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 December 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 January 24, 1997,there were 20,601,871 shares of Common Stock, $.01
par value per share, issued, 419,300 treasury shares and 20,182,571 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
December 29, 1996 and March 31, 1996 ................... 3
Consolidated Statements of Operations - Three Months
Ended December 29, 1996 and December 31, 1995........... 4
Consolidated Statements of Operations - Nine Months
Ended December 29, 1996 and December 31, 1995........... 5
Consolidated Statements of Cash Flows -Nine Months
Ended December 29, 1996 and December 31, 1995........... 6
Notes to Consolidated Financial Statements .................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 12
Part II - Other Information
Item 1. Legal Proceedings .......................................... 39
Item 2. Changes in Securities ...................................... 39
Item 3. Defaults Upon Senior Securities ............................ 39
Item 4. Submission of Matters to a Vote of Security Holders ........ 39
Item 5. Other Information .......................................... 39
Item 6. Exhibits and Reports on Form 8-K ........................... 39
Signatures............................................................... 40
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>
<C> <C>
December 29, March 31,
Assets 1996 1996
Cash and cash equivalents (including restricted cash of
approximately $8.6 million and $7.7 million at
December 29, 1996 and March 31, 1996, respectively).... $ 14,715,906 $ 11,389,141
Contracts receivable, net................................. 8,140,339 12,451,207
Notes receivable, net..................................... 31,872,843 37,013,802
Investment in securities.................................. 11,129,371 9,699,435
Inventory, net............................................ 81,108,141 73,595,014
Property and equipment, net............................... 5,329,810 5,239,100
Debt issuance costs....................................... 1,144,207 1,288,933
Other assets.............................................. 4,860,506 4,286,401
Total assets........................................... $158,301,123 $154,963,033
Liabilities and Shareholders' Equity
Accounts payable.......................................... $ 2,045,871 $ 2,557,797
Accrued liabilities and other............................. 7,791,403 9,889,063
Lines-of-credit and notes payable......................... 31,227,931 17,287,767
Deferred income taxes..................................... 2,788,567 6,067,814
Receivable-backed notes payable........................... 19,667,518 19,723,466
8.25% convertible subordinated debentures................. 34,739,000
34,739,000
Total liabilities...................................... 98,260,290 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; 20,601,871 and 20,533,410 shares
issued at December 29, 1996 and March 31, 1996,
respectively........................................... 206,019 205,334
Capital-in-excess of par value............................ 71,410,755 71,296,158
Retained earnings (deficit)............................... (10,330,963) (6,803,366)
Treasury stock, 398,900 shares of common stock at cost.... ( 1,244,978)
---
Total shareholders' equity................................ 60,040,833 64,698,126
Total liabilities and shareholders' equity............. $158,301,123 $154,963,033
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
Three Months Ended
------------------------------------
December 29, December 31,
1996 1995
Revenues:
Sales of real estate..................................... $26,478,376 $23,934,805
Interest income and other................................ 1,582,818 1,482,850
28,061,194 25,417,655
Cost and expenses:
Cost of real estate sold................................. 13,731,465 13,130,540
Selling, general and administrative expense.............. 12,547,729 9,285,063
Interest expense......................................... 1,445,176 1,263,843
Provisions for losses.................................... 351,804 120,000
28,076,174 23,799,446
Income (loss) from operations............................... ( 14,980) 1,618,209
Other income................................................ 49,242 51,323
Income before income taxes.................................. 34,262 1,669,532
Provision for income taxes.................................. 14,047 684,508
Net income.................................................. $ 20,215 $ 985,024
Income per common share:
Net income.................................................. $ --- $ .05
Weighted average number of common and common
equivalent shares (1).................................... 21,031,221 21,821,617
</TABLE>
(1) The current three month period includes 20,202,971 average common shares
outstanding plus 828,250 average dilutive stock options. The prior year three
month period includes 20,514,391 average common shares outstanding plus
1,307,226 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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Nine Months Ended
------------------------------------
December 29, December 31,
1996 1995
Revenues:
Sales of real estate..................................... $ 81,711,422 $81,833,882
Interest income and other................................ 4,577,053 5,847,081
86,288,475 87,680,963
Cost and expenses:
Cost of real estate sold................................. 41,383,907 42,545,277
Selling, general and administrative expense.............. 38,050,774 31,399,095
Interest expense......................................... 3,916,090 5,111,687
Provisions for losses.................................... 9,100,672 499,942
92,451,443 79,556,001
Income (loss) from operations............................... (6,162,968) 8,124,962
Other income................................................ 183,993 120,680
Income (loss) before income taxes........................... (5,978,975) 8,245,642
Provision (benefit) for income taxes........................ (2,451,380) 3,354,253
Net income (loss)........................................... $(3,527,595) $ 4,891,389
Income (loss) per common share:
Net income (loss)........................................... $( .17) $ .22
Weighted average number of common and common
equivalent shares (1).................................... 20,934,655 21,765,648
</TABLE>
(1) The current nine month period includes 20,371,955 average common shares
outstanding plus 562,700 average dilutive stock options. The prior year nine
month period includes 20,499,700 average common shares outstanding plus
1,265,948 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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Nine Months Ended
-----------------------------------------
December 29, December 31,
1996 1995
Operating activities:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors............................ $ 70,032,280 $ 71,410,181
Interest received....................................... 3,810,100 4,922,563
Cash paid for land acquisitions and real estate
development............................................ (44,065,089) ( 47,093,316)
Cash paid to suppliers, employees and sales
representatives........................................ (39,064,974) ( 35,815,654)
Interest paid, net of capitalized interest.............. ( 4,433,137) ( 5,615,154)
Income taxes paid, net of refunds ...................... ( 2,328,919) ( 2,396,839)
Proceeds from borrowings collateralized by notes
receivable............................................. 14,003,768 14,464,206
Payments on borrowings collateralized by notes (14,059,716) ( 16,722,122)
receivable.............................................
Net proceeds from REMIC transaction..................... 16,995,222 28,688,041
Cash received from investment in securities............ 1,114,442 172,726
Net cash provided by operating activities.................. 2,003,977 12,014,632
Investing activities:
Net cash flow from purchases and sales of
property and equipment................................. ( 411,717) ( 476,190)
Additions to other long-term assets..................... ( 205,505) ( 157,000)
Net cash flow used by investing activities................. ( 617,222) ( 633,190)
Financing activities:
Borrowings under line-of-credit facilities.............. 8,146,258 4,210,000
Payments under line-of-credit facilities................ ( 3,308,340) ( 2,564,111)
Borrowings under secured credit facility................ 3,800,000 ---
Payments on other long-term debt........................ ( 5,568,210) ( 10,569,107)
Acquisition of treasury stock........................... ( 1,244,978) ---
Proceeds from exercise of employee stock options........ 115,280 163,332
Net cash flow provided (used) by financing activities...... 1,940,010 ( 8,759,886)
Net increase in cash and cash equivalents.................. 3,326,765 2,621,556
Cash and cash equivalents at beginning of period........... 11,389,141 7,588,475
Cash and cash equivalents at end of period................. 14,715,906 10,210,031
Restricted cash and cash equivalents at end of period...... 8,616,680 8,256,847
Unrestricted cash and cash equivalents at end of period.... $ 6,099,226 $ 1,953,184
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(unaudited) (continued)
<TABLE>
<CAPTION>
<S>
<C> <C>
Nine Months Ended
----------------------------------
December 29, December 31,
1996 1995
Reconciliation of net income (loss) to net cash flow provided by operating
activities:
Net income (loss)............................................. $(3,527,595) $ 4,891,389
Adjustments to reconcile net income (loss) to net
cash flow provided by operating activities:
Depreciation and amortization............................. 804,115 1,175,264
(Gain)/loss on REMIC transaction.......................... 96,211 (1,119,572)
(Gain)/loss on sale of property and equipment............. ( 43,958) 43,109
Provisions for losses..................................... 9,100,672 499,942
Interest accretion on investment in securities............ ( 744,705) ( 960,583)
Proceeds from borrowings collateralized
by notes receivable net of principal
repayments.............................................. ( 55,948) (2,257,916)
Provision (benefit) for deferred income taxes............. (3,279,247) 3,354,255
(Increase) decrease in operating assets:
Contracts receivable........................................ 4,310,868 3,040,326
Investment in securities.................................... 1,114,442 9,465,759
Inventory................................................... (3,441,725) (4,708,530)
Other assets................................................ ( 574,109) ( 745,766)
Notes receivable............................................ 854,542 6,484,609
Decrease in operating liabilities:
Accounts payable, accrued liabilities and other............. (2,609,586) (7,147,654)
Net cash flow provided by operating activities.................... $ 2,003,977 $ 12,014,632
Supplemental schedule of non-cash operating
and financing activities
Inventory acquired through financing........................ $ 10,630,449 $ 7,286,230
Inventory acquired through foreclosure or
deedback in lieu of foreclosure............................ $ 1,489,872 $ 1,573,574
Investment in securities retained in
connection with REMIC transactions........................ $ 1,774,319 $ 2,044,029
</TABLE>
See accompanying notes to consolidated financial statements.
<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 nine months
ended December 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 $901,000 in provisions for loan losses and related advanced
real estate taxes and legal fees on delinquent loans. See Notes 4 and 5. The
results of operations for the nine month period ended December 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 businesses are
(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
sixty.
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. As
discussed later herein, the Company plans to accelerate the sale of inventories
managed under the Communities Division through a combination of bulk sales and
retail sales and terminate its Communities Division.
<PAGE>
Revenue recognition for each of the Company's operating divisions is discussed
below.
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.
Land, timeshare and communities sales which do not meet the criteria for revenue
recognition described above are deferred using the deposit method. Under the
deposit method, cash received from customers is classified as a refundable
deposit in the liability section of the Consolidated Balance Sheet and profit
recognition is deferred until the requirements of SFAS 66 are met.
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 December 29, 1996,
the Company was contingently liable for the outstanding principal balance of
notes receivable previously sold aggregating approximately $939,000. 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.
<PAGE>
4. Provision for Losses
Provisions for losses on real estate and notes receivables secured by 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 $9.1 million and $500,000 for the nine
months ended December 29, 1996 and December 31, 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.
5. Inventory
The Company's inventory holdings are summarized below by division.
December 29, 1996 March 31, 1996
Land Division.......................... $ 49,708,617 $ 43,388,699
Communities Division................... 7,589,978 14,177,111
Resorts Division....................... 23,809,546 16,029,204
$ 81,108,141 $ 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 21 months.
Furthermore, as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the Company has liquidated several parcels
subject to the write-down including approximately one-third of a North Carolina
project managed under the Communities Division.
<PAGE>
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) Transactions
On December 11, 1996, the Company sold approximately $5.7 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 "1996-2
REMIC Trust"), resulting in aggregate proceeds to the Company of $5.3 million.
The 1996-2 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 1996-2 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 1996-2
REMIC transaction, the Company retained certain subordinated classes of
certificates. A portion of the proceeds from the transaction was used to repay
approximately $2.6 million of outstanding debt. An additional $115,000 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 $2.5 million.
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 "1996-1
REMIC Trust"), resulting in aggregate proceeds to the Company of $11.8 million.
The 1996-1 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 1996-1 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 1996-1
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.
7. Other Events
The Company owns a property in Idaho consisting of approximately 1,380 acres
that was damaged by abnormal rainfall and flooding in January, 1997. The weather
conditions in the region (which received national media attention) caused
numerous mud-slides and considerable road damage. While the Company does not
believe that amounts required to repair the property are material as of this
report date, no assurances can be given that additional rainfall and/or
mud-slides will not cause current estimates to increase.
<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 an inability to locate 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 and/or selling, general and
administrative expenses exceed those anticipated.
i) A increase or decrease in the number of land or resort properties subject
to percentage of competion accounting which requires deferral of profit
recognition on such projects until development is substantially complete.
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 Company financed real estate
sales, (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
<PAGE>
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 $2.0 million and $12.0 million
for the nine months ended December 29, 1996 and December 31, 1995, respectively.
The reduction in cash flow from operations was primarily attributable to (i) a
reduction in cash received from the sale or collateralization of Receivables,
net of repayments on collateralized Receivables, totaling $9.5 million and (ii)
an increase in cash paid to suppliers and employees totaling $3.2 million. These
two elements were partially offset by a reduction in cash paid for land
acquisitions and real estate development in the amount of $3.0 million.
During the nine months ended December 29, 1996 and the nine months ended
December 31, 1995, the Company received in cash $59.9 million or 70% and $65.6
million or 70%, respectively, of its sales of real estate that closed during
these periods.
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
Receivables 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 as investment in securities on the Consolidated Balance Sheet. See
further discussion of REMIC transactions under "Sources of Capital" later
herein. During the nine months ended December 29, 1996 and the nine months ended
December 31, 1995, the Company borrowed $14.0 million and $14.5 million,
respectively, through the pledge of Receivables. During the nine months ended
December 29, 1996 and December 31, 1995, the Company raised an additional $17.0
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 REMICs.
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 December 29, 1996, the outstanding
principal balance under the facility was $10.4 million, comprised of $6.3
million secured by inventory and $4.1 million secured by Receivables. 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 has maturities that
range from April, 1997 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 2.25% and prime plus 2.0%,
respectively. At
<PAGE>
December 29, 1996, the outstanding principal balance under the facility was
$10.4 million, comprised of $300,000 secured by inventory and $10.1 million
secured by Receivables. The Company is required to repay the portion of the loan
secured by inventory through an annual installment of $300,000 in 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 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 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 2.25% and prime plus 2.0%, respectively. At
December 29, 1996, the outstanding principal balance under the facility was $4.6
million, comprised of $810,000 secured by inventory and $3.8 million secured by
Receivables. The Company is required to repay the portion of the loan secured by
inventory through 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 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 seven
years from the date of the last advance. The ability to borrow under the
facility expires in April, 1997. The Company is currently engaged in discussions
with the lender to increase the limit and extend the expiration date to borrow.
No assurances can be given that the agreement will be amended to provide for the
increase in borrowing capacity and expanded borrowing term.
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 December 29, 1996, there was $7.7
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 up to $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 December 29, 1996, the outstanding principal balance under the
facility was $1.6 million all of which was 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 ability to borrow under the Receivables portion of the facility expires in
December, 1997.
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 December 29, 1996, the outstanding principal
balance under the facility was $205,000 all of which was secured by inventory.
The Company repaid the indebtedness secured by
<PAGE>
Receivables on December 11, 1996 in connection with a REMIC transaction. See
Note 6. The Company intends to re-borrow under the Receivables portion of the
facility as it requires external sources of capital. 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 and the indebtedness
is due 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 December 29, 1996, the aggregate
outstanding indebtedness under the facility totaled $839,000. The indebtedness
matures in May, 1998. The ability to borrow under the credit agreement has
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. The
aggregate amount of inventory acquisition and development financing obtained
during the nine months ended December 29, 1996 and the nine months ended
December 31, 1995 totaled $22.6 million or 34% of the total acquisition and
development requirements and $11.5 million or 20% of the total acquisition and
development requirements, respectively. The increase in the percentage of
acquisition and development costs financed during the current nine month period
reflects an increased willingness on the part of sellers of inventory to accept
financing along with increased willingness on the part of banks and financial
institutions to provide real estate financing.
The table set forth below summarizes the credit facilities discussed earlier as
well as other notes payable as of December 29, 1996.
Lines-of-Credit Receivable-
and Notes Backed
Description of Credit Arrangement Payable Notes Payable Total
$20.0 million revolving credit
facility........................... 6,259,062 $ 4,138,571 $10,397,633
$20.0 million credit facility....... 300,000 10,133,377 10,433,377
$6.2 million credit facility........ 810,000 3,777,086 4,587,086
$13.5 million credit facility....... 7,704,745 --- 7,704,745
$23.5 million credit facility....... --- 1,618,484 1,618,484
$15.0 million revolving credit
facility........................... 205,402 --- 205,402
$1.0 million credit facility........ 838,632 --- 838,632
Term indebtedness secured by fixed
assets............................. 1,213,106 --- 1,213,106
Term indebtedness secured by land
inventory.......................... 13,896,983 --- 13,896,983
Total...............................$31,227,931 $19,667,518 $50,895,449
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.
<PAGE>
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 December 29,
1996 and for each reporting period during the current and 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
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 notes 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 in the event 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 December 11, 1996, the Company sold, or otherwise absolutely transferred and
assigned, approximately $5.7 million aggregate principal amount of its mortgage
notes receivable (the "1996-2 Mortgage Pool") to a subsidiary of the Company and
the subsidiary sold the 1996-2 Mortgage Pool to a REMIC Trust (the "1996-2 REMIC
Trust"). Simultaneous with the sale, the 1996-2 REMIC Trust issued three classes
of Fixed Rate REMIC Mortgage Pass-Through Certificates. On December 11, 1996,
the subsidiary sold the Class A 1996-2 Certificates issued under the Pooling
Agreement to an institutional investor for aggregate proceeds of approximately
$5.2 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 $2.6 million of outstanding debt. An additional $115,000 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 $2.5 million in the
Company's unrestricted cash.
On May 15, 1996, the Company sold, or otherwise absolutely transferred and
assigned, $13.2 million aggregate principal amount of mortgage notes receivable
(the "1996-1 Mortgage Pool") to a subsidiary of the Company and the subsidiary
sold the 1996-1 Mortgage Pool to a REMIC Trust (the "1996-1 REMIC Trust").
Simultaneous with the sale, the 1996-1 REMIC Trust issued three classes of Fixed
Rate REMIC Mortgage Pass-Through Certificates. On May 15, 1996, the subsidiary
sold the Class A 1996-1 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.
<PAGE>
The 1996-1 and 1996-2 REMIC Trusts were comprised primarily of a pool of fixed
and adjustable rate first mortgage loans secured by property sold by the
Company.
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 $6.1 million at December 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 $81.1 million at December 29, 1996 and $73.6
million at March 31, 1996. Management recognizes the inherent risk of carrying
increased levels of inventory (including the risk that the inventory will
decline in value). 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 dispose. The $8.2 million in provisions for the nine
months ended December 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 21 months. See "Results of Operations"
and Note 5 to the Consolidated Financial Statements.
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.
The Company estimates that the total cash required to complete preparation for
the retail sale of the consolidated inventories owned as of December 29, 1996 is
approximately $110.4 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 $21.7
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 $53.0 million to improve land which
typically includes expenditures for road and utility construction, surveys and
engineering fees, including $12.3 million to be spent during the remainder of
fiscal 1997.
Resorts Division: The Company expects to spend $56.6 million for building
materials, amenities and other infrastructure costs such as road and utility
construction, surveys and engineering fees, including $8.5 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 $865,000 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 $865,000 is expected to be spent during the remainder of fiscal 1997.
<PAGE>
The table to follow outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of December 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................... $27,699,966 $ --- $ --- $ 27,699,966
Rocky Mountains ............ 617,520 --- --- 617,520
West........................ 4,204,016 --- --- 4,204,016
Midwest..................... 91,190 39,116,181 --- 39,207,371
Southeast................... 19,636,266 17,461,548 865,411 37,963,225
Northeast................... 33,685 --- --- 33,685
Mid-Atlantic................ 705,240 --- --- 705,240
Total estimated spending....$ 52,987,883 $56,577,729 $ 865,411 $110,431,023
Net inventory at
December 29, 1996......... 49,708,617 23,809,546 7,589,978 81,108,141
Total estimated cost basis
of fully developed
inventory.................$102,696,500 $80,387,275 $ 8,455,389 $191,539,164
The Company's net inventory summarized by division as of December 29, 1996 and
March 31, 1996 is set forth below.
December 29, 1996
----------------------------------------------------
Geographic Region Land Resorts Communities Total
Southwest............ $24,126,935 $ --- $ --- $24,126,935
Rocky Mountains ..... 9,144,067 --- --- 9,144,067
West ................ 5,671,137 --- --- 5,671,137
Midwest.............. 4,653,070 12,335,983 --- 16,989,053
Southeast............ 4,747,856 11,473,563 7,589,978 23,811,397
Northeast............ 519,709 --- --- 519,709
Mid-Atlantic......... 845,843 --- --- 845,843
Canada............... --- --- --- ---
Totals............... $49,708,617 $23,809,546 $7,589,978 $81,108,141
<PAGE>
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 December 29, 1996
are discussed below.
The Company's aggregate Land Division inventory increased by $6.3 million from
March 31, 1996 to December 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 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 2,690 acres for $1.1 million in August, 1996.
These five acquisitions were partially offset by sales activity. 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 $7.8 million. The increase
is attributable to additional infrastructure development at each of the
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 December 29, 1996 consisted of land inventory of $5.5 million and unit
construction-in-progress and other amenities of $18.3 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 $6.6 million from
March 31, 1996 to December 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.
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 December 29, 1996, consisted of land inventory of $3.5
million and $4.1 million 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.
<PAGE>
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 both the nine months ended December 29, 1996 and the nine months ended
December 31, 1995, the Company received 30% of its consolidated sales of real
estate which closed during the period in the form of Receivables.
At December 29, 1996, $24.4 million of Receivables were pledged as collateral to
secure Company indebtedness, while $8.5 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 December
29, 1996 and March 31, 1996.
(Dollars in Millions)
December 29, 1996 March 31, 1996
-------------------------- ----------------------------
Receivables Land Timeshare Total Land Timeshare Total
Encumbered.......... $ 6.2 $18.2 $24.4 $ 18.4 $ 8.6 $ 27.0
Unencumbered........ 4.9 3.5 8.4 7.8 3.1 10.9
Total............... $11.1 $21.7 $32.8 $ 26.2 $11.7 $ 37.9
The reduction in encumbered land Receivables from March 31, 1996 to December 29,
1996 was primarily attributable to the repayment of receivable-backed debt and
the sale of Receivables pursuant to the 1996-1 and 1996-2 REMIC transactions.
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 December 29, 1996 and
March 31, 1996. Receivables held by the Company include both unencumbered and
pledged notes. Loan-to-value ratio is defined as unpaid balance of the loan
divided by the contract purchase price.
December 29, 1996 March 31, 1996
------------------------ ------------------------
Receivables Land Timeshare Land Timeshare
Loan-to-Value Ratio...... 51% 79% 63% 75%
Because the Company sold a substantial portion of its less seasoned land
Receivables in connection with the 1996 REMICs, the related loan-to-value ratio
was lower at December 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, net of 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 2.9%
and 2.4% at December 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 transactions. See "Sources of Capital".
At December 29, 1996, approximately 7% or $2.5 million of the aggregate $33.8
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 $33.8 million principal amount of loans,
$32.8 million were held by the Company, while approximately $939,000 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 December 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 REMICs. 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 January 24,
1997, 419,300 shares had been repurchased at an aggregate cost of $1.3 million.
<PAGE>
Results of Operations - For the Three and Nine Month Periods.
Three Months Ended - December 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 effect 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
December 29, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Three Months Ended December 29, 1996
<C> <C> <C> <C> <C> <C> <C> <C>
Land(3) Communities Resorts(4) Total
Sales of real estate. $16,151 100.0% $ 2,294 100.0% $ 8,033 100.0% $26,478 100.0%
Cost of real estate
sold................ 9,359 57.9% 2,120 92.4% 2,253 28.0% 13,732 51.9%
Gross profit......... 6,792 42.1% 174 7.6% 5,780 72.0% 12,746 48.1%
Field selling,
general and
administrative 5,112 31.7% 108 4.7% 5,214 64.9% 10,434 39.4%
expense (1)..........
Field operating
profit (loss) (2).... $ 1,680 10.4% $ 66 2.9% $ 566 7.1% $ 2,312 8.7%
</TABLE>
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Three Months Ended December 31, 1995
<C> <C> <C> <C> <C> <C> <C> <C>
Land(3) Communities Resorts (4) Total
Sales of real estate. $15,082 100.0% $4,436 100.0% $4,417 100.0% $23,935 100.0%
Cost of real estate
sold................. 7,767 51.5% 3,794 85.5% 1,569 35.5% 13,130 54.9%
Gross profit......... 7,315 48.5% 642 14.5% 2,848 64.5% 10,805 45.1%
Field selling,
general and
administrative 4,570 30.3% 781 17.6% 2,440 55.2% 7,791 32.5%
expense (1)..........
Field operating
profit (loss) (2).... $ 2,745 18.2% $ (139) (3.1)% $ 408 9.3% $ 3,014 12.6%
</TABLE>
(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 three months ended December 31, 1995, certain land projects were
subject to percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$453,000 in sales, or $176,000 in operating profits, were deferred in the
quarter ended December 31, 1995.
During the current year three month period, several other land projects
were the subject of percentage of completion accounting. Accordingly,
$633,000 in sales, or $292,000 in operating profits, were deferred. See
Contracts Receivable and Revenue Recognition under Note 2 to the
Consolidated Financial Statements included under Part I, Item 1.
(4) The Resort Division had $1.2 million and $632,000 in sales which had been
deferred under the percentage of completion method of accounting (from
prior periods) but were recognized during the quarter ended December 29,
1996 and December 31, 1995, respectively. Operating profits associated with
such sales totaled $359,000 and $292,000 for the quarter ended December 29,
1996 and December 31, 1995, respectively. See Contracts Receivable and
Revenue Recognition under Note 2 to the Consolidated Financial Statements
included under Part I, Item 1.
Consolidated sales of real estate increased 11% to $26.5 million for the three
months ended December 29, 1996 compared to $23.9 million for the three months
ended December 31, 1995. The discussion and tables to follow set forth
additional information on the business units comprising the consolidated
operating results.
Land Division
During the three months ended December 29, 1996 and December 31, 1995, land
sales contributed $16.2 million or 61% and $15.1 million or 63%, 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
December 29, December 31,
1996 1995
Number of parcels sold...................... 430 474
Average sales price per parcel.............. $35,150 $ 32,666
Average sales price per parcel excluding
one large acreage sale in the Southeast
in the 1995 period and excluding three large
acreage sales in the Northeast, Rocky
Mountain Region and the West in the 1996
period....................................... $32,606 $31,783
Gross margin................................. 42% 49%
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
December 29, 1996 December 31, 1995
Average Average
Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 288 $ 37,739 241 $ 35,161
Rocky Mountains... 45 $ 45,511 54 $ 33,832
Midwest........... 19 $ 17,853 67 $ 24,346
Southeast......... 29 $ 34,034 47 $ 49,492
West.............. 10 $166,900 --- ---
Northeast......... 11 $ 26,730 21 $ 15,820
Mid-Atlantic...... 25 $ 21,830 39 $ 21,974
Canada............ 3 $ 10,545 5 $ 7,229
Totals............ 430 $ 35,150 474 $ 32,666
The number of parcels sold in the Southwest increased during the current period
due to significantly more sales from the Company projects in the Dallas, Texas
market.
The number of parcels sold in the Rocky Mountains region decreased during the
current period due to fewer sales from the Company's Montana and Idaho
properties. During the current three month period the Company sold in bulk a
parcel in Idaho constituting 36 acres for $525,000. The average sales price
excluding the current quarter bulk sale was $34,613.
The number of parcels sold in the Midwest decreased during the current quarter
due to a shortage of inventory in Tennessee. The Company acquired a Tennessee
property in January, 1997 and has paid deposits to purchase on two additional
properties. No assurances can be given that the two properties under contract
will be acquired.
In the Southeast, the Company sold fewer and less expensive parcels from its
North Carolina properties during the current quarterly period than in the prior
year quarter. During the first quarter of fiscal 1997 the Company acquired a
North Carolina property representing more than 1,000 acres. Marketing activities
for the property commenced in December, 1996 and sales are expected to begin
in February, 1997.
In the West, the Company sold 9 parcels from its Arizona property on a retail
basis and one larger acreage parcel representing 210 acres for $462,000. The
Company acquired the acreage outside of Prescott in fiscal 1996 and sales
commenced in the fourth 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 and during the current year third quarter sold additional contiguous
acreage for $205,000. 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 49% for the
quarter last year to 42% for the current quarter was attributable to (i) more
sales from the Company's Arizona property which yielded an average gross margin
of 45% and (ii) less sales from the Midwest and Southeast which historically
have yielded gross margins of at least 55%. As indicated above, the Company
recently acquired properties in Tennessee (Midwest) and North Carolina
(Southeast) and expects sales activity to increase over upcoming quarters.
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 $520,000 of net inventory in the Northeast. In addition, sales of
inventory which was subject to cost over-runs (which includes certain 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 December 29, 1996 and December 31, 1995, sales of
timeshare intervals contributed $8.0 million or 30% and $4.4 million or 18%,
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
December 31, December 29,
1996 1995
Number of intervals sold..................... 803 488
Average sales price per interval............. $8,549 $7,755
Gross margin................................. 72% 65%
The number of timeshare intervals sold increased to 803 for the current quarter
compared to 488 for the comparable quarter of the previous fiscal year. During
the prior year quarter, 315 interval sales were generated from the Company's
first resort in Gatlinburg, Tennessee and 173 intervals were sold from the
Company's second resort in neighboring Pigeon Forge. During the current year
quarter, 382 intervals were sold from the Gatlinburg resort, an additional 254
intervals were sold from the Pigeon Forge resort and 167 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 quarter of last year.
Gross margins on interval sales increased from 65% for the quarter last year to
72% for the current quarter. During the current quarter, gross margins from the
Company's resorts in Gatlinburg, Pigeon Forge and Myrtle Beach were 71%, 74% and
72%, respectively. During the prior quarter, gross margins from the Company's
resorts in Gatlinburg and Pigeon Forge were 61% and 72%, respectively. The
improvement in the average gross margin for the Company's Gatlinburg and Pigeon
Forge resorts was attributable to increases in retail selling prices. While the
increase in the average sales price in the current quarter was primarily
attributable to increases in retail sales prices, the average price also
increased as a result of the addition of the Myrtle Beach resort. The Myrtle
Beach resort maintains average sales prices which are higher than the Pigeon
Forge resort and comparable to the Gatlinburg resort.
Communities Division
During the three months ended December 29, 1996, the Company's Communities
Division contributed $2.3 million in sales revenue, or approximately 9% of total
consolidated revenues from the sale of real estate. During the three months
ended December 31, 1995, the Communities Division generated $4.4 million in
sales revenue, or approximately 19% 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.
Three Months Ended
December 29, December 31,
1996 1995
Number of homes/lots sold.............. 34 53
Average sales price.................... $44,546 $83,690
Gross margin........................... 8% 14%
The reduction in the average sales price was primarily attributable to a greater
number of lot-only sales and no site-built home sales in the current year
quarter. The $2.3 million in current quarter sales was comprised of 15
manufactured homes with an average sales price of $81,187, 16 sales of lots at
an average sales price of $23,697 and three bulk sales for an aggregate of
$688,000. The $4.4 million in prior year sales was comprised of 35 manufactured
homes with an average sales price of $76,101, an additional 7 site-built homes
with an average sales price of $143,043, 10 sales of lots at an average sales
price of $24,040 and one larger acreage Southwestern bulk lot sale for $530,320.
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.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Three Months Ended December 29, 1996
Geographic Region Land Communities Resorts Total %
Southwest............ $11,121,288 $ --- $ --- $11,121,288 42.0%
Rocky Mountains...... 2,047,975 --- --- 2,047,975 7.8%
Midwest.............. 339,200 --- 5,596,475 5,935,675 22.4%
Southeast............ 986,998 2,294,448 2,436,696 5,718,142 21.6%
West................. 1,270,581 --- --- 1,270,581 4.8%
Northeast............ 294,032 --- --- 294,032 1.1%
Mid-Atlantic......... 59,046 --- --- 59,046 .2%
Canada............... 31,634 --- --- 31,634 .1%
Totals............... $16,150,754 $2,294,448 $ 8,033,171 $26,478,373 100.0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Ended December 31, 1995
Geographic Region Land Communities Resorts Total %
Southwest............ $ 8,053,746 $ 1,531,623 $ --- $ 9,585,369 40.1%
Rocky Mountains...... 1,830,557 112,900 --- 1,943,457 8.1%
Midwest.............. 1,637,088 --- 4,416,910 6,053,998 25.3%
Southeast............ 2,327,800 2,791,032 --- 5,118,832 21.3%
Northeast............ 332,225 --- --- 332,225 1.4%
Mid-Atlantic......... 864,782 --- --- 864,782 3.6%
Canada............... 36,142 --- --- 36,142 .2%
Totals............... $15,082,340 $4,435,555 $4,416,910 $23,934,805 100.0%
</TABLE>
<PAGE>
As discussed earlier, during the prior year three month period, certain land
projects were subject to percentage of completion accounting since substantially
all development with respect to such projects was not completed. Accordingly,
$453,000 in sales, or $176,000 in operating profits, were deferred in the last
year quarter.
During the current year three month period, several other land projects were the
subject of percentage of completion accounting. Accordingly, $633,000 in sales,
or $292,000 in operating profits were deferred.
Interest income increased 7% to $1.6 million for the three months ended December
29, 1996 compared to $1.5 million for the three months ended December 31, 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
December 29, December 31,
Interest income and other: 1996 1995
Receivables held and servicing fees
from whole-loan sales..................... $1,202,414 $ 1,039,627
Securities retained in connection with REMIC
financings including REMIC servicing fee... 351,735 324,841
Gain (loss) on REMIC transactions............. (57,009) ---
Cash and cash equivalents..................... 85,678 118,384
Totals........................................ $1,582,818 $1,482,852
The table to follow sets forth the average interest bearing assets for the
periods indicated.
Three Months Ended
December 29, December 31,
Average interest bearing assets 1996 1995
Receivables .................................. $35,486,908 $33,004,032
Securities retained in connection with REMIC
financings ................................. 10,913,651 9,995,108
Cash and cash equivalents...................... 8,476,971 9,969,179
Totals......................................... $54,877,530 $52,968,319
S,G&A expense totaled $12.5 million and $9.3 million for the three months ended
December 29, 1996 and December 31, 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 39% for the quarter last
year to 47% for the current year quarter. The increase as a percentage of sales
was largely the result of higher S,G&A expenses for the Resorts Division for the
current year quarter as well as higher corporate overhead. The Company has
invested in human resources and other infrastructure to support the anticipated
long-term growth of the Resorts Division. Management expects that S,G&A for
the Resorts Division will continue to be disproportionately high as a
percentage of sales for the remainder of fiscal 1997.
The table to follow sets forth comparative S,G&A expense information for the
periods indicated.
<PAGE>
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Three Months Ended December 29, 1996
<C> <C> <C> <C> <C> <C> <C> <C>
Land(3) Communities Resorts(4) Total
Sales of real $16,151 100.0% 2,294 100.0% 8,033 100.0% $26,478 100.0%
estate...
Field selling,
general and
administrative 9,359 31.7% 108 4.7% 5,214 64.9% 10,434 39.4%
expense (1)..........
</TABLE>
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Three Months Ended December 31, 1995
<C> <C> <C> <C> <C> <C> <C> <C>
Land Communities Resorts Total
Sales of real $15,082 100.0% $4,436 100.0% $4,417 100.0% $23,935 100.0%
estate...
Field selling,
general and
administrative 4,570 30.3% 781 17.6% 2,440 55.2% 7,791 32.5%
expense (1)..........
</TABLE>
(1) Corporate general and administrative expenses of $2.1 million and $1.5
million for the three months ended December 29, 1996 and December 31, 1995,
respectively, have been excluded from the table.
Interest expense totaled $1.4 million and $1.3 million for the three months
ended December 29, 1996 and December 31, 1995, respectively. The 14% increase in
interest expense for the current period was primarily attributable to an
increase in the average outstanding receivable-backed notes payable and lines of
credit and other notes payable. The increase in interest on such indebtedness
was partially offset by more interest capitalized to inventory. The Company
capitalized interest totaling $654,000 during the three months last year,
compared to $755,000 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 effective
cost of borrowing (including other financing costs and capitalized interest) was
10.4% and 11.1% for the current year and prior year quarters, respectively. The
table set forth below outlines the components of interest expense for the
periods indicated.
Three Months Ended
December 29, December 31,
Interest expense on: 1996 1995
Receivable-backed notes payable............ $ 480,518 $ 365,852
Lines of credit and notes payable.......... 756,156 525,808
8.25% convertible subordinated debentures... 716,492 716,492
Other financing costs....................... 246,997 309,730
Capitalization of interest.................. (754,987) (654,039)
Totals...................................... $1,445,176 $1,263,843
The table to follow sets forth the average indebtedness for the periods
indicated.
Three Months Ended
December 29, December 31,
Average indebtedness 1996 1995
Receivable-backed notes payable............... $18,855,291 $14,139,208
Lines of credit and notes payable............. 30,840,854 19,841,811
8.25% convertible subordinated debentures..... 34,739,000 34,739,000
Totals........................................ $84,435,145 $68,720,019
<PAGE>
The Company recorded provisions for loan losses totaling $270,000 for the three
months ended December 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 December 31, 1995, the Company recorded provisions for loan
losses of $68,000 in addition to a provision of $52,000 for real estate taxes
and other costs associated with delinquent customers. During the three months
ended December 29, 1996 and December 31, 1995, the Company charged-off $233,000
and $120,000, respectively, to its reserve for loan losses. An additional
$73,000 and $103,000 was charged-off against the reserve for advanced real
estate taxes and other costs for the three months ended December 29, 1996 and
December 31, 1995. The Company's internal financing does not require customers
to escrow real estate taxes.
Income (loss) from consolidated operations was $(15,000) and $1.6 million for
the three months ended December 29, 1996 and December 31, 1995, respectively.
The reduction for the current quarter was primarily the result of higher S,G&A
expenses under the Resort Division, higher corporate general and administrative
expense, lower gross margins under the Land Division and higher provisions for
loan losses.
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 December 29, 1996 and December 31, 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 December 29, 1996 and December 31, 1995.
Net income was $20,000 and $985,000 for the three months ended December 29, 1996
and December 31, 1995, respectively. As discussed earlier, the reduction for the
current quarter was primarily the result of higher S,G&A expenses under the
Resort Division, higher corporate general and administrative expense, lower
gross margins under the Land Division and higher provisions for loan losses.
<PAGE>
Results of Operations.
Nine Months Ended - December 29, 1996
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the nine months ended
December 29, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Nine Months Ended December 29, 1996
<C> <C> <C> <C> <C> <C> <C> <C>
Land Communities Resorts(3) Total
Sales of real $54,604 100.0% $ 6,303 100.0% $20,805 100.0% $81,712 100.0%
estate...
Cost of real estate
sold................. 28,983 53.1% 6,046 95.9% 6,355 30.5% 41,384 50.6%
Gross profit......... 25,621 46.9% 257 4.1% 14,450 69.5% 40,328 49.4%
Field selling,
general and
administrative 17,167 31.4% 815 12.9% 13,563 65.2% 31,545 38.5%
expense (1)..........
Field operating
profit (loss) (2).... $ 8,454 15.5% $( 558) ( 8.8)% $ 887 4.3% $ 8,783 10.8%
</TABLE>
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Nine Months Ended December 31, 1995
<C> <C> <C> <C> <C> <C> <C> <C>
Land(3) Communities Resorts (4) Total
Sales of real $60,148 100.0% $11,814 100.0% $9,871 100.0% $81,834 100.0%
estate...
Cost of real estate
sold................. 28,994 48.2% 10,282 87.0% 3,268 33.1% 42,545 52.0%
Gross profit......... 31,154 51.8% 1,532 13.0% 6,603 66.9% 39,289 48.0%
Field selling,
general and
administrative 18,180 30.2% 2,190 18.5% 5,889 59.7% 26,259 32.1%
expense (1)..........
Field operating
profit (loss) (2).... $12,974 21.6% $ (658) (5.5)% $ 714 7.2% $13,030 15.9%
</TABLE>
(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 nine months ended December 31, 1995, many land projects which
had previously been the subject of percentage of completion accounting were
substantially completed. Accordingly, $4.4 million of previously deferred
sales, or $2.0 million in operating profits, were recognized during the
nine months ended December 31, 1995.
During the nine months ended December 29, 1996, several land projects were
the subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly,
$1.1 million in sales, or $596,000 in operating profits, were deferred
during the nine months ended December 29, 1996. See Contracts Receivable
and Revenue Recognition under Note 2 to the Consolidated Financial
Statements included under Part I, Item 1.
<PAGE>
(4) The Resort Division had $538,000 and $328,000 in sales deferred under the
percentage of completion method of accounting during the nine months ended
December 29, 1996 and December 31, 1995, respectively. Operating profits
associated with the current nine month deferred sales totaled $219,000.
Operating profits deferred during the prior year nine month period were not
material. See Contracts Receivable and Revenue Recognition under Note 2 to
the Consolidated Financial Statements included under Part I, Item 1.
Consolidated sales of real estate for the nine months ended December 29, 1996
were $81.7 million compared to $81.8 million for the nine months ended December
31, 1995. The discussion and tables to follow set forth additional information
on the business units comprising the consolidated operating results.
Land Division
During the nine months ended December 29, 1996 and December 31, 1995, land sales
contributed $54.6 million or 67% and $60.1 million or 74%, 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.
Nine Months Ended
December 29, December 31,
1996 1995
Number of parcels sold...................... 1,498 1,618
Average sales price per parcel.............. $37,207 $34,619
Average sales price per parcel
excluding a large acreage sale
in each of the Rocky Mountains
and Southeast regions in the 1995
period and excluding a large acreage
sale in each the Rocky Mountain
region and West as well as two large
acreage sales in the Northeast
in the 1996 period........................... $35,988 $32,837
Gross margin................................. 47% 52%
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>
Nine Months Ended
December 29, 1996 December 31, 1995
Average Average
Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 822 $ 37,378 733 $ 37,475
Rocky Mountains. 175 $ 41,163 202 $ 49,339
Midwest........... 137 $ 24,550 222 $ 31,201
Southeast......... 178 $ 35,375 170 $ 37,007
West.............. 20 $149,425 --- ---
Northeast......... 40 $ 22,807 96 $ 12,727
Mid-Atlantic...... 123 $ 34,274 180 $ 22,021
Canada............ 3 $ 10,545 15 $ 11,674
Totals............ 1,498 $ 37,207 1,618 $ 34,619
The number of parcels sold in the Southwest increased during the current nine
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 nine month period was partially offset by
lower sales from San Antonio, Texas properties.
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 bulk sales in both the
current and prior year nine 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%. There also was a bulk sale in Idaho during
the current period totaling $525,000 and constituting 36 acres. The average
sales price per parcel for the current year, excluding the bulk sales, was
$34,529. 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 $37,146.
The reduction in the average sales price from $37,146 for the prior year to
$34,529 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 period
due to a shortage of inventory in Tennessee. The Company acquired a Tennessee
property in January, 1997 and has paid deposits to purchase on two additional
properties. No assurances can be given that the two properties under contract
will be acquired.
In the Southeast, the Company sold a slightly greater number of less 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 19 parcels from its Arizona property on a retail
basis and one large acreage parcel representing 210 acres for $462,000. The
Company acquired the acreage outside of Prescott in fiscal 1996 and sales
commenced in the fourth 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 and third quarter the Company sold large northeastern bulk parcels
for $315,000. 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.
<PAGE>
The decrease in the average gross margin for the Land Division from 52% last
year to 47% for the current nine month period was attributable to (i) more sales
from the Company's Arizona property which yielded an average gross margin of 41%
and (ii) less sales from Tennessee properties which historically have yielded
gross margins in excess of 55%.
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 $520,000 of net inventory in the Northeast. In addition, sales of
inventory which was subject to cost over-runs (which includes certain 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 nine months ended December 29, 1996 and December 31, 1995, sales of
timeshare intervals contributed $20.8 million or 25% and $9.9 million or 12%,
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).
Nine Months Ended
December 29, December 31,
1996 1995
Number of intervals sold......................... 2,579 1,340
Average sales price per interval................. $8,342 $7,611
Gross margin..................................... 70% 67%
The number of timeshare intervals sold increased to 2,579 for the current period
compared to 1,340 for the comparable period of the previous fiscal year. During
the prior year, 1,088 interval sales were generated from the Company's first
resort in Gatlinburg, Tennessee and an additional 252 intervals were sold from
the Pigeon Forge, Tennessee project. During the current year quarter, 1,191
intervals were sold from the Gatlinburg resort, an additional 794 intervals were
sold from the Company's second resort in neighboring Pigeon Forge, Tennessee and
594 intervals were sold from the Company's resort in Myrtle Beach, South
Carolina. Sales of the Myrtle Beach resort commenced in the fourth quarter last
year.
Gross margins on interval sales increased from 67% for the nine months of last
year to 70% for the current year. During the current nine month period, gross
margins from the Company's resorts in Gatlinburg, Pigeon Forge and Myrtle Beach
were 70%, 71% and 72%, respectively. During the prior year period, gross margins
from the Company's resorts in Gatlinburg and Pigeon Forge were 66% and 73%,
respectively. The improvement in gross margins from the Company's Gatlinburg,
Tennessee resort was attributable to increases to the retail selling prices
partially offset by cost over-runs incurred on certain unit construction and
amenities of the project. 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.
<PAGE>
Communities Division
During the nine months ended December 29, 1996, the Company's Communities
Division contributed $6.3 million in sales revenue, or approximately 8% of total
consolidated revenues from the sale of real estate. During the nine months ended
December 31, 1995, the Communities Division generated $11.8 million in sales
revenue, or approximately 14% 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.
Nine Months Ended
December 29, December 31,
1996 1995
Number of homes/lots sold.................. 94 149
Average sales price........................ 44,546 $79,289
Gross margin............................... 4% 13%
The reduction in the average sales price was primarily attributable to a fewer
number of site-built homes in the current year. The $6.3 million in current year
sales was comprised of 51 manufactured homes with an average sales price of
$79,790, an additional 4 site-built homes with an average sales price of
$114,817, 36 sales of lots at an average sales price of $24,049 and three bulk
sales for an aggregate of $688,000. The $11.8 million in prior year sales was
comprised of 89 manufactured homes with an average sales price of $74,119, an
additional 19 site-built homes with an average sales price of $200,941, 40 sales
of lots-only at an average sales price of $21,732 and one larger acreage
Southwestern bulk lot sale for $530,320. During the nine months ended December
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 nine months ended on the dates indicated.
<TABLE>
<CAPTION>
<S>
Nine Months Ended December 29, 1996
<C> <C> <C> <C> <C>
Geographic Region Land Communities Resorts Total %
Southwest............ $30,476,999 $ 157,000 $ --- $30,633,999 37.5%
Rocky Mountains...... 7,203,522 154,750 --- 7,358,272 9.0%
Midwest.............. 3,363,355 --- 16,178,596 19,541,951 23.9%
Southeast............ 6,296,803 5,991,291 4,626,094 16,914,188 20.7%
West................. 2,590,081 --- --- 2,590,081 3.1%
Northeast............ 912,282 --- --- 912,282 1.1%
Mid-Atlantic......... 3,729,012 --- --- 3,729,012 4.6%
Canada............... 31,634 --- --- 31,634 .1%
Totals............... $54,603,688 $6,303,041 $20,804,690 $81,711,419 100.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
Nine Months Ended December 31, 1995
<C> <C> <C> <C> <C>
Geographic Region Land Communities Resorts Total %
Southwest............ $30,135,056 $ 2,573,405 $ --- $32,708,461 39.9%
Rocky Mountains...... 9,966,520 397,317 --- 10,363,837 12.7%
Midwest.............. 7,739,757 --- 9,871,343 17,611,100 21.5%
Southeast............ 6,626,649 8,843,326 --- 15,469,975 18.9%
Northeast............ 1,221,765 --- --- 1,221,765 1.5%
Mid-Atlantic......... 4,283,630 --- --- 4,283,630 5.3%
Canada............... 175,114 --- --- 175,114 .2%
Totals............... $60,148,491 $11,814,048 $9,871,343 $81,833,882 100.0%
</TABLE>
As discussed earlier, during the prior year nine month period, many land
projects which had previously been the subject of percentage of completion
accounting were substantially completed. Accordingly, $4.4 million of previously
deferred sales, or $2.0 million in operating profits, were recognized last year.
During the current year nine month period, several other land projects were the
subject of percentage of completion accounting since substantially all
development with respect to such projects was not completed. Accordingly, $1.1
million in sales, or $596,000 in operating profits, were deferred.
Interest income decreased 22% to $4.6 million for the nine months ended December
29, 1996 compared to $5.8 million for the nine months ended December 31, 1995.
The prior year nine month figure included a gain from a REMIC transaction of
$1.1 million as discussed below. 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.
Nine Months Ended
December 29, December 31,
Interest income and other: 1996 1995
Receivables held and servicing fees
from whole-loan sales...................... $3,383,994 $3,096,118
Securities retained in connection with REMIC
financings including REMIC servicing fee... 1,021,083 1,262,665
Gain (loss) on REMIC transactions............. (96,211) 1,119,572
Cash and cash equivalents..................... 268,187 368,726
Totals........................................ $4,577,053 $5,847,081
The table to follow sets forth the average interest bearing assets for the
periods indicated.
Nine Months Ended
December 29, December 31,
Average interest bearing assets 1996 1995
Receivables .................................. $33,377,502 $32,763,153
Securities retained in connection with REMIC
financings ................................ 10,887,804 12,950,410
Cash and cash equivalents..................... 8,608,408 10,350,204
Totals........................................ $52,873,714 $56,063,767
S,G&A expense totaled $38.1 million and $31.4 million for the nine months ended
December 29, 1996 and December 31, 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 nine months last
year to 47% for the current year nine month period. The increase as a percentage
of sales was largely the result of higher S,G&A expenses for Resorts Division as
well as higher corporate general and administrative expense. The Company has
invested in human resources and other infrastructure to support the anticipated
long-term growth of the Resorts Division. Management expects that S,G&A for
the Resorts Division will continue to be disproportionately large as a
percentage of sales for the remainder of fiscal 1997.
<PAGE>
The table to follow sets forth comparative S,G&A expense information for the
periods indicated.
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Nine Months Ended December 29, 1996
<C> <C> <C> <C> <C> <C> <C> <C>
Land Communities Resorts Total
Sales of real estate... $54,604 100.0% $6,303 100.0% $20,805 100.0% $81,712 100.0%
Field selling,
general and
administrative
expense (1)............. 17,167 31.4% 815 12.9% 13,563 65.2% 31,545 38.5%
</TABLE>
<TABLE>
<CAPTION>
<S>
(Dollars in Thousands)
Nine Months Ended December 31, 1995
<C> <C> <C> <C> <C> <C>
Land Communities Resorts Total
Sales of real estate... $60,148 100.0% $11,814 100.0% $9,871 100.0% $81,834 100.0%
Field selling,
general and
administrative
expense (1)............ 18,180 30.2% 2,190 18.5% 5,889 59.7% 26,259 32.1%
</TABLE>
(1) Corporate general and administrative expenses of $6.5 million and $5.1
million for the nine months ended December 29, 1996 and
December 31, 1995 have been excluded from the table.
Interest expense totaled $3.9 million and $5.1 million for the nine months ended
December 29, 1996 and December 31, 1995, respectively. The 23% 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 $1.2 million during the nine months last year,
compared to $2.3 million for the nine 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 nine 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 transactions. However, the average outstanding lines of credit and
notes payable increased resulting in higher interest expense during the current
year period. See Note 6 to the Consolidated Financial Statements included under
Part I, Item 1. The effective cost of borrowing (including other financing costs
and capitalized interest) was 10.3% and 12.5% for the nine months ended December
29, 1996 and December 31, 1995, respectively. The table set forth below outlines
the components of interest expense for the periods indicated.
Nine Months Ended
December 29, December 31,
Interest expense on: 1996 1995
Receivable-backed notes payable................... $ 1,315,310 $ 1,417,505
Lines of credit and notes payable................. 2,005,228 1,713,969
8.25% convertible subordinated debentures......... 2,149,476 2,149,476
Other financing costs............................. 701,513 982,095
Capitalization of interest........................ (2,255,437) (1,151,357)
Totals............................................ 3,918,086 $ 5,111,688
The table to follow sets forth the average indebtedness for the periods
indicated.
<PAGE>
Nine Months Ended
December 29, December 31,
Average indebtedness 1996 1995
Receivable-backed notes payable................... $17,088,872 $18,260,933
Lines of credit and notes payable................. 28,197,597 21,559,358
8.25% convertible subordinated debentures......... 34,739,000 34,739,000
Totals............................................ $80,025,469 $66,570,133
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 dispose. The $8.2 million in
provisions for the nine months ended December 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 21
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. During the
quarter ending December 29, 1996, approximately one-third of the remaining lots
at one of the North Carolina developments were sold in bulk transactions
yielding $688,000 in sales. As previously disclosed, the Company plans to
terminate its Communities Division.
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 $651,000 for the nine
months ended December 29, 1996 in addition to a provision of $249,000 for real
estate taxes and other costs associated with delinquent customers. During the
nine months ended December 31, 1995, the Company recorded provisions for loan
losses of $448,000 in addition to a provision of $52,000 for real estate taxes
and other costs associated with delinquent customers. During the nine months
ended December 29, 1996 and December 31, 1995, the Company charged-off $580,000
and $409,000, respectively, to its reserve for loan losses. An additional
$186,000 and $103,000 was charged-off against the reserve for advanced real
estate taxes and other costs for the nine months ended December 29, 1996 and
December 31, 1995. The Company's internal financing does not require customers
to escrow real estate taxes.
Income (loss) from consolidated operations was $(6.2) million and $8.1 million
for the nine months ended December 29, 1996 and December 31, 1995, respectively.
The reduction for the current nine month period was primarily the result of
higher S,G&A expenses and increased provisions for losses.
<PAGE>
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
nine months ended December 29, 1996 and December 31, 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 nine
months ended December 29, 1996. The Company recorded a tax provision of 41% of
pre-tax income for the nine months ended December 31, 1995.
Net income (loss) was $(3.5) million and $4.9 million for the nine months ended
December 29, 1996 and December 31, 1995, respectively. As discussed earlier, the
reduction for the current year was primarily the result of higher S,G&A expenses
and increased provisions for losses.
<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.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated December 11, 1996 under item 5
which reported a private placement sale transaction. See Note 6 to the
Consolidated Financial Statements included under Items I, Part 1.
<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: February 12, 1997 By: /S/ GEORGE F. DONOVAN
George F. Donovan
President and
Chief Executive Officer
Date: February 12, 1997 By: /S/ ALAN L. MURRAY
Alan L. Murray
Treasurer and Chief Financial
Officer
(Principal Financial Officer)
Date: February 12, 1997 By: /S/ MARYJO WIEGAND
MaryJo Wiegand
Vice President and Controller
(Principal Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Mar-30-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Dec-29-1996
<CASH> 14,715,906
<SECURITIES> 11,129,371
<RECEIVABLES> 40,981,414
<ALLOWANCES> 968,232
<INVENTORY> 81,108,141
<CURRENT-ASSETS> 6,004,713
<PP&E> 10,640,934
<DEPRECIATION> 5,311,124
<TOTAL-ASSETS> 158,301,123
<CURRENT-LIABILITIES> 19,837,274
<BONDS> 34,739,000
0
0
<COMMON> 206,019
<OTHER-SE> 59,834,814
<TOTAL-LIABILITY-AND-EQUITY> 158,301,123
<SALES> 81,711,422
<TOTAL-REVENUES> 86,472,468
<CGS> 41,383,907
<TOTAL-COSTS> 41,383,907
<OTHER-EXPENSES> 38,050,774
<LOSS-PROVISION> 9,100,672
<INTEREST-EXPENSE> 3,916,090
<INCOME-PRETAX> (5,978,975)
<INCOME-TAX> (2,451,380)
<INCOME-CONTINUING> (3,527,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,527,595)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
