Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 2003
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Conference Way North, Suite 100, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange, Archipelago Exchange
8.25% Convertible Subordinated Debentures due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant: $70,734,440 based upon the closing sale price
of the Company's Common Stock on the New York Stock Exchange on June 30, 2003
($4.75 per share). For this purpose, "affiliates" include members of the Board
of Directors of the Company, members of executive management and all persons
known to be the
beneficial owners of more than 5% of the Company's outstanding common stock. The
market value of voting stock held by non-affiliates excludes any shares issuable
upon conversion of any 8.25% Convertible Subordinated Debentures which are
convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 24,
2004, there were 25,569,647 shares of the registrant's common stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's definitive proxy
statement to be filed for its 2004 Annual Meeting of Shareholders (the "Proxy
Statement") are incorporated by reference into Part III hereof.
BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
PAGE
Item 1. BUSINESS.............................................................. 1
Item 2. PROPERTIES............................................................ 27
Item 3. LEGAL PROCEEDINGS..................................................... 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 28
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES................. 28
Item 6. SELECTED FINANCIAL DATA............................................... 29
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION........................................... 31
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 56
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... 58
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................. 94
Item 9A. CONTROLS AND PROCEDURES................................................ 94
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................... 94
Item 11. EXECUTIVE COMPENSATION................................................. 95
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS................................... 95
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 95
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES................................. 95
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........ 95
Signatures......................................................................... 97
Exhibit Index...................................................................... 99
TRADEMARKS
The terms "Bluegreen(R)" and "Bluegreen Vacation Club(R)" are registered
in the U.S. Patent and Trademark Office by Bluegreen Corporation.
The terms "Bluegreen Communities(TM)," "La Cabana Beach and Racquet
Club(TM)," "The Hammocks at Marathon Resort(TM)," "Casa Del Mar Beach
Resort(TM)," "The Fountains Resort(TM)," "Orlando's Sunshine Resort(TM),"
"Grande Villas at World Golf Village(R)(TM)," "Solara Surfside Resort(TM),"
"Mountain Run at Boyne(TM)," "The Falls Village Resort(TM)," "Big Cedar(R)
Wilderness Club(TM)," "The Lodge Alley Inn(TM)," "Harbour Lights Resort(TM),"
"Shore Crest Vacation Villas(TM)," "Laurel Crest Resort(TM)," "MountainLoft
Resort(TM)," "Shenandoah Crossing Resort(TM)," "Christmas Mountain Village(TM),"
"Sampler PlusSM," "Traditions of Braselton(TM)," "Sanctuary Cove at St. Andrews
Sound(TM)," "Catawba Falls Preserve(TM)," "Mountain Lakes Ranch(TM)," "Silver
Lakes Ranch(TM)," "Mystic Shores(TM)," "Lake Ridge at Joe Pool Lake(TM)," "Ridge
Lake Shores(TM)," "Mountain Springs Ranch(TM)," "Carolina National(TM),"
"Brickshire(TM)," "Golf Club at Brickshire(TM)," and "Preserve at Jordan
Lake(TM)" are trademarks or service marks of Bluegreen Corporation in the United
States.
The term "Big Cedar(R)" is registered in the U.S. Patent and Trademark
Office by Big Cedar, L.L.C.
The term "Bass Pro Shops(R)" is registered in the U.S. Patent and
Trademark Office by Bass Pro, Inc.
The term "World Golf Village(R)" is registered in the U.S. Patent and
Trademark Office by World Golf Foundation, Inc.
All other marks are registered marks of their respective owners.
MARKET AND INDUSTRY DATA
Market and industry data used throughout this Annual Report were obtained from
our internal surveys, industry publications, unpublished industry data and
estimates, discussions with industry sources and currently available
information. The sources for this data include, without limitation, the American
Resort Development Association ("ARDA"). Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but there can be no assurance as to the accuracy and
completeness of such information. We have not independently verified such market
data. Similarly, our internal surveys, while believed by us to be reliable, have
not been verified by any independent sources. Accordingly, no assurance can be
given that any such data will prove to be accurate.
PART I
Item 1. BUSINESS.
Introduction
We are a leading provider of vacation and residential lifestyle choices through
our resorts and residential community businesses. We are organized into two
divisions: Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts
acquires, develops and markets vacation ownership interests ("VOIs") in resorts
generally located in popular high-volume, "drive-to" vacation destinations.
Bluegreen Communities acquires, develops and subdivides property and markets
residential land parcels, the majority of which are sold directly to retail
customers who seek to build a home in a high quality residential setting, in
some cases on properties featuring a golf course and related amenities. We also
generate significant interest income through our financing of individual
purchasers of VOIs and, to a lesser extent, homesites sold by Bluegreen
Communities.
Bluegreen Resorts
Bluegreen Resorts was founded in 1994 to capitalize on the growth of the
vacation ownership industry. As of December 31, 2003, we had 110,000 VOI owners,
including 75,000 members in the Bluegreen Vacation Club, which was established
in 1997. We sell VOIs in the Bluegreen Vacation Club through sales offices at
all of our owned resorts and at our four off-site sales offices in Indiana,
Minnesota and Michigan (which has two off-site offices). A VOI in any of our
resorts entitles the buyer to an annual allotment of "points" in perpetuity in
our Bluegreen Vacation Club. Club members may use their points to stay in one of
17 Bluegreen-owned resorts and 18 other resorts or for other vacation options,
including cruises and stays at approximately 3,700 resorts offered by our
affiliated worldwide vacation ownership exchange network, Resorts Condominium
International ("RCI"). The following table sets forth the Bluegreen Vacation
Club resorts:
Bluegreen-Owned Resorts(1) Location
-------------------------------------------------- --------------------
The Hammocks at Marathon(TM)(2)(3) Marathon, Florida
The Fountains(TM)(2)(3) Orlando, Florida
Orlando's Sunshine Resort(TM)(3) Orlando, Florida
Casa Del Mar Beach Resort(TM) Ormond Beach, Florida
Grande Villas at World Golf Village(R)(TM)(3) St. Augustine, Florida
Solara Surfside Resort(TM)(3) Surfside, Florida
Mountain Run at Boyne(TM)(3) Boyne Falls, Michigan
The Falls Village Resort(TM)(3) Branson, Missouri
Big Cedar(R)Wilderness Club(TM)(3)(4) Ridgedale, Missouri
The Lodge Alley Inn(TM)(3) Charleston, South Carolina
Harbour Lights(TM)(3) Myrtle Beach, South Carolina
Shore Crest Vacation Villas(TM)(3) North Myrtle Beach, South Carolina
MountainLoft(TM)(3) Gatlinburg, Tennessee
Laurel Crest(TM)(3) Pigeon Forge, Tennessee
Shenandoah Crossing(TM)(3) Gordonsville, Virginia
Christmas Mountain Village(TM)(3) Wisconsin Dells, Wisconsin
La Cabana Beach and Racquet Club(TM)(5) Oranjestad, Aruba
1
Other Resorts Location
-------------------------------------------------- --------------------
Paradise Isle Resort(TM) Gulf Shores, Alabama
Shoreline Towers Resort(TM) Gulf Shores, Alabama
Via Roma Resort(TM)(3) Bradenton Beach, Florida
Dolphin Beach Club(TM)(3) Daytona Beach Shores, Florida
Fantasy Island Resort II(TM)(3) Daytona Beach, Florida
Mariner's Boathouse Resort(TM) Fort Myers Beach, Florida
Tropical Sands Resort(TM) Fort Myers Beach, Florida
Windward Passage Resort(TM) Fort Myers Beach, Florida
Gulfstream Manor(TM)(3) Gulfstream, Florida
Resort Sixty-Six(TM)(3) Holmes Beach, Florida
Outrigger Beach Club(TM)(3) Ormond Beach, Florida
Landmark Holiday Beach Resort(TM) Panama City Beach, Florida
Ocean Towers Beach Club(TM) Panama City Beach, Florida
Panama City Resort & Beach Club(TM) Panama City Beach, Florida
Petit Crest Villas(TM) Marble Hills, Georgia
Pono Kai Resort(TM)(3) Kauai, Hawaii
Lake Condominiums at Big Sky(TM) Big Sky, Montana
Players Club(TM)(3) Hilton Head, South Carolina
- ----------
(1) Throughout this Annual Report on Form 10-K, any reference to resorts that
we own refers to resorts where we acquired or developed a significant
number of the VOIs associated with the resorts.
(2) We acquired this resort in 2003. We will begin selling VOIs in this resort
through the Bluegreen Vacation Club in 2004.
(3) These resorts are managed by Bluegreen Resorts Management, Inc., one of
our wholly-owned subsidiaries.
(4) This resort is being developed, marketed and sold by a joint venture with
Big Cedar, L.L.C. We own a 51% interest in this joint venture and the
joint venture's results of operations, cash flows and financial position
are included in our consolidated financial statements. See Note 1 of the
Notes to Consolidated Financial Statements.
(5) We acquired this resort in December 1997. We sold fixed-week VOIs in this
resort until January 2004, when we began selling points-based, Bluegreen
Vacation Club VOIs in this resort.
Since our inception, we have generated over 109,000 VOI sales transactions.
Bluegreen Resorts' estimated remaining life-of-project sales were approximately
$1.7 billion at December 31, 2003. For the year ended December 31, 2003,
Bluegreen Resorts had sales and Field Operating Profit of $253.9 million and
$49.5 million, respectively.
Throughout this report, "estimated remaining life-of-project sales" assumes
sales of the existing, currently under construction or development, and planned
VOIs or homesites, as the case may be, at current retail prices. "Field
Operating Profit" means operating profit of one of our business segments prior
to the allocation of corporate overhead, interest income, gain on sales of notes
receivable, other income, provision for loan losses, interest expense, income
taxes, minority interest and cumulative effect of change in accounting
principle. See Note 19 of the Notes to Consolidated Financial Statements for
further information and a reconciliation of Field Operating Profit for our
business segments to consolidated income before income taxes.
2
Bluegreen Resorts uses a variety of techniques to attract prospective purchasers
of VOIs, including telemarketing mini-vacations, marketing kiosks in retail and
hotel locations, targeted mailings, marketing to current owners of VOIs and
referrals. To support our marketing and sales efforts, we have developed and
continue to enhance our database to track our vacation ownership marketing and
sales programs. We believe that as our vacation ownership operations grow, this
database will become an increasingly significant asset, enabling us to take
advantage of, among other things, less costly marketing and referral
opportunities.
While historical growth rates may not continue, based on ARDA and other industry
data, we believe that vacation ownership has been one of the fastest growing
segments of the hospitality industry with 10.6% compound annual growth for sales
volume and 10.7% compound annual growth for number of VOI owners during the
period from 1990 to 2002. According to ARDA, the primary reason cited by
consumers for purchasing a VOI is the ability to exchange a VOI for
accommodations at other resorts through worldwide exchange networks.
Our affiliation with RCI, the largest worldwide vacation ownership exchange
company, entitles members of the Bluegreen Vacation Club to stay at
approximately 3,700 participating RCI resorts located in 100 countries
worldwide. To further enhance the ability of our VOI owners to customize their
vacation experience, we also have implemented our Bluegreen Vacation Club
system, which permits our VOI owners to purchase an annual allotment of points
which can be redeemed for occupancy rights at most Bluegreen-owned and certain
other participating resorts. We also have implemented the Sampler program, which
allows Sampler package purchasers to enjoy substantially the same amenities,
activities and services offered to the regular Bluegreen Vacation Club members
for a one-year trial period. We also have the Sampler PlusSM program, which
provides Sampler Plus package purchasers with the same benefits of the Sampler
package, plus a three-year travel discount program with website access to
purchasing, among other things, hotel and resort condo stays, cruises and rental
cars. We benefit from the Sampler and Sampler Plus programs because the programs
give us the opportunity to remarket our VOIs to customers when they use their
trial memberships at our resorts and to recapture some of the cost incurred in
marketing to prospective customers.
Prior to acquiring property for resorts, Bluegreen Resorts undertakes a property
review, which includes physical and environmental assessments. This review is
presented for approval to our management Investment Committee, which was
established in 1990 and consists of certain key members of senior management
and, once so approved, the acquisition is submitted to the Investment Committee
of our Board of Directors for final approval. During the review process, we
consider market, tourism and demographic data as well as the quality and
diversity of the location's existing amenities and attractions to determine the
potential strength of the vacation ownership market in the area and the
availability of a variety of recreational opportunities for prospective VOI
purchasers. Another important consideration when Bluegreen Resorts is reviewing
a resort location for potential acquisition is the demand for resorts in
specific geographic areas by existing Bluegreen Vacation Club members. We
periodically monitor this demand through surveys and other means. We intend to
pursue the acquisition of real estate or interests in real estate for Bluegreen
Resorts in the geographic areas in which Bluegreen Resorts currently operates,
with an emphasis on beachfront resorts, with possible expansion into the
northeastern and western United States, although we may pursue acquisitions in
other areas. No assurance can be given that we will be able to acquire property
in our current target areas or be successful in our acquisitions strategy.
We have historically provided financing to approximately 95% of our vacation
ownership customers. Customers are required to make a downpayment of at least
10% of the VOI sales price and typically finance the balance of the sales price
over a period of seven or ten years. As of December 31, 2003, our vacation
ownership receivables portfolio totaled approximately $90.8 million in principal
amount, with a weighted-average contractual yield of approximately 14.9% per
annum. During the year ended December 31, 2003, we maintained vacation ownership
receivables warehouse facilities and a separate vacation ownership receivables
purchase facility to maintain liquidity associated with our vacation ownership
receivables. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" for further
discussion of our vacation ownership receivables facilities and certain risks
relating to such facilities.
3
Bluegreen Communities
Bluegreen Communities focuses on developing residential land homesites located
near major metropolitan centers or popular retirement areas. We believe that a
majority of our customers seek a quality lifestyle improvement that is generally
unavailable in traditional, intensely subdivided suburban developments. As of
December 31, 2003, Bluegreen Communities was actively developing and selling
homesites directly to retail consumers in communities primarily located in
Texas, Georgia, Virginia and North Carolina. We had $121.8 million of inventory
at Bluegreen Communities as of December 31, 2003 and Bluegreen Communities'
estimated remaining life-of-project sales were approximately $437.3 million. For
the year ended December 31, 2003 we had sales and Field Operating Profit in our
Bluegreen Communities division of $104.4 million and $12.6 million,
respectively. We believe no other company in the United States of comparable
size or financial resources markets and sells residential homesites directly to
retail customers.
Through our experience in marketing and selling homesites to our target
customers, we have developed a marketing and sales program that generates a
significant number of on-site sales presentations to potential prospects through
low-cost, high-yield newspaper advertising. In addition, Bluegreen Communities'
customer relationship management computer software system enables us to compile,
process and maintain information concerning future sales prospects within each
of our operating regions with the goal of tracking the effectiveness of
advertising and marketing programs relative to sales generated. Through our
targeted sales and marketing programs, we believe that we have been able to
achieve an attractive conversion ratio of sales to prospects receiving on-site
sales presentations.
Bluegreen Communities acquires and develops land in two markets: (i) near major
metropolitan centers but outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, we consider market depth and forecast market absorption. In new market
areas, we typically conduct a structured classified advertisement test that
evaluates market response and price acceptance. Our sales and marketing efforts
begin as soon as practicable after we enter into an agreement to acquire a
parcel of land. Our ability to bond projects to completion generally allows us
to sell a portion of our residential land inventory on a pre-development basis,
thereby reducing the amount of external capital needed to complete improvements.
As is the case with Bluegreen Resorts, all acquisitions of properties by
Bluegreen Communities are subject to the approval of both our management
Investment Committee and the Investment Committee of our Board of Directors.
In fiscal 1997, we began construction of our first daily-fee golf course. We
believe that daily-fee golf courses are an attractive amenity that increases the
marketability of adjacent homesites. We currently intend to expand our golf
course community residential land offerings into markets with attractive
demographics for such properties. There can be no assurance that our strategy
for this expansion will be successful.
Industry Overview
Bluegreen Resorts
The Market. The resorts component of the leisure industry is serviced primarily
by two separate alternatives for overnight accommodations: commercial lodging
establishments and vacation ownership resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. We believe that vacation ownership presents an
attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, vacation ownership has been one of
the fastest growing segments of the hospitality industry over the past two
decades. We believe that, based on ARDA reports
4
and other industry data, the following factors have contributed to the increased
acceptance of the vacation ownership concept among the general public and the
substantial growth of the vacation ownership industry:
o growing consumer awareness of the potential value and benefits of
vacation ownership, including the cost savings relative to certain
other lodging alternatives;
o increasing flexibility of vacation ownership due to the growth of
international exchange organizations such as RCI and Interval
International, and points-based vacation club systems;
o the improving quality of the vacation ownership resorts and their
management; and
o growing consumer confidence resulting from enhanced consumer
protection regulation of the vacation ownership industry and the
entry of brand name national lodging companies to the vacation
ownership industry.
Historically, the vacation ownership industry was highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. We
believe that one of the most significant factors contributing to the current
success of the vacation ownership industry has been the entry into the market of
some of the world's major lodging, hospitality and entertainment companies, such
as Marriott International, Inc., the Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels
and Resorts Worldwide, Inc. and Cendant Corporation. Although vacation ownership
operations currently comprise only a portion of these companies' overall
operations, we believe that their involvement in the vacation ownership industry
has enhanced the industry's image with the general public.
We believe that the recent hostilities in the Middle East and other world events
that have decreased the amount of vacation air travel by Americans have not, to
date, had a material adverse impact on our sales in our domestic sales offices.
We believe that this is due to the "drive-to" resort destinations in the
Bluegreen Vacation Club. In addition, we believe that, in general, Americans
still desire to take family vacations and that our vacation club is positioned
to benefit from consumer demand for family vacations. However, international
hostilities, economic conditions and the rising cost of gasoline may have an
adverse effect on our operations in the future.
The Consumer. According to information compiled by industry sources, customers
in the 40-59 year old age range represented approximately 60% of all VOI owners
in the United States in 2002. Historically, the median age of a VOI buyer at the
time of purchase was 51. The median annual household income of VOI owners in the
United States in 2002 was approximately $85,000, with approximately 35% of all
VOI owners having annual household incomes greater than $100,000. Despite the
industry's growth, VOI ownership has achieved only an approximate 5% market
penetration among United States households with incomes above $50,000 per year.
VOI Ownership. The purchase of a fixed-week VOI typically entitles the buyer to
use a fully-furnished vacation residence, generally for a one-week period each
year in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant-in-common with other buyers of
interests in the property.
Under a points-based system, such as our Bluegreen Vacation Club, members
purchase an annual allotment of points that can be redeemed for occupancy rights
at participating resorts. Compared to other vacation ownership arrangements, the
points-based system offers members greater flexibility in planning their
vacations. The number of points required for a stay at any one resort varies,
depending on a variety of factors, including the resort location, the size of a
unit, the vacation season and the days of the week used. Under this system,
members can select vacations according to their schedules, space needs and
available points. Subject to certain restrictions, members are typically allowed
to carry over for one year any unused points and to "borrow" points from the
next year. Owners of VOIs in the Bluegreen Vacation Club have an underlying
deeded real estate interest in a specific VOI resort that is held in trust on
the owner's behalf. As of December 31, 2003, all of our sales offices, with the
exception of our La Cabana sales office in Aruba,
5
were only selling VOIs within our Bluegreen Vacation Club system. In January
2004, our Aruba sales office began selling VOIs within the Bluegreen Vacation
Club system as well.
The owners of VOIs manage the property through a nonprofit homeowners'
association, which is governed by a board of directors or trustees consisting of
representatives of the developer and owners of VOIs at the resort. The board
hires a management company to which it delegates many of the rights and
responsibilities of the homeowners' association, including grounds landscaping,
security, housekeeping and operating supplies, garbage collection, utilities,
insurance, laundry and repairs and maintenance. As of December 31, 2003, we
managed 23 resorts and served a base of approximately 110,000 VOI owners.
Each VOI owner is required to pay the homeowners' association a share of all
costs of maintaining the property. These charges can consist of an annual
maintenance fee plus applicable real estate taxes and special assessments,
assessed on an as-needed basis. If the VOI owner does not pay such charges, such
owner's use rights may be suspended and the homeowners' association may
foreclose on the owner's VOI.
Participation in Independent VOI Exchange Networks. We believe that our VOIs are
made more attractive by our affiliation with an international VOI exchange
network such as RCI or Interval International,. All of our VOI resorts are
currently affiliated with RCI, and most of our VOI resorts have been awarded
RCI's highest designation (Gold Crown). A VOI owner's participation in the RCI
exchange network allows such owner to exchange his annual VOI for occupancy at
approximately 3,700 participating resorts, based upon availability and the
payment of a variable exchange fee. RCI's participating resorts are located
throughout the world in 100 countries. A member may exchange his VOI for an
occupancy right in another participating resort by listing his VOI as available
with the exchange organization and by requesting occupancy at another
participating resort, indicating the particular resort or geographic area to
which the member desires to travel, the size of the unit desired and the period
during which occupancy is desired. The exchange network assigns ratings to each
listed VOI, based upon a number of factors, including the location and size of
the unit, the quality of the resort and the period during which the VOI is
available, and attempts to satisfy the exchange request by providing an
occupancy right in another VOI with a similar rating. If the exchange network is
unable to meet the member's initial request, it suggests alternative resorts
based on availability. No assurance can be given that our resorts will continue
to qualify for participation in international exchange networks, or that our
customers will continue to be satisfied with these networks. Our failure or the
failure of any of our resorts to participate in qualified exchange networks or
the failure of such networks to operate effectively could have a material
adverse effect on us.
Bluegreen Communities
Bluegreen Communities operates within a specialized niche of the real estate
industry, which focuses on the sale of residential homesites to retail customers
who intend to build a home on such homesites at some point in the future. The
participants in this market are generally individual landowners who are selling
specific parcels of property and small developers who focus primarily on
projects in their region. Although no specific data is available regarding this
market niche, we believe that no other company in the United States of
comparable size or financial resources currently markets and sells residential
land directly to retail customers.
Unlike commercial homebuilders who focus on vertical development, such as the
construction of single and multi-family housing structures, Bluegreen
Communities focuses primarily on horizontal development activities, such as
grading, roads and utilities. As a result, the projects undertaken by us are
significantly less capital intensive than those undertaken by commercial
homebuilders. We believe that our market is also the beneficiary of a number of
trends, including the large number of people entering into the 40-59 year age
bracket and the economic and population growth in certain of our primary
markets.
Bluegreen Communities also focuses on the development of golf courses and
related amenities as the centerpieces of certain of our residential land
properties. As of December 31, 2003, we were marketing homesites in seven
projects that include golf courses developed either by us or third parties. We
currently intend to acquire and develop additional golf communities, as we
believe that the demographics and marketability of such properties are
consistent with our overall residential land strategy. Golf communities
6
typically are larger, multi-phase properties that require a greater capital
commitment than our single-phase residential land projects. There can be no
assurance that we will be able to successfully implement our golf community
strategy.
Bluegreen Communities also undertakes the development of large lakes in certain
of our projects as the centerpiece amenity. We believe that while these
development activities require a greater capital commitment than certain other
amenities that Bluegreen Communities may provide in our projects, we benefit
from the anticipated increased marketability and pricing of lakefront homesites.
Company Products
Bluegreen Resorts
Set forth below is a description of each of our owned vacation ownership
resorts. We consider resorts "owned" if we acquired or developed a significant
number of the VOIs associated with the resorts. Units at most of the properties
have certain standard amenities, including a full kitchen, at least two
televisions, a VCR and a CD player. Some units have additional amenities, such
as big screen televisions, DVD players, fireplaces, whirlpool tubs and video
game systems. Most properties offer guests a clubhouse (with an indoor or
outdoor pool, a game room, exercise facilities and a lounge) and a hotel-type
staff. We manage all of our owned resorts with the exception of the La Cabana
Beach and Racquet Club ("La Cabana") and Casa del Mar Beach Resort. La Cabana is
managed by Optima Hotel Exploitatiemaatschappij N.V., an unaffiliated third
party that managed the resort prior to our acquisition of La Cabana's unsold VOI
inventory in 1997. The Amber Group, Inc. manages the Casa del Mar Beach Resort.
Florida
The Hammocks at Marathon(TM) -- Marathon, Florida. Acquired in December 2003,
The Hammocks at Marathon is located in the Florida Keys within easy reach of
both Miami and Key West, Florida. After the completion of certain renovations,
we expect this beachfront resort to offer such amenities as a pool, boat slips,
an outside tiki bar and a variety of water sport recreational vehicle rentals.
The Fountains(TM) -- Orlando, Florida. In September 2003, we acquired The
Fountains (f/k/a The Oasis Lakes Resort), an existing vacation ownership resort
in Orlando, Florida. The acquisition included certain unsold VOIs, land that can
accommodate the construction of approximately 576 additional vacation
residences, a 20,000 square-foot sales center, a clubhouse and pool complex, an
additional parcel of land zoned for commercial use and certain notes receivable.
This 54-acre resort is located on Lake Eve and is minutes away from Central
Florida's family attractions, including Walt Disney World(R), SeaWorld(R) and
Universal Studios(R). Amenities include a clubhouse with a heated indoor/outdoor
swimming pool, a pool bar, a massage room, steam and sauna rooms, a family
activity room and tennis and basketball courts.
Orlando's Sunshine Resort(TM) -- Orlando, Florida. Orlando's Sunshine Resort is
located on International Drive, near Wet'n'Wild(R) water park and Universal
Studios Florida(R). This property features an outdoor swimming pool, hot tub and
tennis courts.
Casa del Mar Beach Resort(TM) -- Ormond Beach, Florida. In January 2003, we
acquired the unsold VOI inventory (approximately 2,340 VOIs) of an existing
vacation ownership resort located in Ormond Beach, Florida. Casa del Mar is
located directly on the ocean and includes such amenities as an outdoor pool and
miniature golf.
Grande Villas at World Golf Village(R)(TM) -- St. Augustine, Florida. In August
2003, we acquired the unsold VOI inventory (approximately 4,000 VOIs) and
undeveloped land that can accommodate the construction of approximately 200 new
vacation homes at a vacation ownership resort located in St. Augustine, Florida.
The resort, which is minutes away from the Atlantic Ocean and next to the World
Golf Hall of Fame(R), features an extensive array of amenities, including, among
others, a golf course, outdoor and indoor pools, a hot tub, a sauna and a
playground.
7
Solara Surfside Resort(TM) -- Surfside, Florida. In June 2001, we acquired the
unsold VOI inventory (approximately 6,000 VOIs) at an existing vacation
ownership property located in Surfside, Florida, near Miami Beach. Solara
Surfside is located directly on the beach and features one and two bedroom
vacation homes.
Michigan
Mountain Run at Boyne(TM) -- Boyne Falls, Michigan. In October 2002, we acquired
approximately 11 acres of land to build and develop 64 vacation homes at Boyne
Mountain in northern Michigan. In connection with this acquisition, we also
acquired an option to purchase land contiguous to the 11 acres on which we
could, at our discretion, build approximately 100 additional vacation homes.
Boyne Mountain is known for skiing, snowboarding and tubing on 62 runs with
convenient lift and trail systems. In the summer, Boyne Mountain offers 162
holes of golf on world-class courses designed by some of the game's masters,
including Robert Trent Jones, Arthur Hills, Donald Ross and, soon, Pete Dye.
Missouri
The Falls Village Resort(TM) -- Branson, Missouri. The Falls Village is located
in the Ozark Mountains. Fishing, boating and swimming are available at nearby
Table Rock Lake and Lake Taneycomo, and area theaters feature shows by renowned
country music stars. Most resort guests come from areas within an eight to ten
hour drive of Branson.
The Big Cedar(R) Wilderness Club(TM) -- Ridgedale, Missouri. In June 2000,
Bluegreen/Big Cedar Vacations LLC, a joint venture between Big Cedar, L.L.C. and
us, in which we own a 51% interest, began developing the Big Cedar Wilderness
Club, a 292-unit, wilderness-themed resort adjacent to the world famous Big
Cedar Lodge luxury hotel resort. The Big Cedar Wilderness Club is located on
Table Rock Lake, and is near Dogwood Canyon. Guests staying in the two bedroom
cabins or one and two bedroom lodge villas enjoy fireplaces, private balconies,
full kitchens and Internet access. Amenities include, or are expected to include
indoor and outdoor swimming pools and hot tubs, a lazy river, hiking trails, a
campfire area, a beach and playground. Guests also have access to certain of the
luxury amenities at the Big Cedar Lodge, including the Jack Nicklaus Signature
Top of the Rock Par Three Golf Course, a marina, horseback riding, tennis courts
and a spa.
South Carolina
The Lodge Alley Inn(TM) -- Charleston, South Carolina. Located in Charleston's
historic district, the Lodge Alley Inn includes one and two-bedroom suites, many
furnished with an equipped kitchen, a living room with fireplace, a dining room,
a whirlpool bath, pine wood floors and 18th century-style furniture
reproductions. The resort, which features the on-site High Cotton restaurant, is
within walking distance of many of Charleston's historical sites, open-air
markets and art galleries.
Harbour Lights(TM) -- Myrtle Beach, South Carolina. Harbour Lights is located in
the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater
Row, shopping, golf courses and restaurants. The resort's activities center
overlooks the Intracoastal Waterway.
Shore Crest Vacation Villas(TM) -- North Myrtle Beach, South Carolina. Shore
Crest Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach, a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Tennessee
MountainLoft(TM) -- Gatlinburg, Tennessee. The MountainLoft Resort in
Gatlinburg, Tennessee, is located near the Great Smoky Mountains National Park
and is minutes from the family attractions of Pigeon Forge,
8
Tennessee. Units are located in individual chalets or mid-rise villa buildings.
Each unit is fully furnished with a whirlpool bath and private balconies, and
certain units include gas fireplaces.
Laurel Crest(TM) -- Pigeon Forge, Tennessee. Laurel Crest is located in
proximity to the Great Smoky Mountains National Park and the Dollywood theme
park. In addition, visitors to Pigeon Forge can enjoy over 200 factory outlet
stores and music shows featuring renowned country music stars as well as partake
in a variety of outdoor activities, such as horseback riding, trout fishing,
boating, golfing and white water rafting.
Virginia
Shenandoah Crossing(TM) -- Gordonsville, Virginia. Shenandoah Crossing features
an 18-hole golf course (which is owned and operated by an unaffiliated third
party), indoor and outdoor pools, tennis courts, horseback riding trails and a
lake for fishing and boating.
Wisconsin
Christmas Mountain Village(TM) -- Wisconsin Dells, Wisconsin. Christmas Mountain
Village offers a 27-hole golf course and seven ski trails served by two chair
lifts. Other on-site amenities include horseback riding, tennis courts, a
five-acre lake with paddleboats and rowboats and four outdoor swimming pools.
Christmas Mountain Village attracts customers primarily from the greater Chicago
area and other locations within an eight to ten hour drive of Wisconsin Dells.
Aruba
La Cabana Beach Resort & Racquet Club(TM) -- Aruba. Bluegreen Properties N.V.
acquired the unsold VOI inventory of La Cabana (approximately 8,000 VOIs) in
December 1997 and additional VOIs from time to time thereafter. Established in
1989, La Cabana is a 449-suite ocean front resortthat offers one, two and
three-bedroom suites, garden suites and penthouse accommodations. On-site
amenities include tennis, racquetball, squash, a casino, two pools and private
beach cabanas, none of which are owned or managed by us.
9
The following table describes the relative size, stage of development and amount
of remaining inventory at each of our owned resorts. Although all inventory is
sold as VOIs, we disclose the size and inventory information in terms of number
of vacation homes for ease of comparability between our resorts and those of
other companies in the industry. Vacation homes are individual lodging units
(e.g., condominium-style apartments, cabins, etc.).
The
Hammocks Orlando's Casa Del Grande Villas
At The Sunshine Mar Beach at World Golf
Resort Marathon(TM) Fountains(TM) Resort(TM) Resort(TM) Village(R)(TM)
----------------------------------------------------------------------------------
Marathon, Orlando, Orlando, Ormond St. Augustine,
Location FL FL FL Beach, FL FL
----------------------------------------------------------------------------------
Year acquired (1) 2003 2003 1997 2003 2003
Number of vacation homes
completed -- 72 90 43 102
Number of vacation homes
under construction 58 144 -- -- --
Number of future vacation
homes (2) -- 432 -- -- 150
Total current and future
vacation homes 58 648 90 43 252
Percentage of total current
and future vacation homes
sold (3) --% 10% 94% 88% 29%
Estimated remaining
life-of-project sales (in
millions) (4) $54.9 $608.0 $4.6 $3.8 $154.1
Solara Mountain The Falls Big Cedar(R)
Surfside Run at Village Wilderness The Lodge
Resort Resort(TM) Boyne(TM) Resort(TM) Club(TM) Alley Inn(TM)
----------------------------------------------------------------------------------
Surfside, Boyne Falls, Branson, Ridgedale, Charleston,
Location FL MI MO MO SC
----------------------------------------------------------------------------------
Year acquired (1) 2001 2002 1997 2000 1998
Number of vacation homes
completed 58 23 66 100 90
Number of vacation homes
under construction -- 32 66 41 --
Number of future vacation
homes (2) -- 16 114 151 --
Total current and future
vacation homes 58 71 246 292 90
Percentage of total current
and future vacation homes
sold (3) 76% 4% 25% 15% 97%
Estimated remaining
life-of-project sales (in
millions) (4) $7.0 $60.2 $130.7 $207.6 $1.9
10
Shore Crest
Harbour Vacation Laurel Shenandoah
Resort Lights(TM) Villas(TM) MountainLoft(TM) Crest(TM) Crossing(TM)
----------------------------------------------------------------------------------
Myrtle North Myrtle Gatlinburg, Pigeon Gordonsville,
Location Beach, SC Beach, SC TN Forge, TN VA
----------------------------------------------------------------------------------
Year acquired (1) 1997 1996 1994 1995 1997
Number of vacation homes
completed 132 240 164 152 162
Number of vacation homes
under construction 84 -- -- -- --
Number of future vacation
homes (2) 48 -- 25 50 100
Total current and future
vacation homes 264 240 189 202 262
Percentage of total current
and future vacation homes
sold (3) 49% 96% 80% 65% 61%
Estimated remaining
life-of-project sales (in
millions) (4) $92.9 $6.7 $40.3 $57.9 $86.0
La Cabana
Christmas Beach and
Mountain Racquet
Resort Village(TM) Club(TM)
------------------------------
Wisconsin Oranjestad,
Location Dells, WI Aruba
------------------------------
Year acquired (1) 1997 1997
Number of vacation homes
completed 279 449
Number of vacation homes
under construction 30 --
Number of future vacation
homes (2) 130 --
Total current and future
vacation homes 439 449
Percentage of total current
and future vacation homes
sold (3) 63% 87%
Estimated remaining
life-of-project sales (in
millions) (4) $124.8 $23.9
(1) Year that we first acquired the land to develop each resort or the year we
first acquired existing VOIs at each resort, as applicable.
(2) Number of vacation homes that can be developed at each resort in the
future. We cannot provide any assurance that we will have the resources,
or will decide, to commence or complete the development of any of these
future vacation homes or that the resulting VOIs will be sold at favorable
prices.
(3) This is the portion of each resort that has been sold through December 31,
2003, including sales made by prior owners of the resorts, if applicable.
The unsold portion includes vacation homes that are either completed,
under construction or subject to future development.
11
(4) Estimated remaining life-of-project sales as of December 31, 2003. This
table excludes VOI inventory that we own at several non-owned resorts
("Miscellaneous Inventory"). The aggregate estimated remaining
life-of-project sales for our Miscellaneous Inventory as of December 31,
2003 was $12.3 million or less than 1% of Bluegreen Resorts' estimated
remaining life-of-project sales.
We believe that each of our resorts is adequately covered by property and
casualty insurance, in the case of our completed resorts, and builder's risk
insurance, in the case of resorts that are under construction. In addition, we,
or general contractors hired by us, purchase performance bonds if required by
the local jurisdictions in which we develop our resorts.
Bluegreen Communities
Described below are the communities with the most significant estimated
remaining life-of-project sales marketed by Bluegreen Communities as of December
31, 2003.
Georgia
Traditions of Braselton(TM) -- Braselton, Georgia. In March 2003, we acquired
1,142 acres of land in Braselton, Georgia for $12.3 million. This property is a
golf course community offering an 18-hole golf course and other amenities, such
as an owners' clubhouse, a swimming pool, tennis courts, nature trails and a
children's recreation area. The property is also expected to include a 330 acre
preserved area. General improvements on the homesites at Traditions of Braselton
being performed by us include, in most cases, water and sewer utilities and
selective homesite clearing. We began selling homesites at Traditions of
Braselton in April 2003.
Sanctuary Cove at St. Andrew's Sound(TM) -- Waverly, Georgia. In November 2003,
we acquired 500 acres of land near St. Simons Island in Brunswick County,
Georgia for $11.3 million. Amenities at this golf community will include an
18-hole Fred Couples Signature Golf Course to be designed by Love Golf Design,
an owners' clubhouse and swimming and tennis facilities. Sanctuary Cove adjoins
over 900 acres of preserved saltwater marshes and coastal wetlands. General
improvements on the homesites at Sanctuary Cove being performed by us include,
in most cases, water and sewer utilities and selective homesite clearing. We
began selling homesites at Sanctuary Cove in December 2003.
North Carolina
Catawba Falls Preserve(TM) -- Black Mountain, North Carolina. We acquired
approximately 785 acres located in Black Mountain, North Carolina (approximately
18 miles from Asheville, North Carolina) for $2.6 million in June 2002. The
project is expected to include horse and hiking trails, a swimming hole, picnic
area, playground area and trail access to Pisgah National Forest and Catawba
Falls. We anticipate that the project will consist of a total of approximately
238 homesites, which range in size from approximately 1 acre to 16 acres General
improvements on the homesites at Catawba Falls Preserve being performed by us
include, in most cases, well and sewer utilities and selective homesite
clearing. We began selling homesites at Catawba Falls Preserve in January 2003.
Texas
Mountain Lakes Ranch(TM)--Bluffdale, Texas. We acquired 4,100 acres located
approximately 45 miles from Fort Worth, Texas in October 1998 for $3.1 million.
The property features rolling terrain with hilltop views, tree coverage and
ample area to create private lakes. We anticipate that the property will yield
approximately 1,280 homesites ranging in size from one to five acres, including
both lakefront and waterview parcels. General improvements on the homesites at
Mountain Lakes Ranch performed by us include water, electric and telephone
utilities and selective homesite clearing. We began selling homesites at
Mountain Lakes ranch in 1999.
12
Silver Lakes Ranch(TM) -- Bowie, Texas. We acquired 2,463 acres located
approximately 35 miles northwest of Fort Worth, Texas, in October 2002 for $3.7
million. The property is expected to feature a swimming pool, picnic area, park,
lakes, ponds and a recreational vehicle park for use by the purchasers of
homesites in the community. The existing acreage will yield approximately 640
homesites, with most homesites ranging in size from 1 to 10 acres. General
improvements on the homesites at Silver Lakes Ranch that may be performed by us
include water, electric and telephone as well as selective homesite clearing. We
began selling homesites at Silver Lakes Ranch during March 2003.
Mystic Shores(TM) -- Canyon Lake, Texas. We acquired 6,966 acres located 25
miles north of San Antonio, Texas in October 1999 for $14.9 million. On May 5,
2000, we purchased an additional 435 acres for $2.7 million. The project
includes approximately 2,400 homesites, ranging in size from one to twenty
acres. Mystic Shores is situated on Canyon Lake and is in close proximity to the
Guadeloupe River, which is well known for fishing, rafting and water sports. The
property will also feature a junior Olympic swimming pool, bathhouse, open-air
pavilion, picnic area and boat ramps. General improvements on homesites at
Mystic Shores performed by us include, in most cases, water and selective
homesite clearing, while some sections of the project also include underground
electric and telephone utilities. We began selling homesites at Mystic Shores in
March 2000.
Lake Ridge at Joe Pool Lake(TM) -- Cedar Hill, Texas. We acquired 1,400 acres
located approximately 19 miles outside of Dallas, Texas and 30 miles outside of
Fort Worth, Texas in April 1994 for $6.1 million. In fiscal 2000, we acquired an
additional 1,766 acres for $14.9 million. The property is located at Joe Pool
Lake and is atop the highest elevation within 100 miles. The lake has in excess
of 7,500 acres of water for boating, fishing, windsurfing and other water
activities. Adjacent amenities include a 154-acre park with baseball, football
and soccer fields, a fishing pool with a pier, camping areas and an 18-hole golf
course. The existing acreage will yield approximately 2,530 homesites, with most
homesites ranging in size from 1/4 to five acres. General improvements on the
homesites at Lake Ridge performed by us include, in most cases, water, sewer,
electric, telephone and cable television utilities as well as selective homesite
clearing. We began selling homesites at this project in April 1994.
Ridge Lake Shores(TM) -- Magnolia, Texas. In February 2001, we acquired 1,152
acres located approximately 25 minutes drive from Houston, Texas for $3.2
million. This property is expected to include approximately 660 homesites,
ranging in size from one to four acres, and will feature two private fishing
lakes, boat ramps, open-air pavilions, bathhouses, playgrounds and a beach area.
General improvements to the homesites in Ridge Lake Shores performed by us
include, in most cases, water and selective homesite clearing, while some
sections of the project have electric, cable, telephone and gas utilities. We
began selling homesites at this project in May 2001.
Mountain Springs Ranch(TM) -- Smithson Valley, Texas. In April 2003, we acquired
1,125 acres located approximately 15 miles north of San Antonio, Texas for $4.8
million. This master planned community offers wooded and acreage homesites with
views of the scenic Texas Hill Country. General improvements to the homesites in
Mountain Springs Ranch performed by us include, in most cases, water, selective
homesite clearing, electric and telephone. We began selling homesites at this
project in December 2003.
Virginia
Brickshire(TM) -- New Kent, Virginia. We acquired 1,135 acres located 20 miles
from Williamsburg and Richmond, Virginia, in September 1999 for $4.4 million.
The property will consist of approximately 1,065 homesites, ranging in size from
1/4 to 2.5 acres, and features an 18-hole golf course designed by U.S. Open
champion Curtis Strange. The property is also expected to offer residents a
community club, a pool, tennis courts and scenic walking trails. General
improvements on the homesites at Brickshire performed by us include, in most
cases, water and sewer utilities and selective homesite clearing. We began
selling homesites at this project in January 2000.
13
The following table shows certain information about the significant Bluegreen
Communities projects listed above:
Sanctuary
Cove at St. Catawba Mountain
Traditions of Andrews Falls Lakes Sliver Lakes
Community Braselton(TM) Sound(TM) Preserve(TM) Ranch(TM) Ranch(TM)
----------------------------------------------------------------------------------
Braselton, Waverly, Black Mountain, Bluffdale, Bowie,
Location GA GA NC TX TX
----------------------------------------------------------------------------------
Year acquired (1) 2003 2003 2002 1998 2002
Total acreage 1,142 500 785 4,100 2,463
Number of homesites
anticipated (2) 1,550 700 238 1,280 640
Percentage of anticipated
homesites sold (3) 20% 4% 27% 73% 43%
Estimated remaining
life-of-project sales (in
millions) (4) $54.4 $71.3 $14.4 $12.3 $14.7
Lake Ridge Mountain
at Joe Pool Ridge Lake Springs
Community Mystic Lake(TM) Shores(TM) Ranch(TM) Brickshire(TM)
Shores(TM)
----------------------------------------------------------------------------------
Canyon Lake, Cedar Hill, Magnolia, Smithson New Kent,
Location TX TX TX Valley, TX VA
----------------------------------------------------------------------------------
Year acquired (1) 1999 1994 2001 2003 1999
Total acreage 7,401 3,166 1,152 1,125 1,135
Number of homesites
anticipated (2) 2,400 2,530 660 625 1,065
Percentage of anticipated
homesites sold (3) 38% 69% 67% (less than) 1% 57%
Estimated remaining
life-of-project sales (in
millions) (4) $72.1 $74.8 $12.0 $28.9 $30.3
(1) Year that we first acquired the land to commence development of each
community. Certain communities were acquired in phases.
(2) Number of homesites anticipated within each community. We cannot provide
any assurance that we will have the resources, or will decide, to develop
such homesites at each community, that required platting and other
approvals will be obtained to develop such homesites or that such
homesites will be sold at favorable prices.
(3) This is the percentage of anticipated homesites sold through December 31,
2003.
(4) Estimated remaining life-of-project sales as of December 31, 2003. This
table excludes certain projects currently being marketed by Bluegreen
Communities with an aggregate estimated remaining life-of-project sales as
of December 31, 2003 of $51.9 million, or approximately 12% of Bluegreen
Communities total estimated remaining life-of-project sales.
We believe that each of our Bluegreen Communities projects are adequately
covered by builder's risk insurance during the construction period and property
and casualty insurance for homesites that are held in our inventory prior to
sale to consumers. Once a homesite is sold, the consumer assumes the risk of
loss on
14
such homesite. In addition, the applicable property owners' association bears
the risk of loss on any common amenities at each project.
We also purchase performance bonds on most of our projects, to provide assurance
to homesite buyers that construction of the project will be completed. We
believe that our ability to obtain such performance bonds assists us in our
pre-construction sales efforts.
Acquisition of Bluegreen Resorts and Bluegreen Communities Inventory
Bluegreen Resorts
We intend to continue to pursue growth by expanding or supplementing our
existing resorts operations through acquisitions in destinations that we believe
will complement such operations. We may consider acquiring additional VOI
inventory, operating companies, management contracts, VOI mortgage portfolios
and properties or other vacation ownership-related assets that may be integrated
into our operations. We currently intend to pursue the acquisition of real
estate or interests in real estate for Bluegreen Resorts in the areas in which
Bluegreen Resorts currently operates, with an emphasis on beachfront resorts and
the northeastern and western United States, although we may pursue acquisitions
in other areas. No assurances can be given that we will be successful in our
acquisition strategy.
We obtain information with respect to resort acquisition opportunities through
interaction by our management team with resort operators, lodging companies and
financial institutions with which we have established business relationships. We
evaluate the following factors, among others, to determine the viability of a
potential new vacation ownership resort:
o anticipated supply/demand ratio for VOIs in the relevant market;
o the market's potential growth as a vacation destination;
o competitive accommodation alternatives in the market;
o the uniqueness of location and demand for the location by existing
Bluegreen Vacation Club members and
o barriers to entry that would limit competition.
Bluegreen Communities
Bluegreen Communities seeks to acquire property that:
o is located near a major population center but outside the perimeter
of intense subdivision development or in popular retirement areas;
o is suitable for subdivision;
o has attractive topographical features;
o for certain projects, could accommodate a golf course and related
amenities and
o we believe will result in an acceptable profit margin and cash flow
to us based upon anticipated retail value.
Properties are generally subdivided for sale into homesites typically ranging in
size from 1/4 acre to 5 acres.
15
In connection with our review of potential Bluegreen Communities inventory, we
consider economic conditions in the area in which the parcel is located,
environmental sensitivity, availability of financing, whether the property is
consistent with our general policies and the anticipated ability of that
property to produce acceptable profit margins and cash flow. As part of our
long-term strategy for Bluegreen Communities, in recent years we have focused on
fewer, more capital-intensive projects. We intend to continue to focus Bluegreen
Communities on those regions where we believe the market for our products is
strongest, such as the southeast and southwest regions of the United States and
to replenish and increase our residential land inventory in such regions as
existing projects are sold-out.
Bluegreen Communities has established contacts with numerous land owners and
real estate brokers in many of our market areas, and because of such contacts
and our long history of acquiring properties, we believe that we are generally
in a favorable position to learn of available properties, sometimes before the
availability of such properties is publicly known. In order to ensure such
access, we attempt to develop and maintain strong relationships with major
property owners and brokers in our markets.
Prior to acquiring property in new areas, we will generally conduct test
marketing for a prospective project to determine whether sufficient customer
demand exists for the project.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by limiting the amount of the downpayment upon signing a purchase
agreement, we are typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy helps Bluegreen
Communities to reduce:
o the time during which it actually owns specific properties;
o the market risk associated with holding such properties and
o the risk of acquiring properties that may not be suitable for sale.
Marketing and Sale of Inventory
Bluegreen Resorts
Bluegreen Resorts uses a variety of methods to attract prospective purchasers of
VOIs, including selling discount mini-vacations through telemarketing methods or
at Bass Pro Shop locations (see further discussion of our relationship with Bass
Pro Shops, below), placing marketing kiosks in retail locations and acquiring
the right to market to prospective purchasers from third-party vendors. In
addition to attracting new customers, we seek additional sales to existing VOI
owners, such sales being called "upgrades", and referrals of prospective
purchasers from existing VOI owners and others. Upgrade and referral sales
require relatively less marketing expense and result in relative higher
operating margins than sales through other marketing channels. Bluegreen Resorts
sometimes provides hotel accommodations to prospective purchasers at reduced
rates in exchange for their touring one of our resorts. To support our marketing
and sales efforts, we have developed and work to continue to enhance our
customer relationship management methods, techniques and computer software tools
to track our VOI marketing and sales programs. We believe that as Bluegreen
Resorts' operations grow, this database will become an increasingly significant
asset, enabling us to focus our marketing and sales efforts to take advantage
of, among other things, less costly marketing and referral opportunities.
In recent years, we have been focusing on increasing Bluegreen Resorts use of
"permission" marketing and branding programs. "Permission" marketing methods
involve obtaining the prospective purchasers' permission, directly or
indirectly, to contact them in the future regarding an offer to purchase a
product or service. Branding involves forming alliances with third-party
entities that possess what we believe to be a nationally or regionally known
brand name, a good reputation and a customer base with similar demographic
characteristics to our target market.
16
In June 2000, we entered into an exclusive marketing agreement with Bass Pro,
Inc. and Big Cedar, L.L.C., a Bass Pro affiliate. Under the terms of the
ten-year agreement,we have the right to market our VOIs at each of Bass Pro's
national retail locations, in Bass Pro's catalogs and on Bass Pro's web site. We
also have access to Bass Pro's customer mailing lists. We believe that the
branding aspects of this alliance are consistent with our overall marketing
strategy for Bluegreen Resorts. In exchange for these services, we agreed to pay
Bass Pro a commission of either 7.0% or 3.5%, depending on certain
circumstances, on each sale of a VOI that is made through one of the Bass Pro
marketing channels described above. The amount of the commission is dependent on
the level of additional marketing efforts required by us to convert the prospect
into a sale and a defined time frame for such marketing efforts. There is no
commission paid to Bass Pro on sales made by the Big Cedar Wilderness Club sales
office, as this sales office is part of a joint venture between Big Cedar,
L.L.C. and us. We currently market discounted three-day, two-night mini-vacation
packages at most of Bass Pro's national retail locations. Each mini-vacation
package requires the buyer to participate in a sales presentation at either a
Bluegreen Vacation Club sales office or the Big Cedar Wilderness Club sales
office, which is one of our "permission" marketing techniques. We also have an
exclusive VOI marketing presence on Bass Pro's web site, which is linked to our
web site. We believe that this arrangement results in effective and
cost-efficient marketing for Bluegreen Resorts.
On June 16, 2000, we prepaid $9.0 million to Bass Pro in connection with the
above marketing agreement. The prepayment is amortized from commissions earned
by Bass Pro and member distributions otherwise payable to Big Cedar, L.L.C. from
the earnings of the joint venture. No additional commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, L.L.C.,
respectively, until the prepayment has been fully utilized. The marketing
agreement expires on the earlier of: (i) June 16, 2010 or (ii) such time as
ninety percent 90% of the joint venture's proposed VOIs have been sold and
conveyed. As of December 31, 2003, the unamortized balance of the prepayment to
Bass Pro was approximately $6.1 million.
On October 2, 2002, through our wholly-owned subsidiary, Great Vacation
Destinations, Inc. ("GVD"), we also acquired substantially all of the assets and
assumed certain liabilities of TakeMeOnVacation, LLC and certain of its
affiliates ("TMOV"). Utilizing the assets acquired from TMOV, GVD generates
"permission" marketing sales leads for VOI sales utilizing various marketing
strategies. Through the application of a proprietary, computer software system,
these leads are then contacted and given the opportunity to purchase discount
mini-vacation packages. These packages sometimes combine hotel stays, cruises
and gift premiums. Buyers of these mini-vacation packages are then usually
required to participate in a VOI sales presentation. GVD seeks to generate sales
prospects for our VOI sales business and for sales prospects that will be sold
to other VOI developers. We believe that GVD's "permission" marketing lead
generation programs and the potential benefits of tracking and controlling the
subsequent marketing efforts are consistent with Bluegreen Resorts overall
marketing strategy.
Also in October 2002, in connection with the acquisition of land and completed
VOIs from Boyne USA Resorts ("Boyne") , we obtained the right to market the
Bluegreen Vacation Club at two of Boyne's resort properties: Boyne Mountain and
Boyne Highlands. In addition, Bluegreen Resorts entered into an exclusive
marketing arrangement with an affiliate of Boyne, Boyne Country Sports ("BCS").
BCS owns and operates six ski, snowboard and golf equipment retail stores
throughout Michigan. Bluegreen Resorts intends to market our vacation club
through a variety of programs directed to BCS's customer base. We believe that
these arrangements will allow Bluegreen Resorts to benefit from marketing to
customers which it believe are within our target demographic through an
affiliation with a known regional brand.
VOI resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are our
employees. We sponsor ongoing training for our personnel. During the year ended
December 31, 2003, total selling and marketing expense for Bluegreen Resorts was
$132.1 million or 52% of the division's $253.9 million in sales.
We require our sales staff to provide each VOI customer with a written
disclosure statement regarding the VOI to be sold prior to the time the customer
signs a purchase agreement. This disclosure statement explains relevant
information regarding VOI ownership at the resort and must be signed by every
purchaser. After deciding to purchase a VOI, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers are entitled to cancel purchase
17
agreements within required legal rescission periods after execution in
accordance with statutory requirements. Substantially all VOI purchasers visit
one of our resorts or one of our off-site sales offices prior to purchasing.
In addition to sales offices located at our resorts, we also operate four
off-site sales offices serving the Indianapolis, Indiana; Detroit, Michigan;
Harbor Springs, Michigan; and Minneapolis, Minnesota markets. Our off-site sales
offices market and sell VOIs in the Bluegreen Vacation Club, and allow us to
bring our products to markets with favorable demographics and low competition
for prospective buyers. The Harbor Springs office opened for sales in March 2003
and is located adjacent to the Boyne Highlands Resort, which is owned and
operated by Boyne. The Minneapolis office, which is located near the Mall of
America, opened for sales in November 2002. We continue to evaluate our ongoing
utilization of off-site sales operations and may elect to open new locations or
close existing locations in the future.
Bluegreen Communities
In general, as soon as practicable after agreeing to acquire a property and
during the time period that improvements are being completed, we establish
selling prices for the individual homesites. We take into account such matters
as regional economic conditions, quality as a building site, scenic views, road
frontage, golf course views (if applicable) and natural features such as lakes,
mountains, streams, ponds and wooded areas. We also consider recent sales of
comparable parcels in the area. Once selling prices are established, we commence
our marketing efforts.
The marketing method most widely used by Bluegreen Communities is advertising in
local newspapers and in major newspapers in metropolitan areas located within a
one to three hour drive from the property. In addition, we use our customer
relationship management system, which enables us to identify prospects who we
believe are most likely to be interested in a particular project. Bluegreen
Communities also conducts direct mail campaigns to market property through the
use of brochures describing available homesites, as well as television billboard
and radio advertising. Through our sales and marketing programs, we believe that
we have been able to achieve a high conversion ratio of sales to prospects
receiving on-site sales presentations. A sales representative who is
knowledgeable about the property answers inquiries generated by our marketing
efforts, discusses the property with the prospective purchaser, attempts to
ascertain the purchaser's needs, determines whether the parcel would be suitable
for that person and arranges an appointment for the purchaser to visit the
property. Substantially all prospective purchasers inspect a property before
purchasing.
The success of our marketing efforts depends heavily on the knowledge and
experience of our sales personnel. We require that, prior to initiating the
marketing effort for a property, all sales representatives walk the property and
become knowledgeable about each parcel and applicable zoning, subdivision and
building code requirements. Continued training programs are conducted, including
training with regional office sales managers, weekly sales meetings and frequent
site visits by our executive officers. We enhance our sales and marketing
organization through the Bluegreen Institute, a mandatory training program that
is designed to instill our marketing and customer service philosophy in middle
and lower-level management. Additionally, the sales staff is evaluated against
performance standards established by our executive officers. Substantially all
of a sales representative's compensation is commission-based.
We require our sales staff to provide each prospective purchaser with a written
disclosure statement regarding the property to be sold prior to the time such
purchaser signs a purchase agreement. This information statement, which is
either in the form of a U.S. Department of Housing and Urban Development ("HUD")
lot information statement, where required, or a "Vital Information Statement"
that we generate states relevant information with respect to, and risks
associated with, the property and must be signed by each purchaser.
After deciding to purchase a homesite, a purchaser enters into a purchase
agreement and is required to pay us a deposit of at least 10% of the purchase
price. Purchasers may cancel purchase agreements within specified periods after
execution in accordance with statutory requirements. The closing of a homesite
sale usually occurs two to eight weeks after payment of the deposit. Upon
closing of a homesite sale, we
18
typically deliver a warranty deed and a recent survey of the property to the
purchaser. Title insurance is available at the purchaser's expense.
Customer Financing
General
During the year ended December 31, 2003, we financed approximately 71% of the
aggregate purchase price of our sales of VOIs and homesites to customers that
closed during these periods and received cash for the remaining balance of the
purchase price. Sales of VOIs accounted for 71% of consolidated sales during the
year ended December 31, 2003. Approximately 99% of the aggregate purchase price
of our sales of VOIs were financed with us during the year ended December 31,
2003. In recent years, the percentage of Bluegreen Communities customers who
utilized our financing has been less than 5% of all homesite purchasers due to,
among other things, an increased willingness on the part of banks to extend
direct lot financing to purchasers.
We offer financing of up to 90% of the purchase price of our VOIs. The typical
financing extended by us on a VOI during the year ended December 31, 2003,
provided for terms of seven or ten years and a fixed interest rate. In
connection with our VOI sales within our vacation club system, we deliver the
deed on behalf of the purchasers to the trustee of our vacation club and secure
repayment of the purchaser's obligation by obtaining a mortgage on the
purchaser's VOI.
The weighted-average interest rate on our notes receivable by division was as
follows:
As of
---------------------------------
Division December 31, December 31,
--------------------------- 2002 2003
---- ----
Bluegreen Resorts.......... 15.3% 14.9%
Bluegreen Communities...... 10.2% 9.1%
Consolidated............... 14.4% 14.3%
See "Sale of Receivables/Pledging of Receivables," below, for information
regarding our receivable financing activities.
Loan Underwriting
Bluegreen Resorts
Consistent with industry practice, our VOI financing is not subject to any
significant loan underwriting criteria. Currently, customer financing on sales
of VOIs typically requires (i) receipt of a minimum downpayment of 10% of the
purchase price, (ii) a note and mortgage and (iii) other closing documents
between the purchaser and ourselves. We encourage purchasers to make higher
downpayments by offering a lower interest rate. In addition, purchasers who do
not elect to participate in our pre-authorized payment plan are charged interest
at a rate which is 1% greater than the otherwise prevailing rate. As of December
31, 2003, approximately 75% of our VOI notes receivable serviced were on our
pre-authorized payment plan.
Bluegreen Communities
We have established loan underwriting criteria and procedures designed to reduce
credit losses. The loan underwriting process undertaken by our credit department
includes reviewing the applicant's credit history, verifying employment and
income as well as calculating certain debt-to-income ratios. The primary focus
of our underwriting review is to determine the applicant's ability to repay the
loan in accordance with our terms.
19
Collection Policies
Bluegreen Resorts
Collection efforts and delinquency information concerning Bluegreen Resorts'
notes receivable are managed at our corporate headquarters. Servicing of the
division's receivables is handled by a staff of experienced collectors, assisted
by a mortgage collection computer system. We generally make collection efforts
by mail and telephone. Our vacation ownership receivables originated prior to
fiscal 1999 were documented by contracts for deed, which allows us to retain
title to the VOI until the obligation is paid in full, thereby eliminating the
need to foreclose in the event of a default. If a contract for deed becomes
delinquent for ten days, telephone contact commences with the customer. If the
customer fails to bring the account current, we mail a late notice when the
account is 16 days delinquent. After an account is 30 days delinquent, we
typically send a second letter advising the customer that such customer has 30
days within which to bring the account current. Under the terms of the contract
for deed, the borrower is in default when the account becomes 60 days
delinquent. At this time, we send a default letter advising the customer that he
or she has 30 days to bring the account current or lose his or her contractual
interest in the VOI. When the account becomes 90 days delinquent, we forward a
final letter informing the customer that the contract for deed has been
terminated. We can then resell the VOI to a new purchaser.
In fiscal 1999, in connection with the implementation of the Bluegreen Vacation
Club, we converted to a note and mortgage arrangement. In addition to the 16 and
30-day collection correspondence outlined above, at 60 days delinquent, we send
a lock-out letter to our vacation club customer prohibiting the customer from
making a reservation for lodging at a resort property. If the default continues,
at 90 days delinquent, we mail a Notice of Intent to Cancel Membership and we
stop the accrual of interest on the note receivable. The Notice informs the
customer that unless the default is cured within 30 days, we will terminate
membership in our vacation club. If the default is not cured, we send a
Termination Letter, typically at 120 days. We can then resell the VOI to a new
purchaser.
Bluegreen Communities
Collection efforts and delinquency information concerning Bluegreen Communities'
notes receivable are also managed at our corporate headquarters. A staff of
experienced collectors handles servicing of the division's receivables. We
generally make collection efforts by mail and telephone. Collection efforts
begin when an account is ten days past due, at which time we contact the
customer by telephone and attempt to determine the reason for the delinquency
and to bring the account current. The determination of how to handle a
delinquent loan is based upon many factors, including the customer's payment
history and the reason for the current inability to make timely payments. If no
agreement is reached or the customer does not abide by the agreement, collection
efforts continue until the account is either brought current or legal action is
commenced. If not accelerated sooner, we typically declare the loan in default
when the loan becomes 60 days delinquent. When the loan is 90 days past due, we
stop the accrual of interest (unless the loan is considered an in-substance
foreclosure loan, in which case all accrued interest is reversed since our means
of recovery is determined through the resale of the underlying collateral and
not through collection on the note) and the Credit/Collection Manager determines
the action to be taken.
Loan Loss Reserves
The allowance for loan losses as a percentage of our outstanding notes
receivable was approximately 7% and 8% at December 31, 2002 and 2003,
respectively. We determine the adequacy of our reserve for loan losses and
review it on a regular basis considering, among other factors, historical
frequency of default, loss experience, static pool analyses, estimated value of
the underlying collateral, present and expected economic conditions as well as
other factors. During the year ended March 31, 2002, the nine months ended
December 31, 2002 and the year ended December 31, 2003, the default rates on
Bluegreen Resorts' and Bluegreen Communities' receivables owned or serviced by
us were as follows:
20
Year Ended Nine Months Ended Year Ended
March 31, December 31, December 31,
Division 2002 2002 2003
-------------------------- ---- ---- ----
Bluegreen Resorts.......... 8.1% 4.4% 7.9%
Bluegreen Communities...... 2.0% 2.2% 2.0%
The default rate for Bluegreen Resorts was lower during the nine months ended
December 31, 2002 as compared to the years ended March 31, 2002 and December 31,
2003, as the months of January through March each year historically have had
higher seasonally adjusted default rates than other months during the year.
Sales of Receivables/Pledging of Receivables
During the year ended March 31, 2002, the nine months ended December 31, 2002,
and the year ended December 31, 2003, all of our notes receivable sold and the
majority of our notes receivable pledged consisted of notes receivable generated
by Bluegreen Resorts.
Since 1986, we have sold or pledged a significant amount of our receivables,
generally retaining the right and obligation to service such receivables. In the
case of Bluegreen Communities' receivables, we historically transferred the
receivables to a special purpose finance subsidiary once we generated a
sufficient pool of receivables, and the subsidiary in turn entered into a
receivables securitization. The receivables were typically sold by such
subsidiary with limited or no recourse. In the case of receivables pledged to a
financial institution, we generally must maintain a debt to eligible collateral
rate (based on the outstanding principal balance of the pledged loans) of 90%.
We are obligated to pledge additional eligible receivables or make additional
principal payments in order to maintain this collateralization rate. Repurchases
and additional principal payments have not been material to date.
Since fiscal 1999, we have maintained various vacation ownership receivables
purchase facilities with financial institutions. Our ability to sell and/or
borrow against our notes receivable from VOI buyers is a critical factor in our
continued liquidity. The vacation ownership business involves making sales of a
product pursuant to which a financed buyer is only required to pay a minimum of
10% of the purchase price in cash up front, yet selling, marketing and
administrative expenses are primarily cash expenses and which, in our case for
the year ended December 31, 2003, approximated 59% of sales. Accordingly, having
facilities for the sale and hypothecation of these vacation ownership
receivables is a critical factor to our meeting our short and long-term cash
needs.
The vacation ownership receivables purchase facilities that we have historically
maintained have typically utilized an owner's trust structure, pursuant to which
we sell receivables to one of our wholly-owned, special purpose finance
subsidiaries. These subsidiaries then sell the receivables to an owners' trust
(qualified special purpose entity) without recourse to us or our subsidiaries
except for breaches of certain representations and warranties at the time of
sale. We historically have not entered into any guarantees in connection with
our vacation ownership receivables purchase facilities. These facilities usually
have detailed requirements with respect to the eligibility of receivables for
purchase and fundings under these facilities are typically subject to certain
conditions precedent. Under such purchase facilities, a variable purchase price
of a portion of the principal balance of the receivables sold, subject to
certain terms and conditions, is paid at closing in cash. The balance of the
purchase price is deferred until such time as the purchaser of our vacation
ownership receivables has received a specified return and all servicing,
custodial, agent and similar fees and expenses have been paid. We have
historically acted as servicer of the vacation ownership receivables we have
sold under these purchase facilities for a fee.
Our vacation ownership receivables purchase facilities typically include various
conditions to purchase, covenants, trigger events and other provisions customary
for these types of transactions.
21
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition - Vacation Ownership Receivables Purchase Facility - An Off Balance
Sheet Arrangement" for information about our current VOI receivables purchase
facility.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and remitting
such funds to the owners, lenders or investors in such receivables, accounting
for principal and interest on such receivables, making advances when required,
contacting delinquent borrowers, foreclosing, or terminating a contract for deed
or membership in our vacation club in the event that defaults are not remedied
and performing other administrative duties. Our obligation to service the
receivables and our right to collect fees for a given pool of receivables are
set forth in a servicing agreement. We have the obligation and right to service
all of the receivables we originate and have retained the obligation and right
with respect to the receivables we have sold under any of our vacation ownership
receivable purchase facilities to date, although in certain circumstances the
purchasers may elect to appoint a new servicer. We typically receive an annual
servicing fee ranging from approximately 0.5% to 2.0% of the principal balance
of the loans serviced on behalf of others. During the year ended March 31, 2002,
the nine months ended December 31, 2002 and the year ended December 31, 2003, we
recognized aggregate servicing fee income of $2.7 million, $2.5 million and $3.8
million, respectively.
Regulation
The vacation ownership and real estate industries are subject to extensive and
complex regulation. We are subject to compliance with various federal, state,
local and foreign environmental, zoning, consumer protection and other statutes
and regulations regarding the acquisition, subdivision and sale of real estate
and VOIs and various aspects of our financing operations. On a federal level,
the Federal Trade Commission has taken an active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. In addition to the laws applicable to our
customer financing and other operations discussed below, we are or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. We are also subject to various foreign laws with respect to La
Cabana. In addition, there can be no assurance that in the future, VOIs will not
be deemed to be securities subject to regulation as such, which could have a
material adverse effect on us. There is no assurance that the cost of complying
with applicable laws and regulations will not be significant or that we are in
compliance with all applicable laws, including those discussed below. Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
Our sales and marketing of homesites are subject to various consumer protection
laws and to the Interstate Land Sales Full Disclosure Act, which establishes
strict guidelines with respect to the marketing and sale of land in interstate
commerce. HUD has enforcement powers with respect to this statute. In some
instances, we have been exempt from HUD registration requirements because of the
size or number of the subdivided parcels and the limited nature of our
offerings. We, at our discretion, may formally request an exemption advisory
opinion from HUD to confirm the exempt status of any particular offering. We
have submitted several such exemption requests to, and each has been approved
by, HUD. In those cases where we and our legal counsel determine parcels must be
registered to be sold, we file registration materials disclosing financial
information concerning the property, evidence of title and a description of the
intended manner of offering and advertising such property. We bear the cost of
such registration, which includes legal and filing fees. Many states also have
statutes and regulations governing the sale of real estate. Consequently, we
regularly consult with counsel for assistance in complying with federal, state
and local law. We must obtain the approval of numerous governmental authorities
for our acquisition and marketing activities and changes in local circumstances
or applicable laws may necessitate the application for, or the modification of,
existing approvals.
Our vacation ownership resorts are subject to various regulatory requirements
including state and local approvals. The laws of most states require us to file
with a designated state authority a detailed offering statement describing our
business and all material aspects of the project and sale of VOIs. Laws in each
state where we sell VOIs generally grant the purchaser of a VOI the right to
cancel a contract of purchase at
22
any time within a specified rescission period following the earlier of the date
the contract was signed or the date the purchaser has received the last of the
documents required to be provided by us. Most states have other laws that
regulate our activities, including: real estate licensure; sellers of travel
licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Under these laws, future
owners may recover from us amounts in connection with the repairs made to the
developed property. As required by state laws, we provide our VOI purchasers
with a public disclosure statement that contains, among other items, detailed
information about the surrounding vicinity, the resort and the purchaser's
rights and obligations as a VOI owner.
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, the property, as well as related costs of investigation and
property damage. These laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of these substances, or the failure
to properly remediate these substances, may adversely affect the owner's ability
to sell or lease a property or to borrow using the real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when this material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
Our customer financing activities are also subject to extensive regulation,
which may include, the Truth-in-Lending Act and Regulation Z, the Fair Housing
Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act
and Regulation B, the Electronic Funds Transfer Act and Regulation E, the Home
Mortgage Disclosure Act and Regulation C, Unfair or Deceptive Acts or Practices
and Regulation AA, and the Right to Financial Privacy Act and the
Gramm-Leach-Bliley Act.
During the year ended December 31, 2003, approximately 11% of our VOI sales were
generated by marketing to prospective purchasers obtained through internal and
affiliated telemarketing efforts. In addition, approximately 23% of our VOI
sales during the year ended December 31, 2003, were generated by marketing to
prospective purchasers obtained from third-party VOI prospect vendors, many of
whom use telemarketing operations to generate these prospects. In recent years,
state regulators have increased legislation and enforcement regarding
telemarketing operations, including requiring the adherence to state "do not
call" lists. In addition, the Federal Trade Commission has implemented national
"do not call" legislation. We believe that our exposure to adverse impacts from
this heightened telemarketing legislation and enforcement has been and will
continue to be mitigated in some instances by the use of "permission marketing"
techniques, whereby prospective purchasers have directly or indirectly granted
us permission to contact them in the future, and through our exclusive marketing
agreement with Bass Pro. We have implemented procedures which we believe will
help ensure that individuals who have formally requested to the applicable
federal or state regulators that they be placed on a "do not call" list are not
contacted through one of our inhouse or third-party contracted telemarketing
operations, although there can be no assurance that such procedures will be
effective in ensuring regulatory compliance. These measures have increased and
are expected to continue to increase our marketing costs. Through December 31,
2003, we have not been subject to any material fines or penalties as a result of
our telemarketing operations. However, there is no assurance that we will be
able to efficiently or effectively market to prospective purchasers through
telemarketing operations in the future or that we will be able to develop
alternative sources of prospective purchasers of our VOI products at acceptable
costs.
Competition
Bluegreen Resorts competes with various high profile and well-established
operators. Many of the world's most recognized lodging, hospitality and
entertainment companies develop and sell VOIs in resort properties. Major
companies that now operate or are developing or planning to develop vacation
ownership resorts include Marriott International, Inc., the Walt Disney Company,
Hilton Hotels Corporation, Hyatt
23
Corporation, Four Seasons Hotels and Resorts, Starwood Hotels and Resorts
Worldwide, Inc. and Cendant Corporation. We also compete with numerous other
smaller owners and operators of vacation ownership resorts. In addition to
competing for sales leads and prospects, we compete with other VOI developers
for sales personnel. We believe that each of our vacation ownership resorts
faces the same general competitive conditions. Although, as noted above,
Bluegreen Resorts competes with various high profile and well-established
operators, we believe that we can compete on the basis of our general
reputation; the price, location and quality of our vacation ownership resorts
and the flexibility of our points-based Bluegreen Vacation Club product. The
development and operation of additional vacation ownership resorts in our
markets could have a material adverse impact on the demand for our VOIs and our
results of operations.
Bluegreen Communities competes with builders, developers and others for the
acquisition of property and with local, regional and national developers,
housebuilders and others with respect to the sale of homesites. Competition may
be generally less intense with respect to our homesite sales in the more rural
markets in which it operates. We believe that each of our Bluegreen Communities
projects faces the same general competitive conditions. We believe that we can
compete on the basis of our reputation and the price, location and quality of
the products we offer for sale, as well as on the basis of our experience in
land acquisition, development and sale.
Our golf courses face competition for business from other operators of daily fee
and, to a lesser extent, private golf courses within the local markets where we
operate. Competition in these markets affects the rates that we charge per round
of golf, the level of maintenance on the golf courses and the types of
additional amenities available to golfers, such as food and beverage operations.
We do not believe that such competitive factors have a material adverse impact
on our results of operations or financial position.
In our customer financing activities, we compete with banks, mortgage companies,
other financial institutions and government agencies offering financing of real
estate. In recent years, we have experienced increased competition with respect
to the financing of Bluegreen Communities sales as evidenced by the low
percentage of homesite sales internally financed since 1995.
Website Access to Exchange Act Reports
We post publicly available reports required to be filed with the SEC ("Exchange
Act Reports") on our website, www.bluegreenonline.com, as soon as reasonably
practicable after filing such reports with the SEC. We also make available on
our website the beneficial ownership reports (Forms 3, 4 and 5) filed by our
officers, directors and other reporting persons under Section 16 of the
Securities Exchange Act of 1934. Our website and the information contained
therein or connected thereto are not incorporated into this Annual Report on
Form 10-K.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The website address for this site is www.sec.gov.
Personnel
As of December 31, 2003, we had 3,370 employees. Of the 3,370 employees, 359
were located at our headquarters in Boca Raton, Florida, and 3,011 in regional
field offices throughout the United States and Aruba (the field personnel
include 364 field employees supporting Bluegreen Communities and 2,647 field
employees supporting Bluegreen Resorts). Only our employees in Aruba are
represented by a collective bargaining unit, and we believe that our relations
with our employees are generally good.
24
Executive Officers
The following table sets forth certain information regarding our executive
officers as of March 17, 2004.
Name Age Position
------------------------- --- --------
George F. Donovan........ 65 President and Chief Executive Officer
John F. Chiste........... 47 Senior Vice President, Chief Financial
Officer and Treasurer
Daniel C. Koscher........ 46 Senior Vice President -- President,
Bluegreen Communities
John M. Maloney, Jr...... 42 Senior Vice President -- President,
Bluegreen Resorts
Sheila Beauchesne........ 39 Senior Vice President and Chief
Information Officer
Allan J. Herz............ 44 Senior Vice President, Mortgage
Operations
Douglas O. Kinsey........ 45 Senior Vice President, Acquisitions
and Development
Susan J. Milanese........ 44 Senior Vice President and Chief Human
Resources Officer
Anthony M. Puleo......... 36 Senior Vice President and Chief
Accounting Officer
Randi S. Tompkins........ 43 Vice President, Director of Corporate
Legal Affairs and Clerk
George F. Donovan joined us as a Director in 1991 and was appointed President
and Chief Operating Officer in October 1993. He became Chief Executive Officer
in December 1993. Mr. Donovan has served as an officer of a number of other
recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Mr. Donovan holds a B.S. in Electrical Engineering and is a Registered Resort
Professional.
John F. Chiste joined us in 1997 as Treasurer and Chief Financial Officer. In
1998, Mr. Chiste was also named Senior Vice President. From January 1997 to June
1997, Mr. Chiste was the Chief Financial Officer of Compscript, Inc., an entity
that provides institutional pharmacy services to long-term health care
facilities. From December 1992 to January 1997, he served as the Chief Financial
Officer, Secretary and Treasurer of Computer Integration Corporation, a
publicly-held distribution company that provides information products and
services to corporations nationwide. From 1983 through 1992, Mr. Chiste held
various positions with Ernst & Young LLP, most recently serving as a Senior
Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified Public
Accountant.
Daniel C. Koscher joined us in 1986. During his tenure, he has served in various
financial management positions including Chief Accounting Officer and Vice
President and Director of Planning/Budgeting. In 1996, he became Senior Vice
President-- President, Bluegreen Communities. Prior to his employment with us,
Mr. Koscher was employed by the William Carter Company, a manufacturing company
located in
25
Needham, Massachusetts. He has also been employed by Cipher Data Products, Inc.,
a computer peripheral manufacturer located in San Diego, California, as well as
the State of Nevada as an audit agent. Mr. Koscher holds an M.B.A. along with a
B.B.A. in Accounting and is a Registered Resort Professional.
John M. Maloney, Jr. joined us in 2001 as Senior Vice President of Operations
and Business Development for Bluegreen Resorts. In May 2002, Mr. Maloney was
named our Senior Vice President and President of Bluegreen Resorts. From 1997 to
2000, Mr. Maloney served in various positions with ClubCorp, most recently as
the Senior Vice President of Sales and Marketing for the Owners Club by
ClubCorp. From 1994 to 1997, Mr. Maloney held various positions with Hilton
Grand Vacations Company, most recently as the Director of Sales and Marketing
for the South Florida area. Mr. Maloney holds a bachelors degree in Economics.
Sheila Beauchesne joined us in 2004 as Senior Vice President and Chief
Information Officer. From 1997 to 1999, Ms. Beauchesne served as Vice President
of Information Technology for the North American Rental Group of AutoNation,
Inc., a publicly held automobile retailer. From 1999 to 2003, Ms. Beauchesne was
the Senior Vice President and Chief Information Officer of Martha Stewart Living
Omnimedia, Inc., a publicly held, integrated content and commerce company that
creates "how-to" content and domestic merchandise for homemakers and other
consumers. Ms. Beauchesne holds a B.S. in Computer Science.
Allan J. Herz joined us in 1992 and was named Director of Mortgage Operations in
September 1992. Mr. Herz was elected Vice President in 1993 and Senior Vice
President in 2004. From 1982 to 1992, Mr. Herz worked for AmeriFirst Federal
Savings Bank based in Miami, Florida. During his 10-year tenure with the bank,
he held various lending positions, the most recent being Division Vice President
in Consumer Lending. Mr. Herz holds a B.B.A. and an M.B.A.
Douglas O. Kinsey joined us in 2003 as Senior Vice President, Acquisitions and
Development. From 1997 to 2003, Mr. Kinsey served as Senior Vice President of
Real Estate Acquisitions for Fairfield Resorts, a vacation ownership resort
developer that was publicly-traded until its acquisition by another publicly
held company, Cendant Corporation. Mr. Kinsey holds a B.S.B.A. in finance.
Susan J. Milanese joined us in 1988. During her tenure, she has held various
management positions with us including Assistant to the Chief Financial Officer,
Divisional Controller and Director of Accounting. In 1995, she was elected Vice
President and Director of Human Resources and Administration. In 2004, Ms.
Milanese was elected Senior Vice President and Chief Human Resources Officer.
From 1983 to 1988, Ms. Milanese was employed by General Electric Company in
various financial management positions including the corporate audit staff. Ms.
Milanese holds a Masters of Science in Human Resource Management and a B.B.A. in
Accounting.
Anthony M. Puleo joined us in 1997 as Chief Accounting Officer. In 1998, Mr.
Puleo was elected Vice President and he was elected Senior Vice President in
2004. From December 1990 through October 1997, Mr. Puleo held various positions
with Ernst & Young LLP, most recently serving as a Senior Manager in the
Assurance and Advisory Business Services group. Mr. Puleo holds a B.B.A. in
Accounting.
Randi S. Tompkins joined us in 1998 as Assistant Director of Legal Affairs and
was elected Vice President and Director of Corporate Legal Affairs and Clerk in
2002. From March 1995 to October 1998, Ms. Tompkins was a sole practitioner
attorney, specializing in commercial transactions and commercial and residential
real estate matters. Concurrent with her law practice, Ms. Tompkins owned and
operated a real estate title insurance company. From 1989 to 1994, Ms. Tompkins
was an attorney with the law firm of Michael S. Weiner and Associates. Ms.
Tompkins holds a B.A. in American Studies along with a J.D.
Our By-Laws provide that, except as otherwise provided by law or our charter and
by-laws, the President, Treasurer and the Clerk hold office until the first
meeting of the Board of Directors following the next annual meeting of
shareholders and until their respective successors are chosen and qualified and
that all other officers hold office for the same period unless a shorter time is
specified in the vote appointing such officer or officers.
26
Item 2. PROPERTIES.
Our principal executive office is located in Boca Raton, Florida in
approximately 86,000 square feet of leased space. On December 31, 2003, we also
maintained regional sales offices in the Northeastern, Mid-Atlantic,
Southeastern, Midwestern, Southwestern and Western regions of the United States
as well as the Province of Ontario, Canada and the island of Aruba. For a
further description of our resort and communities properties, please see "Item
1. Business--Company Products."
Item 3. Legal Proceedings.
On August 21, 2000, we received a notice of Field Audit Action (the "First
Notice") from the State of Wisconsin Department of Revenue (the "DOR") alleging
that two corporations purchased by us had failed to collect and remit sales and
use taxes totaling $1.9 million to the State of Wisconsin prior to the purchase
during the period from January 1, 1994 through September 30, 1997. On May 24,
2003, we received a second Notice of Field Audit Action (the "Second Notice")
from DOR alleging that the two subsidiaries failed to collect and remit sales
and use taxes to the State of Wisconsin during the period from April 1, 1998
through March 31, 2002 totaling $1.4 million. The majority of the assessment is
based on the subsidiaries not charging sales tax to purchasers of VOIs at our
Christmas Mountain Village resort during the period from January 1, 1994 through
December 31, 1999, when the Wisconsin statute requiring sales tax on certain VOI
sales was repealed. As of December 31, 2003, aggregate interest and penalties
under the First Notice and the Second Notice total approximately $2.8 million in
addition to the $3.3 million claimed due. We filed petitions for redetermination
with respect to the First Notice on October 19, 2000, and with respect to the
Second Notice on July 9, 2003. If the petitions are unsuccessful, we intend to
vigorously appeal the assessments.
We acquired the subsidiaries that were the subject of the notices in connection
with the acquisition of RDI Group, Inc. ("RDI") on September 30, 1997. Under the
RDI purchase agreement, we have the right to set off payments owed by us 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 to them for any breach of representations and warranties. One of the former
RDI stockholders is currently employed by us as the Senior Vice President of
Sales for Bluegreen Resorts. We have filed an action against the RDI
stockholders for damages arising out of the Wisconsin assessments based on this
right of indemnification and offset under the RDI purchase agreement and related
promissory note. The RDI stockholders have filed a counterclaim against us and a
third-party complaint against us and one of our wholly-owned subsidiaries
alleging that we and our subsidiary have failed to make the payments required
under the terms of the promissory note.
As the statute requiring the assessment of sales tax on sales of certain VOIs in
Wisconsin was repealed in December 1999 and based on the applicable statutes of
limitations, we believe our exposure in these matters is limited to that
discussed above. We have been engaging in active discussions with the DOR in an
effort to settle all claims related to the First Notice and the Second Notice.
There is no assurance that we will be successful in negotiating a favorable
settlement with the DOR or avoid incurring significant legal costs to defend
these matters. Based on our position in our petitions for redetermination, our
position that we have indemnification rights and a right of offset against the
former RDI stockholders, our intention to defend this matter vigorously and
other factors, we do not believe that the possible sales tax assessment pursuant
to the First Notice and the Second Notice will have a material adverse impact on
our results of operations or financial position, and therefore we have not
accrued any amounts relating to this matter. Should our attempts to reach a
favorable settlement with the DOR regarding this matter fail there is no
assurance that the outcome of this matter will be favorable and that in such
case the impact may have a material adverse impact on our results of operations
and financial position.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, sale or
financing of real estate. Additionally, from time to time, we
27
become involved in disputes with existing and former employees. We believe that
these claims are routine litigation incidental to our business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Archipelago Stock Exchange (formerly known as the Pacific Stock Exchange) under
the symbol "BXG". The following table sets forth, for the periods indicated, the
high and low closing price of our common stock as reported on the NYSE:
Price Range Price Range
High Low High Low
-------------------------------------------------------------------------------------------------------
The Nine Months Ended The Year Ended
December 31, 2002 December 31, 2003
----------------- -----------------
First Quarter $5.38 $3.38 First Quarter $3.70 $3.36
Second Quarter 3.53 2.75 Second Quarter 4.93 3.45
Third Quarter 3.90 3.08 Third Quarter 6.08 4.66
Fourth Quarter 7.07 5.54
There were approximately 1,053 record holders of our common stock as of March
24, 2004. The number of record holders does not reflect the number of persons or
entities holding their stock in "street" name through brokerage firms or other
entities.
We did not pay any cash or stock dividends during the nine months ended December
31, 2002, or the year ended December 31, 2003, Our Board of Directors has
discussed the possibility of paying cash dividends at some point in the future.
However, any decision by our Board to pay dividends will be based on our cash
postion, operating and capital needs and the restrictions discussed below, and
there is no assurance that we will pay cash dividends in the foreseeable future.
Restrictions contained in the Indenture related to our $110 million 10 1/2%
Senior Secured Notes due 2008 issued in April 1998 restrict, and the terms of
certain of our credit facilities may, in certain instances, limit the payment of
cash dividends on our common stock and restrict our ability to repurchase
shares.
On December 31, 2003, BankAtlantic Bancorp, Inc. ("BankAtlantic") (NYSE: BBX)
completed its spin-off of Levitt Corporation ("Levitt") (NYSE: LEV). In
connection with this spin-off, BankAtlantic transferred its ownership interest
in our common stock to Levitt. As a result, Levitt now beneficially owns
approximately 38% of our outstanding common stock.
From time to time, our Board of Directors has adopted and publicly announced a
share repurchase program. Repurchases under such programs are subject to the
price of our stock, prevailing market conditions, our financial condition and
available resources, other investment alternatives and other factors. We are not
required to seek shareholder approval of share repurchase programs, have not
done so in the past, and do not anticipate doing so in the future, except to the
extent we may be required to do so under applicable law. We have not repurchased
any shares since the fiscal year ended April 1, 2001. As of December 31,
2003,there were 694,500 shares remaining for purchase under our current
repurchase program, however we have no present intention of acquiring these
remaining shares in the foreseeable future.
Our shareholders have approved all of our equity compensation plans, which
consist of our 1985 Employee Stock Option Plan, our 1995 Stock Incentive Plan,
our 1988 Outside Directors' Stock Option Plan and our 1998 Non-Employee Director
Stock Option Plan. Information about securities authorized for issuance under
our equity compensation plans as of December 31, 2003, is as follows (in
thousands, except per option data):
28
Number of Securities Remaining
Number of Securities to be Weighted-Average Available for Future Issuance Under
Issued Upon Exercise of Exercise Price of Equity Compensation Plans (Excluding
Outstanding Stock Options Outstanding Stock Options Outstanding Stock Options)
--------------------------------------------------------------------------------------------------
2,792 $5.36 890
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report.
As of or for
As of or for the Years Ended the Nine As of or for
-------------------------------------------- Months the Year
Ended Ended
April 2, April 1, March 31, December 31, December 31,
2000 2001 2002 2002 2003
--------------------------------------------------------------------------------
Income Statement Data
Sales of real estate .................. $214,488 $229,874 $240,628 $222,655 $358,312
Other resort and communities
operations revenues ................. 21,745 24,649 25,470 27,048 55,394
Interest income ....................... 15,652 17,317 15,447 12,235 17,536
Gain on sales of notes
receivable .......................... 2,063 3,281 6,280 10,035 6,563
Other income .......................... 192 -- -- -- 649
-------- -------- -------- -------- --------
Total revenues ........................ 254,140 275,121 287,825 271,973 438,454
Income before income taxes,
minority interest and
cumulative effect of change
in accounting principle(1) .......... 10,565 3,002 19,482 24,671 45,325
Income before cumulative
effect of change in
accounting principle(1) ............ 6,777 2,717 11,732 15,376 25,827
Net income ............................ 6,777 2,717 11,732 9,797 25,827
Earnings per share before
cumulative effect of change in
accounting principle (1):
Basic ............................... 0.29 0.11 0.48 0.63 1.05
Diluted ............................. 0.28 0.11 0.46 0.58 0.94
Earnings per common share:
Basic ............................... 0.29 0.11 0.48 0.40 1.05
Diluted ............................. 0.28 0.11 0.46 0.39 0.94
Balance Sheet Data
Notes receivable, net ................. 70,114 74,796 55,648 61,795 94,194
Inventory, net ........................ 197,093 193,634 187,688 173,131 219,890
Total assets .......................... 413,983 419,681 435,161 433,992 570,406
Shareholders' equity .................. 134,044 136,790 149,656 158,283 186,880
Book value per common
share ............................... 5.50 5.65 6.16 6.44 7.49
29
As of or for
As of or for the Years Ended the Nine As of or for
-------------------------------------------- Months the Year
Ended Ended
April 2, April 1, March 31, December 31, December 31,
2000 2001 2002 2002 2003
----------------------------------------------------------------------------------
Selected Operating Data
Weighted-average interest
rate on notes receivable at
period end ........................ 15% 15% 15% 14% 14%
Bluegreen Resorts statistics:
VOI sales ......................... $117,271 $140,975 $144,226 $144,026 $253,939
Gross margin on VOI sales ......... 77% 78% 77% 75% 80%
Selling, general and
administrative expenses
as a percentage of VOI
sales (1) ....................... 72% 71% 65% 64% 59%
Field Operating Profit (2) ........ $ 7,410 $ 9,724 $ 19,729 $ 17,218 $ 49,514
Number of resorts at period
end ............................. 10 11 12 13 17
Number of VOI sale
transactions(3) ................. 13,518 16,240 16,414 16,347 26,839
Bluegreen Communities
Statistics:
Homesite sales .................... $ 97,217 $ 88,899 $ 96,402 $ 78,629 $104,373
Gross margin on homesite
sales ........................... 51% 46% 45% 46% 45%
Selling, general and
administrative expenses
as a percentage of
homesite sales .................. 27% 30% 28% 28% 32%
Field Operating
Profit (2) ...................... $ 22,587 $ 12,991 $ 15,415 $ 13,570 $ 12,580
Number of homesites
sold (3) ........................ 1,846 1,614 1,640 1,242 1,962
- ----------
(1) Effective April 1, 2002, we elected to change our accounting policy to
expense previously deferred costs of generating VOI tours through
telemarketing programs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Critical Accounting
Policies and Estimates" and Note 1 of the Notes to Consolidated Financial
Statements for further information.
(2) Field Operating Profit is operating profit prior to the allocation of
corporate overhead, interest income, gain on sales of notes receivable,
other income, provision for loan losses, interest expense, income taxes,
minority interest and cumulative effect of change in accounting
principles. See Note 19 of the Notes to Consolidated Financial Statements
for further information.
(3) Unit sales data includes those sales made during the applicable period
where recognition of revenue is deferred under the
percentage-of-completion method of accounting. See "Contracts Receivable
and Revenue Recognition" under Note 1 of the Notes to Consolidated
Financial Statements.
30
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Certain Definitions, Cautionary Statement Regarding Forward-Looking Statements
and Risk Factors
The following discussion of our results of operations and financial condition
should be read in conjunction with our Consolidated Financial Statements and
related Notes and other financial information included elsewhere in this Annual
Report. Unless otherwise indicated in this discussion (and throughout this
Annual Report), references to "real estate" and to "inventories" collectively
encompass the inventories held for sale by Bluegreen Resorts and Bluegreen
Communities.
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Reform Act of 1995 (the "Act") and are making the following
statements pursuant to the Act to do so. Certain statements in this Annual
Report and our other filings with the SEC constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and Section
21E of the Securities Exchange Act. You may identify these statements by
forward-looking words such as "may," "intend," "expect," "anticipate," "believe"
"will," "should," "project," "estimate," "plan" or other comparable terminology
or by other statements that do not relate to historical facts. All statements,
trend analyses and other information relative to the market for our products,
remaining life of project sales, our expected future sales, financial position,
operating results, liquidity and capital resources, our business strategy,
financial plan and expected capital requirements as well as trends in our
operations or results are forward-looking statements. These forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond our control, including changes in economic conditions,
generally, in areas where we operate, or in the travel and tourism industry,
increases in interest rates, changes in regulations and other factors discussed
throughout our SEC filings, all of which could cause our actual results,
performance or achievements, or industry trends, to differ materially from any
future results, performance, or achievements or trends expressed or implied
herein. Given these uncertainties, investors are cautioned not to place undue
reliance on these forward-looking statements and no assurance can be given that
the plans, estimates and expectations reflected herein will be achieved. Factors
that could adversely affect our future results can also be considered general
"risk factors" with respect to our business, whether or not they relate to a
forward-looking statement. We wish to caution you that the important factors set
forth below and elsewhere in this report in some cases have affected, and in the
future could affect, our actual results and could cause our actual consolidated
results to differ materially from those expressed in any forward-looking
statements.
Our continued liquidity depends on our ability to sell or borrow against our
notes receivable.
We offer financing of up to 90% of the purchase price to purchasers of VOIs or
homesites. Our customers financed approximately 99% of the aggregate sales price
of the VOIs and 3% of the aggregate sales price of the homesites sold by us
during the year ended December 31, 2003 using our inhouse financing. However, we
incur selling, marketing and administrative cash expenditures prior to and
concurrent with the sale. These costs generally exceed the downpayment we
receive at the time of the sale. Accordingly, our ability to borrow against or
sell the notes receivable we receive from our customers is a critical factor in
our continued liquidity. We generally pledge the receivables arising from our
sales of VOIs to institutional lenders. We are also a party to a number of
customary securitization-type transactions under which we sell receivables to a
wholly-owned special purpose entity which, in turn, sells the receivables either
directly to third parties or to a trust established for the transaction. If our
pledged receivables facilities terminate or expire and we are unable to replace
them with comparable facilities, or if we are unable to continue in our
participation in securitizations of the type to which we are currently a party,
our liquidity and cash flow would be materially and adversely affected. If any
of our current facilities terminate or expire, there is no assurance that we
will be able to negotiate the pledge or sale of such customer notes at favorable
rates, or at all.
31
We depend on additional funding to finance our operations.
We anticipate that we will finance our future business activities, in whole or
in part, with indebtedness that we obtain pursuant to additional borrowings
under our existing credit facilities, under credit facilities that we may obtain
in the future or under securitizations in which we may participate in the
future. However, we cannot assure you that we will be able to obtain sufficient
external sources of liquidity on attractive terms, or at all. Moreover, we will
be required to seek external sources of liquidity to:
o support our operations;
o finance the acquisition and development of VOI inventory and
residential land;
o finance a substantial percentage of our sales; and
o satisfy our debt and other obligations.
Our ability to service or to refinance our indebtedness or to obtain additional
financing (including our ability to consummate future notes receivable
securitizations) depends on our future performance, which is subject to a number
of factors, including our business, results of operations, leverage, financial
condition and business prospects, prevailing interest rates, general economic
conditions and perceptions about the residential land and vacation ownership
industries.
Our success depends on our ability to market our products efficiently.
We compete for customers with other hotel and resort properties and vacation
ownership resorts. Accordingly, the identification of sales prospects and leads,
and the marketing of our products to them are essential to our success. We have
expended and expect to continue to expend significant amounts of our resources
to identify and capitalize on future customers and upgrade opportunities. Among
our marketing initiatives, we utilize our proprietary computer software system
to identify and target leads. The leads we identify are then contacted and given
the opportunity to purchase mini-vacation packages which may sometimes combine
hotel stays, cruises and gift premiums. Buyers of these mini-vacation packages
are then usually required to participate in a vacation ownership sales
presentation. We have incurred and will incur the expenses associated with these
and our other marketing programs in advance of closing sales to the leads that
we identify. If our lead identification and marketing efforts do not yield
enough leads that we are able successfully to convert to a sufficient number of
sales, we may be unable to recover the value of our investment in our marketing
programs and systems and our business may be adversely effected.
We would incur substantial losses if the customers we finance default on their
obligations to pay the balance of the purchase price.
Under the terms of our pledged receivables facilities, we may be required, under
certain circumstances, to replace receivables or to pay down the loan to within
permitted loan to value ratios if our pledged receivables become delinquent.
Additionally, the terms of our securitization-type transactions require us to
repurchase or replace loans if we breach any of the representations and
warranties we made at the time we sold the receivables. Further, if defaults and
other performance criteria differ from estimates used to value our retained
interests in notes receivable sold in the securitization transactions, we may
have to write down these assets, which could have a material adverse effect on
our results of operations. As servicer of the notes, we may also be required to
advance delinquent payments to the extent we deem them recoverable. Accordingly,
we bear some risk of delinquencies and defaults by buyers who finance the
purchase of their VOIs or residential land through us, regardless of whether or
not we sell or pledge the customer's loan to a third party.
As of December 31, 2003, approximately 8% of our vacation ownership receivables
and approximately 10% of residential land receivables which we held or which
third parties held under sales transactions which are serviced by us were more
than 30 days past due. Although in many cases we may have recourse against a
buyer for the unpaid purchase price, certain states have laws that limit our
ability to recover
32
personal judgments against customers who have defaulted on their loans or the
cost of doing so may not be justified. Historically we have not exercised such
recourse against our customers. If we are unable to collect the defaulted amount
or to obtain a voluntary quitclaim to the interest, if applicable, we will be
required to foreclose on or otherwise seek recovery of the customer's collateral
and then remarket the recovered property. Irrespective of our remedy in the
event of a default, we cannot recover the marketing, selling, and administrative
costs associated with the original sale and we would have to incur such costs
again to resell the VOI or homesite.
We are subject to the risks of the real estate market.
Real estate markets are cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including:
o levels of unemployment;
o levels of discretionary disposable income;
o levels of consumer confidence;
o the availability of financing;
o overbuilding or decreases in demand;
o interest rates; and
o our ability to identify and enter into agreements with strategic
marketing partners.
A downturn in the economy in general or in the market for residential land or
VOIs could have a material adverse effect on our business.
We may not successfully execute our growth strategy.
A principal component of our growth strategy is to acquire additional real
estate for the development of VOIs or completed VOIs. We seek to acquire
properties in destinations that we believe will complement our existing
operations. Our ability to execute this growth strategy will depend upon a
number of factors, including the following:
o the availability of attractive resort development opportunities;
o our ability to acquire properties for such development opportunities
on economically feasible terms;
o our ability to market and sell VOIs at newly developed or acquired
resorts; and
o our ability to manage newly developed or acquired resorts in a
manner that results in customer satisfaction.
In particular, the success of our Bluegreen Vacation Club will depend upon our
ability to continue to acquire and develop a sufficient number of participating
resorts to make membership interests attractive to consumers and to permit the
continued growth of our vacation club's membership. There is no assurance that
we will be successful with respect to any or all of these factors.
We may face a variety of risks when we expand our operations.
Our growth strategy includes the expansion of the number of our resorts. Risks
associated with such expansion include the following:
33
o construction costs may exceed original estimates;
o inability to complete construction, conversion or required legal
registrations and approvals as scheduled;
o inability to control the timing, quality and completion of any
construction activity;
o our quarterly results may fluctuate due to an increase or decrease
in the number of residential land or VOI projects subject to
"percentage of completion accounting," which requires that we
recognize profit on projects on a pro rata basis as development is
completed;
o market demand may not be present; and
o declining values of our inventories.
Any of the foregoing could make any expansion less profitable. There is no
assurance that we will complete all of our planned expansion of our properties
or, if completed, that such expansion will be profitable.
Moreover, to successfully implement our growth strategy, we must integrate the
newly acquired or developed properties into our existing sales and marketing
programs. During the start-up phase of a new resort or residential community
project, we could experience lower operating margins at that project until its
operations mature. The lower margins could be substantial and could negatively
impact our cash flow. We cannot provide assurance that we will maintain or
improve our operating margins as our projects achieve maturity and our new
resorts and communities may reduce our overall operating margins.
Excessive claims for development-related defects could adversely affect our
financial condition and operating results.
We engage third-party contractors to construct our resorts and to develop our
communities. However, our customers may assert claims against us for
construction defects or other perceived development defects, including
structural integrity, the presence of mold as a result of leaks or other
defects, asbestos, electrical issues, plumbing issues, road construction, water
and sewer defects, etc. In addition, certain state and local laws may impose
liability on property developers with respect to development defects discovered
in the future. A significant number of claims for development-related defects
could adversely affect our liquidity, financial condition, and operating
results.
We may face additional risks as we expand into new markets.
We currently intend to acquire real estate for the development of VOIs or
completed VOIs for Bluegreen Resorts both in the geographic areas where
Bluegreen Resorts currently operates and in other areas. Bluegreen Communities
intends to acquire real estate in the geographic areas where it currently
operates as well as other areas where we anticipate successful sales of
homesites in residential communities. Our prior success in the markets in which
we currently operate does not ensure our continued success as we acquire,
develop or operate future projects in new markets. Accordingly, in connection
with expansion into new markets, we may be exposed to a number of additional
risks, including the following:
o our lack of familiarity and understanding of local consumer
preferences;
o our inability to attract, hire, train, and retain additional sales,
marketing, and resort staff at competitive costs;
o our inability to obtain, or to obtain in a timely manner, necessary
permits and approvals from state and local government agencies and
qualified construction services at acceptable costs;
o our inability to capitalize on new marketing relationships and
development agreements; and
34
o the uncertainty involved in, and additional costs associated with,
marketing VOIs and homesites prior to completion of marketed units.
Bluegreen Communities primarily depends on third party lenders to finance the
purchase of homesites as the majority of our residential land sales are
currently financed by customers through local banks and finance companies. A
decrease in the willingness of such lenders to extend financing to our customers
could cause a decline in our sales or require material additional credit
facilities in order to enable us to provide financing to our customers.
The limited resale market for VOIs could adversely affect our business.
Based on our experience at our resorts and at destination resorts owned by third
parties, we believe that resales of VOIs generally are made at net sales prices
below their original customer purchase price. The relatively lower sales price
is partly attributable to the high marketing and sales costs associated with the
initial sales of such VOIs. Accordingly, the initial purchase of a VOI may be
less attractive to prospective buyers. Also, buyers who seek to resell their
VOIs compete with our efforts to sell our VOIs. While VOI resale clearing houses
or brokers currently do not have a material impact on our business, if a
secondary market for VOIs were to become more organized and liquid, the
resulting availability of resale VOIs at lower prices could adversely affect our
prices and the number of sales we can close, which in turn would adversely
affect our business and results of operations.
Extensive federal, state and local laws and regulations affect the way we
conduct our business.
The federal government and the states and local jurisdictions in which we
conduct business have enacted extensive regulations that affect the manner in
which we market and sell VOIs and homesites and conduct our other business
operations. In addition, many states have adopted specific laws and regulations
regarding the sale of VOIs and homesites. These laws and regulations require us,
among other things, to obtain and file numerous documents and supporting
information with the responsible state agency to obtain the agency's approval
for an offering statement that describes all material aspects of the sale of
VOIs, and to deliver an offering statement or public report, together with
certain additional information concerning the terms of the purchase, to all
prospective purchasers of a VOI.
Most states also have other laws that regulate our activities, such as:
o real estate licensure laws;
o travel sales licensure laws;
o anti-fraud laws;
o consumer protection laws;
o telemarketing laws and
o prize, gift, and sweepstakes laws.
We currently are authorized to market and sell VOIs and homesites in all states
in which our operations are currently located. If our agents or employees
violate these regulations or licensing requirements, their acts or omissions
could cause the states where the violations occurred to revoke or refuse to
renew our licenses, which could materially and adversely affect our business.
In addition, the federal government and the states and local jurisdictions in
which we conduct business have enacted extensive regulations relating to direct
marketing and telemarketing generally, including the federal government's
recently enacted national "Do Not Call" list. The regulations have impacted our
marketing of
35
VOIs and we have taken steps in an attempt to decrease our dependence on
restricted calls. However, these steps have increased and are expected to
continue to increase our marketing costs. We cannot predict the impact that
these legislative initiatives or any other legislative measures that may be
proposed or enacted now or in the future may have on our marketing strategies
and results.
We believe we are in material compliance with applicable federal, state, and
local laws and regulations relating to the sale and marketing of VOIs and
homesites. From time to time, however, consumers file complaints against us in
the ordinary course of our business. We could be required to incur significant
costs to resolve these complaints. There is no assurance that we will remain in
material compliance with applicable federal, state and local laws and
regulations, or that violations of applicable laws will not have adverse
implications for us, including, negative public relations, potential litigation,
and regulatory sanctions. The expense, negative publicity, and potential
sanctions associated with any failure to comply with applicable laws or
regulations could have a material adverse effect on our results of operations,
liquidity or financial position.
Environmental liabilities could have a material adverse impact on our business.
Under various federal, state and local laws, ordinances and regulations, as well
as common law, we may be liable for the costs of removal or remediation of
certain hazardous or toxic substances, including mold, located on, in, or
emanating from property that we own, lease, or operate, as well as related costs
of investigation and property damage at such property. These laws often impose
liability without regard to whether we knew of, or were responsible for, the
presence of the hazardous or toxic substances. The presence of such substances,
or the failure to properly remediate such substances, may adversely affect our
ability to sell or lease our property or to borrow money using such real
property as collateral. Noncompliance with environmental, health or safety
requirements may require us to cease or alter operations at one or more of our
properties. Further, we may be subject to common law claims by third parties
based on damages and costs resulting from violations of environmental
regulations or from contamination associated with one or more of our properties.
We could incur costs to comply with laws governing accessibility of facilities
by disabled persons.
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although we believe our resorts are substantially in compliance with laws
governing accessibility by disabled persons, we may incur additional costs to
comply with such laws at our existing or subsequently acquired resorts.
Additional federal, state, and local legislation with respect to access by
disabled persons may impose further burdens or restrictions on us. We cannot
forecast the ultimate cost of compliance with such legislation, but such costs
could be substantial and, as a result, could have a material adverse effect on
our results of operations, liquidity or capital resources.
Our results of operations and financial condition could be adversely impacted if
our estimates concerning our notes receivable are incorrect.
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The amount of any gains
recognized and the fair value of the retained interests recorded are based in
part on management's best estimates of future prepayment, default and loss
severity rates, discount rates and other considerations in light of then-current
conditions. Our results of operations and financial condition could be adversely
affected if:
o actual prepayments with respect to loans sold occur more quickly
than was projected;
o actual defaults and/or loss severity rates with respect to loans
sold are greater than estimated; or
o the portfolio of receivables sold fails to satisfy specified
performance criteria or in certain other circumstances.
36
In any of these events, the cash flow on the retained interests in notes
receivable sold could be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur, it could
cause a decline in the fair value of the retained interests and a charge to
earnings currently.
Executive Overview
We operate through two business segments. Bluegreen Resorts develops, markets
and sells VOIs in our resorts, through the Bluegreen Vacation Club, and provides
resort management services to resort property owners associations. Bluegreen
Communities acquires large tracts of real estate, which are subdivided, improved
(in some cases to include a golf course on the property) and sold, typically on
a retail basis, as homesites.
We are pursuing a strategy designed to further the continued growth and
profitability of Bluegreen Resorts while maintaining the positive cash flow and
the stability of earnings of Bluegreen Communities.
We have historically experienced and expect to continue to experience seasonal
fluctuations in our gross revenues and net earnings. This seasonality may cause
significant fluctuations in our quarterly operating results, with the majority
of our gross revenues and net earnings historically occurring in the quarters
ending in June and September each year. Other material fluctuations in operating
results may occur due to the timing of development and the requirement that we
use the percentage-of-completion method of accounting. Under this method of
income recognition, income is recognized as work progresses. Measures of
progress are based on the relationship of costs incurred to date to expected
total costs. We expect that we will continue to invest in projects that will
require substantial development (with significant capital requirements), and
hence that our results of operations may fluctuate significantly between
quarterly and annual periods as a result of the required use of the
percentage-of-completion method of accounting.
We do not believe that inflation and changing prices currently have had a
material impact on our revenues and results of operations, other than to the
extent that we continually review and have historically increased the sales
prices of our VOIs annually. Based on prior experience, we do not expect that
inflation will have a material impact on our revenues or results of operations
in the foreseeable future, although there is no assurance that we will be able
to continue to increase our sales prices or that increased construction costs
will not have a material adverse impact on our gross profit. To the extent
inflationary trends affect short-term interest rates, a portion of our debt
service costs may be affected, as well as the interest rates we charge our
customers. We have historically adjusted the interest rates charged on Bluegreen
Communities' notes receivable from customers as market rates changed, but have
not adjusted the interest rates charged on notes receivable from Bluegreen
Resorts' customers due to market rate fluctuations.
We believe that the recent hostilities in the Middle East and other world events
that have decreased the amount of vacation air travel by Americans have not, to
date, had a material adverse impact on our sales in our domestic sales offices.
With the exception of the La Cabana Beach and Racquet Club in Aruba, guests at
our Bluegreen Vacation Club destination resorts more typically drive, rather
than fly, to these resorts due to the accessibility of the resorts. There can be
no assurance, however, that a long-term decrease in air travel or increase in
anxiety regarding actual or possible future terrorist attacks or other world
events will not have a material adverse impact on our results of operations in
future periods.
We recognize revenue on homesite and VOI sales when a minimum of 10% of the
sales price has been received in cash, the refund or rescission period has
expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed substantially all of our
obligations with respect to any development of the real estate sold. In cases
where all development has not been completed, we recognize income in accordance
with the percentage-of-completion method of accounting.
Costs associated with the acquisition and development of vacation ownership
resorts and residential communities, including carrying costs such as interest
and taxes, are capitalized as inventory and are allocated to cost of real estate
sold as the respective revenues are recognized.
37
A portion of our revenues historically has been and is expected to continue to
be comprised of gains on sales of notes receivable. The gains are recorded on
our consolidated statement of income and the related retained interests in the
notes receivable sold are recorded on our consolidated balance sheet at the time
of sale. The amount of gains recognized and the fair value of the retained
interests recorded are based in part on management's best estimates of future
prepayment, default rates, loss severity rates, discount rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to loans occur more quickly than we projected at the time such loans
were sold, as can occur when interest rates decline, interest would be less than
expected and may cause a decline in the fair value of the retained interests and
a charge to operations. If actual defaults or other factors discussed above with
respect to loans sold are greater than estimated, charge-offs would exceed
previously estimated amounts and the cash flow from the retained interests in
notes receivable sold would decrease. Also, to the extent the portfolio of
receivables sold fails to satisfy specified performance criteria (as may occur
due to, for example, an increase in default rates or loan loss severity) or
certain other events occur, the funds received from obligors must be distributed
on an accelerated basis to investors. If the accelerated payment formula were to
become applicable, the cash flow to us from the retained interests in notes
receivable sold would be reduced until the outside investors were paid or the
regular payment formula was resumed. If these situations were to occur on a
material basis, it could cause a decline in the fair value of the retained
interests and a charge to earnings currently. There is no assurance that the
carrying value of our retained interests in notes receivable sold will be fully
realized or that future loan sales will be consummated or, if consummated,
result in gains. See "Vacation Ownership Receivables Purchase Facility - An Off
Balance Sheet Arrangement," below.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with 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 revenue recognition under the
percentage-of-completion method of accounting; our reserve for loan losses; the
valuation of retained interests in notes receivable sold and the related gains
on sales of notes receivable; the recovery of the carrying value of real estate
inventories, golf courses, intangible assets and other assets; and the estimate
of contingent liabilities related to litigation and other claims and
assessments. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions. If actual results significantly differ
from management's estimates, our results of operations and financial condition
could be materially adversely impacted.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
o Revenue Recognition. In accordance with the requirements of
Statement of Financial Accounting Standards ("SFAS") No. 66,
"Accounting for Sales of Real Estate," we recognize revenue on VOI
and homesite sales when a minimum of 10% of the sales price has been
received in cash, the legal rescission period has expired,
collectibility of the receivable representing the remainder of the
sales price is reasonably assured and we have completed
substantially all of our obligations with respect to any development
related to the real estate sold. We believe that we use a reasonably
reliable methodology to estimate the collectibility of the
receivables representing the remainder of the sales price of real
estate sold. See the further discussion of our policies regarding
the estimation of credit losses on our notes receivable, below.
Should our estimates regarding the collectibility of our receivables
change adversely, we may have to defer the recognition of sales and
our results of operations could be negatively impacted.
38
In cases where all development has not been completed, we recognize
revenue in accordance with the percentage-of-completion method of
accounting. Should our estimates of the total anticipated cost of
completing of our vacation ownership or Bluegreen Communities'
projects increase, we may be required to defer a greater amount of
revenue or may be required to defer revenue for a longer period of
time, and thus our results of operations could be adversely
impacted.
o Allowance For Loan Losses. We estimate credit losses on our notes
receivable portfolios in accordance with SFAS No. 5, "Accounting for
Contingencies," as our notes receivable portfolios consist of a
large group of smaller-balance, homogeneous loans. Consistent with
Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance
Methodology and Documentation Issues," we first segment our notes
receivable by identifying risk characteristics that are common to
groups of loans and then estimate credit losses based on the risks
associated with these segments. We consider many factors when
establishing and evaluating the adequacy of our reserve for loan
losses. These factors include recent and historical default rates,
static pool analyses, current delinquency rates, contractual payment
terms, loss severity rates along with present and expected economic
conditions. We review these factors and measure loan impairment by
applying historical loss rates, adjusted for relevant environmental
and collateral values, to the segments' aggregate loan balances. We
adjust our reserve for loan losses on at least a quarterly basis.
Should our estimates of these and other pertinent factors change,
our results of operations, financial condition and liquidity
position could be adversely affected.
o Transfers of Financial Assets. When we transfer financial assets to
third parties, such as when we sell notes receivable pursuant to our
vacation ownership receivables purchase facilities, we evaluate
whether or not such transfer should be accounted for as a sale
pursuant to SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" and related
interpretations. The evaluation of sale treatment under SFAS No. 140
involves legal assessments of the transactions, which include
determining whether the transferred assets have been isolated from
us (i.e. put presumptively beyond our reach or the reach of our
creditors, even in bankruptcy or other receivership), determining
whether each transferee has the right to pledge or exchange the
assets it received, and ensuring that we do not maintain effective
control over the transferred assets through either (1) an agreement
that both entitles and obligates the transferor to repurchase or
redeem them before their maturity or (2) the ability to unilaterally
cause the holder to return specific assets (other than through a
cleanup call). We believe that we have obtained appropriate legal
opinions and other guidance deemed necessary to properly account for
our transfers of financial assets as sales in accordance with SFAS
No. 140.
In connection with the sales of notes receivable referred to above,
we retain subordinated tranches, rights to excess interest spread
and servicing rights, all of which are retained interests in the
notes receivable sold. Gain or loss on the sale of the notes
receivable depends in part on the allocation of the previous
carrying amount of the financial assets involved in the transfer
between the assets sold and the retained interests based on their
relative fair value at the date of transfer. We initially and
periodically estimate fair value based on the present value of
future expected cash flows using management's best estimates of the
key assumptions -- prepayment rates, loss severity rates, default
rates and discount rates commensurate with the risks involved.
Should our estimates of these key assumptions change or should the
portfolios sold fail to satisfy specified performance criteria and
therefore trigger provisions whereby outside investors in the
portfolios are paid on an accelerated basis, there could be a
reduction in the fair value of the retained interests and our
results of operations and financial condition could be adversely
impacted. During the year ended December 31, 2003, we recognized an
other-than temporary decrease of approximately $912,000, in the fair
market value of our retained interest in a 2002 vacation ownership
receivables securitization, based on higher than anticipated default
rates in the portfolio sold.
o Asset Impairment. We periodically evaluate the recovery of the
carrying amounts of our long-lived assets including our real estate
properties under the guidelines of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Factors that we
consider in making this evaluation include the estimated remaining
life-of-project sales for each project based on current
39
retail prices and the estimated costs to complete each project.
Should our estimates of these factors change, our results of
operations and financial condition could be adversely impacted.
o Goodwill and Intangible Assets. Goodwill and intangible assets
deemed to have indefinite lives are not amortized but are subject to
annual impairment tests in accordance with SFAS No. 142, "Accounting
for Goodwill and Other Intangible Assets." Other intangible assets
are amortized over their useful lives. Goodwill and other intangible
assets are tested for impairment on an annual basis by estimating
the fair value of the reporting unit to which the goodwill or
intangible assets have been assigned. As of December 31, 2003, only
our Bluegreen Resorts reporting unit had any recorded goodwill and
intangible assets. Should our estimates of the fair value of our
reporting units change, our results of operations and financial
condition could be adversely impacted.
o Telemarketing Costs. During the years ended March 31, 2002 and April
1, 2001, we deferred the cost of generating vacation ownership tours
through telemarketing programs until such time as these tours were
conducted or the related mini-vacation package expired, based on an
accepted industry accounting principle. In December 2002, we elected
to change our accounting policy to expense such costs as incurred,
effective April 1, 2002. We believe that the new method of
accounting for these costs is preferable over our previous method
and have applied the new method of accounting prospectively. We
believe accounting for these costs as period expenses results in
improved financial reporting. The cumulative effect of this change
in accounting principle was additional expense of $5.9 million, net
of tax, in the nine months ended December 31, 2002.
Results of Operations
We review financial information, allocate resources and manage our business as
two segments, Bluegreen Resorts and Bluegreen Communities. The information
reviewed is based on internal reports and excludes general and administrative
expenses attributable to corporate overhead. The information provided is based
on a management approach and is used by us for the purpose of tracking trends
and changes in results. It does not reflect the actual economic costs,
contributions or results of operations of the segments as stand alone
businesses. If a different basis of presentation or allocation were utilized,
the relative contributions of the segments might differ but the relative trends,
in our view, would likely not be materially impacted. The table below sets forth
net revenue and income from operations by segment.
40
Bluegreen Bluegreen
Resorts Communities Total
------- ----------- -----
Percentage Percentage Percentage
Amount of Sales Amount of Sales Amount of Sales
------ -------- ------ -------- ------ --------
(dollars in thousands)
Year Ended March 31,
2002
Sales of real estate ..................... $ 144,226 100% $ 96,402 100% $ 240,628 100%
Cost of real estate sales ................ (33,588) (23) (52,937) (55) (86,525) (36)
--------- --------- ---------
Gross profit ............................. 110,638 77 43,465 45 154,103 64
Other resort and communities
operations revenues .................... 23,149 16 2,321 2 25,470 11
Cost of other resort and
communities operations ................. (20,506) (14) (3,038) (3) (23,544) (10)
Selling and marketing
expenses ............................... (83,251) (58) (19,208) (20) (102,459) (43)
Field general and
administrative expenses (1) ............ (10,301) (7) (8,125) (8) (18,426) (8)
--------- --------- ---------
Field Operating Profit ................... $ 19,729 14% $ 15,415 16% $ 35,144 15%
========= ========= =========
Year Ended December
31, 2002 (2)
Sales of real estate ..................... $ 177,406 100% $ 101,174 100% $ 278,580 100%
Cost of real estate sales ................ (43,422) (25) (56,893) (56) (100,315) (36)
--------- --------- ---------
Gross profit ............................. 133,984 75 44,281 44 178,265 64
Other resort and communities
operations revenues .................... 29,194 16 4,140 4 33,334 12
Cost of other resort and
communities operations ................. (27,781) (16) (4,814) (5) (32,596) (12)
Selling and marketing
expenses ............................... (102,176) (58) (20,334) (20) (122,509) (44)
Field general and
administrative expenses (1) ............ (11,244) (6) (8,497) (8) (19,741) (7)
--------- --------- ---------
Field Operating Profit ................... $ 21,977 12% $ 14,776 15% $ 36,753 13%
========= ========= =========
Year Ended December
31, 2003
Sales of real estate ..................... $ 253,939 100% $ 104,373 100% $ 358,312 100%
Cost of real estate sales ................ (51,695) (20) 57,315 (55) 109,010 (30)
--------- --------- ---------
Gross profit ............................. 202,244 80 47,058 45 249,302 70
Other resort and communities
operations revenues .................... 48,915 19 6,479 6 55,394 15
Cost of other resort and
communities operations ................. (52,348) (21) (7,477) (7) (59,825) (17)
Selling and marketing
expenses ............................... (132,050) (52) (23,223) (22) (155,273) (43)
Field general and
administrative expenses (1) ............ (17,247) (7) (10,257) (10) (27,504) (8)
--------- --------- ---------
Field Operating Profit ................... $ 49,514 20% $ 12,580 12% $ 62,094 17%
========= ========= =========
- ----------
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administrative
expenses totaled $19.4 million for the year ended March 31, 2002, $20.0
million for the year ended December 31, 2002 and $21.4 million for the
year ended December 31, 2003. See "Corporate General and Administrative
Expenses," below, for further discussion.
41
(2) We have disclosed the results of operations for the year ended December
31, 2002 for purposes of comparability. December 31, 2002 was the year we
transitioned from a March 31 year end to a December 31 year end.
Sales and Field Operations. Consolidated sales were $240.6 million for the year
ended March 31, 2002, $278.6 million for the year ended December 31, 2002 and
$358.3 million for the year ended December 31, 2003. Consolidated sales
increased 16% from the year ended March 31, 2002 to the year ended December 31,
2002 and 29% from the year ended December 31, 2002 to the year ended December
31, 2003.
Bluegreen Resorts. During the years ended March 31, 2002, December 31, 2002 and
December 31, 2003 , sales of VOIs contributed $144.2 million (60%), $177.4
million (64%) and $253.9 million (71%) of our total consolidated sales,
respectively.
The following table sets forth certain information for sales of VOIs for the
periods indicated, before giving effect to the percentage-of-completion method
of accounting.
Year Ended
------------------------------------------------
March 31, December 31, December 31,
2002 2002 2003
------- ------- -------
Number of VOI sale transactions .............. 16,414 19,915 26,839
Average sales price per transaction .......... $ 8,989 $ 9,268 $ 9,704
Gross margin ................................. 77% 75% 80%
The $76.5 million or 43% increase in Bluegreen Resorts' sales during the year
ended December 31, 2003, as compared to the year ended December 31, 2002, was
due in part to the opening of six new sales sites: Mountain Run at Boyne(TM) in
Boyne Falls, Michigan (opened in November 2002), an off-site sales office in
Minneapolis, Minnesota (opened in November 2002), Solara Surfside(TM) in
Surfside, Florida (opened January 2003), an off-site sales office in Harbor
Springs, Michigan (opened in March 2003 on the campus of the Boyne Highlands
resort, pursuant to a marketing agreement with Boyne USA Resorts), Grande Villas
at World Golf Village(R) (opened in November 2003) and The Fountains(TM) in
Orlando, Florida (opened in December 2003). These new sales sites generated a
combined $26.7 million of incremental sales during the year ended December 31,
2003 as compared to the year ended December 31, 2002. The remainder of the sales
increase was due to same-store sales increases primarily as a result of greater
focus on marketing to our growing Bluegreen Vacation Club owner base and to
sales prospects referred to us by existing Bluegreen Vacation Club owners and
other prospects. Sales to owner and referral prospects increased by 44% during
the year ended December 31, 2003 as compared to the year ended December 31,
2002. This, combined with a 25% overall increase in the number of sales
prospects seen by Bluegreen Resorts from approximately 174,000 prospects during
the year ended December 31, 2002 to approximately 218,000 prospects during the
year ended December 31, 2003 and an increase in the sale-to-tour conversion
ratio from 12% to 13% during these periods, respectively, significantly
contributed to the overall sales increase during the year ended December 31,
2003 as compared to the year ended December 31, 2002. The increase in the
average sales price per transaction reflected in the above table also
contributed to the increase in sales.
The $33.2 million or 23% increase in Bluegreen Resorts' sales during the year
ended December 31, 2002, as compared to the year ended March 31, 2002, was
primarily due to an increased focus on marketing to our growing Bluegreen
Vacation Club owner base and to sales prospects referred to us by existing
Bluegreen Vacation Club owners or other prospects. Sales to owner and referral
prospects increased by 47% during the year ended December 31, 2002 as compared
to the year ended March 31, 2002. This combined with a 18% overall increase in
the number of sales prospects seen by Bluegreen Resorts from approximately
148,000 prospects during the year ended March 31, 2002 to approximately 174,000
prospects during the year ended December 31, 2002 and the increase in average
sales price reflected in the above table resulted in the increase in sales
during the year ended December 31, 2002, as compared to the year ended March 31,
2002.
42
Gross margin percentages vary between periods based on the relative costs of the
specific VOIs sold in each respective period.
Other resort operations revenues increased $19.7 million or 68% during the year
ended December 31, 2003 as compared to the year ended December 31, 2002. During
the year ended December 31, 2003, GVD's revenues increased by approximately
$14.0 million as compared to the year ended December 31, 2002, as the 2002
period only included approximately three months of GVD's operations. The
remainder of the increase in other resort operations revenues was due to an
increase in revenues generated by our wholly-owned title company and an increase
in revenues from managing the Bluegreen Vacation Club; both of such increases
are the result of the increase in VOI sales during the year ended December 31,
2003 as compared to the year ended December 31, 2002.
Other resort operations revenues increased $6.0 million or 26% from $23.1
million to $29.2 million during the years ended March 31, 2002 and December 31,
2002, respectively. On October 2, 2002, GVD, our wholly-owned subsidiary,
acquired substantially all of the assets and assumed certain liabilities of
TMOV. GVD was a newly-formed entity with no prior operations. Utilizing the
assets acquired from TMOV, GVD generates sales leads for VOI sales utilizing
various marketing strategies. Through the application of our proprietary
computer software system, these leads are then contacted and given the
opportunity to purchase mini-vacation packages. These packages sometimes combine
hotel stays, cruises and gift premiums. Buyers of these mini-vacation packages
are then usually required to participate in a VOI sales presentation. GVD
generates sales prospects for our VOI sales business and sales prospects that
will be sold to other VOI developers. From October 2, 2002 through December 31,
2002, GVD generated $6.3 million of revenues, primarily from mini-vacation sales
and payments for sales prospects provided to third-party VOI developers, which
are included in other resort service revenues on the consolidated income
statement, resulting in the overall increase in other resort service revenues
during the year ended December 31, 2002.
Cost of other resort operations increased $24.6 million or 88% during the year
ended December 31, 2003 as compared to the year ended December 31, 2002.
Operating expenses incurred by GVD increased $19.8 million during the year ended
December 31, 2003 as compared to the year ended December 31, 2002, as the 2002
period only included approximately three months of GVD's operations. The
remaining increase in cost of other resort operations during the year ended
December 31, 2003 was primarily due to start-up costs of a new owner services
center in Indianapolis, Indiana and new purchasing and design operations in
Knoxville, Tennessee as well as increased costs of managing the Bluegreen
Vacation Club due to the growth in the number of members.
Cost of other resort operations increased $7.3 million or 35% from $20.5 million
to $27.8 million during the years ended March 31, 2002 and December 31, 2002,
respectively. This increase was primarily the result of operating expenses of
$7.3 million incurred by GVD after its acquisition of substantially all of the
assets of TMOV in October 2, 2002.
Selling and marketing expenses for Bluegreen Resorts decreased as a percentage
of sales from 58% during the year ended December 31, 2002 to 52% during the year
ended December 31, 2003. This decrease was primarily due to an increase in the
sale-to-tour conversion ratio (from 12% to 13%) and the increase in the average
sales price per transaction noted above. The decrease is also due to the
increase in sales to our Bluegreen Vacation Club owner base and to sales
prospects referred to us by existing Bluegreen Vacation Club owners and other
prospects, as previously discussed. Sales to these prospects have relatively
lower associated marketing costs. We believe that selling and marketing expense
as a percentage of sales is an important indicator of the performance of
Bluegreen Resorts and our performance as a whole. No assurance can be given that
selling and marketing expenses will not increase as a percentage of sales in
future periods.
Selling and marketing expenses for Bluegreen Resorts, which are primarily
variable with sales, remained constant as a percentage of sales at 58% during
the years ended March 31, 2002 and December 31, 2002.
Field general and administrative expenses for Bluegreen Resorts increased $6.0
million or 53% during the year ended December 31, 2003 as compared to the year
ended December 31, 2002. This increase was
43
primarily due to the addition of the Minneapolis and Harbor Springs (Boyne
Highlands) offsite sales offices; the opening of the Mountain Run at Boyne,
Solara Surfside, Grande Villas at World Golf Village(R) and The Fountains
on-site sales offices and expenses associated with the consideration of
potential real estate acquisitions during the year ended December 31, 2003 which
were not pursued.
Field general and administrative expenses for Bluegreen Resorts increased
$943,000 or 9% from $10.3 million to $11.2 million during the years ended March
31, 2002 and December 31, 2002, respectively. This increase was primarily due to
the start-up costs associated with the Minneapolis offsite sales office and the
Mountain Run at Boyne sales office.
Bluegreen Communities. During the years ended March 31, 2002, December 31, 2002
and December 31, 2003, Bluegreen Communities generated $96.4 million (40%),
$101.2 million (36%) and $104.4 million (29%) of our total consolidated sales,
respectively.
The table below sets forth the number of homesites sold by Bluegreen Communities
and the average sales price per homesite for the periods indicated, before
giving effect to the percentage-of-completion method of accounting and excluding
sales of bulk parcels.
Year Ended
--------------------------------------------------
March 31, December 31, December 31,
2002 2002 2003
------- ------- -------
Number of homesites sold ...................... 1,640 1,790 1,962
Average sales price per homesite .............. $58,287 $56,399 $60,586
Gross margin .................................. 45% 44% 45%
Bluegreen Communities' sales increased $3.2 million or 3% during the year ended
December 31, 2003 as compared to the year ended December 31, 2002. In March
2003, Bluegreen Communities acquired 1,142 acres in Braselton, Georgia for the
development of a new golf course community known as the Traditions of
Braselton(TM). This new project, which began sales in April 2003, recognized
sales of approximately $20.6 million during the year ended December 31, 2003. In
Sunset, Texas, our Silver Lakes Ranch community commenced sales in 2003 and
generated $8.5 million in sales. These increases in sales were partially offset
by the impact of the 2003 sellout of two of our North Carolina golf communities,
The Preserve at Jordan Lake(TM) in Chapel Hill and Winding River Plantation in
Southport, which resulted in a decrease in sales at these two properties of
approximately $25.8 million during the year ended December 31, 2003 as compared
to the year ended December 31, 2002.
Bluegreen Communities' sales increased $4.8 million or 5% during the year ended
December 31, 2002 as compared to the year ended March 31, 2002, due to increased
sales at Ridge Lake Shores, a 1,152-acre property acquired in February 2001 in
Magnolia, Texas, and Mountain Lakes Ranch, a 4,100-acre property acquired in
October 1998 in Bluffdale, Texas. Ridge Lake Shores had just opened for sales
during the year ended March 31, 2002 and started achieving a post-start-up sales
pace during the year ended December 31, 2002. Mountain Lakes Ranch benefited
from a more mature marketing program and continued development.
Bluegreen Communities intends to primarily focus its resources on developing new
golf course communities and continuing to support its successful projects in
Texas. In December 2003, we commenced sales at our newest golf course community,
Sanctuary Cove at St. Andrew's Sound near St. Simons Island in Brunswick County,
Georgia. In its first month of sales, this project recognized $1.3 million in
sales. Estimated remaining life-of-project sales for Sanctuary Cove were
approximately $71.3million at December 31, 2003. During the year ended December
31, 2003, our golf communities and communities in Texas comprised approximately
41% and 54%, respectively, of Bluegreen Communities' sales.
Bluegreen Community's gross margin remained relatively constant during the years
ended March 31, 2002, December 31, 2002 and December 31, 2003. Variations in
cost structures and the market pricing of projects available for sale as well as
the opening of phases of projects which include premium homesites
44
(e.g., water frontage, preferred views, larger acreage homesites, etc.) will
impact the gross margin of Bluegreen Communities from period to period. These
factors, as well as the impact of percentage-of-completion accounting, will
cause variations in gross margin between periods, although the gross margin has
historically been between 45% and 51% of sales and is expected to approximate
these percentages for the foreseeable future.
Other communities operations revenues increased $2.3 million or 56% from $4.1
million to $6.5 million and the related costs increased $2.7 million or 55% from
$4.8 million to $7.5 million during the years ended December 31, 2002 and
December 31, 2003, respectively. These increases were primarily due to the
opening of the golf courses at Brickshire and The Preserve at Jordan Lake in
March 2002 and August 2002, respectively. In addition, our realty resale
operations, which commenced operations in January 2003, generated $1.4 million
in commission revenues and incurred $1.2 million in costs during the year ended
December 31, 2003.
Other communities operations include the operation of our golf courses as well
as realty resale operations at several of our residential land communities.
Other communities operations revenue increased $1.8 million or 78% from $2.3
million to $4.1 million and the cost of golf operations increased 58% from $3.0
million to $4.8 million during the years ended March 31, 2002 and December 31,
2002, respectively. These increases were primarily due to the opening of the
golf courses at Brickshire, located in New Kent, Virginia, and The Preserve at
Jordan Lake in March 2002 and August 2002, respectively.
Our golf course operations yielded aggregate losses of $717,000, $674,000 and
$1.2 million during the years ended March 31, 2002, December 31, 2002 and
December 31, 2003. The losses from golf course operations are due to fixed
operating expenses, low, seasonal revenues during the winter months and high
maintenance costs during periods when we are marketing homesites in the
surrounding community. Also, our golf courses were still in their early years of
operations during the periods presented. We believe that the operating results
of these new courses should improve as individuals who have purchased homesites
in the communities in which these courses are located actually build their homes
and begin living in the community, which we believe will increase the amount of
play on our golf courses. However, there is no assurance that such improvement
in operating results will be realized.
Selling and marketing expenses for Bluegreen Communities increased as a
percentage of sales from 20% to 22% during the year ended December 31, 2002 and
December 31, 2003, respectively, due to the impact of percentage-of-completion
accounting and due to the substantial sell out of The Preserve at Jordan Lake
during the year ended December 31, 2003. While we defer the recognition of sales
under the percentage-of-completion method of accounting, we do not defer the
recognition of certain selling and marketing costs associated with the sales
deferred. This increases selling and marketing expenses as a percentage of
sales. The Preserve at Jordan Lake generated lower selling and marketing
expenses as a percentage of sales due in part to its location near the
Raleigh-Durham area, which decreased overall selling and marketing expenses as a
percentage of sales for Bluegreen Communities during the year ended December 31,
2002.Selling and marketing expenses for Bluegreen Communities remained
relatively constant at approximately 20% of sales during the years ended March
31, 2002 and December 31, 2002.
Bluegreen Communities' general and administrative expenses increased $1.8
million or 21% during the year ended December 31, 2003 as compared to the year
ended December 31, 2002. This increase in general and administrative expenses
was primarily due to the fact that the costs associated with new communities
that opened for sales were greater than the costs associated with communities
which substantially sold out during the year ended December 31, 2003, as more
new projects were added than were substantially sold out. The increase in these
costs as a percentage of sales is also due to the impact of
percentage-of-completion accounting, as we do not defer such expenses
notwithstanding that the associated revenue is deferred. Bluegreen Communities'
general and administrative expenses remained relatively constant during the
years ended March 31, 2002 and December 31, 2002.
As of December 31, 2003, Bluegreen Communities had $18.9 million of sales and
$8.1 million of Field Operating Profit deferred under percentage-of-completion
accounting. As of December 31, 2002,
45
Bluegreen Communities had $6.9 million of sales and $3.0 million of Field
Operating Profit deferred under percentage-of-completion accounting.
Corporate General and Administrative Expenses. Our corporate general and
administrative expenses consist primarily of expenses associated with
administering the various support functions at our corporate headquarters,
including accounting, human resources, information technology, mergers and
acquisitions, mortgage servicing, treasury and legal. Such expenses were $19.4
million, $20.0 million and $21.4 million for the years ended March 31, 2002,
December 31, 2002 and December 31, 2003, respectively.
The $1.4 million or 7% increase in corporate general and administrative expenses
during the year ended December 31, 2003 as compared to the year ended December
31, 2002 was primarily due to an increased number of personnel and other
expenses incurred in our information technology area to help support our growth.
For a discussion of field selling, general and administrative expenses, please
see "Sales and Field Operations," above.
Interest Income. Interest income is earned from our notes receivable, retained
interests in notes receivable sold (including REMIC transactions) and cash and
cash equivalents. Interest income was $15.4 million, $15.8 million and $17.5
million for the years ended March 31, 2002, December 31, 2002 and December 31,
2003, respectively.
The increase in interest income during the year ended December 31, 2003 was due
to higher interest income earned from our notes receivable commensurate with
higher average aggregate notes receivable balances during the period as compared
to the year ended December 31, 2002. The increase in interest income during the
year ended December 31, 2003 was partially offset by an other-than-temporary
decrease of $912,000 in the fair value of our retained interest in a 2002
vacation ownership receivables securitization transaction, based on higher than
projected default rates in the portfolio sold.
Gain on Sales of Notes Receivable. During the years ended March 31, 2002,
December 31, 2002 and December 31, 2003, we recognized gains on the sale of
notes receivable totaling $6.3 million, $12.1 million and $6.6 million,
respectively. The sales of vacation ownership notes receivable were primarily
pursuant to vacation ownership receivables purchase facilities in place during
the respective periods.
The gain on sale of notes receivable during the year ended December 31, 2002,
also included a $4.7 million gain recorded in connection with the December 13,
2002 private offering and sale (the "2002 Term Securitization) of $170.2 million
in aggregate purchase price of vacation ownership receivables, including
receivables previously sold to ING Capital, LLC ("ING"), General Electric
Capital Real Estate/Heller Financial, Inc. ("GE") and Barclays Bank, PLC
("Barclays") and receivables previously pledged to GE.
The amount of notes receivable sold during a period depends on several factors,
including the amount of availability, if any, under receivables purchase
facilities, the amount of eligible receivables available for sale, our cash
requirements, the covenants and other provisions of the relevant vacation
ownership receivables purchase facility (as described further below) and
management's discretion.
Interest Expense. Interest expense was $13.0 million, $12.7 million and $14.0
million for the years ended March 31, 2002, December 31, 2002 and December 31,
2003, respectively. The 10% increase in the year ended December 31, 2003 was due
to higher average outstanding debt balances, primarily related to acquisition
and development loans entered into in connection with inventory acquisitions
during 2003.
The effective cost of borrowing was 9.1% 9.1% and 7.9% for the years ended March
31, 2002, December 31, 2002 and December 31, 2003, respectively.
46
Provision for Loan Losses.
We recorded provisions for loan losses totaling $4.9 million, $4.0 million and
$6.1 million during the years ended March 31, 2002, December 31, 2002 and
December 31, 2003, respectively. The 52% increase in the provision for loan
losses during the year ended December 31, 2003 as compared to the year ended
December 31, 2002, was primarily due to higher notes receivable balances
outstanding at December 31, 2003 as compared to December 31, 2002. The 18%
decrease in the provision during the year ended December 31, 2002 as compared to
the year ended March 31, 2002, was due to increased, non-recourse sales of notes
receivable pursuant to our vacation ownership receivables purchase facility
during the year ended December 31, 2002.
The allowance for loan losses by division as of December 31, 2002 and December
31, 2003 was:
Bluegreen Bluegreen
Resorts Communities Other Total
------- ----------- ----- -----
(dollars in thousands)
December 31, 2002
Notes receivable ....................... $ 53,029 $ 11,559 $ 1,896 $ 66,484
Allowance for loan losses .............. (4,081) (496) (112) (4,689)
-------- -------- ------- ---------
Notes receivable, net .................. $ 48,948 $ 11,063 $ 1,784 $ 61,795
======== ======== ======= =========
Allowance as a % of gross notes
receivable ........................... 8% 4% 6% 7%
======== ======== ======= =========
December 31, 2003
Notes receivable ....................... $ 90,820 $ 10,555 $ 1,425 $ 102,800
Allowance for loan losses .............. (8,255) (239) (112) (8,606)
-------- -------- ------- ---------
Notes receivable, net .................. $ 82,565 $ 10,316 $ 1,313 $ 94,194
======== ======== ======= =========
Allowance as a % of gross notes
receivable ........................... 9% 2% 8% 8%
======== ======== ======= =========
Other notes receivable at December 31, 2002 and December 31, 2003, primarily
consists of a loan to the property owners' association that is responsible for
the maintenance of our La Cabana Beach and Racquet Club resort, Casa Grande
Cooperative Association I (See Note 5 of the Notes to Consolidated Financial
Statements).
Minority Interest in Income of Consolidated Subsidiary. We include the results
of operations and financial position of Bluegreen/Big Cedar Vacations, LLC (the
"Subsidiary"), our 51%-owned subsidiary, in our consolidated financial
statements (see Note 1 of the Notes to Consolidated Financial Statements). The
minority interest in income of consolidated subsidiary is the portion of our
consolidated pre-tax income that is earned by Big Cedar, L.L.C., the
unaffiliated 49% interest holder in the Subsidiary. Minority interest in income
of consolidated subsidiary was $405,000, $1.0 million and $3.3 million for the
years ended March 31, 2002, December 31, 2002 and December 31, 2003,
respectively. Pre-tax income for the Subsidiary has increased over the periods
presented as sales at the Big Cedar Wilderness Club have increased.
Cumulative Effect of Change in Accounting Principle, Net of Tax. During the
years ended April 1, 2001 and March 31, 2002, we deferred the costs of
generating VOI tours through telemarketing programs until the earlier of such
time as the tours were conducted or the related mini-vacation packages expired,
based on an accepted industry accounting principle. Effective April 1, 2002, we
elected to change our accounting policy to expense such costs as incurred. We
believe that the new method of accounting for these costs is preferable over our
previous method and has been applied prospectively. The cumulative effect of
this change in accounting principle was additional expense of $5.9 million, net
of tax.
47
Summary. Based on the factors discussed above, our net income was $11.7 million,
$10.8 million and $25.8 million for the years ended March 31, 2002, December 31,
2002 and December 31, 2003, respectively.
Changes in Financial Condition
The following table summarizes our cash flows for the years ended March 31,
2002, December 31, 2002 and December 31, 2003 (in thousands):
Year ended
---------------------------------------
March 31, December 31, December 31,
2002 2002 2003
---------------------------------------
Cash flows provided by operating activities $ 31,650 $ 19,065 $ 35,435
Cash flows provided (used) by investing activities (2,082) 9,752 1,964
Cash flows used by financing activities (20,869) (20,389) (11,273)
-------- -------- --------
Net increase in cash $ 8,699 $ 8,428 $ 26,126
======== ======== ========
Cash Flows From Operating Activities. Cash flows from operating activities
increased $16.4 million or 86% from net cash inflows of $19.1 million to $35.4
million for the years ended December 31, 2002 and December 31, 2003,
respectively. Proceeds from the sale of and borrowings collateralized by notes
receivable, net of payments on such borrowings, increased $22.9 million from
$90.4 million to $113.2 million during the years ended December 31, 2002 and
December 31, 2003, respectively.
Cash flows from operating activities decreased $12.6 million or 40% from net
cash inflows of $31.7 million to $19.1 million during the years ended March 31,
2002 and December 31, 2002, respectively. Proceeds from the sale of and
borrowings collateralized by notes receivable, net of payments on such
borrowings, decreased $2.2 million from $92.5 million to $90.4 million during
the years ended March 31, 2002 and December 31, 2002, respectively. The
remainder of the decrease in operating cash flows during the year ended December
31, 2002 as compared to the year ended March 31, 2002 was due to the increase in
notes receivable, partially offset by the decrease in inventory, as a result of
our increased VOI and homesite sales. We report cash flows from borrowings
collateralized by notes receivable and sales of notes receivable as operating
activities in the consolidated statements of cash flows. The majority of
Bluegreen Resorts' sales result in the origination of notes receivable from its
customers. We believe that accelerating the conversion of such notes receivable
into cash, either through the pledge or sale of our notes receivable, on a
regular basis is an integral function of our operations, and have therefore
classified such activities as operating activities.
Cash Flows From Investing Activities. Cash flows from investing activities
decreased $7.8 million or 80% from net cash inflows of $9.8 million to $2.0
million for the years ended December 31, 2002 and December 31, 2003,
respectively. The decrease was primarily due to less cash received from our
retained interests in notes receivable sold. As a result of a term
securitization of previously sold notes receivable during the nine months ended
December 31, 2002, all cash generated by the securitized receivables that we
would normally receive in connection with the retained interests was first used
to fund required cash reserve accounts. We began to receive cash inflows
relative to the retained interests in the term securitization during the quarter
ended September 30, 2003. We received $18.9 million and $12.8 million of cash
from our retained interests in notes receivable sold during the years ended
December 31, 2002 and December 31, 2003, respectively. The remainder of the
decrease in cash flows from investing activities was due to increased purchases
of fixed assets.
Cash flows from investing activities increased $11.8 million or 568% from net
cash outflows of $2.0 million to net cash inflows of $9.8 million for the years
ended March 31, 2002 and December 31, 2002, respectively. The increase was
primarily due to more cash received from our retained interests in notes
receivable sold, as the amount of these retained interests grew during the year
ended December 31, 2002. We received $7.9 million and $18.9 million of cash from
our retained interests in notes receivable sold during the years ended March 31,
2002 and December 31, 2002, respectively.
48
Cash Flows From Financing Activities. Cash flows from financing activities
increased $9.1 million or 45% from net cash outflows of $20.4 million to $11.3
million during the years ended December 31, 2002 and December 31, 2003,
respectively. During the year ended December 31, 2002, we repaid upon maturity
$6.0 million of 8% convertible subordinated notes payable to former members of
our board of directors. Also, payments under line-of-credit facilities, net of
new borrowings, decreased from $12.3 million to $9.9 million for the years ended
December 31, 2002 and December 31, 2003, respectively.
Cash flows from financing activities remained relatively constant at net cash
outflows of $20.9 million and $20.4 million during the years ended March 31,
2002 and December 31, 2002, respectively.
Liquidity and Capital Resources
Our capital resources are provided from both internal and external sources. Our
primary capital resources from internal operations are: (i) cash sales, (ii)
downpayments on homesite and VOI sales which are financed, (iii) proceeds from
the sale of, or borrowings collateralized by, notes receivable, including cash
received from our retained interests in notes receivable sold, (iv) principal
and interest payments on the purchase money mortgage loans and contracts for
deed owned arising from sales of VOIs and homesites and (v) net cash generated
from other resort services and other communities operations. Historically,
external sources of liquidity have included non-recourse sales of notes
receivable, borrowings under secured and unsecured lines-of-credit, seller and
bank financing of inventory acquisitions and the issuance of debt securities.
Our capital resources are used to support our operations, including (i)
acquiring and developing inventory, (ii) providing financing for customer
purchases, (iii) funding operating expenses and (iv) satisfying our debt and
other obligations. As we are continually selling and marketing real estate (VOIs
and homesites), it is necessary for us to continually acquire and develop new
resorts and communities in order to maintain adequate levels of inventory to
support operations. We anticipate that we will continue to require external
sources of liquidity to support our operations, satisfy our debt and other
obligations and to provide funds for future acquisitions.
Our level of debt and debt service requirements has several important effects on
our operations, including the following: (i) we have significant cash
requirements to service debt, reducing funds available for operations and future
business opportunities and increasing our vulnerability to adverse economic and
industry conditions; (ii) our leveraged position increases our vulnerability to
competitive pressures; (iii) the financial covenants and other restrictions
contained in the indentures, the credit agreements and other agreements relating
to our indebtedness require us to meet certain financial tests and restrict our
ability to, among other things, borrow additional funds, dispose of assets, make
investments or pay cash dividends on, or repurchase, preferred or common stock;
and (iv) funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited. Certain of our competitors
operate on a less leveraged basis and have greater operating and financial
flexibility than we do.
We intend to continue to pursue a growth-oriented strategy, particularly with
respect to our Bluegreen Resorts business segment. In connection with this
strategy, we may from time to time acquire, among other things, additional
resort properties and completed but unsold VOIs; land upon which additional
resorts may be built; management contracts; loan portfolios of vacation
ownership mortgages; portfolios which include properties or assets which may be
integrated into our operations; interests in joint ventures; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to our operations in the
vacation ownership industry. In addition, we intend to continue to focus
Bluegreen Communities on larger, more capital intensive projects particularly in
those regions where we believe the market for our products is strongest, such as
new golf communities in the Southeast and other areas and continued growth in
our successful regions in Texas.
The following is a discussion of our purchase and credit facilities that were
important sources of our liquidity as of December 31, 2003. These facilities do
not constitute all of our outstanding indebtedness as of December 31, 2003. Our
other indebtedness includes outstanding convertible subordinated debentures,
senior secured notes payable, borrowings collateralized by real estate
inventories that were not incurred
49
pursuant to an ongoing credit facility and capital leases. See Notes 13, 12 and
11 of Notes to Consolidated Financial Statements for a further discussion of our
indebtedness as of December 31, 2003.
Vacation Ownership Receivables Purchase Facility - An Off Balance Sheet
Arrangement
Our ability to sell and/or borrow against our notes receivable from VOI buyers
is a critical factor in our continued liquidity. When we sell VOIs, a financed
buyer is only required to pay a minimum of 10% of the purchase in cash at the
time of sale, however, selling, marketing and administrative expenses are
primarily cash expenses and, in our case for the year ended December 31, 2003,
approximated 59% of sales. Accordingly, having facilities available for the
hypothecation and sale of these vacation ownership receivables is a critical
factor to our ability to meet our short and long-term cash needs.
On October 8, 2003, Resort Finance, LLC ("RFL") acquired and assumed the rights,
obligations and commitments of ING as initial purchaser in an existing vacation
ownership receivables purchase facility (the "Purchase Facility") originally
executed between ING and us in April 2002. In connection with its assumption of
the Purchase Facility, RFL expanded and extended the Purchase Facility's size
and term. The Purchase Facility utilizes an owner's trust structure, pursuant to
which we sell receivables to Bluegreen Receivables Finance Corporation V, our
wholly-owned, special purpose finance subsidiary ("BRFCV"), and BRFCV sells the
receivables to an owners' trust (a qualified special purpose entity) without
recourse to us or BRFCV except for breaches of certain representations and
warranties at the time of sale. We did not enter into any guarantees in
connection with the Purchase Facility. The Purchase Facility has detailed
requirements with respect to the eligibility of receivables for purchase, and
fundings under the Purchase Facility are subject to certain conditions
precedent. Under the Purchase Facility, a variable purchase price of 85.00% of
the principal balance of the receivables sold, subject to certain terms and
conditions, is paid at closing in cash. The balance of the purchase price is
deferred until such time as RFL has received a specified return and all
servicing, custodial, agent and similar fees and expenses have been paid. RFL
earns a return equal to the one-month London Interbank Offered Rate ("LIBOR")
plus an additional return ranging from 2.00% to 3.25%, based on the amount
outstanding under the Purchase Facility, subject to use of alternate return
rates in certain circumstances. In addition, RFL receives a 0.25% annual program
fee. The Purchase Facility also provides for the sale of land notes receivable,
under modified terms. We act as servicer under the Purchase Facility for a fee.
The Purchase Facility includes various conditions to purchase, covenants,
trigger events and other provisions customary for a transaction of this type.
RFL's obligation to purchase under the Purchase Facility may terminate upon the
occurrence of specified events. These specified events, some of which are
subject to materiality qualifiers and cure periods, include, without limitation,
(i) our breach of the representations or warranties in the Purchase Facility;
(ii) our failure to perform our covenants in the Purchase Facility, including,
without limitation, a failure to pay principal or interest due to RFL; (iii) our
commencement of a bankruptcy proceeding or the like; (iv) a material adverse
change to us since December 31, 2001; (v) the amount borrowed under the Purchase
Facility exceeding the borrowing base, (vi) significant delinquencies or
defaults on the receivables sold; (vii) a payment default by us under any other
borrowing arrangement of $5 million or more, or an event of default under any
indenture, facility or agreement that results in a default under any borrowing
arrangement; (viii) a default or breach under any other agreement beyond the
applicable grace period if such default or breach (a) involves the failure to
make a payment in excess of 5% of our tangible net worth or (b) causes, or
permits the holder of indebtedness to cause, an amount in excess of 5% of our
tangible net worth to become due; (ix) our tangible net worth not equaling at
least $110 million plus 50% of net income and 100% of the proceeds from new
equity financing following the first closing under the Purchase Facility; (x)
the ratio of our debt to tangible net worth exceeding 6 to 1; or (xi) our
failure to perform our servicing obligations.
The Purchase Facility, as increased by amendment, allows for sales of notes
receivable for a cumulative purchase price of up to $150.0 million on a
revolving basis through September 30, 2004, at a variable purchase price of
85.00% of the principal balance, subject to the eligibility requirements and
certain conditions precedent. Based on sales of receivables under the Purchase
Facility and cash payments of the principal balance of the receivables sold, the
remaining availability under the Purchase Facility as of December 31, 2003 was
$51.9 million. In February and March 2004, we sold notes receivable with an
50
aggregate principal balance of $39.5 million under the Purchase Facility for an
aggregate purchase price of $33.6 million. As of March 22, 2004, the remaining
availability under the Purchase Facility was $22.2 million.
We have chosen to monetize our receivables through the Purchase Facility and,
historically, other similar facilities as these off-balance sheet arrangements
provide us with cash inflows both currently and in the future at what we believe
to be competitive rates without adding leverage to our balance sheet or
retaining recourse for losses on the receivables sold. In addition, these sale
transactions have generated gains on our income statement on a quarterly basis,
which would not be realized under a traditional financing arrangement.
The Purchase Facility discussed above is the only receivables purchase facility
under which we currently have the ability to sell receivables. We are currently
finalizing terms for a potential new vacation ownership receivables purchase
facility with an unaffiliated financial institution, and discussing terms for
another such facility with another unaffiliated financial institution. We cannot
provide assurance that either of these potential new facilities will be obtained
on favorable terms or at all. Factors which could adversely impact our ability
to obtain new or additional vacation ownership receivable purchase facilities
include a downturn in general economic conditions; negative trends in the
commercial paper or LIBOR markets; increases in interest rates; a decrease in
the number of financial institutions willing to enter into facilities with
vacation ownership companies; a deterioration in the performance of our vacation
ownership notes receivable or in the performance of portfolios sold in prior
transactions, specifically increased delinquency, default and loss severity
rates; and a deterioration in our performance generally. There can be no
assurance that we will obtain new purchase facilities to replace the Purchase
Facility when it is completed or expires. As indicated above, our inability to
sell vacation ownership receivables under a current or future facility could
have a material adverse impact on our liquidity. However, management believes
that to the extent we could not sell receivables under a purchase facility, we
could potentially mitigate the adverse impact on our liquidity by using our
receivables as collateral under existing or future credit facilities.
We have also been a party to a number of securitization-type transactions, all
of which in our opinion utilize customary structures and terms for transactions
of this type. In each securitization-type transaction, we sold receivables to a
wholly-owned special purpose entity which, in turn, sold the receivables either
directly to third parties or to a trust established for the transaction. In each
transaction, the receivables were sold on a non-recourse basis (except for
breaches of certain representations and warranties) and the special purpose
entity has a retained interest in the receivables sold. We have acted as
servicer of the receivables pools in each transaction for a fee, with the
servicing obligations specified under the applicable transaction documents.
Under the terms of the applicable securitization transaction, the cash payments
received from obligors on the receivables sold are distributed to the investors
(which, depending on the transaction, may acquire the receivables directly or
purchase an interest in, or make loans secured by the receivables to, a trust
that owns the receivables), parties providing services in connection with the
facility, and our special purpose subsidiary as the holder of the retained
interests in the receivables according to specified formulas. In general,
available funds are applied monthly to pay fees to service providers, interest
and principal payments to investors, and distributions in respect of the
retained interests in the receivables. Pursuant to the terms of the transaction
documents, however, to the extent the portfolio of receivables fails to satisfy
specified performance criteria (as may occur due to an increase in default rates
or loan loss severity) or other trigger events, the funds received from obligors
are distributed on an accelerated basis to investors. In effect, during a period
in which the accelerated payment formula is applicable, funds go to outside
investors until they receive the full amount owed to them and only then are
payments made to our subsidiary in its capacity as the holder of the retained
interests. Depending on the circumstances and the transaction, the application
of the accelerated payment formula may be permanent or temporary until the
trigger event is cured. If the accelerated payment formula were to become
applicable, the cash flow on the retained interests in the receivables would be
reduced until the outside investors were paid or the regular payment formula was
resumed. Such a reduction in cash flow could cause a decline in the fair value
of our retained interests in the receivables sold. Declines in fair value that
are determined to be other than temporary are charged to operations in the
current period. In each facility, the failure of the pool of receivables to
comply with specified portfolio covenants can create a trigger event, which
results in the use of the accelerated payment formula (in certain circumstances
until the trigger event is cured and in other
51
circumstances permanently) and, to the extent there was any remaining commitment
to purchase receivables from our special purpose subsidiary, the suspension or
termination of that commitment. In addition, in each securitization facility
certain breaches of our obligations as servicer or other events allow the
investor to cause the servicing to be transferred to a substitute third party
servicer. In that case, our obligation to service the receivables would
terminate and we would cease to receive a servicing fee.
The following is a summary of significant financial information related to the
Purchase Facility and prior similar facilities during the periods presented
below (in thousands):
December 31, December 31,
2002 2003
------------------------------
On Balance Sheet:
Retained interests in notes receivable sold $ 44,228 $ 60,975
Servicing assets (included in other assets) 2,294 2,677
Off Balance Sheet:
Notes receivable sold without recourse 228,936 266,662
Principal balance owed to note receivable
purchasers 217,585 238,258
Year Ended
---------------------------------------------
Income Statement: March 31, December 31, December 31,
2002 2002 2003
---------------------------------------------
Gain on sales of notes receivable $6,280 $ 12,101 $ 6,563
Interest accretion on retained interests in
notes receivable sold 3,754 5,556 5,076
Servicing fee income 2,679 3,311 3,841
Amortization of servicing assets 305 472 758
Credit Facilities for Bluegreen Resorts' Receivables and Inventories
In addition to the Purchase Facility, we maintain various credit facilities with
financial institutions that provide receivable, acquisition and development
financing for our vacation ownership projects.
In February 2003, we entered into a revolving vacation ownership receivables
credit facility (the "GMAC Receivables Facility") with Residential Funding
Corporation ("RFC"), an affiliate of GMAC. The borrowing limit under the GMAC
Receivables Facility, as increased by amendment, is $75.0 million. The borrowing
period on the GMAC Receivables Facility expires on March 10, 2005, and
outstanding borrowings mature no later than March 10, 2012. The GMAC Receivables
Facility has detailed requirements with respect to the eligibility of
receivables for inclusion and other conditions to funding. The borrowing base
under the GMAC Receivables Facility is 90% of the outstanding principal balance
of eligible notes arising from the sale of VOIs. The GMAC Receivables Facility
includes affirmative, negative and financial covenants and events of default.
All principal and interest payments received on pledged receivables are applied
to principal and interest due under the GMAC Receivables Facility. Indebtedness
under the facility bears interest at LIBOR plus 4%. During the year ended
December 31, 2003, we pledged approximately $26.4 million in aggregate principal
balance of vacation ownership receivables under the GMAC Receivables Facility
and received $23.8 million in cash borrowings. At December 31, 2003, $18.0
million was outstanding under the GMAC Receivables Facility.
RFC has also provided us with a $45.0 million acquisition, development and
construction revolving credit facility for Bluegreen Resorts (the "GMAC AD&C
Facility"). The borrowing period on the GMAC AD&C
52
Facility expires on February 10, 2005, and outstanding borrowings mature no
later than February 10, 2009. Principal will be repaid through agreed-upon
release prices as VOIs are sold at the financed resorts, subject to minimum
required amortization. Indebtedness under the facility bears interest at LIBOR
plus 4.75%. Interest payments are due monthly. In September 2003, we borrowed
$17.4 million under the GMAC AD&C Facility in connection with our acquisition of
The Fountains Resort(TM) in Orlando, Florida. The balance of our borrowings
under the GMAC AD&C Facility was collateralized by VOIs and land held for future
development at our 51% owned Big Cedar Wilderness Club resort. As of December
31, 2003, $24.2 million was outstanding under the GMAC AD&C Facility.
During December 2003, we signed a combination $30.0 million Acquisition and
Development and Timeshare Receivables facility with Textron Financial
Corporation (the "Textron Facility"). The borrowing period on the Textron
Facility expires on December 22, 2005, and outstanding borrowings mature no
later than January 1, 2006. Principal will be repaid semi-annually commencing
September 14, 2004, subject to minimum required amortization, with the balance
due upon the earlier of i) the date that 85% of the VOIs in the financed resort
are sold or ii) the maturity date. Acquisition and development indebtedness
under the facility bears interest at the prime lending rate plus 1.25%, subject
to a minimum interest rate of 6.25%. Interest payments are due monthly. We
utilized this facility to borrow $9.6 million of the purchase price of The
Hammocks at Marathon resort in December 2003. The balance of this facility will
be available to finance the cost of renovations on the Marathon property and for
borrowings collateralized by our vacation ownership receivables.
Receivable-backed borrowings under the Textron Facility will bear interest at
the prime lending rate plus 1.00%, subject to a 6.00% minimum interest rate. As
of December 31, 2003, $9.6 million was outstanding under the Textron Facility.
We are currently finalizing the terms for a potential new vacation ownership
receivables hypothecation facility with an unaffiliated financial institution.
We cannot provide assurance that this potential new facility will be obtained on
favorable terms or at all.
Under an existing $30.0 million revolving credit facility with Wells Fargo
Foothill, Inc. ("Foothill") primarily for the use of borrowing against Bluegreen
Communities receivables, we can borrow up to $10.0 million of the facility
collateralized by the pledge of vacation ownership receivables. See "Credit
Facilities for Bluegreen Communities' Receivables and Inventories," below, for
further details on this facility.
Credit Facilities for Bluegreen Communities' Receivables and Inventories
We have a $30.0 million revolving credit facility with Foothill secured by the
pledge of Bluegreen Communities' receivables, with up to $10.0 million of the
total facility available for Bluegreen Communities' inventory borrowings and up
to $10.0 million of the total facility available for the pledge of Bluegreen
Resorts' receivables. On March 26, 2003, we borrowed $8.5 million pursuant to
the revolving credit facility for the purpose of acquiring 1,142 acres of land
in Braselton, Georgia in connection with the development of the Traditions of
Braselton golf course community. The borrowing required principal payments based
on agreed-upon release prices as homesites were sold and bore interest at the
prime lending rate plus 1.25%, payable monthly. As a result of better than
estimated sales of homesites at the Traditions of Braselton during 2003, the
entire $8.5 million borrowing was repaid to Foothill by December 31, 2003. The
interest rate charged on outstanding receivable borrowings under the revolving
credit facility, as amended, is the prime lending rate plus 0.25% when the
average monthly outstanding loan balance is greater than or equal to $15.0
million. If the average monthly outstanding loan balance is less than $15.0
million, the interest rate is the greater of 4.00% or the prime lending rate
plus 0.50%. All principal and interest payments received on pledged receivables
are applied to principal and interest due under the facility. In September 2003,
Foothill extended our ability to borrow under the facility through December 31,
2006, and extended the maturity date to December 31, 2008 for borrowings
collateralized by receivables. At December 31, 2003, the outstanding principal
balance under this facility was approximately $6.9 million, $3.3 million of
which related to Bluegreen Resorts' receivables borrowings and $3.6 million of
which related to Bluegreen Communities' receivables borrowings.
53
On September 25, 2002, certain of our direct and indirect wholly-owned
subsidiaries entered into a $50 million revolving credit facility (the "GMAC
Communities Facility") with RFC. We are the guarantor on the GMAC Communities
Facility. The GMAC Communities Facility is secured by the real property
homesites (and personal property related thereto) at the following Bluegreen
Communities projects, as well as any Bluegreen Communities projects acquired by
us with funds borrowed under the GMAC Communities Facility (the "Secured
Projects"): Brickshire (New Kent County, Virginia); Mountain Lakes Ranch
(Bluffdale, Texas); Ridge Lake Shores (Magnolia, Texas); Riverwood Forest
(Fulshear, Texas); Waterstone (Boerne, Texas); Catawba Falls Preserve(TM) (Black
Mountain, North Carolina) and Yellowstone Creek Ranch (Pueblo, Colorado). In
addition, the GMAC Communities Facility is secured by our Carolina National and
The Preserve at Jordan Lake golf courses in Southport, North Carolina and Chapel
Hill, North Carolina, respectively. Borrowings under the GMAC Communities
Facility can be drawn through September 25, 2004. Principal payments are
effected through agreed-upon release prices paid to RFC as homesites in the
Secured Projects are sold. The outstanding principal balance of any borrowings
under the GMAC Communities Facility must be repaid by September 25, 2006. The
interest charged on outstanding borrowings is at the prime lending rate plus
1.00% and is payable monthly. The GMAC Communities Facility includes customary
conditions to funding, acceleration and event of default provisions and certain
financial affirmative and negative covenants. We use the proceeds from the GMAC
Communities Facility to repay outstanding indebtedness on Bluegreen Communities
projects, finance the acquisition and development of Bluegreen Communities
projects and for general corporate purposes. As of December 31, 2003, $13.6
million was outstanding under the GMAC Communities Facility.
Over the past several years, we have received substantially all of our homesite
sales proceeds in cash. Accordingly, in recent years we have reduced the
borrowing capacity under credit agreements secured by Bluegreen Communities'
receivables. We attribute the significant volume of cash sales to an increased
willingness on the part of banks to extend direct customer homesite financing at
attractive interest rates. No assurances can be given that local banks will
continue to provide such customer financing.
Historically, we have funded development for road and utility construction,
amenities, surveys and engineering fees from internal operations and have
financed the acquisition of Bluegreen Communities properties through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be paid monthly and principal to be repaid
through homesite releases. The release price is usually an amount based on a
pre-determined percentage (typically 25% to 55%) of the gross selling price of
the homesites in the subdivision. In addition, the agreements generally call for
minimum cumulative annual amortization. When we provide financing for our
customers (and therefore the release price is not available in cash at closing
to repay the lender), we are required to pay the creditor with cash derived from
other operating activities, principally from cash sales or the pledge of
receivables originated from earlier property sales.
Unsecured Credit Facility
We have a $15.0 million unsecured line-of-credit with Wachovia Bank, N.A.
Amounts borrowed under the line bear interest at LIBOR plus 2%. Interest is due
monthly and all outstanding amounts are due on December 31, 2004. We are only
allowed to borrow under the line-of-credit in amounts less than the remaining
availability under our current, active vacation ownership receivables purchase
facility plus availability under certain receivables warehouse facilities, less
any outstanding letters of credit. The line-of-credit agreement contains certain
covenants and conditions typical of arrangements of this type. During the year
ended December 31, 2003, we had borrowed and repaid $5.0 million under this
line-of-credit. As of December 31, 2003, no amounts were outstanding under the
line. This line-of-credit has historically been a source of short-term liquidity
for us.
Commitments
Our material commitments as of December 31, 2003 included the required payments
due on our receivable-backed debt, lines of credit and other notes and
debentures payable, commitments to complete our vacation
54
ownership and communities projects based on our sales contracts with customers
and commitments under noncancelable operating leases.
The following table summarizes the contractual minimum principal payments
required on all of our outstanding debt (including our receivable-backed debt,
lines-of-credit and other notes and debentures payable) and our noncancelable
operating leases as of December 31, 2003, by period due (in thousands):
Payments Due by Period
-----------------------------------------------------------
Less
Contractual Obligations than 1-- 3 4-- 5 After 5
------------------------- 1 year Years Years Years Total
------ ----- ----- ----- -----
Receivable-backed notes payable ...... $ -- $ -- $ 6,863 $ 18,056 $ 24,919
Lines-of-credit and notes
payable............................. 39,993 47,100 546 219 87,858
10.5% senior secured notes............ -- -- 110,000 -- 110,000
8.25% convertible subordinated
debentures.......................... -- 6,771 9,200 18,400 34,371
Noncancelable operating leases ....... 4,216 5,309 3,102 4,704 17,331
------- --------- --------- -------- ----------
Total contractual obligations ........ $44,209 $ 59,180 $ 129,711 $ 41,379 $ 274,479
======= ========= ========= ======== ==========
In addition, we have issued a $1.4 million letter-of-credit, which is
collateralized by a certificate of deposit, in connection with the issuance of a
performance bond on a Bluegreen Communities project. This letter-of-credit
expires in January 2008.
We intend to use cash flow from operations, including cash received from the
sale of vacation ownership notes receivable, and cash received from new
borrowings under existing or future debt facilities in order to satisfy the
above principal payments. While we believe that we will be able to meet all
required debt payments when due, there can be no assurance that this will be the
case.
We estimate that the total cash required to complete resort buildings in which
sales have occurred and resort amenities and other common costs in projects in
which sales have occurred to be approximately $10.8 million as of December 31,
2003. We estimate that the total cash required to complete our Bluegreen
Communities projects in which sales have occurred to be approximately $45.4
million as of December 31, 2003. These amounts assume that we are not obligated
to develop any building, project or amenity in which a commitment has not been
made through a sales contract to a customer; however, we anticipate that we will
incur such obligations in the future. We plan to fund these expenditures over
the next five years primarily with available capacity on existing or proposed
credit facilities and cash generated from operations. There can be no assurance
that we will be able to obtain the financing or generate the cash from
operations necessary to complete the foregoing plans or that actual costs will
not exceed those estimated.
We believe that our existing cash, anticipated cash generated from operations,
anticipated future permitted borrowings under existing or proposed credit
facilities and anticipated future sales of notes receivable under the purchase
facility and one or more replacement facilities we will seek to put in place
will be sufficient to meet our anticipated working capital, capital expenditures
and debt service requirements for the foreseeable future. We will be required to
renew or replace credit and receivables purchase facilities that have expired or
that will expire in the near term. We will, in the future, also require
additional credit facilities or will be required to issue corporate debt or
equity securities in connection with acquisitions or otherwise. Any debt
incurred or issued by us may be secured or unsecured, bear fixed or variable
rate interest and may be subject to such terms as the lender may require and
management deems prudent. There can be no assurance that the credit facilities
or receivables purchase facilities which have expired or which are scheduled to
expire in the near term will be renewed or replaced or that sufficient funds
will be available from operations or under existing, proposed or future
revolving credit or other borrowing arrangements or receivables purchase
facilities to meet our cash needs, including, our debt service obligations. To
the extent we are not able to sell notes receivable or borrow under such
facilities, our ability to satisfy our obligations would be materially adversely
affected.
55
We have a large number of credit facilities, indentures, and other outstanding
debt instruments, and a receivables purchase facility which include customary
conditions to funding, eligibility requirements for collateral, cross-default
and other acceleration provisions, certain financial and other affirmative and
negative covenants, including, among others, limits on the incurrence of
indebtedness, limits on the repurchase of securities, payment of dividends,
investments in joint ventures and other restricted payments, the incurrence of
liens, transactions with affiliates, covenants concerning net worth, fixed
charge coverage requirements, debt-to-equity ratios, portfolio performance
requirements and events of default or termination. No assurance can be given
that we will not be required to seek waivers of such covenants or that such
covenants will not limit our ability to raise funds, sell receivables, satisfy
or refinance our obligations or otherwise adversely affect our operations. In
addition, our future operating performance and ability to meet our financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond our control.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Risk
Our total revenues and net assets denominated in a currency other than U.S.
dollars during the year ended December 31, 2003 were less than 1% of
consolidated revenues and consolidated assets, respectively. Sales generated and
long-term debt incurred to date by Bluegreen Properties, N.V., our subsidiary in
Aruba, are transacted in U.S. dollars. The effects of changes in foreign
currency exchange rates have not historically been significant to our operations
or net assets.
Interest Rate Risk
We sold $100.9 million, $125.6 million, and $110.5 million of fixed-rate
vacation ownership notes receivable during the year ended March 31, 2002, the
nine months ended December 31, 2002 and the year ended December 31, 2003,
respectively, under the Purchase Facility, the 2002 Term Securitization and
previous timeshare receivable purchase facilities (see Note 5 of the Notes to
Consolidated Financial Statements). Our gain on sale recognized is generally
based upon either fixed or variable interest rates at the time of sale including
the prevailing weighted-average term treasury rate, commercial paper rates or
LIBOR rates (depending on the purchase facility in effect) and many other
factors including, but not limited to the weighted-average coupon rate and
remaining contractual life of the loans sold, and assumptions regarding the
constant prepayment rate, loss severity, annual default and discount rates. We
also retain residual interests in pools of fixed and variable rate Bluegreen
Communities notes receivable sold in private placement REMIC transactions. We
believe that we have used conservative assumptions in valuing the residual
interests retained in the vacation ownership and land notes sold through the
Purchase Facility and REMIC transactions, respectively, and that such
assumptions should mitigate the impact of a hypothetical one-percentage point
interest rate change on these valuations, but there is no assurance that the
assumptions will prove to be correct.
As of December 31, 2003, we had fixed interest rate debt of approximately $145.9
million and floating interest rate debt of approximately $111.3 million. In
addition, our notes receivable from VOI and homesite customers were comprised of
$90.4 million of fixed rate loans and $5.5 million of notes bearing floating
interest rates. The floating interest rates are based either upon the prevailing
prime or three-month LIBOR interest rates. For floating rate financial
instruments, interest rate changes do not generally affect the market value of
debt but do impact future earnings and cash flows, assuming other factors are
held constant. Conversely, for fixed rate financial instruments, interest rate
changes affect the market value of the debt but do not impact earnings or cash
flows.
A hypothetical one-percentage point increase in the prevailing prime or LIBOR
rates, as applicable, would decrease our after-tax earnings by an immaterial
amount per year, based on the impact of increased interest expense on variable
rate debt, partially offset by the increased interest income on variable rate
Bluegreen Communities notes receivable and cash and cash equivalents. A similar
change in the interest rate would decrease the total fair value of our fixed
rate debt, excluding our 8.25% convertible, subordinated debentures (the
"Debentures") and our 10.5% senior secured notes payable (the "Notes"), by an
immaterial
56
amount. The fact that the Debentures are publicly traded and convertible into
our common stock makes it impractical to estimate the effect of the hypothetical
change in interest rates on the fair value of the Debentures. In addition, the
fact that the Notes are publicly traded in the over-the-counter market makes it
impractical to estimate the effect of the hypothetical change in interest rates
on the fair value of the Notes. Due to the non-interest related factors involved
in determining the fair value of these publicly traded securities, their fair
values have historically demonstrated increased, decreased or at times contrary
relationships to changes in interest rates as compared to other types of
fixed-rate debt securities. The analyses do not consider the effects of the
reduced level of overall economic activity that could exist in such an
environment. Further, in the event of such a change, we would likely attempt to
take actions to mitigate our exposure to the change. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no changes in our financial structure.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BLUEGREEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, December 31,
2002 2003
---- ----
ASSETS
Cash and cash equivalents (including restricted cash of approximately $20,551
and $33,540 at December 31, 2002 and 2003, respectively) .................................... $ 46,905 $ 73,031
Contracts receivable, net ...................................................................... 16,230 25,522
Notes receivable, net .......................................................................... 61,795 94,194
Prepaid expenses ............................................................................... 11,630 9,925
Other assets ................................................................................... 15,017 19,711
Inventory, net ................................................................................. 173,131 219,890
Retained interests in notes receivable sold .................................................... 44,228 60,975
Property and equipment, net .................................................................... 51,787 63,430
Intangible assets .............................................................................. 10,838 937
Goodwill ....................................................................................... 2,431 2,791
--------- ---------
Total assets ......................................................................... $433,992 $570,406
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ............................................................................... $ 5,878 $ 6,983
Accrued liabilities and other .................................................................. 31,537 52,175
Deferred income ................................................................................ 19,704 18,646
Deferred income taxes .......................................................................... 31,200 43,924
Receivable-backed notes payable ................................................................ 5,360 24,921
Lines-of-credit and notes payable .............................................................. 34,409 87,858
10.50% senior secured notes payable ............................................................ 110,000 110,000
8.25% convertible subordinated debentures ...................................................... 34,371 34,371
--------- ---------
Total liabilities ........................................................................... 272,459 378,878
Minority interest .............................................................................. 3,250 4,648
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued .......................... -- --
Common stock, $.01 par value, 90,000 shares authorized; 27,343 and 27,702
shares issued at December 31, 2002 and 2003, respectively ................................... 273 277
Additional paid-in capital ..................................................................... 123,535 124,931
Treasury stock, 2,756 common shares at both December 31, 2002 and 2003, at
cost ........................................................................................ (12,885) (12,885)
Accumulated other comprehensive income, net of income taxes .................................... 460 1,830
Retained earnings .............................................................................. 46,900 72,727
--------- ---------
Total shareholders' equity ................................................................ 158,283 186,880
--------- ---------
Total liabilities and shareholders' equity ........................................... $433,992 $570,406
========= =========
See accompanying notes to consolidated financial statements.
58
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended Nine Months Ended Year Ended
March 31, December 31, December 31,
2002 2002 2003
---- ---- ----
Revenues:
Sales of real estate .................................................. $240,628 $222,655 $358,312
Other resort and communities operations revenue ....................... 25,470 27,048 55,394
Interest income ....................................................... 15,447 12,235 17,536
Gain on sales of notes receivable ..................................... 6,280 10,035 6,563
Other income .......................................................... -- -- 649
-------- --------- --------
287,825 271,973 438,454
Cost and expenses:
Cost of real estate sales ............................................. 86,525 77,923 109,010
Cost of other resort and communities operations ....................... 23,544 26,895 59,825
Selling, general and administrative expenses .......................... 140,244 128,308 204,164
Interest expense ...................................................... 13,017 9,824 14,036
Provision for loan losses ............................................. 4,851 2,832 6,094
Other expense ......................................................... 162 1,520 --
-------- --------- --------
268,343 247,302 393,129
-------- --------- --------
Income before minority interest and provision for income
taxes ................................................................ 19,482 24,671 45,325
Minority interest in income of consolidated subsidiary .................. 405 816 3,330
-------- --------- --------
Income before provision for income taxes ................................ 19,077 23,855 41,995
Provision for income taxes .............................................. 7,345 8,479 16,168
-------- --------- --------
Income before cumulative effect of change in accounting
principle ............................................................ 11,732 15,376 25,827
Cumulative effect of change in accounting principle, net of
income taxes (see Note 1) ............................................ -- (5,929) --
Minority interest in cumulative effect of change in accounting
principle, net of income taxes ....................................... -- (350) --
-------- --------- --------
Net income .............................................................. $ 11,732 $ 9,797 $ 25,827
======== ========= ========
Earnings per common share:
Basic:
Income before cumulative effect of change in accounting
principle ........................................................ $ .48 $ .63 $ 1.05
Cumulative effect of change in accounting principle, net
of income taxes and minority interest ............................ -- (.23) --
-------- --------- --------
Net income .......................................................... $ .48 $ .40 $ 1.05
======== ========= ========
Diluted:
Income before cumulative effect of change in accounting
principle ........................................................ $ .46 $ .58 $ .94
Cumulative effect of change in accounting principle, net of
income taxes and minority interest ............................... -- (.19) --
-------- --------- --------
Net income .......................................................... $ .46 $ .39 $ .94
======== ========= ========
Pro forma effects of retroactive application of change in
accounting principle:
Net income .......................................................... $ 7,484
========
Basic earnings per common share ..................................... $ .31
========
Diluted earnings per common share ................................... $ .31
========
Weighted-average number of common and common
equivalent shares:
Basic ............................................................... 24,256 24,472 24,671
======== ========= ========
Diluted ............................................................. 29,993 28,783 29,263
======== ========= ========
See accompanying notes to consolidated financial statements.
59
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Additional Treasury Comprehensive
Shares Common Paid-in Stock at Income, Net of Retained
Issued Stock Capital Cost Income Taxes Earnings Total
------ ----- ------- ---- ------------ -------- -----
Balance at April 1, 2001 .................... 26,946 $269 $122,564 $(12,885) $ 1,471 $25,371 $136,790
Net income .................................. -- -- -- -- -- 11,732 11,732
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes ........................ -- -- -- -- 962 -- 962
--------
Comprehensive income ........................ 12,694
Shares issued to employees and
directors upon exercise of stock
options .................................... 113 2 154 -- -- -- 156
Income tax benefit from stock
options exercised .......................... -- -- 16 -- -- -- 16
------ ---- -------- -------- ------- ------- --------
Balance at March 31, 2002 ................... 27,059 271 122,734 (12,885) 2,433 37,103 149,656
Net income .................................. -- -- -- -- -- 9,797 9,797
Realization of net unrealized gains
on retained interests in notes
receivable sold, net of income taxes ....... -- -- -- -- (1,973) -- (1,973)
--------
Comprehensive income ........................ 7,824
Shares issued to employees and
directors upon exercise of stock
options .................................... 284 2 681 -- -- -- 683
Income tax benefit from stock
options exercised .......................... -- -- 120 -- -- -- 120
------ ---- -------- -------- ------- ------- --------
Balance at December 31, 2002 ................ 27,343 273 123,535 (12,885) 460 46,900 158,283
Net income .................................. -- -- -- -- -- 25,827 25,827
Net unrealized gains on retained
interests in notes receivable sold,
net of income taxes ........................ -- -- -- -- 1,370 -- 1,370
--------
Comprehensive income ........................ 27,197
Shares issued to employees and
directors upon exercise of stock
options .................................... 359 4 1,208 -- -- -- 1,212
Income tax benefit from stock
options exercised .......................... -- -- 188 -- -- -- 188
------ ---- -------- -------- ------- ------- --------
Balance at December 31, 2003 ................ 27,702 $277 $124,931 $(12,885) $ 1,830 $72,727 $186,880
====== ==== ======== ======== ======= ======= ========
See accompanying notes to consolidated financial statements.
60
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended Nine Months Ended Year Ended
March 31, December 31, December 31,
2002 2002 2003
---- ---- ----
Operating activities:
Net income ............................................................... $ 11,732 $ 9,797 $ 25,827
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle, net ............. -- 5,929 --
Minority interest in income of consolidated subsidiary ............... 405 466 3,330
Depreciation ......................................................... 5,280 4,597 7,811
Amortization ......................................................... 3,006 5,741 5,812
Amortization of discount on note payable ............................. 374 40 --
Gain on sales of notes receivable .................................... (6,280) (10,035) (6,563)
(Gain) loss on sales of property and equipment ....................... 166 218 (76)
Gain on exchange of REMIC certificates ............................... -- (409) --
Provision for loan losses ............................................ 4,851 2,832 6,094
Provision for deferred income taxes .................................. 7,739 3,813 12,644
Interest accretion on retained interests in notes receivable sold .... (3,754) (4,417) (5,076)
Proceeds from sales of notes receivable .............................. 85,975 72,418 93,918
Proceeds from borrowings collateralized by notes receivable .......... 23,163 2,746 29,979
Payments on borrowings collateralized by notes receivable ............ (16,600) (11,681) (10,691)
Changes in operating assets and liabilities, net of the effects of
business acquisition
Contracts receivable ................................................. (3,311) 5,655 (9,292)
Notes receivable ..................................................... (97,795) (99,868) (152,527)
Prepaid expenses ..................................................... 959 322 (227)
Inventory ............................................................ 13,542 22,378 12,210
Other assets ......................................................... (4,423) (4,462) (5,382)
Accounts payable, accrued liabilities and other ...................... 6,621 957 27,644
-------- -------- ---------
Net cash provided by operating activities ................................ 31,650 7,037 35,435
-------- -------- ---------
Investing activities:
Cash received from retained interests in notes receivable sold ......... 7,856 14,555 12,817
Investment in note receivable .......................................... (1,685) -- --
Principal payments received on investment in note receivable ........... 4,643 -- 456
Business acquisition ................................................... -- (2,292) (500)
Purchases of property and equipment .................................... (12,940) (4,379) (11,893)
Proceeds from sales of property and equipment .......................... 44 48 1,084
-------- -------- ---------
Net cash provided (used) by investing activities ......................... (2,082) 7,932 1,964
-------- -------- ---------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ....................................................... 59,870 18,696 40,125
Payments under line-of-credit facilities and notes payable ............. (79,327) (27,470) (49,978)
Payment of 8% convertible, subordinated notes payable to
related parties ...................................................... -- (6,000) --
Payment of debt issuance costs ......................................... (1,568) (2,688) (2,632)
Proceeds from exercise of employee and director stock options .......... 156 683 1,212
-------- -------- ---------
Net cash used by financing activities .................................... (20,869) (16,779) (11,273)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents ..................... 8,699 (1,810) 26,126
Cash and cash equivalents at beginning of period ......................... 40,016 48,715 46,905
-------- -------- ---------
Cash and cash equivalents at end of period ............................... 48,715 46,905 73,031
Restricted cash and cash equivalents at end of period .................... (27,669) (20,551) (33,540)
-------- -------- ---------
Unrestricted cash and cash equivalents at end of period .................. $ 21,046 $ 26,354 $ 39,491
======== ======== =========
61
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(in thousands)
Year Ended Nine Months Ended Year Ended
March 31, December 31, December 31,
2002 2002 2003
---- ---- ----
Supplemental schedule of non-cash operating, investing and
financing activities:
Inventory acquired through foreclosure or deedback in lieu of
foreclosure ........................................................ $ 7,596 $ 3,951 $ 6,570
============ ============ ============
Inventory acquired through financing .................................. $ -- $ 2,336 $ 52,399
============ ============ ============
Exchange of REMIC certificates for notes receivable and
inventory in connection with termination of REMIC .................. $ -- $ 2,047 $ --
============ ============ ============
Property and equipment acquired through financing ..................... $ 427 $ 545 $ 8,569
============ ============ ============
Offset of Joint Venture distribution of operating proceeds to
minority interest against the Prepayment (see Note 4) .............. $ -- $ -- $ 1,932
============ ============ ============
Retained interests in notes receivable sold ........................... $ 21,207 $ 18,085 $ 22,260
============ ============ ============
Notes receivable acquired through financing ........................... $ -- $ -- $ 2,334
============ ============ ============
Net change in unrealized gains on retained interests in notes
receivable sold .................................................... $ 1,557 $ 2,997 $ 2,228
============ ============ ============
Supplemental schedule of operating cash flow information:
Interest paid, net of amounts capitalized ............................. $ (11,947) $ (13,455) $ (13,600)
============ ============ ============
Income taxes (paid) refunded .......................................... $ 2,014 $ (745) $ (1,634)
============ ============ ============
See accompanying notes to consolidated financial statements.
62
BLUEGREEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization
We are a leading provider of vacation and residential lifestyle choices
through our resorts and residential communities businesses. Our resorts business
("Bluegreen(R) Resorts") acquires, develops and markets vacation ownership
interests ("VOIs") in resorts generally located in popular, high-volume,
"drive-to" vacation destinations. VOIs in any of our resorts entitle the buyer
to an annual allotment of "points" in perpetuity (supported by an underlying
deeded vacation ownership interest being held in trust for the buyer) in our
Bluegreen Vacation Club(R). Members in our Bluegreen Vacation Club may use their
points to stay in any of our participating resorts or for other vacation
options, including cruises and stays at approximately 3,700 resorts offered by
our affiliated worldwide vacation ownership exchange networks. We are currently
marketing and selling VOIs in 17 resorts located in the United States and Aruba
as well as at four off-site sales offices located in the United States. Our
residential communities business ("Bluegreen Communities") acquires, develops
and subdivides property and markets residential land homesites, the majority of
which are sold directly to retail customers who seek to build a home in a high
quality residential setting, in some cases on properties featuring a golf course
and other related amenities. During the year ended December 31, 2003, sales
generated by Bluegreen Resorts comprised approximately 71% of our total sales of
real estate while sales generated by Bluegreen Communities comprised
approximately 29% of our total sales of real estate. Our other resort and
communities operations revenues consist primarily of mini-vacation package
sales, vacation ownership tour sales, resort property management services,
resort title services, resort amenity operations, hotel operations, realty
operations and daily-fee golf course operations. We also generate significant
interest income by providing financing to individual purchasers of VOIs and, to
a lesser extent, homesites sold by Bluegreen Communities.
Fiscal Year
On October 14, 2002, our Board of Directors approved a change in our
fiscal year from a 52- or 53-week period ending on the Sunday nearest the last
day of March in each year to the calendar year ending on December 31, effective
for the nine months ended December 31, 2002. The following unaudited financial
information for the nine months ended December 30, 2001 is provided for
comparative purposes (in thousands, except per share data):
Sales of real estate .......................... $184,703
Gross profit .................................. 120,570
Income taxes .................................. 6,688
Net income .................................... 10,683
Earnings per common share:
Basic .................................... 0.44
Diluted .................................. 0.41
Principles of Consolidation
Our consolidated financial statements include the accounts of all of our
wholly-owned subsidiaries and entities in which we hold a controlling financial
interest. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations LLC (the "Joint Venture"), as we hold a 51% equity
interest in the Joint Venture, have an active role as the day-to-day manager of
the Joint Venture's activities and have majority voting control of the Joint
Venture's management committee. We have eliminated all significant intercompany
balances and transactions.
Use of Estimates
Accounting principles generally accepted in the United States require us
to make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
63
Cash and Cash Equivalents
We invest cash in excess of our immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities of three months or less. We maintain cash and cash equivalents with
various financial institutions. These financial institutions are located
throughout the United States, Canada and Aruba. Our policy is designed to limit
exposure to any one institution. However, a significant portion of our
unrestricted cash is maintained with a single bank and, accordingly, we are
subject to credit risk. Periodic evaluations of the relative credit standing of
financial institutions maintaining our deposits are performed to evaluate and
mitigate, if necessary, credit risk.
Restricted cash consists of funds we have collected as servicer of notes
receivable owned by other parties and customer deposits held in escrow accounts.
As of December 31, 2002 and 2003, we held $12.4 million and $19.4 million,
respectively, of funds collected as servicer of notes receivable owned by or
pledged to other parties, primarily notes receivable we previously sold to these
other parties. All such funds are held in separate custodial bank accounts. In
the case of notes receivable previously sold, funds collected and held in these
accounts are periodically transferred to third-party cash administrators, who in
turn make payments to the owners of the notes receivable and to us for servicing
fees and payments on any retained interests in the notes receivable sold. We
have recorded a corresponding liability, which is included in accrued
liabilities on our consolidated balance sheets, for the restricted cash we are
holding in connection with our servicing of previously sold notes receivable. In
the case of notes receivable previously pledged, funds collected and held in
these accounts are periodically transferred to the lenders as payment on our
receivable-backed notes payable.
Revenue Recognition and Contracts Receivable
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66 "Accounting for Sales of Real Estate", we recognize
revenue on homesite sales and sales of VOIs when a minimum of 10% of the sales
price has been received in cash, the legal rescission period has expired,
collectibility of the receivable representing the remainder of the sales price
is reasonably assured and we have completed substantially all of our obligations
with respect to any development related to the real estate sold. In cases where
all of the development has not been completed, we recognize revenue in
accordance with the percentage-of-completion method of accounting.
Sales, which do not meet the criteria for revenue recognition described
above, are deferred using the deposit method. Under the deposit method, cash
received from customers is classified as a refundable deposit in the liability
section of our consolidated balance sheets and profit recognition is deferred
until the requirements of SFAS No. 66 are met.
Contracts receivable is reflected net of an allowance for cancellations of
Bluegreen Communities' sales contracts and totaled approximately $286,000 and
$718,000 at December 31, 2002 and 2003, respectively.
Our other resort and communities operations revenues consist primarily of
sales and service fees from the activities listed below together with a brief
description of the applicable revenue recognition policy:
Activity Revenue is recognized as:
-------- -------------------------
Mini-vacation package sales....................... Mini-vacation packages are fulfilled (i.e., guests use
mini- vacation packages to stay at a hotel, take a
cruise, etc.)
Vacation ownership tour sales..................... Vacation ownership tour sales commissions are earned per
contract terms.
Resort title fees................................. Escrow amounts are released and title documents are
completed.
Club and other resort management fees............. Management services are rendered.
Rental commissions................................ Rental services are provided.
Rental income..................................... Guests complete stays at the resorts.
Realty commissions................................ Sales of third-party-owned real estate are completed.
Golf course and ski hill daily fees............... Services are provided.
Retail merchandise, food and beverage sales....... Sales are consummated.
64
Notes Receivable
Our notes receivable are carried at amortized cost. Interest income is
suspended on all delinquent notes receivable when principal or interest payments
are more than three months contractually past due and not resumed until such
loans are less than three months past due. As of December 31, 2002 and 2003,
$9.1 million and $4.2 million, respectively, of notes receivable were more than
three months contractually past due and, hence, were not accruing interest
income.
We consider many factors when establishing and evaluating the adequacy of
our reserve for loan losses. These factors include recent and historical default
rates, static pool analyses, current delinquency rates, contractual payment
terms, loss severity rates along with present and anticipated economic
conditions. We examine these factors and adjust our reserve for loan losses on a
quarterly basis.
Retained Interest in Notes Receivable Sold
When we sell our notes receivable either pursuant to our vacation
ownership receivables purchase facilities (more fully described in Note 5), term
securitizations or, in the case of land mortgages receivable, private-placement
Real Estate Mortgage Investment Conduits ("REMICs"), we evaluate whether or not
such transfers should be accounted for as a sale pursuant to SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" and related interpretations. The evaluation of sale treatment
under SFAS No. 140 involves legal assessments of the transactions, which include
determining whether the transferred assets have been isolated from us (i.e. put
presumptively beyond our reach and our creditors, even in bankruptcy or other
receivership), determining whether each transferee has the right to pledge or
exchange the assets it received, and ensuring that we do not maintain effective
control over the transferred assets through either an agreement that (1) both
entitles and obligates us to repurchase or redeem the assets before their
maturity or (2) provides us with the ability to unilaterally cause the holder to
return the assets (other than through a cleanup call).
In connection with such transactions, we retain subordinated tranches,
rights to excess interest spread and servicing rights, all of which are retained
interests in the notes receivable sold. Gain or loss on the sale of the
receivables depends in part on the allocation of the previous carrying amount of
the financial assets involved in the transfer between the assets sold and the
retained interests based on their relative fair value at the date of transfer.
We consider our retained interests in notes receivable sold as
available-for-sale investments and, accordingly, carry them at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, unrealized holding gains or losses on our
retained interests in notes receivable sold are included in our shareholders'
equity, net of income taxes. Declines in fair value that are determined to be
other than temporary are charged to operations.
We measure the fair value of the retained interests in the notes
receivable sold initially and periodically based on the present value of future
expected cash flows estimated using our best estimates of the key assumptions -
prepayment rates, loss severity rates, default rates and discount rates
commensurate with the risks involved. We revalue our retained interests in notes
receivable sold on a quarterly basis.
Interest on the retained interests in notes receivable sold is accreted
using the effective yield method.
Inventory
Our inventory consists of completed VOIs, VOIs under construction, land
held for future vacation ownership development and residential land acquired or
developed for sale. We carry our inventory at the lower of cost, including costs
of improvements and amenities incurred subsequent to acquisition, capitalized
interest, real estate taxes and other costs incurred during construction, or
estimated fair value, less costs to dispose. Homesites and VOIs reacquired
through foreclosure or deedback in lieu of foreclosure are recorded at the lower
of fair value, net of costs
65
to dispose, or the original cost of the inventory. We periodically evaluate the
recovery of the carrying amount of our individual resort and residential
communities properties under the guidelines of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (see Note 7).
Property and Equipment
Our property and equipment are stated at cost. We record depreciation and
amortization in a manner that recognizes the cost of our depreciable assets in
operations over their estimated useful lives using the straight-line method.
Leasehold improvements are amortized over the shorter of the terms of the
underlying leases, including probable renewal periods, or the estimated useful
lives of the improvements. Depreciation expense includes the amortization of
assets recorded under capital leases.
Goodwill and Intangible Assets
We adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets" as of April 1, 2002. This statement requires that goodwill and
intangible assets deemed to have indefinite lives not be amortized, but rather
be tested for impairment on an annual basis. Finite-lived intangible assets are
required to be amortized over their useful lives and are subject to impairment
evaluation under the provisions SFAS No. 144. Upon adoption of SFAS No. 142, we
discontinued the amortization of all of our goodwill. The adoption of SFAS No.
142 did not have a material impact on our financial position or results of our
operations as of or for the nine months ended December 31, 2002. Our intangible
assets relate to customer lists that were acquired in connection with the
business combination discussed in Note 2. The customer lists are amortized as
the related leads and mini-vacation packages are fulfilled or become expired.
During the year ended March 31, 2002, goodwill was amortized over periods
ranging from 8 to 25 years using the straight-line method. See Note 9 for
further discussion.
Treasury Stock
We account for repurchases of our common stock using the cost method with
common stock in treasury classified in our consolidated balance sheets as a
reduction of shareholders' equity.
Advertising Expense
We expense advertising costs as incurred. Advertising expense was $50.6
million for the year ended March 31, 2002, $47.9 million for the nine months
ended December 31, 2002 and $70.8 million for the year ended December 31, 2003.
Advertising expense is included in selling, general and administrative expenses
in our consolidated statements of income.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", encourages, but does not require companies to record compensation
cost for employee stock options at fair value. We have elected to continue to
account for our employee stock options using the intrinsic value method pursuant
to Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. Accordingly, compensation
cost for our employee stock options is measured as the excess, if any, of the
quoted market price of our stock at the date of the grant over the exercise
price of the option.
Pro forma information regarding net income and earnings per share as if we
had accounted for our employee stock options under the fair value method of SFAS
No. 123 is presented below. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Risk free investment rate ................ 2.0% 2.0% 3.13%
Dividend yield ........................... 0.0% 0.0% 0.0%
Volatility factor ........................ 69.8% 69.8% 69.7%
Life of option (years) ................... 5.0 5.0 5.9
66
There were 842,508 stock options granted to our employees and non-employee
directors during the year ended December 31, 2003.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 for the purpose of providing pro forma disclosures are not
likely to be representative of the effects on reported pro forma net income for
future years, due to the impact of the staggered vesting periods of our stock
option grants. Our pro forma information is as follows (in thousands, except per
share data).
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Net income, as reported ......................... $11,732 $9,797 $25,827
Pro forma stock-based employee compensation
cost, net of income taxes .................... (26) (189) (399)
------- ------ -------
Pro forma net income ............................ $11,706 $9,608 $25,428
======= ====== =======
Earnings per share, as reported:
Basic ......................................... $ .48 $ .40 $ 1.05
Diluted ....................................... $ .46 $ .39 $ .94
Pro forma earnings per share:
Basic ......................................... $ .48 $ .39 $ 1.03
Diluted ....................................... $ .46 $ .38 $ .93
Cumulative Effect of Change in Accounting Principle
During the years ended April 1, 2001 and March 31, 2002, we deferred the
costs of generating vacation ownership tours through telemarketing programs
until the earlier of such time as the tours were conducted or the related
mini-vacation packages expired, based on an accepted industry accounting
principle. Effective April 1, 2002, we elected to change our accounting policy
to expense such costs as incurred. We believe that our new method of accounting
for these costs is preferable over our previous method and we have applied it
prospectively. We believe accounting for these costs as period expenses results
in improved financial reporting.
The cumulative effect of this change in accounting principle during the
nine months ended December 31, 2002 was an additional expense of $9.2 million,
net of income taxes of $3.3 million and minority interest's share of the loss of
$350,000. The cumulative effect of this change in accounting principle during
the nine months ended December 31, 2002 reduced our diluted earnings per share
by $0.19. The effect of adopting this new accounting principle on our income
before cumulative effect of change in accounting principle and net income for
the nine months ended December 31, 2002 was additional expense of approximately
$1.2 million or $0.04 per diluted share.
The pro forma effect of a retroactive application of the change in
accounting principle on our operating results for the year ended March 31, 2002
is presented on our consolidated statement of income.
Earnings Per Common Share
We compute basic earnings per common share by dividing net income by the
weighted-average number of common shares outstanding during the period. We
compute diluted earnings per common share in the same manner as basic earnings
per share, but also give effect to all dilutive stock options using the treasury
stock method and include an adjustment, if dilutive, to both net income and
weighted-average common shares outstanding as if our 8.00% convertible
subordinated notes payable (after-tax impact of $295,000 on net income and 1.5
million shares) and 8.25% convertible subordinated debentures (after-tax impact
of $1.7 million on net income and 4.2 million shares) were converted into common
stock at the beginning of the earliest period presented below, for periods
during which these convertible debt issues were outstanding. We have excluded
approximately 2.5 million, 1.6 million and 1.2 million anti-dilutive stock
options from our computations of earnings per common share during the year ended
March 31, 2002, nine months ended December 31, 2002 and year ended December 31,
2003, respectively.
67
The following table sets forth our computation of basic and diluted
earnings per common share (in thousands, except per share data):
Nine Months
Year Ended Ended Year Ended
March 31, December 31, December 31,
2002 2002 2003
---- ---- ----
Basic earnings per common share-- numerators:
Income before cumulative effect of change in
accounting principle ................................ $11,732 $ 15,376 $25,827
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ............................................ -- (5,579) --
------- -------- -------
Net income ............................................. $11,732 $ 9,797 $25,827
======= ======== =======
Diluted earnings per common share-- numerators:
Income before cumulative effect of change in
accounting principle-- basic ........................ $11,732 $ 15,376 $25,827
Effect of dilutive securities (net of income tax
effects) ............................................ 2,039 1,379 1,749
------- -------- -------
Income before cumulative effect of change in
accounting principle-- diluted ...................... 13,771 16,755 27,576
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ............................................ -- (5,579) --
------- -------- -------
Net income-- diluted ................................... $13,771 $ 11,176 $27,576
======= ======== =======
Denominator:
Denominator for basic earnings per common
share-weighted-average shares ....................... 24,256 24,472 24,671
Effect of dilutive securities:
Stock options .......................................... 35 140 421
Convertible securities ................................. 5,702 4,171 4,171
------- -------- -------
Dilutive potential common shares ....................... 5,737 4,311 4,592
------- -------- -------
Denominator for diluted earnings per common
share-adjusted weighted-average shares and
assumed conversions ................................. 29,993 28,783 29,263
======= ======== =======
Basic earnings per common share:
Income before cumulative effect of change in
accounting principle ................................ $ .48 $ .63 $ 1.05
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ............................................ -- (.23) --
------- -------- -------
Net income ............................................. $ .48 $ .40 $ 1.05
======= ======== =======
Diluted earnings per common share:
Income before cumulative effect of change in
accounting principle ................................ $ .46 $ .58 $ .94
Cumulative effect of change in accounting
principle, net of income taxes and minority
interest ............................................ -- (.19) --
------- -------- -------
Net income ............................................. $ .46 $ .39 $ .94
======= ======== =======
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", requires unrealized gains
or losses on our retained interests in notes receivable, which are classified as
available-for-sale investments, to be included in other comprehensive income.
Comprehensive income is shown as a subtotal within our consolidated statements
of shareholders' equity for each period presented.
68
Recent Accounting Pronouncements
On January 1, 2003, we adopted SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. The adoption of this statement did not have an impact on our
financial position or results of operations as of and for the year ended
December 31, 2003.
On January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. The adoption of this statement did not have an impact on
our financial position or results of operations as of and for the year ended
December 31, 2003.
On January 1, 2003, we adopted the accounting provisions of Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). We had
previously adopted the disclosure requirements of FIN 45 during the nine months
ended December 31, 2002. FIN 45 requires that certain guarantees be initially
recorded at fair value, as opposed to the former practice of recording a
liability only when a loss was probable and reasonably estimable. FIN 45 also
requires a guarantor to make significant new disclosures for virtually all
guarantees. The adoption of the accounting requirements of FIN 45 did not have
an impact on our financial position or results of operations as of and for the
year ended December 31, 2003.
In January 2003, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses the consolidation of
variable interest entities. FIN 46 expands the criteria for consideration in
determining whether a variable interest entity should be consolidated by a
business entity, and requires existing unconsolidated variable interest entities
(which include, but are not limited to, certain special purpose entities) to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. This interpretation's consolidation
provisions apply immediately to variable interests in variable interest entities
created after January 31, 2003. Pursuant to a subsequent FASB revision in
December 2003, public entities are not required to apply the provisions of FIN
46 to an interest held in a variable interest entity or a potential variable
interest entity until the end of the first interim or annual period ending after
March 15, 2004, if the variable interest entity was created before February 1,
2003, and the public entity has not issued financial statements reporting the
variable interest entity as consolidated in accordance with FIN 46. The adoption
of FIN 46 did not have an impact on our financial position or results of
operations as of and for the year ended December 31, 2003 and is not expected to
have an impact on us for the foreseeable future.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003, except for certain hedging relationships designated after
June 30, 2003. The adoption of this statement did not have an impact on our
financial position or results of operations as of and for the year ended
December 31, 2003.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. With the exception of certain
mandatorily redeemable financial interests (such as the noncontrolling minority
interest in the Joint Venture), SFAS No. 150 became effective for all other
instruments entered into or modified after May 31, 2003 and to all other
instruments that existed as of July 1, 2003. The application of the
classification and measurement guidance in SFAS No. 150 relative to certain
mandatorily redeemable financial interests has been deferred indefinitely by the
FASB. However, the disclosure requirements of SFAS No. 150 for these types of
instruments remain, see Note 3. The adoption of this statement did not have an
impact on our financial position or results of operations as of and for the year
ended December 31, 2003.
In February 2003, the FASB released for public comment an exposure draft
of an American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP"), "Accounting for Real Estate Time-Sharing
69
Transactions" and a proposed FASB Statement, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and No. 67."
The proposed SOP and related FASB Statement, if cleared by the FASB, would have
provided accounting guidance for vacation ownership interest transactions,
including: a framework for sales and revenue recognition, the accounting for
cost of sales and inventory, credit losses and changes in estimates. In January
2004, the FASB recommended that the proposed SOP not include any revenue
recognition guidance and that the Accounting Standards Executive Committee of
the AICPA meet with the FASB staff to identify the topics to be retained and
addressed by the proposed SOP. Based on the foregoing, we have not yet
completely evaluated the impact of the proposed SOP on our financial position or
results of operations, however, we do not believe that the proposed SOP will
have a material impact on us based on how it is currently proposed.
Reclassifications
We have made certain reclassifications of prior period amounts to conform
to the current year presentation.
2. Acquisition
On October 2, 2002, Great Vacation Destinations, Inc. (f/k/a Leisure Plan,
Inc.)("GVD"), one of our wholly-owned subsidiaries, with no prior operations,
acquired substantially all of the assets and assumed certain liabilities of
TakeMeOnVacation, LLC, RVM Promotions, LLC and RVM Vacations, LLC (collectively,
"TMOV") for $2.8 million in cash, $500,000 of which was paid on March 31, 2003.
In addition, if certain earnings targets are met, GVD agreed to pay additional
consideration up to a maximum of $12.5 million through December 31, 2007.
Should any contingent consideration be paid, we will record that amount as
goodwill. Based on GVD's results of operations to date, we have not accrued any
contingent consideration as of December 31, 2003.
We anticipate that GVD will pay the contingent consideration, if earned
pursuant to the Asset Purchase agreement, from its operations. We have
guaranteed the payment by GVD if earned by TMOV pursuant to the Asset Purchase
agreement. If we are required to pay the contingent consideration pursuant to
the aforementioned guarantee, we expect to fund this additional consideration
from our operations or from borrowings under one or more of our existing or
future credit facilities or vacation ownership receivables purchase facilities
or from a combination thereof.
GVD generates sales leads for VOI sales utilizing various marketing
strategies. Through the application of a proprietary computer software system,
these leads are then contacted and given the opportunity to purchase
mini-vacation packages. These packages sometimes combine hotel stays, cruises
and gift premiums. Buyers of these mini-vacation packages are then usually
required to participate in a vacation ownership sales presentation.
The assets acquired include prospects that purchased mini-vacation
packages from TMOV. These prospects will become sales leads for VOI sales for
pre-determined, third-party developers when these vacations are taken.
Additional assets acquired include customer lists for future mini-vacation
package sales, property and equipment (including the aforementioned computer
software system), trademarks and servicemarks and accounts receivable. The
liabilities assumed include trade accounts payable and commissions payable
related to the assets acquired. As a result of the acquisition, we recognized
approximately $360,000 of goodwill, after giving effect to certain purchase
accounting adjustments recorded in 2003.
The effective date of the acquisition was deemed to be September 30, 2002,
in accordance with the Asset Purchase agreement. The acquisition was accounted
for using the purchase method; therefore the results of operations of GVD have
been included in our consolidated statements of income since October 1, 2002.
70
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed in the acquisition, after giving effect to
certain purchase accounting adjustments recorded in 2003:
As of September 30, 2002
(in thousands)
Prepaid expenses......................................... $ 318
Property and equipment................................... 2,388
Intangible assets:
Customer list -- vacation packages sold (a)............ $13,654
Customer list -- telemarketing leads (b)............... 316
-------
13,970
Other assets............................................. 442
-------
Total assets acquired.......................... 17,118
Accounts payable and accrued liabilities................. 1,829
Deferred income (c)...................................... 12,290
Deferred income taxes.................................... 506
-------
Total liabilities assumed...................... 14,625
-------
Net assets acquired.................................... $ 2,493
=======
(a) -- To be amortized as the vacation packages are fulfilled or become
expired.
(b) -- To be amortized as the telemarketing leads are used.
(c) -- To be recognized as other resort operations revenues as the vacation
packages are fulfilled or become expired.
Unaudited supplemental pro forma information presenting the results of
operations for the year ended March 31, 2002 and the nine months ended December
31, 2002 as though the acquisition had occurred at the beginning of each
respective period is as follows (in thousands, except per share data):
Nine Months
Year Ended Ended
March 31, December 31,
2002 2002
----------- -----------
Total revenues ........................................................................ $312,552 $294,134
Income before cumulative effect of change in accounting principle ..................... 8,621 15,719
Net income ............................................................................ 8,621 10,140
Basic earnings per common share:
Income before cumulative effect of change in accounting principle .................. $ .36 $ .64
Cumulative effect of change in accounting principle, net of income taxes ........... -- (.23)
-------- --------
Net income ......................................................................... $ .36 $ .41
======== ========
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle ................. $ .35 $ .59
Cumulative effect of change in accounting principle, net of income taxes .......... -- (.19)
-------- --------
Net income ........................................................................ $ .35 $ .40
======== ========
3. Joint Ventures
On June 16, 2000, one of our wholly-owned subsidiaries entered into an
agreement with Big Cedar L.L.C. ("Big Cedar"), an affiliate of Bass Pro, Inc.
("Bass Pro"), to form the Joint Venture, a vacation ownership development,
marketing and sales limited liability company. The Joint Venture is developing,
marketing and selling VOIs in a 300-unit, wilderness-themed resort adjacent to
the Big Cedar(R) Lodge, a luxury hotel resort owned by Big Cedar, on the shores
of Table Rock Lake in Ridgedale, Missouri. During the year ended April 1, 2001,
we made an initial cash capital contribution to the Joint Venture of
approximately $3.2 million, in exchange for a 51% ownership interest in the
Joint Venture. In exchange for a 49% interest in the Joint Venture, Big Cedar
has contributed approximately 46 acres of land with a fair market value of $3.2
million to the Joint Venture. See Note 4 regarding payment of profit
distributions to Big Cedar.
71
In addition to its 51% ownership interest, we also receive a quarterly
management fee from the Joint Venture equal to 3% of the Joint Venture's net
sales in exchange for our involvement in the day-to-day operations of the Joint
Venture. We also service the Joint Venture's notes receivable in exchange for a
servicing fee.
Based on our role as the day-to-day manager of the Joint Venture, its
majority control of the Joint Venture's Management Committee and our controlling
financial interest in the Joint Venture, the accounts of the Joint Venture are
consolidated in our financial statements.
Because the Joint Venture has a finite life (i.e., the Joint Venture can
only exist through the earlier of: i) December 31, 2050; ii) the sale or
disposition of all or substantially all of the assets of the Joint Venture; iii)
a decision to dissolve the Joint Venture by us and Big Cedar; or iv) certain
other events described in the Joint Venture agreement), the minority interest in
the Joint Venture meets the definition of a mandatorily redeemable
noncontrolling interest as specified in SFAS No. 150. We believe the settlement
value of this mandatorily redeemable noncontrolling interest at December 31,
2003 is $4.9 million based on the sale or disposition of all or substantially
all of the assets of the Joint Venture as of that date. Our potential obligation
to satisfy the settlement of this mandatorily redeemable noncontrolling interest
would be fully offset by the Prepayment to Bass Pro (see Note 4).
During the year ended March 31, 2002, nine months ended December 31, 2002
and year ended December 31, 2003, the Joint Venture paid approximately $785,000,
$577,000 and $832,000, respectively, to Bass Pro(R) and affiliates for
construction management services and furniture and fixtures in connection with
the development of the Joint Venture's vacation ownership resort and sales
office. In addition, the Joint Venture paid Big Cedar and affiliates
approximately $925,000, $993,000 and $1.0 million for gift certificates and
hotel lodging during the year ended March 31, 2002, nine months ended December
31, 2002 and year ended December 31, 2003, respectively, in connection with the
Joint Venture's marketing activities.
4. Marketing Agreement
On June 16, 2000, we entered into an exclusive, 10-year marketing
agreement with Bass Pro, a privately-held retailer of fishing, marine, hunting,
camping and sports gear. Bass Pro is an affiliate of Big Cedar (see Note 3).
Pursuant to the agreement, we have the right to market our VOIs at each of Bass
Pro's national retail locations (currently consisting of 15 stores), in Bass
Pro's catalogs and on its web site. We also have access to Bass Pro's customer
lists. In exchange for these services, we agreed to pay Bass Pro a commission
ranging from 3.5% to 7.0% on each sale of a VOI, net of cancellations and
defaults, that is made to a customer as a result of one of the Bass Pro
marketing channels described above ("Commission"). The amount of Commission is
dependent on the level of additional marketing efforts required by us to convert
the prospect into a sale and a defined time frame for such marketing efforts.
There is no Commission paid to Bass Pro on sales made by the Joint Venture.
On June 16, 2000, we prepaid $9.0 million to Bass Pro (the "Prepayment").
The Prepayment is amortized from future Commissions earned by Bass Pro and
future member distributions otherwise payable to Big Cedar from the earnings of
the Joint Venture as a member thereof. No additional Commissions or member
distributions will be paid in cash to Bass Pro or Big Cedar, respectively, until
the Prepayment has been fully utilized. During the year ended December 31, 2003,
the Joint Venture made a $3.9 million member distribution, of which $1.9 million
was payable to Big Cedar and used to pay down the balance of the Prepayment. As
of December 31, 2002 and 2003, the unamortized balance of the Prepayment,
included in prepaid expenses on our consolidated balance sheets, was $8.5
million and $6.1 million, respectively. The Prepayment is periodically evaluated
for any indicators of impairment.
During the year ended March 31, 2002, nine months ended December 31, 2002
and year ended December 31, 2003, we paid Bass Pro Trademarks L.L.C., an
affiliate of Bass Pro, approximately $333,000, $19,000 and $2,000, respectively,
for advertising services.
72
5. Notes Receivable and Note Receivable Purchase Facilities
The table below sets forth additional information relative to our notes
receivable (in thousands).
December 31, 2002 December 31, 2003
----------------- -----------------
Notes receivable secured by VOIs .............. $53,029 $ 90,820
Notes receivable secured by homesites ......... 11,559 10,555
Other notes receivable ........................ 1,896 1,425
------- --------
Notes receivable, gross ....................... 66,484 102,800
Reserve for loan losses ....................... (4,689) (8,606)
------- --------
Notes receivable, net ......................... $61,795 $ 94,194
======= ========
The weighted-average interest rate on our notes receivable was 14.4% and
14.3% at December 31, 2002 and 2003, respectively. All of our vacation ownership
loans bear interest at fixed rates. The average interest rate charged on loans
secured by VOIs was 15.3% and 14.9% at December 31, 2002 and 2003, respectively.
Approximately 52.0% of our notes receivable secured by homesites bear interest
at variable rates, while the balance bears interest at fixed rates. The average
interest rate charged on loans secured by homesites was 10.2% and 9.1% at
December 31, 2002 and 2003, respectively.
Our vacation ownership loans are generally secured by property located in
Tennessee, Missouri, Wisconsin, Michigan, Florida, Virginia and South Carolina.
The majority of Bluegreen(R) Communities' notes receivable are secured by
homesites in Texas, North Carolina, Virginia and Georgia.
The table below sets forth the activity in our reserve for loan losses (in
thousands).
Reserve for loan losses at March 31, 2002 .............. $ 4,207
Provision for loan losses .............................. 2,832
Charge-offs ............................................ (2,350)
-------
Reserve for loan losses at December 31, 2002 ........... 4,689
Provision for loan losses .............................. 6,094
Charge-offs ............................................ (2,177)
-------
Reserve for loan losses at December 31, 2003 ........... $ 8,606
=======
Installments due on our notes receivable during each of the five years
subsequent to December 31, 2003, and thereafter, are set forth below (in
thousands).
2004............ $ 16,156
2005............ 6,697
2006............ 7,325
2007............ 8,046
2008............ 8,892
Thereafter...... 55,684
--------
Total...... $102,800
========
Notes Receivable Purchase Facility
In June 2001, we executed agreements for a vacation ownership receivables
purchase facility (the "Purchase Facility") with Credit Suisse First Boston
("CSFB") acting as the initial purchaser. In April 2002, ING Capital, LLC
("ING"), an affiliate of ING Bank NV, acquired and assumed CSFB's rights,
obligations and commitments as initial purchaser in the Purchase Facility by
purchasing the outstanding principal balance under the facility from CSFB. On
October 8, 2003, Resort Finance, LLC ("RFL"), acquired and assumed ING's rights,
obligations and commitments as the initial purchaser in the Purchase Facility by
purchasing the outstanding principal balance under the facility from ING (CSFB,
ING and RFL are also individually referred to as the "initial purchaser" during
their applicable terms in this role for the Purchase Facility). The Purchase
Facility utilizes an owner's trust structure, pursuant to which we sell
receivables to Bluegreen Receivables Finance Corporation V, one of our
wholly-owned, special purpose finance subsidiaries (the "Finance Subsidiary"),
and the Finance Subsidiary sells the receivables to an owners' trust (a
qualified special purpose entity) without recourse to us or the Finance
Subsidiary except for breaches of certain representations and warranties at the
time of sale. We did not enter into any guarantees in connection with the
Purchase Facility. The Purchase Facility has detailed requirements with respect
to the eligibility of receivables for purchase and fundings under the Purchase
Facility are subject to certain conditions precedent. Under the Purchase
Facility, a variable purchase price of 85.00% of the principal balance of the
receivables sold,
73
subject to certain terms and conditions, is paid at closing in cash. The balance
of the purchase price is deferred until such time as the initial purchaser has
received a specified return and all servicing, custodial, agent and similar fees
and expenses have been paid. The initial purchaser earned a return equal to the
London Interbank Offered Rate ("LIBOR") plus 1.00% through April 15, 2003, LIBOR
plus 1.25% through October 7, 2003 and LIBOR plus an additional return ranging
from 2.00% to 3.25% (based on the amount outstanding under the Purchase
Facility) from October 8, 2003 through September 30, 2004, subject to the use of
alternate return rates in certain circumstances. In addition, the initial
purchaser received or will receive a 0.25% annual facility fee through April 15,
2003 and from October 8, 2003 through September 30, 2004. The Purchase Facility
also provided for the sale of land notes receivable, under modified terms.
RFL'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 us of the representations or warranties in the
Purchase Facility agreements, (2) a failure by us to perform the covenants in
the Purchase Facility agreements, including, without limitation, a failure by us
to pay principal or interest due to RFL, (3) the commencement of a bankruptcy
proceeding or the like against us, (4) a material adverse change to us 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 us 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 our tangible net worth or (b) causes, or
permits the holder of indebtedness to cause, an amount in excess of 5% of our
tangible net worth to become due, (9) our tangible net worth not equaling at
least $110.0 million plus 50% of net income and 100% of the proceeds from new
equity financing following the first closing under the Purchase Facility, (10)
our ratio of debt to tangible net worth exceeding 6 to 1, or (11) our failure to
perform our servicing obligations.
We act as servicer under the Purchase Facility for a fee. The Purchase
Facility agreements include various conditions to purchase, covenants, trigger
events and other provisions customary for a transaction of this type.
During the year ended March 31, 2002, we sold $83.2 million of aggregate
principal balance of notes receivable under the Purchase Facility for a
cumulative purchase price of $70.7 million. In connection with these sales, we
recognized an aggregate gain of $5.2 million and recorded retained interests in
notes receivable sold of $18.8 million and servicing assets totaling $800,000.
During the year ended March 31, 2002, we also sold $17.6 million of aggregate
principal balance of notes receivable to General Electric Capital Real Estate
("GE") and Barclays Bank, PLC ("Barclays"), under a completed vacation ownership
receivables purchase facility (the "GE/Barclays Purchase Facility") for a
cumulative purchase price of $16.8 million. In connection with this sale, we
recognized a $978,000 gain and recorded a retained interest in notes receivable
sold of $2.4 million and a servicing asset totaling $141,000.
From April 1, 2002 through November 25, 2002, we sold $62.5 million of
aggregate principal balance of notes receivable to ING under the Purchase
Facility for a cumulative purchase price of $51.6 million.
On December 13, 2002, ING Financial Markets, LLC ("IFM"), an affiliate of
ING, consummated a $170.2 million private offering and sale of vacation
ownership loan-backed securities on our behalf (the "2002 Term Securitization").
The $181.0 million in aggregate principal of vacation ownership receivables
included in the 2002 Term Securitization included qualified receivables from
three sources: 1) $119.2 million in aggregate principal amount of receivables
that were previously sold to ING under the Purchase Facility; 2) $54.2 million
in aggregate principal amount of receivables that were previously sold under the
GE/Barclays Purchase Facility; and 3) $7.6 million in aggregate principal amount
of receivables that were previously hypothecated with GE under a vacation
ownership receivables warehouse facility (the "GE Warehouse Facility"). The
proceeds from the 2002 Term Securitization were used to pay ING, GE and Barclays
all amounts then outstanding under the Purchase Facility, the GE/Barclays
Purchase Facility and the GE Warehouse Facility, respectively. We received net
cash proceeds of $2.1 million, VOIs with a carrying value of $1.4 million,
vacation ownership receivables with an estimated net realizable value of $3.1
million and recorded a retained interest in the future cash flows from the 2002
Term Securitization of $36.1 million. We also recognized a gain of $4.7 million
in connection with the 2002 Term Securitization.
On December 23, 2002, we sold $22.1 million of aggregate principal balance
of notes receivable under the Purchase Facility for a purchase price of $18.7
million. As a result of the sales of notes receivable under the Purchase
Facility during the nine months ended December 31, 2002, we recognized an
aggregate gain of $5.3
74
million and recorded retained interests in notes receivable sold and servicing
assets of $18.1 million and $864,000, respectively.
In connection with its assumption of the Purchase Facility and subsequent
amendments, RFL expanded the size of the Purchase Facility to $150.0 million and
extended the term of the Purchase Facility on a revolving basis through
September 30, 2004.
During the year ended December 31, 2003, we sold $110.5 million of
aggregate principal balance of notes receivable under the Purchase Facility for
a cumulative purchase price of $93.9 million. As a result of these sales, we
recognized an aggregate gain of $6.6 million and recorded retained interests in
notes receivable sold and servicing assets of $22.3 million and $1.1 million,
respectively.
Based on sales of receivables under the Purchase Facility and receipts
from customers of the principal balance of the receivables sold, the remaining
availability under the Purchase Facility was $51.9 million at December 31, 2003.
The following assumptions were used to measure the initial fair value of the
retained interests in notes receivable sold during the year ended December 31,
2003: Prepayment rates ranging from 17% to 14% per annum as the portfolios
mature; loss severity rate ranging from 25% to 45%; default rates ranging from
7% to 1% per annum as the portfolios mature; and a discount rate of 14%.
Other Notes Receivable
On June 26, 2001, we loaned $1.7 million to the Casa Grande Resort
Cooperative Association I (the "Association"), the property owners' association
controlled by the vacation ownership owners at the La Cabana Beach and Racquet
Club(TM) resort in Aruba. This unsecured loan bears interest at the prime
lending rate plus 1.00% and is payable in semi-annual installments. On May 21,
2003, the maturity of the loan was extended from June 26, 2003 to April 30,
2004. During the year ended December 31, 2003, we received principal repayments
totaling approximately $456,000 from the Association, leaving an unpaid balance
of $1.2 million as of December 31, 2003.
6. Retained Interests in Notes Receivable Sold and Servicing Assets
Retained Interests in Notes Receivable Sold
Our retained interests in notes receivable sold, which are classified as
available-for-sale investments, and associated unrealized gains and losses are
set forth below (in thousands).
Gross Gross
Amortized Unrealized Unrealized
December 31, 2002: Cost Gain Loss Fair Value
------------------ ------- ------- ------- ----------
1996 REMIC retained interests ................................ $ 1,028 $ 43 $ -- $ 1,071
GE/Wachovia Purchase Facility retained interests ............. 1,231 705 -- 1,936
Purchase Facility retained interests (see Note 5) ............ 4,662 -- -- 4,662
2002 Term Securitization retained interest (see Note 5) ...... 36,559 -- -- 36,559
------- ------- ------- -------
Total .............................................. $43,480 $ 748 $ -- $44,228
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized
December 31, 2003: Cost Gain Loss Fair Value
------------------ ------- ------- ------- ----------
1996 REMIC retained interests ................................ $ 664 $ 133 $ -- $ 797
GE/Wachovia Purchase Facility retained interests ............. 717 955 -- 1,672
Purchase Facility retained interests (see Note 5) ............ 24,063 1,888 -- 25,951
2002 Term Securitization retained interest (see Note 5) ...... 32,555 -- -- 32,555
------- ------- ------- -------
Total .............................................. $57,999 $ 2,976 $ -- $60,975
======= ======= ======= =======
Contractual maturities as of December 31, 2003, are set forth below (in
thousands), based on the final maturity dates of the underlying notes receivable
sold:
Amortized
Cost Fair Value
--------- ----------
After one year but within five ................ $ 1,381 $ 2,469
After five years but within ten ............... 56,618 58,506
------- -------
Total .................................... $57,999 $60,975
======= =======
75
The following assumptions were used to measure the fair value of the above
retained interests: prepayment rates ranging from 23% to 7% per annum as the
portfolios mature; loss severity rates of 25% to 45%; default rates ranging from
9% to 0.75% per annum as the portfolios mature; and discount rates ranging from
10% to 14%.
The following table shows the hypothetical fair value of our retained
interests in notes receivable sold based on a 10% and a 20% adverse change in
each of the assumptions used to measure the fair value of those retained
interests (the impacts on the fair value of the 1996 REMIC retained interest
were not material) (in thousands):
Hypothetical Fair Value at December 31, 2003 of:
-----------------------------------------------------------
GE/Wachovia The 2002 Term
Purchase Facility Purchase Facility Securitization
Retained Interest Retained Interest Retained Interest
----------------- ----------------- -----------------
Prepayment rate: 10% adverse change $1,655 $25,608 $32,208
20% adverse change 1,634 25,293 31,868
Loss severity rate: 10% adverse change 1,596 25,310 31,526
20% adverse change 1,516 24,670 30,497
Default rate: 10% adverse change 1,612 25,083 31,355
20% adverse change 1,557 24,228 30,175
Discount rate: 10% adverse change 1,599 25,103 31,787
20% adverse change 1,529 24,301 31,051
The table below summarizes certain cash flows received from and (paid to)
our qualifying special purpose finance subsidiaries (in thousands):
Nine Months Ended Year Ended
December 31, 2002 December 31, 2003
----------------- -----------------
Proceeds from new sales of receivables........................ $ 72,418 $ 93,918
Collections on previously sold receivables.................... (55,253) (87,311)
Servicing fees received...................................... 2,498 3,690
Purchases of foreclosed assets................................ (614) (1,283)
Resales of foreclosed assets................................. (13,298) (14,769)
Remarketing fees received..................................... 5,723 7,394
Cash received on retained interests in notes receivable sold.. 14,555 12,817
Cash paid to fund required reserve accounts................... (1,865) (3,939)
Quantitative information about the portfolios of notes receivable
previously sold without recourse in which we hold the above retained interests
is as follows (in thousands):
Year Ended
As of December 31, 2003 December 31, 2003
---------------------------- ------------------
Total Principal Amount
Principal of Loans
Amount of More than 60 Credit Losses, Net
Loans Days Past Due of Recoveries
--------- ---------------- ------------------
1996 REMIC-- homesite mortgages........................... $ 1,023 $ 12 $ 32
GE/Wachovia Purchase Facility -- vacation
ownership receivables.................................. 16,925 1,086 --
Purchase Facility -- vacation ownership
receivables............................................ 116,276 4,311 63
2002 Term Securitization-- vacation ownership
receivables............................................ 132,438 7,546 4,254
The net unrealized gain on our retained interests in notes receivable
sold, which is presented as a separate component of our shareholders' equity, is
net of income taxes of approximately $1.6 million, $288,000 and $1.1 million as
of March 31, 2002, December 31, 2002 and December 31, 2003, respectively.
In connection with the 2002 Term Securitization (see Note 5), we
recognized a $4.7 million gain and reversed previously recorded unrealized gains
related to the GE/Barclays Purchase Facility and the Purchase Facility totaling
76
$3.6 million. During the year ended December 31, 2003, we recorded an
other-than-temporary decrease of approximately $912,000, netted against interest
income on our consolidated statement of income, in the fair value of our
retained interest associated with the 2002 Term Securitization, based on higher
than projected default rates in the portfolio of receivables securitized.
During the nine months ended December 31, 2002, we exchanged our retained
interest in a 1995 REMIC transaction for the underlying mortgages and related
assets. The 1995 REMIC retained interest was exchanged in connection with the
termination of the REMIC, as all of the senior 1995 REMIC security holders had
received all of the required cash flows pursuant to the terms of their REMIC
certificates. We realized a $409,000 gain on the exchange, based on the net
realizable value of the mortgages and other assets received and the amortized
cost of the retained interest. We had previously recorded an unrealized gain of
$244,000 on this retained interest in notes receivable sold.
Servicing Assets
The changes in our servicing assets, included in other assets in our
consolidated balance sheets, for the nine months ended December 31, 2002 and the
year ended December 31, 2003, were as follows (in thousands):
Balance at March 31, 2002....................................... $ 1,189
Additions....................................................... 2,981
Less: disposal in 2002 Term Securitization (see Note 5)......... (1,504)
Less: amortization.............................................. (372)
-------
Balance at December 31, 2002.................................... 2,294
Additions....................................................... 1,141
Less: amortization.............................................. (758)
-------
Balance at December 31, 2003.................................... $ 2,677
=======
The estimated fair value of the servicing assets approximated their
carrying amounts as of December 31, 2002 and 2003. Fair value is estimated by
discounting estimated future cash flows from the servicing assets using discount
rates and the other assumptions used to measure the fair value of our retained
interests for portfolios of notes receivable sold. A valuation allowance is
recorded where the fair value of the servicing assets is below the related
carrying amount. As of December 31, 2002 and 2003, no such valuation allowance
was necessary.
7. Inventory
Our net inventory holdings, summarized by division, are set forth below
(in thousands).
December 31, 2002 December 31, 2003
----------------- -----------------
Bluegreen Resorts................. $ 71,097 $ 98,085
Bluegreen Communities............. 102,034 121,805
-------- --------
$173,131 $219,890
======== ========
Bluegreen Resorts inventory as of December 31, 2002, consisted of land
inventory of $9.4 million, $27.0 million of construction-in-progress and $34.7
million of completed units. Bluegreen Resorts inventory as of December 31, 2003,
consisted of land inventory of $28.8 million, $30.2 million of
construction-in-progress and $39.1 million of completed units.
Interest capitalized during the year ended March 31, 2002, nine months
ended December 31, 2002 and year ended December 31, 2003, totaled $8.0 million,
$4.7 million and $7.2 million, respectively. Interest expense in our
consolidated statements of income is net of capitalized interest.
During the year ended March 31, 2002 and nine months ended December 31,
2002, we recognized impairment charges of $4.1 million and $750,000,
respectively, on our Crystal Cove(TM) residential land project in Rockwood,
Tennessee. These impairment charges are included in cost of sales in our
consolidated statements of income. Certain aspects of the Crystal Cove project
required changes in planned development methods, which are expected to be more
costly than our original estimates. The fair value of the Crystal Cove project
was determined based on the estimated cash flows from the project.
77
8. Property and Equipment
The table below sets forth the property and equipment held by us (in
thousands).
Useful December 31, December 31,
Life 2002 2003
----------- ------------ ------------
Office equipment, furniture and fixtures........................... 3-14 years $27,348 $ 34,678
Golf course land, land improvements, buildings and equipment....... 10-30 years 25,958 25,993
Land, buildings and building improvements.......................... 10-30 years 12,119 21,753
Leasehold improvements............................................. 3-14 years 5,152 6,203
Aircraft........................................................... 3-5 years 1,285 1,403
Vehicles and equipment............................................. 3-5 years 694 804
------- --------
72,556 90,834
Accumulated depreciation and amortization of leasehold
improvements.................................................... (20,769) (27,404)
------- --------
Total.................................................... $51,787 $ 63,430
======= ========
9. Goodwill and Intangible Assets
The table below sets forth the intangible assets held by us (in
thousands).
December 31, December 31,
2002 2003
---- ----
Finite-lived intangible assets:
Customer list -- vacation packages sold ........... $13,654 $ 13,654
Customer list -- telemarketing leads .............. 316 --
------- --------
13,970 13,654
Accumulated amortization ............................ (3,132) (12,717)
------- --------
$10,838 $ 937
======= ========
Aggregate amortization expense ...................... $ 3,132 $ 9,901
======= ========
At December 31, 2002 and 2003, our goodwill totaled $2.4 million and $2.8
million, respectively. All of our goodwill relates to our Bluegreen Resorts
division. Our impairment tests during the nine months ended December 31, 2002
and the year ended December 31, 2003 determined that no goodwill impairment
existed. See also Note 2, for further discussion on the goodwill and intangible
assets acquired in connection with our acquisition of substantially all of the
assets of TMOV.
10. Receivable-Backed Notes Payable
We have a revolving vacation ownership receivables credit facility (the
"GMAC Receivables Facility") with Residential Funding Corporation ("RFC"), an
affiliate of General Motors Acceptance Corporation, which we originally entered
into on February 10, 2003 and subsequently amended on September 10, 2003. The
amendment increased the borrowing capacity from $50.0 million to $75.0 million.
The borrowing period on the GMAC Receivables Facility expires on March 10, 2005
and outstanding borrowings mature no later than March 10, 2012. The GMAC
Receivables Facility has detailed requirements with respect to the eligibility
of receivables for inclusion and other conditions to funding. The borrowing base
under the GMAC Receivables Facility is 90.00% of the outstanding principal
balance of eligible notes arising from the sale of VOIs. The GMAC Receivables
Facility includes affirmative, negative and financial covenants and events of
default. All principal and interest payments received on pledged receivables are
applied to principal and interest due under the GMAC Receivables Facility.
Indebtedness under the facility bears interest at LIBOR plus 4.00%. We were
required to pay an upfront loan fee of $375,000 in connection with the GMAC
Receivables Facility. During the year ended December 31, 2003, we borrowed an
aggregate of $23.8 million pursuant to the GMAC Receivables Facility, with $18.0
million of such borrowings outstanding at December 31, 2003.
We also have a $30.0 million revolving credit facility with Foothill
Capital Corporation ("Foothill") for the pledge of Bluegreen Communities'
receivables, with up to $10.0 million of the total facility available for
Bluegreen Communities' inventory borrowings and up to $10.0 million of the total
facility available for the pledge of Bluegreen Resorts' receivables. The
interest rate charged on outstanding receivable borrowings under the revolving
credit facility through September 30, 2003 was the prime lending rate plus 0.75%
when the average monthly outstanding loan balance was greater than or equal to
$10.0 million. If the average monthly outstanding loan balance was less than
$10.0
78
million, the interest rate is the greater of 7.00% or the prime lending rate
plus 1.00%. Effective October 1, 2003, the interest rate under this facility was
amended to be the prime lending rate plus 0.25% when the average monthly
outstanding loan balance is greater than or equal to $15.0 million and the
greater of 4.00% or the prime lending rate plus 0.50% when the outstanding loan
balance is less than $15.0 million. All principal and interest payments received
on pledged receivables are applied to principal and interest due under the
facility. In March 2003, Foothill extended our ability to borrow under the
facility through December 31, 2005, and extended the maturity date to December
31, 2007 for borrowings collateralized by receivables. At December 31, 2003, the
outstanding principal balance under this facility was approximately $6.9
million, $3.3 million of which related to Bluegreen Resorts' receivables
borrowings and $3.6 million of which related to Bluegreen Communities'
receivables borrowings.
At December 31, 2003, $29.8 million in notes receivable secured our $24.9
million in receivable-backed notes payable.
11. Lines-of-Credit and Notes Payable
We have outstanding borrowings with various financial institutions and
other lenders, which have been used to finance the acquisition and development
of our inventory and to fund operations. Financial data related to our borrowing
facilities is set forth below (in thousands).
December 31, December 31,
2002 2003
---- ----
Lines-of-credit secured by inventory and golf courses with a carrying value
of $133.0 million at December 31, 2003. Interest rates range from 4.38% to
7.50% at December 31, 2002 and from 1.87% to 6.25% at December 31, 2003
Maturities range from September 2004 to October 2007 ........................... $24,522 $65,109
Notes and mortgage notes secured by certain inventory, property and
equipment and investments with an aggregate carrying value of $32.7 million
at December 31, 2003. Interest rates ranging from 4.25% to 10.00% at
December 31, 2002 and from 3.12% to 11.00% at December 31, 2003. Maturities
range from on demand to September 2015 ......................................... 8,600 20,574
Unsecured notes payable to former stockholders of RDI. Interest rate of
9.00%. Matured in October 1999 (see Note 16) ................................... 1,000 1,000
Lease obligations with imputed interest rates ranging from 3.12% to 5.75%
Maturities range from March 2006 to August 2007 ................................ 287 1,175
------- -------
Total ................................................................... $34,409 $87,858
======= =======
The table below sets forth the contractual minimum principal payments
required on our lines-of-credit and notes payable for each of the five fiscal
years subsequent to December 31, 2003. Such minimum contractual payments may
differ from actual payments due to the effect of principal payments required on
a homesite or VOI release basis for certain of the above obligations (in
thousands).
2004........ $39,993
2005........ 26,184
2006........ 20,916
2007........ 505
2008........ 41
Thereafter.. 219
-------
Total..... $87,858
=======
The following is a discussion of our significant credit facilities and
material new borrowings during the year ended December 31, 2003:
Certain of our direct and indirect wholly-owned Bluegreen Communities
subsidiaries have a $50.0 million revolving credit facility (the "GMAC
Communities Facility") with RFC, on which we serve as the guarantor. The GMAC
Communities Facility is secured by the real property (and personal property
related thereto) at our following residential land projects, as well as any
Bluegreen Communities projects acquired by us with funds borrowed under the GMAC
Communities Facility (the "Secured Projects"): Brickshire(TM) (New Kent County,
Virginia); Mountain
79
Lakes Ranch(TM) (Bluffdale, Texas); Ridge Lake Shores(TM) (Magnolia, Texas);
Riverwood Forest(TM) (Fulshear, Texas); Waterstone(TM) (Boerne, Texas), Catawba
Falls Preserve(TM) (Black Mountain, North Carolina) and Yellowstone Creek
Ranch(TM) (Pueblo, Colorado). In addition, the GMAC Communities Facility is
secured by our Carolina National(TM) and The Preserve at Jordan Lake(TM) golf
courses in Southport, North Carolina and Chapel Hill, North Carolina,
respectively. Borrowings under the GMAC Communities Facility, which are subject
to certain conditions, can be made through September 25, 2004. Principal
payments are effected through agreed-upon release prices paid to RFC as
homesites in the Secured Projects are sold. The outstanding principal balance of
any borrowings under the GMAC Communities Facility must be repaid by September
25, 2006. The interest charged on outstanding borrowings is prime lending rate
plus 1.00% and is payable monthly. We are required to pay an annual commitment
fee equal to 0.33% of the $50.0 million GMAC Communities Facility amount. The
GMAC Communities Facility documents include customary conditions to funding,
acceleration provisions and certain financial affirmative and negative
covenants. Proceeds from the GMAC Communities Facility are used to repay
outstanding indebtedness on Bluegreen Communities projects, finance the
acquisition and development of Bluegreen Communities projects and for general
corporate purposes. During the year ended December 31, 2003, we borrowed $25.1
million under the GMAC Communities Facility, with $13.6 million of such
borrowings outstanding at December 31, 2003.
RFC has also provided us with a $45.0 million acquisition, development and
construction revolving credit facility for Bluegreen Resorts (the "GMAC Resorts
AD&C Facility"). The borrowing period on the GMAC Resorts AD&C Facility expires
on February 10, 2005, and outstanding borrowings mature no later than February
10, 2009. Principal is repaid through agreed-upon release prices as VOIs are
sold at the financed resorts, subject to certain minimum periodic principal
reductions. Indebtedness under the facility bears interest at LIBOR plus 4.75%
and is payable monthly. We were required to pay an upfront loan fee of $112,500
in connection with the GMAC Resorts AD&C Facility. On October 16, 2003, we
borrowed $17.4 million under this facility in connection with our acquisition of
The Fountains (f/k/a Oasis Lakes Resort), an existing vacation ownership resort
located in Orlando, Florida, for a total purchase price of $20.5 million. The
acquisition included certain unsold VOIs, land that can accommodate the
construction of approximately 576 additional vacation residences, a clubhouse
and pool complex, a 20,000 square-foot sales center, an adjoining parcel of land
that is zoned for commercial use and certain notes receivable. The borrowing,
which is secured by the underlying assets, matures no later than September 16,
2007. On October 10, 2003, we borrowed an additional $8.1 million under the GMAC
Resorts AD&C Facility. This borrowing was collateralized by VOIs and land held
for future development at our 51%-owned Big Cedar Wilderness Club resort and
matures no later than October 10, 2007. The aggregate outstanding balance under
this revolving credit facility was $24.2 million at December 31, 2003.
We also have a $35.0 million revolving credit facility, the draw period
for which has expired, with Finova Capital Corporation. We used this facility to
finance the acquisition and development of Bluegreen Communities and Bluegreen
Resorts projects. The facility is secured by the real property (and personal
property related thereto) with respect to which borrowings are made. The
interest charged on outstanding borrowings is the greater of 7.00% or the prime
lending rate plus 1.25% to 2.00% and is payable monthly. On January 21, 2003, in
connection with our acquisition of 2,341 unsold VOIs in the Casa Del Mar(TM)
Beach Resort, located in Ormond Beach, Florida, we borrowed $4.8 million under
this revolving credit facility. The total purchase price of the acquisition was
$5.3 million. The borrowing requires principal payments based on agreed-upon
release prices as VOIs are sold, subject to certain minimum periodic principal
reductions, and matures on January 31, 2005. On August 29, 2003, we borrowed an
additional $6.7 million under this revolving credit facility in the form of two
promissory notes in connection with our acquisition of 3,996 unsold VOIs and
certain undeveloped land in a resort called the Grande Villas at World Golf
Village(R), located in St. Augustine, Florida. The total purchase price of the
acquisition was $8.4 million. The promissory notes require principal payments
based on agreed-upon release prices as VOIs are sold, subject to certain minimum
periodic principal reductions. The final maturities of the promissory notes are
February 28, 2005 for the $5.6 million promissory note and August 29, 2006 for
the $1.1 million promissory note. The aggregate outstanding balance under this
revolving credit facility, which includes the aforementioned borrowings as well
as previous borrowings collateralized by two of our Bluegreen Communities
properties totaled $17.8 million at December 31, 2003.
On December 22, 2003, we signed a combination $30.0 million Acquisition
and Development and VOI Receivables facility with Textron Financial Corporation
(the "Textron Facility"). The borrowing period on the Textron Facility expires
on December 22, 2005, and outstanding borrowings mature no later than January 1,
2006. Principal will be repaid semi-annually commencing September 14, 2004,
subject to minimum required amortization, with the balance due upon the earlier
of 1) the date that 85% of the VOIs in the financed resort are sold or 2) the
maturity date. Acquisition and development indebtedness under the facility bears
interest at the prime lending rate plus 1.25%, subject to a minimum interest
rate of 6.25%. Interest payments are due monthly. On December 22, 2003, we
utilized this facility to borrow $9.6 million of the purchase price of The
Hammocks at Marathon resort
80
located in Marathon, Florida. The balance of this facility will be available to
finance the cost of renovations on the Marathon property and for borrowings
collateralized by our vacation ownership receivables. Receivable-backed
borrowings under the Textron Facility will bear interest at the prime lending
rate plus 1.00%, subject to a 6.00% minimum interest rate. As of December 31,
2003, $9.6 million was outstanding under the Textron Facility.
On April 15, 2003, we borrowed $3.3 million from First Bank. The proceeds
from the borrowing were used to acquire 1,125 acres of land in Comal County,
Texas for the purpose of developing a community called Mountain Springs
Ranch(TM). The total purchase price of the land was $4.8 million. The borrowing,
which is secured by the underlying land, requires quarterly principal payments
of $371,875 beginning on June 2, 2004 and bears interest at the prime lending
rate, payable monthly. The note matures on May 2, 2006.
On May 7, 2003, we borrowed $1.6 million from Bank One. The proceeds from
the borrowing were used to acquire 921 acres of land in Parker County, Texas for
the purpose of developing a community called Quail Springs Ranch(TM). The total
purchase price of the land was $2.3 million. The borrowing, which is secured by
the underlying land, requires quarterly principal payments of approximately
$137,000 beginning on August 7, 2003 and bears interest at the prime lending
rate, payable quarterly. The note matures on May 7, 2006. As of December 31,
2003, the balance outstanding under this borrowing was $1.2 million
On November 12, 2003, we borrowed $7.9 million from Wachovia Bank, N.A.
The proceeds from the borrowing were used to acquire 500 acres of land near St.
Simons Island in Brunswick County, Georgia for the purpose of developing a golf
course community known as Sanctuary Cove. The total purchase price of the land
was $11.3 million. The borrowing, which is secured by the underlying land,
requires interest only payments through November 12, 2004, at which time
quarterly principal payments of $494,000 will also be required in addition to
the monthly interest payments. The borrowing bears interest at the LIBOR lending
rate plus 2.00% and has a final maturity date of October 12, 2006, which can be
extended to October 12, 2008 at our option.
12. Note Offering
On April 1, 1998, we consummated a private placement offering (the
"Offering") of $110.0 million in aggregate principal amount of 10.50% senior
secured notes due April 1, 2008 (the "Notes"). Interest on the Notes is payable
semiannually on April 1 and October 1 of each year. The Notes became redeemable
at our option, in whole or in part, in cash, on April 1, 2003, together with
accrued and unpaid interest, if any, to the date of redemption at the following
redemption prices: 2003 -- 105.25%; 2004 -- 103.50%; 2005 -- 101.75% and 2006
and thereafter -- 100.00%. The Notes are our senior obligations and rank pari
passu in right of payment with all of our existing and future senior
indebtedness and rank senior in right of payment to all of our existing and
future subordinated obligations. None of the assets of Bluegreen Corporation
secure its obligations under the Notes, and the Notes are effectively
subordinated to our secured indebtedness to any third party to the extent of
assets serving as security thereon.
The Notes are unconditionally guaranteed, jointly and severally, by each
of our existing and future subsidiaries (the "Subsidiary Guarantors"), with the
exception of the Joint Venture, Bluegreen Properties N.V., Resort Title Agency,
Inc., any special purpose finance subsidiary, any subsidiary which is formed and
continues to operate for the limited purpose of holding a real estate license
and acting as a broker, and certain other subsidiaries which have individually
less than $50,000 of assets (collectively, "Non-Guarantor Subsidiaries").
Each of the Note guarantees covers the full amount of the Notes and each
of the Subsidiary Guarantors is 100% owned, directly or indirectly, by us. The
Note guarantees are senior obligations of each Subsidiary Guarantor and rank
pari passu in right of payment with all existing and future senior indebtedness
of each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a "Mortgage") on
certain Bluegreen Communities properties of such Subsidiary Guarantors (the
"Pledged Properties"). Absent the occurrence and the continuance of an event of
default, the Notes trustee is required to release its lien on the Pledged
Properties as property is sold and the Trustee does not have a lien on the
proceeds of any such sale. As of December 31, 2003, the Pledged Properties had
an aggregate carrying value of approximately $5.8 million. The Notes' indenture
includes certain negative covenants including restrictions on the incurrence of
debt and liens and on payments of cash dividends.
Supplemental financial information for Bluegreen Corporation, our combined
Non-Guarantor Subsidiaries and our combined Subsidiary Guarantors is presented
below:
81
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
December 31, 2002
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ....................... $ 22,373 $17,951 $ 6,581 $ -- $ 46,905
Contracts receivable, net ....................... -- 1,457 14,773 -- 16,230
Intercompany receivable ......................... 101,549 -- -- (101,549) --
Notes receivable, net ........................... 1,740 9,434 50,621 -- 61,795
Other assets .................................... 6,576 1,792 31,548 -- 39,916
Inventory, net .................................. -- 19,440 153,691 -- 173,131
Retained interests in notes receivable sold ..... -- 44,228 -- -- 44,228
Investments in subsidiaries ..................... 7,730 -- 3,230 (10,960) --
Property and equipment, net ..................... 9,791 1,959 40,037 -- 51,787
-------- ------- -------- --------- --------
Total assets ............................. $149,759 $96,261 $300,481 $(112,509) $433,992
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other $ 8,510 $22,485 $ 26,124 $ -- $ 57,119
Intercompany payable .......................... 8,392 93,157 (101,549) --
Deferred income taxes ......................... (19,344) 24,698 25,846 -- 31,200
Lines-of-credit and notes payable ............. 3,384 3,000 33,385 -- 39,769
10.50% senior secured notes payable ........... 110,000 -- -- -- 110,000
8.25% convertible subordinated debentures ..... 34,371 -- -- -- 34,371
-------- ------- -------- --------- --------
Total liabilities ........................ 136,921 58,575 178,512 (101,549) 272,459
Minority interest ............................. -- -- -- 3,250 3,250
Total shareholders' equity .................... 12,838 37,686 121,969 (14,210) 158,283
-------- ------- -------- --------- --------
Total liabilities and shareholders' equity $149,759 $96,261 $300,481 $(112,509) $433,992
======== ======= ======== ========= ========
December 31, 2003
----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
ASSETS
Cash and cash equivalents ....................... $ 29,872 $ 28,100 $ 15,059 $ -- $ 73,031
Contracts receivable, net ....................... -- 1,075 24,447 -- 25,522
Intercompany receivable ......................... 100,191 -- -- (100,191) --
Notes receivable, net ........................... 847 19,232 74,115 -- 94,194
Other assets .................................... 6,229 3,372 23,763 -- 33,364
Inventory, net .................................. -- 22,225 197,665 -- 219,890
Retained interests in notes receivable sold ..... -- 60,975 -- -- 60,975
Investments in subsidiaries ..................... 7,730 -- 3,230 (10,960) --
Property and equipment, net ..................... 11,936 1,900 49,594 -- 63,430
-------- -------- -------- --------- --------
Total assets ............................. $156,805 $136,879 $387,873 $(111,151) $570,406
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued liabilities and other $ 13,266 $ 29,258 $ 35,280 $ -- $ 77,804
Intercompany payable .......................... -- 1,127 99,064 (100,191) --
Deferred income taxes ......................... (19,954) 29,314 34,564 -- 43,924
Lines-of-credit and notes payable ............. 5,026 22,759 84,994 -- 112,779
10.50% senior secured notes payable ........... 110,000 -- -- -- 110,000
8.25% convertible subordinated debentures ..... 34,371 -- -- -- 34,371
-------- -------- -------- --------- --------
Total liabilities ........................ 142,709 82,458 253,902 (100,191) 378,878
Minority interest ............................. -- -- -- 4,648 4,648
Total shareholders' equity .................... 14,096 54,421 133,971 (15,608) 186,880
-------- -------- -------- --------- --------
Total liabilities and shareholders' equity $156,805 $136,879 $387,873 $(111,151) $570,406
======== ======== ======== ========= ========
82
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
Year Ended March 31, 2002
------------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ............................... $ -- $ 21,604 $219,024 $ -- $240,628
Other resort and communities operations revenue .... -- 3,943 21,527 -- 25,470
Management fees .................................... 26,133 -- -- (26,133) --
Interest income .................................... 564 4,968 9,915 -- 15,447
Gain on sales of notes receivable .................. -- 6,280 -- -- 6,280
-------- -------- -------- --------- --------
26,697 36,795 250,466 (26,133) 287,825
COSTS AND EXPENSES
Cost of real estate sales .......................... -- 6,606 79,919 -- 86,525
Cost of other resort and communities operations .... -- 1,532 22,012 -- 23,544
Management fees .................................... -- 1,086 25,047 (26,133) --
Selling, general and administrative expenses ....... 25,686 12,234 102,324 -- 140,244
Interest expense ................................... 8,371 578 4,068 -- 13,017
Provision for loan losses .......................... -- 242 4,609 -- 4,851
Other expense (income) ............................. (239) 1,105 (704) -- 162
-------- -------- -------- --------- --------
33,818 23,383 237,275 (26,133) 268,343
-------- -------- -------- --------- --------
Income (loss) before minority interest and provision
(benefit) for income taxes ...................... (7,121) 13,412 13,191 -- 19,482
Minority interest in income of consolidated
subsidiary ...................................... -- -- -- 405 405
-------- -------- -------- --------- --------
Income (loss) before provision (benefit) for income
taxes ........................................... (7,121) 13,412 13,191 405 19,077
Provision (benefit) for income taxes ............... (2,742) 4,690 5,397 -- 7,345
-------- -------- -------- --------- --------
Net income (loss) .................................. $ (4,379) $ 8,722 $ 7,794 $ (405) $ 11,732
======== ======== ======== ========= ========
Nine Months Ended December 31, 2002
-------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate ........................................ $ -- $18,561 $204,094 $ -- $222,655
Other resort and communities operations revenue ............. -- 1,901 25,147 -- 27,048
Management fees ............................................. 24,148 -- -- (24,148) --
Interest income ............................................. 239 5,652 6,344 -- 12,235
Gain on sales of notes receivable ........................... -- 10,035 -- -- 10,035
-------- ------- -------- -------- --------
24,387 36,149 235,585 (24,148) 271,973
-------- ------- -------- -------- --------
COSTS AND EXPENSES
Cost of real estate sales ................................... -- 5,103 72,820 -- 77,923
Cost of other resort and communities operations ............. -- 782 26,113 -- 26,895
Management fees ............................................. -- 589 23,559 (24,148) --
Selling, general and administrative expenses ................ 17,518 11,204 99,586 -- 128,308
Interest expense ............................................ 7,389 319 2,116 -- 9,824
Provision for loan losses ................................... -- 399 2,433 -- 2,832
Other expense (income) ...................................... (137) 1,156 501 -- 1,520
-------- ------- -------- -------- --------
24,770 19,552 227,128 (24,148) 247,302
-------- ------- -------- -------- --------
Income (loss) before minority interest and provision
(benefit) for income taxes ............................... (383) 16,597 8,457 -- 24,671
Minority interest in income of consolidated subsidiary ...... -- -- -- 816 816
-------- ------- -------- -------- --------
Income (loss) before provision (benefit) for income
taxes ................................................... (383) 16,597 8,457 (816) 23,855
Provision (benefit) for income taxes ........................ (137) 5,034 3,582 -- 8,479
-------- ------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting principle ..................................... (246) 11,563 4,875 (816) 15,376
Cumulative effect of change in accounting principle,
net of income taxes ...................................... -- (714) (5,215) -- (5,929)
Minority interest in cumulative effect of change in
accounting principle, net of income taxes ................ -- -- -- (350) (350)
-------- ------- -------- -------- --------
Net income (loss) ........................................... $ (246) $10,849 $ (340) $ (466) $ 9,797
======== ======= ======== ======== ========
83
Year Ended December 31, 2003
-----------------------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
REVENUES
Sales of real estate .................................. $ -- $38,457 $319,855 $ -- $358,312
Other resort and communities operations revenue ....... -- 7,394 48,000 -- 55,394
Management fees ....................................... 38,855 -- -- (38,855) --
Interest income ....................................... 282 7,703 9,551 -- 17,536
Gain on sales of notes receivable ..................... -- 6,563 -- -- 6,563
Other income .......................................... 40 1 608 -- 649
-------- ------- -------- --------- --------
39,177 60,118 378,014 (38,855) 438,454
COSTS AND EXPENSES
Cost of real estate sales ............................. -- 9,838 99,172 -- 109,010
Cost of other resort and communities operations ....... -- 3,016 56,809 -- 59,825
Management fees ....................................... -- 1,114 37,741 (38,855) --
Selling, general and administrative expenses .......... 29,589 21,600 152,975 -- 204,164
Interest expense ...................................... 9,819 712 3,505 -- 14,036
Provision for loan losses ............................. -- 926 5,168 -- 6,094
-------- ------- -------- --------- --------
39,408 37,206 355,370 (38,855) 393,129
-------- ------- -------- --------- --------
Income (loss) before minority interest and provision
(benefit) for income taxes ......................... (231) 22,912 22,644 -- 45,325
Minority interest in income of consolidated
subsidiary ......................................... -- -- -- 3,330 3,330
-------- ------- -------- --------- --------
Income (loss) before provision for income
taxes ................................................... (231) 22,912 22,644 (3,330) 41,995
Provision (benefit) for income taxes .................. (89) 7,539 8,718 -- 16,168
-------- ------- -------- --------- --------
Net income (loss) ..................................... $ (142) $15,373 $ 13,926 $ (3,330) $ 25,827
======== ======= ======== ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31, 2002
----------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash provided by operating activities ................................... $ 5,261 $ 3,107 $ 23,282 $ 31,650
-------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes receivable sold .............. -- 7,856 -- 7,856
Investment in note receivable ............................................... (1,685) -- -- (1,685)
Principal payments received on investment in note receivable ................ 4,643 -- -- 4,643
Purchases of property and equipment ......................................... (2,722) (1,472) (8,746) (12,940)
Proceeds from sales of property and equipment ............................... 4 -- 40 44
-------- -------- -------- --------
Net cash provided (used) by investing activities .............................. 240 6,384 (8,706) (2,082)
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and notes payable .. 50,225 -- 9,645 59,870
Payments under line-of-credit facilities and notes payable .................. (50,447) (3,876) (25,004) (79,327)
Payment of debt issuance costs .............................................. (114) (1,165) (289) (1,568)
Proceeds from exercise of employee and director stock options ............... 156 -- -- 156
-------- -------- -------- --------
Net cash used by financing activities ......................................... (180) (5,041) (15,648) (20,869)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................... 5,321 4,450 (1,072) 8,699
Cash and cash equivalents at beginning of year ................................ 13,290 17,125 9,601 40,016
-------- -------- --------
Cash and cash equivalents at end of year ...................................... 18,611 21,575 8,529 48,715
Restricted cash and cash equivalents at end of year ........................... -- (20,199) (7,470) (27,669)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year ......................... $ 18,611 $ 1,376 $ 1,059 $ 21,046
======== ======== ======== ========
84
Nine Months Ended December 31, 2002
-----------------------------------------------------------------
Combined
Non- Combined
Bluegreen Guarantor Subsidiary
Corporation Subsidiaries Guarantors Eliminations Consolidated
----------- ------------ ---------- ------------ ------------
Operating activities:
Net cash provided (used) by operating activities ................. $ 10,471 $(14,917) $ 11,483 $ -- $ 7,037
-------- -------- -------- ------- --------
Investing activities:
Cash received from retained interests in notes ................. -- 14,555 -- -- 14,555
receivable sold
Investment in subsidiary ....................................... (100) -- -- 100 --
Business acquisition ........................................... -- -- (2,292) -- (2,292)
Purchases of property and equipment ............................ (1,285) (315) (2,779) -- (4,379)
Proceeds from sales of property and equipment .................. -- -- 48 -- 48
-------- -------- -------- ------- --------
Net cash provided (used) by investing activities ................. (1,385) 14,240 (5,023) 100 7,932
-------- -------- -------- ------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities
and notes payable ........................................... -- -- 18,696 -- 18,696
Payments under line-of-credit facilities and notes payable ..... (7) (1,692) (25,771) -- (27,470)
Payment of 8% convertible, subordinated notes payable to related
parties ..................................................... (6,000) -- -- -- (6,000)
Payment of debt issuance costs ................................. -- (1,355) (1,333) -- (2,688)
Proceeds from capitalization of subsidiary ..................... -- 100 -- (100) --
Proceeds from exercise of employee and director stock options .. 683 -- -- -- 683
-------- -------- -------- ------- --------
Net cash used by financing activities ............................ (5,324) (2,947) (8,408) (100) (16,779)
-------- -------- -------- ------- --------
Net (decrease) increase in cash and cash equivalents ............. 3,762 (3,624) (1,948) -- (1,810)
Cash and cash equivalents at beginning of period ................. 18,611 21,575 8,529 -- 48,715
-------- -------- -------- ------- --------
Cash and cash equivalents at end of period ....................... 22,373 17,951 6,581 -- 46,905
Restricted cash and cash equivalents at end of period ............ (173) (13,797) (6,581) -- (20,551)
-------- -------- -------- ------- --------
Unrestricted cash and cash equivalents at end of period .......... $ 22,200 $ 4,154 $ -- $ -- $ 26,354
======== ======== ======== ======= ========
Year Ended December 31, 2003
--------------------------------------------------------
Combined Combined
Bluegreen Non-Guarantor Subsidiary
Corporation Subsidiaries Guarantors Consolidated
----------- ------------ ---------- ------------
Operating activities:
Net cash provided (used) by operating activities ..................... $ 9,928 $ (8,358) $ 33,365 $ 35,435
-------- -------- -------- --------
Investing activities:
Cash received from retained interests in notes receivable sold ....... -- 12,817 -- 12,817
Principal payments received on investment in note receivable ......... 456 -- -- 456
Business acquisition ................................................. -- -- (500) (500)
Purchases of property and equipment .................................. (3,310) (420) (8,163) (11,893)
Proceeds from sales of property and equipment ........................ 854 -- 230 1,084
-------- -------- -------- --------
Net cash provided (used) by investing activities ....................... (2,000) 12,397 (7,933) 1,964
-------- -------- -------- --------
Financing activities:
Proceeds from borrowings under line-of-credit facilities and
notes payable ..................................................... 7,000 8,125 25,000 40,125
Payments under line-of-credit facilities and notes payable ........... (7,568) (1,384) (41,026) (49,978)
Payment of debt issuance costs ....................................... (1,073) (631) (928) (2,632)
Proceeds from exercise of employee and director stock options ........ 1,212 -- -- 1,212
-------- -------- -------- --------
Net cash (used) provided by financing activities ....................... (429) 6,110 (16,954) (11,273)
-------- -------- -------- --------
Net increase in cash and cash equivalents .............................. 7,499 10,149 8,478 26,126
Cash and cash equivalents at beginning of year ......................... 22,373 17,951 6,581 46,905
-------- -------- -------- --------
Cash and cash equivalents at end of year ............................... 29,872 28,100 15,059 73,031
Restricted cash and cash equivalents at end of year .................... (173) (21,537) (11,830) (33,540)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at end of year .................. $ 29,699 $ 6,563 $ 3,229 $ 39,491
======== ======== ======== ========
13. Convertible Subordinated Notes Payable and Debentures
Notes Payable
On September 11, 2002, we repaid upon maturity our 8.00% convertible
subordinated promissory notes in the aggregate principal amount of $6.0 million
to the two former members of our Board of Directors and an affiliate of a former
member of our Board of Directors.
Debentures
We had $34.4 million of our 8.25% Convertible Subordinated Debentures (the
"Debentures") outstanding at both December 31, 2002 and 2003. The Debentures are
convertible at any time prior to their maturity in 2012, unless previously
redeemed, into our common stock at a current conversion price of $8.24 per
share, subject to adjustment under certain conditions. The Debentures are
redeemable at any time, at our option, in whole or in part at 100% of the face
amount. We are obligated to redeem annually 10% of the original principal amount
($46.0 million) of the
85
Debentures issued, commencing May 15, 2003, net of previous redemptions of
approximately $11.6 million (accordingly, the first actual redemptions will
occur on May 15, 2005). Such redemptions are calculated to retire 90% of the
principal amount of the Debentures prior to their maturity. The Debentures are
unsecured and subordinated to all of our senior indebtedness. Interest is
payable semi-annually on May 15 and November 15.
Under financial covenants of the Indenture pursuant to which the
Debentures were issued, we are required to maintain a net worth of not less than
$29.0 million. Should our net worth fall below $29.0 million for two consecutive
quarters, we are required to make an offer to purchase 20% of the outstanding
Debentures at par, plus accrued interest.
14. Fair Value of Financial Instruments
In estimating the fair values of our financial instruments, we used the
following methods and assumptions:
Cash and cash equivalents: The amounts reported in our consolidated
balance sheets for cash and cash equivalents approximate fair value.
Contracts receivable: The amounts reported in our consolidated balance
sheets for contracts receivable approximate fair value. Contracts receivable are
non-interest bearing and generally convert into cash or an interest-bearing
mortgage note receivable within thirty days.
Notes receivable: The amounts reported in our consolidated balance sheets
for notes receivable approximate fair value based on discounted future cash
flows using current rates at which similar loans with similar maturities would
be made to borrowers with similar credit risk.
Retained interests in notes receivable sold: Retained interests in notes
receivable sold are carried at fair value based on discounted cash flow
analyses.
Lines-of-credit, notes payable and receivable-backed notes payable: The
amounts reported in our consolidated balance sheets approximate their fair value
for indebtedness that provides for variable interest rates. The fair value of
our fixed-rate indebtedness was estimated using discounted cash flow analyses,
based on our current incremental borrowing rates for similar types of borrowing
arrangements.
10.50% senior secured notes payable: The fair value of our 10.50% senior
secured notes is based on the quoted market price in the over-the-counter bond
market.
8.25% convertible subordinated debentures: The fair value of our 8.25%
convertible subordinated debentures is based on the quoted market price as
reported on the New York Stock Exchange.
December 31, 2002 December 31, 2003
------------------------ --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Cash and cash equivalents ............................... $ 46,905 $46,905 $ 73,031 $ 73,031
Contracts receivable, net ............................... 16,230 16,230 25,522 25,522
Notes receivable, net ................................... 61,795 61,795 94,194 94,194
Retained interests in notes receivable sold ............. 44,228 44,228 60,975 60,975
Lines-of-credit, notes payable, and receivable-
backed notes payable ................................. 39,769 39,837 112,779 112,839
10.50% senior secured notes payable ..................... 110,000 90,200 110,000 112,000
8.25% convertible subordinated debentures ............... 34,371 29,215 34,371 35,058
15. Common Stock and Stock Option Plans
Stock Option Plans
Under our employee stock option plans, options can be granted with various
vesting periods. All options granted to employees prior to December 31, 2002,
vest ratably over a five-year period from the date of grant (20% per year).
Options granted to employees subsequent to December 31, 2002, 100% vest on the
five year anniversary of date of
86
grant. Our options are granted at exercise prices that either equal or exceed
the quoted market price of our common stock at the respective dates of grant.
All of our options expire ten years from the date of grant.
The stock option plan covering our non-employee directors provides for the
grant to our non-employee directors (the "Outside Directors") of non-qualified
stock options. All options granted to Outside Directors prior to December 31,
2002 vest ratably over a three-year period while all options granted after
December 31, 2002 vest immediately upon grant. All Outside Director stock
options expire ten years from the date of grant, subject to alternative
expiration dates under certain circumstances. Due to a "change in control"
provision in the Outside Directors' stock option agreements, all outstanding
Outside Directors options as of April 10, 2002 immediately vested when Levitt
Corporation ("Levitt") (NYSE: LEV) acquired an aggregate of approximately 8.0
million shares of our outstanding common stock from certain real estate funds
associated with Morgan Stanley Dean Witter and Company and Grace Brothers, Ltd.
in private transactions. As a result of these purchases and the December 2003
transfer of BankAtlantic Bancorp, Inc.'s ownership interest in our common stock
to Levitt in connection with its spin-off, Levitt beneficially owned
approximately 38% of our outstanding common stock as of December 31, 2003.
A summary of our stock option activity related to our Employee and Outside
Directors Plans is presented below (in thousands, except per share data).
Number of Shares Outstanding Exercise Price Number of Shares
Reserved Options Per Share Exercisable
---------------- ----------- -------------- ----------------
Employee Stock Option Plans:
Balance at April 1, 2001............... 3,629 2,693 $1.25-$9.50 1,637
Granted.............................. -- 50 $2.29
Forfeited............................ (81) (654) $2.29-$9.50
Exercised............................ (78) (78) $1.25-$1.46
----- ------
Balance at March 31, 2002.............. 3,470 2,011 $1.46-$9.50 1,457
Forfeited............................ (10) (145) $2.60-$8.50
Exercised............................ (72) (72) $1.46-$3.13
----- ------
Balance at December 31, 2002........... 3,388 1,794 $2.26-$9.50 1,489
Granted.............................. -- 778 $3.45-$5.84
Forfeited............................ (1) (1) $2.26
Exercised............................ (286) (286) $2.29-$3.58
----- ------
Balance at December 31, 2003........... 3,101 2,285 $2.26-$9.50 1,401
===== ======
Outside Directors Plans:
Balance at April 1, 2001............... 903 718 $1.46-$9.31 503
Granted.............................. -- 120 $2.11
Forfeited............................ (2) (30) $2.88
Exercised............................ (36) (36) $1.46
----- ------
Balance at March 31, 2002.............. 865 772 $1.77-$9.31 562
Forfeited............................ -- (45) $2.88-$5.94
Exercised............................ (212) (212) $1.77-$3.50
----- ------
Balance at December 31, 2002........... 653 515 $2.11-$9.31 515
Granted.............................. -- 65 $3.48-$5.89
Forfeited............................ -- -- --
Exercised............................ (73) (73) $2.82-$3.80
----- ------
Balance at December 31, 2003........... 580 507 $2.11-$9.31 507
===== ======
The weighted-average exercise prices and weighted-average remaining
contractual lives of our outstanding stock options at December 31, 2003 (grouped
by range of exercise prices) were:
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------------- -------------- --------------
(In 000's) (In 000's)
Employees:
$2.26-$3.13... 413 349 3 $2.87 $2.97
$3.45-$4.88... 1,046 369 7 $3.85 $4.55
$5.84......... 100 -- 10 $5.84 $ --
$8.50-$9.50... 726 683 5 $9.21 $9.25
----- -----
2,285 1,401
87
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Number of Contractual Life Average Exercise Price
of Options Vested Options (in years) Exercise Price (vested only)
---------- -------------- ---------------- -------------- --------------
(In 000's) (In 000's)
Directors:
$2.11......... 30 30 8 $2.11 $2.11
$2.82-$3.80... 282 282 3 $3.37 $3.37
$5.89-$5.94... 105 105 4 $5.93 $5.93
$9.31......... 90 90 3 $9.31 $9.31
------ ------
507 507
====== ======
Common Stock Reserved For Future Issuance
As of December 31, 2003, common stock reserved for future issuance was
comprised of shares issuable (in thousands):
Upon conversion of 8.25% debentures................ 4,171
Upon exercise of employee stock options............ 3,101
Upon exercise of outside director stock options.... 580
------
7,852
======
16. Commitments and Contingencies
At December 31, 2003, the estimated cost to complete development work in
subdivisions or resorts from which homesites or VOIs have been sold totaled
$56.2 million. Development is estimated to be completed within the next three
years and thereafter as follows: 2004 -- $39.9 million, 2005 -- $12.0 million,
2006 -- $4.4 million, Thereafter -- none.
We lease certain office space and equipment under various noncancelable
operating leases. Certain of these leases contain stated escalation clauses
while others contain renewal options.
Rent expense for the year ended March 31, 2002, nine months ended December
31, 2002 and year ended December 31, 2003, totaled approximately $4.4 million,
$3.6 million and $5.5 million, respectively.
Lease commitments under these noncancelable operating leases for each of
the five years subsequent to December 31, 2003, and thereafter are as follows
(in thousands):
2004....................................... $ 4,216
2005....................................... 3,013
2006....................................... 2,296
2007....................................... 1,780
2008....................................... 1,322
Thereafter................................. 4,704
-------
Total future minimum lease payments...... $17,331
=======
We have $1.4 million in outstanding commitments under stand-by letters of
credit with banks, primarily related to obtaining an insurance bond regarding
the development of a Bluegreen Communities project acquired during the year
ended December 31, 2003.
In the ordinary course of our business, we become subject to claims or
proceedings from time to time relating to the purchase, subdivision, sale or
financing of real estate. Additionally, from time to time, we become involved in
disputes with existing and former employees. We believe that these claims are
routine litigation incidental to our business.
On August 21, 2000, we received a notice of Field Audit Action (the "First
Notice") from the State of Wisconsin Department of Revenue (the "DOR") alleging
that two corporations purchased by us had failed to collect and remit sales and
use taxes totaling $1.9 million to the State of Wisconsin prior to the purchase
during the period from January 1, 1994 through September 30, 1997. On May 24,
2003, we received a second Notice of Field Audit Action (the "Second Notice")
from DOR alleging that the two subsidiaries failed to collect and remit sales
and use taxes to the State of Wisconsin during the period from April 1, 1998
through March 31, 2002 totaling $1.4 million. The
88
majority of the assessment is based on the subsidiaries not charging sales tax
to purchasers of VOIs at our Christmas Mountain Village resort during the period
from January 1, 1994 through December 31, 1999, when the Wisconsin statute
requiring sales tax on certain VOI sales was repealed. As of December 31, 2003,
aggregate interest and penalties under the First Notice and the Second Notice
total approximately $2.8 million in addition to the $3.3 million claimed due. We
filed petitions for redetermination with respect to the First Notice on October
19, 2000, and with respect to the Second Notice on July 9, 2003. If the
petitions are unsuccessful, we intend to vigorously appeal the assessments.
We acquired the subsidiaries that were the subject of the notices in
connection with the acquisition of RDI Group, Inc. ("RDI") on September 30,
1997. Under the RDI purchase agreement, we have the right to set off payments
owed by us 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 to them for any breach of representations and warranties. One of
the former RDI stockholders is currently employed by us as the Senior Vice
President of Sales for Bluegreen Resorts. We have filed an action against the
RDI stockholders for damages arising out of the Wisconsin assessments based on
this right of indemnification and offset under the RDI purchase agreement and
related promissory note. The RDI stockholders have filed a counterclaim against
us and a third-party complaint against us and one of our wholly-owned
subsidiaries alleging that we and our subsidiary have failed to make the
payments required under the terms of the promissory note.
As the statute requiring the assessment of sales tax on sales of certain
VOIs in Wisconsin was repealed in December 1999 and based on the applicable
statutes of limitations, we believe our exposure in these matters is limited to
that discussed above. We have been engaging in active discussions with the DOR
in an effort to settle all claims related to the First Notice and the Second
Notice. There is no assurance that we will be successful in negotiating a
favorable settlement with the DOR or avoid incurring significant legal costs to
defend these matters. Based on our position in our petitions for
redetermination, our position that we have indemnification rights and a right of
offset against the former RDI stockholders, our intention to defend this matter
vigorously and other factors, we do not believe that the possible sales tax
assessment pursuant to the First Notice and the Second Notice will have a
material adverse impact on our results of operations or financial position, and
therefore we have not accrued any amounts relating to this matter. Should our
attempts to reach a favorable settlement with the DOR regarding this matter fail
there is no assurance that the outcome of this matter will be favorable and that
in such case the impact may have a material adverse impact on our results of
operations and financial position.
17. Income Taxes
Our provision for income taxes consists of the following (in thousands):
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Federal:
Current ..................... $ (394) $4,666 $ 3,524
Deferred .................... 7,098 3,478 10,874
------ ------ -------
6,704 8,144 14,398
State and other:
Current ..................... -- -- --
Deferred .................... 641 335 1,770
------ ------ -------
641 335 1,770
------ ------ -------
Total .................... $7,345 $8,479 $16,168
====== ====== =======
The reasons for the difference between our provision for income taxes and
the amount that results from applying the federal statutory tax rate to income
before provision for income taxes and minority interest are as follows (in
thousands):
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Income tax expense at statutory rate...... $6,704 $8,144 $14,398
Effect of state taxes, net of federal tax
benefit................................. 641 335 1,770
------ ------ -------
$7,345 $8,479 $16,168
====== ====== =======
89
At December 31, 2002 and 2003, deferred income taxes consist of the
following components (in thousands):
December 31, 2002 December 31, 2003
----------------- -----------------
Deferred federal and state tax liabilities (assets):
Installment sales treatment of notes ............................. $ 68,500 $ 88,043
Deferred federal and state loss carryforwards/AMT credits ........ (38,939) (54,505)
Book over tax carrying value of retained interests in notes
receivable sold .............................................. 6,587 8,257
Book reserves for loan losses and inventory ...................... (5,271) (6,029)
Tax over book depreciation ....................................... 1,411 5,336
Other ............................................................ (1,088) 2,822
-------- --------
Deferred income taxes .............................................. $ 31,200 $ 43,924
======== ========
Total deferred federal and state tax liabilities ................... $ 81,385 $105,686
Total deferred federal and state tax assets ........................ (50,185) (61,762)
-------- --------
Deferred income taxes .............................................. $ 31,200 $ 43,924
======== ========
We have available federal net operating loss carryforwards of $113.6
million, which expire in 2022, 2023 and 2024, and alternative minimum tax credit
carryforwards of $10.6 million, that never expire.
18. Employee Retirement Savings Plan
Our Employee Retirement Plan is a code section 401(k) Retirement Savings
Plan (the "Plan"). All employees at least 21 years of age with one year of
employment with us are eligible to participate in the Plan. Effective January 1,
2001, we amended the Plan to, in addition to providing an annual discretionary
matching contribution, provide a fixed rate matching contribution equal to 50%
of the first 3% of a participant's contribution with an annual limit of $1,000
per participant. During the year ended March 31, 2002, we agreed to make a
minimum matching contribution to the Plan of $226,000 During the nine months
ended December 31, 2002, we did not make a matching contribution to the Plan,
but accrued approximately $270,000 for a matching contribution that we paid in
April 2003 related to the Plan's year ended December 31, 2002. During the year
ended December 31, 2003, we accrued approximately $361,000 for a matching
contribution to be determined and paid in February 2004 related to the Plan's
year ended December 31, 2003
19. Business Segments
We have two reportable business segments. Bluegreen Resorts develops,
markets and sells VOIs in our resorts, primarily through the Bluegreen Vacation
Club, and provides resort management services to resort property owners
associations. Bluegreen Communities acquires large tracts of real estate, which
are subdivided, improved (in some cases to include a golf course on the
property) and sold, typically on a retail basis as homesites. Our reportable
segments are business units that offer different products. The reportable
segments are each managed separately because they sell distinct products with
different development, marketing and selling methods.
We evaluate the performance and allocate resources to each business
segment based on its respective field operating profit. Field operating profit
is operating profit prior to the allocation of corporate overhead, interest
income, gain on sales of notes receivable, other income, provision for loan
losses, interest expense, income taxes, minority interest and cumulative effect
of change in accounting principle. Inventory is the only asset that we evaluate
on a segment basis -- all other assets are only evaluated on a consolidated
basis. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies (see Note 1).
90
Required disclosures for our business segments are as follows (in
thousands):
Bluegreen Bluegreen
Resorts Communities Totals
------- ----------- ------
As of and for the year ended March 31, 2002
Sales of real estate............................................. $144,226 $ 96,402 $240,628
Other resort and communities operations revenue.................. 23,149 2,321 25,470
Depreciation expense.............................................. 2,532 1,077 3,609
Field operating profit........................................... 19,729 15,415 35,144
Inventory......................................................... 86,288 101,400 187,688
As of and for the nine months ended December 31, 2002
Sales of real estate.............................................. $144,026 $ 78,629 $222,655
Other resort and communities operations revenue................. 23,520 3,528 27,048
Depreciation expense............................................ 2,100 1,053 3,153
Field operating profit........................................... 17,218 13,570 30,788
Inventory........................................................ 71,097 102,034 173,131
As of and for the year ended December 31, 2003
Sales of real estate............................................. $253,939 $104,373 $358,312
Other resort and communities operations revenue.................. 48,915 6,479 55,394
Depreciation expense............................................. 3,661 1,726 5,387
Field operating profit........................................... 49,514 12,580 62,094
Inventory........................................................ 98,085 121,805 219,890
Reconciliations to Consolidated Amounts
Field operating profit for our reportable segments reconciled to our
consolidated income before provision for income taxes and minority interest is
as follows (in thousands):
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Field operating profit for reportable segments ................ $ 35,144 $ 30,788 $ 62,094
Interest income ............................................... 15,447 12,235 17,536
Gain on sales of notes receivable ............................. 6,280 10,035 6,563
Other income (expense) ........................................ (162) (1,520) 649
Corporate general and administrative expenses ................. (19,359) (14,211) (21,387)
Interest expense .............................................. (13,017) (9,824) (14,036)
Provision for loan losses ..................................... (4,851) (2,832) (6,094)
-------- -------- --------
Consolidated income before minority interest and
provision for income taxes ................................. $ 19,482 $ 24,671 $ 45,325
======== ======== ========
Depreciation expense for our reportable segments reconciled to our
consolidated depreciation expense is as follows (in thousands):
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Depreciation expense for reportable segments ..................... $3,609 $3,153 $5,387
Depreciation expense for corporate fixed assets .................. 1,671 1,444 2,424
------ ------ ------
Consolidated depreciation expense ................................ $5,280 $4,597 $7,811
====== ====== ======
Assets for our reportable segments reconciled to our consolidated assets
(in thousands):
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
Inventory for reportable segments .......................... $187,688 $173,131 $219,890
Assets not allocated to reportable segments ................ 247,473 260,861 350,516
-------- -------- --------
Total assets ............................................... $435,161 $433,992 $570,406
======== ======== ========
91
Geographic Information
Sales of real estate by geographic area are as follows (in thousands):
Year Ended Nine Months Ended Year Ended
March 31, 2002 December 31, 2002 December 31, 2003
-------------- ----------------- -----------------
United States .................................. $230,179 $216,973 $347,350
Aruba .......................................... 10,441 5,671 10,949
Canada ......................................... 8 11 13
-------- -------- --------
Consolidated totals ............................ $240,628 $222,655 $358,312
======== ======== ========
Inventory by geographic area is as follows (in thousands):
December 31, 2002 December 31, 2003
----------------- -----------------
United States .............................................. $163,606 $212,171
Aruba ...................................................... 9,521 7,717
Canada ..................................................... 4 2
-------- --------
Consolidated totals ........................................ $173,131 $219,890
======== ========
20. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the nine months ended
December 31, 2002 and year ended December 31, 2003, is presented below (in
thousands, except for per share information).
Three Months Ended
--------------------------------------------------
June 30, September 29, December 31,
2002 2002 2002
---------- ------------- ------------
Sales of real estate ......................................... $71,113 $83,386 $68,156
Gross profit ................................................. 46,146 54,377 44,209
Income before cumulative effect of change in
accounting principle ....................................... 4,148 5,080 6,148
Net income (loss) ............................................ (1,431) 5,080 6,148
Earnings per common share before cumulative effect
of change in accounting principle:
Basic ................................................... 0.17 0.21 0.25
Diluted ................................................. 0.15 0.19 0.24
Earnings (loss) per common share:
Basic ................................................... (0.06) 0.21 0.25
Diluted ................................................. (0.03) 0.19 0.23
Three Months Ended
---------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2003 2003 2003 2003
---- ---- ---- ----
Sales of real estate ..................... $61,782 $86,026 $108,941 $101,563
Gross profit ............................. 42,722 59,753 77,908 68,919
Net income ............................... 2,127 6,226 10,202 7,272
Earnings per common share:
Basic ............................... 0.09 0.25 0.41 0.30
Diluted ............................. 0.09 0.23 0.36 0.26
92
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation (the "Company") as of December 31, 2002 and December 31, 2003, and
the related consolidated statements of income, shareholders' equity and cash
flows for the year ended March 31, 2002, the nine months ended December 31, 2002
and the year ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bluegreen
Corporation at December 31, 2002 and December 31, 2003, and the consolidated
results of its operations and its cash flows for the year ended March 31, 2002,
the nine months ended December 31, 2002 and the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, in the
nine months ended December 31, 2002, the Company changed its method of
accounting for the cost associated with generating vacation ownership tours.
ERNST & YOUNG LLP
West Palm Beach, Florida
January 20, 2004
93
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
In order to ensure that the information disclosed in our filings with the
Securities and Exchange Commission is recorded, processed, summarized, and
reported on a timely basis, we have formalized its disclosure controls and
procedures. Our principal executive officer and principal financial officer have
reviewed and evaluated the effectiveness of our disclosure controls and
procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of
December 31, 2003. Based on such evaluation, such officers have concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to us required to be included in our periodic SEC
filings. There has been no change in our internal control over financial
reporting during the quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
In addition, there have been no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
Management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures and internal
controls will prevent all error and all improper conduct. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that we have detected all control
issues and instances of improper conduct, if any. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Chief Executive Officer and Chief Financial Officer Certifications
Appearing as Exhibits 31.1 and 31.2 to this annual report are the Certifications
of the principal executive officer and the principal financial officer. The
Certifications are required in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002. This Item of this annual report is the information concerning the
evaluation referred to in the Section 302 Certifications and this information
should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to our Directors required by Item 10 is incorporated by
reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders.The
information concerning our executive officers required by Item 10 is contained
in the discussion entitled "Executive Officers" in Part I hereof.
94
Item 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to our Proxy
Statement for our 2004 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated by reference to our Proxy
Statement for our 2004 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to our Proxy
Statement for our 2004 Annual Meeting of Shareholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by Item 14 is incorporated by reference to our Proxy
Statement for our 2004 Annual Meeting of Shareholders.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following of our Consolidated Financial Statements and Notes thereto
and the report of independent certified public accountants relating
thereto, are included in Item 8.
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2003
Consolidated Statements of Income for the year ended March 31, 2002, the
nine months ended December 31, 2002 and the year ended December 31, 2003
Consolidated Statements of Shareholders' Equity for the year ended March
31, 2002, the nine months ended December 31, 2002 and the year ended
December 31, 2003
Consolidated Statements of Cash Flows for the year ended March 31, 2002,
the nine months ended December 31, 2002 and the year ended December 31,
2003
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 99 through 107 hereof and are incorporated herein by reference.
(b) Reports on Form 8-K.
95
No reports were filed on Form 8-K related to the quarter ended December 31,
2003.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: March 24, 2004 By: /S/ GEORGE F. DONOVAN
--------------------------------------------------
George F. Donovan,
President and Chief Executive Officer
Date: March 24, 2004 By: /S/ JOHN F. CHISTE
--------------------------------------------------
John F. Chiste,
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: March 24, 2004 By: /S/ ANTHONY M. PULEO
--------------------------------------------------
Anthony M. Puleo,
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 24th day of March, 2004.
Signature Title
--------- -----
/S/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- ------------------------------
George F. Donovan
/S/ JOHN F. CHISTE Senior Vice President, Treasurer and Chief Financial Officer
- ------------------------------ (Principal Financial Officer)
John F. Chiste
/S/ ANTHONY M. PULEO Senior Vice President and Chief Accounting Officer
- ------------------------------ (Principal Accounting Officer)
Anthony M. Puleo
/S/ ALAN B. LEVAN Chairman of the Board of Directors
- ------------------------------
Alan B. Levan
/S/ JOHN E. ABDO Vice Chairman of the Board of Directors
- ------------------------------
John E. Abdo
/S/ NORMAN H. BECKER Director
- ------------------------------
Norman H. Becker
/S/ LAWRENCE CIRILLO Director
- ------------------------------
Lawrence Cirillo
/S/ SCOTT W. HOLLOWAY Director
- ------------------------------
Scott W. Holloway
/S/ JOHN LAGUARDIA Director
- ------------------------------
John Laguardia
/S/ MARK A. NERENHAUSEN Director
- ------------------------------
Mark A. Nerenhausen
97
/S/ J. LARRY RUTHERFORD Director
- ------------------------------
J. Larry Rutherford
/S/ ARNOLD SEVELL Director
- ------------------------------
Arnold Sevell
98
EXHIBIT INDEX
Number Description
- ------ -----------
3.1 - Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the year ended March 31, 1996).
3.2 - Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit of same designation to Quarterly Report on
Form 10-Q dated September 29, 2002).
4.4 - Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
year ended April 2, 2000).
4.6 - Form of Indenture dated as of May 15, 1987 relating to the
Company's 8.25% Convertible Subordinated Debentures Due 2012,
including Form of Debenture (incorporated by reference to exhibit
of same designation to Registration Statement on Form S-1, File
No. 33-13753).
4.7 - Indenture dated as of April 1, 1998 by and among the Registrant,
certain subsidiaries of the Registrant, and SunTrust Bank, Central
Florida, National Association, as trustee, for the 10 1/2% Senior
Secured Notes due 2008 (incorporated by reference to exhibit of
same designation to Registration Statement on Form S-4, File No.
333-50717).
4.8 - First Supplemental Indenture dated as of March 15, 1999 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 28, 1999).
4.9 - Second Supplemental Indenture dated as of December 31, 2000 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.10 - Third Supplemental Indenture dated as of October 31, 2001 by and
among the Registrant, certain subsidiaries of the Registrant, and
SunTrust Bank, Central Florida, National Association, as trustee,
for the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit of same designation to Annual Report on Form
10-K for the fiscal year ended March 31, 2002).
4.11 - Fourth Supplemental Indenture dated as of December 31, 2001 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 10
1/2% Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q dated
December 30, 2001).
99
4.12 - Fifth Supplemental Indenture dated as of July 31, 2002 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 10
1/2% Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Transition Report on Form 10-KT for
the nine months ended December 31, 2002).
4.13 - Sixth Supplemental Indenture dated as of April 30, 2003 to the
Indenture Dated as of April 1, 1998 among the Registrant, certain
of its subsidiaries and the SunTrust Bank (formerly SunTrust Bank,
Central Florida, National Association), as Notes Trustee, relating
to the Company's $110 million aggregate principal amount of 10
1/2% Senior Secured Notes due 2008 (incorporated by reference to
exhibit of same designation to Quarterly Report on Form 10-Q dated
June 30, 2003).
10.24 - Form of Agreement dated June 27, 1989 between the Registrant and
Peoples Heritage Savings Bank relating to sale of mortgage notes
receivable (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended April 2, 1989).
10.78* - Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on
Form S-8, File No. 33-61687).
10.79* - Registrant's 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to exhibit 10.131 to Annual report on
Form 10-K for the year ended March 29, 1998).
10.80* - Registrant's 1995 Stock Incentive Plan, as amended (incorporated
by reference to exhibit 10.79 to Annual Report on Form 10-K for
the fiscal year ended March 29, 1998).
10.81* - Registrant's Retirement Savings Plan (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended March 31, 2002).
10.99 - Pooling and Servicing Agreement dated as of April 15, 1996, among
Bluegreen Receivables Finance Corporation I, the Registrant,
Bluegreen Corporation REMIC Trust, Series 1996-1 and First Trust
National Association, as Trustee (incorporated by reference to
exhibit to Current Report on Form 8-K dated May 15, 1996).
10.100 - Pooling and Servicing Agreement dated as of November 15, 1996,
among Bluegreen Receivables Finance Corporation II, the
Registrant, Bluegreen Corporation REMIC Trust, Series 1996-2 and
First Trust National Association, as Trustee (incorporated by
reference to exhibit to Current Report on Form 8-K dated December
11, 1996).
10.102 - Amended and Restated Sale and Contribution Agreement dated as of
October 1, 1999 by and among Bluegreen Corporation Receivables
Finance Corporation III and BRFC III Deed Corporation
(incorporated by reference to exhibit 10.103 to Quarterly Report
on Form 10-Q dated January 2, 2000).
* - Compensation plan or arrangement.
100
10.104 - Amended and Restated Asset Purchase Agreement dated as of October
1, 1999 by and among Bluegreen Corporation, Bluegreen Receivables
Finance Corporation III, BRFC III Deed Corporation, Heller
Financial Inc., Vacation Trust, Inc. and U.S. Bank National
Association, as cash administrator, including Definitions Annex
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated January 2, 2000).
10.111 - Amended and Restated Sale and Servicing Agreement dated April 17,
2002, among the Registrant, Bluegreen Receivables Finance
Corporation V, BXG Receivables Note Trust 2001-A, Concord
Servicing Corporation, Vacation Trust, Inc. and U.S. Bank Trust
National Association (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
10.112 - Amended and Restated Note Purchase Agreement dated April 17, 2002,
among the Registrant, Bluegreen Receivables Finance Corporation V,
BXG Receivables Note Trust 2001-A, the Purchasers Parties Hereto
and ING Capital LLC (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
10.113 - Letter Amendment to Amended and Restated Note Purchase Agreement
dated April 1, 2003, among the Registrant, Bluegreen Receivables
Finance Corporation V, BXG Receivables Note Trust 2001-A, the
Purchasers Parties Hereto and ING Capital LLC (incorporated by
reference to exhibit 10.115 to Quarterly Report on Form 10-Q dated
March 31, 2003).
10.114 - Extension Letter dated as of October 8, 2003, from Resort Finance
LLC to BXG Receivables Note Trust 2001-A, Bluegreen Corporation
and Bluegreen Receivables Finance Corporation V (incorporated by
reference to exhibit 10.118 to Quarterly Report on Form 10-Q dated
September 30, 2003).
10.115 - Extension Letter dated as of December 31, 2003, from Resort
Finance LLC to BXG Receivables Note Trust 2001-A, Bluegreen
Corporation and Bluegreen Receivables Finance Corporation V.
10.116 - Amended and Restated Indenture dated April 17, 2002, between BXG
Receivables Note Trust 2001-A and U.S. Bank Trust National
Association (incorporated by reference to exhibit 10.113 to Annual
Report on Form 10-K for the fiscal year ended March 31, 2002).
10.117 - Amended and Restate Trust Agreement dated April 17, 2002, by and
among Bluegreen Receivables Finance Corporation V, GSS Holdings,
Inc. and Wilmington Trust Company (incorporated by reference to
exhibit 10.114 to Annual Report on Form 10-K for the fiscal year
ended March 31, 2002).
10.118 - Purchase and Contribution Agreement dated November 15, 2002, by
and among the Registrant and Bluegreen Receivables Finance
Corporation VI (incorporated by reference to exhibit 10.115 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
101
10.119 - Sale Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI and BXG Receivables Note Trust
2002-A VI (incorporated by reference to exhibit 10.116 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.120 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Owner Trust 2000 and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.117 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.121 - Transfer Agreement dated November 15, 2002, by and among the
Registrant, BXG Receivables Note Trust 2001-A and Bluegreen
Receivables Finance Corporation VI (incorporated by reference to
exhibit 10.118 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.122 - Transfer Supplement (Committed) dated as of October 8, 2003
between ING Capital LLC and Resort Finance LLC (incorporated by
reference to exhibit 10.116 to Quarterly Report on Form 10-Q dated
September 30, 2003).
10.123 - Transfer Supplement (Noncommitted) dated as of October 8, 2003
between ING Capital LLC and Resort Finance LLC (incorporated by
reference to exhibit 10.117 to Quarterly Report on Form 10-Q dated
September 30, 2003).
10.124 - Note Purchase Agreement dated December 3, 2002, between BXG
Receivables Note Trust 2002-A and ING Financial Markets LLC
(incorporated by reference to exhibit 10.119 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.125 - Trust Agreement dated November 15, 2002, by and among Bluegreen
Receivables Finance Corporation VI, GSS Holdings, Inc. and
Wilmington Trust Company (incorporated by reference to exhibit
10.120 to Transition Report on Form 10-KT for the nine months
ended December 31, 2002).
10.126 - Indenture dated November 15, 2002, between the Registrant, BXG
Receivables Note Trust 2002-A, Vacation Trust, Inc., Concord
Servicing Corporation and U.S. Bank National Association
(incorporated by reference to exhibit 10.121 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.127 - Exchange and Registration Rights Agreement dated April 1, 1998, by
and among the Registrant and the persons named therein, relating
to the 10 1/2% Senior Secured Notes due 2008 (incorporated by
reference to exhibit 10.123 to Registration Statement on Form S-4,
File No. 333-50717).
10.128* - Employment Agreement between George F. Donovan and the Company
dated December 19, 2001 (incorporated by reference to exhibit
10.124 to Annual Report on Form 10-K for the fiscal year ended
March 31, 2002).
10.129* - Promissory Note dated July 1, 2002 between George F. Donovan and
Bluegreen Corporation (incorporated by reference to exhibit 10.148
to Quarterly Report on Form 10-Q dated June 30, 2002).
* - Compensation plan or arrangement.
102
10.130* - Employment Agreement between John F. Chiste and the Company dated
December 27, 2001 (incorporated by reference to exhibit 10.125 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.131* - Employment Agreement between Daniel C. Koscher and the Company
dated May 22, 2002 (incorporated by reference to exhibit 10.126 to
Annual Report on Form 10-K for the fiscal year ended March 31,
2002).
10.132 - Amended and Restated Credit Facility Agreement entered into as of
April 16, 1998 between Finova Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.129 to
Registration Statement on Form S-4, File No. 333-50717).
10.133 - Second Amended and Restated Credit Facility Agreement entered into
as of September 14, 1999, between Finova Capital Corporation and
the Registrant (incorporated by reference to exhibit 10.130 to
Quarterly Report on Form 10-Q dated October 3, 1999).
10.134 - Amendment No. 1 to Second Amended and Restated Credit Facility
Agreement entered into as of January 21, 2003, between Finova
Capital Corporation and the Registrant (incorporated by reference
to exhibit 10.129 to Quarterly Report on Form 10-Q dated March 31,
2003).
10.135 - Amendment No. 2 to Second Amended and Restated Credit Facility
Agreement entered into as of August 29, 2003 between Finova
Capital Corporation, Bluegreen Corporation, Bluegreen Southwest
One, L.P., Bluegreen Southwest Land, Inc. and Bluegreen Vacations
Unlimited, Inc. (incorporated by reference to exhibit 10.30 to
Quarterly Report on Form 10-Q dated September 30, 2003).
10.136 - Promissory Note dated January 21, 2003 between Bluegreen Vacations
Unlimited, Inc. and Finova Capital Corporation.
10.137 - Promissory Note (Building) dated August 29, 2003 between Bluegreen
Vacations Unlimited, Inc. and FINOVA Capital Corporation
(incorporated by reference to exhibit 10.131 to Quarterly Report
on Form 10-Q dated September 30, 2003).
10.138 - Promissory Note (Land) dated August 29, 2003 between Bluegreen
Vacations Unlimited, Inc. and FINOVA Capital Corporation
(incorporated by reference to exhibit 10.132 to Quarterly Report
on Form 10-Q dated September 30, 2003).
10.139 - Amended and Restated Loan and Security Agreement dated as of
September 23, 1997 between Foothill Capital Corporation and the
Registrant (incorporated by reference to exhibit 10.130 to
Registration Statement on Form S-4, File No. 333-50717).
10.140 - Amendment Number One to Loan and Security Agreement dated December
1, 2000, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.140 to
Quarterly Report on Form 10-Q dated December 31, 2000).
* - Compensation plan or arrangement.
103
10.141 - Amendment Number Two to Loan and Security Agreement dated as of
November 9, 2001, by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit 10.133
to Quarterly Report on Form 10-Q dated December 31, 2001).
10.142 - Amendment Number Three to Loan and Security Agreement dated August
28, 2002, by and between the Registrant and Foothill Capital
Corporation (incorporated by reference to exhibit 10.132 to
Quarterly Report on Form 10-Q dated September 29, 2002).
10.143 - Amendment Number Four to Loan and Security Agreement dated March
26, 2003, by and between the Registrant and Foothill Capital
Corporation.
10.144 - Amendment Number Five to Loan and Security Agreement dated
September 1, 2003, by and between the Registrant and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation).
10.145 - Promissory Note dated March 26, 2003, by and between the
Registrant and Foothill Corporation (incorporated by reference to
exhibit 10.134 to Quarterly Report on Form 10-Q dated March 31,
2003).
10.156 - Loan Agreement dated as of September 24, 1999, between Bluegreen
Properties of Virginia, Inc. and Branch Banking and Trust Company
(incorporated by reference to exhibit 10.140 to Quarterly Report
on Form 10-Q dated October 3, 1999).
10.157 - Loan Agreement dated as of September 25, 2002, between Bluegreen
Corporation of the Rockies, Bluegreen Golf Clubs, Inc., Bluegreen
Properties of Virginia, Inc., Bluegreen Southwest One, L.P. and
Residential Funding Corporation (incorporated by reference to
exhibit 10.149 to Current Report on Form 8-K dated September 25,
2002).
10.158 - Revolving Promissory Note dated as of September 25, 2002, between
Bluegreen Corporation of the Rockies, Bluegreen Golf Clubs, Inc.,
Bluegreen Properties of Virginia, Inc., Bluegreen Southwest One,
L.P. and Residential Funding Corporation (incorporated by
reference to exhibit 10.150 to Current Report on Form 8-K dated
September 25, 2002).
10.159 - Third Amended and Restated Loan Agreement dated December 31, 2003
by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the $15.0
million, unsecured, revolving line-of-credit due December 31,
2004.
10.160 - Third Amended and Restated Promissory Note dated December 31, 2003
by and among the Registrant, certain subsidiaries of the
Registrant and Wachovia Bank, National Association, for the $15.0
million, unsecured, revolving line-of-credit due December 31,
2004.
10.161 - Loan Agreement dated November 12, 2003 by and among the
Registrant, Bluegreen Communities of Georgia, LLC and Wachovia
Bank, National Association.
10.162 - Promissory Note dated November 12, 2003 by and among the
Registrant, Bluegreen Communities of Georgia, LLC and Wachovia
Bank, National Association.
104
10.163 - Loan Agreement dated February 10, 2003, between Bluegreen
Vacations Unlimited, Inc. and Residential Funding Corporation
(incorporated by reference to exhibit 10.155 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.164 - Modification Agreement (AD&C Loan Agreement) dated September 10,
2003, between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation.
10.165 - Revolving Promissory Note (AD&C Loan) dated February 10, 2003,
between Bluegreen Vacations Unlimited, Inc. and Residential
Funding Corporation (incorporated by reference to exhibit 10.156
to Transition Report on Form 10-KT for the nine months ended
December 31, 2002).
10.166 - Amendment No. 1 to Revolving Promissory Note (AD&C Loan) dated as
of September 10, 2003 between Bluegreen Vacations Unlimited, Inc.
and Residential Funding Corporation (incorporated by reference to
exhibit 10.157 to Quarterly Report on Form 10-Q dated September
30, 2003).
10.167 - Loan and Security Agreement dated February 10, 2003, between the
Registrant, Residential Funding Corporation, Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC
(incorporated by reference to exhibit 10.157 to Transition Report
on Form 10-KT for the nine months ended December 31, 2002).
10.168 - Modification Agreement (Receivables Loan and Security Agreement)
dated September 10, 2003, between the Registrant, Residential
Funding Corporation, Bluegreen Vacations Unlimited, Inc. and
Bluegreen/Big Cedar Vacations, LLC.
10.169 - Project Commitment (Big Cedar Wilderness Club) dated October 1,
2003 by and between Bluegreen Vacations Unlimited, Inc.,
Blugreen/Big Cedar Vacations LLC and Residential Funding
Corporation.
10.170 - Revolving Promissory Note (Receivables Loan) dated February 10,
2003, between the Registrant, Residential Funding Corporation,
Bluegreen Vacations Unlimited, Inc. and Bluegreen/Big Cedar
Vacations, LLC (incorporated by reference to exhibit 10.158 to
Transition Report on Form 10-KT for the nine months ended December
31, 2002).
10.171 - Amendment No. 1 to Revolving Promissory Note (Receivables Loan)
dated as of September 10, 2003 between Bluegreen Corporation,
Bluegreen Vacations Unlimited, Inc., Bluegreen/Big Cedar
Vacations, LLC and Residential Funding Corporation (incorporated
by reference to exhibit 10.160 to Quarterly Report on Form 10-Q
dated September 30, 2003).
10.172 - Full Guaranty dated February 10, 2003, by the Registrant in favor
of Residential Funding Corporation (incorporated by reference to
exhibit 10.159 to Transition Report on Form 10-KT for the nine
months ended December 31, 2002).
10.173 - Acquisition, Construction and Receivable Loan, Security and Agency
Agreement dated as of December 22, 2003 by and among Bluegreen
Vacations Unlimited, Inc., Bluegreen Corporation and Textron
Financial Corporation.
105
10.174 - Secured Promissory Note (Revolving Loan Component) dated December
22, 2003 between Bluegreen Vacations Unlimited, Inc., Bluegreen
Corporation and Textron Financial Corporation.
10.175 - Secured Promissory Note (Acquisition / Construction Loan
Component) dated December 22, 2003 between Bluegreen Vacations
Unlimited, Inc., Bluegreen Corporation and Textron Financial
Corporation.
10.200 - Marketing and Promotions Agreement dated as of June 16, 2000, by
and between Big Cedar L.L.C., Bass Pro, Inc., Bluegreen Vacations
Unlimited, Inc. and Bluegreen/Big Cedar Vacations, LLC.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.201 - Advertising Advance Loan dated as of June 16, 2000 by and between
Big Cedar L.L.C., as Maker, and Bluegreen Vacations Unlimited,
Inc., as Holder (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.202 - Website Hyperlink License Agreement dated as of June 16, 2000 by
and between Bluegreen Vacations Unlimited, Inc. (as User), Bass
Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Owners)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.203 - Website Hyperlink License Agreement dated as of June 16, 2000 by
and between Bluegreen Vacations Unlimited, Inc. (as Owner), Bass
Pro, Inc. and Bass Pro Outdoors Online, L.L.C. (as Users)
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.204 - Contribution Agreement dated as of June 16, 2000 by and between
Bluegreen Vacations Unlimited, Inc. and Big Cedar L.L.C.
(incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q dated July 2, 2000).
10.205 - Operating Agreement of Bluegreen/Big Cedar Vacations, LLC dated as
of June 16, 2000 by and among Bluegreen Vacations Unlimited, Inc.
and Big Cedar L.L.C. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.206 - Administrative Services Agreement dated as of June 16, 2000 by and
among Bluegreen/Big Cedar Vacations, LLC and Bluegreen Vacations
Unlimited, Inc. (incorporated by reference to exhibit of same
designation to Quarterly Report on Form 10-Q dated July 2, 2000).
10.207 - Servicing Agreement dated as of June 16, 2000 by and among the
Registrant, Bluegreen/Big Cedar Vacations, LLC and Big Cedar
L.L.C. (incorporated by reference to exhibit of same designation
to Quarterly Report on Form 10-Q dated July 2, 2000).
10.208 - Asset Purchase Agreement dated as of September 30, 2002, by and
among TakeMeOnVacation, LLC, RVM Promotions, LLC, RVM Vacations,
LLC and Leisure Plan, Inc. (incorporated by reference to exhibit
of same designation to Current Report on Form 8-K dated October 2,
2002).
18 - Letter re: Change in Accounting Principle (incorporated by
reference to exhibit of same designation to Transition Report on
Form 10-KT for the nine months ended December 31, 2002).
106
21.1 - List of Subsidiaries.
23.1 - Consent of Ernst & Young LLP.
31.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to Securities Exchange Act Rules 13a-15(c) and
15d-15(c), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 - Certification of John F. Chiste, Senior Vice President, Treasurer
and Chief Financial Officer, pursuant to Securities Exchange Act
Rules 13a-15(c) and 15d-15(c), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 - Certification of George F. Donovan, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of John F. Chiste, Senior Vice President, Treasurer
and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
107