Attached files
file | filename |
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10-K - FORM 10-K - Bluegreen Vacations Holding Corp | g26703e10vk.htm |
EX-23.1 - EX-23.1 - Bluegreen Vacations Holding Corp | g26703exv23w1.htm |
EX-10.3 - EX-10.3 - Bluegreen Vacations Holding Corp | g26703exv10w3.htm |
EX-32.2 - EX-32.2 - Bluegreen Vacations Holding Corp | g26703exv32w2.htm |
EX-23.2 - EX-23.2 - Bluegreen Vacations Holding Corp | g26703exv23w2.htm |
EX-21.1 - EX-21.1 - Bluegreen Vacations Holding Corp | g26703exv21w1.htm |
EX-32.1 - EX-32.1 - Bluegreen Vacations Holding Corp | g26703exv32w1.htm |
EX-31.2 - EX-31.2 - Bluegreen Vacations Holding Corp | g26703exv31w2.htm |
EX-31.1 - EX-31.1 - Bluegreen Vacations Holding Corp | g26703exv31w1.htm |
EX-32.3 - EX-32.3 - Bluegreen Vacations Holding Corp | g26703exv32w3.htm |
EX-31.3 - EX-31.3 - Bluegreen Vacations Holding Corp | g26703exv31w3.htm |
Exhibit 99.1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BLUEGREEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, | December 31, | |||||||
2009 | 2010 | |||||||
ASSETS |
||||||||
Unrestricted cash and cash equivalents |
$ | 70,491 | $ | 72,085 | ||||
Restricted cash ($5,198 and $41,243 held by VIEs at December 31, 2009 and
December 31, 2010, respectively) |
23,908 | 53,922 | ||||||
Contracts receivable, net |
4,826 | 1,843 | ||||||
Notes receivable including gross securitized notes of $169,041 and $533,343
(net of allowance of $46,826 and $143,160 at December 31,
2009 and 2010, respectively) |
309,307 | 568,985 | ||||||
Prepaid expenses |
7,884 | 4,882 | ||||||
Other assets |
35,054 | 54,947 | ||||||
Inventory |
515,917 | 419,877 | ||||||
Retained interests in notes receivable sold |
78,313 | | ||||||
Property and equipment, net |
85,565 | 79,391 | ||||||
Total assets |
$ | 1,131,265 | $ | 1,255,932 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Liabilities |
||||||||
Accounts payable |
$ | 14,846 | $ | 8,243 | ||||
Accrued liabilities and other |
51,083 | 60,518 | ||||||
Deferred income |
14,883 | 17,550 | ||||||
Deferred income taxes |
87,797 | 25,605 | ||||||
Receivable-backed notes payable recourse ($0 and $22,759 held by VIEs at
December 31, 2009 and 2010, respectively) |
111,526 | 135,660 | ||||||
Receivable-backed notes payable non-recourse (held by VIEs) |
131,302 | 436,271 | ||||||
Lines-of-credit and notes payable |
185,781 | 142,120 | ||||||
Junior subordinated debentures |
110,827 | 110,827 | ||||||
Total liabilities |
$ | 708,045 | $ | 936,794 | ||||
Commitments and contingencies (Note 12) |
||||||||
Shareholders Equity |
||||||||
Preferred stock, $.01 par value, 1,000 shares authorized; none issued |
| | ||||||
Common stock, $.01 par value, 140,000 shares authorized; 34,099 and 34,083
shares issued at December 31, 2009 and 2010, respectively |
341 | 341 | ||||||
Additional paid-in capital |
187,006 | 189,580 | ||||||
Treasury stock, 2,756 common shares at both December 31, 2009 and 2010, at cost |
(12,885 | ) | (12,885 | ) | ||||
Accumulated other comprehensive loss, net of income taxes |
(608 | ) | | |||||
Retained earnings |
212,376 | 107,129 | ||||||
Total Bluegreen Corporation shareholders equity |
386,230 | 284,165 | ||||||
Non-controlling interest |
36,990 | 34,973 | ||||||
Total shareholders equity |
423,220 | 319,138 | ||||||
Total liabilities and shareholders equity |
$ | 1,131,265 | $ | 1,255,932 | ||||
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December | Year Ended December 31, | Year Ended December 31, | ||||||||||
31, 2008 | 2009 | 2010 | ||||||||||
Revenues: |
||||||||||||
Gross sales of real estate |
$ | 542,632 | $ | 250,573 | $ | 231,680 | ||||||
Estimated uncollectible VOI notes receivable |
(75,847 | ) | (31,205 | ) | (94,164 | ) | ||||||
Gains on sales of VOI notes receivable |
8,245 | | | |||||||||
Sales of real estate |
475,030 | 219,368 | 137,516 | |||||||||
Other resort and communities operations revenue |
62,170 | 58,604 | 68,732 | |||||||||
Fee-based sales commission revenue |
| 20,057 | 52,966 | |||||||||
Interest income |
57,831 | 69,337 | 106,463 | |||||||||
595,031 | 367,366 | 365,677 | ||||||||||
Costs and expenses: |
||||||||||||
Cost of real estate sales |
130,267 | 91,892 | 93,079 | |||||||||
Cost of other resort and communities operations |
45,284 | 43,469 | 47,554 | |||||||||
Selling, general and administrative expenses |
365,503 | 185,536 | 214,509 | |||||||||
Interest expense |
20,888 | 36,132 | 65,795 | |||||||||
Other expense, net |
1,637 | 1,810 | 2,839 | |||||||||
Restructuring charges |
15,617 | | | |||||||||
Goodwill impairment charge |
8,502 | | | |||||||||
587,698 | 358,839 | 423,776 | ||||||||||
Income (loss) before non-controlling interest, provision
(benefit) for income taxes and discontinued operations |
7,333 | 8,527 | (58,099 | ) | ||||||||
Provision (benefit) for income taxes |
753 | (2,640 | ) | (22,227 | ) | |||||||
Income (loss ) from continuing operations |
6,580 | 11,167 | (35,872 | ) | ||||||||
Loss from discontinued operations |
(1 | ) | (7,267 | ) | | |||||||
Net income (loss) |
6,579 | 3,900 | (35,872 | ) | ||||||||
Less: Net income attributable to non-controlling interest |
7,095 | 7,472 | 8,094 | |||||||||
Net loss attributable to Bluegreen Corporation |
$ | (516 | ) | $ | (3,572 | ) | $ | (43,966 | ) | |||
Income (loss) from continuing operations attributable to Bluegreen Corporation per common share Basic: |
||||||||||||
(Loss) earnings per share from continuing operations
attributable to Bluegreen shareholders |
$ | (0.02 | ) | $ | 0.12 | $ | (1.41 | ) | ||||
Loss per share for discontinued operations |
| (0.23 | ) | | ||||||||
Loss per share attributable to Bluegreen shareholders |
$ | (0.02 | ) | $ | (0.11 | ) | $ | (1.41 | ) | |||
Income (loss) from continuing operations attributable to Bluegreen Corporation per common share Diluted |
||||||||||||
(Loss) earnings per share from continuing operations
attributable to Bluegreen shareholders |
$ | (0.02 | ) | $ | 0.12 | $ | (1.41 | ) | ||||
Loss per share for discontinued operations |
| (0.23 | ) | | ||||||||
Loss per share attributable to Bluegreen shareholders |
$ | (0.02 | ) | $ | (0.11 | ) | $ | (1.41 | ) | |||
Weighted average number of common shares: |
||||||||||||
Basic |
31,241 | 31,088 | 31,165 | |||||||||
Diluted |
31,241 | 31,100 | 31,165 | |||||||||
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
(in thousands)
Equity Attributable to Bluegreen Shareholders | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Comprehensive | ||||||||||||||||||||||||||||||||
Income (Loss), net | Equity Attributable | |||||||||||||||||||||||||||||||
Common | Additional | Treasury | of Income | to Non-Controlling | ||||||||||||||||||||||||||||
Common Shares Issued | Total | Stock | Paid-in-Capital | Retained Earnings | Stock, at Cost | Taxes | Interests | |||||||||||||||||||||||||
33,957 | Balance at December 31, 2007 |
$ | 407,531 | $ | 339 | $ | 178,144 | $ | 209,702 | $ | (12,885 | ) | $ | 9,808 | $ | 22,423 | ||||||||||||||||
| Net income (loss) |
6,579 | | | (516 | ) | | | 7,095 | |||||||||||||||||||||||
| Other comprehensive loss |
(6,635 | ) | | | | | (6,635 | ) | | ||||||||||||||||||||||
| Stock compensation |
4,378 | | 4,378 | | | | | ||||||||||||||||||||||||
39 | Shares issued upon exercise of
stock options |
132 | | 132 | | | | | ||||||||||||||||||||||||
33,996 | Balance at December 31, 2008 |
411,985 | 339 | 182,654 | 209,186 | (12,885 | ) | 3,173 | 29,518 | |||||||||||||||||||||||
| Net income (loss) |
3,900 | | | (3,572 | ) | | | 7,472 | |||||||||||||||||||||||
| Other comprehensive income |
405 | | | | | 405 | | ||||||||||||||||||||||||
| Stock compensation |
4,404 | | 4,404 | | | | | ||||||||||||||||||||||||
103 | Vesting of restricted stock |
2 | 2 | | | | | | ||||||||||||||||||||||||
| Stock issuance costs |
(52 | ) | | (52 | ) | | | | | ||||||||||||||||||||||
| Cummulative effect (See Note 5) |
2,576 | | | 6,762 | | (4,186 | ) | | |||||||||||||||||||||||
34,099 | Balance at December 31, 2009 |
423,220 | 341 | 187,006 | 212,376 | (12,885 | ) | (608 | ) | 36,990 | ||||||||||||||||||||||
| Impact of adoption of ASU
2009-16 and 2009-17 |
(60,673 | ) | | | (61,281 | ) | | 608 | | ||||||||||||||||||||||
34,099 | Balance at January 1, 2010 |
362,547 | 341 | 187,006 | 151,095 | (12,885 | ) | | 36,990 | |||||||||||||||||||||||
| Net income (loss) |
(35,872 | ) | | | (43,966 | ) | | | 8,094 | ||||||||||||||||||||||
| Member distibution to
non-controlling interest
holder |
(10,111 | ) | | | | | | (10,111 | ) | ||||||||||||||||||||||
(16 | ) | Stock compensation |
2,574 | | 2,574 | | | | | |||||||||||||||||||||||
34,083 | Balance at December 31, 2010 |
$ | 319,138 | $ | 341 | $ | 189,580 | $ | 107,129 | $ | (12,885 | ) | $ | | $ | 34,973 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
Operating activities: |
||||||||||||
Net income (loss) |
$ | 6,579 | $ | 3,900 | $ | (35,872 | ) | |||||
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities: |
||||||||||||
Non- cash communities inventory impairment |
5,204 | 13,159 | 54,564 | |||||||||
Other non-cash charges |
| | 1,623 | |||||||||
Non-cash stock compensation expense |
4,378 | 4,406 | 2,574 | |||||||||
Depreciation and amortization |
15,084 | 15,579 | 14,910 | |||||||||
Gain on sales of notes receivable |
(8,245 | ) | | | ||||||||
Loss on disposal of property and equipment |
5,140 | 173 | 427 | |||||||||
Loss on sales of golf courses |
| 10,544 | | |||||||||
Estimated uncollectible notes receivable |
76,079 | 31,641 | 94,554 | |||||||||
Benefit for deferred income taxes |
(2,804 | ) | (3,409 | ) | (27,238 | ) | ||||||
Interest accretion on retained interests in notes receivable sold |
(17,729 | ) | (19,186 | ) | | |||||||
Proceeds from sales of notes receivable |
55,705 | | | |||||||||
Goodwill impairment |
8,502 | | | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Contracts receivable |
13,080 | 2,626 | 2,983 | |||||||||
Notes receivable |
(313,661 | ) | (21,332 | ) | 23,033 | |||||||
Prepaid expenses and other assets |
3,898 | (5,080 | ) | (2,840 | ) | |||||||
Changes in restricted cash |
(1,754 | ) | (2,694 | ) | 6,504 | |||||||
Inventory |
(53,470 | ) | 6,178 | 27,090 | ||||||||
Accounts payable, accrued liabilities and other |
(26,407 | ) | (21,930 | ) | 1,628 | |||||||
Net cash (used in) provided by operating activities |
(230,421 | ) | 14,575 | 163,940 | ||||||||
Investing activities: |
||||||||||||
Cash received from retained interests in notes receivable sold |
44,884 | 43,741 | | |||||||||
Business acquisitions |
(6,105 | ) | | (2,208 | ) | |||||||
Purchases of property and equipment |
(22,883 | ) | (7,521 | ) | (3,702 | ) | ||||||
Proceeds from sales of property and equipment |
58 | 13 | | |||||||||
Proceeds from sales of golf courses, net |
| 9,414 | | |||||||||
Net cash provided by (used in) investing activities |
15,954 | 45,647 | (5,910 | ) | ||||||||
Financing activities: |
||||||||||||
Proceeds from borrowings collateralized by notes receivable |
287,478 | 81,683 | 196,985 | |||||||||
Payments on borrowings collateralized by notes receivable |
(94,964 | ) | (90,180 | ) | (279,383 | ) | ||||||
Proceeds from borrowings under line-of-credit facilities and notes
payable |
105,832 | 11,861 | | |||||||||
Payments under line-of-credit facilities and notes payable |
(90,907 | ) | (48,944 | ) | (56,861 | ) | ||||||
Payments on 10.50% senior secured notes |
(55,000 | ) | | | ||||||||
Payments of debt issuance costs |
(3,056 | ) | (4,660 | ) | (7,066 | ) | ||||||
Stock issuance cost |
| (52 | ) | | ||||||||
Distributions to non-controlling interests |
| | (10,111 | ) | ||||||||
Proceeds from exercise of employee and director stock options |
132 | | | |||||||||
Net cash provided by (used in) financing activities |
149,515 | (50,292 | ) | (156,436 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
(64,952 | ) | 9,930 | 1,594 | ||||||||
Unrestricted cash and cash equivalents at beginning of period |
125,513 | 60,561 | 70,491 | |||||||||
Unrestricted cash and cash equivalents at end of period |
$ | 60,561 | $ | 70,491 | $ | 72,085 | ||||||
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
(in thousands)
Year Ended | Year Ended December | Year Ended December | ||||||||||
December 31, 2008 | 31, 2009 | 31, 2010 | ||||||||||
Supplemental schedule of non cash operating, investing and financing activities: |
||||||||||||
Inventory acquired through financing |
$ | 10,132 | $ | | $ | 13,200 | ||||||
Property and equipment acquired through financing |
$ | 4,639 | $ | | $ | | ||||||
Retained interests in notes receivable sold |
$ | 9,624 | $ | (11,078 | ) | $ | | |||||
Net change in unrealized gains and losses in retained interests in sold
notes receivable sold |
$ | (10,391 | ) | $ | 369 | $ | | |||||
Supplemental schedule of operating cash flow information: |
||||||||||||
Interest paid, net of amounts capitalized |
$ | 21,813 | $ | 36,372 | $ | 56,927 | ||||||
Income taxes paid |
$ | 5,390 | $ | 2,475 | $ | 1,666 | ||||||
See accompanying notes to consolidated financial statements.
BLUEGREEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization
We provide Colorful Places to Live and Play® through our resorts and residential
communities businesses. Our resorts business (Bluegreen Resorts) markets, sells and manages real
estate-based vacation ownership interests (VOIs) in resorts, which are generally located in
popular, high-volume, drive-to vacation destinations, and were either developed or acquired by us
or developed by others, in which case we earn fees for providing these services. VOIs in our
resorts and those sold by us on behalf of others typically entitle the buyer to use resort
accommodations through an annual or biennial allotment of points which represent their ownership
and beneficial use rights in perpetuity in the Bluegreen Vacation Club (supported by an underlying
deeded VOI held in trust for the buyer). Members of the Bluegreen Vacation Club may stay in any of
our 56 resorts or take advantage of an exchange program offered by a third-party world-wide
vacation ownership exchange network of over 4,000 resorts and other vacation experiences such as
cruises and hotel stays.
Our residential communities business (Bluegreen Communities) acquires, develops and subdivides
property and markets residential homesites, the majority of which are sold directly to retail
customers who seek to build a home generally in the future, in some cases on properties featuring a
golf course and other related amenities. On March 24, 2011, we announced that we had engaged
advisors to explore strategic alternatives for Bluegreen Communities, including a possible sale of
the division. There can be no assurance, however, regarding the timing or whether we will elect to
pursue any of the strategic alternatives we may consider, or that any such alternatives, if pursued
and ultimately consummated, will result in improvements to our financial condition and operating
results or otherwise achieve the benefits we expect to realize from the transaction.
Our other resort and communities operations consist primarily of revenues from resort property and
homeowners association management services, VOI title services, resort amenity operations, realty
operations and daily-fee golf course operations. We also generate significant interest income by
providing financing to individual purchasers of VOIs.
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include the accounts of all of our wholly-owned subsidiaries,
entities in which we hold a controlling financial interest, and variable interest entities for
which we are the primary beneficiary. The only non-wholly owned subsidiary that we consolidate is
Bluegreen/Big Cedar Vacations, LLC (the Bluegreen/Big Cedar Joint Venture), as we hold a 51%
equity interest in the Bluegreen/Big Cedar Joint Venture, have an active role as the day-to-day
manager of the Bluegreen/Big Cedar Joint Ventures activities, and have majority voting control of
the Bluegreen/Big Cedar Joint Ventures management committee. We do not consolidate our statutory
business trusts formed to issue trust preferred securities as these entities represent variable
interest entities in which we are not the primary beneficiary as defined by Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Consolidations (Topic 810). The
statutory business trusts are accounted for under the equity method of accounting. We have
eliminated all significant intercompany balances and transactions in consolidation.
On January 1, 2010, we adopted Accounting Standards Update (ASU) No. 2009-16, Transfers and
Servicing (ASC 860): Accounting for Transfers of Financial Assets (ASU 2009-16) and ASU No.
2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities (ASU 2009-17). The adoption of these standards resulted in our
consolidation, on January 1, 2010, of seven special purpose finance entities associated with past
securitization transactions. See Note 2 below for more information. Prior to January 1, 2010, in
accordance with then-prevailing generally accepted accounting principles
(GAAP), we did not consolidate these special purpose finance entities in our financial
statements because the securitization transactions qualified as sales of financial assets.
On December 30, 2009, we sold four of our golf courses located in North Carolina and Virginia for
an aggregate purchase price of approximately $9.4 million. The related golf operations and the 2009
pre-tax loss of $10.5 million recognized at the time of sale have been presented as discontinued
operations in the Consolidated Statements of Operations for the years ended December 31, 2008 and
2009.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and
assumptions that affect the amounts reported in our consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
We invest cash in excess of our immediate operating requirements in short-term time deposits and
money market instruments generally with original maturities at the date of purchase of three months
or less. We maintain cash and cash equivalents with various financial institutions. These
financial institutions are located throughout the United States, Canada and Aruba. Our investment
policy is designed to limit exposure to any one institution. However, a significant portion of our
unrestricted cash is maintained with a single bank and, accordingly, we are subject to credit risk.
Periodic evaluations of the relative credit standing of financial institutions maintaining our
deposits are performed to evaluate and mitigate, if necessary, credit risk.
Restricted cash consists primarily of customer deposits held in escrow accounts and cash collected
on pledged notes receivable not yet remitted to lenders.
Revenue Recognition and Contracts Receivable
In accordance with requirements of ASC 970, Real Estate (ASC 970), we recognize revenue on VOI
and homesite sales when a minimum of 10% of the sales price has been received in cash
(demonstrating the buyers 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 further discussion of our policies regarding the estimation of credit losses on our notes
receivable below. Should our estimates regarding the collectibility of our receivables change
adversely, we may have to defer the recognition of sales and our results of operations could be
negatively impacted. Under timeshare accounting rules, the calculation of the adequacy of a
buyers commitment for the sale of VOIs requires that cash received towards the purchase of our
VOIs be reduced by the value of certain incentives provided to the buyer at the time of sale. If
after considering the value of the incentive the 10% requirement is not met, the VOI sale, and the
related cost 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, in which case our results of operations may be materially
adversely impacted.
In cases where development has not been substantially completed, we recognize revenue in accordance
with the percentage-of-completion method of accounting. Should our estimates of the total
anticipated cost of completing any of our 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 may materially and adversely impact our results of
operations.
Contracts receivable consist of: (1) amounts receivable from customers on recent sales of VOIs
pending recording of the customers notes receivable in our loan servicing system; (2) receivables
related to unclosed homesite sales; and (3) receivables from third-party escrow agents on recently
closed homesite sales. Contracts receivable are stated net of a reserve for loan losses of $0.6
million and $0.1 million at December 31, 2009 and 2010, respectively.
Under timeshare accounting rules, rental operations, including accommodations provided through the
use of our sampler program, are accounted for as incidental operations whereby incremental carrying
costs in excess of incremental revenues are charged to expense as incurred. Conversely, incremental
revenues in excess of incremental carrying costs is recorded as a reduction to VOI inventory.
Incremental carrying costs include costs that have been incurred by us during the holding period of
the unsold VOIs, such as developer subsidies and maintenance fees on unsold VOI inventory. During
the years ended December 31, 2009 and 2010, all of our rental revenue and sampler revenue earned
were recorded as an off-set to cost of other resort and communities operations as such amounts were
less than the incremental carrying cost.
In addition to sales of real estate, we also generate revenue from the activities listed below.
The table provides a brief description of the applicable revenue recognition policy:
Activity | Revenue is recognized when: | |
Fee-based sales commissions
|
The sale transaction with the VOI purchaser is consummated in accordance with the terms of the agreement with the third-party developer and the related consumer rescission period has passed. | |
Resort management and service fees
|
Management services are rendered (1). | |
Resort title fees
|
Escrow amounts are released and title documents are completed. | |
Rental and sampler program
|
Guests complete stays at the resorts. Rental and sampler program proceeds are classified as a reduction to cost of other resort and communities operations. | |
Communities realty commissions
|
Sales of third-party-owned real estate are completed. | |
Golf course and ski hill daily fees
|
Services are provided. |
(1) | In connection with our management of the property owners associations, among other things, we act as agent for the property owners association to operate the resort as provided under the management agreements. In certain cases, the personnel at the resorts are Bluegreen employees. The property owners association bears all of the economic costs of such personnel and generally pays us in advance of, or simultaneously to, the payment of payroll. In accordance with ASC 605-45, Overall Considerations of Reporting Revenues Gross as a Principal versus Net as an Agent, reimbursements from the property owners associations relating to direct pass-through costs are recorded net of the related expenses. |
Our cost of other resort and communities operations consists of the costs associated with the
various revenues described above as well as developer subsidies and maintenance fees on our unsold
VOIs.
Notes Receivable
Our notes receivable are carried at amortized cost less an allowance for bad debts. Interest income
is suspended and previously accrued but unpaid interest income is reversed on all delinquent notes
receivable when principal or interest payments are more than three months contractually past due
and not resumed until such loans are less than three months past due. As of December 31, 2009 and
2010, $14.2 million and $28.3 million, respectively, of our notes receivable were more than three
months contractually past due and, hence, were not accruing interest income. Our notes receivable
are generally charged off as uncollectible when they have become approximately 120 days past due.
We estimate uncollectibles for VOI notes receivable in accordance with timeshare accounting rules.
Under these rules, the estimate of uncollectibles is 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 years sales over the entire life of the notes. We also consider
whether the historical economic conditions are comparable to current economic conditions, as well
as variations in underwriting standards. Additionally, under timeshare accounting
rules, 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.
Loan origination costs are deferred and recognized over the life of the related notes receivable.
Retained Interest in Notes Receivable Sold
We periodically sell notes receivable related to the sale of VOIs. In connection with such
transactions, we retain subordinated tranches and rights to excess interest spread which represent
retained interests in the notes receivable sold. Prior to the adoption of ASU 2009-17 on January 1,
2010, these retained interests were reported as assets and treated as available-for-sale
investments and, accordingly, carried at fair value. Changes in the fair values of the retained
interests in notes receivable sold considered temporary were included in our shareholders equity
as accumulated other comprehensive income, net of income taxes. The portion of
other-than-temporary declines in fair value that represented credit losses were charged to
operations. The value of our retained interests in notes receivable sold was $78.3 million at
December 31, 2009.
Subsequent to the adoption of ASU 2009-17, we consolidated special purpose finance entities
associated with prior securitization transactions that previously qualified for off-balance-sheet
sales treatment, and as a result, the retained interests were eliminated. See Note 2 for additional
information related to the impact of adoption of ASU 2009-17.
Inventory
Our inventory consists of completed VOIs, VOIs under construction, land held for future vacation
ownership development and residential land acquired or developed for sale. We carry our completed
inventory at the lower of i) cost, including costs of improvements and amenities incurred
subsequent to acquisition, capitalized interest, real estate taxes plus other costs incurred during
construction, or ii) estimated fair value, less costs to sell. VOI inventory and cost of sales are
accounted for under timeshare accounting rules, which 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 required by timeshare accounting rules, cost of sales is calculated as a
percentage of net sales using a cost-of-sales percentagethe ratio of total estimated development
cost to total estimated VOI revenue, including the estimated incremental revenue from the resale of
VOI inventory repossessed, generally as a result of the default of the related receivable. Also,
pursuant to timeshare accounting rules, we do not relieve inventory for VOI cost of sales related
to anticipated credit losses (accordingly, no adjustment is made when inventory is reacquired upon
default of the related receivable). For Bluegreen Communities real estate projects, costs are
allocated to individual homesites in the projects based on the relative estimated sales value of
each homesite in accordance with ASC 970, which defines the accounting for costs of real estate
projects. Under this method, the allocated cost of a unit is relieved from inventory and
recognized as cost of sales upon recognition of the related sale. Homesites reacquired upon default
of the related receivable are considered held for sale and are recorded at fair value less costs to
sell.
We also periodically evaluate the recovery of the carrying amount of our incomplete or undeveloped
resort and residential communities properties under the guidelines of ASC 360, Property, Plant and
Equipment (ASC 360), which provides guidance relating to the accounting for the impairment or
disposal of long-lived assets.
During 2009 and 2010, we recorded charges totaling $13.2 million and $54.6 million, respectively,
to reduce the carrying value of inventory related to certain developed and undeveloped phases of
our residential communities. See Note 7 for a further discussion.
Deferred Financing Costs
Deferred financing costs included in other assets on our Consolidated Balance Sheets are
comprised of costs incurred in connection with securing financing from third-party lenders and are
capitalized and amortized to interest expense over the terms of the related financing arrangements.
As of December 31, 2009 and 2010, deferred financing costs were $7.8 million and $16.9 million,
respectively. We recognized amortization of deferred financing costs for the years ended December
31, 2008, 2009, and 2010 of approximately $1.8 million, $3.9 million, and $5.4 million,
respectively.
As a result of our adoption of ASU 2009-16 and ASU 2009-17 on January 1, 2010, our Consolidated
Financial Statements as of and for the year ended December 31, 2010 include the deferred financing
costs associated with the special purpose finance entities previously not consolidated by us. See
Note 2 for additional information regarding the impact of our adoption of ASU 2009-16 and ASU
2009-17.
Property and Equipment
Our property and equipment is recorded at acquisition cost. We record depreciation and amortization
in a manner that recognizes the cost of our depreciable assets over their estimated useful lives
using the straight-line method. Leasehold improvements are amortized over the shorter of the terms
of the underlying leases or the estimated useful lives of the improvements. Depreciation expense
includes the amortization of assets recorded under capital leases.
Impairment of Long-Lived Assets
We evaluate the recovery of the carrying amounts of our long-lived assets under the guidelines of
ASC 360. We review the carrying amounts of our long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. If estimated cash flows are insufficient to recover the investment, an impairment loss
is recognized to write-down the carrying value of the asset to its estimated fair value less any
costs of disposition.
Goodwill
We account for goodwill under the provisions of ASC 350, Intangibles Goodwill and Other (ASC
350). This statement requires that goodwill and intangible assets deemed to have indefinite lives
not be amortized, but rather be tested for impairment on an annual basis. Based on the results of
the annual impairment test performed during 2008 with respect to the goodwill recorded in our
Bluegreen Resorts reporting unit, we determined that the fair value of the reporting unit, based on
our overall market capitalization, could not support the book value of goodwill. Accordingly, we
wrote-off the balance of our goodwill associated with Bluegreen Resorts and recorded a charge of
$8.5 million for the year ended December 31, 2008.
Treasury Stock
We account for repurchases of our common stock, if any, using the cost method with common stock in
treasury classified in our consolidated balance sheets as a reduction of shareholders equity.
Income Taxes
Income tax expense is recognized at applicable U.S. or international tax rates. Certain revenue and
expense items may be recognized in one period for financial statement purposes and in a different
periods income tax return. The tax effects of such differences are reported as deferred income
taxes. Valuation allowances are recorded for periods in which realization of deferred tax assets
does not meet a more likely than not standard. See Note 13 for additional information on income
taxes.
Advertising Expense
We expense advertising costs, which include marketing costs, as incurred. Advertising expense for
the years ended December 31, 2008, 2009, and 2010 was $126.6 million, $39.0 million and $50.0
million, respectively. Advertising expense is included in selling, general and administrative
expenses in our Consolidated Statements of Operations.
Stock-Based Compensation
We account for stock-based compensation using the fair value method of expense recognition. We
utilize the Black-Scholes option pricing model for calculating the fair value of each option
granted. The Black-Scholes option-pricing model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable. In addition, this
model requires the input of subjective assumptions, including the expected price volatility of the
underlying stock. Projected data related to the expected volatility and expected life of stock
options
is based upon historical and other information. Changes in these subjective assumptions can
materially affect the fair value of the estimate, and therefore, the existing valuation models do
not provide a precise measure of the fair value of our employee stock options.
The fair value of the options granted during 2008 and 2009 was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average assumptions (no options
were granted during 2010):
For the Year Ended December 31, | ||||||||
2008 | 2009 | |||||||
Risk free investment rate |
3.1 | % | 2.4 | % | ||||
Dividend yield |
0.0 | % | 0.0 | % | ||||
Volatility factor of expected market price |
49.4 | % | 84.2 | % | ||||
Expected term |
5.5 years | 5.0 years |
At the grant date, the Company estimates the number of shares ultimately expected to vest and
subsequently adjusts compensation costs for any changes in the estimated rate of forfeitures. The
Company uses historical data to estimate the forfeiture rate and historical option exercise
behavior to estimate the expected term of life of the option. The risk-free investment rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The Company uses the historical volatility of its common stock to
estimate the volatility factor of expected market price. We recognize stock-based compensation
expense on a straight-line basis over the service or vesting period of the instrument.
Total stock-based compensation expense for non-employee directors and employees during the years
ended December 31, 2008, 2009, and 2010 was $4.4 million, $4.4 million and $2.6 million,
respectively.
Earnings (Loss) Per Common Share
We compute basic earnings (loss) per common share by dividing net income (loss) by the
weighted-average number of common shares outstanding. Diluted earnings per common share is
computed in the same manner as basic earnings per common share, but also gives effect to all
dilutive stock options and unvested restricted stock using the treasury stock method.
During 2008, 38,500 shares of common stock were issued as a result of stock option exercises. No
stock options were exercised during 2009 or 2010.
During the years ended December 31, 2008, 2009, and 2010, approximately 3.6 million, 4.1 million,
and 4.1 million shares, respectively, were excluded from the determination of diluted earnings
(loss) per common share because their effect would have been anti-dilutive.
The following table sets forth our computation of basic and diluted earnings (loss) per common
share (in thousands, except per share data):
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Basic and diluted earnings per common share
numerator: |
||||||||||||
Income (loss) from continuing operations |
$ | 6,580 | $ | 11,167 | $ | (35,872 | ) | |||||
Net income attributable to non-controlling interests |
7,095 | 7,472 | 8,094 | |||||||||
(Loss) income from continuing operations
attributable to
Bluegreen Corporation |
$ | (515 | ) | $ | 3,695 | $ | (43,966 | ) | ||||
Denominator: |
||||||||||||
Denominator for basic (loss) earnings per common share-
weighted-average shares |
31,241 | 31,088 | 31,165 | |||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and unvested restricted stock |
| 12 | | |||||||||
Denominator for diluted earnings (loss) per common
share-
adjusted weighted-average shares and assumed
conversions |
31,241 | 31,100 | 31,165 | |||||||||
(Loss) income from continuing operations attributable
to
Bluegreen Corporation per common share Basic: |
$ | (0.02 | ) | $ | 0.12 | $ | (1.41 | ) | ||||
(Loss) income from continuing operations attributable
to
Bluegreen Corporation per common share Diluted: |
$ | (0.02 | ) | $ | 0.12 | $ | (1.41 | ) |
Comprehensive Income (Loss)
Prior to January 1, 2010, our accumulated other comprehensive income (loss), net of income taxes
(benefit), was comprised of net unrealized losses on retained interests in notes receivable sold,
which were held as available-for-sale investments. As described above under Retained Interest in
Notes Receivable Sold, our retained interests in notes receivable sold were eliminated on January
1, 2010 in connection with the adoption of ASU 2009-17.
Business Combinations
During 2008, we purchased real estate and operations at two resorts, The Royal Suites at Atlantic
Palace in Atlantic City, New Jersey, and Club La Pension in New Orleans, Louisiana. The combined
purchase price of these acquisitions was $21.8 million, which was allocated as follows: VOI
inventory of $9.9 million, property and equipment of $7.7 million, and goodwill of $4.2 million.
These acquisitions, individually and in aggregate, did not have a material impact on our
operations. The goodwill generated from these acquisitions was subsequently charged to operations
as an impairment recorded in 2008.
In 2010, the Bluegreen/Big Cedar Joint Venture acquired Paradise Point Resort, which is located in
close proximity to the existing Wilderness Club at Big Cedar in Ridgedale, Missouri, for the
purpose of expanding the amount of completed VOI inventory available for sale by the Bluegreen/Big
Cedar Joint Venture as well as to develop and sell new VOI inventory in the future. The purchase
price of the resort was $7.7 million, and was primarily allocated to VOI inventory. This
acquisition did not have a material impact on our operations during 2010.
Each of the acquisitions described above constituted the purchase of a business under ASC 805,
Business Acquisitions (ASC 805), which contains the accounting rules for business combinations.
Recently Adopted Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements (ASU 2010-06), which updates the
Codification to
require new disclosures for assets and liabilities measured at fair value. The
requirements include expanded
disclosure of valuation methodologies for fair value measurements, transfers between levels of the
fair value hierarchy, and gross rather than net presentation of certain changes in Level 3 fair
value measurements. The updates to the Codification contained in ASU No. 2010-06 became effective
for the quarter ended March 31, 2010, except that the requirements related to gross presentation of
certain changes in Level 3 fair value measurements will become effective for us for the annual
period ending December 31, 2011.
On January 1, 2010, we adopted ASU 2009-16 and ASU 2009-17. For a discussion related to the
adoption of these standards, refer to Note 2 below.
In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 is designed to improve
transparency in financial reporting by companies that hold financing receivables, which include
loans, lease receivables, and other long-term receivables. ASU 2010-20 requires companies to
provide more information in their disclosures about the credit quality of their financing
receivables and the credit reserves held against them.
The balance sheet related disclosures are effective with this report and are presented below in
Note 3. The statements of income disclosures are required beginning for the three months ending
March 31, 2011.
2. Cumulative Effect of a Change in Accounting Principle
On January 1, 2010, we adopted ASU 2009-16 and ASU 2009-17. As a result of the adoption of these
accounting standards, we consolidated seven of our then-existing special purpose finance entities
associated with prior securitization transactions which previously qualified for off-balance-sheet
sales treatment. The consolidation of these special purpose finance entities resulted in a
one-time, non-cash, after-tax reduction to retained earnings of $61.3 million, representing the
cumulative effect of a change in accounting principle during the year ended December 31, 2010.
Additionally, as a result of the adoption of these standards, our statement of operations and
statement of cash flows for 2010 and our balance sheet as of December 31, 2010 are not comparable
to those of prior periods.
ASU 2009-16 and ASU 2009-17 impacted our Consolidated Statements of Operations during the year
ended 2010 as a result of the recognition of additional interest income from VOI notes receivable
now consolidated, partially offset by the absence of accretion income attributable to retained
interests that were eliminated, additional interest expense from the consolidation of debt
obligations and increased estimated uncollectible VOI notes receivable.
In addition, the consolidation of the special purpose finance entities resulted in the following
impacts to our balance sheet at January 1, 2010: (1) assets increased by $319.3 million, primarily
representing the consolidation of notes receivable, net of allowance, partially offset by the
elimination of our retained interests; (2) liabilities increased by $380.0 million, primarily
representing the consolidation of non-recourse debt obligations to securitization investors,
partially offset by the elimination of certain deferred tax liabilities; and (3) total Bluegreen
Corporation shareholders equity decreased by approximately $60.7 million. The cash flows from
borrowings and repayments associated with the securitized VOI debt are now presented as cash flows
from financing activities on our Consolidated Statement of Cash Flows.
3. Notes Receivable
The table below contains additional information about our notes receivable (in thousands):
As of December 31 | ||||||||
2009 | 2010 | |||||||
Notes receivable secured by VOIs |
||||||||
Notes receivable securitized |
$ | 169,041 | $ | 533,479 | ||||
Notes receivable non-securitized |
182,191 | 171,901 | ||||||
Notes receivable secured by homesites |
4,901 | 6,765 | ||||||
Notes receivable, gross |
356,133 | 712,145 | ||||||
Allowance for loan losses |
(46,826 | ) | (143,160 | ) | ||||
Notes receivable, net |
$ | 309,307 | $ | 568,985 | ||||
The weighted-average interest rate on our notes receivable was 14.4%, 14.8% and 15.2% at December
31, 2008, 2009, and 2010, respectively. All of our VOI loans bear interest at fixed rates. The
weighted-average interest rate charged on loans secured by VOIs was 14.4%, 14.9%, and 15.3% at
December 31, 2008, 2009, and 2010, respectively. The majority of our notes receivable secured by
homesites bear interest at variable rates. The weighted-average interest rate charged on loans
secured by homesites was 10.1%, 8.8%, and 7.8% at December 31, 2008, 2009, and 2010, respectively.
Our VOI loans are generally secured by property located in Florida, Louisiana, Nevada, New Jersey,
Michigan, Missouri, Pennsylvania, South Carolina, Tennessee, Virginia, Wisconsin, and Aruba. The
majority of Bluegreen Communities notes receivable are secured by homesites in Georgia, Texas, and
Virginia.
Future principal payments due on our notes receivable as of December 31, 2010 are as follows (in
thousands):
2011 |
$ | 80,284 | ||
2012 |
82,129 | |||
2013 |
89,486 | |||
2014 |
95,928 | |||
2015 |
99,282 | |||
Thereafter |
265,036 | |||
Total |
$ | 712,145 | ||
Credit Quality for Financed Receivables and the Allowance for Credit Losses
The following table summarizes our allowance for loan losses by division as of December 31, 2009
and 2010 (dollars in thousands):
Bluegreen | Bluegreen | |||||||||||
Resorts | Communities | Total | ||||||||||
December 31, 2009: |
||||||||||||
Gross 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 | % | ||||||
December 31, 2010: |
||||||||||||
Gross notes receivable |
705,380 | 6,765 | 712,145 | |||||||||
Allowance for loan losses |
(142,468 | ) | (692 | ) | (143,160 | ) | ||||||
Notes receivable, net |
$ | 562,912 | $ | 6,073 | $ | 568,985 | ||||||
Allowance as a % of gross notes
receivable |
20 | % | 10 | % | 20 | % | ||||||
We hold large amounts of homogeneous VOI notes receivable and assesses uncollectibility based
on pools of receivables. In estimating future credit losses, we do not use a single primary
indicator of credit quality but instead evaluates its VOI notes receivable based upon a combination
of factors, including its static pool analysis, the aging of the respective receivables, current
default trends and prepayment rates by origination year, and the FICO® scores of the buyers.
The activity in our allowance for uncollectible notes receivable was as follows (in thousands):
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Balance, beginning of year |
$ | 17,458 | $ | 52,029 | $ | 46,826 | ||||||
One time impact of ASU 2009-16 and 2009-17 (1) |
| | 86,252 | |||||||||
Provision for loan losses (2) |
76,079 | 31,641 | 94,554 | (3) | ||||||||
Less: Allowance on sold receivables |
(10,964 | ) | | | ||||||||
Less: Write-offs of uncollectible receivables |
(30,544 | ) | (36,844 | ) | (84,472 | ) | ||||||
Balance, end of year |
$ | 52,029 | $ | 46,826 | $ | 143,160 | ||||||
(1) | On January 1, 2010, we adopted ASU 2009-16 and ASU 2009-17, which required us to consolidate special purpose finance entities that were previously recorded off-balance sheet. See Note 2 above. | |
(2) | Includes provision for loan losses on homesite notes receivable. | |
(3) | Includes charges totaling $69.7 million to increase the allowance for uncollectible VOI notes receivable in connection with the lower FICO® score loans generated prior to December 15, 2008, the date on which we implemented FICO® score-based credit standards. |
The following table shows the aging of our VOI notes receivable as of December 31, 2009 and
2010 (dollars in thousands):
As of December 31, | ||||||||
2009 | 2010 | |||||||
Current |
$ | 326,218 | $ | 655,304 | ||||
31-60 days |
6,633 | 12,063 | ||||||
61-90 days |
4,981 | 10,228 | ||||||
Over 91 days (1) |
13,400 | 27,785 | ||||||
Total |
$ | 351,232 | $ | 705,380 | ||||
(1) | Includes $5.9 million and $16.9 million for 2009 and 2010, respectively, related to VOI transactions that have been foreclosed but the related VOI note receivable balance has not yet been charged off. These VOI notes receivable have been reflected in the allowance for loan loss. |
4. Sales of Notes Receivable
During 2008 we completed a private offering and sale of $60.0 million of timeshare loan-backed
securities (the 2008 Term Securitization). This transaction was considered a sale of financial
assets pursuant to the accounting rules effective at that time. The 2008 Term Securitization
consisted of the following (in millions):
Aggregate principal balance
of notes receivable |
$ | 68.6 | ||
Purchase price |
$ | 60.0 | ||
Gain recognized |
$ | 8.2 | ||
Initial fair value of retained interest |
$ | 11.7 |
In connection with this transaction, we retained subordinated tranches and rights to excess
interest spread and accounted for these assets and interest as retained interests. The following
assumptions (which are classified as Level 3 inputs under ASC 820, Fair Value Measurements and
Disclosures (ASC 820 )) were used to measure the initial fair value of our retained interest in
notes receivable sold in 2008:
Prepayment rates |
31% 17 | % | ||
Loss severity rate |
38 | % | ||
Default rates |
7.2% 1.0 | % | ||
Discount rate |
13.40 | % |
The assumptions take into account our intended actions relating to our right to either acquire
or substitute for defaulted loans, pursuant to the terms of the transaction.
None of our similar notes receivable transactions in 2009 and 2010 were considered sales of
financial assets.
5. Retained Interests in Notes Receivable Sold
Upon our adoption of ASU 2009-17 on January 1, 2010, we consolidated seven special purpose finance
entities associated with prior securitization transactions that previously qualified for
off-balance-sheet sales treatment and as a result, the retained interests in notes receivable
sold were eliminated. See Note 2 for additional information related to the impact of adoption of
ASU 2009-17.
Our December 31, 2009 retained interests in notes receivable sold, which were classified as
available-for-sale investments, and their associated unrealized gain (loss) are set forth below (in
thousands):
Gross | ||||||||||||
Amortized | Unrealized | |||||||||||
As of December 31, 2009: | Cost | Gain (Loss) | Fair Value | |||||||||
2004 Term Securitization |
$ | 7,731 | $ | 391 | $ | 8,122 | ||||||
2004 GE Purchase Facility (1) |
3,864 | (598 | ) | 3,266 | ||||||||
2005 Term Securitization |
11,852 | 834 | 12,686 | |||||||||
2006 GE Purchase Facility (2) |
15,408 | (2,328 | ) | 13,080 | ||||||||
2006 Term Securitization |
10,107 | 573 | 10,680 | |||||||||
2007 Term Securitization (1) |
20,220 | (211 | ) | 20,009 | ||||||||
2008 Term Securitization |
10,098 | 372 | 10,470 | |||||||||
Total |
$ | 79,280 | $ | (967 | ) | $ | 78,313 | |||||
(1) | As of December 31, 2009, this security was in a continuous unrealized loss position for less than 12 months. | |
(2) | As of December 31, 2009, this security was in a continuous unrealized loss position for more than 12 months. |
The following assumptions (which are classified as Level 3 inputs under ASC 820), were used to
measure the fair value of the above retained interests as of December 31, 2009:
As of | ||||
December 31, | ||||
2009 | ||||
Prepayment rates |
20% 3 | % | ||
Loss severity rates |
18% 38 | % | ||
Default rates |
7% 0 | % | ||
Discount rate |
24.5 | % |
These assumptions take into account our intended actions, which can change from time to time,
relating to our right to either repurchase or substitute for defaulted loans, pursuant to the terms
of each transaction.
The net unrealized loss on our retained interests in notes receivable sold, which is presented as a
separate component of our shareholders equity net of income taxes, was $0.6 million as of December
31, 2009. Our maximum exposure to loss as a result of our involvement with our qualified special
purpose finance subsidiaries described below is the value of our retained interest.
During the years ended December 31, 2008 and 2009, we recorded charges for other-than-temporary
decreases in the fair value of certain of our retained interest in notes receivable sold totaling
$5.0 million and $1.1 million, respectively. The decrease in the fair value of our retained
interest in notes receivable sold primarily resulted from an increase in the discount rates applied
to estimated future cash flows on our retained interests to reflect then-current interest rates in
the securitization market and unfavorable changes in the amount and timing of estimated future cash
flows. These charges have been netted against interest income on our Consolidated Statements of
Operations.
In 2002, ING Financial Markets, LLC, an affiliate of ING, consummated a $170.2 million private
offering and sale of vacation ownership loan-backed securities on our behalf (the 2002 Term
Securitization). In May 2009, we, in our capacity as servicer of the 2002 Term Securitization,
exercised our servicer option, which caused the full redemption of all classes of notes issued
under the 2002 Term Securitization. As a result of this exercise and the ultimate redemption, we
exchanged cash of $4.2 million and the retained interest in the 2002 Term Securitization for notes
receivable and VOI inventory with an estimated fair value totaling $17.9 million.
On April 1, 2009, upon the adoption of ASC 325-40, Beneficial Interests in Securitized Financial
Assets, we recorded additional unrealized losses of $6.8 million in accumulated other comprehensive
income related to other-than-temporary impairments previously recognized in earnings through a
cumulative-effect adjustment to our retained earnings.
We measure credit loss based upon the performance indicators of the underlying assets of the
retained interest in notes receivable sold. As of December 31, 2009, the aggregate amount of
unrealized losses in accumulated other comprehensive loss was $3.1 million.
The following table is a rollforward for the year ended December 31, 2009 of the amount of other
comprehensive loss on our retained interest in notes receivable sold related to credit losses for
which a portion of such losses was recognized in earnings (in thousands):
Balance at April 1, 2009 of the amount related to credit losses for
which a portion of other-than-temporary impairment was recognized
in other comprehensive income |
$ | | ||
Additions for the amount related to the credit losses for which
other-than-temporary impairment was not previously recognized |
1,777 | |||
Reductions for other-than-temporary impairment realized in
earnings, net of tax |
(311 | ) | ||
Balance at December 31, 2009 of the amount related to credit losses
for which a portion of other-than-temporary impairment was
recognized in other comprehensive income |
$ | 1,466 | ||
The table below summarizes certain cash flows received from and (paid to) our qualifying special
purpose finance subsidiaries (in thousands):
For the Year Ended December 31, | ||||||||
2008 | 2009 | |||||||
Proceeds from sales of notes receivable |
$ | 55,705 | $ | | ||||
Collections on previously sold notes receivable |
(175,551 | ) | (136,685 | ) | ||||
Servicing fees received |
9,436 | 7,612 | ||||||
Purchases of defaulted receivables |
(3,547 | ) | (920 | ) | ||||
Resales of foreclosed assets |
(50,314 | ) | (14,802 | ) | ||||
Remarketing fees received |
29,581 | 8,187 | ||||||
Cash received on retained interests in notes
receivable sold |
44,884 | 43,741 | ||||||
Cash paid to fund required reserve accounts |
(8,288 | ) | (1,148 | ) | ||||
Purchases of upgraded accounts |
$ | (47,045 | ) | $ | (516 | ) |
In addition to the cash paid for the purchase of defaulted receivables included in the above
table, we also acquired defaulted receivables from our qualifying special purpose finance
subsidiaries in exchange for unencumbered receivables (a process known as substitution). During
the years ended December 31, 2008 and 2009, we acquired notes receivable totaling $32.2 million and
$66.5 million, respectively, through substitutions. Although we are not obligated to repurchase or
substitute for defaulted notes receivable from our qualifying special purpose finance subsidiaries,
we may do so from time to time to the extent desired and permitted. The VOIs securing the
defaulted receivables received by us in this manner are typically recovered and put back in VOI
inventory and resold in the normal course of business.
Quantitative information about the portfolios of VOI notes receivable previously sold without
recourse in which we held the above retained interests was as follows as of December 31, 2009 (in
thousands):
As of December 31, 2009 | ||||||||||||
Total | Principal | |||||||||||
Outstanding | Amount of | |||||||||||
Principal | Sold Loans 60 | Balance | ||||||||||
Amount of | or More Days | Owed to Note | ||||||||||
Sold Loans | Past Due | Holders | ||||||||||
2004 Term Securitization |
$ | 28,552 | $ | 869 | $ | 26,765 | ||||||
2004 GE Purchase Facility |
13,870 | 400 | 12,072 | |||||||||
2005 Term Securitization |
81,261 | 2,389 | 74,822 | |||||||||
2006 GE Purchase Facility |
69,003 | 2,353 | 61,433 | |||||||||
2006 Term Securitization |
71,450 | 2,502 | 66,206 | |||||||||
2007 Term Securitization |
137,645 | 4,251 | 123,935 | |||||||||
2008 Term Securitization |
51,810 | 1,530 | 46,136 | |||||||||
Total |
$ | 453,591 | $ | 411,369 | ||||||||
6. Variable Interest Entities
In accordance with the guidance for the consolidation of variable interest entities, we analyze our
variable interests, including loans, guarantees, and equity investments, to determine if an entity
in which we have a variable interest is a variable interest entity. Our analysis includes both
quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash
flows of the entity, and we base our qualitative analysis on our review of the design of the
entity, its organizational structure, including decision-making ability, and relevant financial
agreements. We also use our qualitative analysis to determine if we must consolidate a variable
interest entity as the primary beneficiary.
We sell, through special purpose finance entities, VOI notes receivable originated by Bluegreen
Resorts. These transactions are generally structured as non-recourse to us, with the exception of
one securitization transaction entered into in 2010, which was guaranteed by us (see the
description of the Legacy Securitization in Note 9 below). These transactions are generally
designed to provide liquidity for us and transfer the economic risks and certain of the benefits of
the notes receivable to third parties. In a securitization, various classes of debt securities are
issued by the special purpose finance entities that are generally collateralized by a single
tranche of transferred assets, which consist of VOI notes receivable. We service the notes
receivable for a fee. With each securitization, we generally retain a portion of the securities.
Pursuant to GAAP in effect prior to 2010, seven of our eight special purpose finance entities then
in existence met the definition of a qualified special purpose entity, and were not consolidated in
our financial statements. Upon the adoption of ASU 2009-16 and ASU 2009-17 on January 1, 2010, we
were required to evaluate these entities for consolidation. Since we created these entities to
serve as financing vehicles for holding assets and related liabilities, and the entities have no
equity investment at risk, they are considered variable interest entities. Furthermore, since we
continue to service the notes and retain rights to receive benefits that are potentially
significant to the entities, we concluded that we are the entities primary beneficiary and,
therefore, we now consolidate these entities into our financial statements. See Note 2 for a
description of the impact of the initial consolidation of these entities.
At December 31, 2010, the principal balance of VOI notes receivable included within our
Consolidated Balance Sheet that are restricted to satisfy obligations of the variable interest
entities obligations totaled $533.5 million. In addition, approximately $41.2 million of our
restricted cash is held in accounts for the benefit of the variable interest entities. Further, at
December 31, 2010, the carrying amount of the consolidated liabilities included within our
Consolidated Balance Sheet for these variable interest entities totaled $459.0 million, comprised
of $436.2 million of non-recourse receivable-backed notes payable and $22.8 million of
receivable-backed notes payable which are recourse to us.
Under the terms of certain of our timeshare note sales, we have the right to repurchase or
substitute for defaulted mortgage notes at the outstanding principal balance plus accrued interest
or, in some facilities, at 24% of the original sale price associated with the defaulted mortgage
note. The transaction documents typically limit such repurchases or substitutions to 15-20% of the
receivables originally included in the transaction. Voluntary repurchases or substitutions by us of
defaulted notes during 2009 and 2010 were $75.5 million and $37.6 million, respectively.
7. Inventory
Our inventory holdings, summarized by division, are as follows (in thousands):
As of December 31, | ||||||||
2009 | 2010 | |||||||
Bluegreen Resorts |
$ | 370,470 | $ | 337,684 | ||||
Bluegreen Communities |
145,447 | 82,193 | ||||||
$ | 515,917 | $ | 419,877 | |||||
Our VOI inventory consists of the following (in thousands):
As of December 31, | ||||||||
2009 | 2010 | |||||||
Completed VOI units |
$ | 287,176 | $ | 250,389 | ||||
Construction-in-progress |
8,243 | | ||||||
Real estate held for future development |
75,051 | 87,295 | ||||||
$ | 370,470 | $ | 337,684 | |||||
As a result of our continued low volume of sales, reduced prices, and the impact of reduced
sales on the forecasted sell-out period of our communities projects, we recorded non-cash charges
to cost of real estate sales of approximately $13.2 million and $19.6 million during the years
ended December 31, 2009 and 2010, respectively, to write-down the carrying amount of our completed
Bluegreen Communities properties to their estimated fair value less costs to sell.
In addition, we review our undeveloped resort and residential communities properties for
impairment under the guidelines of ASC 360, which require that such properties be reviewed for
impairment when events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. As of December 31, 2010, we evaluated the carrying value of our
Bluegreen Communities undeveloped inventory based upon the probability weighted average cash flows
at various outcomes, including the development and sale of such inventory as retail homesites. In
connection with this analysis, we recorded an impairment charge (included in cost of real estate
sales) of $35.0 million to write down the carrying amount of certain undeveloped phases in several
of our residential communities properties in our Bluegreen Communities segment to fair value, as we
determined that the carrying amounts of these homesites would not be recovered by estimated future
cash flows.
We estimated the fair value of the underlying properties based on either the prices of comparable
properties or our analysis of their estimated future cash flows (Level 3 inputs), discounted at
rates commensurate with the risk inherent in the property. We estimated future cash flows based
upon our expectations of performance given current and projected forecasts of the economy and real
estate markets in general. Should adverse conditions in the real estate market continue longer than
forecasted or deteriorate further or if our performance does not meet the expectations on which our
estimates were based, or if we otherwise determine based on information available to us that the
carrying value of the assets exceed their fair value, additional charges may be recorded in the
future.
89
Interest capitalized to inventory during the years ended December 31, 2008 and 2009 totaled $12.8
million and $1.6 million, respectively. Interest capitalized to inventory during 2010 was
insignificant. The interest expense reflected in our consolidated statements of operations
is net of capitalized interest.
8. Property and Equipment
Our property and equipment consisted of the following (dollars in thousands):
As of December 31, | ||||||||||||
Useful Life | 2009 | 2010 | ||||||||||
Office equipment, furniture and fixtures |
3-14 years | $ | 60,657 | $ | 57,548 | |||||||
Golf course land, land improvements, buildings and equipment |
5-39 years | 7,591 | 7,537 | |||||||||
Land, buildings and building improvements |
3-30 years | 70,323 | 70,063 | |||||||||
Leasehold improvements |
2-14 years | 11,952 | 11,575 | |||||||||
Transportation and equipment |
3-5 years | 1,999 | 2,045 | |||||||||
152,522 | 148,768 | |||||||||||
Accumulated depreciation and amortization of leasehold
improvements |
(66,957 | ) | (69,377 | ) | ||||||||
Total |
$ | 85,565 | $ | 79,391 | ||||||||
9. Debt
Contractual minimum principal payments required on our debt, net of unamortized discount, by type,
for each of the five years and thereafter subsequent to December 31, 2010 are shown below. Such
minimum contractual payments may differ from actual payments due to the effect of principal
payments required on a homesite or VOI release basis for certain of the obligations (in thousands):
Recourse | Non-recourse | Junior | ||||||||||||||
Lines-of-credit | receivable-backed | receivable-backed | subordinated | |||||||||||||
and notes payable | notes payable | notes payable | debendures | |||||||||||||
2011 |
$ | 52,396 | $ | | $ | | $ | | ||||||||
2012 |
70,269 | | | | ||||||||||||
2013 |
4,253 | | | | ||||||||||||
2014 |
717 | 67,514 | | | ||||||||||||
2015 |
12,192 | 3,159 | 10,150 | | ||||||||||||
Thereafter |
2,293 | 64,987 | 426,121 | 110,827 | ||||||||||||
Total |
$ | 142,120 | $ | 135,660 | $ | 436,271 | $ | 110,827 | ||||||||
Lines-of-Credit and Notes Payable
We have outstanding borrowings with various financial institutions and other lenders, which have
been used to finance the acquisition and development of our inventory and to fund operations.
Financial data related to our borrowing facilities is as follows (dollars in thousands):
90
As of | ||||||||||||||||||||||||
December 31, 2009 | December 31, 2010 | |||||||||||||||||||||||
Carrying | Carrying | |||||||||||||||||||||||
Amount of | Amount of | |||||||||||||||||||||||
Pledged | Pledged | |||||||||||||||||||||||
Balance | Interest Rate | Assets | Balance | Interest Rate | Assets | |||||||||||||||||||
RFA AD&C Facility |
$ | 87,415 | 4.73% | $ | 145,031 | $ | 52,264 | 4.76% | $ | 127,460 | ||||||||||||||
H4BG Communities Facility |
38,479 | 10.00% | 117,872 | 30,842 | 8.00% | 66,925 | ||||||||||||||||||
Wachovia Notes Payable |
24,497 | 2.23 - 2.58% | 44,686 | | | | ||||||||||||||||||
Wells Fargo Term Loan |
| | | 30,776 | 7.13% | 104,747 | ||||||||||||||||||
Wachovia Line-of-Credit |
15,700 | 1.98% | | | | | ||||||||||||||||||
Foundation Capital |
| | | 13,200 | 8.00% | 17,574 | ||||||||||||||||||
Textron AD&C Facility |
12,757 | 4.50 - 4.75% | 27,582 | 9,290 | 4.50 - 4.75% | 26,579 | ||||||||||||||||||
Fifth Third Bank Note |
||||||||||||||||||||||||
Payable |
3,381 | 3.23% | 4,841 | 3,154 | 3.26% | 4,680 | ||||||||||||||||||
Other |
3,552 | 4.25 - 12.50% | 3,851 | 2,594 | 5.00 - 11.03% | 2,293 | ||||||||||||||||||
Total |
$ | 185,781 | $ | 343,863 | $ | 142,120 | $ | 350,258 | ||||||||||||||||
RFA AD&C Facility. In September 2010, GMAC assigned all rights, title, and interest in this
facility (previously known as the GMAC AD&C Facility) to Resort Finance America, LLC (RFA). This
assignment did not affect any of the material financial terms of the loan agreement. This facility
was used to finance the acquisition and development of certain of our resorts and currently has two
outstanding project loans. The maturity date for the project loan collateralized by our Bluegreen
Club 36TM resort in Las Vegas, Nevada (the Club 36 Loan) is June 30, 2012.
Approximately $49.9 million was outstanding on the Club 36 Loan as of December 31, 2010, $27.3
million of which is due by October 31, 2011. The maturity date for the project loan collateralized
by our Fountains resort in Orlando, Florida (the Fountains Loan) is March 31, 2011. Approximately
$2.4 million was outstanding on this loan as of December 31, 2010. Principal payments are effected
through agreed-upon release prices as timeshare interests in the resorts collateralizing the RFA
AD&C Facility are sold, subject to periodic minimum required amortization on the Club 36 Loan and
the Fountains Loans. As of December 31, 2010, we had no availability under this facility. During
2010, we repaid $35.2 million of the outstanding balance under this facility.
H4BG Communities Facility. We have an outstanding balance under the H4BG Communities Facility,
historically used to finance our Bluegreen Communities real estate acquisitions and development
activities. The H4BG Communities Facility is secured by the real property homesites (and personal
property related thereto) at the following Bluegreen Communities projects (the Secured Projects):
Havenwood at Hunters Crossing (New Braunfels, Texas); The Bridges at Preston Crossings (Grayson
County, Texas); King Oaks (College Station, Texas); Vintage Oaks at the Vineyard (New Braunfels,
Texas); and Sanctuary Cove at St. Andrews Sound (Waverly, Georgia). In addition, the H4BG
Communities Facility is secured by our golf courses: The Bridges at Preston Crossings (Grayson
County, Texas) and Sanctuary Cove (Waverly, Georgia). The period during which we can add
additional projects to the H4BC Communities Facility has expired.
Principal payments are effected through agreed-upon release prices as real estate collateralizing
the H4BG Communities Facility is sold, subject to minimum required amortization. The interest rate
on the H4BG Communities Facility is the Prime Rate plus 2%, subject to the following floors: (1) 8%
until the balance of the loan is less than or equal to $20 million, and (2) 6% thereafter. During
2010, we repaid $7.6 million on this facility.
The Wachovia Notes Payable. In April 2010, we executed an agreement with Wells Fargo Bank, N.A,
the parent Company of Wachovia (Wells Fargo), to refinance the then outstanding balance of $21.9
million under the Wachovia Notes Payable into a new term loan. See Wells Fargo Term Loan below for
further details.
The Wachovia Line-of-Credit. In April 2010, the then outstanding balance of $14.5 million was
refinanced by Wells Fargo in connection with the Wells Fargo Term Loan described below.
91
Wells Fargo Term Loan. On April 30, 2010, we entered into a definitive agreement with Wells Fargo
Bank, N.A. (Wells Fargo), which amended, restated and consolidated our then existing notes
payable and line-of-credit with Wachovia Bank, N.A. into a single term loan with Wells Fargo (the
Wells Fargo Term Loan). The notes payable and line-of-credit which were consolidated into the
Wells Fargo Term Loan had a total outstanding balance of $36.4 million as of April 30, 2010. In
connection with the closing of the Wells Fargo Term Loan, we made a principal payment of $0.4
million, reducing the balance to $36.0 million, and paid accrued interest on the then-existing
Wachovia debt. Principal payments are effected through agreed-upon release prices as real estate
collateralizing the Wells Fargo Term Loan is sold, subject to minimum remaining required
amortization as of December 31, 2010, of $10.6 million in 2011 and $20.2 million in 2012. In
addition to the resort projects previously pledged as collateral for the various notes payable to
Wachovia, we pledged additional timeshare interests, resorts real estate, and the residual
interests in certain of our sold VOI notes receivable as collateral for the Wells Fargo Term Loan.
As required by the terms of the Wells Fargo Term Loan, Wells Fargo received, as additional
collateral, the residual interest in the 2010 Term Securitization. The Wells Fargo Term Loan bears
interest at the 30-day LIBOR plus 6.87% (7.13% as of December 31, 2010). During 2010, we repaid
$5.6 million on this facility.
Textron AD&C Facility. In April 2008, BVU, our wholly-owned subsidiary, entered into a $75.0
million, revolving master acquisition, development and construction facility loan agreement (the
Textron AD&C Facility) with Textron Financial Corporation (Textron). The Textron AD&C Facility
has historically been used to facilitate the borrowing of funds for resort acquisition and
development activities. We have guaranteed all sub-loans under the master agreement. Interest on
the Textron AD&C Facility is equal to the Prime Rate plus 1.25% 1.50% and is due monthly.
On October 28, 2009, we entered into an amendment to the Textron AD&C Facility and a sub-loan under
the Facility used to fund the acquisition and development of our Odyssey Dells Resort (the Odyssey
Sub-Loan). The amendment to the Odyssey Sub-Loan extended the final maturity of outstanding
borrowings under the Odyssey Sub-Loan to December 31, 2011, and revised the periodic minimum
required principal amortization. Under the terms of the amendment, we made a required principal
payment of $0.4 million in March 2010, and additional required principal payments of $1.0 million
during each subsequent quarter. These $1.0 million minimum principal payments are required on a
quarterly basis until maturity. We pay Textron principal payments as we sell timeshare interests
that collateralize the Odyssey Sub-Loan, subject to periodic minimum required principal
amortization. As of December 31, 2010, our outstanding borrowings under the Odyssey Sub-Loan
totaled approximately $3.6 million.
The sub-loan used to acquire our Atlantic Palace Resort in Atlantic City, New Jersey (the Atlantic
Palace Sub-Loan) had an outstanding balance of $5.7 million as of December 31, 2010. We pay
Textron principal payments as we sell timeshare interests that collateralize the Atlantic Palace
Sub-Loan, subject to periodic minimum required principal amortization. The final maturity of
outstanding borrowings under the Atlantic Palace Sub-Loan is April 2013.
We have guaranteed all sub-loans under the Textron AD&C Facility. Interest on the Textron AD&C
Facility is equal to the Prime Rate plus 1.25% 1.50% and is due monthly. During 2010, we repaid
$3.5 million under this facility.
Fifth Third Bank Note Payable. In April 2008, we purchased a building in Myrtle Beach, South
Carolina. The purchase price was $4.8 million, of which $3.4 million was financed by a note
payable to Fifth Third Bank. Principal and interest on amounts outstanding under the note are
payable monthly through maturity in April 2023. The interest rate under the note equals the 30-day
LIBOR plus 3.00%. During 2010, we repaid $0.2 million under this note.
Receivable-Backed Notes Payable
The balances of our receivable-backed notes payable facilities are as follows (in thousands):
92
As of | ||||||||||||||||||||||||
December 31, 2009 | December 31, 2010 | |||||||||||||||||||||||
Principal | Principal | |||||||||||||||||||||||
Balance of | Balance of | |||||||||||||||||||||||
Pledged/ | Pledged/ | |||||||||||||||||||||||
Debt | Interest | Secured | Secured | |||||||||||||||||||||
Balance | Rate | Receivables | Debt Balance | Interest Rate | Receivables | |||||||||||||||||||
Recourse receivable-backed
notes payable: |
||||||||||||||||||||||||
Liberty Bank Facility |
$ | 59,055 | 5.75% | $ | 68,175 | $ | 67,514 | 6.50% | $ | 77,377 | ||||||||||||||
GE Bluegreen/Big Cedar |
||||||||||||||||||||||||
Receivables Facility |
32,834 | 1.98% | 35,935 | 23,877 | 2.01% | 29,232 | ||||||||||||||||||
Legacy Securitization (1) |
| | | 25,342 | 12.00% | 34,232 | ||||||||||||||||||
NBA Receivables Facility |
| | | 18,351 | 6.75% | 22,458 | ||||||||||||||||||
Wells Fargo Facility |
14,409 | 4.00% | 15,926 | | | | ||||||||||||||||||
RFA Receivables Facility |
5,228 | 4.23% | 6,331 | 3,159 | 4.26% | 4,451 | ||||||||||||||||||
Total before discount |
111,526 | 126,367 | 138,243 | 167,750 | ||||||||||||||||||||
Less unamortized discount on |
||||||||||||||||||||||||
Legacy Securitization |
| | (2,583 | ) | | |||||||||||||||||||
Total recourse debt |
111,526 | 126,367 | 135,660 | 167,750 | ||||||||||||||||||||
Non-recourse receivable-backed
notes payable (2): |
||||||||||||||||||||||||
BB&T Purchase Facility |
131,302 | 5.75% | 166,562 | | | | ||||||||||||||||||
GE 2004 Facility |
| | | 10,150 | 7.16% | 11,709 | ||||||||||||||||||
2004 Term Securitization |
| | | 18,722 | 4.45-7.18% | 20,540 | ||||||||||||||||||
2005 Term Securitization |
| | | 55,888 | 5.41-9.85% | 63,527 | ||||||||||||||||||
GE 2006 Facility |
| | | 50,596 | 6.68-7.77% | 57,988 | ||||||||||||||||||
2006 Term Securitization |
| | | 52,716 | 5.61-9.38% | 59,415 | ||||||||||||||||||
2007 Term Securitization |
| | | 100,953 | 5.83-11.15% | 117,379 | ||||||||||||||||||
2008 Term Securitization |
| | | 39,624 | 5.89-11.63% | 44,889 | ||||||||||||||||||
2010 Term Securitization |
| | | 107,514 | 5.10-7.50% | 123,662 | ||||||||||||||||||
Big Cedar Quorum Federal Credit Union |
| | | 108 | 8.00% | 136 | ||||||||||||||||||
Total non-recourse debt |
131,302 | 166,562 | 436,271 | 499,245 | ||||||||||||||||||||
Total receivable-backed debt |
$ | 242,828 | $ | 292,929 | $ | 571,931 | $ | 666,995 | ||||||||||||||||
(1) | Legacy Securitization debt bears interest at a coupon rate of 12% and was issued at a discount resulting in an effective yield of 18.5%. | |
(2) | As of December 31, 2009, with the exception of the BB&T Purchase Facility, all non-recourse receivable-backed notes payable were not consolidated by us in accordance with the accounting guidance then in effect. |
Liberty Bank Facility. As of December 31, 2010, we had a $75.0 million revolving timeshare
receivables hypothecation facility with a syndicate of lenders led by Liberty Bank and assembled by
Wellington Financial (Liberty Bank Facility). During 2010, we pledged $27.6 million of VOI notes
receivable to this facility and received cash proceeds of $27.4 million. We also repaid $18.9
million on the facility.
In February 2011, we revised the terms of and extended the Liberty Bank Facility. The revised $60.0
million facility (New Liberty Bank Facility) provides for an 85% advance on eligible receivables
pledged under the facility during a two-year period ending in February 2013, subject to eligible
collateral and terms and conditions we believe
to be customary for transactions of this type. Availability under the New Liberty Bank Facility is
reduced by amounts currently outstanding to certain syndicate participants under the existing
Liberty Bank Facility. At February
93
28, 2011, such outstanding amounts under the existing Liberty
Bank Facility were approximately $47.0 million, therefore, initial availability under the New
Liberty Bank Facility was approximately $13.0 million, but as outstanding amounts on the existing
facility amortize over time, the New Liberty Bank Facility will revolve up to $60.0 million.
Principal and interest will be paid as cash is collected on the pledged receivables, with the
remaining balance due in February 2016.
Indebtedness under the New Liberty Bank Facility bears interest at the Prime Rate plus 2.25%,
subject to a floor of 6.5%.
As a result of the significant non-cash charges associated with loan loss reserves and Communities
inventory impairments as of December 31, 2010, we would have been in violation of one of the
original net worth covenants under the Liberty Bank Facility as of that date. However, in March
2011, Liberty Bank confirmed that the covenants contained in the New Liberty Bank Facility
superseded the covenants contained in the original facility. The Company was in compliance with
all applicable covenants as of December 31, 2010.
The GE Bluegreen/Big Cedar Receivables Facility. In April 2007, the Bluegreen/Big Cedar Joint
Venture entered into a $45.0 million revolving VOI receivables credit facility with GE (the GE
Bluegreen/Big Cedar Receivables Facility). Bluegreen Corporation has guaranteed the full payment
and performance of the Bluegreen/Big Cedar Joint Venture in connection with the GE Bluegreen/Big
Cedar Receivables Facility. The advance period under this facility expired on April 16, 2009, and
all outstanding borrowings are scheduled to mature no later than April 16, 2016. The facility
includes affirmative, negative and financial covenants and events of default. All principal and
interest payments received on pledged receivables are applied to principal and interest due under
the facility. Indebtedness under the facility bears interest adjusted monthly at a rate equal to
the 30 day LIBOR rate plus 1.75%. During 2010, we repaid $8.9 million on this facility.
Legacy Securitization. In September 2010, we completed a securitization transaction (the Legacy
Securitization) relating to the lowest FICO® score loans previously financed in the BB&T Purchase
Facility. Substantially all of the timeshare receivables included in this transaction were
generated prior to December 15, 2008, the date that we implemented our FICO® score-based credit
underwriting program, and had FICO® scores below 600.
In this securitization, BXG Legacy 2010 LLC, our wholly-owned special purpose subsidiary, issued
$27.0 million of notes payable secured by a portfolio of timeshare receivables totaling $36.1
million. While the notes payable have a coupon rate of 12%, they were sold at a $2.7 million
discount to yield an effective rate of 18.5%. The notes payable generated gross proceeds to
Bluegreen of $24.3 million (before fees and reserves and expenses we believe to be customary for
transactions of this type), which was used to repay a portion of the outstanding balance under the
BB&T Purchase Facility.
We guaranteed the principal payments for defaulted vacation ownership loans in the Legacy
Securitization at amounts equivalent to the then-current advance rate inherent in the notes, any
shortfalls in monthly interest distributions to the Legacy Securitization investors and any
shortfall in the ultimate principal payment on the notes upon their stated maturity in September
2025. During 2010, we repaid $1.7 million on this facility.
NBA Receivables Facility. In September 2010, Bluegreen/Big Cedar Joint Venture entered into a $20.0
million timeshare receivables hypothecation facility with National Bank of Arizona (NBA).
Bluegreen Corporation has guaranteed the full payment and performance of Bluegreen/Big Cedar Joint
Venture in connection with this facility. The facility provides for an 85% advance on $23.5 million
of eligible receivables, all of which were pledged under the facility at closing, subject to terms
and conditions which we believe to be customary for facilities of this type. All principal and
interest payments received on pledged receivables are applied to principal and interest due under
the facility, with the remaining balance due in September 2017. Indebtedness under this facility
bears interest at the 30-day LIBOR plus 5.25%, subject to a floor of 6.75%, which was applicable as
of December 31, 2010. During 2010, we repaid $1.6 million on this facility.
We have received a term sheet from NBA to amend our existing facility to allow us to pledge
additional timeshare receivables up to the borrowing limit, with the additional advances not to
exceed $5.0 million. There can be no assurances that we will close on this amendment on favorable
terms, if at all.
94
The Wells Fargo Facility. We had a credit facility with Wells Fargo Capital Finance, LLC. which we
primarily used for borrowings collateralized by the pledge of certain VOI receivables which
typically have been our one-year term receivables. The borrowing period for advances on eligible
receivables expired on December 31, 2009, and the facility was fully paid down in 2010.
BB&T Purchase Facility. We have a $75.0 million timeshare notes receivable purchase facility with
Branch Banking and Trust Company (BB&T) (the BB&T Purchase Facility). The BB&T Purchase
Facility provides a revolving advance period through December 17, 2011. The interest rates on
future advances under the facility are the Prime Rate plus 2.0%, subject to tiered increases once
the outstanding balance equals or exceeds $25.0 million, subject to a maximum interest rate of the
Prime Rate plus 3.5%, once the facility equals or exceeds $50.0 million. Additionally, we receive
all of the excess cash flows generated by the timeshare receivables transferred to BB&T under the
facility (excess meaning after customary payment of fees, interest and principal under the
facility). The BB&T Purchase Facility provides for the financing of our timeshare receivables at
an advance rate of 67.5%, subject to the terms of the facility.
While ownership of the receivables is transferred for legal purposes, the transfers of receivables
under the facility are accounted for as secured borrowings. Accordingly, the receivables are
reflected as assets and the associated obligations are reflected as liabilities on our balance
sheet.
The BB&T Purchase Facility is nonrecourse and is not guaranteed by us.
As of December 31, 2010, the entire $75.0 million facility amount was available to be drawn upon,
subject to eligible collateral and customary terms and conditions.
2010 Term Securitization. On December 17, 2010, we completed a private offering and sale of $107.6
million of investment-grade, timeshare loan-backed notes (the 2010 Term Securitization). The
2010 Term Securitization consisted of the issuance of $88.0 million of A rated and $19.6 million of
BBB rated timeshare-loan backed notes with coupon rates of 5.1% and 7.5%, respectively, which
blended to a weighted average coupon rate of 5.5%. The advance rate for this transaction was
85.25%. BB&T Capital Markets acted as the sole placement agent and initial purchaser.
The amount of the timeshare receivables sold was $126.2 million, substantially all of which was
provided at closing. Through the completion of this private offering, we repaid BB&T approximately
$93.6 million, representing all amounts outstanding under the Companys existing receivables
purchase facility with BB&T, including accrued interest.
While ownership of the timeshare receivables included in the 2010 Term Securitization is
transferred and sold for legal purposes, the transfer of these timeshare receivables is accounted
for as a secured borrowing.
The 2010 Term Securitization is non-recourse and is not guaranteed by us.
Quorum Facility. On December 22, 2010, we entered into a new timeshare receivables purchase
facility (the Quorum Facility) with Quorum Federal Credit Union (Quorum). The Quorum Facility
allows for the sale of timeshare notes receivable on a non-recourse basis, pursuant to the terms of
the facility and subject to certain conditions precedent. Quorum has agreed to purchase eligible
timeshare receivables from us or certain of our subsidiaries up to an aggregate $20.0 million
purchase price through December 22, 2011. The terms of the Quorum Facility reflect an 80% advance
rate and a program fee rate of 8% per annum through August 31, 2011, and terms to be agreed upon
through December 22, 2011. Eligibility requirements for receivables sold include, amongst others,
that the obligors under the timeshare notes receivable sold be members of Quorum at the time of the
note sale. The Quorum Facility contemplates the ability of Quorum to purchase additional
receivables subject to advance rates, fees and other terms to be agreed upon from time to time over
and above the initial $20.0 million commitment, pursuant to the terms of the facility and subject
to certain conditions precedent. Subject to performance of the
collateral, we will receive all of the excess cash flows generated by the receivables transferred
to Quorum under the facility (excess meaning after customary payment of fees and return of amounts
invested by Quorum under the facility on a pro-rata basis as borrowers make payments on their
timeshare loans).
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While ownership of any timeshare receivables financed through the Quorum facility is considered
transferred and sold to Quorum for legal purposes, the transfer of these timeshare receivables is
accounted for as a secured borrowing.
Receivable-Backed Notes Payable Previously Reported Off-Balance-Sheet
As discussed in further detail in Note 2 above, on January 1, 2010, we consolidated seven special
purpose finance entities previously reported off-balance-sheet and their associated
receivable-backed notes payable. These entities and their associated debt were not required to be
consolidated during periods prior to January 1, 2010. Historically, we have been a party to a
number of securitization-type transactions, in which we sold receivables to one of our special
purpose finance entities which, in turn, sold the receivables either directly to third parties or
to a trust established for the transaction. These receivables were typically sold on a
non-recourse basis (except for breaches of certain representations and warranties). Under these
arrangements, the cash payments received from obligors on the receivables sold are generally
applied monthly to pay fees to service providers, make interest and principal payments to
investors, and fund required reserves, if any, with the remaining balance of such cash retained by
us; however, to the extent the portfolio of receivables fails to satisfy specified performance
criteria (as may occur due to an increase in default rates or loan loss severity) or other trigger
events occur, the funds received from obligors are distributed on an accelerated basis to
investors. Depending on the circumstances and the transaction, the application of the accelerated
payment formula may be permanent or temporary until the trigger event is cured. As of December 31,
2010, we were in compliance with all applicable terms and no trigger events had occurred.
Junior Subordinated Debentures
We have formed statutory business trusts (collectively, the Trusts), each of which issued trust
preferred securities and invested the proceeds thereof in our junior subordinated debentures. The
Trusts are variable interest entities in which we are not the primary beneficiary as defined by ASC
810. Accordingly, we do not consolidate the operations of the Trusts; instead, the Trusts are
accounted for under the equity method of accounting. In each of these transactions, the applicable
Trust issued trust preferred securities as part of a larger pooled trust securities offering which
was not registered under the Securities Act of 1933. The applicable Trust then used the proceeds
from issuing the trust preferred securities to purchase an identical amount of junior subordinated
debentures from us. Interest on the junior subordinated debentures and distributions on the trust
preferred securities are payable quarterly in arrears at the same interest rate. Distributions on
the trust preferred securities are cumulative and based upon the liquidation value of the trust
preferred security. The trust preferred securities are subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at maturity or their earlier
redemption. The junior subordinated debentures are redeemable in whole or in part at the Companys
option at any time after five years from the issue date or sooner following certain specified
events. In addition, we made an initial equity contribution to each Trust in exchange for its
common securities, all of which are owned by us, and those proceeds were also used to purchase an
identical amount of junior subordinated debentures from us. The terms of each Trusts common
securities are nearly identical to the trust preferred securities.
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We had the following junior subordinated debentures outstanding at December 31, 2009 and 2010
(dollars in thousands):
Outstanding | Initial | |||||||||||||||||||||||||||
Amount of | Equity | Fixed | Variable | Beginning | ||||||||||||||||||||||||
Junior | In | Interest | Interest | Optional | ||||||||||||||||||||||||
Subordinated | Trust | Issue | Rate | Rate | Redemption | Maturity | ||||||||||||||||||||||
Trust | Debentures | (3) | Date | (1) | (2) | Date | Date | |||||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
+ 4.90% (5.20% | ||||||||||||||||||||||||||||
BST I |
$ | 23,196 | $ | 696 | 3/15/05 | (4 | ) | as of 12/31/10) | 3/30/10 | 3/30/35 | ||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
+ 4.85% (5.15 | % | |||||||||||||||||||||||||||
BST II |
25,774 | 774 | 5/04/05 | (5 | ) | as of 12/31/10) | 7/30/10 | 7/30/35 | ||||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
+ 4.85% (5.15 | % | |||||||||||||||||||||||||||
BST III |
10,310 | 310 | 5/10/05 | (5 | ) | as of 12/31/10) | 7/30/10 | 7/30/35 | ||||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
BST IV |
15,464 | 464 | 4/24/06 | 10.130 | % | + 4.85% | 6/30/11 | 6/30/36 | ||||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
BST V |
15,464 | 464 | 7/21/06 | 10.280 | % | + 4.85% | 9/30/11 | 9/30/36 | ||||||||||||||||||||
3-month LIBOR | ||||||||||||||||||||||||||||
BST VI |
20,619 | 619 | 2/26/07 | 9.842 | % | + 4.80% | 4/30/12 | 4/30/37 | ||||||||||||||||||||
$ | 110,827 | $ | 3,327 | |||||||||||||||||||||||||
(1) | Both the trust preferred securities and junior subordinated debentures bear interest at a fixed interest rate from the issue date through the beginning optional redemption date. | |
(2) | Both the trust preferred securities and junior subordinated debentures bear interest at a variable interest rate from the beginning optional redemption date through the maturity date. | |
(3) | Initial equity in trust is recorded as part of other assets in our consolidated balance sheets. | |
(4) | On March 30, 2010, the interest rates on the securities issued by Bluegreen Statutory Trust (BST) I contractually changed from a fixed-rate of 9.160% to a variable rate equal to the 3-month LIBOR + 4.90% (5.20% as of December 31, 2010). | |
(5) | On July 30, 2010, the interest rate on the securities issued by BST II and BST III contractually changed from a fixed- rate of 9.158% and 9.193%, respectively, to a variable rate equal to the 3-month LIBOR + 4.85% (5.15% as of December 31, 2010). |
10. Fair Value of Financial Instruments
We used the following methods and assumptions in estimating the fair values of our financial
instruments:
Unrestricted cash and cash equivalents. The amounts reported in our consolidated balance sheets
for cash and cash equivalents approximate fair value.
Restricted cash. The amounts reported in our consolidated balance sheets for restricted cash
approximate fair value.
Contracts receivable. The amounts reported in our consolidated balance sheets for contracts
receivable approximate fair value. The majority of our contracts receivable relate to unclosed
homesite sales and are non-interest bearing and generally convert into cash within thirty to
forty-five days.
Notes receivable. The fair values of our notes receivable are based on estimated future cash flows
considering contractual payments and estimates of prepayments and defaults, discounted at a market
rate.
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Lines-of-credit, notes payable, and receivable-backed notes payable. The amounts reported in our
consolidated balance sheets approximate fair value for indebtedness that provides for variable
interest rates. The fair value of our fixed-rate, non-recourse receivable-backed notes payable was
determined by discounting the net cash outflows estimated to be used to repay the debt. These
obligations are to be satisfied using the proceeds from the loans that secure these obligations and
are non-recourse to the Company.
Junior subordinated debentures. The fair values of our junior subordinated debentures were based
on the discounted value of contractual cash flows at a market discount rate or based on market
price quotes from the over-the-counter bond market.
The carrying amounts and estimated fair value of our financial instruments are as follows (in
thousands):
As of December 31, 2009 | As of December 31, 2010 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Unrestricted cash and cash equivalents |
$ | 70,491 | $ | 70,491 | $ | 72,085 | $ | 72,085 | ||||||||
Restricted cash |
23,908 | 23,908 | 53,922 | 53,922 | ||||||||||||
Contracts receivable, net |
4,826 | 4,826 | 1,843 | 1,843 | ||||||||||||
Notes receivable, net |
309,307 | 279,208 | 568,985 | 619,000 | ||||||||||||
Retained interests in notes receivable sold |
78,313 | 78,313 | | | ||||||||||||
Lines-of-credit, notes payable, and receivable-backed notes payable |
428,609 | 428,609 | 714,051 | 702,274 | ||||||||||||
Junior subordinated debentures |
$ | 110,827 | $ | 60,522 | $ | 110,827 | $ | 68,100 |
11. Common Stock and Stock Option Plans
Bluegreen Corporation 2008 Stock Incentive Plan
The 2008 Stock Incentive Plan (referred to within this Note 11 as the Plan) provides for the
issuance of restricted stock awards and for the grant of options to purchase shares of our common
stock. Any shares subject to stock awards or option grants under the plan which expire or are
terminated, forfeited, or canceled without having been exercised or vested in full are available
for further grant under the Plan. During 2009, the Plan was amended to, among other things,
increase the aggregate number of shares available for grant under the Plan from 4 million shares to
10 million shares. As of December 31, 2010, 7.9 million shares were available for grant under the
Plan.
Share-Based Compensation
Under the Plan, options and shares of restricted stock can be granted with various vesting periods.
All of the options granted generally expire ten years from the date of grant, subject to
alternative expiration dates under certain circumstances for non-employee director grants. Our
options are granted at exercise prices that either equal or exceed the quoted market price of our
common stock at the respective dates of grant.
Options and restricted stock granted to employees generally vest 100% on the five-year anniversary
of the date of grant. Options granted to non-employee directors generally vest immediately upon
grant, while restricted stock granted to non-employee directors generally vests pro-rata on a
monthly basis over a one year period from the date of grant. Certain restricted stock granted
during 2008 to employees and our Chairman and Vice Chairman are scheduled to vest on the five-year
anniversary of the date of grant, subject to accelerated vesting pursuant to change in control
provisions included in the terms of the award agreements.
The following table lists relevant information pertaining to our grants of stock options and
restricted stock (in thousands):
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Stock Option Awards | Restricted Stock Awards | |||||||||||||||
Grant Date | Grant Date | |||||||||||||||
For the Year Ended December 31, 2008 | Quantity | Fair Value | Quantity | Fair Value | ||||||||||||
Directors |
295 | $ | 937 | 184 | $ | 1,246 | ||||||||||
Employees |
777 | 2,518 | 1,184 | 9,208 | ||||||||||||
Total |
1,072 | $ | 3,455 | 1,368 | $ | 10,454 | ||||||||||
Stock Option Awards | Restricted Stock Awards | |||||||||||||||
Grant Date | Grant Date | |||||||||||||||
For the Year Ended December 31, 2009 | Quantity | Fair Value | Quantity | Fair Value | ||||||||||||
Directors |
120 | $ | 221 | 92 | $ | 255 | ||||||||||
Employees |
| | | | ||||||||||||
Total |
120 | $ | 221 | 92 | $ | 255 | ||||||||||
There were no grants of restricted stock or stock options during 2010.
Total stock-based compensation expense for non-employee directors and employees during the years
ended December 31, 2008, 2009, and 2010 was $4.4 million, $4.4 million and $2.6 million,
respectively. The following table sets forth certain information related to our estimated
unrecognized compensation for our stock-based awards as of December 31, 2010:
Weighted | ||||||||
Average | ||||||||
Remaining | Unrecognized | |||||||
Recognition | Compensation | |||||||
(in years) | (000s) | |||||||
Stock Option Awards |
1.9 | $ | 1,873 | |||||
Restricted Stock Awards |
2.2 | $ | 4,687 |
Changes in our stock option plans are presented below:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Exercise | Number of | Aggregate | ||||||||||||||
Outstanding | Price Per | Shares | Intrinsic | |||||||||||||
Options | Share | Exercisable | Value | |||||||||||||
(000s) | (000s) | |||||||||||||||
Balance at December 31, 2008 |
2,710 | $ | 9.91 | 871 | $ | 32,100 | ||||||||||
Granted |
120 | $ | 2.75 | |||||||||||||
Forfeited |
(1 | ) | $ | 3.48 | ||||||||||||
Expired |
(34 | ) | $ | 7.35 | ||||||||||||
Exercised |
| $ | | |||||||||||||
Balance at December 31, 2009 |
2,795 | $ | 9.64 | 956 | $ | 7,250 | ||||||||||
Granted |
| $ | | |||||||||||||
Forfeited |
(78 | ) | $ | 12.88 | ||||||||||||
Expired |
| $ | | |||||||||||||
Exercised |
| $ | | |||||||||||||
Balance at December 31, 2010 |
2,717 | $ | 9.53 | 1,310 | $ | 91,396 | ||||||||||
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During the years ended December 31, 2008, 2009 and 2010, the grant-date fair value of stock
options that vested was approximately $0.9 million, $0.2 million, and $4.0 million, respectively.
The aggregate intrinsic value of our stock options outstanding and exercisable was less than $0.1
million as of December 31, 2009 and 2010. The total intrinsic value of our stock options exercised
during 2008 was $0.2 million. No stock options were exercised during 2009 and 2010.
The weighted-average exercise prices and weighted-average remaining contractual lives of our
outstanding stock options at December 31, 2010 (grouped by range of exercise prices) were:
Weighted- | Weigted- | |||||||||||||||||||
Average | Weighted- | Average | ||||||||||||||||||
Number of | Remaining | Average | Exercise | |||||||||||||||||
Number of | Vested | Contractual | Exercise | Price (Vested | ||||||||||||||||
Options | Options | Term | Price | Only) | ||||||||||||||||
(In 000s) | (In 000s) | (In years) | ||||||||||||||||||
$2.11 - $3.00 |
155 | 155 | 6.7 | $ | 2.63 | $ | 2.63 | |||||||||||||
$3.01 - $4.52 |
378 | 378 | 1.8 | $ | 3.46 | $ | 3.46 | |||||||||||||
$4.53 - $6.79 |
168 | 168 | 4.3 | $ | 5.92 | $ | 5.92 | |||||||||||||
$6.80 - $10.20 |
937 | | 5.3 | $ | 7.65 | $ | | |||||||||||||
$10.21 - $15.31 |
584 | 114 | 5.7 | $ | 11.94 | $ | 11.47 | |||||||||||||
$15.32 - $18.36 |
495 | 495 | 4.6 | $ | 18.27 | $ | 18.27 | |||||||||||||
2,717 | 1,310 | 4.8 | $ | 9.53 | $ | 9.98 | ||||||||||||||
A summary of the status of the Companys unvested restricted stock awards and activity during
the years ended December 31, 2009 and 2010 are as follows:
Weighted-Average | ||||||||
Number of | Grant-Date Fair | |||||||
Non-vested Restricted Shares | Shares | Value per Share | ||||||
(In 000s) | ||||||||
Unvested at January 1, 2009 |
1,417 | $ | 8.14 | |||||
Granted |
92 | $ | 2.75 | |||||
Vested |
(63 | ) | $ | 4.04 | ||||
Forfeited |
(20 | ) | $ | 10.14 | ||||
Unvested at December 31, 2009 |
1,426 | $ | 7.94 | |||||
Granted |
| $ | | |||||
Vested |
(54 | ) | $ | 2.75 | ||||
Forfeited |
(45 | ) | $ | 8.28 | ||||
Unvested at December 31, 2010 |
1,327 | $ | 8.14 | |||||
Shareholders Rights Plan
On July 27, 2006, the Board of Directors authorized the adoption of the rights agreement (the
Rights Agreement) and declared a dividend of one preferred share purchase right for each
outstanding share of the Companys common stock. The Board of Directors authorized the adoption of
the Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics. In
general terms, the Rights Agreement imposes a significant penalty upon any person or group which
acquires beneficial ownership of 10% or more of the Companys outstanding common stock without the
prior approval of the Board of Directors. Excluded from the operation of the Rights Agreement are
the Company, its subsidiaries, employee benefit plans or any of its subsidiaries and any entity
100
holding common stock for or pursuant to the terms of any such employee benefit plan, as well as BFC
Financial Corporation and its affiliates, successors and assigns.
12. Commitments and Contingencies
At December 31, 2010, the estimated cost to satisfy our development obligations in subdivisions or
resorts at which homesites or VOIs have been sold totaled approximately $11.0 million. The timing
of development spending is contingent on our development plans and the strategic alternatives
related to our Bluegreen Communities division, which are currently under evaluation.
In 2006, we entered into a separation agreement with our former CEO, George Donovan. Under the
terms of this agreement, Mr. Donovan will be paid a total of $3.0 million over a seven year period
in exchange for his services to be provided on an as needed basis. As of December 31, 2010, the
remaining amount due to Mr. Donovan was $0.9 million, the present value of which is recorded as a
liability on our consolidated balance sheet.
Rent expense for the years ended December 31, 2008, 2009, and 2010 totaled approximately $14.7
million, $12.9 million and $11.9 million, respectively. Lease commitments under these and our
various other noncancelable operating leases for each of the five years subsequent to December 31,
2010 and thereafter are as follows (in thousands, inclusive of terminated leases as a result of our
2008 restructuring described below in Note 17):
2011 |
$ | 9,379 | ||
2012 |
7,669 | |||
2013 |
5,317 | |||
2014 |
4,955 | |||
2015 |
4,864 | |||
Thereafter |
26,206 | |||
Total future minimum lease payments |
$ | 58,390 | ||
In the ordinary course of our business, we become subject to claims or proceedings from time
to time relating to the purchase, subdivision, sale or financing of real estate. Additionally, from
time to time, we become involved in disputes with existing and former employees, vendors, taxing
jurisdictions and various other parties. Unless otherwise described below, we believe that these
claims are routine litigation incidental to our business.
Reserves are accrued for matters in which it is probable that a loss will be incurred and the
amount of such loss can be reasonably estimated. These accrual amounts as of December 31, 2010 are
not material to the Companys financial statements. The actual costs of resolving these legal
claims may be substantially higher or lower than the amounts accrued for these claims.
Management is not at this time able to estimate a range of reasonably possible losses in excess of
accrued amounts with respect to maters in which it is reasonably possible that a loss has been
incurred. In certain matters, we are
unable to estimate the loss or reasonable range of loss until additional developments in the case
provide information sufficient to support an assessment of the loss or range of loss. Frequently
in these matters the claims are broad and the plantiffs have not quantified or factually supported
the claim.
We believe that liabilities arising from litigation and regulatory matters, discussed below, in
excess of the amounts currently accrued, if any, will not have a material impact to the Companys
financial statements. However, due to the significant uncertainties involved in these legal
matters, an adverse outcome in these matters could be material to the Companys financial
statements.
Bluegreen Resorts
In 2005, the State of Tennessee Audit Division (the Division) audited certain subsidiaries within
Bluegreen Resorts for the period from December 1, 2001 through December 31, 2004. On September 23,
2006, the Division issued a notice of assessment for approximately $652,000 of accommodations tax
based on the use of Bluegreen
101
Vacation Club accommodations by Bluegreen Vacation Club members who became members through the
purchase of non-Tennessee property. We believe the attempt to impose such a tax is contrary to
Tennessee law and have vigorously opposed, and intend to continue to vigorously oppose, such assessment by the
Division. An informal conference was held in December 2007 to discuss this matter with
representatives of the Division. No formal resolution of the issue was reached during the
conference and no further action has to date been initiated by the State of Tennessee. While the
timeshare industry has been successful in challenging the imposition of sales taxes on the use of
accommodations by timeshare owners, there is no assurance that we will be successful in contesting
the current assessment.
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 brought cross-claims for breach of the underlying purchase and
sale contract. The sellers complaint, as amended, includes a fraud allegation, contends that we
failed to perform under the terms of the purchase and sale contract and claims entitlement to the
full amount in escrow. We maintain that our decision not to close on the purchase of the property
was proper under the terms of the purchase and sale contract and therefore are entitled to a return
of the full escrow deposit. A trial date of May 31, 2011 has been set for this matter. Bluegreen
believes the sellers allegations are without merit and intends to vigorously defend this claim.
The Office of the Attorney General for the State of Florida (the AGSF) has advised Bluegreen that
it has accumulated a number of consumer complaints since 2005 against Bluegreen and/or its
affiliates related to its timeshare sales and marketing, and has requested that Bluegreen respond
on a collective basis as to how it had or would resolve the complaints. Bluegreen has determined
that many of these complaints were previously addressed and/or resolved by Bluegreen. The AGSF has
also requested that Bluegreen enter into a written agreement in which the parties establish a
process and timeframe for determining consumer eligibility for relief (including where applicable
monetary restitution). Bluegreen does not believe this matter will have a material effect on
Bluegreens results of operations, financial condition or its sales and marketing activities in
Florida.
Other Matters
In addition to the matters disclosed above, from time to time in the ordinary course of business,
we receive individual consumer complaints, as well as complaints received through regulatory and
consumer agencies, including Offices of State Attorney Generals. We take these matters seriously
and attempt to resolve any such issues as they arise.
Bluegreen Communities
Bluegreen Southwest One, L.P. (Southwest), a subsidiary of Bluegreen Corporation, is the
developer of the Mountain Lakes subdivision in Texas. In Cause No. 28006, styled Betty Yvon
Lesley et a1. v. Bluff Dale Development Corporation, Bluegreen Southwest One. L.P. et al., in
the 266th Judicial District Court, Erath County, Texas, the plaintiffs filed a declaratory judgment
action against Southwest seeking to develop their reserved mineral interests in, on and under the
Mountain Lakes subdivision. The plaintiffs claims are based on property law, oil and gas law,
contract and tort theories. The property owners association and some of the individual landowners
have filed cross actions against Bluegreen, Southwest and individual directors of the property
owners association related to the mineral rights and certain amenities in the subdivision as
described below. On January 17, 2007, the court 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 Cause No. 28769, 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. Southwest appealed the trial courts 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 courts decision and ruled in Southwests 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. On May 14, 2009, the
plaintiffs filed an appeal with the Texas Supreme Court asking the Court to reverse the Appellate
Courts decision in favor of Southwest. On September 15, 2010 the Court heard oral arguments on
whether to reverse or affirm the Appellate Courts decision. No information is available as to
when the Texas Supreme Court will render a decision on the appeal.
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., in the 284Th
Judicial District of Montgomery County, Texas, the plaintiffs brought suit alleging fraud,
negligent misrepresentation, breach of contract, and negligence with regards to the Ridgelake
Shores subdivision, developed in Montgomery County, Texas, specifically, the usability of the
lakes within the community for fishing and sporting and the general level of quality at the
community. The lawsuit sought material damages and the payment of costs to remediate the lake. On
September 10, 2010, a tentative settlement of this matter was reached, pursuant to which Bluegreen
agreed to pay $0.3 million to provide for improvements to the fish habitat and general usability of
the lake environment. The settlement agreement has since been fully executed and as of December 31,
2010, Bluegreen paid $0.2 million of the agreed upon settlement payment. Bluegreen has accrued the
remaining $0.1 million due. Improvements to the lake are ongoing and Bluegreen will disburse the
remaining funds as they are needed to complete the improvements.
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, in the United
States District Court for the Southern District of Georgia, Brunswick Division, the plaintiffs
brought suit alleging fraud and misrepresentation with regards to the construction of a marina at
the Sanctuary Cove subdivision located in Camden County, Georgia. The plaintiff subsequently
withdrew the fraud and misrepresentation counts and filed a count alleging violation of
racketeering laws. On January 25, 2010, the plaintiffs filed a second complaint seeking approval
to proceed with the lawsuit as a class action on behalf of more than 100 persons claimed to have
been harmed by the alleged activities in a similar manner. We have filed a response with the Court
in opposition to class certification. No decision has yet been made by the Court as to whether
they will certify a class. We deny the allegations and intend to vigorously defend the lawsuit.
On June 3, 2010, in Cause No. 16-2009-CA-008028, styled Community Cable Service, LLC v.
Bluegreen Communities of Georgia, LLC and Sanctuary Cove at St. Andrews Sound Community
Association, Inc., a/k/a Sanctuary Cove Home Developers Association, Inc., in the Circuit
Court of the Fourth Judicial Circuit in and for Duval County, Florida, the plaintiffs filed suit
alleging breach by Bluegreen Communities of Georgia and the community association of a bulk cable
TV services contract at Bluegreens Sanctuary Cove single family residential community being
developed in Waverly, Georgia. In its complaint, the plaintiffs alleged that approximately $0.2
million in unpaid bulk cable fees are due from the defendants, and that the non-payment of fees
will continue to accrue on a monthly basis. Bluegreen and the community association allege
incomplete performance under the contract by the plaintiffs and that the cable system installed was
inferior and did not comply with the requirements of the contract. The case went to mediation on
September 20, 2010, but no resolution was reached. A trial date has been set for May 5, 2011 in
this matter. We intend to vigorously defend the lawsuit.
Other Matters
In the ordinary course of our business, we become subject to claims or proceedings from time to
time relating to the purchase, subdivision, sale or financing of real estate. Additionally, from
time to time, we become involved in disputes with existing and former employees, vendors, taxing
jurisdictions and various other parties.
13. Income Taxes
Our provision (benefit) for income taxes attributable to continuing operations consists of the
following (in thousands):
For the Year Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
Federal: |
||||||||||||
Current |
$ | 2,392 | $ | (3,335 | ) | $ | 3,005 | |||||
Deferred |
(1,671 | ) | (474 | ) | (26,648 | ) | ||||||
$ | 721 | $ | (3,809 | ) | $ | (23,643 | ) | |||||
State and Other: |
||||||||||||
Current |
$ | 1,165 | $ | 153 | $ | 2,006 | ||||||
Deferred |
(1,133 | ) | 1,016 | (590 | ) | |||||||
32 | 1,169 | 1,416 | ||||||||||
Total |
$ | 753 | $ | (2,640 | ) | $ | (22,227 | ) | ||||
The reasons for the difference between our provision (benefit) for income taxes and the amount
that results from applying the federal statutory tax rate to income from continuing operations
before provision (benefit) for income taxes are as follows (in thousands):
For the Year Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
Income tax expense at statutory rate |
$ | 84 | $ | 369 | $ | (23,166 | ) | |||||
Effect of state taxes, net of federal tax benefit |
9 | 100 | 1,304 | |||||||||
Effect of state rate changes on net deferred
liabilities |
(1,592 | ) | 1,395 | 59 | ||||||||
Change in valuation allowance |
1,251 | (379 | ) | (650 | ) | |||||||
Non-deductible items |
1,016 | (4,122 | ) | 229 | ||||||||
Other |
(15 | ) | (3 | ) | (3 | ) | ||||||
Total |
$ | 753 | $ | (2,640 | ) | $ | (22,227 | ) | ||||
Our deferred income taxes consist of the following components (in thousands):
As of | ||||||||
December 31, 2009 | December 31, 2010 | |||||||
Deferred federal and state tax liabilities
(assets): |
||||||||
Installment sales treatment VOI of notes
receivable |
$ | 224,941 | $ | 213,154 | ||||
Deferred federal and state loss
carryforwards/AMT
credits (net of valuation allowance of
$3.2 million and $2.6
million as of December 31, 2009 and 2010
, respectively) |
(134,295 | ) | (107,106 | ) | ||||
Book over tax carrying value of retained interests in notes |
30,392 | 0 | ||||||
Book reserves for loan losses and inventory |
(23,502 | ) | (78,196 | ) | ||||
Tax over (under) book depreciation |
391 | (43 | ) | |||||
Unrealized losses on retained interests in notes receivable
sold (see Note 4) |
(358 | ) | 0 | |||||
Deferral of VOI sales and costs under timeshare accounting |
4,618 | 12,185 | ||||||
Deferred rent |
(2,202 | ) | (2,719 | ) | ||||
Restructuring |
(665 | ) | (281 | ) | ||||
Accrued contingencies |
(2,996 | ) | (1,646 | ) | ||||
Goodwill |
(1,926 | ) | (1,757 | ) | ||||
Stock-based compensation |
(4,175 | ) | (5,112 | ) | ||||
Other |
(2,426 | ) | (2,874 | ) | ||||
Deferred income taxes |
$ | 87,797 | $ | 25,605 | ||||
Total deferred federal and state tax liabilities |
$ | 260,342 | $ | 225,339 | ||||
Total deferred federal and state tax assets |
(172,545 | ) | (199,734 | ) | ||||
Deferred income taxes |
$ | 87,797 | $ | 25,605 | ||||
As of December 31, 2010, we had federal net operating loss carryforwards related to continuing
operations of approximately $150.4 million, which expire at various periods from 2022 through 2029,
and alternative minimum tax credit carryforwards related to continuing operations of approximately
$38.0 million, which never expire. Additionally, as of December 31, 2010, we have state operating
loss carryforwards of approximately $460.7 million, which expire from 2012 through 2030.
Internal Revenue Code Section 382 addresses limitations on the use of net operating loss
carryforwards following a change in ownership, as defined in Section 382. We do not believe that
any such ownership change occurred during 2009 or 2010. If our interpretation were found to be
incorrect, there would be significant limitations placed on these carryforwards which would result
in an increase in the Companys tax liability and a reduction of its net income.
We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states
and foreign jurisdictions. With certain exceptions, we are no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.
We evaluate our tax positions based upon guidelines of ASC 740-10, Income Tax, which clarifies the
accounting for uncertainty in tax positions. Based on an evaluation of uncertain tax provisions, we
are required to measure tax benefits based on the largest amount of benefit that is greater than
50% likely of being realized upon settlement. In accordance with our accounting policy, we
recognize interest and penalties related to unrecognized taxes as a component of general and
administrative expenses.
In May 2009, we received a notice from the North Carolina Department of Revenue informing us of its
proposal to assess us for taxes, interest, and penalties related to our corporate income tax
returns for fiscal years 2004, 2005, and 2006. In March 2010, we paid interest totaling $0.1
million and received notice from the North Carolina Department of Revenue that the tax years 2004,
2005 and 2006 are now closed.
In April 2010, we received notice from the Internal Revenue Service that the 2008 Federal
partnership return for one of our wholly-owned subsidiaries, Bluegreen Southwest One, L.P., had
been selected for audit. In August 2010, we received notice from the Internal Revenue Service that
this examination was completed without adjustment.
In May 2010, we received notice from the Minnesota Department of Revenue that Bluegreen Vacations
Unlimited, Inc.s Corporation Franchise Tax Returns for the years ended December 31, 2006 through
2008 were selected for audit. The audit field work has not yet been scheduled. While there is no
assurance as to the results of the audit, we do not currently anticipate any material adjustments
in connection with this examination.
In March 2011, we received notice from the Minnesota Department of Revenue that Bluegreen
Corporations Franchise Tax Returns for the years ended December 31, 2007 through 2009 were
selected for audit. The audit field work has not yet been scheduled. While there is no assurance
as to the results of the audit, we do not currently anticipate any material adjustments in
connection with this examination.
In August 2010, we received notice from the Texas Comptroller of Public Accounts that Bluegreen
Corporations Franchise Tax Report for the year ended December 31, 2008 was selected for audit.
The field work for this audit is scheduled to begin in April 2011. While there is no assurance as
to the results of the audit, we do not currently anticipate any material adjustments in connection
with this examination.
As of December 31, 2010, we did not have any significant amounts accrued for interest and
penalties, and we had no significant amounts recorded for uncertain tax positions.
As described in Note 2, we recorded a one-time, non-cash pre-tax reduction to shareholders
equity of approximately $60.7 million in conjunction with the adoption of ASU 2009-16 and
2009-17 as of January 1, 2010. That amount included a $35.0 million reduction in our net
deferred income tax liability.
As discussed in Note 5, we exercised our servicer option relating to the 2002 Term Securitization
to redeem all classes of notes subject to the securitization as of May 8, 2009, which resulted in a
reduction to our income tax provision of $4.6 million on the Consolidated Statement of Operations
for the year ended December 31, 2009.
14. Employee Retirement Savings Plan and Other Employee Matters
Our Employee Retirement Plan (the Retirement Plan) is an Internal Revenue Code section 401(k)
Retirement Savings Plan. All U.S.-based employees at least 21 years of age with one year of
employment with us and 1,000 work hours are eligible to participate in the Retirement Plan. During
2008, the Retirement Plan provided an annual employer discretionary matching contribution and a
fixed-rate employer matching contribution equal to 100% of the first 3% of a participants
contribution with an annual limit of $1,500 per participant. During 2008, we recognized expenses
for our contributions to the Retirement Plan of approximately $1.3 million. Subsequent to December
31, 2008, the fixed-rate employer matching contribution was amended and replaced with a
discretionary match for the 2009 and 2010 plan years. We did not make any contributions in 2009 or
2010.
Five of our employees in New Jersey are employed subject to the terms of collective bargaining
agreements. These employees comprise less than 1% of our total workforce.
15. Business Segments
We are organized into two divisions: Bluegreen Resorts and Bluegreen Communities. Bluegreen Resorts
markets, sells and manages real estate-based 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-party resort developers and timeshare owners for providing
services such as sales and marketing, mortgage servicing, construction management, title, and
resort management. 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.
We evaluate the performance and allocate resources to each business segment based on its individual
segment operating profit (loss). Segment operating profit (loss) is operating profit (loss) prior
to the allocation of corporate overhead, interest income, other income or expense items, interest
expense, income taxes, discontinued operations, and income attributable to non-controlling
interest. Inventory, notes receivable and property and equipment are the only assets that we
evaluate on a segment basis all other assets are only evaluated on a consolidated basis. The
accounting policies of the reportable segments are the same as those described in the summary of
significant accounting policies described in Note 1 above.
Required disclosures for our business segments are as follows, excluding the impact of
discontinued operations (in thousands):
Bluegreen | Bluegreen | |||||||||||
Resorts | Communities | Totals | ||||||||||
For the year ended December 31, 2008: |
||||||||||||
Sales of real estate |
$ | 428,010 | (1) | $ | 47,020 | $ | 475,030 | |||||
Other resort and communities operations revenue |
58,643 | 3,527 | 62,170 | |||||||||
Depreciation expense |
7,294 | 579 | 7,873 | |||||||||
Segment operating profit (loss) |
46,999 | (1) | (3,574) | (3) | 43,425 | |||||||
For the year ended December 31, 2009: |
||||||||||||
Sales of real estate |
$ | 201,755 | (2) | $ | 17,613 | $ | 219,368 | |||||
Other resort and communities operations revenue |
57,014 | 1,590 | 58,604 | |||||||||
Fee-based sales commission revenue |
20,057 | | 20,057 | |||||||||
Depreciation expense |
5,349 | 589 | 5,938 | |||||||||
Segment operating profit (loss) |
37,748 | (21,099) | (3) | 16,649 | ||||||||
For the year ended December 31, 2010: |
||||||||||||
Sales of real estate |
$ | 125,765 | (4) | $ | 11,751 | $ | 137,516 | |||||
Other resort and communities operations revenue |
67,036 | 1,696 | 68,732 | |||||||||
Fee-based sales commission revenue |
52,966 | | 52,966 | |||||||||
Depreciation expense |
5,486 | 531 | 6,017 | |||||||||
Segment operating profit (loss) |
15,706 | (67,086) | (3) | (51,380 | ) |
(1) | Sales of real estate for the year ended December 31, 2008 include approximately $8.2 million related to gains on the sales of VOI notes receivable through off-balance sheet transactions. There was no such gain during the year ended December 31, 2009 or 2010. | |
(2) | Amount excludes $15.6 million related to the 2008 restructuring (discussed in Note 17 below) and $8.5 million related to the impairment of goodwill (discussed in Note 1 above). | |
(3) | Amount includes charges of $5.2 million, $13.2 million and $54.6 million related to the impairment of certain communities inventory for the years ended December 31, 2008, 2009 and 2010, respectively (discussed in Note 7 above). | |
(4) | Amount includes charges of $69.7 million to increase the allowance for uncollectible notes receivable on notes generated prior to December 15, 2008, the date on which we implemented our FICO® score-based underwriting standards. |
Bluegreen | Bluegreen | |||||||||||
Resorts | Communities | Totals | ||||||||||
As of
December 31, 2009 |
||||||||||||
Notes receivable, net |
$ | 304,930 | $ | 4,377 | $ | 309,307 | ||||||
Inventory |
370,470 | 145,447 | 515,917 | |||||||||
Property and equipment, net (1) |
70,036 | 6,153 | 76,189 |
Bluegreen | Bluegreen | |||||||||||
Resorts | Communities | Totals | ||||||||||
As of
December 31, 2010 |
||||||||||||
Notes receivable, net |
$ | 562,912 | $ | 6,073 | $ | 568,985 | ||||||
Inventory |
337,684 | 82,193 | 419,877 | |||||||||
Property and equipment, net (1) |
65,244 | 5,576 | 70,820 |
(1) | As of December 31, 2009 and 2010, $9.4 million and $8.6 million, respectively, of property and equipment, net, related to corporate assets were not included in the segment information. |
Reconciliations to Consolidated Amounts
Segment operating profit (loss) for our reportable segments reconciled to our consolidated income
before non-controlling interests, provision (benefit) for income taxes and discontinued operations
are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Segment operating profit (loss) from continuing operations for reportable segments |
$ | 43,425 | $ | 16,649 | $ | (51,380 | ) | |||||
Interest income |
57,831 | 69,337 | 106,463 | (1) | ||||||||
Other expense, net |
(1,637 | ) | (1,810 | ) | (2,839 | ) | ||||||
Corporate general and administrative expenses |
(54,822 | ) | (45,106 | ) | (42,199 | ) | ||||||
Mortgage servicing operations |
7,543 | 5,589 | (2,349) | (1) | ||||||||
Interest expense |
(20,888 | ) | (36,132 | ) | (65,795) | (1) | ||||||
Restructuring charges |
(15,617 | ) | | | ||||||||
Goodwill impairment |
(8,502 | ) | | | ||||||||
Consolidated income (loss) before non-controlling interests, provision (benefit) for
income taxes and discontinued operations |
$ | 7,333 | $ | 8,527 | $ | (58,099) | (1) | |||||
(1) | Reflects the impact of the adoption of ASU 2009-16 and ASU 2009-17 on January 1, 2010. |
Depreciation expense for our reportable segments reconciled to our consolidated depreciation
expense is as follows, excluding the impact of discontinued operations (in thousands):
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Depreciation expense reportable segments |
$ | 7,873 | $ | 5,938 | $ | 6,017 | ||||||
Depreciation expense corporate |
4,331 | 4,846 | 3,347 | |||||||||
Consolidated depreciation expense |
$ | 12,204 | $ | 10,784 | $ | 9,364 | ||||||
Assets for our reportable segments reconciled to our consolidated assets is as follows (in
thousands):
As of | ||||||||
December 31, 2009 | December 31, 2010 | |||||||
Notes receivable for reportable segments, net |
$ | 309,307 | $ | 568,985 | ||||
Inventory for reportable segments |
515,917 | 419,877 | ||||||
Property and equipment for reportable segments |
76,189 | 70,820 | ||||||
Assets not allocated to reportable segments |
229,852 | 196,250 | ||||||
Total assets |
$ | 1,131,265 | $ | 1,255,932 | ||||
Geographic Information
Sales of real estate by geographic area are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
United States |
$ | 467,500 | $ | 213,907 | $ | 133,140 | ||||||
Aruba |
7,530 | 5,461 | 4,376 | |||||||||
Total |
$ | 475,030 | $ | 219,368 | $ | 137,516 | ||||||
Assets by geographic area are as follows (in thousands):
As of December 31, | ||||||||
2009 | 2010 | |||||||
United States |
$ | 1,123,841 | $ | 1,251,977 | ||||
Aruba |
7,424 | 3,955 | ||||||
Total assets |
$ | 1,131,265 | $ | 1,255,932 | ||||
16. Discontinued Operations
On December 30, 2009, we sold four of our golf courses located in North Carolina and Virginia for
an aggregate purchase price of approximately $9.8 million. In connection with these sales, we
recognized a pre-tax loss on disposal of approximately $10.5 million.
Discontinued operations include the results of golf operations for the years ended December 31,
2008 and 2009 and the $10.5 million loss on disposal referenced above, and are as follows (in
thousands):
December 31, | ||||||||
2008 | 2009 | |||||||
Golf operations revenue |
$ | 7,182 | $ | 6,244 | ||||
Cost of operations |
7,170 | 6,924 | ||||||
Income (loss) from discontinued operations before
provision for income taxes |
12 | (680 | ) | |||||
Loss on the disposal of golf courses |
| (10,544 | ) | |||||
Provision (benefit) for income taxes |
13 | (3,957 | ) | |||||
Loss from discontinued operations |
$ | (1 | ) | $ | (7,267 | ) | ||
17. 2008 Restructuring Charges
During the fourth quarter of 2008, we implemented initiatives in Bluegreen Resorts in an attempt to
significantly reduce sales, conserve cash, and conserve availability under our receivables credit
facilities. Such initiatives included closing certain sales offices; significantly eliminating
what we identified as 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; implementing our FICO® score-based underwriting program; and
increasing interest rates on new sales transactions for which we provide financing.
This restructuring involved incurring costs associated with lease termination obligations, the
write down of certain fixed assets, and employee severance and benefits and resulted in a charge of
$15.6 million. This charge is presented as a separate line item on our Consolidated Statements of
Operations, and the remaining unpaid liability as of December 31, 2009 and 2010 is included as a
component of accrued liabilities on our Consolidated Balance Sheets. Restructuring costs were
accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations.
Activity during the year ended December 31, 2009 related to the 2008 restructuring liability, as
well as our remaining liability, was as follows (in thousands):
Liability at | Charges and | |||||||||||||||
December 31, | Other | Cash Payments | Liability at | |||||||||||||
2008 | Adjustments | made during 2009 | December 31, 2009 | |||||||||||||
Severance and benefit-related
costs(1) |
$ | 3,540 | $ | 594 | $ | 4,134 | $ | | ||||||||
Lease termination obligations(2)(3) |
4,079 | (556 | )(4) | 1,803 | 1,720 | |||||||||||
Other |
349 | (134 | ) | 215 | | |||||||||||
Total restructuring |
$ | 7,968 | $ | (96 | ) | $ | 6,152 | $ | 1,720 | |||||||
(1) | Includes severance payments made to employees, payroll taxes and other benefit-related costs in connection with the termination of approximately 2,200 employees. | |
(2) | Includes costs associated with non-cancelable property and equipment leases that we 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. | |
(3) | Continuing lease obligations will be paid monthly through November 2012. | |
(4) | During 2009, we successfully terminated certain of our lease obligations, resulting in a reduction of liability of $0.7 million. |
During 2010, in connection with our 2008 restructuring obligations, we made cash payments of $1.0
million, all of which related to our lease termination obligations. As of December 31, 2010, our
remaining 2008 restructuring liability related entirely to lease termination obligations and was
$0.7 million.
18. Related Party Transactions
BFC Financial Corporation (BFC) beneficially owns approximately 52% of our common stock. In
addition, Alan B. Levan and John E. Abdo, our Chairman and Vice Chairman, respectively, serve as
Chairman, Chief Executive Officer and President of BFC and Vice Chairman of BFC, respectively, and
may be deemed to control BFC by virtue of their ownership position in BFC.
During 2009 and 2010, we paid approximately $0.5 million and $1.3 million, respectively, to Snapper
Creek Equity Management, LLC, a subsidiary of BFC, for a variety of management advisory services.
Additionally, during 2009 and 2010, we reimbursed BFC and its Woodbridge Holdings subsidiary,
approximately $2.4 million and $1.4 million, respectively, for certain expenses incurred in
assisting us in our efforts to explore potential additional sources of liquidity. During 2008,
2009 and 2010, we also paid BFC Shared Services Corporation and Risk
Management Services, LLC, both
subsidiaries of BFC, a total of approximately $0.4 million, $0.5 million and $0.4 million,
respectively, in consideration for their provision of risk management and other administrative
services.
Beginning in 2009, we entered into a land lease with Benihana Inc. (Benihana), which
constructed and operates a restaurant at one of our resort properties. During each of 2009 and
2010, we received lease payments from Benihana of approximately $0.1 million. BFC holds a
significant investment in Benihana, and Alan B. Levan, our Chairman, and John E. Abdo, our Vice
Chairman, serve on Benihanas Board of Directors.
19. Subsequent Events
In February 2011, the Bluegreen/Big Cedar Joint Venture, in which we own a 51% interest, made a
cash distribution of its operating proceeds to us and its other member. The distribution totaled
$7.4 million and was allocated between us and its other member based on our and the other members
respective distribution percentages, resulting in a $3.8 million distribution to us and a $3.6
million distribution to the other member.
20. Quarterly Financial Information (Unaudited)
A summary of the quarterly financial information for the years ended December 31, 2009 and 2010 is
presented below (in thousands, except per share information):
For the Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2009 | 2009 | 2009 | 2009 | |||||||||||||
Sales of real estate |
$ | 45,855 | $ | 56,555 | $ | 71,266 | $ | 45,692 | ||||||||
Gross profit |
33,750 | 34,416 | 42,745 | 16,565 | (1) | |||||||||||
Income (loss) from continuing operations attributable to Bluegreen Corporation |
3,695 | 6,582 | 4,138 | (10,720 | ) (1) | |||||||||||
Discontinued operations |
(142 | ) | 232 | (205 | ) | (7,152 | ) | |||||||||
Net income (loss) |
4,739 | 8,364 | 6,580 | (15,783 | ) (1) | |||||||||||
Net income (loss) attributable to Bluegreen Corporation |
$ | 3,553 | $ | 6,814 | $ | 3,933 | $ | (17,872 | ) (1) | |||||||
Income (loss) from continuing operations attributable to Bluegreen corporation
per common share: |
||||||||||||||||
Diluted earnings (loss) per share from continuing operations attributable to
Bluegreen shareholders |
$ | 0.12 | $ | 0.21 | $ | 0.13 | $ | (0.34 | ) | |||||||
Diluted (loss) income per share for discontinued operations |
(0.01 | ) | 0.01 | | (0.23 | ) | ||||||||||
Diluted earnings (loss) per share attributable to Bluegreen shareholders |
$ | 0.11 | $ | 0.22 | $ | 0.13 | $ | (0.57 | ) | |||||||
For the Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2010 | 2010 | 2010 | 2010 | |||||||||||||
Sales of real estate (2) |
$ | 26,239 | $ | 51,120 | $ | 42,203 | $ | 17,954 | ||||||||
Gross profit (loss) (2)(3) |
11,791 | 35,774 | 4,895 | (8,023 | ) | |||||||||||
Net (loss) income (2)(3) |
(6,318 | ) | 5,678 | (13,519 | ) | (21,713 | ) | |||||||||
Net (loss) income attributable to Bluegreen Corporation (2)(3) |
$ | (7,857 | ) | $ | 4,309 | $ | (16,708 | ) | $ | (23,710 | ) | |||||
(Loss) income from continuing operations attributable to Bluegreen
Corporation
per common share: |
||||||||||||||||
Diluted (loss) earnings per share attributable to Bluegreen shareholders |
$ | (0.25 | ) | $ | 0.14 | $ | (0.54 | ) | $ | (0.76 | ) | |||||
(1) | Amounts presented for the quarter ended December 31, 2009 reflect a charge of $10.9 million to adjust the carrying amount of inventory to fair value, less cost to sell, on certain of our Bluegreen Communities real estate developments. | |
(2) | Sales of real estate for the quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010, reflect charges of $10.7 million, $2.5 million, $24.5 million and $32.0 million, respectively to increase our allowance for uncollectible notes receivable on notes generated prior to December 15, 2008, the date on which we implemented our FICO® score-based underwriting standards. | |
(3) | Amounts presented for the quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 reflect charges of $5.3 million, $0.3 million, $20.8 million and $28.2 million, respectively, to adjust the carrying amount of inventory to fair value, less cost to sell, on certain of our Bluegreen Communities real estate developments. |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Bluegreen Corporation
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen Corporation as of
December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders
equity, and cash flows for each of the three years in the period ended December 31, 2010. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Bluegreen Corporation at December 31, 2010 and
2009, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed its
method of accounting for its qualified special purpose entities associated with past securitization
transactions as a result of the adoption of Accounting Standards Update No. 2009-16, Transfers and
Servicing (Topic 860): Accounting for Transfers of Financial Assets and Accounting Standards
Update No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, effective January 1, 2010. As discussed in Note 5, in
2009 the Company changed the method by which it evaluates its retained interests in notes
receivable sold for other-than-temporary impairment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Bluegreen Corporations internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31,
2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP | ||||
Certified Public Accountants | ||||
Boca Raton, Florida
March 31, 2011
March 31, 2011