SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 29, 1996
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5295 Town Center Road, Boca Raton, Florida 33486
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(Address of principal executive offices) (Zip Code)
(561) 361-2700
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(Registrant's telephone number, including area code)
Not Applicable
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Former name,former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of October 25, 1996, there were 20,578,022 shares of Common Stock, $.01
par value per share, issued, 268,300 treasury shares and 20,309,722 shares
outstanding.
<PAGE>
BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information
Item 1. Financial Statements Page
Consolidated Balance Sheets at
September 29, 1996 and March 31, 1996 ........... 3
Consolidated Statements of Operations - Three Months
Ended September 29, 1996 and October 1, 1995 ..... 4
Consolidated Statements of Operations - Six Months
Ended September 29, 1996 and October 1, 1995 ..... 5
Consolidated Statements of Cash Flows -Six Months
Ended September 29, 1996 and October 1, 1995 ..... 6
Notes to Consolidated Financial Statements ............ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 11
Part II - Other Information
Item 1. Legal Proceedings ..................................... 36
Item 2. Changes in Securities ................................. 36
Item 3. Defaults Upon Senior Securities ....................... 36
Item 4. Submission of Matters to a Vote of Security Holders ... 36
Item 5. Other Information ..................................... 36
Item 6. Exhibits and Reports on Form 8-K ...................... 36
Signatures.......................................................... 37
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
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September 29, March 31,
Assets 1996 1996
Cash and cash equivalents (including restricted cash of
approximately $8.8 million and $7.7 million at
September 29, 1996 and March 31, 1996, respectively)... $ 13,035,255 $ 11,389,141
Contracts receivable, net................................. 8,862,457 12,451,207
Notes receivable, net..................................... 34,300,295 37,013,802
Investment in securities.................................. 10,937,470 9,699,435
Inventory, net............................................ 80,152,962 73,595,014
Property and equipment, net............................... 5,316,483 5,239,100
Debt issuance costs....................................... 1,131,472 1,288,933
Other assets.............................................. 3,777,057 4,286,401
Total assets........................................... $157,513,451 $154,963,033
Liabilities and Shareholders' Equity
Accounts payable.......................................... $ 2,047,835 $ 2,557,797
Accrued liabilities and other............................. 8,936,968 9,889,063
Lines-of-credit and notes payable......................... 29,927,981 17,287,767
Deferred income taxes..................................... 3,549,038 6,067,814
Receivable-backed notes payable........................... 17,839,173 19,723,466
8.25% convertible subordinated debentures................. 34,739,000 34,739,000
Total liabilities...................................... 97,039,995 90,264,907
Commitments and contingencies............................. --- ---
Shareholders' Equity
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued................................ --- ---
Common stock, $.01 par value, 90,000,000 shares
authorized; 20,574,933 and 20,533,410 shares
outstanding at September 29, 1996 and March 31, 1996,
respectively........................................... 205,749 205,334
Capital-in-excess of par value............................ 71,372,887 71,296,158
Retained earnings (deficit)............................... (10,351,175) (6,803,366)
Treasury stock, 235,500 shares of common stock at cost.... ( 754,005) ---
Total shareholders' equity................................ 60,473,456 64,698,126
Total liabilities and shareholders' equity............. $157,513,451 $154,963,033
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
<S>
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Three Months Ended
------------------------------------
September 29, October 1,
1996 1995
Revenues:
Sales of real estate..................................... $26,450,849 $33,257,813
Interest income and other................................ 1,549,770 2,177,295
28,000,619 35,435,108
Cost and expenses:
Cost of real estate sold................................. 13,198,844 17,223,289
Selling, general and administrative expense.............. 12,450,496 12,240,126
Interest expense......................................... 1,181,709 1,857,707
Provisions for losses.................................... 279,815 225,000
27,110,864 31,546,122
Income from operations...................................... 889,755 3,888,986
Other income................................................ 86,608 41,077
Income before income taxes.................................. 976,363 3,930,063
Provision for income taxes.................................. 400,309 1,611,326
Net income.................................................. $ 576,054 $ 2,318,737
Income per common share:
Net income.................................................. $ $ .11
.03
Weighted average number of common and common
equivalent shares (1).................................... 21,199,282 21,797,537
</TABLE>
(1) The current three month period includes 20,339,433 average common shares
outstanding plus 859,849 average dilutive stock options. The prior year three
month period includes 20,498,112 average common shares outstanding plus
1,299,425 average dilutive stock options.
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
<S>
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Six Months Ended
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September 29, October 1,
1996 1995
Revenues:
Sales of real estate..................................... $55,233,046 $57,899,077
Interest income and other................................ 2,994,235 4,364,230
58,227,281 62,263,307
Cost and expenses:
Cost of real estate sold................................. 27,652,442 29,414,737
Selling, general and administrative expense.............. 25,503,045 22,114,032
Interest expense......................................... 2,470,913 3,847,844
Provisions for losses.................................... 8,748,868 379,942
64,375,268 55,756,555
Income (loss) from operations............................... (6,147,987) 6,506,752
Other income................................................ 134,751 69,358
Income (loss) before income taxes........................... (6,013,236) 6,576,110
Provision (benefit) for income taxes........................ (2,465,427) 2,669,744
Net income (loss)........................................... $(3,547,809) $ 3,906,366
Income (loss) per common share:
Net income (loss)........................................... $(.17) $ .18
Weighted average number of common and common
equivalent shares (1).................................... 20,886,372 21,737,664
</TABLE>
(1) The current six three month period includes 20,456,447 average common shares
outstanding plus 429,925 average dilutive stock options. The prior year six
month period includes 20,492,354 average common shares outstanding plus
1,245,310 average dilutive stock options.
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
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<CAPTION>
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Six Months Ended
-----------------------------------------
September 29, October 1,
1996 1995
Operating activities:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors............................ $ 47,492,581 $ 49,631,790
Interest received....................................... 2,452,916 3,708,139
Cash paid for land acquisitions and real estate
development............................................ ( 30,123,988) ( 33,974,546)
Cash paid to suppliers, employees and sales
representatives........................................ ( 24,986,337) ( 23,635,752)
Interest paid, net of capitalized interest.............. ( 2,191,288) ( 3,927,346)
Income taxes paid, net of refunds ...................... ( 2,257,670) ( 1,636,662)
Proceeds from borrowings collateralized by notes
receivable............................................. 7,263,913 9,550,943
Payments on borrowings collateralized by notes
receivable............................................. ( 9,148,205) ( 17,556,417)
Net proceeds from REMIC transaction..................... 11,783,001 28,688,041
Cash received from investment in securities............ 577,933 68,912
Net cash provided by operating activities.................. 862,856 10,917,102
Investing activities:
Net cash flow from purchases and sales of
property and equipment................................. ( 189,021) ( 416,526)
Additions to other long-term assets..................... ( 120,623) ( 77,000)
Net cash flow used by investing activities................. ( 309,644) ( 493,526)
Financing activities:
Borrowings under line-of-credit facilities.............. 3,986,568 4,210,000
Payments under line-of-credit facilities................ ( 2,184,689) ( 1,111,898)
Borrowings under secured credit facility................ 3,800,000 ---
Payments on other long-term debt........................ ( 3,832,118) ( 7,083,934)
Acquisition of treasury stock........................... ( 754,005) ---
Proceeds from exercise of employee stock options........ 77,146 129,652
Net cash flow provided (used) by financing activities...... 1,092,902 ( 3,856,180)
Net increase in cash and cash equivalents.................. 1,646,114 6,567,396
Cash and cash equivalents at beginning of period........... 11,389,141 7,588,475
Cash and cash equivalents at end of period................. 13,035,255 14,155,871
Restricted cash and cash equivalents at end of period...... ( 8,794,095) ( 8,558,910)
Unrestricted cash and cash equivalents at end of period.... $ 4,241,160 $ 5,596,961
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(unaudited) (continued)
<TABLE>
<CAPTION>
<S>
<C> <C>
Six Months Ended
----------------------------------
September 29, October 1,
1996 1995
Reconciliation of net income (loss) to net cash flow provided by operating
activities:
Net income (loss)............................................. $ (3,547,809) $ 3,906,366
Adjustments to reconcile net income (loss) to net
cash flow provided (used) by operating activities:
Depreciation and amortization............................. 535,809 863,007
Loss on REMIC transaction................................. 39,202 (1,119,572)
(Gain)/loss on sale of property and equipment............. ( 57,168) 4,694
Provisions for losses..................................... 8,748,868 379,942
Interest accretion on investment in securities............ ( 486,643) ( 755,601)
Proceeds from borrowings collateralized
by notes receivable net of principal
( 1,884,292) (8,005,474)
repayments........................................................
Provision (benefit) for deferred income taxes............. ( 2,518,776) 2,669,744
(Increase) decrease in operating assets:
Contracts receivable........................................ 3,588,750 (1,981,989)
Investment in securities.................................... 577,933 9,361,947
Inventory................................................... ( 2,836,980) (4,720,300)
Other assets................................................ 509,340 559,711
Notes receivable............................................ ( 343,324) 12,980,317
Increase (decrease) in operating liabilities:
Accounts payable, accrued liabilities and other............. ( 1,462,054) (3,225,690)
Net cash flow provided by operating activities.................... $ 862,856 $ 10,917,102
Supplemental schedule of non-cash operating
and financing activities
Inventory acquired through financing........................ $ 10,630,449 $ 6,100,238
Inventory acquired through foreclosure or
deedback in lieu of foreclosure............................ $ 1,139,438 $ 873,198
Investment in securities retained in $ 1,315,153 $ 2,044,029
connection with REMIC transactions........................
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BLUEGREEN CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
1. Results of Operations
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The financial information furnished herein reflects all adjustments consisting
of normal recurring accruals which, in the opinion of management, are necessary
for a fair presentation of the results for the interim period. The six months
ended September 29, 1996 also includes provisions for the write-down of certain
inventories to reflect fair value, less costs to dispose, totaling $8.2 million
and an additional $548,000 in provisions for loan losses and related advanced
real estate taxes and legal fees on delinquent loans. See Note 5. The results of
operations for the six month period ended September 29, 1996 are not necessarily
indicative of the results to be expected for the entire year. For further
information, refer to the Consolidated Financial Statements and Notes thereto
included in the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1996.
Organization
Bluegreen Corporation (the "Company") is a national leisure product company
currently operating in twenty-one states. The Company's primary business is (i)
the acquisition, development and sale of recreational and residential land and
(ii) the acquisition and development of timeshare properties which are sold in
weekly intervals. The Company offers financing to its land and timeshare
purchasers.
Land and timeshare products are typically located in scenic areas or popular
vacation destinations throughout the United States. The Company's products are
primarily sold to middle-class individuals with ages ranging from forty to
fifty-five.
Principles of Consolidation
The financial statements include the accounts of Bluegreen Corporation and all
wholly owned subsidiaries. All significant intercompany transactions are
eliminated.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Contracts Receivable and Revenue Recognition
The Company's leisure products business is currently operated through three
divisions. The Land Division acquires large acreage tracts of real estate which
are subdivided, improved and sold, typically on a retail basis. The Resorts
Division acquires and develops timeshare property to be sold in vacation
ownership intervals. Vacation ownership is a concept whereby fixed week
intervals or undivided fee simple interests are sold in fully-furnished vacation
units. The Communities Division is engaged in the development and sale of
primary residential homes at selected sites together with land parcels. Revenue
recognition for each of the Company's operating divisions is discussed below.
<PAGE>
The Company recognizes revenue on retail land sales when a minimum of 10% of the
sales price has been received in cash, collectibility of the receivable
representing the remainder of the sales price is reasonably assured and the
Company has completed substantially all of its obligations with respect to any
development related to the real estate sold. In cases where all development has
not been completed, the Company recognizes revenue on retail land sales in
accordance with the percentage of completion method of accounting.
Other land sales include large-acreage bulk transactions as well as land sales
to investors and developers. The Company recognizes revenue on such other land
sales when the buyer's initial and continuing investment are adequate to
demonstrate a commitment to pay for the property, which requires a minimum of
20% of the sales price to be received in cash, the collectibility of the
receivable representing the remainder of the sales price is reasonably assured
and the Company has completed substantially all of its obligations with respect
to any development related to the real estate sold. In cases where all
development has not been completed, the Company recognizes revenue on other land
sales in accordance with the percentage of completion method of accounting.
With respect to its Resorts Division sales, the Company recognizes revenue when
a minimum of 10% of the sales price has been received in cash, collectibility of
the receivable representing the remainder of the sales price is reasonably
assured and the Company has completed substantially all of its obligations with
respect to any development related to the unit sold. In cases where all
development has not been completed, the Company recognizes revenue on timeshare
sales in accordance with the percentage of completion method of accounting.
The excess of sales price on land and resort interval sales over legally binding
deposits received is recorded as contracts receivable. Contracts receivable are
converted into cash and/or notes receivable, generally within sixty days.
Contracts which cancel during the rescission period are excluded from sales of
real estate. All related costs are recorded prior to, or at the time, a sale is
recorded.
The Company recognizes revenue on Communities Division sales when the unit is
complete and title is transferred to the buyer.
See also "Management's Discussion and Analysis - Results of Operations".
3. Contingent Liabilities
In the ordinary course of business, the Company has completed various whole loan
sales of its mortgage notes receivables (which arose from land sales) to banks
and financial institutions to supplement its liquidity. At September 29, 1996,
the Company was contingently liable for the outstanding principal balance of
notes receivable previously sold aggregating approximately $1.0 million. As of
such date, delinquency on these loans was not material. In most cases, the
recourse from the purchaser of the loans to the Company terminates when a
customer achieves 30% equity in the property underlying the loan. Equity is
defined as the difference between the purchase price of the property paid by the
customer and the current outstanding balance of the related loan.
4. Provision for Losses
Provisions for losses on real estate are charged to operations when it is
determined that the investment in such assets is impaired in management's best
judgment. Management considers various factors, including recent selling prices
of comparable parcels, recent offering prices from potential purchasers, overall
market and economic conditions and the estimated cost of disposing of such
property. The Company recorded provisions for losses totaling $8.7 million and
$380,000 for the six months ended September 29, 1996 and October 1, 1995,
respectively. See Note 5 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", included under Part I, Item 2 herein, for
a further discussion of the provisions for losses.
<PAGE>
5. Inventory
The Company's inventory holdings are summarized below by division.
September 29, 1996 March 31, 1996
Land Division............................... $ 51,620,483 $ 43,388,699
Communities Division........................ 8,898,680 14,177,111
Resorts Division............................ 19,633,799 16,029,204
$80,152,962 $ 73,595,014
Real estate inventory acquired for sale is carried at the lower of cost,
including costs of improvements and amenities incurred subsequent to
acquisition, or estimated fair value net of costs to dispose. In cases of
default by a customer on a land mortgage note, the Company may forgive the
unpaid balance in exchange for title to the parcel securing such note. Land
reacquired through foreclosure or deedback in lieu of foreclosure is recorded at
the lower of the unpaid balance of the loan or fair value of the underlying real
estate collateral net of costs to dispose. Timeshare loans represent contracts
for deed. Accordingly, no foreclosure process is required. Following a default
on a timeshare note, the purchaser ceases to have any right to use the
applicable unit and the timeshare interval can be resold to a new purchaser. If
a timeshare default occurs within the same fiscal year as the sale occurred, all
applicable entries from the sale are reversed. If the default occurs in a fiscal
year later than the sale, the interval is carried at the lower of original cost,
including improvements and amenities, or estimated fair value net of costs to
dispose. The difference between the unpaid balance of the timeshare loan and the
carrying value is charged to the reserve for loan losses.
During the first quarter of fiscal 1997, management changed its focus for
marketing certain of its inventories. In conjunction with (i) a comprehensive
internal review of inventories, (ii) an analysis of changing market and economic
conditions and other factors affecting the salability and estimated fair value
of such assets and (iii) certain personnel and administrative changes,
management implemented a plan to accelerate the sale of certain inventories
managed under the Communities Division and Land Division. These inventories are
intended to be liquidated through a combination of bulk sales and retail sales
at reduced prices. As a result, management determined that inventories with a
carrying value of $23.2 million should be written-down by $8.2 million to
reflect the estimated fair value, net of costs to sell. The $8.2 million in
provisions recorded during the first fiscal quarter included $4.8 million for
certain Communities Division inventories and $3.4 million for certain Land
Division inventories. Although no assurances can be given, the inventories
subject to write-down are expected to be fully liquidated within the next 12 to
24 months.
See "Management's Discussion and Analysis of Financial Condition - Uses of
Capital and Result of Operations", included under Part I, Item 2 herein, for a
further discussion of the Company's inventories.
6. Real Estate Mortgage Investment Conduit (REMIC) Transaction
On May 15, 1996, the Company sold approximately $13.2 million aggregate
principal amount of its mortgage notes receivable to a limited purpose
subsidiary which then sold the notes receivable to a REMIC trust (the "1996
REMIC Trust"), resulting in aggregate proceeds to the Company of $11.8 million.
The 1996 REMIC Trust issued three classes of REMIC certificates representing
ownership interest in the pool of notes comprising such trust. Collections of
principal and interest on the notes in the 1996 REMIC Trust, net of certain
servicing and trustee fees, are remitted to certificateholders on a monthly
basis based on an established order of priority. In connection with the 1996
REMIC transaction, the Company retained certain subordinated classes of
certificates. A portion of the proceeds from the transaction was used to repay
approximately $5.6 million of outstanding debt. An additional $263,000 was used
to fund a cash reserve account. The balance of the proceeds, after payment of
issuance expenses, resulted in an increase to the Company's unrestricted cash of
approximately $5.8 million.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company desires to take advantage of the new "safe harbor" provisions of the
Private Securities Reform Act of 1995 (the "Act") and is making the following
statements pursuant to the Act in order to do so. The Act only became law in
late December, 1995 and, except for the Conference Report, no official
interpretations of the Act's provisions have been published. This report
contains forward-looking statements that involve a number of risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
a) Changes in national or regional economic conditions that can affect the
real estate market, which is cyclical in nature and highly sensitive to
such changes, including, among other factors, levels of employment and
discretionary disposable income, consumer confidence, available financing
and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in any federal, state or local environmental, zoning or other
laws and regulations that govern the acquisition, subdivision and sale of
real estate and various aspects of the Company's financing operation.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions) or risks associated
with locating suitable inventory for acquisition.
d) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law.
e) A decreased willingness on the part of banks to extend direct customer lot
financing, which could result in the Company receiving less cash in
connection with the sales of real estate.
f) The inability of the Company to find external sources of liquidity on
favorable terms to support its operations and satisfy its debt and other
obligations.
g) An increase in delinquency rates or defaults with respect to
Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure.
h) Costs to develop inventory for sale exceed those anticipated.
Liquidity and Capital Resources
Sources of Capital. The Company's capital resources are provided from both
internal and external sources. The Company's primary capital resources from
internal operations include (i) downpayments on real estate sales which are
financed, (ii) cash sales of real estate, (iii) principal and interest payments
on the purchase money mortgage loans arising from land sales and contracts for
deed arising from sales of timeshare intervals (collectively "Receivables") and
(iv) proceeds from the sale of, or borrowings collateralized by, Receivables.
Historically, external sources of liquidity have included borrowings under
secured and unsecured lines-of-credit, seller and bank financing of inventory
acquisitions and the issuance of debt and equity securities. Currently, the
primary external sources of liquidity include seller and bank financing of
inventory acquisitions and development, along with borrowings under secured
lines-of-credit. The Company anticipates that it will continue to require
external sources of liquidity to support its operations and satisfy its debt and
other obligations.
Net cash provided by the Company's operations was $863,000 and $10.9 million for
the six months ended September 29, 1996 and October 1, 1995, respectively. The
reduction in cash flow from operations was attributable to (i) a reduction of
$2.1 million in cash received from customers on real estate sales, (ii) a
reduction in cash received from the sale or collateralization of Receivables,
net of repayments on collateralized Receivables, totaling $10.8 million and
(iii) an increase in cash paid to suppliers and employees totaling $1.4 million.
These three elements were partially offset by a reduction in cash paid for land
acquisitions and real estate development in the amount of $3.8 million.
<PAGE>
During the six months ended September 29, 1996 and the six months ended October
1, 1995, the Company received in cash $40.2 million or 69% and $44.3 million or
79%, respectively, of its sales of real estate that closed during these periods.
The decrease in the percentage of cash received from the six months ended
October 1, 1995 to the six months ended September 29, 1996 is primarily
attributable to an increase in timeshare sales over the same period;
approximately 85% of the principal balance of such sales has historically been
internally financed by the Company. Timeshare sales accounted for 23% of
consolidated sales of real estate during the six months ended September 29,
1996, compared to 9% of consolidated sales during the six months ended October
1, 1995. Management expects the percentage of sales received in cash to decrease
during the remainder of fiscal 1997 due to anticipated increases in timeshare
sales as a percentage of consolidated sales.
Receivables arising from land and timeshare real estate sales generally are
pledged to institutional lenders or sold in connection with private placement
REMIC financings. The Company typically pledges its Receivables as a temporary
source of financing until it has originated a sufficient quantity of Receivables
to make it cost effective to sell them through a private placement REMIC
financing. REMICs are considered the Company's permanent Receivables financing.
The Company currently is advanced 90% of the face amount of the eligible notes
when pledged to lenders. The Company classifies the indebtedness secured by
Receivables as receivable-backed notes payable on the Consolidated Balance
Sheet. When the Company sells its Receivables through private placement REMIC
transactions, it typically retains only subordinated securities which are
classified under investment in securities on the Consolidated Balance Sheet. See
further discussion of REMIC transactions under "Sources of Capital" later
herein. During the six months ended September 29, 1996 and the six months ended
October 1, 1995, the Company borrowed $7.3 million and $9.6 million,
respectively, through the pledge of Receivables. During the six months ended
September 29, 1996 and October 1, 1995, the Company raised an additional $11.8
million and $28.7 million, respectively (net of transaction costs and prior to
the retirement of debt), from sales of Receivables under private placement REMIC
transactions. The discussion below provides additional information with respect
to credit facilities secured by Receivables and the sale of Receivables through
private placement transactions.
The Company has a revolving credit facility of $20.0 million with a financial
institution secured by land inventory and land Receivables. The interest rate
charged on borrowings secured by such inventory and Receivables is prime plus
2.75% and prime plus 2.0%, respectively. At September 29, 1996, the outstanding
principal balance under the facility was $6.6 million, comprised of $1.6 million
secured by inventory and $5.0 million secured by Receivables. An additional $5.2
million was borrowed in October, 1996 and is secured by a land property in
Texas. The Company repays loans made under the inventory portion of the facility
through lot release payments as the collateral is sold. In addition, the Company
is required to meet certain minimum debt amortization on the outstanding
inventory secured debt. The indebtedness secured by land inventory, (including
the amount borrowed in October, 1996) has maturities that range from December,
1996 to October, 1999. All principal and interest payments received from the
pledged Receivables are applied to the principal and interest due under the
Receivables portion of this facility. Furthermore, at no time may Receivable
related indebtedness exceed 90% of the face amount of eligible pledged
Receivables. The Company is obligated to pledge additional Receivables or make
additional principal payments on the Receivable related indebtedness in order to
maintain this collateralization rate. Repurchases and additional principal
payments have not been material to date. The indebtedness secured by Receivables
matures ten years from the date of the last advance. The ability to receive
advances under the facility expired in October, 1996 and the Company is
currently engaged in discussions with the lender about the renewal of the
facility. No assurances can be given that the facility will be renewed on terms
satisfactory to the Company, if at all.
The Company also has a $20.0 million credit facility with this same lender which
provides for acquisition, development, construction and Receivables financing
for the first and second phases of a multi-phase timeshare project in
Gatlinburg, Tennessee. The interest rate charged on borrowings secured by
inventory and timeshare Receivables is prime plus 2.0%. At September 29, 1996,
the outstanding principal balance under the facility was $8.0 million, comprised
of $600,000 secured by inventory and $7.4 million secured by Receivables. The
<PAGE>
Company is required to repay the portion of the loan secured by inventory
through two equal annual installments of $300,000 each in December, 1996 and
December, 1997. All principal and interest payments received from the pledged
Receivables are applied to the principal and interest due under the Receivables
portion of this facility. Furthermore, at no time may the Receivable related
indebtedness exceed 90% of the face amount of pledged Receivables. The Company
is obligated to pledge additional Receivables or make additional principal
payments on the Receivable related indebtedness in order to maintain this
collateralization rate. Repurchases and additional principal payments have not
been material to date. The indebtedness secured by Receivables matures seven
years from the date of the last advance. The ability to borrow under the
facility expires in November, 1998.
The Company has another credit facility with this same lender which provides for
acquisition, development, construction and Receivables financing on a second
timeshare resort located in Pigeon Forge, Tennessee in the amount of $6.2
million. The interest rate charged on borrowings secured by inventory and
timeshare Receivables is prime plus 2.0%. At September 29, 1996, the outstanding
principal balance under the facility was $2.7 million, comprised of $810,000
secured by inventory and $1.9 million secured by Receivables. The Company is
required to repay the portion of the loan secured by inventory through annual
principal payments of $400,000 in July, 1997 and $410,000 in July, 1998. All
principal and interest payments received from the pledged Receivables are
applied to the principal and interest due under the Receivables portion of this
facility. Furthermore, at no time may Receivable related indebtedness exceed 90%
of the face amount of pledged Receivables. The Company is obligated to pledge
additional Receivables or make additional principal payments on the Receivable
related indebtedness in order to maintain this collateralization rate.
Repurchases and additional principal payments have not been material to date.
The indebtedness secured by Receivables matures seven years from the date of the
last advance. The ability to borrow under the facility expires in July, 1998.
The Company has a $13.5 million secured line-of-credit with a South Carolina
financial institution for the construction and development of Phase I of its
Myrtle Beach timeshare resort. The Myrtle Beach oceanfront property was acquired
during the second quarter of fiscal 1996, and Phase I represents an oceanfront
building planned to include 114 residential units. The interest rate charged
under the facility is prime plus .5%. At September 29, 1996, there was $3.5
million outstanding under the facility. The indebtedness is due in May, 1997.
The Company also has a $23.5 million line-of-credit with a financial
institution. The credit line provides for "take-out" of the construction lender
discussed in the preceding paragraph in the amount of $13.5 million which is
expected to occur in March, 1997 as well as $10.0 million for the pledge of
Myrtle Beach timeshare Receivables. The interest rate charged under the
line-of-credit is the three-month London Interbank Offered Rate ("LIBOR") plus
4.25%. At September 29, 1996, the outstanding principal balance under the
facility was $721,000 secured by Receivables. All principal and interest
payments received from the pledged Receivables are applied to the principal and
interest due under the Receivables portion of this facility.
The Company has a $15.0 million revolving credit facility with another financial
institution secured by land Receivables and land inventory. The Company uses the
facility as a temporary warehouse for the pledge of receivables until it
accumulates sufficient quantity of Receivables to sell under private placement
REMIC transactions. Under the terms of this facility, the Company is entitled to
advances secured by Receivables equal to 90% of the outstanding principal
balance of eligible pledged Receivables and advances of up to $5.0 million
secured by land inventory to finance real estate acquisition and development
costs. The interest rate charged on borrowings secured by Receivables and
inventory is prime plus 2.0%. At September 29, 1996, the outstanding principal
balance under the facility was $3.5 million, comprised of $669,000 secured by
inventory and $2.8 million secured by Receivables. The Company is required to
pay the financial institution 55% of the contract price of land sales associated
with pledged inventory when any such inventory is sold until the land
indebtedness is paid in full. All principal and interest payments received on
pledged Receivables are applied to principal and interest due under the
Receivables portion of this facility. The facility expires in October, 1998.
In addition to the land and resorts financing described above, the Company has
outstanding indebtedness under a line-of-credit secured by a Florida project
managed under the Communities Division. At September 29, 1996, the aggregate
outstanding indebtedness under the facility totaled $956,000. The indebtedness
matures in May, 1998. The ability to borrow under the credit agreement has
<PAGE>
expired and the Company does not intend to renew the facility. Along with
inventory and Receivables financing under credit arrangements described above,
the Company regularly seeks term financing for the acquisition of its real
estate from sellers, banks or similar financial institutions. Accordingly, the
aggregate amount of inventory acquisition and development costs obtained through
term financing and lines-of-credit during the six months ended September 29,
1996 and the six months ended October 1, 1995 totaled $18.4 million or 38% of
the total acquisition and development requirements and $10.3 million or 23% of
the total acquisition and development requirements, respectively. The increase
in the percentage of acquisition and development costs financed during the
current six month period reflects an increased willingness on the part of
sellers of inventory to accept financing along with increased confidence on the
part of banks and financial institutions to lend against real estate.
The table set forth below summarizes the credit facilities discussed earlier as
well as other notes payable.
Lines-of-Credit Receivable-
and Notes Backed
Payable Notes Payable Total
Description of Credit Arrangement
$20.0 million revolving credit
facility..................... $ 1,616,699 $ 4,992,869 $6,609,568
20.0 million credit
facility..................... 600,000 7,424,607 8,024,607
$6.2 million credit
facility...................... 810,000 1,918,191 2,728,191
$13.5 million credit
facility...................... 3,545,055 --- 3,545,055
$23.5 million credit
facility...................... --- 721,410 721,410
$15.0 million revolving credit
facility...................... 668,863 2,782,096 3,450,959
$1.0 million credit
facility...................... 955,507 --- 955,507
Term indebtedness secured by fixed
assets........................ 1,266,649 --- 1,266,649
Term indebtedness secured by
land inventory................ 20,465,208 --- 20,465,208
Total......................... $29,927,981 $17,839,173 $47,767,154
See "Uses of Capital" and "Results of Operations" below for a further discussion
of the Company's Land, Resorts and Communities Divisions.
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including, without limitation, the following
financial covenants:
I. Maintain net worth of at least $42.0 million.
II. Maintain a leverage ratio of not more than 4.0 to 1.0. The
leverage ratio is defined as consolidated indebtedness of the
Company divided by consolidated net worth.
III. Maintain an adjusted leverage ratio of not more than 2.0 to 1.0.
The adjusted leverage ratio is defined as consolidated
indebtedness of the Company excluding the convertible
subordinated debentures divided by consolidated net worth
including the convertible subordinated debentures.
IV. Limit selling, general and administrative expenses to 50% of
gross sales revenue from sales of real estate.
The Company was in compliance with each of such covenants at September 29, 1996
and for each reporting period during the prior fiscal year.
In recent years, private placement REMIC financings have provided substantial
capital resources to the Company. In these transactions, (i) the Company sells
or otherwise absolutely transfers a pool of mortgage loans to a newly-formed
special purpose subsidiary, (ii) the subsidiary sells the mortgage loans to a
trust in exchange for certificates representing the entire beneficial ownership
in the trust and (iii) the subsidiary sells one or more senior classes of the
certificates to an institutional investor in a private placement and retains the
<PAGE>
remaining certificates, which remaining certificates are subordinated to the
senior classes. The certificates are not registered under the Securities Act of
1933, as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from registrations. The certificates are
issued pursuant to a pooling and servicing agreement (the "Pooling Agreement").
Collections on the mortgage pool, net of certain servicing and trustee fees, are
remitted to the certificateholders on a monthly basis in the order of priority
specified in the applicable Pooling Agreement. The Company acts as servicer
under the Pooling Agreement and is paid an annualized servicing fee of .5% of
the scheduled principal balance of those rates in the mortgage pool on which the
periodic payment of principal and interest is collected in full. Under the terms
of the Pooling Agreement, the Company has the obligation to repurchase or
replace mortgage loans in the pool with respect to which there was a breach of
the Company's representations and warranties contained in the Pooling Agreement
at the date of sale, which breach materially and adversely affects the rights of
certificateholders. In addition, the Company, as servicer, is required to make
advances of delinquent payments to the extent deemed recoverable. However, the
certificates are not obligations of the Company, the subsidiary or any of their
affiliates and the Company has no obligation to repurchase or replace the
mortgage loans solely due to delinquency.
On May 15, 1996, the Company sold, or otherwise absolutely transferred and
assigned, $13.2 million aggregate principal amount of mortgage notes receivable
(the "1996 Mortgage Pool") to a subsidiary of the Company and the subsidiary
sold the 1996 Mortgage Pool to a REMIC Trust (the "1996 REMIC Trust").
Simultaneous with the sale, the 1996 REMIC Trust issued three classes of Fixed
Rate REMIC Mortgage Pass-Through Certificates.
The 1996 REMIC Trust was comprised primarily of a pool of fixed and adjustable
rate first mortgage loans secured by property sold by the Company. On May 15,
1996, the subsidiary sold the Class A Certificates issued under the Pooling
Agreement to an institutional investor for aggregate proceeds of approximately
$11.8 million in a private placement transaction and retained the Class B and
Class R Certificates. A portion of the proceeds from the transaction was used to
repay approximately $5.6 million of outstanding debt. An additional $263,000 was
used to fund a cash reserve account. The balance of the proceeds, after payment
of transaction expenses and fees, resulted in an increase of $5.8 million in the
Company's unrestricted cash.
In addition to the sources of capital available under credit facilities
discussed above, the balance of the Company's unrestricted cash and cash
equivalents was $4.2 million at September 29, 1996. Based upon existing credit
relationships, the current financial condition of the Company and its operating
plan, management believes the Company has, or can obtain, adequate financial
resources to satisfy its anticipated capital requirements.
Uses of Capital. The Company's capital resources are used to support the
Company's operations, including (i) acquiring and developing inventory, (ii)
providing financing for customer purchases, (iii) meeting operating expenses and
(iv) satisfying the Company's debt obligations.
The Company's net inventory was $80.2 million at September 29, 1996 and $73.6
million at March 31, 1996. Management recognizes the inherent risk of carrying
increased levels of inventory. In addition, during the first quarter of fiscal
1997, management changed its focus for marketing certain of its inventories. In
conjunction with (i) a comprehensive internal review of inventories, (ii) an
analysis of changing market and economic conditions and other factors affecting
the salability and estimated fair value of such assets and (iii) certain
personnel and administrative changes, management implemented a plan to
accelerate the sale of certain inventories managed under the Communities
Division and Land Division. These inventories are intended to be liquidated
through a combination of bulk sales and retail sales at reduced prices. As a
result, management determined that inventories with a carrying value of $23.2
million should be written-down by $8.2 million to reflect the estimated fair
value, net of costs to sell. The $8.2 million in provisions for the six months
ended September 29, 1996 includes $4.8 million for certain Communities Division
inventories and $3.4 million for certain Land Division inventories. Although no
assurances can be given, the inventories subject to write-down are expected to
be fully liquidated within the next 12 to 24 months. See "Results of
Operations".
With respect to its inventory holdings, the Company requires capital to (i)
improve land intended for recreational, vacation, retirement or primary homesite
use by purchasers, (ii) develop timeshare property and (iii) fund its housing
operation in certain locations.
<PAGE>
The Company estimates that the total cash required to complete preparation for
the retail sale of the consolidated inventories owned as of September 29, 1996
is approximately $120.2 million, exclusive of the cost of any
manufactured/modular homes not yet acquired or under contract for sale, which
the Company is unable to determine at this time. The Company anticipates
spending an estimated $44.5 million of the capital development requirements
during the remainder of fiscal 1997. The allocation of anticipated cash
requirements to the Company's operating divisions is discussed below.
Land Division: The Company expects to spend $57.4 million to improve land which
typically includes expenditures for road and utility construction, surveys and
engineering fees, including $13.6 million to be spent during the remainder of
fiscal 1997.
Resorts Division: The Company expects to spend $61.7 million for building
materials, amenities and other infrastructure costs such as road and utility
construction, surveys and engineering fees, including $29.8 million to be spent
during the remainder of fiscal 1997. See earlier discussion of lines-of-credit
for the financing of Resorts Division property under "Sources of Capital".
Communities Division: The Company expects to spend $1.1 million for the purchase
of factory built manufactured homes currently under contract for sale, building
materials and other infrastructure costs, including road and utility
construction, surveys and engineering fees. The Company attempts to pre-qualify
prospective home purchasers and secure a purchase contract prior to commencing
unit construction to reduce standing inventory risk. The total cash requirement
of $1.1 million is expected to be spent during the remainder of fiscal 1997.
The table to follow outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of September 29,
1996. The real estate market is cyclical in nature and highly sensitive to
changes in national and regional economic conditions, including, among other
factors, levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates. No assurances can be given
that actual costs will not exceed those reflected in the table or that
historical gross margins which the Company has experienced will not decline in
the future as a result of changing market and economic conditions, reduced
consumer demand or other factors.
Geographic Region Land Resorts Communities Total
Southwest....................$ 29,808,367 $ --- $ --- $ 29,808,367
Rocky Mountains ............. 1,130,897 --- --- 1,130,897
West......................... 5,111,457 --- --- 5,111,457
Midwest...................... 247,029 39,989,277 --- 40,236,306
Southeast.................... 20,242,748 21,736,417 1,118,085 43,097,250
Northeast.................... 37,065 --- --- 37,065
Mid-Atlantic................. 792,409 --- --- 792,409
Total estimated spending..... 57,369,972 61,725,694 1,118,085 120,213,751
Net inventory at
September 29, 1996......... 51,620,483 19,633,799 8,898,680 80,152,962
Total estimated cost basis
of fully developed
inventory..................$108,990,455 $81,359,493 $10,016,765 200,366,713
<PAGE>
The Company's net inventory summarized by division as of September 29, 1996 and
March 31, 1996 is set forth below.
September 29, 1996
Geographic Region Land Resorts Communities Total
Southwest............ $24,382,639 $ --- $ --- $24,382,639
Rocky Mountains ..... 10,016,139 --- --- 10,016,139
West ................ 6,289,042 --- --- 6,289,042
Midwest.............. 4,654,383 11,977,175 --- 16,631,558
Southeast............ 4,679,460 7,656,624 8,898,680 21,234,764
Northeast............ 632,268 --- --- 632,268
Mid-Atlantic......... 930,765 --- --- 930,765
Canada............... 35,787 --- --- 35,787
Totals............... 51,620,483 $19,633,799 $8,898,680 $80,152,962
March 31, 1996
Geographic Region Land Resorts Communities Total
Southwest............ $15,118,191 $ --- $ 142,790 $15,260,981
Rocky Mountains ..... 9,299,344 --- 50,800 9,350,144
West ................ 5,923,972 --- --- 5,923,972
Midwest.............. 6,293,008 10,839,389 --- 17,132,397
Southeast............ 2,252,239 5,189,815 13,983,521 21,425,575
Northeast............ 1,982,895 --- --- 1,982,895
Mid-Atlantic......... 2,490,025 --- --- 2,490,025
Canada............... 29,025 --- --- 29,025
Totals............... $43,388,699 $16,029,204 $14,177,111 $73,595,014
The Company attempts to maintain inventory at a level adequate to support
anticipated sales of real estate in its various operating regions. Significant
changes in the composition of the Company's inventories as of September 29, 1996
are discussed below.
The Company's aggregate Land Division inventory increased by $8.2 million from
March 31, 1996 to September 29, 1996. The increase in land holdings is primarily
attributable to certain large acquisitions in the Southwestern, Southeastern and
Rocky Mountain regions of the country, partially offset by provisions for the
write-down of certain inventories totaling $3.4 million and sales activity. See
Note 5 under Item I, Part 1 and "Management's Discussion and Analysis - Results
of Operations". In the Southwest, the Company acquired two Texas properties
which include 3,600 acres purchased in June, 1996 for $6.5 million and an
additional 1,474 acres purchased in July, 1996 for $2.9 million. In the
Southeast, the Company acquired 1,098 acres located in North Carolina for $2.7
million. These three projects are intended to be used as primary and secondary
homesites and, although no assurances can be given, the term to sell-out is
estimated to be five years. The Company also acquired 4,450 acres in the Rocky
Mountain region for $1.4 million in May, 1996 and an additional 2,690 acres for
$1.1 million in August, 1996. These five acquisitions were partially offset by
sales activity, including a large acreage bulk sale in the Rocky Mountain region
for $705,000 which represented approximately 2,600 acres with a carrying value
of $421,000. Although no assurances can be given, management expects that the
carrying value of its land holdings in the Southwest, Rocky Mountains, West,
Midwest and Southeast will remain relatively constant during fiscal 1997. At the
same time, the Company plans to continue to reduce its land holdings in the
Northeastern and certain parts of the Mid-Atlantic regions due to continued
overall soft economic and real estate market conditions.
The Company's aggregate resort inventory increased by $3.6 million. The increase
is attributable to additional infrastructure development at each of the
<PAGE>
Company's two Tennessee resorts and the Myrtle Beach, South Carolina resort,
partially offset by sales activity at the projects. Resorts Division inventory
as of September 29, 1996 consisted of land inventory of $5.6 million and unit
construction-in-progress and other amenities of $14.0 million. Resorts Division
inventory as of March 31, 1996 consisted of land inventory of $6.1 million and
unit construction-in-progress and other amenities of $9.9 million.
The Company's aggregate communities inventory decreased by $5.3 million from
March 31, 1996 to September 29, 1996. The decrease in land inventory which
resulted from sales activity and $4.8 million in provisions for losses was
partially offset by additional housing unit construction-in-progress associated
with the Company's manufactured and modular home developments in North Carolina.
As previously disclosed, the Company does not intend to acquire any additional
communities related inventories and present operations will be terminated
through a combination of retail sales efforts and the bulk sale of the remaining
assets. Communities Division inventory as of September 29, 1996, consisted of
land inventory of $5.0 million and $3.9 of housing unit
construction-in-progress. Communities Division inventory as of March 31, 1996,
consisted of land inventory of $10.5 million and $3.7 of housing unit
construction-in-progress.
The Company offers financing of up to 90% of the purchase price of land sold to
purchasers of its properties who qualify for such financing. The Company also
offers financing of up to 90% of the purchase price to timeshare purchasers.
During the six months ended September 29, 1996 and the six months ended October
1, 1995, the Company received 31% and 21%, respectively, of its consolidated
sales of real estate which closed during the period in the form of Receivables.
The increase in the percentage of sales financed by the Company from the six
months ended October 1, 1995 to the six months ended September 29, 1996 is
primarily attributable to an increase in timeshare sales over the same period;
approximately 85% of timeshare sales has historically been internally financed
by the Company. Timeshare sales accounted for 23% of consolidated sales of real
estate during the six months ended September 29, 1996, compared to 9% of
consolidated sales during the six months ended October 1, 1995.
At September 29, 1996, $21.9 million of Receivables were pledged as collateral
to secure Company indebtedness, while $13.3 million of Receivables were not
pledged or encumbered. At March 31, 1996, $27.0 million of Receivables were
pledged as collateral to secure Company indebtedness while $10.9 million of
Receivables were not pledged or encumbered. Proceeds from home sales under the
Company's Communities Division are received entirely in cash. The table below
provides further information on the Company's land and timeshare Receivables at
September 29, 1996 and March 31, 1996.
(Dollars in Millions)
September 29, 1996 March 31, 1996
Receivables Land Timeshare Total Land Timeshare Total
Encumbered........ $10.4 $11.5 $21.9 $ 18.4 $ 8.6 $ 27.0
Unencumbered...... 6.2 7.1 13.3 7.8 3.1 10.9
Total................$16.6 $18.6 $35.2 $ 26.2 $11.7 $ 37.9
The reduction in encumbered land Receivables from March 31, 1996 to
September 29, 1996 was primarily attributable to the repayment of
receivable-backed debt and the sale of notes pursuant to the 1996 REMIC
transaction. See "Sources of Capital".
The table below provides information with respect to the loan-to-value ratio of
land and timeshare Receivables held by the Company at September 29, 1996 and
March 31, 1996. Loan-to-value ratio is defined as unpaid balance of the loan
divided by the contract purchase price.
September 29, 1996 March 31, 1996
Receivables Land Timeshare Land Timeshare
Loan-to-Value Ratio.... 57% 78% 63% 75%
<PAGE>
Because the Company sold a substantial portion of its less seasoned land
Receivables in connection with the 1996 REMIC, the related loan-to-value ratio
was lower at September 29, 1996 than at March 31, 1996.
In cases of default by a customer on a land mortgage note, the Company may
forgive the unpaid balance in exchange for title to the parcel securing such
note. Real estate acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of fair value, less costs to dispose, or balance of the
loan. Timeshare loans represent contracts for deed. Accordingly, no foreclosure
process is required. Following a default on a timeshare note, the purchaser
ceases to have any right to use the applicable unit and the timeshare interval
can be resold to a new purchaser.
Reserve for loan losses as a percentage of period end notes receivable was 2.6%
and 2.4% at September 29, 1996 and March 31, 1996, respectively. The adequacy of
the Company's reserve for loan losses is determined by management and reviewed
on a regular basis considering, among other factors, historical frequency of
default, loss experience, present and expected economic conditions as well as
the quality of Receivables. The increase in the reserve for loan losses as a
percent of period end loans is primarily the result of a reduction in
Receivables held due to the REMIC transaction. See "Sources of Capital".
At September 29, 1996, approximately 6.5% or $2.3 million of the aggregate $36.3
million principal amount of loans which were held by the Company or by third
parties under financings for which the Company had a recourse liability, were
more than 30 days past due. Of the $36.3 million principal amount of loans,
$35.2 million were held by the Company, while approximately $1.1 million were
associated with programs under which the Company has a limited recourse
liability. In most cases of limited recourse liability, the recourse to the
Company terminates when the principal balance of the loan becomes 70% or less of
the original selling price of the property underlying the loan. At March 31,
1996, approximately 7% or $2.8 million of the aggregate $39.2 million principal
amount of loans which were held by the Company or by third parties under
financings for which the Company had a recourse liability, were more than 30
days past due. Factors contributing to delinquency (including the economy and
levels of unemployment in some geographic areas) are believed to be similar to
those experienced by other lenders. While the dollar amount of delinquency
declined slightly from March 31, 1996 to September 29, 1996, the amount of
Receivables decreased substantially. This caused an increase in the delinquency
rate as a percent of Receivables. The reduction in Receivables was the result of
the sale of notes under the 1996 REMIC. See "Sources of Capital".
In July, 1996, the Company's Board of Directors authorized the repurchase of up
to 500,000 shares of the Company's common stock in the open market from time to
time subject to the Company's financial condition and liquidity, the terms of
its credit agreements, market conditions and other factors. As of October 25,
1996, 268,300 shares had been repurchased at an aggregate cost of $861,000.
Results of Operations - For the Three and Six Month Periods.
<PAGE>
Three Months Ended - September 29, 1996
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1996. See also Note 5
under Part I, Item 1 and the discussion of provisions for losses later herein.
The real estate market is cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. Management believes that general
economic conditions have strengthened in many of its principal markets of
operation with the exception of the Northeast, and certain areas of the
Mid-Atlantic region. A downturn in the economy in general or in the market for
real estate could have a material adverse affect on the Company.
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the three months ended
September 29, 1996 and October 1, 1995.
(Dollars in Thousands)
Three Months Ended September 29, 1996
Land(3) Communities Resorts(4) Total
Sales of real estate..$17,895 100.0% $1,799 100.0% $6,757 100.0% $26,451 100.0%
Cost of real estate
sold.................. 9,376 52.4% 1,775 98.7% 2,047 30.3% 13,199 49.9%
Gross profit.......... 8,519 47.6% 24 1.3% 4,710 69.7% 13,253 50.1%
Field selling,general
and administrative
expense(1)............ 5,662 31.6% 255 14.2% 4,399 65.1% 10,316 39.0%
Field operating
profit (loss) (2)..... $2,857 16.0% $(231)(12.9)% $ 311 4.6% $ 2,937 11.1%
(Dollars in Thousands)
Three Months Ended October 1, 1995
Land(3) Communities Resorts (4) Total
Sales of real
estate............ $26,634 100.0% $3,761 100.0% $2,863 100.0% $33,258 100.0%
Cost of real estate
sold............... 13,013 48.9% 3,301 87.8% 910 31.8% 17,224 51.8%
Gross profit....... 13,621 51.1% 460 12.2% 1,953 68.2% 16,034 48.2%
Field selling,
general and
administrative
expense (1)........ 7,610 28.5% 828 22.0% 1,718 60.0% 10,156 30.5%
Field operating
profit (loss) (2).. $6,011 22.6% $ (368) (9.8)%$ 235 8.2% $5,878 17.7%
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables.
(2) The tables presented above outline selected financial data. Accordingly,
provisions for losses, interest income, interest expense, other income and
income taxes have been excluded.
<PAGE>
(3) During the prior year three month period, all land projects which had
previously been the subject of percentage of completion accounting were
substantially completed. Accordingly, $3.1 million of previously deferred
sales, or $1.5 million in operating profits, were recognized in the last
year quarter.
During the current year three month period, several land projects were the
subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$811,000 in sales, or $313,000 in operating profits, were deferred. See
also Note 2.
(4) The Resort Division had $954,000 and $1.5 million in sales which were
deferred under the percentage of completion method of accounting during the
quarter ended September 29, 1996 and October 1, 1995, respectively.
Operating profits associated with such sales totaled $317,000 and $364,000
for the quarter ended September 29, 1996 and October 1, 1995, respectively.
See also Note 2.
Consolidated sales of real estate decreased 21% to $26.5 million for the three
months ended September 29, 1996 compared to $33.3 million for the three months
ended October 1, 1995. The discussion and tables to follow set forth additional
information on the business units comprising the consolidated operating results.
See Contracts Receivable and Revenue Recognition under Note 2 to the
Consolidated Financial Statements included under Part I, Item 1.
Land Division
During the three months ended September 29, 1996 and October 1, 1995, land sales
contributed $17.9 million or 68% and $26.6 million or 80%, respectively, of the
Company's total consolidated revenues from the sale of real estate.
The following table sets forth certain information for sales of parcels
associated with the Company's Land Division for the periods indicated, before
giving effect to the percentage of completion method of accounting. Accordingly,
the calculation of multiplying the number of parcels sold by the average sales
price per parcel yields aggregate sales different than that reported on the
earlier table (outlining sales revenue by business unit after applying
percentage of completion accounting to sales transactions). See Contracts
Receivable and Revenue Recognition under Note 2 to the Consolidated Financial
Statements included under Part I, Item 1.
Three Months Ended
September 29, October 1,
1996 1995
Number of parcels sold............. 496 649
Average sales price perparcel...... $37,714 $ 36,799
Average sales price per parcel
excluding one large acreage bulk sale
in the Rocky Mountains in the
prior period........................ $37,714 $32,998
Gross margin........................ 48% 51%
The table set forth below outlines the numbers of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal periods indicated.
<PAGE>
Three Months Ended
September 29, 1996 October 1, 1995
Average Average
Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 246 $ 37,597 270 $ 38,086
Rocky Mountains. 91 $ 32,640 100 $ 65,370
Midwest........... 47 $ 30,509 93 $ 31,433
Southeast......... 50 $ 33,273 82 $ 24,202
West.............. 8 $ 133,688 --- $ ---
Northeast......... 11 $ 32,509 28 $ 17,512
Mid-Atlantic...... 43 $ 45,635 73 $ 21,698
Canada............ --- --- 3 $ 26,695
Totals............ 496 $ 37,714 649 $ 36,799
The number of parcels sold in the Southwest decreased during the current period
due to a temporary shortage of ready-to-market inventory in the San Antonio and
Houston, Texas markets. The Company recently acquired additional properties in
these locations and marketing efforts have commenced.
The number of parcels sold in the Rocky Mountains region decreased during the
current period due to slightly fewer sales from the Company's Colorado and Idaho
properties. The average sales price per parcel in the Rocky Mountains region for
the prior year was affected by a $2.5 million bulk sale constituting
approximately 8,300 acres in Colorado. The average sales price per parcel in the
prior year quarter excluding the bulk sale was $40,778. The reduction in the
average sales price from $40,778 for the quarter last year to $32,640 for the
current quarter was attributable to a greater number of smaller acreage Colorado
parcel sales which maintained lower average sales prices in the current period
versus the comparable period last year. In addition, the current inventory mix
in Colorado consists of properties with lower average retail prices.
The number of parcels sold in the Midwest decreased during the current quarter
due to a shortage of inventory in Tennessee. The Company has paid deposits to
purchase two properties in Tennessee and is engaged in its customary due
diligence procedures. No assurances can be given the two properties under
contract will be acquired.
In the Southeast, the Company sold fewer, more expensive parcels from its North
Carolina properties during the current quarterly period than in the prior year
quarter.
In the West, the Company sold eight parcels from its Arizona property. The
Company acquired the acreage outside of Prescott in fiscal 1996 and sales
commenced in the fourth fiscal quarter of last year.
The Company continues to liquidate its land inventory in the Northeast, Canada
and certain parts of the Mid-Atlantic region. Furthermore, during the current
year second quarter the Company sold a large northeastern bulk parcel for
$110,000. The Company has reduced its presence in these areas in response to
economic conditions and reduced consumer demand. See discussion of provisions
for losses later herein.
The decrease in the average gross margin for the Land Division from 51% for the
quarter last year to 48% for the current quarter was attributable to (i) a
reduction in gross margins in the Rocky Mountains region from 55% for the
quarter last year to 45% for the current quarter, (ii) a reduction in gross
margins in the Company's New Mexico property from 53% for the quarter last year
to 44% for the current quarter and (iii) an average gross margin of 37% on the
Company's western property located in Arizona. The Company has experienced
certain cost over runs on phase I of the multi-phase Arizona project. There were
4 lots remaining in phase I as of October 27, 1996. Although no assurances can
be given, the remaining phases of the project are expected to produce
significantly higher gross margins.
The Company's Investment Committee, consisting of three executive officers,
approves all property acquisitions. In order to be approved for purchase by the
Committee, all land properties under contract for purchase are expected to
achieve certain minimum economics including a minimum gross margin.
<PAGE>
The sale of certain inventory acquired prior to the formation of the Investment
Committee and sales of inventory reacquired through foreclosure or deed in lieu
of foreclosure will continue to adversely affect overall gross margins.
Specifically, the Company anticipates little or no gross margin on the sale of
the remaining $632,000 of net inventory in the Northeast. In addition, sales of
inventory which was subject to cost over-runs which includes properties located
in Arizona, Idaho, Montana and New Mexico will adversely affect overall gross
margins. No assurances can be given that the Company can maintain historical or
anticipated gross margins. In addition, during the first quarter ended June 30,
1996, the Company recorded provisions for the write-down of certain land
inventories. See Note 5 under Part I, Item 1 and discussion of provision for
losses later herein.
Resorts Division
During the three months ended September 29, 1996 and October 1, 1995, sales of
timeshare intervals contributed $6.8 million or 26% and $2.9 million or 9%,
respectively, of the Company's total consolidated revenues from the sale of real
estate.
The following table sets forth certain information for sales of intervals
associated with the Company's Resorts Division for the periods indicated, before
giving effect to the percentage of completion method of accounting. Accordingly,
the calculation of multiplying the number of intervals sold by the average sales
price per interval yields aggregate sales different than that reported on the
earlier table (outlining sales revenue by business unit after applying
percentage of completion accounting to sales transactions).
Three Months Ended
September 29, October 1,
1996 1995
Number of intervals sold.......... 928 582
Average sales price per interval.. $8,377 $6,831
Gross margin...................... 70% 68%
The number of timeshare intervals sold increased to 928 for the current quarter
compared to 582 for the comparable quarter of the previous fiscal year. During
the prior year quarter, 502 interval sales were generated from the Company's
first resort in Gatlinburg, Tennessee and 80 intervals were sold from the
Company's second resort in neighboring Pigeon Forge. During the current year
quarter, 439 intervals were sold from the Gatlinburg resort, an additional 281
intervals were sold from the Pigeon Forge resort and 208 intervals were sold
from the Company's resort in Myrtle Beach, South Carolina . Sales from the
Company's Myrtle Beach resort commenced in the fourth fiscal quarter of last
year.
Gross margins on interval sales increased from 68% for quarter last year to 70%
for the current quarter. During the current quarter, gross margins from the
Company's resorts in Gatlinburg, Pigeon Forge and Myrtle Beach were 68%, 70% and
71%, respectively. During the prior quarter, gross margins from the Company's
resorts in Gatlinburg and Pigeon Forge were 68% and 75%, respectively. Gross
margins for Pigeon Forge were adversely impacted during the current quarter by
additional development costs. The increase in the average sales price in the
current quarter is primarily attributable to an increase in retail sales prices
at the Company's Gatlinburg, Tennessee resort along with the addition of the
Myrtle Beach resort which maintains average sales prices comparable to the
Gatlinburg resort.
Communities Division
During the three months ended September 29, 1996, the Company's Communities
Division contributed $1.8 million in sales revenue, or approximately 7% of total
consolidated revenues from the sale of real estate. During the three months
ended October 1, 1995, the Communities Division generated $3.8 million in sales
revenue, or approximately 11% of total consolidated revenues from the sales of
real estate.
The following table sets forth certain information for sales associated with the
Company's Communities Division for the periods indicated.
<PAGE>
Three Months Ended
September 29, October 1,
1996 1995
Number of homes/lots sold......... 29 57
Average sales price............... $62,356 $65,965
Gross margin...................... 1% 12%
The reduction in the average sales price was primarily attributable to a greater
number of lot-only sales and a lower number of site-built homes in the current
year quarter. The $1.8 million in current quarter sales was comprised of 19
manufactured homes with an average sales price of $76,734, an additional 2
site-built homes with an average sales price of $78,500 and 8 sales of lots at
an average sales price of $24,173. The $3.8 million in prior year sales was
comprised of 32 manufactured homes with an average sales price of $73,110, an
additional 5 site-built homes with an average sales price of $205,733 and 20
sales of lots at an average sales price of $19,590. The reduction in the gross
margin and number of homes/lots sold is primarily attributable to the Company's
manufactured home developments in North Carolina. Furthermore, during the first
quarter ended June 30, 1996, the Company recorded provisions for the write-down
of certain communities related inventories. See Note 5 under Part I, Item 1 and
discussion of provision for losses later herein.
The tables set forth below outline sales by geographic region and division for
the three months ended on the dates indicated.
Three Months Ended September 29, 1996
Geographic Region Land Communities Resorts Total %
Southwest............ $8,437,857 $ 157,000 --- $ 8,594,857 30.1%
Rocky Mountains...... 2,970,283 21,000 --- 2,991,283 11.3%
Midwest.............. 1,433,900 --- 5,209,881 6,643,781 25.1%
Southeast............ 1,663,627 1,620,833 1,547,078 4,831,538 20.7%
West................. 1,069,500 --- --- 1,069,500 4.0%
Northeast............ 357,600 --- --- 357,600 1.4%
Mid-Atlantic......... 1,962,290 --- --- 1,962,290 7.4%
Canada............... --- --- --- --- ---
Totals...............$17,895,057 $1,798,833 $6,756,959 $26,450,849 100.0%
Three Months Ended October 1, 1995
Geographic Region Land Communities Resorts Total %
Southwest............$12,607,830 $ 515,165 $ --- 13,122,995 39.5%
Rcoky Mountains...... 6,533,372 182,467 --- 6,715,839 20.2%
Midwest.............. 3,028,188 --- 2,863,458 5,891,646 17.7%
Southeast............ 2,318,419 3,062,348 --- 5,380,767 16.2%
Northeast............ 490,340 --- --- 490,340 1.5%
Mid-Atlantic......... 1,576,140 --- --- 1,576,140 4.7%
Canada............... 80,086 --- --- 80,086 .2%
Totals...............$26,634,375 $3,759,980 $2,863,458 $33,257,813 100.0%
<PAGE>
As discussed earlier, during the prior year three month period, all land
projects which had previously been the subject of percentage of completion
accounting were substantially completed. Accordingly, $3.1 million of previously
deferred sales were recognized in the last year quarter.
During the current year three month period, several land projects were the
subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$811,000 in sales were deferred.
In addition to deferring sales under percentage of completion accounting in the
current period, four of the Company's North Carolina offices were adversely
affected by marketing and construction delays as a result of Hurricane Fran.
Interest income decreased 29% to $1.5 million for the three months ended
September 29, 1996 compared to $2.2 million for the three months ended October
1, 1995. The Company's interest income is earned from its Receivables,
securities retained pursuant to REMIC financings and cash and cash equivalents.
The table set forth below outlines interest income earned from assets for the
periods indicated.
Three Months Ended
September 29, October 1,
Interest income and other: 1996 1995
Receivables held and servicing fees
from whole-loan sales...................... $ 1,118,106 $ 622,430
Securities retained in connection with REMIC
financings including REMIC servicing fee... 337,758 248,288
Gain (loss) on REMIC transactions............. --- 1,119,572
Cash and cash equivalents...................... 93,906 187,005
Totals......................................... $1,549,770 $2,177,295
The table to follow sets forth the average interest bearing assets for the
periods indicated.
Three Months Ended
September 29, October 1,
Average interest bearing assets 1996 1995
Receivables ...................................... $32,592,378 $18,442,370
Securities retained in connection with REMIC
financings .................................... 11,072,837 9,479,508
Cash and cash equivalents......................... 8,673,916 14,223,559
Totals............................................ $52,339,131 $42,145,437
The Company completed a REMIC transaction in July, 1995. The $68.1 million of
loans comprising the Mortgage Pool were previously owned by the REMIC trust
established by the Company in 1992 ($46.8 million) or pledged by a receivables
subsidiary, or the Company, to an institutional lender ($21.3 million). Because
of more favorable terms offered under the 1995 REMIC, the Company retired the
securities issued pursuant to the 1992 REMIC and included substantially all of
the Receivables in the 1995 REMIC transaction. Accordingly, the average
Receivables held for the current quarter and related interest income was higher
than in the prior year quarter when Receivables were sold. However, the average
cash and cash equivalents held for the current quarter was lower than the prior
year. Last year, the Company had greater cash as a result of the proceeds from
the REMIC transaction discussed above.
S,G&A expense totaled $12.5 million and $12.2 million for the three months ended
September 29, 1996 and October 1, 1995, respectively. A significant portion of
S,G&A expenses is variable relative to sales and profitability levels, and
therefore, increases with growth in sales of real estate. As a percentage of
sales of real estate, S,G&A expenses increased from 37% for the quarter last
year to 47% for the current year quarter. The increase as a percentage of sales
was largely the result of lower aggregate land sales which produced higher S,G&A
percentages as a result of fixed costs, coupled with higher S,G&A expenses for
the Resorts Division for the current year quarter. The table to follow sets
forth comparative S,G&A expense information for the periods indicated.
<PAGE>
(Dollars in Thousands)
Three Months Ended September 29, 1996
Land Communities Resorts Total
Sales of real
estate........ $17,895 100.0% $1,799 100.0% $6,757 100.0% $26,451 100.0%
Field selling,
general and
administrative
expense (1).... 5,662 31.6% 255 14.2% 4,399 65.1% 10,316 39.0%
(Dollars in Thousands)
Three Months Ended October 1, 1995
Land Communities Resorts Total
Sales of real
estate...... $26,634 100.0% $3,761 100.0% $2,863 100.0% $33,258 100.0%
Field selling,
general and
administrative
expense (1)..... 7,610 28.5% 828 22.0% 1,718 60.0% 10,156 30.5%
(1) Corporate general and administrative expenses of $2.1 million for both the
three months ended September 29, 1996 and October 1, 1995 have been excluded
from the table.
Interest expense totaled $1.2 million and $1.9 million for the three months
ended September 29, 1996 and October 1, 1995, respectively. The 36% decrease in
interest expense for the current period was primarily attributable to an
increase in the amount of interest capitalized to inventory. The Company
capitalized interest totaling $242,000 during the three months last year,
compared to $898,000 for the three months this year. The increase in capitalized
interest is the direct result of the Company acquiring certain inventory which
requires significant development with longer sell-out periods. The favorable
impact from increased capitalized interest was offset somewhat by additional
interest expense on lines of credit and notes payable as a result of an increase
in the average outstanding indebtedness for the current quarter. The effective
cost of borrowing remained consistent at 9.5% for both the current year and
prior year quarters. The table set forth below outlines the components of
interest expense for the periods indicated.
Three Months Ended
September 29, October 1,
Interest expense on: 1996 1995
Receivable-backed notes payable................ $ 415,674 $ 479,484
Lines of credit and notes payable.............. 716,672 572,522
8.25% convertible subordinated debentures...... 716,492 716,492
Other financing costs.......................... 230,610 331,442
Capitalization of interest..................... (897,739) (242,233)
Totals......................................... $1,181,709 $1,857,707
The table to follow sets forth the average indebtedness for the periods
indicated.
Three Months Ended
September 29, October 1,
Average indebtedness 1996 1995
Receivable-backed notes payable................... $16,687,244 $18,711,571
Lines of credit and notes payable................. 30,234,814 24,132,596
8.25% convertible subordinated debentures......... 34,739,000 34,739,000
Totals............................................ $81,661,058 $77,583,167
<PAGE>
The Company recorded provisions for loan losses totaling $198,000 for the three
months ended September 29, 1996 in addition to a provision of $82,000 for real
estate taxes and other costs associated with delinquent customers. During the
three months ended October 1, 1995, the Company recorded provisions for loan
losses of $225,000. During the three months ended September 29, 1996 and October
1, 1995, the Company charged-off $178,000 and $164,000, respectively, to its
reserve for loan losses. An additional $76,000 was charged-off against the
reserve for advanced real estate taxes and other costs for the three months
ended September 29, 1996. No provision or charge-offs for advanced real estate
taxes were recorded for the three months ended October 1, 1995. The Company's
internal financing does not require customers to escrow real estate taxes.
Losses associated with this practice have not been material to date.
Income from consolidated operations was $890,000 and $3.9 million for the three
months ended September 29, 1996 and October 1, 1995, respectively. The reduction
for the current quarter was primarily the result of lower land sales.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
three months ended September 29, 1996 and October 1, 1995 was not material to
the Company's results of operations.
The Company recorded a tax provision of 41% of pre-tax income for the
quarters ended September 29, 1996 and October 1, 1995.
Net income was $576,000 and $2.1 million for the three months ended September
29, 1996 and October 1, 1995, respectively. As discussed earlier, the reduction
for the current quarter was primarily the result of lower land sales.
<PAGE>
Results of Operations.
Six months Ended - September 29, 1996
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the six months ended
September 29, 1996 and October 1, 1995.
(Dollars in Thousands)
Six months Ended September 29, 1996
Land Communities Resorts(3) Total
Sales of real
estate......... $38,453 100.0% $4,008 100.0% $12,771 100.0% $55,232 100.0%
Cost of real
estate sold.... 19,624 51.0% 3,926 98.0% 4,102 32.1% 27,652 50.1%
Gross profit... 18,829 49.0% 82 2.0% 8,669 67.9% 27,580 49.9%
Field selling,
general and
administrative
expense (1).... 12,055 31.4% 706 17.6% 8,348 65.4% 21,109 38.2%
Field operating
profit(loss)(2).$ 6,774 17.6% $ (624) (15.6)% $ 321 2.5% $ 6,471 11.7%
(Dollars in Thousands)
Six months Ended October 1, 1995
Land(3) Communities Resorts (4) Total
Sales of real
estate.......... $45,066 100.0% $7,379 100.0% $5,454 100.0% $57,899 100.0%
Cost of real
estate sold...... 21,227 47.1% 6,489 87.9% 1,699 31.2% 29,415 50.8%
Gross profit......23,839 52.9% 890 12.1% 3,755 68.8% 28,484 49.2%
Field,selling,
general and
administrative
expense (1).......13,609 30.2% 1,409 19.1% 3,449 63.2% 18,467 31.9%
Field operating
profit(loss)(2)...$10,230 22.7% $ (519) (7.0)% $ 306 5.6% $10,017 17.3%
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables.
(2) The tables presented above outline selected financial data. Accordingly,
provisions for losses, interest income, interest expense, other income and
income taxes have been excluded.
(3) During the prior year six month period, all land projects which had
previously been the subject of percentage of completion accounting were
substantially completed. Accordingly, $4.6 million of previously deferred
sales, or $2.2 million in operating profits, were recognized last year.
During the current year six month period, several land projects were the
subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$500,000 in sales, or $304,000 in operating profits, were deferred. See
also Note 2.
(4) The Resort Division had $1.8 million and $960,000 in sales deferred under
the percentage of completion method of accounting during the six months
ended September 29, 1996 and October 1, 1995, respectively. Operating
profits associated with such sales totaled $578,000 and $276,000 for the
six month ended September 29, 1996 and October 1, 1995, respectively. See
also Note 2.
<PAGE>
Consolidated sales of real estate decreased 5% to $55.2 million for the six
months ended September 29, 1996 compared to $57.9 million for the six months
ended October 1, 1995. The discussion and tables to follow set forth additional
information on the business units comprising the consolidated operating results.
See Contracts Receivable and Revenue Recognition under Note 2 to the
Consolidated Financial Statements included under Part I, Item 1.
Land Division
During the six months ended September 29, 1996 and October 1, 1995, land sales
contributed $38.5 million or 70% and $45.1 million or 78%, respectively, of the
Company's total consolidated revenues from the sale of real estate.
The following table sets forth certain information for sales of parcels
associated with the Company's Land Division for the periods indicated, before
giving effect to the percentage of completion method of accounting. Accordingly,
the calculation of multiplying the number of parcels sold by the average sales
price per parcel yields aggregate sales different than that reported on the
earlier table (outlining sales revenue by business unit after applying
percentage of completion accounting to sales transactions). See Contracts
Receivable and Revenue Recognition under Note 2 to the Consolidated Financial
Statements included under Part I, Item 1.
Six months Ended
September 29, October 1,
1996 199
Number of parcels sold............ 1,070 1,144
Average sales price per parcel.... $36,404 $35,429
Average sales price per parcel
excluding one large acreage bulk
sale in the Rocky Mountains in the
current period and prior period.... $35,779 $33,273
Gross margin....................... 50% 53%
The table set forth below outlines the numbers of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal periods indicated.
Six months Ended
September 29, 1996 October 1, 1995
Average Average
Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 536 $ 37,044 492 $ 38,608
Rocky Mountains. 131 $ 39,355 148 $ 54,997
Midwest........... 118 $ 25,628 155 $ 34,164
Southeast......... 149 $ 35,636 123 $ 32,236
West.............. 10 $ 131,950 --- $ ---
Northeast......... 29 $ 21,319 75 $ 11,861
Mid-Atlantic...... 97 $ 37,835 141 $ 22,034
Canada............ --- $ --- 10 $ 13,897
Totals............ 1,070 $ 36,404 1,144 $ 35,429
The number of parcels sold in the Southwest increased during the current six
month period due to more sales made from the Company's Houston, Texas and
Dallas, Texas projects than during the prior year quarter. The increase in sales
from these markets in the current six month period was partially offset by lower
sales from San Antonio, Texas properties. The average sales price per parcel in
the Southwest decreased during the current period due to a change in the sales
mix resulting in fewer waterfront parcel sales (which traditionally have
supported higher retail sales prices).
<PAGE>
The number of parcels sold in the Rocky Mountains region decreased during the
current period due to fewer sales from the Company's Colorado properties,
partially offset by more sales in Idaho and Montana. The average sales price per
parcel in the Rocky Mountains region was affected by a bulk sale in both the
current and prior year six month periods. During the current year there was a
bulk sale in Colorado representing 2,600 acres. The bulk sale totaled $705,000
and yielded a gross margin of 40%. The average sales price per parcel for the
current year, excluding the bulk sale, was $34,235. The average sales price per
parcel for the prior year was affected by a $2.5 million bulk sale constituting
approximately 8,300 acres in Colorado. The average sales price for the prior
year, excluding the bulk sale, was $38,364. The reduction in the average sales
price from $38,364 for the prior year to $34,235 for the current year was
primarily attributable to a greater number of smaller acreage Colorado parcel
sales which maintained lower average sales prices in the current period versus
the comparable period last year. In addition, the current inventory mix in
Colorado consists of properties with lower average retail prices.
The number of parcels sold in the Midwest decreased during the current quarter
due to a shortage of inventory in Tennessee. The Company has paid deposits to
purchase two properties in Tennessee and is engaged in its customary due
diligence procedures. No assurances can be given the two properties under
contract will be acquired.
In the Southeast, the Company sold a greater number of more expensive parcels
from both its North Carolina and South Carolina properties during the current
period than in the prior year quarter.
In the West, the Company sold ten parcels from its Arizona property. The Company
acquired the acreage outside of Prescott in fiscal 1996 and sales commenced in
the fourth fiscal quarter of last year.
The Company continues to liquidate its land inventory in the Northeast, Canada
and certain parts of the Mid-Atlantic region. Furthermore, during the current
year second quarter the Company sold a large northeastern bulk parcel for
$110,000. The Company has reduced its presence in these areas in response to
economic conditions and reduced consumer demand. See discussion of provisions
for losses later herein.
The decrease in the average gross margin for the Land Division from 53% last
year to 50% for the current six month period was attributable to (i) a reduction
in gross margins in the Rocky Mountains region from 50% for the six months last
year to 44% for the current year, (ii) a reduction in gross margins in the
Company's New Mexico property from 50% for the six months last year to 46% for
the current year and (iii) an average gross margin of 36% on the Company's
western property located in Arizona. The Company has experienced certain cost
over runs on phase I of the multi-phase Arizona project. There were 4 lots
remaining in phase I as of October 27, 1996. Although no assurances can be
given, the remaining phases of the project are expected to produce significantly
higher gross margins.
The Company's Investment Committee, consisting of three executive officers,
approves all property acquisitions. In order to be approved for purchase by the
Committee, all land properties under contract for purchase are expected to
achieve certain minimum economics including a minimum gross margin.
The sale of certain inventory acquired prior to the formation of the Investment
Committee and sales of inventory reacquired through foreclosure or deed in lieu
of foreclosure will continue to adversely affect overall gross margins.
Specifically, the Company anticipates little or no gross margin on the sale of
the remaining $632,000 of net inventory in the Northeast. In addition, sales of
inventory which was subject to cost over-runs which includes properties located
in Arizona, Idaho, Montana and New Mexico will adversely affect overall gross
margins. No assurances can be given that the Company can maintain historical or
anticipated gross margins. In addition, during the first quarter ended June 30,
1996, the Company recorded provisions for the write-down of certain land
inventories. See Note 5 under Part I, Item 1 and discussion of provision for
losses later herein.
<PAGE>
Resorts Division
During the six months ended September 29, 1996 and October 1, 1995, sales of
timeshare intervals contributed $12.8 million or 23% and $5.5 million or 9%,
respectively, of the Company's total consolidated revenues from the sale of real
estate.
The following table sets forth certain information for sales of intervals
associated with the Company's Resorts Division for the periods indicated, before
giving effect to the percentage of completion method of accounting. Accordingly,
the calculation of multiplying the number of intervals sold by the average sales
price per interval yields aggregate sales different than that reported on the
earlier table (outlining sales revenue by business unit after applying
percentage of completion accounting to sales transactions).
Six months Ended
September 29, October 1,
1996 1995
Number of intervals sold............... 1,776 890
Average sales price per interval....... $8,249 $7,207
Gross margin........................... 68% 69%
The number of timeshare intervals sold increased to 1,776 for the current period
compared to 890 for the comparable period of the previous fiscal year. During
the prior year, 810 interval sales were generated from the Company's first
resort in Gatlinburg, Tennessee and an additional 80 intervals were sold from
the Pigeon Forge, Tennessee project. During the current year quarter, 809
intervals were sold from the Gatlinburg resort, an additional 540 intervals were
sold from the Company's second resort in neighboring Pigeon Forge, Tennessee and
427 intervals were sold from the Company's resort in Myrtle Beach, South
Carolina. Sales of the Myrtle Beach resort commenced in the fourth fiscal
quarter last year.
Gross margins on interval sales decreased from 69% for the six months of last
year to 68% for the current quarter. During the current six month period, gross
margins from the Company's resorts in Gatlinburg, Pigeon Forge and Myrtle Beach
were 66%, 70% and 71%, respectively. During the prior year period, gross margins
from the Company's resorts in Gatlinburg and Pigeon Forge were 69% and 75%,
respectively. The reduction in gross margins from the Company's Gatlinburg,
Tennessee resort was attributable to cost over-runs incurred on certain unit
construction and amenities of the project partially offset by increases to the
retail selling prices during the second quarter. Gross margins for Pigeon Forge
were adversely impacted during the current year by additional development costs.
The increase in the average sales price in the current year is primarily
attributable to an increase in retail sales prices at the Company's Gatlinburg,
Tennessee resort along with the addition of the Myrtle Beach resort which
maintains average sales prices comparable to the Gatlinburg resort.
Communities Division
During the six months ended September 29, 1996, the Company's Communities
Division contributed $4.0 million in sales revenue, or approximately 7% of total
consolidated revenues from the sale of real estate. During the six months ended
October 1, 1995, the Communities Division generated $7.4 million in sales
revenue, or approximately 13% of total consolidated revenues from the sales of
real estate.
<PAGE>
The following table sets forth certain information for sales associated with the
Company's Communities Division for the periods indicated.
Six months Ended
September 29, October 1,
1996 1995
Number of homes/lots sold................ 60 96
Average sales price...................... $66,819 $76,859
Gross margin............................. 2% 12%
The reduction in the average sales price was primarily attributable to a fewer
number of site-built homes in the current year. The $4.0 million in current year
sales was comprised of 36 manufactured homes with an average sales price of
$79,091, an additional 4 site-built homes with an average sales price of
$172,225 and 20 sales of lots at an average sales price of $24,305. The $7.4
million in prior year sales was comprised of 54 manufactured homes with an
average sales price of $72,834, an additional 12 site-built homes with an
average sales price of $234,715 and 30 sales of lots at an average sales price
of $20,962. The reduction in the gross margin is attributable to the Company's
manufactured home development in North Carolina. During the six months ended
September 29, 1996, the Company recorded provisions for the write-down of
certain communities related inventories. See Note 5 under Part I, Item 1 and
discussion of provision for losses later herein.
The tables set forth below outline sales by geographic region and division for
the six months ended on the dates indicated.
Six months Ended September 29, 1996
Geographic Region Land Communities Resorts Total %
Southwest............ $19,355,711 $ 157,000 $ $ --- $19,512,711 35.3%
Rocky Mountains...... 5,155,547 154,750 --- 5,310,297 9.6%
Midwest.............. 3,024,155 --- 10,582,121 13,606,276 24.6%
Southeast............ 5,309,805 3,696,843 2,189,398 11,196,046 20.3%
West................. 1,319,500 --- --- 1,319,500 2.4%
Northeast............ 618,250 --- --- 618,250 1.1%
Mid-Atlantic......... 3,669,966 --- --- 3,669,966 6.7%
Canada............... --- --- --- --- ---
Total .............. $38,452,934 $4,008,593 $12,771,519 $55,233,046 100%
Six months Ended October 1, 1995
Geographic Region Land Communities Resorts Total %
Southwest............ $22,081,310 $1,041,782 $ --- 23,123,092 39.9%
Rocky Mountains...... 8,135,963 284,417 --- 8,420,380 14.5%
Midwest.............. 6,102,669 --- 5,454,433 11,557,102 20.0%
Southeast............ 4,298,849 6,052,294 --- 10,351,143 17.9%
Northeast............ 889,540 --- --- 889,540 1.5%
Mid-Atlantic......... 3,418,848 --- --- 3,418,848 5.9%
Canada............... 138,972 --- --- 138,972 .3%
Totals............... $45,066,151 $7,378,493 $5,454,433 $57,899,077 100.0%
<PAGE>
As discussed earlier, during the prior year six month period, all land projects
which had previously been the subject of percentage of completion accounting
were substantially completed. Accordingly, $4.6 million of previously deferred
sales, or $2.2 million in operating profits, were recognized last year.
During the current year six month period, several land projects were the
subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$500,000 in sales, or $304,000 in operating profits, were deferred.
In addition to deferring sales under percentage of completion accounting in the
current period, four of the Company's North Carolina offices were adversely
affected by marketing and construction delays as a result of Hurricane Fran.
Interest income decreased 31% to $3.0 million for the six months ended September
29, 1996 compared to $4.4 million for the six months ended October 1, 1995. The
Company's interest income is earned from its Receivables, securities retained
pursuant to REMIC financings and cash and cash equivalents. The table set forth
below outlines interest income earned from assets for the periods indicated.
Six months Ended
September 29, October 1,
Interest income and other: 1996 1995
Receivables held and servicing fees
from whole-loan sales...................... $ 2,181,580 $2,056,492
Securities retained in connection with REMIC
financings including REMIC servicing fee... 669,348 937,824
Gain (loss) on REMICtransactions.............. ( 39,202) 1,119,572
Cash and cash equivalents..................... 182,509 250,342
Totals........................................ $ 2,994,235 $4,364,230
The table to follow sets forth the average interest bearing assets for the
periods indicated.
Six months Ended
September 29, October 1,
Average interest bearing assets 1996 1995
Receivables ...................................... $32,322,799 $31,013,698
Securities retained in connection with REMIC
financings .................................... 10,874,881 11,300,806
Cash and cash equivalents......................... 8,674,126 10,778,201
Totals............................................ $51,871,806 $53,092,705
<PAGE>
The Company completed a REMIC transaction in July, 1995. The $68.1 million of
loans comprising the Mortgage Pool were previously owned by the REMIC trust
established by the Company in 1992 ($46.8 million) or pledged by a receivables
subsidiary, or the Company, to an institutional lender ($21.3 million). Because
of more favorable terms offered under the 1995 REMIC, the Company retired the
securities issued pursuant to the 1992 REMIC and included substantially all of
the Receivables in the current year REMIC transaction. Accordingly, the average
securities held and related interest income for the six months ended September
29, 1996 was lower than the comparable period of the prior year (since the
securities were outstanding for three months out of the six month period last
year).
S,G&A expense totaled $25.5 million and $22.1 million for the six months ended
September 29, 1996 and October 1, 1995, respectively. A significant portion of
S,G&A expenses is variable relative to sales and profitability levels, and
therefore, increases with growth in sales of real estate. As a percentage of
sales of real estate, S,G&A expenses increased from 38% for the six months last
year to 46% for the current year six month period. The increase as a percentage
of sales was largely the result of higher S,G&A expenses for Resorts Division.
The table to follow sets forth comparative S,G&A expense information for the
periods indicated.
(Dollars in Thousands)
Six months Ended September 29, 1996
Land Communities Resorts Total
Sales of real
estate....... $38,453 100.0% $4,008 100.0% $12,771 100.0% $55,232 100.0%
Field selling,
general and
administrative
expense (1)... 12,055 31.4% 706 17.6% 8,348 65.4% 21,109 38.2%
(Dollars in Thousands)
Sales Ended October 1, 1995
Land Communities Resorts Total
Sales of real
estate......... $45,066 100.0% $7,379 100.0% $5,454 100.0% $57,899 100.0%
Field selling,
general and
administrative
expense (1)..... 13,609 30.2% 1,409 19.1% 3,449 63.2% 18,467 31.9%
(1) Corporate general and administrative expenses of $4.4 million and $3.6
million for the six months ended September 29, 1996 and October 1, 1995 have
been excluded from the table.
<PAGE>
Interest expense totaled $2.5 million and $3.8 million for the six months ended
September 29, 1996 and October 1, 1995, respectively. The 36% decrease in
interest expense for the current period was primarily attributable to an
increase in the amount of interest capitalized to inventory. The Company
capitalized interest totaling $497,000 during the six months last year, compared
to $1.5 million for the six months this year. The increase in capitalized
interest is the direct result of the Company acquiring certain inventory which
requires significant development with longer sell-out periods. In addition to
the favorable impact from increased capitalized interest, the average
outstanding Receivable related indebtedness (and related interest expense) and
other financing costs declined for the current six month period from the
comparable period last year. The lower average outstanding indebtedness was
primarily attributable to the retirement of debt pursuant to the Company's 1996
REMIC transaction. See Note 6 to the Consolidated Financial Statements included
under Part I, Item 1. The table set forth below outlines the components of
interest expense for the periods indicated.
Six months Ended
September 29, October 1,
Interest expense on: 1996 1995
Receivable-backed notes payable................ $ 834,792 $1,051,653
Lines of credit and notes payable.............. 1,249,071 1,188,161
8.25% convertible subordinated debentures...... 1,432,984 1,432,984
Other financing costs.......................... 454,516 672,365
Capitalization of interest..................... (1,500,450) (497,318)
Totals......................................... $ 2,470,913 $3,847,845
The table to follow sets forth the average indebtedness for the periods
indicated.
Six months Ended
September 29, October 1,
Average indebtedness 1996 1995
Receivable-backed notes payable.............. $16,205,663 $20,031,486
Lines of credit and notes payable............ 26,875,968 23,909,074
8.25% convertible subordinated debentures.... 34,739,000 34,739,000
Totals....................................... $77,820,631 $78,679,560
During the first quarter of fiscal 1997, management changed its focus for
marketing certain of its inventories. In conjunction with (i) a comprehensive
internal review of inventories, (ii) an analysis of changing market and economic
conditions and other factors affecting the salability and estimated fair value
of such assets and (iii) certain personnel and administrative changes,
management implemented a plan to accelerate the sale of certain inventories
managed under the Communities Division and Land Division. These inventories are
intended to be liquidated through a combination of bulk sales and retail sales
at reduced prices. As a result, management has determined that inventories with
a carrying value of $23.2 million should be written-down by $8.2 million to
reflect the estimated fair value, net of costs to sell. The $8.2 million in
provisions for the six months ended September 29, 1996 includes $4.8 million for
certain Communities Division inventories and $3.4 million for certain Land
Division inventories. Although no assurances can be given, the inventories
subject to write-down are expected to be fully liquidated within the next 12 to
24 months. The Company's Communities Division primarily consists of three North
Carolina properties acquired in 1988. The Company began marketing home/lot
packages in 1995 to accelerate sales at the properties. However, the projects
have been slow-moving and yielding low gross profits and little to no operating
profits. Therefore, the Company has adopted a plan to aggressively pursue
opportunities for the bulk sale of a portion of these assets and has reduced
retail selling prices of certain home/lot packages to increase sales activity.
As previously disclosed, the Company does not plan to acquire any additional
communities related inventories.
<PAGE>
A majority of the Land Division parcels subject to write-down are scattered lots
acquired through foreclosure or deedback in lieu of foreclosure as well as odd
lots from former projects. Most are located in the Northeast and Mid-Atlantic
region of the country where the Company continues to experience reduced consumer
demand due to slow economic conditions and increased competition in certain
areas due to an over-supply of similar land inventories being marketed by
smaller, local operations. The write-downs accommodate retail price reductions
which management believes will stimulate sales activity.
The Company recorded provisions for loan losses totaling $381,000 for the six
months ended September 29, 1996 in addition to a provision of $168,000 for real
estate taxes and other costs associated with delinquent customers. During the
six months ended October 1, 1995, the Company recorded provisions for loan
losses of $380,000. During the six months ended September 29, 1996 and October
1, 1995, the Company charged-off $346,000 and $289,000, respectively, to its
reserve for loan losses. An additional $113,000 was charged-off against the
reserve for advanced real estate taxes and other costs for the six months ended
September 29, 1996. No provision or charge-offs for advanced real estate taxes
were recorded for the six months ended October 1, 1995. The Company's internal
financing does not require customers to escrow real estate taxes. Losses
associated with this practice have not been material to date.
Income (loss) from consolidated operations was $(6.1) million and $6.5 million
for the six months ended September 29, 1996 and October 1, 1995, respectively.
The reduction for the current six month period was primarily the result of lower
gross margins, higher S,G&A expense, increased provisions for losses and lower
land sales.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
six months ended September 29, 1996 and October 1, 1995 was not material to the
Company's results of operations.
The Company recorded a tax benefit of 41% of the pre-tax loss for the six months
ended September 29, 1996. The Company recorded a tax provision of 41% of pre-tax
income for the six months ended October 1, 1995.
Net income (loss) was $(3.5) million and $3.9 million for the six months ended
September 29, 1996 and October 1, 1995, respectively. As discussed earlier, the
reduction for the current year was primarily the result of lower gross margins,
higher S,G&A expense, increased provisions for losses and lower land sales.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from
time to time, the Company becomes involved in disputes with existing
and former employees. The Company believes that substantially all of
the above are incidental to its business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The matters submitted to a vote of security holders was disclosed in
the Company's Form 10-Q for the period ended in June 30, 1996.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: November 7, 1996 By: /S/ GEORGE F. DONOVAN
George F. Donovan
President and
Chief Executive Officer
Date: November 7, 1996 By: /S/ ALAN L. MURRAY
Alan L. Murray
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: November 7, 1996 By: /S/ MARYJO WIEGAND
MaryJo Wiegand
Vice President and Controller
(Principal Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> Mar-30-1997
<PERIOD-START> Apr-1-1996
<PERIOD-END> Sep-29-1996
<CASH> 13,035,255
<SECURITIES> 10,937,470
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