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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 September 29, 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 November 11, 2002, there were 27,281,881 shares of Common Stock,
$.01 par value per share, issued, 2,755,300 treasury shares and 24,526,581
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
September 29, 2002 and March 31, 2002...................... 3
Condensed Consolidated Statements of Income - Three Months
Ended September 29, 2002 and September 30, 2001............ 4
Condensed Consolidated Statements of Income - Six Months
Ended September 29, 2002 and September 30, 2001............ 5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended September 29, 2002 and September 30, 2001............ 6
Notes to Condensed Consolidated Financial Statements ........... 8
Management's Discussion and Analysis of
Item 2. Results of Operations and Financial Condition ............. 20
Quantitative and Qualitative
Item 3. Disclosures About Market Risk ............................. 35
Item 4. Controls and Procedures......................................... 36
Part II - Other Information
Item 1. Legal Proceedings .............................................. 36
Item 2. Changes in Securities and Use of Proceeds....................... 36
Item 3. Defaults Upon Senior Securities ................................ 36
Item 4. Submission of Matters to a Vote of Security Holders ............ 36
Item 5. Other Information .............................................. 36
Item 6. Exhibits and Reports on Form 8-K ............................... 37
Signatures................................................................ 37
Certifications............................................................ 38
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)
September 29, March 31,
2002 2002
---- ----
(unaudited) (Note)
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $24.6 million and $27.7 million at
September 29, 2002 and March 31, 2002, respectively) .... $ 59,463 $ 48,715
Contracts receivable, net .................................. 24,120 21,818
Notes receivable, net ...................................... 67,776 55,648
Prepaid expenses ........................................... 11,950 11,634
Inventory, net ............................................. 168,839 187,688
Retained interests in notes receivable sold ................ 46,639 38,560
Property and equipment, net ................................ 49,090 49,338
Other assets ............................................... 28,862 21,760
--------- ---------
Total assets ............................................ $ 456,739 $ 435,161
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ........................................... $ 4,911 $ 4,700
Accrued liabilities and other .............................. 46,647 39,112
Deferred income ............................................ 3,760 5,043
Deferred income taxes ...................................... 35,860 28,299
Receivable-backed notes payable ............................ 13,812 14,628
Lines-of-credit and notes payable .......................... 41,263 40,262
10.50% senior secured notes payable ........................ 110,000 110,000
8.00% convertible subordinated notes payable to related
parties ................................................ -- 6,000
8.25% convertible subordinated debentures .................. 34,371 34,371
--------- ---------
Total liabilities ....................................... 290,624 282,415
Commitments and contingencies
Minority interest .......................................... 3,334 3,090
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized;
none issued ............................................. -- --
Common stock, $.01 par value, 90,000 shares authorized;
27,282 and 27,059 shares issued at September 29, 2002 and
March 31, 2002, respectively ............................ 273 271
Additional paid-in capital ................................. 123,258 122,734
Treasury stock, 2,756 common shares at cost at both
September 29, 2002 and March 31, 2002 .................. (12,885) (12,885)
Other comprehensive income ................................. 4,151 2,433
Retained earnings .......................................... 47,984 37,103
--------- ---------
Total shareholders' equity .............................. 162,781 149,656
--------- ---------
Total liabilities and shareholders' equity .............. $ 456,739 $ 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
September 29, September 30,
2002 2001
---- ----
Revenues:
Sales ................................................... $83,386 $69,235
Other resort and golf operations revenue ................ 7,564 6,987
Interest income ......................................... 4,018 4,017
Gain on sale of notes receivable ........................ 2,037 1,051
Other income, net ....................................... -- 210
------- -------
97,005 81,500
Costs and expenses:
Cost of sales ........................................... 29,009 24,078
Cost of other resort and golf operations ................ 6,831 6,202
Selling, general and administrative expenses ............ 46,055 38,496
Interest expense ........................................ 3,321 3,362
Provision for loan losses ............................... 1,561 1,605
Other expense, net ...................................... 676 --
------- -------
87,453 73,743
------- -------
Income before income taxes ................................. 9,552 7,757
Provision for income taxes ................................. 3,678 2,986
Minority interest in income of consolidated subsidiaries ... 151 194
------- -------
Net income ................................................. $ 5,723 $ 4,577
======= =======
Income per common share:
Basic ...................................................... $ 0.23 $ 0.19
======= =======
Diluted .................................................... $ 0.21 $ 0.17
======= =======
Weighted average number of common and common
equivalent shares:
Basic ...................................................... 24,497 24,235
======= =======
Diluted .................................................... 28,749 29,978
======= =======
See accompanying notes to condensed consolidated financial statements.
4.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
Six Months Ended
September 29, September 30,
2002 2001
---- ----
Revenues:
Sales .......................................................... $154,499 $129,418
Other resort and golf operations revenue ....................... 14,275 13,577
Interest income ................................................ 7,781 8,079
Gain on sale of notes receivable ............................... 3,268 2,029
-------- --------
179,823 153,103
Costs and expenses:
Cost of sales .................................................. 53,976 44,149
Cost of other resort and golf operations ....................... 12,550 11,895
Selling, general and administrative expenses ................... 84,887 72,406
Interest expense ............................................... 6,544 7,097
Provision for loan losses ...................................... 2,642 2,895
Other expense, net ............................................. 1,134 194
-------- --------
161,733 138,636
-------- --------
Income before income taxes ........................................ 18,090 14,467
Provision for income taxes ........................................ 6,965 5,570
Minority interest in income of consolidated subsidiaries .......... 244 186
-------- --------
Net income ........................................................ $ 10,881 $ 8,711
======== ========
Income per common share:
Basic ............................................................. $ 0.45 $ 0.36
======== ========
Diluted ........................................................... $ 0.41 $ 0.32
======== ========
Weighted average number of common and common
equivalent shares:
Basic ............................................................. 24,436 24,212
======== ========
Diluted ........................................................... 28,763 29,947
======== ========
See accompanying notes to condensed consolidated financial statements.
5.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Six Months Ended
September 29, September 30,
2002 2001
---- ----
Operating activities:
Net income ............................................................... $ 10,881 $ 8,711
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in income of consolidated subsidiaries .............. 244 186
Depreciation and amortization ......................................... 4,638 4,096
Amortization of discount on note payable .............................. 43 229
Gain on sale of notes receivable ...................................... (3,268) (2,029)
Loss on sale of property and equipment ................................ 211 111
Provision for loan losses ............................................. 2,642 2,895
Provision for deferred income taxes ................................... 6,965 5,570
Interest accretion on retained interests in notes receivable sold ..... (2,780) (1,559)
Proceeds from sales of notes receivable ............................... 45,837 30,832
Proceeds from borrowings collateralized by notes
receivable ........................................................ 2,746 22,734
Payments on borrowings collateralized by notes receivable ............. (3,340) (13,267)
Change in operating assets and liabilities:
Contracts receivable .................................................. (2,302) 3,784
Notes receivable ...................................................... (72,892) (57,110)
Inventory ............................................................. 22,297 3,871
Other assets .......................................................... (6,631) (2,279)
Accounts payable, accrued liabilities and other ....................... 5,984 4,678
-------- --------
Net cash provided by operating activities ................................... 11,275 11,453
-------- --------
Investing activities:
Purchases of property and equipment ...................................... (2,738) (7,410)
Sales of property and equipment .......................................... 32 43
Cash received from retained interest in notes receivable sold ............ 9,377 1,599
Principal payments received on investment in note receivable ............. -- 4,643
-------- --------
Net cash provided (used) by investing activities ............................ 6,671 (1,125)
-------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable .................................................... 18,696 12,818
Payments under line-of-credit facilities and other notes payable ......... (17,862) (24,054)
Payment of debt issuance costs ........................................... (2,558) (593)
Payment under 8% convertible subordinated notes payable to related
parties ................................................................. (6,000) --
Proceeds from exercise of employee and director stock options ............ 526 120
-------- --------
Net cash used by financing activities ....................................... (7,198) (11,709)
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ 10,748 (1,381)
Cash and cash equivalents at beginning of period ............................ 48,715 40,016
-------- --------
Cash and cash equivalents at end of period .................................. 59,463 38,635
Restricted cash and cash equivalents at end of period ....................... (24,620) (29,756)
-------- --------
Unrestricted cash and cash equivalents at end of period ..................... $ 34,843 $ 8,879
======== ========
See accompanying notes to condensed consolidated financial statements.
6.
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows - - continued
(amounts in thousands)
(unaudited)
Six Months Ended
-----------------------------
September 29, September 30,
2002 2001
---- ----
Supplemental schedule of non-cash operating, investing
and financing activities
Retained interests in notes receivable sold ........... $11,883 $ 6,240
======= =======
Property and equipment acquired through financing ..... $ 124 $ 297
======= =======
Inventory acquired through foreclosure or
deedback in lieu of foreclosure ...................... $ 3,448 $ 2,745
======= =======
See accompanying notes to condensed consolidated financial statements.
7.
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
September 29, 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.
On October 14, 2002, the Board of Directors of Bluegreen(R) Corporation (the
"Company") approved a change in the Company's fiscal year from a 52- or 53-week
period ending on the Sunday nearest the last day of March in each year to the
calendar year ending on December 31, effective for the period ending December
31, 2002. The Company will file a Transition Report on Form 10-K for the nine
months ending December 31, 2002 in accordance with applicable requirements.
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- and six-month periods ended September 29, 2002 are not
necessarily indicative of the results to be expected for the nine months ending
December 31, 2002. For further information, refer to the consolidated financial
statements and notes thereto included in 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 communities businesses, which
are located predominantly in the Southeastern, Southwestern and Midwestern
United States. The Company's resort business ("Bluegreen Resorts") acquires,
develops and markets Timeshare Interests in resorts generally located in
popular, high-volume, "drive-to" vacation destinations. "Timeshare Interests"
are of two types: one which entitles the fixed-week buyer to a fully furnished
vacation residence for an annual one-week period in perpetuity (currently sold
by the Company only at its La Cabana Beach and Racquet Club(TM) resort ("La
Cabana") in Aruba) and the second (sold at all of the Company's sites other than
La Cabana), 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 14 resorts located in the United States and Aruba. The
Company also markets and sells Timeshare Interests in its resorts at three
off-site sales locations. The Company's residential land and golf communities
business ("Bluegreen Communities") acquires, develops and subdivides property
and markets the subdivided residential 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 six months ended
September 29, 2002, sales generated by Bluegreen Resorts and Bluegreen
Communities comprised approximately 64% and 36%, 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 Bluegreen Communities.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company, all of its wholly-owned subsidiaries and entities in which the Company
holds a controlling financial interest. The only non-wholly owned subsidiary,
Bluegreen/Big Cedar Vacations LLC(TM) (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.
8.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share, but
also gives effect to all dilutive stock options using the treasury stock method
and includes an adjustment, if dilutive, to both net income and shares
outstanding as if the Company's 8.00% convertible subordinated notes payable
(paid in full on September 11, 2002) and 8.25% convertible subordinated
debentures were converted into common stock at the beginning of the periods
presented. The Company excluded approximately 1.6 million and 1.4 million
anti-dilutive stock options from its computations of earnings per common share
during the three and six months ended September 29, 2002, respectively, and
excluded approximately 3.1 million anti-dilutive stock options from its
computations of earnings per common share during both the three and six months
ended September 30, 2001.
The following table sets forth the computation of basic and diluted earnings per
share:
(in thousands, except per share data) Three Months Ended Six Months Ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Basic earnings per share - numerator:
Net income ....................................... $ 5,723 $ 4,577 $10,881 $ 8,711
======= ======= ======= =======
Diluted earnings per share - numerator:
Net income - basic ............................... $ 5,723 $ 4,577 $10,881 $ 8,711
Effect of dilutive securities (net of tax
effects) ...................................... 436 510 872 1,020
------- ------- ------- -------
Net income - diluted ............................ $ 6,159 $ 5,087 $11,753 $ 9,731
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares ......................... 24,497 24,235 24,436 24,212
Effect of dilutive securities:
Stock options ................................. 81 41 156 33
Convertible securities ........................ 4,171 5,702 4,171 5,702
------- ------- ------- -------
Dilutive potential common shares .................... 4,252 5,743 4,327 5,735
------- ------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions ..................................... 28,749 29,978 28,763 29,947
======= ======= ======= =======
Basic earnings per common share ..................... $ 0.23 $ 0.19 $ 0.45 $ 0.36
======= ======= ======= =======
Diluted earnings per common share ................... $ 0.21 $ 0.17 $ 0.41 $ 0.32
======= ======= ======= =======
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 a residual interest, subordinated tranches, rights to excess interest
spread and servicing rights, all of which are retained interests in the sold
notes receivable. Gain or loss on sale of the receivables depends in part on the
allocation of the previous carrying amount of the financial assets involved in
the transfer between the assets sold and the retained interests based on their
relative fair value at the date of transfer. The Company 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 Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." Accordingly,
unrealized holding gains or losses on retained interests in notes receivable
sold are included in shareholders' equity, net of income taxes. Declines in fair
value that are determined to be other than temporary are charged to operations.
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.
9.
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 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 fiscal
year ending December 31, 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 ending December 31, 2002. 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 $22,000 (less than $0.01 per share) during the six months ended
September 29, 2002. The Company did not incur any impairment charges as a result
of adopting SFAS No. 142 during the six months ended September 29, 2002.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. This statement is effective for the Company's fiscal year ending
December 31, 2003. The 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 or six months ended September 29, 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.
10.
The following table discloses the components of the Company's comprehensive
income for the periods presented:
(in thousands)
Three Months Ended Six Months Ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income ........................................... $ 5,723 $ 4,577 $10,881 $ 8,711
Net unrealized gains on retained interests in
notes receivable sold, net of income taxes ...... 1,423 -- 1,718 --
------- ------- ------- -------
Total comprehensive income ........................... $ 7,146 $ 4,577 $12,599 $ 8,711
======= ======= ======= =======
2. Subsequent Event - Acquisition
On October 2, 2002, Leisure Plan, Inc., a wholly-owned subsidiary (the
"Subsidiary") of the Company, acquired substantially all of the assets and
assumed certain liabilities (the "Acquisition") of TakeMeOnVacation, LLC; RVM
Promotions, LLC; and RVM Vacations, LLC (collectively, "TMOV"). The Subsidiary
was a newly-formed entity with no prior operations. As part of the Acquisition,
the Subsidiary agreed to pay to TMOV:
o $2.3 million, which was paid in cash at the closing of the
Acquisition on October 2, 2002 (including a $292,000 payment for
certain refundable deposits);
o $500,000 payable in cash on March 31, 2003; and
o Additional contingent consideration up to a maximum amount of $12.5
million through December 31, 2007, based on the Subsidiary's Net
Operating Profit (as that term is defined in Section 1.49 of the
Asset Purchase Agreement), as follows:
(i) 75% of the Subsidiary's Net Operating Profit, until the
cumulative amount paid under this clause is $2.5 million;
(ii) with respect to additional Net Operating Profit not
included in the calculation under clause (i), 50% of the
Subsidiary's Net Operating Profit, until the cumulative amount
paid under this clause (ii) is $5.0 million; and
(iii) with respect to additional Net Operating Profit not
included in the calculation under clauses (i) and (ii), 25% of
the Subsidiary's Net Operating Profit, until the cumulative
amount paid under this clause (iii) is $5.0 million.
Applicable payments will be made after the end of each calendar year, commencing
with the year ending December 31, 2003. In addition to the purchase price, the
Subsidiary assumed certain liabilities of TMOV.
The $2.3 million paid at the closing was funded from the Company's operations.
The Company anticipates that the Subsidiary will pay the contingent
consideration, if earned pursuant to the Asset Purchase Agreement, from
operations. The Company has guaranteed the payment by the Subsidiary if earned
by TMOV pursuant to the Asset Purchase Agreement. The Company, if made to pay
the contingent consideration, expects that it would fund the additional
consideration from operations or from borrowings under one or more of the
Company's existing or future credit facilities or timeshare receivable purchase
facilities or from a combination thereof.
TMOV generates sales leads for timeshare interest sales utilizing various
marketing strategies. Through the application of a proprietary, Oracle-based
operating system, these leads are then contacted and given the opportunity to
purchase mini-vacation packages. These packages sometimes combine hotel stays,
cruises and gift premiums. Buyers of these mini-vacation packages are then
usually required to participate in a timeshare sales presentation. The
Subsidiary intends to use the assets acquired to generate sales prospects for
the Company's timeshare sales business and for sales prospects that will be sold
to other timeshare developers.
The assets acquired include prospects that purchased mini-vacation packages from
TMOV. These prospects will become sales leads for timeshare interest sales for
pre-determined, third-party developers when these vacations are taken.
Additional assets acquired include customer lists for future mini-vacation
package sales, property and equipment (including the aforementioned Oracle-based
operating system), trademarks and servicemarks and accounts receivable. The
liabilities assumed include trade accounts payable and commissions payable
related to the assets acquired.
The effective date of the Acquisition is deemed to be September 30, 2002, in
accordance with the Asset Purchase Agreement. The Acquisition will be accounted
for using the purchase method.
11.
The Company filed an initial Current Report on Form 8-K regarding the
Acquisition on October 17, 2002, and will file a Form 8-K/A on or about December
16, 2002. The Form 8-K/A will include audited financial statements for TMOV as
of and for the year ended December 31, 2001 and pro forma financial information,
as required by the rules of the Securities and Exchange Commission.
3. Sale of Notes Receivable
In June 2001, the Company executed agreements for a 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 Bluegreen
Receivables Finance Corporation V, a wholly-owned, special purpose finance
subsidiary of the Company (the "Finance Subsidiary") and the Finance Subsidiary
sells the receivables to an 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 September 29, 2002, the Finance Subsidiary sold
$29.7 million of aggregate principal balance of notes receivable under the
CSFB/ING Purchase Facility for a cumulative purchase price of $25.2 million. In
connection with these sales, the Company recognized an aggregate $2.0 million
gain and recorded retained interests in notes receivable sold of $6.6 million
and servicing assets totaling $294,000.
12.
During the six months ended September 29, 2002, the Finance Subsidiary sold
$55.7 million, of aggregate principal balance of notes receivable under the
CSFB/ING Purchase Facility for a cumulative purchase price of $47.3 million. In
connection with these sales, the Company recognized an aggregate $3.3 million
gain and recorded retained interests in notes receivable sold of $11.9 million
and servicing assets totaling $566,000.
During the three and six months ended September 30, 2001, the Finance Subsidiary
sold $17.0 million of timeshare receivables under the CSFB/ING Purchase
Facility. Gross proceeds from the sale of these receivables were approximately
$14.4 million. The Company recognized a $1.1 million gain on the sale of the
receivables and recorded a $3.8 million retained interest in notes receivable
sold and a $139,000 servicing asset.
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 September 29, 2002, the Company had availability of approximately $21.1
million of aggregate purchase price that could be obtained through the sale of
additional notes receivable under the CSFB/ING Purchase Facility.
4. Inventory
During the three months ended September 29, 2002, the Company recognized an
additional $750,000 impairment charge on the Company's Crystal Cove residential
land project in Rockwood, Tennessee. This impairment charge is included in cost
of sales in the condensed consolidated statements of income for the three and
six months ended September 29, 2002. The impairment charge relates to the recent
determination that a section of the Crystal Cove project could not be developed
to a saleable status at a reasonable cost, and therefore will not be developed
and sold.
On September 30, 2002, the Company acquired from Boyne Resorts USA ("BRU")
approximately 11 acres of land to build and develop 3,328 timeshare interests at
Boyne Mountain in northern Michigan. In connection with this acquisition, the
Company also acquired (1) a real estate option to purchase land contiguous to
the 11 acres on which it could, at its discretion, build additional timeshare
interests; and (2) marketing rights at Boyne Mountain and Boyne Highlands, two
of BRU's existing golf and ski resorts in northwest Michigan. The 11 acres of
land, the real estate purchase option and the marketing rights were acquired for
$960,000.
On October 8, 2002, the Company also acquired 433 unsold timeshare interests
from BRU from existing inventory at the Big Sky Mountain resort, located in Big
Sky, Montana, for $1.1 million.
On November 7, 2002, the Company acquired 341 unsold timeshare interests from
BRU from existing inventory at the Hemlock resort at Boyne Mountain for
approximately $576,000.
Also in connection with the above acquisitions and for no additional purchase
price, the Company entered into an exclusive marketing agreement with Boyne
Country Sports ("BCS"), an affiliate of BRU, which owns and operates retail
stores which sell ski, snowboard and golf equipment at eight locations
throughout Michigan. The Company intends to market its Bluegreen Vacation
Club(TM) product through a variety of programs directed at BCS's customers.
5. Receivable-backed Notes Payable
During the six months ended September 29, 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, which is subject to current conditions, expires on December 31, 2003.
Any outstanding indebtedness is due on December 31, 2005. The outstanding
balance on the Foothill facility as of September 29, 2002, was $5.7 million,
including $3.0 million which was borrowed in a prior year.
6. Line-of-Credit Borrowings
During the six months ended September 29, 2002, the Company borrowed $7.7
million under a $9.8 million, acquisition and development line-of-credit with
Marshall, Miller and Schroeder Investments Corporation ("MM&S"). Borrowings
under the line are collateralized by Timeshare Interests in the Company's Solara
Surfside(TM) resort in Surfside, Florida (near Miami). 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
13.
completion of all renovation work, to be no later than January 31, 2003, subject
to documentation requirements. Principal is repaid through agreed-upon release
prices as Timeshare Interests in Solara Surfside are sold, subject to minimum
required amortization. The indebtedness under the facility bears interest at the
prime lending rate plus 1.25%, subject to a minimum interest rate of 7.50%, and
all amounts borrowed are due no later than April 1, 2004. The outstanding
balance on the MM&S loan was $3.6 million as of September 29, 2002.
On September 25, 2002, certain direct and indirect wholly-owned subsidiaries of
the Company entered into a $50 million revolving credit facility (the "GMAC
Facility") with Residential Funding Corporation ("RFC"), an affiliate of General
Motors Acceptance Corporation. The Company is the guarantor on the GMAC
Facility. The GMAC Facility is secured by the real property home sites (and
personal property related thereto) at the following residential land projects of
the Company, as well as any residential land projects acquired by the Company
with funds borrowed under the GMAC Facility (the "Secured Projects"):
Brickshire(TM) (New Kent County, Virginia); Mountain Lakes(TM) (Bluffdale,
Texas); Ridge Lake Shores(TM) (Magnolia, Texas); Riverwood Forest(TM) (Fulshear,
Texas); Waterstone (Boerne, Texas) and Yellowstone Creek Ranch(TM) (Pueblo,
Colorado). In addition, the Facility is secured by the Company's Carolina
National(TM) and The Preserve at Jordan Lake(TM) golf courses in Southport,
North Carolina and Chapel Hill, North Carolina, respectively. Borrowings under
the GMAC Facility, which are subject to certain conditions, can be made through
September 25, 2004. Principal payments will be effected through agreed-upon
release prices paid to RFC as home sites in the Secured Projects are sold. The
outstanding principal balance of any borrowings under the GMAC Facility must be
repaid by September 25, 2006. The interest charged on outstanding borrowings
will be prime plus 1.00% and will be payable monthly. The Company is required to
pay an annual commitment fee equal to 0.33% of the $50 million GMAC Facility
amount. The GMAC Facility documents include customary conditions to funding,
acceleration provisions and certain financial affirmative and negative
covenants. On September 25, 2002, the Company borrowed $11 million under the
GMAC Facility and received cash proceeds of approximately $9 million. The $2
million deducted from the cash proceeds related to the repayment of existing
debt on the Secured Projects of approximately $1.5 million and debt issuance
costs totaling $500,000 including the first annual commitment fee, as described
above. The Company intends to use the proceeds from the GMAC Facility to repay
outstanding indebtedness on residential land projects, finance the acquisition
and development of residential land projects and for general corporate purposes.
7. 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 therefor. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of the Joint
Venture, 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 covers 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:
14.
CONDENSED CONSOLIDATING BALANCE SHEET AT SEPTEMBER 29, 2002
COMBINED COMBINED
(UNAUDITED) BLUEGREEN NON-GUARANTOR SUBSIDIARY
(IN THOUSANDS) CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents ........................... $ 30,208 $ 19,307 $ 9,948 $ -- $ 59,463
Contracts receivable, net ........................... -- 929 23,191 -- 24,120
Intercompany receivable ............................. 94,238 -- -- (94,238) --
Notes receivable, net ............................... 1,738 9,026 57,012 -- 67,776
Inventory, net ...................................... -- 17,412 151,427 -- 168,839
Retained interests in notes receivable sold ......... -- 46,639 -- -- 46,639
Investments in subsidiaries ......................... 7,730 -- 3,230 (10,960) --
Property and equipment, net ......................... 9,759 2,033 37,298 -- 49,090
Other assets ........................................ 7,523 5,425 27,864 -- 40,812
-------- -------- -------- --------- --------
Total assets ..................................... $151,196 $100,771 $309,970 $(105,198) $456,739
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable, deferred income,
accrued liabilities and other ...................... $ 10,985 $ 25,092 $ 19,241 -- $ 55,318
Intercompany payable ................................ -- 8,637 85,601 (94,238) --
Deferred income taxes ............................... (20,037) 27,358 28,539 -- 35,860
Lines-of-credit and receivable-backed
notes payable ...................................... 3,414 3,940 47,721 -- 55,075
10.50% senior secured notes payable ................. 110,000 -- -- -- 110,000
8.25% convertible subordinated
debentures ........................................ 34,371 -- -- -- 34,371
-------- -------- -------- --------- --------
Total liabilities ................................ 138,733 65,027 181,102 (94,238) 290,624
Minority interest ................................... -- -- -- 3,334 3,334
Total shareholders' equity .............................. 12,463 35,744 128,868 (14,294) 162,781
-------- -------- -------- --------- --------
Total liabilities and shareholders' equity .............. $151,196 $100,771 $309,970 $(105,198) $456,739
======== ======== ======== ========= ========
15.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 29, 2002
-------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ............................................... $ -- $ 7,125 $ 76,261 $ -- $ 83,386
Management fees ..................................... 8,719 -- -- (8,719) --
Other resort and golf operations revenue ............ -- 1,071 6,493 -- 7,564
Interest income ..................................... 64 1,781 2,173 -- 4,018
Gain on sale of notes receivable .................... -- 2,037 -- -- 2,037
-------- -------- -------- -------- --------
8,783 12,014 84,927 (8,719) 97,005
COST AND EXPENSES
Cost of sales ....................................... -- 1,992 27,017 -- 29,009
Cost of other resort and golf operations ............ -- 380 6,451 -- 6,831
Management fees ..................................... -- 226 8,493 (8,719) --
Selling, general and administrative expenses ........ 6,412 4,143 35,500 -- 46,055
Interest expense .................................... 2,543 104 674 -- 3,321
Provision for loan losses ........................... -- 100 1,461 -- 1,561
Other expense, net .................................. 1 527 148 -- 676
-------- -------- -------- -------- --------
8,956 7,472 79,744 (8,719) 87,453
-------- -------- -------- -------- --------
Income (loss) before income taxes ................... (173) 4,542 5,183 -- 9,552
Provision (benefit) for income taxes ................ (67) 1,557 2,188 -- 3,678
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 151 151
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (106) $ 2,985 $ 2,995 $ (151) $ 5,723
======== ======== ======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ............................................... $ -- $ 4,925 $ 64,310 $ -- $ 69,235
Management fees ..................................... 7,583 -- -- (7,583) --
Other resort and golf operations revenue ............ -- 961 6,026 -- 6,987
Interest income ..................................... 109 1,076 2,832 -- 4,017
Gain on sale of notes receivable .................... -- 1,051 -- -- 1,051
Other income, net ................................... -- 73 137 -- 210
-------- -------- -------- -------- --------
7,692 8,086 73,305 (7,583) 81,500
COST AND EXPENSES
Cost of sales ....................................... -- 1,548 22,530 -- 24,078
Cost of other resort and golf operations ............ -- 427 5,775 -- 6,202
Management fees ..................................... -- 266 7,317 (7,583) --
Selling, general and administrative
expenses .......................................... 6,955 2,811 28,730 -- 38,496
Interest expense .................................... 1,954 278 1,130 -- 3,362
Provision for loan losses ........................... -- 26 1,579 -- 1,605
-------- -------- -------- -------- --------
8,909 5,356 67,061 (7,583) 73,743
-------- -------- -------- -------- --------
Income (loss) before income taxes ................... (1,217) 2,730 6,244 -- 7,757
Provision (benefit) for income taxes ................ (470) 1,001 2,455 -- 2,986
Minority interest in income of
consolidated subsidiary ........................... -- -- -- 194 194
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (747) $ 1,729 $ 3,789 $ (194) $ 4,577
======== ======== ======== ======== ========
16.
SIX MONTHS ENDED SEPTEMBER 29, 2002
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ............................................... $ -- $ 11,632 $142,867 $ -- $154,499
Management fees ..................................... 16,340 -- -- (16,340) --
Other resort and golf operations revenue ............ -- 1,901 12,374 -- 14,275
Interest income ..................................... 136 3,536 4,109 -- 7,781
Gain on sale of notes receivable ................... -- 3,268 -- -- 3,268
-------- -------- -------- -------- --------
16,476 20,337 159,350 (16,340) 179,823
COST AND EXPENSES
Cost of sales ....................................... -- 3,174 50,802 -- 53,976
Cost of other resort and golf operations ............ -- 782 11,768 -- 12,550
Management fees ..................................... -- 405 15,935 (16,340) --
Selling, general and administrative expenses ........ 12,310 7,084 65,493 -- 84,887
Interest expense .................................... 4,889 225 1,430 -- 6,544
Provision for loan losses ........................... -- 182 2,460 -- 2,642
Other expense, net .................................. 1 844 289 -- 1,134
-------- -------- -------- -------- --------
17,200 12,696 148,177 (16,340) 161,733
-------- -------- -------- -------- --------
Income (loss) before income taxes ................... (724) 7,641 11,173 -- 18,090
Provision (benefit) for income taxes ................ (279) 2,631 4,613 -- 6,965
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 244 244
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (445) $ 5,010 $ 6,560 $ (244) $ 10,881
======== ======== ======== ======== ========
SIX MONTHS ENDED SEPTEMBER 30, 2001
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
Sales ............................................... $ -- $ 10,677 $118,741 $ -- $129,418
Management fees ..................................... 14,239 -- -- (14,239) --
Other resort and golf operations revenue ............ -- 1,820 11,757 -- 13,577
Interest income ..................................... 362 2,111 5,606 -- 8,079
Gain on sale of notes receivable .................... -- 2,029 -- -- 2,029
-------- -------- -------- -------- --------
14,601 16,637 136,104 (14,239) 153,103
COST AND EXPENSES
Cost of sales ....................................... -- 3,434 40,715 -- 44,149
Cost of other resort and golf operations ............ -- 792 11,103 -- 11,895
Management fees ..................................... -- 629 13,610 (14,239) --
Selling, general and administrative expenses ........ 13,533 5,856 53,017 -- 72,406
Interest expense .................................... 4,173 340 2,584 -- 7,097
Provision for loan losses ........................... -- 100 2,795 -- 2,895
Other expense (income), net ......................... -- (76) 270 -- 194
-------- -------- -------- -------- --------
17,706 11,075 124,094 (14,239) 138,636
-------- -------- -------- -------- --------
Income (loss) before income taxes ................... (3,105) 5,562 12,010 -- 14,467
Provision (benefit) for income taxes ................ (1,195) 2,100 4,665 -- 5,570
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 186 186
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (1,910) $ 3,462 $ 7,345 $ (186) $ 8,711
======== ======== ======== ======== ========
17.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 29, 2002
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
Operating activities:
Net cash provided (used) by operating activities ...................... $ 17,839 $ (8,727) $ 2,163 $ 11,275
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment ................................ (705) (260) (1,773) (2,738)
Sales of property and equipment .................................... -- -- 32 32
Cash received from retained interests in notes receivable sold ..... -- 9,377 -- 9,377
-------- -------- -------- --------
Net cash provided (used) by investing activities ...................... (705) 9,117 (1,741) 6,671
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable ............................................. -- -- 18,696 18,696
Payments under line-of-credit facilities and other notes payable .... (62) (1,459) (16,341) (17,862)
Payment of debt issuance costs ...................................... (2) (1,199) (1,357) (2,558)
Payment under 8% convertible subordinated notes payable to
related parties ................................................. (6,000) -- -- (6,000)
Proceeds from the exercise of employee and director stock
options ......................................................... 526 -- -- 526
-------- -------- -------- --------
Net cash (used) provided by financing activities ...................... (5,538) (2,658) 998 (7,198)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .................. 11,596 (2,268) 1,420 10,748
Cash and cash equivalents at beginning of period ...................... 18,611 21,575 8,529 48,715
-------- -------- -------- --------
Cash and cash equivalents at end of period ............................ 30,207 19,307 9,949 59,463
Restricted cash at end of period ...................................... (173) (16,610) (7,837) (24,620)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period ............... $ 30,034 $ 2,697 $ 2,112 $ 34,843
======== ======== ======== ========
SIX MONTHS ENDED SEPTEMBER 30, 2001
-----------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
Operating activities:
Net cash provided (used) by operating activities ...................... $ (8,419) $ 6,053 $ 13,819 $ 11,453
-------- -------- -------- --------
Investing activities:
Purchases of property and equipment ................................ (1,342) (460) (5,608) (7,410)
Sales of property and equipment .................................... -- -- 43 43
Cash received from retained interests in notes receivable sold ..... -- 1,599 -- 1,599
Principal payments received on investment in note receivable ....... 4,643 -- -- 4,643
-------- -------- -------- --------
Net cash (used) provided by investing activities ...................... 3,301 1,139 (5,565) (1,125)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
other notes payable .............................................. 10,301 -- 2,517 12,818
Payments under line-of-credit facilities and other notes payable .... (10,363) (1,948) (11,743) (24,054)
Payment of debt issuance costs ...................................... (60) (302) (231) (593)
Proceeds from the exercise of employee and director stock
options ......................................................... 120 -- -- 120
-------- -------- -------- --------
Net cash used by financing activities ................................. (2) (2,250) (9,457) (11,709)
-------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents .................. (5,120) 4,942 (1,203) (1,381)
Cash and cash equivalents at beginning of period ...................... 13,290 17,125 9,601 40,016
-------- -------- -------- --------
Cash and cash equivalents at end of period ............................ 8,170 22,067 8,398 38,635
Restricted cash and cash equivalents at end of period ................. (1,685) (20,599) (7,472) (29,756)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of period ............... $ 6,485 $ 1,468 $ 926 $ 8,879
======== ======== ======== ========
8. Contingencies
In the ordinary course of its business, the Company from time to time becomes
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of real estate. Additionally, from time to time, the Company
becomes involved in disputes with existing and former employees. The Company
believes that substantially all of the claims and proceedings are incidental to
its business.
18.
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 by approximately $7 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 September 29, 2002, aggregate interest was
approximately $1.7 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.
9. Business Segments
The Company has two reportable business segments. Bluegreen Resorts acquires,
develops and markets Timeshare Interests at the Company's resorts and the
Bluegreen Communities acquires large tracts of real estate that are subdivided,
improved (in some cases to include a golf course and related amenities on the
property) and sold, typically on a retail basis.
Required disclosures for the Company's business segments are as follows (in
thousands):
Bluegreen Bluegreen
Resorts Communities Totals
---------------------------------
As of and for the three months ended September 29, 2002
Sales $ 56,306 $ 27,080 $ 83,386
Other resort and golf operations revenue 6,050 1,514 7,564
Depreciation expense 630 347 977
Field operating profit 8,611 5,182 13,793
Inventory, net 68,588 100,251 168,839
19.
Bluegreen Bluegreen
Resorts Communities Totals
---------------------------------
As of and for the three months ended September 30, 2001
Sales $ 41,312 $ 27,923 $ 69,235
Other resort and golf operations revenue 6,505 482 6,987
Depreciation expense 615 252 867
Field operating profit 6,477 5,746 12,223
Inventory, net 92,602 99,906 192,508
For the six months ended September 29, 2002
Sales $ 98,532 $ 55,967 $154,499
Other resort and golf operations revenue 11,825 2,450 14,275
Depreciation expense 1,296 654 1,950
Field operating profit 14,860 11,873 26,733
For the six months ended September 30, 2001
Sales $ 78,574 $ 50,844 $129,418
Other resort and golf operations revenue 12,466 1,111 13,577
Depreciation expense 1,181 516 1,697
Field operating profit 13,353 10,368 23,721
Field operating profit for reportable segments reconciled to consolidated income
before income taxes is as follows (in thousands):
Three Months Ended Six Months Ended
-------------------------------------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------
Field operating profit for reportable
segments $ 13,793 $ 12,223 $ 26,733 $ 23,721
Interest income 4,018 4,017 7,781 8,079
Gain on sale of notes receivable 2,037 1,051 3,268 2,029
Other income (expense) (676) 210 (1,134) (194)
Corporate general and administrative
expenses (4,738) (4,777) (9,372) (9,176)
Interest expense (3,321) (3,362) (6,544) (7,097)
Provision for loan losses (1,561) (1,605) (2,642) (2,895)
-------- -------- -------- --------
Consolidated income before income taxes $ 9,552 $ 7,757 $ 18,090 $ 14,467
======== ======== ======== ========
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 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
20.
expectations reflected in such statements will be achieved. Factors that could
adversely affect the Company's future results can also be considered general
"risk factors" with respect to the Company's business, whether or not they
relate to a forward-looking statement. The Company wishes to caution readers
that the following important factors, among other risk factors, in some cases
have affected, and in the future could affect, the Company's actual results and
could cause the Company's actual consolidated results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company:
a) Changes in national, international or regional economic conditions that
can adversely affect the real estate market, which is cyclical in nature
and highly sensitive to such changes, including, among other factors,
levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in or the interpretation of any environmental, zoning or other
laws and regulations that govern the acquisition, subdivision and sale of
real estate and various aspects of the Company's financing operation or
the failure of the Company to comply with any law or regulation. Also the
risks that changes in or the failure of the Company to comply with laws
and regulations governing the marketing (including telemarketing) of the
Company's inventories and services will adversely impact the Company's
ability to make sales in any of its current or future markets at its
current relative marketing cost.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions and that the
development, financing and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the Company's
principal markets.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing the
Company's operations, adverse weather conditions, natural disasters or
changes in the availability of development financing on terms acceptable
to the Company.
f) Changes in applicable usury laws or the availability of interest
deductions or other provisions of federal or state tax law, which may
limit the effective interest rates that the Company may charge on its
notes receivable.
g) A decreased willingness on the part of banks to extend direct customer
home site financing, which could result in the Company receiving less cash
in connection with the sales of real estate and/or lower sales.
h) The fact that the Company requires external sources of liquidity to
support its operations, acquire, carry, develop and sell real estate and
satisfy its debt and other obligations, and the Company may not be able to
locate external sources of liquidity on favorable terms or at all.
i) The inability of the Company to locate sources of capital on favorable
terms for the pledge and/or sale of land and timeshare notes receivable,
including the inability to consummate or fund securitization transactions
or to consummate fundings under facilities.
j) An increase in prepayment rates, delinquency rates or defaults with
respect to Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure, which could, among other
things, reduce the Company's interest income, increase loan losses and
make it more difficult and expensive for the Company to sell and/or pledge
receivables and reduce cash flow on and the fair value of retained
interests on notes receivable sold.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or (ii)
levels necessary in order for the Company to achieve anticipated profit
and operating margins or be profitable.
l) An increase or decrease in the number of land or resort properties subject
to percentage-of-completion accounting, which requires deferral of profit
recognition on such projects until development is substantially complete.
Such increases or decreases could cause material fluctuations in
period-to-period results of operations.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments, and/or other credit
agreements, which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens, make investments, pay
dividends or repurchase debt or equity. In addition, the failure to
satisfy certain
21.
covenants contained in the Company's receivable purchase facilities could
materially defer or reduce future cash receipts on the Company's retained
interests in notes receivable sold. Any such failure could impair the fair
value of the retained interests in notes receivable sold and materially,
adversely impact the Company's liquidity position and its results of
operations.
n) The risk of the Company incurring an unfavorable judgment in any
litigation, and the impact of any related monetary or equity damages.
o) Risks associated with selling Timeshare Interests in foreign countries
including, but not limited to, compliance with legal regulations, labor
relations and vendor relationships.
p) The risk that the Company's sales and marketing techniques are not
successful, and the risk that the Bluegreen Vacation Club is not accepted
by consumers or imposes limitations on the Company's operations, or is
adversely impacted by legal or other requirements.
q) The risk that any contemplated transactions currently under negotiation
will not close or conditions to funding under existing or future
facilities will not be satisfied.
r) Risks relating to any joint venture that the Company is a party to,
including risks that a dispute may arise with a joint venture partner,
that the Company's joint ventures will not be as successful as anticipated
and that the Company will be required to make capital contributions to
such ventures in amounts greater than anticipated.
s) Risks that any currently proposed or future changes in accounting
principles will have an adverse impact on the Company.
t) Risks that a short-term or long-term decrease in the amount of vacation
travel (whether as a result of economic, political or other factors),
including, but not limited to, air travel, by American consumers will have
an adverse impact on the Company's timeshare sales.
u) Risks that the acquisition of a business by the Company will result in
unforeseen liabilities, decreases of net income and/or cash flows of the
Company, or otherwise prove to be less successful than anticipated.
The Company does not undertake and expressly disclaims any duty to update or
revise forward-looking statements, even if the Company's situation may change in
the future.
General
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 and six months ended September 29, 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
22.
the majority of the Company's gross revenues and net earnings historically
occurring in the quarters ending in June and September each fiscal year. As the
Company's timeshare revenues grow as a percentage of total revenues, the Company
believes that the fluctuations in revenues due to seasonality may be mitigated
in part. In addition, other material fluctuations in operating results may occur
due to the timing of development and the Company's use of the
percentage-of-completion method of accounting. Management expects that the
Company will continue to invest in projects that will require substantial
development (with significant capital requirements). 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 and six months
ended September 29, 2002, other than to the extent that the Company continually
reviews and has historically increased the sales prices of its timeshare
interests annually. Based on prior history, the Company does not expect that
inflation will have a material impact on the Company's revenues or results of
operations in the foreseeable future, although there is no assurance that the
Company will be able to continue to increase prices. To the extent inflationary
trends affect short-term interest rates, a portion of the Company's debt service
costs may be affected as well as the interest rate the Company charges on its
new receivables from its customers.
The Company believes that the terrorist attacks on September 11, 2001 in the
United States 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 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 business segments.
Bluegreen Resorts manages the Company's timeshare operations and Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis as home sites.
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
23.
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 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 a residual interest,
subordinated tranches, rights to excess interest spread andservicing
, all of which are retained interests in the sold notes receivable.
Gain or loss on sale of the receivables depends in part on the
allocation of the previous carrying amount of the financial assets
involved in the transfer between the assets sold and the retained
interests based on their relative fair value at the date of
transfer. The Company initially and periodically estimates fair
value based on the present value of future expected cash flows using
management's best estimates of the key assumptions - prepayment
rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. Should the Company's estimates
of these key assumptions change there would be a reduction in the
fair value of the retained interests and the Company's results of
operations and financial condition could be adversely impacted.
o The Company periodically evaluates the recovery of the carrying
amount of individual resort and residential land properties under
the guidelines of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." Factors that the Company considers
in making this evaluation include the estimated remaining
life-of-project sales for each project based on current retail
prices and the estimated costs to complete each project. Should the
Company's estimates of these factors change, the Company's results
of operations and financial condition could be adversely impacted.
o In June 2001, the 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 six months ended September
29, 2002. The adoption of SFAS No. 142 did not have a material
impact on the Company's results of operations or financial
condition.
24.
Results of Operations
Bluegreen Bluegreen
(Dollars in thousands) Resorts Communities Total
------- ----------- -----
Three Months Ended September 29, 2002
Sales $ 56,306 100% $ 27,080 100% $ 83,386 100%
Cost of sales (14,307) (25) (14,702) (54) (29,009) (35)
--------- --------- ---------
Gross profit 41,999 75 12,378 46 54,377 65
Other resort and golf operations revenue 6,050 11 1,514 6 7,564 9
Cost of other resort and golf operations (5,394) (10) (1,437) (5) (6,831) (8)
Selling and marketing expenses (31,209) (55) (5,270) (19) (36,479) (44)
Field general and administrative expenses (1) (2,835) (5) (2,003) (7) (4,838) (6)
--------- --------- ---------
Field operating profit $ 8,611 15% $ 5,182 19% $ 13,793 17%
========= ========= =========
Three Months Ended September 30, 2001
Sales $ 41,312 100% $ 27,923 100% $ 69,235 100%
Cost of sales (9,741) (24) (14,337) (51) (24,078) (35)
--------- --------- ---------
Gross profit 31,571 76 13,586 49 45,157 65
Other resort and golf operations revenue 6,505 16 482 2 6,987 10
Cost of resort and golf operations (5,473) (13) (729) (3) (6,202) (9)
Selling and marketing expenses (23,226) (56) (5,604) (20) (28,830) (42)
Field general and administrative expenses (1) (2,900) (7) (1,989) (7) (4,889) (7)
--------- --------- ---------
Field operating profit $ 6,477 16% $ 5,746 21% $ 12,223 18%
========= ========= =========
Six Months Ended September 29, 2002
Sales $ 98,532 100% $ 55,967 100% $ 154,499 100%
Cost of sales (25,047) (25) (28,929) (52) (53,976) (35)
--------- --------- ---------
Gross profit 73,485 75 27,038 48 100,523 65
Other resort and golf operations revenue 11,825 12 2,450 4 14,275 9
Cost of other resort and golf operations (10,143) (10) (2,407) (4) (12,550) (8)
Selling and marketing expenses (55,038) (56) (10,703) (19) (65,738) (43)
Field general and administrative expenses (1) (5,269) (5) (4,505) (8) (9,777) (6)
--------- --------- ---------
Field operating profit $ 14,860 15% $ 11,873 21% $ 26,733 17%
========= ========= =========
Six Months Ended September 30, 2001
Sales $ 78,574 100% $ 50,844 100% $ 129,418 100%
Cost of sales (18,088) (23) (26,061) (51) (44,149) (34)
--------- --------- ---------
Gross profit 60,486 77 24,783 49 85,269 66
Other resort and golf operations revenue 12,466 16 1,111 2 13,577 10
Cost of resort and golf operations (10,555) (13) (1,340) (3) (11,895) (9)
Selling and marketing expenses (43,680) (56) (10,222) (20) (53,902) (42)
Field general and administrative expenses (1) (5,364) (7) (3,964) (8) (9,328) (7)
--------- --------- ---------
Field operating profit $ 13,353 17% $ 10,368 20% $ 23,721 18%
========= ========= =========
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $4.7 million and $4.8 million for the three months ended
September 29, 2002 and September 30, 2001, respectively, and $9.4 million
and $9.2 million for the six months ended September 29, 2002 and September
30, 2001, respectively
Sales and Field Operations
Consolidated sales increased 20% to $83.4 million for the three-month period
ended September 29, 2002 (the "2003 Quarter") from $69.2 million for the
three-month period ended September 30, 2001 (the "2002 Quarter"). Consolidated
sales increased 19% to $154.5 million for the six months ended September 29,
2002 (the "2003 Period") from $129.4 million for the six months ended September
30, 2001 (the "2002 Period"). See the discussion of sales by business segment,
below.
As of September 29, 2002, approximately $3.8 million in estimated income on
sales of $8.6 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 Bluegreen Communities' projects) and
pre-sell to customers prior to expending a significant portion of the projects'
development costs.
Bluegreen Resorts. During the 2003 Quarter and the 2002 Quarter, Bluegreen
Resorts contributed $56.3 million or 68% and $41.3 million or 60%, respectively,
of the Company's total consolidated sales. During the 2003 Period and the 2002
25.
Period, Bluegreen Resorts contributed $98.5 million or 64% and $78.6 million or
61%, 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 Bluegreen Resorts for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting.
Three Months Ended Six Months Ended
------------------ ----------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Number of timeshare sales transactions 6,326 4,786 11,551 9,055
Average sales price per transaction $ 9,225 $ 9,055 $ 9,176 $ 8,939
Gross margin 75% 76% 75% 77%
The 36% increase in Bluegreen Resorts' sales to $56.3 million during the 2003
Quarter from $41.3 million in the 2002 Quarter, and the 25% increase in
Bluegreen Resorts' sales to $98.5 million from $78.6 million during the 2003
Period and 2002 Period, 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 or
other prospects. The number of owner and referral sales prospects increased as a
percentage of total sales prospects to 20% from 18% during the 2003 Quarter and
2002 Quarter, respectively, and to 21% from 16% during the 2003 Period and 2002
Period, respectively. During the 2003 Quarter and the 2003 Period, approximately
18% and 19%, respectively, of the Company's owner and referral sales prospects
bought a Timeshare Interest as opposed to approximately 10% of the Company's
sales prospects from other marketing sources. This combined with an 25% overall
increase in the number of sales prospects seen by Bluegreen Resorts to 55,188
prospects during the 2003 Quarter from 44,285 prospects during the 2002 Quarter,
and the increase in average sales price reflected in the above table caused the
increase in sales during the 2003 Quarter. Total sales prospects seen by
Bluegreen Resorts increased 22% to 100,785 from 82,867 during the 2003 Period
and 2002 Period, respectively. In addition, sales at the Company's 51%-owned Big
Cedar Wilderness Club(TM) resort increased by $2.8 million during the 2003
Quarter as compared to the 2002 Quarter, due to an increase in timeshare sales
prospects generated through the Company's strategic marketing arrangement with
Bass Pro Shops, Inc. and due to a decreased amount of Bluegreen Resorts' sales
required to be deferred under the percentage-of-completion method of accounting.
Gross margin decreased to 75% during the 2003 Quarter from 76% during the 2002
Quarter. Gross margin decreased to 75% from 77% during the 2003 Period and 2002
Period, respectively. These decreases are due to the relative costs of the
specific Timeshare Interests sold during the respective periods. The Company
deeds 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 Bluegreen Resorts' 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 Bluegreen Resorts' gross margin
between financial reporting periods. There can be no assurances that changes in
Bluegreen Resorts' sales mix will not adversely impact Bluegreen Resorts' and/or
the Company's results of operations in future periods.
Selling and marketing expenses for Bluegreen Resorts decreased as a percentage
of sales for Bluegreen Resorts to 55% during the 2003 Quarter from 56% during
the 2002 Quarter. The decrease during the 2003 Quarter was primarily due to the
increased use of owner and referral marketing programs described above, as such
programs typically carry lower costs per sales prospect and higher
prospect-to-sale conversion ratios. Such expenses remained constant at 56%
during both the 2003 Period and 2002 Period.
Bluegreen Communities. During the 2003 Quarter and the 2002 Quarter, Bluegreen
Communities contributed $27.1 million or 32% and $27.9 million or 40%,
respectively, of the Company's total consolidated sales, reflecting a 3%
decrease. During the 2003 Period and the 2002 Period, Bluegreen Communities
contributed $56.0 million or 36% and $50.8 million or 39%, respectively, of the
Company's total consolidated sales, reflecting a 10% increase.
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for Bluegreen Communities for the periods indicated,
before giving effect to the percentage-of-completion method of accounting and
bulk sales.
26.
Three Months Ended Six Months Ended
------------------ ----------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Number of parcels sold 465 337 870 818
Average sales price per parcel $59,989 $62,065 $58,990 $59,161
Gross margin 46% 49% 48% 49%
The $843,000 decrease in Bluegreen Communities' sales during the 2003 Quarter as
compared to the 2002 Quarter, was primarily due to the impact of the
percentage-of-completion method of 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,
development activities were only partially completed at several of the Company's
projects at which sales had been consummated, requiring Bluegreen Communities to
defer $1.4 million in sales. During the 2002 Quarter, the Company substantially
completed development activities on several projects, which allowed the Company
to recognize $2.5 million of previously deferred sales.
Bluegreen Communities' 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. Recognized sales at the Preserve increased $5.9 million to $16.6
million during the 2003 Period as compared to $10.7 million during the 2002
Quarter due to the impact of percentage-of-completion accounting. During the
2003 Period, 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 Period, the Company was required to
defer $1.3 million of sales consummated at the Preserve during that period, as
development activities were only partially completed at that point in time.
Bluegreen Communities' gross margin decreased to 46% during the 2003 Quarter
from 49% during the 2002 Quarter and to 48% from 49% during the 2003 Period and
2002 Period, respectively. The fluctuation is primarily due to the relative
costs of the specific home sites sold during the respective periods. It should
be noted that the Company recognized an additional $750,000 impairment charge on
the Company's Crystal Cove residential land project in Rockwood, Tennessee
during the 2003 Quarter. This impairment charge is included in cost of sales in
the condensed consolidated statements of income for the three and six months
ended September 29, 2002. The impairment charges relate to the recent
determination that a section of the Crystal Cove project could not be developed
to a saleable status at a reasonable cost and therefore will not be developed
and sold. The Company had previously recognized impairment charges on the
Crystal Cove property of approximately $6.3 million during the three years ended
March 31, 2002. During the 2002 Quarter and 2002 Period, the Company had
recognized impairment charges on Crystal Cove totaling $884,000 and $1.0
million, respectively. Golf operations revenue increased 214% and the cost of
golf operations increased 97% during the 2003 Quarter as compared to the 2002
Quarter. Golf operations revenue increased 121% and the cost of golf operations
increased 80% during the 2003 Period as compared to the 2002 Period. Such
increases were 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 and the grand opening of its Davis
Love III-designed golf course at the Preserve in August 2002.
Selling and marketing expenses for Bluegreen Communities decreased as a
percentage of sales to 19% from 20% during the 2003 Quarter as compared to the
2002 Quarter, respectively. Selling and marketing expenses for Bluegreen
Communities decreased as a percentage of sales to 19% from 20% during the 2003
Period as compared to the 2002 Period, respectively. Advertising expenses
decreased by 1% of sales during both the 2003 Quarter and 2003 Period as
compared to the comparable prior year periods, while marketing management,
commissions and sales expenses remained relatively constant as a percentage of
sales during these periods.
Field general and administrative expenses for Bluegreen Communities increased
14% to $4.5 million during the 2003 Period from $4.0 million during the 2002
Period, primarily due to the timing of compensation earned by regional
management based on sales closings during the 2003 Period. Field general and
administrative expenses for Bluegreen Communities remained constant at
approximately $2.0 million during both the 2003 Quarter and 2002 Quarter.
Interest Income
Interest income was $4.0 million during both the 2003 Quarter and 2002 Quarter
and was $7.8 million and $8.1 million during the 2003 Period and 2002 Period,
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 during the 2003 Period as compared to the 2002 Period is due to lower
interest rates earned on the Company's cash balances on hand.
27.
Gain on Sale of Notes Receivables
The Company recognized $2.0 million and $1.1 million of gains on the sale of
timeshare notes receivables during the 2003 Quarter and 2002 Quarter,
respectively. The Company recognized $3.3 million and $2.0 million of gains on
the sale of timeshare notes receivables during the 2003 Period and 2002 Period,
respectively. The Company sold $29.7 million as compared to $17.0 million of
principal amount of timeshare notes receivable during the 2003 Quarter and 2002
Quarter, respectively. The Company sold $55.7 million and $34.6 million of
principal amount of timeshare notes receivable during the 2003 Period and 2002
Period, respectively. See Note 3 of Notes to Condensed Consolidated Financial
Statements and "Credit and Purchase Facilities for Timeshare Receivables and
Inventories," for further discussion of the Company's timeshare receivables
purchase facilities.
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 $4.7 million and $4.8 million during the 2003
Quarter and 2002 Quarter, respectively, and $9.4 million and $9.2 million during
the 2003 Period and 2002 Period, respectively.
Interest Expense
Interest expense decreased 1% to $3.3 million for the 2003 Quarter from $3.4
million for the 2002 Quarter. Interest expense decreased 8% to $6.5 million from
$7.1 million during the 2003 Period and 2002 Period, respectively. These
decreases were 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 $1.6 million during
both the 2003 Quarter and 2002 Quarter and totaling $2.6 million and $2.9
million during the 2003 Period and 2002 Period, respectively.
The Company's allowance for loan losses remained relatively constant as a
percentage of its outstanding notes receivable balance as of September 29, 2002
and March 31, 2002, as shown below (amounts in thousands):
Bluegreen Bluegreen
Resorts Communities Other Total
---------------------------------------------------
September 29, 2002
Notes receivable $ 62,829 $ 8,437 $ 1,881 $ 73,147
Less: allowance for loan losses (4,934) (325) (112) (5,371)
-------- -------- -------- --------
Notes receivable, net $ 57,895 $ 8,112 $ 1,769 $ 67,776
======== ======== ======== ========
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%
======== ======== ======== ========
Other Expense, net
Other expense, net of other income, increased to $676,000 net other expense from
$210,000 net other income during the 2003 Quarter and 2002 Quarter,
respectively. Other expense, net of other income, increased to $1.1 million from
$194,000 during the 2003 Period and 2002 Period. These increases were primarily
due to higher amortization of timeshare receivable purchase facility fees during
the 2003 Quarter as compared to the 2002 Quarter, a casualty loss from a fire
that occurred in a building at the 51%-owned Big Cedar Wilderness Club and a
loss on the disposal of fixed assets used at two recently-closed telemarketing
offices in Indiana..
28.
Summary
Based on the factors discussed above, the Company's net income increased 25% to
$5.7 million in the 2003 Quarter from $4.6 million during the 2002 Quarter. Net
income increased 25% to $10.9 million from $8.7 million in the 2003 Period and
2002 Period, respectively.
Changes in Financial Condition
Cash Flows from Operating Activities
Cash flows from operating activities decreased $178,000 to net cash inflows of
$11.3 million from $11.5 million in the 2003 Period and 2002 Period,
respectively. The decrease was primarily due to a $20.0 million decrease in cash
borrowings collateralized by notes receivable, as the Company monetized its
eligible notes receivable primarily through its timeshare receivables purchase
facilities as opposed to its receivable hypothecation facilities. Also, the
increase in notes receivable was $15.8 million higher in the 2003 Period as
compared to the 2002 Period, commensurate with the increase in Bluegreen Resorts
sales during the 2003 Period as compared to the 2002 Period. There was a $6.1
million decrease in cash inflows related to the change in the Company's contract
receivable balances, which are primarily related to unclosed land sales. These
decreases in operating cash flows were partially offset by a $15.0 million
increase in net cash provided from the sale of timeshare notes receivable. The
Company sold $55.7 million and $34.6 million of principal amount of timeshare
notes receivable at initial prices ranging from 85% to 95% under various
timeshare receivable purchase facilities in the 2003 Period and the 2002 Period,
respectively. Payments made on borrowings collateralized by notes receivable
decreased $9.9 million during the 2003 Period as compared to the 2002 Period.
Also, there was an $18.4 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 Period as compared to the 2002 Period. During the
2002 Period, 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 Period.
See "Credit and Purchase Facilities for Timeshare Receivables and Inventories"
below for further discussion of the Company's timeshare receivables purchase
facilities.
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 Bluegreen Resorts result in the origination of notes receivable from
its customers. Management believes that accelerating the conversion of such
notes receivable into cash, either through the pledge or sale of the Company's
notes receivable, on a regular basis is an integral function of the Company's
operations, and has therefore classified such activities as operating
activities.
Cash Flows from Investing Activities
Cash flows from investing activities increased $7.8 million to net cash inflows
of $6.7 million in the 2003 Period compared to net cash outflows of $1.1 million
in the 2002 Period. The increase was due to a $7.8 million increase during the
2003 Period as compared to the 2002 Period in cash received on retained
interests in notes receivable sold, due to additional notes receivable sold
since the 2002 Period.
Cash Flows from Financing Activities
Cash flows from financing activities increased $4.5 million to net cash outflows
of $7.2 million from $11.7 million of net cash outflows in the 2003 Period and
2002 Period, respectively. The increase is due to borrowings under acquisition
and development line-of-credit facilities and notes payable of $18.7 million
during the 2003 Period as compared to $12.8 million during the 2002 Period. This
increase is primarily due to a new acquisition and development line-of-credit
entered into during the 2003 Period with Marshall, Miller and Schroeder
Investments Corporation. See also Note 6 of Notes to Condensed Consolidated
Financial Statements.
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
29.
"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 Period, approximated 61% of sales.
Accordingly, having facilities for the sale and hypothecation of these timeshare
receivables is a critical factor to the Company meeting its short and long-term
cash needs.
In June 2001, the Company executed agreements for a timeshare receivables
purchase facility (the "Purchase Facility") with Credit Suisse First Boston
("CSFB") acting as the initial purchaser. In April 2002, ING Capital, LLC
("ING"), an affiliate of ING Bank 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
wholly-owned, special purpose finance subsidiary of the Company (the
"Subsidiary"), and the Subsidiary sells the receivables to an owners' trust
without recourse to the Company or the Subsidiary except for breaches of
customary representations and warranties at the time of sale. The Company did
not enter into any guarantees in connection with the Purchase Facility. Pursuant
to the agreements that constitute the Purchase Facility (collectively, the
"Purchase Facility Agreements"), the Subsidiary 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.
30.
Through November 11, 2002, the Company sold $138.9 million of aggregate
principal balance of notes receivable under the Purchase Facility for a
cumulative purchase price of $118.0 million. As of November 11, 2002, the
remaining amount of purchase price that can be obtained through the Purchase
Facility upon the sale of additional notes receivable is approximately $25.5
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 Company anticipates that 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% 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 discussed above is the only facility in which the Company currently has
to 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
basis (except for breaches of customary representations and warranties) and the
special purpose entity has a retained interest in the receivables sold. The
Company has acted as servicer of the receivables pools in each transaction for a
fee, with the servicing obligations specified under the applicable transaction
documents. Under the terms of the applicable securitization transaction, the
cash payments received from obligors on the receivables sold are distributed to
the investors (which, depending on the transaction, may acquire the receivables
directly or purchase an interest in, or make loans secured by the receivables
to, a trust that owns the receivables), parties providing services in connection
with the facility, and the Company's special purpose subsidiary as the holder of
the retained interest in the receivables according to one of two specified
formulas. In general, available funds are applied monthly to pay fees to service
providers, interest and principal payments to investors, and distributions in
respect of the retained interest in the receivables. Pursuant to the terms of
the transaction documents, however, to the extent the portfolio of receivables
fails to satisfy specified performance criteria (as may occur due to an increase
in default rates or loan loss severity) or there are other trigger events, the
funds received from obligors are distributed on an accelerated basis to
investors. In effect, during a period in which the accelerated payment formula
is applicable, funds go to outside investors until they receive the full amount
owed to them and only then are payments made to the Company's subsidiary in its
capacity as the holder of the retained interest. Depending on the circumstances
and the transaction, the application of the accelerated payment formula may be
permanent or temporary until the trigger event is cured. If the accelerated
payment formula were to become applicable, the cash flow on the retained
interest in the receivables would be reduced until the outside investors were
paid or the regular payment formula was resumed. Such a reduction in cash flow
could cause a decline in the fair value of the Company's retained interest in
the receivables sold. Declines in fair value that are determined to be other
than temporary are charged to operations in the current period. In each
facility, the failure of the pool of receivables to comply with specified
portfolio covenants can create a trigger event, which results in the use of the
accelerated payment formula (in certain circumstances until the trigger event is
cured and in other circumstances permanently) and, to the extent there was any
remaining commitment to purchase receivables from the Company's special purpose
subsidiary, the suspension or termination of that commitment. In addition, in
each securitization facility certain breaches by the Company of its obligations
as servicer or other events allow the investor to cause the servicing to be
transferred to a substitute third party servicer. In that case, the Company's
obligation to service the receivables would terminate and it would cease to
receive a servicing fee. 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 or the Company otherwise agreed
to use the accelerated formula, 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. As indicated above, the Purchase Facility will expire on
April 16, 2003. The Company is currently discussing terms for a potential new
timeshare receivable purchase facility with a financial institution. Factors
which could adversely impact the Company's ability to
31.
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 $14.6 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 Warehouse Facility continues to be repaid
as principal and interest payments are collected on the timeshare notes
receivable. As of September 29, 2002, there was $7.6 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. This
borrowing was collateralized by the Company's Lodge Alley Inn(TM) resort and has
since been paid in full. On December 20, 1999, the Company borrowed
approximately $13.9 million under the acquisition and development facility. The
principal of this loan must be repaid by January 1, 2006, through agreed-upon
release prices as Timeshare Interests in the Company's Shore Crest II(TM) resort
are sold, subject to minimum required amortization. The outstanding balance
under the A&D Facility at September 29, 2002 was $3.6 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 January 31, 2002, subject
to documentation requirements. Principal is repaid through agreed-upon release
prices as Timeshare Interests in Solara Surfside are sold, subject to minimum
required amortization. The indebtedness under the facility bears interest at the
prime lending rate plus 1.25%, subject to a minimum interest rate of 7.50%, and
all amounts borrowed are due no later than April 1, 2004. As of September 29,
2002, $3.6 million was outstanding under the MM&S line-of-credit.
The Company expects to close on a $50.0 million receivables warehouse facility
and a $15.0 million acquisition and development facility for Bluegreen Resorts
with a financial institution during the quarter ending December 31, 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
32.
Period, 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 Receivables and Inventories
The Company has a $30.0 million revolving credit facility with Foothill for the
pledge of Bluegreen Communities' receivables, with up to $10.0 million of the
total facility available for Bluegreen Communities' inventory borrowings and up
to $10.0 million of the total facility available for the pledge of 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 September
29, 2002, the outstanding principal balance under this facility was
approximately $5.7 million, $1.6 million of which related to timeshare
receivables borrowings, as discussed above, and $4.1 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.
On September 25, 2002, certain direct and indirect wholly-owned subsidiaries of
the Company entered into a $50 million revolving credit facility (the "GMAC
Facility") with Residential Funding Corporation ("RFC"), an affiliate of General
Motors Acceptance Corporation. The Company is the guarantor on the GMAC
Facility. The GMAC Facility is secured by the real property home sites (and
personal property related thereto) at the following residential land projects of
the Company, as well as any residential land projects acquired by the Company
with funds borrowed under the GMAC Facility (the "Secured Projects"):
Brickshire(TM) (New Kent County, Virginia); Mountain Lakes(TM) (Bluffdale,
Texas); Ridge Lake Shores(TM) (Magnolia, Texas); Riverwood Forest(TM) (Fulshear,
Texas); Waterstone(TM) (Boerne, Texas) and Yellowstone Creek Ranch(TM) (Pueblo,
Colorado). In addition, the Facility is secured by the Company's Carolina
National(TM) and The Preserve at Jordan Lake(TM) golf courses in Southport,
North Carolina and Chapel Hill, North Carolina, respectively. Borrowings under
the GMAC Facility can be made through September 25, 2004. Principal payments
will be effected through agreed-upon release prices paid to RFC as home sites in
the Secured Projects are sold. The outstanding principal balance of any
borrowings under the GMAC Facility must be repaid by September 25, 2006. The
interest charged on outstanding borrowings will be prime plus 1.00% and will be
payable monthly. The Company is required to pay an annual commitment fee equal
to 0.33% of the $50 million GMAC Facility amount. The GMAC Facility documents
include customary conditions to funding, acceleration and event of default
provisions and certain financial affirmative and negative covenants. On
September 25, 2002, the Company borrowed $11 million under the GMAC Facility and
received cash proceeds of approximately $9 million. The $2 million deducted from
the cash proceeds related to the repayment of existing debt on the Secured
Projects of approximately $1.5 million and debt issuance costs totaling $500,000
including the first annual commitment fee, as described above. The Company will
use the proceeds from the GMAC Facility to repay outstanding indebtedness on
residential land projects, finance the acquisition and development of
residential land projects and for general corporate purposes.
The Company is currently negotiating and has received a term sheet regarding a
$10 million, revolving line-of-credit for the pledge of residential land
receivables with a financial institution. There can be no assurances that this
line-of-credit will be obtained on attractive terms or at all.
Over the past several years, the Company has received approximately 90% to 99%
of its 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 55%) of
the home sites in the subdivision. In addition, the agreements generally call
for minimum cumulative annual amortization. When the Company provides financing
for its customers (and therefore the release price is not available in cash at
closing to repay the lender), it is required to pay the creditor with cash
derived from other operating activities, principally from cash sales or the
pledge of receivables originated from earlier property sales.
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
33.
outstanding letters of credit. The line-of-credit agreement contains certain
covenants and conditions typical of arrangements of this type. As of September
29, 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. The Company is
seeking a renewal of this line-of-credit. There can be no assurances that the
line will be renewed at all or on favorable terms.
Summary
The Company requires external sources of liquidity in order to support its
operations and satisfy its debt and other obligations. The Company's level of
debt and debt service requirements have several important effects on its
operations, including the following: (i) the Company has significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing the Company's vulnerability to adverse
economic and industry conditions; (ii) the Company's leveraged position
increases its vulnerability to competitive pressures; (iii) the financial
covenants and other restrictions contained in the indentures, the credit
agreements and other agreements relating to the Company's indebtedness require
the Company to meet certain financial tests and restrict its ability to, among
other things, borrow additional funds, dispose of assets, make investments or
pay cash dividends on, or repurchase, preferred or common stock; and (iv) funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes may be limited. Certain of the Company's competitors operate
on a less leveraged basis and have greater operating and financial flexibility
than the Company.
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Bluegreen Resorts business segment. In
connection with this strategy, the Company may from time to time acquire, among
other things, additional resort properties and completed but unsold Timeshare
Interests; land upon which additional resorts may be built; management
contracts; loan portfolios of Timeshare Interest mortgages; portfolios which
include properties or assets which may be integrated into the Company's
operations; interests in joint ventures; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry. In addition, the Company intends to continue to focus Bluegreen
Communities on larger, more capital intensive projects particularly in those
regions where the Company believes the market for its products is strongest,
such as new golf communities in the Southeast and other areas and continued
growth in the Company's successful regions in Texas.
The Company's material commitments for capital resources as of September 29,
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 September 29, 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 $ 13,812 $ 7,624 $ 5,707 $ 481
Lines-of-credit and notes payable 41,263 3,466 20,469 16,997 331
10.50% senior secured notes
payable 110,000 110,000
8.25% convertible subordinated
debentures 34,371 6,371 8,000 20,000
Noncancelable operating leases 8,005 3,427 4,155 412 11
-------- -------- -------- -------- --------
Total contractual obligations $207,451 $ 14,517 $ 30,995 $ 31,116 $130,823
======== ======== ======== ======== ========
34.
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 September 29, 2002 is approximately
$9.8 million. The Company estimates that the total cash required to complete its
residential land projects in which sales have occurred as of September 29, 2002
is approximately $33.2 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 anticipates
that it will incur such obligations in the future. The Company plans to fund
these expenditures over the next five years primarily with available capacity on
existing or proposed credit facilities and cash generated from operations. There
can be no assurances that the Company will be able to obtain the financing or
generate the cash from operations necessary to complete the foregoing plans or
that actual costs will not exceed those estimated.
The Company believes that its existing cash, anticipated cash generated from
operations, anticipated future permitted borrowings under existing or proposed
credit facilities and anticipated future sales of notes receivable under the
timeshare receivables purchase facility discussed above and one or more
replacement facilities the Company will seek to put in place will be sufficient
to meet the Company's anticipated working capital, capital expenditure and debt
service requirements for the foreseeable future. The Company will be required to
renew or replace credit facilities that have expired or that will expire during
the next 15 months. The Company will also be required to renew or replace its
existing timeshare receivables purchase facility on or before April 16, 2003.
The Company will, in the future, also require additional credit facilities or
issuances of other corporate debt or equity securities in connection with
acquisitions or otherwise. Any debt incurred or issued by the Company may be
secured or unsecured, bear fixed or variable rate interest and may be subject to
such terms as the lender may require and management deems prudent. There can be
no assurances that the credit facilities or receivables purchase facilities
which have expired or which are scheduled to expire in the near term will be
renewed or replaced or that sufficient funds will be available from operations
or under existing, proposed or future revolving credit or other borrowing
arrangements or receivables purchase facilities to meet the Company's cash
needs, including, without limitation, its debt service obligations. To the
extent the Company was not able to sell notes receivable or borrow under such
facilities, the Company's ability to satisfy its obligations would be materially
adversely affected.
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 the Company defaults under one debt arrangement, other lenders might
be able to declare amounts due under their arrangements, which would have a
material adverse effect on 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.
35.
Item 4. Controls and Procedures
In November 2002, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14 and 15d-14(c) Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures are effective to assure that the Company records,
processes, summarizes and reports in a timely manner the material information
that must be included in the Company's reports that are filed with or submitted
to the Securities and Exchange Commission.
In addition, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
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 and in the
Company's Quarterly Report on Form 10-Q for the three months ended June 30,
2002. Subsequent to the filing of such Form 10-Q, there have been no material
developments with respect to such litigation.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on August 22, 2002, the
shareholders voted on the matters listed below and in the proxy materials
dated July 26, 2002. The results of voting were as follows:
Shares Voted
------------------------------------------------
For Against Abstain Total
--- ------- ------- -----
Elect each of the following persons as
directors of the Company for a three
year term:
John E. Abdo 23,183,194 94,036 -- 23,277,230
John Laguardia 23,174,529 102,701 -- 23,277,230
Ratify the appointment of Ernst & Young LLP
as independent auditors of the Company's
consolidated financial statements for the
nine months ending December 31, 2002 23,253,949 19,017 4,264 23,277,230
The Company's Board of Directors is divided into three classes which have terms
expiring at the Company's Annual Meeting of Shareholders over the next three
years.
Item 5. Other Information
On October 14, 2002, the Board of Directors of the Company approved a change in
the Company's fiscal year from a 52- or 53-week period ending on the Sunday
nearest the last day of March in each year to the calendar year ending on
December
36.
31, effective for the period ending December 31, 2002. The Company will file a
Transition Report on Form 10-K for the nine months ending December 31, 2002 in
accordance with applicable requirements.
In November 2002, the Board of Directors of the Company appointed Arnold Sevell
to the Board of Directors. Mr. Sevell is an independent director and will also
serve on the Company's Audit Committee. Mr. Sevell will serve in the class of
directors whose term expires at the Company's Annual Meeting of Shareholders in
2003. Mr. Sevell, 54, has been the President of Sevell Realty Partners, Inc.
(and its predecessor company), a full-service commercial real estate firm since
1989. From 1980 to 1987, Mr. Sevell held the position of Executive Vice
President and Chief Operating Officer of Knight Enterprises, a commercial
development firm.
Item 6. Exhibits and Reports on Form 8-K
3.2 Amended and Restated By-laws of the Registrant.
10.132 Amendment Number Three to Loan and Security Agreement dated
August 28, 2002, by and between the Registrant and Foothill
Capital 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 September 25, 2002,
regarding the new $50 million revolving credit facility with Residential
Funding Corporation discussed above under Item 2, "Credit Facilities for
Residential Land and Golf Receivables and Inventories." This event was
reported under Item 5 "Other Events."
The Company filed a Current Report on Form 8-K dated October 2, 2002,
regarding the acquisition of substantially all of the assets and certain
liabilities of TakeMeOnVacation, LLC, RVM Promotions, LLC and RVM
Vacations, LLC, discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements. This event was reported under Item 2, "Acquisition
of Assets." This same Form 8-K also reported the Company's change in
fiscal year end under Item 8, "Change in Fiscal Year" and discussed above
under Item 5, "Other Information."
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: November 12, 2002 By: /S/ GEORGE F. DONOVAN
-------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 12, 2002 By: /S/ JOHN F. CHISTE
-------------------------------------
John F. Chiste
Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: November 12, 2002 By: /S/ ANTHONY M. PULEO
-------------------------------------
Anthony M. Puleo
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
37.
CERTIFICATIONS
I, George F. Donovan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluegreen
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within ninety (90) days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002 /S/ GEORGE F. DONOVAN
---------------------
George F. Donovan
Chief Executive Officer
38.
I, John F. Chiste, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluegreen
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within ninety (90) days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002 /S/ JOHN F. CHISTE
-----------------------
John F. Chiste
Chief Financial Officer
39.