SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5295 Town Center Road, Boca Raton, Florida 33486
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 361-2700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange, Pacific Stock Exchange
8.25% Convertible Subordinated Debentures ....due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained in the
definitive proxy statement incorporated by reference into Part III of this Form
10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $60,962,843 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 13, 1997 ($3.625
per share). The market value of voting stock held by non-affiliates excludes any
shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures
which are convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 20,601,871 shares of
Common Stock, $.01 par value, outstanding as of June 13, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's 1997 Annual Report to
Shareholders (the "Annual Report") are incorporated by reference into Part II
and IV hereof and specifically identified portions of the Company's definitive
proxy statement to be filed for its Annual Meeting of Shareholders to be held on
July 30, 1997 (the "Proxy Statement") are incorporated by reference into Part
III hereof.
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BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I PAGE
Item 1. BUSINESS
Summary.................................................. 1
Acquisition of Inventory ................................ 3
Marketing and Sale of Inventory.......................... 6
Customer Financing....................................... 10
Loan Underwriting........................................ 11
Collection Policies...................................... 12
Sales of Receivables/Pledging of Receivables............. 13
Receivables Servicing.................................... 14
Customer Service......................................... 14
Regulation............................................... 14
Competition.............................................. 15
Personnel................................................ 15
Executive Officers of the Company........................ 15
Item 2. PROPERTIES......................................................... 16
Item 3. LEGAL PROCEEDINGS.................................................. 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 17
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ...................................... 17
Item 6. SELECTED FINANCIAL DATA........................................... 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 17
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 17
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 17
Item 11.
EXECUTIVE COMPENSATION..................................................... 18
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 18
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 18
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 18
Signatures................................................................. 20
Exhibit Index.............................................................. 21
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PART I
Item 1. BUSINESS.
Summary
Bluegreen Corporation, together with its subsidiaries (the "Company"), is the
successor to a real estate business that was formed as a sole proprietorship in
1966 and incorporated in 1976. As approved at a special meeting of the Company's
shareholders held in February, 1996, the Company changed its name from Patten
Corporation to Bluegreen Corporation in March, 1996. The Company's real estate
operations are currently managed under 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, whereby fixed
week intervals or undivided fee simple interests are sold in fully-furnished
vacation units. The Communities Division is engaged in the sale of manufactured
homes on residential land parcels at a North Carolina project as well as the
sale of residential lots primarily in three additional southeastern projects.
The Land Division is segregated into two broad property types offered for sale
to prospective customers: (i) land intended for residential use and (ii) land
intended for general recreational use. Land intended for residential use is
fully improved and generally includes provisions for water, electricity and
telephone as well as the construction of access roads leading to the subdivided
lots. General recreational property is typically used for hunting, fishing and
camping or as a potential homesite in the longer-term.
The Company's Resorts Division, introduced in 1994, is responsible for the
development and operation of timeshare properties which are located in
popular, regional family vacation destinations. The Division is also
responsible for the marketing and sale of timeshare interests in its resorts,
generally through one week vacation ownership intervals.
Under the Company's Communities Division, factory-built manufactured home and
lot packages are marketed in a North Carolina development. In addition,
residential lots from two other projects in North Carolina and a project in
Orlando, Florida are being developed and sold. The North Carolina land
inventories were acquired prior to the formation of the investment committee.
(defined below). Sales of the North Carolina inventories are expected to yield
gross margins lower than those historically experienced under the Land Division.
The Company is liquidating its current communities inventories through a
combination of bulk sales and retail sales and the Company does not intend to
expand its communities related activities beyond the projects currently being
marketed.
The Company recorded provisions for the write-down of certain inventories
totaling $8.2 million during the first quarter of fiscal 1997. See "Results of
Operations" under Management's Discussion and Analysis of Financial Condition
and Results of Operations which is incorporated by reference into Item 7, Part
II herein from the 1997 Annual Report.
The Company's Land, Resorts and Communities divisions accounted for 66% ($72.6
million), 25% ($27.4 million) and 9% ($9.7 million), respectively, of
consolidated sales of real estate for fiscal 1997. See Management's Discussion
and Analysis of Financial Condition and Results of Operations which is
incorporated by reference into Item 7, Part II herein from the Company's 1997
Annual Report.
All inventory acquisitions require the prior approval of the Company's
investment committee, which consists of certain executive officers of the
Company (the "Investment Committee"). The Company seeks to reduce its cash
outlay and risks by making small downpayments when contracting to acquire
properties and, in the case of the Land Division, by completing as many
preparations for resale as possible before actually completing the purchase. The
Company has historically acquired substantially all of the inventory it has
placed under contract. The downpayment and any preliminary development costs are
the only amounts at risk if the Company fails to complete a purchase. See
"Acquisition of Inventory".
The Company seeks external sources of capital to fund its property acquisitions.
Such sources generally consist of seller, bank or similar financial institution
term financing. In addition, the Company has secured lines-of-credit for the
acquisition and development of its inventories. See Management's Discussion and
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Analysis of Financial Condition and Results of Operations which is
incorporated by reference into Item 7, Part II herein from the 1997 Annual
Report. The aggregate amount of inventory acquisition and development funded
through term financing and lines-of-credit during fiscal 1997, 1996 and 1995
totaled $26.9 million or 29%, $12.4 million or 18% and $23.1 million or 32%,
respectively.
The Company's continued growth depends upon obtaining outside sources of capital
to finance new property purchases and development, fund operations, satisfy debt
obligations and provide loans to purchasers of land parcels and timeshare
vacation ownership intervals. In the past, the Company has funded its activities
through various sources, including borrowings under secured and unsecured
lines-of-credit, sales of notes receivables and the sale of debt and equity
securities. These arrangements require the Company to comply with certain
covenants and retain certain contingent liabilities. As of March 30, 1997, the
Company had outstanding $34.7 million of 8.25% convertible subordinated
debentures, $21.1 million in receivable-backed notes payable and $35.9 million
in lines-of-credit and notes payable, with an aggregate weighted average
interest rate on all such indebtedness of 9.0% at March 30, 1997. The Company
anticipates that it will continue to require external sources of capital. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is incorporated by reference into Item 7, Part II herein from
the 1997 Annual Report.
The Company begins to market parcels under its Land Division as soon as
practicable, with the sale of acquired properties typically being completed
within 24 months from closing of the acquisition. The holding period may be
extended in areas where the subdivision approval process is more complex or in
certain larger projects. Land Division sales were $72.6 million, $84.9 million
and $72.6 million for fiscal 1997, fiscal 1996 and 1995, respectively.
To minimize the risk associated with holding its timeshare inventory, the
Resorts Division sells vacation ownership intervals during construction. Resorts
Division sales were $27.4 million, $13.8 million and $5.9 million for fiscal
1997 1996 and 1995, respectively.
The Company seeks to minimize market exposure for inventory held by the
Communities Division by limiting the number of factory-built homes that are
purchased on a speculative basis. The Company attempts to obtain contracts for
sales of homes prior to development. Communities Division sales were $9.7
million, $14.7 million and $13.4 million for fiscal 1997, 1996 and 1995,
respectively.
For information on the Company's revenue recognition policy, see Note 1 to the
Consolidated Financial Statements which are incorporated by reference into Item
8, Part II herein from the 1997 Annual Report.
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all purchasers who qualify for such financing. The Company also
offers financing of up to 90% of the purchase price to timeshare purchasers.
Sales of factory-built manufactured homes under the Communities Division are
financed by third party lenders and, accordingly, the proceeds of such sales are
received entirely in cash. The Company structures its sales and financing
activities so that the purchase money mortgages arising from land sales and the
contracts for deed from timeshare sales loans (the "Receivables") may be pledged
or sold in separate financing transactions to provide liquidity for the Company.
This liquidity allows the Company to continue to provide financing to its
customers for the sale of land and vacation ownership intervals. During fiscal
1997, 1996 and 1995, the Company financed 30%, 26% and 24%, respectively, of its
aggregate sales of real estate which closed during the applicable period and
received cash for the remaining amounts. See "Customer Financing" and
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is incorporated by reference into Item 7, Part II herein from
the Company's 1997 Annual Report.
The Receivables originated by the Company are typically pledged to financial
institutions or sold in private placement transactions. In recent years, private
placement Real Estate Mortgage Investment Conduit ("REMIC") financings have
provided substantial capital resources to the Company. To date, REMIC
transactions have included land receivables. 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. See Management's Discussion and Analysis of
Financial Condition and Results of Operations which is incorporated by reference
into Item 7, Part II herein from the 1997 Annual Report.
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At March 30, 1997, the Company had 453 full-time and 45 part-time employees. The
Company's executive offices are located at 5295 Town Center Road, Boca Raton,
Florida 33486. Its telephone number at such address is (561) 361-2700.
The Company's common stock is listed on the New York Stock Exchange and on the
Pacific Stock Exchange under the symbol "BXG." The Company's 8.25% convertible
subordinated debentures due 2012 are also listed on the NYSE.
Acquisition of Inventory
In order to provide centralized and uniform controls on the type, location and
amount of inventory that the Company acquires, all inventory acquisitions have
required the approval of the Investment Committee since 1989. The Investment
Committee is comprised of George F. Donovan, President and Chief Executive
Officer; Daniel C. Koscher, Senior Vice President, Land Division; L. Nicholas
Gray, Senior Vice President, Resorts Division and Patrick E. Rondeau, Vice
President, Director of Legal Affairs and Clerk. The Investment Committee reviews
each proposed acquisition to determine whether the property meets certain
criteria. The Investment Committee considers such established criteria as the
economic conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. Since the establishment of the
Investment Committee, sales of property approved by it have generally resulted
in average gross margins of at least 55%. No assurances can be given that future
sales of property approved by the Investment Committee will yield comparable
gross margins. Prior to the formation of the Investment Committee, the
determination of whether to buy most properties was typically made by the
Company's regional managers, together with one or more members of the Company's
senior management.
Land Division
The Land Division, through the Company's regional offices, and subject to
Investment Committee review and approval, typically acquires inventory that (i)
is located within one to three hours of a major city, (ii) is suitable for
subdivision, (iii) maintains attractive topographical features and (iv) will
result in an acceptable profit margin and cash flow to the Company based upon
anticipated resale value. Properties are generally subdivided for resale into
parcels ranging in size from one to 35 acres. In fiscal 1997, the Company
acquired 19,254 acres in 23 separate transactions for a total purchase price of
$29.7 million, or $1,541 per acre. These properties ranged in size from seven to
4,454 acres. Seller, bank or similar financial institution financing of $15.0
million, or 51% of the $29.7 million total purchase price, was obtained.
The Land Division has several specialists who assist regional management in
locating inventory for acquisition. The Company has established contacts with
numerous land owners and real estate brokers in many of its market areas, and
because of such contacts and its long history of acquiring properties, the
Company is generally in a favorable position to learn of available inventory.
The Company's objective is to develop strong relationships with major property
owners and brokers. Regional offices regularly contact property owners, such as
timber companies, financial institutions and real estate brokers, by a
combination of telephone, mail and personal visits. In addition, the Company
occasionally places advertisements in local and national newspapers indicating
an interest in acquiring land. To date, the Company's regional offices generally
have been able to locate and acquire adequate quantities of inventory which meet
the criteria established by the Investment Committee to support their
operational activities.
Once an appropriate property is located, the Company begins performing due
diligence procedures and enters into a purchase agreement with the seller. It is
generally the Company's policy to advance only a small downpayment of 1% - 3% of
the purchase price when signing a contract to acquire inventory and to limit the
liquidated damages associated with such contracts to the amount of its
downpayment and any preliminary development costs. In most cases, the Company is
not required to advance the full purchase price or enter into a note payable
obligation until regulatory approvals for the subdivision and sale of at least
the initial phase of the project have been obtained. While local approvals are
being sought, the Company will, in certain instances, engage in test marketing
of the subdivided parcels and, with the consent of the seller and the knowledge
of prospective purchasers, occasionally attempt to pre-sell parcels, subject to
closing its purchase of the property. When the necessary regulatory approvals
have been received, the closing on the property occurs and the Company obtains
title. The time between execution of a purchase agreement and closing on a
property has generally been six to 12 months. Although the Company generally
retains the right to cancel purchase agreements without any loss beyond
forfeiture of the downpayment and preliminary development costs, few purchase
agreements have been canceled historically.
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By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract without
expending significant amounts of cash. This strategy enables the Company's Land
Division to reduce (i) the time during which it actually owns specific
properties, (ii) the market risk associated with holding real estate and (iii)
the risk of acquiring property that may not be suitable for sale. It also
provides a source of available properties to meet customer demand. In certain
instances, however, the Company has acquired properties and then held such
properties until their prime marketing seasons.
Prior to closing on a purchase of inventory, the Company's policy is to complete
its own environmental assessment of the property. The purpose of the Company's
assessment is to evaluate the impact the proposed subdivision will have on such
items as flora and fauna, wetlands, endangered species, open space, scenic
vistas, recreation, transportation and community growth and character. To obtain
this information, the Company's acquisition specialists typically consult with
various groups and agencies including the appropriate county and state planning
agencies, environmental groups, state heritage programs, soil conservation
agencies and forestry groups. If the Company's environmental assessment
indicates that the proposed subdivision meets environmental criteria and
complies with zoning, building, health and other laws, the Company develops a
formal land use plan, which forms a basis for determining an appropriate
acquisition price. The Company attempts, where possible, to accommodate the
existing topographical features of the land, such as streams, hills, wooded
areas, stone walls, farm buildings and roads. Prior to closing on an
acquisition, the Company will typically have the property surveyed by a
professional surveyor and have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company obtains
title insurance on the property.
Resorts Division
The Company obtains information with respect to resort acquisition opportunities
through interaction by the Company's management team with resort operators,
lodging companies or financial institutions with which the Company has
established business relationships. To date, all resorts have been purpose-built
for timesharing use. The Company's Resorts Division employs due diligence
procedures similar to those used by the Land Division in acquiring property for
future resorts. A full property review, including an environmental assessment,
is presented to the Investment Committee for approval prior to purchase. During
the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's existing
attractions to determine the availability of a variety of recreational
opportunities for prospective purchasers. Specifically, the Company evaluates
the following factors, among others, to determine the viability of a potential
new timeshare resort: (i) supply versus demand ratios for vacation intervals in
the particular market, (ii) alternative lodging establishments in the relevent
market, (iii) barriers to entry that would limit competition and (iv) the
market's growth as a vacation destination. While the Company's Land Division
inventory is expected to turn frequently, the Company anticipates that each of
its timeshare resorts will generally have a sell-out term of about seven years.
During the year ended March 30, 1997, the Company acquired 8 acres located in
Gatlinburg, Tennessee in two separate transactions for an aggregate purchase
price of $100,000. The acreage purchased is contiguous with the Company's
Mountainloft project and will be used for additional unit development.
Communities Division
The land supporting the subdivisions managed under the Communities Division was
acquired by the Company primarily in the late 1980's and comprises three
properties in North Carolina and one property in Florida. The Company entered
into the housing industry during fiscal 1994, primarily as a means to accelerate
lot sales of these older projects. The Company does not intend to expand its
communities related activities beyond the projects currently being marketed.
The Company's net inventory as of March 30, 1997 and March 31, 1996 summarized
by division and classified by major geographic region is set forth in the tables
to follow.
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March 30, 1997
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Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277
Midwest.............. 8,050,969 12,495,034 --- 20,546,003
Southwest............ 19,959,473 --- --- 19,959,473
Rocky Mountains ..... 7,533,939 --- --- 7,533,939
West ................ 5,511,879 --- --- 5,511,879
Mid-Atlantic......... 4,015,647 --- --- 4,015,647
Northeast............ 382,341 --- --- 382,341
Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
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March 31, 1996
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Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575
Midwest.............. 6,293,008 10,839,389 --- 17,132,397
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
Mid-Atlantic......... 2,490,025 --- --- 2,490,025
Northeast............ 1,982,895 --- --- 1,982,895
Canada............... 29,025 --- --- 29,025
Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
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(1) Resorts Division inventory as of March 30, 1997, consists of land inventory
of $5.4 million and $22.1 million of unit construction-in-progress. Resorts
Division inventory as of March 31, 1996, consists of land inventory of $6.1
million and $9.9 million of unit construction-in-progress.
(2) Communities Division inventory as of March 30, 1997, consists of land
inventory of $1.5 million and $4.2 million of housing unit
construction-in-progress. Communities Division inventory as of March 31,
1996, consists of land inventory of $10.5 million and $3.7 million of
housing unit construction-in-progress.
The Company attempts to maintain inventory at a level adequate to support
anticipated sales of real estate in its various operating regions. In addition,
in its Land Division, the Company has (since 1996) committed more resources to
fewer projects in locations where the Company has historically achieved strong
operating results such as Texas (Southwest), North Carolina and South Carolina
(Southeast), Tennessee (Midwest), Virginia (Mid-Atlantic) and Arizona (West).
The following table sets forth additional data with respect to each of the
properties managed under the Resorts Division.
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Mountainloft Laurel Crest Shore Crest Harbour Lights The Falls Village
Location Galinburg, TN Pigeon Forge, TN Myrtle Beach, SC Myrtle Beach, SC Branson, MO
Date acquired 11/93 2/95 9/95 3/97 4/97
Number of units
completed or
under
construction (1) 76 28 114 --- 12
Number of
additional units
planned (1)(2) 100 160 86 240 200
Average interval
selling price
through
March 30, 1997 $7,800 $8,000 $10,000 --- ---
Number of
intervals sold
through
March 30, 1997 3,777 1,460 775 --- ---
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(1) The number of units completed, under construction or planned are intended
to be sold in 52 weekly intervals.
(2) There can be no assurance that the Company will have the resources to
complete all such planned units or that such units will be sold at
favorable prices. See "Uses of Capital" under Management's Discussion and
Analysis of Financial Condition which is incorporated by reference into
Item 7, Part II herein from the 1997 Annual Report.
There are inherent risks associated with carrying increased levels of inventory.
In the event that the market for real estate or the economy in general
experiences a downturn in the Company's markets of operations, the Company's
ability to sell inventory at current rates of sales could be materially
adversely affected. If inventory is not sold as planned, the Company will incur
additional carrying costs. For further information on the Company's inventory
holdings, see "Uses of Capital" under Management's Discussion and Analysis of
Financial Condition which is incorporated by reference into Item 7, Part II
herein from the 1997 Annual Report.
Marketing and Sale of Inventory
Land Division
In general, as soon as a property has been acquired and during the time period
that appropriate improvements are being completed, the Company establishes
selling prices for the individual parcels taking into account such matters as
regional economic conditions, quality as a building site, scenic views, road
frontage and natural features such as lakes, mountains, streams, ponds and
wooded areas. The Company also considers recent sales of comparable parcels in
the area. Initial decisions on pricing of parcels in a given area are made by
the Company's regional managers and, in all cases, are subject to approval by
the Investment Committee.
The most widely used marketing technique is advertising in major newspapers in
metropolitan areas located within a one to three hour drive from the property.
The Company also advertises its land properties in local newspapers. A sales
representative who is knowledgeable about the property answers each inquiry,
discusses the property with the prospective purchaser, attempts to ascertain the
purchaser's needs and determine whether the parcel would be suitable for that
person, and arranges an appointment for the purchaser to visit the property.
Substantially all prospective customers inspect a property before purchasing.
The Land Division also conducts direct mail campaigns to market property through
the use of brochures describing available parcels, as well as television and
radio advertising. During fiscal 1997, the Land Division incurred $6.3 million
in advertising expense, or 9% of the division's $72.6 million in sales.
The success of the Company's marketing efforts depends heavily on the knowledge
and experience of its sales personnel (substantially all of whom are employees
of the Company). The Company requires that, prior to initiating the marketing
effort for a property, every sales representative walk the property and become
knowledgeable about each parcel and applicable zoning, subdivision and building
code requirements. Continued training programs are conducted, including training
with regional office sales managers, weekly sales meetings and frequent site
visits by an executive officer of the Company. Additionally, the sales staff is
evaluated against performance standards established by the executive officers of
the Company. Substantially all of a sales representative's compensation is
commission-based.
The Company requires its sales staff to provide each customer with a written
disclosure statement regarding the real estate to be sold prior to the time the
customer signs a purchase agreement. Either a U.S. Department of Housing and
Urban Development ("HUD") lot information statement, where required, or a
Company generated "Vital Information Statement" sets forth relevant information
with respect to, and risks associated with, the property and is signed by every
purchaser. The Company believes that each information statement contains all
material and relevant information a customer requires to make an informed
decision as to whether or not to purchase, such as availability and estimated
cost of utilities, restrictions regarding property usage, status of access roads
and information regarding rescission rights.
After deciding to purchase a parcel, the buyer enters into a contract and pays
the Company a deposit of at least 10% of the purchase price. It is the Company's
policy to give purchasers the right to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a land sale usually occurs two to eight weeks after payment of the
deposit. Upon closing of a land sale, the Company typically delivers a warranty
deed and a recent survey of the property to the buyer. Title insurance is
available at the purchaser's expense.
The table to follow sets forth certain information regarding sales of parcels by
the Land Division for the periods indicated.
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Years Ended
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March 30, March 31, April 2,
1997 1996 1995
Number of parcels sold................... 2,057 2,347 2,397
Average sales price per parcel........... $38,572 $34,856 $30,969
Gross margin (1)......................... 45% 51% 57%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements, amenities
and in certain cases capitalized interest), divided by the sales price. A
charge of $3.4 million was recorded during 1997 for the write-down of
certain inventories. See Note 4 to the Consolidated Financial Statements
which is incorporated by reference into Item 7, Part II herein from the
1997 Annual Report.
Certain sales have been deferred under percentage of completion accounting. See
Contracts Receivable and Revenue Recognition under Note 1 to the Consolidated
Financial Statements which is incorporated by reference into Item 7, Part II
herein from the 1997 Annual Report.
The table to follow sets forth the number of parcels sold and the average sales
price per parcel for the Company's Land Division by geographic region for the
fiscal years indicated.
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Years Ended
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March 30, 1997 March 31, 1996 April 2, 1995
Average Average Average
Number of Sales Price Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 1,131 $ 39,719 1,117 $ 37,489 1,107 $ 34,999
Southeast......... 291 $ 35,736 223 $ 36,925 289 $ 28,311
Rocky Mountains. 218 $ 40,499 297 $ 44,524 317 $ 28,740
West.............. 34 $ 147,816 19 $ 138,347 --- $ ---
Mid-Atlantic...... 152 $ 31,605 236 $ 21,951 215 $ 23,136
Northeast......... 53 $ 20,982 106 $ 12,472 113 $ 19,382
Canada............ 3 $ 10,545 15 $ 11,674 17 $ 10,160
Totals............ 2,057 $ 38,572 2,347 $ 34,856 2,397 $ 30,969
</TABLE>
For further information on sales attributable to the Company's Land Division,
see "Results of Operations" under Management's Discussion and Analysis of
Financial Condition and Results of Operations which is incorporated by reference
into Item 7, Part II herein from the 1997 Annual Report.
Resorts Division
The Company requires its sales staff to provide each timeshare customer with a
written disclosure statement regarding the real estate to be sold prior to the
time the customer signs a purchase agreement. A public disclosure statement sets
forth relevant information with respect to vacation ownership at the resort and
is signed by every purchaser. The Company believes that the information
statement contains all material and relevant information a customer requires to
make an informed decision as to whether or not to purchase.
After deciding to purchase a vacation ownership interval, the buyer enters into
a contract and pays the Company a deposit of at least 10% of the purchase price.
It is the Company's policy to give all purchasers the right to cancel purchase
agreements within specified periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit the resort prior to
purchasing.
<PAGE>
In the marketing and sale of timeshare intervals, the Company generally
targets family households in the middle income bracket who prefer outdoor
recreational activities at destination locations. The Company's primary means of
selling vacation ownership intervals is through an on-site sales presentation.
The division employs various programs to reach its target market and generate
prospects for these sales presentations including targeted mailings and direct
mail mini-vacation invitations. The division provides hotel accommodations to
prospective purchasers at reduced prices in exchange for their touring the
timeshare resort. In addition, cross-marketing to current owners and referral
sales are becoming more significant. Timeshare resorts are staffed with, among
others, sales representatives, sales managers and an on-site manager who
oversees the day-to-day operations, all of whom are employees of the Company.
Sales personnel are generally experienced in resort sales and undergo ongoing
Company-sponsored training. During fiscal 1997, total advertising expense for
the Resorts Division was $7.6 million or 28% of the division's $27.4million in
sales.
The attractiveness of vacation interval ownership has been enhanced
significantly by the availability of exhange networks that allow interval owners
to exchange the occupancy right in their vacation interval for a particular
year, for an interval at another participating network resort at either the same
or different time. The Company's resorts at March 30, 1997 qualify for exchange
with Interval International, one of the largest exchange organizations.
The following table sets forth certain information for sales of intervals
associated with the Company's Resorts Division for the periods indicated.
Certain sales have been deferred under percentage of completion accounting. See
Contracts Receivable and Revenue Recognition under Note 1 to the Consolidated
Financial Statements which is incorporated by reference into Item 7, Part II
herein from the 1997 Annual Report.
Years Ended
----------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Number of intervals sold........... 3,195 1,865 952
Average sales price per interval... $8,362 $7,325 $7,119
Gross margin (1)................... 71% 67% 62%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements, amenities
and in certain cases capitalized interest), divided by the sales price.
For further information on sales attributable to the Company's Resorts Division,
see "Results of Operations" under Management's Discussion and Analysis of
Financial Condition and Results of Operations which is incorporated by reference
into Item 7, Part II herein from the 1997 Annual Report.
Communities Division
The Company entered into the housing industry during fiscal 1994, primarily as a
means to accelerate lot sales of certain older projects in certain markets.
Marketing of home and lot packages is accomplished primarily through a
combination of print media, supplemented by television advertising. During
fiscal 1997, total advertising expense for the division was $278,000 or 3% of
the division's $9.7 million in sales. The Company works with its home purchasers
in obtaining conventional bank financing through local institutions, and
accordingly, all such sales are received in cash. The closing on a home sale
typically occurs two to six months after payment of the deposit. Upon closing of
a sale, the Company delivers a warranty deed and a recent survey of the property
to the buyer. Title insurance is available at the purchaser's expense.
The following table sets forth certain information for sales associated with the
Company's Communities Division for the periods indicated.
<PAGE>
Years Ended
------------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Number of homes/lots sold....... 146 206 133
Average sales price............. $66,422 $71,546 $100,866
Gross margin (1)................ 3% 10% 12%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements) divided by
the sales price. A charge of $4.8 million was recorded during 1997 for the
write-down of certain inventories managed under the Communities Division.
See Note 4 to the Consolidated Financial Statements which is incorporated
by reference into Item 7, Part II herein from the 1997 Annual Report.
For further information on sales attributable to the Company's Communities
Division, see "Results of Operations" under Management's Discussion and Analysis
of Financial Condition and Results of Operations which is incorporated by
reference into Item 7, Part II herein from the 1997 Annual Report.
Total Sales
During fiscal 1997, sales attributable to the Company's Land, Resorts and
Communities divisions was $72.6 million or 66%, $27.4 million or 25% and $9.7
million or 9%, respectively, of total consolidated revenues from sales of real
estate.
The tables to follow set forth sales by geographic region and division for the
years indicated.
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <S>
Year Ended March 30, 1997
--------------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $41,586,115 $ --- $ 157,000 $ 41,743,115 38.1%
Southeast............ 8,299,410 7,682,005 9,363,246 25,344,661 23.1%
Midwest.............. 3,970,953 19,743,566 --- 23,714,519 21.6%
Rocky Mountains ..... 8,828,680 --- 154,750 8,983,430 8.2%
West................. 4,875,073 --- --- 4,875,073 4.4%
Mid-Atlantic......... 3,917,096 --- --- 3,917,096 3.6%
Northeast............ 1,112,033 --- --- 1,112,033 1.0%
Canada............... 31,634 --- --- 31,634 .0%
Totals............... $72,620,994 $27,425,571 $ 9,674,996 $109,721,561 100.0%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <S>
Year Ended March 31, 1996
--------------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $43,457,483 $ --- $ 2,734,570 $ 46,192,053 40.7%
Southeast............ 8,569,869 --- 11,594,167 20,164,036 17.8%
Midwest.............. 9,981,574 13,825,162 --- 23,806,736 21.0%
Rocky Mountains ..... 13,223,744 --- 409,817 13,633,561 12.0%
West................. 2,628,600 --- --- 2,628,600 2.3%
Mid-Atlantic......... 5,500,146 --- --- 5,500,146 4.8%
Northeast............ 1,321,982 --- --- 1,321,982 1.2%
Canada............... 175,114 --- --- 175,114 .2%
Totals............... $84,858,512 $13,825,162 $14,738,554 $113,422,228 100.0%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <S>
Year Ended April 2, 1995
--------------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $38,600,075 $ --- $ 2,012,112 $ 40,612,187 44.2%
Southeast............ 7,846,343 --- 7,881,426 15,727,769 17.1%
Midwest.............. 8,297,375 5,886,427 --- 14,183,802 15.4%
Rocky Mountains ..... 10,859,280 --- 3,521,637 14,380,917 15.6%
Mid-Atlantic......... 4,654,483 --- --- 4,654,483 5.1%
Northeast............ 2,190,110 --- --- 2,190,110 2.4%
Canada............... 172,722 --- --- 172,722 .2%
Totals............... $72,620,388 $5,886,427 $13,415,175 $ 91,921,990 100.0%
</TABLE>
Customer Financing
During fiscal 1997, 1996 and 1995, the Company financed 30%, 26% and 24%,
respectively, of the aggregate purchase price of its sales of real estate to
customers that closed during these periods and received cash for the remaining
amounts. The increase in the percentage of sales financed by the Company from
1995 to 1997 is primarily attributable to an increase in timeshare sales over
the same period. Timeshare sales accounted for 25% of consolidated sales of real
estate during 1997, compared to 12% of consolidated sales during 1996 and 6% of
sales during 1995. Almost all timeshare buyers finance with the Company
(compared to 14% of land buyers in fiscal 1997).
The Company believes its financing is attractive to purchasers who find it
convenient to handle all facets of the purchase of land and vacation ownership
intervals through a single source and because downpayments required by the
Company are similar to those required by banks and mortgage companies which
offer this type of credit.
Land Division
The Company offers financing of up to 90% of the purchase price to all
purchasers of its properties who qualify for such financing. The term of
repayment on the financing has historically ranged from five to 15 years
although the Company, by offering reduced interest rates, has been successful in
encouraging customers during recent years to finance their purchases over
shorter terms and provide increased downpayments. Management believes such
<PAGE>
strategy has improved the quality of its notes receivable in recent years.
An average note receivable underwritten by the Company during fiscal 1996 and
1997 has a term of ten years. Most notes receivable bear interest at a fixed
interest rate or variable rate tied to the prime lending rate and are secured by
a first lien on the land. During fiscal 1997, 14% of land purchasers qualified
for, and received, Company financing. Such purchasers made an average
downpayment of 22% of the purchase price.
Resorts Division
The Company also offers financing of up to 90% of the purchase price to its
timeshare purchasers. During fiscal 1997, 94% of timeshare purchasers elected to
receive the Company's financing and provided an average downpayment of 15%. The
average financing extended by the Company on a timeshare interval during fiscal
1996 and 1997 provides for a term of seven years and a fixed interest rate. At
the closing, the Company and the purchaser execute a contract for deed
agreement. After the obligation is paid in full, the Company delivers a deed to
the purchaser.
Total Loans
The weighted average interest rate on notes receivable was 13.3% and 12.4% at
March 30, 1997 and March 31, 1996, respectively. The table below sets forth
additional information relating to the Company's notes receivable.
March 30, 1997 March 31, 1996
Notes receivable secured by land ............... $ 12,334,283 $ 26,243,222
Notes receivable secured by timeshare intervals. 23,501,163 11,667,049
Notes receivable, gross ........................ 35,835,446 37,910,271
Reserve for loan losses......................... ( 1,216,121) ( 896,469)
Notes receivable, net........................... $ 34,619,325 $ 37,013,802
Approximately 69% of the Company's notes receivable secured by land bear
interest at variable rates, while approximately 31% bear interest at fixed
rates. The average interest rate charged on loans secured by land was 12.0% at
March 30, 1997. All of the Company's timeshare loans bear interest at fixed
rates. The average interest rate charged on loans secured by timeshare intervals
was 15.7% at March 30, 1997.
Loan Underwriting
Land Division
The Company has established loan underwriting criteria and procedures designed
to reduce credit losses on its loan portfolio. The loan underwriting process
includes reviewing the applicant's credit history, verifying employment and
income as well as calculating certain debt-to-income ratios. The primary focus
of the Company's underwriting is to determine the applicant's ability to repay
the loan in accordance with its terms. This assessment is based on a number of
factors, including the relationship of the applicant's required monthly payment
to disposable income. The Company also examines the applicant's credit history
through various credit reporting agencies. In order to verify an applicant's
employment status, the Company generally contacts the applicant's employer. The
Company also obtains current pay stubs, recent tax returns and other tax forms
from the applicant. Loans by the Company are made solely to finance land sold by
the Company.
Customer financing on Land Division sales requires the submission of a completed
and signed credit application, purchase and sale agreement and pre-authorized
checking agreement accompanied by a voided check, if applicable, to the credit
department. All credit decisions are made at the Company's corporate
headquarters. Loan amounts under $50,000 are approved by designated personnel
located in the Company's corporate headquarters, while loan amounts of $50,000
or more require approval from a senior executive officer. In addition, rejected
applications and any material exceptions to the underwriting policy are also
reviewed by senior management. Customers are notified of the reasons for credit
denial by mail.
The Company encourages customers to increase their downpayment and reduce the
loan term through the structure of its loan programs. Customers receive a lower
rate of interest as their downpayment increases and the loan term shortens.
Additionally, the Company encourages its customers to make timely payments
through a pre-authorized payment arrangement. Customers who do not choose a
pre-authorized payment plan are charged interest at a rate which is one percent
greater than the prevailing rate. Approximately 90% of purchasers using the
Company's financing have historically participated in the pre-authorized payment
plan.
<PAGE>
After the credit decision has been made, the credit department categorizes the
file as either approved, pending or declined. Upon receipt of a credit approval,
the regional office schedules the closing with the customer. Closings are
typically conducted at the office of the Company's local attorney or settlement
agent, although in some cases the closing may take place at the sales site or by
mail.
When the original closing documents are received from the closing agent, the
Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that required
documents have been received and that they have been prepared and executed
correctly. If any revisions are required, notification is sent to the regional
office.
A loan file typically includes a copy of the signed security instrument, the
mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
Resorts Division
The Company also extends financing for timeshare sales. Timeshare financing
is not subject to the same loan underwriting criteria established for Land
Division loans. Customer financing on timeshare sales requires (i) receipt of a
minimum downpayment of 10% of the purchase price and (ii) a contract for deed
and other closing documents between the Company and the customer. The Company
encourages customers to make increased downpayments by offering a lower interest
rate. In addition, customers who do not elect to participate in the Company's
pre-authorized payment plan are charged interest at a rate which is one percent
greater than the prevailing rate. See "Collection Policies" below.
Collection Policies
Land Division
Collection efforts and delinquency information are managed at the Company's
corporate headquarters. Servicing of the Receivables is handled by a staff of
experienced collectors, assisted by an on-line mortgage collection computer
system. Unless circumstances otherwise dictate, collection efforts are generally
made by mail and telephone. Collection efforts begin when an account is ten days
past due, at which time the Company mails a reminder letter. Attempts are then
made to contact the borrower via telephone to determine the reason for the
delinquency and to bring the account current. The determination of how to work a
delinquent loan is based upon many factors, including the borrower's payment
history and the reason for the current inability to make timely payments. If no
agreement is made or the borrower does not abide by the agreement, collection
efforts continue until the account is either brought current or legal action is
commenced. If not accelerated sooner, the Company declares the loan in default
when the loan becomes 60 days delinquent. When the loan is 90 days past due, the
accrual of interest is stopped (unless the loan is considered an in-substance
foreclosure loan, in which case all accrued interest is reversed since the
Company's means of recovery is determined to be through resale of the underlying
collateral and not through collection on the note) and the Credit/Collection
Manager determines the action to be taken.
Resorts Division
Consistent with industry practice in the areas where the Company has
operations, timeshare Receivables are documented by contracts for deed and the
Company retains title to the unit until the obligation is paid in full.
Accordingly, no foreclosure process is required in the event of a default. In
the event that a contract for deed becomes delinquent 10 days, a reminder letter
is mailed to the customer. If the customer fails to bring the account current, a
late notice is mailed when the account is 15 days delinquent (and telephone
contact commences). After an account is 45 days delinquent, the Company
typically sends a third letter advising the customer that such customer has 15
days within which to bring the account current. Under the terms of the contract
for deed, the borrower is in default when the account becomes 60 days
delinquent. At this time a default letter is sent advising the borrower that
<PAGE>
he/she has 30 days to bring the account current or lose his/her contractual
interest in the timeshare unit. When the account becomes 90 days delinquent, the
Company forwards a final letter informing the purchaser that the contract for
deed has been terminated. At such time, the timeshare interval can be resold to
a new purchaser.
Total Receivables
At March 30, 1997, approximately 6% or $2.1 million of the aggregate $36.7
million principal amount of loans which were held by the Company or by third
parties under sales transactions where the Company had a recourse liability,
were more than 30 days past due. Of the $36.7 million principal amount of loans,
$35.8 million were held by the Company, while approximately $840,000 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 sales
transactions where the Company had a recourse liability, were more than 30 days
past due.
Reserve for loan losses as a percentage of period end notes receivable was 3.4%
and 2.4% at March 30, 1997 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 the portfolio consisting of more
timeshare receivables where historical default rates exceed those on land
receivables.
The table below sets forth activity in the reserve for estimated loan losses.
Reserve for loan losses, April 2, 1995................. $1,089,652
Provision for losses................................... 344,718
Charge-offs............................................ (537,901)
Reserve for loan losses, March 31, 1996................ 896,469
Provision for losses................................... 1,008,271
Charge-offs............................................ (688,619)
Reserve for loan losses, March 30, 1997................ $1,216,121
Sales of Receivables/Pledging of Receivables
Since 1986, the Company has sold or pledged substantially all of its
Receivables originations, generally retaining the right and obligation to
service the Receivables. In the case of land receivables, the Company typically
transfers the Receivables to its special purpose finance subsidiaries, which in
turn enter into institutional financing transactions or securitizations. The
Receivables are typically sold with limited or no recourse. In the case of
Receivables pledged, the Company generally must maintain a debt to eligible
collateral rate (based on outstanding principal balance of the pledged loans) of
90%. The Company is obligated to pledge additional eligible Receivables or make
additional principal payments in order to maintain this collateralization rate.
Repurchases and additional principal payments have not been material to date. At
March 30, 1997, the Company was subject to limited recourse requirements on
approximately $840,000 of Receivables sold. The delinquency on such Receivables
was immaterial at March 30, 1997. See "Sources of Capital" under Management's
Discussion and Analysis of Financial Condition which is incorporated by
reference into Item 7, Part II herein from the 1997 Annual Report.
As discussed above, private placement REMIC financings have provided substantial
capital resources to the Company. Under the terms of these transactions, the
Receivables are sold to a REMIC trust and the Company has no obligation to
repurchase the Receivables due to default by the borrowers. The Company does,
however, have the obligation to repurchase the Receivables in the event that
there is any material defect in the loan documentation and related
representations and warranties as of the time of sale. See Note 8 to the
Consolidated Financial Statements which are incorporated by reference into Item
8, Part II herein from the 1997 Annual Report.
<PAGE>
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such Receivables,
accounting for Receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing in the event that
defaults are not remedied and performing other administrative duties. The
Company's obligation to provide Receivables servicing and its rights to collect
fees are set forth in a servicing agreement. The Company has the obligation and
right to service all of the Receivables it originates and retains the obligation
and right with respect to substantially all of the Receivables it sells (through
REMICs). The Company typically receives an annual servicing fee of approximately
.5% of the outstanding scheduled principal balance, which is deducted from
payments received on substantially all of the Company's servicing portfolio. At
March 30, 1997, the Receivables servicing portfolio, representing Receivables
originated and sold, approximated $71.5 million.
Customer Service
The Company emphasizes customer satisfaction and maintains two full-time
customer service representatives in its Boca Raton headquarters to respond to
customer inquiries. At closing, all purchasers are provided with a toll-free
customer service phone number to facilitate any additional information requests.
Customer service surveys are sent to each purchaser to measure customer
satisfaction and to alert the Company to problems, if any.
Regulation
The real estate industry is subject to extensive regulation. The Company is
subject to compliance with various federal, state and local environmental,
zoning and other statutes and regulations regarding the acquisition, subdivision
and sale of real estate and timeshare interests and various aspects of its
financing operations. The Company believes that it is in compliance in all
material respects with such regulations.
The Company's Land and Communities divisions are subject to the Interstate Land
Sales Full Disclosure Act which establishes strict guidelines with respect to
the marketing and sale of land in interstate commerce. HUD has enforcement
powers with respect to this statute. In some instances, the Company has been
exempt from HUD registration requirements because of the size or number of the
subdivided parcels and the limited nature of its offerings. The Company, at its
discretion, may formally request an exemption advisory opinion from HUD to
confirm the exempt status of any particular offering. Several such exemption
requests have been submitted to, and approved by, HUD. In those cases where the
Company and its legal counsel determine parcels must be registered to be sold,
the Company files registration materials disclosing financial information
concerning the property, evidence of title and a description of the intended
manner of offering and advertising such property. The Company bears the cost of
such registration, which includes legal and filing fees. Many states also have
statutes and regulations governing the sale of real estate. Consequently, the
Company regularly consults with counsel for assistance in complying with
federal, state and local law. The Company must obtain the approval of numerous
governmental authorities for its acquisition and marketing activities and
changes in local circumstances or applicable laws may necessitate the
application for, or the modification of, existing approvals.
The Company's Resorts Division sells vacation ownership interests to customers
through weekly intervals in fully furnished vacation units. Many state and local
authorities have imposed restrictions and additional regulations on developers
of vacation ownership properties. The Company's resorts in Gatlinburg,
Tennessee; Pigeon Forge, Tennessee; and Myrtle Beach, South Carolina are subject
to various regulatory requirements including state and local approvals. Although
these restrictions have generally increased the cost of selling vacation
ownership intervals, the Company has not experienced material difficulties in
complying with such regulations or operating within such restrictions. In
compliance with state laws, the Company provides its timeshare purchasers with a
public disclosure statement which contains, among other items, detailed
information about the surrounding vicinity, the resort and the purchaser's
rights and obligations as an interval owner.
The Company's customer financing activities are also subject to extensive
regulation, which may include, Truth-in-Lending-Reg. Z, Fair Debt Collection
Practices Act, Equal Credit Opportunity Act-Reg. B, Electronic Funds Transfer
Act-Reg. E, Home Mortgage Disclosure Act-Reg. C, Unfair or Deceptive Acts or
Practices-Reg. AA and Right to Financial Privacy Act. The Company believes that
it is in compliance in all material respects with such regulations.
<PAGE>
Management is not aware of any pending regulatory contingencies that are
expected to have a materially adverse impact on the Company.
Competition
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business, some of which are larger and have greater financial resources than the
Company. Competition may be generally smaller with respect to the Company's lot
sales in the more rural markets in which it operates. The Company believes that
it can compete on the basis of its reputation and the price, location and
quality of the products it offers for sale, as well as on the basis of its
experience in land acquisition, development and sale. Although the Resorts
Division competes with various high profile and well-established operators, the
Company believes that it can compete on the basis of its general reputation and
the price, location and quality of its timeshare resorts. In its customer
financing activities, the Company competes with banks, mortgage companies, other
financial institutions and governmental agencies offering financing of real
estate. In recent years, the Company has experienced increased competition with
respect to the financing of land sales as evidenced by the low percentage of
land sales internally financed during fiscal 1995 through fiscal 1997. The
Company believes that, based on its interest rates and repayment schedules, the
financing packages it offers are convenient for customers and competitive with
those of other institutions which offer such financing.
Personnel
As of March 30, 1997, the Company had 453 full-time and 45 part-time employees.
Of the 498 employees, 82 were located at the Company's headquarters in Boca
Raton, Florida and 416 were located in regional offices throughout the United
States and Canada (the field personnel include 239 field employees supporting
the Company's Land Division as follows: 4 land divisional presidents, 7 land
regional and district managers, 123 land sales personnel, 14 land project
managers, 10 land acquisition specialists and 81 land administrative and other
support personnel. In addition, the Company employed 177 field employees
supporting the Company's Resorts Division as follows: 4 timeshare divisional
Presidents/regional directors, 100 timeshare sales personnel, 1 director of
development and 72 timeshare administrative and other support personnel). None
of the Company's employees are represented by a collective bargaining unit, and
the Company believes that relations with its employees generally are excellent.
Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
<C> <C> <C>
Name Age Position
George F. Donovan 58 President and Chief Executive Officer
Daniel C. Koscher 39 Senior Vice President - Land Division
L. Nicholas Gray 50 Senior Vice President - Resorts Division
Patrick E. Rondeau 50 Senior Vice President, Director of Corporate Legal Affairs and Clerk
Allan J. Herz 37 Vice President and Director of Mortgage Operations
Joan A. McCormick 54 Vice President and Director of Management Information Systems
Susan J. Milanese 38 Vice President and Director of Human Resources
Mary Jo Wiegand 33 Vice President, Director of Investor Relations, Controller and Treasurer
</TABLE>
George F. Donovan joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October, 1993 and Chief Executive
Officer in December, 1993. Mr. Donovan was President of Leisure Management
International from 1991 to 1993. From 1989 to 1991, Mr. Donovan served as
President and Chief Executive Officer of Thousand Trails. Prior to that time,
Mr. Donovan served as an officer of a number of other recreational real estate
corporations. Mr. Donovan holds a B.S. in Electrical Engineering.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has served
in various financial management positions including Divisional Controller,
Director of Accounting and Chief Accounting Officer. In 1990, Mr. Koscher was
elected Vice President and in 1995 he became Director of Planning/Budgeting. In
1997, he became Senior Vice President, Land Division. Prior to his employment
with the Company, Mr. Koscher was employed by the William Carter Company, a
manufacturing company located in Needham, Massachusetts. He has also been
employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California as well as the State of Nevada as an audit
agent. Mr. Koscher holds a B.B.A. in Accounting along with a M.B.A.
<PAGE>
L. Nicholas Gray joined the Company in 1995 to oversee the Company's timeshare
resorts operation and was named Senior Vice President in 1997. Mr. Gray has over
25 years of experience in the hospitality, timeshare and related resort
industries. Mr. Gray served as Director of Development for Resort Condominium
International, a timeshare exchange organization, from 1993 to 1994. Prior to
that time, Mr. Gray was Executive Vice President and General Manager for resort
developments of Thousand Trails from 1989 to 1991 and Fairfield Communities from
1979 to 1989.
Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and
Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice
President in 1997. For more than five years prior to his employment with the
Company, Mr. Rondeau was a senior partner of Freedmen, DeRosa & Rondeau, located
in North Adams, Massachusetts, which firm serves as legal counsel to the Company
on various matters. Mr. Rondeau holds a B.A. in Political Science along with a
J.D.
Allan J. Herz joined the Company in 1992 and was named Director of Mortgage
Operations in September, 1992. Mr. Herz was elected Vice President in 1993. From
1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in
Miami, Florida. During his 10 year tenure with the bank, he held various lending
positions, the most recent being Division Vice President in Consumer Lending.
Mr. Herz holds a B.B.A. and a M.B.A.
Joan A. McCormick joined the Company in 1993 as its Director of Management
Information Systems and was elected Vice President in February, 1995. Ms.
McCormick has over 20 years of experience in information systems management in
the real estate, hotel, banking and manufacturing fields. Prior to joining the
Company, Ms. McCormick was Assistant Vice President MIS for Atlantic Gulf
Communities Corporation. She has also held management positions with Arvida/JMB
Partners Ltd., Southeast Banking Corporation and General Motors Corporation. She
holds a B.A. in Business Administration.
Susan J. Milanese joined the Company in 1988. During her tenure, she has held
various management positions in the Company including Assistant to the Chief
Financial Officer, Divisional Controller and Director of Accounting. In 1995,
she was elected Vice President and Director of Human Resources. From 1983 to
1988, Ms. Milanese was employed by General Electric Company in various financial
management positions including the corporate audit staff. Ms. Milanese holds her
B.B.A in Accounting.
Mary Jo Wiegand joined the Company in 1988. During her tenure, she has held
various management positions within the accounting, finance and treasury
departments, including managing external financial reporting. In 1995, she was
elected Vice President, Director of Investor Relations and Controller. In 1997,
she was named acting Treasurer. From 1985 to 1988, Ms. Wiegand was employed by
Price Waterhouse. Ms. Wiegand holds a B.S. in Accounting.
John F. Chiste will be joining the Company in July, 1997 as Treasurer and Chief
Financial Officer. From January, 1997 to June, 1997, Mr. Chistee was employed by
Compscript, Inc. From December, 1992 to January, 1997, he served as the Chief
Financial Officer, Secretary and Treasurer of Computer Integration Corporation,
a publicly held distribution company which provides information products and
services to corporations nation wide. From 1983 through 1992, Mr. Chiste
practiced as a Certified Public Accountant with Ernst & Young, LLP.
The Company's By-Laws provide that, except as otherwise provided by law or the
charter and by-laws of the Company, the President, Treasurer and the Clerk hold
office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida in
approximately 17,000 square feet of leased space. On March 30, 1997, the Company
also maintained regional sales offices in the Northeastern, Mid-Atlantic,
Southeastern, Midwestern, Southwestern, Rocky Mountain and Western regions of
the United States as well as the Province of Ontario, Canada.
<PAGE>
Item 3. 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. See
Note 10 to the Consolidated Financial Statements which are incorporated by
reference into Item 8, Part II herein from the 1997 Annual Report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information provided on page 15 of the 1997 Annual Report is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA.
The information provided on page 17 of the 1997 Annual Report is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information provided under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 18 - 33 of
the 1997 Annual Report is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries
and the related Notes thereto and report of independent certified public
accountants on pages 35 - 48 of the 1997 Annual Report are incorporated herein
by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the
information provided under the headings "Proposals 1 and 2 - Fixing of Number of
Directors at Seven and Election of Named Directors" and "Certain Transactions
and Other Information" in the Proxy Statement, which sections are incorporated
herein by reference. Information concerning the executive officers of the
Company appears in Part I of this Annual Report on Form 10-K.
<PAGE>
The present members of the Board of Directors of the Company are:
Joseph C. Abeles, Private Investor
George F. Donovan, President and Chief Executive Officer, Bluegreen Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
J. Larry Rutherford, President and Chief Executive Officer, Atlantic Gulf
Communities Corporation
Stuart A. Shikiar, President, Shikiar Asset Management Inc.
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
Section 16 Compliance
The information provided under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors," "Board of
Directors and its Committees," "Compensation Committee Report on Executive
Compensation", "Compensation of Chief Executive Officer", "Executive
Compensation" and "Certain Transactions and Other Information" in the Company's
Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The information provided under the heading "Proposals 1 and 2 -
Fixing of Number of Directors at Seven and Election of Named
Directors" in the Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) The information provided under the headings "Proposals 1 and 2 -
Fixing of Number of Directors at Seven and Election of Named
Directors," "Executive Compensation" and "Certain Transactions and
Other Information" in the Company's Proxy Statement is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
<PAGE>
1. The following Consolidated Financial Statements and Notes thereto of
the Company and its subsidiaries and the report of independent
certified public accountants relating thereto, included in the 1997
Annual Report on pages 35 - 48 are incorporated by reference into Item
8 hereof:
Page
Consolidated Balance Sheets as of March 30, 1997 and March 31, 1996 35
Consolidated Statements of Operations for each of the three years in the period
ended March 30, 1997 36
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended March 30, 1997 37
Consolidated Statements of Cash Flows for each of the three years in the period
ended March 30, 1997 38 - 39
Notes to Consolidated Financial Statements 40 - 47
Report of Independent Certified Public Accountants 48
2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 21 - 24 hereof.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: June 25, 1997 By: /s/ GEORGE F. DONOVAN
George F. Donovan, President and Chief Executive
Officer
Date: June 25, 1997 By: /s/ MARY JO WIEGAND
Mary Jo Wiegand,
Vice President, Director of Investor Relations,
Treasurer and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 25th day of June, 1997.
Signature Title
/s/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
George F. Donovan
/s/ MARY JO WIEGAND Vice President, Director of Investor Relations,
Mary Jo Wiegand Treasurer and Controller
(Principal Accounting Officer)
/s/ JOSEPH C. ABELES Director
Joseph C. Abeles
/s/ RALPH A. FOOTE Director
Ralph A. Foote
/s/ FREDERICK M. MYERS Director
Frederick M. Myers
/s/ J. LARRY RUTHERFORD Director
J. Larry Rutherford
/s/ STUART A. SHIKIAR Director
Stuart A. Shikiar
/s/ BRADFORD T. WHITMORE Director
Bradford T. Whitmore
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C>
Number Description Page
3.1 Restated Articles of Organization, as amended (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the year
ended March 31, 1996).
3.2 Restated and amended By-laws of the Registrant (incorporated by reference
to exhibit 3.3 to Annual Report on Form 10-K for the fiscal year ended
April 2, 1995).
4.4 Specimen of Common Stock Certificate (incorporated by reference to exhibit
of same designation to Registration Statement on Form S-1, File No.
33-13076).
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's 8.25%
Convertible Subordinated Debentures Due 2012, including Form of Debenture
(incorporated by reference to exhibit of same designation to Registration
Statement on Form S-1, File No. 33-13753).
10.24Form of Agreement dated June 27, 1989 between the Registrant and Peoples
Heritage Savings Bank relating to sale of mortgage notes receivable
(incorporated by reference to exhibit of same designation to Annual Report
on Form 10-K for the fiscal year ended April 2, 1989).
10.47Amended and Restated Loan and Security Agreement entered into as of
January 9, 1990 by Patten Receivables Finance Corporation VI, Finova
Capital Corporation (fka Greyhound Real Estate Finance Corporation) and the
Registrant as Guarantor (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended April
1, 1990).
10.53Modification dated July 16, 1990 of Amended and Restated Loan and Security
Agreement entered into as of January 9, 1990 by Patten Receivables Finance
Corporation VI, Finova Capital Corporation (fka Greyhound Real Estate
Finance Corporation) and the Registrant as Guarantor (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K for
the fiscal year ended April 1, 1990).
10.58Amendment No. 2 dated March 23, 1991 to the Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990, by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and The Registrant as Guarantor
(incorporated by reference to exhibit of same designation to Annual Report
on Form 10-K for the fiscal year ended March 31, 1991).
10.59Amendment No. 3 dated November 21, 1991 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.100 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.60Amendment No. 4 dated January 30, 1992 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.101 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.61Amendment No. 5 dated October, 1992 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.102 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.62Amendment No. 6 dated May 12, 1993 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.88 to Annual Report on Form 10-K for the fiscal
year ended March 27, 1994).
10.63Amendment No. 7 dated February 18, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.89 to Annual Report on Form 10-K for the fiscal
year ended March 27, 1994).
<PAGE>
10.64Amendment No. 8 dated March 25, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.103 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.65Amendment No. 9 dated June 29, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.91 to Quarterly Report on Form 10-Q for the
period ended September 25, 1994).
10.66Amendment No. 10 dated December 14, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.94 to Annual Report on Form 10-K for the fiscal
year ended April 2, 1995).
10.67Amendment No. 11 dated October 31, 1995 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.104 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.68Amendment No. 12 dated May 1, 1996 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten Receivables
Finance Corporation VI, Finova Capital Corporation (fka Greyhound Real
Estate Finance Corporation) and the Registrant as Guarantor (incorporated
by reference to exhibit 10.105 to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.77Registrant's Amended 1988 Outside Directors Stock Option Plan
(incorporated by reference to exhibit of same designation to Annual Report
on Form 10-K for the fiscal year ended March 29, 1992).
10.78Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on Form
S-1, File No. 33-61687 ).
10.79Registrant's 1995 Stock Incentive Plan (incorporated by reference to
exhibit to Registration Statement on Form S-1, File No. 33-61687 ).
10.80Registrant's Retirement Savings Plan (incorporated by reference to
Registration Statement on Form S-8, File No. 33-48075).
10.85Loan and Security Agreement by and between the Registrant and Foothill
Capital Corporation dated as of October 29, 1993 (incorporated by reference
to exhibit of same designation to Annual Report on Form 10-K for the fiscal
year ended March 27, 1994).
10.86First Amendment dated December 23, 1993 to Loan and Security Agreement
entered into on October 29, 1993 by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended March
27, 1994).
10.87Amendment No. 2 dated February 16, 1995 to Amended Loan and Security
Agreement entered into on October 29, 1993 by and between the Registrant
and Foothill Capital Corporation (incorporated by reference to exhibit
10.111 to Annual Report on Form 10-K for the year ended March 31, 1996).
10.88Amendment No. 3 dated March 28, 1995 to Amended Loan and Security
Agreement entered into on October 29, 1993 by and between the Registrant
and Foothill Capital Corporation (incorporated by reference to exhibit
10.112 to Annual Report on Form 10-K for the year ended March 31, 1996).
10.89Amendment No. 4 dated June 15, 1995 to Amended Loan and Security Agreement
entered into on October 29, 1993 by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit 10.113 to Annual
Report on Form 10-K for the year ended March 31, 1996).
<PAGE>
10.90Amendment No. 5 dated June 26, 1995 to Amended Loan and Security Agreement
entered into on October 29, 1993 by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit 10.114 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.91Amendment No. 6 dated March 8, 1996 to Amended Loan and Security Agreement
entered into on October 29, 1993 by and between the Registrant and Foothill
Capital Corporation (incorporated by reference to exhibit 10.115 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.92Amendment No. 7 dated March 24, 1997 to Amended Loan and Security
Agreement entered into on October 29, 1993 by and between the Registrant
and Foothill Capital Corporation.
10.93Stock Purchase Agreement dated as of November 22, 1994 by and among Harry
S. Patten and the Purchasers named therein (incorporated by reference to
exhibit of same designation to Current Report on Form 8-K dated November
22, 1994).
10.97Pooling and Servicing Agreement dated as of April 15, 1994, among Patten
Receivables Finance Corporation IX, the Registrant, Patten Corporation
REMIC Trust, Series 1994-1 and First Trust National Association, as Trustee
(incorporated by reference to exhibit 10.84 to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.98Pooling and Servicing Agreement dated as of June 15, 1995, among Patten
Receivables Finance Corporation X, the Registrant, Patten Corporation REMIC
Trust, Series 1995-1 and First Trust National Association, as Trustee
(incorporated by reference to exhibit to Current Report on Form 8-K dated
July 12, 1995).
10.99Pooling and Servicing Agreement dated as of April 15, 1996, among
Bluegreen Receivables Finance Corporation I, the Registrant, Bluegreen
Corporation REMIC Trust, Series 1996-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to Current
Report on Form 8-K dated May 15, 1996).
10.100 Pooling and Servicing Agreement dated as of November 15, 1996, among
Bluegreen Receivables Finance Corporation II, the Registrant, Bluegreen
Corporation REMIC Trust, Series 1996-2 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to Current
Report on Form 8-K dated Decenber 11, 1996).
10.106 Construction Loan Agreement by and between the National Bank of South
Carolina and Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated
February 28, 1996 (incorporated by reference to exhibit of same designation
to Annual Report on Form 10-K for the year ended March 31, 1996).
10.107 Loan and Security Agreement by and between Heller Financial, Inc. and
Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28, 1996
(incorporated by reference to exhibit of same designation to Annual Report
on Form 10-K for the year ended March 31, 1996).
10.108 First Amendment dated February 27, 1997 to Loan and Security Agreement by
and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka Patten
Resorts, Inc.) dated February 28, 1996 (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the year
ended March 31, 1996).
10.115 Acquisition, Construction and Receivables Loan and Security Agreement by
and between Finova Capital Corporation and the Registrant dated June 9,
1995 (incorporated by reference to exhibit 10.108 to Annual Report on Form
10-K for the year ended March 31, 1996).
10.116 Amendment No. 1 dated March 8, 1996 to Acquisition, Construction and
Receivables Loan and Security Agreement by and between Finova Capital
Corporation and the Registrant dated June 9, 1995
10.120 Amended and Restated Loan and Security Agreement dated as of December 14,
1994 by and between Finova Capital Corporation (fka Greyhound Real Estate
Finance Corporation) and the Registrant (incorporated by reference to
exhibit 10.95 to Annual Report on Form 10-K for the fiscal year ended April
2, 1995).
10.121 Amendment No. 1 dated April 12, 1995 to the Amended and Restated Loan and
Security Agreement entered into on December 14, 1994 between Finova Capital
Corporation and the Registrant (incorporated by reference to exhibit 10.109
to Annual Report on Form 10-K for the year ended March 31, 1996).
<PAGE>
10.122 Amendment No. 2 dated November 21, 1995 to the Amended and Restated Loan
and Security Agreement entered into on December 14, 1994 between Finova
Capital Corporation and the Registrant (incorporated by reference to
exhibit 10.110 to Annual Report on Form 10-K for the year ended March 31,
1996).
11.1 Statement re: Computation of Earnings Per Share (such information is
incorporated by reference to the Statement of Operations of the
Consolidated Financial Statements appearing on page 36 of the Company's
1997 Annual Report to Shareholders, which is an exhibit hereto).
13.1 Portions of the 1997 Annual Report incorporated by reference in Items 7 and
8.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO ACQUISITION, CONSTRUCTION AND
RECEIVABLES LOAN AND SECURITY AGREEMENT
BY THIS AMENDMENT NO. 1 To ACQUISITION, CONSTRUCTION, AND RECEIVABLES
LOAN AND SECURITY AGREEMENT ("Amendment") dated as of March 8, 1996,
PATTEN CORPORATION, a Massachusetts corporation ("Borrower") and FINOVA CAPITAL
CORPORATION (fka Greyhound Financial Corporation), a Delaware corporation
("Lender"), for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, hereby confirm and agree as follows:
ARTICLE 1.
INTRODUCTION
1.1 Borrower and Lender previously entered into an Acquisition,
Construction, and Receivables Loan and Security Agreement dated as of June 9,
1995 ("Loan Agreement") relating to an acquisition loan in a maximum principal
amount not to exceed $1,210,000, a construction loan in a maximum aggregate
principal amount not to exceed $4,250,000 and a revolving line of credit loan in
a maximum principal amount not to exceed S5,000,000 at any time.
1.2 Borrower and Lender wish to amend the Loan Agreement, all as
more fully provided below.
ARTICLE 2.
AGREEMENT
2.1 Capitalized terms used but not otherwise defined herein shall have
the meaning given them in the Loan Agreement.
2.2 The Loan Agreement is amended as follows:
(a) Paragraph 3-2 is deleted in its entirety an d the
following is substituted in its place:
3.2 If (a) a previously Eligible Instrument which is part of
the Receivables Collateral ceases to be an Eligible Instrument
("Ineligibility Event") and (b) as a result such Ineligibility Event,
the outstanding principal balance of the Loan exceeds the Borrowing
Base of all Eligible Instruments, then within thirty (30) days
thereafter, Borrower will either (i) make to Lender a principal payment
in an amount equal to the excess ("Borrowing Base Shortfall") of the
outstanding principal balance of the Loan over the Borrowing Base of
all Eligible Instruments on the date of the Ineligibility Event, plus
accrued and unpaid interest on such principal payment, or (ii) replace
any one or more of such ineligible Instruments with one or more
Eligible Instruments having an aggregate Borrowing Base not less than
the Borrowing Base Shortfall. Simultaneously with such payment or the
delivery of the replacement Instrument to Lender, Borrower will deliver
to Lender all of the items (except for a "Request for Advance and
Certification") required to be delivered by Borrower to Lender pursuant
to paragraph 4.1E, together with a "Borrower's Certificate" in form and
substance identical to Exhibit G. Lender will reassign to Borrower,
without recourse or warranty of any kind, the ineligible Instrument
causing an Ineligibility Event if:
<PAGE>
(a) no Event of Default or Incipient Default exists; and
(b) (i) Borrower has made any principal payment or replacement
with an Eligible Instrument as required above in connection with the
Ineligibility Event; or (ii) there is no Borrowing Base Shortfall and
Borrower has requested Lender in writing to release the ineligible
Instrument.
Borrower will prepare the reassignment instrument, which shall
be in form and substance identical to Exhibit G is and shall deliver it
to Lender for execution.
(b) Paragraph 5.2(a) and (b) are deleted in their entirety, and
the following is inserted in their place:
(a) Construction Loan Partial Release Payments.
Commencing on the date of the first Construction Loan Advance, and
until all principal , interest and other sums due under the loan
Documents have been paid, exclusive of principal, interest and other
charges on the Acquisition Loan Note and the Receivables Loan Note,
Borrower will make to Lender at the time of each partial release of a
Time-Share Interest from the Borrower's Mortgage a principal payment in
an amount equal to the Partial Release Fee (Construction Loan) required
to be paid in connection with such release as determined under the
terms of the Borrower's Mortgage.
(b) Acquisition Loan Partial Release Payments. Until
principal, interest and other charges on the Acquisition Loan Note have
been paid, Borrower will make to Lender at the time of each partial
release of a Time Share Interest from the Borrower's Mortgage, in
addition to the Partial Release Fee (Construction Loan), a
<PAGE>
principal payment in an amount equal to the Partial Release Fee
(Acquisition Loan), as that term is defined in the Borrower's Mortgage;
provided, however, that anything in the foregoing or in the Borrower's
Mortgage to the contrary notwithstanding, Borrower's obligation to make
any principal payment under this subparagraph or to pay any Partial
Release Fee (Acquisition Loan) shall not commence until the date of the
first Construction Loan Advance.
(c) Paragraph 5.2(e) is deleted in its entirety and the following
inserted in its place:
(c) Receivables Loan Minimum Required Principal Payments. If
there exists a Borrowing Base Shortfall for any reason other than an
Ineligibility Event which is subject to the provisions of paragraph
3.2, Borrower, without notice or demand, will immediately (a) make to
Lender a principal payment in an amount equal to the Borrowing Base
Shortfall plus accrued and unpaid interest on such principal payment or
(b) deliver to Lender one or more Eligible Instruments having an
aggregate Borrowing Base not less than the Borrowing Base Shortfall.
Simultaneously with the delivery of the Eligible Instruments to correct
the Borrowing Base Shortfall, Borrower will deliver to Lender all of
the items (except for a "Request for Advance and Certification")
required to be delivered by Borrower to Lender pursuant to paragraph
4.1E, together with a "Borrower's Certificate" in form and substance
identical to Exhibit G.
(d) Paragraphs (d) and (e) of Exhibit B are deleted in their
entirety and the following is inserted in their place:
(d) The Instrument must provide for consecutive level monthly
installments of principal and interest in U.S. funds sufficient to
repay the Instrument over a term not exceeding eighty-four (84) months
from the date of its execution, with interest accruing at not less than
nine percent (9%) per annum; provided, that the payment term for up to
ten percent (10%) of all Eligible Instruments may be one hundred twenty
(120) months. So long as the nine percent (9%) minimum rate is
maintained, installments on the Instrument may vary to the extent
required by a floating interest rate. The foregoing notwithstanding, an
Instrument will not fail to qualify as an Eligible Instrument solely
because it does not bear interest, so long as the down-payment is at
least 50% of the total sales price (no part of which has been advanced
or paid to the Purchaser by Borrower,
<PAGE>
directly or indirectly) and the unpaid principal balance of all such
Instruments hypothecated to Lender does not exceed 15% of all Eligible
Instruments hypothecated to Lender.
(e) The Instrument must be beyond the applicable rescission
period and no payment is more than 29 days past due and no payment has
been deferred; and if at any time the aggregate principal balance of
all Instruments which comprise the Receivables Collateral and which
have payments more than sixty (60) days past due exceeds three percent
(3%) of the aggregate principal balance of all Instruments comprising
the Receivables Collateral, an aging requirement may be instituted at
Lerider's option.
2.3 Borrower will on demand pay, or at Lender's election, reimburse
Lender for Lender's reasonable attorneys' fees and other reasonable
out-of-pocket expenses in connection with the documentation of this Amendment.
2.4 Borrower confirms and restates to Lender as of the date hereof all
its representations and warranties set forth in the Loan Agreement. Borrower
further acknowledges that Lender has performed and is not in default of its
obligations under the Documents and the Other Loan Documents and that there are
no offsets, defenses or counterclaims with respect to any of Borrower's
Obligations under the Documents,
2.5 This Amendment constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof
and this Amendmentsupersedes all prior written or oral understandings and
agreements between the parties in connection with its subject matter.
2.6 This Amendment may be executed in one or more counterparts, and any
number of which having been signed by all the parties hereto shall be taken as
one original.
<PAGE>
2.7 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects; and, except as expressly amended hereby, the
Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF this instrument is executed as of the date set forth
above.
BORROWER: PATTEN CORPORATION, a Massachusetts
corporation
By:
Type/Print Name:
Title:
LENDER: FINOVA CAPITAL CORPORATION, a Delaware
corporation
By:
Type/Print Name:
Title:
<PAGE>
By executing this Consent, PATTEN RECEIVABLES FINANCE CORPORATION VI
acknowledges to FINOVA CAPITAL CORPORATION (fka Greyhound Financial Corporation)
its consent to the foregoing Amendment No. 1 to Acquisition, Construction and
Receivables Loan and Security Agreement ("Amendment") and that such Amendment
shall not impair any of its obligations to FINOVA Capital Corporation.
PATTEN RECEIVABLES FINANCE CORPORATION VI.
By:
Type/Print Name:
Title:
<PAGE>
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
("Amendment") is made and entered into this 24th day of March, 1997, by and
between BLUEGREEN CORPORATION, f/k/a PATTEN CORPORATION, a Massachusetts
corporation, with its chief executive office located at 5295 Town Center Road,
Suite 400, Boca Raton, Florida 33486 ("Bluegreen") , BLUEGREEN CORPORATION OF
THE ROCKIES, f/k/a PATTEN CORPORATION WEST, a Delaware corporation, with its
chief executive office located at 5295 Town Center Road, Suite 400, Boca Raton,
Florida 33486 ("Bluegreen/Rockies") and FOOTHILL CAPITAL CORPORATION, a
California corporation, with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("Foothill"), and is
made with reference to the following facts:
W I T N E S S E T H:
WHEREAS, on or about October 29, 1993, Foothill and Bluegreen
entered into that certain Loan and Security Agreement which provided for
borrowings from time to time by Bluegreen and pledges of various security
interests to secure the repayments of such borrowings, all on the terms and
conditions set forth therein; and
<PAGE>
WHEREAS, on or about December 23, 1993, Bluegreen and Foothill entered into that
certain First Amendment to Loan Agreement; and
WHEREAS, on or about February 16, 1995, Bluegreen and Foothill entered into that
certain Amendment. No. Two to the Loan and Security Agreement: Patten
Corporation; and
WHEREAS, on or about March 28, 1995, Bluegreen and Foothill entered into that
certain Amendment No. Three to the Loan and Security Agreement: Patten
Corporation; and
WHEREAS, on or about June 15, 1995, Bluegreen and Foothill entered into that
certain Amendment No. Four to the Loan and Security Agreement: Patten
Corporation ("Fourth Amendment"); and
WHEREAS, on or about June 26, 1995 Bluegreen, Bluegreen/Rockies and Foothill
entered into that certain Fourth [sic] Amendment to Loan and Security
Agreement ("Fifth Amendment"); and
WHEREAS, on or about March 8, 1996 Bluegreen, Bluegreen/Rockies and Foothill
entered into that certain Sixth Amendment to Loan and Security Agreement
("Sixth Amendment"; The Loan Agreement, as amended by the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, and the Sixth Amendment is hereafter referred to as the "Loan
Agreement"); and
<PAGE>
WHEREAS, Bluegreen, Bluegreen/Rockies, and Foothill desire to amend the Loan
Agreement on the terms and conditions specifically set forth herein,
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. The definition of "Loan Documents" in Section 1.1 of the Loan Agreement is
deleted in its entirety and the following substituted in its place and stead:
"Loan Documents" means this Agreement, the Pledge Agreement, the Lock Box
Agreements, the Mortgages, the Term Note, the C-Term Note, any other note or
notes executed by Borrower and payable to Foothill, and any other agreement
entered into in connection with this Agreement."
2. The definition of "Note Mortgages" in Section 1.1 of the Loan
Agreement is deleted in its entirety and the following substituted in its place
and stead:
"Note Mortgage(s)" means those certain deeds of trust, mortgages or
security interests encumbering certain real property, which serves as collateral
for the repayment of the Pledged A Notes, the Pledged B Notes, and the Pledged C
Notes."
3. The definition of "Obligations" in Section 1.1 of the Loan Agreement is
deleted in its entirety and the following substituted in its place and stead:
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities (including all amounts charged to
Borrower's loan account pursuant to any agreement authorizing Foothill to charge
Borrower's loan account), obligations, fees (including Early Termination
<PAGE>
Premiums), lease payments guaranties, covenants, and duties owing by
Borrower to Foothill of any kind and description (whether pursuant to or
evidenced by the Loan Documents, by any note or other instrument (including the
Term Note and the Term-C Note), or pursuant to any other agreement between
Foothill and Borrower, and irrespective of whether for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest not paid when due and
all Foothill Expenses that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise."
4. The definition of "Pledged Notes (s)" in Section 1.1 of the Loan
Agreement is deleted in its entirety and the following substituted in its
place and stead: "Pledged Note(s)" means collectively the Pledged A Notes, the
Pledged B Notes, and the Pledged C Notes."
5. A new definition is added to Section 1.1 of the Loan Agreement as
follows:
"Pledged C Notes" means all of the notes and other evidences of
indebtedness, along with all security securing the repayment of same (including
the Mortgages), which are more particularly described in Schedule PN-C attached
hereto and incorporated by reference hereby."
6. A new definition is added to Section 1.1 of the Loan agreement as
follows:
"Term-C Note" has the meaning set forth in Section 2.3 hereof."
7. Section 2.3 of the Loan Agreement is deleted in its entirety and the
following substituted in its place and instead:
2.3 Term Loan. Foothill has agreed to make:
(a) a term loan to Borrower in the original principal
amount of Eight Hundred Fifty Thousand Three Hundred Eleven Dollars and
Thirty-eight Cents ($850,311.38) Dollars, to be evidenced by and
repayable
<PAGE>
in accordance with the terms and conditions of a
promissory note (the "Term Note"), of even date herewith, executed by
Borrower in favor of Foothill. All amounts evidenced by the Term Note
shall constitute Obligations; and
(b) a term loan to Borrower in the original principal
amount of Seven Hundred and Forty-One Thousand Dollars ($741,000), to
be evidenced by and repayable in accordance with the terms and
conditions of a promissory note (the "Term-C Note"), of even date
herewith, executed by Borrower in favor of Foothill. All amounts
evidenced by the Term Note shall constitute obligations."
8. Section 2.4 (f) of the Loan Agreement is deleted in its entirety and
the following substituted in its place and stead:
"In no event shall the interest rate or rates payable under this
Agreement,, the Term Note, or the Term-C Note, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable, Borrower and Foothill, in executing this Agreement, the Term Note,
and the Term-C Note intend to legally agree upon the rate or rates of interest
and manner of payment stated within it; provided, however, that, anything
contained herein or in the Term-C Note or the Term Note to the contrary
notwithstanding, if said rate or rates of interest or manner of payment exceeds
the maximum allowable under applicable law, then, ipso facto as of the date of
this Agreement, the Term-C Note, and the Term Note, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess."
9. A new Section 2.4 (g) shall be added to the Loan Agreement as follows:
"(g) Principal Reductions on the Term-C Note. In addition to the interest
payable on the Term-C Note, in accordance with the terms hereof, Borrower shall
reduce the outstanding principal balance on the Term-C Note in accordance with
the schedule set forth on Schedule 2.4(g) (1) attached hereto and incorporated
by
<PAGE>
reference hereby. Should Borrower and Foothill agree to extend the Maturity
Date on or before June 30, 1997, the reduction schedule for the outstanding
principal balances shall be adjusted accordingly. Thus, by way of example, if
the Maturity Date is extended by five (5) years, Schedule 2.4(g)(1) would be
amended to reflect the figured set forth on Schedule 2.4(g) (2) attached hereto
and incorporated by reference hereby."
10. There are added new Sections 4.6 (vi) and 4.6 (vii) of the Loan
Agreement as follows:
(vi) with respect to payment received on the Pledged C Notes, to payment of
interest on the Term-C Note set forth in Section 2.3 hereof, then, the balance,
if any, to;
(vii) the Pledged C Notes, I.-o payment of principal on the Term-C Note set
forth in Section 2.3 hereof, then, the balance if any to pay off other
obligations in the manner decided by Foothill."
11. There shall be added a new Section 6.15 which reads as follows:
6.15 Within thirty (30) days of the funding of the Term-C Note, Borrower
shall deliver to Foothill the following:
(a) Conformed copies of the recorded assignments of
the Note Mortgages for the Pledged C Notes, which such assignments
assign the beneficial or mortgagee's interest in such Note Mortgages to
Foothill;
(b) A conformed copy of that certain Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing encumbering
that certain real property owned by Bluegreen and which is the subject
of that certain Land Sale Contract dated as of September 18, 1995
entered into between Bluegreen and Patrick Guarglia and Deborah Roche
("NY Mortgage");
(c) A 1970 ALTA form Lenders policy of title
insurance, in form and substance satisfactory to Foothill, insuring the
lien of the NY Mortgage; and
(d) the original policies of title insurance
insuring the Note Mortgages for the Pledged C Notes set
<PAGE>
forth on Schedule PN-C2, along with a CLTA form 104.4 endorsement, in
form and substance satisfactory to Foothill."
12. In accordance with Section 7,5 of the Loan Agreement,
Foothill consents for one time only to the name change of Patten Corporation
West to BLUEGREEN CORPORATION OF THE ROCKIES,
13. Except as expressly modified herein, the Loan Agreement
remains in full force and effect and is reaffirmed by the parties hereto.
This agreement may be executed in counterparts, and by telefacsimile
signature. The delivery by either party of a telefacsimile signature
on any counterpart
<PAGE>
shall fully bind such signatory, to the same extent as if an original signature
were delivered.
"Bluegreen"
BLUEGREEN CORPORATION
f/k/a PATTEN CORPORATION,
a Massachusetts corporation
By
"Bluegreen/Rockies"
BLUEGREEN CORPORATION OF THE
ROCKIES,
a Delaware corporation
By
"Foothill:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
Ben Silver
<PAGE>
NOTICE TO BORROWER:
THIS DOCUMENT CONTAINS PROVISIONS FOR INTEREST RATE AND PAYMENT AMOUNT
ADJUSTMENTS
SECURED PROMISSORY NOTE
$741,000,00 March 24, 1997
1. FOR VALUE RECEIVED, the undersigned BLUEGREEN CORPORATION, f/k/a PATTEN
CORPORATION, a Massachusetts corporation, with its chief executive office
located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33489
"Bluegreen") and BLUEGREEN CORPORATION OF THE ROCKIES, f/k/a PATTEN
CORPORATION WEST, a Delaware corporation, with its chief executive office
located at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486
("Bluegreen/Rockies": Bluegreen and Bluegreen/Rockies are sometimes
hereinafter jointly and severally referred to as "Maker") hereby promise to
pay to the order of FOOTHILL CAPITAL CORPORATION, a California corporation
(hereinafter "Lender"),, as hereinafter provided, in such coin or currency
of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, the principal sum of
SEVEN HUNDRED FORTY-ONE THOUSAND DOLLARS ($741,000.00) (the "principal
sum') together with interest thereon from the date advanced until paid, in
accordance with the provisions of that certain Loan and Security Agreement
dated October 29, 1993 entered into between Maker and Lender, as amended by
those certain Seven (7) amendments thereto ("Loan Agreement").
<PAGE>
2. The principal sum, interest rate, and default rate of interest shall be due
and payable in accordance with the terms of the Loan Agreement.
3. In no contingency or event whatsoever, whether by reason of advancement of
the proceeds hereof, or otherwise shall the amount paid or agreed to he
paid to Lender for the use,, forbearance, or detention of the money
advanced or to be advanced hereunder exceed the highest lawful rate
permissible under any law which a court of competent jurisdiction may deem
applicable hereto. If any amount is received in excess of such highest
lawful rate, such amount shall be applied by Lender in reduction of the
principal sum.
4. Maker, for itself and its legal representatives, successors and assigns,
expressly waives presentment, demand, protest, notice of dishonor, notice
of non-payment, notice of maturity, notice of protest, presentment for the
purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption under the homestead exemption laws, if any, or any other
exemption or insolvency laws, and consents that Lender may release or
surrender, exchange or substitute any real estate and/or personal property
or other collateral security now held or which may hereafter be held as
security for the payment of this Note, and may extend the time.
<PAGE>
for payment or otherwise modify the terms of the payment of any part or
the whole of the debt evidenced hereby.
5. This Note is secured by, inter alia, the Loan Agreement and the other
documents and Collateral set forth therein ("Security Documents") . All of
the terms, covenants, and conditions of the Security Documents and all
other instruments evidencing and/or securing the indebtedness evidenced by
this Note are hereby made a part of this Note and are deemed incorporated
herein in full. Any default in any of the conditions, covenants,
obligations, or agreements contained in this Note, the Security Documents
or any other instruments securing and/or evidencing the indebtedness
evidenced by this Note shall constitute a default under this Note and shall
entitle Lender to accelerate the entire indebtedness evidenced by this Note
and take such other action as may be provided for in the Security
Documents,
6. Maker agrees to pay all charges incident to, arising out of or in
connection with the preparation, execution, delivery and enforcement of
this Note, including, without limitation, all attorneys' fees and
disbursements incurred by Lender, whether incurred prior to litigation, or
in litigation at trial, arbitration or on appeal and all expenses,
including, without limitation, attorneys' fees and disbursements incident
to the enforcement of payment of this Note, by any action or participation
in, or in connection with, a case or proceeding under Chapters 7 or 11 of
the Bankruptcy Code or any successor statute thereto.
7. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW,
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA
OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF MAKER AND LENDER
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION,
MAKER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON
LAW OR STATUTORY CLAIMS. MAKER AND LENDER REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION A
COPY OF THE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
<PAGE>
8. This Note and the indebtedness evidenced hereby shall be governed by the
laws of the state of California.
9. This Note may be executed and delivered by telefacsimile signature. The
delivery by Maker of a telefacsimile signature on a copy of this Note shall
fully hind each signatory, to the same extent as if an original signature
were delivered.
IN WITNESS WHEREOF, Maker has executed and delivered this Note on the day
and year first above written,
"MAKER"
"Bluegreen"
BLUEGREEN CORPORATION,
f/k/a PATTEN CORPORATION,
a Massachusetts corporation
By
"Bluegreen/Rockies"
BLUEGREEN CORPORATION OF THE
ROCKIES,
a Delaware corporation
By
<PAGE>
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
("Amendment") is executed this 27th day of February, 1 997, by and between
BLUEGREEN RESORTS, INC. (formerly known as PATTEN RESORTS, INC.). a Delaware
corporation ("Borrower"), whose principal place of business is 5295 Town Center
Road, Suite 400, Boca Raton, Florida 33486, and HELLER FINANCIAL, INC., a
Delaware corporation ("Lender"), whose principal place of business is 500 West
Monroe Street, 1 5th Floor, Chicago, Illinois 60661.
RECITALS
A. Borrower and Lender entered into that certain Loan and Security Agreement
as of February 28, 1996 ("Agreement"), in connection with the Loan
described therein.
B. It is the mutual desire of the parties to modify a provision of the
Agreement.
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, it is agreed that:
1. Paragraph 5.7 of the Agreement is hereby amended to read in its entirety
as follows:
Management. The manager and the management contracts for the
Resort shall at all times be satisfactory to Lender. For so
long as Borrower controls the Timeshare Association for the
Resort, Borrower shall not change the Resort manager or amend,
modify or waive any provision of or terminate the management
contract for the Resort without the prior written consent of
Lender, which consent shall not be unreasonably withheld.
George Donovan and Patrick Rondeau shall remain the principal
officers of the Borrower and George Donovan shall have
authority to make all material business decisions during the
term of the Loan.
2. All other terms and revisions of the Agreement remain in full force and
effect to the extent they are consistent with the above revised provision.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have
caused the same to be executed by their duly authorized representatives as of
the date first above written.
BORROWER:
WITNESSES: BLUEGREEN RESORTS, INC.
By:
Patrick E. Rondeau
President
LENDER:
WITNESSES: HELLER FINANCIAL, INC.
By:
Kathryn Plouff
Vice President
<PAGE>
The selected financial data set forth below should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Annual Report.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
(Dollars in Thousands Except Average Sales Price Data and Per Share Data)
March 30, March 31, April 2, March 27, March 28,
1997 1996 1995 1994 1993
INCOME STATEMENT DATA
Sales of real estate..................... $ 109,722 $113,422 $ 91,922 $ 63,389 $ 53,349
Interest income and other (1)........... 6,159 7,388 7,264 7,952 10,191
Total revenues......................... 115,881 120,810 99,186 71,341 63,540
(Loss) income from operations............ ( 7,649) 10,794 10,029 6,778 3,604
Net (loss) income........................ ( 4,359) 6,467 6,137 4,931 3,457
Net (loss) income per common share....... ( .21) .30 .29 .23 .16
OPERATING DATA
Gross margin on sales of real estate (2). 48.0% 47.6% 50.9% 51.5% 46.7%
Average sales price of land parcels sold
(3)...................................... $ 38,572 $ 34,856 $ 30,296 $ 25,468 $ 20,839
Number of land parcels sold (3).......... 2,057 2,347 2,397 2,489 2,560
Average sales price of timeshare
intervals sold (3)....................... $ 8,362 $ 7,325 $ 7,119 $ --- $ ---
Number of timeshare intervals sold (3)... 3,195 1,865 952 --- ---
Average sales price of homes/lots sold... $ 66,422 $ 71,546 $100,866 $ 70,044 $ ---
Number of homes/lots sold................ 146 206 133 44 ---
Weighted average rate on notes
receivable at
period end............................ 13.3% 12.4% 12.4% 10.9% 11.0%
BALANCE SHEET DATA
Notes receivable, net ................... $ 34,619 $ 37,014 $ 40,311 $ 44,203 $ 35,653
Inventory, net .......................... 86,661 73,595 62,345 38,793 28,245
Total assets............................. 169,627 154,963 152,222 139,617 122,853
Short-term debt.......................... --- --- --- --- 6,500
Current portion of lines-of-credit, notes
payable and receivable-backed notes
payable.................................. 25,911 8,938 10,856 5,741 5,684
Long-term portion of lines-of-credit,
notes payable and receivable-backed notes
payable.................................. 31,050 28,073 29,090 31,556 14,418
8.25% convertible subordinated debentures 34,739 34,739 34,739 34,739 34,739
Shareholders' equity..................... 59,243 64,698 58,040 51,854 46,868
Book value per common share.............. $ 2.94 $ 3.15 $ 2.98 $ 2.91 $ 2.74
Shares outstanding at end of year (000's) 20,159 20,533 19,471 17,796 17,083
ASSET QUALITY RATIOS
Charge-offs, net of recoveries, to
average loans ........................... 1.9% 1.4% 1.6% 3.6% 3.0%
Reserve for loan losses to period end
loans ................................... 3.4% 2.4% 2.6% 2.2% 4.3%
</TABLE>
1) Interest income for fiscal 1997, 1996, 1995, 1994 and 1993 includes a
$96,000 loss, a $1.1 million gain, a $411,000 loss, a $238,000 loss and a
$695,000 gain, respectively, from sales of notes receivable in connection
with private placement REMIC transactions.
2) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements, amenities
and in certain cases capitalized interest), divided by the sales price.
3) Average sales price and unit sales data includes those sales where
recognition of revenue is deferred under the percentage of completion
method of accounting. See "Contracts Receivable and Revenue Recognition"
under Note 1 to the Consolidated Financial Statements.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company desires to take advantage of the "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. 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 and that the
development and carrying costs of inventories may exceed those anticipated)
or risks associated with an inability to locate suitable inventory for
acquisition.
d) Risks associated with delays in bringing the Company's inventories to
market due to changes in regulations governing the Company's operations,
adverse weather conditions or changes in the availability of development
financing on terms acceptable to the Company.
e) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law.
f) 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.
g) The inability of the Company to find external sources of liquidity on
favorable terms to: support its operations, acquire, carry and develop land
and timeshare inventories and satisfy its debt and other obligations.
h) The inability of the Company to find sources of capital on favorable terms
for the pledge of land and timeshare note receivables.
i) An increase in prepayment rates, 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.
j) Costs to develop inventory for sale and/or selling, general and
administrative expenses exceed those anticipated.
k) An increase or decrease in the number of land or resort properties subject
to percentage of completion accounting which requires deferral of profit
recognition on such projects until development is substantially complete.
See "Contracts Receivable and Revenue Recognition" under Note 1 to the
Consolidated Financial Statements.
<PAGE>
Liquidity and Capital Resources
Unless otherwise indicated, references to real estate and to inventories in the
discussion of "Sources and Uses of Capital" collectively encompass land
properties, timeshare resorts and projects managed under the Company's
Communities Division.
Sources of Capital. The Company's capital resources are provided from both
internal and external sources. The Company's primary capital resources from
internal operations include (i) downpayments on real estate sales which are
financed, (ii) cash sales of real estate, (iii) principal and interest payments
on the purchase money mortgage loans arising from land sales and contracts for
deed arising from sales of timeshare intervals (collectively "Receivables") and
(iv) proceeds from the sale of, or borrowings collateralized by, Receivables.
Historically, external sources of liquidity have included borrowings under
secured 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 used by the Company's operations was $8.2 million for the year ended
March 30, 1997 ("1997"). Net cash provided by operations was $15.0 million and
$9.4 million for the years ended March 31, 1996 ("1996") and April 2, 1995
("1995"), respectively.
The decrease in net cash received from operations from 1996 to 1997 was
primarily attributable to: (i) a reduction in proceeds from Real Estate Mortgage
Investment Conduit ("REMIC") transactions totaling $11.8 million during 1997,
(ii) a reduction in cash received from customers totaling $6.5 million during
1997, (iii) an increase in cash paid for land acquisitions and real estate
development in the amount of $3.6 million during 1997 and (iv) an increase in
cash paid to suppliers of goods and services, employees and sales
representatives amounting to $4.1 million during 1997. These four factors were
partially offset by a reduction in income taxes paid in 1997.
In recent years, interval sales from the Company's timeshare resorts has
represented an increasing percentage of aggregate sales. At the same time, land
sales have decreased from 1996 to 1997. Accordingly, with the decline in land
sales (where nine out of ten customers currently pay cash for their purchase)
and the increase in timeshare sales (where virtually all customers finance with
the Company), cash received from customers on the Consolidated Statements of
Cash Flows declined. The increase in cash paid for land acquisitions and
development along with cash paid to suppliers, employees and sales
representatives during 1997 reflects investments made into infrastructure to
support the Company's Resorts (timeshare) Division as well as investments made
into fewer, more capital-intensive land projects.
The increase in cash from operations from 1995 to 1996 was primarily
attributable to $16.3 million more in cash received from customers. In addition,
the proceeds from a REMIC transaction completed in 1996 together with borrowings
(net of payments) collateralized by Receivables, generated $12.4 million more in
cash during 1996 than during the prior year. Interest received, net of interest
paid, increased $1.2 million from 1995 to 1996. However, cash paid for land
acquisition and development increased by $12.9 million from 1995 to 1996. Along
with higher acquisition and development spending, cash paid to suppliers and
employees (including sales representatives) increased from 1995 to 1996 by $11.2
million.
During 1997 and 1996, the Company received in cash $75.3 million or 70% and
$84.7 million or 74%, respectively, of its sales of real estate that closed
during these periods. During 1995, the Company received in cash $67.9 million or
77% of its sales of real estate that closed. The decrease in the percentage of
cash received from 1995 to 1997 is primarily attributable to an increase in
timeshare sales over the same period. Timeshare sales accounted for 25% of
consolidated sales of real estate during 1997, 12% of consolidated sales during
1996 and 6% of consolidated sales during 1995. Management expects that in fiscal
1998, the aggregate percentage of sales received in cash may decrease further
due to anticipated increases in timeshare sales as a percentage of consolidated
sales.
<PAGE>
Receivables arising from land and timeshare real estate sales generally are
pledged to institutional lenders. In addition, the Company has historically sold
land loans in connection with private placement REMIC financings. The Company
currently is advanced 90% of the face amount of the eligible notes when pledged
to lenders. The Company classifies the indebtedness secured by Receivables as
"Receivable-backed notes payable" on the Consolidated Balance Sheets. During
1997, 1996 and 1995, the Company borrowed $18.2 million, $19.4 million and $8.6
million, respectively, through the pledge of Receivables. During 1997, 1996 and
1995, the Company raised an additional $16.9 million, $28.7 million and $22.7
million, respectively, net of transaction costs and prior to the retirement of
debt, from sales of land receivables under private placement REMIC transactions.
The Company does not plan to complete a REMIC transaction for land receivables
during fiscal 1998 due to the expectation that a high percentage of such sales
will be received in cash (and therefore a sufficient quantity of land
receivables will not be accumulated to make a REMIC transaction cost effective).
The discussion below and Note 8 to the Consolidated Financial Statements provide
additional information with respect to credit facilities secured by Receivables
and the sale of Receivables through private placement transactions.
Credit Facilities for Timeshare Receivables
The Company has a $20.0 million credit facility with a financial institution
which provides for receivable financing for the first and second phases of a
multi-phase timeshare project in Gatlinburg, Tennessee. The interest rate
charged under the facility is prime plus 2.0%. At March 30, 1997, the
outstanding principal balance under the credit agreement was $10.6 million. The
ability to borrow under the facility expires in November, 1998.
The Company has another credit facility with this same lender which provides for
receivable financing in the amount of $5.0 million on a second timeshare resort
located in Pigeon Forge, Tennessee. The interest rate charged under the facility
is prime plus 2.0%. At March 30, 1997, the outstanding principal balance under
the credit agreement was $3.9 million. The ability to borrow under the facility
expired 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. If such facility is
not amended and alternative financing is not obtained, the Company's sales at
this resort would be materially adversely affected.
All principal and interest payments received from the pledged Receivables under
the two credit agreements discussed above are applied to the principal and
interest due under the facilities. 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 eligible 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 under each credit facility matures seven years from the date of the
last advance.
The Company has a third credit facility with another lender which provides for
receivable financing in the amount of $10.0 million on a third timeshare resort
located in Myrtle Beach, South Carolina. The interest rate charged under the
line-of-credit is the three-month London Interbank Offered Rate ("LIBOR") plus
4.25%. At March 30, 1997, the outstanding principal balance under the facility
was $1.2 million. 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. In April, 1997 the Company acquired additional
property in Myrtle Beach, South Carolina for its fourth timeshare resort. The
Company has received a commitment letter from this same lender for Receivables
financing on the project in the amount of $7.0 million. No assurances can be
given that the facility will be obtained on terms satisfactory to the Company,
if at all.
Credit Facilities for Land Receivables
The Company has a $15.0 million revolving credit facility with another financial
institution for the pledge of land receivables. The Company uses the facility as
a temporary warehouse until it accumulates a sufficient quantity of land
<PAGE>
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. The interest rate charged on outstanding borrowings is prime plus
2.0%. At March 30, 1997, the outstanding principal balance under the facility
was $1.2 million. All principal and interest payments received on pledged
Receivables are applied to principal and interest due under the facility. The
facility expires and the indebtedness is due in October, 1998.
The Company has $3.5 million outstanding and secured by land receivables as of
March 30, 1997 with another lender. The interest rate charged under the
agreement is prime plus 2.0%. All principal and interest payments received from
the pledged Receivables are applied to the principal and interest due under the
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 additional 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.
Over the past three years, the Company has received 80% to 90% of its land sales
in cash. Accordingly, in recent years the Company has reduced the borrowing
capacity under credit agreements secured by land receivables. The Company
attributes the significant cash sales to an increased willingness on the part of
certain local banks to extend more direct customer lot financing.
Financing of Inventories
Historically, the Company has financed the acquisition of land and timeshare
property through seller, bank or financial institution loans. The capital
required for development (for road and utility construction, resort unit
construction, amenities, surveys, and engineering fees) has historically been
funded from internal operations. Terms for repayment under these loans typically
call for interest to be paid monthly and principal to be repaid through
lot/interval releases. The release price is usually defined as a pre-determined
percentage of the gross selling price (typically 25% to 50%) of the parcels in
the subdivision or intervals in the resort. In addition, the agreements
generally call for minimum cumulative annual amortization. When the Company
provides financing for its customers (and therefore the release price is not
available in cash at closing to repay the lender), it is required to pay the
creditor with cash derived from other operating activities, principally cash
sales or the pledge of Receivables originated from earlier property sales.
In addition to term financing for the acquisition of property, the Company has
credit arrangements for the development of certain larger land and timeshare
projects. See also the discussion of capital requirements to develop the
Company's inventories under "Uses of Capital".
The Company had 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 indebtedness was repaid in May, 1997 (and is
included in fiscal 1998 repayments in the debt obligation table set forth
below). The interest rate charged under the facility was prime plus .5%. At
March 30, 1997, there was $11.3 million outstanding under the line-of-credit. In
May, 1997 the lender was repaid with proceeds from a take-out loan. The interest
rate charged under the take-out loan is the three-month LIBOR plus 4.25%.
Principal is repaid through release payments as weekly intervals are sold.
Interest is paid monthly.
The Company has another credit facility for up to $12.6 million for the
development of residential lots and a golf course for a property located in
North Carolina. The first development advance occurred in May, 1997 and,
accordingly, as of March 30, 1997 there were no outstanding borrowings. The
interest rate charged under the agreement is prime plus 1%. The agreement calls
for interest to be paid monthly and principal to be repaid through release
payments as lots are sold.
<PAGE>
Total Debt
The following table sets forth the minimum contractual principal payments
required on the Company's lines-of-credit and notes payable as well as the
scheduled principal reductions with respect to receivable-backed indebtedness
for years subsequent to 1997. Installments due on lines-of-credit and notes
payable primarily consist of payments due on indebtedness secured by property
inventory. In most instances, as inventory is sold, the Company is required to
repay the creditor a pre-determined percentage of the selling price (typically
25% to 50%). The agreements also generally call for certain minimum
amortization. All principal and interest collections on Receivables pledged as
collateral for receivable-backed notes payable are dedicated to the payment of
principal and interest on the related debt. Under the terms of the
receivable-backed note agreements, the Company is not required to advance
delinquent customer payments to the creditor. However, in most cases the Company
is obligated to maintain a receivable-backed notes payable balance of not more
than 90% of eligible pledged Receivables.
Lines-of- Receivable-
Credit and Backed
Notes Notes
Payable Payable Total
1998................................ $21,020,491 $ 4,890,941 $25,911,432
1999................................ 5,702,848 5,363,014 11,065,862
2000................................ 5,974,495 5,954,346 11,928,841
2001................................ 590,039 4,846,701 5,436,740
2002................................ 235,052 --- 235,052
Thereafter.......................... 2,382,627 --- 2,382,627
Total............................... $35,905,552 $21,055,002 $56,960,554
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including, without limitation, the following
financial covenants:
I. Maintain net worth of at least $42.0 million.
II. Maintain a leverage ratio of not more than 4.0 to 1.0. The leverage ratio
is defined as consolidated indebtedness of the Company divided by
consolidated net worth.
III. Maintain an adjusted leverage ratio of not more than 2.0 to 1.0. The
adjusted leverage ratio is defined as consolidated indebtedness of the
Company excluding the convertible subordinated debentures divided by
consolidated net worth including the convertible subordinated debentures.
IV. Limit selling, general and administrative expenses to 50% of gross revenue
from sales of real estate.
The Company was in compliance with each of such covenants at March 30, 1997
and for each reporting period during 1997, 1996 and 1995.
In recent years, private placement REMIC financings have provided substantial
capital resources to the Company. To date, all of the Company's completed REMIC
transactions have included land receivables. The Company does not plan to
complete a REMIC transaction for land receivables during fiscal 1998 due to the
expectation that a high percentage of such sales will be received in cash (and
therefore a sufficient quantity of land receivables will not be accumulated to
make a REMIC transaction cost effective). In REMIC 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
<PAGE>
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 with respect to which there
was a breach of the Company's representations and warranties at the date of
sale, which breach materially and adversely affects the rights of
certificateholders. In addition, the Company, as servicer, is required to make
advances of delinquent payments to the extent deemed recoverable. However, the
certificates are not obligations of the Company, the subsidiary or any of their
affiliates and the Company has no obligation to repurchase or replace the
mortgage loans solely due to delinquency.
On May 11, 1994, the Company sold $27.7 million aggregate principal amount of
mortgage notes receivable (the "1994 Mortgage Pool") to a subsidiary and the
subsidiary sold the 1994 Mortgage Pool to a REMIC Trust (the "1994 REMIC
Trust"). Simultaneous with the sale, the 1994 REMIC Trust issued four classes of
Adjustable Rate REMIC Mortgage Pass-Through Certificates. The initial principal
balances of the Class A, Class B and Class C certificates were approximately
$23.3 million, $2.8 million and $1.6 million, respectively. The Class R
Certificates have no initial principal balance and do not bear interest. The
1994 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate
first mortgage loans secured by property sold by the Company. On May 11, 1994,
the subsidiary sold the Class A and Class B Certificates to an institutional
investor for aggregate proceeds of approximately $26.0 million in a private
placement transaction and retained the Class C and Class R Certificates. A
portion of the proceeds from the transaction was used to repay approximately
$13.5 million of outstanding debt. An additional $2.4 million was used to retire
securities previously sold pursuant to the Company's 1989 REMIC transaction. The
balance of the proceeds, after payment of transaction expenses and fees,
resulted in an increase of $12.4 million in the Company's unrestricted cash.
On July 12, 1995, the Company sold $68.1 million aggregate principal amount of
mortgage notes receivable (the "1995 Mortgage Pool") to a subsidiary and the
subsidiary sold the 1995 Mortgage Pool to a REMIC Trust (the "1995 REMIC
Trust"). Simultaneous with the sale, the 1995 REMIC Trust issued four classes of
Adjustable Rate REMIC Mortgage Pass-Through Certificates. The initial principal
balances of the Class A, Class B and Class C certificates were approximately
$61.3 million, $4.8 million and $2.0 million, respectively. The Class R
Certificates have no initial principal balance and do not bear interest. The
1995 REMIC Trust is comprised primarily of a pool of fixed and adjustable rate
first mortgage loans secured by property sold by the Company. The $68.1 million
of loans comprising the Mortgage Pool were previously owned by the REMIC trust
established by the Company in 1992 ($46.8 million) or held by the Company or
pledged to an institutional lender ($21.3 million). The Class C and Class R
Certificates are subordinated to the Class A and Class B Certificates, as
provided in the Pooling Agreement. On July 12, 1995, the subsidiary sold the
Class A and Class B Certificates to two institutional investors for aggregate
proceeds of approximately $66.1 million in a private placement transaction. The
subsidiary retained the Class C and Class R Certificates. A portion of the
proceeds from the transaction was used to repay approximately $12.9 million of
outstanding debt. An additional $36.3 million was used to retire securities
previously sold pursuant to the Company's 1992 REMIC transaction. The balance of
the proceeds, after payment of transaction expenses and fees, resulted in an
increase of more than $15.8 million in the Company's unrestricted cash. The
pre-tax gain from the transaction was approximately $1.1 million and the
after-tax gain was approximately $672,000.
On May 15, 1996, the Company sold $13.2 million aggregate principal amount of
mortgage notes receivable (the "1996-1 Mortgage Pool") to a subsidiary 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. The initial principal
balances of the Class A and Class B certificates were approximately $11.8
million and $1.3 million, respectively. The Class R Certificates have no initial
principal balance and do not bear interest. The 1996-1 REMIC Trust is comprised
primarily of a pool of fixed and adjustable rate first mortgage loans secured by
property sold by the Company. On May 15, 1996, the subsidiary sold the Class A
Certificates 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
<PAGE>
$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.
On December 11, 1996, the Company sold $5.7 million aggregate principal amount
of mortgage notes receivable (the "1996-2 Mortgage Pool") to a subsidiary 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. The initial principal
balances of the Class A and Class B certificates were approximately $5.3 million
and $400,000, respectively. The Class R Certificates have no initial principal
balance and do not bear interest. The 1996-2 REMIC Trust is comprised primarily
of a pool of fixed and adjustable rate first mortgage loans secured by property
sold by the Company. On December 11, 1996, the subsidiary sold the Class A
Certificates to an institutional investor for aggregate proceeds of
approximately $5.3 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.
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 $3.6 million at March 30, 1997. As discussed under "Uses of
Capital", the Company's business has changed in recent years to include
timeshare development and sales. Additionally, the Company has recently invested
greater resources into fewer, more capital intensive land projects. As of
result, capital requirements to develop inventories owned as of March 30, 1997
are materially higher than that historically needed. The Company plans to seek
external sources of capital for the development of a substantial portion of its
inventories. Based upon existing credit relationships, the current financial
condition of the Company and its operating plan, management believes the Company
can obtain adequate financial resources to satisfy its anticipated capital
requirements, although no assurances can be given. In the event that an existing
facility expires and is not amended and/or the Company can not obtain additional
capital under satisfactory terms, lower ready-for-sale inventories would result
in reduced sales and the Company's ability to meet its liquidity and capital
resource requirements would be materially adversely affected.
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 and other obligations.
The Company's net inventory was $86.7 million at March 30, 1997 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). Furthermore, during the first quarter of 1997, management
changed its focus for marketing certain of its inventories and implemented a
plan to accelerate the sale of certain inventories managed under the Communities
Division and Land Division. These inventories were 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 strategy for
accelerated sale. The $8.2 million charge included $4.8 million for certain
Communities Division inventories and $3.4 million for certain Land Division
inventories. As of March 30, 1997 approximately 50% of the inventories subject
to write-down had been sold (as measured by both number of properties and cost
basis). Although no assurances can be given, the inventories subject to
write-down are expected to be fully liquidated in 12 - 18 months. See "Results
of Operations" and Note 4 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 March 30, 1997 is
approximately $115.2 million. The $115.2 million excludes the cost of any
<PAGE>
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 $40.4 million of the capital development requirements
during fiscal 1998. In addition, the Company acquired two timeshare properties
subsequent to year end that will require an estimated $5.6 million in
development during fiscal 1998. The allocation of anticipated cash requirements
for inventories owned as of March 30, 1997 to operating divisions is discussed
below.
Land Division: The Company expects to spend $63.6 million to develop land which
typically includes expenditures for road and utility construction, amenities,
surveys and engineering fees, including $34.0 million to be spent during fiscal
1998.
Resorts Division: The Company expects to spend $51.1 million for building
materials, amenities and other infrastructure costs such as road and utility
construction, surveys and engineering fees, including $5.9 million to be spent
during fiscal 1998.
Communities Division: The Company expects to spend $510,000 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 $510,000 is expected to be spent during 1998.
The table to follow outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of March 30, 1997.
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.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <S>
Geographic Region Land Resorts Communities Total
Southeast......................... $20,476,568 $12,894,404 $ 509,571 $ 33,880,543
Midwest........................... 7,353,653 38,183,608 --- 45,537,261
Southwest......................... 29,456,380 --- --- 29,456,380
Rocky Mountains .................. 628,630 --- --- 628,630
West ............................. 3,558,090 --- --- 3,558,090
Mid-Atlantic...................... 2,120,309 --- --- 2,120,309
Northeast......................... 36,429 --- --- 36,429
Total estimated spending.......... 63,630,059 51,078,012 509,571 115,217,642
Net inventory at
March 30,1997................... 53,451,859 27,523,626 5,685,074 86,660,559
Total estimated cost basis
of fully developed
inventory.......................$117,081,918 $78,601,638 $6,194,645 $201,878,201
</TABLE>
<PAGE>
The Company's net inventory summarized by division as of March 30, 1997 and
March 31, 1996 is set forth below.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
March 30, 1997
------------------------------------------------------------------------
Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277
Midwest.............. 8,050,969 12,495,034 --- 20,546,003
Southwest............ 19,959,473 --- --- 19,959,473
Rocky Mountains ..... 7,533,939 --- --- 7,533,939
West ................ 5,511,879 --- --- 5,511,879
Mid-Atlantic......... 4,015,647 --- --- 4,015,647
Northeast............ 382,341 --- --- 382,341
Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
March 31, 1996
------------------------------------------------------------------------
Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575
Midwest.............. 6,293,008 10,839,389 --- 17,132,397
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
Mid-Atlantic......... 2,490,025 --- --- 2,490,025
Northeast............ 1,982,895 --- --- 1,982,895
Canada............... 29,025 --- --- 29,025
Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
</TABLE>
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory
of $5.4 million and $22.1 million of unit construction-in-progress. Resorts
Division inventory as of March 31, 1996, consists of land inventory of $6.1
million and $9.9 million of unit construction-in-progress.
(2) Communities Division inventory as of March 30, 1997, consists of land
inventory of $1.5 million and $4.2 million of housing unit
construction-in-progress. Communities Division inventory as of March 31,
1996, consists of land inventory of $10.5 million and $3.7 million of
housing unit construction-in-progress.
The Company attempts to maintain inventory at a level adequate to support
anticipated sales of real estate in its various operating regions. In addition,
in its Land Division, the Company is committing more resources to fewer projects
in locations where the Company has historically achieved strong operating
results such as Texas (Southwest), North Carolina and South Carolina
(Southeast), Tennessee (Midwest), Virginia (Mid-Atlantic) and Arizona (West).
The Company is also dedicating significant resources to increasing the size of
its timeshare inventories. Significant changes in the composition of the
Company's inventories as of March 30, 1997 are discussed below.
The Company's aggregate Land Division inventory increased by $10.1 million from
March 31, 1996 to March 30, 1997. The increase in land holdings is primarily
attributable to certain large acquisitions in the Southwestern, Southeastern,
Midwestern and Rocky Mountain regions of the country (an aggregate of 14,430
acres), partially offset by sales activity and provisions for the write-down of
certain inventories totaling $3.4 million. See Note 4 to the Consolidated
Financial Statements.
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 in June, 1996. 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
<PAGE>
Company also acquired two properties in Tennessee covering 1,118 acres for $3.6
million. In Colorado, the Company acquired 4,450 acres for $1.4 million in May,
1996 and 2,690 acres for $1.1 million in August, 1996. The increase in inventory
as a result of these seven acquisitions was partially offset by sales activity.
Although no assurances can be given, future acquisitions will be focused
primarily in the Company's five most profitable markets which include Texas,
North Carolina, Virginia, Tennessee and Arizona.
The Company's aggregate resort inventory increased by $11.5 million from March
31, 1996 to March 31, 1997. The increase was attributable to additional
infrastructure development at each of the Company's two Tennessee resorts and
South Carolina resort, partially offset by sales activity at the projects.
The Company's aggregate communities inventory decreased by $8.5 million from
March 31, 1996 to March 30, 1997. 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.
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all 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 1997 and 1996, the Company received 30% and 26%,
respectively, of its consolidated sales of real estate which closed during the
period in the form of Receivables. The increase in the percentage of sales
financed by the Company from 1996 to 1997 is primarily attributable to an
increase in timeshare sales over the same period. Timeshare sales accounted for
25% of consolidated sales of real estate during 1997, compared to 12% of
consolidated sales during 1996. Almost all timeshare buyers finance with the
Company (compared to one out of ten land buyers). During 1995, the Company
received 24% of its consolidated sales of real estate which closed during the
period in the form of Receivables. The lower percentage of sales financed during
1995 compared to 1996 was primarily attributable to (i) an increased willingness
on the part of certain local banks to extend more direct customer lot financing
during 1995 and (ii) an increased amount of home sales in the revenue mix during
1995, the proceeds of which were received entirely in cash.
At March 30, 1997, $27.0 million of Receivables were pledged as collateral to
secure Company indebtedness, while $8.8 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. The table below provides further information on
the Company's land and timeshare receivables at March 30, 1997 and March 31,
1996. Proceeds from home sales under the Company's Communities Division are
received entirely in cash.
(Dollars In Millions)
March 30, 1997 March 31, 1996
----------------------------- -------------------------------
Receivables Land Timeshare Total Land Timeshare Total
Encumbered....... $ 8.1 $18.9 $27.0 $ 18.4 $ 8.6 $ 27.0
Unencumbered..... 4.2 4.6 8.8 7.8 3.1 10.9
Total............ $12.3 $23.5 $35.8 $ 26.2 $11.7 $ 37.9
The reduction in encumbered land Receivables from March 31, 1996 to March 30,
1997 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 March 30, 1997 and March
31, 1996. Receivables held include those which are unencumbered and those which
have been pledged to secure indebtedness of the Company. Loan-to-value ratio is
defined as the unpaid balance of the loan divided by the contract purchase
price.
<PAGE>
March 30, 1997 March 31, 1996
-------------------- ---------------------
Receivables Land Timeshare Land Timeshare
Loan-to-Value Ratio ... 54% 78% 63% 75%
Because the Company sold a substantial portion of its less seasoned land
receivables in connection with the 1996 REMICs (and retained the more seasoned
land receivables), the related loan-to-value ratio was lower at March 30, 1997
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 estimated fair value (net of costs to dispose) or the
balance of the loan. Related costs incurred to reacquire, carry and dispose of
the property are capitalized to the extent deemed recoverable. 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 3.4%
and 2.4% at March 30, 1997 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 the portfolio consisting of more
timeshare receivables where historical default rates exceed those on land
receivables.
At March 30, 1997, approximately 6% or $2.1 million of the aggregate $36.7
million principal amount of loans which were held by the Company or by third
parties under sales for which the Company had a recourse liability, were more
than 30 days past due. Of the $36.7 million principal amount of loans, $35.8
million were held by the Company, while approximately $840,000 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 sales 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.
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 March 30,
1997, 443,000 shares had been repurchased at an average cost of $3.09 per share.
<PAGE>
Results of Operations
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the years ended March
30, 1997, March 31, 1996 and April 2, 1995. This information should be read in
conjunction with the Consolidated Financial Statement and related Notes.
General
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. A downturn in the economy in general or in the market for real estate
could have a material adverse effect on the Company. In addition, the Company
has been dedicating greater resources to fewer, more capital intensive land and
timeshare projects. As a result, the current results reflect an increased amount
of revenue deferred under the percentage of completion method of accounting.
Under this method of revenue recognition, income is recognized as work
progresses. Measures of progress are based on the relationship of costs incurred
to date to expected total costs. See "Contracts Receivable and Revenue
Recognition" under Note 1 to the Consolidated Financial Statements.
Seasonality/Fluctuating Results
The Company has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net earnings in the third fiscal
quarter. This seasonality may cause significant fluctuations in the quarterly
operating results of the Company. In addition, additional material fluctuations
in operating results may occur due to the timing of development and the
Company's use of the percentage of completion method of accounting. Management
expects that the Company will continue to invest in projects that will require
more substantial development (with greater capital requirements) than in years
prior to 1997.
Impact of Inflation
Inflation and changing prices have not had a material impact on the Company's
revenues and results of operations during any of the three most recent years.
Due to the current economic climate, the Company does not expect that inflation
and changing prices will have a material impact on the Company's revenues or
earnings. To the extent inflationary trends affect short-term interest rates, a
portion of the Company's debt service costs may be affected as well as the rate
the Company charges on its Receivables.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <S>
(Dollars in Thousands)
Year Ended March 30, 1997
Land Resorts Communities Total
Sales of real estate. $72,621 100.0% $27,425 100.0% $9,675 100.0% $109,721 100.0%
Cost of real estate
sold (1)............ 39,792 54.8% 7,947 29.0% 9,351 96.7% 57,090 52.0%
Gross profit......... 32,829 45.2% 19,478 71.0% 324 3.3% 52,631 48.0%
Field selling,
general and
administrative
expense(2).......... 23,297 32.1% 17,806 64.9% 820 8.5% 41,923 38.2%
Field operating
profit(loss)(3)..... $ 9,532 13.1% $ 1,672 6.1% $( 496) (5.2)% $10,708 9.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <S>
(Dollars in Thousands)
Year Ended March 31, 1996
Land Resorts Communities Total
Sales of real estate. $84,859 100.0% $13,825 100.0% $14,739 100.0 % $113,423 100.0%
Cost of real estate
sold (1)............ 41,510 48.9% 4,550 32.9% 13,333 90.5 % 59,393 52.4%
Gross profit......... 43,349 51.1% 9,275 67.1% 1,406 9.5 % 54,030 47.6%
Field selling,
general and
administrative
expense (2)......... 24,649 29.0% 8,591 62.1% 2,727 18.5 % 35,967 31.7%
Field operating
profit(loss) (3).... $18,700 22.1% $ 684 5.0% $(1,321) (9.0)% $18,063 15.9%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <S>
(Dollars in Thousands)
Year Ended April 2, 1995
Land Resorts Communities Total
Sales of real estate. $72,621 100.0% $5,886 100.0% $13,415 100.0% $91,922 100.0%
Cost of real estate
sold (1)............ 31,082 42.8% 2,225 37.8% 11,799 88.0% 45,106 49.1%
Gross profit......... 41,539 57.2% 3,661 62.2% 1,616 12.0% 46,816 50.9%
Field selling,
general and
administrative
expense (2)......... 22,647 31.2% 3,523 59.9% 1,863 13.9% 28,033 30.5%
Field operating
profit (loss) (3)... $18,892 26.0% $ 138 2.3% $ (247) ( 1.9)% $18,783 20.4%
</TABLE>
(1) Cost of sales represents the cost of inventory including the cost of
improvements, amenities and in certain cases capitalized interest.
(2) General and administrative expenses attributable to corporate overhead
have been excluded from the tables. Corporate general and administratives
expense totaled $9.5 million, $7.8 million and $8.5 million for 1997, 1996
and 1995, respectively.
(3) The tables presented above outline selected financial data.
Accordingly, interest income, interest expense, provisions for losses,
other income and income taxes have been excluded.
Sales and Business Line Data
Consolidated sales of real estate decreased 3% to $109.7 million for 1997
compared to $113.4 million for 1996 and $91.9 million for 1995. Increases in
1997 timeshare sales were more than offset by lower land and communities sales.
Among other reasons, decreases in 1997 land revenues were the result of $6.7
million more in sales being deferred and subject to percentage of completion
accounting.
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. The
Company does not intend to acquire any additional communities related
inventories and present operations are being terminated through a combination of
retail sales and bulk sales.
<PAGE>
Land Division
During 1997, 1996 and 1995, land sales contributed $72.6 million or 66%, $84.9
million or 75% and $72.6 million or 79%, 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).
Years Ended
------------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Number of parcels sold............ 2,057 2,347 2,397
Average sales price per parcel.... $38,572 $34,856 $30,969
Gross margin (1).................. 45% 51% 57%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements, amenities
and in certain cases capitalized interest), divided by the sales price. A
charge of $3.4 million was recorded during 1997 for the write-down of
certain inventories and is included in the Consolidated Statement of
Operations under "Provisions for losses".
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 periods indicated.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C>
Years Ended
------------------------------ -------------------------------- ----------------------------------
March 30, 1997 March 31, 1996 April 2, 1995
Average Average Average
Number of Sales Price Number of Sales Price Number of Sales Price
Geographic Region Parcels Sold Per Parcel Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 1,131 $ 39,719 1,117 $ 37,489 1,107 $ 34,999
Southeast......... 291 $ 35,736 223 $ 36,925 289 $ 28,311
Rocky Mountains. 218 $ 40,499 297 $ 44,524 339 $ 32,033
Midwest........... 175 $ 24,111 334 $ 27,451 317 $ 28,740
West.............. 34 $ 147,816 19 $ 138,347 --- $ ---
Mid-Atlantic...... 152 $ 31,605 236 $ 21,951 215 $ 23,136
Northeast......... 53 $ 20,982 106 $ 12,472 113 $ 19,382
Canada............ 3 $ 10,545 15 $ 11,674 17 $ 10,160
Totals............ 2,057 $ 38,572 2,347 $ 34,856 2,397 $ 30,969
</TABLE>
1996 vs 1997 Comparison of Land Division Parcels Sold and Average Sales Prices
The number of parcels sold in the Southwest, which includes Texas and New
Mexico, increased during 1997 due to more sales made from the Company's Houston,
Texas and Dallas, Texas projects than during 1996. The increase in sales from
these markets in the current year was partially offset by lower sales from San
Antonio, Texas properties due to a temporary shortage of ready-to-market
inventories which was remedied with a large acquisition in June, 1996.
The number of parcels sold in the Southeast, which includes North and South
Carolina, increased during 1997 due to the recent introduction of lots from an
1,100 acre golf course community located in North Carolina. It is expected that
the average selling price of land sales from the Southeast will increase during
1998.
<PAGE>
The number of parcels sold in the Rocky Mountains region decreased during 1997
due to fewer sales from the Company's Idaho and Montana properties. The Company
does not expect to expand operations in these states beyond the properties
currently being marketed.
The number of parcels sold in the Midwest decreased during 1997 due to a
shortage of inventory in Tennessee. The Company acquired two Tennessee
properties during the fourth quarter of 1997. Sales activity at the projects
recently commenced.
Sales in the West in 1996 and 1997 were derived from the Company's subdivision
in Arizona. Greater parcel sales and higher average sales prices are indicative
of the project gaining more momentum as it matures. The Arizona property is
being marketed in parcels of at least 35 acres at retail prices from $130,000 to
$150,000.
Projects in the Mid-Atlantic region have historically been located in
Pennsylvania, Virginia and West Virginia. Lower parcel sales in 1997 reflect
reduced inventory holdings in Pennsylvania and West Virginia where the Company
has no plans for expansion.
The number of parcels sold in the Northeast and Canada reflect lower inventory
levels in these regions where the Company has no plans for expansion.
The Company plans to continue to dedicate greater resources to fewer land
properties located in areas with proven records of strong operating performance.
These locations include, but are not limited to: Texas, the Carolinas, Virginia,
Tennessee and Arizona.
1995 vs 1996 Comparison of Land Division Parcels Sold and Average Sales Prices
The number of parcels sold in the Southwest increased only slightly from 1995 to
1996 due to a shortage of ready-to-market Texas property during the first
quarter. The reduction in the number of sales from Texas properties was offset
by an increase in the number of sales from the Company's New Mexico project. The
average sales price per parcel in the Southwest increased during 1996 due to a
greater number of parcel sales from the Company's New Mexico project at a higher
average selling price than during 1995. There were 139 sales from the New Mexico
project at an average sales price of $44,141 during 1996 compared to 71 sales at
an average sales price of $41,599 during 1995.
The number of parcels sold in the West increased due to the Company's entry into
the Arizona market during 1996.
The number of parcels sold in the Rocky Mountains region decreased during 1996
due to fewer sales from the Company's Montana properties, partially offset by
more sales from Colorado properties. The average sales price per parcel in the
Rocky Mountains region increased during 1996 due to the sale of larger acreage
tracts in two projects located in Colorado. In addition, during 1996 the average
sales price was affected by a single bulk sale constituting approximately 8,300
acres in Colorado for $2.5 million. The average sales price per parcel in the
Rocky Mountains region, excluding the $2.5 million bulk sale, was $36,228.
The number of parcels sold in the Midwest increased during 1996 due to more
sales momentum from the Tennessee properties which were reaching maturity.
The number of parcels sold in the Southeast decreased because of slow sales in a
new project in South Carolina during the first quarter of 1996. This was
partially offset by higher sales of more expensive parcels from a North Carolina
property.
Comparison of Land Division Gross Margins
The average gross margin for the Land Division was 45%, 51% and 57% for 1997,
1996 and 1995, respectively. The decrease in the gross margin from 1995 to 1997
was attributable to the continued liquidation of properties where the Company is
discontinuing land operations (and experienced sub-par operating results) in
locations such as the Northeast, Pennsylvania, West Virginia, Montana and Idaho.
The Company's Investment Committee, consisting of four executive officers,
approves all property acquisitions. In order to be approved for purchase by the
<PAGE>
Committee, all land (and timeshare) properties under contract for purchase are
expected to achieve certain minimum economics including a minimum gross margin.
No assurances can be given that such minimum economics will be achieved.
During the first quarter of fiscal 1997, the Company recorded provisions for the
write-down of certain land inventories in the amount of $3.4 million. See
discussion later herein and Note 4 to the Consolidated Financial Statements.
Resorts Division
During 1997, 1996 and 1995, sales of timeshare intervals contributed $27.4
million or 25%, $13.8 million or 12% and $5.9 million or 6%, 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).
Years Ended
------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Number of intervals sold............. 3,195 1,865 952
Average sales price per interval..... $8,362 $7,325 $7,119
Gross margin (1).................... 71% 67% 62%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements, amenities
and in certain cases capitalized interest), divided by the sales price.
The number of timeshare intervals sold increased to 3,195 during 1997 compared
to 1,865 during 1996 and 952 during 1995. During 1995, all interval sales were
generated from the Company's first resort in Gatlinburg, Tennessee. During 1996,
1,374 intervals were sold from the Gatlinburg resort, 484 intervals were sold
from the Company's second resort in neighboring Pigeon Forge, Tennessee and
seven intervals were sold from the Company's resort in Myrtle Beach, South
Carolina. During 1997, 1,451 intervals were sold from the Gatlinburg resort, an
additional 976 intervals were sold from the Company's second resort in
neighboring Pigeon Forge, Tennessee and 768 intervals were sold from the
Company's resort in Myrtle Beach, South Carolina. An immaterial amount of
revenues were deferred under the percentage of completion method of accounting
at March 30, 1997.
Gross margins on interval sales increased from 62% for 1995 to 67% for 1996 to
71% for 1997. During 1997, gross margins from the Company's resorts in
Gatlinburg, Pigeon Forge and Myrtle Beach were 69%, 72% and 73%, respectively.
The improvement in gross margins from the Company's resorts was primarily the
result of increases to the retail selling prices. Although no assurances can be
given, the Company may raise retail selling prices further during fiscal 1998.
<PAGE>
Communities Division
During 1997, the Company's Communities Division contributed $9.7 million in
sales revenue, or approximately 9% of total consolidated revenues from sales of
real estate. During 1996, the Company's Communities Division contributed $14.7
million in sales revenue, or approximately 13% of total sales of real estate.
During 1995, the Communities Division generated $13.4 million in sales revenue,
or approximately 15% of total sale of real estate.
The following table sets forth certain information for sales associated with the
Company's Communities Division for the periods indicated.
Years Ended
---------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Number of homes/lots sold........ 146 206 133
Average sales price.............. $66,422 $71,546 $100,866
Gross margin (1)................. 3% 10% 12%
1) Gross margin is computed as the difference between the sales price and the
related cost of inventory (including the cost of improvements) divided by
the sales price. A charge of $4.8 million was recorded during 1997 for the
write-down of certain inventories managed under the Communities Division
and is included in the Consolidated Statement of Operations under
"Provisions for losses".
The reduction in the average sales price from 1995 to 1997 was primarily
attributable to a fewer number of site-built homes and a greater number of
lot-only sales. The $9.7 million in 1997 sales was comprised of 73 manufactured
homes with an average sales price of $79,282, an additional 4 site-built homes
with an average sales price of $172,225 and 69 sales of lots at an average sales
price of $46,355. The $14.7 million in 1996 sales was comprised of 114
manufactured homes with an average sales price of $75,232, an additional 20
site-built homes with an average sales price of $198,592, 71 sales of lots-only
at an average sales price of $23,279 and one larger acreage Southwestern bulk
lot sale for $530,320. The $13.4 million in 1995 sales was comprised of 110
manufactured homes with an average sales price of $77,243 and 23 site-built
homes with an average sales price of $213,640. During 1997, the Company recorded
provisions for the write-down of certain communities related inventories in the
amount of $4.8 million. See Note 4 to the Consolidated Financial Statements and
discussion of provision for losses later herein.
<PAGE>
The tables set forth below outline sales by geographic region and division for
the years indicated.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
Year Ended March 30, 1997
-----------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $41,586,115 $ --- $ 157,000 $ 41,743,115 38.1%
Southeast............ 8,299,410 7,682,005 9,363,246 25,344,661 23.1%
Midwest.............. 3,970,953 19,743,566 --- 23,714,519 21.6%
Rocky Mountains ..... 8,828,680 --- 154,750 8,983,430 8.2%
West................. 4,875,073 --- --- 4,875,073 4.4%
Mid-Atlantic......... 3,917,096 --- --- 3,917,096 3.6%
Northeast............ 1,112,033 --- --- 1,112,033 1.0%
Canada............... 31,634 --- --- 31,634 .0%
Totals............... $72,620,994 $27,425,571 $ 9,674,996 $109,721,561 100.0%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
Year Ended March 31, 1996
----------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $43,457,483 $ --- $ 2,734,570 $ 46,192,053 40.7%
Southeast............ 8,569,869 --- 11,594,167 20,164,036 17.8%
Midwest.............. 9,981,574 13,825,162 --- 23,806,736 21.0%
Rocky Mountains ..... 13,223,744 --- 409,817 13,633,561 12.0%
West................. 2,628,600 --- --- 2,628,600 2.3%
Mid-Atlantic......... 5,500,146 --- --- 5,500,146 4.8%
Northeast............ 1,321,982 --- --- 1,321,982 1.2%
Canada............... 175,114 --- --- 175,114 .2%
Totals............... $84,858,512 $13,825,162 $14,738,554 $113,422,228 100.0%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
Year Ended April 2, 1995
--------------------------------------------------------------------------------
Geographic Region Land Resorts Communities Total %
Southwest............ $38,600,075 $ --- $ 2,012,112 $ 40,612,187 44.2%
Southeast............ 7,846,343 --- 7,881,426 15,727,769 17.1%
Midwest.............. 8,297,375 5,886,427 --- 14,183,802 15.4%
Rocky Mountains ..... 10,859,280 --- 3,521,637 14,380,917 15.6%
Mid-Atlantic......... 4,654,483 --- --- 4,654,483 5.1%
Northeast............ 2,190,110 --- --- 2,190,110 2.4%
Canada............... 172,722 --- --- 172,722 .2%
Totals............... $72,620,388 $5,886,427 $13,415,175 $ 91,921,990 100.0%
</TABLE>
Interest Income
Interest income was $6.2 million for 1997 compared to $7.4 million and $7.3
million for 1996 and 1995, respectively. The Company's interest income is earned
from its note receivables, securities retained pursuant to REMIC financings and
cash and cash equivalents. Interest income for each year was also affected by
the sale of receivables in REMIC transactions. The table set forth below
outlines interest income earned from each category of asset for the periods
indicated.
<PAGE>
Years Ended
-----------------------------------
March 30, March 31, April 2,
Interest income and other: 1997 1996 1995
Receivables held and servicing fees
from whole-loan sales.......................$4,539,673 $4,232,887 $4,561,825
Securities retained in connection with REMIC
financings including REMIC servicing fee.... 1,367,377 1,602,831 2,556,274
Gain (loss) on REMIC transaction............. (96,211) 1,119,572 (411,000)
Cash and cash equivalents.................... 348,070 432,805 556,660
Totals.......................................$6,158,909 $7,388,095 $7,263,759
The table to follow sets forth the average interest bearing assets for the
twelve month periods indicated.
March 30, March 31, April 2,
1997 1996 1995
Average interest bearing assets
Receivables ............................... $33,671,030 $33,689,211 $36,788,911
Securities retained in connection with REMIC
financings ................................ 10,917,033 11,802,168 21,877,283
Cash and cash equivalents................... 8,310,996 7,894,825 12,370,222
Totals...................................... $52,899,059 $53,386,204 $71,036,416
The reduction in securities retained in connection with REMIC financings from
1995 to 1996 was the result of the retirement of securities issued pursuant to
the Company's 1992 REMIC. The mortgage notes receivable securing the certificate
obligations were sold in connection with the Company's REMIC transaction
completed in July, 1995.
Selling, General and Administrative Expenses
S,G & A expenses totaled $51.4 million, $43.7 million and $36.5 million for
1997, 1996 and 1995, respectively. As a percentage of sales of real estate, S,G
& A expenses increased from 39% for 1996 to 47% for 1997. S,G&A expenses as a
percent of sales were 40% for 1995. The increase as a percent of sales in 1997
was largely the result of higher S,G&A expenses for the Resorts Division as well
as higher corporate general and administrative expenses. The Company has
invested in human resources and other infrastructure to support the anticipated
long-term growth of its Resorts Division during 1997. Furthermore, marketing
expense tends to be higher during the early years of a resort project and
decreases as the property reaches some maturity. Although no assurances can be
given, management expects S,G&A expenses as a percent of sales to decline in
fiscal 1998.
The tables to follow sets forth comparative S,G&A expense information for the
periods indicated.
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Year Ended March 30, 1997
Land Resorts Communities Total
Sales of real
estate....... $72,621 100.0% $27,425 100.0% $9,675 100.0% $109,721 100.0%
Field selling,
general and
administrative
expense (1).... 23,297 32.1% 17,806 64.9% 820 8.5% 41,923 38.2%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Year Ended March 31, 1996
Land Resorts Communities Total
Sales of real
estate......... $84,859 100.0% $13,825 100.0% $14,739 100.0% $113,422 100.0%
Field selling,
general and
administrative
expense (1).... 24,649 29.0% 8,591 62.1% 2,727 18.5% 35,967 31.7%
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Year Ended April 2, 1995
Land Resorts Communities Total
Sales of real
estate......... $72,621 100.0% $5,886 100.0% $13,415 100.0% $91,922 100.0%
Field selling,
general and
administrative
expense (1)... 22,647 31.2% 3,523 59.9% 1,863 13.9% 28,033 30.5%
</TABLE>
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables. Corporate general and administrative
expenses totaled $9.5 million, $7.8 million and $8.5 million for 1997, 1996
and 1995, respectively.
Interest Expense
Interest expense totaled $5.5 million, $6.3 million and $6.7 million for 1997,
1996 and 1995, respectively. The 13% decrease in interest expense for 1997 was
primarily attributable to an increase in the amount of interest capitalized to
inventory. The Company capitalized interest totaling $1.9 million during 1996,
compared to $3.0 million for 1997. The increase in capitalized interest is the
direct result of the Company acquiring certain inventory which requires
significant development with longer sell-out periods (and therefore qualifying
for interest capitalization). The effective cost of borrowing (when adding back
capitalized interest) was 10.2%, 11.1% and 10.5% for 1997, 1996 and 1995,
respectively. The table set forth below outlines the components of interest
expense for the periods indicated.
March 30, March 31, April 2,
1997 1996 1995
Interest expense on:
Receivable-backed notes payable............$1,821,359 $1,903,293 $1,982,603
Lines-of-credit and notes payable.......... 2,796,513 2,150,937 1,583,193
8.25% convertible subordinated debentures.. 2,865,967 2,865,967 2,865,967
Other financing costs...................... 945,449 1,259,718 732,792
Capitalization of interest.................(2,970,369) (1,903,728) (426,868)
Totals.....................................$5,458,919 $6,276,187 $6,737,687
The table to follow sets forth the average indebtedness for the periods
indicated.
<PAGE>
March 30, March 31, April 2,
1997 1996 1995
Average indebtedness
Receivable-backed notes payable............$17,761,443 $17,093,771 $17,701,813
Lines-of-credit and notes payable.......... 29,806,556 21,648,296 15,959,607
8.25% convertible subordinated debentures.. 34,739,000 34,739,000 34,739,000
Totals.....................................$82,306,999 $73,481,067 $68,400,420
Provisions for losses
During the first quarter of 1997, management changed its focus for marketing
certain of its inventories in conjunction with a plan to accelerate the sale of
properties managed under the Communities Division and certain properties managed
under the Land Division. These inventories are being liquidated through a
combination of bulk sales and retail sales at substantially reduced prices.
Because of the strategy to accelerate sales, management determined that
inventories with a carrying value of $23.2 million should be written-down by
$8.2 million. The $8.2 million in provisions included $4.8 million for certain
Communities Division inventories and $3.4 million for certain Land Division
inventories. 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
had been slow-moving and yielded low gross profits and little to no operating
profits. A majority of the Land Division parcels subject to write-down were
scattered lots acquired through foreclosure or deedback in lieu of foreclosure,
odd lots from former projects or properties located in parts of the country
where the Company has no plans for expansion. Because the Company is focused on
growth in its Resort Division and certain locations under the Land Division
where capital requirements to develop these properties are significant,
management adopted a plan to aggressively pursue opportunities for the bulk sale
of a portion of the written-down assets and has reduced retail selling prices on
others to increase sales activity. As of March 30, 1997 approximately 50% of the
inventories subject to write-down had been sold (as measured by both number of
properties and cost basis). Although no assurances can be given, the remaining
inventories which were the subject of write-down are expected to be fully
liquidated in 12 - 18 months.
The Company recorded provisions for loan losses (or related advanced real estate
taxes for delinquent customers) totaling $1.3 million, $612,000 and $792,000
during 1997, 1996 and 1995, respectively. Because a greater percentage of the
1997 note portfolio consists of timeshare loans (where historical default rates
exceed those for land loans), higher provisions were recorded. See related
discussion of notes receivable under "Uses of Capital".
Summary
Income (loss) from consolidated operations was $(7.6) million, $10.8 million and
$10.0 million for 1997, 1996 and 1995, respectively. The reduction from 1996 to
1997 was primarily the result of higher S,G&A expenses and increased provisions
for losses (particularly for the $8.2 million write-down of certain
inventories). The improvement from 1995 to 1996 was primarily the result of
increased sales of real estate and higher net interest spread (representing the
difference between interest income and interest expense) partially offset by a
lower average consolidated gross margin.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
1997, 1996 and 1995 was not material to the Company's results of operations.
The Company recorded a tax benefit of 41% for 1997. The Company recorded a tax
provision of 41% of pre-tax income for 1996 and 1995.
<PAGE>
Net loss was $4.4 million for 1997. Net income was $6.5 million and $6.1 million
for 1996 and 1995, respectively. The reduction from 1996 to 1997 was primarily
the result of higher S,G&A expenses and increased provisions for losses
(particularly for the $8.2 million write-down of certain inventories). The
improvement from 1995 to 1996 was primarily the result of increased sales of
real estate and higher net interest spread (representing the difference between
interest income and interest expense) partially offset by a lower average
consolidated gross margin.
<PAGE>
Report of Management
We have prepared the consolidated financial statements and other sections of
this annual report and are responsible for all information and representations
contained therein. Such consolidated financial information was prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, based on our best estimates and judgments.
The Company maintains accounting and internal control systems which were
designed to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records adequate for preparation of financial
information. The systems are established and monitored in accordance with
written policies which set forth management's responsibility for proper internal
accounting controls. The internal accounting control system is augmented by
written guidelines and careful selection and training of qualified personnel.
The consolidated financial statements have been audited by Ernst & Young LLP,
independent certified public accountants, in accordance with generally accepted
auditing standards. In connection with their audit, Ernst & Young LLP has
developed an understanding of our accounting and financial controls and
conducted such tests and related procedures as they consider necessary to render
their opinion on our consolidated financial statements.
The financial data contained in this annual report was subject to review by the
Audit Committee of the Board of Directors. The Audit Committee, composed of
three directors who are not employees, meets periodically during the year with
Ernst & Young LLP and with management to review accounting, auditing, internal
control and financial reporting matters.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. We believe that our policies and
procedures provide reasonable assurance that operations are conducted in
conformity with applicable laws and with our commitment to a high standard of
business conduct.
George F. Donovan
President and Chief Executive Officer
Mary Jo Wiegand
Vice President and Controller
May 2, 1997
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation as of March 30, 1997 and March 31, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bluegreen
Corporation at March 30, 1997 and March 31, 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 30, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
West Palm Beach, Florida
May 2, 1997
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C>
BLUEGREEN CORPORATION
Consolidated Balance Sheets
March 30, March 31,
Assets 1997 1996
Cash and cash equivalents (including restricted cash of
approximately $8.0 million and $7.7 million at
March 30, 1997 and March 31, 1996, respectively)....... $ 11,597,147 $ 11,389,141
Contracts receivable, net................................. 14,308,424 12,451,207
Notes receivable, net..................................... 34,619,325 37,013,802
Investment in securities.................................. 11,066,693 9,699,435
Inventory, net............................................ 86,660,559 73,595,014
Property and equipment, net............................... 4,948,554 5,239,100
Debt issuance costs, net.................................. 1,063,755 1,288,933
Other assets.............................................. 5,362,572 4,286,401
Total assets........................................... $169,627,029 $154,963,033
Liabilities and Shareholders' Equity
Accounts payable.......................................... $ 1,917,907 $ 2,557,797
Deferred revenue.......................................... 3,791,924 746,955
Accrued liabilities and other............................. 10,118,268 9,142,108
Lines-of-credit and notes payable......................... 35,905,552 17,287,767
Deferred income taxes..................................... 2,855,946 6,067,814
Receivable-backed notes payable........................... 21,055,002 19,723,466
8.25% convertible subordinated debentures................. 34,739,000
34,739,000
Total liabilities...................................... 110,383,599 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
outstanding at March 30, 1997 and March 31, 1996,
respectively........................................... 206,019 205,334
Capital-in-excess of par value............................ 71,410,755 71,296,158
Accumulated deficit....................................... (11,162,923) (6,803,366)
Treasury stock, 443,000 common shares at
March 30, 1997 at cost................................ ( 1,369,772) ---
Net unrealized gains on investments available-for-sale, net of
income taxes........................................... 159,351 ---
Total shareholders' equity................................ 59,243,430 64,698,126
Total liabilities and shareholders' equity............. $169,627,029 $154,963,033
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C>
BLUEGREEN CORPORATION
Consolidated Statements of Operations
Years Ended
----------------- ------------------ --------------
March 30, March 31, April 2,
1997 1996 1995
Revenues:
Sales of real estate................................ $ 109,721,561 $113,422,228 $91,921,990
Interest income and other........................... 6,158,909 7,388,095 7,263,759
115,880,470 120,810,323 99,185,749
Cost and expenses:
Cost of real estate sold............................ 57,090,546 59,393,392 45,105,841
Selling, general and administrative expenses........ 51,441,301 43,734,724 36,520,817
Interest expense.................................... 5,458,919 6,276,187 6,737,687
Provisions for losses............................... 9,539,081 611,979 792,000
123,529,847 110,016,282 89,156,345
(Loss) income from operations.......................... ( 7,649,377) 10,794,041 10,029,404
Other income........................................... 260,299 121,884 372,443
(Loss) income before income taxes...................... ( 7,389,078) 10,915,925 10,401,847
(Benefit) provision for income taxes................... ( 3,029,521) 4,449,069 4,264,758
Net (loss) income...................................... $( 4,359,557) $ 6,466,856 $ 6,137,089
(Loss) income per common share:
Net (loss) income...................................... $ (.21) $ .30 $ .29
Weighted average number of common and
common equivalent shares ............................ 20,799,908 21,775,291 21,476,638
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Shareholders' Equity
Years Ended March 30, 1997, March 31, 1996 and April 2, 1995
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
Net
Unrealized
Gains on
Investments
Common Common Stock Capital in Treasury Available-for-Sale,
Shares $.01 Par Excess of Accumulated Stock at Net of Income
Issued Value Par Value Deficit Cost Taxes Total
Balance at March 27, 1994.....17,795,974 $177,960 $61,099,625 $(9,423,926) $ --- $ --- $ 51,853,659
4% stock dividend............. 711,076 7,111 2,570,540 (2,577,651) --- --- ---
5% stock dividend............. 925,751 9,257 3,115,152 --- --- --- ---
Cash payment for dividends in
lieu of fractional shares.. --- --- --- ( 5,432) --- --- ( 5,432)
stock options.............. 37,933 379 54,282 --- --- --- 54,661
Net income.................... --- --- --- 6,137,089 --- --- 6,137,089
Balance at April 2, 1995......19,470,734 194,707 66,839,599 (8,994,329) --- --- 58,039,977
5% stock dividend............. 976,418 9,764 4,262,236 (4,272,000) --- --- ---
Cash payment for dividends in
lieu of fractional shares.. --- --- --- ( 3,893) --- --- ( 3,893)
Shares issued to employees
upon exercise of qualified
stock options.............. 86,258 863 194,323 --- --- --- 195,186
Net income.................... --- --- --- 6,466,856 --- --- 6,466,856
Balance at March 31, 1996.....20,533,410 205,334 71,296,158 (6,803,366) --- --- ---
Net unrealized gains on
investments
available-for-sale, net of
income taxes............... --- --- --- --- --- 159,351 159,351
Shares issued to employees
upon exercise of qualified
stock options.............. 68,461 685 114,597 --- --- --- 115,282
Shares repurchased............ --- --- --- --- (1,369,772) --- (1,369,772)
Balance at March 30, 1997.....20,601,871 $ 206,019 $71,410,755 $(11,162,923) $(1,369,772) $ 159,351 $59,243,430
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Years Ended
---------------------------------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Operating activities:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors............................ $ 88,471,780 $ 94,939,565 $ 78,667,484
Interest received....................................... 5,247,636 6,220,829 5,409,259
Cash paid for land acquisitions and real estate
development............................................ ( 64,860,397) ( 61,236,096) ( 48,374,125)
Cash paid to suppliers, employees and sales
representatives........................................ ( 48,688,033) ( 44,567,809) ( 33,337,031)
Interest paid, net of capitalized interest.............. ( 4,964,170) ( 5,918,887) ( 6,287,133)
Income taxes paid, net of refunds ...................... ( 1,677,762) ( 3,316,235) ( 3,097,292)
Proceeds from borrowings collateralized by notes
receivable............................................. 18,157,349 19,438,016 8,587,550
Payments on borrowings collateralized by notes
receivable............................................. ( 16,825,813) ( 19,229,268) ( 14,845,131)
Net proceeds from REMIC transactions.................... 16,934,571 28,688,041 22,706,101
Net cash (used) provided by operating activities........... ( 8,204,839) 15,018,156 9,429,682
Investing activities:
Purchases of property and equipment..................... ( 1,041,769) ( 1,895,510) ( 1,769,077)
Sales of property and equipment......................... 843,445 789,433 452,822
Cash received from investment in securities............ 1,699,032 275,816 ---
Additions to other long-term assets..................... ( 180,505) ( 410,814) ( 259,109)
Net cash flow provided (used) by investing activities...... 1,320,203 ( 1,241,075) ( 1,575,364)
Financing activities:
Borrowings under line-of-credit facilities.............. 16,887,870 5,795,604 3,916,436
Borrowings under secured credit facility............... 3,800,000 --- ---
Payments under line-of-credit facilities................ ( 5,484,517) ( 4,053,615) ---
Payments on other long-term debt........................ ( 6,856,221) ( 11,909,697) ( 13,539,555)
Proceeds from exercise of employee stock options........ 115,282 195,186 54,661
Cash paid for repurchase of common shares............... ( 1,369,772) --- ---
Payment for stock dividends in lieu of fractional shares. --- ( 3,893) ( 5,432)
Net cash flow provided (used) by financing activities...... 7,092,642 ( 9,976,415) ( 9,573,890)
Net increase (decrease) in cash and cash equivalents....... 208,006 3,800,666 ( 1,719,572)
Cash and cash equivalents at beginning of year............. 11,389,141 7,588,475 9,308,047
Cash and cash equivalents at end of year................... 11,597,147 11,389,141 7,588,475
Restricted cash and cash equivalents end of year........... ( 7,978,256) ( 7,683,901) ( 5,164,650)
Unrestricted cash and cash equivalents at end of year...... $ 3,618,891 $ 3,705,240 $ 2,423,825
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Years Ending
---------------------------------------------------------
March 30, March 31, April 2,
1997 1996 1995
Reconciliation of net (loss) income to net cash flow (used)
provided by operating activities:
Net (loss) income ........................................ $ ( 4,359,557) $ 6,466,856 $ 6,137,089
Adjustments to reconcile net (loss) income to net
cash flow (used) provided by operating activities:
Depreciation and amortization......................... 1,065,794 1,636,933 1,301,125
Loss (gain) on REMIC transactions..................... 96,211 ( 1,119,572) 411,000
(Gain) loss on sale of property and equipment......... ( 82,310) 48,561 ( 54,519)
Provisions for losses................................. 9,539,081 611,979 792,000
Interest accretion on investment in securities........ ( 996,531) ( 1,170,367) ( 2,222,724)
Proceeds from borrowings collateralized
by notes receivable.................................. 18,157,349 19,438,016 8,587,550
Payments on borrowings collateralized
by notes receivable.................................. ( 16,825,813) (19,229,268) (14,845,131)
(Benefit) provision for deferred income taxes......... ( 3,419,109) 998,095 1,326,791
(Increase) decrease in operating assets:
Contracts receivable.................................... ( 1,857,217) 600,047 ( 3,122,652)
Inventory............................................... ( 9,125,901) ( 2,003,195) ( 4,452,058)
Other assets............................................ ( 1,076,176) 274,414 1,264,688
Notes receivable and investment in securities........... ( 2,798,395) 10,446,396 11,864,101
Increase (decrease) in operating liabilities:
Accounts payable, accrued liabilities and other......... 3,477,735 ( 1,980,739) 2,442,422
Net cash flow (used) provided by operating activities......... $ ( 8,204,839) $ 15,018,156 $ 9,429,682
Supplemental schedule of non-cash operating
and financing activities
Inventory acquired through financing transactions....... $ 10,030,647 $ 6,595,450 $ 17,680,680
Inventory acquired through foreclosure or
deedback in lieu of foreclosure........................ $ 1,957,916 $ 1,609,697 $ 1,139,993
Investment in securities retained in
connection with REMIC transactions.................... $ 1,774,319 $ 2,044,029 $ 2,674,370
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Organization
Bluegreen Corporation (the "Company") is a national leisure product company
operating predominantly in the Southeastern, Southwestern and Midwestern United
States. The Company's primary business is (i) the acquisition, development and
sale of residential land and (ii) the acquisition and development of timeshare
properties which are sold in weekly intervals. The Company offers financing to
its land and timeshare purchasers.
Land and timeshare products are typically located in scenic areas or popular
vacation destinations throughout the United States. The Company's products are
primarily sold to middle-class individuals with ages ranging from forty to
fifty-five. The Company changed its name, effective March 8, 1996, from Patten
Corporation.
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.
Cash and Cash Equivalents
The Company invests cash in excess of immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities of three months or less. The Company maintains cash and cash
equivalents with various financial institutions. These financial institutions
are located throughout the country and Company policy is designed to limit
exposure to any one institution. However, a significant portion of the Company's
unrestricted cash is maintained with a single bank and, accordingly, the Company
is subject to credit risk. Periodic evaluations of the relative credit standing
of financial institutions maintaining Company deposits are performed to evaluate
and mitigate, if necessary, credit risk.
Restricted cash consists of funds collected as servicer under receivable-backed
note agreements, along with customer deposits on real estate maintained in
escrow accounts.
Contracts Receivable and Revenue Recognition
In accordance with the requirements of Statement of Financial Accounting
Standard ("SFAS") No. 66, the Company recognizes revenue on retail land sales
and timeshare sales when a minimum of 10% of the sales price has been received
in cash, the refund period has expired, 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 in accordance with the
percentage of completion method of accounting.
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
<PAGE>
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 No. 66 are met.
Contracts receivable is net of an allowance for cancellations amounting to
$451,000 and $112,000 at March 30, 1997 and March 31, 1996, respectively.
Notes Receivable
Notes receivable are carried at amortized cost. Interest income is suspended on
all notes receivable when principal or interest payments are more than three
months contractually past due and not resumed until such loans become
contractually current.
Impact of Recently Issued Accounting Standards
From time to time certain receivables have been securitized and sold to
investors through Real Estate Mortgage Investment Conduits (REMICs). See Note 3.
To date, the servicing rights to securitized receivables have been retained by
the Company. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires
that a separate asset be recognized for rights to service mortgage loans for
others. Servicing rights retained by the Company have not been material to date.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" establishes new criteria for determining whether
a transfer of financial assets occurring after December 31, 1997 in exchange for
cash or other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. It also establishes new accounting
requirements for pledged collateral and new criteria for the extinguishment of
liabilities. The Company does not believe the adoption of SFAS No. 125 in 1998
will have a material affect on the Company's operations or financial condition.
Investment in Securities
The Company's investment in securities are considered available-for-sale and are
carried at fair value in accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". Accordingly, unrealized holding
gains or losses on available-for-sale investments are recorded as adjustments to
common shareholders' equity, net of income taxes. Declines in fair value deemed
other than temporary are charged to operations.
Interest on the Company's securities is accreted at effective yield rates which
reflect interest at pass-through rates, the arbitrage resulting from rate
differentials between the notes in the REMIC pool and pass-through rates, along
with the effect of estimated prepayments and foreclosure losses. See Note 3.
Inventory
Inventory consists of real estate acquired for sale and 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. Real estate
reacquired through foreclosure or deedback in lieu of foreclosure is recorded at
the lower of fair value, net of costs to dispose, or the carrying value of the
loan. The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" in April, 1996. The
initial adoption of this Statement did not have a material impact on the
Company's financial condition or results of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method based on the estimated useful lives of the related assets.
Debt Issuance Costs
Costs associated with obtaining financing have been capitalized and are
amortized under an accelerated method (which approximates the interest method)
over the terms of the related debt.
<PAGE>
Treasury Stock
The Company accounts for repurchases of common stock using the cost method with
common stock in treasury classified in the balance sheets as a reduction of
common shareholders' equity.
Advertising Expense
The Company expenses advertising costs the first time the advertising takes
place, which is within one year, except for direct-response advertising, which
is capitalized and amortized over its expected period of future benefit. The
Company uses direct-response advertising for its timeshare products and the
advertising consists of direct mail with a response card confirming the
prospective customer's pre-determined site-visit.
At March 30, 1997, $517,000 of advertising was reported in other assets.
Comparable amounts were not material at March 31, 1996. Advertising expense was
$13.9 million, $10.0 million and $7.1 million for the years ended March 30,
1997, March 31, 1996 and April 2, 1995, respectively.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return.
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes".
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company has elected to account for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense in connection with stock option
grants. See Note 11 for pro forma information regarding net earnings and
earnings per share as required by SFAS 123 when adopted.
(Loss) Income Per Common Share
(Loss) income per common share is determined by dividing net income by the
weighted average number of common shares outstanding after giving effect to all
dilutive common equivalent shares outstanding during each period. The common
equivalent shares reflect the dilutive impact of shares reserved for outstanding
stock options using the treasury stock method. In February, 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings Per Share". The
Company does not believe that this accounting standard will have a material
impact on reported earnings per share.
Reclassifications
Certain reclassifications of prior period amounts have been made to conform to
the current year presentation.
2. Notes Receivable
The weighted average interest rate on notes receivable was 13.3% and 12.4% at
March 30, 1997 and March 31, 1996, respectively. The table below sets forth
additional information relating to the Company's notes receivable.
March 30, 1997 March 31, 1996
Notes receivable secured by land ................ $ 12,334,283 $ 26,243,222
Notes receivable secured by timeshare intervals.. 23,501,163 11,667,049
Notes receivable, gross ......................... 35,835,446 37,910,271
Reserve for loan losses.......................... ( 1,216,121) ( 896,469)
Notes receivable, net............................ $ 34,619,325 $ 37,013,802
<PAGE>
Approximately 69% of the Company's notes receivable secured by land bear
interest at variable rates, while approximately 31% bear interest at fixed
rates. The average interest rate charged on loans secured by land was 12.0% at
March 30, 1997. All of the Company's timeshare loans bear interest at fixed
rates. The average interest rate charged on loans secured by timeshare intervals
was 15.7% at March 30, 1997. The Company's timeshare receivables are secured by
property located in Tennessee and South Carolina. No concentrations of credit
exist for the Company's notes receivable secured by land.
The table below sets forth activity in the reserve for estimated loan losses.
Reserve for loan losses, April 2, 1995................. $1,089,652
Provision for losses................................... 344,718
Charge-offs............................................ (537,901)
Reserve for loan losses, March 31, 1996................ 896,469
Provision for losses................................... 1,008,271
Charge-offs............................................ (688,619)
Reserve for loan losses, March 30, 1997................ $1,216,121
Installments due on notes receivable held by the Company during each of the five
fiscal years subsequent to 1997, and thereafter, are set forth below.
1998................................................... $4,626,469
1999................................................... 4,456,082
2000................................................... 5,167,790
2001................................................... 5,424,765
2002................................................... 5,440,360
Thereafter............................................. 10,719,980
Total.................................................. $35,835,446
3. Investment in Securities
The Company's investment in securities and associated unrealized gains and
losses are set forth below.
Gross Gross
Unrealized Unrealized Fair
Available-for-Sale Security Cost Gain Loss Value
1994 REMIC debt securities $ 3,892,575 --- $22,659 $ 3,869,916
1995 REMIC debt securities 4,999,733 198,705 --- 5,198,438
1996 REMIC debt securities 1,904,299 94,040 --- 1,998,339
Total $10,796,607 $292,745 $22,659 $11,066,693
Contractual maturities and yield of investments are set forth below. See also
Note 13.
Available-for-Sale Securities Fair Value Effective Yield
After one year but within five $ 3,869,916 11.91%
After five years but within ten 7,196,777 7.44%
Total $11,066,693
4. Inventory
The Company's net inventory holdings as of March 30, 1997 and March 31, 1996,
summarized by division, are set forth below. Interest capitalized during fiscal
1997 and fiscal 1996 totaled $3.0 million and $1.9 million, respectively.
Interest expense in the Consolidated Statements of Operations is net of
capitalized interest.
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
March 30, 1997
-----------------------------------------------------------------------
Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277
Midwest.............. 8,050,969 12,495,034 --- 20,546,003
Southwest............ 19,959,473 --- --- 19,959,473
Rocky Mountains ..... 7,533,939 --- --- 7,533,939
West ................ 5,511,879 --- --- 5,511,879
Mid-Atlantic......... 4,015,647 --- --- 4,015,647
Northeast............ 382,341 --- --- 382,341
Totals............... $53,451,859 $27,523,626 $ 5,685,074 $86,660,559
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
March 31, 1996
------------------------------------------------------------------------
Geographic Region Land Resorts(1) Communities(2) Total
Southeast............ $ 2,252,239 $ 5,189,815 $ 13,983,521 $21,425,575
Midwest.............. 6,293,008 10,839,389 --- 17,132,397
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
Mid-Atlantic......... 2,490,025 --- --- 2,490,025
Northeast............ 1,982,895 --- --- 1,982,895
Canada............... 29,025 --- --- 29,025
Totals............... $43,388,699 $16,029,204 $ 14,177,111 $73,595,014
</TABLE>
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory
of 5.4 million and $22.1 million of unit construction-in-progress. Resorts
Division inventory as of March 31, 1996, consists of land inventory of $6.1
million and $9.9 million of unit construction-in-progress.
(2) Communities Division inventory as of March 30, 1997, consists of land
inventory of $1.5 million and $4.2 million of housing unit
construction-in-progress. Communities Division inventory as of March 31,
1996, consists of land inventory of $10.5 million and $3.7 million of
housing unit construction-in-progress.
During the first quarter of fiscal 1997, management changed its focus for
marketing certain of its inventories in an effort to expedite sales absorption,
and use the proceeds from such sales for its more profitable land and timeshare
projects. Based on the Company's exit-plans, management determined that
inventories with a carrying value of $23.2 million should be written-down by
$8.2 million to reflect their estimated fair value, less costs to sell. A
substantial portion of the write-down ($4.8 million) related to inventories
managed under the Communities Division. Home-building and other efforts under
the Communities Division will cease upon sell-out of the existing inventories.
The other inventories that were subject to write-down are managed under the Land
Division and are located in areas of the country where the Company does not plan
to continue operations beyond liquidating the existing properties. All such
inventories are being liquidated through a combination of bulk sales and retail
sales at reduced prices. Approximately 50% of the properties subject to
write-down had been sold by March 30, 1997. No substantial gains or losses were
recognized in connection with the sale of these inventories. Although no
assurances can be given, the remaining inventories subject to write-down are
expected to be fully liquidated in 12 - 18 months.
<PAGE>
5. Property and Equipment
The table below sets forth the property and equipment held by the Company at the
period end indicated.
Useful March 30, March 31,
Life 1997 1996
Land, buildings and building improvements. 30 years $ 3,161,601 $ 3,837,382
Office equipment, furniture and fixtures.. 3-5 years 4,126,990 4,466,821
Aircraft.................................. 3-5 years 1,153,968 1,375,001
Vehicles and equipment.................... 3-5 years 435,274 451,202
8,877,833 10,130,406
Accumulated depreciation.................. (3,929,279) (4,891,306)
Total..................................... $ 4,948,554 $ 5,239,100
Depreciation expense included in the Consolidated Statements of Operations
totaled $811,000, $1.0 million and $1.1 million for fiscal 1997, 1996 and 1995,
respectively.
6. Lines-of-Credit and Notes Payable
The Company has outstanding borrowings with various financial institutions and
other lenders which have been used to finance the acquisition and development of
inventory and to fund operations. Significant financial data related to the
Company's borrowing facilities is set forth below.
March 30, March 31,
1997 1996
Lines-of-credit secured by land and timeshare
inventory with interest rates ranging
from 10.25% to 10.75% at March 30, 1997
and 10.50% to 10.75% at March 31, 1996.
Maturities range from 1997 to 1999................... $ 17,797,600 $ 6,394,245
Notes and mortgage notes secured by certain
inventory and property and equipment with
interest rates ranging from 7.5% to 11.25%
at March 30, 1997 and 6.2% to 11.0% at
March 31, 1996.
Maturities range from 1997 to 2019................... 17,960,558 10,700,245
Lease obligations with a weighted average interest
rate of 11% at March 30, 1997.
Maturities range from 1998 to 2001................... 147,394 193,277
Total................................................. $35,905,552 $17,287,767
At March 30, 1997, $5.0 million remained available under lines-of-credit. The
table below sets forth the contractual minimum principal payments required on
the Company's lines-of-credit and notes payable for each of the five fiscal
years subsequent to 1997, and thereafter. Such minimum contractual payments may
differ from actual payments due to the effect of principal payments required on
a lot or timeshare interval release basis for certain of the above obligations.
<PAGE>
1998................................................... $21,020,491
1999................................................... 5,702,848
2000................................................... 5,974,495
2001................................................... 590,039
2002................................................... 235,052
Thereafter............................................. 2,382,627
Total.................................................. $35,905,552
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including, without limitation, requirements to
(i) maintain net worth of at least $42.0 million, (ii) maintain certain minimum
leverage ratios, (iii) limit S,G&A expenses to 50% of revenues, and (iv) comply
with various other restrictive covenants. The Company was in compliance with
such covenants at March 30, 1997, and for each reporting period during fiscal
1996 and 1995.
7. Convertible Subordinated Debentures
The Company has $34.7 million of its 8.25% Convertible Subordinated Debentures
(the "Debentures") outstanding at March 30, 1997 and March 31, 1996. The
Debentures are convertible at any time prior to maturity (2012), unless
previously redeemed, into common stock of the Company at a current conversion
price of $8.24 per share, subject to adjustment under certain conditions. The
Debentures are redeemable at any time, at the Company's option, in whole or in
part. On May 15, 1997, the redemption price was 100% of the face amount. The
Company is obligated to redeem annually 10% of the principal amount of the
Debentures originally issued, commencing May 15, 2003. Such redemptions are
calculated to retire 90% of the principal amount of the Debentures prior to
maturity. The Debentures are unsecured and subordinated to all senior
indebtedness of the Company. Interest is payable semi-annually on May 15 and
November 15.
Under financial covenants of the Indenture pursuant to which the Debentures were
issued, the Company is required to maintain net worth of not less than $29.0
million. Should net worth fall below $29.0 million for two consecutive quarters,
the Company is required to make an offer to purchase 20% of the outstanding
Debentures at par, plus accrued interest.
8. Receivable-Backed Notes Payable
The Company has various credit facilities for the pledge of land and timeshare
receivables. The interest rate charged under one agreement is the three-month
London Interbank Offered Rate plus 4.25%, while the other agreements call for
interest at prime plus 2%. At March 30, 1997, the $21.1 million in
receivable-backed notes payable was collateralized by $27.1 million in
receivables. At March 31, 1996, the $19.7 million in receivable-backed notes
payable was secured by $27.0 million in receivables. Payments received on the
receivables are applied to reduce principal and pay interest monthly. At March
30, 1997, $27.2 million remained available under credit facilities.
Installments due on receivable-backed notes payable based upon principal
payments due on receivables in each of the four fiscal years subsequent to 1997
is set forth below.
1998................................................... $4,890,941
1999................................................... 5,363,014
2000................................................... 5,954,346
2001................................................... 4,846,701
Total.................................................. $21,055,002
<PAGE>
9. Income Taxes
The (benefit) provision for income taxes consists of the following:
Years Ended
March 30, March 31, April 2,
1997 1996 1995
Federal:
Current................. $ 269,960 $ 2,590,910 $ 2,307,313
Deferred................ (3,192,841) 1,207,941 380,195
(2,922,881) 3,798,851 2,687,508
State:
Current................. 119,628 860,064 630,654
Deferred................ ( 226,268) ( 209,846) 946,596
( 106,640) 650,218 1,577,250
Total..................... $( 3,029,521) $ 4,449,069 $ 4,264,758
(Loss) income before income taxes (excluding Canadian operations) was $(7.4)
million in fiscal 1997, $10.9 million in fiscal 1996 and $10.4 million in fiscal
1995.
The reasons for the difference between the provision for income taxes and the
amount which results from applying the federal statutory tax rate in fiscal
1997, 1996 and 1995 to income before income taxes are as follows:
Years Ended
March 30, March 31, April 2,
1997 1996 1995
Income tax (benefit) expense at statutory
rate.................................... $( 2,512,286) $3,720,573 $3,536,628
Effect of state taxes, net of federal
tax benefit............................. ( 517,235) 728,496 728,130
$( 3,029,521) $4,449,069 $4,264,758
At March 30, 1997 and March 31, 1996, deferred income taxes consist of the
following components:
March 30, March 31,
1997 1996
Deferred federal and state tax (assets) liabilities:
Installment sales treatment of notes............... $ 8,931,920 $ 8,473,340
Deferred foreign tax liability due to installment
sale treatment of notes......................... --- 185,000
Deferred federal and state loss
carryforwards/AMT credits....................... ( 5,125,584) ( 1,990,365)
Other.............................................. ( 950,390) ( 600,161)
Deferred income taxes..............................$ 2,855,946 $ 6,067,814
As of March 30, 1997, the Company had $2.1 million of AMT credit carryforwards
which have no expiration period and approximately $7.5 million of federal net
operating loss ("NOL") that may be offset against future taxable income through
2012.
<PAGE>
10. Commitments and Contingencies
At March 30, 1997, estimated cost to complete development work in subdivisions
from which lots have been sold totaled $48.9 million. Development is estimated
to be completed within the next five years as follows: 1998 - $24.0 million;
1999 - $11.8 million; 2000 - $4.4 million; 2001 - $4.4 million and 2002 - $4.3
million.
The Company is party to certain ordinary course litigation. Although no
assurances can be given, the potential outcome is not expected to have a
materially adverse effect on the operations or financial condition of the
Company.
11. Stock Option Plans and Employee Retirement Savings Plan
The Employee's Stock Option Plan expired in September, 1995. The Company
received shareholder approval for a new employee stock option plan (the 1995
Stock Incentive Plan) at a meeting held on July 20, 1995. As of March 30, 1997,
there were 453 individuals eligible to participate in the 1995 Stock Incentive
Plan. Options under each plan expire ten years from the date of grant. A summary
of stock option activity for each plan is presented below.
Employee Stock Option Plan
Number
of Number
Shares Option Price of Shares
Reserved Options Per Share Exercisable
Balance at April 2, 1995..... 1,839,317 962,422 $1.25 - $12.26 286,529
Granted...................... --- 250,000 $4.51
Forfeited.................... --- ( 96,550) $1.25 - $12.26
Exercised.................... ( 82,258) ( 82,258) $1.25 - $3.28
Expiration of plan........... ( 723,445) ---
Stock dividends.............. 52,268 52,268
Balance at March 31, 1996.... 1,085,882 1,085,882 $1.25 - $11.64 381,528
Forfeited.................... ( 97,551) ( 97,551) $1.25 - $11.64
Exercised.................... ( 44,612) ( 44,612) $1.25 - $4.16
Balance at March 30, 1997.... 943,719 943,719 1.25 - $11.64 566,388
1995 Stock Incentive Plan
Number
of Number
Shares Option Price of Shares
Reserved Options Per Share Exercisable
Balance at March 31, 1996....... 1,000,000 --- --- ---
Granted......................... --- 75,000 $4.25 ---
Balance at March 30, 1997....... 1,000,000 75,000 $4.25 ---
Outside Directors Plan
In fiscal 1988, the Company's shareholders adopted a stock option plan covering
the Company's non-employee Directors (the "Director Plan"). The Director Plan
provided for the grant to the Company's non-employee directors (the "Outside
Directors") of non-qualified stock options to purchase up to an aggregate of
150,000 shares of common stock at a price not less than the fair market value at
the date of grant. The Director Plan was amended in September, 1991, to increase
the number of issuable shares from 150,000 to 300,000 and again in July, 1995,
to increase the number of issuable shares by an additional 200,000. Options
expire ten years from the date of grant. A summary of stock option activity
related to the Company's Director Plan is presented below.
<PAGE>
Number Number
of Shares Option Price of Shares
Reserved Options Per Share Exercisable
Balance at April 2, 1995......... 340,704 337,335 $.83 - $4.78 186,474
Additional shares issuable....... 200,000 ---
Granted......................... --- 75,000 $3.80
Stock dividends.................. 17,035 20,617
Balance at March 31, 1996........ 557,739 432,952 $.83 - $4.78 276,134
Granted.......................... --- 75,000 $3.13
Exercised........................ --- (23,849) $.83 - $1.46
Balance at March 30, 1997........ 557,739 484,103 $.83 - $4.78 328,227
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for fiscal
1995, 1996 and 1997: risk free investment rates of 5%, dividend yields of 1%, a
volatility factor of the expected market price of the Company's common stock of
.369; and a weighted average life of the options of 10 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows.
1997 1996 1995
Pro forma net (loss) income $(4,562,126) $ 6,338,928 $ 6,087,609
Pro forma (loss) earnings per share:
Primary and fully diluted $( .22) $ .29 $ .28
Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) Retirement
Savings Plan (the "Plan"). All employees at least 21 years of age with one year
of employment with the Company are eligible to participate in the Plan. Employer
contributions to the Plan are at the sole discretion of the Company and were not
material to the operations of the Company for fiscal 1997, 1996 and 1995.
12. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the years ended March 30,
1997 and March 31, 1996 is presented below (in 000's except for per share
information).
Three Months Ended
June 30, September 29, December 29, March 30,
1996 1996 1996 1997
Sales of real estate............ $ 28,782 $ 26,451 $ 26,478 $ 28,010
Interest income and other....... 1,444 1,550 1,583 1,581
Provision for losses............ 8,469 280 352 438
Net (loss) income............... (4,124) 576 20 ( 832)
(Loss) income per common share.. ( .20) .03 .00 .04)
<PAGE>
Three Months Ended
July 2, October 1, December 31, March 31,
1995 1995 1995 1996
Sales of real estate............ $ 24,641 $ 33,258 $ 23,935 $ 31,588
Interest income and other....... 2,187 2,177 1,483 1,541
Provision for losses............ 155 225 120 112
Net income...................... 1,588 2,319 985 1,575
Income per common share......... .07 .11 .05 .07
13. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Cash and cash equivalents: The amounts reported in the balance sheets for cash
and cash equivalents approximates fair value.
Contracts receivable: The amounts reported in the balance sheets for contracts
receivable approximates fair value. Contracts receivable are non-interest
bearing and generally convert into cash or an interest bearing mortgage note
receivable within thirty days.
Notes receivable: The carrying amounts reported in the balance sheets for notes
receivable approximates fair value based on (i) prices established by loan
pricing services and (ii) discounted future cash flows using current rates at
which similar loans with similar maturities would be made to borrowers with
similar credit risk.
Investment in securities: Investment in securities are carried at fair value
based on estimates from dealers.
Lines-of-credit, notes payable and receivable-backed notes payable: The carrying
amounts reported in the balance sheets approximate their fair value based upon
short-term maturities of the indebtedness which provide for variable interest
rates.
8.25% convertible subordinated debentures: The fair value of the Company's
8.25% convertible subordinated debentures is based on the quoted market price
as reported on the New York Stock Exchange.
March 30, 1997 March 31, 1996
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------ -----------------------
Cash and cash equivalents......$11,597,147 $11,597,147 $11,389,141 $11,389,141
Contracts receivable........... 14,308,424 14,308,424 12,451,207 12,451,207
Notes receivable............... 34,619,325 34,619,325 37,013,802 37,013,802
Investment in securities....... 11,066,693 11,066,693 9,699,435 9,699,435
Lines-of-credit, notes payable
and receivable-backed notes
payable....................... 56,960,554 56,960,554 37,011,233 37,011,233
8.25% convertible subordinated
debentures.................... 34,739,000 29,832,116 34,739,000 30,570,320
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Bluegreen Corporation of our reported dated May 2, 1997, included in the 1997
Annual Report to Shareholders of Bluegreen Corporation.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-48075) pertaining to the Registrant's Retirement
Savings Plan and in the related Prospectus and (ii) the Registration Statement
(Form S-8 No. 33-61687) pertaining to the Amended 1988 Outside Directors Stock
Option Plan and the 1995 Stock Incentive Plan of the Registrant and in the
related Prospectus of our report dated May 2, 1997, with respect to the
consolidated financial statements of Bluegreen Corporation incorporated herein
by reference for the year ended March 30, 1997.
Ernst & Young LLP
West Palm Beach, Florida
June 24, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-30-1997
<CASH> 11,597,147
<SECURITIES> 11,066,693
<RECEIVABLES> 50,594,870
<ALLOWANCES> 1,667,121
<INVENTORY> 86,660,559
<CURRENT-ASSETS> 60,532,040
<PP&E> 8,877,833
<DEPRECIATION> 3,929,279
<TOTAL-ASSETS> 169,627,029
<CURRENT-LIABILITIES> 41,739,531
<BONDS> 34,739,000
0
0
<COMMON> 206,109
<OTHER-SE> 59,037,411
<TOTAL-LIABILITY-AND-EQUITY> 169,627,029
<SALES> 109,721,561
<TOTAL-REVENUES> 115,880,470
<CGS> 57,090,546
<TOTAL-COSTS> 57,090,546
<OTHER-EXPENSES> 51,441,301
<LOSS-PROVISION> 9,539,081
<INTEREST-EXPENSE> 5,458,919
<INCOME-PRETAX> (7,389,078)
<INCOME-TAX> (3,029,521)
<INCOME-CONTINUING> (4,359,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,359,557)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
