related amenities as the centerpieces of certain of our residential land
properties. As of December 31, 2004, we were marketing homesites in seven
projects that include golf courses developed either by us or third parties. We
currently intend to acquire and develop additional golf communities, as we
believe that the demographics and marketability of such properties are
consistent with our overall residential land strategy. Golf communities
typically are larger, multi-phase properties that require a greater capital
commitment than our single-phase residential land projects. There can be no
assurance that we will be able to successfully implement our golf community
strategy.
6
Bluegreen Communities also undertakes the development of large lakes in certain
of our projects as the centerpiece amenity. We believe that while these
development activities require a greater capital commitment than certain other
amenities that Bluegreen Communities may provide in our projects, we benefit
from the anticipated increased marketability and pricing of lakefront homesites.
Company Products
Bluegreen Resorts
Set forth below is a description of each of our owned vacation ownership
resorts. We consider resorts "owned" if we acquired or developed a significant
number of the VOIs associated with the resorts, even if we no longer own
substantial VOIs in the resorts. Units at most of the properties have certain
standard amenities, including a full kitchen, at least two televisions, a VCR
and a CD player. Some units have additional amenities, such as big screen
televisions, DVD players, fireplaces, whirlpool tubs and video game systems.
Most properties offer guests a clubhouse (with an indoor or outdoor pool, a game
room, exercise facilities and a lounge) and a hotel-type staff. We manage all of
our owned resorts with the exception of the La Cabana Beach and Racquet Club
("La Cabana") and Casa del Mar Beach Resort. La Cabana is managed by Optima
Hotel Exploitatiemaatschappij N.V., an unaffiliated third party that managed the
resort prior to our acquisition of La Cabana's unsold VOI inventory in 1997. The
Casa del Mar Beach Resort is managed by The Amber Group, Inc., an unaffiliated
third party that managed the resort prior to our acquisition of Casa Del Mar's
unsold VOI inventory in 2003.
Florida
The Hammocks at Marathon -- Marathon, Florida. Acquired in December 2003, The
Hammocks at Marathon is located in the Florida Keys within easy reach of both
Miami and Key West, Florida. This beachfront resort offers such amenities as a
pool, boat slips, an outside tiki bar and a variety of water sport recreational
vehicle rentals.
The Fountains-- Orlando, Florida. In September 2003, we acquired The Fountains
(f/k/a The Oasis Lakes Resort), an existing vacation ownership resort in
Orlando, Florida. The acquisition included certain unsold VOIs, land that can
accommodate the construction of approximately 576 additional vacation
residences, a 20,000 square-foot sales center, a clubhouse and pool complex, an
additional parcel of land zoned for commercial use and certain notes receivable.
This 54-acre resort is located on Lake Eve and is minutes away from Central
Florida's family attractions, including Walt Disney World(R), SeaWorld(R) and
Universal Studios(R). Amenities include a clubhouse with a heated indoor/outdoor
swimming pool, a pool bar, a massage room, steam and sauna rooms, a family
activity room and tennis and basketball courts.
Orlando's Sunshine Resort-- Orlando, Florida. Orlando's Sunshine Resort is
located on International Drive, near Wet'n'Wild(R) water park and Universal
Studios Florida(R). This property features an outdoor swimming pool, hot tub and
tennis courts.
Casa del Mar Beach Resort-- Ormond Beach, Florida. In January 2003, we acquired
the unsold VOI inventory (approximately 2,340 VOIs) of an existing vacation
ownership resort located in Ormond Beach, Florida. Casa del Mar is located
directly on the ocean and includes such amenities as an outdoor pool and
miniature golf.
Grande Villas at World Golf Village-- St. Augustine, Florida. In August 2003, we
acquired the unsold VOI inventory (approximately 4,000 VOIs) and undeveloped
land that can accommodate the construction of approximately 125 new "vacation
homes" (as defined below)at a vacation ownership resort located in St.
Augustine, Florida. The resort, which is minutes away from the Atlantic Ocean
and next to the World Golf Hall of Fame(R), features an extensive array of
amenities, including, among others, a golf course, outdoor and indoor pools, a
hot tub, a sauna and a playground.
7
Solara Surfside Resort-- Surfside, Florida. This oceanfront resort is located in
Surfside, Florida, near Miami Beach. Solara Surfside captures the art deco style
of its surrounding area and features one and two bedroom vacation homes, a
swimming pool, sun deck and hot tub.
Michigan
Mountain Run at Boyne-- Boyne Falls, Michigan. In October 2002, we acquired
approximately 11 acres of land to build and develop 64 vacation homes at Boyne
Mountain in northern Michigan. In connection with this acquisition, we also
acquired an option to purchase land contiguous to the 11 acres on which we
could, at our discretion, build approximately 100 additional vacation homes.
Boyne Mountain is known for skiing, snowboarding and tubing on 62 runs with
convenient lift and trail systems. In the summer, Boyne Mountain offers 162
holes of golf on world-class courses designed by some of the game's masters,
including Robert Trent Jones, Arthur Hills, Donald Ross and, soon, Pete Dye.
Missouri
The Falls Village Resort-- Branson, Missouri. The Falls Village is located in
the Ozark Mountains. Fishing, boating and swimming are available at nearby Table
Rock Lake and Lake Taneycomo, and area theaters feature shows by renowned
country music stars. Most resort guests come from areas within an eight to ten
hour drive of Branson.
The Big CedarWilderness Club-- Ridgedale, Missouri. The Big Cedar Wilderness
Club is a 312-unit, wilderness-themed resort adjacent to the world famous Big
Cedar Lodge luxury hotel resort. This vacation ownership resort is being
developed, marketed and sold by Bluegreen/Big Cedar Vacations LLC, a joint
venture between Big Cedar, L.L.C. and us, in which we own a 51% interest. The
Big Cedar Wilderness Club is located on Table Rock Lake, and is near Dogwood
Canyon. Guests staying in the two bedroom cabins or one and two bedroom lodge
villas enjoy fireplaces, private balconies, full kitchens and Internet access.
Amenities include, or are expected to include indoor and outdoor swimming pools
and hot tubs, a lazy river, hiking trails, a campfire area, a beach and
playground. Guests also have access to certain of the luxury amenities at the
Big Cedar Lodge, including the Jack Nicklaus Signature Top of the Rock Par Three
Golf Course, a marina, horseback riding, tennis courts and a spa.
Pennsylvania
The Suites at Hershey-- Hershey, Pennsylvania. In May 2004, we acquired The
Suites at Hershey Resort (f/k/a The Vacation Club and Resort of Hershey), an
existing vacation ownership resort. The acquisition included approximately 700
unsold VOIs in the existing buildings and land that can accommodate the
construction of 54 additional vacation residences. This 3.2-acre resort is
located near HersheyPark(R) and Hershey's(R) Chocolate World. Amenities include
an outdoor swimming pool, hot tub, playground, a picnic area with barbeque
grills, a game room, fitness center and indoor basketball courts.
South Carolina
The Lodge Alley Inn-- Charleston, South Carolina. Located in Charleston's
historic district, the Lodge Alley Inn includes one and two-bedroom suites, many
furnished with an equipped kitchen, a living room with fireplace, a dining room,
a whirlpool bath, pine wood floors and 18th century-style furniture
reproductions. The resort, which features the on-site High Cotton restaurant, is
within walking distance of many of Charleston's historical sites, open-air
markets and art galleries.
Harbour Lights-- Myrtle Beach, South Carolina. Harbour Lights is located in the
Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater Row,
shopping, golf courses and restaurants. The resort's activities center overlooks
the Intracoastal Waterway.
8
Shore Crest Vacation Villas-- North Myrtle Beach, South Carolina. Shore Crest
Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach, a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Tennessee
MountainLoft-- Gatlinburg, Tennessee. The MountainLoft Resort in Gatlinburg,
Tennessee, is located near the Great Smoky Mountains National Park and is
minutes from the family attractions of Pigeon Forge, Tennessee. Units are
located in individual chalets or mid-rise villa buildings. Each unit is fully
furnished with a whirlpool bath and private balconies, and certain units include
gas fireplaces.
Laurel Crest-- Pigeon Forge, Tennessee. Laurel Crest is located in proximity to
the Great Smoky Mountains National Park and the Dollywood theme park. In
addition, visitors to Pigeon Forge can enjoy over 200 factory outlet stores and
music shows featuring renowned country music stars as well as partake in a
variety of outdoor activities, such as horseback riding, trout fishing, boating,
golfing and white water rafting.
Virginia
Shenandoah Crossing-- Gordonsville, Virginia. Shenandoah Crossing features an
18-hole golf course (which is owned and operated by an unaffiliated third
party), indoor and outdoor swimming pools, tennis courts, horseback riding
trails and a lake for fishing and boating.
Wisconsin
Christmas Mountain Village-- Wisconsin Dells, Wisconsin. Christmas Mountain
Village offers a 27-hole golf course and seven ski trails served by two chair
lifts. Other on-site amenities include horseback riding, tennis courts, a
five-acre lake with paddleboats and rowboats and four outdoor swimming pools.
Christmas Mountain Village attracts customers primarily from the greater Chicago
area and other locations within an eight to ten hour drive of Wisconsin Dells.
Aruba
La Cabana Beach Resort & Racquet Club-- Aruba. Bluegreen Properties N.V.
acquired the unsold VOI inventory of La Cabana (approximately 8,000 VOIs) in
December 1997 and additional VOIs from time to time thereafter. Established in
1989, La Cabana is a 449-suite ocean front resortthat offers one, two and
three-bedroom suites, garden suites and penthouse accommodations. On-site
amenities includeracquetball, squash, a casino, two pools and private beach
cabanas, none of which are owned or managed by us.
The following table describes the relative size, stage of development and amount
of remaining inventory at each of our owned resorts. Although all inventory is
sold as VOIs, we disclose the size and inventory information in terms of number
of vacation homes for ease of comparability between our resorts and those of
other companies in the industry. "Vacation homes" are individual lodging units
(e.g., condominium-style apartments, town homes, cabins, etc.).
9
The Orlando's Casa Del Grande Villas
Hammocks Sunshine Mar Beach at World Golf
Resort At Marathon The Fountains Resort Resort Village
------ ----------- ------------- --------- ---------- --------------
Marathon, Orlando, Orlando, Ormond St. Augustine,
Location FL FL FL Beach, FL FL
----------- ------------- --------- ---------- --------------
Year acquired (1) 2003 2003 1997 2003 2003
Number of vacation homes
completed 58 216 90 43 102
Number of vacation homes
under construction -- 156 -- -- --
Number of future vacation
homes (2) -- 350 -- -- 125
Total current and future
vacation homes 58 722 90 43 227
Percentage of total current
and future vacation homes
sold (3) 42% 20% 95% 88% 40%
Estimated remaining
life-of-project sales (in
millions) (4) $36.0 $608.5 $4.3 $3.3 $104.3
The Falls Big
Solara Mountain Run Village CedarWilder The Suites at
Resort Surfside Resort at Boyne Resort ness Club Hershey
------ --------------- ------------ --------- ----------- -------------
Surfside, Boyne Falls, Branson, Ridgedale, Hershey,
Location FL MI MO MO PA
--------------- ------------ --------- ----------- -------------
Year acquired (1) 2001 2002 1997 2000 2004
Number of vacation homes
completed 58 56 123 142 24
Number of vacation homes
under construction -- 48 12 64 54
Number of future vacation
homes (2) -- -- 111 106 --
Total current and future
vacation homes 58 104 246 312 78
Percentage of total current
and future vacation homes
sold (3) 88% 42% 44% 27% 14%
Estimated remaining
life-of-project sales (in
millions) (4) $7.1 $25.7 $100.6 $215.7 $42.0
10
The Lodge Harbour Shore Crest
Resort Alley Inn Lights Vacation Villas MountainLoft Laurel Crest
------ ----------- --------- --------------- ------------ ------------
Charleston, Myrtle North Myrtle Gatlinburg, Pigeon
Location SC Beach, SC Beach, SC TN Forge, TN
----------- --------- --------------- ------------ ------------
Year acquired (1) 1998 1997 1996 1994 1995
Number of vacation homes
completed 90 228 240 164 152
Number of vacation homes
under construction -- -- -- -- --
Number of future vacation
homes (2) -- 36 -- 25 50
Total current and future
vacation homes 90 264 240 189 202
Percentage of total current
and future vacation homes
sold (3) 97% 78% 96% 81% 66%
Estimated remaining
life-of-project sales (in
millions) (4) $2.4 $39.8 $8.5 $40.1 $57.5
Christmas La Cabana
Shenandoah Mountain Beach and
Resort Crossing Village Racquet Club
------ ------------- --------- ------------
Gordonsville, Wisconsin Oranjestad,
Location VA Dells, WI Aruba
------------- --------- ------------
Year acquired (1) 1997 1997 1997
Number of vacation homes
completed 162 309 449
Number of vacation homes
under construction -- -- --
Number of future vacation
homes (2) 100 130 --
Total current and future
vacation homes 262 439 449
Percentage of total current
and future vacation homes
sold (3) 59% 65% 91%
Estimated remaining
life-of-project sales (in
millions) (4) $91.3 $172.2 $28.0
(1) Year that we first acquired the land to develop each resort or the year we
first acquired existing VOIs at each resort, as applicable.
(2) Number of vacation homes that can be developed at each resort in the
future. We cannot provide any assurance that we will have the resources, or
will decide to commence or complete the development of any of these future
vacation homes or that the resulting VOIs will be sold at favorable prices.
(3) This is the portion of each resort that has been sold through December 31,
2004, including sales made by prior owners of the resorts, if applicable.
The unsold portion includes vacation homes that are either completed, under
construction or subject to future development.
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(4) Estimated remaining life-of-project sales as of December 31, 2004. This
table excludes VOI inventory that we own at several non-owned resorts
("Miscellaneous Inventory"). The aggregate estimated remaining
life-of-project sales for our Miscellaneous Inventory as of December 31,
2004 was $6.0 million or less than 1% of Bluegreen Resorts' estimated
remaining life-of-project sales.
The table also excludes planned VOI inventory to be developed on two
parcels of land in Eastern Tennessee (the "Future Tennessee Inventory") and
one parcel in Big Sky, Montana (the "Future Montana Inventory"), all of
which was acquired in 2004. The aggregate estimated life-of-project sales
for the Future Tennessee Inventory and the Future Montana Inventory as of
December 31, 2004 was $580.2 million and $85.9 million, respectively.
We believe that each of our resorts is adequately covered by property and
casualty insurance, in the case of our completed resorts, or builder's risk
insurance, in the case of resorts that are under construction. In addition, we,
or general contractors hired by us, purchase performance bonds if required by
the local jurisdictions in which we develop our resorts.
Bluegreen Communities
Described below are the communities with the most significant estimated
remaining life-of-project sales marketed by Bluegreen Communities as of December
31, 2004.
Georgia
Traditions of Braselton-- Braselton, Georgia. In March 2003, we acquired 1,142
acres of land in Braselton, Georgia for $12.3 million. This property is a golf
course community offering an 18-hole golf course and other amenities, such as a
clubhouse, swimming pool, tennis courts, nature trails and a children's
recreation area. The golf course and clubhouse will be owned by us and operated
on a daily-fee basis. General improvements relative to the homesites at
Traditions of Braselton being performed by us include, in most cases, water,
sewer, electric, telephone and cable television utilities as well as selective
homesite clearing. We began selling homesites at Traditions of Braselton in
April 2003.
Sanctuary Cove at St. Andrew's Sound-- Waverly, Georgia. In November 2003, we
acquired 564 acres of land near St. Simons Island in Brunswick County, Georgia
for $11.3 million. Amenities at this golf community will include an 18-hole Fred
Couples Signature Golf Course to be designed by Love Golf Design, clubhouse and
swimming and tennis facilities. The golf course and clubhouse will be owned by
us and operated on a daily-fee basis. Sanctuary Cove adjoins approximately 1,000
acres of preserved saltwater marshes and coastal wetlands. General improvements
relative to the homesites at Sanctuary Cove being performed by us include, in
most cases, water, sewer, electric, telephone and cable television utilities as
well as selective homesite clearing. We began selling homesites at Sanctuary
Cove in December 2003.
North Carolina
Catawba Falls Preserve-- Black Mountain, North Carolina. We acquired
approximately 785 acres located in Black Mountain, North Carolina (approximately
18 miles from Asheville, North Carolina) for $2.6 million in June 2002. The
project is expected to include horse and hiking trails, a swimming hole, picnic
area, playground area and trail access to Pisgah National Forest and Catawba
Falls. We anticipate that the project will consist of a total of approximately
238 homesites, which range in size from approximately 1 acre to 16 acres.
General improvements on the homesites at Catawba Falls Preserve being performed
by us include, in most cases, selective homesite clearing. We began selling
homesites at Catawba Falls Preserve in January 2003.
Chapel Ridge--- Chatham County, North Carolina. In July 2004, we acquired
approximately 800 acres of land centrally located between Chapel Hill/Durham,
Cary/Apex, Sanford/Siler City and the Triad areas in Chatham County, North
Carolina for $5.5 million. Amenities at this golf community will include an
18-hole Fred Couples Signature Golf Course, a clubhouse and conservation areas.
The golf course and
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clubhouse will be owned by us and operated on a daily-fee basis. General
improvements relative to the homesites at Chapel Ridge being performed by us
include in most cases, water, sewer, electric, telephone and cable television
utilities as well as selective homesite clearing. We began selling homesites at
Chapel Ridge in July 2004.
Texas
Mystic Shores-- Canyon Lake, Texas. We acquired 6,966 acres located 25 miles
north of San Antonio, Texas in October 1999 for $14.9 million. On May 5, 2000,
we purchased an additional 435 acres for $2.7 million. The project includes
approximately 2,400 homesites, ranging in size from one to twenty acres. Mystic
Shores is situated on Canyon Lake and is in close proximity to the Guadeloupe
River, which is well known for fishing, rafting and water sports. The property
also features a junior Olympic swimming pool, bathhouse, open-air pavilion
andpicnic area. General improvements on homesites at Mystic Shores performed by
us include, in most cases, water and selective homesite clearing, while some
sections of the project also include electric and telephone utilities. We began
selling homesites at Mystic Shores in March 2000.
Lake Ridge at Joe Pool Lake-- Cedar Hill, Texas. We acquired 1,400 acres located
approximately 19 miles outside of Dallas, Texas and 30 miles outside of Fort
Worth, Texas in April 1994 for $6.1 million. In fiscal 2000, we acquired an
additional 1,766 acres for $14.9 million. The property is located at Joe Pool
Lake and is atop the highest elevation within 100 miles. The lake has in excess
of 7,500 acres of water for boating, fishing, windsurfing and other water
activities. Adjacent amenities, not owned by us, include a 154-acre park with
baseball, football and soccer fields, camping areas and an 18-hole golf course.
The existing acreage will yield approximately 2,530 homesites, with most
homesites ranging in size from 1/4 to five acres. General improvements on the
homesites at Lake Ridge performed by us include, in most cases, water, sewer,
electric, telephone and cable television utilities as well as selective homesite
clearing. We began selling homesites at this project in April 1994.
SugarTree on the Brazos-- Parker County, Texas. In November 2004, we acquired
approximately 429 acres of land located near Fort Worth, Texas in Parker County,
Texas for $4.3 million. SugarTree is surrounded by a championship golf course
and is nestled along the shores of the Brazos River. Amenities at this community
will include a swimming center and clubhouse. General improvements on the
homesites at SugarTree being performed by us include, in most cases, water and
sewer utilities and selective homesite clearing. We began sales of homesites at
SugarTree in March 2005.
Mountain Springs Ranch-- Smithson Valley, Texas. In April 2003, we acquired
1,125 acres located approximately 15 miles north of San Antonio, Texas for $4.8
million. This master planned community offers wooded and acreage homesites with
views of the scenic Texas Hill Country. General improvements to the homesites in
Mountain Springs Ranch performed by us include, in most cases, water, selective
homesite clearing, electric and telephone. We began selling homesites at this
project in December 2003.
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The following table shows certain information about the significant Bluegreen
Communities projects listed above:
Sanctuary
Cove at St.
Traditions of Andrews Catawba Chapel
Community Braselton Sound Falls Preserve Ridge
--------- ------------- ----------- -------------- ----------
Braselton, Waverly, Black Chatham
Location GA GA Mountain, NC County, NC
------------- ----------- -------------- ----------
Year acquired (1) 2003 2003 2002 2004
Total acreage 1,142 500 785 800
Number of homesites
anticipated (2) 1,550 700 238 698
Percentage of anticipated
homesites sold (3) 66% 43% 58% 56%
Estimated remaining
life-of-project sales (in
millions) (4) $ 27.6 $50.6 $13.2 $49.9
Lake Ridge Mountain
Mystic at Joe Pool SugarTree on Springs
Community Shores Lake the Brazos Ranch
--------- ------------ ----------- -------------- ----------
Canyon Lake, Cedar Hill, Parker County, Smithson
Location TX TX TX Valley, TX
------------ ----------- -------------- ----------
Year acquired (1) 1999 1994 2004 2003
Total acreage 7,401 3,166 429 1,125
Number of homesites
anticipated (2) 2,400 2,530 463 625
Percentage of anticipated
homesites sold (3) 54% 72% 0% 20%
Estimated remaining
life-of-project sales (in
millions) (4) $ 66.7 $ 63.3 $21.6 $ 25.8
(1) Year that we first acquired the land to commence development of each
community. Certain communities were acquired in phases.
(2) Number of homesites anticipated within each community. We cannot provide
any assurance that we will have the resources, or will decide, to develop
such homesites at each community, that required platting and other
approvals will be obtained to develop such homesites or that such homesites
will be sold at favorable prices.
(3) This is the percentage of anticipated homesites sold through December 31,
2004.
(4) Estimated remaining life-of-project sales as of December 31, 2004. This
table excludes certain projects currently being marketed by Bluegreen
Communities with an aggregate estimated remaining life-of-project sales as
of December 31, 2004 of $43.3 million, or approximately 12% of Bluegreen
Communities total estimated remaining life-of-project sales.
We believe that each of our Bluegreen Communities projects is adequately covered
by builder's risk insurance during the construction period or property and
casualty insurance for homesites that are held in our inventory prior to sale to
consumers, as well as our owned golf course amenities. Once a homesite is sold,
the consumer assumes the risk of loss on such homesite. In addition, the
applicable property owners' association bears the risk of loss on any common
amenities at each project.
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We also purchase performance bonds on most of our projects, to provide assurance
to homesite buyers that construction of the project will be completed. We
believe that our ability to obtain such performance bonds assists us in our
pre-construction sales efforts.
Acquisition of Bluegreen Resorts and Bluegreen Communities Inventory
Bluegreen Resorts
We intend to continue to pursue growth by expanding or supplementing our
existing resorts operations through acquisitions in destinations that we believe
will complement such operations. We may consider acquiring additional VOI
inventory, operating companies, management contracts, VOI mortgage portfolios
and properties or other vacation ownership-related assets that may be integrated
into our operations. We currently intend to pursue the acquisition of real
estate or interests in real estate for Bluegreen Resorts in the areas in which
Bluegreen Resorts currently operates, with a possible expansion into the western
United States, although we may pursue acquisitions in other areas. No assurances
can be given that we will be successful in our acquisition strategy.
We obtain information with respect to resort acquisition opportunities through
interaction by our management team with resort operators, lodging companies and
financial institutions with which we have established business relationships. We
evaluate the following factors, among others, to determine the viability of a
potential new vacation ownership resort:
o anticipated supply/demand ratio for VOIs in the relevant market;
o the market's potential growth as a vacation destination;
o competitive accommodation alternatives in the market;
o the uniqueness of location and demand for the location by existing
Bluegreen Vacation Club members; and
o barriers to entry that would limit competition.
Bluegreen Communities
Bluegreen Communities seeks to acquire property that:
o is located near a major population center but outside the perimeter of
intense subdivision development or in popular retirement areas;
o is suitable for subdivision;
o has attractive topographical features;
o for certain projects, could accommodate a golf course and related
amenities; and
o we believe will result in an acceptable profit margin and cash flow to
us based upon anticipated retail value.
Properties are generally subdivided for sale into homesites typically ranging in
size from 1/4 acre to 5 acres.
In connection with our review of potential Bluegreen Communities inventory, we
consider economic conditions in the area in which the parcel is located,
environmental sensitivity, availability of financing, whether the property is
consistent with our general policies and the anticipated ability of that
property to
15
produce acceptable profit margins and cash flow. As part of our long-term
strategy for Bluegreen Communities, in recent years we have focused on fewer,
more capital-intensive projects. We intend to continue to focus Bluegreen
Communities on those regions where we believe the market for our products is
strongest, such as the southeast and southwest regions of the United States and
to replenish and increase our residential land inventory in such regions as
existing projects are sold-out.
Bluegreen Communities has established contacts with numerous land owners and
real estate brokers in many of our market areas, and because of such contacts
and our long history of acquiring properties, we believe that we are generally
in a favorable position to learn of available properties, sometimes before the
availability of such properties is publicly known. In order to ensure such
access, we attempt to develop and maintain strong relationships with major
property owners and brokers in our markets.
Prior to acquiring property in new areas, we will generally conduct test
marketing for a prospective project to determine whether sufficient customer
demand exists for the project.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by limiting the amount of the downpayment upon signing a purchase
agreement, we are typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy helps Bluegreen
Communities to reduce:
o the time during which it actually owns specific properties between
initial acquisition and the ultimate sale;
o the market risk associated with holding such properties; and
o the risk of acquiring properties that may not be suitable for sale.
Marketing and Sale of Inventory
Bluegreen Resorts
Bluegreen Resorts uses a variety of methods to attract prospective purchasers of
VOIs, including selling discount mini-vacations through telemarketing methods or
at Bass Pro Shop locations (see further discussion of our relationship with Bass
Pro Shops, below), placing marketing kiosks in retail locations and acquiring
the right to market to prospective purchasers from third-party vendors. In
addition to attracting new customers, we seek additional sales to existing VOI
owners, such sales being called "upgrades", and referrals of prospective
purchasers from existing VOI owners and others. Upgrades and referral sales
require relatively less marketing expense and typically result in relative
higher operating margins than sales through other marketing channels. Bluegreen
Resorts sometimes provides hotel accommodations to prospective purchasers at
reduced rates in exchange for their touring one of our resorts. To support our
marketing and sales efforts, we have developed and work to continue to enhance
our customer relationship management methods, techniques and computer software
tools to track our VOI marketing and sales programs. We believe that as
Bluegreen Resorts' operations grow, this database will become an increasingly
significant asset, enabling us to focus our marketing and sales efforts to take
advantage of, among other things, less costly marketing and referral
opportunities.
In recent years, we have been focusing on increasing Bluegreen Resorts use of
"permission" marketing and branding programs. "Permission" marketing methods
involve obtaining the prospective purchasers' permission, directly or
indirectly, to contact them in the future regarding an offer to purchase a
product or service. Branding involves forming alliances with third-party
entities that possess what we believe to be a nationally or regionally known
brand name, a good reputation and a customer base with similar demographic
characteristics to our target market.
In June 2000, we entered into an exclusive marketing agreement with Bass Pro,
Inc. and Big Cedar, L.L.C., a Bass Pro affiliate. Under the terms of the
ten-year agreement,we have the right to market our VOIs at
16
each of Bass Pro's retail locations, in Bass Pro's catalogs and on Bass Pro's
website. We also have access to Bass Pro's customer mailing lists. We believe
that the branding aspects of this alliance are consistent with our overall
marketing strategy for Bluegreen Resorts. In exchange for these services, we
agreed to pay Bass Pro a commission of either 7.0% or 3.5%, depending on certain
circumstances, on each sale of a VOI that is made through one of the Bass Pro
marketing channels described above. The amount of the commission is dependent on
the level of additional marketing efforts required by us to convert the prospect
into a sale and a defined time frame for such marketing efforts. There is no
commission paid to Bass Pro on sales made by the Big Cedar Wilderness Club sales
office, as this sales office is part of a joint venture between Big Cedar,
L.L.C. and us. We currently market discounted three-day, two-night mini-vacation
packages at most of Bass Pro's national retail locations. Most of these
mini-vacation packages require the buyer to participate in a sales presentation
at either a Bluegreen Vacation Club sales office or the Big Cedar Wilderness
Club sales office, which is one of our "permission" marketing techniques. We
also have an exclusive VOI marketing presence on Bass Pro's website, which is
linked to our website. We believe that this arrangement results in effective and
cost-efficient marketing for Bluegreen Resorts.
On June 16, 2000, we prepaid $9.0 million to Bass Pro in connection with the
above marketing agreement. The prepayment is amortized from commissions earned
by Bass Pro and member distributions otherwise payable to Big Cedar, L.L.C. from
the earnings of the joint venture. No additional commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, L.L.C.,
respectively, until the prepayment has been fully utilized. The marketing
agreement expires on the earlier of: (i) June 16, 2010 or (ii) such time as 90%
of the joint venture's proposed VOIs have been sold and conveyed. As of December
31, 2004, the unamortized balance of the prepayment to Bass Pro was
approximately $2.9 million.
On October 2, 2002, through our wholly-owned subsidiary, Great Vacation
Destinations, Inc. ("GVD"), we acquired substantially all of the assets and
assumed certain liabilities of TakeMeOnVacation, LLC and certain of its
affiliates ("TMOV"). Utilizing the assets acquired from TMOV, GVD generates
"permission" marketing sales leads for VOI sales utilizing various marketing
strategies. Through the application of a proprietary, computer software system,
these leads are then contacted and given the opportunity to purchase discount
mini-vacation packages. These packages sometimes combine hotel stays, cruises
and gift premiums. Buyers of these mini-vacation packages are then usually
required to participate in a VOI sales presentation. GVD seeks to generate sales
prospects for our VOI sales business and for sales prospects that will be sold
to other VOI developers. We believe that GVD's "permission" marketing lead
generation programs and the potential benefits of tracking and controlling the
subsequent marketing efforts are consistent with Bluegreen Resorts' overall
marketing strategy.
Also in October 2002, in connection with the acquisition of land and completed
VOIs from Boyne USA Resorts ("Boyne"), we obtained the right to market the
Bluegreen Vacation Club at two of Boyne's resort properties: Boyne Mountain and
Boyne Highlands. In addition, Bluegreen Resorts entered into an exclusive
marketing arrangement with an affiliate of Boyne, Boyne Country Sports ("BCS").
BCS owns and operates six ski, snowboard and golf equipment retail stores
throughout Michigan. Bluegreen Resorts markets our vacation club through a
variety of programs directed to BCS's customer base, including lead generation
operations in four of BCS's locations and tour generation operations in two of
BCS's locations. We believe that these arrangements will allow Bluegreen Resorts
to benefit from marketing to customers that it believes are within our target
demographic through an affiliation with a known regional brand.
VOI resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are our
employees. We sponsor ongoing training for our personnel. During the year ended
December 31, 2004, total selling and marketing expense for Bluegreen Resorts was
$165.2 million or 53% of the division's $310.6 million in sales.
We require our sales staff to provide each VOI customer with a written
disclosure statement regarding the VOI to be sold prior to the time the customer
signs a purchase agreement. This disclosure statement explains relevant
information regarding VOI ownership at the resort and must be signed by every
purchaser. After deciding to purchase a VOI, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers are entitled to cancel purchase agreements within required
legal rescission periods after execution in accordance with statutory
17
requirements. Substantially all VOI purchasers visit one of our resorts or one
of our off-site sales offices prior to purchasing.
In addition to sales offices located at our resorts, we also operate four
off-site sales offices serving the Indianapolis, Indiana; Detroit, Michigan;
Minneapolis, Minnesota; and Dallas, Texas markets. We are also in the process of
opening a new off-site sales office in King of Prussia, Pennsylvania, serving
the greater Philadelphia market. Our off-site sales offices market and sell VOIs
in the Bluegreen Vacation Club, and allow us to bring our products to markets
with favorable demographics and low competition for prospective buyers. We
continue to evaluate our ongoing utilization of off-site sales operations and
may elect to open new locations or close existing locations in the future.
Bluegreen Communities
In general, as soon as practicable after agreeing to acquire a property and
during the time period that improvements are being completed, we establish
selling prices for the individual homesites. We take into account such matters
as regional economic conditions, quality as a building site, scenic views, road
frontage, golf course views (if applicable) and natural features such as lakes,
mountains, streams, ponds and wooded areas. We also consider recent sales of
comparable parcels in the area. Once selling prices are established, we commence
our marketing efforts.
The marketing method most widely used by Bluegreen Communities is advertising in
local newspapers and in major newspapers in metropolitan areas located within a
one to three hour drive from the property. In addition, we use our customer
relationship management system, which we believe enables us to identify
prospects who are most likely to be interested in a particular project.
Bluegreen Communities also conducts direct mail campaigns to market property
through the use of brochures describing available homesites, as well as
television, billboard, Internet and radio advertising. Through our sales and
marketing programs, we believe that we have been able to achieve a high
conversion ratio of sales to prospects receiving on-site sales presentations. A
sales representative who is knowledgeable about the property answers inquiries
generated by our marketing efforts, discusses the property with the prospective
purchaser, attempts to ascertain the purchaser's needs and arranges an
appointment for the purchaser to visit the property. Substantially all
prospective purchasers inspect a property before purchasing.
The success of our marketing efforts depends heavily on the knowledge and
experience of our sales personnel. We require that, prior to initiating the
marketing effort for a property, all sales representatives walk the property and
become knowledgeable about each parcel and applicable zoning, subdivision and
building code requirements. Continued training programs are conducted, including
training with regional office sales managers, weekly sales meetings and frequent
site visits by our executive officers. We enhance our sales and marketing
organization through the Bluegreen Institute, a mandatory training program that
is designed to instill our marketing and customer service philosophy in middle
and lower-level management. Additionally, the sales staff is evaluated against
performance standards established by our executive officers. Substantially all
of a sales representative's compensation is commission-based.
We require our sales staff to provide each prospective homesite purchaser with a
written disclosure statement regarding the property to be sold prior to the time
such purchaser signs a purchase agreement. This information statement, which is
either in the form of a U.S. Department of Housing and Urban Development ("HUD")
lot information statement, where required, or a "Vital Information Statement"
that we generate states relevant information with respect to, and risks
associated with, the property and must be signed by each purchaser.
After deciding to purchase a homesite, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers may cancel purchase agreements within specified periods after
execution in accordance with statutory requirements. The closing of a homesite
sale usually occurs two to eight weeks after payment of the deposit. Upon
closing of a homesite sale, we typically deliver a warranty deed and a recent
survey of the property to the purchaser. Title insurance is available at the
purchaser's expense.
18
Customer Financing
General
Approximately 99% of our VOI customers utilized our financing during the year
ended December 31, 2004. Sales of VOIs accounted for 62% of consolidated sales
during the year ended December 31, 2004. In recent years, the percentage of
Bluegreen Communities customers who utilized our financing has been less than 2%
of all homesite purchasers due to, among other things, an increased willingness
on the part of banks to extend direct lot financing to purchasers.
We offer financing of up to 90% of the purchase price of our VOIs. The typical
financing extended by us on a VOI during the year ended December 31, 2004,
provided for a term of ten years and a fixed interest rate. In connection with
our VOI sales within our vacation club system, we deliver the deed on behalf of
the purchasers to the trustee of our vacation club and secure repayment of the
purchaser's obligation by obtaining a mortgage on the purchaser's VOI.
The weighted-average interest rate on our notes receivable by division was as
follows:
As of
---------------------------
December 31, December 31,
Division 2003 2004
------------------------ ------------ ------------
Bluegreen Resorts....... 14.9% 14.7%
Bluegreen Communities... 9.1% 9.2%
Consolidated............ 14.3% 14.2%
See "Sale of Receivables/Pledging of Receivables," below, for information
regarding our receivable financing activities.
Loan Underwriting
Bluegreen Resorts
Consistent with accepted industry practice, our VOI financing is not subject to
any significant loan underwriting criteria. Currently, customer financing on
sales of VOIs typically requires (i) receipt of a minimum downpayment of 10% of
the purchase price, (ii) a note and mortgage and (iii) other closing documents
between the purchaser and ourselves. We encourage purchasers to make higher
downpayments by offering a lower interest rate. In addition, purchasers who do
not elect to participate in our pre-authorized payment plan are charged interest
at a rate which is 1% greater than the otherwise prevailing rate. As of December
31, 2004, approximately 77% of our VOI notes receivable serviced were on our
pre-authorized payment plan.
Bluegreen Communities
At Bluegreen Communities, we have established loan underwriting criteria and
procedures designed to reduce credit losses. The loan underwriting process
undertaken by our credit department may includereviewing the applicant's credit
history, verifying employment and income as well as calculating certain
debt-to-income ratios. The primary focus of our underwriting review is to
determine the applicant's ability to repay the loan in accordance with our
terms.
Collection Policies
Bluegreen Resorts
Collection efforts and delinquency information concerning Bluegreen Resorts'
notes receivable are managed at our corporate headquarters. A staff of
experienced collectors, assisted by a mortgage collection computer system,
handles servicing of the division's receivables. We generally make collection
efforts by
19
mail and telephone. Our vacation ownership receivables originated prior to
fiscal 1999 were documented by contracts for deed, which allows us to retain
title to the VOI until the obligation is paid in full, thereby eliminating the
need to foreclose in the event of a default. If a contract for deed becomes
delinquent for sixteen days, telephone contact commences with the customer.
After an account is 30 days delinquent, we typically send a letter advising the
customer that such customer has 30 days within which to bring the account
current. Under the terms of the contract for deed, the borrower is in default
when the account becomes 60 days delinquent. At this time, we send a default
letter advising the customer that he or she has 30 days to bring the account
current or lose his or her contractual interest in the VOI. When the account
becomes 90 days delinquent, we forward a final letter informing the customer
that the contract for deed has been terminated. We can then resell the VOI to a
new purchaser.
In fiscal 1999, in connection with the implementation of the Bluegreen Vacation
Club, we converted to a note and mortgage arrangement. In addition to telephone
contact commencing at sixteen days past due, a 30-day collection letter is sent.
At sixty days delinquent, we send a lockout letter to the customer advising them
that they cannot make any future reservations for lodging at a Resort. At ninety
days past due, we stop the accrual of interest on the note receivable and mail a
Notice of Intent to Cancel Membership, which informs the customer that unless
the delinquency is cured within 30 days, we will terminate the customer's VOI
ownership. At this point the account is reviewed by the Collection Manager to
determine if, in certain limited circumstances, additional correspondence should
be sent offering repayment options. At approximately 120 days delinquent, we
send a Termination Letter, return receipt requested. The VOI is placed back into
our inventory generally by the calendar month following the return of the
delivery receipt. We can then resell the VOI to a new purchaser.
Bluegreen Communities
Collection efforts and delinquency information concerning Bluegreen Communities'
notes receivable are also managed at our corporate headquarters. A staff of
experienced collectors handles servicing of the division's receivables. We
generally make collection efforts by mail and telephone. Collection efforts
begin when an account is sixteen days past due, at which time we contact the
customer by telephone and attempt to determine the reason for the delinquency
and to bring the account current. The determination of how to handle a
delinquent loan is based upon many factors, including the customer's payment
history and the reason for the current inability to make timely payments. If no
agreement is reached or the customer does not abide by the agreement, collection
efforts continue until the account is either brought current or legal action is
commenced. If not accelerated sooner, we typically declare the loan in default
when the loan becomes 60 days delinquent. When the loan is 90 days past due, we
stop the accrual of interest (unless the loan is deemed to be an in-substance
foreclosure loan, in which case all accrued interest is reversed since our means
of recovery is determined through the resale of the underlying collateral and
not through collection on the note) and the Collection Manager determines the
action to be taken.
Loan Loss Reserves
The allowance for loan losses as a percentage of our outstanding notes
receivable was approximately 8% at both December 31, 2003 and 2004. We determine
the adequacy of our reserve for loan losses and review it on a regular basis
considering, among other factors, historical frequency of default, loss
experience, static pool analyses, estimated value of the underlying collateral,
present and expected economic conditions as well as other factors. During the
nine months ended December 31, 2002, the year ended December 31, 2003 and the
year ended December 31, 2004, the default rates on Bluegreen Resorts' and
Bluegreen Communities' receivables owned or serviced by us were as follows:
Nine Months
Ended Year Ended Year Ended
December 31, December 31, December 31,
Division 2002 2003 2004
------------------------ ------------ ------------ ------------
Bluegreen Resorts....... 4.4% 7.9% 8.5%
Bluegreen Communities... 2.2% 2.0% 1.9%
20
The default rate for Bluegreen Resorts was lower during the nine months ended
December 31, 2002 as compared to the years ended December 31, 2003 and 2004, as
the months of January through March of each year historically have had higher
seasonally adjusted default rates than other months during the year.
Sales of Receivables/Pledging of Receivables
During the nine months ended December 31, 2002 and the year sended December 31,
2003 and 2004, all of our notes receivable sold and the majority of our notes
receivable pledged consisted of notes receivable generated by Bluegreen Resorts.
Since 1986, we have sold or pledged a significant amount of our receivables,
generally retaining the right and obligation to service such receivables. In the
case of Bluegreen Communities' receivables pledged to a financial institution,
we generally must maintain a debt to eligible collateral rate (based on the
outstanding principal balance of the pledged loans) of 90%. We are obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate. Since fiscal 1999, we have
maintained various vacation ownership receivables purchase facilities with
financial institutions. Our ability to sell and/or borrow against our notes
receivable from VOI buyers is a critical factor in our continued liquidity. The
vacation ownership business involves making sales of a product pursuant to which
a financed buyer is only required to pay a minimum of 10% of the purchase price
in cash up front, yet selling, marketing and administrative expenses are
primarily cash expenses, which, in our case for the year ended December 31,
2004, approximated 58% of sales. Accordingly, having facilities for the sale and
hypothecation of these vacation ownership receivables is a critical factor to
our meeting our short- and long-term cash needs.
The vacation ownership receivables purchase facilities that we have historically
maintained have typically utilized an owner's trust structure, pursuant to which
we sell receivables to one of our wholly-owned, special purpose finance
subsidiaries. These subsidiaries then sell the receivables to an owners' trust
(qualified special purpose entity) without recourse to us or our subsidiaries
except for breaches of certain representations and warranties at the time of
sale. We historically have not entered into any guarantees in connection with
our vacation ownership receivables purchase facilities. These facilities usually
have detailed requirements with respect to the eligibility of receivables for
purchase; and, fundings under these facilities are typically subject to certain
conditions precedent. Under such purchase facilities, a variable purchase price
of a portion of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of the
purchase price is deferred until such time as the purchaser of our vacation
ownership receivables has received a specified return and all servicing,
custodial, agent and similar fees and expenses have been paid. We have
historically acted as servicer of the vacation ownership receivables we have
sold under these purchase facilities for a fee.
Our vacation ownership receivables purchase facilities typically include various
conditions to purchase, covenants, trigger events and other provisions customary
for these types of transactions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Vacation Ownership Receivables Purchase Facilities - Off-Balance
Sheet Arrangements" for information about our current VOI receivables purchase
facilities.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and remitting
such funds to the owners, lenders or investors in such receivables, accounting
for principal and interest on such receivables, making advances when required,
contacting delinquent borrowers, foreclosing, or terminating a contract for deed
or membership in our vacation club in the event that defaults are not remedied,
and performing other administrative duties. Our obligation to service the
receivables and our right to collect fees for a given pool of receivables are
set forth in a servicing agreement. We have the obligation and right to service
all of the receivables we originate and have retained the obligation and right
with respect to the receivables we have sold under any of our vacation ownership
receivable purchase facilities to date, although in certain circumstances the
purchasers may elect to appoint a new servicer. We typically receive an annual
servicing
21
fee ranging from approximately 1.5% to 2.0% of the principal balance of the
loans serviced on behalf of others. During the nine months ended December 31,
2002 and the years ended December 31, 2003 and 2004, we recognized aggregate
servicing fee income of $2.5 million, $3.8 million and $4.4 million,
respectively.
Regulation
The vacation ownership and real estate industries are subject to extensive and
complex regulation. We are subject to compliance with various federal, state,
local and foreign environmental, zoning, consumer protection and other statutes
and regulations regarding the acquisition, subdivision and sale of real estate
and VOIs and various aspects of our financing operations. On a federal level,
the Federal Trade Commission has taken an active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or unfair
competition in interstate commerce. In addition to the laws applicable to our
customer financing and other operations discussed below, we are or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. We are also subject to various foreign laws with respect to La
Cabana. In addition, there can be no assurance that in the future, VOIs will not
be deemed to be securities subject to regulation as such, which could have a
material adverse effect on us. There is no assurance that the cost of complying
with applicable laws and regulations will not be significant or that we are in
compliance with all applicable laws, including those discussed below. Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
Our sales and marketing of homesites are subject to various consumer protection
laws and to the Interstate Land Sales Full Disclosure Act, which establishes
strict guidelines with respect to the marketing and sale of land in interstate
commerce. HUD has enforcement powers with respect to this statute. In some
instances, we have been exempt from HUD registration requirements because of the
size or number of the subdivided parcels and the limited nature of our
offerings. In those cases where we and our legal counsel determine parcels must
be registered to be sold, we file registration materials disclosing financial
information concerning the property, evidence of title and a description of the
intended manner of offering and advertising such property. We bear the cost of
such registration, which includes legal and filing fees. Many states also have
statutes and regulations governing the sale of real estate. Consequently, we
regularly consult with counsel for assistance in complying with federal, state
and local law. We must obtain the approval of numerous governmental authorities
for our acquisition and marketing activities; and,changes in local circumstances
or applicable laws may necessitate the application for, or the modification of,
existing approvals.
Our vacation ownership resorts are subject to various regulatory requirements
including state and local approvals. The laws of most states require us to file
with a designated state authority a detailed offering statement describing our
business and all material aspects of the project and sale of VOIs. Laws in each
state where we sell VOIs generally grant the purchaser of a VOI the right to
cancel a contract of purchase at any time within a specified rescission period
following the earlier of the date the contract was signed or the date the
purchaser has received the last of the documents required to be provided by us.
Most states have other laws that regulate our activities, including: real estate
licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws;
prize, gift and sweepstakes laws; and labor laws. In addition, certain state and
local laws may impose liability on property developers with respect to
construction defects discovered or repairs made by future owners of such
property. Under these laws, future owners may recover from us amounts in
connection with the repairs made to the developed property. As required by state
laws, we provide our VOI purchasers with a public disclosure statement that
contains, among other items, detailed information about the surrounding
vicinity, the resort and the purchaser's rights and obligations as a VOI owner.
The development of our resorts is subject to various Federal, state and local
laws and regulations, including the Americans with Disabilities Act.
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, the property, as well as related costs of investigation and
property damage. These laws often impose such liability without regard to
whether the owner knew of the presence of such hazardous or toxic substances.
The presence of these substances, or the failure to properly remediate these
substances,
22
may adversely affect the owner's ability to sell or lease a property or to
borrow using the real property as collateral. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when this
material is in poor condition or in the event of construction, demolition,
remodeling or renovation. Other statutes may require the removal of underground
storage tanks. Noncompliance with these and other environmental, health or
safety requirements may result in the need to cease or alter operations at a
property.
Our customer financing activities are also subject to extensive regulation,
which may include, the Truth-in-Lending Act and Regulation Z, the Fair Housing
Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act
and Regulation B, the Electronic Funds Transfer Act and Regulation E, the Home
Mortgage Disclosure Act and Regulation C, Unfair or Deceptive Acts or Practices
and Regulation AA, the Patriot Act, the Right to Financial Privacy Act and the
Gramm-Leach-Bliley Act.
During the year ended December 31, 2004, approximately 13% of our VOI sales were
generated by marketing to prospective purchasers obtained through internal and
affiliated telemarketing efforts. In addition, approximately16% of our VOI sales
during the year ended December 31, 2004, were generated by marketing to
prospective purchasers obtained from third-party VOI prospect vendors, many of
whom use telemarketing operations to generate these prospects. In recent years,
state regulators have increased legislation and enforcement regarding
telemarketing operations, including requiring the adherence to state "do not
call" lists. In addition, the Federal Trade Commission has implemented national
"do not call" legislation. While we continue to be subject to telemarketing
risks and potential liability, we believe that our exposure to adverse impacts
from this heightened telemarketing legislation and enforcement has been and will
continue to be mitigated in some instances by the use of "permission marketing"
techniques, whereby prospective purchasers have directly or indirectly granted
us permission to contact them in the future, and through our exclusive marketing
agreement with Bass Pro. We have implemented procedures which we believe will
help reduce the possibility that individuals who have formally requested to the
applicable federal or state regulators that they be placed on a "do not call"
list are not contacted through one of our in-house or third-party contracted
telemarketing operations, although there can be no assurance that such
procedures will be effective in ensuring regulatory compliance. These measures
have increased and are expected to continue to increase our marketing costs.
Through December 31, 2004, we have not been subject to any material fines or
penalties as a result of our telemarketing operations. However, there is no
assurance that we will be able to efficiently or effectively market to
prospective purchasers through telemarketing operations in the future or that we
will be able to develop alternative sources of prospective purchasers of our VOI
products at acceptable costs.
Competition
Bluegreen Resorts competes with various high profile and well-established
operators. Many of the world's most recognized lodging, hospitality and
entertainment companies develop and sell VOIs in resort properties. Major
companies that now operate or are developing or planning to develop vacation
ownership resorts include Marriott International, Inc., the Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts,
Starwood Hotels and Resorts Worldwide, Inc. and Cendant Corporation. We also
compete with numerous other smaller owners and operators of vacation ownership
resorts. In addition to competing for sales leads and prospects, we compete with
other VOI developers for sales personnel. We believe that each of our vacation
ownership resorts faces the same general competitive conditions. Although, as
noted above, Bluegreen Resorts competes with various high profile and
well-established operators, we believe that we can compete on the basis of our
general reputation; the price, location and quality of our vacation ownership
resorts and the flexibility of our points-based Bluegreen Vacation Club product.
The development and operation of additional vacation ownership resorts by
competitors in our markets could have a material adverse impact on the demand
for our VOIs and our results of operations.
Bluegreen Communities competes with builders, developers and others for the
acquisition of property and with local, regional and national developers,
homebuilders and others with respect to the sale of homesites. Competition may
be generally less intense with respect to our homesite sales in the more rural
markets in which it operates. We believe that each of our Bluegreen Communities
projects faces the same general
23
competitive conditions. We believe that we can compete on the basis of our
reputation and the price, location and quality of the products we offer for
sale, as well as on the basis of our experience in land acquisition, development
and sale.
Our golf courses face competition for business from other operators of daily fee
and, to a lesser extent, private golf courses within the local markets where we
operate. Competition in these markets affects the rates that we charge per round
of golf, the level of maintenance on the golf courses and the types of
additional amenities available to golfers, such as food and beverage operations.
We do not believe that such competitive factors have a material adverse impact
on our results of operations or financial position.
In our customer financing activities, we compete with banks, mortgage companies,
other financial institutions and government agencies offering financing of real
estate. In recent years, we have experienced increased competition with respect
to the financing of Bluegreen Communities sales as evidenced by the low
percentage of homesite sales internally financed since 1995.
Website Access to Exchange Act Reports
We post publicly available reports required to be filed with the SEC ("Exchange
Act Reports") on our website, www.bluegreenonline.com, as soon as reasonably
practicable after filing such reports with the SEC. We also make available on
our website the beneficial ownership reports (Forms 3, 4 and 5) filed by our
officers, directors and other reporting persons under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Our website and the
information contained therein or connected thereto are not incorporated into
this Annual Report on Form 10-K.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The website address for this site is www.sec.gov.
Personnel
As of December 31, 2004, we had 4,076 employees. Of the 4,076 employees, 477
were located at our headquarters in Boca Raton, Florida, and 3,599 in regional
field offices throughout the United States and Aruba (the field personnel
include 368 field employees supporting Bluegreen Communities and 3,231 field
employees supporting Bluegreen Resorts). Only our employees in Aruba are
represented by a collective bargaining unit, and we believe that our relations
with our employees are generally good.
24
Executive Officers
The following table sets forth certain information regarding our executive
officers as of March 11, 2005.
Name Age Position
------------------------- --- -----------------------------------------
George F. Donovan........ 66 President and Chief Executive Officer
John F. Chiste........... 48 Senior Vice President, Chief Financial
Officer and Treasurer
Daniel C. Koscher........ 47 Senior Vice President -- President,
Bluegreen Communities
John M. Maloney, Jr...... 43 Senior Vice President -- President,
Bluegreen Resorts
Sheila B. Beauchesne..... 40 Senior Vice President and Chief
Information Officer
Allan J. Herz............ 45 Senior Vice President, Mortgage
Operations
Douglas O. Kinsey........ 46 Senior Vice President, Acquisitions
and Development
James R. Martin.......... 57 Senior Vice President and General Counsel
and Clerk
Susan J. Milanese........ 45 Senior Vice President and Chief Human
Resources Officer
Anthony M. Puleo......... 37 Senior Vice President and Chief
Accounting Officer
George F. Donovan joined us as a Director in 1991 and was appointed President
and Chief Operating Officer in October 1993. He became Chief Executive Officer
in December 1993. Mr. Donovan has served as an officer of a number of other
recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Mr. Donovan holds a B.S. in Electrical Engineering and is a Registered Resort
Professional.
John F. Chiste joined us in 1997 as Treasurer and Chief Financial Officer. In
1998, Mr. Chiste was also named Senior Vice President. From January 1997 to June
1997, Mr. Chiste was the Chief Financial Officer of Compscript, Inc., an entity
that provides institutional pharmacy services to long-term health care
facilities. From December 1992 to January 1997, he served as the Chief Financial
Officer, Secretary and Treasurer of Computer Integration Corporation, a
publicly-held distribution company that provides information products and
services to corporations nationwide. From 1983 through 1992, Mr. Chiste held
various positions with Ernst & Young LLP, most recently serving as a Senior
Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified Public
Accountant.
Daniel C. Koscher joined us in 1986. During his tenure, he has served in various
financial management positions including Chief Accounting Officer and Vice
President and Director of Planning/Budgeting. In 1996, he became Senior Vice
President -- President, Bluegreen Communities. Prior to his employment
25
with us, Mr. Koscher was employed by the William Carter Company, a manufacturing
company located in Needham, Massachusetts. He has also been employed by Cipher
Data Products, Inc., a computer peripheral manufacturer located in San Diego,
California, as well as the State of Nevada as an audit agent. Mr. Koscher holds
an M.B.A. along with a B.B.A. in Accounting and is a Registered Resort
Professional.
John M. Maloney, Jr. joined us in 2001 as Senior Vice President of Operations
and Business Development for Bluegreen Resorts. In May 2002, Mr. Maloney was
named our Senior Vice President and President of Bluegreen Resorts. From 1997 to
2000, Mr. Maloney served in various positions with ClubCorp, most recently as
the Senior Vice President of Sales and Marketing for the Owners Club by
ClubCorp. From 1994 to 1997, Mr. Maloney held various positions with Hilton
Grand Vacations Company, most recently as the Director of Sales and Marketing
for the South Florida area.
Sheila B. Beauchesne joined us in 2004 as Senior Vice President and Chief
Information Officer. From 1997 to 1999, Ms. Beauchesne served as Vice President
of Information Technology for the North American Rental Group of AutoNation,
Inc., a publicly held automobile retailer. From 1999 to 2003, Ms. Beauchesne was
the Senior Vice President and Chief Information Officer of Martha Stewart Living
Omnimedia, Inc., a publicly held, integrated content and commerce company that
creates "how-to" content and domestic merchandise for homemakers and other
consumers. Ms. Beauchesne holds a B.S. in Computer Science.
Allan J. Herz joined us in 1992 and was named Director of Mortgage Operations in
September 1992. Mr. Herz was elected Vice President in 1993 and Senior Vice
President in 2004. From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal
Savings Bank based in Miami, Florida. During his 10-year tenure with the bank,
he held various lending positions, the most recent being Division Vice President
in Consumer Lending. Mr. Herz holds a B.B.A. in Finance and Management and an
M.B.A.
Douglas O. Kinsey joined us in 2003 as Senior Vice President, Acquisitions and
Development. From 1997 to 2003, Mr. Kinsey served as Senior Vice President of
Real Estate Acquisitions for Fairfield Resorts, a vacation ownership resort
developer that was publicly-traded until its acquisition by another publicly
held company, Cendant Corporation. Mr. Kinsey holds a B.S.B.A. in finance.
James R. Martin joined us in 2004 as Senior Vice President, General Counsel and
Clerk. Prior to joining us, Mr. Martin was a partner with the law firm of Baker
& Hostetler LLP since 1985, focusing his practice on real estate, resort
development, vacation ownership, federal and state regulatory matters and
commercial and consumer law. Mr. Martin holds a B.A. and a Juris Doctorate.
Susan J. Milanese joined us in 1988. During her tenure, she has held various
management positions with us including Assistant to the Chief Financial Officer,
Divisional Controller and Director of Accounting. In 1995, she was elected Vice
President and Director of Human Resources and Administration. In 2004, Ms.
Milanese was elected Senior Vice President and Chief Human Resources Officer.
From 1983 to 1988, Ms. Milanese was employed by General Electric Company in
various financial management positions including the corporate audit staff. Ms.
Milanese holds a Masters of Science in Human Resource Management and a B.B.A. in
Accounting.
Anthony M. Puleo joined us in 1997 as Chief Accounting Officer. In 1998, Mr.
Puleo was elected Vice President and he was elected Senior Vice President in
2004. From December 1990 through October 1997, Mr. Puleo held various positions
with Ernst & Young LLP, most recently serving as a Senior Manager in the
Assurance and Advisory Business Services group. Mr. Puleo holds a B.B.A. in
Accounting and is a Certified Public Accountant.
Our by-laws provide that, except as otherwise provided by law or our charter and
by-laws, the President, Treasurer and the Clerk hold office until the first
meeting of the Board of Directors following the next annual meeting of
shareholders and until their respective successors are chosen and qualified and
that all other officers hold office for the same period unless a shorter time is
specified in the vote appointing such officer or officers.
26
Item 2. PROPERTIES.
Our principal executive office is located in Boca Raton, Florida in
approximately 102,000 square feet of leased space. On December 31, 2004, we also
maintained regional sales offices in the Northeastern, Mid-Atlantic,
Southeastern, Midwestern, Southwestern and Western regions of the United States
as well as the island of Aruba. For a further description of our resort and
communities properties, please see "Item 1. Business--Company Products."
Item 3. Legal Proceedings.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, marketing,
sale or financing of real estate. Additionally, from time to time, we become
involved in disputes with existing and former employees. We believe that these
claims are routine litigation incidental to our business and the resolution of
these matters is not expected to have a material adverse effect on our financial
position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Archipelago Stock Exchange (formerly known as the Pacific Stock Exchange) under
the symbol "BXG". The following table sets forth, for the periods indicated, the
high and low closing price of our common stock as reported on the NYSE:
Price Range Price Range
------------- ---------------
High Low High Low
-----------------------------------------------------------------------
The Year Ended The Year Ended
December 31, 2003 December 31, 2004
----------------- -----------------
First Quarter $3.70 $3.36 First Quarter $12.96 $ 6.25
Second Quarter 4.93 3.45 Second Quarter 13.99 10.28
Third Quarter 6.08 4.66 Third Quarter 13.77 9.61
Fourth Quarter 7.07 5.54 Fourth Quarter 20.07 10.48
There were approximately 1,020 record holders of our common stock as of March
11, 2005. The number of record holders does not reflect the number of persons or
entities holding their stock in "street" name through brokerage firms or other
entities.
We did not pay any cash or stock dividends during the year ended December 31,
2003, or the year ended December 31, 2004. Our Board of Directors has discussed
the possibility of paying cash dividends at some point in the future. However,
any decision by our Board to pay dividends will be based on our cash position,
operating and capital needs and the restrictions discussed below, and there is
no assurance that we will pay cash dividends in the foreseeable future.
Restrictions contained in the Indenture related to our $110 million 10 1/2%
Senior Secured Notes due 2008 issued in April 1998 restrict, and the terms of
certain of our credit facilities may, in certain instances, limit the payment of
cash dividends on our common stock and restrict our ability to repurchase
shares.
From time to time, our Board of Directors has adopted and publicly announced a
share repurchase program. Repurchases under such programs are subject to the
price of our stock, prevailing market conditions, our financial condition and
available resources, other investment alternatives and other factors. We are not
required to seek shareholder approval of share repurchase programs, have not
done so in the past, and do
27
not anticipate doing so in the future, except to the extent we may be required
to do so under applicable law. We have not repurchased any shares since the
fiscal year ended April 1, 2001. As of December 31, 2004, there were 694,500
shares remaining for purchase under our current repurchase program; however, we
have no present intention of acquiring these remaining shares in the foreseeable
future.
Our shareholders have approved all of our equity compensation plans, which
consist of our 1995 Stock Incentive Plan, our 1988 Outside Directors' Stock
Option Plan and our 1998 Non-Employee Director Stock Option Plan. Information
about securities authorized for issuance under our equity compensation plans as
of December 31, 2004, is as follows (in thousands, except per option data):
Number of Securities Remaining
Number of Securities to Weighted-Average Available for Future Issuance
be Issued Upon Exercise Exercise Price of Under Equity Compensation Plans
of Outstanding Stock Outstanding Stock (Excluding Outstanding Stock
Options Options Options)
----------------------- ----------------- -------------------------------
1,645 $5.29 781
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report (dollars in
thousands, except per share data).
As of or for
the
As of or for the Years Nine Months As of or for the Years
Ended Ended Ended
---------------------- ------------ ---------------------------
April 1, March 31, December 31, December 31, December 31,
2001 2002 2002 2003 2004
-------- --------- ------------ ------------ ------------
Income Statement Data
Sales of real estate............. $229,874 $240,628 $222,655 $358,312 $502,396
Other resort and communities
operations revenues........... 24,649 25,470 27,048 55,394 69,032
Interest income.................. 17,317 15,447 12,235 17,536 21,583
Gain on sales of notes
receivable.................... 3,281 6,280 10,035 6,563 8,612
Other income..................... -- -- -- 649 --
-------- -------- -------- -------- --------
Total revenues................... 275,121 287,825 271,973 438,454 601,623
Income before income taxes,
minority interest and
cumulative effect of change
in accounting principle(1).... 3,002 19,482 24,671 45,325 63,341
Income before cumulative
effect of change in
accounting principle(1)....... 2,717 11,732 15,376 25,827 36,455
Net income....................... 2,717 11,732 9,797 25,827 36,455
Earnings per share before
cumulative effect of change in
accounting principle (1):
Basic......................... 0.11 0.48 0.63 1.05 1.39
Diluted....................... 0.11 0.46 0.58 0.94 1.23
Earnings per common share:
Basic......................... 0.11 0.48 0.40 1.05 1.39
Diluted....................... 0.11 0.46 0.39 0.94 1.23
28
As of or for
the
As of or for the Years Nine Months As of or for the Years
Ended Ended Ended
---------------------- ------------ ---------------------------
April 1, March 31, December 31, December 31, December 31,
2001 2002 2002 2003 2004
-------- --------- ------------ ------------ ------------
Balance Sheet Data
Notes receivable, net.......... 74,796 55,648 61,795 94,194 121,949
Inventory, net................. 193,634 187,688 173,131 219,890 205,213
Total assets................... 405,177 416,366 425,272 551,022 634,809
Shareholders' equity........... 136,790 149,656 158,283 186,880 264,867
Book value per common share.... 5.65 6.16 6.44 7.49 8.76
Selected Operating Data
Weighted-average interest
rate on notes receivable at
period end.................. 15% 15% 14% 14% 14%
Bluegreen Resorts statistics:
VOI sales................... $140,975 $144,226 $144,026 $253,939 $310,596
Gross margin on VOI sales... 78% 77% 75% 80% 76%
Selling, general and
administrative expenses
as a percentage of VOI
sales (1)................ 71% 65% 64% 59% 58%
Field Operating Profit (2).. $ 9,724 $ 19,729 $ 17,218 $ 49,514 $ 52,550
Number of resorts at period
end...................... 11 12 13 17 18
Number of VOI sale
transactions(3).......... 16,240 16,414 16,347 26,839 31,574
Bluegreen Communities
Statistics:
Homesite sales.............. $ 88,899 $ 96,402 $ 78,629 $104,373 $191,800
Gross margin on homesite
sales.................... 46% 45% 46% 45% 45%
Selling, general and
administrative expenses
as a percentage of
homesite sales........... 30% 28% 28% 32% 25%
Field Operating
Profit (2)............... $ 12,991 $ 15,415 $ 13,570 $ 12,580 $ 37,722
Number of homesites
sold (3)................. 1,614 1,640 1,242 1,962 2,765
----------
(1) Effective April 1, 2002, we elected to change our accounting policy to
expense previously deferred costs of generating VOI tours through
telemarketing programs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of the Notes to
Consolidated Financial Statements for further information.
29
(2) Field Operating Profit is operating profit prior to the allocation of
corporate overhead, interest income, gain on sales of notes receivable,
other income, provision for loan losses, interest expense, income taxes,
minority interest and cumulative effect of change in accounting principles.
See Note 19 of the Notes to Consolidated Financial Statements for further
information.
(3) "Number of VOI sale transactions" and "number of homesites sold" include
those sales made during the applicable period where recognition of revenue
is deferred under the percentage-of-completion method of accounting. See
"Revenue Recognition and Contracts Receivable" under Note 1 of the Notes to
Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain Definitions, Cautionary Statement Regarding Forward-Looking Statements
and Risk Factors
The following discussion of our results of operations and financial condition
should be read in conjunction with our Consolidated Financial Statements and
related Notes and other financial information included elsewhere in this Annual
Report. Unless otherwise indicated in this discussion (and throughout this
Annual Report), references to "real estate" and to "inventories" collectively
encompass the inventories held for sale by Bluegreen Resorts and Bluegreen
Communities.
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Annual
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You may identify these statements by forward-looking
words such as "may," "intend," "expect," "anticipate," "believe" "will,"
"should," "project," "estimate," "plan" or other comparable terminology or by
other statements that do not relate to historical facts. All statements, trend
analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations and other factors discussed
throughout our SEC filings, all of which could cause our actual results,
performance or achievements, or industry trends, to differ materially from any
future results, performance, or achievements or trends expressed or implied
herein. Given these uncertainties, investors are cautioned not to place undue
reliance on these forward-looking statements and no assurance can be given that
the plans, estimates and expectations reflected herein will be achieved. Factors
that could adversely affect our future results can also be considered general
"risk factors" with respect to our business, whether or not they relate to a
forward-looking statement. We wish to caution you that the important factors set
forth below and elsewhere in this report in some cases have affected, and in the
future could affect, our actual results and could cause our actual consolidated
results to differ materially from those expressed in any forward-looking
statements.
Our continued liquidity depends on our ability to sell or borrow against our
notes receivable.
We offer financing of up to 90% of the purchase price to purchasers of VOIs and
homesites. Approximately 99% of our VOI customers and 2% of our homesite
customers utilized our in-house financing during the year ended December 31,
2004. However, we incur selling, marketing and administrative cash expenditures
prior to and concurrent with the sale. These costs generally exceed the
downpayment we receive at the time of the sale. Accordingly, our ability to
borrow against or sell the notes receivable we receive from our customers is a
critical factor in our continued liquidity. We generally pledge the receivables
arising from our sales of VOIs to institutional lenders. We are also a party to
a number of
30
customary securitization-type transactions under which we sell receivables to a
wholly-owned special purpose entity which, in turn, sells the receivables either
directly to third parties or to a trust established for the transaction. If our
pledged receivables facilities terminate or expire and we are unable to replace
them with comparable facilities, or if we are unable to continue in our
participation in securitizations on the terms currently available to us, our
liquidity and cash flow would be materially and adversely affected. If any of
our current facilities terminate or expire, there is no assurance that we will
be able to negotiate the pledge or sale of such customer notes at favorable
rates, or at all.
We depend on additional funding to finance our operations.
We anticipate that we will finance our future business activities, in whole or
in part, with indebtedness that we obtain pursuant to additional borrowings
under our existing credit facilities, under credit facilities that we may obtain
in the future or under securitizations in which we may participate in the
future. However, we cannot assure you that we will be able to obtain sufficient
external sources of liquidity on attractive terms, or at all. Moreover, we are,
and will be, required to seek external sources of liquidity to:
o support our operations;
o finance the acquisition and development of VOI inventory and
residential land;
o finance a substantial percentage of our sales; and
o satisfy our debt and other obligations.
Our ability to service or to refinance our indebtedness or to obtain additional
financing (including our ability to consummate future notes receivable
securitizations) depends on our future performance, which is subject to a number
of factors, including our business, results of operations, leverage, financial
condition and business prospects, prevailing interest rates, general economic
conditions and perceptions about the residential land and vacation ownership
industries.
Our success depends on our ability to market our products efficiently.
We compete for customers with other hotel and resort properties and vacation
ownership resorts. Accordingly, the identification of sales prospects and leads,
and the marketing of our products to them are essential to our success. We have
expended and expect to continue to expend significant amounts of our resources
to identify and capitalize on future customers and upgrade opportunities. Among
our marketing initiatives, we utilize our proprietary computer software system
to identify and target leads. The leads we identify are then contacted and given
the opportunity to purchase mini-vacation packages which may sometimes combine
hotel stays, cruises and gift premiums. Buyers of these mini-vacation packages
are then usually required to participate in a vacation ownership sales
presentation. We have incurred and will incur the expenses associated with these
and our other marketing programs in advance of closing sales to the leads that
we identify. If our lead identification and marketing efforts do not yield
enough leads that we are able successfully to convert to a sufficient number of
sales, we may be unable to recover the value of our investment in our marketing
programs and systems and our business may be adversely effected.
We would incur substantial losses if the customers we finance default on their
obligations to pay the balance of the purchase price.
Under the terms of our pledged receivables facilities, we may be required, under
certain circumstances, to replace receivables or to pay down the loan to within
permitted loan to value ratios if our pledged receivables reach certain levels
of delinquency. Additionally, the terms of our securitization-type transactions
require us to repurchase or replace loans if we breach any of the
representations and warranties we made at the time we sold the receivables.
Further, if defaults and other performance criteria differ from estimates used
to value our retained interests in notes receivable sold in the securitization
transactions, we may be required to write down these assets, which could have a
material adverse effect on our results of operations. As servicer of the notes,
we may also be required to advance delinquent payments to the extent
31
we deem them recoverable. Accordingly, we bear some risks of delinquencies and
defaults by buyers who finance the purchase of their VOIs or residential land
through us, regardless of whether or not we sell or pledge the customer's loan
to a third party.
As of December 31, 2004, approximately 7% of our vacation ownership receivables
and approximately 20% of residential land receivables which we held or which
third parties held under sales transactions which are serviced by us were more
than 30 days past due. Although in many cases we may have recourse against a
buyer for the unpaid purchase price, certain states have laws that limit our
ability to recover personal judgments against customers who have defaulted on
their loans or the cost of doing so may not be justified. Historically, we have
generally not exercised such recourse against our customers. If we are unable to
collect the defaulted amount or to obtain a voluntary quitclaim to the interest,
if applicable, we will be required to foreclose on or otherwise seek recovery of
the customer's collateral and then remarket the recovered property. Irrespective
of our remedy in the event of a default, we cannot recover the marketing,
selling, and administrative costs associated with the original sale and we would
have to incur such costs again to resell the VOI or homesite.
We are subject to the risks of the real estate market and the risks associated
with real estate development, including the risks and uncertainties relating to
the cost and availability of land and construction materials.
Real estate markets are cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including:
o levels of unemployment;
o levels of discretionary disposable income;
o levels of consumer confidence;
o the availability of financing;
o overbuilding or decreases in demand;
o interest rates; and
o our ability to identify and enter into agreements with strategic
marketing partners.
A downturn in the economy in general or in the market for residential land or
VOIs could have a material adverse effect on our business.
In addition, the availability of land at favorable prices for the development of
our Bluegreen Resorts and Bluegreen Communities real estate projects is critical
to having adequate inventory to sustain our sales volume and maintain an
adequate gross profit on our sales to cover our significant selling, general and
administrative expenses, cost of capital and other expenses in order to generate
favorable results of operations. Land prices increased significantly in 2004 and
the availability of Florida properties was extremely limited. If we were unable
to acquire such land or, in the case of Bluegreen Resorts, resort properties at
a favorable cost, it could have an adverse impact on our results of operations.
Another factor impacting the profitability of our real estate development
activities is the cost of construction materials and services. Should the cost
of construction materials and services rise, as recent trends have indicated,
the ultimate cost of our Bluegreen Resorts and Bluegreen Communities inventories
under development could increase and have a material, adverse impact on our
results of operations.
32
We may not successfully execute our growth strategy.
A principal component of our growth strategy is to acquire additional real
estate for the development of VOIs or completed VOIs. We seek to acquire
properties in destinations that we believe will complement our existing
operations. In addition, we have to continually acquire additional real estate
for Bluegreen Communities to develop and sell. Our ability to execute this
growth strategy will depend upon a number of factors, including the following:
o the availability of attractive real estate opportunities;
o our ability to acquire properties for such development opportunities
on economically feasible terms;
o our ability to market and sell VOIs at newly developed or acquired
resorts;
o our ability to manage newly developed or acquired resorts in a manner
that results in customer satisfaction; and
o our ability to develop, market and sell acquired real estate for
Bluegreen Communities in a manner that results in customer
satisfaction.
In particular, the success of our Bluegreen Vacation Club will depend upon our
ability to continue to acquire and develop a sufficient number of participating
resorts to make membership interests attractive to consumers and to permit the
continued growth of our vacation club's membership. There is no assurance that
we will be successful with respect to any or all of these factors.
We may face a variety of risks when we expand our operations.
Our growth strategy includes the expansion of the number of our resorts. Risks
associated with such expansion include the following:
o construction costs may exceed original estimates;
o we may be unable to complete construction, conversion or required
legal registrations and approvals as scheduled;
o we may be unable to control the timing, quality and completion of any
construction activity;
o our quarterly results may fluctuate due to an increase or decrease in
the number of residential land or VOI projects subject to "percentage
of completion accounting," which requires that we recognize profit on
projects on a pro rata basis as development is completed;
o market demand may not be present; and
o the value of our inventories may decline.
Any of the foregoing could make any expansion less profitable. There is no
assurance that we will complete all of our planned expansion of our properties
or, if completed, that such expansion will be profitable.
Moreover, to successfully implement our growth strategy, we must integrate the
newly acquired or developed properties into our existing sales and marketing
programs. During the start-up phase of a new resort or residential community
project, we could experience lower operating margins at that project until its
operations mature. The lower margins could be substantial and could negatively
impact our cash flow. We cannot provide assurance that we will maintain or
improve our operating margins as our projects achieve maturity and our new
resorts and communities may reduce our overall operating margins.
33
Excessive claims for development-related defects could adversely affect our
financial condition and operating results.
We engage third-party contractors to construct our resorts and to develop our
communities. However, our customers may assert claims against us for
construction defects or other perceived development defects, including
structural integrity, the presence of mold as a result of leaks or other
defects, asbestos, electrical issues, plumbing issues, road construction, water
and sewer defects, etc. In addition, certain state and local laws may impose
liability on property developers with respect to development defects discovered
in the future. A significant number of claims for development-related defects
could adversely affect our liquidity, financial condition, and operating
results.
We may face additional risks as we expand into new markets.
We currently intend to acquire real estate for the development of VOIs or
completed VOIs for Bluegreen Resorts both in the geographic areas where
Bluegreen Resorts currently operates and in other areas. Bluegreen Communities
intends to acquire real estate in the geographic areas where it currently
operates as well as other areas where we anticipate successful sales of
homesites in residential communities. Our prior success in the markets in which
we currently operate does not ensure our continued success as we acquire,
develop or operate future projects in new markets. Accordingly, in connection
with expansion into new markets, we may be exposed to a number of additional
risks, including the following:
o our lack of familiarity and understanding of local consumer
preferences;
o our inability to attract, hire, train, and retain additional sales,
marketing, and resort staff at competitive costs;
o our inability to obtain, or to obtain in a timely manner, necessary
permits and approvals from state and local government agencies and
qualified construction services at acceptable costs;
o our inability to capitalize on new marketing relationships and
development agreements; and
o the uncertainty involved in, and additional costs associated with,
marketing VOIs and homesites prior to completion of marketed units.
Bluegreen Communities primarily depends on third party lenders to finance the
purchase of homesites as the majority of our residential land sales are
currently financed by customers through local banks and finance companies. A
decrease in the willingness of such lenders to extend financing to our customers
could cause a decline in our sales or require material additional credit
facilities in order to enable us to provide financing to our customers.
The limited resale market for VOIs could adversely affect our business.
Based on our experience at our resorts and at destination resorts owned by third
parties, we believe that resales of VOIs generally are made at net sales prices
below their original customer purchase price. The relatively lower sales price
is partly attributable to the high marketing and sales costs associated with the
initial sales of such VOIs. Accordingly, the initial purchase of a VOI may be
less attractive to prospective buyers. Also, buyers who seek to resell their
VOIs compete with our efforts to sell our VOIs. While VOI resale clearing houses
or brokers currently do not have a material impact on our business, if a
secondary market for VOIs were to become more organized and liquid, the
resulting availability of resale VOIs at lower prices could adversely affect our
prices and the number of sales we can close, which in turn would adversely
affect our business and results of operations.
34
Extensive federal, state and local laws and regulations affect the way we
conduct our business.
The federal government and the states and local jurisdictions in which we
conduct business have enacted extensive regulations that affect the manner in
which we market and sell VOIs and homesites and conduct our other business
operations. In addition, many states have adopted specific laws and regulations
regarding the sale of VOIs and homesites. These laws and regulations require us,
among other things, to obtain and file numerous documents and supporting
information with the responsible state agency to obtain the agency's approval
for an offering statement that describes all material aspects of the sale of
VOIs, and to deliver an offering statement or public report, together with
certain additional information concerning the terms of the purchase, to all
prospective purchasers of a VOI.
Most states also have other laws that regulate our activities, such as:
o real estate licensure laws;
o sellers of travel licensure laws;
o anti-fraud laws;
o consumer protection laws;
o telemarketing laws;
o prize, gift, and sweepstakes laws and
o consumer credit laws.
We currently are authorized to market and sell VOIs and homesites in all states
in which our operations are currently conducted. If our agents or employees
violate applicable regulations or licensing requirements, their acts or
omissions could cause the states where the violations occurred to revoke or
refuse to renew our licenses, which could materially and adversely affect our
business.
In addition, the federal government and the states and local jurisdictions in
which we conduct business have enacted extensive regulations relating to direct
marketing and telemarketing generally, including the federal government's
national "Do Not Call" list. The regulations have impacted our marketing of VOIs
and we have taken steps in an attempt to decrease our dependence on restricted
calls. However, these steps have increased and are expected to continue to
increase our marketing costs. We cannot predict the impact that these
legislative initiatives or any other legislative measures that may be proposed
or enacted now or in the future may have on our marketing strategies and
results.
We believe we are in material compliance with applicable federal, state, and
local laws and regulations relating to the sale and marketing of VOIs and
homesites. From time to time, however, consumers file complaints against us in
the ordinary course of our business. We could be required to incur significant
costs to resolve these complaints. There is no assurance that we will remain in
material compliance with applicable federal, state and local laws and
regulations, or that violations of applicable laws will not have adverse
implications for us, including, negative public relations, potential litigation,
and regulatory sanctions. The expense, negative publicity, and potential
sanctions associated with any failure to comply with applicable laws or
regulations could have a material adverse effect on our results of operations,
liquidity or financial position.
Environmental liabilities, including claims with respect to mold or hazardous or
toxic substances, could have a material adverse impact on our business.
Under various federal, state and local laws, ordinances and regulations, as well
as common law, we may be liable for the costs of removal or remediation of
certain hazardous or toxic substances, including mold,
35
located on, in, or emanating from property that we own, lease, or operate, as
well as related costs of investigation and property damage at such property.
These laws often impose liability without regard to whether we knew of, or were
responsible for, the presence of the hazardous or toxic substances. The presence
of such substances, or the failure to properly remediate such substances, may
adversely affect our ability to sell or lease our property or to borrow money
using such real property as collateral. Noncompliance with environmental, health
or safety requirements may require us to cease or alter operations at one or
more of our properties. Further, we may be subject to common law claims by third
parties based on damages and costs resulting from violations of environmental
regulations or from contamination associated with one or more of our properties.
We could incur costs to comply with laws governing accessibility of facilities
by disabled persons.
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although we believe our resorts are substantially in compliance with laws
governing accessibility by disabled persons, we may incur additional costs to
comply with such laws at our existing or subsequently acquired resorts.
Additional federal, state, and local legislation with respect to access by
disabled persons may impose further burdens or restrictions on us. We cannot
forecast the ultimate cost of compliance with such legislation, but such costs
could be substantial and, as a result, could have a material adverse effect on
our results of operations, liquidity or capital resources.
Our results of operations and financial condition could be adversely impacted if
our estimates concerning our notes receivable are incorrect.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The amount of any gains
recognized and the fair value of the retained interests recorded are based in
part on management's best estimates of future prepayment, default and loss
severity rates, discount rates and other considerations in light of then-current
conditions. Our results of operations and financial condition could be adversely
affected if:
o actual prepayments with respect to loans sold occur more quickly than
was projected;
o actual defaults and/or loss severity rates with respect to loans sold
are greater than estimated; or
o the portfolio of receivables sold fails to satisfy specified
performance criteria or in certain other circumstances.
In any of these events, the cash flow on the retained interests in notes
receivable sold could be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur, it could
cause a decline in the fair value of the retained interests and a charge to
earnings currently.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops, markets
and sells VOIs in our Bluegreen Vacation Club resorts, and provides resort
management services to resort property owners associations. Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis, as homesites.
We have historically experienced and expect to continue to experience seasonal
fluctuations in our gross revenues and net earnings. This seasonality may cause
significant fluctuations in our quarterly operating results, with the majority
of our gross revenues and net earnings historically occurring in the quarters
ending in June and September each year. Other material fluctuations in operating
results may occur due to the timing of development and the requirement that we
use the percentage-of-completion method of accounting. Under this method of
income recognition, income is recognized as work progresses. Measures of
progress are based on the relationship of costs incurred to date to expected
total costs. We expect that we will continue to invest in projects that will
require substantial development (with significant capital
36
requirements), and hence that our results of operations may fluctuate
significantly between quarterly and annual periods as a result of the required
use of the percentage-of-completion method of accounting.
We do not believe that inflation and changing prices currently have had or will
have for the foreseeable future a material impact on our revenues and results of
operations, other than to the extent that we continually review and have
historically increased the sales prices of our VOIs annually and that
construction costs have and are expected to continue to increase. There is no
assurance that we will be able to continue to increase our sales prices or that
increased construction costs will not have a material adverse impact on our
results of operations. To the extent inflationary trends affect interest rates,
a portion of our debt service costs and pricing on our receivable sales
transactions may be adversely affected.
We recognize revenue on homesite and VOI sales when a minimum of 10% of the
sales price has been received in cash, the refund or rescission period has
expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. In cases
where we otherwise meet the revenue recognition criteria previously noted but
all development has not been completed, we recognize revenue in accordance with
the percentage-of-completion method of accounting.
Costs associated with the acquisition and development of vacation ownership
resorts and residential communities, including carrying costs such as interest
and taxes, are capitalized as inventory and are allocated to cost of real estate
sold as the respective revenues are recognized.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The gains are recorded on
our consolidated statements of income and the related retained interests in the
notes receivable sold are recorded on our consolidated balance sheets at the
time of sale. The amount of gains recognized and the fair value of the retained
interests recorded are based in part on management's best estimates of future
prepayment, default rates, loss severity rates, discount rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to loans occur more quickly than we projected at the time such loans
were sold, as can occur when interest rates decline, interest would be less than
expected and may cause a decline in the fair value of the retained interests and
a charge to operations. If actual defaults or other factors discussed above with
respect to loans sold are greater than estimated, charge-offs would exceed
previously estimated amounts and the cash flow from the retained interests in
notes receivable sold would decrease. Also, to the extent the portfolio of
receivables sold fails to satisfy specified performance criteria (as may occur
due to, for example, an increase in default rates or loan loss severity) or
certain other events occur, the funds received from obligors must be distributed
on an accelerated basis to investors. If the accelerated payment formula were to
become applicable, the cash flow to us from the retained interests in notes
receivable sold would be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur on a
material basis, it could cause a decline in the fair value of the retained
interests and a charge to earnings currently. There is no assurance that the
carrying value of our retained interests in notes receivable sold will be fully
realized or that future loan sales will be consummated or, if consummated,
result in gains. See "Vacation Ownership Receivables Purchase Facilities - Off
Balance Sheet Arrangements," below.
We are spending a substantial amount of management time and resources to comply
with changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new Securities
and Exchange Commission regulations and New York Stock Exchange rules. In
particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management's
annual review and evaluation of our internal control systems, and attestations
as to the effectiveness of these systems by our independent registered
accounting firm. Included in this Annual Report on Form 10-K are a report of our
management on the effectiveness of internal controls and an attestation report
of our independent auditors with respect thereto. However, we expect to continue
to expend significant management time and resources documenting, and testing our
internal control systems and procedures. If we fail to maintain the adequacy of
our internal controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure
37
to maintain an effective internal control environment could have a material
adverse effect on the market price of our stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of commitments and contingencies. On an
ongoing basis, management evaluates its estimates, including those that relate
to the recognition of revenue, including revenue recognition under the
percentage-of-completion method of accounting; our reserve for loan losses; the
valuation of retained interests in notes receivable sold and the related gains
on sales of notes receivable; the recovery of the carrying value of real estate
inventories, golf courses, intangible assets and other assets; and the estimate
of contingent liabilities related to litigation and other claims and
assessments. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions. If actual results significantly differ
from management's estimates, our results of operations and financial condition
could be materially adversely impacted.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
o Revenue Recognition and InventoryCost Allocation. In accordance with
the requirements of Statement of Financial Accounting Standards
("SFAS") No. 66, "Accounting for Sales of Real Estate," we recognize
revenue on VOI and homesite sales when a minimum of 10% of the sales
price has been received in cash, the legal rescission period has
expired, collectibility of the receivable representing the remainder
of the sales price is reasonably assured and we have completed
substantially all of our obligations with respect to any development
related to the real estate sold. We believe that we use a reasonably
reliable methodology to estimate the collectibility of the receivables
representing the remainder of the sales price of real estate sold. See
the further discussion of our policies regarding the estimation of
credit losses on our notes receivable, below. Should our estimates
regarding the collectibility of our receivables change adversely, we
may have to defer the recognition of sales and our results of
operations could be negatively impacted.
In cases where all development has not been completed, we recognize
revenue in accordance with the percentage-of-completion method of
accounting. Should our estimates of the total anticipated cost of
completing of our Bluegreen Resorts' or Bluegreen Communities'
projects increase, we may be required to defer a greater amount of
revenue or may be required to defer revenue for a longer period of
time, and thus our results of operations could be materially,
adversely impacted.
In accordance with SFAS No. 67, "Accounting for Costs and Initial
Rental Operations of Real Estate Projects," the capitalized costs of
our real estate projects are assigned to individual VOIs or homesites
in the projects based on the relative estimated sales value of each
VOI or homesite. Should our estimates of the sales values of our VOI
and homesite inventories differ materially from their ultimate selling
prices, our gross profit could be adversely impacted.
o Allowance For Loan Losses. We estimate credit losses on our notes
receivable portfolios in accordance with SFAS No. 5, "Accounting for
Contingencies," as our notes receivable portfolios consist of a large
group of smaller-balance, homogeneous loans. Consistent with Staff
Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues," we first segment our notes receivable by
identifying risk characteristics that are common to groups of loans
and then estimate credit losses based on the risks associated with
these segments. We consider many factors when establishing and
evaluating the adequacy of our reserve for loan losses. These
38
factors include recent and historical default rates, static pool
analyses, current delinquency rates, contractual payment terms, loss
severity rates along with present and expected economic conditions. We
review these factors and measure loan impairment by applying
historical loss rates, adjusted for relevant environmental and
collateral values, to the segments' aggregate loan balances. We adjust
our reserve for loan losses on at least a quarterly basis. Should our
estimates of these and other pertinent factors change, our results of
operations, financial condition and liquidity position could be
materially, adversely affected.
o Transfers of Financial Assets. When we transfer financial assets to
third parties, such as when we sell notes receivable pursuant to our
vacation ownership receivables purchase facilities, we evaluate
whether or not such transfer should be accounted for as a sale
pursuant to SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" and related
interpretations. The evaluation of sale treatment under SFAS No. 140
involves legal assessments of the transactions, which include
determining whether the transferred assets have been isolated from us
(i.e. put presumptively beyond our reach or the reach of our
creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the assets
it received, and ensuring that we do not maintain effective control
over the transferred assets through either (1) an agreement that both
entitles and obligates the transferor to repurchase or redeem them
before their maturity or (2) the ability to unilaterally cause the
holder to return specific assets (other than through a cleanup call).
We believe that we have obtained appropriate legal opinions and other
guidance deemed necessary to properly account for our transfers of
financial assets as sales in accordance with SFAS No. 140.
In connection with the sales of notes receivable referred to above, we
retain subordinated tranches, rights to excess interest spread and
servicing rights, all of which are retained interests in the notes
receivable sold. Gain or loss on the sale of the notes receivable
depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold
and the retained interests based on their relative fair value at the
date of transfer. We initially and periodically estimate fair value
based on the present value of future expected cash flows using
management's best estimates of the key assumptions -- prepayment
rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. Should our estimates of these
key assumptions change or should the portfolios sold fail to satisfy
specified performance criteria and therefore trigger provisions
whereby outside investors in the portfolios are paid on an accelerated
basis, there could be a reduction in the fair value of the retained
interests and our results of operations and financial condition could
be adversely impacted. During the year ended December 31, 2004, we
recognized an other-than-temporary decrease of approximately $2.1
million, in the fair market value of our retained interest in a 2002
vacation ownership receivables securitization, based on higher than
anticipated default rates in the portfolio sold.
o Asset Impairment. We periodically evaluate the recovery of the
carrying amounts of our long-lived assets including our real estate
properties under the guidelines of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Factors that we consider
in making this evaluation include the estimated remaining
life-of-project sales for each project based on current retail prices
and the estimated costs to complete each project. Should our estimates
of these factors change, our results of operations and financial
condition could be adversely impacted.
o Goodwill and Intangible Assets. Goodwill is not amortized but is
subject to an annual impairment test in accordance with SFAS No. 142,
"Accounting for Goodwill and Other Intangible Assets." Other
intangible assets are amortized over their useful lives. Goodwill and
other intangible assets are tested for impairment on an annual basis
by estimating the fair value of the reporting unit to which the
goodwill or intangible assets have been assigned. As of December 31,
2004, only our Bluegreen Resorts reporting unit had any recorded
goodwill and intangible assets. Should our estimates of the fair value
of our reporting units change, our results of operations and financial
condition could be adversely impacted.
39
Results of Operations
We review financial information, allocate resources and manage our business as
two segments, Bluegreen Resorts and Bluegreen Communities. The information
reviewed is based on internal reports and excludes general and administrative
expenses attributable to corporate overhead. The information provided is based
on a management approach and is used by us for the purpose of tracking trends
and changes in results. It does not reflect the actual economic costs,
contributions or results of operations of the segments as stand alone
businesses. If a different basis of presentation or allocation were utilized,
the relative contributions of the segments might differ but the relative trends,
in our view, would likely not be materially impacted. The table below sets forth
net revenue and income from operations by segment.
Bluegreen Bluegreen
Resorts Communities Total
---------------------- ---------------------- ----------------------
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
--------- ---------- --------- ---------- --------- ----------
(dollars in thousands)
Year Ended December 31, 2002
(2)
Sales of real estate ............ $ 177,406 100% $ 101,174 100% $ 278,580 100%
Cost of real estate sales ....... (43,422) (25) (56,893) (56) (100,315) (36)
--------- --------- ---------
Gross profit .................... 133,984 75 44,281 44 178,265 64
Other resort and communities
operations revenues .......... 29,194 16 4,140 4 33,334 12
Cost of other resort and
communities operations ....... (28,379) (16) (4,814) (5) (33,193) (12)
Selling and marketing
expenses ..................... (102,176) (58) (20,334) (20) (122,510) (44)
Field general and
administrative expenses (1) .. (10,646) (6) (8,497) (8) (19,143) (7)
--------- --------- ---------
Field Operating Profit .......... $ 21,977 12% $ 14,776 15% $ 36,753 13%
========= ========= =========
Year Ended December 31, 2003
Sales of real estate ............ $ 253,939 100% $ 104,373 100% $ 358,312 100%
Cost of real estate sales ....... (51,695) (20) (57,315) (55) (109,010) (30)
--------- --------- ---------
Gross profit .................... 202,244 80 47,058 45 249,302 70
Other resort and communities
operations revenues .......... 48,915 19 6,479 6 55,394 15
Cost of other resort and
communities operations ....... (53,544) (21) (7,477) (7) (61,021) (17)
Selling and marketing
expenses ..................... (132,050) (52) (23,223) (22) (155,273) (43)
Field general and
administrative expenses (1) .. (16,051) (6) (10,257) (10) (26,308) (7)
--------- --------- ---------
Field Operating Profit .......... $ 49,514 20% $ 12,580 12% $ 62,094 17%
========= ========= =========
Year Ended December 31, 2004
Sales of real estate ............ $ 310,596 100% $ 191,800 100% $ 502,396 100%
Cost of real estate sales ....... (73,963) (24) (105,759) (55) (179,722) (36)
--------- --------- ---------
Gross profit .................... 236,633 76 86,041 45 322,674 64
Other resort and communities
operations revenues .......... 61,630 20 7,402 4 69,032 14
Cost of other resort
and communities operations ...... (64,453) (21) (7,275) (4) (71,728) (14)
Selling and marketing
expenses ..................... (165,162) (53) (36,766) (19) (201,928) (40)
Field general and
administrative expenses (1) .. (16,098) (5) (11,680) (6) (27,778) (6)
--------- --------- ---------
Field Operating Profit .......... $ 52,550 17% $ 37,722 20% $ 90,272 18%
========= ========= =========
40
----------
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables. Corporate general and administrative
expenses totaled $20.0 million for the year ended December 31, 2002, $21.4
million for the year ended December 31, 2003 and $34.0 million for the year
ended December 31, 2004. See "Corporate General and Administrative
Expenses," below, for further discussion.
(2) We have disclosed the results of operations for the year ended December 31,
2002 for purposes of comparability. December 31, 2002 was the year we
transitioned from a March 31 year-end to a December 31 year-end.
Sales and Field Operations. Consolidated sales were $278.6 million for the year
ended December 31, 2002, $358.3 million for the year ended December 31, 2003 and
$502.4 million for the year ended December 31, 2004. Consolidated sales
increased 29% from the year ended December 31, 2002 to the year ended December
31, 2003 and 40% from year ended December 31, 2003 to the year ended December
31, 2004.
Bluegreen Resorts. During the years ended December 31, 2002, 2003 and 2004,
sales of VOIs contributed $177.4 million (64%), $253.9 million (71%) and $310.6
million (62%) of our total consolidated sales, respectively.
The following table sets forth certain information for sales of VOIs for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting.
Year Ended
------------------------------------------
December 31, December 31, December 31,
2002 2003 2004
------------ ------------ ------------
Number of VOI sale transactions....... 19,915 26,839 31,574
Average sales price per transaction... $ 9,268 $ 9,704 $10,025
Gross margin.......................... 75% 80% 76%
The $56.7 million, or 22.3%, increase in Bluegreen Resorts' sales during the
year ended December 31, 2004, as compared to the year ended December 31, 2003,
was due in part to the opening of five sales sites either after or just prior to
December 31, 2003: Grande Villas at World Golf Village (opened in November
2003), The Fountains in Orlando, Florida (opened in December 2003), an off-site
sales office in Destin, Florida (opened in July 2004, but closed prior to
December 31, 2004), the Hammocks at Marathon resort sales office in Marathon,
Florida (opened August 2004) and an off-site sales office in Dallas, Texas
(opened in October 2004). These new sales sites generated a combined $21.0
million of incremental sales during the year ended December 31, 2004 as compared
to the year ended December 31, 2003. The remainder of the sales increase was due
to same-store sales increases primarily as a result of greater focus on
marketing to our growing Bluegreen Vacation Club owner base and to sales
prospects referred to us by existing Bluegreen Vacation Club owners and other
prospects. Sales to owner and referral prospects increased by 48.2% during the
year ended December 31, 2004 as compared to the year ended December 31, 2003.
This, combined with an 18.3% overall increase in the number of sales prospects
seen by Bluegreen Resorts from approximately 218,000 prospects during the year
ended December 31, 2003 to approximately 257,000 prospects during the year ended
December 31, 2004 at a consistent sale-to-tour conversion ratio of 12.6% and
12.4% during the years ended December 31, 2003 and 2004, respectively,
significantly contributed to the overall sales increase during the year ended
December 31, 2004 as compared to the year ended December 31, 2003. The increase
in the average sales price per transaction reflected in the above table also
contributed to the increase in sales.
The $76.5 million or 43.1% increase in Bluegreen Resorts' sales during the year
ended December 31, 2003, as compared to the year ended December 31, 2002, was
due in part to the opening of six new sales sites: Mountain Run at Boyne in
Boyne Falls, Michigan (opened in November 2002), an off-site sales office in
41
Minneapolis, Minnesota (opened in November 2002), Solara Surfsidein Surfside,
Florida (opened January 2003), an off-site sales office in Harbor Springs,
Michigan (opened in March 2003 on the campus of the Boyne Highlands resort,
pursuant to a marketing agreement with Boyne USA Resorts), Grande Villas at
World Golf Village (opened in November 2003) and The Fountainsin Orlando,
Florida (opened in December 2003). These new sales sites generated a combined
$26.7 million of incremental sales during the year ended December 31, 2003 as
compared to the year ended December 31, 2002. The remainder of the sales
increase was due to same-store sales increases primarily as a result of greater
focus on marketing to our growing Bluegreen Vacation Club owner base and to
sales prospects referred to us by existing Bluegreen Vacation Club owners and
other prospects. Sales to owner and referral prospects increased by 44.1% during
the year ended December 31, 2003 as compared to the year ended December 31,
2002. This, combined with a 25.0% overall increase in the number of sales
prospects seen by Bluegreen Resorts from approximately 174,000 prospects during
the year ended December 31, 2002 to approximately 218,000 prospects during the
year ended December 31, 2003 and an increase in the sale-to-tour conversion
ratio from 11.6% to 12.6% during these periods, respectively, significantly
contributed to the overall sales increase during the year ended December 31,
2003 as compared to the year ended December 31, 2002. The increase in the
average sales price per transaction reflected in the above table also
contributed to the increase in sales.
Gross margin percentages vary between periods based on the relative costs of the
specific VOIs sold in each respective period. The gross margin percentage for
Bluegreen Resorts during 2004 and currently is trending back to historical
levels from the higher gross margins realized in 2003 and the first quarter of
2004. We were able to make some opportunistic acquisitions of relatively lower
cost VOI inventories in 2003, which contributed to our favorable gross margins
in 2003 and the beginning of 2004. As much of this lower cost VOI inventory has
been sold and due to rising land and construction costs we are experiencing at
projects under development, we anticipate that our gross margin will approximate
our historical levels for the foreseeable future.
Other resort operations revenues increased $12.7 million or 26% during the year
ended December 31, 2004 as compared to the year ended December 31, 2003. These
increases were due to increases in revenues from our mini-vacation sales and
vacation ownership tour generation business (operated by GVD, see further
discussion below), our vacation ownership resort interior purchasing and design
business, title agency fees and fees earned for providing reservation services
for the Bluegreen Vacation Club.
Other resort operations revenues increased $19.7 million or 68% during the year
ended December 31, 2003 as compared to the year ended December 31, 2002. During
the year ended December 31, 2003, GVD's revenues increased by approximately
$14.0 million as compared to the year ended December 31, 2002, as the 2002
period only included approximately three months of GVD's operations. On October
2, 2002, GVD, acquired substantially all of the assets and assumed certain
liabilities of TMOV. GVD was a newly-formed entity with no prior operations.
Utilizing the assets acquired from TMOV, GVD generates sales leads for VOI sales
utilizing various marketing strategies. 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 VOI sales presentation.
GVD generates sales prospects for our VOI sales business and sales prospects
that will be sold to other VOI developers. The remainder of the increase in
other resort operations revenues was due to an increase in revenues generated by
our wholly-owned title company and an increase in revenues from managing the
Bluegreen Vacation Club; both of such increases were the result of the increase
in VOI sales during the year ended December 31, 2003 as compared to the year
ended December 31, 2002.
Cost of other resort operations increased $10.9 million, or 20%, during the year
ended December 31, 2004 as compared to the year ended December 31, 2003. These
increases were due primarily to subsidies and maintenance fees paid to the
property owners' associations that maintain our resorts. These subsidies and
fees increased in the aggregate due to the increase in the number of our resorts
since December 31, 2003 and due to increased maintenance fees incurred on our
remaining VOI inventory at the La Cabana Beach and Racquet Club resort in Aruba.
In addition, costs of other resort operations increased due to the 2003 opening
and subsequent expansion of our owner contact center in Indianapolis, Indiana,
which handles reservations and customer service for members of the Bluegreen
Vacation Club.
42
Cost of other resort operations increased $25.2 million, or 89%, during the year
ended December 31, 2003 as compared to the year ended December 31, 2002.
Operating expenses incurred by GVD increased $19.8 million during the year ended
December 31, 2003 as compared to the year ended December 31, 2002, as the 2002
period only included approximately three months of GVD's operations. The
remaining increase in cost of other resort operations during the year ended
December 31, 2003 was primarily due to start-up costs of the new owner services
center in Indianapolis, Indiana and new interior purchasing and design
operations in Knoxville, Tennessee as well as increased costs of managing the
Bluegreen Vacation Club due to the growth in the number of members.
Selling and marketing expenses for Bluegreen Resorts increased as a percentage
of sales from 52% during the year ended December 31, 2003 to 53% during the year
ended December 31, 2004. This increase was primarily due to a decrease in the
marketing efficiency of our off-premises contact ("OPC") marketing programs. OPC
marketing programs involve making contact with individuals at tourist and other
high-traffic locations in the vacation destinations in proximity to our resorts
and soliciting them to take sales tours at one of our resort properties. OPC
costs as a percentage of related sales increased to 37% during the year ended
December 31, 2004 from 30% during the year ended December 31, 2003, due to
increased competition for OPC locations and a decrease in the sale-to-tour
conversion ratio for our OPC tours. We believe that selling and marketing
expense as a percentage of sales is an important indicator of the performance of
Bluegreen Resorts and our performance as a whole. No assurance can be given that
selling and marketing expenses will not increase as a percentage of sales in
future periods.
Selling and marketing expenses for Bluegreen Resorts decreased as a percentage
of sales from 58% during the year ended December 31, 2002 to 52% during the year
ended December 31, 2003. This decrease was primarily due to an increase in the
sale-to-tour conversion ratio (from approximately 12% to 13%) and the increase
in the average sales price per transaction noted above. The decrease was also
due to the increase in sales to our Bluegreen Vacation Club owner base and to
sales prospects referred to us by existing Bluegreen Vacation Club owners and
other prospects. Sales to these prospects have relatively lower associated
marketing costs.
Field general and administrative expenses for Bluegreen Resorts stayed
consistent at approximately $16.1 million during each of the years ended
December 31, 2004 and 2003. These costs as a percentage of sales decreased to 5%
for the year ended December 31, 2004 from 6% during the year ended December 31,
2003.
Field general and administrative expenses for Bluegreen Resorts increased $5.4
million or 51% during the year ended December 31, 2003 as compared to the year
ended December 31, 2002. This increase was primarily due to the addition of the
Minneapolis and Harbor Springs (Boyne Highlands) off-site sales offices; the
opening of the Mountain Run at Boyne, Solara Surfside, Grande Villas at World
Golf Village and The Fountains on-site sales offices and expenses associated
with the consideration of potential real estate acquisitions during the year
ended December 31, 2003 which were not pursued further.
Bluegreen Communities. During the years ended December 31, 2002, December 31,
2003 and December 31, 2004, Bluegreen Communities generated $101.2 million
(36%), $104.4 million (29%) and $191.8 million (38%), of our total consolidated
sales, respectively.
The table below sets forth the number of homesites sold by Bluegreen Communities
and the average sales price per homesite for the periods indicated, before
giving effect to the percentage-of-completion method of accounting and excluding
sales of bulk parcels.
43
Year Ended
------------------------------------------
December 31, December 31, December 31,
2002 2003 2004
------------ ------------ ------------
Number of homesites sold........... 1,790 1,962 2,765
Average sales price per homesite... $56,399 $60,586 $69,136
Gross margin....................... 44% 45% 45%
Bluegreen Communities' sales increased $87.4 million or 84% during the year
ended December 31, 2004 as compared to the year ended December 31, 2003. In
November 2003, we acquired and commenced sales at our approximately 500-acre
golf course community in Brunswick, Georgia known as Sanctuary Cove at St.
Andrews Sound. Sanctuary Cove recognized incremental sales of approximately
$23.9 million during the year ended December 31, 2004 as compared to the year
ended December 31, 2003, as this project had just opened for sales in December
2003. Sanctuary Cove had an additional $7.6 million of sales deferred under the
percentage-of-completion method of accounting as of December 31, 2004. Our
Brickshire golf course community, which is located in New Kent, Virginia,
recognized $11.1 million more sales during the year ended December 31, 2004 as
compared to the year ended December 31, 2003, due primarily to increased
effectiveness of sales programs and price increases. In March 2003, Bluegreen
Communities acquired 1,142 acres in Braselton, Georgia for the development of a
new golf course community known as the Traditions of Braselton. This project
recognized approximately $8.1 million more sales during the year ended December
31, 2004 as compared to the year ended December 31, 2003, due primarily to the
recognition of sales previously deferred under the percentage-of-completion
method of accounting. In July 2004, we acquired and commenced sales at our
approximately 800-acre golf course community in Chatham County, North Carolina
known as Chapel Ridge. Chapel Ridge recognized sales of approximately $10.1
million during the year ended December 31, 2004, and had an additional $4.7
million of sales deferred under the percentage-of-completion method of
accounting as of December 31, 2004. Mountain Springs Ranch, our community in
Smithson Valley, Texas (near San Antonio), recognized $7.7 million more sales
during the year ended December 31, 2004 as compared to the year ended December
31, 2003, as this project had just opened for sales in December 2003. The
remaining sales increase was realized at several of our other existing
communities, including the following communities in Texas:
o RidgeLake Shores, located in Magnolia, Texas (near Houston, Texas) -
$6.3 million increase in sales.
o Quail Springs Ranch, located in Peaster, Texas (near the Dallas/Fort
Worth Metroplex) - $5.4 million increase in sales.
o Mystic Shores, located in Spring Branch, Texas (near San Antonio) -
$5.3 million increase in sales.
Bluegreen Communities' sales increased $3.2 million or 3% during the year ended
December 31, 2003 as compared to the year ended December 31, 2002. The
Traditions of Braselton, which began sales in April 2003, recognized sales of
approximately $20.6 million during the year ended December 31, 2003. In Sunset,
Texas, our Silver Lakes Ranch community commenced sales in 2003 and generated
$8.5 million in sales. These increases in sales were partially offset by the
impact of the 2003 sellout of two of our North Carolina golf communities, The
Preserve at Jordan Lake in Chapel Hill and Winding River Plantation in
Southport, which resulted in a decrease in sales at these two properties of
approximately $25.8 million during the year ended December 31, 2003 as compared
to the year ended December 31, 2002.
Bluegreen Communities intends to primarily focus its resources on developing new
golf course communities and continuing to support its successful projects in
Texas. During the year ended December 31, 2004, our golf communities and
communities in Texas comprised approximately 52% and 45%, respectively, of
Bluegreen Communities' sales. Because of the level of sales Bluegreen
Communities achieved in 2004, we anticipate that certain of our properties will
sell out earlier in 2005 than we had previously forecasted. As a result, 2005
sales for Bluegreen Communities will likely be lower than 2004 sales, as we
focus on acquiring additional inventory to replace such properties that either
sold out or are approaching sell-out ahead of schedule.
Bluegreen Communities' gross margin remained relatively constant during the
years ended December 31, 2002, 2003 and 2004. Variations in cost structures and
the market pricing of projects available for sale as well as the opening of
phases of projects which include premium homesites (e.g., water frontage,
preferred views, larger acreage homesites, etc.) will impact the gross margin of
Bluegreen Communities from period to period. These factors, as well as the
impact of the percentage-of-completion method of accounting, will cause
variations in gross margin between periods, although the annual gross margin has
historically been between 45% and 51% of sales and is expected to approximate
these percentages for the foreseeable future.
44
Other communities operations include the operation of our golf courses as well
as realty resale operations at several of our residential land communities. The
increases in other communities operations revenues and costs during the year
ended December 31, 2004 as compared to the year ended December 31, 2003, were
primarily due to increased play at our Brickshire and The Preserve at Jordan
Lake golf courses located in New Kent, Virginia and Chapel Hill, North Carolina,
respectively. We are currently constructing three new daily-fee golf courses in
connection with the development of our Traditions of Braselton, Sanctuary Cove
and Chapel Ridge communities, all of which are expected to be open for play in
2005.
Other communities operations revenues increased $2.3 million or 56% from $4.1
million to $6.5 million and the related costs increased $2.7 million or 55% from
$4.8 million to $7.5 million during the years ended December 31, 2002 and
December 31, 2003, respectively. These increases were primarily due to the
opening of the golf courses at Brickshire and The Preserve at Jordan Lake in
March 2002 and August 2002, respectively. In addition, our realty resale
operations, which commenced operations in January 2003, generated $1.4 million
in commission revenues and incurred $1.2 million in costs during the year ended
December 31, 2003.
Our golf course operations yielded aggregate losses of $674,000, $1.2 million
and $176,000 during the years ended December 31, 2002, 2003 and 2004,
respectively. The losses from golf course operations are due to fixed operating
expenses, low, seasonal revenues during the winter months and high maintenance
costs during periods when we are marketing homesites in the surrounding
community. Also, our golf courses were still in their early years of operations
during the periods presented. We believe that the operating results of these new
courses should improve as individuals who have purchased homesites in the
communities in which these courses are located actually build their homes and
begin living in the community, which we believe will increase the amount of play
on our golf courses. However, there is no assurance that such improvement in
operating results will be realized.
Selling and marketing expenses for Bluegreen Communities decreased as a
percentage of sales from 22% to 19% during the years ended December 31, 2003 and
December 31, 2004, respectively, due to the advertising efficiencies realized at
several of our Bluegreen Golf communities in 2004. Brickshire, Traditions of
Braselton, Sanctuary Cove and Chapel Ridge generated selling and marketing
expenses of less than 18%, collectively, as a percentage of sales due to the
attractiveness of these golf course communities to consumers in the markets
where these communities are located.
Selling and marketing expenses for Bluegreen Communities increased as a
percentage of sales from 20% to 22% during the years ended December 31, 2002 and
December 31, 2003, respectively, due to the impact of the
percentage-of-completion method of accounting and due to the substantial sell
out of The Preserve at Jordan Lake during the year ended December 31, 2003.
While we defer the recognition of sales under the percentage-of-completion
method of accounting, we do not defer the recognition of certain selling and
marketing costs associated with the sales deferred. This increases selling and
marketing expenses as a percentage of sales. The Preserve at Jordan Lake
generated lower selling and marketing expenses as a percentage of sales in 2002,
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 year ended December 31, 2002.
Bluegreen Communities' general and administrative expenses increased $1.4
million, or 14%, during the year ended December 31, 2004 as compared to the year
ended December 31, 2003. This increase in general and administrative expenses
was due to the fact that the costs associated with new communities that opened
for sales were greater than the costs associated with communities which
substantially sold out during the year ended December 31, 2003. The increase in
these costs was also due to higher performance bonuses to Bluegreen Communities'
management, commensurate with the significant increase in the segment's field
operating profit during the year ended December 31, 2004 as compared to December
31, 2003. As a percentage of sales, Bluegreen Communities' general and
administrative expenses decreased to 6% from 10% for the years ended December
31, 2004 and 2003, respectively.
45
Bluegreen Communities' general and administrative expenses increased $1.8
million, or 21%, during the year ended December 31, 2003 as compared to the year
ended December 31, 2002. This increase in general and administrative expenses
was primarily due to the fact that the costs associated with new communities
that opened for sales were greater than the costs associated with communities
which substantially sold out during the year ended December 31, 2003, as more
new projects were added than were substantially sold out. The increase in these
costs as a percentage of sales was also due to the impact of
percentage-of-completion accounting, as we do not defer such expenses
notwithstanding that the associated revenue is deferred.
As of December 31, 2004, Bluegreen Communities had $27.2 million of sales and
$10.9 million of Field Operating Profit deferred under percentage-of-completion
accounting. As of December 31, 2003, Bluegreen Communities had $18.9 million of
sales and $8.1 million of Field Operating Profit deferred under
percentage-of-completion accounting.
Corporate General and Administrative Expenses. Our corporate general and
administrative expenses consist primarily of expenses associated with
administering the various support functions at our corporate headquarters,
including accounting, human resources, information technology, mergers and
acquisitions, mortgage servicing, treasury and legal. Such expenses were $20.0
million, $21.4 million and $34.0 million for the years ended December 31, 2002,
2003 and 2004, respectively.
The $12.6 million or 59% increase in corporate general and administrative
expenses during the year ended December 31, 2004 as compared to the year ended
December 31, 2003 was primarily due to:
o an aggregate increase of $3.2 million in personnel and other expenses
incurred in our information technology, resort
acquisitions/development, human resources, corporate headquarters and
mortgage areas to help support our growth;
o increased legal expenses due to the $1.5 million impact of the
settlement of a sales tax dispute with the state of Wisconsin and
approximately $1.2 million related to litigation settlements, one of
which is subject to court approval;
o increased accounting and auditing expenses of $2.0 million, primarily
incurred in connection with requirements associated with the
Sarbanes-Oxley Act of 2002; and
o an increase in corporate health and other insurance expenses of $1.5
million.
The $1.4 million or 7% increase in corporate general and administrative expenses
during the year ended December 31, 2003 as compared to the year ended December
31, 2002 was primarily due to an increased number of personnel and other
expenses incurred in our information technology area to help support our growth.
For a discussion of field selling, general and administrative expenses, please
see "Sales and Field Operations," above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold (including REMIC transactions) and cash and
cash equivalents. Interest income was $15.8 million, $17.5 million and $21.6
million for the years ended December 31, 2002, December 31, 2003 and December
31, 2004, respectively.
The increase in interest income during the year ended December 31, 2004 was due
to higher interest income earned from our notes receivable commensurate with
higher average aggregate notes receivable balances during the period as compared
to the year ended December 31, 2003. The increase in interest income during the
year ended December 31, 2004 was partially offset by an other-than-temporary
decrease of $2.1 million in the fair value of our retained interest in a 2002
vacation ownership receivables securitization transaction, based on higher than
projected default rates in the portfolio sold.
The increase in interest income during the year ended December 31, 2003 was due
to higher interest income earned from our notes receivable commensurate with
higher average aggregate notes receivable
46
balances during the period as compared to the year ended December 31, 2002. The
increase in interest income during the year ended December 31, 2003 was
partially offset by an other-than-temporary decrease of $912,000 in the fair
value of our retained interest in a 2002 vacation ownership receivables
securitization transaction, based on higher than projected default rates in the
portfolio sold.
Gain on Sales of Notes Receivable. During the years ended December 31, 2002,
December 31, 2003 and December 31, 2004, we recognized gains on the sale of
notes receivable totaling $12.1 million, $6.6 million and $8.6 million,
respectively. The sales of vacation ownership notes receivable were primarily
pursuant to vacation ownership receivables purchase facilities in place during
the respective periods.
The gain on sale of notes receivable during the year ended December 31, 2004,
also included a $2.6 million gain recorded in connection with the July 2004
private offering and sale (the "2004 Term Securitization) of $156.6 million in
aggregate purchase price of vacation ownership receivables, primarily including
receivables previously sold to Resort Finance, LLC ("RFL").
The gain on sale of notes receivable during the year ended December 31, 2002,
also included a $4.7 million gain recorded in connection with the December 2002
private offering and sale (the "2002 Term Securitization) of $170.2 million in
aggregate purchase price of vacation ownership receivables, including
receivables previously sold to ING Capital, LLC ("ING"), General Electric
Capital Real Estate/Heller Financial, Inc. ("GE") and Barclays Bank, PLC
("Barclays") and receivables previously pledged to GE.
The amount of notes receivable sold during a period depends on several factors,
including the amount of availability, if any, under receivables purchase
facilities, the amount of eligible receivables available for sale, our cash
requirements, the covenants and other provisions of the relevant vacation
ownership receivables purchase facility (as described further below) and
management's discretion.
Interest Expense. Interest expense was $12.7 million, $14.0 million and $15.0
million for the years ended December 31, 2002, 2003 and 2004, respectively. The
7% increase in the year ended December 31, 2004 as compared to the year ended
December 31, 2003, was due to higher average outstanding debt balances,
primarily related to increased receivable-backed debt. The 10% increase in the
year ended December 31, 2003 was due to higher average outstanding debt
balances, primarily related to acquisition and development loans entered into in
connection with inventory acquisitions during 2003.
Our effective cost of borrowing was 9.1%, 7.9% and 8.1% for the years ended
December 31, 2002, December 31, 2003 and December 31, 2004, respectively.
Provision for Loan Losses.
We recorded provisions for loan losses totaling $4.0 million, $6.1 million and
$7.2 million during the years ended December 31, 2002, 2003 and 2004
respectively. The 52% and 17% increases in the provision for loan losses during
the years ended December 31, 2003 and December 31, 2004, respectively, were
primarily due to higher notes receivable balances outstanding at December 31,
2003 and December 31, 2004 as compared to the respective, immediately preceeding
year-end balance.
47
The allowance for loan losses by division as of December 31, 2003 and December
31, 2004 was:
Bluegreen Bluegreen
Resorts Communities Other Total
--------- ----------- ------ --------
(dollars in thousands)
December 31, 2003
Notes receivable .............. $ 90,820 $10,555 $1,425 $102,800
Allowance for loan losses ..... (8,255) (239) (112) (8,606)
-------- ------- ------ --------
Notes receivable, net ......... $ 82,565 $10,316 $1,313 $ 94,194
======== ======= ====== ========
Allowance as a % of gross notes
receivable ................. 9% 2% 8% 8%
======== ======= ====== ========
December 31, 2004
Notes receivable .............. $121,273 $10,901 $ 186 $132,360
Allowance for loan losses ..... (9,974) (251) (186) (10,411)
-------- ------- ------ --------
Notes receivable, net ......... $111,299 $10,650 $ -- $121,949
======== ======= ====== ========
Allowance as a % of gross notes
receivable .................. 8% 2% 100% 8%
======== ======= ====== ========
Other notes receivable at December 31, 2003, primarily consisted of a loan to
the property owners' association that is responsible for the maintenance of our
La Cabana Beach and Racquet Club resort, Casa Grande Cooperative Association I
(See Note 5 of the Notes to Consolidated Financial Statements).
This loan was satisfied in 2004.
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC, our
51%-owned subsidiary, in our consolidated financial statements (see Note 1 of
the Notes to Consolidated Financial Statements). The minority interest in income
of consolidated subsidiary is the portion of our consolidated pre-tax income
that is earned by Big Cedar, L.L.C., the unaffiliated 49% interest holder in the
subsidiary. Minority interest in income of consolidated subsidiary was, $1.0
million, $3.3 million and $4.1 million for the years ended December 31, 2002,
2003 and 2004, respectively. Pre-tax income for the subsidiary has increased
over the periods presented as sales at the Big Cedar Wilderness Club have
increased.
Cumulative Effect of Change in Accounting Principle, Net of Tax. During the
years ended April 1, 2001 and March 31, 2002, we deferred the costs of
generating VOI 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, we
elected to change our accounting policy to expense such costs as incurred. We
believe that the new method of accounting for these costs is preferable over our
previous method and has been applied prospectively. The cumulative effect of
this change in accounting principle was additional expense of $5.9 million, net
of tax.
Summary. Based on the factors discussed above, our net income was $10.8 million,
$25.8 million and $36.5 million for the years ended December 31, 2002, 2003 and
2004, respectively.
48
Changes in Financial Condition
The following table summarizes our cash flows for the years ended December 31,
2002, 2003 and 2004 (in thousands):
Year ended
------------------------------------------
December 31, December 31, December 31,
2002 2003 2004
------------ ------------ ------------
Cash flows provided by operating activities $ 27,119 $ 28,680 $ 89,760
Cash flows provided (used) by investing activities 9,752 1,964 (5,637)
Cash flows used by financing activities (20,389) (11,273) (39,232)
-------- -------- --------
Net increase in cash $ 16,482 $ 19,371 $ 44,891
======== ======== ========
Cash Flows From Operating Activities. Management analysis Cash flows from
operating activities increased $1.6 million or 6% from net cash inflows of $27.1
million to $28.7 million for the years ended December 31, 2002 and December 31,
2003, respectively. Proceeds from the sale of and borrowings collateralized by
notes receivable, net of payments on such borrowings, increased $22.9 million
from $90.4 million to $113.2 million during the years ended December 31, 2002
and December 31, 2003, respectively. This increase was partially offset by the
change in inventory between the two periods.
Cash flows from operating activities increased $61.1 million or 213% from net
cash inflows of $28.7 million to $89.8 million during the years ended December
31, 2003 and December 31, 2004, respectively. Proceeds from the sale of and
borrowings collateralized by notes receivable, net of payments on such
borrowings, increased $36.6 million from $113.2 million to $149.8 million during
the years ended December 31, 2003 and December 31, 2004, respectively. The
remainder of the increase in operating cash flows during the year ended December
31, 2004 as compared to the year ended December 31, 2003 was due to the decrease
in inventory, as a result of our increased VOI and homesite sales.
We report cash flows from borrowings collateralized by notes receivable and
sales of notes receivable as operating activities in the consolidated statements
of cash flows. The majority of Bluegreen Resorts' sales result in the
origination of notes receivable from its customers. We believe that accelerating
the conversion of such notes receivable into cash, either through the pledge or
sale of our notes receivable, on a regular basis is an integral function of our
operations, and have therefore classified such activities as operating
activities.
Cash Flows From Investing Activities. Cash flows from investing activities
decreased $7.8 million or 80% from net cash inflows of $9.8 million to $2.0
million for the years ended December 31, 2002 and December 31, 2003,
respectively. The decrease was primarily due to less cash received from our
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, all cash generated by the securitized receivables that we
would normally receive in connection with the retained interests was first used
to fund required cash reserve accounts. We began to receive cash inflows
relative to the retained interests in the term securitization during the quarter
ended September 30, 2003. We received $18.9 million and $12.8 million of cash
from our retained interests in notes receivable sold during the years ended
December 31, 2002 and December 31, 2003, respectively. The remainder of the
decrease in cash flows from investing activities was due to increased purchases
of fixed assets.
Cash flows from investing activities decreased $7.6 million or 387% from net
cash inflows of $2.0 million to net cash outflows of $5.6 million for the years
ended December 31, 2003 and December 31, 2004, respectively. The decrease was
primarily due to increased purchases of property and equipment during the year
ended December 31, 2004 as compared to the year ended December 31, 2003.
Cash Flows From Financing Activities. Cash flows from financing activities
increased $9.1 million or 45% from net cash outflows of $20.4 million to $11.3
million during the years ended December 31, 2002 and December 31, 2003,
respectively. During the year ended December 31, 2002, we repaid upon maturity
49
$6.0 million of 8% convertible subordinated notes payable to former members of
our board of directors. Also, payments under line-of-credit facilities, net of
new borrowings, decreased from $12.3 million to $9.9 million for the years ended
December 31, 2002 and December 31, 2003, respectively.
Cash flows from financing activities decreased $28.0 million or 248% from net
cash outflows of $11.3 million to $39.2 million during the years ended December
31, 2003 and December 31, 2004, respectively.. This decrease is due to increased
payments under line-of-credit facilities and notes payable, partially offset by
increased proceeds from borrowings under such facilities and notes.
Liquidity and Capital Resources
Our capital resources are provided from both internal and external sources. Our
primary capital resources from internal operations are: (i) cash sales, (ii)
downpayments on homesite and VOI sales which are financed, (iii) proceeds from
the sale of, or borrowings collateralized by, notes receivable, including cash
received from our retained interests in notes receivable sold, (iv) principal
and interest payments on the purchase money mortgage loans and contracts for
deed owned arising from sales of VOIs and homesites and (v) net cash generated
from other resort services and other communities operations. Historically,
external sources of liquidity have included non-recourse sales of notes
receivable, borrowings under secured and unsecured lines-of-credit, seller and
bank financing of inventory acquisitions and the issuance of debt securities.
Our capital resources are used to support our operations, including (i)
acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) funding operating expenses and (iv) satisfying our debt and
other obligations. As we are continually selling and marketing real estate (VOIs
and homesites), it is necessary for us to continually acquire and develop new
resorts and communities in order to maintain adequate levels of inventory to
support operations. We anticipate that we will continue to require external
sources of liquidity to support our operations, satisfy our debt and other
obligations and to provide funds for future acquisitions.
Our level of debt and debt service requirements has several important effects on
our operations, including the following: (i) we have significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing our vulnerability to adverse economic and
industry conditions; (ii) our leveraged position increases our vulnerability to
competitive pressures; (iii) the financial covenants and other restrictions
contained in the indentures, the credit agreements and other agreements relating
to our indebtedness require us to meet certain financial tests and restrict our
ability to, among other things, borrow additional funds, dispose of assets, make
investments or pay cash dividends on, or repurchase, preferred or common stock;
and (iv) funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited. Certain of our competitors
operate on a less leveraged basis and have greater operating and financial
flexibility than we do.
We intend to continue to pursue a growth-oriented strategy, particularly with
respect to our Bluegreen Resorts business segment. In connection with this
strategy, we may from time to time acquire, among other things, additional
resort properties and completed but unsold VOIs; land upon which additional
resorts may be built; management contracts; loan portfolios of vacation
ownership mortgages; portfolios which include properties or assets which may be
integrated into our operations; interests in joint ventures; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to our operations in the
vacation ownership industry. In addition, we intend to continue to focus
Bluegreen Communities' activities on larger, more capital intensive projects
particularly in those regions where we believe the market for our products is
strongest, such as new golf communities in the Southeast and other areas and
continued growth in our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that were
important sources of our liquidity as of December 31, 2004. These facilities do
not constitute all of our outstanding indebtedness as of December 31, 2004. Our
other indebtedness includes outstanding senior secured notes payable, borrowings
collateralized by real estate inventories that were not incurred pursuant to an
ongoing credit facility and capital leases.
50
Vacation Ownership Receivables Purchase Facilities -Off-Balance Sheet
Arrangements
Our ability to sell and/or borrow against our notes receivable from VOI buyers
is a critical factor in our continued liquidity. When we sell VOIs, a financed
buyer is only required to pay a minimum of 10% of the purchase in cash at the
time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the year ended December 31, 2004,
approximated 58% of sales. Accordingly, having facilities available for the
hypothecation and sale of these vacation ownership receivables is a critical
factor to our ability to meet our short and long-term cash needs.
The RFL Purchase Facility. On October 8, 2003, RFL acquired and assumed the
rights, obligations and commitments of ING as initial purchaser in an existing
vacation ownership receivables purchase facility (the "RFL Purchase Facility")
originally executed between ING and us in April 2002. The RFL Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation V, our wholly-owned, special purpose
finance subsidiary ("BRFC V"), and BRFC V sells the receivables to an owners'
trust (a qualified special purpose entity) without recourse to us or BRFC V
except for breaches of certain representations and warranties at the time of
sale. We did not enter into any guarantees in connection with the RFL Purchase
Facility. The RFL Purchase Facility has detailed requirements with respect to
the eligibility of receivables for purchase, and fundings under the RFL Purchase
Facility are subject to certain conditions precedent. Under the RFL 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 is deferred until such time as RFL has
received a specified return and all servicing, custodial, agent and similar fees
and expenses have been paid.
On September 30, 2004, we executed an extension of the RFL Purchase Facility to
allow for sales of notes receivable for a cumulative purchase price of up to
$100.0 million on a revolving basis through September 29, 2005, at a variable
purchase price of 85.00% of the principal balance, subject to the eligibility
requirements and certain conditions precedent. RFL earns a return equal to the
one-month London Interbank Offered Rate ("LIBOR") plus an additional return of
3.25%, subject to use of alternate return rates in certain circumstances. In
addition, through September 2005, RFL receives a 0.25% annual program fee. We
act as servicer under the RFL Purchase Facility for a fee.
On September 29, 2004, we sold $25.9 million in vacation ownership receivables
pursuant to the RFL Purchase Facility. We received $22.0 million in cash
proceeds from this sale of receivables and recognized a $4.4 million retained
interest, a $268,000 servicing asset and a $701,000 gain on sale. As of December
31, 2004, the remaining availability under the RFL Purchase Facility was $79.0
million, subject to eligibility requirements and conditions precedent.
The RFL Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
RFL's obligation to purchase under the RFL 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,
(i) our breach of the representations or warranties in the RFL Purchase
Facility; (ii) our failure to perform our covenants in the RFL Purchase
Facility, including, without limitation, a failure to pay principal or interest
due to RFL; (iii) our commencement of a bankruptcy proceeding or the like; (iv)
a material adverse change to us since December 31, 2001; (v) the amount borrowed
under the RFL Purchase Facility exceeding the borrowing base; (vi) significant
delinquencies or defaults on the receivables sold; (vii) a payment default by us
under any other borrowing arrangement of $5 million or more, or an event of
default under any indenture, facility or agreement that results in a default
under any borrowing arrangement; (viii) a default or breach under any other
agreement beyond the applicable grace period if such default or breach (a)
involves the failure to make a payment in excess of 5% of our tangible net worth
or (b) causes, or permits the holder of indebtedness to cause, an amount in
excess of 5% of our tangible net worth to become due; (ix) our tangible net
worth not equaling at least $110 million plus 50% of net income and 100% of the
proceeds
51
from new equity financing following the first closing under the RFL Purchase
Facility; (x) the ratio of our debt to tangible net worth exceeding 6 to 1; or
(xi) our failure to perform our servicing obligations.
The 2004 Term Securitization. On July 8, 2004, BB&T Capital Markets, a division
of Scott & Stringfellow, Inc., consummated a $156.6 million private offering and
sale of vacation ownership receivable-backed securities on our behalf (the "2004
Term Securitization"). The $172.1 million in aggregate principal of vacation
ownership receivables offered and sold in the 2004 Term Securitization included
$152.8 million in aggregate principal of qualified receivables that were
previously sold to RFL under the Purchase Facility. The proceeds from the 2004
Term Securitization were used to pay RFL all amounts outstanding under the
Purchase Facility, pay fees associated with the transaction to third-parties,
deposit initial amounts in a required cash reserve account and provided net cash
proceeds of $1.3 million to us. We also received certain VOIs that were being
held in the Purchase Facility in connection with previously defaulted
receivables, certain vacation ownership notes receivable previously held in the
Purchase Facility which did not qualify for the 2004 Term Securitization and a
retained interest in the future cash flows from the 2004 Term Securitization.
In addition, the 2004 Term Securitization allowed for an additional $19.3
million in aggregate principal of our qualifying vacation ownership receivables
(the "Pre-funded Receivables") that could be sold by us through October 6, 2004
to Bluegreen Receivables Finance Corporation VIII, our wholly-owned, special
purpose finance subsidiary ("BRFC VIII"). BRFC VIII would then sell the
Pre-funded Receivables to an owners' trust (a qualified special purpose entity)
without recourse to BRFC VIII or us, except for breaches of certain
representations and warranties at the time of sale. On August 13, 2004 and
August 24, 2004, we sold $7.6 million and $11.7 million, respectively, of the
Pre-funded Receivables to BRFC VIII, which then sold the Pre-funded Receivables
to the owners' trust. We received proceeds of $6.9 million and $10.6 million (at
an advance rate of 91%) from the sale of the Pre-funded Receivables on August
13, 2004 and August 24, 2004, respectively.
As a result of the 2004 Term Securitization and the sale of the Pre-funded
Receivables, we recognized a $2.6 million gain on sale.
The GE Purchase Facility. On August 3, 2004, we executed agreements for a
vacation ownership receivables purchase facility (the "GE Purchase Facility")
with General Electric Capital Corporation ("GE"). The GE Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation VII, our wholly-owned, special purpose
finance subsidiary ("BRFC VII"), and BRFC VII sells the receivables to an
owner's trust (a qualified special purpose entity) without recourse to us or
BRFC VII except for breaches of certain customary representations and warranties
at the time of sale. We did not enter into any guarantees in connection with the
GE Purchase Facility. The GE Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
GE Purchase Facility are subject to certain conditions precedent. Under the GE
Purchase Facility, a variable purchase price of approximately 89.5% of the
principal balance of the receivables sold (79.5% in the case of receivables
originated in Aruba), subject to adjustment under certain terms and conditions,
is paid at closing in cash. The balance of the purchase price is deferred until
such time as GE has received a specified return, a specified
overcollateralization ratio is achieved, a cash reserve account is fully funded
and all servicing, custodial, agent and similar fees and expenses have been
paid. GE earns a return equal to the applicable Swap Rate (which is essentially
a published interest swap arrangement rate as defined in the GE Purchase
Facility agreements) plus 3.50%, subject to use of alternate return rates in
certain circumstances. In addition, we paid GE a structuring fee of
approximately $938,000 in October 2004. We act as servicer under the GE Purchase
Facility for a fee.
The GE Purchase Facility allows for sales of notes receivable for a cumulative
purchase price of up to $125.0 million for a period which ends on October 2,
2006. On December 30, 2004, we sold $43.4 million in vacation ownership
receivables pursuant to the GE Purchase Facility. We received $38.6 million in
cash proceeds from this sale of receivables and recognized a $6.1 million
retained interest, a $480,000 servicing asset and a $1.7 million gain on sale.
After this sale, the remaining availability under the GE Purchase Facility was
$86.4 million, subject to eligibility requirements and conditions precedent.
52
The GE Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
GE's obligation to purchase under the GE Purchase Facility may terminate earlier
than the dates noted above upon the occurrence of certain specified events set
forth in the GE Purchase Facility agreements. These specified events, some of
which are subject to materiality qualifiers and cure periods, include, without
limitation, (i) the aggregate amount of all advances under the GE Purchase
Facility equaling $125.0 million; (ii) our breach of the representations or
warranties in the GE Purchase Facility; (iii) our failure to perform our
covenants in the GE Purchase Facility; (iv) our commencement of a bankruptcy
proceeding or the like; (v) the amount of any advance under the GE Purchase
Facility failing to meet a specified overcollateralization amount; (vi)
significant delinquencies or defaults on the receivables sold; (vii) recovery
rates falling below a pre-determined amount; (viii) a default or breach under
any other agreement beyond the applicable grace period if such default or breach
(a) involves the failure to make a payment in excess of 5% of our Tangible Net
Worth (as defined in the GE Purchase Facility agreements to include our
subordinated debentures) or (b) causes, or permits the holder of indebtedness to
cause, an amount in excess of 5% of our Tangible Net Worth to become due; (ix)
our Tangible Net Worth at the end of any calendar quarter not equaling at least
$185.0 million plus 50% of net income following June 30, 2004; (x) the ratio of
our debt (excluding our subordinated debentures and, after the expiration of the
funding period, up to $600.0 million of receivable-backed indebtedness) to
Tangible Net Worth exceeding 2.25 to 1; (xi) the ratio of our consolidated
earnings before interest, taxes, depreciation and amortization to our interest
expense (net of interest income) falling below 2.00 to 1; (xii) the number of
points available in the Bluegreen Vacation Club to be less than approximately
623.6 million; (xiii) our ceasing to conduct the vacation ownership business and
originate vacation ownership receivables or if certain changes in our ownership
or control occur; (xiv) the failure of certain of our resorts to be part of the
Bluegreen Vacation Club or be managed by us, one of our subsidiaries or another
entity acceptable to GE; (xv) operating budgets and reserve accounts maintained
by the property owners' associations responsible for maintaining certain of our
resorts failing to comply with applicable laws and governing documents; (xvi)
our failure to discharge, stay or bond pending appeal any final judgments for
the payment of an amount in excess of 2.5% of our Tangible Net Worth in a timely
manner; (xvii) our default under or breach of certain resort management or
marketing contracts; or (xviii) our failure to perform our servicing
obligations, otherwise have our servicing rights terminated or if we do not
exercise the Servicer Purchase Option pursuant to the terms of the GE Purchase
Facility.
The BB&T Purchase Facility. On December 31, 2004, we executed agreements for a
vacation ownership receivables purchase facility (the "BB&T Purchase Facility")
with Branch Banking and Trust Company ("BB&T"). The BB&T Purchase Facility
utilizes an owner's trust structure, pursuant to which we sell receivables to
Bluegreen Receivables Finance Corporation IX, our wholly-owned, special purpose
finance subsidiary ("BRFC IX"), and BRFC IX sells the receivables to an owner's
trust (a qualified special purpose entity) without recourse to us or BRFC IX
except for breaches of certain customary representations and warranties at the
time of sale. We did not enter into any guarantees in connection with the BB&T
Purchase Facility. The BB&T Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase, and fundings under the
BB&T Purchase Facility are subject to certain conditions precedent. Under the
BB&T Purchase Facility, a variable purchase price of approximately 85.0% of the
principal balance of the receivables sold, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as BB&T has received a specified return and all
servicing, custodial, agent and similar fees and expenses have been paid. BB&T
earns a return equal to the commercial paper rate plus an additional return of
1.15%, subject to use of alternate return rates in certain circumstances. In
addition, we paid BB&T structuring and other fees totaling $1.1 million in
December 2004. We act as servicer under the BB&T Purchase Facility for a fee.
The BB&T Purchase Facility allows for sales of notes receivable for a cumulative
purchase price of up to $140.0 million, the commitment for $40.0 million of
which expires on July 5, 2005, and the remainder of which expires on December
30, 2005.
The BB&T Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
BB&T's obligation to purchase under the BB&T Purchase Facility may terminate
earlier than the dates noted above upon the occurrence of certain specified
53
events set forth in the BB&T Purchase Facility agreements. These specified
events, some of which are subject to materiality qualifiers and cure periods,
include, without limitation, (i) our breach of the representations or warranties
in the BB & T Purchase Facility; (ii) our failure to perform our covenants in
the BB & T Purchase Facility, including, without limitation, a failure to pay
principal or interest due to BB & T; (iii) our commencement of a bankruptcy
proceeding or the like; (iv) a materially adverse change to us since December
31, 2004; (v) the amount borrowed under the BB & T Purchase Facility exceeding
the borrowing base; (vi) significant delinquencies or defaults on the
receivables sold, or serviced by us generally; (vii) a payment default by us
under any other borrowing arrangement when such arrangement is an obligation in
excess of 5% of our tangible net worth or an event of default under any
indenture, facility or agreement that causes or permits the holder of such
obligation to cause such financing arrangement to become due and payable; (viii)
a default or breach under any other agreement beyond the applicable grace period
if such default or breach (a) involves the failure to make a payment in excess
of 5% of our tangible net worth or (b) causes or permits the holder of
indebtedness to cause, an amount in excess of 5% of our tangible net worth to
become due; (ix) our tangible net worth not equaling at least 80% of our
tangible net worth at December 31, 2003 plus 80% of any increase in our tangible
net worth thereafter; (x) the ratio of our debt to tangible net worth exceeding
3 to 1; or (xi) our failure to perform our servicing obligations. We have chosen
to monetize our receivables through the RFL Purchase Facility, the GE Purchase
Facility, the BB&T Purchase Facility (collectively, the "Purchase Facilities")
and, historically, other similar facilities, as these off-balance sheet
arrangements provide us with cash inflows both currently and in the future at
what we believe to be competitive rates without adding leverage to our balance
sheet or retaining recourse for losses on the receivables sold. In addition,
these sale transactions have generated gains on our income statement on a
quarterly basis, which would not be realized under a traditional financing
arrangement.
The Purchase Facilities discussed above are the only ongoing receivables
purchase facilities under which we currently have the ability to sell
receivables. We are currently negotiating terms for a potential new vacation
ownership receivables purchase facility with an unaffiliated financial
institution. There is no assurance that this potential new facility will be
obtained on favorable terms or at all. Factors which could adversely impact our
ability to obtain new or additional vacation ownership receivable purchase
facilities include a downturn in general economic conditions; negative trends in
the commercial paper or LIBOR markets; increases in interest rates; a decrease
in the number of financial institutions or other entities willing to enter into
facilities with vacation ownership companies; a deterioration in the performance
of our vacation ownership notes receivable or in the performance of portfolios
sold in prior transactions, specifically increased delinquency, default and loss
severity rates; and a deterioration in our performance generally. There can be
no assurance that we will obtain new purchase facilities to replace the Purchase
Facilities when these facilities are fully funded or expire. As indicated above,
our inability to sell vacation ownership receivables under a current or future
facility could have a material adverse impact on our liquidity. However,
management believes that to the extent we could not sell receivables under a
purchase facility, we could potentially mitigate the adverse impact on our
liquidity by using our receivables as collateral under existing or future credit
facilities.
Historically, we have also been a party to a number of securitization-type
transactions, all of which in our opinion utilize customary structures and terms
for transactions of this type. In each securitization-type transaction, we sold
receivables to a wholly-owned special purpose entity which, in turn, sold the
receivables either directly to third parties or to a trust established for the
transaction. In each transaction, the receivables were sold on a non-recourse
basis (except for breaches of certain representations and warranties) and the
special purpose entity has a retained interest in the receivables sold. We have
acted as servicer of the receivables pools in each transaction for a fee, with
the servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, make
interest and principal payments to investors, fund required reserves, if any,
and pay
54
distributions in respect of the retained interests in the receivables. Pursuant
to the terms of the transaction documents, however, to the extent the portfolio
of receivables fails to satisfy specified performance criteria (as may occur due
to an increase in default rates or loan loss severity) or other trigger events,
the funds received from obligors are distributed on an accelerated basis to
investors. In effect, during a period in which the accelerated payment formula
is applicable, funds go to outside investors until they receive the full amount
owed to them and only then are payments made to our subsidiary in its capacity
as the holder of the retained interests. Depending on the circumstances and the
transaction, the application of the accelerated payment formula may be permanent
or temporary until the trigger event is cured. If the accelerated payment
formula were to become applicable, the cash flow on the retained interests in
the receivables would be reduced until the outside investors were paid or the
regular payment formula was resumed. Such a reduction in cash flow could cause a
decline in the fair value of our retained interests in the receivables sold.
Declines in fair value that are determined to be other than temporary are
charged to operations in the current period. In each facility, the failure of
the pool of receivables to comply with specified portfolio covenants can create
a trigger event, which results in the use of the accelerated payment formula (in
certain circumstances until the trigger event is cured and in other
circumstances permanently) and, to the extent there was any remaining commitment
to purchase receivables from our special purpose subsidiary, the suspension or
termination of that commitment. In addition, in each securitization facility
certain breaches of our obligations as servicer or other events allow the
indenture trustee to cause the servicing to be transferred to a substitute third
party servicer. In that case, our obligation to service the receivables would
terminate and we would cease to receive a servicing fee.
We recognized an other-than-temporary decrease of $2.1 million during the year
ended December 31, 2004, in the fair value of our retained interest in a 2002
vacation ownership receivables securitization transaction, based on higher than
projected default rates in the portfolio sold.
The following is a summary of significant financial information related to the
Purchase Facilities and prior similar facilities during the periods presented
below (in thousands):
December 31, December 31,
2003 2004
------------ ------------
On Balance Sheet:
Retained interests in notes
receivable sold $ 60,975 $ 72,099
Servicing assets (included in
other assets) 2,677 3,357
Off-Balance Sheet:
Notes receivable sold without
recourse 266,662 326,076
Principal balance owed to
note receivable purchasers 238,258 297,122
Year Ended
------------------------------------------
December 31, December 31, December 31,
2002 2003 2004
------------ ------------ ------------
Income Statement:
Gain on sales of notes receivable $12,101 $6,563 $ 8,612
Interest accretion on retained
interests in notes receivable
sold 5,556 5,076 4,743
Servicing fee income 3,311 3,841 4,423
Amortization of servicing assets (472) (758) (1,052)
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
In addition to the vacation ownership receivables purchase facilities discussed
above, we maintain various credit facilities with financial institutions that
provide receivable, acquisition and development financing for our vacation
ownership projects.
55
The GMAC Receivables Facility. In February 2003, we entered into a revolving
vacation ownership receivables credit facility (the "GMAC Receivables Facility")
with Residential Funding Corporation ("RFC"), an affiliate of GMAC. The
borrowing limit under the GMAC Receivables Facility, as increased by amendment,
is $75.0 million. The borrowing period on the GMAC Receivables Facility, as
amended, expires on September 15, 2006, and outstanding borrowings mature no
later than September 15, 2013. The GMAC Receivables Facility has detailed
requirements with respect to the eligibility of receivables for inclusion and
other conditions to funding. The borrowing base under the GMAC Receivables
Facility is 90% of the outstanding principal balance of eligible notes arising
from the sale of VOIs. The GMAC Receivables Facility includes affirmative,
negative and financial covenants and events of default. All principal and
interest payments received on pledged receivables are applied to principal and
interest due under the GMAC Receivables Facility. Indebtedness under the
facility bears interest at LIBOR plus 4.00% (6.40% at December 31, 2004). During
the year ended December 31, 2004, we pledged approximately $28.7 million in
aggregate principal balance of vacation ownership receivables under the GMAC
Receivables Facility and received $25.8 million in cash borrowings. As of
December 31, 2004, $32.9 million was outstanding under the GMAC Receivables
Facility.
The GMAC AD&C Facility. RFC has also provided us with a $75.0 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, as amended, expires on September 15, 2006, and outstanding
borrowings mature no later than September 15, 2010, although specific draws
typically are due four years from the borrowing date. Principal will be repaid
through agreed-upon release prices as VOIs are sold at the financed resorts,
subject to minimum required amortization. Indebtedness under the facility bears
interest at LIBOR plus 4.75% (7.15% at December 31, 2004). Interest payments are
due monthly. In September 2003, we borrowed $17.4 million under the GMAC AD&C
Facility in connection with our acquisition of The Fountains resort in Orlando,
Florida, all of which was still outstanding at December 31, 2004. During the
year ended December 31, 2004, we borrowed an additional $11.9 million under the
GMAC AD&C Facility to fund the development of VOIs at The Fountains. The balance
of our borrowings under the GMAC AD&C Facility is collateralized by VOIs and
land held for future development at our 51%-owned Big Cedar Wilderness Club
resort. As of December 31, 2004, $30.7 million was outstanding under the GMAC
AD&C Facility.
The Textron Facility. During December 2003, we signed a combination $30.0
million Acquisition and Development and Timeshare Receivables facility with
Textron Financial Corporation (the "Textron Facility"). The borrowing period for
acquisition and development loans under the Textron Facility expired on October
1, 2004, and outstanding acquisition and development borrowings mature no later
than January 1, 2006. The borrowing period for vacation ownership receivables
loans under the Textron Facility expires on March 1, 2006, and outstanding
vacation ownership receivables borrowings mature no later than June 30, 2009.
Principal is being repaid semi-annually commencing September 14, 2004, subject
to minimum required amortization, with the balance due upon the earlier of i)
the date that 85% of the VOIs in the financed resort are sold or ii) the
maturity date. Acquisition and development indebtedness under the facility bears
interest at the prime lending rate plus 1.25%, subject to a minimum interest
rate of 6.25%. Interest payments are due monthly. We utilized this facility to
borrow approximately $9.6 million of the purchase price of The Hammocks at
Marathon resort in December 2003. Receivable-backed borrowings under the Textron
Facility bears interest at the prime lending rate plus 1.00%, subject to a 6.00%
minimum interest rate. During the year ended December 31, 2004, we borrowed an
additional $996,000 under the Textron Facility to finance a portion of the cost
of renovations at The Hammocks at Marathon, and $4.8 million collateralized by
$5.3 million of vacation ownership receivables. As of December 31, 2004, $10.9
million was outstanding under the Textron Facility.
The RFL A&D Facility. On January 11, 2005, we entered into a $50.0 million
revolving credit facility with RFL (the "RFL A&D Facility"). We use the proceeds
from the RFL A&D Facility to finance the acquisition and development of vacation
ownership resorts. The RFL A&D Facility is secured by 1) a first mortgage and
lien on all assets purchased with the RFL A&D Facility; 2) a first assignment of
all construction contracts, related documents, building permits and completion
bond; 3) a negative pledge of
56
our interest in any management, marketing, maintenance or service contracts; and
4) a first assignment of all operating agreements, rents and other revenues at
the vacation ownership resorts which serve as collateral for the RFL A&D
Facility, subject to any requirements of the respective property owners'
associations. Borrowings under the RFL A&D Facility can be made through January
10, 2007. Principal payments will be effected through agreed-upon release prices
paid to RFL as vacation ownership interests in the resorts that serve as
collateral for the RFL A&D Facility are sold. The outstanding principal balance
of any borrowings under the RFL A&D Facility must be repaid by January 10, 2008.
The interest charged on outstanding borrowings will be the 30-day LIBOR plus
3.90%, subject to a 6.90% floor, and will be payable monthly. We are required to
pay a commitment fee equal to 1.00% of the $50.0 million facility amount, which
will be paid at the time of each borrowing under the RFL A&D Facility as 1.00%
of each borrowing with the balance being paid on the unutilized facility amount
on January 10, 2007. In addition, we are required to pay a program fee equal to
0.125% of the $50.0 million facility amount per annum, payable monthly. The RFL
A&D Facility documents include customary conditions to funding, acceleration
provisions and certain financial affirmative and negative covenants. On January
11, 2005, we borrowed $9.5 million under the RFL A&D Facility in connection with
the acquisition of the Daytona Surfside Inn & Suites resort in Daytona Beach,
Florida (the "Daytona Resort"). The total commitment under the RFL A&D Facility
for the Daytona Resort is $14.7 million, the $5.2 million balance of which will
be borrowed during 2005 to fund refurbishment of the Daytona Resort.
Under an existing $30.0 million revolving credit facility with Wells Fargo
Foothill, Inc. ("Foothill") primarily used for borrowings collateralized by
Bluegreen Communities receivables and inventory, we can also borrow up to $10.0
million of the facility collateralized by the pledge of vacation ownership
receivables. See "Credit Facilities for Bluegreen Communities' Receivables and
Inventories," below, for further details on this facility.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
The Foothill Facility. We have a $30.0 million revolving credit facility with
Foothill secured by the pledge of Bluegreen Communities' receivables, with up to
$10.0 million of the total facility available for Bluegreen Communities'
inventory borrowings and, as indicated above, up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables (the
"Foothill Facility"). The Foothill Facility requires principal payments based on
agreed-upon release prices as homesites in the encumbered communities are sold
and bears interest at the prime lending rate plus 1.25% (6.50% at December 31,
2004), payable monthly. The interest rate charged on outstanding receivable
borrowings under the Foothill Facility, as amended, is the prime lending rate
plus 0.25% (5.50% at December 31, 2004) when the average monthly outstanding
loan balance is greater than or equal to $15.0 million. If the average monthly
outstanding loan balance is less than $15.0 million, the interest rate is the
greater of 4.00% or the prime lending rate plus 0.50% (5.75% at December 31,
2004). All principal and interest payments received on pledged receivables are
applied to principal and interest due under the Foothill Facility. We can borrow
under the Foothill Facility through December 31, 2006. At December 31, 2004, the
outstanding principal balance under this facility was approximately $12.7
million, approximately $6.7 million of which is collateralized by our Traditions
of Braselton golf course community in Braselton, Georgia, $4.3 million of which
related to Bluegreen Communities' receivables borrowings and $1.6 million of
which related to Bluegreen Resorts' receivables borrowings. Outstanding
indebtedness related to the Traditions of Braselton borrowing is due on March
10, 2006 and the maturity date for borrowings collateralized by receivables is
December 31, 2008.
The GMAC Communities Facility. We have a $50.0 million revolving credit facility
with RFC (the "GMAC Communities Facility"). The GMAC Communities Facility is
secured by the real property homesites (and personal property related thereto)
at the following Bluegreen Communities projects, as well as any Bluegreen
Communities projects acquired by us with funds borrowed under the GMAC
Communities Facility (the "Secured Projects"): Brickshire (New Kent County,
Virginia); Mountain Lakes Ranch (Bluffdale, Texas); Ridge Lake Shores (Magnolia,
Texas); Riverwood Forest (Fulshear, Texas); Waterstone (Boerne, Texas); Catawba
Falls Preserve (Black Mountain, North Carolina); Lake Ridge at Joe Pool Lake
(Cedar Hill and Grand Prairie, Texas); Mystic Shores at Canyon Lake (Spring
Branch, Texas); and
57
Yellowstone Creek Ranch (Pueblo, Colorado). In addition, the GMAC Communities
Facility is secured by our Carolina National and The Preserve at Jordan Lake
golf courses in Southport, North Carolina and Chapel Hill, North Carolina,
respectively. Borrowings can be drawn on such projects through September 25,
2006. Principal payments are effected through agreed-upon release prices paid to
RFC as homesites in the Secured Projects are sold. The outstanding principal
balance of any borrowings under the GMAC Communities Facility must be repaid by
September 25, 2006. The interest charged on outstanding borrowings is at the
prime lending rate plus 1.00% (6.25% at December 31, 2004) and is payable
monthly. The GMAC Communities Facility includes customary conditions to funding,
acceleration and event of default provisions and certain financial affirmative
and negative covenants. We use the proceeds from the GMAC Communities Facility
to repay outstanding indebtedness on Bluegreen Communities projects, finance the
acquisition and development of Bluegreen Communities projects and for general
corporate purposes. As of December 31, 2004, $6.5 million was outstanding under
the GMAC Communities Facility.
Over the past several years, substantially all of our homesite sales have been
for cash and we have not provided a significant amount of financing to homesite
purchasers. Accordingly, in recent years we have reduced the borrowing capacity
under credit agreements secured by Bluegreen Communities' receivables. We
attribute the significant volume of cash sales to an increased willingness on
the part of banks to extend direct customer homesite financing at attractive
interest rates. No assurances can be given that local banks will continue to
provide such customer financing.
Historically, we have funded development for road and utility construction,
amenities, surveys and engineering fees from internal operations and have
financed the acquisition of Bluegreen Communities properties through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be paid monthly and principal to be repaid
through homesite releases. The release price is usually an amount based on a
pre-determined percentage (typically 25% to 55%) of the gross selling price of
the homesites in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When we provide financing for our
customers (and therefore the release price is not available in cash at closing
to repay the lender), we are required to pay the lender with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Trust Preferred Debt
We have also formed a statutory business trust ("Trust") for the purpose of
issuing Trust Preferred Securities ("trust preferred securities") and investing
the proceeds thereof in our junior subordinated debentures. On March 15, 2005,
the Trust issued $22.5 million of trust preferred securities. The Trust used the
proceeds from issuing trust preferred securities to purchase an identical amount
of junior subordinated debentures from us. Interest on the junior subordinated
debentures and distributions on the trust preferred securities will be payable
quarterly in arrears at a fixed rate of 9.16% through March 30, 2010 and
thereafter at a floating rate of 4.90% over 3-month LIBOR until the scheduled
maturity date of March 30, 2035. Distributions on the trust preferred securities
will be cumulative and based upon the liquidation value of the trust preferred
security. The trust preferred securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we contributed $696,000 to the Trust in
exchange for the Trust's common securities, all of which are owned by us, and
those proceeds were also used to purchase an identical amount of junior
subordinated debentures from us. The terms of the Trust's common securities are
nearly identical to the trust preferred securities.
The issuance of trust preferred securities was part of a larger pooled trust
securities offering which was not registered under the Securities Act of 1933.
Proceeds will be used for general corporate purposes. We also expect to create
similar trusts and participate in other pooled trust preferred securities
transactions in the future as a source of additional financing for our
operations.
58
Unsecured Credit Facility
We have a $15.0 million unsecured line-of-credit with Wachovia Bank, N.A.
Amounts borrowed under the line bear interest at LIBOR plus 2.0% (4.4% at
December 31, 2004). Interest is due monthly and all outstanding amounts are due
on June 30, 2006. We are only allowed to borrow under the line-of-credit in
amounts less than the remaining availability under our current, active vacation
ownership receivables purchase facilities plus availability under certain
receivables warehouse facilities, less any outstanding letters of credit. The
line-of-credit agreement contains certain covenants and conditions typical of
arrangements of this type. As of December 31, 2004, no borrowings were
outstanding under the line. there are an aggregate of $1.6 million of
irrevocable letters of credit under this line-of-credit which were required in
connection with the obtaining of plats for one of our Bluegreen Communities
projects. These letters of credit expire in 2005. This line-of-credit is an
available source of short-term liquidity for us, although we have not drawn any
borrowings under this facility recently.
Commitments
Our material commitments as of December 31, 2004 included the required payments
due on our receivable-backed debt, lines of credit and other notes payable,
commitments to complete our vacation ownership and communities projects based on
our sales contracts with customers and commitments under noncancelable operating
leases.
The following table summarizes the contractual minimum principal payments
required on all of our outstanding debt (including our receivable-backed debt,
lines-of-credit and other notes and debentures payable) and our noncancelable
operating leases as of December 31, 2004, by period due (in thousands):
Payments Due by Period
--------------------------------------------------
Less
than 1 -- 3 4 -- 5 After 5
Contractual Obligations 1 year Years Years Years Total
----------------------- ------ ------- -------- ------- --------
Receivable-backed notes payable $ -- $ -- $ 10,774 $32,921 $ 43,695
Lines-of-credit and notes payable 30,962 40,944 44 -- 71,950
10.5% senior secured notes -- -- 110,000 -- 110,000
Noncancelable operating leases 5,661 8,304 5,475 5,592 25,032
------- ------- -------- ------- --------
Total contractual obligations $36,623 $49,248 $126,293 $38,513 $250,677
======= ======= ======== ======= ========
We intend to use cash flow from operations, including cash received from the
sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
principal payments in the Contractual Obligations. While we believe that we will
be able to meet all required debt payments when due, there can be no assurance
that this will be the case.
As noted above, we have $1.6 million in letters-of-credit outstanding at
December 31, 2004, all of which were issued under the unsecured line-of-credit
with Wachovia Bank, N.A. These letters-of-credit, which expire in 2005, were
required in connection with the obtaining of governmental approval of plats for
one of our Bluegreen Communities projects.
We estimate that the total cash required to complete resort buildings in which
sales have occurred and resort amenities and other common costs in projects in
which sales have occurred to be approximately $28.1 million as of December 31,
2004. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $84.4
million as of December 31, 2004. These amounts assume that we are not obligated
to develop any building, project or amenity in which a commitment has not been
made through a sales contract to a customer; however, we anticipate that we will
incur such obligations in the future. We plan to fund these expenditures over
the next five years primarily with available capacity on existing or proposed
credit facilities and cash generated from
59
operations. There can be no assurance that we will be able to obtain the
financing or generate the cash from operations necessary to complete the
foregoing plans or that actual costs will not exceed those estimated.
During 2004, we executed various agreements with Carolinian Resort Development
LLC ("CRD") to develop a vacation ownership resort in Myrtle Beach, South
Carolina (the "Carolinian Resort"). CRD is obtaining zoning and other approvals
(collectively, the "Approvals") for this project and is responsible for
constructing the Carolinian Resort for sale to us upon its completion pursuant
to plans and specifications agreed-upon by us. The purchase price of the
completed Carolinian Resort is anticipated to be $20.6 million, $2.9 million of
which has been paid by us as a deposit and is being held in escrow as of
December 31, 2004. Should CRD default under the agreements governing the
construction and sale of the Carolinian Resort to us, we may exercise certain
remedies including termination of the agreements and receiving a refund for our
deposit or obtaining specific performance. The Carolinian Resort is expected to
be completed in November 2005. RFC has agreed to provide financing to us for the
purchase of the Carolinian Resort under the GMAC AD&C Facility, and hence this
borrowing would mature in November 2009. See "Liquidity and Capital Resources --
Credit Facilities for Bluegreen Resorts' Receivables and Inventories" for a
discussion of the terms of the GMAC AD&C Facility.
We believe that our existing cash, anticipated cash generated from operations,
anticipated future permitted borrowings under existing or proposed credit
facilities and anticipated future sales of notes receivable under the purchase
facility and one or more replacement facilities we will seek to put in place
will be sufficient to meet our anticipated working capital, capital expenditures
and debt service requirements for the foreseeable future. We will be required to
renew or replace credit and receivables purchase facilities that have expired or
that will expire in the near term. We will, in the future, also require
additional credit facilities or will be required to issue corporate debt or
equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us may be secured or unsecured, bear fixed or variable
rate interest and may be subject to such terms as the lender may require and
management deems prudent. There can be no assurance that the credit facilities
or receivables purchase facilities which have expired or which are scheduled to
expire in the near term will be renewed or replaced or that sufficient funds
will be available from operations or under existing, proposed or future
revolving credit or other borrowing arrangements or receivables purchase
facilities to meet our cash needs, including, our debt service obligations. To
the extent we are not able to sell notes receivable or borrow under such
facilities, our ability to satisfy our obligations would be materially adversely
affected.
We have a large number of credit facilities, indentures, and other outstanding
debt instruments, and receivables purchase facilities which include customary
conditions to funding, eligibility requirements for collateral, cross-default
and other acceleration provisions, certain financial and other affirmative and
negative covenants, including, among others, limits on the incurrence of
indebtedness, limits on the repurchase of securities, payment of dividends,
investments in joint ventures and other restricted payments, the incurrence of
liens, transactions with affiliates, covenants concerning net worth, fixed
charge coverage requirements, debt-to-equity ratios, portfolio performance
requirements and events of default or termination. No assurance can be given
that we will not be required to seek waivers of such covenants or that such
covenants will not limit our ability to raise funds, sell receivables, satisfy
or refinance our obligations or otherwise adversely affect our operations. In
addition, our future operating performance and ability to meet our financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond our control.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Risk
Our total revenues and net assets denominated in a currency other than U.S.
dollars during the year ended December 31, 2004 were less than 1% of
consolidated revenues and consolidated assets, respectively. Sales generated and
long-term debt incurred to date by Bluegreen Properties, N.V., our subsidiary in
Aruba, are transacted in U.S. dollars. The effects of changes in foreign
currency exchange rates have not historically been significant to our operations
or net assets.
60
Interest Rate Risk
We sold $125.6 million, $110.5 million and $ 149.2 of fixed-rate vacation
ownership notes receivable during the nine months ended December 31, 2002, the
year ended December 31, 2003, and the year ended December 31, 2004,
respectively, under the Purchase Facilities, the 2002 Term Securitization, the
2004 Term Securitization (the latter two collectively, the "Term
Securitizations") and previous timeshare receivable purchase facilities (see
Note 5 of the Notes to Consolidated Financial Statements). Our gain on sale
recognized is generally based upon either fixed or variable interest rates at
the time of sale including the prevailing weighted-average term treasury rate,
commercial paper rates or LIBOR rates (depending on the purchase facility in
effect) and many other factors including, but not limited to the
weighted-average coupon rate and remaining contractual life of the loans sold,
and assumptions regarding the constant prepayment rate, loss severity, annual
default and discount rates. We believe that we have used appropriate assumptions
in valuing the residual interests retained in the vacation ownership and land
notes sold through the Purchase Facilities and the Term Securitizations and that
such assumptions should mitigate the impact of a hypothetical one-percentage
point interest rate change on these valuations, but there is no assurance that
the assumptions will prove to be correct.
As of December 31, 2004, we had fixed interest rate debt of approximately $112.7
million and floating interest rate debt of approximately $112.9 million. In
addition, our notes receivable from VOI and homesite customers were comprised of
$125.5 million of fixed rate loans and $6.4 million of notes bearing floating
interest rates. The floating interest rates are based either upon the prevailing
prime or LIBOR interest rates. For floating rate financial instruments, interest
rate changes do not generally affect the market value of debt but do impact
future earnings and cash flows, assuming other factors are held constant.
Conversely, for fixed rate financial instruments, interest rate changes affect
the market value of the debt but do not impact earnings or cash flows.
A hypothetical one-percentage point increase in the prevailing prime or LIBOR
rates, as applicable, would decrease our after-tax earnings by an immaterial
amount per year, based on the impact of increased interest expense on variable
rate debt, partially offset by the increased interest income on variable rate
Bluegreen Communities notes receivable and cash and cash equivalents. A similar
change in the interest rate would decrease the total fair value of our fixed
rate debt, excluding our 10.5% senior secured notes payable (the "Notes"), by an
immaterial amount. The fact that the Notes are publicly traded in the
over-the-counter market makes it impractical to estimate the effect of the
hypothetical change in interest rates on the fair value of the Notes. Due to the
non-interest related factors involved in determining the fair value of these
publicly traded securities, their fair values have historically demonstrated
increased, decreased or at times contrary relationships to changes in interest
rates as compared to other types of fixed-rate debt securities. The analyses do
not consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of such a change, we
would likely attempt to take actions to mitigate our exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in our
financial structure.
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BLUEGREEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, December 31,
2003 2004
------------ ------------
ASSETS
Cash and cash equivalents (including restricted cash of approximately $14,156
and $19,396 at December 31, 2003 and 2004, respectively) ....................... $ 53,647 $ 98,538
Contracts receivable, net ......................................................... 25,522 28,085
Notes receivable, net ............................................................. 94,194 121,949
Prepaid expenses .................................................................. 9,925 7,810
Other assets ...................................................................... 19,711 22,359
Inventory, net .................................................................... 219,890 205,213
Retained interests in notes receivable sold ....................................... 60,975 72,099
Property and equipment, net ....................................................... 63,430 74,244
Intangible assets and goodwill .................................................... 3,728 4,512
-------- --------
Total assets ................................................................ $551,022 $634,809
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable .................................................................. $ 6,983 $ 11,552
Accrued liabilities and other ..................................................... 32,791 44,351
Deferred income ................................................................... 18,646 24,235
Deferred income taxes ............................................................. 43,924 58,150
Receivable-backed notes payable ................................................... 24,921 43,696
Lines-of-credit and notes payable ................................................. 87,858 71,949
10.50% senior secured notes payable ............................................... 110,000 110,000
8.25% convertible subordinated debentures ......................................... 34,371 --
-------- --------
Total liabilities .............................................................. 359,494 363,933
Minority interest ................................................................. 4,648 6,009
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued ............. -- --
Common stock, $.01 par value, 90,000 shares authorized; 27,702 and 32,990 shares
issued at December 31, 2003 and 2004, respectively ............................. 277 330
Additional paid-in capital ........................................................ 124,931 167,408
Treasury stock, 2,756 common shares at both December 31, 2003 and 2004, at cost ... (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes ....................... 1,830 832
Retained earnings ................................................................. 72,727 109,182
-------- --------
Total shareholders' equity ..................................................... 186,880 264,867
-------- --------
Total liabilities and shareholders' equity .................................. $551,022 $634,809
======== ========
See accompanying notes to consolidated financial statements.
62
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Nine Months Ended Year Ended Year Ended
December 31, December 31, December 31,
2002 2003 2004
----------------- ------------ ------------
Revenues:
Sales of real estate ....................................... $222,655 $358,312 $502,396
Other resort and communities operations revenue ............ 27,048 55,394 69,032
Interest income ............................................ 12,235 17,536 21,583
Gain on sales of notes receivable .......................... 10,035 6,563 8,612
Other income ............................................... -- 649 --
-------- -------- --------
271,973 438,454 601,623
Cost and expenses:
Cost of real estate sales .................................. 77,923 109,010 179,722
Cost of other resort and communities operations ............ 27,243 61,021 71,728
Selling, general and administrative expenses ............... 127,960 202,968 263,663
Interest expense ........................................... 9,824 14,036 15,046
Provision for loan losses .................................. 2,832 6,094 7,154
Other expense .............................................. 1,520 -- 969
-------- -------- --------
247,302 393,129 538,282
-------- -------- --------
Income before minority interest and provision for income
taxes ...................................................... 24,671 45,325 63,341
Minority interest in income of consolidated subsidiary ........ 816 3,330 4,065
-------- -------- --------
Income before provision for income taxes ...................... 23,855 41,995 59,276
Provision for income taxes .................................... 8,479 16,168 22,821
-------- -------- --------
Income before cumulative effect of change in accounting
principle .................................................. 15,376 25,827 36,455
Cumulative effect of change in accounting principle, net of
income taxes (see Note 1) .................................. (5,929) -- --
Minority interest in cumulative effect of change in
accounting principle, net of income taxes .................. 350 -- --
-------- -------- --------
Net income .................................................... $ 9,797 $ 25,827 $ 36,455
======== ======== ========
Earnings per common share:
Basic:
Income before cumulative effect of change in accounting
principle ............................................ $ .63 $ 1.05 $ 1.39
Cumulative effect of change in accounting principle,
net of income taxes and minority interest ............ (.23) -- --
-------- -------- --------
Net income .............................................. $ .40 $ 1.05 $ 1.39
======== ======== ========
Diluted:
Income before cumulative effect of change in accounting
principle ............................................ $ .58 $ .94 $ 1.23
Cumulative effect of change in accounting principle,
net of income taxes and minority interest ............ (.19) -- --
-------- -------- --------
Net income .............................................. $ .39 $ .94 $ 1.23
======== ======== ========
Weighted-average number of common and common equivalent
shares:
Basic ...................................................... 24,472 24,671 26,251
======== ======== ========
Diluted .................................................... 28,783 29,263 30,677
======== ======== ========
See accompanying notes to consolidated financial statements.
63
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Additional Treasury Comprehensive
Shares Common Paid-in Stock at Income, Net of Retained
Issued Stock Capital Cost Income Taxes Earnings Total
------ ------ ---------- -------- -------------- -------- ---------
Balance at March 31, 2002 ............... 27,059 $271 $122,734 $(12,885) $ 2,433 $ 37,103 $149,656
Net income .............................. -- -- -- -- -- 9,797 9,797
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes and
reclassification adjustments ......... -- -- -- -- (1,973) -- (1,973)
--------
Comprehensive income .................... 7,824
Shares issued upon exercise of stock
options .............................. 284 2 681 -- -- -- 683
Income tax benefit from stock
options exercised .................... -- -- 120 -- -- -- 120
------ ---- -------- -------- ------- -------- --------
Balance at December 31, 2002 ............ 27,343 273 123,535 (12,885) 460 46,900 158,283
Net income .............................. -- -- -- -- -- 25,827 25,827
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes .................. -- -- -- -- 1,370 -- 1,370
--------
Comprehensive income .................... 27,197
Shares issued upon exercise of stock
options .............................. 359 4 1,208 -- -- -- 1,212
Income tax benefit from stock
options exercised .................... -- -- 188 -- -- -- 188
------ ---- -------- -------- ------- -------- --------
Balance at December 31, 2003 ............ 27,702 277 124,931 (12,885) 1,830 72,727 186,880
Net income .............................. -- -- -- -- -- 36,455 36,455
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes and
reclassification adjustments ......... -- -- -- -- (998) -- (998)
--------
Comprehensive income .................... 35,457
Shares issued upon exercise of stock
options .............................. 1,150 12 6,582 -- -- -- 6,594
Income tax benefit from stock
options exercised .................... -- -- 1,961 -- -- -- 1,961
Shares issued in connection with
conversion of 8.25% convertible
subordinated debentures .............. 4,138 41 33,934 -- -- -- 33,975
------ ---- -------- -------- ------- -------- --------
Balance at December 31, 2004 ............ 32,990 $330 $167,408 $(12,885) $ 832 $109,182 $264,867
====== ==== ======== ======== ======= ======== ========
See accompanying notes to conso lidated financial statements.
64
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended Year Ended Year Ended
December 31, December 31, December 31,
2002 2003 2004
----------------- ------------ ------------
Operating activities:
Net income ............................................................. $ 9,797 $ 25,827 $ 36,455
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle, net ............ 5,929 -- --
Minority interest in income of consolidated subsidiary .............. 466 3,330 4,065
Depreciation ........................................................ 4,597 7,811 9,769
Amortization ........................................................ 5,741 5,812 4,901
Amortization of discount on note payable ............................ 40 -- --
Gain on sales of notes receivable ................................... (10,035) (6,563) (8,612)
Loss (gain) on sales of property and equipment ...................... 218 (76) 455
Gain on exchange of REMIC certificates .............................. (409) -- --
Provision for loan losses ........................................... 2,832 6,094 7,154
Provision for deferred income taxes ................................. 3,813 12,644 14,843
Interest accretion on retained interests in notes receivable sold ... (4,417) (5,076) (4,743)
Proceeds from sales of notes receivable ............................. 72,418 93,918 130,990
Proceeds from borrowings collateralized by notes receivable ......... 2,746 29,979 32,070
Payments on borrowings collateralized by notes receivable ........... (11,681) (10,691) (13,243)
Changes in operating assets and liabilities, net of the effects
of business acquisition:
Contracts receivable ................................................ 5,655 (9,292) (2,563)
Notes receivable .................................................... (99,868) (152,527) (190,090)
Prepaid expenses .................................................... 322 (227) (589)
Inventory ........................................................... 22,378 12,210 47,210
Other assets ........................................................ (4,462) (5,382) (1,791)
Accounts payable, accrued liabilities and other ..................... 1,618 20,889 23,479
-------- --------- ---------
Net cash provided by operating activities .............................. 7,698 28,680 89,760
-------- --------- ---------
Investing activities:
Cash received from retained interests in notes receivable sold ...... 14,555 12,817 13,589
Principal payments received on investment in note receivable ........ -- 456 --
Business acquisition ................................................ (2,292) (500) (825)
Purchases of property and equipment ................................. (4,379) (11,893) (18,409)
Proceeds from sales of property and equipment ....................... 48 1,084 8
-------- --------- ---------
Net cash provided (used) by investing activities ....................... 7,932 1,964 (5,637)
-------- --------- ---------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable .................................................... 18,696 40,125 60,657
Payments under line-of-credit facilities and notes payable .......... (27,470) (49,978) (100,479)
Payment of 8.00% convertible, subordinated notes payable to
related parties .................................................. (6,000) -- --
Payment of 8.25% subordinated convertible debentures ................ -- -- (273)
Payment of debt issuance costs ...................................... (2,688) (2,632) (5,731)
Proceeds from exercise of employee and director stock options ....... 683 1,212 6,594
-------- --------- ---------
Net cash used by financing activities .................................. (16,779) (11,273) (39,232)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................... (1,149) 19,371 44,891
Cash and cash equivalents at beginning of period ....................... 35,425 34,276 53,647
-------- --------- ---------
Cash and cash equivalents at end of period ............................. 34,276 53,647 98,538
Restricted cash and cash equivalents at end of period .................. (8,064) (14,156) (19,396)
-------- --------- ---------
Unrestricted cash and cash equivalents at end of period ................ $ 26,212 $ 39,491 $ 79,142
======== ========= =========
65
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(in thousands)
Nine Months Ended Year Ended Year Ended
December 31, December 31, December 31,
2002 2003 2004
----------------- ------------ ------------
Supplemental schedule of non-cash operating, investing and
financing activities:
Inventory acquired through foreclosure or deedback in lieu of
foreclosure .............................................. $ 3,951 $ 6,570 $10,926
======= ======= =======
Inventory acquired through financing ........................ $ 2,336 $52,399 $21,276
======= ======= =======
Exchange of REMIC certificates for notes receivable and
inventory in connection with termination of REMIC ........ $ 2,047 $ -- $ --
======= ======= =======
Property and equipment acquired through financing ........... $ 545 $ 8,569 $ 2,637
======= ======= =======
Offset of Joint Venture distribution of operating proceeds to
minority interest against the Prepayment (see Note 4) .... $ -- $ 1,932 $ 2,704
======= ======= =======
Retained interests in notes receivable sold ................. $18,085 $22,260 $25,467
======= ======= =======
Notes receivable acquired through financing ................. $ -- $ 2,334 $ --
======= ======= =======
Change in unrealized gains on retained interests in notes
receivable sold, net of income taxes and reclassification
adjustments .............................................. $ 2,997 $ 2,228 $ 875
======= ======= =======
Conversion of 8.25% subordinated convertible debentures into
common stock ............................................. $ -- $ 2,334 $34,098
======= ======= =======
Income tax benefit from stock options exercised ............. $ -- $ 362 $ 1,961
======= ======= =======
Supplemental schedule of operating cash flow information:
Interest paid, net of amounts capitalized ................... $13,455 $13,600 $15,945
======= ======= =======
Income taxes paid ........................................... $ 745 $ 1,634 $ 6,055
======= ======= =======
See accompanying notes to consolidated financial statements.
66
BLUEGREEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization
We are a leading provider of leisure products and lifestyle choices through
our resorts and residential communities businesses. Our resorts business
("Bluegreen(R) Resorts") acquires, develops and markets vacation ownership
interests ("VOIs") in resorts generally located in popular, high-volume,
"drive-to" vacation destinations. VOIs in any of our resorts entitle the buyer
to an annual allotment of "points" in perpetuity (supported by an underlying
deeded vacation ownership interest held in trust for the buyer) in the Bluegreen
Vacation Club(R). Owners in the Bluegreen Vacation Club may use their points to
stay in any of our participating resorts or for other vacation options,
including cruises and stays at approximately 3,700 resorts offered by
third-party vacation ownership exchange networks. We are currently marketing and
selling VOIs in 18 resorts located in the United States and Aruba, 16 of which
have active sales offices. We also sell VOIs at four off-site sales offices
located in the United States. Our residential communities business ("Bluegreen
Communities") acquires, develops and subdivides property and markets residential
homesites, the majority of which are sold directly to retail customers who seek
to build a home in a high quality residential setting, in some cases on
properties featuring a golf course and other related amenities. During the year
ended December 31, 2004, sales generated by Bluegreen Resorts comprised
approximately 62% of our total sales of real estate while sales generated by
Bluegreen Communities comprised approximately 38% of our total sales of real
estate. Our other resort and communities operations revenues consist primarily
of mini-vacation package sales, vacation ownership tour sales, resort property
management services, resort title services, resort amenity operations, rental
income, realty operations and daily-fee golf course operations. We also generate
significant interest income by providing financing to individual purchasers of
VOIs and, to a lesser extent, homesites sold by Bluegreen Communities.
Fiscal Year
On October 14, 2002, our Board of Directors approved a change in our fiscal
year from a 52- or 53-week period ending on the Sunday nearest the last day of
March in each year to the calendar year ending on December 31, effective for the
nine months ended December 31, 2002.
Principles of Consolidation
Our consolidated financial statements include the accounts of all of our
wholly-owned subsidiaries and entities in which we hold a controlling financial
interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the "Joint Venture"), as we hold a 51%
equity interest in the Joint Venture, have an active role as the day-to-day
manager of the Joint Venture's activities and have majority voting control of
the Joint Venture's management committee. We have eliminated all significant
intercompany balances and transactions.
Use of Estimates
U.S. generally accepted accounting principles requires us to make estimates
and assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
We invest cash in excess of our immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities at the date of purchase of three months or less. We maintain cash and
cash equivalents with various financial institutions. These financial
institutions are located throughout the United States, Canada and Aruba. Our
policy is designed to limit exposure to any one institution. However, a
significant portion of our unrestricted cash is maintained with a single bank
and, accordingly, we are subject to credit risk. Periodic evaluations of the
relative credit standing of financial institutions maintaining our deposits are
performed to evaluate and mitigate, if necessary, credit risk.
67
Restricted cash consists primarily of customer deposits held in escrow
accounts and cash pledged to our various lenders in connection with our
receivable-backed notes payable credit arrangements.
Revenue Recognition and Contracts Receivable
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66, Accounting for Sales of Real Estate, we recognize
revenue on homesite sales and sales of VOIs when a minimum of 10% of the sales
price has been received in cash, the legal rescission period has expired,
collectibility of the receivable representing the remainder of the sales price
is reasonably assured and we have completed substantially all of our obligations
with respect to any development related to the real estate sold. In cases where
all of the development has not been completed, we recognize revenue in
accordance with the percentage-of-completion method of accounting.
Sales, which do not meet the criteria for revenue recognition described
above, are deferred using the deposit method. Under the deposit method, cash
received from customers is classified as a refundable deposit in the liability
section of our consolidated balance sheets and profit recognition is deferred
until the requirements of SFAS No. 66 are met.
Contracts receivable consists of 1) amounts receivable from customers on
recent sales of VOIs pending recording of the customers' notes receivable in our
loan servicing system; 2) receivables related to unclosed retail homesite sales;
and 3) receivables from third-party escrow agents on recently closed retail
homesite sales. Contracts receivable is reflected net of an allowance for
cancellations of unclosed Bluegreen Communities' sales contracts, which totaled
approximately $718,000 and $480,000 at December 31, 2003 and 2004, respectively.
Contracts receivable is also stated net of a reserve for loan losses of $573,000
and $676,000 at December 31, 2003 and 2004, respectively.
Our other resort and communities operations revenues consist primarily of
sales and service fees from the activities listed below together with a brief
description of the applicable revenue recognition policy:
Activity Revenue is recognized as:
-------------------------------------------- ------------------------------------------------------
Mini-vacation package sales................. Mini-vacation packages are fulfilled (i.e.,
guests use mini-vacation packages to stay at
a hotel, take a cruise, etc.)
Vacation ownership tour sales............... Vacation ownership tour sales commissions are
earned per contract terms.
Resort title fees........................... Escrow amounts are released and title documents
are completed.
Management fees............................. Management services are rendered.
Rental commissions.......................... Rental services are provided.
Rental income............................... Guests complete stays at the resorts.
Realty commissions.......................... Sales of third-party-owned real estate are completed.
Golf course and ski hill daily fees......... Services are provided.
Our cost of other resort and communities operations consists of the costs
associated with the various revenues described above as well as developer
subsidies and maintenance fees on our unsold VOIs.
Notes Receivable
Our notes receivable are carried at amortized cost. Interest income is
suspended and previously accrued but unpaid interest income is reversed on all
delinquent notes receivable when principal or interest payments are more than
three months contractually past due and not resumed until such loans are less
than three months past due. As of December 31, 2003 and 2004, $4.2 million and
$6.5 million, respectively, of notes receivable were more than three months
contractually past due and, hence, were not accruing interest income.
68
We estimate credit losses on our notes receivable portfolios in accordance
with SFAS No. 5, Accounting for Contingencies, as our notes receivable
portfolios consist of a large group of smaller-balance, homogeneous loans.
Consistent with Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance
Methodology and Documentation Issues, we first segment our notes receivable by
identifying risk characteristics that are common to groups of loans and then
estimate credit losses based on the risks associated with these segments. We
consider many factors when establishing and evaluating the adequacy of our
reserve for loan losses. These factors include recent and historical default
rates, static pool analyses, current delinquency rates, contractual payment
terms, loss severity rates along with present and expected economic conditions.
We review these factors and measure loan impairment by applying historical loss
rates, adjusted for relevant environmental and collateral values, to the
segments' aggregate loan balances. We adjust our reserve for loan losses on at
least a quarterly basis. We generally charge off loans in the month subsequent
to when they become four months contractually past due.
Retained Interest in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation ownership
receivables purchase facilities (more fully described in Note 5) or term
securitizations, we evaluate whether or not such transfers should be accounted
for as a sale pursuant to SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities and related
interpretations. The evaluation of sale treatment under SFAS No. 140 involves
legal assessments of the transactions, which include determining whether the
transferred assets have been isolated from us (i.e. put presumptively beyond our
reach and our creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the assets it
received, and ensuring that we do not maintain effective control over the
transferred assets through either an agreement that (1) both entitles and
obligates us to repurchase or redeem the assets before their maturity or (2)
provides us with the ability to unilaterally cause the holder to return the
assets (other than through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, unrealized gains or losses on our retained
interests in notes receivable sold are included in our shareholders' equity, net
of income taxes. Declines in fair value that are determined to be other-than-
temporary are charged to operations.
We measure the fair value of the retained interests in the notes receivable
sold initially and periodically based on the present value of future expected
cash flows estimated using our best estimates of the key assumptions -
prepayment rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. We revalue our retained interests in notes
receivable sold on a quarterly basis.
Interest on the retained interests in notes receivable sold is accreted
using the effective yield method.
Inventory
Our inventory consists of completed VOIs, VOIs under construction, land
held for future vacation ownership development and residential land acquired or
developed for sale. We carry our inventory at the lower of cost, including costs
of improvements and amenities incurred subsequent to acquisition, capitalized
interest, real estate taxes and other costs incurred during construction, or
estimated fair value, less costs to dispose. Homesites and VOIs reacquired
through foreclosure or deedback in lieu of foreclosure are recorded at the lower
of fair value, net of costs to dispose. We periodically evaluate the recovery of
the carrying amount of our individual resort and residential communities
properties under the guidelines of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, (see Note 7).
Property and Equipment
Our property and equipment are stated at cost. We record depreciation and
amortization in a manner that recognizes the cost of our depreciable assets in
operations over their estimated useful lives using the straight-line method.
Leasehold improvements are amortized over the shorter of the terms of the
underlying leases or the
69
estimated useful lives of the improvements. Depreciation expense includes the
amortization of assets recorded under capital leases.
Goodwill and Intangible Assets
We account for our goodwill and intangible assets under the provisions of
SFAS No. 142, Goodwill and Other Intangible Assets. This statement requires that
goodwill and intangible assets deemed to have indefinite lives not be amortized,
but rather be tested for impairment on an annual basis. Finite-lived intangible
assets are required to be amortized over their useful lives and are subject to
impairment evaluation under the provisions SFAS No. 144. Our intangible assets
relate to customer lists that were acquired in connection with the business
combination discussed in Note 2. The customer lists are amortized as the related
leads and mini-vacation packages are fulfilled or become expired. See Note 9 for
further discussion.
Treasury Stock
We account for repurchases of our common stock using the cost method with
common stock in treasury classified in our consolidated balance sheets as a
reduction of shareholders' equity.
Advertising Expense
We expense advertising costs as incurred. Advertising expense was $47.9
million for the nine months ended December 31, 2002, $70.8 million for the year
ended December 31, 2003 and $89.4 million for the year ended December 31, 2004.
Advertising expense is included in selling, general and administrative expenses
in our consolidated statements of income.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure,
encourages, but does not require companies to record compensation cost for
employee stock options at fair value. We have elected to continue to account for
our employee stock options using the intrinsic value method pursuant to
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Accordingly, compensation cost for
our employee stock options is measured as the excess, if any, of the quoted
market price of our stock at the date of the grant over the exercise price of
the option.
Pro forma information regarding net income and earnings per share as if we
had accounted for our employee stock options 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:
Nine Months
Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Risk free investment rate............. 2.0% 3.1% 2.1%
Dividend yield........................ 0.0% 0.0% 0.0%
Volatility factor..................... 69.8% 69.7% 65.0%
Life of option (years)................ 5.0 5.9 3.0
There were 40,000 stock options granted to certain of our non-employee
directors during the year ended December 31, 2004. Such stock options had a
grant date fair value of $4.88 per share.
70
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 for the purpose of providing pro forma disclosures are not
likely to be representative of the effects on reported pro forma net income for
future years, due to the impact of the staggered vesting periods of our stock
option grants. Our pro forma information is as follows (in thousands, except per
share data).
Nine Months Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Net income, as reported............ $9,797 $25,827 $36,455
Pro forma stock-based employee
compensation cost, net of
income taxes.................... (189) (399) (308)
------ ------- -------
Pro forma net income............... $9,608 $25,428 $36,147
====== ======= =======
Earnings per share, as reported:
Basic........................... $ .40 $ 1.05 $ 1.39
Diluted......................... $ .39 $ .94 $ 1.23
Pro forma earnings per share:
Basic........................... $ .39 $ 1.03 $ 1.38
Diluted......................... $ .38 $ .93 $ 1.22
Cumulative Effect of Change in Accounting Principle
Prior to April 1, 2002, we deferred the costs of generating vacation
ownership 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, we elected
to change our accounting policy to expense such costs as incurred. We believe
that our new method of accounting for these costs, which has been applied
prospectively, is preferable over our previous method and results in improved
financial reporting.
The cumulative effect of this change in accounting principle during the
nine months ended December 31, 2002 was an additional expense of $9.2 million,
net of income taxes of $3.3 million and minority interest's share of the loss of
$350,000. The cumulative effect of this change in accounting principle during
the nine months ended December 31, 2002 reduced our diluted earnings per share
by $0.19.
Earnings Per Common Share
We compute basic earnings per common share by dividing net income by the
weighted-average number of common shares outstanding during the period. We
compute diluted earnings per common share in the same manner as basic earnings
per share, but also give effect to all dilutive stock options using the treasury
stock method and include an adjustment, if dilutive, to both net income and
weighted-average common shares outstanding as if our 8.00% convertible
subordinated notes payable and 8.25% convertible subordinated debentures were
converted into common stock at the beginning of the earliest period presented
below, for periods during which these convertible debt issues were outstanding.
We have excluded approximately 1.6 million and 1.2 million anti-dilutive stock
options from our computations of earnings per common share during the nine
months ended December 31, 2002 and year ended December 31, 2003, respectively.
There were no anti-dilutive stock options during the year ended December 31,
2004.
71
The following table sets forth our computation of basic and diluted
earnings per common share (in thousands, except per share data):
Nine Months
Ended Year Ended Year Ended
December 31, December 31, December 31,
2002 2003 2004
------------ ------------ ------------
Basic earnings per common share -- numerator:
Income before cumulative effect of change in
accounting principle ........................... $15,376 $25,827 $36,455
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ....................................... (5,579) -- --
------- ------- -------
Net income ........................................ $ 9,797 $25,827 $36,455
======= ======= =======
Diluted earnings per common share -- numerator:
Income before cumulative effect of change in
accounting principle -- basic .................. $15,376 $25,827 $36,455
Effect of dilutive securities (net of income tax
effects) ....................................... 1,379 1,749 1,357
------- ------- -------
Income before cumulative effect of change in
accounting principle -- diluted ................ 16,755 27,576 37,812
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ....................................... (5,579) -- --
------- ------- -------
Net income -- diluted ............................. $11,176 $27,576 $37,812
======= ======= =======
Denominator:
Denominator for basic earnings per common
share-weighted-average shares .................. 24,472 24,671 26,251
Effect of dilutive securities:
Stock options ..................................... 140 421 1,098
Convertible securities ............................ 4,171 4,171 3,328
------- ------- -------
Dilutive potential common shares .................. 4,311 4,592 4,426
------- ------- -------
Denominator for diluted earnings per common
share-adjusted weighted-average shares and
assumed conversions ............................ 28,783 29,263 30,677
======= ======= =======
Basic earnings per common share:
Income before cumulative effect of change in
accounting principle ........................... $ .63 $ 1.05 $ 1.39
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ....................................... (.23) -- --
------- ------- -------
Net income ........................................ $ .40 $ 1.05 $ 1.39
======= ======= =======
Diluted earnings per common share:
Income before cumulative effect of change in
accounting principle ........................... $ .58 $ .94 $ 1.23
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ....................................... (.19) -- --
------- ------- -------
Net income ........................................ $ .39 $ .94 $ 1.23
======= ======= =======
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, requires unrealized gains or
losses on our retained interests in notes receivable, which are classified as
available-for-sale investments, to be included in other comprehensive income.
Comprehensive income is shown as a subtotal within our consolidated statements
of shareholders' equity for each period presented.
72
Recent Accounting Pronouncements
In December 2004, the FASB issued (revised 2004), Share-Based Payment, a
revision of SFAS No. 123, Accounting for Stock-Based Compensation. The revised
statement supersedes APB No. 25, Accounting for Stock-Based Compensation, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in the
revised statement is similar to the approach described in SFAS No. 123. However,
the revised statement requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure will no longer be an alternative. The
new standard will become effective for us on July 1, 2005. As permitted by SFAS
No. 123, we currently account for share-based payments to employees using APB
No. 25's intrinsic value method and, as such, generally recognize no
compensation cost for employee stock options. Accordingly, the adoption of the
revised statement's fair value method will likely have a significant impact on
our result of operations, although it will have no impact on our overall
financial position. The impact of adoption of the revised statement cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had we adopted the revised statement in prior
periods, the impact of that standard would have approximated the impact of SFAS
No. 123 as described in the disclosure of pro forma net income and earnings per
share in Note 1 to our consolidated financial statements. The revised statement
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption. While we cannot estimate what those amounts will be in the
future (because they depend on, among other things, when employees exercise
stock options), the amount of operating cash flows recognized in prior periods
for such excess tax deductions have not been material.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions. This statement amends SFAS No. 66, Accounting for
Sales of Real Estate, and No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, in association with the issuance of American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 04-2, Accounting for Real Estate Time-Sharing Transactions. SOP 04-2 was
issued to address the diversity in practice caused by a lack of guidance
specific to real estate time-sharing transactions. Areas of diversity in
practice have included accounting for uncollectible notes receivable, recovery
or repossession of VOIs, selling and marketing costs, operations during holding
periods, developer subsidies to property owners' associations and upgrade and
reload transactions. The provisions of SFAS No. 152 and SOP 04-2 become
effective for us on January 1, 2006. We have not yet completely evaluated the
impact of these standards on our financial position or results of operations.
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current period presentation. Most significantly, we previously carried
amounts held in bank accounts on behalf of the purchasers of our vacation
ownership notes receivable on our balance sheet as restricted cash with a
corresponding liability included under the caption "accrued liabilities and
other." While we retain the servicing rights on the vacation ownership notes
receivable sold, these cash accounts operate in the name of third-parties e.g.,
the facility trustees or the note purchasers. We have therefore reduced both
"restricted cash" and "accrued liabilities and other" for the aggregate carrying
amount of this cash in all periods presented, which as of December 31, 2003 was
$19.4 million.
2. Acquisition
On October 2, 2002, Great Vacation Destinations, Inc. ("GVD"), one of our
wholly-owned subsidiaries, with no prior operations, acquired substantially all
of the assets and assumed certain liabilities of TakeMeOnVacation, LLC, RVM
Promotions, LLC and RVM Vacations, LLC (collectively, "TMOV") for $2.8 million
in cash, $500,000 of which was paid on March 31, 2003. The acquisition agreement
provided for the payment of additional consideration of up to $12.5 million
through December 31, 2007 upon GVD meeting certain earnings targets (the "Earn
Out Provisions").
GVD generates sales leads for VOI 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 vacation ownership sales presentation.
73
The assets acquired include prospects that purchased mini-vacation packages
from TMOV. These prospects will become sales leads for VOI sales for
pre-determined, third-party developers when these vacations are taken.
Additional assets acquired include customer lists for future mini-vacation
package sales, property and equipment (including the aforementioned computer
software system), trademarks and servicemarks and accounts receivable. The
liabilities assumed include trade accounts payable and commissions payable
related to the assets acquired. As a result of the acquisition, we recognized
approximately $360,000 of goodwill, after giving effect to certain purchase
accounting adjustments recorded in 2003.
The effective date of the acquisition was deemed to be September 30, 2002,
in accordance with the Asset Purchase agreement. The acquisition was accounted
for using the purchase method; therefore the results of operations of GVD have
been included in our consolidated statements of income since October 1, 2002.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed in the acquisition, after giving effect to
certain purchase accounting adjustments recorded in 2003:
As of September 30, 2002
(in thousands)
Prepaid expenses................................. $ 318
Property and equipment........................... 2,388
Intangible assets:
Customer list -- vacation packages sold (a)... $13,654
Customer list -- telemarketing leads (b)...... 316
-------
13,970
Other assets..................................... 442
-------
Total assets acquired...................... 17,118
Accounts payable and accrued liabilities......... 1,829
Deferred income (c).............................. 12,290
Deferred income taxes............................ 506
-------
Total liabilities assumed.................. 14,625
-------
Net assets acquired........................... $ 2,493
=======
(a) -- To be amortized as the vacation packages are fulfilled or become
expired.
(b) -- To be amortized as the telemarketing leads are used.
(c) -- To be recognized as other resort operations revenues as the vacation
packages are fulfilled or become expired.
On June 1, 2004, we executed an amendment to the acquisition agreement with
the former owners of TMOV whereby in exchange for agreeing to pay $1.5 million,
the former owners of TMOV agreed to release us from any obligation to pay
amounts under the Earn Out Provisions. The $1.5 million, which is payable in
quarterly installments over an 18 month period commencing on May 30, 2004, was
recorded as additional goodwill. As of December 31, 2004, $675,000 of this
amount was unpaid.
We expect that the entire $1.9 million of goodwill from the acquisition of
TMOV will be deductible for income tax purposes.
74
Unaudited supplemental pro forma information presenting our results of
operations as though the acquisition had occurred at the beginning of the
nine-month period ended December 31, 2002 is as follows (in thousands, except
per share data):
Total revenues................................................................ $294,134
Income before cumulative effect of change in accounting principle............. 15,719
Net income.................................................................... 10,140
Basic earnings per common share:
Income before cumulative effect of change in accounting principle.......... $ .64
Cumulative effect of change in accounting principle, net of income taxes... (.23)
--------
Net income................................................................. $ .41
========
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle.......... $ .59
Cumulative effect of change in accounting principle, net of income taxes... (.19)
--------
Net income................................................................. $ .40
========
3. Joint Venture
On June 16, 2000, one of our wholly-owned subsidiaries entered into an
agreement with Big Cedar L.L.C. ("Big Cedar"), an affiliate of Bass Pro, Inc.
("Bass Pro"), to form the Joint Venture, a vacation ownership development,
marketing and sales limited liability company. The Joint Venture is developing,
marketing and selling VOIs in a 312-unit, wilderness-themed resort adjacent to
the Big Cedar(R) Lodge, a luxury hotel resort owned by Big Cedar, on the shores
of Table Rock Lake in Ridgedale, Missouri. During the year ended April 1, 2001,
we made an initial cash capital contribution to the Joint Venture of
approximately $3.2 million, in exchange for a 51% ownership interest in the
Joint Venture. In exchange for a 49% interest in the Joint Venture, Big Cedar
has contributed approximately 46 acres of land with a fair market value of $3.2
million to the Joint Venture. See Note 4 regarding payment of profit
distributions to Big Cedar.
In addition to its 51% ownership interest, we also receive a quarterly
management fee from the Joint Venture equal to 3% of the Joint Venture's net
sales in exchange for our involvement in the day-to-day operations of the Joint
Venture. We also service the Joint Venture's notes receivable in exchange for a
servicing fee.
Based on our role as the day-to-day manager of the Joint Venture, its
majority control of the Joint Venture's Management Committee and our controlling
financial interest in the Joint Venture, the accounts of the Joint Venture are
consolidated in our financial statements.
Because the Joint Venture has a finite life (i.e., the Joint Venture can
only exist through the earlier of: i) December 31, 2050; ii) the sale or
disposition of all or substantially all of the assets of the Joint Venture; iii)
a decision to dissolve the Joint Venture by us and Big Cedar; or iv) certain
other events described in the Joint Venture agreement), the minority interest in
the Joint Venture meets the definition of a mandatorily redeemable
noncontrolling interest as specified in SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
settlement value of this mandatorily redeemable noncontrolling interest at
December 31, 2003 and 2004 was $4.9 million and $6.5 million, respectively,
based on the sale or disposition of all or substantially all of the assets of
the Joint Venture as of those respective dates. Our potential obligation to
satisfy the settlement of this mandatorily redeemable noncontrolling interest
would be partially offset by the unamortized portion of the Prepayment to Bass
Pro (see Note 4).
During the nine months ended December 31, 2002, the year ended December 31,
2003 and the year ended December 31, 2004, the Joint Venture paid approximately
$577,000, $832,000 and $493,000, respectively, to Bass Pro(R) and affiliates for
construction management services and furniture and fixtures in connection with
the development of the Joint Venture's vacation ownership resort and sales
office. In addition, the Joint Venture paid Big Cedar and affiliates
approximately $993,000, $1.0 million and $1.8 million for gift certificates and
hotel lodging during the nine months ended December 31, 2002, year ended
December 31, 2003 and year ended December 31, 2004, respectively, in connection
with the Joint Venture's marketing activities.
4. Marketing Agreement
On June 16, 2000, we entered into an exclusive, 10-year marketing agreement
with Bass Pro, a privately-held retailer of fishing, marine, hunting, camping
and sports gear. Bass Pro is an affiliate of Big Cedar (see Note 3).
75
Pursuant to the agreement, we have the right to market our VOIs at each of Bass
Pro's national retail locations (currently consisting of 25 stores), in Bass
Pro's catalogs and on its web site. We also have access to Bass Pro's customer
lists. In exchange for these services, we agreed to pay Bass Pro a commission
ranging from 3.5% to 7.0% on each sale of a VOI, net of cancellations and
defaults, that is made to a customer as a result of one of the Bass Pro
marketing channels described above ("Commission"). The amount of Commission is
dependent on the level of additional marketing efforts required by us to convert
the prospect into a sale and a defined time frame for such marketing efforts.
There is no Commission paid to Bass Pro on sales made by the Joint Venture.
On June 16, 2000, we prepaid $9.0 million to Bass Pro (the "Prepayment").
The Prepayment is amortized from future Commissions earned by Bass Pro and
future member distributions otherwise payable to Big Cedar from the earnings of
the Joint Venture as a member thereof. No additional Commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, respectively, until
the Prepayment has been fully utilized. During the years ended December 31, 2003
and 2004, the Joint Venture made member distributions of $3.9 million and $5.5
million, respectively, of which $1.9 million and $2.7 million, respectively,
were payable to Big Cedar and used to pay down the balance of the Prepayment. As
of December 31, 2003 and 2004, the unamortized balance of the Prepayment,
included in prepaid expenses on our consolidated balance sheets, was $6.1
million and $2.6 million, respectively. The Prepayment is periodically evaluated
for any indicators of impairment.
During the nine months ended December 31, 2002 and year ended December 31,
2003, we paid Bass Pro Trademarks L.L.C., an affiliate of Bass Pro,
approximately $19,000 and $2,000, respectively, for advertising services.
5. Notes Receivable and Note Receivable Purchase Facilities
The table below sets forth additional information relative to our notes
receivable (in thousands).
December 31, 2003 December 31, 2004
----------------- -----------------
Notes receivable secured by VOIs........ $ 90,820 $121,273
Notes receivable secured by homesites... 10,555 10,901
Other notes receivable.................. 1,425 186
-------- --------
Notes receivable, gross................. 102,800 132,360
Reserve for loan losses................. (8,606) (10,411)
-------- --------
Notes receivable, net................... $ 94,194 $121,949
======== ========
The weighted-average interest rate on our notes receivable was 14.3% and
14.2% at December 31, 2003 and 2004, respectively. All of our vacation ownership
loans bear interest at fixed rates. The average interest rate charged on loans
secured by VOIs was 14.9% and 14.7% at December 31, 2003 and 2004, respectively.
Approximately 59.7% of our notes receivable secured by homesites bear interest
at variable rates, while the balance bears interest at fixed rates. The average
interest rate charged on loans secured by homesites was 9.1% and 9.2% at
December 31, 2003 and 2004, respectively.
Our vacation ownership loans are generally secured by property located in
Tennessee, Missouri, Wisconsin, Michigan, Florida, Virginia and South Carolina.
The majority of Bluegreen(R) Communities' notes receivable are secured by
homesites in Texas.
The table below sets forth the activity in our reserve for loan losses (in
thousands).
Reserve for loan losses at March 31, 2002...... $ 4,207
Provision for loan losses...................... 2,832
Charge-offs.................................... (2,350)
-------
Reserve for loan losses at December 31, 2002... $ 4,689
Provision for loan losses...................... 6,094
Charge-offs.................................... (2,177)
-------
Reserve for loan losses at December 31, 2003... 8,606
Provision for loan losses...................... 7,154
Charge-offs.................................... (5,349)
-------
Reserve for loan losses at December 31, 2004... $10,411
=======
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Installments due on our notes receivable during each of the five years
subsequent to December 31, 2004, and thereafter, are set forth below (in
thousands).
2005......... $ 20,773
2006......... 8,298
2007......... 9,179
2008......... 10,251
2009......... 11,342
Thereafter... 72,517
--------
Total..... $132,360
========
Sales of Notes Receivable
On October 8, 2003, Resort Finance, LLC ("RFL") acquired and assumed the
rights, obligations and commitments of ING Capital, LLC ("ING") as initial
purchaser in an existing vacation ownership receivables purchase facility (the
"Purchase Facility") originally executed between ING and us in April 2002. In
connection with its assumption of the Purchase Facility and subsequent
amendments, RFL increased the size of the Purchase Facility to $150.0 million
and extended the term of the Purchase Facility on a revolving basis through
September 30, 2004. On September 30, 2004, we executed an extension of the
Purchase Facility to allow for sales of notes receivable for a cumulative
purchase price of up to $100.0 million on a revolving basis through September
29, 2005.
The Purchase Facility utilizes an owner's trust structure, pursuant to
which we sell receivables to Bluegreen Receivables Finance Corporation V, one of
our wholly-owned, special purpose finance subsidiaries ("BRFC V"), and BRFC V
sells the receivables to an owner's trust (a qualified special purpose entity)
without recourse to us or BRFC V except for breaches of certain representations
and warranties at the time of sale. We 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 customary conditions
precedent. Under the Purchase Facility, a variable purchase price of 85.00% of
the principal balance of the receivables sold, subject to certain customary
terms and conditions, is paid at closing in cash. The balance of the purchase
price is deferred until such time as the Initial Purchaser has received a
specified return and all servicing, custodial, agent and similar fees and
expenses have been paid. The Initial Purchaser earned a return equal to the
London Interbank Offered Rate ("LIBOR") plus 1.00% through April 15, 2003, LIBOR
plus 1.25% through October 7, 2003, LIBOR plus an additional return ranging from
2.00% to 3.25% (based on the amount outstanding under the Purchase Facility)
from October 8, 2003 through September 30, 2004, and will earn LIBOR plus 3.25%
through September 29, 2005, subject to the use of alternate return rates in
certain circumstances. In addition, the Initial Purchaser received or will
receive a 0.25% annual facility fee through April 15, 2003 and from October 8,
2003 through September 29, 2005.
We act 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.
From April 1, 2002 through November 25, 2002, we sold $62.5 million of
aggregate principal balance of notes receivable to ING under the Purchase
Facility for a cumulative purchase price of $51.6 million.
On December 13, 2002, ING Financial Markets, LLC ("IFM"), an affiliate of
ING, consummated a $170.2 million private offering and sale of vacation
ownership loan-backed securities on our behalf (the "2002 Term Securitization").
The $181.0 million in aggregate principal of vacation ownership 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 under a
prior vacation ownership receivables purchase facility (the "GE/Barclays
Purchase Facility"); and 3) $7.6 million in aggregate principal amount of
receivables that were previously hypothecated with General Electric Capital
Corporation ("GE") under a vacation ownership 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
Purchase Facility, the GE/Barclays Purchase Facility and the GE Warehouse
Facility, respectively. We received net cash proceeds of $2.1 million, VOIs with
a carrying value of $1.4 million, vacation ownership receivables 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. We
also recognized a gain of $4.7 million in connection with the 2002 Term
Securitization.
77
On December 23, 2002, we sold $22.1 million of aggregate principal balance
of notes receivable under the Purchase Facility for a purchase price of $18.7
million. As a result of the sales of notes receivable under the Purchase
Facility during the nine months ended December 31, 2002, we recognized an
aggregate gain of $5.3 million and recorded retained interests in notes
receivable sold and servicing assets of $18.1 million and $864,000,
respectively.
During the year ended December 31, 2003, we sold $110.5 million of
aggregate principal balance of notes receivable under the Purchase Facility for
a cumulative purchase price of $93.9 million. As a result of these sales, we
recognized an aggregate gain of $6.6 million and recorded retained interests in
notes receivable sold and servicing assets of $22.3 million and $1.1 million,
respectively.
During the six months ended June 30, 2004, we sold $60.7 million of
aggregate principal balance of notes receivable under the Purchase Facility for
a cumulative purchase price of $51.6 million. As a result of these sales, we
recognized an aggregate gain of $3.6 million and recorded retained interests in
notes receivable sold and servicing assets of $12.2 million and $626,000,
respectively.
On July 8, 2004, BB&T Capital Markets, a division of Scott & Stringfellow,
Inc. consummated a $156.6 million private offering and sale of vacation
ownership receivable-backed securities on our behalf (the "2004 Term
Securitization"). The $172.1 million in aggregate principal of vacation
ownership receivables offered and sold in the 2004 Term Securitization included
$152.8 million in aggregate principal of qualified receivables that were
previously sold under the Purchase Facility and $19.3 million in aggregate
principal of qualified vacation ownership receivables (the "Pre-funded
Receivables") that, as permitted in the 2004 Term Securitization, were
subsequently sold without recourse (except for breaches of certain
representations and warranties at the time of sale) in two separate tranches on
August 13, 2004 and August 24, 2004 to an owners' trust (a qualified special
purpose entity) through our wholly-owned, special purpose finance subsidiary,
Bluegreen Receivables Finance Corporation VIII. The proceeds from the 2004 Term
Securitization were used to pay RFL all amounts outstanding under the Purchase
Facility, pay fees associated with the transaction to third-parties and deposit
initial amounts in a required cash reserve account. We received net cash
proceeds of $19.1 million, certain VOIs with a carrying value of $331,000 that
were being held in the Purchase Facility in connection with previously defaulted
receivables and certain vacation ownership notes receivable with a net
realizable value of $4.2 million that were previously held in the Purchase
Facility that did not qualify for the 2004 Term Securitization. We also
recognized an aggregate gain of $2.6 million and recorded a retained interest in
the future cash flows of the notes receivable securitized of $33.0 million and a
servicing asset of $1.9 million in connection with the 2004 Term Securitization.
On September 29, 2004, we sold $25.9 million in aggregate principal of
vacation ownership receivables under the Purchase Facility for a cumulative
purchase price of $22.0 million. As a result of this sale, we recognized a gain
of $701,000 and recorded retained interests in notes receivable sold and
servicing assets of $4.4 million and $268,000, respectively. As a result of this
sale, the 2004 Term Securitization and receipts from customers of the principal
balance of the receivables sold, the remaining availability under the Purchase
Facility was $79.0 million at December 31, 2004, subject to the eligibility
requirements and certain conditions precedent.
On August 3, 2004, we executed agreements for an additional vacation
ownership receivables purchase facility (the "GE Purchase Facility") with GE.
The GE Purchase Facility utilizes an owner's trust structure, pursuant to which
we sell receivables to Bluegreen Receivables Finance Corporation VII, our
wholly-owned, special purpose finance subsidiary ("BRFC VII"), and BRFC VII
sells the receivables to an owner's trust (a qualified special purpose entity)
without recourse to us or BRFC VII except for breaches of certain customary
representations and warranties at the time of sale. We did not enter into any
guarantees in connection with the GE Purchase Facility. The GE Purchase Facility
has detailed requirements with respect to the eligibility of receivables for
purchase, and fundings under the GE Purchase Facility are subject to certain
conditions precedent. Under the GE Purchase Facility, a variable purchase price
of approximately 89.5% of the principal balance of the receivables sold (79.5%
in the case of receivables originated in Aruba), subject to adjustment under
certain terms and conditions, is paid at closing in cash. The balance of the
purchase price is deferred until such time as GE has received a specified
return, a specified overcollateralization ratio is achieved, a cash reserve
account is fully funded and all servicing, custodial, agent and similar fees and
expenses have been paid. GE earns a return equal to the applicable Swap Rate
(which is essentially a published interest swap arrangement rate as defined in
the GE Purchase Facility agreements) plus 3.50%, subject to use of alternate
return rates in certain circumstances. In addition, we paid GE a structuring fee
of approximately $938,000 in October 2004. We act as servicer under the GE
Purchase Facility for a fee.
78
The GE Purchase Facility allows for sales of notes receivable for a
cumulative purchase price of up to $125.0 million through October 2, 2006. The
GE Purchase Facility includes various conditions to purchase, covenants, trigger
events and other provisions customary for a transaction of this type.
On December 30, 2004, we sold $43.4 million in aggregate principal of
vacation ownership receivables under the GE Purchase Facility for a cumulative
purchase price of $38.6 million. As a result of this sale, we recognized a gain
of $1.7 million and recorded a retained interest in notes receivable sold and a
servicing asset of $6.1 million and $480,000, respectively. As a result of this
sale, the remaining availability under the GE Purchase Facility was $86.4
million at December 31, 2004, subject to the eligibility requirements and
certain conditions precedent.
The following assumptions were used to measure the initial fair value of
the retained interests in notes receivable sold or securitized during the year
ended December 31, 2004: Prepayment rates ranging from 17% to 13% per annum as
the portfolios mature; loss severity rates ranging from 40% to 73%; default
rates ranging from 10% to 1% per annum as the portfolios mature; and discount
rates ranging from 9% to 14%.
On December 31, 2004, we executed agreements for a vacation ownership
receivables purchase facility (the "BB&T Purchase Facility") with Branch Banking
and Trust Company ("BB&T"). The BB&T Purchase Facility utilizes an owner's trust
structure, pursuant to which we sell receivables to Bluegreen Receivables
Finance Corporation IX, our wholly-owned, special purpose finance subsidiary
("BRFC IX"), and BRFC IX sells the receivables to an owner's trust (a qualified
special purpose entity) without recourse to us or BRFC IX except for breaches of
certain customary representations and warranties at the time of sale. We did not
enter into any guarantees in connection with the BB&T Purchase Facility. The
BB&T Purchase Facility has detailed requirements with respect to the eligibility
of receivables for purchase, and fundings under the BB&T Purchase Facility are
subject to certain conditions precedent. Under the BB&T Purchase Facility, a
variable purchase price of approximately 85.0% of the principal balance of the
receivables sold, subject to certain terms and conditions, is paid at closing in
cash. The balance of the purchase price is deferred until such time as BB&T has
received a specified return and all servicing, custodial, agent and similar fees
and expenses have been paid. BB&T earns a return equal to the commercial paper
rate plus an additional return of 1.15%, subject to use of alternate return
rates in certain circumstances. In addition, we paid BB&T structuring and other
fees totaling $1.1 million in December 2004. We will act as servicer under the
BB&T Purchase Facility for a fee. The BB&T Purchase Facility allows for sales of
notes receivable for a cumulative purchase price of up to $140.0 million, the
commitment for $40.0 million of which expires on July 5, 2005, and the remainder
of which expires on December 30, 2005. The BB&T Purchase Facility includes
various conditions to purchase, covenants, trigger events and other provisions
customary for a transaction of this type. BB&T's obligation to purchase under
the BB&T Purchase Facility may terminate earlier than the dates noted above upon
the occurrence of certain specified events set forth in the BB&T Purchase
Facility agreement. As of December 31, 2004, we had not sold any receivables
under the BB&T Purchase Facility.
Other Notes Receivable
On June 26, 2001, we loaned $1.7 million to the Casa Grande Resort
Cooperative Association I (the "Association"), the property owners' association
controlled by the vacation ownership owners at the La Cabana Beach and Racquet
Club(TM) ("La Cabana") resort in Aruba. During 2004, upon mutual agreement with
the Association, we offset the unpaid balance of $1.2 million on this unsecured
loan against maintenance fees we were assessed by the Association on our unsold
VOIs at the La Cabana resort.
79
6. Retained Interests in Notes Receivable Sold and Servicing Assets
Retained Interests in Notes Receivable Sold
Our retained interests in notes receivable sold, which are classified as
available-for-sale investments, and their associated unrealized gains and losses
are set forth below (in thousands).
Gross Gross
Amortized Unrealized Unrealized
December 31, 2003: Cost Gain Loss Fair Value
------------------- --------- ---------- ---------- ----------
1996 REMIC retained interests............................. $ 664 $ 133 $-- $ 797
GE/Wachovia Purchase Facility retained interests.......... 717 955 -- 1,672
Purchase Facility retained interests (see Note 5)......... 24,063 1,888 -- 25,951
2002 Term Securitization retained interest (see Note 5)... 32,555 -- -- 32,555
------- ------ --- -------
Total.................................................. $57,999 $2,976 $-- $60,975
======= ====== === =======
Gross Gross
Amortized Unrealized Unrealized
December 31, 2004: Cost Gain Loss Fair Value
------------------- --------- ---------- ---------- ----------
GE/Wachovia Purchase Facility retained interests.......... $ 1,094 $ 317 $-- $ 1,411
Purchase Facility retained interests (see Note 5)......... 4,006 169 -- 4,175
2002 Term Securitization retained interest (see Note 5)... 25,359 -- -- 25,359
2004 Term Securitization retained interest (see Note 5)... 34,228 867 -- 35,095
GE Purchase Facility (see Note 5)......................... 6,059 -- -- 6,059
------- ------ --- -------
Total.................................................. $70,746 $1,353 $-- $72,099
======= ====== === =======
Contractual maturities as of December 31, 2004, are set forth below (in
thousands), based on the final maturity dates of the underlying notes receivable
sold:
Amortized
Cost Fair Value
--------- ----------
After one year but within five.... $ 1,094 $ 1,411
After five years but within ten... 69,652 70,688
------- -------
Total.......................... $70,746 $72,099
======= =======
The following assumptions were used to measure the fair value of the above
retained interests: prepayment rates ranging from 17% to 9% per annum as the
portfolios mature; loss severity rates ranging from 25% to 73%; default rates
ranging from 10% to 1% per annum as the portfolios mature; and discount rates
ranging from 8% to 14%.
The following table shows the hypothetical fair value of our retained
interests in notes receivable sold based on a 10% and a 20% adverse change in
each of the assumptions used to measure the fair value of those retained
interests (dollars in thousands):
Hypothetical Fair Value at December 31, 2004
--------------------------------------------------------------------------------------------------------------
Adverse GE/Wachovia 2002 Term 2004 Term GE
Change Purchase Facility Purchase Facility Securitization Securitization Purchase Facility
Percentage Retained Interest Retained Interest Retained Interest Retained Interest Retained Interest
---------- ----------------- ----------------- ----------------- ----------------- -----------------
Prepayment rate: 10% $1,411 $4,123 $25,003 $34,546 $5,943
20% 1,409 4,070 24,661 34,017 5,834
Loss severity rate: 10% 1,376 4,031 24,704 33,683 5,683
20% 1,340 3,888 24,049 32,272 5,308
Default rate: 10% 1,352 3,951 24,619 33,369 5,592
20% 1,291 3,578 23,889 31,683 5,134
Discount rate: 10% 1,371 4,013 24,910 34,276 5,853
20% 1,332 3,860 24,475 33,489 5,657
80
The table below summarizes certain cash flows received from and (paid to)
our qualifying special purpose finance subsidiaries (in thousands):
Nine Months
Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Proceeds from new sales of receivables ........................ $ 72,418 $ 93,918 $ 130,990
Collections on previously sold receivables .................... (55,253) (87,311) (97,901)
Servicing fees received ....................................... 2,498 3,690 4,359
Purchases of foreclosed assets ................................ (614) (1,283) (1,538)
Resales of foreclosed assets .................................. (13,298) (14,769) (16,909)
Remarketing fees received ..................................... 5,723 7,394 8,716
Cash received on retained interests in notes receivable sold .. 14,555 12,817 13,589
Cash paid to fund required reserve accounts ................... (1,865) (3,939) (3,469)
Quantitative information about the portfolios of vacation ownership notes
receivable previously sold without recourse in which we hold the above retained
interests is as follows (in thousands):
Year Ended
As of December 31, 2004 December 31, 2004
---------------------------- ------------------
Total Principal Amount
Principal of Loans
Amount of More than 60 Credit Losses, Net
Loans Days Past Due of Recoveries
--------- ---------------- ------------------
GE/Wachovia Purchase Facility .. $ 9,360 $ 506 $ --
2002 Term Securitization ....... 98,803 5,550 4,454
2004 Term Securitization ....... 151,066 5,774 541
Purchase Facility .............. 23,994 546 --
GE Purchase Facility ........... 42,853 -- --
The net unrealized gain on our retained interests in notes receivable sold,
which is presented as a separate component of our shareholders' equity, is net
of income taxes of approximately $288,000, $1.1 million and $521,000 as of
December 31, 2002, 2003 and 2004, respectively.
In connection with the 2002 Term Securitization (see Note 5), we reversed
$3.6 million in previously recorded unrealized gains related to the GE/Barclays
Purchase Facility and the Purchase Facility. In connection with the 2004 Term
Securitization (see Note 5), we reversed $1.4 million in previously recorded
unrealized gains related to the Purchase Facility. During the years ended
December 31, 2003 and 2004, we recorded other-than-temporary decreases of
approximately $912,000 and $2.1 million, respectively, netted against interest
income on our consolidated statements of income, in the fair value of our
retained interest associated with the 2002 Term Securitization, based on higher
than projected default rates in the portfolio of receivables securitized.
Servicing Assets
The changes in our servicing assets, included in other assets in our
consolidated balance sheets, for the years ended December 31, 2003 and 2004 were
as follows (in thousands):
Balance at December 31, 2002 ........................................ $ 2,294
Additions ........................................................... 1,141
Less: amortization .................................................. (758)
-------
Balance at December 31, 2003 ........................................ 2,677
Additions ........................................................... 3,264
Less: disposal in 2004 Term Securitization (see Note 5) ............. (1,532)
Less: amortization .................................................. (1,052)
-------
Balance at December 31, 2004 ........................................ $ 3,357
=======
81
7. Inventory
Our net inventory holdings, summarized by division, are set forth below (in
thousands).
December 31, 2003 December 31, 2004
----------------- -----------------
Bluegreen Resorts ...................... $ 98,085 $126,238
Bluegreen Communities .................. 121,805 78,975
-------- --------
$219,890 $205,213
======== ========
Bluegreen Resorts inventory as of December 31, 2003, consisted of land
inventory of $28.8 million, $30.2 million of construction-in-progress and $39.1
million of completed vacation ownership units. Bluegreen Resorts inventory as of
December 31, 2004, consisted of land inventory of $35.2 million, $32.1 million
of construction-in-progress and $58.9 million of completed vacation ownership
units.
Interest capitalized during the nine months ended December 31, 2002, year
ended December 31, 2003 and year ended December 31, 2004 totaled $4.7 million,
$7.2 million, and $7.9 million, respectively. The interest expense reflected in
our consolidated statements of income is net of capitalized interest.
8. Property and Equipment
The table below sets forth the property and equipment held by us (in
thousands).
Useful December 31, December 31,
Life 2003 2004
---------- ------------ ------------
Office equipment, furniture and fixtures ...................... 3-14 years $ 34,678 $ 42,229
Golf course land, land improvements, buildings and equipment .. 7-39 years 25,993 28,295
Land, buildings and building improvements ..................... 5-39 years 21,753 25,370
Leasehold improvements ........................................ 3-8 years 6,203 9,381
Aircraft ...................................................... 5 years 1,403 1,415
Vehicles and equipment ........................................ 3-5 years 804 978
-------- --------
90,834 107,668
Accumulated depreciation and amortization of leasehold
improvements ............................................... (27,404) (33,424)
-------- --------
Total ...................................................... $ 63,430 $ 74,244
======== ========
9. Goodwill and Intangible Assets
The table below sets forth our goodwill and intangible asset (in
thousands).
December 31, December 31,
2003 2004
------------ ------------
Intangible asset:
Customer list acquired in connection with the acquisition of
substantially all of the assets of TMOV ................. $ 13,654 $ 13,654
Accumulated amortization ................................... (12,717) (13,433)
-------- --------
Net intangible asset .......................................... 937 221
Goodwill ...................................................... 2,791 4,291
-------- --------
$ 3,728 $ 4,512
======== ========
Annual amortization expense relative to the intangible asset .. $ 9,901 $ 716
======== ========
We estimate that the unamortized balance of the customer list intangible
asset will be amortized during 2005.
All of our goodwill relates to our Bluegreen Resorts division. Our
impairment tests during the nine months ended December 31, 2002, year ended
December 31, 2003 and year ended December 31, 2004 determined that no goodwill
impairment existed. See Note 2 for a discussion regarding the $1.5 million of
additional goodwill recorded during the year ended December 31, 2004.
82
10. Receivable-Backed Notes Payable
We have a $75.0 million revolving vacation ownership 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, as amended, expires on September 15,
2006 and outstanding borrowings mature no later than September 15, 2013. 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 90.00% of the outstanding
principal balance of eligible notes arising from the sale of VOIs. The GMAC
Receivables Facility includes affirmative, negative and financial covenants and
events of default. All principal and interest payments received on pledged
receivables are applied to principal and interest due under the GMAC Receivables
Facility. Indebtedness under the facility bears interest at LIBOR plus 4.00%. We
were required to pay an upfront loan fee of $375,000 in connection with the GMAC
Receivables Facility. During the year ended December 31, 2004, we borrowed an
aggregate of $25.8 million and repaid $10.3 million under the GMAC Receivables
Facility. At December 31, 2004, the outstanding principal balance under the GMAC
Receivables Facility was $32.9 million.
We also have a $30.0 million revolving credit facility with Wells Fargo
Foothill, Inc. ("Foothill") for the pledge of Bluegreen Communities'
receivables, with up to $10.0 million of the total facility available for
Bluegreen Communities' inventory borrowings and up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables. The
interest rate charged on outstanding receivable borrowings under the revolving
credit facility through September 30, 2003 was the prime lending rate plus 0.75%
when the average monthly outstanding loan balance was greater than or equal to
$10.0 million. If the average monthly outstanding loan balance was less than
$10.0 million, the interest rate was the greater of 7.00% or the prime lending
rate plus 1.00%. Effective October 1, 2003, the interest rate under this
facility was amended to be the prime lending rate plus 0.25% when the average
monthly outstanding loan balance is greater than or equal to $15.0 million and
the greater of 4.00% or the prime lending rate plus 0.50% when the outstanding
loan balance is less than $15.0 million. All principal and interest payments
received on pledged receivables are applied to principal and interest due under
the facility. Foothill extended our ability to borrow under the facility through
December 31, 2006 and extended the maturity date to December 31, 2008 for
borrowings collateralized by receivables. At December 31, 2004, the outstanding
principal balance under this facility related to receivable borrowings was
approximately $6.0 million, $1.6 million of which related to Bluegreen Resorts'
receivables borrowings and $4.3 million of which related to Bluegreen
Communities' receivables borrowings.
We also have a combination $30.0 million acquisition and development and
vacation ownership receivables facility with Textron Financial Corporation (the
"Textron Facility"). The borrowing period for vacation ownership receivables
loans under the Textron Facility expires on March 1, 2006 and outstanding
vacation ownership receivables borrowings mature no later than March 31, 2009.
Principal repayments are required semi-annually, subject to certain minimum
required amortization, with the balance due upon the earlier of 1) the date that
85% of the VOIs in the financed resort are sold or 2) the maturity date.
Vacation ownership receivables borrowings under the Textron Facility bear
interest at the prime lending rate plus 1.00%, subject to a 6.00% minimum
interest rate. On December 29, 2004, we borrowed $4.8 million under the vacation
ownership receivables component of the Textron Facility, all of which was
outstanding at December 31, 2004.
At December 31, 2004, $50.5 million in notes receivable secured our $43.7
million in receivable-backed notes payable.
83
11. Lines-of-Credit and Notes Payable
We have outstanding borrowings with various financial institutions and
other lenders, which have been used to finance the acquisition and development
of our inventory and to fund operations. Financial data related to our borrowing
facilities is set forth below (in thousands).
December 31, December 31,
2003 2004
------------ ------------
Lines-of-credit secured by inventory and golf courses with a carrying value of
$95.5 million at December 31, 2004. Interest rates range from 1.87% to 6.25%
at December 31, 2003 and from 6.25% to 7.15% at December 31, 2004. Maturities
range from January 2006 to October 2007 ...................................... $65,109 $50,024
Notes and mortgage notes secured by certain inventory, property, equipment
and investments with an aggregate carrying value of $29.0 million at December
31, 2004. Interest rates ranging from 3.12% to 11.00% at December 31, 2003
and from 3.31% to 7.04% at December 31, 2004. Maturities range from on demand
to April 2009 ................................................................ 20,574 19,354
Unsecured notes payable to former stockholders of RDI. Interest rate of
9.00%. Matured in October 1999 (see Note 16) ................................. 1,000 --
Lease obligations secured by the underlying assets with an aggregate carrying
value of $3.2 million at December 31, 2004. Imputed interest rates ranging
from 3.12% to 5.75% at December 31, 2003 and from 2.84% to 10.67% at December
31, 2004. Maturities range from March 2006 to December 2008................... 1,175 2,571
------- -------
Total ........................................................................ $87,858 $71,949
======= =======
The table below sets forth the contractual minimum principal payments
required on our lines-of-credit and notes payable for each year subsequent to
December 31, 2004. Such minimum contractual payments may differ from actual
payments due to the effect of principal payments required on a homesite or VOI
release basis for certain of the above obligations (in thousands).
2005 .... $30,962
2006 .... 35,144
2007 .... 5,800
2008 .... 30
2009 .... 13
-------
Total ... $71,949
=======
The following is a discussion of our significant credit facilities and
significant new borrowings during the year ended December 31, 2004:
We have a $50.0 million revolving credit facility (the "GMAC Communities
Facility") with RFC. The GMAC Communities Facility is secured by the real
property (and personal property related thereto) at our following residential
land projects, as well as any Bluegreen Communities projects acquired by us with
funds borrowed under the GMAC Communities Facility (the "Secured Projects"):
Brickshire (New Kent County, Virginia); Mountain Lakes Ranch (Bluffdale, Texas);
Ridge Lake Shores (Magnolia, Texas); Riverwood Forest (Fulshear, Texas);
Waterstone (Boerne, Texas); Catawba Falls Preserve(TM) (Black Mountain, North
Carolina); Lake Ridge at Joe Pool Lake(TM) (Cedar Hill and Grand Prairie,
Texas); Mystic Shores at Canyon Lake(TM) (Spring Branch, Texas); and Yellowstone
Creek Ranch (Pueblo, Colorado). In addition, the GMAC Communities Facility is
secured by our 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, which are subject
to certain conditions, can be made through September 25, 2006. Principal
repayments are effected through agreed-upon release prices paid to RFC as
homesites in the Secured Projects are sold. The outstanding principal balance of
any borrowings under the GMAC Communities Facility must be repaid by September
25, 2006. The interest charged on outstanding borrowings is prime lending rate
plus 1.00% and is payable monthly. We are required to pay an annual commitment
fee equal to 0.33% of the $50.0 million GMAC Communities Facility amount. The
GMAC Communities Facility documents include customary conditions to funding,
acceleration provisions and certain
84
financial affirmative and negative covenants. Proceeds from the GMAC Communities
Facility are used to repay outstanding indebtedness on Bluegreen Communities
projects, finance the acquisition and development of Bluegreen Communities
projects and for general corporate purposes. During the year ended December 31,
2004, we borrowed $26.4 million and repaid $33.5 million under the GMAC
Communities Facility. At December 31, 2004, the outstanding principal balance
under the GMAC Communities Facility was $6.5 million.
RFC has also provided us with a $75.0 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, as amended, expires
on September 15, 2006, and outstanding borrowings mature no later than September
15, 2010, although specific draws typically are due four years from the
borrowing date. Principal repayments are effected through agreed-upon release
prices as VOIs are sold at the financed resorts, subject to minimum required
amortization. Indebtedness under the facility bears interest at LIBOR plus 4.75%
and is payable monthly. In September 2003, we borrowed $17.4 million under the
GMAC AD&C Facility in connection with our acquisition of The Fountains (TM)
resort in Orlando, Florida, all of which was still outstanding at December 31,
2004. During the year ended December 31, 2004, we borrowed an additional $11.9
million under the GMAC AD&C Facility to fund the development of VOIs at The
Fountains. The balance of our borrowings under the GMAC AD&C Facility is
collateralized by VOIs and land held for future development at our 51%-owned Big
Cedar Wilderness Club(TM) resort. At December 31, 2004, $30.7 million was
outstanding under the GMAC AD&C Facility.
During the year ended December 31, 2004, we repaid the entire outstanding
balance of $17.7 million under our $35.0 million revolving credit facility with
Finova Capital Corporation, the draw period for which had expired in 2003. We
used this facility to finance the acquisition and development of Bluegreen
Communities and Bluegreen Resorts projects.
As discussed in Note 10, we also have the Textron Facility, a combination
$30.0 million acquisition and development and vacation ownership receivables
facility. The borrowing period for acquisition and development loans under the
Textron Facility expired on October 1, 2004 and outstanding acquisition and
development borrowings mature no later than January 1, 2006. Acquisition and
development indebtedness under the facility bears interest at the prime lending
rate plus 1.25%, subject to a minimum interest rate of 6.25%. Interest payments
are due monthly. On December 22, 2003, we utilized this facility to borrow $9.6
million of the purchase price of The Hammocks at Marathon(TM) resort located in
Marathon, Florida. During the year ended December 31, 2004, we borrowed an
additional $996,000 under this facility to finance a portion of the cost of the
renovations at The Hammocks at Marathon(TM). At December 31, 2004, $6.1 million
was outstanding under the acquisition and development component of the Textron
Facility.
On July 9, 2004, we borrowed $4.4 million from the Central Carolina Bank.
The proceeds from the borrowing were used to acquire 800 acres of land in
Chatham County, North Carolina for the purpose of developing a golf course
community to be known as Chapel Ridge. The total purchase price of the land was
$5.5 million. The borrowing, which is secured by the land, requires monthly
interest-only payments at the prime lending rate plus 0.5% per annum, principal
repayments through agreed-upon release prices as homesites are sold at Chapel
Ridge and becomes due in its entirety on July 9, 2007. At December 31, 2004,
$3.2 million of this borrowing was outstanding.
On August 26, 2004, we borrowed $9.6 million under an existing acquisition
and development loan with Wachovia Bank, N.A. (the "Wachovia Loan"). The
Wachovia Loan is collateralized by the real property homesites (and personal
property related thereto) at our Sanctuary Cove(TM) at St. Andrews Sound
residential land community in Brunswick, Georgia. Principal payments on the
Wachovia Loan are effected through agreed-upon release prices paid to Wachovia
Bank, N.A., as homesites at Sanctuary Cove at St. Andrews Sound are sold,
subject to minimum quarterly amortization commencing on November 12, 2004. The
Wachovia Loan bears interest at LIBOR plus 2.00%, subject to increase in the
event of a default, as defined in the Wachovia Loan documents. Interest payments
are due monthly. The Wachovia Loan matures on October 12, 2006, however we can
extend the maturity of the Wachovia Loan until November 12, 2008, subject to
certain customary extension terms and conditions. The outstanding balance under
the Wachovia Loan was $4.0 million at December 31, 2004.
On November 4, 2004, we borrowed $3.0 million from Bank One. The proceeds
from the borrowing were used to acquire 460 acres of land in Parker County,
Texas for the purpose of developing a residential community to be known as Sugar
Tree. The total purchase price of the land was $4.3 million. The borrowing,
which is secured by the land, bears interest at the prime lending rate and
requires quarterly principal and interest payments commencing on February 5,
2005. The final maturity of the borrowing is November 5, 2007.
85
During the year ended December 31, 2004, we borrowed $20.1 million under an
existing acquisition and development loan with Foothill (the "Foothill Loan").
The Foothill Loan is collateralized by the real property homesites (and personal
property related thereto) at our Traditions of Braselton(TM) golf course
community in Braselton, Georgia. The Foothill Loan requires principal payments
based on agreed-upon release prices as homesites are sold and bears interest at
the prime lending rate plus 1.25%, payable monthly. The outstanding indebtedness
related to the Foothill Loan, which totaled $6.7 million at December 31, 2004,
is due on March 10, 2006.
We have a $15.0 million unsecured line-of-credit with Wachovia Bank, N.A.
Amounts borrowed under the line bear interest at LIBOR plus 2%. Interest is due
monthly and all outstanding amounts are due on June 30, 2006. We are only
allowed to borrow under the line-of-credit in amounts less than the remaining
availability under our current, active vacation ownership receivables purchase
facilities plus availability under certain receivables warehouse facilities,
less any outstanding letters of credit. The line-of-credit agreement contains
certain covenants and conditions typical of arrangements of this type. As of
December 31, 2004, no borrowings were outstanding under the line. There are an
aggregate $1.6 million of irrevocable letters of credit under this
line-of-credit as required in connection with the obtaining of plats for one of
our Bluegreen Communities projects. These letters of credit expire in 2005.
On January 11, 2005, we entered into a $50.0 million revolving credit
facility with RFL (the "RFL A&D Facility"). Borrowings from the RFL A&D Facility
will be used to finance the acquisition and development of vacation ownership
resorts. The RFL A&D Facility is secured by 1) a first mortgage and lien on all
assets purchased with the RFL A&D Facility; 2) a first assignment of all
construction contracts, related documents, building permits and completion bond;
3) a negative pledge of our interest in any management, marketing, maintenance
or service contracts; and 4) a first assignment of all operating agreements,
rents and other revenues at the vacation ownership resorts which serve as
collateral for the RFL A&D Facility, subject to any requirements of the
respective property owners' associations. Borrowings under the RFL A&D Facility
can be made through January 10, 2007. Principal payments will be effected
through agreed-upon release prices paid to RFL as vacation ownership interests
in the resorts that serve as collateral for the RFL A&D Facility are sold. The
outstanding principal balance of any borrowings under the RFL A&D Facility must
be repaid by January 10, 2008. The interest charged on outstanding borrowings
will be the 30-day LIBOR plus 3.90%, subject to a 6.90% floor, and will be
payable monthly. We are required to pay a commitment fee equal to 1.00% of the
$50.0 million facility amount, which will be paid at the time of each borrowing
under the RFL A&D Facility as 1.00% of each borrowing with the balance being
paid on the unutilized facility amount on January 10, 2007. In addition, we are
required to pay a program fee equal to 0.125% of the $50.0 million facility
amount per annum, payable monthly. The RFL A&D Facility documents include
customary conditions to funding, acceleration provisions and certain financial
affirmative and negative covenants. On January 11, 2005, we borrowed $9.5
million under the RFL A&D Facility in connection with the acquisition of the
Daytona Surfside Inn & Suites resort in Daytona Beach, Florida (the "Daytona
Resort"). The total commitment under the RFL A&D Facility for the Daytona Resort
is $14.7 million, the $5.2 million balance of which will be borrowed during 2005
to fund refurbishment of the Daytona Resort.
We have also formed a statutory business trust ("Trust") for the purpose of
issuing Trust Preferred Securities ("Trust Preferred Securities") and investing
the proceeds thereof in our junior subordinated debentures. On March 15, 2005,
the Trust issued $22.5 million of Trust Preferred Securities. The Trust used the
proceeds from issuing Trust Preferred Securities to purchase an identical amount
of junior subordinated debentures from us. Interest on the junior subordinated
debentures and distributions on the Trust Preferred Securities will be payable
quarterly in arrears at a fixed rate of 9.16% through March 30, 2010 and
thereafter at a floating rate of 4.90% over 3-month LIBOR until the scheduled
maturity date of March 30, 2035. Distributions on the Trust Preferred Securities
will be cumulative and based upon the liquidation value of the trust preferred
security. The Trust Preferred Securities will be subject to mandatory
redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated
debentures are redeemable five years from the issue date or sooner following
certain specified events. In addition, we contributed $696,000 to the Trust in
exchange for the Trust's common securities, all of which are owned by us, and
those proceeds were also used to purchase an identical amount of junior
subordinated debentures from us. The terms of the Trust's common securities are
nearly identical to the Trust Preferred Securities.
The issuance of Trust Preferred Securities was part of a larger pooled
trust securities offering which was not registered under the Securities Act of
1933. Proceeds will be used for general corporate purposes.
86
12. Senior Secured Notes Payable
On April 1, 1998, we consummated a private placement offering of $110.0
million in aggregate principal amount of 10.50% senior secured notes due April
1, 2008 (the "Notes"). Interest on the Notes is payable semiannually on April 1
and October 1 of each year. The Notes became redeemable at our option, in whole
or in part, in cash, on April 1, 2003 and annually thereafter, together with
accrued and unpaid interest, if any, to the date of redemption at the following
redemption prices: 2003 -- 105.25%; 2004 -- 103.50%; 2005 -- 101.75% and 2006
and thereafter -- 100.00%. The Notes are our senior obligations and rank pari
passu in right of payment with all of our existing and future senior
indebtedness and rank senior in right of payment to all of our existing and
future subordinated obligations. None of the assets of Bluegreen Corporation
secure its obligations under the Notes, and the Notes are effectively
subordinated to our secured indebtedness to any third party to the extent of
assets serving as security thereon.
The Notes are unconditionally guaranteed, jointly and severally, by each of
our existing and future subsidiaries (the "Subsidiary Guarantors"), with the
exception of the Joint Venture, Bluegreen Properties N.V., Resort Title Agency,
Inc., any special purpose finance subsidiary, any subsidiary which is formed and
continues to operate for the limited purpose of holding a real estate license
and acting as a broker, and certain other subsidiaries which have individually
less than $50,000 of assets (collectively, "Non-Guarantor Subsidiaries").
Each of the Note guarantees covers the full amount of the Notes and each of
the Subsidiary Guarantors is 100% owned, directly or indirectly, by us. The Note
guarantees are senior obligations of each Subsidiary Guarantor and rank pari
passu in right of payment with all existing and future senior indebtedness of
each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a "Mortgage") on
certain Bluegreen Communities properties of such Subsidiary Guarantors (the
"Pledged Properties"). Absent the occurrence and the continuance of an event of
default, the Notes trustee is required to release its lien on the Pledged
Properties as property is sold and the Trustee does not have a lien on the
proceeds of any such sale. As of December 31, 2004, the Pledged Properties had
an aggregate net carrying value of approximately $1.6 million. The Notes'
indenture includes certain negative covenants including restrictions on the
incurrence of debt and liens and on payments of cash dividends.
Supplemental financial information for Bluegreen Corporation, our combined
Non-Guarantor Subsidiaries and our combined Subsidiary Guarantors is presented
on the next page.
87
CONDENSED CONSOLIDATING BALANCE SHEETS
(dollars in thousands)
December 31, 2003
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................ $ 29,872 $ 8,716 $ 15,059 $ -- $ 53,647
Contracts receivable, net ............................ -- 1,075 24,447 -- 25,522
Intercompany receivable .............................. 100,191 -- -- (100,191) --
Notes receivable, net ................................ 847 19,232 74,115 -- 94,194
Other assets ......................................... 6,229 3,372 23,763 -- 33,364
Inventory, net ....................................... -- 22,225 197,665 -- 219,890
Retained interests in notes receivable sold .......... -- 60,975 -- -- 60,975
Investments in subsidiaries .......................... 180,514 -- 3,230 (183,744) --
Property and equipment, net .......................... 11,936 1,900 49,594 -- 63,430
-------- -------- -------- --------- --------
Total assets ................................... $329,589 $117,495 $387,873 $(283,935) $551,022
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ... $ 13,266 $ 9,874 $ 35,280 $ -- $ 58,420
Intercompany payable .............................. -- 1,127 99,064 (100,191) --
Deferred income taxes ............................. (19,954) 29,314 34,564 -- 43,924
Lines-of-credit and notes payable ................. 5,026 22,759 84,994 -- 112,779
10.50% senior secured notes payable ............... 110,000 -- -- -- 110,000
8.25% convertible subordinated debentures ......... 34,371 -- -- -- 34,371
-------- -------- -------- --------- --------
Total liabilities .............................. 142,709 63,074 253,902 (100,191) 359,494
Minority interest .................................. -- -- -- 4,648 4,648
Total shareholders' equity ......................... 186,880 54,421 133,971 (188,392) 186,880
-------- -------- -------- --------- --------
Total liabilities and shareholders' equity ..... $329,589 $117,495 $387,873 $(283,935) $551,022
======== ======== ======== ========= ========
December 31, 2004
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents ............................ $ 70,256 $ 16,766 $ 11,516 $ -- $ 98,538
Contracts receivable, net ............................ -- 1,365 26,720 -- 28,085
Intercompany receivable .............................. 73,778 -- -- (73,778) --
Notes receivable, net ................................ -- 31,958 89,991 -- 121,949
Other assets ......................................... 2,645 9,150 22,886 -- 34,681
Inventory, net ....................................... -- 20,605 184,608 -- 205,213
Retained interests in notes receivable sold .......... -- 72,099 -- -- 72,099
Investments in subsidiaries .......................... 213,011 -- 3,230 (216,241) --
Property and equipment, net .......................... 15,084 2,013 57,147 -- 74,244
-------- -------- -------- --------- --------
Total assets ................................... $374,774 $153,956 $396,098 $(290,019) $634,809
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other ... $ 12,353 $ 14,845 $ 52,940 $ -- $ 80,138
Intercompany payable .............................. -- 6,557 67,221 (73,778) --
Deferred income taxes ............................. (18,683) 34,210 42,623 -- 58,150
Lines-of-credit and notes payable ................. 6,237 26,141 83,267 -- 115,645
10.50% senior secured notes payable ............... 110,000 -- -- -- 110,000
-------- -------- -------- --------- --------
Total liabilities .............................. 109,907 81,753 246,051 (73,778) 363,933
Minority interest ................................. -- -- -- 6,009 6,009
Total shareholders' equity ........................ 264,867 72,203 150,047 (222,250) 264,867
-------- -------- -------- --------- --------
Total liabilities and shareholders' equity ..... $374,774 $153,956 $396,098 $(290,019) $634,809
======== ======== ======== ========= ========
88
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(dollars in thousands)
Nine Months Ended December 31, 2002
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $18,561 $204,094 $ -- $222,655
Other resort and communities operations revenue .... -- 1,901 25,147 -- 27,048
Management fees .................................... 24,148 -- -- (24,148) --
Equity income from subsidiaries .................... 10,043 -- -- (10,043) --
Interest income .................................... 239 5,652 6,344 -- 12,235
Gain on sales of notes receivable .................. -- 10,035 -- -- 10,035
------- ------- -------- -------- --------
34,430 36,149 235,585 (34,191) 271,973
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 5,103 72,820 -- 77,923
Cost of other resort and communities operations .... -- 1,130 26,113 -- 27,243
Management fees .................................... -- 589 23,559 (24,148) --
Selling, general and administrative expenses ....... 17,518 10,856 99,586 -- 127,960
Interest expense ................................... 7,389 319 2,116 -- 9,824
Provision for loan losses .......................... -- 399 2,433 -- 2,832
Other expense (income) ............................. (137) 1,156 501 -- 1,520
------- ------- -------- -------- --------
24,770 19,552 227,128 (24,148) 247,302
------- ------- -------- -------- --------
Income before minority interest and provision
(benefit) for income taxes ...................... 9,660 16,597 8,457 (10,043) 24,671
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 816 816
------- ------- -------- -------- --------
Income before provision (benefit) for income
taxes ........................................... 9,660 16,597 8,457 (10,859) 23,855
Provision (benefit) for income taxes ............... (137) 5,034 3,582 -- 8,479
------- ------- -------- -------- --------
Income before cumulative effect of change in
accounting principle ............................ 9,797 11,563 4,875 (10,859) 15,376
Cumulative effect of change in accounting
principle, net of income taxes .................. -- (714) (5,215) -- (5,929)
Minority interest in cumulative effect of
change in accounting principle, net of income
taxes ........................................... -- -- -- 350 350
------- ------- -------- -------- --------
Net income (loss) .................................. $ 9,797 $10,849 $ (340) $(10,509) $ 9,797
======= ======= ======== ======== ========
Year Ended December 31, 2003
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $38,457 $319,855 $ -- $358,312
Other resort and communities operations revenue .... -- 7,394 48,000 -- 55,394
Management fees .................................... 38,855 -- -- (38,855) --
Equity income from subsidiaries .................... 25,969 -- -- (25,969) --
Interest income .................................... 282 7,703 9,551 -- 17,536
Gain on sales of notes receivable .................. -- 6,563 -- -- 6,563
Other income ....................................... 40 1 608 -- 649
------- ------- -------- -------- --------
65,146 60,118 378,014 (64,824) 438,454
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 9,838 99,172 -- 109,010
Cost of other resort and communities operations .... -- 4,212 56,809 -- 61,021
Management fees .................................... -- 1,114 37,741 (38,855) --
Selling, general and administrative expenses ....... 29,589 20,404 152,975 -- 202,968
Interest expense ................................... 9,819 712 3,505 -- 14,036
Provision for loan losses .......................... -- 926 5,168 -- 6,094
------- ------- -------- -------- --------
39,408 37,206 355,370 (38,855) 393,129
------- ------- -------- -------- --------
Income before minority interest and (benefit)
provision for income taxes ...................... 25,738 22,912 22,644 (25,969) 45,325
Minority interest in income of consolidated
Subsidiary ...................................... -- -- -- 3,330 3,330
------- ------- -------- -------- --------
Income before provision (benefit) for income
taxes ........................................... 25,738 22,912 22,644 (29,299) 41,995
Provision (benefit) for income taxes ............... (89) 7,539 8,718 -- 16,168
------- ------- -------- -------- --------
Net income ......................................... $25,827 $15,373 $ 13,926 $(29,299) $ 25,827
======= ======= ======== ======== ========
89
Year Ended December 31, 2004
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $48,560 $453,836 $ -- $502,396
Other resort and communities operations revenue .... -- 9,363 59,669 -- 69,032
Management fees .................................... 53,664 -- -- (53,664) --
Equity income from subsidiaries .................... 33,494 -- -- (33,494) --
Interest income .................................... 339 8,990 12,254 -- 21,583
Gain on sales of notes receivable .................. -- 8,612 -- -- 8,612
------- ------- -------- -------- --------
87,497 75,525 525,759 (87,158) 601,623
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 13,696 166,026 -- 179,722
Cost of other resort and communities operations .... -- 5,517 66,211 -- 71,728
Management fees .................................... -- 1,088 52,576 (53,664) --
Selling, general and administrative expenses ....... 40,615 24,053 198,995 -- 263,663
Interest expense ................................... 8,452 1,615 4,979 -- 15,046
Provision for loan losses .......................... -- 1,194 5,960 -- 7,154
Other expense ...................................... 121 371 477 -- 969
------- ------- -------- -------- --------
49,188 47,534 495,224 (53,664) 538,282
------- ------- -------- -------- --------
Income before minority interest and provision
for income taxes ................................ 38,309 27,991 30,535 (33,494) 63,341
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 4,065 4,065
------- ------- -------- -------- --------
Income before provision for income taxes ........... 38,309 27,991 30,535 (37,559) 59,276
Provision for income taxes ......................... 1,854 9,211 11,756 -- 22,821
------- ------- -------- -------- --------
Net income ......................................... $36,455 $18,780 $ 18,779 $(37,559) $ 36,455
======= ======= ======== ======== ========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(dollars in thousands)
Nine Months Ended December 31, 2002
----------------------------------------------------------------------
Combined
Non- Combined
Bluegreen Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
Operating activities:
Net cash provided (used) by operating activities ......... $ 10,471 $(14,256) $ 11,483 $ -- $ 7,698
-------- -------- -------- ----- --------
Investing activities:
Cash received from retained interests in notes
receivable sold .................................... -- 14,555 -- -- 14,555
Investment in subsidiary .............................. (100) -- -- 100 --
Business acquisition .................................. -- -- (2,292) -- (2,292)
Purchases of property and equipment ................... (1,285) (315) (2,779) -- (4,379)
Proceeds from sales of property and equipment ......... -- -- 48 -- 48
-------- -------- -------- ----- --------
Net cash provided (used) by investing activities ......... (1,385) 14,240 (5,023) 100 7,932
-------- -------- -------- ----- --------
Financing activities:
Proceeds from borrowings under line-of-credit
facilities and notes payable ....................... -- -- 18,696 -- 18,696
Payments under line-of-credit facilities and notes
payable ............................................ (7) (1,692) (25,771) -- (27,470)
Payment of 8.00% convertible, subordinated notes
payable to related parties ......................... (6,000) -- -- -- (6,000)
Payment of debt issuance costs ........................ -- (1,355) (1,333) -- (2,688)
Proceeds from capitalization of subsidiary ............ -- 100 -- (100) --
Proceeds from exercise of employee and director
stock options ...................................... 683 -- -- -- 683
-------- -------- -------- ----- --------
Net cash used by financing activities .................... (5,324) (2,947) (8,408) (100) (16,779)
-------- -------- -------- ----- --------
Net (decrease) increase in cash and cash equivalents ..... 3,762 (2,963) (1,948) -- (1,149)
Cash and cash equivalents at beginning of period ......... 18,611 8,285 8,529 -- 35,425
-------- -------- -------- ----- --------
Cash and cash equivalents at end of period ............... 22,373 5,322 6,581 -- 34,276
Restricted cash and cash equivalents at end of period .... (173) (1,310) (6,581) -- (8,064)
-------- -------- -------- ----- --------
Unrestricted cash and cash equivalents at end of period .. $ 22,200 $ 4,012 $ -- $ -- $ 26,212
======== ======== ======== ===== ========
90
Year Ended December 31, 2003
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash provided (used) by operating activities ................. $ 9,928 $(14,613) $ 33,365 $ 28,680
------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes receivable sold ... -- 12,817 -- 12,817
Principal payments received on investment in note receivable ..... 456 -- -- 456
Business acquisition ............................................. -- -- (500) (500)
Purchases of property and equipment .............................. (3,310) (420) (8,163) (11,893)
Proceeds from sales of property and equipment .................... 854 -- 230 1,084
------- -------- -------- --------
Net cash provided (used) by investing activities .................... (2,000) 12,397 (8,433) 1,964
------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ................................................. 7,000 8,125 25,000 40,125
Payments under line-of-credit facilities and notes payable ....... (7,568) (1,384) (41,026) (49,978)
Payment of debt issuance costs ................................... (1,073) (631) (928) (2,632)
Proceeds from exercise of employee and director stock options .... 1,212 -- -- 1,212
------- -------- -------- --------
Net cash (used) provided by financing activities .................... (429) 6,110 (16,954) (11,273)
------- -------- -------- --------
Net increase in cash and cash equivalents ........................... 7,499 3,894 7,978 19,371
Cash and cash equivalents at beginning of year ...................... 22,373 5,322 6,581 34,276
------- -------- -------- --------
Cash and cash equivalents at end of year ............................ 29,872 9,216 14,559 53,647
Restricted cash and cash equivalents at end of year ................. (173) (2,153) (11,830) (14,156)
------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year ............... $29,699 $ 7,063 $ 2,729 $ 39,491
======= ======== ======== ========
Year Ended December 31, 2004
-------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------- ---------- ------------
Operating activities:
Net cash provided by operating activities ......................... $41,212 $ 4,370 $ 44,178 $ 89,760
------- ------- -------- ---------
Investing activities:
Cash received from retained interests in notes receivable sold ... -- 13,589 -- 13,589
Business acquisition ............................................. -- -- (825) (825)
Purchases of property and equipment .............................. (5,380) (643) (12,386) (18,409)
Proceeds from sales of property and equipment .................... -- -- 8 8
------- ------- -------- ---------
Net cash provided (used) by investing activities .................... (5,380) 12,946 (13,203) (5,637)
------- ------- -------- ---------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ................................................. -- 3,179 57,478 60,657
Payments under line-of-credit facilities and notes payable ....... (1,769) (8,525) (90,185) (100,479)
Payment of 8.25% subordinated convertible debentures ............. (273) -- -- (273)
Payment of debt issuance costs ................................... -- (3,920) (1,811) (5,731)
Proceeds from exercise of employee and director stock options .... 6,594 -- -- 6,594
------- ------- -------- ---------
Net cash (used) provided by financing activities .................... 4,552 (9,266) (34,518) (39,232)
------- ------- -------- ---------
Net increase in cash and cash equivalents ........................... 40,384 8,050 (3,543) 44,891
Cash and cash equivalents at beginning of year ...................... 29,872 8,716 15,059 53,647
------- ------- -------- ---------
Cash and cash equivalents at end of year ............................ 70,256 16,766 11,516 98,538
Restricted cash and cash equivalents at end of year ................. (173) (7,482) (11,741) (19,396)
------- ------- -------- ---------
Unrestricted cash and cash equivalents at end of year ............... $70,083 $ 9,284 $ (225) $ 79,142
======= ======= ======== =========
13. Convertible Subordinated Notes Payable and Debentures
Notes Payable
On September 11, 2002, we repaid upon maturity our 8.00% convertible
subordinated promissory notes in the aggregate principal amount of $6.0 million
to the two former members of our Board of Directors and an affiliate of a former
member of our Board of Directors.
Debentures
Through November 18, 2004, $7.0 million of our 8.25% Convertible
Subordinated Debentures (the "Debentures") were voluntarily converted by the
holders of the Debentures at a conversion price of $8.24 per share. We called
the remaining balance of $27.4 million on November 19, 2004, which resulted in
the voluntary conversion of all but $273,000 of the Debentures at a conversion
price of $8.24 per share. We redeemed the remaining $273,000 for cash at a price
of 100% plus accrued and unpaid interest through the redemption date. The total
of such conversions resulted in the issuance of 4.1 million shares of our common
stock. In connection with this conversion, we wrote-off approximately $414,000
of related debt issuance costs to additional paid-in capital. Accrued interest
forfeited by debenture holders upon conversion of approximately $282,000 was
credited to additional paid-in capital.
91
14. Fair Value of Financial Instruments
In estimating the fair values of our financial instruments, we used the
following methods and assumptions:
Cash and cash equivalents: The amounts reported in our consolidated balance
sheets for cash and cash equivalents approximate fair value.
Contracts receivable: The amounts reported in our consolidated balance
sheets for contracts receivable approximate fair value. Contracts receivable are
non-interest bearing and generally convert into cash or an interest-bearing
mortgage note receivable within thirty days.
Notes receivable: The amounts reported in our consolidated balance sheets
for notes receivable approximate fair value based on discounted future cash
flows using current rates at which similar loans with similar maturities would
be made to borrowers with similar credit risk.
Retained interests in notes receivable sold: Retained interests in notes
receivable sold are carried at fair value based on discounted cash flow
analyses.
Servicing assets: The fair value of our servicing assets is based on
discounted cash flow analyses.
Lines-of-credit, notes payable and receivable-backed notes payable: The
amounts reported in our consolidated balance sheets approximate their fair value
for indebtedness that provides for variable interest rates. The fair value of
our fixed-rate indebtedness was estimated using discounted cash flow analyses,
based on our current incremental borrowing rates for similar types of borrowing
arrangements.
10.50% senior secured notes payable: The fair value of our 10.50% senior
secured notes is based on the quoted market price in the over-the-counter bond
market.
8.25% convertible subordinated debentures: The fair value of our 8.25%
convertible subordinated debentures is based on the quoted market price as
reported on the New York Stock Exchange.
December 31, 2003 December 31, 2004
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents ........................ $ 53,647 $ 53,647 $ 98,538 $ 98,538
Contracts receivable, net ........................ 25,522 25,522 28,085 28,085
Notes receivable, net ............................ 94,194 94,194 121,949 121,949
Retained interests in notes receivable sold ...... 60,975 60,975 72,099 72,099
Servicing assets ................................. 2,677 2,797 3,357 3,691
Lines-of-credit, notes payable, and receivable-
backed notes payable .......................... 112,779 112,839 115,645 115,645
10.50% senior secured notes payable .............. 110,000 112,000 110,000 112,200
8.25% convertible subordinated debentures ........ 34,371 35,058 -- --
15. Common Stock and Stock Option Plans
Stock Option Plans
Under our employee stock option plans, options can be granted with various
vesting periods. All options granted to employees on or prior to December 31,
2002 vest ratably over a five-year period from the date of grant (20% per year).
Options granted to employees subsequent to December 31, 2002 vest 100% on the
five-year anniversary of the date of grant. Our options are granted at exercise
prices that either equal or exceed the quoted market price of our common stock
at the respective dates of grant. All of our options expire ten years from the
date of grant.
The stock option plan covering our non-employee directors provided for the
grant to our non-employee directors (the "Outside Directors") of non-qualified
stock options prior to the expiration of the ability to grant additional options
under this Plan in June 2003. All options granted to Outside Directors on or
prior to December 31, 2002 vested ratably over a three-year period while all
options granted after December 31, 2002 vested immediately upon grant. All
Outside Director stock options expire ten years from the date of grant, subject
to alternative expiration
92
dates under certain circumstances. Due to a "change in control" provision
in the Outside Directors' stock option agreements, all outstanding Outside
Directors options as of April 10, 2002 immediately vested when Levitt
Corporation ("Levitt") (NYSE: LEV) acquired an aggregate of approximately 8.0
million shares of our outstanding common stock from certain real estate funds
associated with Morgan Stanley Dean Witter and Company and Grace Brothers, Ltd.
in private transactions. As a result of these purchases and the December 2003
transfer of BankAtlantic Bancorp, Inc.'s ownership interest in our common stock
to Levitt in connection with its spin-off, Levitt beneficially owned
approximately 31% of our outstanding common stock as of December 31, 2004.
Subsequent to the expiration of the ability to grant options under our
Outside Director stock option plan, we granted 55,000 stock options to certain
Outside Directors from our employee stock option plan, which was consistent with
the terms of our employee stock option plan.
A summary of our stock option activity related to our Employee and Outside
Directors Plans is presented below (in thousands, except per share data).
Number of Shares Outstanding Exercise Price Number of Shares
Reserved Options Per Share Exercisable
---------------- ----------- -------------- ----------------
Employee Stock Option Plans:
Balance at March 31, 2002 ...... 3,470 2,011 $1.46-$9.50 1,457
Forfeited ................... (10) (145) $2.60-$8.50
Exercised ................... (72) (72) $1.46-$3.13
----- -----
Balance at December 31, 2002 ... 3,388 1,794 $2.26-$9.50 1,489
Granted ..................... -- 793 $3.45-$5.89
Forfeited ................... (1) (1) $2.26
Exercised ................... (286) (286) $2.29-$3.58
----- -----
Balance at December 31, 2003 ... 3,101 2,300 $2.26-$9.50 1,416
Granted ..................... -- 40 $10.98
Forfeited ................... -- (20) $2.26
Exercised ................... (966) (966) $2.26-$9.50
----- -----
Balance at December 31, 2004 ... 2,135 1,354 $2.29-$10.98 554
===== =====
Outside Directors Plans:
Balance at March 31, 2002 ...... 865 772 $1.77-$9.31 562
Forfeited ................... -- (45) $2.88-$5.94
Exercised ................... (212) (212) $1.77-$3.50
----- -----
Balance at December 31, 2002 ... 653 515 $2.11-$9.31 515
Granted ..................... -- 50 $3.48-$3.50
Expiration of plan .......... (88) -- --
Exercised ................... (73) (73) $2.82-$3.80
----- -----
Balance at December 31, 2003 ... 492 492 $2.11-$9.31 492
Forfeited ................... (17) (17) $3.50
Exercised ................... (184) (184) $2.11-$9.31
----- -----
Balance at December 31, 2004 ... 291 291 $2.11-$9.31 291
===== =====
The weighted-average exercise prices and weighted-average remaining
contractual lives of our outstanding stock options at December 31, 2004 (grouped
by range of exercise prices) were:
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------------- -------------- --------------
(In 000's) (In 000's)
Employees:
$2.29-$3.13 .... 97 75 4 $2.95 $3.13
$3.45-$4.88 .... 779 102 7 $3.63 $4.69
$5.84-$5.89 .... 115 15 9 $5.85 $5.89
$8.50-$10.98 ... 363 362 4 $9.48 $9.48
----- ---
1,354 554
===== ===
93
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------------- -------------- --------------
(In 000's) (In 000's)
Directors:
$2.11......... 15 15 7 $2.11 $2.11
$3.13-$3.80... 156 156 2 $3.36 $3.36
$5.94......... 60 60 2 $5.94 $5.94
$9.31......... 60 60 2 $9.31 $9.31
--- ---
291 291
=== ===
Common Stock Reserved For Future Issuance
As of December 31, 2004, common stock reserved for future issuance was
comprised of shares issuable (in thousands):
Upon exercise of employee stock options............ 2,135
Upon exercise of outside director stock options.... 291
-----
2,426
=====
16. Commitments and Contingencies
At December 31, 2004, the estimated cost to complete development work in
subdivisions or resorts from which homesites or VOIs have been sold totaled
$87.2 million. Development is estimated to be completed within the next three
years and thereafter as follows: 2005 -- $59.3 million, 2006 -- $10.5 million,
2007 -- $17.4 million, Thereafter -- none.
We lease certain office space and equipment under various noncancelable
operating leases. Certain of these leases contain stated escalation clauses
while others contain renewal options.
Rent expense for the nine months ended December 31, 2002, the year ended
December 31, 2003 and the year ended December 31, 2004, totaled approximately
$3.6 million, $5.5 million and $6.3 million, respectively.
Lease commitments under these noncancelable operating leases for each of
the five years subsequent to December 31, 2004, and thereafter are as follows
(in thousands):
2005..................................... $ 5,661
2006..................................... 4,595
2007..................................... 3,709
2008..................................... 3,078
2009..................................... 2,397
Thereafter............................... 5,592
-------
Total future minimum lease payments... $25,032
=======
We have $1.6 million in outstanding commitments under stand-by letters of
credit with banks, primarily related to obtaining governmental approval of plats
for one our Bluegreen Communities projects.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, sale or
financing of real estate. Additionally, from time to time, we become involved in
disputes with existing and former employees. We believe that these claims are
routine litigation incidental to our business.
On August 21, 2000, we received a notice of Field Audit Action (the "First
Notice") from the State of Wisconsin Department of Revenue (the "DOR") alleging
that two corporations purchased by us had failed to collect and remit sales and
use taxes totaling $1.9 million to the State of Wisconsin prior to the purchase
during the period from January 1, 1994 through September 30, 1997. On May 24,
2003, we received a second Notice of Field Audit Action (the "Second Notice")
from DOR alleging that the two subsidiaries failed to collect and remit sales
and use taxes to the State of Wisconsin during the period from April 1, 1998
through March 31, 2002 totaling $1.4 million. The majority of the assessment was
based on the subsidiaries not charging sales tax to purchasers of VOIs at our
94
Christmas Mountain Village(TM) resort during the period from January 1, 1994
through December 31, 1999. The statute requiring the assessment of sales tax on
sales of certain VOIs in Wisconsin was repealed in December 1999. We acquired
the subsidiaries that were the subject of the notices in connection with the
acquisition of RDI Group, Inc. ("RDI") on September 30, 1997. Under the RDI
purchase agreement, we had certain rights of offset for amounts owed the sellers
based on any breach of representations and warranties.
On August 31, 2004, we settled the sales tax assessments and all interest
and penalties for $2.3 million. Of this amount, $750,000 was already accrued in
connection with the indemnification by RDI's former stockholders and
approximately $210,000 will be reimbursed to us by certain property owners'
associations that serve the Christmas Mountain Village Resort. We recognized an
expense of $1.5 million from this settlement during the year ended December 31,
2004.
17. Income Taxes
Our provision for income taxes consists of the following (in thousands):
Nine Months
Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Federal:
Current...... $4,666 $ 3,524 $ 6,378
Deferred..... 3,478 10,874 13,638
------ ------- -------
8,144 14,398 20,016
State and other:
Current...... -- -- 1,600
Deferred..... 335 1,770 1,205
------ ------- -------
335 1,770 2,805
------ ------- -------
Total..... $8,479 $16,168 $22,821
====== ======= =======
The reasons for the difference between our provision for income taxes and
the amount that results from applying the federal statutory tax rate to income
before provision for income taxes are as follows (in thousands):
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Income tax expense at statutory rate..... $8,144 $14,398 $20,016
Effect of state taxes, net of federal tax
benefit............................... 335 1,770 2,805
------ ------- -------
$8,479 $16,168 $22,821
====== ======= =======
Our deferred income taxes consist of the following components (in
thousands):
December 31, 2003 December 31, 2004
----------------- -----------------
Deferred federal and state tax liabilities (assets):
Installment sales treatment of notes ........................ $ 88,043 $113,989
Deferred federal and state loss carryforwards/AMT credits ... (54,505) (69,615)
Book over tax carrying value of retained interests in notes
receivable sold .......................................... 8,257 11,126
Book reserves for loan losses and inventory ................. (6,029) (6,689)
Tax over book depreciation .................................. 5,336 7,335
Other ....................................................... 2,822 2,004
-------- --------
Deferred income taxes .......................................... $ 43,924 $ 58,150
======== ========
Total deferred federal and state tax liabilities ............... $105,686 $135,271
Total deferred federal and state tax assets .................... (61,762) (77,121)
-------- --------
Deferred income taxes .......................................... $ 43,924 $ 58,150
======== ========
We have available federal net operating loss carryforwards of $136.5
million, which expire beginning in 2021 through 2025, and alternative minimum
tax credit carryforwards of $16.9 million, which never expire. Additionally, we
have available state operating loss carryforwards of $270.5 million, which
expire beginning in 2008 through
95
2025. The income tax benefits from our state operating loss carryforwards are
net of a valuation allowance of $1.4 million.
18. Employee Retirement Savings Plan and Other Employee Matters
Our Employee Retirement Plan is a code section 401(k) Retirement Savings
Plan (the "Plan"). All employees at least 21 years of age with one year of
employment with us are eligible to participate in the Plan. The Plan, as
amended, provides an annual discretionary matching contribution and a fixed-rate
matching contribution equal to 50% of the first 3% of a participant's
contribution with an annual limit of $1,000 per participant. During the nine
months ended December 31, 2002, we did not make a matching contribution to the
Plan, but accrued approximately $270,000 for a matching contribution that we
paid in April 2003 related to the Plan's year ended December 31, 2002. During
the year ended December 31, 2003, we accrued approximately $361,000 for a
matching contribution that we paid in February 2004 related to the Plan's year
ended December 31, 2003. During the year ended December 31, 2004, we accrued
approximately $554,000 for a matching contribution to be determined and paid in
March 2005 related to the Plan's year ended December 31, 2004.
Our employees in Aruba, which comprise approximately 2% of our total
workforce, are subject to the terms of a collective bargaining agreement.
19. Business Segments
We have two reportable business segments. Bluegreen Resorts develops,
markets and sells VOIs in our resorts, primarily through the Bluegreen Vacation
Club, and provides resort management services to resort property owners
associations. Bluegreen Communities acquires large tracts of real estate, which
are subdivided, improved (in some cases to include a golf course on the
property) and sold, typically on a retail basis as homesites. Our reportable
segments are business units that offer different products. The reportable
segments are each managed separately because they sell distinct products with
different development, marketing and selling methods.
We evaluate the performance and allocate resources to each business segment
based on its respective field operating profit. Field operating profit is
operating profit prior to the allocation of corporate overhead, interest income,
gain on sales of notes receivable, other income, provision for loan losses,
interest expense, income taxes, minority interest and cumulative effect of
change in accounting principle. Inventory is the only asset that we evaluate on
a segment basis -- all other assets are only evaluated on a consolidated basis.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies (see Note 1).
Required disclosures for our business segments are as follows (in
thousands):
Bluegreen Bluegreen
Resorts Communities Totals
--------- ----------- --------
As of and for the nine months ended December 31,
2002
Sales of real estate.............................. $144,026 $ 78,629 $222,655
Other resort and communities operations revenue... 23,520 3,528 27,048
Depreciation expense.............................. 2,100 1,053 3,153
Field operating profit............................ 17,218 13,570 30,788
Inventory......................................... 71,097 102,034 173,131
As of and for the year ended December 31, 2003
Sales of real estate.............................. $253,939 $104,373 $358,312
Other resort and communities operations revenue... 48,915 6,479 55,394
Depreciation expense.............................. 3,661 1,726 5,387
Field operating profit............................ 49,514 12,580 62,094
Inventory......................................... 98,085 121,805 219,890
As of and for the year ended December 31, 2004
Sales of real estate.............................. $310,596 $191,800 $502,396
Other resort and communities operations revenue... 61,630 7,402 69,032
Depreciation expense.............................. 5,138 1,788 6,926
Field operating profit............................ 52,550 37,722 90,272
Inventory......................................... 126,238 78,975 205,213
96
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before provision for income taxes and minority interest is
as follows (in thousands):
Nine Months Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Field operating profit for reportable segments .... $ 30,788 $ 62,094 $ 90,272
Interest income ................................... 12,235 17,536 21,583
Gain on sales of notes receivable ................. 10,035 6,563 8,612
Other income (expense) ............................ (1,520) 649 (969)
Corporate general and administrative expenses ..... (14,211) (21,387) (33,957)
Interest expense .................................. (9,824) (14,036) (15,046)
Provision for loan losses ......................... (2,832) (6,094) (7,154)
-------- -------- --------
Consolidated income before minority interest and
provision for income taxes ..................... $ 24,671 $ 45,325 $ 63,341
======== ======== ========
Depreciation expense for our reportable segments reconciled to our
consolidated depreciation expense is as follows (in thousands):
Nine Months Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Depreciation expense for reportable segments ...... $3,153 $5,387 $6,926
Depreciation expense for corporate fixed assets ... 1,444 2,424 2,843
------ ------ ------
Consolidated depreciation expense ................. $4,597 $7,811 $9,769
====== ====== ======
Assets for our reportable segments reconciled to our consolidated assets
(in thousands):
December 31, 2002 December 31, 2003 December 31, 2004
----------------- ----------------- -----------------
Inventory for reportable segments ............. $173,131 $219,890 $205,213
Assets not allocated to reportable segments ... 248,232 331,132 429,596
-------- -------- --------
Total assets .................................. $421,363 $551,022 $634,809
======== ======== ========
Geographic Information
Sales of real estate by geographic area are as follows (in thousands):
Nine Months Ended Year Ended Year Ended
December 31, 2002 December 31, 2003 December 2004
----------------- ----------------- -------------
United States ..................................... $216,973 $347,350 $491,936
Aruba ............................................. 5,671 10,949 10,460
Canada ............................................ 11 13 --
-------- -------- --------
Consolidated totals ............................... $222,655 $358,312 $502,396
======== ======== ========
Inventory by geographic area is as follows (in thousands):
December 31, 2003 December 31, 2004
----------------- -----------------
United States ......... $212,171 $198,676
Aruba ................. 7,717 6,527
Canada ................ 2 10
-------- --------
Consolidated totals ... $219,890 $205,213
======== ========
97
20. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the years ended December 31,
2003 and 2004 is presented below (in thousands, except for per share
information).
Three Months Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
2003 2003 2003 2003
--------- -------- ------------- ------------
Sales of real estate ........ $61,782 $86,026 $108,941 $101,563
Gross profit ................ 42,722 59,753 77,908 68,919
Net income .................. 2,127 6,226 10,202 7,272
Earnings per common share:
Basic .................... $ .09 $ .25 $ .41 $ .30
Diluted .................. $ .09 $ .23 $ .36 $ .26
Three Months Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
2004 2004 2004 2004
--------- -------- ------------- ------------
Sales of real estate ........ $86,191 $128,314 $161,898 $125,993
Gross profit ................ 56,951 84,488 103,111 78,124
Net income .................. 4,700 9,102 16,307 6,346
Earnings per common share:
Basic .................... $ .19 $ .35 $ .62 $ .23
Diluted .................. $ .17 $ .31 $ .54 $ .21
98
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation (the Company) as of December 31, 2003 and 2004, and the related
consolidated statements of income, shareholders' equity and cash flows for the
nine-month period ended December 31, 2002 and each of the two years in the
period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bluegreen
Corporation at December 31, 2003 and December 31, 2004, and the consolidated
results of its operations and its cash flows for the nine months ended December
31, 2002 and each of the years in the period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in the nine
months ended December 31, 2002, the Company changed its method of accounting for
the cost associated with generating vacation ownership tours.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Bluegreen
Corporation's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 15, 2005 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Certified Public Accountants
March 15, 2005
Miami, Florida
99
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2004.
Our management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by Ernst & Young
LLP, the independent registered public accounting firm that audited our
financial statements included in this Annual Report on Form 10-K, as stated in
their report which immediately follows this report.
GEORGE F. DONOVAN, President and Chief Executive Officer
JOHN F. CHISTE, Senior Vice President, Treasurer and Chief Financial Officer
100
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Bluegreen Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Bluegreen
Corporation maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Bluegreen Corporation's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Bluegreen Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Bluegreen Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Bluegreen Corporation (the "Company") as of December 31, 2003, and December 31,
2004, and the related consolidated statements of income, shareholders' equity
and cash flows for the nine-month period ended December 31, 2002 and each of the
two years in the period ended December 31, 2004 of Bluegreen Corporation and our
report dated March 15, 2005 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Certified Public Accountants
March 15, 2005
Miami, Florida
101
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures and internal
controls will prevent all errors and all improper conduct. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that we have detected all control
issues and instances of improper conduct, if any. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the design and operation of our "disclosure controls and
procedures", as such term is defined under Rule 13a-15(e) promulgated under the
Exchange Act as of December 31, 2004. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in timely making known to them material
information relating to us required to be disclosed in our reports filed or
submitted under the Exchange Act.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting
that occurred during the fourth quarter of 2004 that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management's report and the Report of Independent Registered Public Accounting
Firm on internal control over financial reporting are set forth in Part II, Item
8 of this report.
Chief Executive Officer and Chief Financial Officer Certifications
Appearing as Exhibits 31.1 and 31.2 to this Annual Report are the Certifications
of the principal executive officer and the principal financial officer. The
Certifications are required in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002. This Item of this Annual Report is the information concerning the
evaluation referred to in the Section 302 Certifications and this information
should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
102
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to our Directors required by Item 10 is incorporated by
reference to our Proxy Statement for our 2005 Annual Meeting of Shareholders.
The information concerning our executive officers required by Item 10 is
contained in the discussion entitled "Executive Officers" in Part I hereof.
Item 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to our Proxy
Statement for our 2005 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated by reference to our Proxy
Statement for our 2005 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to our Proxy
Statement for our 2005 Annual Meeting of Shareholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 is incorporated by reference to our Proxy
Statement for our 2005 Annual Meeting of Shareholders.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following of our Financial Statements and Notes thereto and the report
of independent registered public accounting firm relating thereto, are
included in Item 8.
Consolidated Balance Sheets as of December 31, 2003 and December 31, 2004
Consolidated Statements of Income for the nine months ended December 31,
2002 and the years ended December 31, 2003 and 2004.
Consolidated Statements of Shareholders' Equity for the nine months ended
December 31, 2002 andthe years ended December 31, 2003 and 2004
Consolidated Statements of Cash Flows for the nine months ended December
31, 2002 and the years ended December 31, 2003 and 2004
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
103
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 107 through 116 hereof and are incorporated herein by
reference.
(b) Exhibits.
See (a)(3) above.
(c) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: March 15, 2005 By:/S/ GEORGE F. DONOVAN
-------------------------------------
George F. Donovan,
President and Chief Executive Officer
Date: March 15, 2005 By:/S/ JOHN F. CHISTE
-------------------------------------
John F. Chiste,
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: March 15, 2005 By:/S/ ANTHONY M. PULEO
-------------------------------------
Anthony M. Puleo,
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 15th day of March, 2005.
Signature Title
--------- -----
/S/ GEORGE F. DONOVAN President, Chief Executive Officer
---------------------------------------- and Director
George F. Donovan
/S/ JOHN F. CHISTE Senior Vice President, Treasurer and
---------------------------------------- Chief Financial Officer
John F. Chiste (Principal Financial Officer)
/S/ ANTHONY M. PULEO Senior Vice President and Chief
---------------------------------------- Accounting Officer
Anthony M. Puleo (Principal Accounting Officer)
/S/ ALAN B. LEVAN Chairman of the Board of Directors
----------------------------------------
Alan B. Levan
/S/ JOHN E. ABDO Vice Chairman of the Board of
---------------------------------------- Directors
John E. Abdo
/S/ NORMAN H. BECKER Director
----------------------------------------
Norman H. Becker
/S/ LAWRENCE CIRILLO Director
----------------------------------------
Lawrence Cirillo
/S/ SCOTT W. HOLLOWAY Director
----------------------------------------
Scott W. Holloway
/S/ JOHN LAGUARDIA Director
----------------------------------------
John Laguardia
/S/ MARK A. NERENHAUSEN Director
----------------------------------------
Mark A. Nerenhausen
105
/S/ J. LARRY RUTHERFORD Director
----------------------------------------
J. Larry Rutherford
/S/ ARNOLD SEVELL Director
----------------------------------------
Arnold Sevell
106
EXHIBIT INDEX
Number Description
------ -----------
3.1 - Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the year ended March 31, 1996).
3.2 - Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit of same designation to Quarterly Report on Form
10-Q dated September 29, 2002).
4.4 - Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
year ended April 2, 2000).
4.6 - Form of Indenture dated as of May 15, 1987 relating to the Company's
8.25% Convertible Subordinated Debentures Due 2012, including Form
of Debenture (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-1, File No.
33-13753).
4.7 - Indenture dated as of April 1, 1998 by and among the Registrant,
certain subsidiaries of the Registrant, and SunTrust Bank, Central
Florida, National Association, as trustee, for the 10 1/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-4, File No.
333-50717).
4.8 - First Supplemental Indenture dated as of March 15, 1999 by and among
the Registrant, certain subsidiaries of the Registrant, and SunTrust
Bank, Central Florida, National Association, as trustee, for the 10
1/2% Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended March 28, 1999).
4.9 - Second Supplemental Indenture dated as of December 31, 2000 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.10 - Third Supplemental Indenture dated as of October 31, 2001 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.11 - Fourth Supplemental Indenture dated as of December 31, 2001 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain of
its subsidiaries and SunTrust Bank (formerly SunTrust Bank, Central
Florida, National Association), as Notes Trustee, relating to the
Company's $110 million aggregate principal amount of 10 1/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated December 30,
2001).
4.12 - Fifth Supplemental Indenture dated as of July 31, 2002 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain of
its subsidiaries and SunTrust Bank (formerly SunTrust Bank, Central
Florida, National Association), as Notes Trustee, relating to the
Company's $110 million aggregate principal amount of 10 1/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of same
designation to Transition Report on Form 10-KT for the nine months
ended December 31, 2002).
107
4.13 - Sixth Supplemental Indenture dated as of April 30, 2003 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain of
its subsidiaries and the SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 10 1/2%
Senior Secured Notes due 2008 (incorporated by reference to exhibit
of same designation to Quarterly Report on Form 10-Q dated June 30,
2003).
4.14 - Seventh Supplemental Indenture dated as of February 29, 2004 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain of
its subsidiaries and SunTrust Bank (formerly SunTrust Bank, Central
Florida, National Association), as Notes Trustee, relating to the
Company's $110 million aggregate principal amount of 10 1/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated June 30, 2004).
10.24 - Form of Agreement dated June 27, 1989 between the Registrant and
Peoples Heritage Savings Bank relating to sale of mortgage notes
receivable (incorporated by reference to exhibit of same designation
to Annual Report on Form 10-K for the fiscal year ended April 2,
1989).
10.78* - Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on
Form S-8, File No. 33-61687).
10.79* - Registrant's 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to exhibit 10.131 to Annual report on
Form 10-K for the year ended March 29, 1998).
10.80* - Registrant's 1995 Stock Incentive Plan, as amended (incorporated by
reference to exhibit 10.79 to Annual Report on Form 10-K for the
fiscal year ended March 29, 1998).
10.81* - Registrant's Retirement Savings Plan. (incorporated by reference to
exhibit of same Designation to Annual Report on Form 10-K for the
fiscal year ended March 31, 2002).
10.85 - Amended and Restated Sale and Contribution Agreement dated as of
October 1, 1999 by and among Bluegreen Corporation Receivables
Finance Corporation III and BRFC III Deed Corporation (incorporated
by reference to exhibit 10.103 to Quarterly Report on Form 10-Q
dated January 2, 2000).
10.86 - Amended and Restated Asset Purchase Agreement dated as of October 1,
1999 by and among Bluegreen Corporation, Bluegreen Receivables
Finance Corporation III, BRFC III Deed Corporation, Heller Financial
Inc., Vacation Trust, Inc. and U.S. Bank National Association, as
cash administrator, including Definitions Annex (incorporated by
reference to exhibit 10.104 to Quarterly Report on Form 10-Q dated
January 2, 2000).
10.87 - Amended and Restated Sale and Servicing Agreement dated April 17,
2002, among the Registrant, Bluegreen Receivables Finance
Corporation V, BXG Receivables Note Trust 2001-A, Concord Servicing
Corporation, Vacation Trust, Inc. and U.S. Bank Trust National
Association (incorporated by reference to exhibit 10.111 to Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
10.88 - Amended and Restated Note Purchase Agreement dated April 17, 2002,
among the Registrant, Bluegreen Receivables Finance Corporation V,
BXG Receivables Note Trust 2001-A, the Purchasers Parties Hereto and
ING Capital LLC (incorporated by reference to exhibit 10.112 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
* - Compensation plan or arrangement.
108
10.89 - 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 (incorporated by
reference to exhibit 10.115 to Quarterly Report on Form 10-Q dated
March 31, 2003).
10.90 - Extension Letter dated as of September 30, 2004, from Resort
Finance, LLC to BXG Receivables Note Trust 2001-A, Bluegreen
Corporation and Bluegreen Receivables Finance Corporation V
(incorporated by reference to exhibit 10.115 to Quarterly Report on
Form 10-Q dated September 30, 2004).
10.91 - Amended and Restated Sale and Servicing Agreement dated April 17,
2002, among the Registrant, Bluegreen Receivables Finance
Corporation V, BXG Receivables Note Trust 2001-A, Concord Servicing
Corporation, Vacation Trust, Inc. and U.S. Bank Trust National
Association (incorporated by reference to exhibit 10.111 to Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
10.92 - Amended and Restated Indenture dated April 17, 2002, between BXG
Receivables Note Trust 2001-A and U.S. Bank Trust National
Association (incorporated by reference to exhibit 10.113 to Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
10.93 - Amended and Restate Trust Agreement dated April 17, 2002, by and
among Bluegreen Receivables Finance Corporation V, GSS Holdings,
Inc. and Wilmington Trust Company (incorporated by reference to
exhibit 10.114 to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
10.94 - Purchase and Contribution Agreement dated November 15, 2002, by and
among the Registrant and Bluegreen Receivables Finance Corporation
VI (incorporated by reference to exhibit 10.115 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.95 - Sale Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI and BXG Receivables Note Trust
2002-A VI (incorporated by reference to exhibit 10.116 to Transition
Report on Form 10-KT for the nine months ended December 31, 2002).
10.96 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Owner Trust 2000 and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.117 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.97 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Note Trust 2001-A and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.118 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.98 - Transfer Supplement (Committed) dated as of October 8, 2003 between
ING Capital LLC and Resort Finance LLC (incorporated by reference to
exhibit 10.116 to Quarterly Report on Form 10-Q dated September 30,
2003).
109
10.123 - Transfer Supplement (Noncommitted) dated as of October 8, 2003
between ING Capital LLC and Resort Finance LLC (incorporated by
reference to exhibit 10.117 to Quarterly Report on Form 10-Q dated
September 30, 2003).
10.99 - Note Purchase Agreement dated December 3, 2002, between BXG
Receivables Note Trust 2002-A and ING Financial Markets LLC
(incorporated by reference to exhibit 10.119 to Transition Report on
Form 10-KT for the nine months ended December 31, 2002).
10.100 - Trust Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI, GSS Holdings, Inc. and
Wilmington Trust Company (incorporated by reference to exhibit
10.120 to Transition Report on Form 10-KT for the nine months ended
December 31, 2002).
10.101 - Indenture dated November 15, 2002, between the Registrant, BXG
Receivables Note Trust 2002-A, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association
(incorporated by reference to exhibit 10.121 to Transition Report on
Form 10-KT for the nine months ended December 31, 2002).
10.102 - Sale and Contribution Agreement among the Registrant and Bluegreen
Receivables Finance Corporation VII, dated as of August 3, 2004
(incorporated by reference to exhibit 10.105 to Quarterly Report on
Form 10-Q dated June 30, 2004).
10.103 - Sale and Servicing Agreement among BXG Receivables Owner Trust
2004-A, Bluegreen Receivables Finance Corporation VII, the
Registrant, Concord Servicing Corporation, Vacation Trust, Inc.,
U.S. Bank National Association and General Electric Capital
Corporation, dated as of August 3, 2004 (incorporated by reference
to exhibit 10.106 to Quarterly Report on Form 10-Q dated June 30,
2004).
10.104 - Trust Agreement by and among Bluegreen Receivables Finance
Corporation VII, GSS Holdings, Inc. and Wilmington Trust Company,
dated as of August 3, 2004 (incorporated by reference to exhibit
10.107 to Quarterly Report on Form 10-Q dated June 30, 2004).
10.105 - Indenture between BXG Receivables Owner Trust 2004-A and U.S. Bank
National Association, dated as of August 3, 2004 (incorporated by
reference to exhibit 10.108 to Quarterly Report on Form 10-Q dated
June 30, 2004).
10.106 - BXG Receivables Owner Trust 2004-A Definitions Annex, Definitions
and Interpretations, dated as of August 3, 2004 (incorporated by
reference to exhibit 10.109 to Quarterly Report on Form 10-Q dated
June 30, 2004).
10.107 - Note Purchase Agreement between BXG Receivables Note Trust 2004-B
and BB&T Capital Markets, dated as of July 1, 2004 (incorporated by
reference to exhibit 10.127 to Quarterly Report on Form 10-Q dated
June 30, 2004).
10.108 - Amended and Restated Trust Agreement by and among Bluegreen
Receivables Finance Corporation VIII, GSS Holdings, Inc. and
Wilmington Trust Company, dated as of July 8, 2004 (incorporated by
reference to exhibit 10.128 to Quarterly Report on Form 10-Q dated
June 30, 2004).
110
10.109 - Purchase and Contribution Agreement by and among the Registrant and
Bluegreen Receivables Finance Corporation VIII, dated as of June 15,
2004 (incorporated by reference to exhibit 10.129 to Quarterly
Report on Form 10-Q dated June 30, 2004).
10.110 - Indenture between BXG Receivables Owner Trust 2004-B, the
Registrant, Vacation Trust, Inc., Concord Servicing Corporation and
U.S. Bank National Association, dated as of June 15, 2004
(incorporated by reference to exhibit 10.130 to Quarterly Report on
Form 10-Q dated June 30, 2004).
10.111 - Standard Definitions to Indenture between BXG Receivables Owner
Trust 2004-B, the Registrant, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association, dated as
of June 15, 2004 (incorporated by reference to exhibit 10.131 to
Quarterly Report on Form 10-Q dated June 30, 2004).
10.112 - Transfer Agreement by and among the Registrant, BXG Receivables Note
Trust 2001-A and Bluegreen Receivables Finance Corporation VIII,
dated as of June 15, 2004 (incorporated by reference to exhibit
10.132 to Quarterly Report on Form 10-Q dated June 30, 2004).
10.113 - Sale Agreement by and among Bluegreen Receivables Finance
Corporation VIII and BXG Receivables Note Trust 2004-B, dated as of
June 15, 2004 (incorporated by reference to exhibit 10.133 to
Quarterly Report on Form 10-Q dated June 30, 2004).
10.114 - Purchase and Contribution Agreement by and among the Registrant and
Bluegreen Receivables Finance Corporation IX, dated as of December
1, 2004.
10.115 - Sale Agreement by and among Bluegreen Receivables Finance
Corporation IX and BXG Receivables Note Trust 2004-C, dated as of
December 1, 2004.
10.116 - Note Funding Agreement among the Registrant, BXG Receivables Note
Trust 2004-C, Bluegreen Receivables Finance Corporation IX, the
purchasers parties hereto and Branch Banking and Trust Company,
dated as of December 1, 2004.
10.117 - Trust Agreement by and among Bluegreen Receivables Finance
Corporation IX, GSS Holdings, Inc. and Wilmington Trust Company,
dated as of November 2, 2004.
10.118 - Note Purchase Commitment Agreement relative to BXG Receivables Note
Trust 2004-C, dated as of December 1, 2004.
10.119 - Indenture dated as of December 1, 2004, among the Registrant, BXG
Receivables Note Trust 2004-C, Vacation Trust, Inc., Concord
Servicing Corporation, U.S. Bank National Association and Branch
Banking and Trust Company.
10.120 - Standard Definitions to Indenture dated as of December 1, 2004,
among the Registrant, BXG Receivables Note Trust 2004-C, Vacation
Trust, Inc., Concord Servicing Corporation, U.S. Bank National
Association and Branch Banking and Trust Company.
111
10.134 - Exchange and Registration Rights Agreement dated April 1, 1998, by
and among the Registrant and the persons named therein, relating to
the 10 1/2% Senior Secured Notes due 2008 (incorporated by reference
to exhibit 10.123 to Registration Statement on Form S-4, File No.
333-50717).
10.135* - Employment Agreement between George F. Donovan and the Company dated
December 19, 2001 (incorporated by reference to exhibit 10.124 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.136* - Promissory Note dated July 1, 2002 between George F. Donovan and
Bluegreen Corporation (incorporated by reference to exhibit 10.148
to Quarterly Report on Form 10-Q dated June 30, 2002).
10.137* - Employment Agreement between John F. Chiste and the Company dated
December 27, 2001 (incorporated by reference to exhibit 10.125 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.138* - Employment Agreement between Daniel C. Koscher and the Company dated
May 22, 2002 (incorporated by reference to exhibit 10.126 to Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
10.139 - Amended and Restated Loan and Security Agreement dated as of
September 23, 1997 between Foothill Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.130 to
Registration Statement on Form S-4, File No. 333-50717).
10.140 - Amendment Number One to Loan and Security Agreement dated December
1, 2000, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.140 to
Quarterly Report on Form 10-Q dated December 31, 2000).
10.141 - Amendment Number Two to Loan and Security Agreement dated as of
November 9, 2001, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.133 to
Quarterly Report on Form 10-Q dated December 31, 2001).
10.142 - Amendment Number Three to Loan and Security Agreement dated August
28, 2002, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.132 to
Quarterly Report on Form 10-Q dated September 29, 2002).
10.143 - Amendment Number Four to Loan and Security Agreement dated March 26,
2003, by and between the Registrant and Foothill Capital Corporation
(incorporated by reference to exhibit of same designation to Annual
Report on Form 10-K for the fiscal year ended December 31, 2003).
10.144 - Amendment Number Five to Loan and Security Agreement dated September
1, 2003, by and between the Registrant and Wells Fargo Foothill,
Inc. (f/k/a Foothill Capital Corporation) (incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).
* - Compensation plan or arrangement.
112
10.145 - Amendment Number Six to Loan and Security Agreement dated April 2,
2004 by and between the Registrant and Wells Fargo Foothill, Inc.
(f/k/a Foothill Capital Corporation) (incorporated by reference to
exhibit 10.146 to Quarterly Report on Form 10-Q dated June 30,
2004).
10.146 - Amendment Number Seven to Loan and Security Agreement dated
September 21, 2004 by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation).
10.147 - Amendment Number Eight to Loan and Security Agreement dated October
5, 2004 by and between the Registrant and Wells Fargo Foothill, Inc.
(f/k/a Foothill Capital Corporation).
10.148 - Amendment Number Nine to Loan and Security Agreement dated December
23, 2004 by and between the Registrant and Wells Fargo Foothill,
Inc. (f/k/a Foothill Capital Corporation).
10.149 - Promissory Note dated March 26, 2003, by and between the Registrant
and Foothill Corporation (incorporated by reference to exhibit
10.134 to Quarterly Report on Form 10-Q dated March 31, 2003).
10.150 - Loan Agreement dated January 10, 2005, between Resort Finance LLC
and Bluegreen Vacations Unlimited, Inc.
10.151 - Revolving Promissory Note dated January 10, 2005, between Resort
Finance LLC and Bluegreen Vacations Unlimited, Inc.
10.152 - Construction Mortgage, Security Agreement and Financing Statement
dated as of January 10, 2005, by Bluegreen Vacations Unlimited, Inc.
in favor of Resort Finance LLC.
10.153 - Guaranty Agreement dated January 10, 2005, by the Registrant in
favor of Resort Finance LLC.
10.155 - Loan Agreement dated as of September 24, 1999, between Bluegreen
Properties of Virginia, Inc. and Branch Banking and Trust Company
(incorporated by reference to exhibit 10.140 to Quarterly Report on
Form 10-Q dated October 3, 1999).
10.156 - Loan Agreement dated as of September 25, 2002, between Bluegreen
Corporation of the Rockies, Bluegreen Golf Clubs, Inc., Bluegreen
Properties of Virginia, Inc., Bluegreen Southwest One, L.P. and
Residential Funding Corporation (incorporated by reference to
exhibit 10.149 to Current Report on Form 8-K dated September 25,
2002).
10.157 - Revolving Promissory Note dated as of September 25, 2002, between
Bluegreen Corporation of the Rockies, Bluegreen Golf Clubs, Inc.,
Bluegreen Properties of Virginia, Inc., Bluegreen Southwest One,
L.P. and Residential Funding Corporation (incorporated by reference
to exhibit 10.150 to Current Report on Form 8-K dated September 25,
2002).
10.158 - Fourth Amended and Restated Loan Agreement dated December 31, 2004
by and among the Registrant, certain subsidiaries of the Registrant
and Wachovia Bank, National Association, for the $15.0 million,
unsecured, revolving line-of-credit due June 30, 2006.
113
10.159 - Fourth Amended and Restated Promissory Note dated December 31, 2004
by and among the Registrant, certain subsidiaries of the Registrant
and Wachovia Bank, National Association, for the $15.0 million,
unsecured, revolving line-of-credit due June 30, 2006.
10.160 - Loan Agreement dated November 12, 2003 by and among the Registrant,
Bluegreen Communities of Georgia, LLC and Wachovia Bank, National
Association (incorporated by reference to exhibit 10.161 to Annual
Report on Form 10-K for the fiscal year ended December 31, 2003).
10.161 - Promissory Note dated November 12, 2003 by and among the Registrant,
Bluegreen Communities of Georgia, LLC and Wachovia Bank, National
Association (incorporated by reference to exhibit 10.162 to Annual
Report on Form 10-K for the fiscal year ended December 31, 2003).
10.162 - Loan Agreement dated February 10, 2003, between Bluegreen Vacations
Unlimited, Inc. and Residential Funding Corporation (incorporated by
reference to exhibit 10.155 to Transition Report on Form 10-KT for
the nine months ended December 31, 2002).
10.163 - Modification Agreement (AD&C Loan Agreement) dated September 10,
2003, between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation (incorporated by reference to exhibit 10.164 to
Annual Report on Form 10-K for the fiscal year ended December 31,
2003).
10.164 - Revolving Promissory Note (AD&C Loan) dated February 10, 2003,
between Bluegreen Vacations Unlimited, Inc. and Residential Funding
Corporation (incorporated by reference to exhibit 10.156 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.165 - Amendment No. 1 to Revolving Promissory Note (AD&C Loan) dated as of
September 10, 2003 between Bluegreen Vacations Unlimited, Inc. and
Residential Funding Corporation (incorporated by reference to
exhibit 10.157 to Quarterly Report on Form 10-Q dated September 30,
2003).
10.166 - Amendment No. 2 to Revolving Promissory Note (AD&C Loan) dated as of
September 15, 2004 between Bluegreen Vacations Unlimited, Inc. and
Residential Funding Corporation (incorporated by reference to
exhibit 10.167 to Quarterly Report on Form 10-Q dated September 30,
2004).
10.167 - Loan and Security Agreement dated February 10, 2003, between the
Registrant, Residential Funding Corporation, Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC (incorporated
by reference to exhibit 10.157 to Transition Report on Form 10-KT
for the nine months ended December 31, 2002).
10.168 - Modification Agreement (Receivables Loan and Security Agreement)
dated September 10, 2003, between the Registrant, Residential
Funding Corporation, Bluegreen Vacations Unlimited, Inc. and
Bluegreen/Big Cedar Vacations, LLC (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).
114
10.169 - Second Modification Agreement (Receivables Loan and Security
Agreement) dated September 15, 2004, between the registrant,
Residential Funding Corporation, Bluegreen Vacations Unlimited, Inc.
and Bluegreen/Big Cedar Vacations, LLC.
10.170 - Project Commitment (Big Cedar Wilderness Club) dated October 1, 2003
by and between Bluegreen Vacations Unlimited, Inc., Blugreen/Big
Cedar Vacations LLC and Residential Funding Corporation
(incorporated by reference to exhibit 10.169 to Annual Report on
Form 10-K for the fiscal year ended December 31, 2003).
10.171 - Revolving Promissory Note (Receivables Loan) dated February 10,
2003, between the Registrant, Residential Funding Corporation,
Bluegreen Vacations Unlimited, Inc. and Bluegreen/Big Cedar
Vacations, LLC (incorporated by reference to exhibit 10.158 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.172 - Amendment No. 1 to Revolving Promissory Note (Receivables Loan)
dated as of September 10, 2003 between Bluegreen Corporation,
Bluegreen Vacations Unlimited, Inc., Bluegreen/Big Cedar Vacations,
LLC and Residential Funding Corporation (incorporated by reference
to exhibit 10.160 to Quarterly Report on Form 10-Q dated September
30, 2003).
10.173 - Full Guaranty dated February 10, 2003, by the Registrant in favor of
Residential Funding Corporation (incorporated by reference to
exhibit 10.159 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.174 - Acquisition, Construction and Receivable Loan, Security and Agency
Agreement dated as of December 22, 2003 by and among Bluegreen
Vacations Unlimited, Inc., Bluegreen Corporation and Textron
Financial Corporation (incorporated by reference to exhibit 10.173
to Annual Report on Form 10-K for the fiscal year ended December 31,
2003).
10.175 - Secured Promissory Note (Revolving Loan Component) dated December
22, 2003 between Bluegreen Vacations Unlimited, Inc., Bluegreen
Corporation and Textron Financial Corporation (incorporated by
reference to exhibit 10.174 to Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).
10.176 - Secured Promissory Note (Acquisition / Construction Loan Component)
dated December 22, 2003 between Bluegreen Vacations Unlimited, Inc.,
Bluegreen Corporation and Textron Financial Corporation
(incorporated by reference to exhibit 10.175 to Annual Report on
Form 10-K for the fiscal year ended December 31, 2003).
10.200 - Marketing and Promotions Agreement dated as of June 16, 2000, by and
between Big Cedar L.L.C., Bass Pro, Inc., Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.201 - Advertising Advance Loan dated as of June 16, 2000 by and between
Big Cedar L.L.C., as Maker, and Bluegreen Vacations Unlimited, Inc.,
as Holder (incorporated by reference to exhibit of same designation
to Quarterly Report on Form 10-Q dated July 2, 2000).
10.202 - Website Hyperlink License Agreement dated as of June 16, 2000 by and
between Bluegreen Vacations Unlimited, Inc. (as User), Bass Pro,
Inc. and Bass Pro Outdoors Online, L.L.C. (as Owners) (incorporated
by reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated July 2, 2000).
10.203 - Website Hyperlink License Agreement dated as of June 16, 2000 by and
between Bluegreen Vacations Unlimited, Inc. (as Owner), Bass Pro,
Inc. and Bass Pro Outdoors Online, L.L.C. (as Users) (incorporated
by reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated July 2, 2000).
115
10.204 - Contribution Agreement dated as of June 16, 2000 by and between
Bluegreen Vacations Unlimited, Inc. and Big Cedar L.L.C.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.205 - Operating Agreement of Bluegreen/Big Cedar Vacations, LLC dated as
of June 16, 2000 by and among Bluegreen Vacations Unlimited, Inc.
and Big Cedar L.L.C. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.206 - Administrative Services Agreement dated as of June 16, 2000 by and
among Bluegreen/Big Cedar Vacations, LLC and Bluegreen Vacations
Unlimited, Inc. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.207 - Servicing Agreement dated as of June 16, 2000 by and among the
Registrant, Bluegreen/Big Cedar Vacations, LLC and Big Cedar L.L.C.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.208 - Asset Purchase Agreement dated as of September 30, 2002, by and
among TakeMeOnVacation, LLC, RVM Promotions, LLC, RVM Vacations, LLC
and Leisure Plan, Inc. (incorporated by reference to exhibit of same
designation to Current Report on Form 8-K dated October 2, 2002).
18 - Letter re: Change in Accounting Principle (incorporated by reference
to exhibit of same designation to Transition Report on Form 10-KT
for the nine months ended December 31, 2002).
21.1 - List of Subsidiaries.
23.1 - Consent of Independent Registered Public Accounting Firm.
31.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to Securities Exchange Act Rules 13a-15(c) and
15d-15(c), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 - Certification of John F. Chiste, Senior Vice President, Treasurer
and Chief Financial Officer, pursuant to Securities Exchange Act
Rules 13a-15(c) and 15d-15(c), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of John F. Chiste, Senior Vice President, Treasurer
and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
116