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EX-31.2 - BLUEGREEN VACATIONS CORPi00414_ex31-2.htm
EX-32.1 - BLUEGREEN VACATIONS CORPi00414_ex32-1.htm
EX-32.2 - BLUEGREEN VACATIONS CORPi00414_ex32-2.htm
EX-31.1 - BLUEGREEN VACATIONS CORPi00414_ex31-1.htm
EX-10.200 - BLUEGREEN VACATIONS CORPi00414_ex10-200.htm
EX-10.300 - BLUEGREEN VACATIONS CORPi00414_ex10-300.htm
EX-10.100 - BLUEGREEN VACATIONS CORPi00414_ex10-100.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended 

September 30, 2009

 


or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________ to _____________________________________________

 

 

Commission File Number: 

001-09292



(BLUEGREEN LOGO)

 

Bluegreen Corporation


(Exact name of registrant as specified in its charter)


 

 

 

Massachusetts

 

03-0300793


 


(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

4960 Conference Way North, Suite 100,
Boca Raton, Florida

 

33431


 


(Address of principal executive offices)

 

(Zip Code)

 

 

 

(561) 912-8000


(Registrant’s telephone number, including area code)

 

 

 




(Former name, former address and former fiscal year, if changed since last report)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

          Yes x     No o


          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

          Yes o     No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large Accelerated filer o

 

Accelerated filer x

 

 

 

 

 

Non-Accelerated filer o

 

Smaller reporting company o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

          Yes o     No x

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 9, 2009, there were 32,549,542 shares of the registrant’s common stock, $0.01 par value, outstanding.

2



BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Page

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at December 31, 2008 and September 30, 2009

 

5

 

 

 

 

Condensed Consolidated Statements of Income – Three months ended September 30, 2008 and 2009

 

6

 

 

 

 

Condensed Consolidated Statements of Income – Nine months ended September 30, 2008 and 2009

 

7

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2008 and 2009

 

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

 

Item 4.

 

Controls and Procedures

 

56

 

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

58

 

 

Item 1A.

 

Risk Factors

 

58

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

 

 

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

58

 

 

Item 5.

 

Other Information

 

59

 

 

Item 6.

 

Exhibits

 

59

 

 

Signatures

 

61

 

3


TRADEMARKS

The terms “Bluegreen®,” “Bluegreen Communities®,” “Bluegreen Getaway Station®,” “Bluegreen Resorts®,” “Bluegreen Vacation Club®,” “Bluegreen Wilderness Club™ at Big Cedar®,” “Colorful Places to Play®,” “Colorful Places To Live And Play®,” “Go Where the Wind Takes You®,” “Leisure Path®,” “See More. Pay Less. Bluegreen Traveler Plus®,” “You’re Going To Like What You See!®,” “Encore Rewards®,” “Outdoor Traveler Logo®,” and the “Bluegreen Logo®” are registered in the U.S. Patent and Trademark Office by Bluegreen Corporation.

The terms “The Hammocks at Marathon™,” “Orlando’s Sunshine Resort™,” “Solara Surfside™,” “Mountain Run at Boyne™,” “The Falls Village™,” “Bluegreen Wilderness Club™,” “Grande Villas at World Golf Village™,” “The Lodge Alley Inn™,” “Carolina Grande™,” “Harbour Lights™,” “BG Patrick Henry Square™,” “SeaGlass Tower™,” “Shore Crest Vacation Villas™,” “Laurel Crest™,” “MountainLoft™,” “MountainLoft Resort II™,” “Daytona SeaBreeze™,” “Shenandoah Crossing™,” “Christmas Mountain Village™,” “Club La Pension™,” “Bluegreen Odyssey Dells™,” “Traditions of Braselton™,” “Sanctuary Cove at St. Andrews Sound™,” “Catawba Falls Preserve™,” “Chapel Ridge™,” “Mountain Lakes Ranch™,” “Silver Lakes Ranch™,” “Mystic Shores™,” “Lake Ridge™,” “Lake Ridge at Joe Pool Lake™,” “Ridge Lake Shores™,” “Quail Springs Ranch™,” “SugarTree at the Brazos™,” “Mountain Springs Ranch™,” “Havenwood at Hunter’s Crossing™,” “Vintage Oaks at the Vineyard™,” “King Oaks™,” “The Bridges at Preston Crossings™,” “Crystal Cove™,” “Fairway Crossings™,” “Woodlake™,” “Saddle Creek Forest™,” “The Settlement at Patriot Ranch™,” “Carolina National™,” “Brickshire™,” “Golf Club at Brickshire™,” “Preserve at Jordan Lake™,” “Encore Dividends™,” “Bluegreen Preferred™,” “BG Pirates Lodge™,” “Bluegreen Traveler Plus™,” “BG Club 36™,” “Bluegreen Wilderness Club at Long Creek Ranch™,” and “Bluegreen Wilderness Traveler at Shenandoah™” are trademarks or service marks of Bluegreen Corporation in the United States.

The terms “Big Cedar®” and “Bass Pro Shops®” are registered in the U.S. Patent and Trademark Office by Bass Pro Trademarks, LP.

The term “World Golf Village®” 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.

4


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

December 31,
2008

 

September 30,
2009

 

 

 


 


 

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents (including restricted cash of $21,214 and $26,515 at December 31, 2008 and September 30, 2009, respectively)

 

$

81,775

 

$

81,555

 

Contracts receivable, net

 

 

7,452

 

 

4,140

 

Notes receivable (net of allowance of $52,029 and $47,388 at December 31, 2008 and September 30, 2009, respectively)

 

 

340,644

 

 

323,630

 

Prepaid expenses

 

 

9,801

 

 

11,201

 

Other assets

 

 

27,488

 

 

35,273

 

Inventory

 

 

503,269

 

 

515,032

 

Retained interests in notes receivable sold

 

 

113,577

 

 

82,712

 

Property and equipment, net

 

 

109,501

 

 

107,246

 

 

 



 



 

Total assets

 

$

1,193,507

 

$

1,160,789

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

24,900

 

$

9,863

 

Accrued liabilities and other

 

 

52,283

 

 

50,142

 

Deferred income

 

 

29,854

 

 

16,824

 

Deferred income taxes

 

 

91,802

 

 

90,685

 

Receivable-backed notes payable

 

 

249,117

 

 

243,617

 

Lines-of-credit and notes payable

 

 

222,739

 

 

201,947

 

Junior subordinated debentures

 

 

110,827

 

 

110,827

 

 

 



 



 

Total liabilities

 

 

781,522

 

 

723,905

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 1,000 shares authorized; none issued

 

 

 

 

 

Common stock, $.01 par value, 90,000 shares authorized; 33,996 shares issued at December 31, 2008 and September 30, 2009

 

 

339

 

 

340

 

Additional paid-in capital

 

 

182,654

 

 

186,464

 

Treasury stock, 2,756 common shares at both December 31, 2008 and September 30, 2009, at cost

 

 

(12,885

)

 

(12,885

)

Accumulated other comprehensive income / (loss), net of income taxes

 

 

3,173

 

 

(2,185

)

Retained earnings

 

 

209,186

 

 

230,249

 

 

 



 



 

Total Bluegreen Corporation shareholders’ equity

 

 

382,467

 

 

401,983

 

Non-controlling interest

 

 

29,518

 

 

34,901

 

 

 



 



 

Total Equity

 

 

411,985

 

 

436,884

 

 

 



 



 

Total liabilities and shareholders’ equity

 

$

1,193,507

 

$

1,160,789

 

 

 



 



 


 

 

Note:

The condensed consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

5


BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

Revenues:

 

 

 

 

 

 

 

Gross sales of real estate

 

$

171,053

 

$

78,143

 

Estimated uncollectible VOI notes receivable

 

 

(24,146

)

 

(6,877

)

 

 



 



 

Sales of real estate

 

 

146,907

 

 

71,266

 

 

 

 

 

 

 

 

 

Other resort and communities operations revenue

 

 

18,009

 

 

16,975

 

Fee-based sales commission revenue

 

 

 

 

7,026

 

Interest income

 

 

14,870

 

 

16,745

 

Other income, net

 

 

 

 

665

 

 

 



 



 

 

 

 

179,786

 

 

112,677

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of real estate sales

 

 

38,217

 

 

28,521

 

Cost of other resort and communities operations

 

 

14,307

 

 

12,746

 

Selling, general and administrative expenses

 

 

105,825

 

 

51,274

 

Interest expense

 

 

6,366

 

 

10,485

 

Other expense, net

 

 

948

 

 

 

 

 



 



 

 

 

 

165,663

 

 

103,026

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before non-controlling interests and provision for income taxes

 

 

14,123

 

 

9,651

 

Provision for income taxes

 

 

4,180

 

 

3,071

 

 

 



 



 

Net income

 

 

9,943

 

 

6,580

 

Less: net income attributable to non-controlling interests

 

 

3,122

 

 

2,647

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income attributable to Bluegreen Corporation

 

$

6,821

 

$

3,933

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

 

$

0.22

 

$

0.13

 

 

 



 



 

Diluted

 

$

0.21

 

$

0.13

 

 

 



 



 

 

 

 

 

 

 

 

 

Weighted average number of common and common equivalent shares:

 

 

 

 

 

 

 

Basic

 

 

31,250

 

 

31,093

 

 

 



 



 

Diluted

 

 

31,822

 

 

31,109

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

6


BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

Revenues:

 

 

 

 

 

 

 

Gross sales of real estate

 

$

429,312

 

$

197,101

 

Estimated uncollectible VOI notes receivable

 

 

(59,308

)

 

(23,425

)

Gains on sales of VOI notes receivable

 

 

8,245

 

 

 

 

 



 



 

Sales of real estate

 

 

378,249

 

 

173,676

 

 

 

 

 

 

 

 

 

Other resort and communities operations revenue

 

 

53,685

 

 

47,598

 

Fee-based sales commission revenue

 

 

 

 

7,026

 

Interest income

 

 

38,334

 

 

52,933

 

Other income, net

 

 

 

 

1,964

 

 

 



 



 

 

 

 

470,268

 

 

283,197

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of real estate sales

 

 

100,147

 

 

62,765

 

Cost of other resort and communities operations

 

 

38,068

 

 

33,289

 

Selling, general and administrative expenses

 

 

294,133

 

 

138,827

 

Interest expense

 

 

13,356

 

 

25,920

 

Other expense, net

 

 

475

 

 

 

 

 



 



 

 

 

 

446,179

 

 

260,801

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before non-controlling interests and provision for income taxes

 

 

24,089

 

 

22,396

 

Provision for income taxes

 

 

7,147

 

 

2,713

 

 

 



 



 

Net income

 

 

16,942

 

 

19,683

 

Less: net income attributable to non-controlling interests

 

 

5,280

 

 

5,383

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income attributable to Bluegreen Corporation

 

$

11,662

 

$

14,300

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

 

$

0.37

 

$

0.46

 

 

 



 



 

Diluted

 

$

0.37

 

$

0.46

 

 

 



 



 

 

 

 

 

 

 

 

 

Weighted average number of common and common equivalent shares:

 

 

 

 

 

 

 

Basic

 

 

31,230

 

 

31,079

 

 

 



 



 

Diluted

 

 

31,482

 

 

31,085

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

7


BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income

 

$

16,942

 

$

19,683

 

Adjustments to reconcile net income to net cash (used)/provided by operating activities:

 

 

 

 

 

 

 

Non-cash stock compensation expense

 

 

3,145

 

 

3,811

 

Depreciation and amortization

 

 

11,568

 

 

11,137

 

Gain on sale of VOI notes receivable

 

 

(8,245

)

 

 

Loss on disposal of property and equipment

 

 

794

 

 

83

 

Estimated uncollectible notes receivable

 

 

59,509

 

 

23,537

 

Provision for deferred income taxes

 

 

7,147

 

 

2,713

 

Interest accretion on retained interests in notes receivable sold

 

 

(11,652

)

 

(14,999

)

Proceeds from sales of notes receivable

 

 

55,705

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Contracts receivable

 

 

4,101

 

 

3,312

 

Notes receivable

 

 

(270,184

)

 

(19,467

)

Inventory

 

 

(37,270

)

 

12,259

 

Prepaid expenses and other assets

 

 

(2,730

)

 

(6,387

)

Accounts payable, accrued liabilities and other

 

 

(9,204

)

 

(29,098

)

 

 



 



 

Net cash (used)/provided by operating activities

 

 

(180,374

)

 

6,584

 

 

 



 



 

Investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(19,952

)

 

(6,840

)

Proceeds from the sale of property and equipment

 

 

 

 

13

 

Cash used in business acquisitions

 

 

(6,105

)

 

 

Cash received from retained interests in notes receivable sold

 

 

34,414

 

 

32,361

 

 

 



 



 

Net cash provided by investing activities

 

 

8,357

 

 

25,534

 

 

 



 



 

Financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings collateralized by notes receivable

 

 

219,927

 

 

61,497

 

Payments on borrowings collateralized by notes receivable

 

 

(76,387

)

 

(67,995

)

Proceeds from borrowings under lines-of-credit facilities and other notes payable

 

 

104,278

 

 

11,818

 

Payments under lines-of-credit facilities and other notes payable

 

 

(72,943

)

 

(32,722

)

Payments on 10.50% senior secured notes

 

 

(55,000

)

 

 

Payment of debt issuance costs

 

 

(2,724

)

 

(4,936

)

Proceeds from exercise of stock options

 

 

132

 

 

 

 

 



 



 

Net cash provided/(used) by financing activities

 

 

117,283

 

 

(32,338

)

 

 



 



 

Net decrease in cash and cash equivalents

 

 

(54,734

)

 

(220

)

Cash and cash equivalents at beginning of period

 

 

144,973

 

 

81,775

 

 

 



 



 

Cash and cash equivalents at end of period

 

 

90,239

 

 

81,555

 

Restricted cash and cash equivalents at end of period

 

 

(24,689

)

 

(26,515

)

 

 



 



 

Unrestricted cash and cash equivalents at end of period

 

$

65,550

 

$

55,040

 

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

8


BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

Supplemental schedule of non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory acquired through financing

 

$

10,132

 

$

 

 

 



 



 

Property and equipment acquired through financing

 

$

3,643

 

$

 

 

 



 



 

Non-cash changes in retained interests in notes receivable sold

 

$

9,624

 

$

(11,078

)

 

 



 



 

Net change in unrealized gains and losses in retained interests in notes receivable sold

 

$

(7,942

)

$

(2,425

)

 

 



 



 

See accompanying notes to condensed consolidated financial statements.

9


BLUEGREEN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)

1. Organization and Significant Accounting Policies

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

The financial information furnished herein reflects all adjustments consisting of normal recurring items that, in our opinion, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009. For further information, refer to our audited consolidated financial statements for the year ended December 31, 2008 which are included as an exhibit to our Current Report on Form 8-K filed on July 16, 2009, which recast the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 (“Annual Report”) to reflect our previously reported implementation of recent accounting rules related to the accounting for non-controlling interests in consolidated financial statements, which we adopted on January 1, 2009.

Organization

We provide Colorful Places to Live and Play® through our resorts and residential communities businesses. Our resorts business (“Bluegreen Resorts”) markets, sells and manages real estate-based vacation ownership interests (“VOIs”) in resorts generally located in popular, high-volume, “drive-to” vacation destinations, either in resorts developed or acquired by us or in resorts developed by others, in which case we earn fees for providing these services. VOIs in our resorts and sold by us on behalf of others, typically entitle the buyer to use resort accommodations through an annual or biennial allotment of “points” which represent their ownership and beneficial use rights in perpetuity in our Bluegreen Vacation Club (supported by an underlying deeded VOI held in trust for the buyer). Members in our Bluegreen Vacation Club may stay in any of our 51 participating resorts or take advantage of an exchange program offered by a third-party world-wide vacation ownership exchange network of over 3,700 resorts and other vacation experiences such as cruises and hotel stays.

Our residential communities business (“Bluegreen Communities”) acquires, develops and subdivides property and markets residential homesites, the majority of which are sold directly to retail customers who seek to build a home generally in the future, in some cases on properties featuring a golf course and other related amenities.

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 “Bluegreen/Big Cedar Joint Venture”), as we hold a 51% equity interest in the Bluegreen/Big Cedar Joint Venture, have an active role as the day-to-day manager of the Bluegreen/Big Cedar Joint Venture’s activities, and have majority voting control of the Bluegreen/Big Cedar Joint Venture’s management committee. We do not consolidate our statutory business trusts formed to issue trust preferred securities as these entities are each variable interest entities in which we are not the primary beneficiary as defined by Financial Accounting Standards Board (“FASB”) ASC 810-10. The statutory business trusts are accounted for under the equity method of accounting. We have eliminated all significant intercompany balances and transactions.

Use of Estimates

United States generally accepted accounting principles (“GAAP”) 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.

10


Earnings Per Common Share

We compute basic earnings per common share by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed in the same manner as basic earnings per common share, but also gives effect to all dilutive stock options and unvested restricted stock using the treasury stock method.

During the nine months ended September 30, 2008, a total of 38,500 common shares were issued as a result of stock option exercises. No common shares were issued during the nine months ended September 30, 2009 as a result of stock option exercises. There were approximately 1.2 million and 1.3 million stock options not included in diluted earnings per common share during the three and nine months ended September 30, 2008, respectively; and approximately 2.7 million stock options not included in diluted earnings per common share during the three and nine months ended September 30, 2009, in each case because the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

 

 

2008

 

2009

 

2008

 

2009

 

 

 


 


 


 


 

Basic and diluted earnings per share – numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Bluegreen Corporation

 

$

6,821

 

$

3,933

 

$

11,662

 

$

14,300

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted-average shares

 

 

31,250

 

 

31,093

 

 

31,230

 

 

31,079

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and unvested restricted stock

 

 

572

 

 

16

 

 

252

 

 

6

 

 

 



 



 



 



 

Denominator for diluted earnings per share - adjusted weighted-average shares

 

 

31,822

 

 

31,109

 

 

31,482

 

 

31,085

 

 

 



 



 



 



 

Basic earnings per common share

 

$

0.22

 

$

0.13

 

$

0.37

 

$

0.46

 

 

 



 



 



 



 

Diluted earnings per common share

 

$

0.21

 

$

0.13

 

$

0.37

 

$

0.46

 

 

 



 



 



 



 

Subsequent Events

Subsequent events have been evaluated through November 9, 2009, the date the financial statements were available to be issued. Subsequent events are disclosed throughout these notes.

Recently Adopted Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FAS 107-1”), which became effective for interim and annual periods ended after June 15, 2009. FAS 107-1 amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized information in interim reporting periods. The additional disclosure required by this pronouncement is provided for in Note 6 below. The relative guidance under the new Accounting Standards Codification (“ASC”) for this recently adopted accounting pronouncement is FASB ASC 825-10.

In April 2009, the FASB issued FASB Staff Position FAS 115-2, FAS 124-2, and Emerging Issue Task Force (“EITF”) 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FAS 115-2”), which became effective for interim and annual periods ended after June 15, 2009. FAS 115-2 amends the other-than-temporary impairment guidance in U.S. GAAP for certain securities, including retained interest in securities classified as available-for-sale investments, and also expands the required disclosure of other-than-temporary impairments on such securities in the financial statements and notes thereto. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The impact of this new

11


standard is disclosed in Note 2 below. The relative guidance under the new Accounting Standards Codification for this recently adopted accounting pronouncement is FASB ASC 325-40.

In April 2009, the FASB issued FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly (“FAS 157-4”), which became effective for interim and annual periods ended after June 15, 2009. FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. It also provides guidance on identifying circumstances that indicate a transaction is not orderly. It emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The adoption of this pronouncement did not have a material impact on our financial statements. The relative guidance under the new Accounting Standards Codification for this recently adopted accounting pronouncement is FASB ASC 320-10.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which became effective for interim or annual financial periods ended after June 15, 2009. SFAS No. 165 provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement sets forth the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. This statement also identifies the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of this pronouncement did not affect our results of operations or financial condition, but did require additional disclosure in our interim financial statements (see “Subsequent Events” above). The relative guidance under the new Accounting Standards Codification for this recently adopted accounting pronouncement is FASB ASC 855-10.

Accounting Pronouncements Not Yet Adopted

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (which has subsequently been renamed FASB ASC 860-10), which will become effective for us beginning January 1, 2010. FASB ASC 860-10 requires the disclosure of more information about transfers of financial assets, including securitization transactions and transactions where companies have continuing exposure to the risks related to the transferred financial assets. It also eliminates the concept of a qualifying special-purpose entity (“QSPE”), changes the requirements for derecognizing financial assets, and requires additional disclosures. See discussion of SFAS No. 167, below, for the anticipated impact on Bluegreen of the adoption of SFAS No. 166.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which will become effective for us on January 1, 2010 (which has subsequently been renamed FASB ASC 810-10). FASB ASC 810-10 addresses the effects of eliminating the QSPE concept and responds to concerns about the application of certain key provisions of previous accounting rules, including concerns over the transparency of an enterprises’ involvement with variable interest entities (“VIEs”). While we have not completed our evaluation of the effects that this change in accounting will have on our financial statements, we anticipate that our net worth, leverage, and book value per share will be materially adversely impacted as a result of the reversal of previously recognized sales of notes receivable, the recognition of the related non-recourse receivable-backed notes payable, and the elimination of retained interest in notes receivable sold as we anticipate that we will be required to consolidate our off-balance sheet QSPEs described in Note 2 to the financial statements included in Part 1, Item 1 of this Quarterly Report.

2. Retained Interests in Notes Receivable Sold

As discussed further in Note 6 “Sales of Notes Receivable” of our 2008 Annual Report on Form 10-K, we have historically sold notes receivable and accounted for these transactions as “off-balance sheet” sales. In connection with such transactions, we retained subordinated tranches and rights to any excess interest spread which are identified as retained interests in the notes receivable sold. Our retained interests in notes receivable sold, which we classify as available-for-sale investments, and their associated unrealized gains (losses) are set forth below (in thousands):

12



 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008:

 

 

Amortized
Cost

 

Unrealized
Gain (Loss)

 

Fair Value

 


 

 


 


 


 

2002 Term Securitization

 

$

7,505

 

$

 

$

7,505

 

2004 Term Securitization

 

 

8,508

 

 

1,037

 

 

9,545

 

2004 GE Purchase Facility

 

 

3,380

 

 

78

 

 

3,458

 

2005 Term Securitization

 

 

16,267

 

 

 

 

16,267

 

2006 GE Purchase Facility

 

 

16,177

 

 

(1,687

)

 

14,490

 

2006 Term Securitization

 

 

13,730

 

 

670

 

 

14,400

 

2007 Term Securitization

 

 

31,145

 

 

5,029

 

 

36,174

 

2008 Term Securitization

 

 

11,437

 

 

301

 

 

11,738

 

 

 



 



 



 

Total

 

$

108,149

 

$

5,428

 

$

113,577

 

 

 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2009:

 

 

Amortized
Cost

 

Unrealized
Gain (Loss)

 

Fair Value

 


 

 


 


 


 

2004 Term Securitization

 

$

8,057

 

$

212

 

$

8,269

 

2004 GE Purchase Facility(2)

 

 

4,078

 

 

(717

)

 

3,361

 

2005 Term Securitization

 

 

13,019

 

 

 

 

13,019

 

2006 GE Purchase Facility(1)

 

 

16,238

 

 

(2,525

)

 

13,713

 

2006 Term Securitization(2)

 

 

11,073

 

 

(1,043

)

 

10,030

 

2007 Term Securitization(2)

 

 

21,917

 

 

(167

)

 

21,750

 

2008 Term Securitization

 

 

12,090

 

 

480

 

 

12,570

 

 

 



 



 



 

Total

 

$

86,472

 

$

(3,760

)

$

82,712

 

 

 



 



 



 


 

 

 

(1)     This security has been in a continuous unrealized loss position for more than 12 months.

 

 

(2)     This security has been in a continuous unrealized loss position for less than 12 months.

The following assumptions (which are considered Level 3 inputs under the accounting rules for fair value measurements) were used to measure the fair value of the above retained interests:

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2008

 

 

September 30,
2009

 

 

 


 

 


 

 

 

 

 

 

 

Prepayment rates

 

 

23% - 4%

 

 

23% - 4%

Loss severity rates

 

 

3% - 38%

 

 

18% - 38%

Default rates

 

 

12% - 0%

 

 

7% - 0%

Discount rates

 

 

19.5%

 

 

24.5%

These assumptions take into account our intended actions, which can change from time to time, relating to our right to either acquire or substitute for defaulted loans pursuant to the terms of each transaction.

The net unrealized gain on our retained interests in notes receivable sold, which is presented as a separate component of our shareholders’ equity, net of income taxes, was approximately $3.2 million as of December 31, 2008. The net unrealized loss on our retained interests in notes receivable sold, net of income taxes, was approximately $2.2 million as of September 30, 2009.

In May 2009, we, in our capacity as servicer of the 2002 Term Securitization, exercised our servicer option, which caused the full redemption of all classes of notes issued by the note issuer of the 2002 Term Securitization. As a result of this exercise and the ultimate redemption, we exchanged cash of approximately $4.2 million and the retained interest in the 2002 Term Securitization for notes receivable and VOI inventory with an estimated fair value totaling approximately $17.9 million.

On April 1, 2009, we adopted the provisions of FASB ASC 325-40 (previously FAS 115-2), which amended existing requirements for measuring and disclosing other-than-temporary impairment of debt securities and retained interests in securities classified as available-for-sale investments. Among other changes, if a holder has the positive intent and ability to hold a security to maturity, the other-than-permanent impairment recognized in earnings should be equal to the amount representing credit loss, with any remaining loss being unrealized and included as a component of equity. Since we have the positive intent and ability to hold all of our retained interests in notes receivable sold through maturity, upon the adoption of FASB ASC 325-40, we recorded additional unrealized losses

13


of $6.8 million in accumulated other comprehensive income related to other-than-temporary impairments previously recognized in earnings through a cumulative-effect adjustment to our retained earnings.

We measure credit loss based upon the performance indicators of the underlying assets of the retained interest in notes receivable sold. During the three months ended September 30, 2009, we recognized $0.5 million as a charge to earnings for an other-than-temporary impairment that related to credit loss. As of September 30, 2009, the aggregate amount of unrealized losses in accumulated other comprehensive income (loss) was $4.5 million.

The following table is a rollforward for the three months ended September 30, 2009 of the amount of other comprehensive loss on our retained interest in notes receivable sold related to credit losses for which a portion of which was recognized in earnings:

 

 

 

 

 

Balance at July 1, 2009 of the amount related to credit losses for which a portion of an other-than-temporary impairment was recognized in other comprehensive income

 

$

 

 

 

 

 

 

Additions for the amount related to the credit losses for which an other-than-temporary impairment was not previously recognized

 

 

(2,535

)

 

 

 

 

 

Reductions for other-than-temporary impairment realized in earnings, net of tax

 

 

260

 

 

 



 

 

 

 

 

 

Balance at September 30, 2009 of the amount related to credit losses for which a portion of an other-than-temporary impairment was recognized in other comprehensive income

 

$

(2,275

)

 

 



 

The following table shows the hypothetical fair value of our retained interests in notes receivable sold based on a 10% and a 20% adverse change in each of the assumptions used to measure the fair value of those retained interests (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical Fair Value at September 30, 2009

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment Rate

 

Loss Severity Rate

 

Default Rate

 

Discount Rate

 

 

 


 


 


 


 

Adverse Change Percentage

 

10%

 

20%

 

10%

 

20%

 

10%

 

20%

 

10%

 

20%

 


 


 


 


 


 


 


 


 


 

 

2004 Term Securitization

 

$

8,224

 

$

8,181

 

$

8,229

 

$

8,189

 

$

8,235

 

$

8,202

 

$

7,977

 

$

7,705

 

2004 GE Purchase Facility

 

 

3,342

 

 

3,324

 

 

3,354

 

 

3,348

 

 

3,348

 

 

3,335

 

 

3,222

 

 

3,094

 

2005 Term Securitization

 

 

13,002

 

 

12,991

 

 

12,961

 

 

12,903

 

 

12,419

 

 

11,828

 

 

12,395

 

 

11,822

 

2006 GE Purchase Facility

 

 

13,670

 

 

13,628

 

 

13,658

 

 

13,603

 

 

13,403

 

 

13,094

 

 

13,106

 

 

12,550

 

2006 Term Securitization

 

 

10,014

 

 

9,999

 

 

9,992

 

 

9,954

 

 

9,457

 

 

8,894

 

 

9,513

 

 

9,043

 

2007 Term Securitization

 

 

21,777

 

 

21,803

 

 

21,696

 

 

21,642

 

 

20,935

 

 

20,133

 

 

20,789

 

 

19,917

 

2008 Term Securitization

 

 

12,570

 

 

12,569

 

 

12,564

 

 

12,557

 

 

12,378

 

 

12,189

 

 

12,226

 

 

11,909

 

The table below summarizes certain cash flows received from and (paid to) our qualifying special purpose finance subsidiaries (in thousands):

 

 

 

 

 

 

 

 

 

 

For the nine months ended
September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

 

 

 

 

 

 

Proceeds from new sales of receivables

 

$

55,705

 

$

 

Collections on previously sold receivables

 

 

(137,984

)

 

(104,269

)

Servicing fees received

 

 

7,282

 

 

5,839

 

Purchases of defaulted receivables

 

 

(3,547

)

 

(920

)

Resales of foreclosed assets

 

 

(40,981

)

 

(12,259

)

Remarketing fees received

 

 

24,122

 

 

6,956

 

Cash received on retained interests in notes receivable sold

 

 

34,414

 

 

32,361

 

Cash paid to fund required reserve accounts

 

 

(7,387

)

 

(1,148

)

Purchases of upgraded accounts

 

 

(36,572

)

 

(516

)

14


In addition to the cash paid for the purchase of defaulted receivables included in the above table, we also acquire delinquent or defaulted receivables from our qualifying special purpose finance subsidiaries in exchange for unencumbered receivables (a process known as substitution). During the nine months ended September 30, 2008 and 2009, we acquired notes receivable totaling $18.9 million and $52.1 million, respectively, through substitutions. Although we are not obligated to repurchase or substitute for delinquent or defaulted notes receivable from our qualifying special purpose finance subsidiaries, we may do so from time to time. The VOIs securing the delinquent and defaulted receivables received by us in this manner are typically recovered and put back in VOI inventory and resold in the normal course of business. Our maximum exposure to loss as a result of our involvement with these special purpose entities is the value of our retained interest.

Quantitative information about the portfolios of VOI notes receivable previously sold without recourse in which we hold the above retained interests is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of
September 30, 2009

 

 

 


 

 

 

Total
Outstanding

Principal
Amount of
Sold Loans

 

Principal
Amount
of Sold Loans
60 or More
Days Past Due

 

Balance
Owed to Note
Holders

 

 

 


 


 


 

2004 Term Securitization

 

$

30,349

 

$

765

 

$

28,427

 

2004 GE Purchase Facility

 

 

14,430

 

 

378

 

 

12,579

 

2005 Term Securitization

 

 

84,861

 

 

2,567

 

 

77,925

 

2006 GE Purchase Facility

 

 

72,222

 

 

2,374

 

 

64,223

 

2006 Term Securitization

 

 

73,650

 

 

2,229

 

 

68,172

 

2007 Term Securitization

 

 

141,546

 

 

4,411

 

 

127,258

 

2008 Term Securitization

 

 

53,224

 

 

1,326

 

 

47,492

 

The contractual maturities of our retained interests in notes receivable sold as of September 30, 2009, based on the final maturity dates of the underlying notes receivable are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

Fair Value

 

 

 


 


 

 

Within one year

 

$

 

$

 

After one year but within five

 

 

8,057

 

 

8,269

 

After five years but within ten

 

 

78,415

 

 

74,443

 

After ten years

 

 

 

 

 

 

 



 



 

Total

 

$

86,472

 

$

82,712

 

 

 



 



 

15


3. Lines-of-Credit, Notes Payable and Receivable-Backed Notes Payable

Lines-of-Credit and Notes Payable

Please refer to “Liquidity and Capital Resources” section of this report for additional information related to our debt. The table below sets forth the balances of our lines-of-credit and notes payable (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 




 

 

 

December 31, 2008

 

September 30, 2009

 

 

 


 


 

 

 

Balance

 

Interest
Rate

 

Balance

 

Interest
Rate

 

 

 


 


 


 


 

 

The GMAC AD&C Facility

 

$

99,776

 

 

4.94%

 

$

93,153

 

 

4.75%

 

The GMAC Communities Facility

 

 

59,372

 

 

4.25%

 

 

46,571

 

 

10.00%

 

Wachovia Notes Payable

 

 

30,347

 

 

2.44 – 2.79%

 

 

24,566

 

 

2.25 – 2.60%

 

Wachovia Line-of-Credit

 

 

9,949

 

 

2.19%

 

 

15,700

 

 

2.00%

 

Textron AD&C Facility

 

 

15,456

 

 

4.50 –4.75%

 

 

14,796

 

 

4.50 –4.75%

 

Fifth Third Bank Note Payable

 

 

3,400

 

 

3.44%

 

 

3,400

 

 

3.25%

 

Other

 

 

4,439

 

 

5.86 – 11.03%

 

 

3,761

 

 

4.25 – 12.50%

 

 

 



 

 

 

 



 

 

 

 

Total

 

$

222,739

 

 

 

 

$

201,947

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Significant changes during the nine months ended September 30, 2009, as well as significant changes through the date our financials were available for issuance, include:

The GMAC AD&C Facility. On July 1, 2009, we amended this facility, extending the maturity to June 30, 2012. The maturity date for the project loan collateralized by our Bluegreen Club 36™ resort in Las Vegas, Nevada (the “Club 36 Loan”) was extended to June 30, 2012 from its previous maturity of November 18, 2011. Maturity dates for two project loans related to our Fountains resort in Orlando, Florida (the “Fountains Loans”) did not change from September 2010 and March 2011. Principal payments continue to be based on release prices payable as timeshare interests in the resorts collateralizing the GMAC AD&C Facility are sold, subject to amended minimum required amortization on the Club 36 Loan and the Fountains Loans. There was no amendment to the interest rate and the facility continues to bear interest at a rate equal to the 30-day LIBOR plus 4.50% payable monthly. In addition, we pledged two of our existing undeveloped resort properties as additional collateral under the GMAC AD&C Facility. As of September 30, 2009, we had no availability under this facility. The advance period for this facility has expired.

During the nine months ended September 30, 2009, we repaid $6.6 million of the outstanding balance.

The GMAC Communities Facility. On July 1, 2009, we amended this facility, extending the maturity of the facility to December 31, 2012. Prior to this amendment, $8.0 million and $49.6 million of the amounts outstanding under the GMAC Communities Facility were due in July 2009 and September 2009, respectively. In connection with the amendment, we repaid $10.0 million of the outstanding balance under the GMAC Communities Facility at closing, and agreed to make additional minimum quarterly cumulative payments commencing in January 2010 to repay the loan in full by December 31, 2012. Principal payments are based on release prices payable as the real estate collateralizing the GMAC Communities Facility is sold, subject to the minimum required amortization discussed above. The interest rate on the GMAC Communities Facility was amended to the prime rate plus 2%, subject to the following floors: (1) 10% until the balance of the loan outstanding as of the date of the amendment has been reduced by a total of $25 million (inclusive of the $10 million principal pay down referred to above), (2) 8% until the balance of the loan is less than or equal to $20 million, and (3) 6% thereafter. In addition to the existing residential community projects and golf courses which already collateralized the GMAC Communities Facility, we pledged three of our other golf courses as additional collateral for the facility. We also agreed to pay certain fees and expenses in connection with the amendment, a portion of which is deferred until the maturity date and may be waived under certain circumstances. The advance period under this facility has expired.

During the nine months ended September 30, 2009, inclusive of the payments discussed above, we repaid $12.8 million of the outstanding balance.

16


The Wachovia Notes Payable. As of September 30, 2009, we had approximately $24.6 million outstanding to Wachovia Bank, N.A. (“Wachovia”) under various notes payable collateralized by certain of our timeshare resorts or sales offices (the “Wachovia Notes Payable”). In October 2009, we extended the maturity of a $10.5 million note payable on our Williamsburg resort from November 4, 2009 to December 15, 2009. We have signed a non-binding term sheet with Wells Fargo Foothill, LLC (“Foothill”) to refinance all of the Wachovia Notes Payable with repayment to occur as the underlying collateral is sold in the normal course of business, subject to periodic minimum amortization over a 48-month period. There can be no assurances that such refinancing will be obtained as contemplated in the term sheet, if at all, as this transaction is subject to further approval and customary conditions precedent.

During the nine months ended September 30, 2009, we repaid $5.8 million on the various notes payable.

The Wachovia Line-of-Credit. In February 2009, we borrowed an additional $8.0 million on this line-of-credit for general corporate purposes. Amounts borrowed under the line bear interest at a rate equal to the 30-day LIBOR plus 1.75%, due monthly.

On July 30, 2009, we extended the maturity of this line-of-credit from July 30, 2009 to October 30, 2009. In connection with the extension of this line-of-credit, we repaid $2.2 million and agreed to terminate future availability under this line-of-credit. In October 2009, the maturity of this line-of-credit was extended to December 15, 2009.

We have signed a non-binding term sheet with Foothill to extend the maturity of this facility to amortize over a 48-month period and to be secured by certain of our assets. There can be no assurances that such extension will be obtained as contemplated in the term sheet, or if at all, as this transaction is subject to further approval and customary conditions precedent.

Textron AD&C Facility. On October 28, 2009, we entered into an amendment to the Textron AD&C Facility and a sub-loan under the Facility used to fund the acquisition and development of our Odyssey Dells Resort (the “Odyssey Sub-Loan”). The amendment to the Sub-Loan extended the final maturity of outstanding borrowings under the Odyssey Sub-Loan from October 31, 2010 to December 31, 2011, and revised the periodic minimum required principal amortization. Prior to the amendment, the next minimum required principal payment would have been $3.5 million on or before October 31, 2009 with the balance due on October 31, 2010. As amended, our next minimum required principal payment will be approximately $0.4 million in March 2010 with additional minimum required principal payments of $1.0 million per quarter thereafter through maturity. We will continue to pay Textron principal payments as we sell each timeshare interest that collateralizes the Odyssey Sub-Loan, which payments will count towards the minimum required principal payments. As of October 31, 2009, our outstanding borrowings under the Sub-Loan totaled approximately $7.4 million.

The maturity date of the other outstanding sub-loan under the Textron AD&C Facility, subject to minimum required amortization during the periods prior to maturity is April 2013 for $5.8 million outstanding on a sub-loan used to acquire our Atlantic Palace Resort in Atlantic City, New Jersey.

The Textron AD&C Facility originally had a facility limit of $75 million which represented the maximum amount of credit that Textron would extend to us for resort acquisition and development activities, subject to Textron’s further approval of sub-loans for specific projects. As of September 30, 2009, the remaining available credit under the Textron Facility was approximately $50.6 million. We had previously substantially completed our near-term intended development activities on existing projects under the Textron AD&C Facility, and had no intentions to acquire additional projects prior to the expiration of the Textron AD&C Facility’s project approval period in April 2010. Therefore, in exchange for the extended maturities on the Odyssey Sub-Loan, we agreed to amend the Textron Facility to terminate our remaining availability.

During 2009, we repaid approximately $4.5 million under this facility.

17


Receivable-Backed Notes Payable

The table below sets forth the balances of our receivable-backed notes payable facilities (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31, 2008

 

September 30, 2009

 

 

 


 


 

 

 

Debt
Balance

 

Interest
Rate

 

Balance of
Pledged/
Secured
Receivables

 

Debt
Balance

 

Interest
Rate

 

Balance of
Pledged/
Secured
Receivables

 

 

 


 


 


 


 


 


 

 

BB&T Purchase Facility (nonrecourse)

 

$

139,057

 

 

2.19

%

$

167,538

 

$

132,842

 

 

5.75

%

$

165,760

 

Liberty Bank Facility

 

 

43,505

 

 

5.75

%

 

48,603

 

 

56,162

 

 

5.75

%

 

64,583

 

GE Bluegreen/Big Cedar Receivables Facility

 

 

33,725

 

 

2.19

%

 

39,681

 

 

35,383

 

 

2.00

%

 

38,141

 

Foothill Facility

 

 

24,096

 

 

4.00

%

 

26,117

 

 

13,459

 

 

4.00

%

 

14,575

 

GMAC Receivables Facility

 

 

7,698

 

 

4.44

%

 

8,737

 

 

5,771

 

 

4.25

%

 

6,841

 

Textron Facility

 

 

1,036

 

 

6.00

%

 

1,194

 

 

 

 

 

 

 

 

 



 

 

 

 



 



 

 

 

 



 

Total

 

$

249,117

 

 

 

 

$

291,870

 

$

243,617

 

 

 

 

$

289,900

 

 

 



 

 

 

 



 



 

 

 

 



 

Significant changes during the nine months ended September 30, 2009, as well as significant changes through the date our financials were available for issuance include:

BB&T Purchase Facility. On June 30, 2009, we amended and restated an existing timeshare notes receivable purchase facility with Branch Banking and Trust Company (“BB&T”) formerly known as the “2008 BB&T Purchase Facility”, extending the revolving advance period under the facility to June 29, 2010. Under the amended terms, should a “takeout financing” (as defined in the applicable facility agreements) occur prior to June 29, 2010, then the facility limit will either remain at the current facility limit of $150.0 million or decrease to $100.0 million, under certain circumstances. The BB&T Purchase Facility provides for the transfer of our timeshare receivables at an advance rate of 67.5% of the principal balance up to a cumulative purchase price of $150.0 million on a revolving basis, subject to the terms of the facility, eligible collateral and customary terms and conditions. While ownership of the receivables is transferred for legal purposes, the transfers of receivables under the facility are accounted for as borrowings for financial accounting purposes. Accordingly, the receivables will continue to be reflected as assets and the associated obligations will be reflected as liabilities on our balance sheet. The BB&T facility is nonrecourse and is not guaranteed by us.

The existing outstanding balance as of June 30, 2009, initially remained at its then current advance rate of 82.4%; however, we will equally share with BB&T in the excess cash flows generated by the receivables sold (excess meaning after customary payments of fees, interest and principal under the facility) until the advance rate on the existing receivables becomes 67.5% as the outstanding balance amortizes. The interest rate on the BB&T Purchase Facility is the prime rate plus 2.5%.

During the nine months ended September 30, 2009, we pledged $22.4 million of VOI notes receivable to this facility and received cash proceeds of $18.1 million. We also made repayments of $24.3 million during 2009.

In October 2009, we transferred $6.5 million of VOI notes receivable to BB&T and received cash proceeds of $4.4 million. Subsequent to this borrowing, and based on subsequent repayments, we had $18.5 million in availability under this facility as of November 5, 2009. As the BB&T Facility is revolving, pursuant to the terms of the facility, availability increases as the outstanding balance is repaid during the revolving advance period.

Liberty Bank Facility. During the nine months ended September 30, 2009, we pledged $26.0 million of VOI notes receivable under this facility and received cash proceeds of $23.4 million. We also made repayments of $10.7 million under this facility during the nine months ended September 30, 2009.

In October 2009, we transferred $7.6 million of VOI notes receivable to Liberty and received cash proceeds of $6.8 million. Subsequent to this borrowing, and based on subsequent repayments, we had $13.7 million in availability under this facility; however, availability under this facility increases during the revolving advance period as the outstanding balance decreases.

18


GE Bluegreen/Big Cedar Receivables Facility. During the nine months ended September 30, 2009, we pledged $6.0 million of VOI notes receivable as collateral for this facility and received cash proceeds of $5.8 million. In addition, during the first quarter of 2009, we received approximately $4.7 million which represents an additional borrowing up to the 97% borrowing base, with no additional VOI receivables being pledged. We also repaid $8.9 million on this facility. The advance period under this facility expired on April 16, 2009.

Foothill Facility. During the nine months ended September 30, 2009, we pledged $11.5 million of notes receivable to this facility and received cash proceeds of $10.3 million. In addition to these borrowings, we also made repayments of $20.9 million.

We have signed a non-binding term sheet to expand the Foothill Facility as well as extend its advance period and maturity. There can be no assurance that the transaction contemplated by the term sheet will occur on favorable terms to us, if at all, as this transaction is subject to further approval and certain conditions precedent.

4. Common Stock and Stock Option Plans

Bluegreen Corporation Common Stock

At the Annual Meeting of our Shareholders held on November 4, 2009, our shareholders approved an amendment to Article 3 of our Restated Articles of Organization to increase the number of authorized shares of Common Stock from 90,000,000 shares to 140,000,000 shares. The amendment was previously approved and recommended for shareholder approval by our Board of Directors. The amendment had no impact on the relative rights, powers and limitations of the Common Stock, and holders of Common Stock do not have preemptive rights to acquire or subscribe for any of the additional shares of Common Stock authorized by the amendment.

Bluegreen Corporation 2008 Stock Incentive Plan

During 2008, the Board of Directors and shareholders approved our 2008 Stock Incentive Plan (referred to within this section as the “Plan”), which provides for the issuance of restricted stock awards and for the grant of options to purchase shares of our Common Stock. The Plan previously limited the total number of shares of Common Stock available for grant under the Plan to 4,000,000 shares.

At the Annual Meeting of our Shareholders held on November 4, 2009, our shareholders approved an amendment to increase the aggregate number of shares available for grant under the Plan to 10,000,000 shares as well as increase the number of shares of restricted stock and the number of shares underlying stock options which may be granted during any calendar year to our covered employees and the number of shares underlying options which may be granted to any person under the Plan during any calendar year to the full amount of shares available for grant under the Plan. The amendment also, among other things, gave the committee administering the Plan the discretion to re-price previously granted stock options and/or substitute new awards for previously granted awards which have less favorable terms, including higher exercise prices. The amendment was previously approved and recommended for shareholder approval by our Board of Directors.

Share-Based Compensation Plans

The following table lists relevant information pertaining to our grants of stock options and restricted stock during the nine months ended September 30, 2008 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

Restricted Stock Awards

 

 

 


 


 

 

 

Quantity

 

Grant Date
Fair Value

 

Quantity

 

Grant Date
Fair Value

 

 

 


 


 


 


 

 

Directors

 

 

295

 

$

816

 

 

184

 

$

1,246

 

Employees

 

 

778

 

 

2,264

 

 

1,184

 

 

9,208

 

 

 



 



 



 



 

Total

 

 

1,073

 

$

3,080

 

 

1,368

 

$

10,454

 

 

 



 



 



 



 

19


The following table lists relevant information pertaining to our grants of stock options and restricted stock during the nine months ended September 30, 2009 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

Restricted Stock Awards

 

 

 


 


 

 

 

Quantity

 

Grant Date
Fair Value

 

Quantity

 

Grant Date
Fair Value

 

 

 


 


 


 


 

Directors

 

 

120

 

$

221

 

 

93

 

$

255

 

Employees

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

Total

 

 

120

 

$

221

 

 

93

 

$

255

 

 

 



 



 



 



 

The 2009 awards were granted as part of our annual director compensation.

Total stock-based compensation expense recognized in earnings for directors and employees during the three and nine months ended September 30, 2008 was $1.4 million and $3.1 million, respectively. Total stock-based compensation expense recognized in earnings for directors and employees during the three and nine months ended September 30, 2009 was $1.4 million and $3.8 million, respectively. The following table presents certain information related to our unrecognized compensation for our stock-based awards as of September 30, 2009:

 

 

 

 

 

 

 

 

As of September 30, 2009

 

Weighted
Average
Recognition
Period

 

Unrecognized
Compensation

 


 


 


 

 

 

(in years)

 

(000’s)

 

 

Stock Option Awards

 

 

2.6

 

$

4,967

 

Restricted Stock Awards

 

 

3.3

 

$

8,792

 

A summary of our stock option activity during the nine months ended September 30, 2009 is presented below (in thousands, except price per option data):

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Options

 

Weighted Average
Exercise Price
Per Option

 

Number of Options
Exercisable

 

 

 


 


 


 

 

 

(in shares, 000’s)

 

 

 

 

(in shares, 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2008

 

 

2,709

 

$

9.91

 

 

871

 

Granted

 

 

120

 

 

2.75

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

Expired

 

 

(19

)

 

8.24

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Balance at September 30, 2009

 

 

2,810

 

$

9.62

 

 

971

 

 

 



 

 

 

 

 

 

 

A summary of the status of our non-vested restricted stock awards as of September 30, 2009, and activity during the nine months ended September 30, 2009, is as follows:

 

 

 

 

 

 

 

 

Unvested Restricted Stock Awards

 

Number
of Shares

 

Weighted-Average
Grant-Date
Fair Value

 


 


 


 

 

 

(in shares, 000’s)

 

 

 

 

 

Unvested at December 31, 2008

 

 

1,417

 

$

8.14

 

Granted

 

 

93

 

 

2.75

 

Vested

 

 

(24

)

 

6.09

 

Forfeited

 

 

(21

)

 

10.14

 

 

 



 

 

 

 

Unvested at September 30, 2009

 

 

1,465

 

$

7.81

 

 

 



 

 

 

 

20


5. Inventory

Our inventory holdings, summarized by division, are set forth below (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2008

 

September 30,
2009

 

 

 


 


 

 

Bluegreen Resorts

 

$

342,779

 

$

360,487

 

Bluegreen Communities

 

 

160,490

 

 

154,545

 

 

 



 



 

 

 

$

503,269

 

$

515,032

 

 

 



 



 

Bluegreen Resorts inventory as of December 31, 2008, consisted of land inventory of $42.3 million, $87.9 million of construction-in-progress and $212.6 million of completed VOI units. Bluegreen Resorts inventory as of September 30, 2009, consisted of land inventory of $81.4 million, $2.0 million of construction-in-progress and $277.1 million of completed VOI units.

During the third quarter of 2009 we recorded a charge to cost of real estate sales of approximately $1.6 million to write-down the inventory balances of certain of our completed Communities properties to their estimated fair value. We calculated the estimated fair value of these impaired properties based on our analysis of their estimated future cash flows (Level 3 input), discounted at rates commensurate with our judgment of the risk inherent in the properties.

Total interest expense capitalized to construction in progress was $2.3 million and $11.0 million for the three and nine months ended September 30, 2008, respectively, and $0.3 million and $1.5 million for the three and nine months ended September 30, 2009, respectively.

6. Fair Value of Financial Instruments

We used the following methods and assumptions in estimating the fair values of our financial instruments:

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: Our retained interests in VOI notes receivable sold are carried at fair value. See Note 2 for additional information on the methods and assumptions used to estimate the fair value of these financial instruments.

Lines-of-credit, notes payable, and receivable-backed notes payable: The amounts reported in our consolidated balance sheets approximate fair value for indebtedness that provides for variable interest rates.

Junior subordinated debentures: The fair values of our junior subordinated debentures were based on the discounted value of contractual cash flows at a market discount rate or market price quotes from the over-the-counter bond market.

21


The estimated fair values of our financial instruments were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008

 

As of September 30, 2009

 

 

 


 


 

 

 

Carrying
Amount

 

Estimated
Fair Value

 

Carrying
Amount

 

Estimated
Fair Value

 

 

 


 


 


 


 

 

Cash and cash equivalents

 

$

81,775

 

$

81,775

 

$

81,555

 

$

81,555

 

Contracts receivable, net

 

 

7,452

 

 

7,452

 

 

4,140

 

 

4,140

 

Notes receivable, net

 

 

340,644

 

 

340,644

 

 

323,630

 

 

323,630

 

Retained interests in notes receivable sold

 

 

113,577

 

 

113,577

 

 

82,712

 

 

82,712

 

Lines-of-credit, notes payable, and receivable- backed notes payable

 

 

471,856

 

 

471,856

 

 

445,564

 

 

445,564

 

Junior subordinated debentures

 

 

110,827

 

 

47,161

 

 

110,827

 

 

56,236

 

7. Business Segments

We have two reportable business segments – Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts develops, markets and sells real estate based VOIs through the Bluegreen Vacation Club, for us and through fee-based arrangements for others. Bluegreen Resorts also 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 other related amenities) 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 of and allocate resources to each business segment based on its respective segment operating profit. We define segment operating profit as operating profit prior to the allocation of corporate overhead, interest income,  other income or expense items, interest expense, income taxes, and income attributable to non-controlling interest. Inventory, notes receivable and fixed assets are the only assets 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 in Note 1.

Information for our business segments is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

136,203

 

$

10,704

 

$

146,907

 

Other resort and communities operations revenue

 

 

15,839

 

 

2,170

 

 

18,009

 

Depreciation expense

 

 

1,862

 

 

395

 

 

2,257

 

Segment operating profit (loss)

 

 

20,756

 

 

(553

)

 

20,203

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Three Months Ended September 30, 2009

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

64,977

 

$

6,289

 

$

71,266

 

Other resort and communities operations revenue

 

 

14,711

 

 

2,264

 

 

16,975

 

Fee-based sales commission revenue

 

 

7,026

 

 

 

 

7,026

 

Depreciation expense

 

 

1,332

 

 

380

 

 

1,712

 

Segment operating profit (loss)

 

 

17,970

 

 

(2,984

)

 

14,986

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Nine Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

333,670

 

$

44,579

 

$

378,249

 

Other resort and communities operations revenue

 

 

44,868

 

 

8,817

 

 

53,685

 

Depreciation expense

 

 

5,622

 

 

1,202

 

 

6,824

 

Segment operating profit

 

 

31,926

 

 

4,351

 

 

36,277

 

22


 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

For the Nine Months Ended September 30, 2009

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

160,474

 

$

13,202

 

$

173,676

 

Other resort and communities operations revenue

 

 

41,395

 

 

6,203

 

 

47,598

 

Fee-based sales commission revenue

 

 

7,026

 

 

 

 

7,026

 

Depreciation expense

 

 

3,952

 

 

1,158

 

 

5,110

 

Segment operating profit (loss)

 

 

31,530

 

 

(6,260

)

 

25,270

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

As of December 31, 2008

 

 

 

 

 

 

 

 

 

 

Notes receivable, net

 

$

336,229

 

$

4,415

 

$

340,644

 

Inventory

 

 

342,779

 

 

160,490

 

 

503,269

 

Fixed assets

 

 

69,677

 

 

26,694

 

 

96,371

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

As of September 30, 2009

 

 

 

 

 

 

 

 

 

 

Notes receivable, net

 

$

319,229

 

$

4,401

 

$

323,630

 

Inventory

 

 

360,487

 

 

154,545

 

 

515,032

 

Fixed assets

 

 

70,811

 

 

26,042

 

 

96,853

 

Reconciliations to Consolidated Amounts

Segment operating profit for our reportable segments reconciled to our consolidated income before provision for income taxes and non-controlling interest is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 


 


 

 

 

2008

 

2009

 

2008

 

2009

 

 

 


 


 


 


 

 

Operating profit for reportable segments

 

$

20,203

 

$

14,986

 

$

36,277

 

$

25,270

 

Interest income

 

 

14,870

 

 

16,745

 

 

38,334

 

 

52,933

 

Other income (expense), net

 

 

(948

)

 

665

 

 

(475

)

 

1,964

 

Corporate general and administrative expenses

 

 

(13,636

)

 

(12,260

)

 

(36,691

)

 

(31,851

)

Interest expense

 

 

(6,366

)

 

(10,485

)

 

(13,356

)

 

(25,920

)

 

 



 



 



 



 

Income before non-controlling interests and provision for income taxes

 

$

14,123

 

$

9,651

 

$

24,089

 

$

22,396

 

 

 



 



 



 



 

Depreciation expense for our reportable segments reconciled to our consolidated depreciation expense is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 


 


 

 

 

2008

 

2009

 

2008

 

2009

 

 

 


 


 


 


 

Depreciation expense for reportable segments

 

$

2,257

 

$

1,712

 

$

6,824

 

$

5,110

 

Depreciation expense for corporate fixed assets

 

 

1,125

 

 

1,301

 

 

3,330

 

 

3,889

 

 

 



 



 



 



 

Consolidated depreciation expense

 

$

3,382

 

$

3,013

 

$

10,154

 

$

8,999

 

 

 



 



 



 



 

23


Assets for our reportable segments reconciled to our consolidated assets (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31,
2008

 

September 30,
2009

 

 

 


 


 

 

Notes receivable for reportable segments

 

$

340,644

 

$

323,630

 

Inventory for reportable segments

 

 

503,269

 

 

515,032

 

Fixed assets for reportable segments

 

 

96,371

 

 

96,853

 

Assets not allocated to reportable segments

 

 

253,223

 

 

225,274

 

 

 



 



 

Total assets

 

$

1,193,507

 

$

1,160,789

 

 

 



 



 

Geographic Information

Sales of real estate by geographic area are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 


 


 

 

 

2008

 

2009

 

2008

 

2009

 

 

 


 


 


 


 

 

United States

 

$

145,035

 

$

70,162

 

$

372,962

 

$

169,501

 

Aruba

 

 

1,872

 

 

1,104

 

 

5,287

 

 

4,175

 

 

 



 



 



 



 

Consolidated totals

 

$

146,907

 

$

71,266

 

$

378,249

 

$

173,676

 

 

 



 



 



 



 

Total assets by geographic area are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

 

 


 

 

 

December 31, 2008

 

September 30,
2009

 

 

 


 


 

 

United States

 

$

1,183,176

 

$

1,152,973

 

Aruba

 

 

10,331

 

 

7,816

 

 

 



 



 

Total assets

 

$

1,193,507

 

$

1,160,789

 

 

 



 



 

8. Income Taxes

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With certain exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2004.

We evaluate our tax positions based upon FASB ASC 740-10 (previously FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109), which clarifies the accounting for uncertainty in tax positions. Based on an evaluation of uncertain tax provisions, we are required to measure tax benefits based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement. In accordance with our accounting policy, we recognize interest and penalties related to unrecognized taxes as a component of general and administrative expenses.

On May 1, 2009, we received a notice from the North Carolina Department of Revenue informing us of its proposal to assess us for taxes, interest, and penalties totaling approximately $0.5 million. These assessment notices relate to our corporate income tax returns for fiscal years 2004, 2005 and 2006. We plan to vigorously challenge this assessment.

As of September 30, 2009, we had no amounts recorded for uncertain tax positions.

As discussed in Note 2, in our capacity as servicer of the 2002 Term Securitization, we exercised our servicer option which caused the full redemption of all classes of notes as of May 8, 2009. Since the ability to exercise this option

24


became available to us earlier than originally anticipated, certain book and tax differences (temporary differences) totaling $4.6 million became permanent differences, resulting in a reduction to our income tax provision on the condensed consolidated statement of income for the nine months ended September 30, 2009.

9. Comprehensive Income and Capital Structure

Accumulated other comprehensive income (loss), net of income taxes on our condensed consolidated balance sheets is comprised of net unrealized gains (losses) on retained interests in notes receivable sold, which are held as available-for-sale investments. The following table discloses the components of our comprehensive income for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

 

 

2008

 

2009

 

2008

 

2009

 

 

 


 


 


 


 

 

Net income

 

$

9,943

 

$

6,580

 

$

16,942

 

$

19,683

 

Change in net unrealized gains on retained interests in notes receivable sold, net of income taxes

 

 

(2,026

)

 

(3,236

)

 

(4,924

)

 

(5,358

)

Net change in equity due to a cumulative effect of a change in accounting principle (see Note 2)

 

 

 

 

 

 

 

 

2,654

 

 

 



 



 



 



 

Total comprehensive income

 

$

7,917

 

$

3,344

 

$

12,018

 

$

16,979

 

 

 



 



 



 



 

The following table details changes in shareholders’ equity, including changes in equity attributable to Bluegreen shareholders and changes in equity attributable to non-controlling interests (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Attributable to Bluegreen Shareholders

 

 

 

 

 

 

 

 

 

 


 

 

 

Common
Shares
Outstanding

 

 

 

 

Total

 

Common
Stock

 

Additional
Paid-in-Capital

 

Retained
Earnings

 

Treasury
Stock, at
Cost

 

Accumulated
Other
Comprehensive
Income (Loss),
net of Income
Taxes

 

Equity
Attributable to Non-
Controlling
Interests

 


 

 

 

 


 


 


 


 


 


 


 

33,996

 

 

Balance at January 1, 2009

 

$

411,985

 

$

339

 

$

182,654

 

$

209,186

 

$

(12,885

)

$

3,173

 

$

29,518

 

 

 

Net income

 

 

19,683

 

 

 

 

 

 

14,300

 

 

 

 

 

 

5,383

 

 

 

Other comprehensive loss

 

 

(1,249

)

 

 

 

 

 

 

 

 

 

(1,249

)

 

 

 

 

Stock compensation

 

 

3,811

 

 

1

 

 

3,810

 

 

 

 

 

 

 

 

 

 

 

Cumulative Effect –
(See Note 2)

 

 

2,654

 

 

 

 

 

 

6,763

 

 

 

 

(4,109

)

 

 


 



 



 



 



 



 



 



 



 

33,996

 

 

Balance at Sept. 30, 2009

 

$

436,884

 

$

340

 

$

186,464

 

$

230,249

 

$

(12,885

)

$

(2,185

)

$

34,901

 


 

 

 

 



 



 



 



 



 



 



 

10. Contingencies

Proposed Sale of Bluegreen Communities’ Golf Courses

In May 2009, we entered into contracts to sell four of our golf courses located in North Carolina and Virginia for the combined purchase price of approximately $10.2 million. The combined carrying amount of the assets as of September 30, 2009 was approximately $19.8 million.

On September 30, 2009, these contracts expired pursuant to their terms without the contemplated sales being consummated. However, if in the future these sales are effected or become probable at the previously contracted price, then we would recognize a loss on disposal of approximately $9.5 million. At this time, we are continuing to operate these assets and we anticipate that the golf courses will provide cash flows at an amount sufficient to support their carrying amounts.

25


Bluegreen Resorts

Tennessee Tax Audit

In 2005, the State of Tennessee Audit Division (the “Division”) audited certain subsidiaries within Bluegreen Resorts for the period from December 1, 2001 through December 31, 2004. On September 23, 2006, the Division issued a notice of assessment for approximately $652,000 of accommodations tax based on the use of Bluegreen Vacation Club accommodations by Bluegreen Vacation Club members who became members through the purchase of non-Tennessee property. We believe the attempt to impose such a tax is contrary to Tennessee law and have vigorously opposed, and intend to continue to vigorously oppose, such assessment by the Division. An informal conference was held in December 2007 to discuss this matter with representatives of the Division. No formal resolution of the issue was reached during the conference and no further action has to date been initiated yet by the State of Tennessee. While the timeshare industry has been successful in challenging the imposition of sales taxes on the use of accommodations by timeshare owners, there is no assurance that we will be successful in contesting the current assessment.

Kelly Fair Labor Standards Act Lawsuit

In Cause No. 08-cv-401-bbc, styled Steven Craig Kelly and Jack Clark, individually and on behalf of others similarly situated v. Bluegreen Corporation, in the United States District Court for the Western District of Wisconsin, two former sales representatives brought a lawsuit on July 28, 2008 in the Western District of Wisconsin on behalf of themselves and putative class members who are or were employed by us as sales associates and compensated on a commission-only basis. Plaintiffs alleged that we violated the Fair Labor Standards Act (“FLSA”) and that they and the collective class are or were covered, non-exempt employees under federal wage and hour laws, and were entitled to minimum wage and overtime pay consistent with the FLSA. On July 10, 2009 the parties settled the case and we agreed to pay the sum of approximately $1.5 million (including attorneys fees and costs) without admitting any wrongdoing. This amount was accrued at September 30, 2009and will be paid to the Plaintiffs in satisfaction of the class members’ possible state and federal claims. The settlement received court approval on October 30, 2009.

Pennsylvania Attorney General Lawsuit

On October 28, 2008, in Cause No. 479 M.D. 2008, styled Commonwealth of Pennsylvania Acting by Attorney General Thomas W. Corbett, Jr. v. Bluegreen Corporation, Bluegreen Resorts, Bluegreen Vacations Unlimited, Inc. and Great Vacation Destinations, Inc., Commonwealth Court of Pennsylvania, the Commonwealth of Pennsylvania acting through its Attorney General filed a lawsuit against Bluegreen Corporation, Bluegreen Resorts, Bluegreen Vacations Unlimited, Inc. and Great Vacation Destinations, Inc. (a wholly owned subsidiary of Bluegreen Corporation) alleging violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Laws. The lawsuit alleges that we have used, or are using, sales and marketing methods or practices that are unlawful under Pennsylvania law and seeks a permanent injunction preventing us from using such methods and practices in the future. The lawsuit also seeks civil penalties against us and restitution on behalf of Pennsylvania consumers who may have suffered losses as a result of the alleged unlawful sales and marketing methods and practices. The lawsuit does not seek to permanently restrain us or any of our affiliates from doing business in the Commonwealth of Pennsylvania. While there is no assurance that a resolution will be reached, the parties are currently engaged in negotiations to resolve this litigation.

Bluegreen Communities

Mountain Lakes Mineral Rights

Bluegreen Southwest One, L.P., (“Southwest”), a subsidiary of Bluegreen Corporation, is the developer of the Mountain Lakes subdivision in Texas. In Cause No. 28006; styled Betty Yvon Lesley et a1 v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. et al. in the 266th Judicial District Court, Erath County, Texas, the plaintiffs filed a declaratory judgment action against Southwest seeking to develop their reserved mineral interests in, on and under the Mountain Lakes subdivision. The plaintiffs’ claims are based on property law, oil and gas law, contract and tort theories. The property owners association and some of the individual landowners have filed cross actions against Bluegreen, Southwest and individual directors of the property owners association related to the mineral rights and certain amenities in the subdivision as described below. On January 17, 2007, the court

26


ruled that the restrictions placed on the development that prohibited oil and gas production and development were invalid and not enforceable as a matter of law, that such restrictions do not prohibit the development of the plaintiffs’ prior reserved mineral interests and that Southwest breached its duty to lease the minerals to third parties for development. The court further ruled that Southwest is the sole holder of the right to lease the minerals to third parties. The order granting the plaintiffs’ motion was severed into a new cause styled Cause No. 28769 Betty Yvon Lesley et a1 v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. et al. in the 266th Judicial District Court, Erath County, Texas. Southwest appealed the trial court’s ruling. On January 22, 2009, in Bluegreen Southwest One, L.P. et al. v. Betty Yvon Lesley et al.; in the 11th Court of Appeals, Eastland, Texas, the Appellate Court reversed the trial court’s decision and ruled in Southwest’s favor and determined that all executive rights were owned by Southwest and then transferred to the individual property owners in connection with the sales of land. All property owner claims were decided in favor of Southwest. It was also decided that Southwest did not breach a fiduciary duty to the plaintiffs as an executive rights holder. As a result of this decision, there are no damages or attorney’s fees owed to the plaintiffs. On May 14, 2009, the plaintiffs filed an appeal with the Texas Supreme Court asking the Court to reverse the Appellate Court’s decision in favor of Bluegreen. No information is available as to when the Court will render a decision as to whether or not it will take the appeal. As of September 30, 2009, we had accrued $1.5 million in connection with the issues raised related to the mineral rights claims.

Separately, one of the amenity lakes in the Mountain Lakes development did not reach the expected water level after construction was completed. Owners of homesites within the Mountain Lakes subdivision and the property owners Association of Mountain Lakes have asserted cross claims against Southwest and Bluegreen regarding such failure as part of the Lesley litigation referenced above as well as in Cause No. 067-223662-07; Property Owners Association of Mountain Lakes Ranch, Inc. v. Bluegreen Southwest One, L.P. et al.; in the 67th Judicial District Court of Tarrant County, Texas. Southwest continues to investigate reasons for the delay of the lake to fill and currently estimates that the cost of remediating the condition will be approximately $3.4 million, which remained accrued as of September 30, 2009. Additional claims may be pursued in the future in connection with these matters, but it is not possible at this time to estimate the likelihood of loss or amount of potential exposure with respect to any such matters, including the likelihood that any such loss may exceed the amount accrued.

11. Restructuring Charges

During the fourth quarter of 2008, we implemented strategic initiatives in the Resort Division for the purpose of reducing sales, conserving cash, and conserving availability under our receivables credit facilities. The restructuring involved incurring costs associated with lease termination obligations, the write down of certain fixed assets, and employee severance and benefits. The remaining unpaid liability as of September 30, 2009 and December 31, 2008 are included as a component of Accrued Liabilities on our Condensed Consolidated Balance Sheets. Restructuring costs were accounted for in accordance with FASB ASC 420-10 (previously SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities).

Activity during the nine months ended September 30, 2009 related to the restructuring liability, as well as our remaining liability, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability at
December 31,
2008

 

Charges and
Other
Adjustments

 

Cash Payments
made during
2009

 

Liability at
September
30, 2009

 

 

 


 


 


 


 

Severance and benefit-related costs(1)

 

$

3,540

 

$

41

 

$

3,460

 

$

121

 

Lease termination obligations(2)(3)

 

 

4,079

 

 

(724

)

 

1,355

 

 

2,000

 

Other

 

 

349

 

 

 

 

250

 

 

99

 

 

 



 



 



 



 

Total Restructuring

 

$

7,968

 

$

(683

)

$

5,065

 

$

2,220

 

 

 



 



 



 



 

 

 

 

 

 

(1)

Includes severance payments made to employees, payroll taxes and other benefit related costs in connection with the termination of over 3,000 employees.

 

 

 

 

(2)

Includes costs associated with noncancelable property and equipment leases that we have ceased to use, as well as termination fees related to the cancellation of certain contractual lease obligations. Included in this amount are future minimum lease payments in excess of estimated sublease income, fees and expenses for which the provisions of FASB ASC 420-10 were satisfied.

 

 

 

 

(3)

Continuing lease obligations will be paid monthly through November 2012.

27


We have successfully cancelled, or modified the terms of, certain of our lease obligations previously accrued as part of our restructuring in 2008, resulting in a reduction of the liability previously recorded of approximately $724,000, which was recorded as other income in the condensed consolidated statement of income during the nine months ended September 30, 2009.

12. Related Party Transactions

We are working with Woodbridge Holdings LLC (which beneficially owns 28.7% of our outstanding common stock)to explore avenues to obtain liquidity in the sale or financing of our receivables, which includes, among other potential alternatives, Woodbridge forming a broker dealer to raise capital through private or public offerings. We have agreed to reimburse Woodbridge for certain expenses, including legal and professional fees, incurred in connection with this effort. During the nine months ended September 30, 2009, we reimbursed approximately $1.1 million to Woodbridge.

28



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements and Risk Factors

 

 

 

 

Certain statements in this Quarterly Report and our other filings with the SEC constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You may identify these statements by forward-looking words such as “may,” “intend,” “expect,” “anticipate,” “believe”, “will,” “should,” “project,” “estimate,” “plan” or other comparable terminology or by other statements that do not relate to historical facts. All statements, trend analyses and other information relative to the market for our products, remaining life-of-project sales, our expected future sales, gross margin, financial position, operating results, liquidity and capital resources, our business strategy, financial plan and expected capital requirements as well as trends in our operations, receivables performance 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, availability of financing, increases in interest rates, changes in regulations and other factors discussed throughout our SEC filings, including the Risk Factors section of our Annual and Quarterly Reports, 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, readers 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 Quarterly Report in some cases have affected, and in the future could affect our actual results and cause them to differ materially from those expressed in any forward-looking statements.

 

 

 

The state of the economy, generally, interest rates and the availability of financing will affect our ability to market VOIs and residential homesites.

 

 

 

 

We would incur substantial losses if the customers we finance default on their obligations, and new credit underwriting standards may not have the favorable impact on performance as anticipated.

 

 

 

 

Our business plans historically have depended on our ability to sell or borrow against our notes receivable to support our liquidity and profitability.

 

 

 

 

Historically, we depended on additional funding to finance our operations. The material deterioration in the credit markets has adversely affected and could continue to adversely affect our liquidity and earnings.

 

 

 

 

While we have attempted to restructure our business to reduce our need for and reliance on financing for liquidity in the short term, our business and profitability will depend on our ability to obtain financing.

 

 

 

 

We have approximately $63 million of indebtedness which becomes due in less than one year. If we are unable to renew, extend or refinance a significant portion of this debt, our liquidity would be significantly, adversely impacted.

 

 

 

 

Continued declines in our common stock price may make it difficult to raise capital and any issuance of our stock would be highly dilutive to our existing shareholders. Further decreases in our stock price could result in the delisting of our common stock from the New York Stock Exchange,

 

 

 

 

Our results of operations and financial condition could be adversely impacted if our estimates concerning our notes receivable are incorrect.

 

 

 

 

Estimates and judgments relating to the recognition of revenues, valuation of retained interests and the carrying value of assets may prove to be wrong.

 

 

 

 

Our future success depends on our ability to market our products successfully and efficiently.


29



 

 

 

 

We are subject to the risks of the real estate market and the risks associated with real estate development, including the declines in real estate values and the deterioration of real estate sales.

 

 

 

 

Our anticipated adoption of recently issued accounting guidance (SFAS No. 166, which has subsequently been renamed FASB ASC 860-10 under the new codification; and SFAS No. 167, which has subsequently been renamed FASB ASC 810-10 under the new codification) may have a material adverse impact on our net worth, leverage, and book value per share.

 

 

 

 

Claims for development-related defects could adversely affect our financial condition and operating results.

 

 

 

 

The resale market for VOIs could adversely affect our business.

 

 

 

 

We may be adversely affected by extensive federal, state and local laws and regulations and changes in applicable laws and regulations, including with respect to the imposition of additional taxes on operations.

 

 

 

 

Environmental liabilities, including claims with respect to mold or hazardous or toxic substances, could have a material adverse impact on our business.

 

 

 

 

Actions by third-party rating agencies could adversely impact our ability to obtain, renew, or extend credit facilities, debt, or otherwise raise capital.

Executive Overview

In the third quarter of 2009, we realized improved selling and marketing efficiencies in our Resorts Division and continued to grow our cash fee-based service profits. We also generated a significant increase in cash flow from operations, primarily as a result of the implementation of certain strategic initiatives during the fourth quarter of 2008.

The increase in net income recognized during the nine months ended September 30, 2009, as compared to the same periods in 2008, reflects higher operating profit earned at Bluegreen Resorts and the benefit of lower corporate expenditures, partially offset by continued low demand for homesites in our Communities Division. In addition, results during the nine months ended September 30, 2009 benefited from a one-time credit to income tax expense of $4.6 million, the result of certain book and tax differences becoming permanent.

The following table details the contribution to consolidated sales of real estate by the reportable segments for the three and nine months ended September 30, 2008 and 2009 (in thousands, except percentage amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

Sales of real
estate

 

% of total
sales

 

Sales of real
estate

 

% of
total sales

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

$

136.2

 

 

93

%

$

65.0

 

 

91

%

Bluegreen Communities

 

 

10.7

 

 

7

%

 

6.3

 

 

9

%

 

 



 

 

 

 



 

 

 

 

Total

 

$

146.9

 

 

 

 

$

71.3

 

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

Sales of real
estate

 

% of total
sales

 

Sales of real
estate

 

% of
total sales

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

$

333.7

 

 

88

%

$

160.5

 

 

92

%

Bluegreen Communities

 

 

44.6

 

 

12

%

 

13.2

 

 

8

%

 

 



 

 

 

 



 

 

 

 

Total

 

$

378.3

 

 

 

 

$

173.7

 

 

 

 

 

 



 

 

 

 



 

 

 

 

30


As we discuss further under “Liquidity and Capital Resources”, our Resorts sales operations are materially dependent on the availability of liquidity in the credit markets. Historically, we have provided financing to a significant portion of our Bluegreen Resorts customers. Such financing typically involves the consumer making a minimum 10% cash down payment, with the balance being financed over a ten-year period. As Bluegreen Resorts’ selling, general and administrative expenses typically exceed the cash down payment, we have historically maintained credit facilities pursuant to which we pledged or sold our consumer note receivables. Furthermore, we also engaged in private placement term securitization transactions to periodically pay down all or a portion of our note receivable credit facilities.

There has been and continues to be an unprecedented disruption in the credit markets, that has made obtaining additional and replacement external sources of liquidity more difficult and, if available, more expensive. The term securitization market has been severely limited, and, as a result, financial institutions are reluctant to enter into new credit facilities for the purpose of providing financing on consumer receivables. Several lenders to the timeshare industry, including certain of our lenders, have announced that they will either be exiting the finance business or will not be entering into new financing commitments for the foreseeable future. In addition, financing for real estate acquisition and development and the capital markets for corporate debt have generally been unavailable to us.

We believe that the market for our Resorts product remains relatively strong, but the uncertainties in the credit markets are requiring us, for the time being, to continue to deemphasize our sales operations to conserve cash. To this end, during the fourth quarter of 2008, we implemented strategic initiatives that have materially reduced resort sales and will continue to maintain a reduced level of sales for the foreseeable future in an effort to conserve cash and availability under our receivables credit facilities. Such initiatives included closing certain sales offices; eliminating what we have identified as lower-efficiency marketing programs; emphasizing cash sales and higher cash down payments as well as our other cash-based services; reducing overhead, including eliminating a significant number of staff positions across a variety of areas at various locations; limiting sales to borrowers who meet newly applied underwriting standards; and increasing interest rates on new sales transactions for which we provide financing. Our goal was, and continues to be, to reduce the number of sales while increasing the ultimate profitability of those sales we do make. For more detailed information on our strategic initiatives, see “Liquidity and Capital Resources” below. We believe that we have adequate timeshare inventory to satisfy our projected sales for the remainder of 2009, and based on anticipated reduced sales levels, for a number of years thereafter. We intend to continue to provide high quality vacation experiences to our Bluegreen Vacation Club owners and believe that these initiatives should not have any material impact on owner satisfaction with our products and services.

We continue to actively pursue additional credit facility capacity, capital markets transactions, and alternative financing solutions, and we hope that the steps we are taking will position us to maintain our existing credit relationships as well as attract new sources of capital. Regardless of the state of the credit markets, we believe that our resorts management and finance operations will continue to represent recurring cash-generating sources of income which do not require material liquidity support from the credit markets.

We are pursuing growth in our sales and marketing, resorts management, mortgage servicing and title businesses by seeking opportunities to use our core competencies in these areas to generate fee income by providing these services to third-parties. We recently entered into five agreements to provide sales, marketing, title and management services to third-parties on a cash fee-for-service basis. During the third quarter of 2009, we began providing resort management services to three resorts under these agreements. In addition, we sold $11.3 million of outside developer inventory and earned sales and marketing commissions of approximately $7.0 million. We will also be providing resort design and development services and mortgage services, under certain of these arrangements. We intend to continue to pursue additional fee-based services relationships, and believe that this new endeavor will become an increasing portion of our business over time.

We have historically experienced and expect to continue to experience seasonal fluctuations in our gross revenues and results of operations. This seasonality may result in fluctuations in our quarterly operating results, with the majority of our gross revenues and net earnings historically generated in the quarters ending in September and December of each year. Although we expect to see more potential customers at our sales offices during the quarters ending in June and September, ultimate recognition of the resulting sales during these periods may be delayed due to complex down payment requirements for recognition of real estate sales under GAAP or due to the timing of development and the requirement that we use the percentage-of-completion method of accounting.

We believe that inflation and changing prices have had a material impact on our revenues and results of operations. We have increased the sales prices of our VOIs periodically and have experienced increased construction and

31


development costs from time to time during the last five years. The increased construction and development costs in prior periods are expected to result in an increase in our cost of sales for the foreseeable future. There is no assurance that we will be able to increase or maintain the current level of our sales prices or that increased construction costs will not have a material adverse impact on our gross margin. In addition, to the extent that inflation in general or increased prices for our VOIs and homesites would adversely impact consumer demand, our results of operations could be adversely impacted. Also, to the extent inflationary trends, tightened credit markets or other factors affect interest rates, our debt service costs may increase.

Our Bluegreen Communities business has been, and continues to be, adversely impacted by deterioration in the real estate markets generally. We have experienced a material decrease in demand, particularly for higher priced premium homesites, and an overall decrease in sales volume. During the third quarter of 2009, we significantly reduced prices on certain of our completed homesites in an attempt to increase sales activity.

We have historically financed a majority of Bluegreen Resorts sales of VOIs, and accordingly, are subject to the risk of defaults by customers. GAAP requires that we reduce sales of VOIs by our estimate of future uncollectible note balances on originated VOI receivables, excluding any benefit for the value of future recoveries.

The allowance for loan losses by segment as of December 31, 2008 and September 30, 2009 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen
Resorts

 

Bluegreen
Communities

 

Total

 

 

 


 


 


 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

388,014

 

$

4,659

 

$

392,673

 

Allowance for loan losses

 

 

(51,785

)

 

(244

)

 

(52,029

)

 

 



 



 



 

Notes receivable, net

 

$

336,229

 

$

4,415

 

$

340,644

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Allowance as a % of gross notes receivable

 

 

13

%

 

5

%

 

13

%

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

366,287

 

$

4,731

 

$

371,018

 

Allowance for loan losses

 

 

(47,058

)

 

(330

)

 

(47,388

)

 

 



 



 



 

Notes receivable, net

 

$

319,229

 

$

4,401

 

$

323,630

 

 

 



 



 



 

Allowance as a % of gross notes receivable

 

 

13

%

 

7

%

 

13

%

 

 



 



 



 

The table below sets forth the activity in our allowance for uncollectible notes receivable for the nine months ended September 30, 2009 (in thousands):

 

 

 

 

 

Balance, December 31, 2008

 

$

52,029

 

Provision for loan losses (1)

 

 

23,537

 

 

Less: Write-offs of uncollectible receivables

 

 

(28,178

)

 

 



 

Balance, September 30, 2009

 

$

47,388

 

 

 



 

(1) Includes provision for loan losses on homesite notes receivable

The average annual default rates and delinquency rates (more than 30 days past due) on Bluegreen Resorts’ and Bluegreen Communities’ receivables owned or serviced by us were as follows:

32



 

 

 

 

 

 

 

 

Average Annual Default Rates

 

12 Month Period
Ended September 30,

 


 


 

Division

 

2008

 

2009

 


 


 


 

Bluegreen Resorts

 

 

8.7

%

 

12.7

%

Bluegreen Communities

 

 

6.3

%

 

2.1

%

 

Delinquency Rates

 

As of

 


 


 

Division

 

December 31,
2008

 

September 30,
2009

 


 


 


 

Bluegreen Resorts *

 

 

5.7

%

 

4.9

%

Bluegreen Communities

 

 

10.7

%

 

14.1

%


 

 

 

*The percentage of our originated and serviced VOI notes receivable portfolio that was over 30 days past due as of the dates indicated.

We believe that unemployment in the United States and economic conditions in general have impacted and will continue to adversely impact the performance of our notes receivable portfolio. However, we anticipate that recently implemented credit underwriting standards on new loan originations and increasing customer equity in the existing loan portfolio will have a favorable impact on the performance of the portfolio over time.

Substantially all defaulted vacation ownership notes receivable result in the holder of the note receivable recovering the related VOI that secured the note receivable, typically soon after default and at little or no cost. In cases where Bluegreen has retained ownership of the vacation ownership note receivable, the VOI is recovered and resold in the normal course of business, in most cases partially mitigating the loss from the default, as these recoveries range from approximately 40% to 100% of the defaulted principal balance depending on the age of the defaulted receivable. We may remarket the VOI relating to a defaulted receivable on behalf of the note holder in exchange for a remarketing fee designed to approximate our sales and marketing costs. From time to time, we will reacquire a defaulted note receivable from one of our off-balance sheet term securitization or purchase facility transactions by substituting the defaulted receivable for a performing receivable. The related VOI that secured the defaulted note receivable is reacquired at a price equal to the defaulted principal amount, which typically is well in excess of our historical cost of product. The reacquisition of inventory in this manner has resulted in an increase in Bluegreen Resort’s cost of sales.

In advance of new accounting rules, which will become effective beginning in 2010, a decision was made in 2008 to structure any sales of notes receivable after that time so they are treated as on-balance sheet borrowings. This impacts the comparability to prior periods as transactions structured in this way do not result in gains on sales of notes receivable. A significant portion of our revenues historically has been comprised of gains on sales of notes receivable. The gains were recorded on our consolidated statement of operations as a component of sales of real estate and the related retained interests in the notes receivable sold have been recorded on our consolidated balance sheet at the time of sale. See further discussion below in “Accounting Pronouncements Not Yet Adopted”.

During 2008 and through the first nine months of 2009, the deteriorating credit markets negatively impacted our financing activities. Fewer transactions were consummated in the market overall, and those that were consummated, were more difficult to effect and were priced at a higher cost than in prior periods. In addition, recent economic events have resulted in further constrictions in the financial markets to unprecedented low levels. There can be no assurance that we will be able to secure financing for our VOI notes receivable on acceptable terms, if at all.

During 2009, we have been renewing or extending certain existing credit facilities and debt maturities. In connection with such renewals and extensions we have, in certain cases, agreed to higher interest rates and fees. In addition, conditions in the commercial credit markets are expected to increase interest rates on new debt we may incur from time to time in the future. Such increased interest rates are expected to increase our cost of capital and may adversely impact our results of operations.

33


Critical Accounting Policies and Estimates

Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of commitments and contingencies. On an ongoing basis, management evaluates its estimates, including those that relate to the recognition of revenue, including revenue recognition under the percentage-of-completion method of accounting; our reserve for loan losses; the valuation of retained interests in notes receivable sold and the related gains on sales of notes receivable; the recovery of the carrying value of real estate inventories, golf courses, intangible assets and other assets; and the estimate of contingent liabilities related to litigation and other claims and assessments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions. If actual results significantly differ from management’s estimates, our results of operations and financial condition could be materially, adversely impacted. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2008.

Accounting Pronouncements Not Yet Adopted

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (which has subsequently been renamed FASB ASC 860-10), which will become effective for us beginning January 1, 2010. FASB ASC 860-10 requires the disclosure of more information about transfers of financial assets, including securitization transactions and transactions where companies have continuing exposure to the risks related to the transferred financial assets. It also eliminates the concept of a qualifying special-purpose entity (“QSPE”), changes the requirements for derecognizing financial assets, and requires additional disclosures. See discussion or SFAS No. 167, below, for the anticipated impact of the adoption of SFAS No. 166.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which will become effective for us on January 1, 2010 (which has subsequently been renamed FASB ASC 810-10). FASB ASC 810-10 addresses the effects of eliminating the QSPE concept and responds to concerns about the application of certain key provisions of previous accounting rules, including concerns over the transparency of an enterprises’ involvement with variable interest entities (“VIEs”). While we have not completed our evaluation of the effects that this change in accounting will have on our financial statements, we anticipate that our net worth, leverage, and book value per share will be materially adversely impacted as a result of the reversal of previously recognized sales of notes receivable, the recognition of the related non-recourse receivable-backed notes payable, and the elimination of retained interest in notes receivable sold as we anticipate that we will be required to consolidate our off-balance sheet QSPEs described in Note 2 to the financial statements included in Part 1, Item 1 of this Quarterly Report.

34


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 an allocation of 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 standalone 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 our financial results by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

Amount

 

% of
Sales

 

Amount

 

% of
Sales

 

Amount

 

% of
Sales

 

 

 


 


 


 


 


 


 

Three Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

160,349

 

 

 

 

$

10,704

 

 

 

 

$

171,053

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(24,146

)

 

 

 

 

 

 

 

 

 

(24,146

)

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

136,203

 

 

100

%

 

10,704

 

 

100

%

 

146,907

 

 

100

%

Cost of real estate sales

 

 

(31,490

)

 

(23

)

 

(6,727

)

 

(63

)

 

(38,217

)

 

(26

)

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

104,713

 

 

77

 

 

3,977

 

 

37

 

 

108,690

 

 

74

 

Other resort and communities operations revenues

 

 

15,839

 

 

12

 

 

2,170

 

 

20

 

 

18,009

 

 

12

 

Cost of other resort and communities operations

 

 

(11,734

)

 

(9

)

 

(2,573

)

 

(24

)

 

(14,307

)

 

(10

)

Selling and marketing expenses

 

 

(80,519

)

 

(59

)

 

(2,264

)

 

(21

)

 

(82,783

)

 

(56

)

Segment general and administrative expenses(1)

 

 

(7,543

)

 

(6

)

 

(1,863

)

 

(17

)

 

(9,406

)

 

(6

)

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Segment operating profit (loss)

 

$

20,756

 

 

15

%

$

(553

)

 

(5

)%

$

20,203

 

 

14

%

 

 



 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

71,854

 

 

 

 

$

6,289

 

 

 

 

$

78,143

 

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(6,877

)

 

 

 

 

 

 

 

 

 

(6,877

)

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Sales of real estate

 

 

64,977

 

 

100

%

 

6,289

 

 

100

%

 

71,266

 

 

100

%

Cost of real estate sales

 

 

(22,237

)

 

(34

)

 

(6,284

)

 

(100

)

 

(28,521

)

 

(40

)

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Gross profit

 

 

42,740

 

 

66

 

 

5

 

 

0

 

 

42,745

 

 

60

 

Fee-based sales commission revenue

 

 

7,026

 

 

11

 

 

 

 

 

 

 

7,026

 

 

10

 

Other resort and communities operations revenues

 

 

14,711

 

 

22

 

 

2,264

 

 

36

 

 

16,975

 

 

24

 

Cost of other resort and communities operations

 

 

(9,558

)

 

(15

)

 

(3,188

)

 

(51

)

 

(12,746

)

 

(18

)

Selling and marketing expenses

 

 

(32,733

)

 

(50

)

 

(972

)

 

(15

)

 

(33,705

)

 

(48

)

Segment general and administrative expenses(1)

 

 

(4,216

)

 

(6

)

 

(1,093

)

 

(17

)

 

(5,309

)