SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 29, 1997
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5295 Town Center Road, Boca Raton, Florida 33486
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(Address of principal executive offices) (Zip Code)
(561) 361-2700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of July 25, 1997, there were 20,601,871 shares issued, 449,800 treasury
shares and 20,152,071 shares of Common Stock, $.01 par value per share,
outstanding.
<PAGE>
BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
Part I - Financial Information
Item 1. Financial Statements Page
Consolidated Balance Sheets at
June 29, 1997 and March 30, 1997 ....................... 3
Consolidated Statements of Operations - Three Months
Ended June 29, 1997 and June 30, 1996 .................. 4
Consolidated Statements of Cash Flows -Three Months
Ended June 29, 1997 and June 30, 1996 .................. 5
Notes to Consolidated Financial Statements .................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 10
Part II - Other Information
Item 1. Legal Proceedings ........................................... 26
Item 2. Changes in Securities ....................................... 26
Item 3. Defaults Upon Senior Securities ............................. 26
Item 4. Submission of Matters to a Vote of Security Holders ......... 26
Item 5. Other Information ........................................... 26
Item 6. Exhibits and Reports on Form 8-K ............................ 26
Signatures............................................................... 27
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Consolidated Balance Sheets
(unaudited)
June 29, March 30,
1997 1997
Assets
Cash and cash equivalents (including restricted cash
of approximately $10.6 million and $8.0 million
at June 29, 1997 and March 30, 1997,
respectively)....................................$ 16,600,810 $ 11,597,147
Contracts receivable, net........................... 17,087,531 14,308,424
Notes receivable, net............................... 41,061,232 34,619,325
Investment in securities............................ 10,900,783 11,066,693
Inventory, net...................................... 90,722,139 86,660,559
Property and equipment, net......................... 6,463,130 4,948,554
Debt issuance costs, net............................ 1,447,965 1,063,755
Other assets........................................ 5,019,867 5,362,572
Total assets..................................... $189,303,457 $169,627,029
Liabilities and Shareholders' Equity
Accounts payable.................................... $ 2,705,908 $ 1,917,907
Deferred income..................................... 6,578,849 3,791,924
Accrued liabilities and other....................... 8,390,542 10,118,268
Lines-of-credit and notes payable................... 43,720,011 35,905,552
Deferred income taxes............................... 4,061,924 2,855,946
Receivable-backed notes payable..................... 28,141,338 21,055,002
8.25% convertible subordinated debentures........... 34,739,000 34,739,000
Total liabilities................................ 128,337,572 110,383,599
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 shares outstanding at
June 29, 1997 and March 30, 1997, respectively... 206,019 206,019
Capital-in-excess of par value...................... 71,410,755 71,410,755
Accumulated deficit................................. ( 9,423,919 (11,162,923)
Treasury stock, 449,800 and 443,000 common shares at
cost at June 29, 1997 and March 30, 1997,
respectively ................................... ( 1,388,821) ( 1,369,772)
Net unrealized gains on investments available-for
sale, net of income taxes........................ 161,851 159,351
Total shareholders' equity...................... 60,965,885 59,243,430
Total liabilities and shareholders' equity....... $189,303,457 $169,627,029
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Operations
(unaudited)
Three Months Ended
-----------------------------
June 29, June 30,
1997 1996
Revenues:
Sales of real estate............................ $33,091,661 $28,782,197
Interest income and other....................... 1,900,736 1,444,465
34,992,397 30,226,662
Cost and expenses:
Cost of real estate sold........................ 15,155,643 14,453,598
Selling, general and administrative expense..... 14,883,076 13,052,549
Interest expense................................ 1,786,521 1,289,204
Provisions for losses........................... 311,555 8,469,053
32,136,795 37,264,404
Income (loss) from operations...................... 2,855,602 ( 7,037,742)
Other income....................................... 91,862 48,144
Income (loss) before income taxes.................. 2,947,464 ( 6,989,598)
Provision (benefit) for income taxes............... 1,208,460 ( 2,865,735)
Net income (loss).................................. $ 1,739,004 $ (4,123,863)
Income (loss) per common share:
Net income (loss).................................. $ .08 $ (.20)
Wieghted average number of common and common
equivalent shares (1)........................... 20,676,598 20,573,461
(1) The 1997 three month period includes 20,152,071 average common shares
outstanding plus 524,527 average dilutive stock options. The prior year
three-month period includes 20,573,461 average common shares outstanding.
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
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June 29, June 30,
1997 1996
Operating activities:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors.....................$ 22,713,117 $ 23,744,864
Interest received................................ 1,485,950 1,200,520
Cash paid for land acquisitions and real estate
development..................................... (11,719,568) (15,890,603)
Cash paid to suppliers, employees and sales
representatives................................ (12,270,505) (14,418,359)
Interest paid, net of capitalized interest....... ( 2,190,985) ( 1,915,282)
Income tax refunds, net of income taxes paid.. .. 5,851 ( 785,471)
Proceeds from borrowings collateralized by notes
receivable...................................... 10,117,354 2,229,170
Payments on borrowings collateralized by notes
receivable...................................... ( 3,031,019) ( 7,136,106)
Net proceeds from REMIC transaction.............. --- 11,783,001
Net cash provided (used) by operating activities.... 5,110,195 ( 1,188,266)
Investing activities:
Purchases of property and equipment.............. ( 1,186,562) ( 194,973)
Sales of property and equipment.................. --- 50,110
Cash received from investment in securities..... 504,640 102,629
Additions to other long-term assets.............. ( 462,701) ( 113,831)
Net cash flow used by investing activities.......... ( 1,144,623) ( 156,065)
Financing activities:
Borrowings under line-of-credit facilities....... 13,689,453 1,580,285
Payments under line-of-credit facilities......... (15,781,304) ( 1,401,768)
Borrowings under secured credit facility......... 5,500,000 3,800,000
Payments on other long-term debt................. ( 2,351,009) ( 1,021,915)
Payments for treasury stock...................... ( 19,049) ---
Proceeds from exercise of employee stock
options........................................ --- 73,771
Net cash flow provided by financing
activities....................................... 1,038,091 3,030,373
Net increase in cash and cash equivalents............ 5,003,663 1,686,042
Cash and cash equivalents at beginning of period..... 11,597,147 11,389,141
Cash and cash equivalents at end of period........... 16,600,810 13,075,183
Restricted cash and cash equivalents at end of
period........................................... (10,566,993) ( 8,759,405)
Unrestricted cash and cash equivalents at end of
period........................................... $ 6,033,817 $ 4,315,778
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Consolidated Statements of Cash Flows
(unaudited) (continued)
Three Months Ended
-----------------------
June 29, June 30,
1997 1996
Reconciliation of net income (loss) to net cash
flow provided (used) by operating activities:
Net income (loss)................................. $ 1,739,004 $(4,123,863)
Adjustments to reconcile net income (loss) to
net cash flow provided (used) by operating
activities:
Depreciation and amortization................. 421,322 252,049
Loss on REMIC transaction..................... --- 39,202
(Gain) loss on sale of property and equipment. ( 121,289) 2,534
Provisions for losses......................... 311,555 8,469,053
Interest accretion on investment in securities ( 336,230) ( 244,665)
Proceeds from borrowings collateralized by
notes receivable........................ 10,117,354 2,229,170
Payments on borrowings collateralized by
notes receivable........................ ( 3,031,019) (7,136,106)
Provision (benefit) for deferred income taxes. 1,205,978 (2,865,735)
(Increase) decrease in operating assets:
Contracts receivable............................ ( 2,779,107) ( 52,886)
Investment in securities and notes receivable... (11,447,978) 6,579,467
Inventory....................................... 6,895,091 (1,545,833)
Other assets.................................... 288,316 ( 316,270)
Increase (decrease) in operating liabilities:
Accounts payable, accrued liabilities and
other.......................................... 1,847,198 (2,371,754)
Net cash flow provided (used) by operating activities. $ 5,110,195 $(1,085,637)
Supplemental schedule of non-cash operating
and financing activities
Inventory acquired through financing........... $ 6,326,101 $ 8,631,990
Inventory acquired through foreclosure or
deedback in lieu of foreclosure............... $ 948,906 $ 403,623
Investment in securities retained in
connection with REMIC transactions........... $ --- $ 1,315,153
See accompanying notes to consolidated financial statements.
<PAGE>
BLUEGREEN CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
1. Results of Operations
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The financial information furnished herein reflects all adjustments consisting
of normal recurring accruals that, in the opinion of management, are necessary
for a fair presentation of the results for the interim period. The results of
operations for the three-month period ended June 29, 1997 (the "1997 quarter")
are not necessarily indicative of the results to be expected for the entire
year. For further information, refer to the Consolidated Financial Statements
and Notes thereto included in the Company's Annual Report to Shareholders for
the fiscal year ended March 30, 1997.
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.
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.
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. There is no material difference between net earnings and earnings per
share in accordance with APB Opinion No. 25 and that required by SFAS 123 ed.
Income (Loss) Per Common Share
Income (loss) 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.
<PAGE>
Contracts Receivable and Revenue Recognition
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 that do not meet the criteria for revenue recognition as described above
are deferred using the deposit method. Under the deposit method, cash received
from customers is classified as a refundable deposit in the liability section of
the Consolidated Balance Sheet and profit recognition is deferred until the
requirements of Statement of Financial Accounting Standard No. 66 are met.
Sales and contract receivables is net of an allowance for cancellations at
June 29, 1997 and March 30, 1997.
2. 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. The Company's
inventories, by geographic region, are summarized below.
June 29, 1997
---------------------------------------------------------
Geographic Region Land Resorts Communities Total
Southeast............$ 9,776,954 $17,151,556 $ 4,354,666 $31,283,176
Midwest.............. 7,393,550 16,551,084 --- 23,944,634
Southwest............ 20,950,731 --- --- 20,950,731
Rocky Mountains ..... 5,934,368 --- --- 5,934,368
West ................ 4,961,114 --- --- 4,961,114
Mid-Atlantic......... 3,207,688 --- --- 3,207,688
Northeast............ 416,446 --- --- 416,446
Canada............... 23,982 --- --- 23,982
Totals...............$52,664,833 $33,702,640 $ 4,354,666 $90,722,139
March 30, 1997
--------------------------------------------------------
Geographic Region Land Resorts Communities Total
Southeast............$ 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
<PAGE>
During 1996 management changed its focus for marketing certain of the
Company's 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. This decision was largely the result of management's
focus on expansion of the Company's Resorts (timesharing) business and land
business in certain locations. 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 during the 1996 quarter. The $8.2 million
in provisions included $4.8 million for certain Communities Division inventories
and $3.4 million for certain Land Division inventories. Management adopted a
plan to aggressively pursue opportunities for the bulk sale of a portion of the
written-down assets and has reduced retail prices on others to increase sales
activity. 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 and properties located in parts of the country
where the Company has no plans for expansion. As of June 29, 1997 approximately
60% 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
Company believes that the remaining inventories that were the subject of the
write-down should be fully liquidated in 12 months.
See "Management's Discussion and Analysis of Financial Condition - Uses of
Capital and Result of Operations", included under Part I, Item 2 herein, for a
further discussion of the Company's inventories.
3. Recent Developments
On July 24, 1997, the Company announced that it had entered into an
agreement to acquire the stock of RDI Group Inc. and Resort Title Agency, Inc.
(collectively "RDI") for an undisclosed amount and that 80% of the purchase
price would be financed through a convertible note issuance with two Bluegreen
Directors. Headquartered in Fort Myers, Florida, RDI is privately held and
presently owns timeshare resorts in Orlando and Wisconsin Dells, Wisconsin. In
addition, it manages 30 vacation ownership resorts, located in the southeastern
sun-belt states, with a member base of approximately 80,000. The closing of the
transaction is subject to certain conditions and approvals.
<PAGE>
Item 2. 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. These factors could also 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).
d) Risks associated with an inability to locate suitable inventory for
acquisition.
e) 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.
f) Changes in applicable usury laws or the availability of interest
deductions or other provisions of federal or state tax law.
g) 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.
h) 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.
i) The inability of the Company to find sources of capital on favorable
terms for the pledge of land and timeshare note receivables.
j) 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.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses exceed those anticipated.
l) 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
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 are: (i) cash sales of real estate, (ii) downpayments on
real estate sales which are financed, (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 provided by the Company's operations was $5.1 million for the 1997
quarter. Net cash used by the Company's operations was $1.2 million for the 1996
quarter. The increase in cash flow from operations was attributable to a
reduction in cash paid by the Company for land acquisition and development costs
and in cash paid to suppliers, employees and sales representatives. The Company
purchased three new properties during the 1997 quarter and, in each case,
financed a portion of the purchase price. Nine properties were acquired during
the 1996 quarter, with four of them being acquired for cash. The reduction in
cash paid to suppliers, employees and sales representatives was attributable to
lower variable bonuses paid in the 1997 quarter (such awards related to
operating results of one quarter earlier).
During the 1997 and 1996 quarters, the Company received in cash $18.4 million or
61% and $20.6 million or 72%, respectively, of its sales of real estate that
closed during these periods. The decrease in the percentage of cash received
from the three months ended June 30, 1996 to the three months ended June 29,
1997 is primarily attributable to an increase in timeshare sales over the same
period. Nearly all timeshare buyers finance their purchases with the Company,
making a downpayment that averages 15%. Conversely, about one out of ten land
buyers finances with the Company. Timeshare sales accounted for 27% of
consolidated sales of real estate during the three months ended June 29, 1997
compared to 21% of consolidated sales during the three months ended June 30,
1996. Management expects the percentage of sales received in cash to decrease
during the remainder of the current fiscal year with anticipated increases in
timeshare sales as a percentage of consolidated sales.
Receivables arising from land and timeshare real estate sales generally are
pledged to institutional lenders. 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 the
1997 and 1996 quarters, the Company borrowed $10.1 million and $2.2 million,
respectively, through the pledge of Receivables. During the 1996 quarter, the
Company raised an additional $11.8 million net of transaction costs and prior to
the retirement of debt, from the sale of land receivables under a private
placement REMIC transaction. The Company does not expect to complete a REMIC
transaction for land receivables during fiscal 1998 because it is anticipated
that a high percentage of such sales will be received in cash. Therefore a
sufficient quantity of land receivables will not be accumulated to make a REMIC
transaction cost effective. The discussion below provides 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
that 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 the prime lending rate plus 2.0%. At June 29,
1997, the outstanding principal balance under the credit agreement was $10.8
million. The ability to borrow under the facility expires in November 1998.
<PAGE>
The Company has another credit facility with this same lender that 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 the prime lending rate plus 2.0%. At June 29, 1997, the outstanding principal
balance under the credit agreement was $4.8 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 June 29, 1997, the outstanding principal balance under the facility
was $4.3 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
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 the prime
lending rate plus 2.0%. At June 29, 1997, the outstanding principal balance
under the facility was $3.7 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 $4.4 million outstanding and secured by land receivables as of
June 29, 1997 with another lender. The interest rate charged under the agreement
is the prime lending rate 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 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 volume of cash sales to an increased willingness on
the part of certain local banks to extend more direct customer lot financing.
<PAGE>
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 from
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 to be drawn on 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".
Credit Facilities for Resort Properties
The Company has a loan secured by a South Carolina timeshare resort. At June 29,
1997, $9.4 million was outstanding. The interest rate charged under the
agreement is the three-month LIBOR plus 4.25%. Principal is repaid through
release payments as weekly intervals are sold. Interest is paid monthly. The
indebtedness is due in March 2001.
The Company has another loan secured by a second South Carolina timeshare resort
with this same lender. At June 29, 1997, $1.25 million was outstanding. The
interest rate charged under the agreement is the prime lending rate plus 4.75%.
Principal is repaid through release payments as weekly intervals are sold.
Interest is paid monthly. The indebtedness is due in April 2000. The Company is
engaged in discussions with this lender about construction and development
financing for the project. No assurances can be given that construction and
development financing will be obtained with this lender on terms satisfactory to
the Company, if at all.
Credit Facilities for Land Properties
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. At June 29, 1997, $2.5 million was outstanding. The interest
rate charged under the agreement is the prime lending rate plus 1%. The
agreement calls for interest to be paid monthly and principal to be repaid
through release payments as lots are sold. The indebtedness is due in April
2000.
The Company has another loan with a financial institution secured by a property
in Texas and Idaho. At June 29, 1997, $2.7 million was outstanding. The interest
rate charged under the agreement is the prime lending rate plus 2.75%. The
agreement calls for interest to be paid monthly and principal to be repaid
through release payments as lots are sold. The indebtedness secured by the Idaho
property was repaid in July 1997 and the remaining indebtedness is due in
October 1999.
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.
<PAGE>
The Company was in compliance with each of such covenants at June 29, 1997 and
for each reporting period during 1997, 1996 and 1995.
In addition to the sources of capital available under credit facilities
discussed above, the balance of the Company's unrestricted cash and cash
equivalents was $6.0 million at June 29, 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 June 29, 1997
are materially higher than those in years prior to 1997. The Company plans to
seek external sources of capital for the development of a substantial portion of
its inventories. Based upon the 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 obligations.
Inventory
The Company's net inventory was $90.7 million at June 29, 1997 and $86.7 million
at March 30, 1997. Management recognizes the inherent risk of carrying increased
levels of inventory. With respect to its inventory, the Company requires capital
(i) to improve land intended for recreational, vacation, retirement or primary
homesite use by purchasers and (ii) to develop timeshare property.
The Company estimates that the total cash required to complete preparation for
the retail sale of consolidated inventories as of June 29, 1997 is approximately
$172.3. The Company anticipates spending an estimated $67.5 million of the
capital development requirements during the next three fiscal quarters. The
allocation of anticipated cash requirements to the Company's operating divisions
is discussed below.
Land Division: The Company expects to spend $57.5 million to improve land which
typically includes expenditures for road and utility construction, surveys and
engineering fees, including $60.8 million to be spent during the remainder of
this fiscal year.
Resorts Division: The Company expects to spend $114.5 million for building
materials, amenities and other infrastructure costs such as road and utility
construction, development of amenities, surveys and engineering fees, including
$6.3 million to be spent during the remainder of this fiscal year.
Communities Division: The Company expects to spend $380,000 for the purchase of
factory built manufactured homes currently under contract for sale, building
materials and other infrastructure costs. It is expected that the total cash
requirement will be spent during the remainder of this fiscal year.
The table to follow outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of June 29, 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.
<PAGE>
Geographic Region Land Resorts Communities Total
Southeast............... $6,790,854 $42,430,052 $ 380,491 $59,601,397
Midwest................. 6,798,437 72,067,511 --- 78,865,948
Southwest............... 8,180,670 --- --- 28,180,670
Rocky Mountains ........ 592,378 --- --- 592,378
West ................... 3,181,606 --- --- 3,181,606
Mid-Atlantic............ 1,883,851 --- --- 1,883,851
Northeast............... 26,529 --- --- 26,529
Tottal estimated
spending............. 57,454,325 114,497,563 380,491 172,332,379
Net inventory at
June 29, 1997........ 52,664,833 33,702,640 4,354,666 90,722,139
Total estimated cost
basis of fully
developed inventory. $110,119,158 $148,200,203 $4,735,157 $263,054,518
The Company's net inventory summarized by division as of June 29, 1997 and March
30, 1997 is set forth below.
June 29, 1997
------------------------------------------------------
Geographic Region Land Resorts Communities Total
Southeast............ $ 9,776,954 $17,151,556 $ 4,354,666 $31,283,176
Midwest.............. 7,393,550 16,551,084 --- 23,944,634
Southwest............ 20,950,731 --- --- 20,950,731
Rocky Mountains ..... 5,934,368 --- --- 5,934,368
West ................ 4,961,114 --- --- 4,961,114
Mid-Atlantic......... 3,207,688 --- --- 3,207,688
Northeast............ 416,446 --- --- 416,446
Canada............... 23,982 --- --- 23,982
Totals............... $52,664,833 $33,702,640 $ 4,354,666 $90,722,139
March 30, 1997
----------------------------------------------------
Geographic Region Land Resorts Communities 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
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 June 29, 1997 are discussed below.
<PAGE>
The Company's aggregate land inventory decreased by $787,000 from March 30, 1997
to June 29, 1997. The increased inventory as a result of additional
infrastructure development and two acquisitions (one in the Southeast and one in
the Southwest) was more than offset by sales activity.
The Company's aggregate resort inventory increased by $6.2 million from
March 30, 1997 to June 29, 1997. The Company acquired two resort properties
located in Branson, Missouri and Myrtle Beach, South Carolina for $6.2 million
during the 1997 quarter. Amounts paid for additional infrastructure development
at each of the Company's properties was equally offset by sales activity.
Resorts inventory as of June 29, 1997 consisted of land inventory of $11.2
million and unit construction-in-progress and other amenities of $22.5 million.
Resorts inventory as of March 30, 1997 consisted of land inventory of $6.0
million and unit construction-in-progress and other amenities of $11.6 million.
The Company's aggregate communities inventory decreased by $1.3 million from
March 30, 1997 to June 29, 1997 primarily as a result of sales activity. The
Company does not plan to acquire any additional inventory for the purpose of
constructing housing and it is expected that the existing inventories will be
liquidated over the next twelve months, although no assurances can be given.
Receivables
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 the 1997 and 1996 quarters, the Company received
39% and 28%, 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
27% of consolidated sales of real estate during the 1997 quarter, compared to
21% of consolidated sales during the 1996 quarter. Almost all timeshare buyers
finance with the Company (compared to one out of ten land buyers).
At June 29, 1997, $ 32.9 million of Receivables were pledged as collateral to
secure Company indebtedness while $9.3 million of Receivables were not pledged
or encumbered. 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. The table below provides further information on
the Company's land and timeshare receivables at June 29, 1997 and March 30,
1997. Proceeds from home sales under the Company's Communities Division are
received entirely in cash.
(Dollars In Millions)
June 29, 1997 March 30, 1997
----------------------- --------------------------
Receivables Land Timeshare Total Land Timeshare Total
Encumbered........... $ 10.2 $22.7 $32.9 $ 8.1 $18.9 $27.0
Unencumbered......... 4.3 5.0 9.3 4.2 4.6 8.8
Total..................$ 14.5 $27.7 $42.2 $12.3 $23.5 $35.8
The increase in encumbered Receivables from March 30, 1997 to June 29,
1997 was the result pledging new originations under existing credit
faciltities.
The table below provides information with respect to the loan-to-value ratio of
land and timeshare receivables held by the Company at June 29, 1997 and March
30, 1997. Receivables held include those loans that are unencumbered and those
that 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>
June 29, 1997 March 30, 1997
--------------------- --------------------
Receivables Land Timeshare Land Timeshare
Loan-to-Value Ratio...... 59% 76% 54% 78%
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 2.7%
and 3.4% at June 29, 1997 and March 30, 1997, 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 decrease in the reserve for loan losses as a percent of
period end loans was primarily the result of reduced delinquencies.
At June 29, 1997, approximately 4% or $1.7 million of the aggregate $43.0
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 $43.0 million principal amount of loans, $42.2
million in loans were held by the Company, while approximately $814,000 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 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.
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.
<PAGE>
Results of Operations.
Three Months Ended - June 29, 1997
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended March 30, 1997.
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 of 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 income 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 included under
Part I, Item 1.
Seasonality/Fluctuating Results
The Company expects to continue to experience downward 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, other 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 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. The following tables set forth the selected financial data for
business units comprising the consolidated operations of the Company for the
three months ended June 29, 1997 and June 30, 1996.
<PAGE>
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Three Months Ended June 29, 1997
Land Resorts Communities Total
Sales of real estate... $22,069 100.0% $8,958 100.0% $2,064 100.0 % $33,091 100.0%
Cost of real estate
sold................. 10,788 48.9% 2,308 25.8% 2,059 99.8 % 15,155 45.8%
Gross profit........... 11,281 51.1% 6,650 74.2% 5 .2 % 17,936 54.2%
Field selling,
general and
administrative
expense (1).......... 6,462 29.2% 5,852 65.3% 81 3.9 % 12,395 37.5%
Field operating
profit (loss) (2).... $4,819 21.9% $ 798 8.9% $( 76) ( 3.7)% $ 5,541 16.7%
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Three Months Ended June 30, 1996
Land Resorts Communities Total
Sales of real estate... $20,557 100.0% $6,015 100.0% $2,210 100.0 % $28,782 100.0%
Cost of real estate
sold................. 10,248 49.9% 2,055 34.2% 2,151 97.3 % 14,454 50.2%
Gross profit........... 10,309 50.1% 3,960 65.8% 59 2.7 % 14,328 49.8%
Field selling,
general and
administrative
expense (1).......... 6,392 31.1% 3,949 65.7% 451 20.4 % 10,792 37.5%
Field operating
profit (loss) (2).... $3,917 19.0% $ 11 .1% $ (392) (17.7)% $3,536 12.3%
</TABLE>
(1) General and administrative expenses attributable to corporate overhead have
been excluded from the tables.
(2) The tables presented above outline selected financial data. Accordingly,
provisions for losses, interest income, interest expense, other income and
income taxes have been excluded.
Sales and Business Line Data
Consolidated sales of real estate increased 15% to $33.1 million for the 1997
quarter compared to $28.8 million for the 1996 quarter. Increases in 1997 land
and timeshare sales were partially offset by slightly lower communities' sales.
As of March 30, 1997, approximately $8.4 million in sales or $3.8 million in
estimated income was deferred under percentage of completion accounting. An
additional $5.7 million in sales or $2.8 million in estimated income was
deferred during the recently concluded quarter. Accordingly, at June 29, 1997,
$14.1 million of sales or $6.6 million in estimated income was deferred and is
included on the consolidated balance sheet.
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 the 1997 and 1996 quarters, land sales contributed $22.1 million or 67%
and $20.6 million or 71%, respectively, of the Company's total consolidated
revenues from the sale of real estate. The following table sets forth
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 those reported above and on the earlier table (outlining sales
revenue by business unit after applying percentage of completion accounting to
sales transactions). See Contracts Receivable and Revenue Recognition under Note
1 to the Consolidated Financial Statements included under Part I, Item 1.
Three Months Ended
June 29, June 30,
1997 1996
Number of parcels sold.............. 581 574
Average sales price perparcel....... $46,733 $35,273
Gross margin........................ 51% 50%
The table set forth below outlines the numbers of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal periods indicated.
Three Months Ended
June 29, 1997 June 30, 1996
Geographic Average Average
Region Number of Sales Price Number of Sales Price
Parcels Sold Per Parcel Parcels Sold Per Parcel
Southwest......... 292 $ 42,563 290 $ 36,575
Southeast......... 81 $ 54,213 99 $ 36,830
Midwest........... 70 $ 38,691 71 $ 22,398
Mid-Atlantic...... 61 $ 47,677 54 $ 31,624
Rocky Mountains... 58 $ 51,726 40 $ 54,532
West.............. 10 $ 163,100 2 $125,000
Northeast......... 9 $ 9,400 18 $ 14,481
Totals............ 581 $ 46,733 574 $ 35,273
1996 vs 1997 Comparison of Land Division Parcels Sold and Average Sales Prices
The increase in the average selling price of parcels in the Southwest was
attributable to higher average prices at several of the Company's properties
outside of San Antonio, Texas partially offset by lower averge prices at the
Company's New Mexico project.
<PAGE>
The increase in the average selling price of parcels in the Southeast was
primarily attributable to higher average sales prices at a recently opened
property in North Carolina. The project will feature a host of amenities
including a beach club, 27-hole championship golf course, club-house, private
marina and bike pathes. The increase in the average selling price in the Midwest
was attributable to the recent opening of two properties in Tennessee. One
project features lake frontage and the other property lies adjacent to a
daily-fee golf course currently under development by a third party.
The increase in the average selling price in the Mid-Atlantic region is
attributable to the recent opening of a property in Virginia. The Mid-Atlantic
region has historically covered properties located in Pennsylvania, Virginia and
West Virginia. The Company plans to liquidate its remaining holdings in
Pennsylvania and West Virginia and expand its inventory in Virginia.
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 enters its third year in marketing
and sales. The Arizona property is being marketed in parcels of at least 35
acres at retail prices from $100,000 to $185,000.
The number of parcels sold in the Northeast reflects low inventory levels. The
Company has no present plans for expansion in this area.
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.
Comparison of Land Division Gross Margins
The average gross margin for the Land Division was 51% and 50% for the 1997 and
1996 quarters, respectively. The Company's Investment Committee, consisting of
three executive officers, approves all property acquisitions. In order to be
approved for purchase by the Committee, all land (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.
Resorts Division
During the 1997 and 1996 quarters, sales of timeshare intervals contributed $9.0
million or 27% and $6.0 million or 21%, respectively, of the Company's total
consolidated revenues from the sale of real estate.
The following table sets forth 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 above and
on the earlier table (outlining sales revenue by business unit after applying
percentage of completion accounting to sales transactions).
Three Months Ended
June 29, June 30,
1997 1996
Number of intervals sold....................... 1,056 848
Average sales price per interval............... $9,112 $8,108
Gross margin................................... 74% 66%
The number of timeshare intervals sold increased to 1,056 for the current
quarter compared to 848 for the comparable quarter of the previous fiscal year.
During the 1997 quarter, the following intervals were sold: 308 intervals from
the Gatlinburg resort, 275 from the resort in neighboring Pigeon Forge,
Tennessee, 398 from the ocean front resort in Myrtle Beach, South Carolina, 43
from the intracoastal resort in Myrtle Beach and 32 from the Branson, Missouri
resort. During the 1996 quarter, 370 intervals were sold from the Gatlinburg
resort, an additional 259 intervals were sold from resort in Pigeon Forge,
Tennessee and 219 intervals were sold from the ocean front resort in Myrtle
Beach, South Carolina.
<PAGE>
Gross margins on interval sales increased from 66% for the first quarter of
last year to 74% for the recently concluded quarter. The improvement in gross
margins from the Company's resorts was primarily the result of increases in the
retail selling prices, particularly at its ocean front resort in Myrtle Beach.
Communities Division
During the three months ended June 29, 1997, the Company's Communities Division
contributed $2.1 million in sales revenue, or approximately 6% of total
consolidated revenues from the sale of real estate. During the three months
ended June 30, 1996, the Communities Division generated $2.2 million in sales
revenue, or approximately 15% of total consolidated revenues from the sales of
real estate.
The following table sets forth certain information for sales associated with the
Company's Communities Division for the periods indicated.
Three Months Ended
June 29, June 30,
1997 1996
Number of homes/lots sold........................ 28 30
Average sales price.............................. $73,731 $73,659
Gross margin..................................... --- 3%
The $2.1 million in 1997 sales was comprised of 21 manufactured homes with an
average sales price of $90,518 and 7 sales of lots at an average sales price of
$23,371. The $2.2 million in 1996 sales was comprised of 17 manufactured homes
with an average sales price of $81,448, an additional 2 site-built homes with an
average sales price of $265,950 and 11 sales of lots at an average sales price
of $26,659. See discussion of provision for losses later herein.
The tables set forth below outline sales by geographic region and division for
the three months ended on the dates indicated.
Three Months Ended June 29, 1997
Geographic Region Land Resort Communities Total %
Southwest............$10,188,298 $ --- $ --- $10,188,298 30.8%
Southeast............ 2,896,128 4,096,625 2,064,480 9,057,233 27.4%
Midwest.............. 1,351,282 4,861,335 --- 6,212,617 18.8%
Rocky Mountains...... 3,000,130 --- --- 3,000,130 9.1%
Mid-Atlantic......... 2,916,987 --- --- 2,916,987 8.8%
West................. 1,631,796 --- --- 1,631,796 4.9%
Northeast............ 84,600 --- --- 84,600 .2%
Totals...............$22,069,221 $8,957,960 $2,064,480 $33,091,661 100.0%
<PAGE>
Three Months Ended June 30, 1996
Geographic Region Land Resort Communities Total %
Southwest............$10,917,854 $ --- $ --- $10,917,854 37.9%
Southwest............ 3,646,178 642,320 2,076,010 6,364,508 22.1%
Midwest.............. 1,590,255 5,372,240 --- 6,962,495 24.2%
Rocky Mountains...... 2,185,264 --- 133,750 2,319,014 8.1%
Mid-Atlantic......... 1,707,676 --- --- 1,707,676 5.9%
West................. 250,000 --- --- 250,000 .9%
Northeast............ 260,650 --- --- 260,650 .9%
Totals...............$20,557,877 $6,014,560 $2,209,760 $28,782,197 100.0%
Interest Income
Interest income increased 32% to $1.9 million for the three months ended June
29, 1997 compared to $1.4 million for the three months ended June 30, 1996. The
Company's interest income is earned from its Receivables, securities retained
pursuant to REMIC financings and cash and cash equivalents. The table set forth
below outlines interest income earned from assets for the periods indicated.
Three Months Ended
June 29, June 30,
Interest income and other: 1997 1996
Receivables held and servicing fees
from whole-loan sales.......................... $ 1,374,753 $ 1,063,473
Securities retained in connection with REMIC
financings including REMIC servicing fee....... 420,171 331,590
Loss on REMIC transactions........................ --- ( 39,202)
Cash and cash equivalents......................... 105,812 88,604
Totals............................................ $1,900,736 $1,444,465
The table to follow sets forth the average interest bearing assets for the
periods indicated.
Three Months Ended
June 29, June 30,
Average interest bearing assets 1997 1996
Receivables ...................................... $ 40,121,794 $ 32,053,220
Securities retained in connection with REMIC
financings .................................... 10,962,144 10,676,925
Cash and cash equivalents......................... 9,829,830 8,674,336
Totals............................................ $60,913,768 $ 51,404,481
Selling, General and Administrative Expense
S,G&A expense totaled $14.9 million and $13.1 million for the three months ended
June 29, 1997 and June 30, 1996, respectively. A significant portion of S,G&A
expenses is variable relative to sales and profitability levels, and therefore,
increases with growth in sales of real estate. As a percentage of sales of real
estate, S,G&A expenses (including corporate administrative expense) were 45% for
each quarterly period.
<PAGE>
(Dollars in Thousands)
Three Months Ended June 29, 1997
Land Resorts Communities Total
Sales of real
estate........... $22,069 100.0% $8,958 100.0% $2,064 100.0% $33,091 100.0%
Field selling,
general and
administrative
expense (1)...... $ 6,462 29.2% $5,852 65.3% $ 81 3.9% $12,395 37.5%
(Dollars in Thousands)
Three Months Ended June 30, 1996
Land Resorts Communities Total
Sales of real
estate........... $20,557 100.0% $6,015 100.0% $2,210 100.0% $28,782 100.0%
Field selling,
general and
administrative
expense (1)..... $ 6,392 31.1% $3,949 65.7% $ 451 20.4% $10,792 37.5%
(1) Corporate general and administrative expenses of $2.5 million and $2.3
million for the three months ended June 29, 1997 and June 30, 1996 have been
excluded from the table.
Interest Expense
Interest expense totaled $1.8 million and $1.3 million for the three months
ended June 29, 1997 and June 30, 1996, respectively. The 39% increase in
interest expense for the 1997 quarter was attributable to an increase in the
average outstanding debt. The table set forth below outlines the components of
interest expense for the periods indicated.
Three Months Ended
June 29, June 30,
Interest expense on: 1997 1996
Receivable-backed notes payable................... $ 672,363 $ 419,118
Lines of credit and notes payable................. 917,842 532,399
8.25% convertible subordinated debentures......... 716,492 716,492
Other financing costs............................. 264,601 223,906
Capitalization of interest........................ (784,778) (602,711)
Totals............................................ $1,786,520 $1,289,204
The table to follow sets forth the average indebtedness for the periods
indicated.
Three Months Ended
June 29, June 30,
Average indebtedness 1997 1996
Receivable-backed notes payable................... $ 26,208,516 $ 15,724,081
Lines of credit and notes payable................. 41,834,929 23,517,121
8.25% convertible subordinated debentures......... 34,739,000 34,739,000
Totals............................................ $102,782,445 $ 73,980,202
Provisions for Losses
The Company recorded provisions for loan losses and for real estate taxes and
other costs associated with delinquent customers of $312,000 and $269,000 during
the three months ended June 29, 1997 and June 30, 1996, respectively. In
addition, during 1996, management changed its focus for marketing certain of the
Company's inventories in conjunction with a plan to accelerate the sale of
properties managed under the Communities Division and certain properties managed
<PAGE>
under the Land Division. This decision was largely the result of management's
focus on expansion of the Company's Resorts (timesharing) business and land
business in certain locations. 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 during the 1996 quarter. The $8.2 million
in provisions included $4.8 million for certain Communities Division inventories
and $3.4 million for certain Land Division inventories. Management adopted a
plan to aggressively pursue opportunities for the bulk sale of a portion of the
written-down assets and has reduced retail prices on others to increase sales
activity. 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. As of June 29, 1997 approximately
60% 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 that were the subject of the write-down should be fully
liquidated in 12 months.
Summary
Income (loss) from consolidated operations was $2.9 million and $(7.0) million
for the three months ended June 29, 1997 and June 30, 1996, respectively. The
improvement during the 1997 quarter was the result of higher real estate sales
and gross margins together with reduced provisions for losses.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
three months ended June 29, 1997 and June 30, 1996 was not material to the
Company's results of operations.
The Company recorded a tax provision of 41% of the pre-tax income for the
quarter ended June 29, 1997. The Company recorded a tax benefit of 41% of the
pre-tax loss for the quarter ended June 30, 1996.
Net income (loss) was $1.7 million and $(4.1) million for the three months ended
June 29, 1997 and June 30, 1996, respectively. As discussed earlier, the
improvement during the 1997 quarter was the result of higher real estate sales
and gross magins and reduced provisions for losses.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from
time to time, the Company becomes involved in disputes with existing
and former employees. The Company believes that substantially all of
the above are incidental to its business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on July 30, 1997, the
shareholders voted to fix the number of Directors of the Company at
seven and elect the directors named in the proxy materials dated June
27, 1997. The results of voting were as follows:
Shares Voted
-----------------------------------------
For Against Abstain Total
Fix number of directors of the
Company for the ensuing year at
seven 17,851,322 127,693 186,686 18,165,701
Elect each of the following persons
as directors of the Company:
Joseph C. Abeles 17,853,465 312,236 --- 18,165,701
George F. Donovan 17,845,532 320,169 --- 18,165,701
Ralph A. Foote 17,845,739 319,962 --- 18,165,701
Frederick M. Myers 17,855,425 310,276 --- 18,165,701
J. Larry Rutherford 17,833,886 331,815 --- 18,165,701
Stuart A. Shikiar 17,878,265 287,436 --- 18,165,701
Bradford T. Whitmore 17,879,305 286,396 --- 18,165,701
In addition to the shares voted as outlined above, there were 2,436,170
non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: August 13, 1997 By: /S/ GEORGE F. DONOVAN
George F. Donovan
President and
Chief Executive Officer
Date: August 13, 1997 By: /S/ JOHN F. CHISTE
John F. Chiste
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1997 By: /S/ MARYJO WIEGAND
MaryJo Wiegand
Vice President and Controller
(Principal Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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