<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 28, 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
- --------------------------------------------------------------------------------
(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)
(561) 361-2700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(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 November 10, 1997, there were 20,695,128 shares issued, 449,800
treasury shares and 20,245,328 shares of Common Stock, $.01 par value per share,
outstanding.
<PAGE> 2
BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE
----
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEETS AT
SEPTEMBER 28, 1997 AND MARCH 30, 1997 ....................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 ............................. 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SIX MONTHS
ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996.............................. 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -SIX MONTHS
ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 ............................. 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ............................. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................................ 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................... 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................................... 24
ITEM 2. CHANGES IN SECURITIES............................................................ 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................. 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............................. 24
ITEM 5. OTHER INFORMATION ............................................................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................................ 24
SIGNATURES................................................................................... 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28, MARCH 30,
1997 1997
---- ----
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $17.3 million and $8.0 million at
September 28, 1997 and March 30, 1997, respectively)... $ 24,669,676 $ 11,597,147
Contracts receivable, net................................. 16,701,439 14,308,424
Notes receivable, net..................................... 49,221,343 34,619,325
Investment in securities.................................. 10,704,145 11,066,693
Inventory, net............................................ 88,295,681 86,660,559
Property and equipment, net............................... 7,166,849 4,948,554
Debt issuance costs, net.................................. 1,544,801 1,063,755
Other assets.............................................. 6,568,829 5,362,572
------------ ------------
TOTAL ASSETS........................................... $204,872,763 $169,627,029
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.......................................... $ 2,895,760 $ 1,917,907
Deferred income........................................... 8,776,140 3,791,924
Accrued liabilities and other............................. 10,036,799 10,118,268
Lines-of-credit and notes payable......................... 40,440,360 35,905,552
Deferred income taxes..................................... 5,991,040 2,855,946
Receivable-backed notes payable........................... 32,095,228 21,055,002
8.00% convertible notes payable to related parties........ 6,000,000 -
8.25% convertible subordinated debentures................. 34,739,000 34,739,000
------------ ------------
TOTAL LIABILITIES...................................... 140,974,327 110,383,599
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; 20,695,128 and 20,601,871 shares outstanding
at September 28, 1997 and March 30, 1997, respectively.. 206,951 206,019
Capital-in-excess of par value............................ 71,568,828 71,410,755
Accumulated deficit....................................... (6,653,773) (11,162,923)
Treasury stock, 449,800 and 443,000 common shares at
cost at September 28, 1997 and March 30, 1997,
respectively .......................................... (1,388,821) (1,369,772)
Net unrealized gains on investments available-for-sale, net
of income taxes........................................ 165,251 159,351
------------ ------------
TOTAL SHAREHOLDERS' EQUITY............................ 63,898,436 59,243,430
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $204,872,763 $169,627,029
============ ============
- ------------------
Note: The condensed consolidated balance sheet at March 30, 1997 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Sales of real estate..................................... $45,320,088 $26,450,849
Interest income and other................................ 2,233,471 1,549,770
------------ -----------
47,553,559 28,000,619
COST AND EXPENSES:
Cost of real estate sold................................. 21,418,249 13,198,844
Selling, general and administrative expense.............. 19,032,908 12,450,496
Interest expense......................................... 1,999,055 1,181,709
Provisions for losses.................................... 469,029 279,815
------------ -----------
42,919,241 27,110,864
Income from operations...................................... 4,634,318 889,755
Other income................................................ 60,841 86,608
------------ -----------
Income before income taxes.................................. 4,695,159 976,363
Provision for income taxes................................. 1,925,016 400,309
------------ -----------
NET INCOME.................................................. $ 2,770,143 $ 576,054
============ ============
EARNINGS PER COMMON SHARE:
Primary..................................................... $ .14 $ .03
============ ============
Fully diluted............................................... $ .13 $ .03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
Primary..................................................... 20,447,583 21,199,282
=========== ===========
Fully diluted............................................... 25,123,410 21,199,282
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Sales of real estate..................................... $78,411,749 $55,233,046
Interest income and other................................ 4,134,207 2,994,235
----------- -----------
82,545,956 58,227,281
COST AND EXPENSES:
Cost of real estate sold................................. 36,573,892 27,652,442
Selling, general and administrative expense.............. 33,915,983 25,503,045
Interest expense......................................... 3,785,575 2,470,913
Provisions for losses.................................... 780,583 8,748,868
----------- -----------
75,056,033 64,375,268
----------- -----------
Income (loss) from operations............................... 7,489,923 (6,147,987)
Other income................................................ 152,703 134,751
----------- -----------
Income (loss) before income taxes........................... 7,642,626 (6,013,236)
Provision (benefit) for income taxes........................ 3,133,476 (2,465,427)
----------- -----------
NET INCOME (LOSS)........................................... $ 4,509,150 $(3,547,809)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Primary..................................................... $ .22 $ (.17)
=========== ===========
Fully diluted............................................... $ .22 $ (.17)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
Primary..................................................... 20,366,216 20,886,372
=========== ===========
Fully diluted............................................... 24,920,488 20,886,372
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................ $ 4,509,150 $(3,547,809)
Adjustments to reconcile net income (loss) to net
cash flow provided by operating activities:
Depreciation and amortization............................ 838,461 535,809
Loss on REMIC transaction................................ - 39,202
Gain on sale of property and equipment................... - (57,168)
Provisions for losses.................................... 780,583 8,748,868
Interest accretion on investment in securities........... (681,652) (486,643)
Proceeds from borrowings collateralized by notes
receivable......................................... 17,501,452 7,263,913
Payments on borrowings collateralized by notes
receivable......................................... (6,461,226) (9,148,205)
Provision (benefit) for deferred income taxes............ 3,133,476 (2,465,427)
(INCREASE) DECREASE IN OPERATING ASSETS:
Contracts receivable....................................... (2,393,015) 3,588,750
Inventory.................................................. 10,094,011 (2,836,980)
Other assets............................................... (1,206,256) 509,340
Notes receivable........................................... (16,885,439) (343,324)
INCREASE (DECREASE) IN OPERATING LIABILITIES:
Accounts payable, accrued liabilities and other............ 5,875,617 (1,515,403)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 15,105,162 284,923
------------ -----------
INVESTING ACTIVITIES:
Purchases of property and equipment........................... (1,896,725) (478,907)
Sales of property and equipment............................... - 289,886
Cash received from investment in securities................... 1,056,700 577,933
------------ -----------
NET CASH FLOW (USED) PROVIDED BY INVESTING ACTIVITIES............ (840,025) 388,912
------------ -----------
FINANCING ACTIVITIES:
Proceeds from issuance of 8% convertible notes payable........ 6,000,000 -
Proceeds from borrowings under line-of-credit facilities and
other notes payable........................................ 24,725,597 7,786,568
Payments under line-of-credit facilities and other notes
payable.................................................... (31,347,707) (6,016,807)
Payment of debt issuance costs................................ (710,454) (120,623)
Payments for treasury stock................................... (19,049) (754,005)
Proceeds from exercise of employee stock options.............. 159,005 77,146
------------ -----------
NET CASH FLOW (USED) PROVIDED BY FINANCING ACTIVITIES............ (1,192,608) 972,279
------------ -----------
Net increase in cash and cash equivalents........................ 13,072,529 1,646,114
Cash and cash equivalents at beginning of period................. 11,597,147 11,389,141
------------ -----------
Cash and cash equivalents at end of period....................... 24,669,676 13,035,255
Restricted cash and cash equivalents at end of period............ (17,300,693) (8,794,095)
------------ -----------
Unrestricted cash and cash equivalents at end of period.......... $ 7,368,983 $ 4,241,160
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES
Inventory acquired through financing...................... $10,344,631 $10,630,449
=========== ===========
Inventory acquired through foreclosure or
deedback in lieu of foreclosure.......................... $ 1,502,838 $ 1,139,438
=========== ===========
Property and equipment acquired through financing......... $ 812,287 $ 240,000
=========== ===========
Investment in securities retained in
connection with REMIC transactions...................... $ -- $ 1,315,153
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed 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- and six- month periods ended September 28, 1997 are
not necessarily indicative of the results to be expected for the fiscal year
ending March 29, 1998. For further information, refer to the Consolidated
Financial Statements and Notes thereto included in Bluegreen Corporation's (the
Company's) Annual Report to Shareholders for the fiscal year ended March 30,
1997.
ORGANIZATION
The Company is a national leisure and lifestyle 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.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and all of its
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.
EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding, after giving
effect to all dilutive stock options using the treasury stock method. Fully
diluted earnings (loss) per common share is computed in the same manner as
primary earnings per share, but also includes an adjustment, if dilutive, to
both net income and shares outstanding as if the Company's 8.00% convertible
notes payable and 8.25% convertible subordinated debentures were converted into
common stock on March 31, 1997 or the date of issuance, if later. In February,
1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (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.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Accordingly, the Company plans to adopt SFAS
No. 131 with the fiscal year beginning March 30, 1998. SFAS No. 131 does not
have any impact on the financial results or financial condition of the Company,
but will result in certain changes in required disclosures of segment
information.
8
<PAGE> 9
2. ACQUISITION
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition will be accounted for using the purchase method of
accounting.
The Company financed the cash portion of the purchase price pursuant to the
issuance of two, 8% convertible promissory notes in the aggregate principal
amount of $6 million (the Notes) to a member of the Board of Directors of the
Company (the Board) and an affiliate of a Board member. The Notes, which were
executed on September 11, 1997, are due on September 11, 2002, and are
convertible into the Company's common stock at a conversion price of $3.92 per
share, subject to adjustment.
Headquartered in Fort Myers, Florida, RDI was privately-held and presently owns
timeshare resorts in Orlando, Florida and Wisconsin Dells, Wisconsin. In
addition, RDI manages 30 vacation ownership resorts, located in the southeastern
sun-belt states, with a member base of approximately 80,000.
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 evaluates its inventory for potential impairment in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of". The Company's inventories, by geographic
region, are summarized below.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997
----------------------------------------------------------------------
GEOGRAPHIC REGION LAND RESORTS COMMUNITIES TOTAL
- ----------------- ---- ------- ------------ -----
<S> <C> <C> <C> <C>
Southeast............ $11,724,301 $16,542,162 $3,671,986 $31,938,449
Southwest............ 22,944,172 - - 22,944,172
Midwest.............. 4,872,299 16,732,044 - 21,604,343
Rocky Mountains ..... 4,613,926 - - 4,613,926
West ................ 3,849,451 - - 3,849,451
Mid-Atlantic......... 2,934,917 - - 2,934,917
Northeast............ 388,304 - - 388,304
Canada............... 22,119 - - 22,119
----------- ----------- ---------- -----------
Totals............... $51,349,489 $33,274,206 $3,671,986 $88,295,681
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1997
-----------------------------------------------------------------
GEOGRAPHIC REGION LAND RESORTS COMMUNITIES TOTAL
- ----------------- ---- ------- ------------ -----
<S> <C> <C> <C> <C>
Southeast............ $ 7,997,611 $15,028,592 $ 5,685,074 $28,711,277
Southwest............ 19,959,473 - - 19,959,473
Midwest.............. 8,050,969 12,495,034 - 20,546,003
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>
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
9
<PAGE> 10
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 six months ended September 29, 1996. 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
September 28, 1997, approximately 69% of the inventories subject to write-down
had been sold.
10
<PAGE> 11
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 notes receivable.
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.
11
<PAGE> 12
RESULTS OF OPERATIONS - FOR THE THREE- AND SIX-MONTH PERIODS.
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.
The Company has historically experienced seasonal downward 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 fiscal 1998.
DIVISIONAL RESULTS OF OPERATIONS
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 Communities Division operations are being terminated
through a combination of retail sales and bulk sales.
The following tables set forth the selected financial data for the divisions
comprising the consolidated operations of the Company for the three months ended
September 28, 1997 (the 1997 Quarter) and September 29, 1996 (the 1996 Quarter).
12
<PAGE> 13
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 28, 1997
------------------------------------------
LAND RESORTS COMMUNITIES TOTAL
------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate.............. $29,732 100.0% $14,612 100.0% $ 976 100.0% $45,320 100.0%
Cost of real estate
sold................ 16,635 55.9% 3,764 25.8% 1,019 104.4% 21,418 47.3%
------- ----- ------- ----- -------- ----- ------- -----
Gross profit (loss).. 13,097 44.1% 10,848 74.2% (43) (4.4%) 23,902 52.7%
Field selling,
general and
administrative
expense (1)......... 7,485 25.1% 8,776 60.1% 49 5.0% 16,310 36.0%
------- ----- ------- ----- -------- ----- ------- -----
Field operating
profit (loss) (2)... $ 5,612 18.9% $ 2,072 14.2% $ (92) (9.4%) $ 7,592 16.8%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 29, 1996
-------------------------------------
LAND RESORTS COMMUNITIES TOTAL
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate.............. $17,895 100.0% $6,757 100.0% $1,799 100.0% $26,451 100.0%
Cost of real estate
sold................ 9,376 52.4% 2,047 30.3% 1,775 98.7% 13,198 49.9%
------- ----- ------- ----- -------- ----- ------- -----
Gross profit......... 8,519 47.6% 4,710 69.7% 24 1.3% 13,253 50.1%
Field selling,
general and
administrative
expense (1)......... 5,662 31.6% 4,399 65.1% 255 14.2% 10,316 39.0%
------- ----- ------- ----- -------- ----- ------- -----
Field operating
profit (loss) (2)... $ 2,857 16.0% $ 311 4.6% $(231) (12.9)% $ 2,937 11.1%
======= ===== ======= ===== ======== ===== ======= =====
</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.
13
<PAGE> 14
The following tables set forth the selected financial data for the divisions
comprising the consolidated operations of the Company for the six months ended
September 28, 1997 (the 1997 Period) and September 29, 1996 (the 1996 Period).
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 28, 1997
------------------------------------------
LAND RESORTS COMMUNITIES TOTAL
------------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate........ $51,802 100.0% $23,570 100.0% $3,041 100.0% $78,412 100.0%
Cost of real estate
sold................ 27,423 52.9% 6,072 25.7% 3,079 101.2% 36,574 46.6%
------- ----- ------- ----- -------- ----- ------- -----
Gross profit (loss).. 24,379 47.1% 17,498 74.3% (38) (1.2%) 41,838 53.4%
Field selling,
general and
administrative
expense (1)......... 13,948 26.9% 14,628 62.1% 130 4.3% 28,706 36.6%
------- ----- ------- ----- -------- ----- ------- -----
Field operating
profit (loss) (2)... $10,431 20.1% $ 2,870 12.2% $(168) 5.5% $13,132 16.7%
======= ===== ======== ===== ====== ==== ======= =====
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 29, 1996
-------------------------------------------
LAND RESORTS COMMUNITIES TOTAL
------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate.............. $38,453 100.0% $12,771 100.0% $4,009 100.0% $55,233 100.0%
Cost of real estate
sold................ 19,624 51.0% 4,102 32.1% 3,926 98.0% 27,652 50.1%
------- ----- ------- ----- -------- ----- ------- -----
Gross profit......... 18,829 49.0% 8,669 67.9% 83 2.0% 27,581 49.9%
Field selling,
general and
administrative
expense (1)......... 12,055 31.4% 8,348 65.4% 707 17.6% 21,110 38.2%
------- ----- ------- ----- -------- ----- ------- -----
Field operating
profit (loss) (2)... $ 6,774 17.6% $ 321 2.5% $ (624) (15.6)% $ 6,471 11.7%
======= ===== ======= ===== ======= ===== ======== =====
</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.
Consolidated sales of real estate increased 71.3% to $45.3 million for the 1997
Quarter compared to $26.5 million for the 1996 Quarter. Consolidated sales of
real estate increased 42.0% to $78.4 million for the 1997 Period compared to
$55.2 million for the 1996 Period. Increases in land and timeshare sales during
the 1997 Quarter and 1997 Period 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. At
September 28, 1997, $18.5 million of sales or $8.8 million in estimated income
was deferred and is included on the consolidated balance sheet.
14
<PAGE> 15
LAND DIVISION
During the 1997 and 1996 Quarters, land sales contributed $29.7 million or 65.6%
and $17.9 million or 68%, respectively, of the Company's total consolidated
revenues from the sale of real estate.
During the 1997 and 1996 Periods, land sales contributed $51.8 million or 66.1%
and $38.5 million or 69.7%, respectively, of the Company's total consolidated
revenues from the sale of real estate.
The tables set forth below outline 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, BEFORE giving effect to the percentage of
completion method of accounting and excluding a $2 million bulk land sale during
the 1997 Quarter. 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 division AFTER applying percentage of completion method of accounting
and including the $2 million bulk land sale).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
-------------------------------------- -------------------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
- ----------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Southwest......... 350 $ 43,694 246 $ 37,597
Southeast......... 123 48,636 50 33,273
Midwest........... 82 30,583 47 30,509
Mid-Atlantic...... 46 39,864 43 45,635
Rocky Mountains. 93 26,198 91 32,640
West.............. 22 162,568 8 133,688
Northeast......... 8 10,638 11 32,509
--- --------- --- ----------
Totals............ 724 42,915 496 37,714
=== ========= === ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------------------------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
-------------------------------------- -------------------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
- ----------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Southwest......... 627 $ 43,605 536 $ 37,044
Southeast......... 195 53,758 149 35,636
Midwest........... 132 34,433 118 25,628
Mid-Atlantic...... 109 43,752 97 37,835
Rocky Mountains. 148 35,772 131 39,355
West.............. 34 162,485 10 131,950
Northeast......... 19 11,716 29 21,319
----- --------- ----- ---------
Totals............ 1,264 46,168 1,070 36,404
===== ========= ===== =========
</TABLE>
The number of parcels sold and average sales price per parcel increased due to
the following:
- - Southwest region - Increases are due to the Company's Bentwater and White
Oak Estates projects, which opened in fiscal 1998
15
<PAGE> 16
- - Southeast region - Increases are due to the recently opened Winding River
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 paths.
- - Midwest region - Increases are 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.
- - West region -Greater parcel sales and higher average sales prices are
indicative of the Company's Arizona 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 ranging from
$100,000 to $185,000.
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.
The average gross margin for the Land Division was 44.1% and 47.6% for the 1997
and 1996 Quarters, respectively, and was 47.1% and 49.0% for the 1997 and 1996
Periods, respectively. The average gross margin decreased primarily due to a
loss recognized on the liquidation of a large parcel of land during the 1997
Quarter as part of the Company's continuing effort to exit from less profitable
markets, and increased sales at a lower-margin property in the Company's
Mid-Atlantic region. 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
$14.6 million or 32.2% and $6.8 million or 26%, respectively, of the Company's
total consolidated revenues from the sale of real estate.
During the 1997 and 1996 Periods, sales of timeshare intervals contributed $23.6
million or 30.1% and $12.8 million or 23.2%, respectively, of the Company's
total consolidated revenues from the sale of real estate.
The following tables set 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).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
Number of intervals sold......................... 1,856 928
Average sales price per interval................. $8,536 $8,377
Gross margin..................................... 74.2% 69.7%
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
<S> <C> <C>
Number of intervals sold......................... 2,836 1,776
Average sales price per interval................. $8,980 $8,249
Gross margin..................................... 74.3% 67.9%
</TABLE>
The increase in the number of intervals sold was primarily due to two new resort
properties that became operational during fiscal 1998 - Harbour Lights in Myrtle
Beach, South Carolina, and The Falls Village in Branson, Missouri, which
generated 468 and 233 interval sales, respectively, during the 1997 Quarter and
865 and 265 interval sales, respectively, during the 1997 Period. In addition,
interval sales increased due to the seasoning of existing resorts and the
increased effectiveness of marketing programs.
The improvement in gross margins from the Company's resorts was primarily the
result of increases in the retail selling prices, particularly at the new Myrtle
Beach and Branson resorts, which generated profit margins of approximately 74%
and 73%, respectively.
COMMUNITIES DIVISION
During the three months ended September 28, 1997, the Company's Communities
Division contributed $1.0 million in sales revenue, or approximately 2.2% of
total consolidated revenues from the sale of real estate. During the three
months ended September 29, 1996, the Communities Division generated $1.8 million
in sales revenue, or approximately 7% of total consolidated revenues from the
sales of real estate.
During the six months ended September 28, 1997, the Company's Communities
Division contributed $3.0 million in sales revenue, or approximately 3.8% of
total consolidated revenues from the sale of real estate. During the six months
ended September 29, 1996, the Communities Division generated $4.0 million in
sales revenue, or approximately 7% of total consolidated revenues from the sales
of real estate.
The decrease in Communities Division sales is primarily due to the continuing
termination of present operations through a combination of retail sales and bulk
sales as the Company's primary focus continues to be its core lines of business
(land and resort interval sales).
INTEREST INCOME
Interest income increased 44.1% to $2.2 million for the three months ended
September 28, 1997 compared to $1.5 million for the three months ended September
29, 1996. Interest income increased 36.7% to $4.1 million for the six months
ended September 28, 1997 compared to $3.0 million for the six months ended
September 29, 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.
17
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 29,
INTEREST INCOME AND OTHER: 1997 1996
- -------------------------- ---- ----
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales......................... $1,644,935 $ 1,118,106
Securities retained in connection with REMIC
financings including REMIC servicing fee...... 432,336 337,758
Cash and cash equivalents........................ 156,200 93,906
---------- ----------
Totals........................................... $2,233,471 $1,549,770
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 29,
INTEREST INCOME AND OTHER: 1997 1996
- -------------------------- ---- ----
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales......................... $3,019,688 $ 2,181,580
Securities retained in connection with REMIC
financings including REMIC servicing fee...... 852,506 669,348
Loss on REMIC transactions....................... - (39,202)
Cash and cash equivalents........................ 262,013 182,509
---------- -----------
Totals........................................... $4,134,207 $ 2,994,235
========== ===========
</TABLE>
The increase in interest income is primarily due to an increase in the average
note receivable balance during the 1997 Quarter and 1997 Period as compared to
the 1996 Quarter and 1996 Period, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (S, G & A EXPENSE)
S,G&A Expense totaled $19.0 million and $12.5 million for the three months ended
September 28, 1997 and September 29, 1996, respectively, and $33.9 million and
$25.5 million for the six months ended September 28, 1997 and September 29,
1996, respectively. A significant portion of S,G&A Expense 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 Expense
(including corporate administrative expense) decreased to 42.0% in the 1997
Quarter as compared to 47.0% in the 1996 Quarter and decreased to 43.4% in the
1997 Period as compared to 46% in the 1996 Period. The decrease in S,G&A
Expense as a percentage of sales is primarily due to the Company's strategic
emphasis placed on controlling costs, coupled with achieving the critical
revenue mass in the resort division to support the existing infrastructure.
INTEREST EXPENSE
Interest expense totaled $2.0 million and $1.2 million for the three months
ended September 28, 1997 and September 29, 1996, respectively. The 66.7%
increase in interest expense for the 1997 Quarter was primarily attributable to
increased borrowings associated with the Company's receivable-backed notes
payable and for the acquisition of land. The table set forth below outlines the
components of interest expense for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 29,
INTEREST EXPENSE ON: 1997 1996
- -------------------- ---- ----
<S> <C> <C>
Receivable-backed notes payable................. $ 783,986 $ 415,674
Lines of credit and notes payable............... 906,442 716,672
8.25% convertible subordinated debentures....... 716,492 716,492
Other financing costs........................... 367,819 230,610
Capitalization of interest...................... (775,684) (897,739)
---------- ----------
Totals.......................................... $1,999,055 $1,181,709
========== ==========
</TABLE>
18
<PAGE> 19
Interest expense totaled $3.8 million and $2.5 million for the six months ended
September 28, 1997 and September 29, 1996, respectively. The 52.0% increase in
interest expense for the 1997 Period was primarily attributable to increased
borrowings associated with the Company's receivable-backed notes payable and for
the acquisition of land. The table set forth below outlines the components of
interest expense for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
SEPTEMBER 28, SEPTEMBER 29,
INTEREST EXPENSE ON: 1997 1996
- -------------------- ---- ----
<S> <C> <C>
Receivable-backed notes payable.................. $1,456,349 $ 834,792
Lines of credit and notes payable................ 1,824,284 1,249,071
8.25% convertible subordinated debentures........ 1,432,984 1,432,984
Other financing costs............................ 632,420 454,516
Capitalization of interest....................... (1,560,462) (1,500,450)
----------- ------------
Totals........................................... $3,785,575 $ 2,470,913
========== ============
</TABLE>
PROVISIONS FOR LOSSES
The Company recorded provisions for loan losses and for real estate taxes and
other costs associated with delinquent customers of $469,029 and $279,815 during
the three months ended September 28, 1997 and September 29, 1996, respectively
and $780,583 and $549,000 during the six months ended September 28, 1997 and
September 29, 1996, respectively. The increase in the provision for losses is
commensurate with the significant increase in timeshare revenues during the 1997
Quarter and 1997 Period.
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
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 first quarter of 1996. 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
September 28, 1997 approximately 69% of the inventories subject to write-down
had been sold.
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 and timeshare 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.
19
<PAGE> 20
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 Periods, the Company borrowed $17.5 million and $7.3 million,
respectively, through the pledge of Receivables. During the 1996 Period, 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 September 28,
1997, the outstanding principal balance under the credit agreement was $12.4
million. The ability to borrow under the facility expires in November 1998.
The Company has another credit facility with this same lender that provides for
receivable financing in the amount of $15.0 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 September 28, 1997, the outstanding
principal balance under the credit agreement was $5.6 million. The ability to
borrow under the facility expires in February 1999.
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 financial institution 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 September 28, 1997, the outstanding principal
balance under the facility was $6.5 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.
The Company has obtained a credit facility with another financial institution
that provides for receivable financing in the amount of $10.0 million on the
Company's timeshare resort located in Branson, Missouri. The interest rate
charged under the facility is the prime lending rate plus 2.25% for the first $5
million of borrowings and prime plus 2.00% for borrowings in excess of $5
million. As of September 28, 1997, the Company had not yet borrowed under this
credit facility. The ability to borrow under the facility expires in April 2000,
with any remaining outstanding amounts due in April 2005.
20
<PAGE> 21
CREDIT FACILITIES FOR LAND RECEIVABLES
The Company has a $20.0 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. In addition, up to $8.0 million of the facility can be used for
land acquisition purposes. The interest rates charged on outstanding borrowings
range from the prime lending rate plus .5% to prime plus 1.0%, depending on the
amount of outstanding borrowings. At September 28, 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 ability to borrow under the facility
expires in September 2000. Any outstanding indebtedness is due in September
2002.
The Company has $3.9 million outstanding and secured by land receivables as of
September 28, 1997 with another financial institution. 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.
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".
At September 28, 1997, the aggregate outstanding balance on the Company's
acquisition and development loans was approximately $19.6 million.
CREDIT FACILITIES FOR RESORT PROPERTIES
The Company has a loan secured by a South Carolina timeshare resort. At
September 28, 1997, $8.2 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 September 28, 1997, $566,000 was outstanding. The
interest rate charged under the agreement is the three-month LIBOR plus 4.75%.
Principal is repaid through release payments as weekly intervals are sold.
Interest is paid
21
<PAGE> 22
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.
The Company has a loan secured by a Tennessee timeshare resort. At September 28,
1997, $3.5 million was outstanding. The interest rate charged under the
agreement is the prime lending rate plus 2.0%. Principal is repaid annually.
Interest is paid monthly. The indebtedness is due in August 2002.
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 September 28, 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 for up to $10 million
secured by properties in Texas. At September 28, 1997, $1.6 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. This
indebtedness is due in October 1999.
OTHER DEBT ARRANGEMENTS
The Company borrowed $3.8 million dollars during the 1997 Period pursuant to a
term loan with a financial institution. The term loan is secured by certain of
the Company's investments in REMIC certificates and bears interest at the
three-month LIBOR plus 4.5%. The term loan is due in installments through
February 2001. At September 28, 1997, $3.7 million of the term loan is
outstanding.
Also during the 1997 Period, the Company issued $6 million of convertible notes
payable to a member of the Company's Board of Directors and an affiliate of a
Board member. The notes bear interest at 8.0%, and are convertible into the
Company's common stock at a conversion price of $3.92 per share, subject to
adjustment. Interest is payable quarterly. The notes are due on September 11,
2002.
The Company also has $34.7 million of convertible subordinated debentures
outstanding at September 28, 1997. The debentures bear interest at 8.25%, and
are convertible into the Company's common stock at a conversion price of $8.24
per share, subject to adjustment. The debentures are redeemable at any time, at
the Company's option, in whole or in part. The Company is obligated to redeem
annually 10% of the principal amount of the debentures originally issued,
commencing May 15, 2003. The debentures are unsecured and subordinated to all
senior indebtedness of the Company. Interest is payable semi-annually on May 15
and November 15.
The Company is required to comply with certain covenants under several of its
debt agreements discussed above, including financial covenants. The Company was
in compliance with each of such covenants at September 28, 1997 and for each
reporting period during fiscal 1998, 1997, and 1996.
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 $7.4 million at September 28, 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 a
result, capital requirements to develop inventories owned as of September 28,
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
22
<PAGE> 23
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.
The Company's net inventory was $88.3 million at September 28, 1997 and $86.7
million at March 30, 1997. 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 September 28,
1997 is approximately $175.3 million.
1997 PERIOD VS. 1996 PERIOD
Cash and cash equivalents increased by $13.1 million and $1.6 million during the
1997 Period and 1996 Period, respectively.
Net cash provided by the Company's operations was $15.1 million and $284,923 for
the 1997 Period and 1996 Period, respectively. The increase in cash flow from
operations was primarily attributable to an increase in sales of inventory
during the 1997 Period as well as an increase in net cash provided by the
hypothecation of the Company's notes receivable from land and resort interval
sales.
Net cash used by investing activities was $840,025 for the 1997 Period. Net cash
provided by financing activities was $388,912 for the 1996 Period. The decrease
in net cash provided by investing activities was due to a $1.4 million increase
in property and equipment purchases, partially offset by a $500,000 increase in
cash received from the Company's investment in REMIC securities.
Net cash used by financing activities was $1.2 million for the 1997 Period. Net
cash provided by financing activities was $972,279 for the 1996 Period. The
decrease in net cash provided by investing activities was due to an $8.3 million
increase in net payments under the Company's line-of-credit facilities and other
notes payable, partially offset by the $6 million proceeds from the issuance of
the Company's 8% convertible notes payable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable.
23
<PAGE> 24
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
(c) During the period covered by this report, the Company sold $6
million aggregate principal amount of convertible notes due 2002 (the
"Convertible Notes") in a private placement for cash at par. The
Convertible Notes were issued pursuant to the terms of a Note Purchase
Agreement dated as of September 11, 1997 (the "Note Purchase
Agreement"). The Convertible Notes bear interest at 8% per annum and
have a maturity date of September 11, 2002. The outstanding balances of
the Convertible Notes are convertible into the Company's Common Stock
at a conversion price of $3.92 per share, subject to adjustment for
dilutive events. Neither the Convertible Notes nor any common stock
issuable upon conversion thereof has been registered under the
Securities Act of 1933; the Convertible Notes were issued to Joseph
Abeles, a director of the Company, and Grace Brothers, Ltd., an
affiliate of Bradford T. Whitmore, who is also a director of the
Company, pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act for transactions not involving a
public offering. The Note Purchase Agreement includes customary
investment representations and restrictions on the transfer of the
securities issued thereunder. The proceeds of the Convertible Notes
were issued to finance the Company's acquisition of the capital stock
of RDI Group, Inc. and Resort Title Insurance Agency, Inc.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information with respect to the Company's Annual Meeting of
Shareholders held on July 30, 1997 was included in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 29,
1997.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
(11) Statement re: computation of earnings (loss) per share
(27) Financial Data Schedule (for SEC use only).
(b) The Company filed a Current Report on Form 8-K dated October 6, 1997
reporting under Item 2 thereof the acquisition of the capital stock of
RDI Group, Inc. and Resort Title Insurance Agency, Inc. and, in
connection therewith, the issuance by the Company of the Convertible
Notes. Such Form 8-K included certain exhibits, including the Stock
Purchase Agreement pursuant to which RDI Group, Inc. and Resort Title
Insurance Agency, Inc. were acquired and the Note Purchase Agreement.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: November 10, 1997 By: /S/ GEORGE F. DONOVAN
------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 10, 1997 By: /S/ JOHN F. CHISTE
------------------------------------
John F. Chiste
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: November 10, 1997 By: /S/ ANTHONY M. PULEO
------------------------------------
Anthony M. Puleo
Chief Accounting Officer
(Principal Accounting Officer)
25
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ------------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
---------------------------------------------------------------------
<S> <C> <C>
Primary:
Average shares outstanding 20,164 20,339 20,158 20,456
Net effect of dilutive stock
options (1) 284 860 208 430
------------------ ------------------ ----------------- ------------------
Totals 20,448 21,199 20,366 20,886
================== ================== ================= ==================
Net income (loss) $ 2,770 $ 576 $ 4,509 $ (3,548)
================== ================== ================= ==================
Per share amount $ 0.14 $ 0.03 $ 0.22 $ (0.17)
================== ================== ================= ==================
Fully diluted:
Average shares outstanding 20,164 20,339 20,158 20,456
Net effect of dilutive stock
options (2) 440 860 395 430
Assumed conversion of 8.25%
convertible debentures and
8.00% convertible notes
payable (3) 4,519 - 4,367 -
------------------ ------------------ ----------------- ------------------
Totals 25,123 21,199 24,920 20,886
================== ================== ================= ==================
Net income (loss) $ 2,770 $ 576 $ 4,509 $ (3,548)
Add interest expense, net of
income tax effect, on 8.25%
convertible debentures and
8.00% convertible notes
payable (3) 437 - 859 -
------------------ ------------------ ----------------- ------------------
Totals $ 3,207 $ 576 $ 5,368 $ (3,548)
================== ================== ================= ==================
Per share amount $ 0.13 $ 0.03 $ 0.22 $ (0.17)
================== ================== ================= ==================
</TABLE>
(1) Computed based on the treasury stock method using the average market price
for each applicable period.
(2) Computed based on the treasury stock method using the ending market price,
which is greater than the average market price, for each applicable period.
(3) Omitted from 1996 computations, as impact on earnings (loss) per share
would be antidilutive.
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 24,669,676
<SECURITIES> 10,704,145
<RECEIVABLES> 67,604,160
<ALLOWANCES> 1,681,378
<INVENTORY> 88,295,681
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,469,420
<DEPRECIATION> 4,302,571
<TOTAL-ASSETS> 204,872,763
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 113,274,588
0
0
<COMMON> 206,951
<OTHER-SE> 63,691,485
<TOTAL-LIABILITY-AND-EQUITY> 204,872,763
<SALES> 78,411,749
<TOTAL-REVENUES> 82,545,956
<CGS> 36,573,892
<TOTAL-COSTS> 36,573,892
<OTHER-EXPENSES> 33,915,983
<LOSS-PROVISION> 780,583
<INTEREST-EXPENSE> 3,785,575
<INCOME-PRETAX> 7,642,626
<INCOME-TAX> 3,133,476
<INCOME-CONTINUING> 4,509,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,509,150
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
