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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 Blue Lake Drive, 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,
8.25% Convertible Subordinated Pacific Stock Exchange
Debentures due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $163,267,104 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 17, 1998 ($8.00
per share). The market value of voting stock held by non-affiliates excludes any
shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures
which are convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 20,408,388 shares of
Common Stock, $.01 par value, outstanding as of June 17, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's 1998 Annual Report to
Shareholders (the "1998 Annual Report") are incorporated by reference into Part
II and IV hereof and specifically identified portions of the Company's
definitive proxy statement to be filed for its Annual Meeting of Shareholders to
be held on July 28, 1998 (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........................................................15
Item 3. LEGAL PROCEEDINGS.................................................15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER.....16
MATTERS
Item 6. SELECTED FINANCIAL DATA...........................................16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION......................................16
Item 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..........................................16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................17
Item 11. EXECUTIVE COMPENSATION.............................................17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....17
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................17
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....17
Signatures................................................................... 19
Exhibit Index.................................................................20
PART I
Item 1. BUSINESS.
Summary
Bluegreen Corporation, (the "Company") is a leading marketer of vacation
and residential lifestyle choices through its resorts and residential land
businesses. The Company's resorts business (the "Resorts Division") acquires,
develops and markets timeshare interests in resorts generally located in popular
high-volume, "drive-to" vacation destinations. Timeshare interests typically
entitle the buyer to a fully-furnished vacation residence for an annual one-week
period in perpetuity ("Timeshare Interests"), as well as access to over 1,500
resorts worldwide through the Company's participation in timeshare exchange
networks. The Company currently markets and sells Timeshare Interests in eight
resorts located in the United States and the Caribbean. Prior to investing in
new timeshare projects, the Company performs market research and testing and,
prior to completion of development, seeks to pre-sell a significant portion of
its Timeshare Interests inventory. The Company's residential land business (the
"Residential Land Division") acquires, develops and subdivides property and
markets the subdivided residential lots to retail customers seeking to build a
home in a high quality residential setting. The Residential Land Division's
strategy is to locate its projects near major metropolitan centers outside the
perimeter of intense subdivision development or in popular retirement areas. The
Company has focused the Residential Land Division's activities in certain core
markets in which the Company has developed substantial marketing expertise and
has a strong track record of success. Prior to acquiring residential land, the
Company typically utilizes market research, conducts due diligence and, in the
case of new project locations, engages in pre-marketing techniques to evaluate
market response and price acceptance. Once a parcel of property is acquired, the
Company pre-sells a significant portion of its planned residential lots on such
property prior to extensive capital investment as a result of the Company's
ability to bond its projects to completion. The Company also generates
significant interest income through its financing of individual purchasers of
Timeshare Interests and, to a lesser extent, land sold by the Residential Land
Division.
For the purposes of this discussion, "estimated remaining life-of-project
sales" assumes sales of the existing, currently under construction or
development, and planned Timeshare interests or residential lots, as the case
may be, at current retail prices.
The Resorts Division. The Company's Resorts Division was founded in 1994 to
capitalize on the growth of the timeshare industry. According to the American
Resort Development Association, ("ARDA"), a non-profit industry organization,
and other industry sources, timeshare industry sales and the number of Timeshare
Interest owners grew at compound annual rates of approximately 16% and 22%,
respectively, from 1980 to 1997. No assurances can be given that these industry
growth rates will continue. The Company currently markets and sells Timeshare
Interests in eight resorts located in the Smoky Mountains of Tennessee; Myrtle
Beach, South Carolina; Orlando, Florida; Branson, Missouri; Wisconsin Dells,
Wisconsin; and Aruba. As of March 29, 1998, the Company had existing completed
inventory of 20,172 Timeshare Interests at its resorts, 8,316 Timeshare
Interests under construction or development, and plans to develop approximately
48,978 additional Timeshare Interests at existing resorts. Based on the
foregoing, the Resorts Division's estimated remaining life-of-project sales were
approximately $663 million at March 29, 1998. The Company also manages 37
timeshare resorts (including seven of its own resorts) with an aggregate of
approximately 79,000 members, which the Company believes makes it the second
largest manager of timeshare resorts in North America (based on the number of
resorts managed).
The Resorts Division utilizes a variety of techniques to attract
prospective purchasers of Timeshare Interests, including targeted mailings,
direct mail mini-vacations, kiosks in retail locations, marketing to current
owners of Timeshare Interests and referrals. The majority of the Company's
Timeshare Interests are sold through on-site sales presentations. To support its
marketing and sales efforts, the Company has developed and continues to enhance
its database to track its timeshare marketing and sales programs. Management
believes that, as the Company's timeshare operations grow, this database will
become an increasingly significant asset, enabling it to take advantage of,
among other things, less costly marketing and referral opportunities.
According to ARDA, the primary reason cited by consumers for purchasing a
Timeshare Interest is the ability to exchange a Timeshare Interest for
accommodations at other resorts through worldwide exchange networks. Each of the
Company's timeshare resorts is affiliated with either Interval International
("II") or Resort Condominium International, Inc. ("RCI"), the two largest
worldwide timeshare exchange companies. Participation in an exchange network
entitles owners to exchange their annual Timeshare Interests for occupancy at
over 1,500 participating II resorts or over 3,200 participating RCI resorts
worldwide. To further enhance the ability of its Timeshare Interest owners to
customize their vacation experience, the Company also intends to expand the
points-based vacation club system it acquired in connection with its acquisition
(the "RDI Acquisition") effective September 30, 1997, of all of the capital
stock of RDI Group, Inc. and Resort Title Agency, Inc. and their subsidiaries
(collectively, "RDI") which, when completed, will permit its Timeshare Interest
owners to purchase an annual allotment of points which can be redeemed for
occupancy rights at all Company-owned and participating managed resorts.
Prior to acquiring property for resorts, the Resorts Division undertakes a
full property review, including an environmental assessment, which is presented
for approval to the Company's Investment Committee, which was established in
1990 and consists of certain key members of senior management. During the review
process, acquisition
1
specialists analyze market, tourism and demographic data as well as the quality
and diversity of the location's existing amenities and attractions to determine
the potential strength of the timeshare market in such area and the availability
of a variety of recreational opportunities for prospective Timeshare Interest
purchasers.
The Company has historically provided financing to approximately 89% of its
timeshare customers, who are required to make a downpayment of at least 10% of
the Timeshare Interest sales price and who typically finance the balance of the
sales price over a period of seven to ten years. As of March 29, 1998, the
Company had a timeshare receivables portfolio totaling approximately $66.6
million in principal amount, with a weighted average contractual yield of
approximately 15.5% per annum. The Company is currently negotiating with a
financial institution to obtain a timeshare warehouse financing and separate
timeshare receivables purchase facility and a separate timeshare acquisition and
development facility. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
The Residential Land Division. The Residential Land Division is focused
primarily on land projects located in states in which the Company has developed
marketing expertise and has a track record of success, such as Texas, North
Carolina, New Mexico, Virginia, Tennessee, Colorado and Arizona. The aggregate
carrying amount of Residential Land Division inventory at March 29, 1998 was
$45.2 million. The Residential Land Division's estimated remaining
life-of-project sales were approximately $210 million at March 29, 1998. The
Company believes no other company in the United States of comparable size or
financial resources markets and sells residential land directly to retail
customers.
The Residential Land Division targets families seeking a quality lifestyle
improvement which is generally unavailable in traditional suburban developments.
Based on the Company's experience in marketing and selling residential lots to
its target customers, the Company has been able to develop a marketing and sales
program that generates a significant number of on-site sales presentations to
potential prospects through low-cost, high-yield newspaper advertising. In
addition, SIMS and the other Residential Land Division databases enable the
Company to compile, process and maintain information concerning future sales
prospects within each of its operating regions. Through the Company's targeted
sales and marketing program, the Company believes that it has been able to
achieve a very attractive conversion ratio of sales to prospects receiving
on-site sales presentations.
The Residential Land Division acquires and develops land in two markets:
(i) near major metropolitan centers outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, the Company researches market depth and forecasts market absorption. In
new market areas, the Company typically supplements its research with a
structured classified ad test marketing system that evaluates market response
and price acceptance. The Company's sales and marketing efforts begin as soon as
practicable after the Company enters into an agreement to acquire a parcel of
land. The Company's ability to bond projects to completion allows it to sell a
significant portion of its residential land inventory on a pre-development
basis, thereby reducing the Company's need for external capital to complete
improvements. As is the case with the Resorts Division, all acquisitions of
residential land are subject to Investment Committee approval.
In fiscal 1997, the Company began construction of its first daily-fee golf
course as part of its long-term plan to participate in the growing daily-fee
golf market. The Company believes that because the demographics of this market
are similar to those of the Residential Land Division, daily-fee golf courses
are an attractive amenity that will increase the marketability of the Company's
adjacent residential lots in certain projects. The Company's first golf course,
the Carolina National Golf Club, is located near Southport, North Carolina, just
30 miles north of Myrtle Beach, South Carolina, one of the nation's most popular
golf destinations, and was designed by Masters Champion Fred Couples. Also, as
part of the RDI Acquisition, the Company acquired a daily-fee golf course
located in Wisconsin Dells, Wisconsin.
The Company's business includes certain risks and uncertainties. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition"
The Company's executive offices are located at 4960 Blue Lake Drive, Boca
Raton, Florida 33431. The Company's telephone number at such address is (561)
912-8000.
Industry Overviews
Resorts Division
The Market. The resort component of the leisure industry is serviced
primarily by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. The Company believes that Timeshare Interest
ownership presents an attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, Timeshare Interest ownership
has been one of the fastest growing segments of the hospitality industry over
the past two decades. According to ARDA (including unpublished ARDA estimates
with respect to 1995, 1996 and 1997), timeshare industry sales and the number of
Timeshare Interest owners
2
have grown at compound annual rates of approximately 16% and 22%, respectively,
from 1980 to 1997. No assurances can be given that such industry growth rates
will continue.
The Company believes that, based on ARDA reports and other industry data,
the following factors have contributed to the increased acceptance of the
timeshare concept among the general public and the substantial growth of the
timeshare industry:
Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to other lodging
alternatives;
Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as II and RCI and points-based
vacation club systems;
The quality of the timeshare resorts and their management;
Consumer confidence resulting from consumer protection regulation of the
timeshare industry and an influx of brand name national lodging companies
to the timeshare industry; and
Availability of consumer financing for purchasers of Timeshare Interests.
The timeshare industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
of the world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental. Although
timeshare operations currently comprise only a small portion of these companies'
overall operations, their involvement in the timeshare industry, together with
other publicly-traded timeshare companies, has enhanced the industry's image
with the general public.
The Consumer. According to information compiled by ARDA, customers in the
40-55 year age range represented approximately 45.1% of all Timeshare Interest
owners in 1997. During the past two years, the median age of a Timeshare
Interest buyer at the time of purchase was 48. The median annual household
income of current Timeshare Interest owners in the United States is
approximately $71,000, with approximately 24% of all Timeshare Interest owners
having annual household incomes greater than $100,000 and approximately 12% of
such owners having annual household incomes greater than $125,000. The Company
believes that, despite the industry's growth, Timeshare Interest ownership has
achieved only an approximate 5% market penetration among United States
households with incomes above $50,000 per year.
Timeshare Interest Ownership. The purchase of a Timeshare Interest
typically entitles the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity. Typically, the buyer
acquires an ownership interest in the vacation residence, which is often held as
tenant-in-common with other buyers of interests in the property.
The owners of Timeshare Interests manage the property through a non-profit
homeowners' association, which is governed by a board of directors or trustees
consisting of representatives of the developer and owners of Timeshare Interests
at the resort. The board hires a management company to which it delegates many
of the rights and responsibilities of the homeowners' association, including
grounds landscaping, security, housekeeping and operating supplies, garbage
collection, utilities, insurance, laundry and repairs and maintenance.
Each Timeshare Interest owner is required to pay the homeowners'
association a share of all costs of maintaining the property. These charges can
consist of an annual maintenance fee plus applicable real estate taxes and
special assessments, assessed on an as-needed basis. If the Timeshare Interest
owner does not pay such charges, such owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Timeshare Interest.
Participation in Timeshare Interest Exchange Networks. The Company believes
that its Timeshare Interests are made more attractive by the Company's
affiliation with Timeshare Interest exchange networks operated by II and RCI,
the two largest worldwide, timeshare exchange companies. Six of the Company's
timeshare resorts (including the Aruba Resort) are affiliated with II and have
been awarded II's highest designation (five stars), while the two resorts
acquired in the RDI Acquisition are affiliated with RCI. A Timeshare Interest
owner's participation in the II or RCI exchange network (the fee for which is
paid by the Company in the first year of such owner's participation) allows such
owner to exchange his annual Timeshare Interest for occupancy at over 1,500
participating resorts in the case of II and over 3,200 participating resorts in
the case of RCI, based upon availability and the payment of a variable exchange
fee. A member may exchange his Timeshare Interest for an occupancy right in
another participating resort by listing his Timeshare Interest as available with
the exchange organization and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the member
desires to travel, the size of the unit desired and the period during which
occupancy is desired. The exchange network assigns ratings to each listed
Timeshare Interest, based upon a number of factors, including the location and
size of the unit, the quality of the resort and the period during which the
Timeshare Interest is available, and attempts to satisfy the exchange request by
providing an occupancy right in another Timeshare Interest with a similar
rating. If the exchange network is unable to meet the member's initial request,
it suggests alternative resorts based on availability. The failure of the
Company to
3
participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on the Company.
Residential Land Division
The Residential Land Division operates within a specialized niche of the
real estate industry which focuses on the sale of residential land to retail
customers who intend to build a home on such land at some point in the future.
The participants in this market niche are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region. Although no specific data is available
regarding this market niche, the Company believes that no other company in the
United States of comparable size or financial resources currently markets and
sells residential land to retail customers.
Unlike commercial homebuilders who focus on vertical development, the
Residential Land Division focuses primarily on horizontal development
activities, such as grading, roads and utilities. As a result, the projects
undertaken by the Company and other participants in this market niche are
significantly less capital intensive than those undertaken by the commercial
homebuilders, which reduces the Company's risk of holding a large inventory of
property. In addition, the Company believes that, through its financial and
marketing resources, it is able to acquire properties in attractive locations
throughout the United States on a cost-effective basis thereby enabling the
Company's projects to achieve desired cash flows and targeted gross margins. The
Company's market niche is also the beneficiary of a number of trends, including
the large number of people entering into the 40-55 year age bracket and the
economic and population growth in certain of its primary markets.
Recent Acquisitions and Transactions
Effective September 30, 1997, a wholly-owned subsidiary of the Company
acquired all of the issued and outstanding common stock of RDI Group Inc. and
Resort Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5
million consisting of $6 million cash and a $1.5 million, 9% promissory note due
October 3, 1999 (the "RDI Acquisition"). The acquisition was accounted for using
the purchase method of accounting and, accordingly, the results of operations of
RDI have been included in the Company's consolidated financial statements from
September 30, 1997. Approximately $1.1 million of goodwill, which is included in
other assets on the consolidated balance sheet, was recognized in connection
with the acquisition of RDI. The goodwill is being amortized over 25 years.
Headquartered in Fort Myers, Florida, RDI was privately-held and presently owns
timeshare resorts in Orlando, Florida and Wisconsin Dells, Wisconsin, as well as
a points-based vacation club. In addition, RDI manages approximately 37 vacation
ownership resorts, located primarily in the southeastern sun-belt states,
including the resorts developed by the Company, with a member base of
approximately 79,000.
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. ("BPNV"), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club (the "Aruba Resort"), a fully developed
timeshare resort in Oranjestad, Aruba in exchange for $6 million cash and the
assumption of approximately $16.6 million of interest-free debt from a bank in
Aruba (the "Aruba Transaction"). The debt is not guaranteed by the Company or
any of its wholly-owned subsidiaries. The debt was recorded by BPNV at
approximately $12.5 million, which reflects a discount based on an imputed
interest rate of 12%. The debt is to be repaid over five years through
release-prices as intervals are sold, subject to minimum monthly payments of
approximately $278,000. In addition to its 50% ownership interest, the Company
will receive a quarterly management fee from BPNV equal to 7% of BPNV's net
sales in exchange for the Company's involvement in the day-to-day operations of
BPNV. The Company also has majority control of BPNV's board of directors and has
a controlling financial interest in BPNV. Therefore, the accounts of BPNV are
included in the Company's consolidated financial statements as of March 29,
1998. The total assets and net revenues of BPNV for fiscal 1998 were
approximately $21.7 million and $4.6 million, respectively. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
The Company borrowed an aggregate of $22.1 million from two investment
banking firms pursuant to a short-term loan agreement dated December 15, 1997
(the "Bridge Loan"). The Bridge Loan bore interest at the greater of 10% or
prime plus 2.75%. In addition, the Company paid a fee equal to 1% of each
advance.
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). The initial purchasers in the
Offering were the investment banking firms who provided the Company with the
Bridge Loan. Interest on the Notes is payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003-105.25%; 2004-103.50%;
2005-101.75% and 2006 and thereafter-100.00%. In addition, prior to April 1,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the proceeds of one or more public equity offerings, at a redemption
price equal to 110.5% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $65 million
principal amount of Notes remains outstanding after any such redemption. The
Notes are senior obligations of the Company and rank pari passu in right of
payment with all existing and future senior
4
indebtedness of the Company and rank senior in right of payment to all existing
and future subordinated obligations of the Company. None of the assets of
Bluegreen Corporation secure its obligations under the Notes, and the Notes are
effectively subordinated to secured indebtedness of the Company to any third
party to the extent of assets serving as security therefor. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of Bluegreen
Properties N.V., 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.
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 residential land 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 will not have a lien on
the proceeds of any such sale. As of March 29, 1998, the Pledged Properties had
an aggregate book value of approximately $36.8 million. The Notes' indenture
(the "Indenture") contains certain covenants that, among other things, limit (i)
the incurrence of additional indebtedness by the Company and its subsidiaries
and the creation of liens, (ii) the payment of dividends on, and redemption of,
capital stock of the Company and the redemption of certain subordinated
obligations of the Company, (iii) investments, (iv) sales of assets and
subsidiary stock, (v) transactions with affiliates and (vi) consolidations,
mergers and transfers of all or substantially all of the assets of the Company.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the Bridge Loan, approximately
$28.9 million of various line-of-credit and notes payable balances and
approximately $36.3 million of the Company's receivable-backed notes payable
discussed more fully below. In addition, the Company paid aggregate accrued
interest on the repaid debt of approximately $1.0 million and $2.7 million of
prepayment penalties. The remaining net proceeds of the Offering will be used to
repay other obligations of the Company and for working capital purposes. In
connection with the Offering, the Company wrote-off approximately $692,000 of
debt issuance costs related to the extinguished debt.
Company Products
Timeshare Resorts
Set forth below is a description of each of the Company's timeshare
resorts. All units at each of the properties have certain standard amenities,
including a full kitchen, at least two televisions, a VCR player and a CD
player. Some units have additional amenities, such as larger televisions and
game systems. Each property offers guests a clubhouse (with an indoor/outdoor
pool, a game room, exercise facilities and a lounge) and a hotel-type staff. The
Company manages each resort other than the Aruba Resort.
MountainLoft Resort--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.
Shore Crest Vacation Villas--Myrtle Beach, South Carolina. Shore Crest
Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Harbour Lights--Myrtle Beach, South Carolina. Harbour Lights is located in
the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater
Row, shopping, golf and restaurants. The resort's Activities Center overlooks
the Intracoastal Waterway.
The Falls Village--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 country music
stars. Most customers of the resort come from areas within an eight to ten hour
drive of Branson.
Christmas Mountain--Wisconsin Dells, Wisconsin. The Company acquired the
Christmas Mountain resort as part of the RDI Acquisition. Christmas Mountain
offers an 18-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 attracts customers primarily from the greater Chicago area and other
locations within an eight to ten hour drive of Wisconsin Dells.
5
Orlando Sunshine--Orlando, Florida. Orlando Sunshine was also acquired as
part of the RDI Acquisition. The resort is located on International Drive, near
Wet'n'Wild water park and Universal Studios.
La Cabana All Suite Beach Resort & Racquet Club--Aruba, Dutch Caribbean. BG
Aruba acquired the unsold Timeshare Interest inventory of the Aruba Resort
(approximately 8,000 Timeshare Interests) in December 1997. Established in 1989,
the Aruba Resort is a 449-suite ocean front property which offers one, two and
three bedroom suites, garden suites and penthouse accommodations. On-site
amenities include tennis, racquetball, squash, casino, two pools and private
beach cabanas, none of which are owned or managed by the Company.
The following table sets forth additional data with respect to each of the
properties managed under the Resorts Division.
Laurel Shore Harbour Orlando
Crest Crest Lights The Falls Christmas Sunshine
MountainLoft Pigeon Myrtle Myrtle Village Mountain(1) (1) LaCabana
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin Orlando, Resort(2)
Location TN TN SC SC MO WI FL Aruba
- -------- -- -- -- -- -- -- -- -----
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 -- 1/98
Number of Timeshare Interests
completed as of March 29, 1998(3) 7,667 5,824 5,980 1,872 1,535 1,341 -- 8,030
Number of Timeshare Interests
under construction as of
March 29, 1998 (3) 936 1,560 -- 1,872 3,744 204 -- --
Number of additional Timeshare
Interests planned (3)(4) 4,309 4,507 5,108 11,091 12,765 8,702 2,496 --
Average Timeshare Interests selling
price - Year ended March 29,1998 $8,446 $8,561 $9,843 $8,033 $8,183 $8,768 $10,000(5) $11,082
Number of Timeshare Interests
sold through March 29, 1998 4,115 2,837 2,829 780 658 446 -- 412
(1) Acquired by the Company in the RDI Acquisition on September 30, 1997.
(2) Bluegreen Properties N.V., in which the Company owns a 50% interest,
acquired unsold Timeshare Interests inventory at this resort in December,
1997.
(3) The number of Timeshare Interests completed, under construction or planned
are intended to be sold in 52 weekly intervals.
(4) There can be no assurance that the Company will have the resources to
complete all such planned Timeshare Interests or that such Timeshare
Interests will be sold at favorable prices.
(5) Anticipated average selling prices once sales commence.
Certain Residential Land Projects
Set forth below is a description of the four largest projects currently
marketed by the Residential Land Division, which are representative of the types
of projects that the Company has been focusing on since 1993. These properties
represented 46.4% of the Residential Land Division's estimated remaining
life-of-project sales at March 29, 1998.
River Mountain Ranch--San Antonio, Texas. The Company acquired 3,600 acres
located approximately 35 miles outside of San Antonio, Texas in fiscal 1997 for
$6.5 million. The property features frontage along the Guadalupe River and is
characteristic of the Texas Hill Country with its rolling meadows and mature
trees. The property also includes private river parks for picnics and outings.
The project includes 608 lots, with most ranging in size from three to five
acres. The Company began selling lots in October 1996 and aggregate sales
through March 29, 1998 were $17.7 million. Aggregate development costs through
March 29, 1998 were $4.9 million and the Company anticipates that the remaining
capital expenditures for the project will be $1.3 million. The Company
anticipates that the remaining lots will be sold-out over the next year.
Estimated remaining life-of-project sales for this project are approximately $8
million as of March 29, 1998.
Winding River Plantation--Southport, North Carolina. The Company acquired
approximately 1,300 acres located near Southport, North Carolina (and between
Myrtle Beach, South Carolina and Wilmington, North Carolina) for $3.4 million in
fiscal 1997. The property has frontage along the Lockwood Folly River, a
navigable waterway that leads to the Intercoastal Waterway and the Atlantic
Ocean. The project will include river amenities, a beach club and tennis courts.
In addition, the project is the site of the Company's first daily-fee golf
course, which opened for limited play in November 1997 and was developed by
Masters Champion Fred Couples. The Company anticipates that the project will
consist of a total of approximately 1,000 lots, which average approximately one
acre. The Company began selling lots in February 1997, and aggregate sales
through March 29, 1998 were $12.5 million. Aggregate development costs (net of
costs capitalized separately in the golf course) through March 29, 1998 were
$8.5 million and the Company
6
anticipates that the aggregate capital expenditures to complete development at
the project will be $10.4 million. The Company anticipates that the remaining
lots will be sold-out over the next four years. Estimated remaining
life-of-project sales for this project are approximately $53.1 million as of
March 29, 1998.
Lake Ridge at Joe Pool Lake--Cedar Hill, Texas. The Company acquired 1,400
acres located approximately 19 miles outside of Dallas, Texas and 30 miles
outside of Fort Worth, Texas in April 1994 for $6.1 million. The property is
located at Joe Pool Lake and is atop the highest elevation within 100 miles. The
lake has in excess of 7,500 acres of water for boating, fishing, windsurfing and
other water activities. Adjacent amenities (not owned or managed by the Company)
include a 154 acre park with baseball, football and soccer fields, a fishing
pool with a pier, camping areas and an 18-hole golf course. The project includes
252 lots, with most ranging in size from 1/4 to five acres and 399 acres
available for future development. The Company began selling lots in April 1994
and aggregate sales through March 29, 1998 were $30.6 million. Aggregate
development costs through March 29, 1998 were $12.9 million and the Company
anticipates that the remaining capital expenditures will be $9.1 million. The
Company anticipates that unsold lots will be sold-out over the next two years.
Estimated remaining life-of-project sales for this project are approximately
$30.7 million as of March 29, 1998.
Crossroads Ranch--Prescott, Arizona. The Company acquired 6,500 acres
located 20 miles north of Prescott, Arizona in July 1995 for $6.0 million. The
property has elevations ranging from 4,600 to 5,600 feet and a four-season
climate. The terrain includes pasture lands with seasonal creeks and rolling
hills. The property is 95 miles north of Phoenix and Scottsdale, approximately 2
1/2 hours south of the Grand Canyon and approximately one hour away from Sedona.
The Company anticipates that the project will include 153 lots, each averaging
36 acres, and 26 lots, each averaging five acres. The Company provided gravel
roads and trails for hiking and horseback riding. Electric service was installed
underground so that utility poles would not spoil the views. The Company also
created deed restrictions designed to ensure that future development on the
property is compatible with the land's ranch character. The Company began
selling lots in January 1996 and aggregate sales through March 29, 1998 were
$19.9 million. Aggregate development costs through March 29, 1998 were $6.6
million and the Company anticipates that the remaining capital expenditures will
be $1.8 million. The Company anticipates that the unsold lots will be sold-out
over the next year. Estimated remaining life-of-project sales for this project
are approximately $5.7 million as of March 29, 1998.
Acquisition of Timeshare and Residential Land Inventory
In order to provide centralized and uniform controls on the type, location
and amount of timeshare and residential land inventory that the Company
acquires, all such inventory acquisitions have required the approval of the
Investment Committee since 1990. The Investment Committee consists of George F.
Donovan, President and Chief Executive Officer; John F. Chiste, Treasurer and
Chief Financial Officer; Patrick E. Rondeau, Senior Vice President, Director of
Legal Affairs; L. Nicolas Gray, Senior Vice President--Resorts Division; and
Daniel C. Koscher, Senior Vice President--Residential Land Division. The
Investment Committee reviews each proposed inventory acquisition to determine
whether the property meets certain criteria, including estimated cash flows and
gross profit margins.
Resorts Division
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, lodging companies and financial institutions with which the Company
has established business relationships. The four resorts acquired and directly
developed by the Company (the Tennessee and South Carolina resorts) were
specifically designed and built for timeshare use to appeal to the Company's
targeted customers. Prior to acquiring property for future resorts, the Resorts
Division undertakes a full property review, including an environmental
assessment, which is presented to the Investment Committee for approval. During
the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's existing
amenities and attractions to determine the potential strength of the timeshare
market in such area and the availability of a variety of recreational
opportunities for prospective Timeshare Interest purchasers. Specifically, the
Company evaluates the following factors, among others, to determine the
viability of a potential new timeshare resort: (i) supply/demand ratio for
Timeshare Interests in the relevant market, (ii) the market's growth as a
vacation destination, (iii) competitive accommodation alternatives in the
market, (iv) uniqueness of location, and (v) barriers to entry that would limit
competition. The Company anticipates that its timeshare resorts will generally
have a sell-out term of approximately seven years.
During fiscal 1998, the Company acquired the land and began development of
its Harbour Lights Resort in Myrtle Beach, South Carolina, acquired The Falls
Village Resort in Branson, Missouri and consummated the RDI Acquisition and the
Aruba Transaction. As a result of these transactions, the Company's Timeshare
Interest inventory increased from 9,935 unsold Timeshare Interests as of March
30, 1997 to 20,172 unsold Timeshare Interests as of March 29, 1998, an increase
of 103%.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that will complement such existing operations. Because the
timeshare industry is highly fragmented, the Company believes that significant
opportunities exist to make selected acquisitions at attractive valuations.
Acquisitions the Company may consider include acquiring additional Timeshare
Interest inventory, operating companies, management contracts, Timeshare
Interest mortgage portfolios and properties or other timeshare-related assets
which may be integrated into the Company's operations. In addition, the Company
intends to continue to pursue timeshare resort locations in areas outside the
United States, particularly in the Caribbean,
7
as well as Central and South America. No assurances can be given that the
Company will be successful in its acquisition strategy.
Residential Land Division
The Residential Land Division, through the Company's regional offices, and
subject to Investment Committee review and approval, typically acquires
inventory that (i) is located near a major population center outside the
perimeter of intense subdivision development or in popular retirement areas,
(ii) is suitable for subdivision, (iii) has attractive topographical features
and (iv) the Company believes will result in an acceptable profit margin and
cash flow to the Company based upon anticipated retail value. Properties are
generally subdivided for resale into parcels typically ranging in size from two
to five acres. During the year ended March 29, 1998, the Company acquired 5,133
acres in ten separate transactions for a total purchase price of approximately
$12.2 million, or $2,386 per acre, and during fiscal 1997, the Company acquired
19,254 acres in 23 separate transactions for a total purchase price of $29.7
million, or $1,541 per acre.
In connection with its review of potential residential land inventory, the
Investment Committee considers such established criteria as the economic
conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. As part of its long-term
strategy for the Residential Land Division, the Company in recent years has
focused on fewer, more capital-intensive projects. The Company intends to
continue to focus the Residential Land Division on those regions where the
Company believes the market for its products is strongest, such as the
Southeast, Southwest, Rocky Mountain and Western regions of the United States
and to replenish its residential land inventory in such regions as existing
projects are sold-out.
The Residential Land Division has several specialists who assist regional
management in locating inventory for acquisition. The Company has established
contacts with numerous land owners and real estate brokers in many of its market
areas, and because of such contacts and its long history of acquiring
properties, the Company believes that it is generally in a favorable position to
learn of available properties, often before the availability of such properties
is publicly known. In order to ensure such access, the Company attempts to
develop and maintain strong relationships with major property owners and
brokers. Regional offices regularly contact property owners, such as timber
companies, financial institutions and real estate brokers, by a combination of
telephone, mail and personal visits. In addition, prior to acquiring property in
new areas, the Company will conduct test marketing for a prospective project
prior to entering into an acquisition agreement to determine whether sufficient
customer demand exists for the project. To date, the Company's regional offices
generally have been able to locate and acquire adequate quantities of inventory
which meet the criteria established by the Investment Committee to support their
operational activities. In certain cases, however, the Company has experienced
short-term shortages of ready-for-sale inventory due to either difficulties in
acquiring property or delays in the approval and/or development process.
Shortfalls in ready-for-sale inventory may materially adversely affect the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
Once a desirable property is identified, the Company completes its initial
due diligence procedures and enters into a purchase agreement with the seller to
acquire the property. It is generally the Company's policy to advance only a
small downpayment of 1%-3% of the purchase price upon signing the purchase
agreement and to limit the liquidated damages associated with such purchase
agreement to the amount of its downpayment and any preliminary development
costs. In most cases, the Company is not required to advance the full purchase
price or enter into a note payable obligation until regulatory approvals for the
subdivision and sale of at least the initial phase of the project have been
obtained. While local approvals are being sought, the Company typically engages
in pre-marketing techniques and, with the consent of the seller and the
knowledge of prospective purchasers, occasionally attempt to pre-sell parcels,
subject to closing its purchase of the property. When the necessary regulatory
approvals have been received, the closing on the property occurs and the Company
obtains title to the property. The time between execution of a purchase
agreement and closing on a property has generally been six to 12 months.
Although the Company generally retains the right to cancel purchase agreements
without any loss beyond forfeiture of the downpayment and preliminary
development costs, few purchase agreements have been canceled historically.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract without
expending significant amounts of cash. This strategy enables the Residential
Land Division to reduce (i) the time during which it actually owns specific
properties, (ii) the market risk associated with holding such properties and
(iii) the risk of acquiring properties that may not be suitable for sale. It
also provides the Residential Land Division an additional source of available
properties to meet customer demand. In certain circumstances, however, the
Company has acquired properties and then held such properties until their prime
marketing seasons.
Prior to closing on a purchase of residential land, the Company's policy is
to complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open space,
scenic vistas, recreation, transportation and community growth and character. To
obtain this information, the Company's acquisition specialists typically consult
with various groups and agencies including the appropriate county and state
planning agencies, environmental groups, state heritage programs, soil
conservation agencies and forestry groups. If the Company's environmental
assessment indicates that the proposed subdivision meets environmental criteria
and complies with
8
zoning, building, health and other laws, the Company develops a formal land use
plan, which forms a basis for determining an appropriate acquisition price. The
Company attempts, where possible, to accommodate the existing topographical
features of the land, such as streams, hills, wooded areas, stone walls, farm
buildings and roads. Prior to closing on an acquisition, the Company will
typically have the property surveyed by a professional surveyor and have soil
analyses conducted to determine the suitability of the site for septic systems.
At closing, the Company also obtains title insurance on the property.
Marketing and Sale of Inventory
Resorts Division
The Resorts Division utilizes a variety of techniques to attract
prospective purchasers of Timeshare Interests, including targeted mailings,
direct mail mini-vacation invitations, kiosks in retail locations, marketing to
current owners and referrals. The Resorts Division provides hotel accommodations
to prospective purchasers at reduced prices in exchange for their touring the
timeshare resort. To support its marketing and sales efforts, the Company has
developed and continues to enhance its database to track its timeshare marketing
and sales programs. Management believes that, as the Resort Division's timeshare
operations grow, this database will become an increasingly significant asset,
enabling the Company to focus its marketing and sales efforts to take advantage
of, among other things, less costly marketing and referral opportunities.
Timeshare resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are
employees of the Company. Sales personnel are generally experienced in resort
sales and undergo ongoing Company-sponsored training. During the year ended
March 29, 1998, total advertising expense for the Resorts Division was $14.6
million or 24.1% of the division's $60.8 million in sales, and during fiscal
1997, total advertising expense for the Resorts Division was $7.6 million or 28%
of such division's $27.4 million in sales.
The Company requires its sales staff to provide each timeshare customer
with a written disclosure statement regarding the Timeshare Interest to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding timeshare ownership at the
resort and must be signed by every purchaser. The Company believes that this
information statement contains all material and relevant information a customer
requires to make an informed decision as to whether or not to purchase a
Timeshare Interest at one of its resorts.
After deciding to purchase a Timeshare Interest, a purchaser enters into a
purchase agreement and is required to pay the Company a deposit of at least 10%
of the purchase price. Purchasers are entitled to cancel purchase agreements
within specified periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit the resort prior to
purchasing.
The Company intends to expand the points-based vacation club system that it
acquired in the RDI Acquisition, which is currently only available to owners of
Timeshare Interests at the Company's Wisconsin Dells, Wisconsin and Orlando,
Florida resorts. Under a points-based vacation club system, members purchase an
annual allotment of points which can be redeemed for occupancy rights at
participating resorts. Compared to other vacation ownership arrangements, the
points-based system offers members significant flexibility in planning their
vacations. The number of points that are required for a stay at any one resort
varies, depending on a variety of factors, including the resort location, the
size of a unit, the vacation season and the days of the week used. Under this
system, members can select vacations according to their schedules, space needs
and available points. Subject to certain restrictions, members are typically
allowed to carry over for one year any unused points and to "borrow" points from
the forthcoming year. In addition, members are required to pay annual fees for
certain maintenance and management costs associated with the operation of the
resorts based on the number of points to which they are entitled. The Company's
expansion of the RDI points-based vacation club system involves certain risks
and uncertainties and no assurances can be given that the Company will be
successful.
The attractiveness of Timeshare Interest ownership has been enhanced
significantly by the availability of exchange networks that allow Timeshare
Interest owners to exchange the occupancy right in their Timeshare Interest in a
particular year, for an occupancy right at another participating network resort
at either the same or a different time. The two resorts acquired in the RDI
Acquisition are affiliated with the timeshare exchange network operated by RCI,
while the Company's six other resorts (including Aruba) are affiliated with II's
timeshare exchange network. In connection with the RDI Acquisition, the Company
has advised each of II and RCI of the existence of its agreement with the other
timeshare interest exchange network and of the potential conflict. Although the
Company believes this conflict will be resolved satisfactorily, no assurances
can be given. If the Company's resorts ceased to qualify for the exchange
networks or such networks ceased to operate effectively, the Company's sales of
Timeshare Interests and the performance of its timeshare receivables could be
materially adversely affected.
For further information on sales attributable to the Resorts Division, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Residential Land Division
In general, as soon as practicable after agreeing to acquire a property and
during the time period that appropriate improvements are being completed, the
Company establishes selling prices for the individual parcels taking
9
into account such matters as regional economic conditions, quality as a building
site, scenic views, road frontage and natural features such as lakes, mountains,
streams, ponds and wooded areas. The Company also considers recent sales of
comparable parcels in the area. Initial decisions on pricing of parcels in a
given area are made by the Company's regional managers and, in all cases, are
subject to approval by the Investment Committee. Once such selling prices are
established the Company commences its marketing efforts.
The most widely used marketing technique by the Residential Land Division
is advertising in major newspapers in metropolitan areas located within a one to
three hour drive from the property and local newspapers. In addition, the
Company uses its proprietary database and inventory management system, which
enables the Company to compile quickly information on the previously identified
prospects most likely to be interested in a particular project. The Residential
Land Division also conducts direct mail campaigns to market property through the
use of brochures describing available parcels, as well as television and radio
advertising. Through this sales and marketing program, the Company believes that
it has been able to achieve a high conversion ratio of sales to prospects
receiving on-site sales presentations. The conversion ratio of sales to
prospects receiving on-site sales presentations for the ten-month period ended
January 31, 1998 was approximately 20%. A sales representative who is
knowledgeable about the property answers each inquiry generated by the Company's
marketing efforts, discusses the property with the prospective purchaser,
attempts to ascertain the purchaser's needs and determine whether the parcel
would be suitable for that person, and arranges an appointment for the purchaser
to visit the property. Substantially all prospective purchasers inspect a
property before purchasing. During the year ended March 29, 1998, the
Residential Land Division incurred $7.6 million in advertising expenses, or 7.2%
of such division's $106.1 million in sales, and during fiscal 1997, the
Residential Land Division incurred $6.3 million in advertising expense, or 9% of
such division's $72.6 million in sales.
The success of the Company's marketing efforts depends heavily on the
knowledge and experience of its sales personnel. The Company requires that,
prior to initiating the marketing effort for a property, every sales
representatives walk the property and become knowledgeable about each parcel and
applicable zoning, subdivision and building code requirements. Continued
training programs are conducted, including training with regional office sales
managers, weekly sales meetings and frequent site visits by an executive officer
of the Company. The Company enhances its sales and marketing organization
through the Bluegreen Institute, a mandatory training program, which is designed
to instill the Company's marketing and customer service philosophy in middle and
lower-level management. Additionally, the sales staff is evaluated against
performance standards established by the executive officers of the Company.
Substantially all of a sales representative's compensation is commission-based.
The Company requires its sales staff to provide each prospective purchaser
with a written disclosure statement regarding the property to be sold prior to
the time such purchaser signs a purchase agreement. This information statement,
which is either in the form of a U.S. Department of Housing and Urban
Development ("HUD") lot information statement, where required, or a Company
generated "Vital Information Statement," sets forth relevant information with
respect to, and risks associated with, the property and must be signed by each
purchaser. The Company believes that these information statements contain all
material and relevant information necessary for a prospective purchaser to make
an informed decision as to whether or not to purchase such property, including
the availability and estimated cost of utilities, restrictions regarding
property usage, status of access roads and information regarding rescission
rights.
After deciding to purchase a parcel, a purchaser enters into a purchase
agreement and is required to pay the Company a deposit of at least 10% of the
purchase price. Purchasers are entitled to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a residential land sale usually occurs two to eight weeks after
payment of the deposit. Upon closing of a residential land sale, the Company
typically delivers a warranty deed and a recent survey of the property to the
purchaser. Title insurance is available at the purchaser's expense.
For further information on sales attributable to the Residential Land
Division, see "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
Customer Financing
General
During fiscal 1996, 1997 and 1998, the Company financed 26%, 30% and 33%,
respectively, of the aggregate purchase price of its sales of Timeshare
Interests and residential land to customers that closed during these periods and
received cash for the remaining balance of the purchase price. The increase in
the percentage of sales financed by the Company since 1996 is primarily
attributable to an increase in the sales of Timeshare Interests over the same
period. Sales of Timeshare Interests accounted for 35% of consolidated sales of
real estate during the year ended March 29, 1998, compared to 12% and 25% of
consolidated sales during fiscal 1996 and 1997, respectively. Approximately 89%
of all Timeshare Interests finance with the Company (compared to 14% and 8% of
residential land purchasers in fiscal 1997 and fiscal 1998, respectively). In
recent years the percentage of residential land customers who utilized the
Company's financing has declined materially due, among other things, to an
increased willingness on the part of local banks to extend direct lot financing
to purchasers.
10
The Company believes that its financing is attractive to purchasers who
find it convenient to handle all facets of the purchase of residential land and
Timeshare Interests through a single source and because the downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
The Company offers financing of up to 90% of the purchase price of its
Timeshare Interests. The typical financing extended by the Company on a
Timeshare Interest during fiscal 1997 and fiscal 1998 provides for a term of
seven years and a fixed interest rate. Historically, at the closing, the Company
and the purchaser have executed a contract for deed agreement. After the
obligation is paid in full, the Company delivers a deed to the purchaser. RDI
has historically delivered the deed to purchasers at the Closing of a sale,
while securing repayment of the purchaser's obligation by obtaining a mortgage
on the purchaser's Timeshare Interest. In connection with the expansion of its
points-based vacation club system, the Company anticipates that it will move to
a note and mortgage system. The Company does not believe that the transfer to a
note and mortgage system will have a material adverse effect on its servicing
operations or financial results.
The Company also offers financing of up to 90% of the purchase price of all
parcels sold under the Residential Land Division to all purchasers who qualify
for such financing. The term of repayment on such financing has historically
ranged from five to 15 years although the Company, by offering reduced interest
rates, has been successful in encouraging customers during recent years to
finance their purchases over shorter terms with increased downpayments.
Management believes such strategy has improved the quality of the notes
receivable generated by its Residential Land Division in recent years. An
average note receivable underwritten by the Company during fiscal 1997 and
fiscal 1998 has a term of ten years. Most notes receivable bear interest at a
fixed interest rate and are secured by a first lien on the land.
The weighted average interest rate on the Company's notes receivable was
12.4%, 13.3% and 14.9% at March 31, 1996, March 30, 1997 and March 29, 1998,
respectively.
Loan Underwriting
Resorts Division. Consistent with industry practice, Timeshare Interest
financing is not subject to extensive loan underwriting criteria. Customer
financing on sales of Timeshare Interests requires (i) receipt of a minimum
downpayment of 10% of the purchase price and (ii) a contract for deed and other
closing documents between the Company and the purchaser. The Company encourages
purchasers to make increased downpayments by offering a lower interest rate. In
addition, purchasers who do not elect to participate in the Company's
pre-authorized payment plan are charged interest at a rate which is one percent
greater than the otherwise prevailing rate. Historically, timeshare receivables
have had a higher default rate than residential land receivables.
Residential Land Division. The Company has established loan underwriting
criteria and procedures designed to reduce credit losses on its residential land
loan portfolio. The loan underwriting process undertaken by the Company's credit
department includes reviewing the applicant's credit history, verifying
employment and income as well as calculating certain debt-to-income ratios. The
primary focus of the Company's underwriting review is to determine the
applicant's ability to repay the loan in accordance with its terms. This
assessment is based on a number of factors, including the relationship of the
applicant's required monthly payment to disposable income. The Company also
examines the applicant's credit history through various credit reporting
agencies. In order to verify an applicant's employment status, the Company
generally contacts the applicant's employer. The Company also obtains current
pay stubs, recent tax returns and other tax forms from the applicant.
In order to obtain financing from the Residential Land Division, a
prospective purchaser must submit a completed and signed credit application,
purchase and sale agreement and pre-authorized checking agreement accompanied by
a voided check, if applicable, to the Company's credit department. All credit
decisions are made at the Company's corporate headquarters. Loan amounts under
$50,000 are approved by designated personnel located in the Company's corporate
headquarters, while loan amounts of $50,000 or more require approval from a
senior executive officer. In addition, rejected applications and any material
exceptions to the underwriting policy are also reviewed by senior management.
Customers are notified of the reasons for credit denial by mail.
The Company encourages customers to increase their downpayment and reduce
the loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is one
percent greater than the prevailing rate. Approximately 75% of purchasers using
the Company's financing have historically participated in the pre-authorized
payment plan.
After the credit decision has been made, the credit department categorizes
the file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer. Closings
are typically conducted at the office of the Company's local attorney or
settlement agent, although in some cases the closing may take place at the sales
site or by mail.
When the original closing documents are received from the closing agent,
the Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that
11
required documents have been received and that they have been prepared and
executed correctly. If any revisions are required, notification is sent to the
regional office.
A loan file typically includes a copy of the signed security instrument,
the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
Collection Policies
Resorts Division. The Company's timeshare receivables have been
historically documented by contracts for deed, which allows the Company to
retain title to the Timeshare Interest until the obligation is paid in full,
thereby eliminating the need to foreclose in the event of a default. Collection
efforts and delinquency information concerning the Resorts Division are managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by an on-line mortgage
collection computer system. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. If a contract for deed becomes
delinquent for ten days, a reminder letter is mailed to the customer. If the
customer fails to bring the account current, a late notice is mailed when the
account is 15 days delinquent (and telephone contact commences). After an
account is 45 days delinquent, the Company typically sends a third letter
advising the customer that such customer has 15 days within which to bring the
account current. Under the terms of the contract for deed, the borrower is in
default when the account becomes 60 days delinquent. At this time a default
letter is sent advising the customer that he or she has 30 days to bring the
account current or lose his or her contractual interest in the timeshare unit.
When the account becomes 90 days delinquent, the Company forwards a final letter
informing the customer that the contract for deed has been terminated. At such
time, the Timeshare Interest can be resold to a new purchaser. In connection
with the expansion of its points-based vacation club system, the Company
anticipates moving to a note and mortgage system. To the extent that this change
occurs, the Company does not anticipate that the period of time for realizing on
a defaulted timeshare receivable will be materially longer, because title to the
applicable property will be held by the vacation club trust.
Residential Land Division. Collection efforts and delinquency information
concerning the Residential Land Division are also managed at the Company's
corporate headquarters. Servicing of the division's receivables is handled by a
staff of experienced collectors, assisted by an on-line mortgage collection
computer system. Unless circumstances otherwise dictate, collection efforts are
generally made by mail and telephone. Collection efforts begin when an account
is ten days past due, at which time the Company mails a reminder letter.
Attempts are then made to contact the customer via telephone to determine the
reason for the delinquency and to bring the account current. The determination
of how to handle a delinquent loan is based upon many factors, including the
customer's payment history and the reason for the current inability to make
timely payments. If no agreement is made or the customer does not abide by the
agreement, collection efforts continue until the account is either brought
current or legal action is commenced. If not accelerated sooner, the Company
declares the loan in default when the loan becomes 60 days delinquent. When the
loan is 90 days past due, the accrual of interest is stopped (unless the loan is
considered an in-substance foreclosure loan, in which case all accrued interest
is reversed since the Company's means of recovery is determined through the
resale of the underlying collateral and not through collection on the note) and
the Credit/Collection Manager determines the action to be taken.
Loan Loss Reserves. Reserve for loan losses as a percentage of period end
notes receivable was 2.4%, 3.4% and 1.9% at March 31, 1996, March 30, 1997 and
March 29, 1998, respectively. The adequacy of the Company's reserve for loan
losses is determined by management and reviewed on a regular basis considering,
among other factors, historical frequency of default, loss experience, present
and expected economic conditions as well as the quality of the receivables.
Sales of Receivables/Pledging of Receivables
Since 1986, the Company has sold or pledged substantially all of its
receivables, generally retaining the right and obligation to service such
receivables. In the case of residential land receivables, the Company typically
transfers the receivables to a special purpose finance subsidiary, which in turn
enters into a receivables securitization. The receivables are typically sold by
such subsidiary with limited or no recourse. In the case of receivables in
securitization transactions pledged to a financial institution, the Company
generally must maintain a debt to eligible collateral rate (based on outstanding
principal balance of the pledged loans) of 90%. The Company is obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate. Repurchases and additional
principal payments have not been material to date.
Private placement REMIC financings have provided substantial capital
resources to the Company. Under the terms of these transactions, the receivables
are sold to a REMIC trust and the Company has no obligation to repurchase the
receivables due to default by the borrowers. The Company does, however, have the
obligation to repurchase the receivables in the event that there is any material
defect in the loan documentation and related representations and warranties as
of the time of sale.
12
As discussed under "Management's Discussion and Analysis of Results of
Operations and Financial Condition," the Company is currently negotiating with a
financial institution to provide the Company with a warehouse financing and a
separate receivables purchase facility. The Company will have no obligation to
repurchase the receivables due to default by the borrowers under the proposed
purchase facility. The Company will, however, have the obligation to repurchase
the receivables in the event that there is any material defect in the loan
documentation and related representations and warranties as of the time of sale.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing in the event that
defaults are not remedied and performing other administrative duties. The
Company's obligation to provide receivables servicing and its rights to collect
fees are set forth in a servicing agreement. The Company has the obligation and
right to service all of the receivables it originates and retains the obligation
and right with respect to substantially all of the receivables it sells through
REMICs. The Company typically receives an annual servicing fee of approximately
.5% of the scheduled principal balance, which is deducted from payments
received.
Regulation
The real estate industry is subject to extensive and complex regulation.
The Company is subject to compliance with various federal, state and local
environmental, zoning and other statutes and regulations regarding the
acquisition, subdivision and sale of real estate and Timeshare Interests and
various aspects of its financing operations. On a federal level, the Federal
Trade Commission has taken an active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. In addition to the laws applicable to the Company's
customer financing and other operations discussed below, the Company is or may
be subject to the Fair Housing Act and various other federal statutes and
regulations. The Company is also subject to various foreign laws with respect to
the Aruba Resort. The Company believes that it is in compliance in all material
respects with such regulations. However, no assurance can be given that the cost
of complying with applicable laws and regulations will not be significant or
that the Company is in fact in compliance with applicable law. Any failure to
comply with applicable laws or regulations could have a material adverse effect
on the Company.
The Company's sales and marketing of residential land are subject to
various consumer protection laws and to the Interstate Land Sales Full
Disclosure Act which establishes strict guidelines with respect to the marketing
and sale of land in interstate commerce. HUD has enforcement powers with respect
to this statute. In some instances, the Company has been exempt from HUD
registration requirements because of the size or number of the subdivided
parcels and the limited nature of its offerings. The Company, at its discretion,
may formally request an exemption advisory opinion from HUD to confirm the
exempt status of any particular offering. Several such exemption requests have
been submitted to, and approved by, HUD. In those cases where the Company and
its legal counsel determine parcels must be registered to be sold, the Company
files registration materials disclosing financial information concerning the
property, evidence of title and a description of the intended manner of offering
and advertising such property. The Company bears the cost of such registration,
which includes legal and filing fees. Many states also have statutes and
regulations governing the sale of real estate. Consequently, the Company
regularly consults with counsel for assistance in complying with federal, state
and local law. The Company must obtain the approval of numerous governmental
authorities for its acquisition and marketing activities and changes in local
circumstances or applicable laws may necessitate the application for, or the
modification of, existing approvals.
The Company's timeshare resorts are subject to various regulatory
requirements including state and local approvals. The laws of most states
require the Company to file with a designated state authority for its approval a
detailed offering statement describing the Company and all material aspects of
the project and sale of Timeshare Interests. Laws in each state where the
Company sells Timeshare Interests generally grant the purchaser of a Timeshare
Interest the right to cancel a contract of purchase at any time within a
specified period following the earlier of the date the contract was signed or
the date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; price, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Pursuant to such laws, future
owners may recover from the Company amounts in connection with the repairs made
to the developed property. In compliance with state laws, the Company provides
its timeshare purchasers with a public disclosure statement which contains,
among other items, detailed information about the surrounding vicinity, the
resort and the purchaser's rights and obligations as a Timeshare Interests
owner.
Under various federal, state and local laws, ordinances and regulations,
the owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow using such real property as collateral. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in
13
the event of construction, demolition, remodeling or renovation. Other statutes
may require the removal of underground storage tanks. Noncompliance with these
and other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
The Company's customer financing activities are also subject to extensive
regulation, which may include, Truth-in-Lending Act and Regulation Z, the Fair
Housing Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and Right to Financial Privacy
Act.
Management is not aware of any pending regulatory contingencies that are
expected to have a materially adverse impact on the Company.
Competition
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business. The Resorts Division competes with various high profile and
well-established operators. Many of the world's most recognized lodging,
hospitality and entertainment companies have begun to develop and sell Timeshare
Interests in resort properties. Major companies that now operate or are
developing or planning to develop timeshare resorts include Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental. The Company also competes
with other publicly traded timeshare companies, including Signature, Vistana,
Fairfield, Silverleaf and numerous other owners and operators of timeshare
resorts. The Residential Land Division competes with builders, developers and
others for the acquisition of property and with local, regional and national
developers, housebuilders and others with respect to the sale of residential
lots. Competition may be generally smaller with respect to the Company's
residential lot sales in the more rural markets in which it operates. The
Company believes that it can compete on the basis of its reputation and the
price, location and quality of the products it offers for sale, as well as on
the basis of its experience in land acquisition, development and sale. Although,
as noted above, the Resorts Division competes with various high profile and
well-established operators, the Company believes that it can compete on the
basis of its general reputation and the price, location and quality of its
timeshare resorts. The development and operation of additional timeshare resorts
in the Company's markets could have a material adverse impact on the demand for
the Company's Timeshare Interests and its results of operations. In its customer
financing activities, the Company competes with banks, mortgage companies, other
financial institutions and government agencies offering financing of real
estate. In recent years, the Company has experienced increased competition with
respect to the financing of Residential Land Division sales as evidenced by the
low percentage of residential land sales internally financed since 1995. The
Company believes that, based on its interest rates and repayment schedules, the
financing packages it offers are convenient for customers and competitive with
those of other institutions which offer such financing.
Personnel
As of March 29, 1998, the Company had 1,677 employees. Of the 1,677
employees, 94 were located at the Company's headquarters in Boca Raton, Florida,
109 at the Company's corporate office in Fort Myers, Florida and 1,474 in
regional offices throughout the United States and Canada (the field personnel
include 244 field employees supporting the Company's Residential Land Division
and 1,230 field employees supporting the Company's Resorts Division. None of the
Company's employees are represented by a collective bargaining unit, and the
Company believes that relations with its employees generally are excellent.
Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age Position
---- --- --------
George F. Donovan 59 President and Chief Executive Officer
Daniel C. Koscher 41 Senior Vice President - Land Division
L. Nicolas Gray 51 Senior Vice President - Resorts Division
Patrick E. Rondeau 51 Senior Vice President, Director of Corporate
Legal Affairs and Clerk
John F. Chiste 42 Chief Financial Officer and Treasurer
Allan J. Herz 38 Vice President and Director of Mortgage
Operations
Joan A. McCormick 55 Vice President and Chief Information Officer
Susan J. Milanese 39 Vice President and Director of Human Resources
Anthony M. Puleo 30 Chief Accounting Officer
George F. Donovan joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993. He became Chief Executive
Officer in December, 1993. Mr. Donovan has served as an officer of a number of
other recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has served
in various financial management positions including Chief Accounting Officer,
Vice President and Director of Planning/Budgeting. In 1997, he became
14
Senior Vice President, Residential Land Division. Prior to his employment with
the Company, Mr. Koscher was employed by the William Carter Company, a
manufacturing company located in Needham, Massachusetts. He has also been
employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting.
L. Nicolas Gray joined the Company in 1995 to oversee the Company's timeshare
resorts operation and was named Senior Vice President in 1997. Mr. Gray has over
25 years of experience in the hospitality, timeshare and related resort
industries. Mr. Gray served as Director of Development for Resort Condominium
International, a timeshare exchange organization from 1993 to 1995. Prior to
that time, Mr. Gray was Executive Vice President and General Manager for resort
developments of Thousand Trails from 1989 to 1991 and Fairfield Communities from
1979 to 1989.
Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and
Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice
President in 1997. For more than five years prior to his employment with the
Company, Mr. Rondeau was a senior partner of Freedman, DeRosa & Rondeau, located
in North Adams, Massachusetts, which firm serves as legal counsel to the Company
on various matters. Mr. Rondeau holds a B.A. in Political Science along with a
J.D.
John F. Chiste joined the Company in July 1997 as Treasurer and Chief Financial
Officer. From January 1997 to June 1997, Mr. Chiste was employed by Compscript,
Inc. 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 which 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.
Allan J. Herz joined the Company in 1992 and was named Director of Mortgage
Operations in September, 1992. Mr. Herz was elected Vice President in 1993. From
1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in
Miami, Florida. During his 10 year tenure with the bank, he held various lending
positions, the most recent being Division Vice President in Consumer Lending.
Mr. Herz holds a B.B.A. and a M.B.A.
Joan A. McCormick joined the Company in 1993 as its Director of Management
Information Systems and was elected Vice President in February, 1995. In 1998,
Ms. McCormick was named Chief Information Officer. Ms. McCormick has over 20
years of experience in information systems management in the real estate, hotel,
banking and manufacturing fields. Prior to joining the Company, Ms. McCormick
was Assistant Vice President MIS for Atlantic Gulf Communities Corporation. She
has also held management positions with Arvida/JMB Partners Ltd., Southeast
Banking Corporation and General Motors Corporation. She holds a B.A. in Business
Administration.
Susan J. Milanese joined the Company in 1988. During her tenure, she has held
various management positions in the Company including Assistant to the Chief
Financial Officer, Divisional Controller and Director of Accounting. In 1995,
she was elected Vice President and Director of Human Resources. 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 her
B.B.A in Accounting.
Anthony M. Puleo joined the Company in October 1997 as Chief Accounting Officer.
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.
The Company's By-Laws provide that, except as otherwise provided by law or
the charter and by-laws of the Company, the President, Treasurer and the Clerk
hold office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton,
Florida in approximately 53,000 square feet of leased space. On March 29, 1998,
the Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern, Rocky Mountain and Western
regions of the United States as well as the Province of Ontario, Canada and the
island of Aruba.
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceeding relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the above are incidental to its
business.
On November 26, 1997, an action was filed in the U.S. District Court for
the Eastern District of Tennessee against the Company. The complaint purports to
be brought on behalf of a class of current and former timeshare sales
15
representative employees of the Company. It asserts claims for violations of the
minimum wage and overtime provisions of the Fair Labor Standards Act. The
Company is in the early stages of evaluating this litigation's potential impact,
if any, on the Company, and accordingly cannot predict the outcome with any
degree of certainty. Although no assurances can be given, the Company does not
believe that any likely outcome will have a material adverse effect on the
Company.
In May 1996, RDI and the RDI Stockholders entered into a letter agreement
(the "Letter Agreement") with certain individuals on behalf of an entity to be
formed by such individuals (the "Prospective Buyer") regarding the proposed
acquisition of RDI. The Letter Agreement indicated, among other things, that the
agreement was binding, the parties proposed to negotiate and execute a
definitive agreement consistent with the Letter Agreement by June 15, 1996 and
that the transaction would close by December 31, 1996. The Letter Agreement also
included an exclusivity provision pursuant to which the parties agreed to
negotiate in good faith exclusively with each other to enter into a definitive
agreement until June 30, 1996. On July 1, 1996, counsel for the Prospective
Buyer forwarded to RDI's counsel a letter which would have extended the June 15,
1996 and June 30, 1996 dates referred to above had it been executed by RDI and
the RDI Stockholders; the letter was not executed by RDI or the RDI
Stockholders. In September 1996, RDI informed the Prospective Buyer that RDI did
not wish to proceed with negotiations. The Prospective Buyer advised RDI in
writing shortly thereafter that, among other things, the Prospective Buyer
believed that the Letter Agreement was a binding agreement for the sale of RDI
and that the Prospective Buyer would assert its alleged right to prevent an
acquisition by RDI by any third party and take action against any such third
party and RDI and the RDI Stockholders. After September 1996, no further
negotiations with respect to the acquisition took place between RDI and the
Prospective Buyer. The Company executed and announced a purchase agreement for
the RDI Acquisition in July 1997 and closed this transaction on October 3, 1997.
To date, the Prospective Buyer has taken no further action. Although no
assurances can be given, the Company believes that any claim by the Prospective
Buyer would be meritless and the Company would defend any such claim vigorously.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information provided on page 14 of the 1998 Annual Report is incorporated
herein by reference.
The Company has not paid any cash dividends during the last five years and has
not paid any stock dividends since fiscal 1996. The Company does not anticipate
paying any dividends in the foreseeable future. The Company currently
anticipates that it will retain any future earnings for use in its business.
Restrictions contained in the Indenture related to the Company's $110 million 10
1/2% Senior Secured Notes due 2008 issued in April 1998, and certain of the
Company's credit facilities may, in certain instances, limit the payment of cash
dividends on its common stock.
Item 6. SELECTED FINANCIAL DATA.
The information provided on page 15 of the 1998 Annual Report is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information provided under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 16 through 24 of the
1998 Annual Report is incorporated herein by reference.
Item 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries and
the related Notes thereto and report of independent certified public accountants
on pages 25 through 38 of the 1998 Annual Report are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the information
provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors
at Seven and Election of Named Directors" and "Certain Transactions and Other
Information" in the Proxy Statement, which sections are incorporated herein by
reference. Information concerning the executive officers of the Company appears
in Part I of this Annual Report on Form 10-K. The present members of the Board
of Directors of the Company are:
Joseph C. Abeles, Private Investor
George F. Donovan, President and Chief Executive Officer,
Bluegreen Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
J. Larry Rutherford, President and Chief Executive Officer,
Atlantic Gulf Communities Corporation
Stuart A. Shikiar, President, Shikiar Asset Management Inc.
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
Section 16 Compliance
The information provided under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors," "Board of
Directors and its Committees," "Compensation Committee Report on Executive
Compensation", "Compensation of Chief Executive Officer", "Executive
Compensation" and "Certain Transactions and Other Information" in the Company's
Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information provided under the heading "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors" in the Proxy
Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors," "Executive
Compensation" and "Certain Transactions and Other Information" in the Proxy
Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements and Notes thereto of the
Company and its subsidiaries and the report of independent certified public
accountants relating thereto, included in the 1998 Annual Report on pages
25 through 38 are incorporated by reference into Item 8 hereof: Page
Consolidated Balance Sheets as of March 30, 1997 and March 29, 1998 25
Consolidated Statements of Operations for each of the three years
in the period ended March 29, 1998 26
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended March 29, 1998 27
Consolidated Statements of Cash Flows for each of the three years in
the period ended March 29, 1998 28
Notes to Consolidated Financial Statements 29
Report of Independent Certified Public Accountants 38
17
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 20 through 22 hereof.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated March 12, 1998, reporting
under Item 5 thereof the issuance of a press release, pursuant to Rule 135c
under the Securities Act of 1933, in connection with a proposed unregistered
offering of $100 million in aggregate principal amount of Senior Secured Notes
due 2008.
The Company filed a Current Report on Form 8-K dated April 6, 1998, reporting
under Item 5 thereof that the proposed offering previously reported on March 12,
1998 had been consummated with $110 million of aggregate principal of Senior
Secured Notes being issued.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
18
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: June 26, 1998 By: /S/ GEORGE F. DONOVAN
-----------------------------------------
George F. Donovan
President and Chief Executive Officer
Date: June 26, 1998 By: /S/ JOHN F. CHISTE
-----------------------------------------
John F. Chiste,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: June 26, 1998 By: /S/ ANTHONY M. PULEO
-----------------------------------------
Anthony M. Puleo,
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 26th day of June, 1998.
Signature Title
/S/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- ---------------------------
George F. Donovan
/S/ JOHN F. CHISTE Treasurer and Chief Financial Officer
- --------------------------- (Principal Financial Officer)
John F. Chiste
/S/ ANTHONY M. PULEO Chief Accounting Officer
- --------------------------- (Principal Accounting Officer)
Anthony M. Puleo
/S/ JOSEPH C. ABELES Director
- ---------------------------
Joseph C. Abeles
/S/ RALPH A. FOOTE Director
- ---------------------------
Ralph A. Foote
/S/ FREDERICK M. MYERS Director and Chairman of the Board
- ---------------------------
Frederick M. Myers
/S/ J. LARRY RUTHERFORD Director
- ---------------------------
J. Larry Rutherford
/S/ STUART A. SHIKIAR Director
- ---------------------------
Stuart A. Shikiar
/S/ BRADFORD T. WHITMORE Director
- ---------------------------
Bradford T. Whitmore
19
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 3.3 to Annual Report on Form 10-K for the fiscal
year ended April 2, 1995).
4.4 Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-1,
File No. 33-13076).
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)
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).
10.47 Amended and Restated Loan and Security Agreement entered into as of
January 9, 1990 by Patten Receivables Finance Corporation VI, Finova
Capital Corporation (fka Greyhound Real Estate Finance Corporation)
and the Registrant as Guarantor (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year
ended April 1, 1990).
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended April 1, 1990).
10.58 Amendment No. 2 dated March 23, 1991 to the Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990, by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and The Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31, 1991).
10.59 Amendment No. 3 dated November 21, 1991 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.100 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.60 Amendment No. 4 dated January 30, 1992 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.101 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.61 Amendment No. 5 dated October, 1992 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.102 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.62 Amendment No. 6 dated May 12, 1993 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.88 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
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10.63 Amendment No. 7 dated February 18, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.89 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
10.64 Amendment No. 8 dated March 25, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.103 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.65 Amendment No. 9 dated June 29, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.91 to Quarterly
Report on Form 10-Q for the period ended September 25, 1994).
10.66 Amendment No. 10 dated December 14, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.94 to Annual Report
on Form 10-K for the fiscal year ended April 2, 1995).
10.67 Amendment No. 11 dated October 31, 1995 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.104 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.68 Amendment No. 12 dated May 1, 1996 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.105 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan
(incorporated by reference to exhibit of same designation to Annual
Report on Form 10-K for the fiscal year ended March 29, 1992).
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 1995 Stock Incentive Plan, as amended.
10.80 Registrant's Retirement Savings Plan (incorporated by reference to
Registration Statement on Form S-8, File No. 33-48075).
10.85 Loan and Security Agreement by and between the Registrant and Foothill
Capital Corporation dated as of October 29, 1993 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.93 Stock Purchase Agreement dated as of November 22, 1994 by and among
Harry S. Patten and the Purchasers named therein (incorporated by
reference to exhibit of same designation to Current Report on Form 8-K
dated November 22, 1994).
10.97 Pooling and Servicing Agreement dated as of April 15, 1994, among
Patten Receivables Finance Corporation IX, the Registrant, Patten
Corporation REMIC Trust, Series 1994-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit 10.84 to
Annual Report on Form 10-K for the fiscal year ended March 27, 1994).
10.98 Pooling and Servicing Agreement dated as of June 15, 1995, among
Patten Receivables Finance Corporation X, the Registrant, Patten
Corporation REMIC Trust, Series 1995-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated July 12, 1995).
10.99 Pooling and Servicing Agreement dated as of April 15, 1996, among
Bluegreen Receivables Finance Corporation I, the Registrant, Bluegreen
Corporation REMIC Trust, Series 1996-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated May 15, 1996).
21
10.100 Pooling and Servicing Agreement dated as of November 15, 1996, among
Bluegreen Receivables Finance Corporation II, the Registrant,
Bluegreen Corporation REMIC Trust, Series 1996-2 and First Trust
National Association, as Trustee (incorporated by reference to exhibit
to Current Report on Form 8-K dated Decenber 11, 1996).
10.107 Loan and Security Agreement by and between Heller Financial, Inc. and
Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28,
1996 (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the year ended March 31, 1996).
10.108 First Amendment dated February 27, 1997 to Loan and Security Agreement
by and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka
Patten Resorts, Inc.) dated February 28, 1996 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the year ended March 31, 1996).
10.123 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 of same designation to Registration Statement on Form S-4,
File No. 333-50717)
10.124 Employment Agreement between George F. Donovan and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.125 Employment Agreement between John F. Chiste and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.126 Employment Agreement between L. Nicolas Gray and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.127 Employment Agreement between Daniel C. Koscher and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.128 Employment Agreement between Patrick E. Rondeau and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.129 Amended and Restated Credit Facility Agreement entered into as of
April 16, 1998 between Finova Capital Corporation and the Registrant.
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717)
10.130 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 of same designation to
Registration Statement on Form S-4, File No. 333-50717)
10.131 Registrant's 1998 Non-Employee Director Stock Option Plan.
13.1 Portions of the 1998 Annual Report.
21.1 List of Subsidiaries. (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-4, File No. 333-50717)
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
22