SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended June 30, 2002
or
|_| - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-8000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of August 7, 2002, there were 27,246,107 shares of Common Stock, $.01 par
value per share, issued, 2,755,300 treasury shares and 24,490,807 shares
outstanding.
BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information (unaudited)
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets at
June 30, 2002 and March 31, 2002 ............................ 3
Condensed Consolidated Statements of Income - Three Months
Ended June 30, 2002 and July 1, 2001 ........................ 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended June 30, 2002 and July 1, 2001 ........................ 5
Notes to Condensed Consolidated Financial Statements ......... 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ............... 15
Item 3. Quantitative and Qualitative
Disclosures About Market Risk ............................... 29
Part II - Other Information
Item 1. Legal Proceedings ............................................ 29
Item 2. Changes in Securities ........................................ 30
Item 3. Defaults Upon Senior Securities .............................. 30
Item 4. Submission of Matters to a Vote of Security Holders .......... 30
Item 5. Other Information ............................................ 30
Item 6. Exhibits and Reports on Form 8-K ............................. 31
Signatures .............................................................. 31
Note: The term "Bluegreen" is registered in the U.S. Patent and Trademark office
by Bluegreen Corporation.
2.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Condensed Consolidated Balance Sheets
(amounts in thousands, except per share data)
June 30, March 31,
2002 2002
---- ----
(unaudited) (Note)
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $28.6 million and $27.7 million at
June 30, 2002 and March 31, 2002, respectively) ...... $ 47,717 $ 48,715
Contracts receivable, net ............................... 20,885 21,818
Notes receivable, net ................................... 60,264 55,648
Prepaid expenses ........................................ 12,085 11,634
Inventory, net .......................................... 183,902 187,688
Retained interests in notes receivable sold ............. 42,001 38,560
Property and equipment, net ............................. 48,775 49,338
Other assets ............................................ 24,165 21,760
--------- ---------
Total assets ......................................... $ 439,794 $ 435,161
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ........................................ $ 4,361 $ 4,700
Accrued liabilities and other ........................... 37,198 39,112
Deferred income ......................................... 4,027 5,043
Deferred income taxes ................................... 32,182 28,299
Receivable-backed notes payable ......................... 15,655 14,628
Lines-of-credit and notes payable ....................... 37,415 40,262
10.50% senior secured notes payable ..................... 110,000 110,000
8.00% convertible subordinated notes payable to related
parties ............................................. 6,000 6,000
8.25% convertible subordinated debentures ............... 34,371 34,371
--------- ---------
Total liabilities .................................... 281,209 282,415
Commitments and Contingencies
Minority interest ....................................... 3,183 3,090
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized;
none issued .......................................... -- --
Common stock, $.01 par value, 90,000 shares authorized;
27,171 and 27,059 shares issued at June 30, 2002 and
March 31, 2002, respectively ......................... 272 271
Additional paid-in capital .............................. 123,026 122,734
Treasury stock, 2,756 common shares at cost at both
June 30, 2002 and March 31, 2002 .................... (12,885) (12,885)
Other comprehensive income .............................. 2,728 2,433
Retained earnings ....................................... 42,261 37,103
--------- ---------
Total shareholders' equity ........................... 155,402 149,656
--------- ---------
Total liabilities and shareholders' equity ........... $ 439,794 $ 435,161
========= =========
Note: The condensed consolidated balance sheet at March 31, 2002 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.
See accompanying notes to condensed consolidated financial statements.
3.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
June 30, July 1,
2002 2001
------- --------
Revenues:
Sales ...................................................... $71,113 $ 60,183
Other resort and golf operations revenue ................... 6,711 6,590
Interest income ............................................ 3,763 4,062
Gain on sale of notes receivable ........................... 1,231 978
------- --------
82,818 71,813
Costs and expenses:
Cost of sales .............................................. 24,967 20,071
Cost of other resort and golf operations ................... 5,719 5,693
Selling, general and administrative expenses ............... 38,832 33,910
Interest expense ........................................... 3,223 3,735
Provision for loan losses .................................. 1,081 1,290
Other expense, net ......................................... 458 404
------- --------
74,280 65,103
------- --------
Income before income taxes .................................... 8,538 6,710
Provision for income taxes .................................... 3,287 2,583
Minority interest in income (loss) of consolidated subsidiaries 93 (8)
------- --------
Net income .................................................... $ 5,158 $ 4,135
======= ========
Income per common share:
Basic ......................................................... $ 0.21 $ 0.17
======= ========
Diluted ....................................................... $ 0.19 $ 0.16
======= ========
Weighted average number of common and common
equivalent shares:
Basic ......................................................... 24,375 24,190
======= ========
Diluted ....................................................... 30,325 29,929
======= ========
See accompanying notes to condensed consolidated financial statements.
4.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended
June 30, July 1,
2002 2001
-------- --------
Operating activities:
Net income ........................................................... $ 5,158 $ 4,135
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Minority interest in income (loss) of consolidated subsidiary ... 93 (8)
Depreciation and amortization ................................... 2,310 2,231
Amortization of discount on note payable ........................ 35 125
Gain on sale of notes receivable ................................ (1,231) (978)
Loss on sale of property and equipment .......................... 56 104
Provision for loan losses ....................................... 1,081 1,290
Provision for deferred income taxes ............................. 3,287 2,583
Interest accretion on retained interests in notes receivable sold (1,412) (714)
Proceeds from sales of notes receivable ......................... 20,806 16,751
Proceeds from borrowings collateralized by notes receivable ..... 2,746 13,155
Payments on borrowings collateralized by notes receivable ....... (1,627) (11,756)
Change in operating assets and liabilities:
Contracts receivable .............................................. 933 (2,646)
Notes receivable .................................................. (32,595) (26,118)
Inventory ......................................................... 5,689 (5,256)
Other assets ...................................................... (2,395) 998
Accounts payable, accrued liabilities and other ................... (2,858) (2,600)
-------- --------
Net cash provided (used) by operating activities ........................ 76 (8,704)
-------- --------
Investing activities:
Purchases of property and equipment .................................. (931) (1,450)
Sales of property and equipment ...................................... 11 33
Cash received from retained interests in notes receivable sold ....... 3,779 1,185
Principal payments received on investment in note receivable ......... -- 4,643
-------- --------
Net cash provided by investing activities ............................... 2,859 4,411
-------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable ................................................ 5,370 10,301
Payments under line-of-credit facilities and other notes payable ..... (8,252) (4,752)
Payment of debt issuance costs ....................................... (1,344) (171)
Proceeds from exercise of employee and director stock options ........ 293 --
-------- --------
Net cash provided (used) by financing activities ........................ (3,933) 5,378
-------- --------
Net increase (decrease) in cash and cash equivalents .................... (998) 1,085
Cash and cash equivalents at beginning of period ........................ 48,715 40,016
-------- --------
Cash and cash equivalents at end of period .............................. 47,717 41,101
Restricted cash and cash equivalents at end of period ................... (28,564) (24,297)
-------- --------
Unrestricted cash and cash equivalents at end of period ................. $ 19,153 $ 16,804
======== ========
See accompanying notes to condensed consolidated financial statements.
5.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows -- continued
(amounts in thousands)
(unaudited)
Three Months Ended
------------------
June 30, July 1,
2002 2001
-------- -------
Supplemental schedule of non-cash operating, investing
and financing activities
Retained interests in notes receivable sold ..... $ 5,328 $ 2,393
======== =======
Property and equipment acquired through financing $ -- $ 297
======== =======
Inventory acquired through foreclosure or
deedback in lieu of foreclosure ................ $ 1,903 $ 1,236
======== =======
See accompanying notes to condensed consolidated financial statements.
6.
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
for complete financial statements.
The financial information furnished herein reflects all adjustments
consisting of normal recurring accruals that, in the opinion of
management, are necessary for a fair presentation of the results for the
interim periods. The results of operations for the three-month period
ended June 30, 2002 are not necessarily indicative of the results to be
expected for the fiscal year ending March 30, 2003. For further
information, refer to the consolidated financial statements and notes
thereto included in Bluegreen(R) Corporation's (the "Company's") Annual
Report on Form 10-K for the fiscal year ended March 31, 2002.
Organization
The Company is a leading marketer of vacation and residential lifestyle
choices through its resort and residential land and golf businesses, which
are located predominantly in the Southeastern, Southwestern and Midwestern
United States. The Company's resort business (the "Resorts Division")
acquires, develops and markets Timeshare Interests in resorts generally
located in popular, high-volume, "drive-to" vacation destinations.
"Timeshare Interests" are of two types: one which entitles the fixed-week
buyer to a fully-furnished vacation residence for an annual one-week
period in perpetuity and the second which entitles the buyer of the
points-based Bluegreen Vacation Club(TM) product to an annual allotment of
"points" in perpetuity (supported by an underlying deeded fixed timeshare
week being held in trust for the buyer). "Points" may be exchanged by the
buyer in various increments for lodging for varying lengths of time in
fully-furnished vacation residences at the Company's participating
resorts. The Company currently develops, markets and sells Timeshare
Interests in twelve resorts located in the United States and Aruba. The
Company also markets and sells Timeshare Interests in its resorts at two
off-site sales locations. The Company's residential land and golf business
(the "Residential Land and Golf Division") acquires, develops and
subdivides property and markets the subdivided residential homesites to
retail customers seeking to build a home in a high quality residential
setting, in some cases on properties featuring a golf course and related
amenities. During the three months ended June 30, 2002, sales generated by
the Company's Resorts Division and Residential Land and Golf Division
comprised approximately 59% and 41%, respectively, of the Company's total
sales. The Company's other resort and golf operations revenues are
generated from resort property management services, resort title services,
resort amenity operations, hotel operations and daily-fee golf course
operations. The Company also generates significant interest income by
providing financing to individual purchasers of Timeshare Interests and,
to a nominal extent, land sold by the Residential Land and Golf Division.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
the Company, all of its wholly-owned subsidiaries and entities in which
the Company holds a controlling financial interest. The only non-wholly
owned subsidiary, Bluegreen/Big Cedar Vacations LLC (the "Joint Venture"),
is consolidated as the Company holds a 51% equity interest in the Joint
Venture, has an active role as the day-to-day manager of the Joint
Venture's activities and has majority voting control of the Joint
Venture's management committee. All significant intercompany balances and
transactions are eliminated.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the condensed consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share,
but also gives effect to all dilutive stock options using the treasury
stock method and includes an adjustment, if dilutive, to both net
7.
income and shares outstanding as if the Company's 8.00% convertible
subordinated notes payable and 8.25% convertible subordinated debentures
were converted into common stock at the beginning of the periods
presented. The Company excluded approximately 1.4 million and 3.0 million
anti-dilutive stock options from its computations of earnings per common
share during the three months ended June 30, 2002 and July 1, 2001,
respectively.
The following table sets forth the computation of basic and diluted
earnings per share:
(in thousands, except per share data) Three Months Ended
June 30, July 1,
2002 2001
-----------------
Basic earnings per share - numerator:
Net income ....................................... $ 5,158 $ 4,135
=================
Diluted earnings per share - numerator:
Net income - basic ............................... $ 5,158 $ 4,135
Effect of dilutive securities (net of tax effects) 510 510
-----------------
Net income - diluted ............................ $ 5,668 $ 4,645
=================
Denominator:
Denominator for basic earnings per share -
weighted-average shares ......................... 24,375 24,190
Effect of dilutive securities:
Stock options ................................. 248 37
Convertible securities ........................ 5,702 5,702
-----------------
Dilutive potential common shares .................... 5,950 5,739
-----------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions ..................................... 30,325 29,929
=================
Basic earnings per common share ..................... $ 0.21 $ 0.17
=================
Diluted earnings per common share ................... $ 0.19 $ 0.16
=================
Sales of Notes Receivable and Related Retained Interests
When the Company sells notes receivables either pursuant to its timeshare
receivables purchase facilities or, in the case of land mortgages
receivable, private-placement Real Estate Mortgage Investment Conduits
("REMICs"), it retains subordinated tranches, rights to excess interest
spread, servicing rights and in some cases a cash reserve account, all of
which are retained interests in the sold notes receivable. Gain or loss on
sale of the receivables depends in part on the allocation of the previous
carrying amount of the financial assets involved in the transfer between
the assets sold and the retained interests based on their relative fair
value at the date of transfer. The Company estimates fair value based on
the present value of future expected cash flows using management's best
estimates of the key assumptions - prepayment rates, loss severity rates,
default rates and discount rates commensurate with the risks involved.
The Company's retained interests in notes receivable sold are considered
to be available-for-sale investments and, accordingly, are carried at fair
value in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". Accordingly, unrealized holding gains or
losses on retained interests in notes receivable sold are included in
shareholders' equity, net of income taxes. Declines in fair value that are
determined to be other than temporary are charged to operations.
Fair value of these securities is initially and periodically measured
based on the present value of future expected cash flows estimated using
management's best estimates of the key assumptions - prepayment rates,
loss severity rates, default rates and discount rates commensurate with
the risks involved. The Company typically will revalue its retained
interests in notes receivable sold on a quarterly basis.
Interest on the Company's securities is accreted using the effective yield
method.
Recent Accounting Pronouncements
In 1997, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") began a
project to address the accounting for timeshare transactions. The proposed
guidance is currently in the drafting stage of the promulgation process
and no formal exposure draft has been issued to date; therefore, the
Company is
8.
unable to assess the possible impact of this proposed guidance. Currently,
it appears that a final pronouncement on timeshare transactions would not
be effective until the Company's fiscal year 2005.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets",
effective for the Company's fiscal year 2003. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in
accordance with SFAS No. 142. Other intangible assets will continue to be
amortized over their useful lives. The Company applied the new rules on
accounting for goodwill and other intangible assets effective April 1,
2002. Application of the nonamortization provisions of SFAS No. 142
resulted in an increase to net income of approximately $11,000 (less than
$0.01 per share) during the three months ended June 30, 2002. The Company
did not incur any impairment charges as a result of adopting SFAS No. 142
during the three months ended June 30, 2002.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement requires entities to record the
fair value of a liability for an asset retirement obligation in the period
in which it is incurred. This statement is effective for the Company's
fiscal year 2004. The new statement is not expected to have a material
impact on the results of operations or financial position of the Company.
In December 2001, the FASB issued SFAS No. 144 on asset impairment that is
applicable to the Company's fiscal 2003 financial statements. The FASB's
new rules on asset impairment supersede FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", and provide a single accounting model for
long-lived assets to be disposed of. The adoption of the new statement did
not have an impact on the Company's results of operations for the three
months ended June 30, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and
Technical Corrections." For most companies, SFAS No. 145 will require
gains and losses on extinguishments of debt to be classified as income or
loss from continuing operations rather than as extraordinary items as
previously required under SFAS No. 4. Extraordinary treatment will be
required for certain extinguishments as provided in Accounting Principles
Board Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to require
certain modifications to capital leases be treated as a sale-leaseback and
modifies the accounting for sub-leases when the original lessee remains a
secondary obligor (or guarantor). SFAS No. 145 is effective for
transactions occurring after May 15, 2002, and is not expected to have a
material impact on the results of operations or financial position of the
Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002, and is not expected to have a material impact on the
results of operations or financial position of the Company.
Other Comprehensive Income
Other comprehensive income on the condensed consolidated balance sheet is
comprised of net unrealized gains on retained interests in notes
receivable sold, which are available-for-sale investments.
The following table discloses the components of the Company's
comprehensive income for the periods presented:
(in thousands)
Three Months Ended
June 30, July 1,
2002 2001
-----------------
Net income ........................................ $5,158 $4,135
Net unrealized gains on retained interests in notes
receivable sold, net of income taxes ......... 295 --
------ ------
Total comprehensive income ........................ $5,453 $4,135
====== ======
9.
2. Sale of Notes Receivable
In June 2001, the Company executed agreements for a new timeshare
receivables purchase facility (the "CSFB/ING Purchase Facility") with
Credit Suisse First Boston ("CSFB") acting as the initial purchaser. In
April 2002, ING Capital, LLC ("ING"), an affiliate of ING Bank N.V.,
acquired and assumed CSFB's rights, obligations and commitments as initial
purchaser in the CSFB/ING Purchase Facility by purchasing the outstanding
principal balance under the facility of $64.9 million from CSFB. In
connection with its assumption of the CSFB/ING Purchase Facility, ING
expanded and extended the CSFB/ING Purchase Facility's size and term. The
CSFB/ING Purchase Facility utilizes an owner's trust structure, pursuant
to which the Company sells receivables to a special purpose finance
subsidiary of the Company (the "Finance Subsidiary") and the Finance
Subsidiary sells the receivables to an owner's trust without recourse to
the Company or the Finance Subsidiary except for breaches of customary
representations and warranties at the time of sale. Pursuant to the
agreements that constitute the CSFB/ING Purchase Facility (collectively,
the "Purchase Facility Agreements"), the Finance Subsidiary may receive
$125.0 million of cumulative purchase price (as more fully described
below) on sales of timeshare receivables to the owner's trust on a
revolving basis, as the principal balance of receivables sold amortizes,
in transactions through April 16, 2003 (subject to certain conditions as
more fully described in the Purchase Facility Agreements). The CSFB/ING
Purchase Facility has detailed requirements with respect to the
eligibility of receivables for purchase and fundings under the CSFB/ING
Purchase Facility are subject to certain conditions precedent. Under the
Purchase Facility, a variable purchase price expected to approximate
85.00% of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of
the purchase price will be deferred until such time as ING has received a
specified return and all servicing, custodial, agent and similar fees and
expenses have been paid. ING shall earn a return equal to the London
Interbank Offered Rate ("LIBOR") plus 1.00%, subject to use of alternate
return rates in certain circumstances. In addition, ING will receive a
0.25% facility fee during the term of the facility. The CSFB/ING Purchase
Facility also provides for the sale of land notes receivable, under
modified terms.
ING's obligation to purchase under the CSFB/ING Purchase Facility may
terminate upon the occurrence of specified events. These specified events,
some of which are subject to materiality qualifiers and cure periods,
include, without limitation, (1) a breach by the Company of the
representations or warranties in the Purchase Facility Agreements, (2) a
failure by the Company to perform its covenants in the Purchase Facility
Agreements, including, without limitation, a failure to pay principal or
interest due to ING, (3) the commencement of a bankruptcy proceeding or
the like with respect to the Company, (4) a material adverse change to the
Company since December 31, 2001, (5) the amount borrowed under the
Purchase Facility exceeding the borrowing base, (6) significant
delinquencies or defaults on the receivables sold, (7) a payment default
by the Company under any other borrowing arrangement of $5 million or more
(a "Significant Arrangement"), or an event of default under any indenture,
facility or agreement that results in a default under any Significant
Arrangement, (8) a default or breach under any other agreement beyond the
applicable grace period if such default or breach (a) involves the failure
to make a payment in excess of 5% of the Company's tangible net worth or
(b) causes, or permits the holder of indebtedness to cause, an amount in
excess of 5% of the Company's tangible net worth to become due, (9) the
Company's tangible net worth not equaling at least $110 million plus 50%
of net income and 100% of the proceeds from new equity financing following
the first closing under the Purchase Facility, (10) the ratio of the
Company's debt to tangible net worth exceeding 6 to 1, or (11) the failure
of the Company to perform its servicing obligations.
The Company acts as servicer under the CSFB/ING Purchase Facility for a
fee. The Company's obligations as servicer are specified in the
transaction documents. The Purchase Facility Agreement includes various
conditions to purchase, provisions with respect to the distribution of
funds received from obligors, covenants, trigger events and other
provisions customary for a transaction of this type.
During the three months ended June 30, 2002, the Company sold $26.0
million of aggregate principal balance of notes receivable under the
CSFB/ING Purchase Facility for a cumulative purchase price of $22.1
million. In connection with these sales, the Company recognized an
aggregate $1.2 million gain and recorded retained interests in notes
receivable sold of $5.3 million and servicing assets totaling $272,000.
The following assumptions were used to measure the initial fair value of
the retained interests for the above sales under the CSFB/ING Purchase
Facility: Prepayment rates ranging from 17% to 14% per annum as the
portfolios mature; loss severity rate of 45%; default rates ranging from
7% to 1% per annum as the portfolios mature; and a discount rate of 14%.
As of June 30, 2002, the Company had availability of approximately $41.2
million of aggregate purchase price that could be obtained through the
sale of additional notes receivable under the CSFB/ING Purchase Facility.
10.
3. Receivable-backed Notes Payable
During the three months ended June 30, 2002, the Company borrowed an
aggregate $2.7 million pursuant to an existing revolving credit facility
with Foothill Capital Corporation ("Foothill"). Approximately $1.7 million
and $1.0 million of this borrowing was collateralized by timeshare
receivables and land receivables, respectively. All principal and interest
payments received on pledged receivables are applied to principal and
interest due under the facility. The ability to borrow under this $30.0
million revolving credit facility expires on December 31, 2003. Any
outstanding indebtedness is due on December 31, 2005.
4. Line of Credit Borrowing
On April 8, 2002, the Company borrowed $5.4 million under a $9.8 million,
acquisition and development line-of-credit with Marshall, Miller and
Schroeder Investments Corporation ("MM&S"). Borrowings under the line are
collateralized by Timeshare Interests in the Company's Solara Surfside(TM)
resort in Surfside, Florida (near Miami). Borrowings occur as MM&S
directly pays third-party contractors, vendors and suppliers who have been
engaged by the Company to perform renovation work on Solara Surfside. The
final draw on the loan will be released after the completion of all
renovation work, to be no later than November 1, 2002, subject to
documentation requirements. Principal will be repaid through agreed-upon
release prices as Timeshare Interests in Solara Surfside are sold, subject
to minimum required amortization. The indebtedness under the facility
bears interest at the prime lending rate plus 1.25%, subject to a minimum
interest rate of 7.50%, and all amounts borrowed are due no later than
April 1, 2004.
5. Supplemental Guarantor Financial Information
On April 1, 1998, the Company consummated a private placement offering
(the "Offering") of $110 million in aggregate principal amount of 10.5%
senior secured notes due April 1, 2008 (the "Notes"). None of the assets
of Bluegreen Corporation secure its obligations under the Notes, and the
Notes are effectively subordinated to secured indebtedness of the Company
to any third party to the extent of assets serving as security therefore.
The Notes are unconditionally guaranteed, jointly and severally, by each
of the Company's subsidiaries (the "Subsidiary Guarantors"), with the
exception of Bluegreen/Big Cedar Vacations, LLC(TM), Bluegreen Properties
N.V. (TM), Resort Title Agency, Inc. (TM), 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 then
$50,000 of assets (collectively, "Non-Guarantor Subsidiaries"). Each of
the note guarantees cover the full amount of the Notes and each of the
Subsidiary Guarantors is 100% owned, directly or indirectly, by the
Company. Supplemental financial information for Bluegreen Corporation, its
combined Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors
is presented below:
CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 2002
COMBINED COMBINED
(UNAUDITED) BLUEGREEN NON-GUARANTOR SUBSIDIARY
(IN THOUSANDS) CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents .............. $ 16,234 $22,716 $ 8,767 $ -- $ 47,717
Contracts receivable, net .............. -- 499 20,386 -- 20,885
Intercompany receivable ................ 109,501 -- -- (109,501) --
Notes receivable, net .................. 1,746 7,880 50,638 -- 60,264
Inventory, net ......................... -- 20,091 163,811 -- 183,902
Retained interests in notes receivable
sold ....................................... -- 42,001 -- -- 42,001
Investments in subsidiaries ............ 7,730 -- 3,230 (10,960) --
Property and equipment, net ............ 10,018 2,059 36,698 -- 48,775
Other assets ........................... 7,561 3,455 25,234 -- 36,250
--------- ------- -------- --------- --------
Total assets ........................ $ 152,790 $98,701 $308,764 $(120,461) $439,794
========= ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable, deferred income,
accrued liabilities and other ......... $ 5,715 $22,865 $ 17,006 $ -- $ 45,586
Intercompany payable ................... -- 14,828 94,673 (109,501) --
Deferred income taxes .................. (19,080) 24,912 26,350 -- 32,182
Lines-of-credit and receivable-backed
notes payable ......................... 3,449 4,760 44,861 -- 53,070
10.50% senior secured notes payable .... 110,000 -- -- -- 110,000
8.00% convertible subordinated notes
payable to related parties ......... 6,000 -- -- -- 6,000
8.25% convertible subordinated
debentures ........................... 34,371 -- -- -- 34,371
--------- ------- -------- --------- --------
Total liabilities ................... 140,455 67,365 182,890 (109,501) 281,209
Minority interest ...................... -- -- -- 3,183 3,183
Total shareholders' equity ................. 12,335 31,336 125,874 (14,143) 155,402
--------- ------- -------- --------- --------
Total liabilities and shareholders' equity . $ 152,790 $98,701 $308,764 $(120,461) $439,794
========= ======= ======== ========= ========
11.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2002
--------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ................................... $ -- $ 4,507 $ 66,606 $ -- $71,113
Management fees ......................... 7,621 -- -- (7,621) --
Other resort and golf operations revenue -- 830 5,881 -- 6,711
Interest income ......................... 72 1,755 1,936 -- 3,763
Gain on sale of receivables ............. -- 1,231 -- -- 1,231
------- ------- -------- -------- -------
7,693 8,323 74,423 (7,621) 82,818
COST AND EXPENSES
Cost of sales ........................... -- 1,182 23,785 -- 24,967
Cost of other resort and golf operations -- 402 5,317 -- 5,719
Management fees ......................... -- 179 7,442 (7,621) --
Selling, general and administrative
expenses .................................... 5,898 2,941 29,993 -- 38,832
Interest expense ........................ 2,346 121 756 -- 3,223
Provision for loan losses ............... -- 82 999 -- 1,081
Other expense ........................... -- 317 141 -- 458
------- ------- -------- -------- -------
8,244 5,224 68,433 (7,621) 74,280
------- ------- -------- -------- -------
Income (loss) before income taxes ....... (551) 3,099 5,990 -- 8,538
Provision (benefit) for income taxes .... (212) 1,074 2,425 -- 3,287
Minority interest in income of
consolidated
subsidiary .......................... -- -- -- 93 93
------- ------- -------- -------- -------
Net income (loss) ....................... $ (339) $ 2,025 $ 3,565 $ (93) $ 5,158
======= ======= ======== ======== =======
THREE MONTHS ENDED JULY 1, 2001
-------------------------------
COMBINED COMBINED
(UNAUDITED) BLUEGREEN NON-GUARANTOR SUBSIDIARY
(IN THOUSANDS) CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ................................... $ -- $ 5,752 $ 54,431 $ -- $ 60,183
Management fees ......................... 6,656 -- -- (6,656) --
Other resort and golf operations revenue -- 859 5,731 -- 6,590
Interest income ......................... 253 1,035 2,774 -- 4,062
Gain on sale of notes receivable ......... -- 978 -- -- 978
------- -------- -------- -------- --------
6,909 8,624 62,936 (6,656) 71,813
COST AND EXPENSES
Cost of sales ........................... -- 1,886 18,185 -- 20,071
Cost of other resort and golf operations -- 365 5,328 -- 5,693
Management fees ......................... -- 362 6,294 (6,656) --
Selling, general and administrative
expenses .................................... 6,578 3,045 24,287 -- 33,910
Interest expense ........................ 2,219 62 1,454 -- 3,735
Provision for loan losses ............... -- 74 1,216 -- 1,290
Other expense (income) ................... -- (3) 407 -- 404
------- -------- -------- -------- --------
8,797 5,791 57,171 (6,656) 65,103
------- -------- -------- -------- --------
Income (loss) before income taxes ....... (1,888) 2,833 5,765 -- 6,710
Provision (benefit) for income taxes .... (727) 1,100 2,210 -- 2,583
Minority interest in loss of consolidated
subsidiary .......................... -- -- -- (8) (8)
------- -------- -------- -------- --------
Net income (loss) ....................... $(1,161) $ 1,733 $ 3,555 $ 8 $ 4,135
======= ======== ======== ======== ========
12.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2002
--------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
Operating activities:
Net cash provided (used) by operating activities .................. $ (2,163) $ (489) $ 2,728 $ 76
-------- -------- ------- --------
Investing activities:
Purchases of property and equipment ............................ (480) (161) (290) (931)
Sales of property and equipment ................................ -- -- 11 11
Cash received from retained interests in notes receivable sold . -- 3,779 -- 3,779
-------- -------- ------- --------
Net cash provided (used) by investing activities .................. (480) 3,618 (279) 2,859
-------- -------- ------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable ......................................... -- -- 5,370 5,370
Payments under line-of-credit facilities and other notes payable (27) (906) (7,319) (8,252)
Payment of debt issuance costs .................................. -- (1,082) (262) (1,344)
Proceeds from the exercise of employee and director stock options 293 -- -- 293
-------- -------- ------- --------
Net cash (used) provided by financing activities .................. 266 (1,988) (2,211) (3,933)
-------- -------- ------- --------
Net (decrease) increase in cash and cash equivalents .............. (2,377) 1,141 238 (998)
Cash and cash equivalents at beginning of period .................. 18,611 21,575 8,529 48,715
-------- -------- ------- --------
Cash and cash equivalents at end of period ........................ 16,234 22,716 8,767 47,717
Restricted cash at end of period .................................. (173) (20,410) (7,981) (28,564)
-------- -------- ------- --------
Unrestricted cash and cash equivalents at end of period ........... $ 16,061 $ 2,306 $ 786 $ 19,153
======== ======== ======= ========
THREE MONTHS ENDED JULY 1, 2001
-------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
Operating activities:
Net cash (used) provided by operating activities .................. $(13,318) $ 680 $ 3,934 $ (8,704)
-------- -------- ------- --------
Investing activities:
Purchases of property and equipment ............................ (676) (246) (528) (1,450)
Sales of property and equipment ................................ -- -- 33 33
Cash received from retained interests in notes receivable sold . -- 1,185 -- 1,185
Principal payments received on investment in note receivable ... 4,643 -- -- 4,643
-------- -------- ------- --------
Net cash provided (used) by investing activities .................. 3,967 939 (495) 4,411
-------- -------- ------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable .......................................... 10,301 -- -- 10,301
Payments under line-of-credit facilities and other notes payable (84) (829) (3,839) (4,752)
Payment of debt issuance costs .................................. (4) (163) (4) (171)
-------- -------- ------- --------
Net cash provided (used) by financing activities .................. 10,213 (992) (3,843) 5,378
-------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents .............. 862 627 (404) 1,085
Cash and cash equivalents at beginning of period .................. 13,290 17,125 9,601 40,016
-------- -------- ------- --------
Cash and cash equivalents at end of period ........................ 14,152 17,752 9,197 41,101
Restricted cash and cash equivalents at end of period ............. (1,875) (16,338) (6,084) (24,297)
-------- -------- ------- --------
Unrestricted cash and cash equivalents at end of period ........... $ 12,277 $ 1,414 $ 3,113 $ 16,804
======== ======== ======= ========
6. Contingencies
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from time
to time, the Company becomes
13.
involved in disputes with existing and former employees. The Company
believes that substantially all of the claims and proceedings are
incidental to its business.
In addition to its other ordinary course litigation, the Company became a
defendant in a proceeding on December 15, 1998. The plaintiff has asserted
that the Company is in breach of its obligations under, and has made
certain misrepresentations in connection with, a contract under which the
Company acted as marketing agent for the sale of undeveloped property
owned by the plaintiff. The plaintiff also alleges fraud, negligence and
violation by the Company of an alleged fiduciary duty owed to plaintiff.
Among other things, the plaintiff alleges that the Company failed to meet
certain minimum sales requirements under the marketing contract and failed
to commit sufficient resources to the sale of the property. The original
complaint sought damages in excess of $18 million and certain other
remedies, including punitive damages. Subsequently, the damages sought
were reduced to approximately $15 million by the court. During fiscal
2001, the court dismissed the plaintiff's claims related to promissory
estoppel, covenant of good faith and fair dealing, breach of fiduciary
duty and negligence. In addition, the court dismissed the claims alleged
by a sister company of the plaintiff. The dismissals discussed above
further reduced the plaintiff's claims for damages to approximately $8
million, subject to the plaintiff's right of appeal. In July 2002, the
court of appeals reversed the dismissal of the approximately $7 million of
claims of the sister company of the plaintiff. The plaintiff and its
sister company are currently seeking to consolidate their cases, which
allege combined damages of approximately $15 million. The Company is
continuing to evaluate this action and its potential impact, if any, on
the Company and accordingly cannot predict the outcome with any degree of
certainty. However, based upon all of the facts presently under
consideration of management, the Company believes that it has substantial
defenses to the allegations in this action and intends to defend this
matter vigorously. The Company does not believe that any likely outcome of
this case will have a material adverse effect on the Company's financial
condition or results of operations.
On August 21, 2000, the Company received a Notice of Field Audit Action
(the "Notice") from the State of Wisconsin Department of Revenue (the
"DOR") alleging that two subsidiaries now owned by the Company failed to
collect and remit sales and use taxes to the State of Wisconsin during the
period from January 1, 1994 through September 30, 1997 totaling $1.9
million. The majority of the assessment is based on the subsidiaries not
charging sales tax to purchasers of Timeshare Interests at the Company's
Christmas Mountain Village(TM) resort. In addition to the assessment, the
Notice indicated that interest would be charged, but no penalties would be
assessed. As of June 30, 2002, aggregate interest was approximately $1.6
million. The Company filed a Petition for Redetermination (the "Petition")
on October 19, 2000, and, if the Petition is unsuccessful, the Company
intends to vigorously appeal the assessment. The Company acquired the
subsidiaries that were the subject of the Notice in connection with the
acquisition of RDI on September 30, 1997. Under the RDI purchase
agreement, the Company has the right to set off payments owed by the
Company to RDI's former stockholders pursuant to a $1.0 million
outstanding note payable balance and to make a claim against such
stockholders for $500,000 previously paid for any breach of
representations and warranties. One of the former RDI stockholders is
currently employed by the Company in a key management position. The
Company has notified the former RDI stockholders that it intends to
exercise these rights to mitigate any settlement with the DOR in this
matter. In addition, the Company believes that, if necessary, amounts paid
to the State of Wisconsin pursuant to the Notice, if any, may be further
funded through collections of sales tax from the consumers who effected
the assessed timeshare sales with RDI without paying sales tax on their
purchases. Based on management's assessment of the Company's position in
the Petition, the Company's right of set off with the former RDI
stockholders and other factors discussed above, management does not
believe that the possible sales tax pursuant to the Notice will have a
material adverse impact on the Company's results of operations or
financial position, and therefore no amounts have been accrued related to
this matter.
7. Business Segments
The Company has two reportable business segments. The Resorts Division
acquires, develops and markets Timeshare Interests at the Company's
resorts and the Residential Land and Golf Division acquires large tracts
of real estate that are subdivided, improved (in some cases to include a
golf course and related amenities on the property) and sold, typically on
a retail basis.
Required disclosures for the Company's business segments are as follows
(in thousands):
14.
Residential
Resorts Land and Golf Totals
------- ------------- ------
As of and for the three months ended June 30, 2002
Sales $42,226 $ 28,887 $ 71,113
Other resort and golf operations revenue 5,775 936 6,711
Depreciation expense 666 307 973
Field operating profit 6,249 6,691 12,940
Inventory, net 79,373 104,529 183,902
As of and for the three months ended July 1, 2001
Sales $37,262 $ 22,921 $ 60,183
Other resort and golf operations revenue 5,961 629 6,590
Depreciation expense 566 264 830
Field operating profit 6,876 4,622 11,498
Inventory, net 98,594 101,532 200,126
Field operating profit for reportable segments reconciled to consolidated
income before income taxes is as follows (in thousands):
Three Months Ended
-----------------------
June 30, July 1,
2002 2001
-----------------------
Field operating profit for reportable segments $ 12,940 $ 11,498
Interest income 3,763 4,062
Gain on sale of notes receivable 1,231 978
Other expense (458) (404)
Corporate general and administrative expenses (4,634) (4,399)
Interest expense (3,223) (3,735)
Provision for loan losses (1,081) (1,290)
-------- --------
Consolidated income before income taxes $ 8,538 $ 6,710
======== ========
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Reform Act of 1995 (the "Act") and is making the
following statements pursuant to the Act in order to do so. Certain
statements herein and elsewhere in this report and the Company's other
filings with the Securities and Exchange Commission constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company may also make written or
oral forward-looking statements in its annual report to stockholders, in
press releases and in other written materials, and in oral statements made
by its officers, directors and employees. Such statements may be
identified by forward-looking words such as "may", "intend", "expect",
"anticipate", "believe", "will", "should", "project", "estimate", "plan"
or other comparable terminology or by other statements that do not relate
to historical facts. All statements, trend analyses and other information
relative to the market for the Company's products, the Company's expected
future sales, financial position, operating results and liquidity and
capital resources and its business strategy, financial plan and expected
capital requirements and trends in the Company's operations or results are
forward-looking statements. Such forward-looking statements are subject to
known and unknown risks and uncertainties, many of which are beyond the
Company's control, that could cause the actual results, performance or
achievements of the Company, or industry trends, to differ materially from
any future results, performance or achievements expressed or implied by
such forward-looking statements. Given these uncertainties, investors are
cautioned not to place undue reliance on such forward-looking statements
and no assurance can be given that the plans, estimates and expectations
reflected in such statements will be achieved. Factors that could
adversely affect the Company's future results can also be considered
general "risk factors" with respect to the Company's business, whether or
not they relate to a forward-looking statement. The Company wishes to
caution readers that the following important factors, among other risk
factors, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company:
a) Changes in national, international or regional economic conditions that
can adversely affect the real estate market, which is cyclical in nature
and highly sensitive to such changes, including, among other factors,
levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in or the interpretation of any environmental, zoning or other
laws and regulations that govern the acquisition, subdivision and sale of
real estate and
15.
various aspects of the Company's financing operation or the failure of the
Company to comply with any law or regulation. Also the risks that changes
in or the failure of the Company to comply with laws and regulations
governing the marketing (including telemarketing) of the Company's
inventories and services will adversely impact the Company's ability to
make sales in any of its current or future markets at its current relative
marketing cost.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions and that the
development, financing and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the Company's
principal markets.
16.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing the
Company's operations, adverse weather conditions, natural disasters or
changes in the availability of development financing on terms acceptable
to the Company.
f) Changes in applicable usury laws or the availability of interest
deductions or other provisions of federal or state tax law, which may
limit the effective interest rates that the Company may charge on its
notes receivable.
g) A decreased willingness on the part of banks to extend direct customer
home site financing, which could result in the Company receiving less cash
in connection with the sales of real estate and/or lower sales.
h) The fact that the Company requires external sources of liquidity to
support its operations, acquire, carry, develop and sell real estate and
satisfy its debt and other obligations, and the Company may not be able to
locate external sources of liquidity on favorable terms or at all.
i) The inability of the Company to locate sources of capital on favorable
terms for the pledge and/or sale of land and timeshare notes receivable,
including the inability to consummate or fund securitization transactions
or to consummate fundings under facilities.
j) An increase in prepayment rates, delinquency rates or defaults with
respect to Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure, which could, among other
things, reduce the Company's interest income, increase loan losses and
make it more difficult and expensive for the Company to sell and/or pledge
receivables and reduce cash flow on and the fair value of retained
interests on notes receivable sold.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or (ii)
levels necessary in order for the Company to achieve anticipated profit
and operating margins or be profitable.
l) An increase or decrease in the number of land or resort properties subject
to percentage-of-completion accounting, which requires deferral of profit
recognition on such projects until development is substantially complete.
Such increases or decreases could cause material fluctuations in
period-to-period results of operations.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments, and/or other credit
agreements, which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens, make investments, pay
dividends or repurchase debt or equity. In addition, the failure to
satisfy certain covenants contained in the Company's receivable purchase
facilities could materially defer or reduce future cash receipts on the
Company's retained interests in notes receivable sold. Any such failure
could impair the fair value of the retained interests in notes receivable
sold and materially, adversely impact the Company's liquidity position and
its results of operations.
n) The risk of the Company incurring an unfavorable judgement in any
litigation, and the impact of any related monetary or equity damages.
o) Risks associated with selling Timeshare Interests in foreign countries
including, but not limited to, compliance with legal regulations, labor
relations and vendor relationships.
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Bluegreen Vacation Club is not accepted
by consumers or imposes limitations on the Company's operations, or is
adversely impacted by legal or other requirements.
q) The risk that any contemplated transactions currently under negotiation
will not close or conditions to funding under existing or future
facilities will not be satisfied.
r) Risks relating to any joint venture that the Company is a party to,
including risks that a dispute may arise with a joint venture partner,
that the Company's joint ventures will not be as successful as anticipated
and that the Company will be required to make capital contributions to
such ventures in amounts greater than anticipated.
s) Risks that any currently proposed or future changes in accounting
principles will have an adverse impact on the Company.
17.
t) Risks that a short-term or long-term decrease in the amount of vacation
travel (whether as a result of economic, political or other factors),
including but not limited to air travel, by American consumers will have
an adverse impact on the Company's timeshare sales.
The Company does not undertake and expressly disclaims any duty to update
or revise forward-looking statements, even if the Company's situation may
change in the future.
General
Real estate markets are cyclical in nature and highly sensitive to changes
in national, regional and international economic conditions, including,
among other factors, levels of employment and discretionary disposable
income, consumer confidence, available financing and interest rates. While
a downturn in the economy in general or in the market for real estate
could have a material adverse effect on the Company, and there are no
assurances that a continuation of or decline in existing conditions will
not have a material adverse effect, the Company believes that current
general economic conditions have not materially impacted the Company's
financial position or results of operations as of and for the three months
ended June 30, 2002.
The Company recognizes revenue on residential land and Timeshare Interest
sales when a minimum of 10% of the sales price has been received in cash,
the refund or rescission period has expired, collectibility of the
receivable representing the remainder of the sales price is reasonably
assured and the Company has completed substantially all of its obligations
with respect to any development relating to the real estate sold. In cases
where all development has not been completed, the Company recognizes
income in accordance with the percentage-of-completion method of
accounting. Under this method of income recognition, income is recognized
as work progresses. Measures of progress are based on the relationship of
costs incurred to date to expected total costs. The Company has been
dedicating greater resources to more capital-intensive residential land
and timeshare projects. As development on more of these larger projects is
begun, to the extent possible, and based on the Company's strategy to
pre-sell projects when minimal development has been completed, the amount
of income deferred under the percentage-of-completion method of accounting
may increase significantly.
Costs associated with the acquisition and development of timeshare resorts
and residential land properties, including carrying costs such as interest
and taxes, are capitalized as inventory and are allocated to cost of real
estate sold as the respective revenues are recognized.
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net earnings.
This seasonality may cause significant fluctuations in the quarterly
operating results of the Company, with the majority of the Company's gross
revenues and net earnings historically occurring in the first and second
quarters of the fiscal year. As the Company's timeshare revenues grow as a
percentage of total revenues, the Company believes that the fluctuations
in revenues due to seasonality may be mitigated in part. In addition,
other material fluctuations in operating results may occur due to the
timing of development and the Company's use of the
percentage-of-completion method of accounting. Management expects that the
Company will continue to invest in projects that will require substantial
development (with significant capital requirements). There can be no
assurances that historical seasonal trends in quarterly revenues and
earnings will continue or be mitigated by the Company's efforts.
The Company believes that inflation and changing prices have not had a
material impact on its revenues and results of operations during the three
months ended June 30, 2002, other than to the extent that the Company
continually challenges and has historically increased the sales prices of
its timeshare interests annually. Based on prior history, the Company does
not expect that inflation will have a material impact on the Company's
revenues or results of operations in the foreseeable future, although
there is no assurance that the Company will be able to continue to
increase prices. To the extent inflationary trends affect short-term
interest rates, a portion of the Company's debt service costs may be
affected as well as the interest rate the Company charges on its new
receivables from its customers.
The Company believes that the terrorist attacks on September 11, 2001 in
the United States and subsequent events that have decreased the amount of
vacation air travel by Americans have not, to date, had a material adverse
impact on the Company's sales in its domestic sales offices. With the
exception of the Company's La Cabana Beach and Racquet Club(TM) resort in
Aruba ("La Cabana"), guests at the Company's Bluegreen Vacation Club(TM)
destination resorts more typically drive, rather than fly, to these
resorts due to the accessibility of the resorts. While there has been an
adverse impact on sales at La Cabana during certain months in the
post-September 11th period, based on current conditions the Company does
not believe that there will be a long-term adverse impact on its sales in
Aruba from decreased air travel, partially due to the fact that a
significant portion of Aruba's tourist traffic comes from South America.
There can be no assurances, however, that a long-term decrease in air
travel
18.
or increase in anxiety regarding actual or possible future terrorist
attacks or other world events would not have a material adverse impact on
the Company's results of operations in future periods.
The Company's real estate operations are managed under two divisions. The
Resorts Division manages the Company's timeshare operations and the
Residential Land and Golf Division acquires large tracts of real estate,
which are subdivided, improved in some cases to include a golf course on
the property) and sold, typically on a retail basis as home sites.
Inventory is carried at the lower of cost, including costs of improvements
and amenities incurred subsequent to acquisition, or fair value, net of
costs to dispose.
A portion of the Company's revenues historically has been and, although no
assurances can be given, is expected to continue to be comprised of gains
on sales of notes receivable. The gains are recorded on the Company's
Condensed Consolidated Income Statement and the related retained interests
in the portfolios are recorded on its Condensed Consolidated Balance Sheet
at the time of sale. The amount of gains and the fair value of the
retained interests recorded are based in part on management's estimates of
future prepayment, default and loss severity rates and other
considerations in light of then-current conditions. If actual prepayments
with respect to loans occur more quickly than was projected at the time
such loans were sold, as can occur when interest rates decline, interest
would be less than expected and may cause a decline in the fair value of
the retained interests and a charge to earnings currently. If actual
defaults or other factors discussed above with respect to loans sold are
greater than estimated, charge-offs would exceed previously estimated
amounts and cash flow from the retained interests in notes receivable sold
will decrease. This may cause a decline in the fair value of the retained
interests and a charge to earnings currently. There can be no assurances
that the carrying value of the Company's retained interests in notes
receivable sold will be fully realized or that future loan sales will be
consummated or, if consummated, result in gains. Declines in the fair
value of the retained interests that are determined to be other than
temporary are charged to operations. See "Credit and Purchase Facilities
for Timeshare Receivables and Inventories" below.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its results of operations and
financial condition are based upon its condensed consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of
these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of commitments and
contingencies. On an ongoing basis, management evaluates its estimates,
including those that relate to the recognition of revenue, including
recognition under the percentage-of-completion method of accounting; the
Company's reserve for loan losses; the valuation of retained interests in
notes receivable sold and the related gains on sales of notes receivable;
the recovery of the carrying value of real estate inventories, intangible
assets and other assets; and the estimate of contingent liabilities
related to litigation and other claims and assessments. Management bases
its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under different
assumptions and conditions. If actual results significantly differ from
management's estimates, the Company's results of operations and financial
condition could be materially adversely impacted.
The Company believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements:
o In accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 66 "Accounting for Sales of
Real Estate", the Company recognizes revenue on retail land
sales and sales of Timeshare Interests when a minimum of 10%
of the sales price has been received in cash, the legal
rescission period has expired, collectibility of the
receivable representing the remainder of the sales price is
reasonably assured and the Company has completed substantially
all of its obligations with respect to any development related
to the real estate sold. In cases where all development has
not been completed, the Company recognizes revenue in
accordance with the percentage-of-completion method of
accounting. Should the Company's estimates regarding the
collectibility of its receivables change adversely or the
Company's estimates of the total anticipated cost of its
timeshare and residential land and golf projects increase, the
Company's results of operations could be adversely impacted.
o The Company considers many factors when establishing and
evaluating the adequacy of its reserve for loan losses. These
factors include recent and historical default rates, current
delinquency rates, contractual payment terms, loss severity
rates along with present and expected economic conditions. The
19.
Company examines these factors and adjusts its reserve for
loan losses on at least a quarterly basis. Should the
Company's estimates of these and other pertinent factors
change, the Company's results of operations, financial
condition and liquidity position could be adversely affected.
o When the Company sells notes receivables either pursuant to
its timeshare receivables purchase facilities or, in the case
of land mortgages receivable, private-placement Real Estate
Mortgage Investment Conduits ("REMICs"), it retains
subordinated tranches, rights to excess interest spread,
servicing rights and in some cases an interest in a cash
reserve account, all of which are retained interests in the
sold notes receivable. Gain or loss on sale of the receivables
depends in part on the allocation of the previous carrying
amount of the financial assets involved in the transfer
between the assets sold and the retained interests based on
their relative fair value at the date of transfer. The Company
initially and periodically estimates fair value based on the
present value of future expected cash flows using management's
best estimates of the key assumptions - prepayment rates, loss
severity rates, default rates and discount rates commensurate
with the risks involved. Should the Company's estimates of
these key assumptions change, the Company's results of
operations and financial condition could be adversely
impacted.
o The Company periodically evaluates the recovery of the
carrying amount of individual resort and residential land
properties under the guidelines of SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." Factors
that the Company considers in making this evaluation include
the estimated remaining life-of-project sales for each project
based on current retail prices and the estimated costs to
complete each project. Should the Company's estimates of these
factors change, the Company's results of operations and
financial condition could be adversely impacted.
o In June 2001, the FASB issued SFAS No. 142, "Accounting for
Goodwill and Other Intangible Assets", effective April 1, 2002
for the Company. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized
but will be subject to annual impairment tests in accordance
with SFAS No. 142. Other intangible assets will continue to be
amortized over their useful lives. The Company applied the new
rules on accounting for goodwill and other intangible assets
during the three months ended June 30, 2002. The adoption of
SFAS No. 142 did not have a material impact on the Company's
results of operations or financial condition.
Results of Operations
Residential
(Dollars in thousands) Resorts Land and Golf Total
------- ------------- -----
Three Months Ended June 30, 2002
Sales $ 42,226 100% $ 28,887 100% $ 71,113 100%
Cost of sales (10,740) (25) (14,227) (49) (24,967) (35)
-------- -------- --------
Gross profit 31,486 75 14,660 51 46,146 65
Other resort and golf operations revenue 5,775 13 936 3 6,711 9
Cost of other resort and golf operations (4,749) (11) (970) (3) (5,719) (8)
Selling and marketing expenses (23,829) (56) (5,433) (19) (29,262) (41)
Field general and administrative expenses (1) (2,434) (6) (2,502) (9) (4,936) (7)
---- -------- ----
Field operating profit $ 6,249 15% $ 6,691 23% $ 12,940 18%
======== ======== ========
Three Months Ended July 1, 2001
Sales $ 37,262 100% $ 22,921 100% $ 60,183 100%
Cost of sales (8,347) (22) (11,724) (51) (20,071) (33)
-------- -------- --------
Gross profit 28,915 78 11,197 49 40,112 67
Other resort and golf operations revenue 5,961 16 629 3 6,590 11
Cost of resort and golf operations (5,082) (14) (611) (3) (5,693) (10)
Selling and marketing expenses (20,454) (55) (4,618) (20) (25,072) (48)
Field general and administrative expenses (1) (2,464) (7) (1,975) (9) (4,439) (7)
-------- -------- --------
Field operating profit $ 6,876 19% $ 4,622 20% $ 11,498 19%
======== ======== ========
(1) General and administrative expenses attributable to corporate
overhead have been excluded from the tables. Corporate general and
administrative expenses totaled $4.6 million and $4.4 million for
the three months ended June 30, 2002 and July 1, 2001, respectively.
Sales and Field Operations
Consolidated sales increased 18% to $71.1 million for the three-month
period ended June 30, 2002 (the "2003 Quarter") from $60.2 million for the
three-month period ended July 1, 2001 (the "2002 Quarter").
20.
As of June 30, 2002, approximately $4.0 million in estimated income on
sales of $9.0 million was deferred under percentage-of-completion
accounting. At March 31, 2002, approximately $5.0 million in estimated
income on sales of $10.8 million was deferred. All such amounts are
included on the Condensed Consolidated Balance Sheets under the caption
Deferred Income. The Company believes that such deferred income reflects
its ability to acquire inventory, provide customers with the assurance
that the projects have insurance bonds for the completion of development
(on most of the Company's Residential Land & Golf projects) and pre-sell
to customers prior to expending a significant portion of the projects'
development costs. Based on current development schedules, the Company
expects that a portion of the currently recorded deferred income will be
recognized during the year ending March 30, 2003, although no assurances
can be given as to the amount that will be recognized.
Resorts Division. During the 2003 Quarter and the 2002 Quarter, the
Resorts Division contributed $42.2 million or 59% and $37.3 million or
62%, respectively, of the Company's total consolidated sales.
The table set forth below outlines the number of timeshare sales
transactions and the average sales price per transaction for the Resorts
Division for the periods indicated, before giving effect to the
percentage-of-completion method of accounting.
Three Months Ended
------------------
June 30, July 1,
2002 2001
------ ------
Number of timeshare sales transactions 5,225 4,269
Average sales price per transaction $9,117 $8,965
Gross margin 75% 78%
The increase in Resorts Division sales to $42.2 million from $37.3 million
during the 2003 Quarter and 2002 Quarter, respectively, was primarily due
to an increased focus on marketing to the Company's growing Bluegreen
Vacation Club owner base and to sales prospects referred to the Company by
Bluegreen Vacation Club owners. The number of owner and referral sales
prospects increased as a percentage of total sales prospects to 21% during
the 2003 Quarter from 13% during the 2002 Quarter. Approximately 20% of
the Company's owner and referral sales prospects bought a Timeshare
Interest during the 2003 Quarter as opposed to approximately 10% of the
Company's sales prospects from other marketing sources. This combined with
an 18% overall increase in the number of sales prospects seen by the
Company, to 45,597 prospects during the 2003 Quarter from 38,582 prospects
during the 2002 Quarter, and the increase in average sales price caused
the increase in sales during the 2003 Quarter. These increases more than
offset the impact of closing the Cleveland off-site sales office near the
end of the 2002 Quarter. The Cleveland office generated $1.5 million of
sales during the 2002 Quarter. In addition, timeshare sales during the
2003 Quarter included $2.8 million in remarketing fees earned by the
Company as servicer under timeshare receivable purchase facilities,
compared to $39,000 of such fees during the 2002 Quarter. See the
discussion below on selling and marketing expenses for further information
on these fees.
Gross margin decreased to 75% during the 2003 Quarter from 78% during the
2002 Quarter. The decrease is due to the relative costs of the specific
Timeshare Interests sold during the respective periods. Approximately 35%
of the Resorts Division's sales during the 2003 Quarter were of Timeshare
Interests at resorts with product costs that yield gross margins less than
70%. During the 2002 Quarter, properties that yielded gross margins less
than 70% only comprised 23% of the Resorts Division's total timeshare
sales. The Company can deed Timeshare Interests in its resorts that
participate in the Bluegreen Vacation Club at any of its sales offices
where it is legally registered to do so. The specific Timeshare Interests
that are deeded by the Company's sales offices are determined and managed
by the Resorts Division's inventory management function, and depend on
several non-financial factors including availability, demand and legal
registration. Changes in the sales mix of specific Timeshare Interests
sold will cause fluctuations in the Resorts Division's gross margin
between financial reporting periods. There can be no assurances that
changes in the Resorts Division's sales mix will not adversely impact the
Resorts Division's results of operations in future periods.
Selling and marketing expenses for the Resorts Division increased as a
percentage of sales for the Resorts Division to 56% during the 2003
Quarter from 55% during the 2002 Quarter. This increase results from the
increase in remarketing fees included in the Company's sales during the
2003 Quarter. As indicated above, sales during the 2003 Quarter included
$2.8 million in remarketing fees earned by the Company as servicer under
timeshare receivables purchase facilities, compared to $39,000 of such
fees in the 2002 Quarter. Under these facilities, the Company remarkets
certain Timeshare Interests that have been acquired by the receivable
purchasers or the securitization trust through the default of the
receivables that were previously sold by the Company. The remarketing fees
on these Timeshare Interests equal 40% to 50% of the sales price. The
Company's selling and marketing expenses incurred in such remarketing
efforts, which include marketing expenses and commissions typical of
similar timeshare sales, represent a higher percentage of the remarketing
fees than selling and marketing expenses
21.
represent as a percentage of Timeshare Interest sales generally. In other
words, the field operating profit on remarketing fees are lower than the
field operating profit from timeshare sales, generally. To the extent
remarketing fees in future periods are material, the Company's overall
selling and marketing expenses, as a percentage of sales for the Resorts
Division, will be similarly impacted. Excluding the effect of remarketing
Timeshare Interests on behalf of the receivable purchasers, selling and
marketing expenses as a percentage of sales for the Resorts Division would
have decreased to 52% for the 2003 Quarter from 54% for the 2002 Quarter.
This decrease was due to the greater percentage of owner and referral
sales, which carry lower marketing costs, during the 2003 Quarter as
compared to the 2002 Quarter, as discussed above. See "Credit and Purchase
Facilities for Timeshare Receivables and Inventories", below, for further
information about the Company's timeshare receivables purchase facilities.
Residential Land and Golf Division. During the 2003 Quarter and the 2002
Quarter, residential land and golf sales contributed $28.9 million or 41%
and $22.9 million or 38%, respectively, of the Company's total
consolidated sales.
The table set forth below outlines the number of parcels sold and the
average sales price per parcel for the Residential Land and Golf Division
for the periods indicated, before giving effect to the
percentage-of-completion method of accounting and bulk sales.
Three Months Ended
------------------
June 30, July 1,
2002 2001
------- -------
Number of parcels sold 405 481
Average sales price per parcel $57,843 $57,127
Gross margin 51% 49%
Residential Land and Golf Division sales increased primarily as a result
of increased recognized sales at the Preserve at Jordan Lake(TM) (the
"Preserve"), the Company's golf course community located near the
Raleigh-Durham area of North Carolina, which increased to $10.5 million
during the 2003 Quarter as compared to $4.5 million during the 2002
Quarter due to the impact of percentage-of-completion accounting. Under
percentage-of-completion accounting, the Company is required to defer
revenue on projects where development activities are not substantially
complete. During the 2003 Quarter, the Company substantially completed
development activities on two phases of the Preserve, which allowed the
Company to recognize $3.7 million of previously deferred sales. During the
2002 Quarter, the Company was required to defer $2.2 million of sales
consummated at the Preserve during that period, as development activities
were only partially completed at that point in time.
Golf operations revenue increased 49% and the cost of golf operations
increased 59% during the 2003 Quarter as compared to the 2002 Quarter
primarily because the Company had the grand opening of its Brickshire(TM)
golf course, designed by U.S. Open Champion Curtis Strange, in New Kent
County, Virginia, during March 2002.
Selling and marketing expenses for the Residential Land and Golf Division
decreased as a percentage of sales to 19% from 20% during the 2003 Quarter
as compared to the 2002 Quarter, respectively. Advertising expenses
remained constant at approximately $2.1 million during each of the 2003
Quarter and the 2002 Quarter, while the Residential Land and Golf
Division's overall commission percentage also remained constant at
approximately 9.5%. The Residential Land and Golf Division's ability to
hold these expenses constant combined with the increase in sales discussed
above caused selling and marketing expenses to decrease as a percentage of
sales during the 2003 Quarter as compared to the 2002 Quarter.
Field general and administrative expenses for the Residential Land and
Golf Division increased 27% to $2.5 million during the 2003 Quarter from
$2.0 million during the 2002 Quarter, primarily due to the timing of
compensation earned by regional management based on sales closings during
the 2003 Quarter.
Interest Income
Interest income was $3.8 million and $4.1 million for the 2003 Quarter and
2002 Quarter, respectively. The Company's interest income is earned from
its notes receivable, retained interests in notes receivable sold and cash
and cash equivalents. The decrease is due to lower interest rates earned
during the 2003 Quarter on the Company's cash balances on hand during the
respective periods.
Gain on Sale of Notes Receivables
The Company recognized $1.2 million and $978,000 of gains on the sale of
timeshare notes receivables during the 2003 Quarter and 2002 Quarter,
respectively. The Company sold $26.0 million as compared to $17.6 million
of timeshare notes receivable during the 2003 Quarter and 2002 Quarter,
respectively (see Note 2 of Notes to Condensed Consolidated Financial
Statements).
22.
Corporate General and Administrative Expenses
For a discussion of field selling, general and administrative expenses,
please see "Sales and Field Operations" above.
The Company's corporate general and administrative ("Corporate G&A")
expenses consist primarily of expenses incurred to administer the various
support functions at the Company's corporate headquarters, including
accounting, human resources, information technology, acquisitions,
mortgage servicing, treasury and legal. Corporate G&A totaled $4.6 million
and $4.4 million during the 2003 Quarter and 2002 Quarter, respectively.
The increase in the 2003 Quarter was primarily due to increased outside
legal fees in the normal course of business.
Interest Expense
Interest expense decreased to $3.2 million for the 2003 Quarter from $3.7
million for the 2002 Quarter. The 14% decrease in the 2003 Quarter was due
to lower outstanding balances on the Company's acquisition and development
loans borrowed in prior years and lower interest rates on variable-rate
facilities.
Provision for Loan Losses
The Company recorded provisions for loan losses totaling $1.1 million
during the 2003 Quarter and $1.3 million for the 2002 Quarter.
The Company's allowance for loan losses remained relatively constant as a
percentage of its outstanding notes receivable balance as of June 30, 2002
and March 31, 2002, as shown below (amounts in thousands):
Residential
Resorts Land and Golf
Division Division Other Total
------------------------------------------------------
June 30, 2002
Notes receivable $ 54,726 $ 8,485 $ 1,746 $ 64,957
Less: allowance for loan losses (4,284) (297) (112) (4,693)
-------- ------- ------- --------
Notes receivable, net $ 50,442 $ 8,188 $ 1,634 $ 60,264
======== ======= ======= ========
Allowance as a % of gross notes receivable 8% 4% 6% 7%
======== ======= ======= ========
March 31, 2002
Notes receivable $ 50,892 $ 7,079 $ 1,884 $ 59,855
Less: allowance for loan losses (3,782) (313) (112) (4,207)
-------- ------- ------- --------
Notes receivable, net $ 47,110 $ 6,766 $ 1,772 $ 55,648
======== ======= ======= ========
Allowance as a % of gross notes receivable 7% 4% 6% 7%
======== ======= ======= ========
Summary
Based on the factors discussed above, the Company's net income increased
25% to $5.2 million in the 2003 Quarter from $4.1 million during the 2002
Quarter.
Changes in Financial Condition
Cash Flows From Operating Activities
Cash flows from operating activities increased $8.8 million to net cash
inflows of $76,000 from net cash outflows of $8.7 million in the 2003
Quarter and 2002 Quarter, respectively. The increase was primarily due to
a $10.9 million increase in cash inflows related to the change in the
Company's inventory balances, reflecting a decrease in inventory purchase
activities during the 2003 Quarter as compared to the 2002 Quarter. During
the 2002 Quarter, the Company purchased approximately 3,000 unsold
Timeshare Interests in a resort which the Company renamed the Solara
Surfside(TM) resort in Surfside, Florida for $7.1 million in cash. There
was no comparable inventory acquisition of this size during the 2003
Quarter. The increase in operating cash flows was also due to a $4.1
million increase in net cash provided from the sale of timeshare notes
receivable. The Company sold $26.0 million and $17.6 million of timeshare
notes receivable at initial prices of 85% and 95% under various timeshare
receivable purchase facilities in the 2003 Quarter and the 2002 Quarter,
respectively. See "Credit and
23.
Purchase Facilities for Timeshare Receivables and Inventories" below for
further discussion of the Company's note receivable purchase facilities.
These increases in operating cash flows were partially offset by an
increased net increase in notes receivable to $32.6 million from $26.1
million during the 2003 Quarter and 2002 Quarter, respectively.
The Company reports cash flows from borrowings collateralized by notes
receivable and sales of notes receivable as operating activities in the
condensed consolidated statements of cash flows. The majority of the
Company's sales for the Resorts Division result in the origination of
notes receivable from its customers. Management believes that accelerating
the conversion of such notes receivable into cash, either through the
pledge or sale of the Company's notes receivable, on a regular basis is an
integral function of the Company's operations, and has therefore
classified such activities as operating activities.
Cash Flows From Investing Activities
Cash flows from investing activities decreased $1.6 million to net cash
inflows of $2.9 million in the 2003 Quarter compared to $4.4 million in
the 2002 Quarter. The decrease was primarily due to a $4.7 million loan
made to Napa Partners, LLC during fiscal 2001 that was collected by the
Company during the 2002 Quarter with no such corresponding transaction
occurring during the 2003 Quarter. This decrease was partially offset by a
$2.6 million increase during the 2003 Quarter as compared to the 2002
Quarter in cash received on retained interests in notes receivable sold,
due to additional notes receivable sold since the 2002 Quarter. Also,
purchases of property and equipment decreased by $519,000 during the 2003
Quarter as compared to the 2002 Quarter.
Cash Flows from Financing Activities
Cash flows from financing activities decreased $9.3 million to net cash
outflows of $3.9 million from net cash inflows of $5.4 million in the 2003
Quarter and 2002 Quarter, respectively. The decrease is due to payments in
excess of borrowings under acquisition and development line-of-credit
facilities and notes payable of $2.8 million during the 2003 Quarter as
compared to borrowings in excess of payments under these lines and notes
of $5.5 million during the 2002 Quarter. In addition, the Company paid
$1.3 million of facility issuance costs during the 2003 Quarter, primarily
related to the timeshare receivables purchase facility with ING, as
compared to debt issuance costs of $171,000 during the 2002 Quarter. See
"Credit and Purchase Facilities for Timeshare Receivables and Inventories"
below for further discussion of the Company's timeshare receivables
purchase facilities.
Liquidity and Capital Resources
The Company's capital resources are provided from both internal and
external sources. The Company's primary capital resources from internal
operations are: (i) cash sales, (ii) down payments on home site and
timeshare sales which are financed, (iii) proceeds from the sale of, or
borrowings collateralized by, notes receivable including cash received
from the Company's retained interests in notes receivable sold, (iv)
principal and interest payments on the purchase money mortgage loans and
contracts for deed arising from sales of Timeshare Interests and
residential land home sites (collectively "Receivables") and (v) net cash
generated from other resort services and golf operations. Historically,
external sources of liquidity have included non-recourse sales of
Receivables, borrowings under secured and unsecured lines-of-credit,
seller and bank financing of inventory acquisitions and the issuance of
debt securities. The Company's capital resources are used to support the
Company's operations, including (i) acquiring and developing inventory,
(ii) providing financing for customer purchases, (iii) meeting operating
expenses and (iv) satisfying the Company's debt, and other obligations.
The Company anticipates that it will continue to require external sources
of liquidity to support its operations, satisfy its debt and other
obligations and to provide funds for future acquisitions.
Credit and Purchase Facilities for Timeshare Receivables and Inventories
The Company maintains various credit and purchase facilities with
financial institutions that provide for receivable financing for its
timeshare projects.
The Company's ability to sell and/or borrow against its notes receivable
from timeshare buyers is a critical factor in the Company's continued
liquidity. The timeshare business involves making sales of a product
pursuant to which a financed buyer is only required to pay 10% of the
purchase in cash up front, yet selling, marketing and administrative
expenses are primarily cash expenses and which, in the Company's case for
the 2003 Quarter, approximated 62% of sales. Accordingly, having
facilities for the sale and hypothecation of these timeshare receivables
is critical to meet the Company's short and long-term cash needs.
24
In June 2001, the Company executed agreements for a timeshare receivables
purchase facility (the "Purchase Facility") with Credit Suisse First
Boston ("CSFB") acting as the initial purchaser. In April 2002, ING
Capital, LLC ("ING"), an affiliate of ING Bank N.V., acquired and assumed
CSFB's rights, obligations and commitments as initial purchaser in the
Purchase Facility by purchasing the outstanding principal balance under
the facility of $64.9 million from CSFB. In connection with its assumption
of the Purchase Facility, ING expanded and extended the Purchase
Facility's size and term. The Purchase Facility utilizes an owner's trust
structure, pursuant to which the Company sells receivables to Bluegreen
Receivables Finance Corporation V, a special purpose finance subsidiary of
the Company (the "Subsidiary"), and the Subsidiary sells the receivables
to an owners' trust without recourse to the Company or the Subsidiary
except for breaches of customary representations and warranties at the
time of sale. The Company did not enter into any guarantees in connection
with the Purchase Facility. Pursuant to the agreements that constitute the
Purchase Facility (collectively, the "Purchase Facility Agreements"), the
Subsidiary may receive $125.0 million of cumulative purchase price (as
more fully described below) on sales of timeshare receivables to the
owner's trust on a revolving basis, as the principal balance of
receivables sold amortizes, in transactions through April 16, 2003
(subject to certain conditions as more fully described in the Purchase
Facility Agreements). The Purchase Facility has detailed requirements with
respect to the eligibility of receivables for purchase and fundings under
the Purchase Facility are subject to certain conditions precedent. Under
the Purchase Facility, a variable purchase price expected to approximate
85.00% of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of
the purchase price will be deferred until such time as ING has received a
specified return and all servicing, custodial, agent and similar fees and
expenses have been paid. ING shall earn a return equal to the London
Interbank Offered Rate ("LIBOR") plus 1.00%, subject to use of alternate
return rates in certain circumstances. In addition, ING will receive a
0.25% facility fee during the term of the facility. The Purchase Facility
also provides for the sale of land notes receivable, under modified terms.
The Company acts as servicer under the Purchase Facility for a fee. The
Purchase Facility Agreements include various conditions to purchase,
covenants, trigger events and other provisions customary for a transaction
of this type. ING's obligation to purchase under the Purchase Facility may
terminate upon the occurrence of specified events. These specified events,
some of which are subject to materiality qualifiers and cure periods,
include, without limitation, (1) a breach by the Company of the
representations or warranties in the Purchase Facility Agreements, (2) a
failure by the Company to perform its covenants in the Purchase Facility
Agreements, including, without limitation, a failure to pay principal or
interest due to ING, (3) the commencement of a bankruptcy proceeding or
the like with respect to the Company, (4) a material adverse change to the
Company since December 31, 2001, (5) the amount received by the Subsidiary
under the Purchase Facility exceeding the purchase price for the
receivables after making adjustments for ineligible receivables and
distributions owing to ING, (6) significant delinquencies or defaults on
the receivables sold, (7) a payment default by the Company under any other
borrowing arrangement of $5 million or more (a "Significant Arrangement"),
or an event of default under any indenture, facility or agreement that
results in a default under any Significant Arrangement, (8) a default or
breach under any other agreement beyond the applicable grace period if
such default or breach (a) involves the failure to make a payment in
excess of 5% of the Company's tangible net worth or (b) causes, or permits
the holder of indebtedness to cause, an amount in excess of 5% of the
Company's tangible net worth to become due, (9) the Company's tangible net
worth not equaling at least $110 million plus 50% of net income and 100%
of the proceeds from new equity financing following the first closing
under the Purchase Facility, (10) the ratio of the Company's debt to
tangible net worth exceeding 6 to 1, or (11) the failure of the Company to
perform its servicing obligations.
Through August 7, 2002, the Company sold $109.2 million of aggregate
principal balance of notes receivable under the Purchase Facility for a
cumulative purchase price of $92.8 million. As of August 7, 2002, the
remaining amount of purchase price that can be obtained through the
Purchase Facility upon the sale of additional notes receivable is
approximately $44.3 million, based on the remaining facility limit as
adjusted for cash already received by CSFB and ING on receivables
previously sold (the $125.0 million facility limit is on a revolving
basis). ING may attempt to securitize and sell the receivable portfolio
purchased under the Purchase Facility. Should ING successfully consummate
such a securitization and sale prior to April 16, 2003, the Subsidiary
would again be able to sell additional notes receivable for a cumulative
purchase price of up to $75.0 million under the Purchase Facility prior to
April 16, 2003, at 85.0% of the principal balance, subject to the
eligibility requirements and certain conditions precedent. There can be no
assurances that ING will be able to successfully consummate any such
securitization and sale prior to April 16, 2003, or at any time in the
future, or that the Company would have additional eligible notes
receivable to sell under the Purchase Facility (through the Subsidiary).
In addition to the Purchase Facility, the Company is a party to a number
of securitization transactions, all of which in the Company's opinion
utilize customary structures and terms for transactions of this type. (The
ING Purchase Facility dicussed above is the only facility in which the
Company currently has the ability to receive fundings, with the Company's
ability to sell receivables under prior facilities having expired.) In
each securitization, the Company sells receivables to a wholly-owned
special purpose entity which, in turn, sells the receivables either
directly to third parties or to a trust established for the transaction.
In each transaction, the receivables are sold on a non-recourse
25.
basis (except for breaches of customary representations and warranties)
and the special purpose entity has a retained interest in the receivables
sold. The Company has acted as servicer of the receivables pools in each
transaction for a fee, with the servicing obligations specified under the
applicable transaction documents. Under the terms of the applicable
securitization transaction, the cash payments received from obligors on
the receivables sold are distributed to the investors (which, depending on
the transaction, may acquire the receivables directly or purchase an
interest in, or make loans secured by the receivables to, a trust that
owns the receivables), parties providing services in connection with the
facility, and the Company's special purpose subsidiary as the holder of
the retained interest in the receivables according to one of two specified
formulas. In general, available funds are applied monthly to pay fees to
service providers, interest and principal payments to investors, and
distributions in respect of the retained interest in the receivables.
Pursuant to the terms of the transaction documents, however, to the extent
the portfolio of receivables fails to satisfy specified performance
criteria (as may occur due to an increase in default rates or loan loss
severity) or there are other trigger events, the funds received from
obligors are distributed on an accelerated basis to investors. In effect,
during a period in which the accelerated payment formula is applicable,
funds go to outside investors until they receive the full amount owed to
them and only then are payments made to the Company's subsidiary in its
capacity as the holder of the retained interest. Depending on the
circumstances and the transaction, the application of the accelerated
payment formula may be permanent, or temporary until the trigger event is
cured. If the accelerated payment formula were to become applicable, the
cash flow on the retained interest in the receivables would be reduced
until the outside investors were paid or the regular payment formula were
resumed. Such a reduction in cash flow could cause a decline in the fair
value of the Company's retained interest in the receivables sold. Declines
in fair value that are determined to be other than temporary are charged
to operations in the current period. In each facility, the failure of the
pool of receivables to comply with specified portfolio covenants can
create a trigger event, which results in the use of the accelerated
payment formula (in certain circumstances until the trigger event is cured
and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from the Company's special
purpose subsidiary, the suspension or termination of that commitment. In
addition, in each securitization facility certain breaches by the Company
of its obligations as servicer or other events allow the investor to cause
the servicing to be transferred to a substitute third party servicer. In
that case, the Company's obligation to service the receivables would
terminate and it would cease to receive a servicing fee. In July 2002, the
Company was advised that one of the portfolio performance covenants in the
receivables purchase facility the Company entered into in October 2000
with Heller Financial, Inc. and Barclays Bank, PLC was not satisfied for
three monthly periods. One of the investors in this facility has indicated
that it believes the accelerated payment formula should be applied to all
distributions under the facility as a result of the failure of such
covenants to be satisfied. As of the date of this report, the Company
believes that it is currently in compliance with all of the covenants
under this facility and that the prior non-compliance should not require
future application of the accelerated payment formula. The Company also
believes that, if it were determined that the Company was not in
compliance or that the prior non-compliance requires the temporary or
permanent application of the accelerated payment formula under this
facility, the application of the accelerated formula would not have a
material adverse effect on the value of the retained interest in this
transaction, or the Company's results of operations or financial
condition.
The Company seeks new timeshare receivable purchase facilities to replace
expiring facilities. The Company is currently discussing terms for a
potential new timeshare receivable purchase facility with a financial
institution. Factors which could adversely impact the Company's ability to
obtain new or additional timeshare receivable purchase facilities include,
but are not limited to, a downturn in general economic conditions;
negative trends in the commercial paper or LIBOR markets; increases in
interest rates; a decrease in the number of financial institutions willing
to engage in such facilities in the timeshare area; and a deterioration in
the Company's performance generally and the performance of the Company's
timeshare notes receivable or in the performance of portfolios sold in
prior transactions, specifically increased delinquency, default and loss
severity rates. There can be no assurances that the Company will obtain a
new purchase facility to replace the Purchase Facility when it is
completed or expires. As indicated above, the Company's inability to sell
timeshare receivables under a current or future facility could have a
material adverse impact on the Company's liquidity and operations.
The Company had a timeshare receivables warehouse loan facility (the
"Warehouse Facility"), which expired on April 16, 2002, with Heller
Financial, Inc., a financial institution that was subsequently acquired by
General Electric Capital Real Estate ("GE"). Loans under the Warehouse
Facility bear interest at LIBOR plus 3.5%. The Warehouse Facility had
detailed requirements with respect to the eligibility of receivables for
inclusion and other conditions to funding. The borrowing base under the
Warehouse Facility was 90% of the outstanding principal balance of
eligible notes arising from the sale of Timeshare Interests except for
eligible notes generated by Bluegreen Properties N.V. (TM), for which the
borrowing base was 80%. The Warehouse Facility includes affirmative,
negative and financial covenants and events of default. During fiscal
2002, the Company borrowed an aggregate $22.2 million under the Warehouse
Facility, of which the Company repaid an aggregate $13.7 million by using
cash generated from principal and interest payments on the underlying
loans and proceeds from the sale of the underlying receivables under
timeshare receivables purchase facilities. The remaining balance of the
Warehouse Facility was due on April 16, 2002; however, GE has represented
to the Company that the remaining balance is not considered to be in
default pending GE's approval of a new combined warehouse and purchase
facility. The remaining balance on the
26.
Warehouse Facility continues to be repaid as principal and interest
payments are collected on the timeshare notes receivable. As of July 28,
2002, there was $8.5 million outstanding under the Warehouse Facility.
There can be no assurances that GE will approve the increase and extension
of the Warehouse Facility or that GE will not declare the Warehouse
Facility to be in default and due and payable immediately. The Company
believes that in the event that GE requires the Warehouse Facility to be
repaid, the revolving credit facility with Foothill Capital Corporation
("Foothill"), discussed below, or the Purchase Facility could be utilized
to satisfy this obligation in the normal course of business.
In addition, GE has provided the Company with a $28.0 million acquisition
and development facility for its timeshare inventories (the "A&D
Facility"). The borrowing period on the A&D Facility has expired and
outstanding borrowings under the A&D Facility mature no later than January
2006. Principal will be repaid through agreed-upon release prices as
Timeshare Interests are sold at the financed resort, subject to minimum
required amortization. The indebtedness under the facility bears interest
at LIBOR plus 3%. On September 14, 1999, the Company borrowed
approximately $14.0 million under the A&D facility. The outstanding
principal of this loan must be repaid by November 1, 2005, through
agreed-upon release prices as Timeshare Interests in the Company's Lodge
Alley Inn(TM) resort in Charleston, South Carolina are sold, and subject
to minimum required amortization. On December 20, 1999, the Company
borrowed approximately $13.9 million under the acquisition and development
facility. The principal of this loan must be repaid by January 1, 2006,
through agreed-upon release prices as Timeshare Interests in the Company's
Shore Crest II(TM) resort are sold, subject to minimum required
amortization. The outstanding balance under the A&D Facility at June 30,
2002 was $6.0 million. The Company is currently negotiating an extension
and increase of the A&D Facility. There can be no assurances that the
Company's negotiations will be successful. To the extent such negotiations
are not successful, the Company will be required to seek a replacement
facility. No assurances can be given that such a replacement facility will
be obtained on attractive terms or at all.
On April 8, 2002, the Company entered into a $9.8 million, acquisition and
development line-of-credit with Marshall, Miller and Schroeder Investments
Corporation ("MM&S"). Borrowings under the line are collateralized by
Timeshare Interests in the Company's Solara Surfside(TM) resort in
Surfside, Florida (near Miami). Borrowings occur as MM&S directly pays
third-party contractors, vendors and suppliers who have been engaged by
the Company to perform renovation work on Solara Surfside. The final draw
on the loan will be released after the completion of all renovation work,
to be no later than November 1, 2002, subject to documentation
requirements. Principal will be repaid through agreed-upon release prices
as Timeshare Interests in Solara Surfside are sold, subject to minimum
required amortization. The indebtedness under the facility bears interest
at the prime lending rate plus 1.25%, subject to a minimum interest rate
of 7.50%, and all amounts borrowed are due no later than April 1, 2004. As
of June 30, 2002, $5.0 million was outstanding under the MM&S
line-of-credit.
The Company expects to close on a $35.0 million receivables warehouse
facility and a $15.0 million acquisition and development facility for the
Resorts Division with a financial institution during the quarter ending
September 29, 2002. There can be no assurances that these facilities will
close as anticipated.
Under an existing, $30.0 million revolving credit facility with Foothill
for the pledge of Residential Land and Golf Division receivables, the
Company can use up to $10.0 million of the facility for the pledge of
timeshare receivables. During the 2003 Quarter, the Company borrowed $1.7
million under this facility by pledging approximately $1.9 million in
aggregate principal of timeshare receivables at a 90% advance rate. See
the next paragraph for further details on this facility.
Credit Facilities for Residential Land and Golf Receivables and
Inventories
The Company has a $30.0 million revolving credit facility with Foothill
for the pledge of Residential Land and Golf Division receivables, with up
to $10.0 million of the total facility available for Residential Land and
Golf Division inventory borrowings and up to $10.0 million of the total
facility available for the pledge of timeshare receivables. The interest
rate charged on outstanding borrowings ranges from prime plus 0.5% to
1.0%, with 7.0% being the minimum interest rate. At June 30, 2002, the
outstanding principal balance under this facility was approximately $6.3
million, $1.7 million of which related to timeshare receivables
borrowings, as discussed above, and $4.6 million of which related to land
receivables borrowings. All principal and interest payments received on
pledged receivables are applied to principal and interest due under the
facility. The ability to borrow under the facility expires on December 31,
2003. Any outstanding indebtedness is due on December 31, 2005.
The Company has a $35.0 million revolving credit facility, which expired
in March 2002, with Finova Capital Corporation. The Company used this
facility to finance the acquisition and development of residential land
projects. The facility is secured by the real property (and personal
property related thereto) with respect to which borrowings are made. The
interest charged on outstanding borrowings is prime plus 1.25%. On
September 14, 1999, in connection with the acquisition of 1,550 acres
adjacent to the Company's Lake Ridge(TM) at Joe Pool Lake residential land
project in Dallas, Texas ("Lake Ridge II"), the
27.
Company borrowed approximately $12.0 million under the revolving credit
facility. Principal payments are effected through agreed-upon release
prices as home sites in Lake Ridge II and in another recently purchased
section of Lake Ridge are sold. The principal of this loan must be repaid
by September 14, 2004. On October 6, 1999, in connection with the
acquisition of 6,966 acres for the Company's Mystic Shores(TM) residential
land project in Canyon Lake, Texas, the Company borrowed $11.9 million
under the revolving credit facility. On May 5, 2000, the Company borrowed
an additional $2.1 million under this facility in order to purchase an
additional 435 acres for the Mystic Shores project. Principal payments on
these loans are effected through agreed-upon release prices as home sites
in Mystic Shores are sold. The principal under the $11.9 million and $2.1
million loans for Mystic Shores must be repaid by October 6, 2004 and May
5, 2004, respectively. The aggregate outstanding balance on the revolving
credit facility was $16.5 million at June 30, 2002.
On September 24, 1999, the Company obtained a $4.2 million line-of-credit
with Branch Banking and Trust Company for the purpose of developing a golf
course in the Company's Brickshire residential land community in New Kent
County, Virginia (the "Golf Course Loan"). Through December 2001, the
Company borrowed an aggregate $4.0 million under the Golf Course Loan. The
outstanding balances under the Golf Course Loan bears interest at prime
plus 0.5% and interest is due monthly. Principal payments are payable in
equal monthly installments of $35,000. The principal must be repaid by
October 1, 2005. The loan is secured by the Brickshire golf course, which
was designed by U.S. Open Champion, Curtis Strange. As of June 30, 2002,
$3.6 million was outstanding under the Golf Course Loan.
The Company expects to close on a $50.0 million acquisition and
development facility for the Residential Land and Golf Division with a
financial institution during the quarter ending September 29, 2002. There
can be no assurances that this facility will close as anticipated.
Over the past several years, the Company has received approximately 90% to
99% of its land sales proceeds in cash. Accordingly, in recent years the
Company has reduced the borrowing capacity under credit agreements secured
by land receivables. The Company attributes the significant volume of cash
sales to an increased willingness on the part of certain local banks to
extend more direct customer home site financing. No assurances can be
given that local banks will continue to provide such customer financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys and engineering fees from internal
operations and has financed the acquisition of residential land and golf
properties through seller, bank or financial institution loans. Terms for
repayment under these loans typically call for interest to be paid monthly
and principal to be repaid through home site releases. The release price
is usually defined as a pre-determined percentage of the gross selling
price (typically 25% to 50%) of the home sites in the subdivision. In
addition, the agreements generally call for minimum cumulative annual
amortization. When the Company provides financing for its customers (and
therefore the release price is not available in cash at closing to repay
the lender), it is required to pay the creditor with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Other Credit Facility
The Company has a $12.5 million unsecured line-of-credit with First Union
National Bank. Amounts borrowed under the line bear interest at LIBOR plus
2%. Interest is due monthly and all principal amounts are due on December
31, 2002. The Company is only allowed to borrow under the line-of-credit
in amounts less than the remaining availability under its current, active
timeshare receivables purchase facility plus availability under certain
receivable warehouse facilities, less any outstanding letters of credit.
The line-of-credit agreement contains certain covenants and conditions
typical of arrangements of this type. As of June 30, 2002 and the date of
this report, there were no amounts outstanding under the line. This
line-of-credit is an important source of short-term liquidity for the
Company, as it allows the Company to fund through its timeshare
receivables purchase facility less frequently than it otherwise would.
Summary
The Company's level of debt and debt service requirements have several
important effects on its operations, including the following: (i) the
Company has significant cash requirements to service debt, reducing funds
available for operations and future business opportunities and increasing
the Company's vulnerability to adverse economic and industry conditions;
(ii) the Company's leveraged position increases its vulnerability to
competitive pressures; (iii) the financial covenants and other
restrictions contained in the indentures, the credit agreements and other
agreements relating to the Company's indebtedness will require the Company
to meet certain financial tests and will restrict its ability to, among
other things, borrow additional funds, dispose of assets, make investments
or pay cash dividends on, or repurchase, preferred or common stock; and
(iv) funds available for working capital, capital expenditures,
acquisitions and general corporate purposes may be limited. Certain of the
Company's competitors operate on a less leveraged basis and have greater
operating and financial flexibility than the Company.
28.
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon
which additional resorts may be built; management contracts; loan
portfolios of Timeshare Interest mortgages; portfolios which include
properties or assets which may be integrated into the Company's
operations; interests in joint ventures; and operating companies providing
or possessing management, sales, marketing, development, administration
and/or other expertise with respect to the Company's operations in the
timeshare industry. In addition, the Company intends to continue to focus
the Residential Land and Golf Division on larger, more capital intensive
projects particularly in those regions where the Company believes the
market for its products is strongest, such as new golf communities in the
Southeast and other areas and continued growth in the Company's successful
regions in Texas.
The Company's material commitments for capital resources as of June 30,
2002, included the required payments due on its receivable-backed debt,
lines of credit and other notes and debentures payable, commitments to
complete its timeshare and residential land projects based on its sales
contracts with customers and commitments under noncancelable operating
leases.
The following table summarizes the contractual minimum principal payments
required on all of the Company's outstanding debt (including its
receivable-backed debt, lines-of-credit and other notes and debentures
payable) and its noncancelable operating leases as of June 30, 2002 by
period due (in thousands):
Payments Due By Period
------------------------------------------------------------
Contractual Less than 1 - 3 4 - 5 After 5
Obligations Total 1 year Years Years Years
--------------------------------- -------- ------- ------- ------- --------
Receivable-backed notes payable $ 15,655 $ 8,698 $ -- $ 6,344 $ 613
Lines-of-credit and notes payable 37,415 9,487 19,020 8,560 348
10.50% senior secured notes
payable 110,000 -- -- -- 110,000
8.00% convertible subordinated
notes payable to related
parties 6,000 6,000 -- -- --
8.25% convertible subordinated
debentures 34,371 -- 6,371 8,000 20,000
Noncancelable operating leases 6,184 2,822 3,156 124 82
-------- ------- ------- ------- --------
Total contractual obligations $209,625 $27,007 $28,547 $23,028 $131,043
======== ======= ======= ======= ========
The Company intends to use cash flow from operations, including cash
received from the sale of timeshare notes receivable, and cash received
from new borrowings under existing or future debt facilities in order to
satisfy the above principal payments. While the Company believes that it
will be able to meet all required debt payments when due, there can be no
assurances.
The Company estimates that the total cash required to complete resort
buildings in which sales have occurred and resort amenities and other
common costs in projects in which sales have occurred as of June 30, 2002
is approximately $6.9 million. The Company estimates that the total cash
required to complete its residential land projects in which sales have
occurred as of June 30, 2002 is approximately $30.4 million. These amounts
assume that the Company is not obligated to develop any building, project
or amenity in which a commitment has not been made through a sales
contract to a customer. The Company plans to fund these expenditures over
the next five years primarily with available capacity on existing or
proposed credit facilities and cash generated from operations. There can
be no assurances that the Company will be able to obtain the financing or
generate the cash from operations necessary to complete the foregoing
plans or that actual costs will not exceed those estimated.
29.
The Company believes that its existing cash, anticipated cash generated
from operations, anticipated future permitted borrowings under existing or
proposed credit facilities and anticipated future sales of notes
receivable under the timeshare receivables purchase facility (or any
replacement facility) will be sufficient to meet the Company's anticipated
working capital, capital expenditure and debt service requirements for the
foreseeable future. The Company will be required to renew or replace
credit facilities that will expire in fiscal 2003 and fiscal 2004. The
Company will, in the future, also require additional credit facilities or
issuances of other corporate debt or equity securities in connection with
acquisitions or otherwise. Any debt incurred or issued by the Company may
be secured or unsecured, bear fixed or variable rate interest and may be
subject to such terms as the lender may require and management deems
prudent. There can be no assurances that the credit facilities or
receivables purchase facilities which have expired or which are scheduled
to expire in the near term will be renewed or replaced or that sufficient
funds will be available from operations or under existing, proposed or
future revolving credit or other borrowing arrangements or receivables
purchase facilities to meet the Company's cash needs, including, without
limitation, its debt service obligations. To the extent the Company was
not able to sell notes receivable or borrow under such facilities, the
Company's ability to satisfy its obligations would be materially adversely
affected.
The Company has a large number of credit facilities, indentures, other
outstanding debt instruments, and receivables purchase facilities which
include customary conditions to funding, eligibility requirements for
collateral, cross-default and other acceleration provisions, certain
financial and other affirmative and negative covenants, including, among
others, limits on the incurrence of indebtedness, limits on the repurchase
of securities, payment of dividends, investments in joint ventures and
other restricted payments, the incurrence of liens, transactions with
affiliates, covenants concerning net worth, fixed charge coverage
requirements, debt-to-equity ratios, portfolio performance requirements
and events of default or termination. No assurances can be given that such
covenants will not limit the Company's ability to raise funds, sell
receivables, satisfy or refinance its obligations or otherwise adversely
affect the Company's operations. In addition, the Company's future
operating performance and ability to meet its financial obligations will
be subject to future economic conditions and to financial, business and
other factors, many of which will be beyond the Company's control.
The Company's ability to service or to refinance its indebtedness or to
obtain additional financing (including its ability to consummate future
notes receivable securitizations) depends, among other things, on its
future performance, which is subject to a number of factors, including the
Company's business, results of operations, leverage, financial condition
and business prospects, the performance of its receivables, prevailing
interest rates, general economic conditions and perceptions about the
residential land and timeshare industries, some of which are beyond the
Company's control. If the Company's cash flow and capital resources are
insufficient to fund its debt service obligations and support its
operations, the Company, among other consequences, may be forced to reduce
or delay planned capital expenditures, reduce its financing of sales, sell
assets, obtain additional equity capital or refinance or restructure its
debt. The Company cannot provide any assurance that we will be able to
obtain sufficient external sources of liquidity on attractive terms, or at
all. In addition, many of our obligations under our debt arrangements
contain cross-default or cross-acceleration provisions. As a result, if we
default under one debt arrangement, other lenders might be able to declare
amounts due under their arrangements, which would have a material adverse
effect on our business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For a complete description of the Company's foreign currency and interest
rate related market risks, see the discussion in the Company's Annual
Report on Form 10-K for the year ended March 31, 2002. There has not been
a material change in the Company's exposure to foreign currency and
interest rate risks since March 31, 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from time
to time, the Company becomes involved in disputes with existing and former
employees. The Company believes that substantially all of the above are
incidental to its business.
Certain other litigation involving the Company is described in the
Company's Annual Report on Form 10-K for the year ended March 31, 2002.
Subsequent to the filing of such Form 10-K, there have been no material
developments with respect to such litigation except regarding the matter
described below:
30.
The Company became a defendant in an action that was filed in Colorado
state court against the Company on December 15, 1998 (the Company has
removed the action to the Federal District Court in Denver). The plaintiff
has asserted that the Company is in breach of its obligations under, and
has made certain misrepresentations in connection with, a contract under
which the Company acted as marketing agent for the sale of undeveloped
property owned by the plaintiff. The plaintiff also alleges fraud,
negligence and violation by the Company of an alleged fiduciary duty owed
to plaintiff. Among other things, the plaintiff alleges that the Company
failed to meet certain minimum sales requirements under the marketing
contract and failed to commit sufficient resources to the sale of the
property. The original complaint sought damages in excess of $18 million
and certain other remedies, including punitive damages. Subsequently, the
damages sought were reduced to approximately $15 million by the court.
During fiscal 2001, the court dismissed the plaintiff's claims related to
promissory estoppel, covenant of good faith and fair dealing, breach of
fiduciary duty and negligence. In addition, the court dismissed the claims
alleged by a sister company of the plaintiff. The dismissals discussed
above further reduced the plaintiff's claims for damages to approximately
$8 million, subject to the plaintiff's right of appeal. In July 2002, the
court of appeals reversed the dismissal of the approximately $7 million of
claims of the sister company of the plaintiff. The plaintiff and its
sister company are currently seeking to consolidate their cases, which
allege combined damages of approximately $15 million.
The Company is continuing to evaluate this action and its potential
impact, if any, on the Company and accordingly cannot predict the outcome
with any degree of certainty. However, based upon all of the facts
presently under consideration of management, the Company believes that it
has substantial defenses to the allegations in this action and intends to
defend this matter vigorously. The Company does not believe that any
likely outcome of this case will have a material adverse effect on the
Company's financial condition or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On April 10, 2002, Levitt Companies, LLC ("Levitt"), a subsidiary of
BankAtlantic Bancorp., Inc. ("BBC"), advised the Company that Levitt had
acquired in private transactions (i) actual or beneficial ownership of an
aggregate of approximately 5,882,353 shares of the Company's outstanding
company stock from Morgan Stanley Real Estate Fund III, L.P., Morgan
Stanley Real Estate Investors III, L.P., MSP Real Estate Fund, L.P. and
MSREF III Special Fund, L.P., funds which are affiliates of Morgan Stanley
Dean Witter & Co., Inc. (collectively, "Morgan Stanley"), and (ii) an
aggregate of approximately 2,434,972 shares of the Company's outstanding
common stock from Grace Brothers, Ltd. and Bradford T. Whitmore,
individually (collectively with Grace Brothers, Ltd, the "Grace Sellers").
Of the shares acquired from Morgan Stanley, 5,548,416 shares were
transferred to Levitt on April 10, 2002, and the remaining 333,937 shares
were transferred to Levitt in June 2002. Based on a Schedule 13D filed by
Levitt with the Securities and Exchange Commission on April 22, 2002, as a
result of these purchases, Levitt and BBC owned an aggregate of
approximately 39.2% of the Company's issued and outstanding shares,
consisting of 4.8% of the Company's issued and outstanding shares owned of
record by BBC and 34.2% beneficially owned by Levitt.
Also on April 10, 2002, four representatives of the selling stockholders
resigned from the Company's Board of Directors. The Board members who
resigned were Bradford T. Whitmore of Grace Brothers, Ltd. and John B.
Buza, Michael J. Franco and Joseph M. Zuber, all of Morgan Stanley.
On August 14, 1998, the Company entered into a Securities Purchase
Agreement (the "MS Purchase Agreement") with Morgan Stanley pursuant to
which Morgan Stanley purchased an aggregate of approximately 5.88 million
shares of common stock. The MS Purchase Agreement provided Morgan Stanley
and its "permitted transferees" (as defined in the agreement) with various
rights and protections, including the right to elect two members to the
Company's Board of Directors, for so long as Morgan Stanley and its
permitted transferees owned in the aggregate at least a specified
percentage of the shares issued to Morgan Stanley under the MS Purchase
Agreement. Under the MS Purchase Agreement,
31.
Morgan Stanley agreed to vote all of its shares for the election of
management's slate to the Board of Directors. Morgan Stanley has sold or
agreed to sell all of the shares it acquired under the MS Purchase
Agreement to Levitt. Morgan Stanley has advised the Company that Levitt is
not an affiliate, or "permitted transferee", of Morgan Stanley for
purposes of the MS Purchase Agreement. As a result, (i) Levitt will not
have any rights under the MS Purchase Agreement, and (ii) Levitt will not
be subject to the provisions of the MS Purchase Agreement which required
Morgan Stanley to vote its shares for management's board slate.
The Company did not enter into any agreements with Levitt in connection
with Levitt's acquisition of stock from Morgan Stanley and the Grace
Sellers. Morgan Stanley has assigned to Levitt the rights which it had
under a separate registration rights agreement dated August 14, 1998 with
the Company to have the Company's shares issued under the MS Purchase
Agreement registered under the Securities Act of 1933.
For additional information about the Company's Board of Directors and
stock ownership, see the Company's proxy statement previously filed in
connection with the August 22, 2002 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports on Form 8-K
10.146 Construction Loan Agreement dated April 8, 2002, between
Bluegreen Vacations Unlimited, Inc. and Marshall, Miller &
Shroeder Investments Corporation.
10.147 Promissory Note dated April 8, 2002, between Bluegreen
Vacations Unlimited, Inc. and Marshall, Miller & Shroeder
Investments Corporation.
10.148 Promissory Note dated July 1, 2002 between George F. Donovan
and Bluegreen Corporation.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 10,
2002, regarding the acquisition of approximately 39% of the
Company's common stock by Levitt Companies, LLC and its
affiliates. This event was reported under Item 5 "Other
Events" and is described above under Item 5 "Other
Information".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the-
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: August 9, 2002 By: /S/ GEORGE F. DONOVAN
-----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: August 9, 2002 By: /S/ JOHN F. CHISTE
-----------------------------------
John F. Chiste
Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: August 9, 2002 By: /S/ ANTHONY M. PULEO
-----------------------------------
Anthony M. Puleo
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
32.