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EX-31.2 - BLUEGREEN VACATIONS CORPi00132_ex31-2.htm
EX-31.1 - BLUEGREEN VACATIONS CORPi00132_ex31-1.htm
EX-21.1 - BLUEGREEN VACATIONS CORPi00132_ex21-1.htm
EX-23.1 - BLUEGREEN VACATIONS CORPi00132_ex23-1.htm
EX-32.2 - BLUEGREEN VACATIONS CORPi00132_ex32-2.htm
EX-32.1 - BLUEGREEN VACATIONS CORPi00132_ex32-1.htm
EX-10.207 - BLUEGREEN VACATIONS CORPi00132_ex10-207.htm



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended December 31, 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 0-19292

(BLUEGREEN LOGO)

 

 

BLUEGREEN CORPORATION


(Exact name of registrant as specified in its charter)

 

 

 

Massachusetts

 

03-0300793


 


(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

4960 Conference Way North, Suite 100, Boca Raton, Florida 33431


(Address of principal executive offices) (Zip Code)

 

 

 

Registrant’s telephone number, including area code: (561) 912-8000

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

 

Name of each exchange on which registered


 


 

 

 

Common Stock, $.01 par value

 

New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o     No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o     No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 o

 

 

 

 

Non-accelerated filer o

 

Smaller reporting company x


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o     No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant: $38,895,142 based upon the closing sale price of the registrant’s Common Stock on the New York Stock Exchange on June 30, 2009 ($2.52 per share). For this purpose, “affiliates” include members of the Board of Directors of the Company, members of executive management and all persons known to be the beneficial owners of more than 10% of the Company’s outstanding Common Stock.

As of March 1, 2010, there were 32,549,542 shares of the registrant’s Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Specifically identified portions of the definitive proxy statement to be filed for its 2010 Annual Meeting of Shareholders are incorporated by reference into Part III hereof.



BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K

 

 

 

 

 

 

 

Page

PART I

 

 

Item 1.

BUSINESS

 

1

 

 

 

 

Item 1A.

RISK FACTORS

 

28

 

 

 

 

Item 1B.

UNRESOLVED STAFF COMMENTS

 

33

 

 

 

 

Item 2.

PROPERTIES

 

34

 

 

 

 

Item 3.

LEGAL PROCEEDINGS

 

34

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

36

 

 

 

 

Item 6.

SELECTED FINANCIAL DATA

 

39

 

 

 

 

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

41

 

 

 

 

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

71

 

 

 

 

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

72

 

 

 

 

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

115

 

 

 

 

Item 9A.

CONTROLS AND PROCEDURES

 

115

 

 

 

 

Item 9B.

OTHER INFORMATION

 

115

 

 

 

 

 

PART III

 

 

 

 

 

 

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

116

 

 

 

 

Item 11.

EXECUTIVE COMPENSATION

 

116

 

 

 

 

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

116

 

 

 

 

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

116

 

 

 

 

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

116

 

 

 

 

 

PART IV

 

 

 

 

 

 

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

117

 

 

 

 

SIGNATURES

 

118

 

 

 

EXHIBIT INDEX

 

120



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 CrossingTM,” “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™,” “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.

MARKET AND INDUSTRY DATA

Market and industry data used throughout this Annual Report on Form 10-K were obtained from our internal surveys, industry publications, unpublished industry data and estimates, discussions with industry sources and currently available information. The sources for this data include, without limitation, the American Resort Development Association (“ARDA”). Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified such market data. Similarly, our internal surveys, while believed by us to be reliable, have not been verified by any independent sources. Accordingly, no assurance can be given that any such data will prove to be accurate.


PART I

 

 

Item 1.

BUSINESS.

Introduction

We are a leading provider of colorful places to live and play through our resorts and residential community businesses. We are organized into two divisions: Bluegreen Resorts and Bluegreen Communities. In 2009, Bluegreen Resorts sales represented 92% of our sales of real estate and Bluegreen Communities represented 8% of our sales of real estate. 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, which were developed or acquired by us or developed by others. We also earn fees from third parties for providing sales, marketing, mortgage servicing, construction management, title, and resort management services to third party resort developers and owners. Bluegreen Communities acquires, develops and subdivides property and markets residential land homesites. The majority of these homesites are sold directly to retail customers who seek to build a home, in some cases on properties featuring a golf course and related amenities. Bluegreen Communities recently began offering real estate consulting and other services to third parties.

During the fourth quarter of 2008, in light of the turmoil and contraction of the commercial credit markets, we implemented strategic initiatives to significantly reduce resorts sales operations and related overhead in an effort to conserve cash and increase efficiencies. Such initiatives included closing certain sales offices; eliminating lower-efficiency marketing programs; reducing overhead including eliminating a significant number of staff positions across a variety of areas at various locations; reducing our overall capital spending; limiting sales to borrowers who meet FICO® score based underwriting standards, increasing interest rates on new sales transactions for which we provided financing, and implementing sales associate incentives for cash purchases thus reducing the proportion of sales requiring financing while increasing the proportion of sales providing cash proceeds. During 2008 and 2009, we also made changes in the operations of Bluegreen Communities with a goal of minimizing the cash requirements of its operations in light of current economic conditions and the deterioration of the real estate markets. See “Liquidity and Capital Resources” for further explanation of these activities and their expected impact on us.

Bluegreen Resorts

Bluegreen Resorts has been involved in the vacation ownership industry since its inception in 1994. As of December 31, 2009, we managed approximately 222,600 VOI owners, including approximately 168,500 members in the Bluegreen Vacation Club, and we sell VOIs in the Bluegreen Vacation Club at 21 sales offices located at resorts located in the United States and Aruba. A deeded real estate interest in a Bluegreen Vacation Club VOI in any of our resorts entitles the buyer to an annual or biennial allotment of “points” in perpetuity. Club members may use their points to stay in one of 27 Bluegreen Vacation Club – Club Resorts and 27 other Club Associate resorts as well as for other vacation options, including cruises and stays at over 4,000 resorts offered through Resort Condominiums International, LLC (“RCI”), an external exchange network. Club members who acquired or upgraded their VOIs on or after November 1, 2007 also have access to 21 Shell Vacation Club (“Shell”) resorts, through our Select Connections™ joint venture with Shell. Shell is an unaffiliated privately-held resort developer. The following table lists the Bluegreen Vacation Club and Club Associate Resorts:

 

 

 

Bluegreen Vacation Club - Club Resorts (1)

 

Location


 


Daytona SeaBreeze (2)

 

Daytona Beach Shores, Florida

The Hammocks at Marathon (2)

 

Marathon, Florida

The Fountains (2)

 

Orlando, Florida

Orlando’s Sunshine Resort I & II (2)

 

Orlando, Florida

Casa del Mar Beach Resort (2)

 

Ormond Beach, Florida

Grande Villas at World Golf Village (2)

 

St. Augustine, Florida

Solara Surfside (2)

 

Surfside, Florida

Bluegreen Club La Pension (2)

 

New Orleans, Louisiana

Mountain Run at Boyne (2)

 

Boyne Falls, Michigan

The Falls Village (2)

 

Branson, Missouri

Bluegreen Wilderness Club at Big Cedar (2)(3)

 

Ridgedale, Missouri

Bluegreen Wilderness Club at Long Creek (2)(3)

 

Ridgedale, Missouri

BG Club 36 (2)

 

Las Vegas, Nevada

The Suites at Hershey (2)

 

Hershey, Pennsylvania

The Lodge Alley Inn (2)

 

Charleston, South Carolina

Carolina Grande (2)

 

Myrtle Beach, South Carolina

Harbour Lights (2)

 

Myrtle Beach, South Carolina

SeaGlass Tower (2)

 

Myrtle Beach, South Carolina

Shore Crest Vacation Villas I & II (2)

 

North Myrtle Beach, South Carolina

MountainLoft (2)

 

Gatlinburg, Tennessee

Laurel Crest (2)

 

Pigeon Forge, Tennessee

Shenandoah Crossing (2)

 

Gordonsville, Virginia

Bluegreen Wilderness Traveler at Shenandoah (2)

 

Gordonsville, Virginia

BG Patrick Henry Square (2)

 

Williamsburg, Virginia

Bluegreen Odyssey Dells (2)

 

Wisconsin Dells, Wisconsin

Christmas Mountain Village (2)

 

Wisconsin Dells, Wisconsin

La Cabana Beach and Racquet Club (4)

 

Oranjestad, Aruba




 

 

 

Club Associate Resorts (1)

 

Location


 


Paradise Isle Resort

 

Gulf Shores, Alabama

Shoreline Towers Resort

 

Gulf Shores, Alabama

Cibola Vista Resort and Spa (2)(5)

 

Peoria, Arizona

Bluewater Resort at Cable Beach (2)(5)

 

Cable Beach, Nassau, Bahamas

Via Roma Beach Resort (2)

 

Bradenton Beach, Florida

Dolphin Beach Club (2)

 

Daytona Beach Shores, Florida

Fantasy Island Resort II (2)

 

Daytona Beach Shores, Florida

Mariner’s Boathouse and Beach Resort

 

Fort Myers Beach, Florida

Tropical Sands Resort

 

Fort Myers Beach, Florida

Windward Passage Resort

 

Fort Myers Beach, Florida

Gulfstream Manor (2)

 

Gulfstream, Florida

Resort Sixty-Six (2)

 

Holmes Beach, Florida

Outrigger Beach Club (2)

 

Ormond Beach, Florida

Landmark Holiday Beach Resort

 

Panama City Beach, Florida

Ocean Towers Beach Club

 

Panama City Beach, Florida

Panama City Resort & Club

 

Panama City Beach, Florida

Surfrider Beach Club

 

Sanibel Island, Florida

Petit Crest Villas at Big Canoe

 

Marble Hill, Georgia

Pono Kai Resort (2)

 

Kapaa (Kauai), Hawaii

Lake Condominiums at Big Sky

 

Big Sky, Montana

South Mountain Resort (5)(6)

 

Lincoln, New Hampshire

Bluegreen at Atlantic Palace (2)

 

Atlantic City, New Jersey

Foxrun Townhouses

 

Lake Lure, North Carolina

Sandcastle Village II

 

New Bern, North Carolina

Waterwood Townhouses

 

New Bern, North Carolina

Players Club

 

Hilton Head Island, South Carolina

Parkside Williamsburg Resort (2)(5)

 

Williamsburg, Virginia


 

 

(1)

Throughout this Annual Report on Form 10-K (“Annual Report”), any reference to “Club Resorts” refers to resorts where we developed or acquired a significant number of VOIs associated with the resorts, even if substantially all of the VOIs in the property have been sold to consumers. “Club Associate Resorts” refers to resorts within the Bluegreen Vacation Club where we did not acquire or develop a significant number of the VOIs associated with the resorts.

 

 

(2)

This resort is managed by Bluegreen Resorts Management, Inc., one of our wholly-owned subsidiaries.

 

 

(3) This resort is being developed, marketed and sold by Bluegreen/Big Cedar Vacations, LLC, a joint venture with Big Cedar, LLC. We own a 51% interest in this joint venture and the joint venture’s results of operations, cash flows and financial position are included in our consolidated financial statements. See Note 1 of the Notes to Consolidated Financial Statements.

 

 

(4) This resort is managed by Casa Grande Cooperative Association I, which has subcontracted with Bluegreen Resorts Management, Inc. to provide management consulting services to the resort.

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(5) This resort has become a Club Associate Resort as we sell VOIs in the resort as part of our fee-based-services business.

 

 

(6) Management of this resort by Bluegreen Resorts Management, Inc. is anticipated to begin during 2010, in connection with our fee-based services business.

Throughout this Annual Report on Form 10-K, “estimated remaining life-of-project sales” assumes the aggregate sales of the existing, currently under construction or development, and planned VOIs or homesites, at current retail prices. “Segment Operating Profit (Loss)” means the operating profit or loss of a business segment prior to the allocation of corporate overhead, interest income, other income and expense items, interest expense, non-controlling interests, provision for income taxes, discontinued operations, restructuring charges and goodwill impairment charges. See Note 15 of the Notes to Consolidated Financial Statements for further information and a reconciliation of Segment Operating Profit for our business segments to consolidated income before provision for income taxes.

Since our inception, we have generated approximately 328,000 VOI sales transactions, which include 2,593 VOI sales transactions on behalf of third party developers. Bluegreen Resorts’ estimated remaining life-of-project sales at December 31, 2009, were approximately $3.3 billion, which included $1.0 billion of completed inventory. For the year ended December 31, 2009, Bluegreen Resorts recognized Sales and Segment Operating Profit of $201.8 million and $37.7 million, respectively.

Bluegreen Resorts uses a variety of methods to attract prospective purchasers of VOIs, including marketing of mini-vacations either through face-to-face contact at kiosks in retail and leisure locations or through telemarketing campaigns and marketing to current owners of VOIs.

Our Bluegreen Vacation Club system permits our VOI owners to purchase a real estate timeshare interest which provides them with an annual or biennial allotment of points, which can be redeemed for occupancy rights at Bluegreen Vacation Club and Club Associate resorts. We believe the Bluegreen Vacation Club allows our VOI owners to customize their vacation experience in a more flexible manner than traditional fixed-week vacation ownership programs. We also offer a Sampler program. The Sampler program allows package purchasers to enjoy substantially the same amenities, activities and services offered to Bluegreen Vacation Club members during a one-year trial period. We believe that we benefit from the Sampler program as it gives us an opportunity to market our VOIs to customers when they use their trial memberships at our resorts and to recapture some of the costs incurred in connection with the initial marketing to prospective customers.

As a result of strategic initiatives implemented in the fourth quarter of 2008, we have realized higher down payments and a higher percentage of cash sales with our VOI customers compared to prior years, and, including down payments received on financed sales, 45% of our sales were received in cash within approximately 30 days from contract.  Our emphasis on cash resulted in us providing financing to approximately 68% of our VOI customers during the year ended December 31, 2009. Customers are required to make a down payment of at least 10% of the VOI sales price and typically finance the balance of the sales price over a period of ten years. In 2009, we began incentivizing our sales associates to encourage higher cash down payments, and we have increased both the percentage of our sales that are 100% cash and our average down payment on financed sales. As of December 31, 2009, we serviced $795.9 million of VOI receivables and our on-balance sheet vacation ownership receivables portfolio totaled approximately $348.7 million in principal amount. See “Accounting Pronouncements Not Yet Adopted” for further discussion. Historically we have maintained vacation ownership receivables warehouse facilities and separate vacation ownership receivables purchase facilities to maintain liquidity associated with our vacation ownership receivables; however, the term securitization market had experienced significantly reduced activity and transactions that were consummated were on significantly more adverse terms. As a result of this and other factors, 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 either have or will be exiting the resort finance business or will not be entering into new financing commitments for the foreseeable future. In addition, the availability of financing for real estate acquisition and development and the capital markets for corporate debt have likewise been adversely impacted. See “Liquidity and Capital Resources” for a further discussion of our vacation ownership receivables facilities and certain risks relating to such facilities.

Bluegreen Communities

Bluegreen Communities focuses on developing and subdividing property and markets residential homesites. The majority of sites 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). Bluegreen Communities has historically sought to acquire and develop land near major metropolitan centers, but outside the perimeter of intense subdivision development, and in popular retirement areas. Starting in the fourth quarter of 2008 and in response to the

3


challenging economic environment, we began to only sell homesites in completed sections of our communities and significantly reduced our overall spending on development activities. As of December 31, 2009, Bluegreen Communities was actively engaged in marketing and selling homesites directly to retail consumers in communities primarily located in Texas, Georgia, and North Carolina. Bluegreen Communities had approximately $145.4 million of inventory at carrying value as of December 31, 2009. For the year ended December 31, 2009, Bluegreen Communities recognized sales of $17.6 million and Segment Operating Loss of $21.1 million.

Historically we have marketed our communities through a combination of newspaper, direct mail, television, billboard, internet and radio advertising. Bluegreen Communities also historically utilized a customer relationship management computer software system to assist us in compiling, processing, and maintaining information concerning future sales prospects. During 2009, our marketing of communities shifted to focus on internet advertising, consumer and broker outreach programs and billboards. Our conversion ratio of sales to prospects receiving on-site presentations was 21.7% in 2009.

We also currently own and operate two daily fee golf courses which we believe increase the marketability of adjacent homesites and communities.

Industry Overview

Bluegreen Resorts

The Market. The resorts component of the leisure industry is serviced primarily by two separate alternatives for overnight accommodations: commercial lodging establishments and vacation ownership resorts. Commercial lodging consists principally of hotels and motels in which a room is rented on a nightly, weekly or monthly basis for the duration of the visit or rentals of privately-owned condominium units or homes. For many vacationers, particularly those with families, a lengthy stay at a quality commercial lodging establishment can be expensive, and the space provided to such vacationers by these establishments relative to the cost is often not economical. In addition, room rates at commercial lodging establishments are subject to change periodically and availability is often uncertain. We believe that vacation ownership presents an attractive vacation alternative to commercial lodging.

Vacation ownership interests were first introduced in Europe in the mid 1960’s. Historically, the vacation ownership industry was highly fragmented and dominated by a large number of local and regional resort developers and operators, each with small resort portfolios generally of differing quality. We believe that one of the most significant factors contributing to the historic growth of the vacation ownership industry has been the entry into the market of some of the world’s major lodging, hospitality and entertainment companies, such as Marriott International, Inc., the Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels and Resorts Worldwide, Inc., and Wyndham Worldwide Corporation. Although vacation ownership operations currently comprise only a portion of these companies’ overall operations, we believe that their involvement in the vacation ownership industry has enhanced the industry’s image with the general public.

Our Bluegreen Vacation Club resorts are primarily “drive-to” resort destinations, meaning that we believe that most of our VOI owners live within a 300 mile drive of at least one of our resorts. We believe that, in general, Americans still desire to take family vacations and that our vacation club is positioned to benefit from consumer demand for family vacations. However, economic conditions may have an adverse effect on the demand for vacations and our operations in the future.

The Consumer. According to information compiled by various sources, we believe our typical customer to be married and between 45-64 years of age, with a household median income of approximately $80,000. According to the U.S. Census Bureau, the 45 to 64 year old age group is expected to grow over 10% from 2007 through 2020.

VOI Ownership. The purchase of a fixed-week VOI typically entitles the buyer to use a fully-furnished vacation residence, generally for a one-week period each year in perpetuity. Typically, the buyer acquires an ownership interest in the vacation residence, which is often held as a tenant-in-common with other buyers of interests in the property. We believe this traditional vacation ownership product lacks the flexibility provided to owners of a points-based vacation ownership product, and hence we have not sold fixed week VOIs for several years. Since January 2004, all of our sales offices have only sold VOIs.

Under a points system, such as the Bluegreen Vacation Club, the members purchase a real estate interest in a specific VOI resort, which is held in trust on the member’s behalf and provides the member with an annual or

4


biennial allotment of points that can be redeemed for occupancy rights at participating resorts. We believe that compared to other vacation ownership arrangements, the points system offers members greater flexibility in planning their vacations. Members can stay for varying lengths of time on vacations for as little as 2 nights and as many nights as their points will allow on any one vacation. The number of points required for a stay at a resort varies depending on a variety of factors including the resort location, the size of a unit, the vacation season and the days of the week used. Under this system, members can select vacations according to their schedules, space needs, available inventory, and available points. Members’ unused points are typically automatically saved for one year beyond the year they were allotted, subject to certain usage restrictions. Members also typically may “borrow” points from the next year’s allotment, subject to certain restrictions and pre-payment of the owner’s maintenance fees.

The owners of VOIs manage the property through a nonprofit homeowners’ association that is governed by a board of directors or trustees, consisting of representatives of the developer (so long as the developer owns VOIs in the resort or as otherwise provided by law) and owners of VOIs at the resort. The board hires a management company to which it delegates many of the rights and responsibilities of the homeowners’ association, including grounds landscaping, security, housekeeping and operating supplies, garbage collection, utilities, insurance, laundry and repairs and maintenance. As of December 31, 2009, we directly or indirectly were managing 37 resorts, all of which are part of the Bluegreen Vacation Club.

Each VOI owner is required to pay a share of all of the costs of maintaining all of the properties in the Bluegreen Vacation Club system. These charges generally consist of an annual maintenance fee plus applicable real estate taxes and special assessments, which are assessed on an as-needed basis. If the VOI owner does not pay such charges, such owner’s use rights in Bluegreen Vacation Club may be suspended and the homeowners’ association may foreclose on the owner’s VOI, subject to the lenders first mortgage lien on the VOI, if any.

Participation in Independent VOI Exchange Networks. We believe that our VOIs are made more attractive by our affiliation with an international VOI exchange network such as RCI. All of our VOI resorts are currently affiliated with RCI, and most of our Club Resorts have been awarded RCI’s highest designation (Gold Crown). A VOI owner’s participation in the RCI exchange network allows such owner to exchange his annual VOI for occupancy at over 4,000 participating resorts, based upon availability and the payment of a variable exchange fee. RCI’s participating resorts are located throughout the world in over 100 countries. No assurance can be given that our resorts will continue to qualify for participation in international exchange networks, or that our customers will continue to be satisfied with these networks. Our failure or the failure of any of our resorts to participate in qualified exchange networks or the failure of such networks to operate effectively could have a material adverse effect on us. In 2009, approximately 7% of our owners utilized the RCI exchange network for a weekly exchange. Additionally, Bluegreen Vacation Club members who are also members of Traveler Plus may use their points for hotel stays with World Hotels, RV site stays within the Coast to Coast network, or various cruise vacations.

In September 2007, we entered into a joint venture agreement with Shell Vacations Club to create Select Connections™. Club members who acquired or upgraded their VOIs on or after November 1, 2007 also have access to 21 Shell Vacation Club (“Shell”) resorts, through this joint venture with Shell. The Select Connections™ joint venture also provides members of Shell Vacations Club access to Bluegreen Resorts.

Bluegreen Communities

We believe that Bluegreen Communities operates within a specialized niche of the real estate industry that focuses on the sale of residential homesites to retail customers who typically intend to build a custom home at some point in the future. The participants in this market are generally individual landowners who are selling specific parcels of property for development by others and small developers who focus primarily on projects in their region.

Unlike commercial homebuilders who focus on vertical development, such as the construction of single and multi-family housing structures, Bluegreen Communities focuses primarily on horizontal development activities, such as grading, roads and utilities. As a result, the projects undertaken are less capital intensive than those generally undertaken by commercial homebuilders.

Bluegreen Communities also historically developed daily-fee golf courses and related amenities as the centerpieces of certain residential land communities. As of December 31, 2009, we were marketing homesites in five communities that include golf courses developed or owned either by us or third parties. There are additional costs associated with the maintenance and management of golf courses. On December 31, 2009, we sold four of our golf

5


courses located in North Carolina and Virginia for an aggregate purchase price of approximately $10.3 million. Subsequent to the sale, as of December 31, 2009, we owned and operated two golf courses. There is no assurance that we will be able to successfully develop golf courses or manage the courses at a profit.

Company Products and Services

Bluegreen Club Resorts

Set forth below is a description of each of our Club Resorts. We consider resorts to be Club Resorts if we acquired or developed a significant number of VOIs in the resorts, even if substantially all of the VOIs in the property have been sold to consumers. We are presenting this information to provide a general description of the Club Resorts that are available for use by members of the Bluegreen Vacation Club. Units at most of the properties have amenities typically including a full kitchen, two televisions, a DVD and a CD player, fireplaces, whirlpool tubs, and video game systems. Most properties offer guests a clubhouse (with an indoor or outdoor pool, a game room, exercise facilities and a lounge) and a hotel-type staff. We manage all of our owned resorts, either directly or through a subcontract.

Florida

Daytona SeaBreeze — Daytona Beach Shores, Florida. This 80-unit resort is located on the “World’s Most Famous Beach.” Amenities include private ocean-front balconies, a heated outdoor swimming pool, a children’s pool, a hot tub, a fitness center, barbeque grill area and a game room. The resort is on a barrier island less than six miles long and is located near the world-famous Daytona International Speedway and DAYTONA USA®.

The Hammocks at Marathon — Marathon, Florida. The Hammocks at Marathon is located in the Florida Keys within easy reach of both Miami and Key West, Florida. This 58-unit beachfront resort offers such amenities as a pool, boat slips, an outside tiki bar and a variety of water sport recreational vehicle rentals.

The Fountains — Orlando, Florida. This 54-acre resort is located on Lake Eve and is minutes away from Central Florida’s family attractions, including Walt Disney World®, SeaWorld® and Universal Studios®. Amenities include a clubhouse with a heated indoor/outdoor swimming pool, a pool bar, a massage room, steam and sauna rooms, a family activity room, a tennis court, a basketball court, and a resort style pool facility, as well as an on-site Domino’s Pizza® and a Benihana restaurant.

Orlando’s Sunshine Resort — Orlando, Florida. Orlando’s Sunshine Resort is located on International Drive, near Wet’n’Wild® water park and Universal Studios Florida®. This 90-unit property features an outdoor swimming pool, a hot tub and tennis courts.

Casa del Mar Beach Resort — Ormond Beach, Florida. Casa del Mar is a 43-unit resort located directly on the ocean and includes an outdoor pool and miniature golf. In nearby Daytona Beach, Florida guests can drive on the beach or visit the Daytona International Speedway.

Grande Villas at World Golf Village — St. Augustine, Florida. Grande Villas is located approximately 30 minutes away from the Atlantic Ocean and next to the World Golf Hall of Fame®. This resort features an extensive array of amenities, including a golf course (separately owned and operated; separate fee required), outdoor and indoor swimming pools, a hot tub, a sauna and a playground. The resort includes 152 units.

Solara Surfside — Surfside, Florida. This 58-unit oceanfront resort is located in Surfside, Florida, near Miami Beach. Solara Surfside captures the art deco style of its surrounding area and features one- and two-bedroom vacation units, a swimming pool, a sun deck and a hot tub.

Louisiana

Bluegreen Club La Pension — New Orleans, Louisiana. This 64-unit resort is located in the French Quarter, just a few blocks from the Mississippi River. Many of the units feature balconies overlooking the French Quarter. The rooftop offers two sundecks with hot tubs and views of the French Quarter, river, and city.

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Michigan

Mountain Run at Boyne — Boyne Falls, Michigan. Boyne Mountain is known for skiing, snowboarding and tubing on more than 50 runs with convenient lift and trail systems. In the summer, Boyne Mountain offers golf on nearby world-class courses designed by some of the game’s masters, including Robert Trent Jones, Arthur Hills, Donald Ross and others. Mountain Run has 104 units. Amenities for winter and summer use are separately owned and operated.

Missouri

The Falls Village — Branson, Missouri. The Falls Village is located near the Ozark Mountains. Fishing, boating and swimming are available at nearby Table Rock Lake and Lake Taneycomo, and area theaters feature shows by renowned country music stars. Most resort guests come from areas within an eight to ten hour drive of Branson. When fully developed, we anticipate that this resort will include 275 units.

Bluegreen Wilderness Club at Big Cedar — Ridgedale, Missouri. The Bluegreen Wilderness Club at Big Cedar is a wilderness-themed resort adjacent to the world famous Big Cedar Lodge luxury hotel resort. This vacation ownership resort is being developed, marketed and sold by Bluegreen/Big Cedar Vacations, LLC, a joint venture between Big Cedar, LLC and us, in which we own a 51% interest. The resort is located on Table Rock Lake, and is near Dogwood Canyon. Guests staying in the two-bedroom cabins or one- and two-bedroom lodge villas enjoy fireplaces, private balconies, full kitchens and Internet access. Amenities include, or are expected to include, indoor and outdoor swimming pools and hot tubs, a lazy river, hiking trails, a campfire area, a beach and playground. Guests also have access to certain of the luxury amenities at the Big Cedar Lodge, including the Jack Nicklaus Signature Top of the Rock Par Three Golf Course, a marina, horseback riding, tennis courts and a spa. When fully developed, we anticipate that this resort will include 324 units.

Bluegreen Wilderness Club at Long Creek Ranch — Ridgedale, Missouri. The Bluegreen Wilderness Club at Long Creek currently features 29 patio homes that overlook Table Rock Lake. These two- level, five bedroom homes feature two master bedrooms, whirlpool bath, walk-in closet, a media room, billiards table and gourmet kitchen, covered porch, and a 2-car garage. When fully developed, we anticipate that this resort will include 189 units.

Nevada

BG Club 36 — Las Vegas, Nevada. This 478 unit resort is located just off the Las Vegas Strip and features amenities including an indoor pool, outdoor sundeck, poolside bar, fitness center, and two on site restaurants. BG Club 36 features both one- and two-bedroom villas with Parisian Art Deco décor.

Pennsylvania

The Suites at Hershey — Hershey, Pennsylvania. This 3.2-acre, 79 unit resort is located near HersheyPark® and Hershey’s® Chocolate World. Amenities include an outdoor swimming pool, a hot tub, a playground, a picnic area with barbeque grills, a game room, a fitness center and indoor basketball courts.

South Carolina

The Lodge Alley Inn — Charleston, South Carolina. Located in Charleston’s historic district, The Lodge Alley Inn includes one- and two-bedroom suites, many furnished with an equipped kitchen, a living room with a fireplace, a dining room, a whirlpool bath, pine wood floors and 18th century-style furniture reproductions. This 90-unit resort, which features the on-site High Cotton restaurant, is within walking distance of many of Charleston’s historical sites, open-air markets and art galleries.

Carolina Grande — Myrtle Beach, South Carolina. This 118 unit, 20-story tower is located across the street from the beach. An arrangement with The Carolinian Beach Resort offers guests an accessible breezeway directly to the beach and other amenities, including indoor and outdoor swimming pools, hot tubs, full kitchens, washers and dryers, and views of the ocean and city from each room. The resort is located near the Pavilion Amusement Park, NASCAR® SpeedPark, Broadway at the BeachSM (a 350-acre complex featuring approximately 100 specialty shops, 20 restaurants, 15 attractions and 10 nightclubs), Myrtle Waves Water Park, Carolina Opry, Dixie Stampede and the Convention Center.

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Harbour Lights— Myrtle Beach, South Carolina. Harbour Lights is located in the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater Row, shopping, golf courses and restaurants. The resort’s activities center overlooks the Intracoastal Waterway. When fully developed, we anticipate that this resort will include 318 units.

SeaGlass Tower — Myrtle Beach, South Carolina. The SeaGlass Tower is a 19-story, 144 unit mirrored tower located directly on the beach in Myrtle Beach. Amenities include balconies, fully equipped kitchens, whirlpool baths and other amenities, including an indoor and two outdoor swimming pools, a hot tub, and two saunas. SeaGlass Tower is located near the Pavilion Amusement Park, Broadway at the BeachSM, Myrtle Beach Convention Center, and the Myrtle Beach International Airport.

Shore Crest Vacation Villas I & II — North Myrtle Beach, South Carolina. Shore Crest Vacation Villas, consisting of two multi-storied towers and 240 units, is located on the beach in the Windy Hill section of North Myrtle Beach, a mile from the famous Barefoot Landing, featuring its restaurants, theaters, shops and outlet stores.

Tennessee

MountainLoft — Gatlinburg, Tennessee. MountainLoft is located near the Great Smoky Mountains National Park and is minutes from the family attractions of Pigeon Forge, Tennessee. Units are located in individual chalets or mid-rise villa buildings. Each unit is fully furnished with a whirlpool bath and private balconies and certain units include gas fireplaces. When fully developed, we anticipate that this resort will include 474 units.

Laurel Crest — Pigeon Forge, Tennessee. Laurel Crest is located in close proximity to the Great Smoky Mountains National Park and the Dollywood theme park. In addition, visitors to Pigeon Forge can enjoy over 200 factory outlet stores and music shows featuring renowned country music stars as well as partake in a variety of outdoor activities, such as horseback riding, trout fishing, boating, golfing and white water rafting. When fully developed, we anticipate that this resort will include 202 units.

Virginia

Shenandoah Crossing — Gordonsville, Virginia. Shenandoah Crossing, which currently includes 262 units, features an 18-hole golf course (which is owned and operated by an unaffiliated third party), indoor and outdoor swimming pools, tennis courts, horseback riding trails and a lake for fishing and boating.

Bluegreen Wilderness Traveler at Shenandoah — Gordonsville, Virginia. This property is currently under development and is located adjacent to our existing resort, Shenandoah Crossing. When completed, Wilderness Traveler at Shenandoah will provide Bluegreen Vacation Club members with a high quality vacation experience in the “great outdoors”. Accommodations will consist of cabins, luxury campsites for recreational vehicles and fully furnished climate-controlled platform tents, as well as outdoor-themed amenities and programs. When fully developed, we anticipate that this resort will include 208 units.

BG Patrick Henry Square – Williamsburg, Virginia. This 72 unit resort is located only ½ a block from Colonial Williamsburg. The resort has accommodations ranging from studio to two-bedroom villas with kitchen and colonial-inspired décor. Attractions include Busch Gardens® Williamsburg, and Water Country USA®, as well as the nearby scenic Atlantic beaches, shopping, golf, and water attractions. When fully developed, we anticipate that this resort will include 351 units.

Wisconsin

Christmas Mountain Village — Wisconsin Dells, Wisconsin. Christmas Mountain Village offers a 27-hole golf course and seven ski trails served by two chair lifts. Other on-site amenities include horseback riding, tennis courts, a five-acre lake with paddleboats and rowboats and four outdoor swimming pools. This resort attracts customers primarily from the greater Chicago area and other locations within an eight to ten hour drive of Wisconsin Dells. When fully developed, we anticipate that this resort will include 309 units.

Bluegreen Odyssey Dells – Wisconsin Dells, Wisconsin. This seven acre resort is located adjacent to the 156 acre Mt. Olympus Resort Water and Theme Park (formerly known as Treasure Island Water and Theme Park Resort). When fully developed, we anticipate that this resort will include 100 units.

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Aruba

La Cabana Beach & Racquet Club— Oranjestad, Aruba. La Cabana Beach & Racquet Club is a 449-suite oceanfront resort that offers one-, two-, and three-bedroom suites, garden suites and penthouse accommodations. On-site amenities include racquetball, squash, two pools and private beach cabanas, none of which are owned or managed by us.

The following table describes the relative size, and stage of development of, as well as the amount and the estimated sales value of our remaining unsold inventory at each of our Club Resorts. Although all inventory is sold as VOIs, we disclose the size and inventory information in terms of number of vacation homes for ease of comparability between our resorts and those of other companies in the industry. “Vacation homes” are individual lodging units (e.g., condominium-style apartments, town homes, cabins, luxury campsites, etc.):

 

 

 

 

 

 

 

 

 

 

 

 

Resort

 

Daytona
SeaBreeze

 

The
Hammocks
at Marathon

 

The
Fountains

 

Orlando’s
Sunshine
Resort

 

Casa del Mar
Beach Resort

 

 

 


 

Location

 

Daytona
Beach Shores,
FL

 

Marathon,
FL

 

Orlando,
FL

 

Orlando,
FL

 

Ormond
Beach,
FL

 

 

 


 

Year acquired (1)

 

2005

 

2003

 

2003

 

1997

 

2003

 

Number of vacation homes completed

 

80

 

58

 

571

 

90

 

43

 

Number of vacation homes under construction

 

 

 

 

 

 

Number of future vacation homes (2)

 

 

 

175

 

 

 

Total current and future vacation homes

 

80

 

58

 

746

 

90

 

43

 

Percentage of total current and future vacation homes sold(3)

 

85%

 

87%

 

60%

 

89%

 

95%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$8.5

 

$9.9

 

$447.5

 

$9.7

 

$2.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Resort

 

Grande Villas
at World Golf
Village

 

Solara
Surfside
Resort

 

Mountain
Run at
Boyne

 

The Falls
Village

 

Bluegreen
Wilderness
Club at Big
Cedar

 

 

 


 

Location

 

St. Augustine,
FL

 

Surfside,
FL

 

Boyne
Falls,
MI

 

Branson,
MO

 

Ridgedale,
MO

 

 

 










 

Year acquired (1)

 

2003

 

2001

 

2002

 

1997

 

2000

 

Number of vacation homes completed

 

152

 

58

 

104

 

164

 

294

 

Number of vacation homes under construction

 

 

 

 

 

18

 

Number of future vacation homes (2)

 

 

 

 

111

 

12

 

Total current and future vacation homes

 

152

 

58

 

104

 

275

 

324

 

Percentage of total current and future vacation homes sold(3)

 

91%

 

73%

 

83%

 

52%

 

74%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$13.9

 

$8.6

 

$12.7

 

$81.1

 

$126.3

 

9



 

 

 

 

 

 

 

 

 

 

 

 

Resort

 

Long Creek
Ranch at Big
Cedar

 

La Cabana
Beach and
Racquet
Club

 

BG
Club 36

 

The Suites at
Hershey

 

The Lodge
Alley Inn

 

 

 


 

Location

 

Ridgedale,
MO

 

Oranjestad,
Aruba

 

Las Vegas,
NV

 

Hershey, PA

 

Charleston,
SC

 

 

 


 

Year acquired (1)

 

2007

 

1997

 

2006

 

2004

 

1998

 

Number of vacation homes completed

 

29

 

449

 

478

 

79

 

90

 

Number of vacation homes under construction

 

 

 

 

 

 

Number of future vacation homes (2)

 

160

 

 

 

 

 

Total current and future vacation homes

 

189

 

449

 

478

 

79

 

90

 

Percentage of total current and future vacation homes sold(3)

 

6%

 

96%

 

18%

 

82%

 

95%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$389.9

 

$13.1

 

$373.4

 

$12.8

 

$3.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Resort

 

Carolina
Grande

 

Harbour
Lights

 

Seaglass
Tower

 

Shore Crest
Vacation
Villas

 

Mountain
Loft

 

 

 


 

Location

 

Myrtle Beach,
SC

 

Myrtle Beach,
SC

 

Myrtle Beach,
SC

 

Myrtle Beach,
SC

 

Gatlinburg,
TN

 

 

 


 

Year acquired (1)

 

2005

 

1997

 

2005

 

1996

 

1994

 

Number of vacation homes completed

 

118

 

240

 

144

 

240

 

284

 

Number of vacation homes under construction

 

 

 

 

 

 

Number of future vacation homes (2)

 

 

78

 

 

 

190

 

Total current and future vacation homes

 

118

 

318

 

144

 

240

 

474

 

Percentage of total current and future vacation homes sold(3)

 

97%

 

72%

 

86%

 

95%

 

54%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$5.1

 

$65.0

 

$15.4

 

$10.5

 

$213.6

 

10



 

 

 

 

 

 

 

 

 

 

 

 

Resort

 

Laurel
Crest

 

Shenandoah
Crossing

 

Bluegreen
Wilderness
Traveler at
Shenandoah

 

BG Patrick
Henry Square

 

Club La
Pension

 

 

 


 

Location

 

Pigeon Forge,
TN

 

Gordonsville,
VA

 

Gordonsville,
VA

 

Williamsburg,
VA

 

New
Orleans,
LA

 

 

 










 

Year acquired (1)

 

1995

 

1997

 

2007

 

2006

 

2008

 

Number of vacation homes completed

 

152

 

262

 

36

 

72

 

64

 

Number of vacation homes under construction

 

 

 

 

 

 

Number of future vacation homes (2)

 

50

 

 

172

 

279

 

 

Total current and future vacation homes

 

202

 

262

 

208

 

351

 

64

 

Percentage of total current and future vacation homes sold (3)

 

64%

 

97%

 

13%

 

6%

 

70%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$72.2

 

$6.9

 

$125.3

 

$617.4

 

$17.2

 


 

 

 

 

 

 

Resort

 

Christmas
Mountain
Village

 

Bluegreen
Odyssey Dells

 


Location

 

Wisconsin
Dells, WI

 

Wisconsin
Dells, WI

 


Year acquired (1)

 

1997

 

2006

 

Number of vacation homes completed

 

309

 

24

 

Number of vacation homes under construction

 

 

 

Number of future vacation homes (2)

 

 

76

 

Total current and future vacation homes

 

309

 

100

 

Percentage of total current and future vacation homes sold (3)

 

96%

 

18%

 

Estimated remaining life-of-project sales (in millions) (4)

 

$9.2

 

$181.4

 

 

 

 

 

 

 


 

 

 

 

(1)

Year that we first acquired the land to develop the resort or the year we first acquired existing VOIs at the resort, as applicable.

 

 

 

 

(2)

Number of vacation homes that can be developed at the resort in the future. We cannot provide any assurance that we will have the resources, or will otherwise decide, to commence or complete the development of any future vacation homes or that the resulting VOIs will be sold at favorable prices.

 

 

 

 

(3)

Represents the portion of each resort that has been sold as of December 31, 2009, including sales made by prior owners of the resorts, if applicable. The unsold portion includes vacation homes that are either completed, under construction or subject to future development and may include VOIs that were sold and then reacquired through equity trade, receivable default or otherwise.

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(4)

Estimated remaining life-of-project sales as of December 31, 2009, including both built and un-built units. This table excludes VOI inventory that we own at several Club Associate Resorts (See discussion below) and projected VOIs at projects not yet started.

Bluegreen Club Associate Resorts

The Bluegreen Club Associate Resorts are all resorts in the Bluegreen Vacation Club other than Bluegreen Club Resorts, in which Bluegreen may have acquired timeshare interests for resale or have sold on behalf of a third party. Only a portion of each Bluegreen Club Associate Resort’s total timeshare interests in these resorts are included in the Bluegreen Vacation Club. The aggregate estimated remaining life-of-project sales for our Club Associate Resorts as of December 31, 2009 was $147.2 million, or less than 5% of Bluegreen Resorts’ estimated remaining life-of-project sales. There is no assurance that we will realize any or all of the estimated remaining life-of-project sales.

Alabama

Paradise Isle Resort – Gulf Shores, Alabama. This 34-unit resort is located in Gulf Shores, across the street from the beach and the Gulf of Mexico. Amenities include private oceanfront balconies, an outdoor swimming pool, a children’s pool and a barbeque grill area.

Shoreline Towers – Gulf Shores, Alabama. Shoreline Towers is located on the beach in Gulf Shores, overlooking the Gulf of Mexico. This 21-unit beachfront resort features two- and three-bedroom suites and offers amenities such as a pool, private balconies, biking and nearby tennis facilities.

Florida

Dolphin Beach Club – Daytona Beach, Florida. The Dolphin Beach Club is located in Daytona Beach overlooking the beach and the Atlantic Ocean. This 50-unit resort features contemporary white furnishings, a tropical décor, private beachfront balconies and a heated outdoor swimming pool. Guests can enjoy nearby championship golf or visit the world-famous Daytona International Speedway.

Gulfstream Manor – Delray Beach, Florida. The Gulfstream Manor is located just south of Palm Beach, near shops, galleries, fine dining and boutiques. The 23-unit beachfront resort features views of the ocean or courtyard and offers an intimate, small resort experience.

Mariner’s Boathouse & Beach Resort – Fort Myers Beach, Florida. Mariner’s Boathouse & Beach Resort is located on Fort Myers Beach, alongside the beaches of the Gulf of Mexico. The 22 beachfront villas are uniquely designed to resemble a first-class yacht, and each features a private, screened-in balcony or porch.

Tropical Sands Resort – Fort Myers Beach, Florida. Located on the seven-mile long island of Fort Myers Beach, the 39-unit Tropical Sands Resort is centered around a sun deck and palm-filled courtyard. Resort amenities include an outdoor heated pool, concierge and a barbecue grill area.

Windward Passage Resort – Fort Myers Beach, Florida. This 52-unit resort is located in the heart of Fort Myers Beach. Just steps away from the beach, the resort features one- and two-bedroom suites and an outdoor heated swimming pool, hot tub, tennis, basketball, volleyball, an on-site playground and a poolside bar.

Landmark Holiday Beach Resort – Panama City Beach, Florida. The Landmark Holiday Beach Resort is located on Panama City Beach. The 95-unit resort features a hot tub, sauna, an indoor heated pool, barbecue grill and oceanfront private balconies.

Ocean Towers Beach Club – Panama City Beach, Florida. Located on the Miracle Strip, Ocean Towers Beach Club offers one- and two-bedroom oceanfront suites. The resort’s 98 units feature private balconies or porches, full kitchens and washer/dryers. Amenities include an exercise room, outdoor heated pool and nearby tennis and golf are available.

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Panama City Resort & Club – Panama City Beach, Florida. The 40-unit Panama City Resort & Club is located on Panama City Beach overlooking the Gulf of Mexico. Amenities include private balconies, an outdoor heated pool, a year-round hot tub, and nearby jet skiing, windsurfing, parasailing, and golf.

Surfsider Beach Club – Sanibel Island, Florida. This 31-unit resort is located along the beaches and the surroundings of Sanibel Island. The resort features one- and two-bedroom suites and amenities such as an outdoor heated swimming pool, hot tub, tennis, fishing and biking.

Fantasy Island Resort II – Daytona Beach, Florida. This 48-unit resort is situated on Daytona Beach, one of the world’s last remaining drive-on beaches. All units either face or view the ocean, and other amenities include an outdoor heated swimming pool, hot tub and two dry saunas.

Resort Sixty-Six – Holmes Beach, Florida. The resort is located on Anna Maria Island which stretches for seven miles, and overlooks the Gulf of Mexico. The 28 units at Resort Sixty-Six either overlook the courtyard, or offer views of the Gulf. Resort amenities include an outdoor heated swimming pool, hot tub and a barbecue grill area.

Outrigger Beach Club – Ormond Beach, Florida. Steps away from the beach and minutes from Daytona Beach, the Outrigger Beach Club’s boomerang shape allows all of the resort’s 60 units to face the Atlantic Ocean. The resort features an outdoor heated swimming pool, children’s swimming pool, poolside grills and hot tub overlooking the beach and ocean.

Via Roma Beach Resort – Bradenton Beach, Florida. A beachfront enclave, Via Roma Beach Resort is located on Bradenton Beach. Featuring one- and two-bedroom suites, this 28-unit beachfront resort offers such amenities as a heated outdoor swimming pool, hot tub and barbecue grill area.

Georgia

Petit Crest Villas at Big Canoe – Big Canoe, Georgia. The resort is located at Big Canoe in the foothills of the North Georgia Appalachians and an hour north of Atlanta, and features activities including fishing, boating, a fully equipped fitness center, and nearby golf and tennis. Petit Crest Villas has 35 units that feature a balcony or porch, full kitchen, fireplace, washer and dryer.

Hawaii

Pono Kai Resort – Kapaa (Kauai), Hawaii. This 52-unit, 13-acre oceanfront resort is located on Kauai’s Coconut Coast. Surrounded by palms and the Pacific, the Pono Kai Resort is close to the beaches and features tennis courts, local arts and crafts vendors, concierge and a hospitality suite.

Montana

Lake Condominiums at Big Sky – Big Sky, Montana. Lake Condominiums at Big Sky is located at the foot of Lore Mountain overlooking Lake Levinsky. Day trips may be made to Yellowstone National Park and an overnight trip may be made to Grand Teton National Park. The resort features 54 units and amenities such as a year-round heated outdoor swimming pool, two large hot tubs and nearby skiing.

New Jersey

Bluegreen at Atlantic Palace — Atlantic City, New Jersey. This 31 story, 293 unit resort is situated on the Atlantic Ocean and the Atlantic City Boardwalk and features an outdoor pool, hot tub, game room, exercise room, steam room and sauna.

North Carolina

Foxrun Townhouses – Lake Lure, North Carolina. Located on Lake Lure at the foot of the Blue Ridge Mountains, Foxrun Townhouses offers 75 two-bedroom units with activities including golf, fishing, skiing in the winter and water sports in the spring, summer or fall.

Sandcastle Village II – New Bern, North Carolina. New Bern is located at the intersection of the Trent and Neuse Rivers. Guests can enjoy nearby sailing, boating and water sports, as well as the antique shops in the historic

13


downtown area. The 23 unique and spacious pedestal-style townhomes feature full kitchens, washers and dryers, and fireplaces.

Waterwood Townhouses - New Bern, North Carolina. Secluded in a remote area near historical Tyron Palace, the 29-unit Waterwood Townhouses is perfect for sports, outdoor and nature enthusiasts. This lakefront resort offers two-bedroom suites and an on-site marina, tennis courts, miniature golf and indoor and outdoor pools.

South Carolina

Players Club – Hilton Head Island, South Carolina. Players Club is located on Hilton Head Island, which is famous for its striking natural beauty, expansive beaches and world-class golf and tennis. This 52-unit resort features 28 lighted tennis courts, one of the finest health clubs on the island, and is within walking distance to the beach.

Bluegreen Club Associate Resorts related to our Fee-Based-Service Business

While the vacation ownership business has historically been capital intensive, our goal is to leverage our sales and marketing, mortgage servicing, resort management, title and construction expertise to generate fee-based-service relationships with third parties that produce strong cash flows and require less capital investment.

In connection with the fee-based-service business, we market and sell VOI inventory that was developed by a third party through our distribution network of sales offices for a fee. Because the completed VOI was built by a third party, we are not at risk for the development financing of these projects and we have little to no capital requirements. While there is no assurance we will achieve profitability, our fee is expected to cover our selling and marketing costs, plus a profit. Funds generated from the sales of the third party VOIs are processed through our title company, which is a wholly owned subsidiary that earns title fees in connection with the closing of the VOI transactions. In addition to the sales and marketing of the third party VOIs, we have also signed agreements to manage the operations of the resorts for a fee. We have also in certain instances signed construction consulting agreements to manage the future development of VOI inventory for third parties, and we have signed mortgage servicing agreements to service, for a fee, the portfolio of VOI notes originated from the sales of the third party VOIs. Our goal is to make such fee-based services will become an increasing portion of our resorts business.

The Bluegreen Club Associate Resorts related to our fee-based-service business are resorts in which we are selling VOI’s as Bluegreen Vacation Club interests on behalf of third parties for a fee.

Arizona

Cibola Vista Resort and Spa – Peoria, Arizona. Located between Lake Pleasant and Phoenix, the resort provides the perfect vacation in the American West. This 208 unit resort offers two outdoor pools and water slides, workout facilities, studios, one- and two- bedroom suites with kitchens, fireplaces, and Western decor.

Bahamas

Bluewater Resort at Cable Beach – Cable Beach, Nassau, Bahamas. This 35 unit resort is located on the white sands of Cable Beach in the Nassau suburbs. This oceanfront resort offers two-bedroom suites and an outdoor pool.

New Hampshire

South Mountain Resort – Lincoln, New Hampshire. The resort’s year-round activities paired with the natural beauty of the northeast’s countryside makes South Mountain Resort a great place to vacation. This 69 unit resort offers many on-site amenities, and is a short drive to three separate ski mountains, hiking and biking trails, and many shops and restaurants.

Virginia

Parkside Williamsburg Resort – Williamsburg, Virginia. This 35 unit resort is located only blocks away from Colonial Williamsburg. The resort has accommodations ranging from studio to two-bedroom villas with kitchen and colonial-inspired décor. Nearby attractions include Busch Gardens® Williamsburg and Water Country USA®, as well as the nearby scenic Atlantic beaches, shopping, golf, and water attractions.

14


Future Resorts

As a result of current economic conditions and anticipated reduced sales levels, we believe that we have adequate timeshare inventory to satisfy our projected sales of real estate for 2010 and a number of years thereafter. Accordingly, except in limited instances, we do not plan to acquire or significantly develop additional resort properties. However, we may add and anticipate adding additional resorts to the Bluegreen Vacation Club through our fee-based services business.

Bluegreen Communities

Described below are the communities with the most significant amounts of remaining inventory being marketed by Bluegreen Communities as of December 31, 2009.

North Carolina

Chapel Ridge— Chatham County, North Carolina. In July 2004, we acquired approximately 800 acres of land centrally located between Chapel Hill/Durham, Cary/Apex, Sanford/Siler City and the Triad areas in Chatham County, North Carolina for $5.5 million. Amenities at this golf community include an 18-hole Fred Couples Signature Golf Course, a clubhouse and conservation areas. The golf course and clubhouse have been sold to a third party who, we believe, intends to continue to operate it on a daily-fee basis. General improvements to the homesites at Chapel Ridge include, in most cases, water, sewer, electric, telephone and cable television utilities as well as selective homesite clearing. We began selling homesites at Chapel Ridge in July 2004. During 2006, we acquired 242 acres of land as an addition to Chapel Ridge for $7.4 million. Sales at this addition began in March 2007.

Texas

Lake Ridge at Joe Pool Lake— Cedar Hill, Texas. In April 1994, we acquired 1,400 acres located approximately 19 miles outside of Dallas, Texas and 30 miles outside of Fort Worth, Texas for $6.1 million. In 2000, we acquired an additional 1,766 acres for $14.9 million. The property is located at Joe Pool Lake and is atop the highest elevation within 100 miles. The lake, which is a public recreation area, has in excess of 7,500 acres of water for boating, fishing, windsurfing and other water activities. Adjacent amenities, not owned by us, include a 154-acre park with baseball, football and soccer fields, camping areas and an 18-hole golf course. The existing acreage is expected to yield approximately 2,530 homesites, with most homesites ranging in size from 1/4 to five acres. General improvements on the homesites at Lake Ridge performed by us include, in most cases, water, sewer, electric, telephone and cable television utilities as well as selective homesite clearing. We began selling homesites at Lake Ridge at Joe Pool Lake in April 1994.

King Oaks— College Station, Texas. In September 2006, we acquired a 953-acre parcel in College Station, Texas, located northwest of Houston for $3.1 million. The property is expected to be developed into a community with 432 homesites. General improvements on the homesites at King Oaks being performed by us include, in most cases, water and sewer utilities and selective homesite clearing. We began selling homesites at King Oaks in November 2006.

The Bridges at Preston Crossings— Grayson County, Texas. In March 2006, we acquired 1,580 acres for a planned golf community in Grayson County, Texas, located just outside of Dallas, for $26.1 million. Amenities at this golf community include an 18-hole Fred Couples Signature Golf Course, a clubhouse and conservation areas. The golf course and clubhouse are owned by us and are operated on a daily-fee basis. General improvements being made by us, in most cases, include water, sewer, electric, telephone and cable television utilities as well as selective homesite clearing. We began selling homesites at The Bridges at Preston Crossings in September 2006.

Havenwood at Hunter’s Crossing— New Braunfels, Texas. In July 2005, we acquired approximately 1,263 acres of land in Comal County, Texas with convenient access to Austin and San Antonio, Texas for $7.5 million. This gated community offers premium hilltop homesites on one to three acres of land. Havenwood at Hunter’s Crossing features dense oaks and stunning views of the surrounding Hill Country. General improvements on the homesites at Havenwood at Hunter’s Crossing being made by us include, in most cases, water, sewer, electric, telephone and cable television utilities as well as selective homesite clearing. We began sales of homesites at Havenwood at Hunter’s Crossing in January 2006.

15


Vintage Oaks at the Vineyard— New Braunfels, Texas. In April 2006, we acquired a 3,300-acre parcel in New Braunfels, Texas, which is located just outside San Antonio, for $27.3 million. Amenities at this community are expected to include walking trails, a large pool complex and a park. General improvements on the homesites at Vintage Oaks being performed by us include, in most cases, water and sewer utilities and selective homesite clearing. We began selling homesites at Vintage Oaks in October 2006.

Georgia

Sanctuary Cove at St. Andrew’s Sound— Waverly, Georgia. In November 2003, we acquired 564 acres of land near St. Simons Island in Brunswick County, Georgia for $11.3 million. Amenities at this golf community include an 18-hole Fred Couples Signature Golf Course designed by Love Golf Design, a clubhouse and swimming and tennis facilities. The golf course and clubhouse is owned by us and operated on a daily-fee basis. Sanctuary Cove adjoins approximately 1,000 acres of preserved saltwater marshes and coastal wetlands. General improvements relative to the homesites at Sanctuary Cove being made by us, in most cases, include, water, sewer, electric, telephone and cable television utilities as well as selective homesite clearing. We began selling homesites at Sanctuary Cove in December 2003. In February 2007, we acquired an additional 381 acres of land for $18.0 million to be sold as The Estates, an expansion of Sanctuary Cove.

The following table provides additional information about the significant Bluegreen Communities projects described above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Community

 

Chapel
Ridge

 

Lake Ridge at
Joe Pool Lake

 

King Oaks

 

The Bridges at
Preston
Crossings

 

 

 


 


 


 


 

Location

 

Chatham County,
NC

 

Cedar Hill,
TX

 

College
Station, TX

 

Grayson
County, TX

 

 

 


 


 


 


 

Year acquired (1)

 

 

2004

 

 

1994

 

 

2006

 

 

2006

 

Total acreage

 

 

1,040

 

 

3,166

 

 

953

 

 

1,580

 

Number of homesites anticipated (2)

 

 

849

 

 

2,325

 

 

442

 

 

2,096

 

Percentage of anticipated homesites sold (3)

 

 

79

%

 

51

%

 

36

%

 

7

%

Remaining inventory, at carrying value (in millions) (4)

 

$

7.7

 

$

22.0

 

$

7.6

 

$

40.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Community

 

Sanctuary Cove
at St. Andrews
Sound

 

Havenwood at
Hunter’s
Crossing

 

Vintage Oaks
at the
Vineyard

 

 

 

 

 

 


 


 


 

 

 

 

Location

 

Waverly,
GA

 

New Braunfels,
TX

 

New Braunfels,
TX

 

 

 

 

 

 


 


 


 

 

 

 

Year acquired (1)

 

 

2003

 

 

2005

 

 

2006

 

 

 

 

Total acreage

 

 

881

 

 

1,263

 

 

3,300

 

 

 

 

Number of homesites anticipated (2)

 

 

1,025

 

 

679

 

 

2,066

 

 

 

 

Percentage of anticipated homesites sold (3)

 

 

72

%

 

82

%

 

23

%

 

 

 

Remaining inventory, at carrying value (in millions) (4)

 

$

23.8

 

$

5.6

 

$

30.9

 

 

 

 


 

 

 

 

(1)

Year that we first acquired the land to commence development of each community. Certain communities were acquired in phases.

 

 

 

 

(2)

Number of homesites anticipated within each community. We cannot provide any assurance that we will have the resources, or will decide, to develop such homesites at each community, that required platting and other approvals will be obtained to develop such homesites or that, if developed, such homesites will be sold at favorable prices.

 

 

 

 

(3)

Represents the percentage of anticipated homesites sold through December 31, 2009.

16



 

 

 

 

(4)

Reflects net inventory carrying value, excluding future development expenditures expected to be necessary to complete the communities. See also “Commitments”. This table excludes additional projects currently being marketed by Bluegreen Communities with an aggregate current carrying value of $7.5 million.

While the amount of insurance available may be limited and some policies have significant deductibles, we believe that each of our Bluegreen Communities properties is adequately covered by builder’s risk insurance during the construction period or property and casualty insurance for our owned golf amenities and homesites that are held in our inventory prior to sale to consumers. Once a homesite is sold, the consumer assumes the risk of loss on such homesite. In addition, the applicable property owners’ association bears the risk of loss on any common amenities at each project and carries its own insurance on such property.

Historically, we also have purchased performance bonds in connection with the development of most of our communities in order to provide assurance to homesite buyers that construction of the community will be completed. While there is no assurance that performance bonds will be available, we believe that our ability to obtain such performance bonds assisted us in our pre-construction sales efforts.

We recently organized a real estate advisory services business and intend to pursue opportunities to use our core competencies to provide asset management, market research and other real estate consulting services to third-parties on a fee basis.

Acquisition of Additional Bluegreen Resorts and Bluegreen Communities Inventory

As a result of our current and anticipated reduced sales levels, we believe that we have adequate timeshare and residential homesite inventory to satisfy our 2010 projected sales of real estate, as well as a number of years thereafter. Accordingly, except for certain locations, we have no current plans to acquire or significantly develop additional resorts or communities properties.

Marketing and Sale of Inventory

Bluegreen Resorts

Bluegreen Resorts uses a variety of methods to attract prospective purchasers of VOIs, including selling discount mini-vacations either face-to-face with consumers we meet in connection with various marketing alliances or through telemarketing methods (see further discussion of our marketing alliances below), placing marketing kiosks in retail locations and acquiring the right to market to prospective purchasers from third-party vendors. In addition to attracting new customers, we seek additional sales to existing VOI owners (“Owner Sales”), and referrals of prospective purchasers from existing VOI owners and others. Owner Sales involve relatively less marketing expense and typically result in relatively higher operating margins than sales through other marketing channels. Bluegreen Resorts sometimes provides hotel accommodations or accommodations in one of our resorts to prospective purchasers at reduced rates in exchange for their touring one of our resorts.

In recent years, we have focused on increasing Bluegreen Resorts’ use of “permission” marketing and branding programs. “Permission” marketing methods involve obtaining the prospective purchasers’ permission, directly or indirectly, to contact them in the future regarding an offer to purchase a product or service. Branding involves forming alliances with third-party entities that possess what we believe to be a nationally or regionally known brand name, a good reputation and a customer base with similar demographic characteristics to our target market.

On June 16, 2000, one of our wholly-owned subsidiaries entered into an agreement with Big Cedar, LLC (“Big Cedar”), an affiliate of Bass Pro, Inc. (“Bass Pro”), a vacation ownership development, marketing and sales limited liability company joint venture (the “Joint Venture”). Our subsidiary owns 51% of the Joint Venture and Big Cedar owns 49%. Pursuant to the terms of the original agreement, the Joint Venture has been developing, marketing and selling VOIs at The Bluegreen Wilderness Club at Big Cedar, a 324-unit, wilderness-themed resort adjacent to the Big Cedar Lodge, a luxury hotel resort owned by Big Cedar, on the shores of Table Rock Lake in Ridgedale, Missouri. In December 2007, the agreement was amended to include the development, marketing, and selling of timeshare interests in additional property purchased by the Joint Venture in September 2007 at the nearby Long Creek Ranch at Big Cedar resort. Pursuant to the amended agreement, the Joint Venture will pay Big Cedar a fee upon the sales of newly developed timeshare interests for promotional, marketing, and advertising services.

17


On June 16, 2000, we entered into an exclusive, 10-year marketing agreement with Bass Pro, a privately-held retailer of fishing, marine, hunting, camping and sports gear. Bass Pro is an affiliate of Big Cedar. Pursuant to the agreement, we have the right to market our VOIs at each of Bass Pro’s national retail locations (we were in 52 of Bass Pro’s stores as of December 31, 2009), in Bass Pro’s catalogs and on its web site. We also have access to Bass Pro’s customer lists. In exchange for these services, we compensate Bass Pro based on the overall success of the marketing activities. The amount of compensation is dependent on the level of additional marketing efforts required by us to convert the prospect into a sale and a defined time frame for such marketing efforts. No compensation was paid to Bass Pro on sales made by the Joint Venture. In 2007, 2008, and 2009, we recognized marketing compensation expense to Bass Pro of approximately $6.6 million, $6.1 million, and $4.5 million, respectively. In December 2007, the marketing agreement was amended to extend through January 1, 2015 and also requires us to make a non-interest bearing annual prepayment to Big Cedar on or before January 1 of each year. The prepayment is an advance payment for anticipated commissions to be earned in the upcoming year. The annual prepayment is equal to 100% of the amount of commissions estimated to be generated during the upcoming year, as determined by us and Big Cedar, but not to exceed $5,000,000. No additional commissions are paid to Big Cedar during any year, until the annual prepayment for that year has been fully earned.

Our VOI resorts are staffed with sales representatives, sales managers and an on-site manager who oversees the day-to-day operations, all of whom are our employees. We sponsor ongoing training for our personnel. During the year ended December 31, 2009, total selling and marketing expense for Bluegreen Resorts was $120.0 million, or 45% of the division’s system-wide sales of $264.7 million (including sales of VOIs on behalf of third parties).

It is our policy to require our sales staff to provide each VOI customer with a written disclosure statement regarding the VOI to be sold prior to the time the customer signs a purchase agreement. The purpose of this disclosure statement is to explain relevant information regarding VOI ownership at the resort and memberships in Bluegreen Vacation Club. Pursuant to our policies, the statement must be signed by every purchaser. After deciding to purchase a VOI, a purchaser enters into a purchase agreement and is required to pay us a deposit of at least 10% of the purchase price. See the Notes to Consolidated Financial Statements for a discussion of the impact of timeshare accounting rules on the calculations of the amount of the down payment for purposes of U.S. generally accepted accounting principles. Purchasers are entitled to cancel purchase agreements within required legal rescission periods after execution in accordance with statutory requirements. Substantially all VOI purchasers visit one of our sales offices prior to or at the time of purchasing.

Bluegreen Communities

In general, as soon as practicable after agreeing to acquire a property and during the time period that improvements are being completed, we establish selling prices for the individual homesites. In pricing the homesites, we attempt to take into account such matters as regional economic conditions, consumer demand, quality as a building site, scenic views, road frontage, golf course views (if applicable) and natural features such as lakes, mountains, streams, ponds and wooded areas. We also consider recent sales of comparable homesites in the area. Once selling prices are established and registration requirements are fulfilled, we commence our marketing efforts.

Bluegreen Communities utilizes a variety of marketing mediums. During 2009, we revised our marketing strategy to focus primarily on internet advertising, consumer and broker outreach programs and billboards. Bluegreen Communities also conducts limited direct mail campaigns to market communities through the use of brochures describing available homesites. The success of our marketing efforts depends heavily on the knowledge and experience of our sales personnel. We conduct training programs, periodic sales meetings and site visits by our executive officers. The sales staff is evaluated against performance standards established by our executive officers. Substantially all of a sales representative’s compensation is commission-based.

Our sales staff is required by law to provide each prospective homesite purchaser with a written disclosure statement regarding the property to be sold prior to the time such purchaser signs a purchase agreement. This information statement, which is in the form of a U.S. Department of Housing and Urban Development (“HUD”) lot information statement (“Property Report”), where required, that we generate, that states relevant information with respect to, and risks associated with, the property, a receipt for which must be signed by each purchaser.

After deciding to purchase a homesite, a purchaser enters into a purchase agreement and is required to pay us a deposit of at least 10% of the purchase price. Purchasers are entitled to cancel purchase agreements within specified legal rescission periods after execution in accordance with statutory requirements. The closing of a homesite sale

18


usually occurs two to eight weeks after payment of the deposit. Upon closing of a homesite sale, we typically deliver a warranty deed. Title insurance is available at the purchaser’s expense.

Customer Financing

General

We offer financing of up to 90% of the purchase price of our VOIs to our VOI customers who meet certain Fair Isaac Corporation (“FICO®”) score-based underwriting standards. The typical financing extended by us on a VOI during the year ended December 31, 2009, provided for a term of 10 years and a fixed interest rate. However, we also currently encourage purchasers to opt for a loan term of 5 or 7 years by offering a lower interest rate. In connection with our VOI sales within the Bluegreen Vacation Club, we deliver the property deed to the trustee of the Vacation Club on behalf of the purchaser and secure repayment of the purchaser’s obligation by obtaining a mortgage on the purchaser’s real estate-based VOI.

Sales of VOIs accounted for 92% of our consolidated sales, and approximately 68% of our VOI customers utilized our financing during the year ended December 31, 2009. As a result of strategic initiatives implemented in the fourth quarter of 2008, we have realized higher down payments and a higher percentage of cash sales with our VOI customers compared to prior years, and, including down payments received on financed sales, 45% of our sales were received in cash within approximately 30 days from contract (see “Liquidity and Capital Resources” for more details). For the past several years less than 1% of all Bluegreen Communities customers have utilized our financing due to, among other things, a historic willingness on the part of banks to extend direct homesite financing to purchasers. Should bank financing of homesite purchases become less available to our consumers, we anticipate that we may need to provide financing to a greater percentage of Bluegreen Communities’ customers in order to consummate sales. If we choose to finance certain homesite sales, it could have an adverse effect on our cash flows.

See “Industry Overview – The Consumer” more information about the demographic profile of our typical customer. See “Sale of Receivables/Pledging of Receivables,” below, for information regarding our receivable financing activities.

Loan Underwriting

Bluegreen Resorts

Prior to December 15, 2008, our VOI financing was not subject to any significant loan underwriting criteria and no FICO® score was obtained prior to extending credit. Instead, customer financing on sales of VOIs typically only required the following: (1) receipt of a minimum down payment of 10% of the purchase price; (2) a note and mortgage (or deed of trust); and, (3) other closing documents by the purchaser and ourselves.

Based on a review conducted in October 2008, the range of FICO® scores of our entire outstanding portfolio of originated and serviced VOI receivables for those consumers with known FICO® scores as of that date were as follows:

 

 

 

 

 

FICO®Score

 

Percentage of
originated and
serviced VOI
receivables

 


 


 

Below 575

 

 

19.2

%

Between 575 and 619

 

 

11.2

%

Between 620 and 700

 

 

31.1

%

Above 700

 

 

38.5

%

Effective December 15, 2008, we implemented a FICO® score-based credit underwriting program. Following implementation, we no longer provided financing to customers with FICO® scores below 500 and customers with FICO® scores between 500 and 599 were required to make a minimum cash down payment of 20%. For loans originated from December 15, 2008 through December 31, 2009, FICO® scores at the point of sale reflected a weighted average of 701 and were as follows:

19



 

 

 

 

 

FICO®Score

 

Percentage of
originated and
serviced VOI receivables

 


 


 

Below 575

 

 

7.4

%

Between 575 and 619

 

 

8.4

%

Between 620 and 700

 

 

30.7

%

Above 700

 

 

53.5

%

Effective January 1, 2010, we further increased our credit underwriting standards and will no longer provide financing to potential buyers with FICO® scores below 575.

We also encourage purchasers to make higher down payments by offering lower interest rates on our financing. In addition, we encourage buyers to participate in our pre-authorized checking payment plan by charging 1% higher interest rate on those customers who choose not to participate, where allowed by applicable laws and regulations. As of December 31, 2009, approximately 84% of our VOI notes receivable serviced were on our pre-authorized payment plan.

The weighted-average interest rate on our serviced notes receivable by division was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 


 

Division

 

2008

 

2009

 


 


 


 

 

 

Loans originated
before
November 1,
2008

 

Loans originated
on or after
November 1,
2008

 

Loans originated
before
November 1,
2008

 

Loans originated
on or after
November 1,
2008

 


 


 


 


 


 

Bluegreen Resorts (1)

 

 

14.9

%

 

15.3

%

 

15.0

%

 

15.4

%

Bluegreen Communities

 

 

10.1

%

 

%

 

9.1

%

 

7.1

%

Consolidated

 

 

14.8

%

 

15.3

%

 

15.0

%

 

15.4

%

(1)

Includes loans in our one year term, 50% down program, that carry an interest rate below 10%.



Effective November 1, 2008, we increased the interest rates charged on new loans. We believe that the weighted-average interest rate on our portfolio will also increase over time.

Bluegreen Communities

At Bluegreen Communities, we have established loan underwriting criteria and procedures designed to reduce credit losses. The loan underwriting process undertaken by our credit department may include reviewing the applicant’s credit history and credit score, verifying employment and income as well as calculating certain debt-to-income ratios. The primary focus of our underwriting review is to determine the applicant’s ability to repay the loan in accordance with its terms.

Collection Policies

Bluegreen Resorts

Financed sales of VOIs sold through the Bluegreen Vacation Club typically originated by us utilize a note and mortgage. Collection efforts related to the timeshare loans are managed by us and are handled by a staff of experienced collectors, assisted by a mortgage collection computer system. Our collectors are incentivized through a performance-based compensation program. Technological capabilities include automated lock box, credit card and clearing house processing. The goal of our collection policy is designed to maximize cash flow and assist each customer with the management of his or her account, subject to limitations as may be imposed by lenders who hold security interests in such loans or by other note issuers who acquire such loans.

We generally make collection efforts to customers by mail and by telephone. Telephone contact generally commences when an account is as few as 10 days past due. A 30-day collection letter is sent to U.S. residents advising the customer that if the loan is not brought current, the delinquency will be reported to the credit reporting

20


agencies. At 60 days delinquent, we send a lockout letter, return receipt requested and regular mail, to the customer advising that they cannot make any future reservations for lodging at a resort. If the delinquency continues, at 90 days past due, we stop the accrual of, and reverse previously accrued, but unpaid, interest on the note receivable and mail a “Notice of Intent to Cancel Membership”, return receipt requested and regular mail, which informs the customer that unless the delinquency is cured within 30 days, we will terminate the customer’s VOI ownership. If the customer fails to respond to the correspondence within the given timeframe, the loan will be defaulted and the customer’s VOI terminated. At approximately 120 days delinquent, we send a final letter by regular mail. In certain limited circumstances, the account may be reviewed by the collection manager to determine if additional correspondence should be sent offering repayment options. If the customer does not enter into a payment arrangement, then the customer’s VOI ownership is terminated. Thereafter, we seek to resell the VOI to a new purchaser. Historically, we have typically not sought to collect a deficiency on defaulted promissory notes.

Bluegreen Communities

Collection efforts and delinquency information concerning Bluegreen Communities’ notes receivable are managed at our corporate headquarters. Our collectors are incentivized through a performance-based compensation program. Collection efforts by mail and telephone generally begin when an account is 16 days past due, at which time we contact the customer by telephone and attempt to determine the reason for the delinquency and bring the account current. The determination of how to handle a delinquent loan is based upon many factors, including the customer’s payment history and the reason for the current inability to make timely payments. If the customer does not abide by an agreed-upon collection agreement, or if no agreement is reached, collection efforts continue until the account is either brought current or legal action is commenced. If not accelerated sooner, we typically declare the loan in default when the loan becomes 60 days delinquent. When the loan is 90 days past due, we stop the accrual of, and reverse previously accrued but unpaid, interest (unless the loan is deemed to be an in-substance foreclosure loan, in which case all accrued interest is reversed since our means of recovery is determined through the resale of the underlying collateral and not through collection on the note) and the collection manager determines any further action required to be taken, which may include obtaining a deed in lieu of foreclosure or initiating foreclosure proceedings.

Loan Loss Reserves

The following table summarizes our allowance for loan losses by division as of December 31, 2008 and 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

%

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

351,232

 

$

4,901

 

$

356,133

 

Allowance for loan losses

 

 

(46,302

)

 

(524

)

 

(46,826

)

 

 



 



 



 

Notes receivable, net

 

$

304,930

 

$

4,377

 

$

309,307

 

 

 



 



 



 

Allowance as a % of gross notes receivable

 

 

13

%

 

11

%

 

13

%

 

 



 



 



 

We determine the adequacy of our reserve for loan losses and review it on a regular basis considering, among other factors, historical frequency of default, loss experience, static pool analyses, estimated value of the underlying collateral, current delinquency rates, present and expected economic conditions. Under timeshare accounting rules, we estimate uncollectibles based on historical uncollectibles for similar VOI notes receivable and do not consider the value of the underlying collateral.

We believe that unemployment in the United States and economic conditions in general will continue to adversely impact the performance of our notes receivable portfolio. We anticipate, however, that our stronger credit

21


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 acquiring 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 reacquired and resold in the normal course of business, partially mitigating the loss from the default. Typically, these recoveries range from approximately 40% to 100% of the defaulted principal balance depending on the age of the receivable at the time of default. We periodically, but are not obligated to, remarket the defaulted VOI on behalf of the note holder in exchange for a remarketing fee designed to approximate our sales and marketing costs.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about the performance of our notes receivable portfolio.

Sales of Receivables/Pledging of Receivables

During the years ended December 31, 2007, 2008 and 2009, all of our notes receivable sold or transferred and the majority of our notes receivable pledged consisted of notes receivable generated by Bluegreen Resorts.

From 1986 through 2008, we sold or pledged a significant amount of our receivables, generally retaining the right and obligation to service such receivables. In the case of Bluegreen Communities’ receivables pledged to a financial institution, we generally must maintain a debt-to-eligible collateral rate (based on the outstanding principal balance of the pledged loans) of 85% to 90%. We are obligated to pledge additional eligible receivables or make additional principal payments in order to maintain this collateralization rate.

Historically we have maintained various vacation ownership receivables purchase facilities with financial institutions. Our ability to sell and/or borrow against our notes receivable from VOI buyers has been a critical factor in our continued liquidity. The vacation ownership business generally involves making sales of a vacation product where a buyer is only required to pay a minimum of 10% to 20% of the purchase price up front, while at the same time selling, marketing and administrative expenses are primarily cash expenses. For the year ended December 31, 2009, these expenses approximated 52% of sales. Accordingly, having facilities for the sale and hypothecation of these vacation ownership receivables has been a critical factor to our meeting our short- and long-term cash needs. See “Liquidity and Capital Resources” for further discussion of these factors in light of the current conditions in the commercial credit markets.

The vacation ownership receivables purchase facilities that we have historically maintained have typically utilized an owner’s trust structure. Pursuant to this structure, we sell receivables to one of our wholly-owned, special purpose finance subsidiary. These subsidiaries then sell the receivables to an owner’s trust (a qualified special purpose entity) without recourse to us or our subsidiaries, except for breaches of certain representations and warranties at the time of sale. We historically have not entered into any guarantees in connection with our vacation ownership receivables purchase facilities. These facilities usually have detailed requirements with respect to the eligibility of receivables for purchase and fundings under these facilities are typically subject to certain conditions precedent. Under such purchase facilities, a variable purchase price of a portion of the principal balance of the receivables sold, subject to certain terms and conditions, is paid at closing in cash. The balance of the purchase price is deferred until such time as the purchaser of our vacation ownership receivables has received a specified return and all servicing, custodial, agent and similar fees and expenses have been paid and, if applicable, a specified overcollateralization ratio is achieved and a cash reserve account is fully funded. We have historically acted as servicer of the vacation ownership receivables we have sold under these purchase facilities for a fee.

Our vacation ownership receivables purchase facilities typically include various conditions to purchase, covenants, trigger events and other provisions customary for these types of transactions.

A 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 and the related retained interests in the notes receivable sold were recorded on our consolidated balance sheet at the time of sale. The amount of gains recognized and the fair value of the retained interests recorded were based in part on management’s best estimates of future prepayment rates, default rates, loss severity rates, discount rates and other considerations in light of then-current conditions. If actual prepayments with respect to loans occur more quickly than we projected at the time such loans were sold, as can occur when interest rates decline, interest income would be less than expected and may cause a decline in the

22


fair value of the retained interests and a charge to operations. If actual defaults or loss severity rates discussed above with respect to loans sold are greater than estimated, charge-offs would exceed previously estimated amounts and the cash flow from the retained interests in notes receivable sold would decrease. Also, to the extent the portfolio of receivables sold fails to satisfy specified performance criteria (as may occur due to, for example, an increase in default rates which we are unable to mitigate through the purchase of certain defaulted loans, or substitution thereof, for new notes receivable) or certain other events occur, the funds received from obligors must be distributed on an accelerated basis to investors. If the accelerated payment formula were to become applicable, the cash flow to us from the retained interests in notes receivable sold would be reduced until the outside investors were paid or the regular payment formula was resumed. In addition, from time to time, we may agree to defer receiving all or a portion of our deferred payment on certain of our retained interests in notes receivable sold to maintain acceptable ratings from third party rating agencies. Also, as market conditions change, the discount rates that we use to value our retained interests in notes receivable sold may change. 

We have historically chosen to monetize our receivables through various facilities and through periodic term securitization transactions, as these arrangements provided us with cash inflows at competitive rates without adding leverage to our balance sheet or retaining recourse for losses on the receivables sold. In addition, these sale transactions have historically generated gains on our income statement on a periodic basis, which would not be realized under a traditional financing arrangement. Although sales of our receivables pursuant to vacation ownership receivables purchase facilities have historically been deemed “true sales” from a legal perspective, the accounting for such transactions could be either as off-balance sheet sales or as on-balance sheet borrowings, depending on the structure of the particular transaction. In our disclosures with respect to each vacation ownership receivables purchase facility, we indicate how these transactions were treated for accounting purposes.

During the year ended December 31, 2009, we recognized an other-than-temporary decrease of approximately $1.1 million in the fair market value of our retained interest in VOI notes receivable. The overall decrease in the value of our retained interests in VOI notes receivable in 2009 reflects an increase in the discount rates applied to estimated future cash flows on our retained interests as a result of the overall increase in return required by investors in our securitization transactions due to the deteriorating credit market in recent years.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (which has subsequently been renamed ASC 810), which became effective for us on January 1, 2010.  ASC 810 addresses the effects of eliminating the qualified special purpose entity (“QSPE”) concept and responds to concerns about the application of certain key provisions of previous accounting rules, including concerns over the transparency of an enterprise’s involvement with variable interest entities (“VIEs”).  As a result of the adoption of this pronouncement on January 1, 2010, we expect that we will in the future be required to consolidate our QSPEs described in Note 4 to our consolidated financial statements. Accordingly, we expect to record a one-time non-cash after-tax adjustment to shareholders’ equity in the first quarter of 2010 of approximately $35.0 million to $55.0 million as a cumulative effect of a change in accounting principle. The cumulative effect will consist primarily of the reversal of previously recognized sales of notes receivable, the recognition of the related non-recourse receivable-backed notes payable, the elimination of retained interest in notes receivable sold, and adjustments to inventory and deferred income taxes payable as a result of these changes. We anticipate that our adoption of these standards will have the following impacts on our balance sheet: (1) assets will increase by approximately $335.0 million to $345.0 million; (2) liabilities will increase by approximately $380.0 million to $390.0 million; and (3) shareholders’ equity will decrease by approximately $35.0 million to $55.0 million. 

Receivables Servicing

Receivables servicing includes collecting payments from borrowers and remitting such funds to the owners, lenders or investors in such receivables, accounting for principal and interest on such receivables, making advances when required, contacting delinquent borrowers, terminating a membership in our vacation club in the event that defaults are not remedied, and performing other administrative duties. Our obligation to service the receivables and our right to collect fees for a given pool of receivables are set forth in a servicing agreement. We have the obligation and right to service all of the receivables we originate and have retained the obligation and right with respect to the receivables we have sold under any of our vacation ownership receivable purchase facilities to date. However, in certain circumstances the purchasers may elect to appoint a new servicer. We typically receive an annual servicing fee of approximately 1.5% to 2.0% of the principal balance of the loans serviced on behalf of others. During the years ended December 31, 2007, 2008, and 2009, we recognized aggregate servicing fee income of $8.7 million, $9.4 million and $7.6 million, respectively.

23


Regulation

The vacation ownership and real estate industries are subject to extensive and complex federal, state, and local governmental regulation. We are subject to various federal, state, local and foreign environmental, zoning, consumer protection and other statutes and regulations regarding the acquisition, subdivision, marketing and sale of real estate and VOIs and various aspects of our financing operations. On a federal level, the Federal Trade Commission has taken an active regulatory role through the Federal Trade Commission Act, which prohibits unfair or deceptive acts or unfair competition in interstate commerce. In addition, many states have what are known as “Little FTC Acts” that apply to intrastate activity. In addition to the laws applicable to our customer financing and other operations discussed below, we are or may be subject to the Fair Housing Act and various other federal statutes and regulations. We are also subject to various foreign laws with respect to La Cabana Beach and Racquet Club in Oranjestad, Aruba. In addition, there can be no assurance that in the future, VOIs will not be deemed to be securities subject to regulation as such, which could have a material adverse effect on us. There is no assurance that the cost of complying with applicable laws and regulations will not be significant or that we will maintain compliance at all times with all applicable laws, including those discussed below. Any failure to comply with current or future applicable laws or regulations could have a material adverse effect on us. See “Item 1A – Risk Factors” for a description of risks with respect to regulatory compliance and “Item 3 – Legal Proceedings” for a description of pending regulatory action.

Our sales and marketing of homesites are subject to various consumer protection laws and to the Federal Interstate Land Sales Full Disclosure Act, which establishes strict guidelines with respect to the marketing and sale of land in interstate commerce. The HUD enforces this statute. In some instances, we have been exempt from HUD registration requirements because of the size or number of the subdivided parcels and the limited nature of our offerings. In those cases where we determine parcels must be registered to be sold, we file registration materials disclosing information concerning the property, evidence of title and a description of the intended manner of offering and advertising such property. We bear the cost of such registration, which includes legal and filing fees. Many states also have statutes and regulations governing the sale of real estate. Consequently, we regularly consult with counsel regarding requirements for complying with federal, state and local law. We must obtain the approval of numerous governmental authorities for our acquisition and marketing activities and, changes in local circumstances or applicable laws may necessitate the application for, or the modification of, existing approvals.

Our vacation ownership resorts are subject to various regulatory requirements including state and local approvals. The laws of most states require us to file a detailed offering statement describing our business and all material aspects of the project and sale of VOIs with a designated state authority. Laws in each state where we sell VOIs generally grant the purchaser of a VOI the right to cancel a purchase contract at any time within a specified rescission period following the earlier of the date the contract was signed or the date the purchaser has received the last of the documents required to be provided by us. Most states have other laws that regulate our activities, including: real estate licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes laws; and, labor laws. In addition, certain state and local laws may impose liability on property developers with respect to construction defects discovered or repairs made by future owners of such property. Under these laws, we may be required to pay for repairs to the developed property. As required by state laws, we seek to provide our VOI purchasers with a public disclosure statement that contains, among other items, detailed information about the surrounding vicinity, the resort and the purchaser’s rights and obligations as a VOI owner. The development, management, and operation of our resorts are subject to various federal, state and local laws and regulations, including the Americans with Disabilities Act.

Under various federal, state and local laws, ordinances and regulations, the owner of real property generally is liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, the property, as well as related costs of investigation and property damage. These laws often impose such liability without regard to whether the owner knew of the presence of such hazardous or toxic substances. The presence of these substances, or the failure to properly remediate these substances if they exist, may adversely affect the owner’s ability to sell or lease a property or to borrow using the real property as collateral. Other federal and state laws require the removal or encapsulation of asbestos-containing material when this material is in poor condition or in the event of construction, demolition, remodeling or renovation. Other statutes may require the removal of underground storage tanks. Noncompliance with these and other environmental, health or safety requirements may result in the need to cease or alter operations at a property.

Our customer financing activities are also subject to extensive regulation, which can include, but are not limited to: the Truth-in-Lending Act and Regulation Z; the Fair Housing Act; the Fair Debt Collection Practices Act; the Equal

24


Credit Opportunity Act and Regulation B; the Electronic Funds Transfer Act and Regulation E; the Home Mortgage Disclosure Act and Regulation C; Unfair or Deceptive Acts or Practices and Regulation AA; the Patriot Act; the Right to Financial Privacy Act; the Gramm-Leach-Bliley Act; the Fair and Accurate Credit Transactions Act; and anti-money laundering laws, among others.

During the year ended December 31, 2009, approximately 4% of our VOI sales were generated by marketing to prospective purchasers obtained through internal and affiliated telemarketing efforts. In addition, approximately 7% of our VOI sales during the year ended December 31, 2009, were generated by marketing to prospective purchasers obtained from third-party VOI prospect vendors, many of whom use telemarketing operations to generate these prospects. We attempt to monitor the actions and compliance of these third parties but there are risks associated with their use. In recent years, state regulators have increased regulations and enforcement actions related to telemarketing operations, including requiring the adherence to state “do not call” laws. In addition, the Federal Trade Commission has implemented national “do not call” legislation. These measures have significantly increased the costs associated with telemarketing. While we continue to be subject to telemarketing risks and potential liability, we believe that our exposure to adverse impacts from this heightened telemarketing legislation and enforcement has been and will continue to be mitigated in some instances by the use of “permission marketing”, whereby we obtain the permission of prospective purchasers to contact them in the future. We have implemented procedures which we believe will help reduce the possibility that individuals who have requested to be placed on a federal or state “do not call” lists are not contacted, but there can be no assurance that such procedures will be effective in ensuring regulatory compliance.

To date, we have not been subject to any material fines or penalties as a result of our telemarketing operations but from time to time we have been the subject of proceedings for violation of the “do not call” laws and for violation of state laws applicable to the marketing and sale of VOIs, and there is no assurance that we will be able to efficiently or effectively market to prospective purchasers through telemarketing operations in the future or that we will be able to develop alternative sources of prospective purchasers of our VOI products at acceptable costs. In addition there is no assurance that we would not be required to address significant non-compliance issues in the future.

Competition

Bluegreen Resorts competes with various high profile and well-established operators, many of which have greater liquidity and financial resources than we do. Many of the world’s most recognized lodging, hospitality and entertainment companies develop and sell VOIs in resort properties. Major companies that now operate or are developing or planning to develop vacation ownership resorts directly or through subsidiaries include Marriott International, Inc., the Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Starwood Hotels and Resorts Worldwide, Inc. and Wyndham Worldwide Corporation. We also compete with numerous other smaller owners and operators of vacation ownership resorts. In addition to competing for sales leads, prospects and service contracts, we compete with other VOI developers for marketing, sales, and resort management personnel. Bluegreen Communities competes with builders, developers and others for the acquisition of property and with local, regional and national developers, homebuilders and others with respect to the sale of homesites. We will compete with others on the basis of our reputation and the price, location and quality of the products we offer for sale.

Our golf courses face competition for business from other operators of daily fee and, to a lesser extent, private golf courses within the local markets where we operate. Competition in these markets affects the rates that we charge per round of golf, the level of maintenance on the golf courses and the types of additional amenities available to golfers, such as food and beverage operations.

Website Access to Exchange Act Reports

We post publicly available reports required to be filed with the Securities Exchange Commission (“SEC”) on our website, www.bluegreencorp.com, as soon as reasonably practicable after filing such reports with the SEC. We also make available on our website the beneficial ownership reports (Forms 3, 4 and 5) filed by our officers, directors and other reporting persons under Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”). Our website and the information contained therein or connected thereto are not incorporated into this Annual Report.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The website address for this site is www.sec.gov.

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Personnel

As of December 31, 2009, we had 3,651 employees, of which 386 were located at our headquarters in Boca Raton, Florida, and 3,265 were located in regional field offices throughout the United States and Aruba (the field personnel include 85 field employees supporting Bluegreen Communities and 3,180 field employees supporting Bluegreen Resorts). Several employees in New Jersey are represented by a collective bargaining unit. We believe that our relations with our employees are satisfactory.

Executive Officers

The following table sets forth certain information regarding our executive officers as of March 1, 2010:

 

 

 

 

 

 

Name

 

Age

 

Position

 


 


 


 

 

 

 

 

 

 

John M. Maloney, Jr.

 

48

 

President and Chief Executive Officer

 

 

 

 

 

 

 

Anthony M. Puleo

 

41

 

Senior Vice President, Chief Financial Officer and Treasurer; President, Bluegreen Treasury Services

 

 

 

 

 

 

 

David L. Pontius

 

54

 

Senior Vice President; President, Bluegreen Management Services

 

 

 

 

 

 

 

David Bidgood

 

52

 

Senior Vice President; President, Bluegreen Resorts Field Sales & Marketing

 

 

 

 

 

 

 

Daniel C. Koscher

 

52

 

Senior Vice President; President and Chief Executive Officer of Bluegreen Communities

 

 

 

 

 

 

 

Susan J. Saturday

 

50

 

Senior Vice President and Chief Human Resources Officer

 

John M. Maloney, Jr. joined us in 2001 as Senior Vice President of Operations and Business Development for Bluegreen Resorts. In May 2002, Mr. Maloney was named Senior Vice President of the Company and President of Bluegreen Resorts. He was appointed Executive Vice President and Chief Operating Officer in November 2005 and President and Chief Executive Officer in January 2007. Prior to Bluegreen, Mr. Maloney served in various positions with ClubCorp, including Senior Vice President of Sales and Marketing for the Owners Club by ClubCorp, and held various positions with Hilton Grand Vacations Company, including the Director of Sales and Marketing for the South Florida area.

Anthony M. Puleo joined us in 1997 as Chief Accounting Officer. Mr. Puleo was appointed Vice President in 1998 and Senior Vice President in 2004. Mr. Puleo served as Interim Chief Financial Officer from April through August 2005. In August 2005, he was appointed Chief Financial Officer and Treasurer. In January 2010, he was appointed President of Bluegreen Treasury Services. From December 1990 through October 1997, Mr. Puleo held various positions with Ernst & Young LLP, including Senior Manager in the Assurance and Advisory Business Services group. Mr. Puleo holds a B.B.A. in Accounting and is a Certified Public Accountant.

David L. Pontius joined us in 2007 as Senior Vice President of the Company and President of Bluegreen Resorts. In December 2008, Mr. Pontius was appointed President of Bluegreen Management Services. From 2002-2007, Mr. Pontius worked at Wyndham Vacation Ownership, Inc. and its sister company RCI Global Vacation Network (RCI). From 2006-2007, he served as Executive Vice President, Hospitality, Strategic Planning and Chief Customer Officer at Wyndham Vacation Ownership. From 2002-2006, Mr. Pontius served as President and CEO of RCI North America. From 1996-2002, Mr. Pontius served in positions of increasing responsibilities at Hilton Grand Vacations where he finished as Senior Vice President of Operations. From 1992-1996, Mr. Pontius served as Chief Operating Officer of Vacation Internationale, one of the pioneer companies in timesharing and points-based clubs.

David Bidgood joined us in 1997 as Vice President for Bluegreen’s Midwest Region and the Senior Vice President for the Midwest and Tennessee Region with Bluegreen’s acquisition of RDI Group. In December 2000, Mr. Bidgood was promoted to Senior Vice President, National Sales Director Bluegreen Resorts Division. In 2007, Mr.

26


Bidgood was promoted to Executive Vice President of National Sales and Marketing and became an officer of Bluegreen Corporation. In December 2008, Mr. Bidgood was appointed President, Bluegreen Resorts Field Sales & Marketing. Prior to joining Bluegreen, Mr. Bidgood held a variety of positions and has been involved in all aspects of resort development.

Daniel C. Koscher joined us in 1986. During his tenure, he has served in various financial management positions including Chief Accounting Officer and Vice President and Director of Planning/Budgeting. In 1996, he became Senior Vice President of the Company and President of Bluegreen Communities. In November 2005, Mr. Koscher was appointed President and Chief Executive Officer of Bluegreen Communities. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting and is a Registered Resort Professional.

Susan J. Saturday joined us in 1988. During her tenure, she has held various management positions with us, including Assistant to the Chief Financial Officer, Divisional Controller and Director of Accounting. In 1995, she was appointed Vice President and Director of Human Resources and Administration. In 2004, Ms. Saturday was appointed Senior Vice President and Chief Human Resources Officer. From 1983 to 1988, Ms. Saturday was employed by General Electric Company in various financial management positions. Ms. Saturday holds a B.B.A. in Accounting and an M.S. in Human Resource Management.

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Item 1A. RISK FACTORS.

We are subject to various risks and uncertainties relating to or arising out of the nature of our business and general business, economic, financing, legal and other factors or conditions that may affect us. Moreover, we operate in a very competitive, highly regulated and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to either predict all risk factors, or assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may affect our business. These risks and uncertainties include, but are not limited, to the risk factors set forth below and those identified elsewhere in this Annual Report on Form 10-K, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Investors should also refer to our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (available on our website and the SEC’s website) in future periods for information relating to risks and uncertainties with respect to us and our business.

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

Our business has been adversely affected by unfavorable general economic and industry conditions, including effects of weak domestic and world economies, rising unemployment and job insecurity, a decrease in discretionary spending, a decline in housing values, limited availability of financing, and geopolitical conflicts. If such conditions continue, or deteriorate further, our business and results may continue to be adversely impacted, particularly if the availability of financing for us or for our customers continues to be limited or if changes in general economic conditions adversely affect our customers’ ability to pay amounts owed under our notes receivable. Further, because our operations are conducted mainly within the vacation ownership industry, any adverse changes affecting the industry, such as an oversupply of vacation ownership units, a reduction in demand for such units, changes in travel and vacation patterns, changes in governmental regulation of the industry, continued disruptions in the credit markets and unavailability of financing, imposition of increased taxes by governmental authorities, the declaration of bankruptcy and/or credit defaults by other vacation ownership companies and negative publicity for the industry, could also have a material adverse effect on our business.

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

Historically, we did not perform credit checks of the purchasers of our VOIs at the time of sale in connection with our financing of their purchases. From time to time, however, we obtained FICO® scores on the overall VOI portfolio originated by us. Based on a review conducted in October 2008, approximately 30.4% of VOI borrowers in our serviced loan portfolio had a FICO® score below 620. Effective December 15, 2008, we implemented a formal FICO® score based credit underwriting program. However, there is no assurance that any of these FICO® score-based underwriting standards will result in decreased default rates or otherwise improve the performance of our receivables. Conditions in the mortgage industry, including both credit sources as well as borrowers’ financial profiles, have deteriorated in recent years. As of December 31, 2009, approximately 5.4% of our vacation ownership receivables and approximately 22.5% of residential land receivables which we held or which third parties held under sales transactions were more than 30 days past due. Although in many cases we may have recourse against a buyer for the unpaid purchase price, certain states have laws that limit our ability to recover personal judgments against customers who have defaulted on their loans or the cost of doing so may not be justified. Historically, we have generally not pursued such recourse against our customers. In the case of our VOI receivables, if we are unable to collect the defaulted amount due, we traditionally have terminated the customer’s interest in the Bluegreen Vacation Club and then remarketed the recovered VOI. Irrespective of our remedy in the event of a default, we cannot recover the marketing, selling and administrative costs associated with the original sale, and we would have to incur such costs again to resell the VOI or homesite. If default rates for our borrowers increase further, it may require an increase in the provision for loan losses and an impairment of the value of our retained interests in notes receivable sold. In addition, it may cause buyers of, or lenders whose loans are secured by, our VOI notes receivable to reduce the amount of availability under receivables purchase and credit facilities, or to increase the interest costs associated with such facilities. In such an event, the cost of financing may increase and we may not be able to secure financing on terms acceptable to us, if at all, which would adversely affect our earnings, financial position and liquidity.

Under the terms of our pledged and receivable sale facilities, we may be required, under certain circumstances, to replace receivables or to pay down the loan to within permitted loan-to-value ratios. Additionally, the terms of our securitization-type transactions i.) require us to repurchase or replace loans if we breach any of the representations

28


and warranties we made at the time we sold the receivables and ii.) include provisions that in the event of defaults by customers in excess of stated thresholds would require substantially all of our cash flow from our retained interest in the receivable portfolios sold to be paid to the parties who purchased the receivables from us.

Further, if defaults and other performance criteria adversely differ from estimates used to value our retained interests in notes receivable sold in the securitization transactions, we may be required to write down these assets, which could have a material adverse effect on our results of operations. Accordingly, we bear some risks of delinquencies and defaults by buyers who finance the purchase of their VOIs or residential land through us, regardless of whether or not we sell or pledge the buyer’s loan to a third party.

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

We offer financing of up to 90% of the purchase price to purchasers of our VOIs and homesites. Approximately 68% of our VOI customers and approximately 6% of our homesite customers utilized our in-house financing during the year ended December 31, 2009. However, we incur selling, marketing and administrative cash expenditures prior to and concurrent with the sale. These costs generally exceed the down payment we receive at the time of the sale. Accordingly, our ability to borrow against or sell the notes receivable we receive from our customers has been a critical factor in our continued liquidity.

We have also been a party to a number of customary securitization-type transactions under which we sell receivables to a wholly-owned special purpose entity which, in turn, sells the receivables to a trust established for the transaction. We typically recognized gains on the sale of receivables and such gains have historically comprised a significant portion of our income. In recent years, the markets for notes receivable facilities and receivable securitization transactions were negatively impacted by problems in the residential mortgage markets and credit markets in general and an associated reduction in liquidity which resulted in reduced availability of financing and less favorable pricing. If our pledged receivables facilities terminate or expire and we are unable to replace them with comparable facilities, or if we are unable to continue to participate in securitization-type transactions on acceptable terms, our liquidity, cash flow, and profitability would be materially and adversely affected. If any of our current facilities terminate or expire, there is no assurance that we will be able to negotiate the pledge or sale of our notes receivable at favorable rates, or at all.

While we have attempted to restructure our business to reduce our need for and reliance on financing for liquidity in the short term, there is no assurance that such restructuring will be successful or that our business and profitability will not otherwise continue to depend on our ability to obtain financing, which may not be available on favorable terms, or at all.

We have historically depended on funds from our credit facilities and securitization transactions to finance our operations. In recent years, there have been unprecedented disruptions in the credit markets, which has made obtaining additional and replacement external sources of liquidity more difficult and more costly. The term securitization market has experienced significantly reduced volumes in recent years 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 be either be exiting the finance business or will not be entering into new financing commitments for the foreseeable future, although such lenders continue to honor existing commitments. In addition, financing for real estate acquisition and development and the capital markets for corporate debt have been generally unavailable. In response to these conditions, we adopted strategic initiatives in an attempt to conserve cash. Further, because we had debt facilities maturing or requiring partial repayment in 2009 and 2010, as well as facilities for which the advance period has or will expire, the implementation of our strategic initiatives was needed to address these matters with our lenders. However, there is no assurance that our implementation of these strategic initiatives will enhance our financial position or otherwise be successful. If these initiatives do not have their intended results, our financial condition may be materially and adversely impacted.

In addition, notwithstanding our implementation of the strategic initiatives described above, we anticipate that we will continue to finance our future business activities, in part, with funds that we obtain pursuant to additional borrowings under our existing credit facilities, under credit facilities that we may obtain in the future, under securitizations in which we may participate in the future or pursuant to other borrowing arrangements. Moreover, we are, and will be, required to seek continued external sources of liquidity to:

29



 

 

 

 

support our operations;

 

 

 

 

finance the acquisition and development of VOI inventory and residential land;

 

 

 

 

finance a substantial percentage of our sales; and

 

 

 

 

satisfy our debt and other obligations.

Our ability to service or to refinance our indebtedness or to obtain additional financing (including our ability to consummate future notes receivable securitizations) depends on the credit markets and on our future performance, which is subject to a number of factors, including the success of our business, results of operations, leverage, financial condition and business prospects, prevailing interest rates, general economic conditions and perceptions about the residential land and vacation ownership industries. We have approximately $87.5 million of indebtedness which becomes due during 2010. While we have received a non-binding term sheet to refinance $40.2 million of this amount, which would reduce our contractual obligations less than one year by $26.6 million, there can be no assurances that this transaction will close on favorable terms, if at all. Historically, much of our debt has been renewed or refinanced in the ordinary course of business. But there is no assurance that we will be able to obtain sufficient external sources of liquidity on attractive terms, or at all, or otherwise renew, extend or refinance a significant portion of our outstanding debt. Any of these occurrences may have a material and adverse impact on our liquidity and financial condition.

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

A portion of our revenue historically has been comprised of gains on sales of notes receivable in off-balance sheet arrangements. The amount of any gains recognized and the fair value of the retained interests recorded were based in part on management’s best estimates of future prepayment, default and loss severity rates, discount rates and other considerations in light of then-current conditions. Our results of operations and financial condition could be adversely affected if, among other things:

 

 

 

 

actual prepayments with respect to loans sold occur more quickly than was projected;

 

 

 

 

actual defaults and/or loss severity rates with respect to loans sold are greater than estimated;

 

 

 

 

the portfolio of receivables sold fails to satisfy specified performance criteria; or

 

 

 

 

conditions in the securitization market continue to result in a widening of interest spreads, causing the discount rates used to value our retained interest in notes receivable sold to increase.

If any of these situations were to occur, it could cause a decline in the fair value of the retained interests and a charge to earnings currently. Further, in certain events the cash flow on the retained interests in notes receivable sold could be reduced, in some cases, until the outside investors are paid or the regular payment formula was resumed.

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

We compete for customers with other hotel and resort properties and vacation ownership resorts. While in the short term we have made a decision to limit sales and reduce cash requirements, in the long run, the identification of sales prospects and leads, and the marketing of our products to them are essential to our success. We have incurred and will continue to incur the expenses associated with marketing programs in advance of closing sales to the leads that we identify. If our lead identification and marketing efforts do not yield enough leads or we are unable to successfully convert sales leads to a sufficient number of sales, we may be unable to recover the expense of our marketing programs and systems and our business would be adversely affected.

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.

Real estate markets are cyclical in nature and highly sensitive to changes in national and regional economic conditions, including:

 

 

 

 

levels of unemployment;

 

 

 

 

levels of discretionary disposable income;

 

 

 

 

levels of consumer confidence;

 

 

 

 

the availability of financing;

 

 

 

 

overbuilding or decreases in demand;

30



 

 

 

 

interest rates; and,

 

 

 

 

federal, state and local taxation methods.

The real estate market is currently experiencing a significant correction, the depth and duration of which are as yet unknown and many economists and financial analysts, as well as the media in general, believe that we are in the midst of a general economic recession. These circumstances have exerted pressure upon our Bluegreen Communities and Bluegreen Resorts divisions. Further, a continued deterioration of the economy in general or the market for residential land or VOIs would have a material adverse effect on our business.

The availability of land at favorable prices for the development of our Bluegreen Resorts and Bluegreen Communities real estate projects by the time we will need more real estate inventory to sell is critical to our profitability and the ability to cover our significant selling, general and administrative expenses, cost of capital and other expenses. While we believe that the property we have purchased at our adjusted carrying amounts will generate appropriate margins, land prices have fallen significantly and the projects we bought in the last several years may have been bought at higher price levels than available in the current market. If we are unable to acquire such land or, in the case of Bluegreen Resorts, resort properties, at a favorable cost, it could have an adverse impact on our results of operations.

The profitability of our real estate development activities is also impacted by the cost of construction materials and services. Should the cost of construction materials and services rise, the ultimate cost of our Bluegreen Resorts’ and Bluegreen Communities’ inventories when developed could increase and have a material, adverse impact on our results of operations.

Our adoption on January 1, 2010, of recently issued accounting guidance will have a material adverse impact on our net worth, leverage, and book value per share.

The initial adoption of FASB ASC 860-10 and FASB ASC 810-10 in our 2010 first quarter will require us to consolidate our existing qualifying special purpose entities associated with past securitization transactions. As such, we will record a one-time non-cash after-tax charge directly to shareholders’ equity of approximately $35.0 million to $55.0 million, representing the cumulative effect of a change in accounting principle, in the first quarter of 2010. The cumulative effect will consist primarily of the reestablishment of notes receivable (net of reserves) associated with those securitization transactions, the elimination of residual interests that we initially recorded in connection with those transactions, the impact of recording debt obligations associated with third party interests held in the special purpose entities and related adjustments to deferred financing costs and inventory balances. We anticipate that our adoption of these standards will have the following impacts on our balance sheet: (1) assets will increase by approximately $335.0 million to $345.0 million primarily related to the consolidation of notes receivable; (2) liabilities will increase by approximately $380.0 million to $390.0 million, primarily representing the consolidation of debt obligations associated with third party interests; and (3) shareholders’ equity will decrease by approximately $35.0 million to $55.0 million. There can be no assurances that this change in accounting principle will not adversely affect the market value of our common stock or the assessment of our financial position by investors and lenders.

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

We engage third-party contractors to construct our resorts and to develop our communities. However, our customers may assert claims against us for construction defects or other perceived development defects, including, without limitation, structural integrity, the presence of mold as a result of leaks or other defects, water intrusion, asbestos, electrical issues, plumbing issues, road construction, water and sewer defects and defects in the engineering of amenities. In addition, certain state and local laws may impose liability on property developers with respect to development defects discovered in the future. We could have to accrue a significant portion of the cost to repair such defects in the quarter when such defects arise or when the repair costs are reasonably estimable. A significant number of claims for development-related defects could adversely affect our liquidity, financial condition and operating results.

The resale market for VOIs could adversely affect our business.

Based on our experience at our resorts and at destination resorts owned by third parties, we believe that resales of VOIs generally are made at net sales prices below their original customer purchase prices. The relatively lower

31


sales prices are partly attributable to the high marketing and sales costs associated with the initial sales of such VOIs. Accordingly, the initial purchase of a VOI may be less attractive to prospective buyers. Also, buyers who seek to resell their VOIs compete with our efforts to sell our VOIs. While VOI resale clearing houses or brokers currently do not have a material impact on our business, if a secondary market for VOIs were to become more organized and liquid, the resulting availability of resale VOIs at lower prices could adversely affect our sales prices and the number of sales we can close, which in turn would adversely affect our business and results of operations.

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.

The federal government and the states and local jurisdictions in which we conduct business have enacted extensive regulations that affect the manner in which we market and sell VOIs and homesites and conduct our other business operations. In addition, many states have adopted specific laws and regulations regarding the sale of VOIs and homesites. Many states, including Florida and South Carolina, where some of our resorts are located, extensively regulate the creation and management of timeshare resorts, the marketing and sale of timeshare properties, the escrow of purchaser funds prior to the completion of construction and closing, the content and use of advertising materials and promotional offers, the delivery of an offering memorandum and the creation and operation of exchange programs and multi-site timeshare plan reservation systems. Moreover, with regard to sales conducted in South Carolina, the closing of real estate and mortgage loan transactions must be conducted under the supervision of an attorney licensed in South Carolina. In June 2006, South Carolina enacted the “Time Sharing Transaction Procedures Act” which, among other things, further clarified the process that must be followed in the sale and purchase of timeshare interests. Most states also have other laws that regulate our activities, such as:

 

 

 

 

timeshare project registration laws;

 

 

 

 

real estate licensure laws;

 

 

 

 

mortgage licensure laws;

 

 

 

 

sellers of travel licensure laws;

 

 

 

 

anti-fraud laws;

 

 

 

 

consumer protection laws;

 

 

 

 

telemarketing laws;

 

 

 

 

prize, gift and sweepstakes laws; and

 

 

 

 

consumer credit laws.

We currently are authorized to market and sell VOIs and homesites in all states in which our operations are currently conducted. If our agents or employees violate applicable regulations or licensing requirements, their acts or omissions could cause the states where the violations occurred to revoke or refuse to renew our licenses, render our sales contracts void or voidable, or impose fines on us based on past activities. See “Item 3 – Legal Proceedings”.

In addition, the federal government and the states and local jurisdictions in which we conduct business have enacted extensive regulations relating to direct marketing and telemarketing generally, including the federal government’s national “Do Not Call” list. The regulations have impacted our marketing of VOIs, and we have taken steps in an attempt to decrease our dependence on restricted calls. However, these steps have increased and are expected to continue to increase our marketing costs. We cannot predict the impact that these legislative initiatives or any other legislative measures that may be proposed or enacted now or in the future may have on our marketing strategies and results. Further, from time to time, complaints are filed against the Company by individuals claiming that they received calls in violation of the regulation.

Currently, most states have taxed VOIs as real estate, imposing property taxes that are billed to the respective property owners’ associations that maintain the related resorts and have not sought to impose sales tax upon the sale of the VOI or accommodations tax upon the use of the VOI. From time to time, however, various states have attempted to promulgate new laws or apply existing laws impacting the taxation of vacation ownership interests to require that sales or accommodations taxes be collected. Should new state or local laws be implemented or interpreted to impose sales or accommodations taxes on VOIs, our resorts business could be materially adversely affected.

32


We believe we are in material compliance with applicable federal, state, and local laws and regulations relating to the sale and marketing of VOIs and homesites. From time to time, however, consumers file complaints against us in the ordinary course of our business. We could be required to incur significant costs to resolve these complaints. There is no assurance that we will remain in material compliance with all applicable federal, state and local laws and regulations, or that violations of applicable laws will not have adverse implications for us, including negative public relations, potential litigation and regulatory sanctions. The expense, negative publicity and potential sanctions associated with any failure to comply with applicable laws or regulations could have a material adverse effect on our results of operations, liquidity or financial position.

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

Under various federal, state and local laws, ordinances and regulations, as well as common law, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances, including mold, located on, in or emanating from property that we own, lease or operate, as well as related costs of investigation and property damage at such property. These laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or lease our property or to borrow money using such real property or receivables generated from the sale of such real property as collateral. Noncompliance with environmental, health or safety requirements may require us to cease or alter operations at one or more of our properties. Further, we may be subject to common law claims by third parties based on damages and costs resulting from violations of environmental regulations or from contamination associated with one or more of our properties.

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

Rating agencies from time to time review prior corporate and specific transaction ratings in light of tightened ratings criteria. During the third quarter of 2009, we were informed that one of the rating agencies downgraded its original ratings on certain bond classes in our prior securitizations. As a result of this or any future downgrades, holders of such bonds may be required to sell bonds in the market place and such sales could occur at a discount, which could impact the perceived value of such bonds and our ability to sell future securitization bonds at favorable terms, if at all.

In addition, if rating agencies were to downgrade our corporate credit ratings, our ability to raise capital and/or issue debt at favorable terms or at all could be adversely impacted. Such a downgrade could materially adversely affect our liquidity, financial condition and results of operations.

The loss of the services of our key management and personnel could adversely affect our business.

Our ability to successfully implement our business strategy will depend on our ability to attract and retain experienced and knowledgeable management and other professional staff. There is no assurance that we will be successful in attracting and retaining key management personnel.

BFC Financial Corporation holds a majority of our outstanding common stock, which may adversely affect the market price of our common stock.

BFC Financial Corporation (“BFC”), indirectly through its wholly owned Woodbridge Holdings, LLC subsidiary, owns 16,922,953 shares, or approximately 52%, of our issued and outstanding common stock. As a result, BFC is in a position to elect our Board of Directors and significantly influence the outcome of any shareholder vote. This control position may have an adverse effect on the market price of our common stock. Alan B. Levan, our Chairman, and John E. Abdo, our Vice Chairman, are also Chairman and Vice Chairman, respectively, of BFC.

Item 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

33



 

 

Item 2.

PROPERTIES.

 

 

Our principal executive office is located in Boca Raton, Florida in approximately 158,838 square feet of leased space. At December 31, 2009, we also maintained sales offices at 21 of our resorts. In addition, we maintain four regional sales/administrative offices for the Communities Division. For a further description of our resort and communities properties, please see “Item 1. Business — Company Products.”

 

 

Item 3.

LEGAL PROCEEDINGS.

Bluegreen Resorts

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 approximately $1.5 million (including attorney’s fees and costs) without admitting any wrongdoing. As of December 31, 2009, the settlement was paid and the case dismissed.

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., in the 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 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. The parties have reached settlement on this matter and on March 15, 2010 we signed a consent petition and forwarded it to the Attorney General’s office for counter-signature and filing with the appropriate court offices. As of December 31, 2009, we had accrued $225,000 in connection with anticipated payments to resolve this matter.

Destin, Florida Deposit Dispute Lawsuit

In Cause No. 2006-Ca-3374, styled Joseph M. Scheyd, Jr., P.A. vs. Bluegreen Vacations Unlimited, Inc.,; Hubert A. Laird; and MSB of Destin, Inc., in the Circuit Court of the First Judicial Circuit in and for Okaloosa County, Florida, the Plaintiff as escrow agent brought an interpleader action seeking a determination as to whether we, as purchaser, or Hubert A. Laird and MSB of Destin, Inc. as seller, were entitled to the $1.4 million escrow deposit being maintained with the escrow agent pursuant to a purchase and sale contract for real property located in Destin, Florida. Both we and the seller have brought cross-claims for breach of the underlying purchase and sale contract. The seller alleges we failed to perform under the terms of the purchase and sale contract and alleges fraud. We maintain that our decision not to close on the purchase of the subject real property was in accordance with the terms of the purchase and sale contract and therefore we are entitled to a return of the full escrow deposit.

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

34


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 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 did 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 was 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, no damages or attorneys’ fees are 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 Texas Supreme Court will render a decision as to whether or not it will take the appeal.

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 described 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. This case has been settled and the $3.4 million that was accrued related to this matter as of December 31, 2009 was paid in March of 2010. Additional claims may be pursued in the future by certain individual lot owners within the Mountain Lakes subdivision in connection with these matters, but it is not possible at this time to estimate the likelihood of loss.

Marshall, et al. Lawsuit regarding Community Amenities

On September 14, 2009, in Cause No. 09-09-08763-CV, styled William Marshall and Patricia Marshall, et al. v. Bluegreen Southwest One, L.P., Bluegreen Southwest Land, Inc., Bluegreen Corporation, Stephen Davis, and Bluegreen Communities of Texas, L.P., Plaintiffs brought suit against us alleging fraud, negligent misrepresentation, breach of contract, and negligence with regards to the Ridgelake Shores subdivision we developed in Montgomery County, Texas. More specifically, the Plaintiffs allege misrepresentation concerning the usability of the lakes within the community for fishing and sporting and the general level of quality at which the community would be developed and thereafter maintained. The lawsuit seeks material damages and the estimated cost to remediate the lake is $500,000. We intend to vigorously defend the lawsuit.

Schawrz, et al. Lawsuit regarding Community Amenities

On September 18, 2008, in Cause No. 2008-5U-CV-1358-WI, styled Paul A. Schwarz and Barbara S. Schwarz v. Bluegreen Communities of Georgia, LLC and Bluegreen Corporation, Plaintiffs brought suit against us alleging fraud and misrepresentation with regards to the construction of a marina at the Sanctuary Cove subdivision located in Camden County, Georgia. Plaintiff subsequently withdrew the fraud and misrepresentation counts and replaced them with a count alleging violation of racketeering laws, including mail fraud and wire fraud. On January 25, 2010, Plaintiffs filed a second complaint seeking approval to proceed with the lawsuit as a class action representing more than 100 persons who were harmed by the alleged racketeering activities in a similar manner as Plaintiffs. No decision has yet been made by the Court as to whether they certify a class. We deny the allegations and intend to vigorously defend the lawsuit.

In the ordinary course of our business, we become subject to claims or proceedings from time to time relating to the purchase, sale or financing of VOIs and real estate. Additionally, from time to time, we become involved in disputes with existing and former employees, vendors, taxing jurisdictions and various other parties.

 

 

Item 4.

RESERVED.

35


PART II

 

 

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “BXG”. The following table sets forth, for the periods indicated, the high and low closing price of our common stock as reported on the NYSE:

 

 

 

 

 

 

 

 

Price Range

 



Year Ended
December 31, 2008

 

High

 

Low

 


 


 



First Quarter

 

$

9.31

 

$

6.19

 

Second Quarter

 

 

7.65

 

 

5.96

 

Third Quarter

 

 

12.04

 

 

6.07

 

Fourth Quarter

 

 

6.57

 

 

1.54

 

 

 

 

 

 

 

 

 

Price Range

 



Year Ended
December 31, 2009

 

High

 

Low

 


 


 



First Quarter

 

$

3.62

 

$

0.74

 

Second Quarter

 

 

3.14

 

 

1.75

 

Third Quarter

 

 

3.25

 

 

2.18

 

Fourth Quarter

 

 

3.97

 

 

2.31

 

Shareholder Return Performance Graph

The following graph assumes an investment of $100 on December 31, 2004 and thereafter compares the yearly percentage change in cumulative total return to our shareholders with an industry peer group consisting of Marriott International Inc., Starwood Hotels and Resorts Worldwide, Inc., Wyndham Worldwide Corporation, and Silverleaf Resorts (“Peer Group”) and a broad market index (the S&P 500). The graph shows performance on a total return (dividend reinvestment) basis. The graph lines connect fiscal year-end dates and do not reflect fluctuations between those dates.

36


(LINE GRAPH)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

2005

 

2006

 

2007

 

2008

 

2009

 

 


 


 


 


 


 


Bluegreen Corporation

 

$

100.00

 

$

79.68

 

$

64.71

 

$

36.26

 

$

15.79

 

$

12.20

S & P 500

 

 

100.00

 

 

104.89

 

 

121.46

 

 

128.13

 

 

80.73

 

 

102.08

Peer Group

 

 

100.00

 

 

108.99

 

 

144.49

 

 

104.62

 

 

49.72

 

 

88.70

There were approximately 859 record holders of our common stock as of March 1, 2010. The number of record holders does not reflect the number of persons or entities holding their stock in “street” name through brokerage firms or other entities.

We did not pay any cash or stock dividends during the years ended December 31, 2008 and 2009. Certain of our credit facilities contain terms which might limit the payment of cash dividends on our common stock and our ability to repurchase shares in the event of default and which limit the amount of dividends we may pay in any annual period. In addition there is no assurance that our future credit facilities will not contain similar or more restrictive terms. Our Board of Directors may consider the possibility of paying cash dividends at some point in the future, however, any decision by our Board to pay dividends will be based on our cash position, operating and capital needs and restrictions on the payment of dividends. There is no assurance that we will pay cash dividends in the foreseeable future.

From time to time, our Board of Directors has adopted and publicly announced a share repurchase program. Repurchases under such programs are subject to the price of our stock, prevailing market conditions, our financial condition and available resources, other investment alternatives and other factors. We are not required to seek

37


shareholder approval of share repurchase programs, have not done so in the past, and do not anticipate doing so in the future, except to the extent we may be required to do so under applicable law. We have not repurchased any shares since 2001. As of December 31, 2009, there were 694,500 shares remaining for purchase under our current repurchase program; however, we have no present plans to acquire these remaining shares in the foreseeable future.

The following table provides a summary of the purchases of outstanding shares of our common stock made during the quarter ended December 31, 2009 by BFC Financial Corporation, indirectly through Woodbridge Holdings, LLC, its wholly owned subsidiary, which brought BFC’s ownership to approximately 52% of the outstanding shares of our common stock. Alan B. Levan, our Chairman, and John E. Abdo, our Vice Chairman, serve as Chairman, Chief Executive Officer and President of BFC and Vice Chairman of BFC, respectively.

 

 

 

 

 

 

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
per Share


 

 

 

 

 

 

October 1 – October 31, 2009

 

 

 

$

November 1 – November 30, 2009

 

 

7,405,628

 

$

3.115

December 1 – December 31, 2009

 

 

 

$

Total

 

 

7,405,628

 

$

3.115

BFC purchased the shares from Central Florida Investments, Inc. (“CFI”) in a privately negotiated transaction.

Our shareholders have approved all of our equity compensation plans, which consist of our 1995 Stock Incentive Plan, our 1988 Outside Directors’ Stock Option Plan, our 1998 Non-Employee Director Stock Option Plan, our 2005 Stock Incentive Plan and our 2008 Stock Incentive Plan, as amended (the ‘2008 Plan”). As of December 31, 2009, only the 2008 Plan had securities available for future issuance. Information about securities authorized for issuance under our equity compensation plans as of December 31, 2009, is as follows:

 

 

 

 

 

Number of Securities to be
Issued Upon Exercise of
Outstanding Stock Options

 

Weighted-Average
Exercise Price of
Outstanding Stock Options

 

Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Outstanding Stock
Options)


 


 


 

 

 

 

 

2,794,738

 

$9.64

 

7,864,012

38



 

 

Item 6.

SELECTED FINANCIAL DATA.

The selected consolidated financial data set forth below should be read in conjunction with the Consolidated Financial Statements, related notes, and other financial information appearing elsewhere in this Annual Report (dollars in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 


 

 

 

2005

 

2006

 

2007

 

2008

 

2009

 

 

 


 


 


 


 


 

Statement of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

$

550,335

 

$

568,991

 

$

579,380

 

$

475,030

 

$

219,368

 

Other resort and communities operations revenues

 

 

68,237

 

 

54,161

 

 

59,707

 

 

62,000

 

 

57,199

 

Fee-based sales commission revenue

 

 

 

 

 

 

 

 

 

 

20,057

 

Interest income

 

 

34,798

 

 

40,765

 

 

44,703

 

 

57,831

 

 

69,337

 

Gain on sales of notes receivable (3)

 

 

25,226

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Total revenues

 

 

678,596

 

 

663,917

 

 

683,790

 

 

594,861

 

 

365,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

51,488

 

 

41,204

 

 

39,856

 

 

6,580

 

 

11,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of change in accounting (3)

 

 

 

 

(4,494

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Bluegreen Corporation

 

$

46,551

 

$

34,311

 

$

31,926

 

$

(516

)

$

(3,572

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (losses) from continuing operations attributable to Bluegreen Corporation

 

$

1.49

 

$

1.09

 

$

1.03

 

$

(0.02

)

$

0.12

 

39



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of the Years Ended December 31,

 

 

 


 

 

 

2005

 

2006

 

2007

 

2008

 

2009

 

 

 


 


 


 


 


 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes receivable, net

 

$

127,783

 

$

144,251

 

$

160,665

 

$

340,644

 

$

309,307

 

Inventory, net

 

 

240,969

 

 

349,333

 

 

434,968

 

 

503,269

 

 

515,917

 

Total assets

 

 

694,243

 

 

854,212

 

 

1,039,578

 

 

1,193,507

 

 

1,131,265

 

Total debt obligations

 

 

211,439

 

 

290,670

 

 

397,804

 

 

582,683

 

 

539,436

 

Total Bluegreen Corporation shareholders’ equity

 

 

313,666

 

 

353,023

 

 

385,108

 

 

382,467

 

 

386,230

 

Book value per common share

 

$

10.31

 

$

11.44

 

$

12.34

 

$

12.24

 

$

12.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average interest rate on notes receivable at period end

 

 

15

%

 

14

%

 

14

%

 

14

%

 

15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VOI sales (3)

 

$

358,240

 

$

404,950

 

$

450,163

 

$

428,010

 

$

201,755

 

Gross margin on VOI sales

 

 

78

%

 

78

%

 

75

%

 

77

%

 

67

%

Fee-based sales commission revenue

 

 

 

 

 

 

 

 

 

 

20,057

 

Other resort operations revenue

 

 

64,276

 

 

51,688

 

 

53,624

 

 

58,473

 

 

55,609

 

Segment operating profit (1)

 

$

59,578

 

$

54,310

 

$

62,890

 

$

46,999

 

$

37,748

 

Number of Vacation Club resorts at period end

 

 

43

 

 

43

 

 

45

 

 

50

 

 

54

 

Number of Bluegreen VOI sale transactions (2)

 

 

37,605

 

 

41,097

 

 

42,768

 

 

44,224

 

 

19,602

 

Number of sales made on behalf of outside developers for a fee

 

 

 

 

 

 

 

 

 

 

2,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Communities statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homesite sales

 

$

192,095

 

$

164,041

 

$

129,217

 

$

47,020

 

$

17,613

 

Gross margin on homesite sales

 

 

48

%

 

45

%

 

48

%

 

33

%

 

(44

)%

Segment operating profit (loss)(1)

 

$

47,385

 

$

35,137

 

$

23,452

 

$

(3,574

)

$

(21,099

)

Number of homesites sold (2)

 

 

2,287

 

 

1,750

 

 

1,301

 

 

442

 

 

278

 


 

 

(1)

Segment operating profit is operating profit from continuing operations prior to the allocation of corporate overhead, interest income, other income or expense, provision for loan losses (for years prior to the January 1, 2006 implementation of new timeshare accounting rules), interest expense, income taxes, non-controlling interests, restructuring charges, goodwill impairment charges, and cumulative effect of change in accounting principles. See Note 15 of the Notes to Consolidated Financial Statements for further information.

 

 

(2)

“Number of VOI sale transactions” and “number of homesites sold” include those sales made during the applicable period where recognition of revenue is deferred under the percentage-of-completion method of accounting and under the timeshare accounting rules applicable to required commitments of buyers, as applicable. See “Revenue Recognition and Contracts Receivable” under Note 1 of the Notes to Consolidated Financial Statements.

 

 

(3)

Effective January 1, 2006 we adopted the provisions of the new timeshare accounting rules, which changed many aspects of timeshare accounting, including revenue recognition, inventory costing, and accounting for incidental operations. Also, it required that a significant portion of our gains on sales of notes receivable be included in sales of real estate. In 2006, 2007 and 2008, the gains on sales of notes receivable were $44.7 million, $39.4 million, and $8.2 million, respectively. No gains of sales of notes receivable were recognized in

40


2009. The adoption of the new timeshare accounting rules resulted in an after-tax charge of $4.5 million in 2006, reflected as a cumulative effect of change in accounting principle.

 

 

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain Definitions, Cautionary Statement Regarding Forward-Looking Statements

The following discussion of our results of operations and financial condition should be read in conjunction with our Consolidated Financial Statements and related Notes and other financial information included elsewhere in this Annual Report. Unless otherwise indicated in this discussion (and throughout this Annual Report), references to “real estate” and to “inventories” collectively encompass the inventories held for sale by Bluegreen Resorts and Bluegreen Communities.

Certain statements in this Annual Report and our other filings with the SEC constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the 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, 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, the availability of financing, increases in interest rates, changes in regulations and other factors discussed throughout our SEC filings, including the Risk Factor section of this Annual Report, 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, and in some cases have affected, and in the future could affect, our actual results and could cause our actual consolidated results to differ materially from those expressed in any forward-looking statements.

Executive Overview

Our 2009 results reflect the difficult economic conditions that continue to exist in the real estate and financial markets. In response to these conditions, we have focused on efforts to improve our cash flows from operations by deliberately reducing the number of VOI sales transactions for which we provide financing and to increase our selling and marketing efficiencies in our Resorts Division. We also sought to pursue opportunities to grow our cash fee-based service businesses. While our cash flows from operations and our Resorts Division segment operating margin reflects the success of these efforts, the Communities Division continued to struggle given the low consumer demand for homesites.

In addition to these factors, the following had a significant financial impact on us during 2009:

 

 

 

 

We recorded a $10.5 million loss on the sale of four of our golf courses.

 

 

 

 

Our Communities Division generated a segment operating loss of $21.1 million, including a non-cash charge of $13.2 million associated with the write-down of certain completed inventory to net realizable value.

 

 

 

 

We recorded a charge of approximately $3.2 million related to attorney fees and other costs associated with previous efforts to seek alternative liquidity source for our receivables, which we are no longer presently pursuing.

 

 

 

 

We recognized a non-recurring tax benefit of $4.6 million, as a result of certain book and tax differences becoming permanent.

41


The following table details the contribution to consolidated sales of real estate by the reportable segments for the years ended December 31, 2007, 2008 and 2009 (in thousands, except percentage amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 


 

 

 

2007

 

2008

 

2009

 

 

 


 


 


 

 

 

Sales of
real estate

 

% of
total
sales

 

Sales of
real
estate

 

% of
total
sales

 

Sales of
real
estate

 

% of
total
sales

 

 

 


 


 


 


 


 


 

Bluegreen Resorts

 

$

450.2

 

 

78

%

$

428.0

 

 

90

%

$

201.8

 

 

92

%

Bluegreen Communities

 

 

129.2

 

 

22

%

 

47.0

 

 

10

%

 

17.6

 

 

8

%

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Total

 

$

579.4

 

 

 

 

$

475.0

 

 

 

 

$

219.4

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

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 notes receivable. 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. For most of 2009, the term securitization market was severely limited and, as a result, financial institutions have been and continue to be 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.

While we believe that the market for our Resorts product remains relatively strong, we are continuing to deemphasize our sales operations to conserve cash because of the uncertainties in the credit markets. In an effort to conserve cash and availability under our receivables credit facilities, we implemented strategic initiatives which have included closing certain sales offices; eliminating what we identified as lower-efficiency marketing programs; emphasizing cash sales and higher cash down payments as well as pursuing 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 is to reduce the number of sales while increasing the ultimate profitability of the sales we do make. Additional information on our strategic initiatives is provided in “Liquidity and Capital Resources” below. We believe that we have adequate timeshare inventory to satisfy our projected sales for 2010 and based on anticipated sales levels, for a number of years thereafter.

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.

While the vacation ownership business has historically been capital intensive, our goal is to leverage our sales and marketing, mortgage servicing, resort management, title and construction expertise to generate fee-based-service relationships with third parties that produce strong cash flows and require less capital investment. During 2009, we began providing resort management services to four resorts under these agreements. In addition, since July 2009 we sold $31.7 million of outside developer inventory and earned sales and marketing commissions of approximately $20.1 million, as well as title fees on such transactions. We have also begun providing resort design and development services and mortgage services under certain of these arrangements. We intend to pursue additional fee-based services relationships and believe that these activities will become an increasing portion of our business over time.

42


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. 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 development costs from time to time during the last several years. 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 adversely impacts 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 the deterioration in the real estate markets. We have experienced a material decrease in demand, and a significant decrease in sales volume. During 2009 we significantly reduced prices on certain of our completed homesites in an attempt to increase sales activity, and such reductions have adversely impacted the carrying costs of our Communities’ inventories. There can be no assurances that future changes in our intentions or pricing will not result in future material inventory valuation adjustments.

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 division as of December 31, 2008 and 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

%

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009:

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

351,232

 

$

4,901

 

$

356,133

 

Allowance for loan losses

 

 

(46,302

)

 

(524

)

 

(46,826

)

 

 



 



 



 

Notes receivable, net

 

$

304,930

 

$

4,377

 

$

309,307

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Allowance as a % of gross notes receivable

 

 

13

%

 

11

%

 

13

%

 

 



 



 



 

The table below sets forth the activity in our allowance for uncollectible notes receivable for the year ended December 31, 2009 (in thousands):

 

 

 

 

 

Balance, December 31, 2008

 

$

52,029

 

Provision for loan losses (1)

 

 

31,641

 

Less: Write-offs of uncollectible receivables

 

 

(36,844

)

 

 



 

Balance, December 31, 2009

 

$

46,826

 

 

 



 

 

 

 

 

 

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

43


We believe that rising unemployment in the United States and adverse economic conditions in general have adversely impacted the performance of our notes receivable portfolio. However, we anticipate that credit underwriting standards on new loan originations which we implemented in December 2008 and increasing customer equity in the existing loan portfolio will have a favorable impact on the performance of the portfolio over time.

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:

 

 

 

 

 

 

 

 

 

 

 

Average Annual Default Rates

 

Year Ended December 31,

 


 


 

 

 

 

 

 

 

 

 

Division

 

2007

 

2008

 

2009

 


 


 


 


 

Bluegreen Resorts

 

 

 

 

 

 

 

 

 

 

Loans originated prior to December 15, 2008

 

 

7.4

%

 

9.0

%

 

15.1

%

Loans originated on or after December 15, 2008

 

 

 

 

 

 

1.3

%(3)

Bluegreen Communities

 

 

4.6

%

 

7.9

%

 

(1)

 

 

 

 

 

 

 

 

 

 

 

Delinquency Rates(2)

 

As of December 31,

 


 


 

 

 

 

 

Division

 

2007

 

2008

 

2009

 


 


 


 


 

Bluegreen Resorts

 

 

 

 

 

 

 

 

 

 

Loans originated prior to December 15, 2008

 

 

4.5

%

 

5.7

%

 

6.0

%

Loans originated on or after December 15, 2008

 

 

 

 

 

 

1.9

%

Bluegreen Communities

 

 

13.2

%

 

10.7

%

 

22.5

(1)%


 

(1)

As of December 31, 2009 we were in the process of foreclosing on a total of nine Bluegreen Communities’ receivables. Had we completed the foreclosure process in 2009, the Bluegreen Communities average annual default rate would have been approximately 7% during 2009 and the delinquency rate would have been approximately 17% as of December 31, 2009.

     
 

(2)

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

     

(3)

Reflects the impact of our credit underwriting standards as well as our policy that loans are not defaulted until after 120 days past due.

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 the resales of the VOI’s partially mitigate the loss from the default, as these recoveries generally range from approximately 40% to 100% of the defaulted principal balance depending on the age of the defaulted receivable. We may also remarket VOI’s relating to defaulted receivables on behalf of note holders 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 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 became effective January 1, 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 was 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” for discussion of the anticipated impact of new accounting rules.

The deteriorating credit markets have negatively impacted our financing activities. During 2008 and the majority of 2009, fewer securitization and hypothecation 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. There can be no assurance that we will be able to secure financing for our VOI notes receivable on acceptable terms, if at all.

44


During 2009, we renewed or extended certain of our existing credit facilities and debt maturities and are in the process of negotiating an additional significant debt extension (See the “Liquidity and Capital Resources” section for further information). In connection with such renewals and extensions we have, in certain cases, agreed to pay higher interest rates and fees. In addition, conditions in the commercial credit markets are expected to increase interest rates on new debt we may obtain from time to time in the future. Any such increased interest rates would increase our expenses and adversely impact our results of operations.

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 it believes 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.

 

 

 

 

Revenue Recognition and Inventory Cost Allocation. In accordance with the requirements of ACS 970 or SFAS No. 66, Accounting for Sales of Real Estate, as amended by the timeshare accounting rules (SFAS No. 152) regarding VOI sales, we recognize revenue on VOI and homesite sales when a minimum of 10% of the sales price has been received in cash (buyer’s commitment), the legal rescission period has expired, collectibility of the receivable representing the remainder of the sales price is reasonably assured and we have completed substantially all of our obligations with respect to any development related to the real estate sold. We believe that we use a reasonably reliable methodology to estimate the collectibility of the receivables representing the remainder of the sales price of real estate sold. See the further discussion of our policies regarding the estimation of credit losses on our notes receivable below. Should we become unable to reasonably estimate the collectibility of our receivables, we may have to defer the recognition of sales and our results of operations could be negatively impacted. Under timeshare accounting rules, the buyer’s minimum cash down payment towards the purchase of our VOIs is met only if the cash down payment received, reduced by the value of certain incentives provided to the buyer at the time of sale, is at least 10% of the sales price. If, after consideration of the value of the incentive, the total down payment received from the buyer is less than 10% of the sales price, the VOI sale, and the related cost of sales and direct selling expenses, are deferred until such time that sufficient cash is received from the customer, generally through receipt of mortgage payments. Changes to the quantity, type, or value of sales incentives that we provide to buyers of our VOIs may result in additional VOI sales being deferred, which could materially adversely impact our results of operations.

 

 

 

 

 

In cases where all development has not been completed, we recognize revenue in accordance with the percentage-of-completion method of accounting. Should our estimates of the total anticipated cost of completing Bluegreen Resorts’ or Bluegreen Communities’ projects increase, we may be required to defer a greater amount of revenue or may be required to defer revenue for a longer period of time, which could materially adversely impact our results of operations.

 

 

 

 

 

The timeshare accounting rules define a specific method of the relative sales value method for relieving VOI inventory and recording cost of sales. Under the relative sales value method, cost of sales is calculated as a percentage of net sales using a cost-of-sales percentage—the ratio of total estimated development cost to total estimated VOI revenue, including the estimated incremental revenue from the resale of repossessed VOI inventory, generally as a result of the default of the related receivable. For Communities’ real estate projects, costs are allocated to individual homesites in the Communities’ projects based on the relative estimated sales value of each homesite without regard to defaults or repossessed inventory. Under this method, the allocated cost of a homesite is relieved from inventory and recognized as cost of sales upon recognition of the related

45



 

 

 

 

 

sale. Should our estimates of the sales values of our VOI and homesite inventories differ materially from their ultimate selling prices, our gross profit could be adversely impacted.

 

 

 

 

Carrying Value of Completed Inventory. Our completed timeshare and homesite inventory is carried at the lower of cost or net realizable value. On at least a quarterly basis, we evaluate the recovery of the carrying amounts of our completed inventory and if necessary, adjust such amounts to net realizable value. During 2008 and 2009, as a result of our evaluation of certain completed Communities Division real estate, we recorded charges totaling $5.2 million and $13.2 million, respectively, to write down such inventory to net realizable value.

 

 

 

 

Allowance for Loan Losses on VOI Notes Receivable. We estimate uncollectible VOI notes receivable based on historical uncollectibles for similar VOI notes receivable over the applicable historical period. We use a static pool analysis, which tracks uncollectibles for each year’s sales over the entire life of those notes. We also consider whether the historical economic conditions are comparable to current economic conditions. Additionally, under timeshare accounting requirements, no consideration is given for future recoveries of defaulted inventory in the estimate of uncollectible VOI notes receivable. We review our reserve for loan losses on at least a quarterly basis. If defaults increase, our results of operations could be materially adversely impacted.

 

 

 

 

Transfers of Financial Assets and Valuation of Retained Interests. When we transfer financial assets to third parties, such as when we sell VOI notes receivable pursuant to our vacation ownership receivables purchase facilities, we evaluate whether or not such transfer should be accounted for as a sale pursuant to accounting rules in place at the time of the transaction. The evaluation of sale treatment involves legal assessments of the transactions, which include determining whether the transferred assets have been isolated from us (i.e., put presumptively beyond our reach or the reach of our creditors, even in bankruptcy or other receivership), determining whether each transferee has the right to pledge or exchange the assets it received, and ensuring that we do not maintain effective control over the transferred assets through either (1) an agreement that both entitles and obligates us to repurchase or redeem them before their maturity or (2) the ability to unilaterally cause the holder to return specific assets (other than through a cleanup call). We believe that we have obtained appropriate legal opinions and other guidance deemed necessary to properly account for our transfers of financial assets as sales. As indicated below in “Recent Accounting Pronouncements Not Yet Adopted”, should we be successful in selling additional notes receivable in the future, such transactions will be evaluated under new rules which become effective on January 1, 2010. Accordingly, we do not expect to recognize any future gains on the sale of notes receivable.

 

 

 

 

 

In connection with the sales of notes receivable referred to above, we retain subordinated tranches and rights to excess interest spread, which are retained interests in the notes receivable sold. Gain or loss on the sale of the notes receivable has depended in part on the allocation of the previous carrying amount of the financial assets involved in the transfer between the assets sold and the retained interests based on their relative fair value at the date of transfer. We initially and periodically estimate the fair value of our retained interest in notes receivable sold based on the present value of future expected cash flows using management’s best estimates of the key assumptions — prepayment rates, loss severity rates, default rates and discount rates commensurate with the risks involved. Should our estimates of these key assumptions change or should the portfolios sold fail to satisfy specified performance criteria and therefore trigger provisions whereby outside investors in the portfolios are paid on an accelerated basis, there could be a reduction in the fair value of the retained interests and our results of operations and financial condition could be materially and adversely impacted. During the year ended December 31, 2009, we recognized other-than-temporary decreases totaling approximately $1.1 million in the fair market value of certain of our retained interest in notes receivable sold. The overall decrease in the fair value of our retained interest in VOI notes receivable sold in 2009 was a result of higher discount rates and unfavorable changes to our estimates of the amount and timing of future cash flows from our retained interests. The higher discount rate during 2009 reflects an increase in our estimate of the required yield by a potential investor in our residual interests as of December 31, 2009.

 

 

 

 

Carrying Value of Real Estate Held for Development and Under Development and Long-Lived Assets. We evaluate the recovery of our long-lived assets, and our undeveloped real estate properties or real estate properties under development, if certain trigger events occur. If the expected undiscounted future cash flows are less than the carrying amount of the asset, the asset is written down to its estimated fair value. Our assessment consists of determining recoverability of our costs based on our plans and upon a combination of factors including: estimates of remaining life-of-project sales for each project, the period required to

46



 

 

 

 

 

complete such sales, estimates of costs to complete each project, if needed, and various other factors including relevant market data. Should our estimates of these factors or our plans change, our results of operations and financial condition could be adversely impacted.

Recent 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 ASC 860), which became effective for us on January 1, 2010. FASB ASC 860 eliminates the concept of a qualifying special-purpose entity (“QSPE”), changes the requirements for derecognizing financial assets. It also 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. 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 has subsequently been renamed ASC 810), which became effective for us on January 1, 2010.  ASC 810 addresses the effects of eliminating the qualified special purpose entity (“QSPE”) concept and responds to concerns about the application of certain key provisions of previous accounting rules, including concerns over the transparency of an enterprise’s involvement with variable interest entities (“VIEs”).  As a result of the adoption of this pronouncement on January 1, 2010, we expect that we will in the future be required to consolidate our QSPEs described in Note 4 to our consolidated financial statements. Accordingly, we expect to record a one-time non-cash after-tax adjustment to shareholders’ equity in the first quarter of 2010 of approximately $35.0 million to $55.0 million as a cumulative effect of a change in accounting principle. The cumulative effect will consist primarily of the reversal of previously recognized sales of notes receivable, the recognition of the related non-recourse receivable-backed notes payable, the elimination of retained interest in notes receivable sold, and adjustments to inventory and deferred income taxes payable as a result of these changes. We anticipate that our adoption of these standards will have the following impacts on our balance sheet: (1) assets will increase by approximately $335.0 million to $345.0 million; (2) liabilities will increase by approximately $380.0 million to $390.0 million; and (3) shareholders’ equity will decrease by approximately $35.0 million to $55.0 million.

47


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, excluding the impact of discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

 

 


 


 


 


 


 


 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

476,033

 

 

 

$

129,217

 

 

 

$

605,250

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(65,242

)

 

 

 

 

 

 

 

(65,242

)

 

 

Gain on sales of notes receivable

 

 

39,372

 

 

 

 

 

 

 

 

39,372

 

 

 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

 

450,163

 

100

%

 

129,217

 

100

%

 

579,380

 

100

%

Cost of real estate sales

 

 

(111,480

)

(25

)

 

(67,251

)

(52

)

 

(178,731

)

(31

)

 

 



 

 

 



 

 

 



 

 

 

Gross profit

 

 

338,683

 

75

 

 

61,966

 

48

 

 

400,649

 

69

 

Other resort and communities operations revenues

 

 

53,624

 

12

 

 

6,083

 

5

 

 

59,707

 

10

 

Cost of other resort and communities operations

 

 

(36,588

)

(8

)

 

(5,871

)

(5

)

 

(42,459

)

(7

)

Selling and marketing expenses

 

 

(260,932

)

(58

)

 

(27,934

)

(22

)

 

(288,866

)

(50

)

Segment general and administrative expenses (1)

 

 

(31,897

)

(7

)

 

(10,792

)

(8

)

 

(42,689

)

(7

)

 

 



 

 

 



 

 

 



 

 

 

Segment operating profit

 

$

62,890

 

14

%

$

23,452

 

18

%

$

86,342

 

15

%

 

 



 

 

 



 

 

 



 

 

 

48



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

 

 


 


 


 


 


 


 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross sales of real estate

 

$

495,612

 

 

 

$

47,020

 

 

 

$

542,632

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(75,847

)

 

 

 

 

 

 

 

(75,847

)

 

 

Gain on sales of notes receivable

 

 

8,245

 

 

 

 

 

 

 

 

8,245

 

 

 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of real estate

 

 

428,010

 

100

%

 

47,020

 

100

%

 

475,030

 

100

%

Cost of real estate sales

 

 

(98,727

)

(23

)

 

(31,540

)

(67

)

 

(130,267

)

(27

)

 

 



 


 



 


 



 


 

Gross profit

 

 

329,283

 

77

 

 

15,480

 

33

 

 

344,763

 

73

 

Other resort and communities operations revenues

 

 

58,473

 

13

 

 

3,527

 

8

 

 

62,000

 

13

 

Cost of other resort and communities operations

 

 

(37,781

)

(9

)

 

(3,136

)

(7

)

 

(40,917

)

(9

)

Selling and marketing expenses

 

 

(275,408

)

(64

)

 

(11,746

)

(25

)

 

(287,154

)

(60

)

Segment general and administrative expenses (1)

 

 

(27,568

)

(6

)

 

(7,699

)

(17

)

 

(35,267

)

(7

)

 

 



 

 

 



 

 

 



 

 

 

Segment operating profit (loss)

 

$

46,999

 

11

%

$

(3,574

)

(8

)%

$

43,425

 

10

%

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegreen Resorts

 

Bluegreen Communities

 

Total

 

 

 


 


 


 

 

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

Amount

 

Percentage
of Sales

 

 

 


 


 


 


 


 


 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

System-wide sales (2)

 

$

264,695

 

 

 

$

17,613

 

 

 

$

282,308

 

 

 

Estimated uncollectible VOI notes receivable

 

 

(31,205

)

 

 

 

 

 

 

 

(31,205

)

 

 

 

 



 

 

 



 

 

 



 

 

 

System-wide sales, net

 

 

233,490

 

100

%

 

17,613

 

100

%

 

251,103

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Sales of third-party VOIs

 

 

(31,735

)

(14

)

 

 

 

 

(31,735

)

13

 

 

 



 


 



 


 



 


 

Sales of real estate

 

 

201,755

 

86

 

 

17,613

 

100

%

 

219,368

 

87

 

Cost of real estate sales

 

 

(66,589

)

(33

)*

 

(25,303

)

(144

)

 

(91,892

)

(42

)*

 

 



 


 



 


 



 


 

Gross profit

 

 

135,166

 

67

*

 

(7,690

)

(44

)

 

127,476

 

58

*

Fee-based sales commission revenue

 

 

20,057

 

9

 

 

 

 

 

20,057

 

8

 

Other resort and communities operations revenues

 

 

55,609

 

24

 

 

1,590

 

9

 

 

57,199

 

23

 

Cost of other resort and communities operations

 

 

(34,178

)

(15

)

 

(3,792

)

(22

)

 

(37,970

)

(15

)

Selling and marketing expenses

 

 

(120,014

)

(51

)

 

(4,571

)

(26

)

 

(124,585

)

(50

)

Segment general and administrative expenses (1)

 

 

(18,892

)

(8

)

 

(6,636

)

(37

)

 

(25,528

)

(10

)

 

 



 

 

 



 

 

 



 

 

 

Segment operating profit (loss)

 

$

37,748

 

16

%

$

(21,099

)

(120

)%

$

16,649

 

6

%

 

 



 

 

 



 

 

 



 

 

 


 

 

*

Resort cost of sales and Gross profit are calculated as a percentage of sales of real estate. 

 

 

(1)

General and administrative expenses attributable to corporate overhead have been excluded from the tables. Corporate general and administrative expenses (excluding mortgage operations) totaled $52.3 million,

49



 

 

 

$54.8 million and $45.1 million for the years ended December 31, 2007, 2008, and 2009, respectively. (See “Corporate General and Administrative Expenses” below for further discussion).

 

 

(2)

Includes sales of VOI’s made on behalf of third parties, which are effected through the same process as the sale of our vacation ownership inventory, and involve similar selling and marketing costs.

Bluegreen Resorts - Year ended December 31, 2009 compared to the year ended December 31, 2008

Bluegreen Resorts – Resort Sales and Marketing

The following table sets forth certain information for sales of both Bluegreen VOIs and VOI sales made on behalf of outside developers for a fee for the periods indicated. The information is provided before giving effect to the percentage-of-completion method of accounting and the deferral of sales in accordance with timeshare accounting rules:

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

 

 

 

 

Number of Bluegreen VOI sales transactions

 

 

44,224

 

 

19,602

 

Number of sales made on behalf of outside developers for a fee

 

 

 

 

2,593

 

Total VOI sales transactions

 

 

44,224

 

 

22,195

 

Average sales price per transaction

 

$

11,028

 

$

11,324

 

Number of total prospects tours

 

 

318,005

 

 

139,801

 

Sale-to-tour conversion ratio– total prospects

 

 

13.9

%

 

15.9

%

Number of new prospects tours

 

 

224,765

 

 

80,590

 

Sale-to-tour conversion ratio– new prospects

 

 

9.6

%

 

11.7

%

Sales of Bluegreen Owned VOIs. Bluegreen Resorts’ gross VOI sales (prior to the impact of estimated uncollectible VOI notes receivable and gain on sale of notes receivable) decreased $262.7 million, or 53%, during 2009 as compared to 2008, reflecting the deliberate down-sizing of our sales and marketing operations through the operation of fewer sales offices and our decision to focus on what we believe are relatively higher efficiency marketing programs. Sales to owners accounted for 55% of Resorts’ sales during 2009 as compared to 46% during 2008. Additionally, although we purposely reduced the number of prospect tours during 2009, we believe these tours were more successful as our sale-to-tour conversion ratio for new prospects increased to 11.7% during 2009 from 9.6% during 2008.

Approximately $8.2 million of gains on sales of VOI notes receivable in 2008 are reflected as an increase to VOI sales. No such gains were recognized during 2009. As discussed in detail throughout this Annual Report, we do not anticipate that, in general, any future transfer of our notes receivable will be structured as, or otherwise qualify for, sales treatment. Instead, such transactions will most likely be accounted for as on-balance sheet borrowings. Accordingly, we do not expect to recognize future gains on the sale of notes receivable. While we believe the on-balance sheet treatment for the sale of notes receivable provides more transparent results, our results of operations and operating cash flows are negatively impacted compared to those periods in which the transfer of receivables was treated as a sale.

VOI revenue was reduced by our estimate of future uncollectible VOI notes receivable of $31.2 million and $75.8 million during 2009 and 2008, respectively. These estimates vary with the amount of financed sales during the periods, as well as by our estimate of future note receivable performance.

Bluegreen Resorts’ gross margin percentages vary between periods based on the relative costs of the specific VOIs sold in each respective period and the size of the point packages of the VOIs sold. Gross margin during 2009 as compared to 2008 was negatively impacted by the sale of higher cost VOIs, a result of a change in the mix of inventory sold and the relatively higher cost of VOIs reacquired in connection with consumer loan defaults on certain previously sold notes receivable.

50


Sales and marketing fee-based services. In September 2009, we began selling and marketing third parties’ vacation ownership inventory for a fee (one of our “fee-based services”). These sales are effected through the same process as the sale of our vacation ownership inventory, and entail similar selling and marketing costs with respect to these efforts. We earn our commission upon closing of the sales transaction and are generally paid our cash fees within 30 days.

During 2009, we sold $31.7 million of outside developer inventory and earned sales and marketing commissions of $20.1 million. Based on an allocation of our selling, marketing and segment general and administrative expenses to these fee-based services, we believe we generated approximately $3.6 million in pre-tax profit by providing these sales and marketing fee-based services in 2009. We anticipate that fee-based services will be a greater portion of our revenues and profits in the future.

As a result of fewer tours and the operation of fewer sales offices, selling and marketing expenses for Bluegreen Resorts decreased $155.4 million, or 56%, during 2009 as compared to 2008. As a percentage of sales, selling and marketing expenses decreased to 51% in 2009 from 64% in 2008. A higher tour-to-sale conversion rate and a higher proportion of sales in 2009 to existing owners, which carry a relatively lower marketing cost, reduced selling and marketing expenses as a percentage of sales. We believe that selling and marketing expenses as a percentage of gross VOI sales is an important indicator of the performance of Bluegreen Resorts and our performance as a whole. No assurance can be given that selling and marketing expenses will not increase as a percentage of gross VOI sales in future periods.

General and administrative expenses for Bluegreen Resorts decreased $8.7 million, or 31%, during 2009 as compared to 2008, the result of operating fewer sales offices. As a percentage of sales, field general and administrative expenses increased from 6% during 2008 to 8% in 2009.

As of December 31, 2009, approximately $9.6 million and $4.6 million of sales and Segment Operating Profit, respectively, were deferred under the applicable timeshare accounting rules because such sales did not yet meet the minimum required buyer’s initial investment. This compares to $23.3 million and $13.5 million of sales and Segment Operating Profit, respectively, deferred as of December 31, 2008.

Resort Management and Other Services

The following table sets forth pre-tax profit generated by our resort management and other services (in thousands):

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 


 

 

 

2008

 

2009

 

 

 


 


 

 

 

 

 

 

 

 

 

Resort Management Operations

 

$

15,308

 

$

24,260

 

Title Operations

 

 

10,201

 

 

5,012

 

Net Carrying Cost of Developer Inventory

 

 

(2,627

)

 

(6,560

)

Other

 

 

(2,190

)

 

(1,281

)

 

 



 



 

Total

 

$

20,692

 

$

21,431

 

 

 



 



 

Resort Management Operations gross profit increased $9.0 million, or 58%, during 2009 as compared to 2008, as a result of additional fees earned by providing services to more Bluegreen Vacation Club members and from managing more timeshare resorts on behalf of property owners’ associations. As of December 31, 2009, we had approximately 222,600 VOI owners, including approximately 168,500 members in the Bluegreen Vacation Club, compared to approximately 208,300 VOI owners, including approximately 164,500 members in the Bluegreen Vacation Club, as of December 31, 2008. Additionally, as of December 31, 2009, we directly or indirectly managed 37 timeshare properties compared to 34 as of December 31, 2008, primarily as a result of entering into new management contracts in connection with our fee-based services.

Gross profit generated from our title operations fluctuates based upon the number of VOI sales transactions processed by our title company subsidiary and on the mix of VOI inventory sold (third party closing costs vary by the location of underlying real estate sold). The decrease in profit during 2009, as compared to 2008 reflects the decrease in sales.

51


We intend to continue to pursue our efforts to provide resort management and title services to third-party resort developers and others, on a cash-fee basis. While there is no assurance that we will be successful, we hope that this will become an increasing portion of our business over time.

The carrying costs of our VOI inventory include maintenance fees and developer subsidies on VOIs in our inventory paid to the property owners’ associations that maintain our resorts. We partially mitigate this expense, to the extent possible, through the rental of our owned VOI units. Accordingly, the net carrying cost of developer inventory fluctuates with the number of VOI units we hold and the number of resorts subject to a developer subsidy arrangement during a period, as well as revenue from rental and sampler activity realized. During the years ended December 31, 2009 and 2008, the carrying cost of our developer inventory totaled approximately $19.8 million and $16.0 million, respectively, and was off-set by rental/sampler revenue, net of expenses, of $13.2 million and $13.4 million, respectively, during those periods. The carrying cost of developer inventory increased in 2009 primarily as a result of the opening of our resorts in Las Vegas, Nevada and Williamsburg, Virginia in the summer of 2008.

Bluegreen Resorts - Year ended December 31, 2008 compared to the year ended December 31, 2007

Bluegreen Resorts – Resort Sales and Marketing

The following table sets forth certain information for sales of VOIs for the periods indicated, before giving effect to the percentage-of-completion method of accounting and the deferral of sales in accordance with timeshare accounting rules:

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

Number of VOI sales transactions

 

 

42,768

 

 

44,224

 

Average sales price per transaction

 

$

11,124

 

$

11,028

 

Number of total prospects tours

 

 

325,819

 

 

318,005

 

Sale-to-tour conversion ratio– total prospects

 

 

13.1

%

 

13.9

%

Number of new prospects tours

 

 

239,610

 

 

224,765

 

Sale-to-tour conversion ratio– new prospects

 

 

9.7

%

 

9.6

%

Bluegreen Resorts’ gross VOI sales (prior to the impact of estimated uncollectible VOI notes receivable and gain on sale of notes receivable) increased $19.6 million, or 4%, during 2008 as compared to 2007 primarily due to our continued focus on marketing to our Bluegreen Vacation Club owner base. Sales to owners increased by 13% and accounted for 46% of Resorts’ sales during 2008 as compared to 41% during 2007. Additionally, although the number of sales prospects seen by Bluegreen Resorts decreased by 2%, the overall sale-to-tour conversion ratio increased 6% during 2008, resulting in an overall sales increase during 2008 as compared to 2007.

Approximately $39.4 million and $8.2 million of gain on sales of VOI notes receivable in 2007 and 2008, respectively, were reflected as an increase to VOI sales. The majority of these gains represent the reversal of amounts previously recognized as estimated uncollectible VOI notes receivable. While the overall decrease in gain on sale of VOI notes receivable in 2008 as compared to 2007 was primarily the result of lower off-balance sheet receivable sales during 2008 compared to 2007 ($68.6 million of loans in 2008 compared to $266.9 million in 2007), as a percentage of notes receivable sold, the gain decreased in 2008 due to higher interest rates required by investors in the securitization market.

The increase in gross VOI revenue was further reduced by an increase of $10.6 million, or 16%, in our estimate of future uncollectible VOI notes receivable primarily due to higher gross VOI sales in 2008 as compared to 2007, and a higher default experience.

Bluegreen Resorts’ gross margin percentages vary between periods based on the relative costs of the specific VOIs sold in each respective period. Gross margin during 2008 as compared to 2007 was positively impacted by sales of VOIs located at our Bluegreen Wilderness Traveler at Shenandoah resort, which has a relatively low cost, and to a lesser extent, by a system-wide price increase during the first quarter of 2008.

52


Selling and marketing expenses for Bluegreen Resorts increased $14.5 million, or 6%, during 2008 as compared to 2007. The overall increase in selling and marketing expenses during 2008 as compared to 2007 reflected the overall increase in sales and a general increase in overall marketing expenses. As a percentage of sales, our selling and marketing costs increased primarily as a result of the recognition of smaller gains on sale (recorded as a component of revenue) in 2008 as compared to 2007, partially offset by increased sales to existing owners, (which generally carry lower marketing costs), and a slightly higher 2008 sale-to-tour conversion rate. As a percentage of sales, selling and marketing expenses increased to 64% in 2008 from 58% in 2007.

General and administrative expenses for Bluegreen Resorts decreased $4.3 million, or 14%, during 2008 as compared to 2007. As a percentage of sales, field general and administrative expenses decreased from 7% during 2007 to 6% in 2008.

As of December 31, 2008, approximately $23.3 million and $13.5 million of sales and Segment Operating Profit, respectively, were deferred under the applicable timeshare accounting rules because such sales did not yet meet the minimum required buyer’s initial investment. This compares to $24.6 million and $14.3 million of sales and Segment Operating Profit, respectively, deferred as of December 31, 2007.

Resort Management and Other Services

The following table sets forth pre-tax profit generated from our resort management and other services (in thousands):

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 


 

 

 

2007

 

2008

 

 

 


 


 

 

 

 

 

 

 

Resort Management Operations

 

$

11,821

 

$

15,308

 

Title Operations

 

 

8,630

 

 

10,201

 

Net Carrying Cost of Developer Inventory

 

 

(1,666

)

 

(2,627

)

Other

 

 

(1,749

)

 

(2,190

)

 

 



 



 

Total

 

$

17,036

 

$

20,692

 

 

 



 



 

Resort Management Operations gross profit increased $3.5 million, or 30%, during 2008 as compared to 2007, primarily the result of higher fees earned by providing services to Bluegreen Vacation Club members and from managing timeshare resorts on behalf of property owners’ associations. As of December 31, 2008, we had approximately 208,300 VOI owners, including 164,500 members in the Bluegreen Vacation Club compared to 185,100 VOI owners, including approximately 151,100 members in the Bluegreen Vacation Club, as of December 31, 2007, respectively. Additionally, as of December 31, 2008 we directly or indirectly managed 34 timeshare properties compared to 28 as of December 31, 2007.

Gross profit generated from our title operations fluctuates based upon the number of VOI sales transactions processed by our subsidiary title company and on the mix of VOI inventory sold (third party closing costs vary by location of underlying real estate sold).

During the years ended December 31, 2008 and 2007, the carrying cost of our developer inventory totaled approximately $16.0 million and $14.9 million, respectively, and was off-set by rental/sampler revenue, net of expenses, of $13.4 million and $13.3 million, respectively, during those periods.

Restructuring Charges

During the fourth quarter of 2008, we implemented strategic initiatives in the Resort Division that are more fully described under “Liquidity and Capital Resources”.

53


Restructuring charges incurred as a result of implementing our strategic initiatives were as follows (in thousands):

 

 

 

 

 

 

 

Charges
during 2008

 

 

 


 

Severance and benefit-related costs(1)

 

$

5,608

 

Lease Termination Obligation(2)

 

 

4,766

 

Fixed Assets write-downs, net of proceeds (3)

 

 

3,760

 

Other

 

 

1,483

 

 

 



 

Total Restructuring

 

$

15,617

 

 

 



 


 

 

 

 

(1)

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

 

 

 

 

(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 ASC 420 which relate to the accounting for costs associated with exit or disposal activities were satisfied.

 

 

 

 

(3)

Includes write-downs of $1.6 million and $2.2 million for leasehold improvements and property and equipment, respectively, net of a nominal amount of cash received in connections with selling assets.

Goodwill Impairment

In 2008, we recorded $4.2 million of goodwill related to the business acquisitions for Bluegreen Resorts, increasing total goodwill to $8.5 million. During the year ended December 31, 2008, we completed the required annual impairment testing of the goodwill recorded in our Bluegreen Resorts reporting unit. As a result of our annual impairment testing of goodwill for the year ended December 31, 2008, we determined that the fair value of our Bluegreen Resorts reporting units, based on our overall market capitalization, could not support the book value of goodwill. Accordingly, we wrote-off the balance of our goodwill and recorded a charge of $8.5 million.

Bluegreen Communities- Year ended December 31, 2009 compared to the year ended December 31, 2008

The table below sets forth the number of homesites sold by Bluegreen Communities and the average sales price per homesite for the periods indicated, before giving effect to the percentage-of-completion method of accounting, and excluding sales of bulk parcels:

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

 


 

 

 

December 31,
2008

 

December 31,
2009

 

 

 


 


 

Number of homesites sold

 

 

442

 

 

278

 

Average sales price per homesite

 

$

80,455

 

$

58,198

 

Communities’ sales decreased $29.4 million, or 63%, during 2009, as compared to 2008. Sales at Bluegreen Communities have been, and continue to be, adversely impacted by the deterioration of the economy generally and the real estate markets, in particular. We have experienced continued low demand, especially in our higher priced premium homesites. Throughout 2009, we continued to significantly reduce prices on completed homesites at certain communities. The decline in our average sales price per homesite in 2009 from 2008 reflects the sale of reduced price homesites as well as increased sales at communities with lower price levels. Before giving effect to the percentage-of-completion method of accounting and state rescission statutes, during 2009, we entered into contracts to sell homesites totaling $15.5 million, as compared to $32.0 million during 2008. The tables below set forth information with respect to contracts to sell homesites at December 31, 2009 (in thousands):

54



 

 

 

 

 

 

 

 

 

 

 

 

 

Contracts to Sell Property at Projects
Not Substantially Sold Out at

December 31, 2009

 

 

 


 

Project

 

2008

 

2009

 

Difference

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

Vintage Oaks at the Vineyard

 

$

8,844

 

$

4,547

 

$

(4,297

)

Havenwood at Hunter’s Crossing

 

 

5,515

 

 

1,291

 

 

(4,224

)

Lake Ridge at Joe Pool Lake

 

 

2,568

 

 

1,696

 

 

(872

)

King Oaks

 

 

3,019

 

 

1,451

 

 

(1,568

)

Chapel Ridge

 

 

2,068

 

 

792

 

 

(1,276

)

The Bridges at Preston Crossings

 

 

2,577

 

 

394

 

 

(2,183

)

Sugar Tree on the Brazos

 

 

353

 

 

790

 

 

437

 

Sanctuary Cove

 

 

532

 

 

 

 

(532

)

 

 



 



 



 

Total

 

$

25,476

 

$

10,961

 

$

(14,515

)

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Project

 

Contracts to Sell Property at Projects
Substantially Sold Out

at December 31, 2009

 

 

 


 

 

 

2008

 

2009

 

Difference

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

Mystic Shores

 

$

4,321

 

$

1,519

 

$

(2,802

)

Saddle Creek Forest

 

 

1,332

 

 

1,890

 

 

558

 

Miscellaneous

 

 

868

 

 

1,147

 

 

279

 

 

 



 



 



 

Total

 

 

6,521

 

 

4,556

 

 

(1,965

)

 

 



 



 



 

Total Contracts

 

$

31,997

 

$

15,517

 

$

(16,480

)

 

 



 



 



 

Bluegreen Communities’ sales were increased as a result of the application of the percentage-of-completion method of accounting by $10.8 million and $1.9 million during 2008 and 2009, respectively.

As a result of our decreased volume, reduced prices, and the impact of reduced sales on the forecasted sell-out period of our projects, we recorded non-cash charges to cost of real estate sales of approximately $13.2 million and $5.2 million during 2009 and 2008, respectively, to write-down the inventory balances of certain phases of our Communities properties, to their estimated net realizable value. We calculated the estimated net realizable value of these properties based on our analysis of their estimated future cash flows, given what we believe to be reasonable assumptions. Should the real estate market decline further, or if other factors change our assumptions about the future, it may be necessary to record additional charges with respect to these or other projects in the future.

Excluding the inventory charges, Bluegreen Communities’ gross margin decreased from 44% during 2008 to 31% during the same period in 2009. Gross margin was negatively impacted in 2009 by the reductions in sales prices of certain completed homesites, as well as the sale of a bulk parcel in Texas, at cost. Variations in cost structures and the market pricing of homesites available for sale as well as the opening of phases of projects, which include premium homesites (e.g., water frontage, preferred views, larger acreage homesites, etc.), also impact the gross margin of Bluegreen Communities from period to period. These factors, as well as the impact of percentage-of-completion accounting and the impact of selling homesites previously written-down, will cause variations in gross margin between periods.

Our Communities homesite inventory consists of substantially completed homesites held for sale and land held for the development of additional homesites in the future. As we intend to continue to sell our homesites pursuant to Bluegreen Communities’ retail sales model currently and based on the sales prices being realized on our homesites and our forecasts of sales pace, we believe that our Communities inventory is being carried at the appropriate value pursuant to current accounting rules. Should our intentions or estimates relative to our Communities business

55


change in the future, the carrying values of our Communiti