<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 July 4, 1999
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.)
4960 Blue Lake Drive, Boca Raton, Florida 33431
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 912-8000
- --------------------------------------------------------------------------------
(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 August 13, 1999, there were 25,127,756 shares of Common Stock, $.01
par value per share, issued, 1,896,300 treasury shares and 23,231,456 shares
outstanding.
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BLUEGREEN CORPORATION
Index to Quarterly Report on Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information (unaudited)
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 28, 1999 and July 4, 1999 .............................. 3
Condensed Consolidated Statements of Income - Three Months
Ended June 28, 1998 and July 4, 1999 ......................... 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended June 28, 1998 and July 4, 1999 ......................... 5
Notes to Condensed Consolidated Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ................ 13
Item 3. Quantitative and Qualitative
Disclosures About Market Risk ................................ 24
Part II - Other Information
Item 1. Legal Proceedings ................................................. 25
Item 2. Changes in Securities ............................................. 25
Item 3. Defaults Upon Senior Securities ................................... 25
Item 4. Submission of Matters to a Vote of Security Holders ............... 25
Item 5. Other Information ................................................. 25
Item 6. Exhibits and Reports on Form 8-K .................................. 25
Signatures ................................................................ 26
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEGREEN CORPORATION
Condensed Consolidated Balance Sheets
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
March 28, July 4,
1999 1999
--------- ---------
(Note) (unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $15.8 million and $17.5 million at
March 28, 1999 and July 4, 1999, respectively) .................... $ 55,557 $ 39,046
Contracts receivable, net ............................................ 20,167 16,743
Notes receivable, net ................................................ 64,380 80,038
Notes receivable from related party .................................. 4,168 4,227
Inventory, net ....................................................... 142,628 146,784
Investment in securities ............................................. 17,106 17,169
Property and equipment, net .......................................... 26,052 28,621
Other assets ......................................................... 19,064 21,575
--------- ---------
Total assets ...................................................... $ 349,122 $ 354,203
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable ..................................................... $ 6,207 $ 6,244
Accrued liabilities and other ........................................ 25,362 20,753
Deferred income ...................................................... 5,792 5,127
Deferred income taxes ................................................ 13,507 16,343
Receivable-backed notes payable ...................................... 9,884 18,473
Lines-of-credit and notes payable .................................... 17,615 16,113
10.50% senior secured notes payable .................................. 110,000 110,000
8.00% convertible subordinated notes payable to related
parties .......................................................... 6,000 6,000
8.25% convertible subordinated debentures ............................ 34,371 34,371
--------- ---------
Total liabilities ................................................. 228,738 233,424
Minority interest .................................................... 1,035 1,091
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized;
none issued ....................................................... -- --
Common stock, $.01 par value, 90,000 shares
authorized; 25,063 and 25,117 shares issued at March 28, 1999 and
July 4, 1999, respectively ....................................... 251 251
Additional paid-in capital ........................................... 107,206 107,373
Treasury stock, 968 and 1,809 common shares at cost at
March 28, 1999 and July 4, 1999, respectively .................... (4,545) (8,797)
Net unrealized gains on investments available-for-sale, net
of income taxes ................................................... 560 560
Retained earnings .................................................... 15,877 20,301
--------- ---------
Total shareholders' equity ........................................ 119,349 119,688
--------- ---------
Total liabilities and shareholders' equity ........................ $ 349,122 $ 354,203
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at March 28, 1999 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.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
June 28, July 4,
1998 1999
-------- -------
<S> <C> <C>
Revenues:
Sales ............................................................ $ 55,658 $62,714
Other resort and golf operations revenue ......................... 2,476 4,386
Interest income .................................................. 3,763 3,792
Gain on sale of notes receivable ................................. 2,053 --
Other income ..................................................... 372 59
-------- -------
64,322 70,951
Costs and expenses:
Cost of sales .................................................... 20,868 21,724
Cost of other resort and golf operations ......................... 2,251 3,749
Selling, general and administrative expenses ..................... 27,568 34,329
Interest expense ................................................. 3,745 2,955
Provision for loan losses ........................................ 293 788
-------- -------
54,725 63,545
-------- -------
Income before income taxes .......................................... 9,597 7,406
Provision for income taxes ......................................... 3,839 2,926
Minority interest in income of consolidated subsidiary .............. 18 56
-------- -------
Income before extraordinary item .................................... 5,740 4,424
Extraordinary loss on early extinguishment of debt, net
of income taxes ................................................. (1,682) --
-------- -------
Net income .......................................................... $ 4,058 $ 4,424
======== =======
Earnings per common share:
Basic:
Income before extraordinary item ................................ $ 0.28 $ 0.19
Extraordinary loss on early extinguishment of debt,
net of income taxes ......................................... (0.08) --
-------- -------
Net income ...................................................... $ 0.20 $ 0.19
======== =======
Diluted:
Income before extraordinary item ................................ $ 0.23 $ 0.17
Extraordinary loss on early extinguishment of debt,
net of income taxes ......................................... (0.06) --
-------- -------
Net income ...................................................... $ 0.17 $ 0.17
======== =======
Weighted average number of common and common equivalent shares:
Basic ............................................................... 20,349 23,425
======== =======
Diluted ............................................................. 27,508 29,837
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
June 28, July 4,
1998 1999
--------- --------
<S> <C> <C>
Operating activities:
Net income ........................................................... $ 4,058 $ 4,424
Adjustments to reconcile net income to net
cash flow provided (used) by operating activities:
Extraordinary loss on early extinguishment of debt,
net of taxes ................................................ 1,682 --
Minority interest in income of consolidated subsidiary .......... 18 56
Depreciation and amortization ................................... 553 940
Gain on sale of notes receivable ................................ (2,053) --
(Gain) loss on sale of property and equipment ................... (267) 63
Provision for loan losses ....................................... 293 788
Provision for deferred income taxes ............................. 3,839 2,926
Interest accretion on investment in securities .................. (383) (645)
Proceeds from sale of notes receivable .......................... 31,305 --
Proceeds from borrowings collateralized by notes
receivable .................................................. 1,742 9,973
Payments on borrowings collateralized by notes receivable ....... (574) (853)
Change in operating assets and liabilities:
Contracts receivable ............................................... (2,475) 3,423
Notes receivable ................................................... (10,665) (18,565)
Inventory .......................................................... 303 (2,569)
Other assets ....................................................... 554 (1,853)
Accounts payable, accrued liabilities and other .................... (523) (5,213)
--------- --------
Net cash provided (used) by operating activities ........................ 27,407 (7,105)
--------- --------
Investing activities:
Purchases of property and equipment .................................. (3,349) (3,940)
Sales of property and equipment ...................................... 872 619
Cash received from investment in securities .......................... 395 582
Loan to related party ................................................ -- (251)
Principal payments received on loans to related party ................ -- 192
Other assets ......................................................... -- (388)
--------- --------
Net cash used by investing activities ................................... (2,082) (3,186)
--------- --------
Financing activities:
Proceeds from issuance of 10.5% senior secured notes payable ......... 110,000 --
Payment under short-term borrowings from underwriters ................ (22,149) --
Payments under line-of-credit facilities and other notes payable ..... (69,676) (1,526)
Payment of debt issuance costs ....................................... (4,885) (519)
Payments for treasury stock .......................................... -- (4,252)
Proceeds from exercise of employee and director stock options ........ 273 77
--------- --------
Net cash provided (used) by financing activities ........................ 13,563 (6,220)
--------- --------
Net increase (decrease) in cash and cash equivalents .................... 38,888 (16,511)
Cash and cash equivalents at beginning of period ........................ 31,065 55,557
--------- --------
Cash and cash equivalents at end of period .............................. 69,953 39,046
Restricted cash and cash equivalents at end of period ................... (11,036) (17,457)
--------- --------
Unrestricted cash and cash equivalents at end of period ................. $ 58,917 $ 21,589
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
BLUEGREEN CORPORATION
Condensed Consolidated Statements of Cash Flows -- continued
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
June 28, July 4,
1998 1999
------- -------
<S> <C> <C>
Supplemental schedule of non-cash operating, investing
and financing activities
Inventory acquired through financing ...................... $ 500 $ --
====== ======
Inventory acquired through foreclosure or
deedback in lieu of foreclosure .......................... $2,134 $1,587
====== ======
Conversion of 8.25% convertible subordinated
debentures into common stock ............................ $ 368 $ --
====== ======
Sale of notes receivable in exchange for investment
in securities ........................................... $3,160 $ --
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
BLUEGREEN CORPORATION
Notes to Condensed Consolidated Financial Statements
July 4, 1999
(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 information 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 periods. The results of
operations for the three-month period ended July 4, 1999 are not necessarily
indicative of the results to be expected for the fiscal year ending April 2,
2000. 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 28, 1999.
ORGANIZATION
The Company is a leading marketer of vacation and residential lifestyle choices
through its resort and residential land and golf businesses which are located
predominantly in the Southeastern, Southwestern and Midwestern United States.
The Company's resort business (the "Resorts Division") strategically acquires,
develops and markets Timeshare Interests in resorts generally located in
popular, high-volume, "drive-to" vacation destinations. Timeshare Interests
typically entitle the buyer to a fully-furnished vacation residence for an
annual one-week period in perpetuity ("Timeshare Interests"). The Company
currently develops, markets and sells Timeshare Interests in ten resorts located
in the United States and Aruba. The Company also markets and sells Timeshare
Interests at three off-site sales locations. The Company's residential land and
golf business (the "Residential Land and Golf Division") strategically acquires,
develops and subdivides property and markets the subdivided residential lots to
retail customers seeking to build a home in a high quality residential setting,
in some cases on properties featuring a golf course and related amenities.
During the three months ended July 4, 1999, sales generated by the Company's
Resorts Division and Residential Land and Golf Division comprised approximately
51% and 49%, respectively, of the Company's total sales. The Company also
generates significant interest income by providing financing to individual
purchasers of Timeshare Interests sold by the Resorts Division and, to a lesser
extent, land sold by the Residential Land and Golf Division.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company, all of its wholly-owned subsidiaries and entities in which the Company
holds a controlling financial interest. All significant intercompany balances
and transactions are eliminated.
USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
FISCAL YEAR
The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday
nearest the last day of March in each year. Therefore, fiscal year 2000 will be
53 weeks long. The fiscal quarters ended June 28, 1998 and July 4, 1999
consisted of 13 weeks and 14 weeks, respectively.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed in the same manner as basic earnings per share,
7
<PAGE> 8
but also gives effect to all dilutive stock options using the treasury stock
method and includes an adjustment, if dilutive, to both net income and shares
outstanding as if the Company's 8.00% convertible subordinated notes payable and
8.25% convertible subordinated debentures were converted into common stock on
March 30, 1998.
On August 14, 1998, the Company entered into a Securities Purchase Agreement
(the "Stock Agreement") by and among the Company, Morgan Stanley Real Estate
Investors III, L.P., Morgan Stanley Real Estate Fund III, L.P., ("MSREF"), MSP
Real Estate Fund, L.P., and MSREF III Special Fund, L.P., (collectively, the
"Funds") pursuant to which the Funds purchased an aggregate 4.1 million shares
of the Company's Common Stock through July 4, 1999. Pursuant to the Stock
Agreement, as amended, subject to certain conditions thereto, the Company has
the right to require the Funds, during the 18-month period commencing on August
14, 1998 (the "Commitment Period"), to purchase from the Company up to an
additional 1.8 million shares of Common Stock (the "Remaining Shares") at a
purchase price equal to $8.50 per share. If, on or prior to the expiration of
the Commitment Period, the Company has not offered to sell to the Funds all of
the Remaining Shares and the Company has achieved certain earnings levels for
the 12-month period ended January 2, 2000, or if a Change of Control (as defined
in the Stock Agreement) of the Company occurs during the Commitment Period, the
Funds will have the right to purchase any or all of the Remaining Shares not
previously sold to the Funds at a purchase price equal to $8.50 per share.
Therefore, as the Company has not as yet achieved the necessary earnings levels
for the Funds to exercise their right to purchase the remaining 1.8 million
shares, these shares have not been included in the Company's weighted-average
shares outstanding for the purpose of computing diluted earnings per share for
the three months ended July 4, 1999.
The following table sets forth the computation of basic and diluted earnings per
share:
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
June 28, July 4,
1998 1999
--------- -------
<S> <C> <C>
Basic earnings per share - numerators:
Income before extraordinary item ........................ $ 5,740 $ 4,424
Extraordinary loss on early extinguishment of debt,
net of income taxes ................................. (1,682) --
-------- -------
Net income .............................................. $ 4,058 $ 4,424
======== =======
Diluted earnings per share - numerators:
Income before extraordinary item - basic ................ $ 5,740 $ 4,424
Effect of dilutive securities (net of tax effects) ...... 501 528
-------- -------
Income before extraordinary item - diluted .............. 6,241 4,952
Extraordinary loss on early extinguishment of debt,
net of income taxes ................................. (1,682) --
-------- -------
Net income - diluted .................................... $ 4,559 $ 4,952
======== =======
Denominator:
Denominator for basic earnings per share - weighted
average shares ...................................... 20,349 23,425
Effect of dilutive securities:
Stock options ........................................ 1,423 710
Convertible securities ............................... 5,736 5,702
-------- -------
Dilutive potential common shares ........................ 7,159 6,412
-------- -------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions ........ 27,508 29,837
======== =======
Basic earnings per common share:
Income before extraordinary item ........................ $ 0.28 $ 0.19
Extraordinary loss on early extinguishment of debt,
net of income taxes ................................. (0.08) --
-------- -------
Net income .............................................. $ 0.20 $ 0.19
======== =======
Diluted earnings per common share:
Income before extraordinary item ........................ $ 0.23 $ 0.17
Extraordinary loss on early extinguishment of debt,
net of income taxes ................................. (0.06) --
-------- -------
Net income .............................................. $ 0.17 $ 0.17
======== =======
</TABLE>
8
<PAGE> 9
START-UP COSTS
In April, 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES.
The SOP is effective for the Company's fiscal 2000, and requires that start-up
costs capitalized prior to January 1, 1999 be written-off and any future
start-up costs to be expensed as incurred. The adoption of this SOP had no
significant impact on the Company's results of operations for the three months
ended July 4, 1999.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
2. Sale of Notes Receivable
On June 26, 1998, the Company sold approximately $32.4 million aggregate
principal amount of timeshare notes receivable (the "Receivables") to Bluegreen
Receivables Finance Corporation III, a wholly-owned special purpose subsidiary
of the Company ("BRFC"). Concurrently, BRFC sold the Receivables to an
unaffiliated financial institution (the "Purchaser") pursuant to an Asset
Purchase Agreement dated as of June 26, 1998 (the "Purchase Agreement"). In
connection with the sale, the Company recognized a $2.1 million gain on sale of
notes receivable which is included in the condensed consolidated statement of
income for the three months ended June 28, 1998.
Under the Purchase Agreement, BRFC will be entitled to sell up to $100 million
aggregate principal amount of timeshare receivables to the Purchaser, of which
$54.8 million in aggregate principal amount has been sold as of July 4, 1999.
The purchase facility has detailed requirements with respect to the eligibility
of receivables for purchase and a two-year term. The Purchaser's obligation to
purchase under the purchase facility will terminate upon the occurrence of
specified trigger events. The purchase facility includes various conditions to
purchase and other provisions customary for securitizations of this type.
3. Line-of-Credit
On August 1, 1999, the Company renewed its unused $5 million, unsecured
line-of-credit with a bank. Amounts borrowed under the line will bear interest
at LIBOR plus 1.5%. Interest is due monthly, with all principal amounts due on
December 31, 2000.
4. Treasury Stock
During the three months ended July 4, 1999, the Company repurchased 841,000
shares of Common Stock at an aggregate cost of $4.3 million.
5. Contingencies
In addition to its other ordinary course litigation, the Company became a
defendant in two proceedings during fiscal 1999. First, an action was filed
against the Company on December 15, 1998. The plaintiff has asserted that the
Company is in breach of its obligations under, and has made certain
misrepresentations in connection with, a contract under which the Company acted
as marketing agent for the sale of undeveloped property owned by the plaintiff.
The plaintiff also alleges fraud, negligence and violation by the Company of an
alleged fiduciary duty owed to plaintiff. Among other things, the plaintiff
alleges that the Company failed to meet certain minimum sales requirements under
the marketing contract and failed to commit sufficient resources to the sale of
the property. The complaint seeks damages in excess of $18 million and certain
other remedies, including punitive damages.
Second, an action was filed on July 10, 1998 against two subsidiaries of the
Company and various other defendants. The Company itself is not named as a
defendant. The Company's subsidiaries acquired certain real property (the
"Property"). The Property was acquired subject to certain alleged oil and gas
leasehold interests and rights (the "Interests") held by the plaintiffs in the
action (the "Plaintiffs"). The Company's subsidiaries developed the Property and
have resold parcels to numerous customers. The Plaintiffs allege, among other
things, breach of contract, slander of title and that the Company's subsidiaries
and their purchasers have unlawfully trespassed on easements and otherwise
violated and prevented the Plaintiffs from exploiting the Interests. The
Plaintiffs claim damages in excess of $40 million, as well as punitive or
exemplary damages in an amount of at least $50 million and certain other
remedies.
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The Company is in the early stages of evaluating these actions and their
potential impact, if any, on the Company and accordingly cannot predict the
outcomes with any degree of certainty. However, based upon all of the facts
presently under consideration of management, the Company believes that it has
substantial defenses to the allegations in each of the actions and intends to
defend each of these matters vigorously. The Company does not believe that any
likely outcome of either case will have a material adverse effect on the
Company's financial condition or results of operations.
6. Supplemental Guarantor Financial Information
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). None of the assets of Bluegreen
Corporation secure its obligations under the Notes, and the Notes are
effectively subordinated to secured indebtedness of the Company to any third
party to the extent of assets serving as security therefor. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of Bluegreen
Properties N.V., Resort Title Agency, Inc., any special purpose finance
subsidiary, any subsidiary which is formed and continues to operate for the
limited purpose of holding a real estate license and acting as a broker, and
certain other subsidiaries which have individually less then $50,000 of assets
(collectively, "Non-Guarantor Subsidiaries").
Supplemental financial information for Bluegreen Corporation, its combined
Non-Guarantor Subsidiaries and its combined Subsidiary Guarantors is presented
below:
CONDENSED CONSOLIDATING BALANCE SHEET AT JULY 4, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ....................... $ 21,223 $ 8,041 $ 9,782 $ -- $ 39,046
Contracts receivable, net ....................... 246 192 16,305 -- 16,743
Intercompany receivable ......................... 113,965 -- -- (113,965) --
Notes receivable, net ........................... 577 6,982 76,706 -- 84,265
Inventory, net .................................. 19,303 14,110 113,371 -- 146,784
Investment in securities ........................ -- 17,169 -- -- 17,169
Investments in subsidiaries ..................... 7,980 -- -- (7,980) --
Other assets .................................... 8,950 3,192 12,433 (3,000) 21,575
Property and equipment, net ..................... 7,297 183 21,141 -- 28,621
--------- ------- -------- --------- ---------
Total assets ................................. $ 179,541 $49,869 $249,738 $(124,945) $ 354,203
========= ======= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable, accrued liabilities and other.. $ 7,950 $11,017 $ 13,157 $ -- $ 32,124
Intercompany payable ............................ -- 16,325 97,640 (113,965) --
Lines-of-credit and notes payable ............... 111,361 14,874 21,351 (3,000) 144,586
Deferred income taxes ........................... 2,951 1,844 11,548 -- 16,343
8.00% convertible subordinated notes
payable to related parties .................. 6,000 -- -- -- 6,000
8.25% convertible subordinated debentures ....... 34,371 -- -- -- 34,371
--------- ------- -------- --------- ---------
Total liabilities ............................ 162,633 44,060 143,696 (116,965) 233,424
========= ======= ======== ========= =========
Minority interest ............................... -- -- -- 1,091 1,091
SHAREHOLDERS' EQUITY
Common stock .................................... 251 7 2 (9) 251
Additional paid-in capital ...................... 107,371 494 8,004 (8,496) 107,373
Treasury stock .................................. (8,797) -- -- -- (8,797)
Net unrealized gains ............................ -- 560 -- -- 560
Retained earnings (accumulated deficit) ......... (81,917) 4,748 98,036 (566) 20,301
--------- ------- -------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ................... 16,908 5,809 106,042 (9,071) 119,688
--------- ------- -------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .... $ 179,541 $49,869 $249,738 $(124,945) $ 354,203
========= ======= ======== ========= =========
</TABLE>
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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1998
----------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales ............................... $ 8,347 $ 3,285 $ 44,026 $ -- $ 55,658
Management fee revenue .............. 5,318 -- -- (5,318) --
Other resort services revenue ....... -- 267 2,209 -- 2,476
Interest income ..................... 369 558 2,836 -- 3,763
Gain on sale of notes receivable .... -- 2,053 -- -- 2,053
Other income ........................ 278 -- 94 -- 372
------- ------- -------- -------- --------
14,312 6,163 49,165 (5,318) 64,322
COST AND EXPENSES
Cost of sales ....................... 2,564 959 17,345 -- 20,868
Cost of other resort services ....... -- 309 1,942 -- 2,251
Management fees ..................... -- 411 4,907 (5,318) --
Selling, general and administrative
expenses............................ 7,445 1,717 18,406 -- 27,568
Interest expense .................... 3,033 508 204 -- 3,745
Provision for loan losses............ -- 115 178 -- 293
------- ------- -------- -------- --------
13,042 4,019 42,982 (5,318) 54,725
------- ------- -------- -------- --------
Income before income taxes .......... 1,270 2,144 6,183 -- 9,597
Provision for income taxes .......... 508 857 2,474 -- 3,839
Minority interest in income of
consolidated subsidiary .......... -- -- -- 18 18
------- ------- -------- -------- --------
Income before extraordinary item..... 762 1,287 3,709 (18) 5,740
Extraordinary loss on early
extinguishment of debt, net ...... -- -- (1,682) -- (1,682)
------- ------- -------- -------- --------
Net income ......................... $ 762 $ 1,287 $ 2,027 $ (18) $ 4,058
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUlY 4, 1999
----------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales ....................................... $ 7,206 $ 3,270 $ 52,238 $ -- $62,714
Management fee revenue ...................... 6,340 -- -- (6,340) --
Other resort and golf operations revenue .... -- 456 3,930 -- 4,386
Interest income ............................. 292 920 2,580 -- 3,792
Other income ................................ 5 14 40 -- 59
-------- -------- -------- -------- -------
13,843 4,660 58,788 (6,340) 70,951
COST AND EXPENSES
Cost of sales ............................... 2,413 859 18,452 -- 21,724
Cost of other resort and golf operations .... -- 283 3,466 -- 3,749
Management fees ............................. -- 465 5,875 (6,340) --
Selling, general and administrative
expenses .............................. 10,164 2,039 22,126 -- 34,329
Interest expense ............................ 2,360 444 151 -- 2,955
Provision for loan losses ................... -- (37) 825 -- 788
-------- -------- -------- -------- -------
14,937 4,053 50,895 (6,340) 63,545
-------- -------- -------- -------- -------
Income (loss) before income taxes ........... (1,094) 607 7,893 -- 7,406
Provision (benefit) for income taxes ........ (432) 240 3,118 -- 2,926
Minority interest in income of
consolidated subsidiary ................. -- -- -- 56 56
-------- -------- -------- -------- -------
Net income (loss) ........................... $ (662) $ 367 $ 4,775 $ (56) $ 4,424
======== ======== ======== ======== =======
</TABLE>
11
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1998
-----------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net cash provided (used) by operating activities ......... $ (36,955) $ 2,404 $ 61,958 $ 27,407
--------- ------- -------- ---------
Investing activities:
Purchases of property and equipment ...................... (2,279) (44) (1,026) (3,349)
Sales of property and equipment .......................... 864 -- 8 872
Cash received from investment in securities .............. -- 395 -- 395
--------- ------- -------- ---------
Net cash provided (used) by investing activities ............ (1,415) 351 (1,018) (2,082)
--------- ------- -------- ---------
Financing activities:
Proceeds from issuance of 10.5% senior
secured notes payable ................................. 110,000 -- -- 110,000
Payments on short term borrowings from
underwriters .......................................... (22,149) -- -- (22,149)
Payments under line-of-credit facilities
and other notes payable ............................... (6,688) (3,565) (59,423) (69,676)
Payment of debt issuance costs ........................... (4,541) (311) (33) (4,885)
Proceeds from exercise of employee and
director stock options ................................ 273 -- -- 273
--------- ------- -------- ---------
Net cash provided (used) by financing activities ............ 76,895 (3,876) (59,456) 13,563
--------- ------- -------- ---------
Net increase (decrease) in cash and cash equivalents ........ 38,525 (1,121) 1,484 38,888
Cash and cash equivalents at beginning of period ............ 16,100 5,186 9,779 31,065
--------- ------- -------- ---------
Cash and cash equivalents at end of period .................. 54,625 4,065 11,263 69,953
Restricted cash and cash equivalents at end
of period ................................................ (2,048) (1,427) (7,561) (11,036)
--------- ------- -------- ---------
Urestricted cash and cash equivalents at
end of period ............................................ $ 52,577 $ 2,638 $ 3,702 $ 58,917
========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 4, 1999
------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Operating activities:
Net cash provided (used) by operating activities .... $(10,213) $ (387) $ 3,495 $ (7,105)
-------- ------- -------- --------
Investing activities:
Purchases of property and equipment ................. (617) (6) (3,317) (3,940)
Sales of property and equipment ..................... -- -- 619 619
Cash received from investment in securities ......... -- 582 -- 582
Loan to related party ............................... -- -- (251) (251)
Principal payments received on loan to related
party ........................................... -- -- 192 192
Other assets ........................................ (388) -- -- (388)
-------- ------- -------- --------
Net cash provided (used) by investing activities ....... (1,005) 576 (2,757) (3,186)
-------- ------- -------- --------
Financing activities:
Payments under line-of-credit facilities
and other notes payable .......................... (31) (797) (698) (1,526)
Payment of debt issuance costs ...................... (63) (41) (415) (519)
Payments for treasury stock ......................... (4,252) -- -- (4,252)
Proceeds from the exercise of employee
and director stock options ....................... 77 -- -- 77
-------- ------- -------- --------
Net cash used by financing activities .................. (4,269) (838) (1,113) (6,220)
-------- ------- -------- --------
Net decrease in cash and cash equivalents .............. (15,487) (649) (375) (16,511)
Cash and cash equivalents at beginning of period ....... 36,710 8,690 10,157 55,557
-------- ------- -------- --------
Cash and cash equivalents at end of period ............. 21,223 8,041 9,782 39,046
Restricted cash and cash equivalents at end
of period ........................................... (4,993) (8,041) (4,423) (17,457)
-------- ------- -------- --------
Unrestricted cash and cash equivalents at
end of period ....................................... $ 16,230 $ -- $ 5,359 $ 21,589
======== ======= ======== ========
</TABLE>
12
<PAGE> 13
7. Business Segments
The Company has two reportable business segments. The Resorts Division manages
the Company's timeshare operations and the Residential Land and Golf Division
acquires large tracts of real estate which are subdivided, improved (in some
cases to include a golf course and related amenities on the property) and sold,
typically on a retail basis. The results of operations from sales of remaining
factory-built manufactured home/lot packages and undeveloped lots previously
managed under the Communities Division have been combined with the results of
operations of its Residential Land and Golf Division in the current and prior
periods, due to immateriality.
Required disclosures for the Company's business segments are as follows (in
thousands):
As of and for the three months ended June 28, 1998
<TABLE>
<CAPTION>
Residential
Resorts Land and Golf Totals
--------- ------------- --------
<S> <C> <C> <C>
Sales $23,962 $31,696 $ 55,658
Other resort service revenues 2,476 -- 2,476
Depreciation expense 143 82 225
Field operating profit 3,233 8,264 11,497
Inventory 61,460 48,070 109,530
</TABLE>
As of and for the three months ended July 4, 1999
<TABLE>
<CAPTION>
Residential
Resorts Land and Golf Totals
--------- ------------- --------
<S> <C> <C> <C>
Sales $ 32,279 $30,435 $ 62,714
Other resort and golf operations revenues 3,667 719 4,386
Depreciation expense 250 191 441
Field operating profit 3,493 8,089 11,582
Inventory 100,248 46,536 146,784
</TABLE>
Field operating profit for reportable segments reconciled to consolidated income
before income taxes (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
June 28, July 4,
1998 1999
-------- --------
<S> <C> <C>
Field operating profit for reportable segments $ 11,497 $ 11,582
Interest income 3,763 3,792
Gain on sale of notes receivable 2,053 --
Other income 372 59
Corporate general and administrative expenses (4,050) (4,284)
Interest expense (3,745) (2,955)
Provision for loan losses (293) (788)
-------- --------
Consolidated income before income taxes $ 9,597 $ 7,406
======== ========
</TABLE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
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. Certain
statements herein and elsewhere in this report and the Company's other
filings with the Securities and Exchange Commission constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. You may identify these statements by forward-looking
words such as "may", "intend", "expect", "anticipate", "believe",
"estimate", "plan" or other comparable terminology. Such
forward-looking statements are subject to a number of risks and
uncertainties, many of which are beyond the Company's control, that
could cause the actual results, performance or achievements of the
Company, or industry trends, to differ materially from any future
results, performance, achievements or trends expressed or implied by
such
13
<PAGE> 14
forward-looking statements. Given these uncertainties, investors are
cautioned not to place undue reliance on such forward-looking
statements and no assurance can be given that the plans, estimates and
expectations reflected in such statements will be achieved. The Company
wishes to caution readers that the following important factors, among
others, in some cases have affected, and in the future could affect,
the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of the Company:
a) Changes in national, international 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 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 or the
failure of the Company to comply with any law or regulation.
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, among other things, 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 and/or lower sales.
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 and/or sale 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 to the extent that development
is not substantially complete.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments and other credit
agreements which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens and pay dividends.
n) The risk of the Company incurring an unfavorable judgement in any
litigation, and the impact of any related monetary or equity damages.
14
<PAGE> 15
The Company does not undertake to update forward-looking statements, even if the
Company's situation may change in the future.
GENERAL
Real estate markets are cyclical in nature and highly sensitive to changes in
national, regional and international economic conditions, including, among other
factors, levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates. A downturn in the economy in
general or in the market for real estate could have a material adverse effect on
the Company.
The Company recognizes revenue on residential land and Timeshare Interest sales
when a minimum of 10% of the sales price has been received in cash, the refund
or rescission 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
relating to the real estate sold. In cases where all development has not been
completed, the Company recognizes income in accordance with the
percentage-of-completion method of accounting. Under this method of income
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 been dedicating greater resources to more capital-intensive
residential land and timeshare projects. As development on more of these larger
projects is begun, and based on the Company's ability and strategy to pre-sell
projects when minimal development has been completed, the amount of income
deferred under the percentage-of-completion method of accounting may increase
significantly.
Costs associated with the acquisition and development of timeshare resorts and
residential land properties, including carrying costs such as interest and
taxes, are capitalized as real estate and development costs and are allocated to
cost of real estate sold as the respective revenue is recognized.
The Company has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net earnings. This seasonality
may cause significant fluctuations in the quarterly operating results of the
Company. As the Company's timeshare revenues grow as a percentage of total
revenues, the Company believes that the fluctuations in revenues due to
seasonality may be mitigated. 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
substantial development (with significant capital requirements). No assurances
can be given that the amount of revenue deferred under the
percentage-of-completion accounting method will not increase.
The Company believes that inflation and changing prices have not had a material
impact on its revenues and results of operations during the three months ended
June 28, 1998 or July 4, 1999. Based on 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 results of operations in the foreseeable
future. 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
interest rate the Company charges on its new receivables from its customers.
The Company's real estate operations are managed under two divisions. The
Resorts Division manages the Company's timeshare operations and the Residential
Land and Golf Division acquires large tracts of real estate which are
subdivided, improved (in some cases to include a golf course on the property)
and sold, typically on a retail basis. The results of operations from sales of
remaining factory-built manufactured home/lot packages and undeveloped lots,
previously managed under the Company's Communities Division, have been combined
with the results of operations of the Residential Land and Golf Division in the
current and prior periods, due to immateriality.
Inventory is carried at the lower of cost, including costs of improvements and
amenities, incurred subsequent to acquisition, or fair value, net of costs to
dispose.
A portion of the Company's revenues historically has been and is expected to
continue to be comprised of gains on sales of loans. The gains are recorded in
the Company's revenues and retained interests in the portfolio are recorded on
its balance sheet (as investments in securities) at the time of sale. The amount
of gains recorded is based in part on management's estimates of future
prepayment and default rates and other considerations in light of then-current
conditions. If actual prepayments with respect to loans occur more quickly than
was projected at the time such loans were sold, as can occur when interest rates
decline, interest would be less than expected and earnings would be charged in
the future when the retained interests are realized, except for the effect of
reduced interest accretion on the
15
<PAGE> 16
Company's retained interest, which would be recognized each period the retained
interests are held. If actual defaults with respect to loans sold are greater
than estimated, charge-offs would exceed previously estimated amounts and
earnings would be charged in the future when the retained interests are
realized. There can be no assurances that the carrying value of the Company's
investment in securities will be fully realized or that future loan sales will
result in gains.
Results of Operations
<TABLE>
<CAPTION>
(Dollars in Thousands) Residential
Resorts Land and Golf Total
--------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended June 28, 1998
Sales $ 23,962 100.0% $ 31,696 100.0% $ 55,658 100.0%
Cost of sales (1) (6,217) (25.9) (14,651) (46.2) (20,868) (37.5)
-------- ----- -------- ----- -------- -----
Gross profit 17,745 74.1 17,045 53.8 34,790 62.5
Other resort operations revenue 2,476 10.3 -- -- 2,476 4.4
Cost of other resort operations (2,251) (9.4) -- -- (2,251) (4.0)
Field selling, general and administrative
expenses (2) (14,737) (61.5) (8,781) (27.7) (23,518) (42.3)
-------- ----- -------- ----- -------- -----
Field operating profit (3) $ 3,233 13.5% $ 8,264 26.1% $ 11,497 20.6%
======== ===== ======== ===== ======== =====
Three Months Ended July 4, 1999
Sales $ 32,279 100.0% $ 30,435 100.0% $ 62,714 100.0%
Cost of sales (1) (7,546) (23.4) (14,178) (46.6) (21,724) (34.6)
-------- ----- -------- ----- -------- -----
Gross profit 24,733 76.6 16,257 53.4 40,990 65.4
Other resort and golf operations revenue 3,667 11.4 719 2.4 4,386 7.0
Cost of resort and golf operations (2,840) (8.8) (909) (3.0) (3,749) (6.0)
Field selling, general and administrative
expenses (2) (22,067) (68.4) (7,978) (26.2) (30,045) (47.9)
-------- ----- -------- ----- -------- -----
Field operating profit (3) $ 3,493 10.8% $ 8,089 26.6% $ 11,582 18.5%
======== ===== ======== ===== ======== =====
</TABLE>
(1) Cost of sales represents the cost of inventory including the cost of
improvements, amenities and in certain cases previously capitalized
interest and real estate taxes.
(2) General and administrative expenses attributable to corporate overhead have
been excluded from the tables. Corporate general and administrative
expenses totaled $4.1 million and $4.3 million for the three months ended
June 28, 1998 and July 4, 1999, respectively.
(3) The tables presented above outline selected financial data. Accordingly,
interest income, interest expense, provisions for losses, other income and
income taxes have been excluded.
Sales
Consolidated sales increased 12.7% from $55.7 million for the three-month period
ended June 28, 1998 (the "1999 Quarter") to $62.7 million for the three-month
period ended July 4, 1999 (the "2000 Quarter"). Increases in Resorts Division
sales during the 2000 Quarter were partially offset by lower Residential Land
and Golf Division sales.
As of July 4, 1999, approximately $4.0 million in estimated income on sales of
$9.3 million was deferred under percentage-of-completion accounting. At March
28, 1999, approximately $5.0 million in estimated income on sales of $11.4
million was deferred and is included on the Condensed Consolidated Balance Sheet
under the caption Deferred Income.
Resorts Division. During the 1999 and 2000 Quarters, sales of Timeshare
Interests contributed $24.0 million or 43.1% and $32.3 million or 51.4%,
respectively, of the Company's total consolidated sales.
The following tables set forth information for sales of Timeshare Interests
associated with the Company's Resorts Division for the periods indicated, before
giving effect to the percentage-of-completion method of accounting.
Three Months Ended,
--------------------
June 28, July 4,
1998 1999
------- -------
Number of Timeshare Interests sold 2,794 3,550
Average sales price per Timeshare Interest $8,479 $8,929
Gross margin 74.1% 76.6%
16
<PAGE> 17
The increase in the number of Timeshare Interests sold during the 2000 Quarter
was due in part to sales of 496 Timeshare Interests at the new phase of the
Company's Orlando's Sunshine Resort in Orlando, Florida ("OSR II") during the
2000 Quarter with no corresponding sales during the 1999 Quarter. Once
construction is completed, OSR II will consist of 60 two-bedroom vacation homes
and will feature an outdoor pool, jacuzzi, lighted tennis courts and a
clubhouse. OSR II is estimated to be sold out by the end of fiscal 2000, which
is estimated to generate an additional $33.5 million in sales after the 2000
Quarter. There can be no assurances that such sell-out of OSR II will occur or
that such estimated sales will be realized during fiscal 2000.
In addition, the Company sold 316 Timeshare Interests at Phase II of the
Company's Shore Crest resort in Myrtle Beach, South Carolina ("Shore Crest II")
during the 2000 Quarter with no corresponding sales during the 1999 Quarter.
Shore Crest II consists of 114 two-bedroom vacation homes featuring balconies
overlooking the creeks and marshes of the North Myrtle Beach area, an outdoor
pool and "lazy river" amenity and is across the street from the Company's ocean
front Shore Crest Vacation Villas. As of July 4, 1999, estimated remaining
life-of-project sales (aggregate sales of the existing, currently under
construction and planned Timeshare Interests at current retail prices) of Shore
Crest II were $70.1 million.
Sales at the Company's Lodge Alley Inn resort in Charleston, South Carolina,
which was acquired in September 1998, consisted of 63 Timeshare Interests during
the 2000 Quarter. The Lodge Alley Inn is an 89-room resort in the historic
district of Charleston and represents the Company's first "urban" timeshare
product. During the sell-out period, the Lodge Alley Inn is operated as a hotel.
The hotel generated pre-tax income of approximately $300,000 during the 2000
Quarter, which is reflected in other resort revenues and related costs on the
statement of income.
Sales of the Company's existing resorts, other than Shore Crest II, OSR II and
Lodge Alley Inn, decreased by 119 intervals during the 2000 Quarter as compared
to the 1999 Quarter, due primarily to the Company's focus on selling its OSR II
Timeshare Interest inventory at various sales sites throughout the Resorts
Division.
Average sales price per Timeshare Interest increased during the 2000 Quarter
primarily due to an increase in the average sales price at the Company's Falls
Village resort from $8,812 during the 1999 Quarter to $10,631 during the 2000
Quarter. This increase is due to increased sales prices of the Company's Falls
Village Timeshare Interest inventory in connection with the introduction of the
Company's points-based vacation club concept during fiscal 1999. Not all of the
Company's sales prices per interval increased as a result of the conversion of
interval sales prices to sales prices per vacation club point.
The Resorts Division's gross margin increased during the 2000 Quarter primarily
due to the increased average sales prices at the Falls Village resort discussed
above and the approximately 80% gross margin generated by sales of the Company's
OSR II inventory. In addition, the Company recognized approximately $300,000 of
fees charged to existing timeshare owners to convert their fixed-weeks into
points-based Timeshare Interests in the Company's vacation club program
("Conversions"). The costs of Conversions to the Company are minimal. Also,
Bluegreen Properties N.V. ("BPNV"), the Company's 50%-owned joint venture in
Aruba, recognized approximately $230,000 in revenue with no corresponding costs
of sales during the 2000 Quarter, pursuant to a sales and marketing agreement
whereby BPNV sells Timeshare Interests on behalf of a third party in Aruba.
Other resort revenues and related costs increased 48.1% and 26.2%, respectively,
during the 2000 Quarter, primarily due to the results of the hotel operations at
the Company's Lodge Alley Inn resort, as previously discussed.
Field selling, general and administrative ("SG&A") expenses increased as a
percentage of sales for the Resorts Division during the 2000 Quarter due to $1.4
million of expenses incurred in connection with the winding down of operations
at the Company's Orlando, Florida sales office as compared to approximately
$600,000 of sales generated. In July 1999, the Company decided to sell its OSR
II Timeshare Interest inventory exclusively through certain of its other
vacation club sales offices in less competitive markets than Orlando. Marketing
costs in Orlando were also significantly higher than in other markets where the
Company operates. In addition, the Company began a more aggressive marketing
program at its Charleston sales office, the start-up of which generated $728,000
of SG&A expenses as compared to $870,000 in sales generated. High operating
expenses continued at the Company's recently opened Jeffersonville, Indiana
off-site sales office (serving the Louisville, Kentucky market) which increased
the overall percentage of field SG&A in relation to total resort sales as
compared to the 1999 Quarter. The Jeffersonville office, however, generated a
field operating profit for the first time in the 2000 Quarter.
17
<PAGE> 18
RESIDENTIAL LAND AND GOLF DIVISION. During the 1999 and 2000 Quarters,
residential land and golf sales contributed $31.7 million or 56.9% and $30.4
million or 48.6%, respectively, of the Company's total consolidated sales.
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for the Residential Land and Golf Division for the
periods indicated, before giving effect to the percentage of completion method
of accounting.
Three Months Ended
--------------------
June 28, July 4,
1998 1999
------- -------
Number of parcels sold 645 534
Average sales price per parcel $49,495 $51,391
Gross margin 53.8% 53.4%
The aggregate number of parcels sold decreased from the 1999 Quarter to the 2000
Quarter primarily due to the following:
o One of the primary reasons for the decrease in the number of parcels sold
during the 2000 Quarter represented a positive event. The sale of inventory
in areas of the country which are no longer part of the Company's focused
residential land and golf business decreased from 67 sales to 20 sales in
the 1999 Quarter and 2000 Quarter, respectively, due to fewer parcels of
such inventory being available for sale during the 2000 Quarter as compared
to the 1999 Quarter. This reduction in the sales of such inventory parcels
had a positive impact on average sales price as these lots are typically
sold at reduced prices to liquidate the inventory.
o Lot sales at The Landing at Southport, located in Southport, North Carolina
decreased from 47 parcels sold to 22 parcels sold during the 1999 Quarter
and 2000 Quarter, respectively. The property held its grand opening in the
1999 Quarter, resulting in high initial sales volume. As the property
approached its sell-out phase in the 2000 Quarter, the number of parcels
available for sale declined.
o Combined sales at the Company's two Tennessee land properties, Crystal Cove
and Woodlake, decreased from 60 parcels sold in the 1999 Quarter to 29
parcels sold in the 2000 Quarter. Sales at Crystal Cove have been
temporarily paused due to a delay in the recording of a revised plat on a
section of the property. Sales at Woodlake decreased as the property is
approaching the sell-out phase and less inventory is available.
The average sales price per parcel increased by $1,896 during the 2000 Quarter
as compared to the 1999 Quarter, due in part to fewer sales of inventory in
areas where the Company's business is no longer focused, as discussed above. In
addition, average sales price per parcel at The Landing at Southport increased
from $47,806 in the 1999 Quarter to $70,986 in the 2000 Quarter. The 2000
Quarter included sales of larger acreage, waterfront parcels, compared to
lower-priced interior lot sales in the 1999 Quarter. Average sales prices at
Winding River Plantation in North Carolina and properties located in Dallas,
Texas increased approximately $9,000 per parcel. This is primarily the result of
the opening of new higher-priced phases of existing properties, some of which
feature water-access parcels.
There were no golf operations revenues and related costs in the 1999 Quarter as
the first 18 holes of the Company's Carolina National Golf Club did not open for
play until July 1998.
GAIN ON SALE OF NOTES RECEIVABLE
During the 1999 Quarter, the Company recognized a $2.1 million gain on sale of
notes receivable under a timeshare receivables purchase facility more fully
described under "Liquidity and Capital Resources - Credit Facilities for
Timeshare Receivables and Inventories". There were no such sales during the 2000
Quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S, G & A EXPENSES")
The Company's S, G & A Expenses consist primarily of marketing costs,
advertising expenses, sales commissions and field and corporate administrative
overhead. S, G & A Expenses totaled $27.6 million and $34.3 million for the
three months ended June 28, 1998 and July 4, 1999, respectively. As a percentage
of total revenues, S, G & A Expenses were 42.9% and 48.4% for the 1999 Quarter
and 2000 Quarter, respectively.
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<PAGE> 19
The increase in S, G & A Expenses as a percentage of revenues in the 2000
Quarter was the result of the growth of the Resorts Division (from 43% of sales
to 51% of consolidated sales during the 1999 Quarter and 2000 Quarter,
respectively), where S, G & A Expenses are typically higher than for the
Residential Land and Golf Division, and due to unusually higher S, G & A
Expenses for the Resorts Division (due to reasons previously discussed under
"Resorts Division").
INTEREST EXPENSE
Interest expense totaled $3.7 million and $3.0 million for the 1999 Quarter and
2000 Quarter, respectively. The 21.2% decrease in interest expense for the 2000
Quarter was primarily due to an increase in the amount of interest capitalized
to inventory for the Company's resort and residential land and golf projects
under development. Capitalized interest totaled approximately $924,000 and $1.7
million during the 1999 Quarter and 2000 Quarter, respectively. The increase in
interest capitalized was commensurate with the increase in the average inventory
balance during these periods.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses totaling $293,000 and $788,000
during the 1999 Quarter and 2000 Quarter, respectively. The increase in the
provision was due to an increase in the notes receivable portfolio during the
2000 Quarter as compared to the 1999 Quarter. The increase in the portfolio is
due to increased timeshare loans (where historical default rates exceed those
for land loans), and therefore higher provisions were recorded.
The allowance for loan losses by division as of March 28, 1999 and July 4, 1999
was (amounts in thousands):
<TABLE>
<CAPTION>
Residential
Resorts Land and Golf
Division Division Other Total
-------- -------------- ------ --------
<S> <C> <C> <C> <C>
March 28, 1999
Notes receivable $ 54,384 $ 11,105 $1,209 $ 66,698
Less: allowance for loan losses (1,983) (335) -- (2,318)
-------- -------- ------ --------
Notes receivable, net $ 52,401 $ 10,770 $1,209 $ 64,380
======== ======== ====== ========
Allowance as a % of gross notes receivable 3.6% 3.0% -% 3.5%
======== ======== ====== ========
July 4, 1999
Notes receivable $ 70,978 $ 10,316 $1,060 $ 82,354
Less: allowance for loan losses (1,983) (333) -- (2,316)
-------- -------- ------ --------
Notes receivable, net $ 68,995 $ 9,983 $1,060 $ 80,038
======== ======== ====== ========
Allowance as a % of gross notes receivable 2.8% 3.2% -% 2.8%
======== ======== ====== ========
</TABLE>
The allowance for loan losses as a percentage of the gross notes receivable
balance decreased at July 4, 1999, for the Resorts Division, as the Company did
not provide an allowance for approximately $12.5 million of notes receivable
which are expected to be sold during the three months ended October 3, 1999,
through the Company's non-recourse timeshare receivable purchase facility (see
"Liquidity and Capital Resources").
Other notes receivable primarily include secured promissory notes receivable
from commercial enterprises upon their purchase of bulk parcels from the
Company's Residential Land and Golf Division. The Company monitors the
collectibility of these notes and has deemed them to be collectible based on
various factors, including the value of the underlying collateral.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased as a percentage of income before taxes
from 40.0% to 39.5% during the 1999 Quarter and 2000 Quarter, respectively. The
decrease was primarily due to continued state tax savings generated by a legal
restructuring of the Company's subsidiaries in a state where the Company has
significant operations.
EXTRAORDINARY ITEM
The Company recognized a $1.7 million extraordinary loss on early extinguishment
of debt, net of taxes, during the 1999 Quarter in connection with the Offering
of the Notes described in Note 6 of Notes to Condensed Consolidated Financial
Statements, contained elsewhere herein.
19
<PAGE> 20
Summary
Based on the factors discussed above, the Company's net income increased from
$4.1 million to $4.4 million in the 1999 Quarter and 2000 Quarter, respectively.
CHANGES IN FINANCIAL CONDITION
Consolidated assets of the Company increased $5.1 million from March 28, 1999 to
July 4, 1999. This increase is primarily due to a net $4.2 million increase in
inventory, primarily due to the capitalization of $1.7 million of interest
expense to inventory and $21.4 million of development spending on the Company's
resort and residential land properties partially offset by inventory sold during
the period. The remaining increase in total assets is due to development
spending on the Company's Carolina National Golf Club (included in property and
equipment) and is partially offset by the decrease in contracts receivable on
the Company's residential land and golf sales due to increased volume of lot
closings on sales recognized in the fourth quarter of fiscal 1999 and lower new
sales volume during the 2000 Quarter. Another significant increase was the $15.7
million increase in the net notes receivable balance, primarily due to new notes
receivable generated from the sale of timeshare interests during the 2000
Quarter. The Company did not sell any notes receivable pursuant to its timeshare
receivable purchase facility (see "Liquidity and Capital Resources") during the
2000 Quarter.
Consolidated liabilities increased $4.7 million from March 28, 1999 to July 4,
1999. The increase is due to an $8.9 million hypothecation of timeshare notes
receivable and $1.1 million hypothecation of Residential Land and Golf Division
notes receivable under existing receivable financing facilities (see "Liquidity
and Capital Resources"). This increase was partially offset by the recognition
of $937,000 of income previously deferred due to the percentage-of-completion
method of accounting, a $3.3 million decrease in accrued interest expense and a
$1.3 million decrease in the liability for funds held on behalf of third parties
for whom the Company services notes receivable.
Total stockholders' equity increased $338,000 during the 2000 Quarter, primarily
due to net income of $4.4 million and $167,000 of proceeds and related income
tax benefits from the exercise of stock options. These increases were partially
offset by the Company's repurchase of $4.3 million of Common Stock (841,000
shares) to be held in treasury pursuant to a stock repurchase program authorized
up to 2.0 million shares. The Company's book value per common share increased
from $4.76 to $4.77 at March 28, 1999 and July 4, 1999, respectively. The
debt-to-equity ratio increased from 1.49:1 to 1.54:1 at March 28, 1999 and July
4, 1999, respectively, primarily due to the treasury stock purchases discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
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, (ii) down payments on lot and timeshare sales which are
financed, (iii) principal and interest payments on the purchase money mortgage
loans and contracts for deed arising from sales of Timeshare Interests and
residential land lots (collectively "Receivables") and (iv) proceeds from the
sale of, or borrowings collateralized by, notes receivable. 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 securities. The Company's capital resources are used to support
the Company's operations, including (i) acquiring and developing inventory, (ii)
providing financing for customer purchases, (iii) meeting operating expenses and
(iv) satisfying the Company's debt, and other obligations. The Company
anticipates that it will continue to require external sources of liquidity to
support its operations and satisfy its debt and other obligations and to provide
funds for future strategic acquisitions, primarily for the Resorts Division.
CREDIT FACILITIES FOR TIMESHARE RECEIVABLES AND INVENTORIES
The Company maintains various credit facilities with financial institutions that
provide for receivable financing for its timeshare projects.
On June 26, 1998, the Company executed a timeshare receivables purchase facility
with a financial institution. Under the purchase facility (the "Purchase
Facility"), a special purpose finance subsidiary of the Company may sell up to
$100 million aggregate principal amount of timeshare receivables to the
financial institution in securitization transactions. The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase. Under the
20
<PAGE> 21
Purchase Facility, a purchase price equal to approximately 97% (subject to
adjustment in certain circumstances) of the principal balance of the receivables
sold is paid at closing in cash, with a portion deferred until such time as the
purchaser has received a return equal to the weighted-average term treasury rate
plus 1.4%, all servicing, custodial and similar fees and expenses have been paid
and a cash reserve account has been funded. If the Company does not sell to such
financial institution during the term of the Purchase Facility notes receivable
with cumulative principal amount of at least $99 million, the return to the
purchaser will increase by .05% for each $10 million shortfall, to a maximum
applicable margin of 1.60%. The Company's special purpose finance subsidiary is
required to maintain a specified overcollaterlization level and a cash reserve
account. Receivables are sold without recourse to the Company or its special
purpose finance subsidiary except for breaches of representations and warranties
made at the time of sale. The financial institution's obligation to purchase
under the Purchase Facility will terminate upon the occurrence of specified
events. The Company acts as servicer under the Purchase Facility for a fee, and
is required to make advances to the financial institution to the extent it
believes such advances will be recoverable. The Purchase Facility includes
various conditions to purchase and other provisions customary for a transaction
of this type. The Purchase Facility has a term of two years. During fiscal 1999,
the Company sold approximately $54.8 million in aggregate principal amount of
timeshare receivables under the Purchase Facility for a purchase price equal to
97% of the principal balance. There were no such sales during the 2000 Quarter.
The Company has a two-year, $35 million timeshare receivables warehouse loan
facility, which expires in June 2000, with the same financial institution. Loans
under the warehouse facility will bear interest at LIBOR plus 2.75%. The
warehouse facility has detailed requirements with respect to the eligibility of
receivables for inclusion and other conditions to funding. The borrowing base
under the warehouse facility is 95% of the outstanding principal balance of
eligible notes arising from the sale of Timeshare Interests. The warehouse
facility includes affirmative, negative and financial covenants and events of
default. On June 30, 1999, the Company borrowed $8.9 million under the warehouse
facility, which will be repaid as principal and interest payments are collected
on the timeshare notes receivable which collateralize the loan, but in no event
later than June 26, 2000. The Company is currently negotiating an extension of
the maturity date on this recent borrowing. There can be no assurances that such
negotiations will be successful.
In addition, the same financial institution referred to in the preceding
paragraphs has provided the Company with a $25 million acquisition and
development facility for its timeshare inventories. The facility includes a
two-year draw down period, which expires in October 2000, and has a term of
seven years, maturing in October 2005. Principal will be repaid through
agreed-upon release prices as Timeshare Interests are sold at the financed
resort, subject to minimum required amortization. The indebtedness under the
facility bears interest at the three-month LIBOR plus 3.0%. With respect to any
inventory financed under the facility, the Company will be required to have
provided equity equal to at least 15% of the approved project costs. In
connection with the facility, the Company will also be required to pay certain
fees and expenses to the financial institution. As of July 4, 1999, the Company
has not incurred any debt under the acquisition and development facility.
CREDIT FACILITIES FOR RESIDENTIAL LAND AND GOLF RECEIVABLES AND INVENTORIES
The Company has a $20.0 million revolving credit facility with a financial
institution for the pledge of Residential Land and Golf Division Receivables.
The Company has historically used the facility as a warehouse until it
accumulates a sufficient quantity of residential land and golf receivables to
sell under a private placement REMIC transaction not registered under the
Securities Act. There can be no assurances that the Company will accumulate a
sufficient quantity of receivables to make a REMIC transaction viable. Under the
terms of this facility, the Company is entitled to advances secured by eligible
Residential Land and Golf Division receivables up to 90% of the outstanding
principal balance. In addition, up to $8.0 million of the facility can be used
for land acquisition and development purposes. The interest rate charged on
outstanding borrowings ranges from prime plus 0.5% to 1.5%. At July 4, 1999, the
outstanding principal balances under the receivables and development portions of
this facility were approximately $6.0 million and $700,000, respectively. 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 a $35 million revolving credit facility, which expires in April
2000, with a financial institution. The Company expects to use this facility to
finance the acquisition and development of residential land projects and,
potentially to finance land receivables. The facility, when drawn upon, will be
secured by the real property (and personal property related thereto) with
respect to which borrowings are made, with the lender to advance up to a
specified percentage of the value of the mortgaged property and eligible pledged
receivables, provided that the maximum outstanding amount secured by pledged
receivables may not exceed $20.0 million. The interest charged on
21
<PAGE> 22
outstanding borrowings is prime plus 1.5%. As of July 4, 1999, the Company has
not incurred any debt under the revolving credit facility.
Over the past three years, the Company has received 80% to 90% of its land sales
proceeds 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. No assurances can be given that local banks will continue to
provide such customer financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys and engineering fees from internal operations
and has financed the acquisition of residential land and golf properties through
seller, bank or financial institution loans. Terms for repayment under these
loans typically call for interest to be paid monthly and principal to be repaid
through lot 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. 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.
OTHER CREDIT FACILITY
On August 1, 1999, the Company renewed its $5 million, unsecured line-of-credit
with a bank. Amounts borrowed under the line will bear interest at LIBOR plus
1.5%. Interest is due monthly and all principal amounts are due on December 31,
2000. Through July 4, 1999, the Company has not borrowed any amounts under the
line.
SUMMARY
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon which
additional resorts may be built; management contracts; loan portfolios of
Timeshare Interest mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; and operating companies
providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the timeshare industry. In addition, the Company intends to continue to focus
the Residential Land and Golf Division on larger more capital intensive projects
particularly in those regions where the Company believes the market for its
products is strongest, such as the Southeast, Southwest, Rocky Mountains and
Western regions of the United States and to replenish its residential land and
golf inventory in such regions as existing projects are sold-out.
The Company estimates that the total cash required to complete preparation for
the sale of its residential land and golf and timeshare property inventory as of
July 4, 1999 is approximately $175.4 million (based on current costs), expected
to be incurred over a five-year period. The Company plans to fund these
expenditures primarily with available capacity on existing or proposed credit
facilities and cash generated from operations. There can be no assurances that
the Company will be able to obtain the financing necessary to complete the
foregoing plans.
The Company believes that its existing cash, anticipated cash generated from
operations, anticipated future permitted borrowings under existing or proposed
credit facilities and anticipated future sales of notes receivable under the
Purchase Facility will be sufficient to meet the Company's working capital,
capital expenditures and debt service requirements for the foreseeable future.
Based on outstanding borrowings at July 4, 1999, and the credit facilities
described above, the Company has approximately $104.5 million of available
credit at its disposal, subject to customary conditions, compliance with
covenants and eligible collateral. This amount does not include the remaining
$45.2 million of unused capacity under the Purchase Facility or the $15.0
million of gross proceeds to the Company upon the sale of the remaining 1.8
million shares of Common Stock to the Funds under the Stock Agreement. The
Company may, in the future, require additional credit facilities or issuances of
other corporate debt or equity securities in connection with acquisitions or
otherwise. Any debt incurred or issued by the Company may be secured or
unsecured, bear fixed or variable rate interest and may be subject to such terms
as the lender may require and management deems prudent. There can be no
assurance that sufficient funds will be available from operations or under
existing, proposed or future revolving credit or other borrowing arrangements or
receivables purchase facilities to meet the Company's cash needs, including,
without limitation, its debt service obligations.
22
<PAGE> 23
The Company's credit facilities and other outstanding debt include customary
conditions to funding, eligibility requirements for collateral, certain
financial and other affirmative and negative covenants, including, among others,
limits on the incurrence of indebtedness, limits on the payment of dividends and
other restricted payments, the incurrence of liens, transactions with
affiliates, covenants concerning net worth, fixed charge coverage requirements,
debt-to-equity ratios and events of default. No assurances can be given that
such covenants will not limit the Company's ability to satisfy or refinance its
obligations or otherwise adversely affect the Company's operations. In addition,
the Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond the Company's control.
IMPACT OF YEAR 2000
The Company is devoting resources to minimize the risk of potential disruption
from the "year 2000 (`Y2K') problem". This problem results from computer
programs having been written using two digits (rather than four) to store date
information. Information technology ("IT") systems that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures. The problem
also extends to "non-IT" (operation and control) systems that rely on embedded
microchips that may be date sensitive. In addition, like other business
enterprises, the Company has a risk from Y2K failures on the part of its major
business counterparts, including financial institutions, suppliers, contractors
and service providers, as well as potential failures in public and private
infrastructure services, including electricity, water, gas, transportation and
communications.
STATE OF READINESS
The Company's plan to resolve the Y2K issue involves the following three phases:
Assessment, Remediation, and Testing. The Assessment phase includes identifying
all IT and non-IT systems currently being used by the Company and determining
whether the systems are Y2K compliant (based on vendor representations or system
documentation) and if not, identifying the tasks necessary to address the
related issues. The Assessment phase also includes obtaining information
regarding the Y2K state of readiness of third parties that the Company depends
on to provide materials or services, whether or not the Company's computer
systems interface with those of the third party. The Company has completed its
assessment of its IT and non-IT systems. The Company is still in the process of
assessing the Y2K readiness of several identified third parties that, if their
own systems are not Y2K compliant, could cause an interruption in the Company's
business. Information about third parties is being obtained by direct written
correspondence or by reviewing the Y2K disclosures of third parties in public
filings with the Securities and Exchange Commission, as applicable. The Company
anticipates completing its assessment of the third parties identified as
"critical" by August 31, 1999. There can be no assurances as to the accuracy of
the representations made to the Company by third parties regarding the Y2K issue
and whether interruptions to the Company's operations caused by the Y2K issue's
impact on a third party's operations would have a material adverse effect on the
Company.
The Remediation phase involves executing the tasks identified during the
Assessment phase as necessary to make the Company's systems Y2K compliant. The
Company has developed a detail project plan, which includes each system
identified during the Assessment phase, a description of the tasks necessary to
achieve Y2K compliance, a projected timetable for completion and an assignment
of responsibility for completing the work. As several of the Company's critical
systems are already Y2K compliant and will require no reprogramming, management
estimates that the Company is approximately 90% complete with the Remediation
phase. Remaining tasks are anticipated to be completed by October 31, 1999, and
primarily include installing vendor-supplied software upgrades. The Remediation
phase also includes identifying alternative vendors to replace any third parties
who, based on information about Y2K readiness obtained during the Assessment
phase, are estimated to cause a critical interruption to the Company's business
based on the third party's inability to address the Y2K issue by January 1,
2000. The Company intends to address this portion of the Remediation phase as
soon as practicable after the completion of the Assessment phase for third
parties. There can be no assurances that alternative third parties will be
available or that the Company will be able to modify its existing business
relationships to new vendors in a timely manner or at costs that are not
materially higher than current expenses for these vendors.
The Testing phase involves establishing a test environment, performing system
testing and evaluating the results. The Company intends to test all of its
critical systems, including its sales and marketing systems, financial
accounting systems, customer service systems and payroll systems to ensure that
vendor representations as to Y2K compliance are accurate and that there are no
issues relative to system interfaces. No testing has occurred as of
23
<PAGE> 24
July 4, 1999. The Company will be commencing the testing process in August 1999,
with all critical systems anticipated to be tested by October 31, 1999. There
can be no assurances that vendor representations regarding the Y2K compliance of
a critical system may not prove to be inaccurate or that new Y2K issues may not
be discovered during the Testing phase.
COST
The Company will utilize both internal and external resources to remediate and
test its systems regarding the Y2K issue. The total cost of the Y2K project is
estimated to be $460,000 and is being funded through operating cash flows.
Through July 4, 1999, the Company has incurred $142,000, of which $114,000 has
been capitalized and $28,000 has been expensed. Of the total remaining project
costs, approximately $283,000 is attributable to the purchase of new software
and equipment, which will be capitalized. The remaining $35,000 relates to
external costs of repairing existing software and hardware and testing systems.
All internal payroll costs relating to the assessment, remediation and testing
phases of the Y2K project are expensed as incurred and are excluded from the
above amounts.
RISK
Management of the Company believes it has an effective program in place to
resolve the Y2K issue in a timely manner. As noted above the Company has not yet
completed all necessary phases of the Y2K project. The most reasonably likely
worst case scenario, in the event that the Company does not complete certain
critical phases or that the testing phase uncovers previously unforeseen Y2K
issues would be an inability (other than by manual means) to write sales
contracts, collect payments, make cash disbursements to employees or vendors or
make reservations for customers. Also, potential disruptions in the areas in
which the Company must rely on third parties whose systems may not work properly
after January 1, 2000 could affect important operations of the Company, either
directly or indirectly, in a significant manner, and have a material adverse
effect on its results of operations and financial condition. In addition, as is
the case for most companies involved in Y2K system modifications, disruptions in
the general economy resulting from Y2K issues could also materially adversely
affect the Company's ability to market and sell its products. The Company could
also be subject to litigation for computer system failure, equipment shutdown at
its resort facilities or failure to properly date business records. The amount
of potential liability and lost revenue cannot be reasonably estimated at this
time.
CONTINGENCY PLAN
The Company currently has no contingency plans in place in the event it does not
complete all phases of its Y2K program. The Company plans to evaluate the status
of completion in September 1999 and, if necessary, develop contingency plans for
any systems and/or third party relationships that are not expected to be Y2K
compliant by January 1, 2000.
The preceding Y2K discussion contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Y2K testing, adequate resolution of Y2K issues by
businesses and other third parties who are service providers, suppliers or
customers of the Company, unanticipated system costs, the adequacy of and
ability to develop and implement contingency plans and similar uncertainties.
The "forward-looking statements" made in the foregoing Y2K discussion speak only
as of the date on which such statement is made and the Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a complete description of the Company's foreign currency and interest rate
related market risks, see the discussion in the Company's Annual Report on Form
10-K for the year ended March 28, 1999. There has not been a material change in
the Company's exposure to foreign currency and interest rate risks since March
28, 1999.
24
<PAGE> 25
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.
Certain other litigation involving the Company is described in the
Company's Annual Report on Form 10-K for the year ended March 28, 1999.
Subsequent to the filing of such Form 10-K, no material developments
have occurred with respect to such litigation.
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 28, 1999, the
shareholders voted on the matters listed below and in the proxy
materials dated June 28, 1999. The results of voting were as follows:
<TABLE>
<CAPTION>
Shares Voted
------------------------------------------------
For Against Abstain Total
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
Elect each of the following persons as directors of the Company
for a three year term:
Joseph C. Abeles 23,275,242 128,676 -- 23,403,918
Ralph A. Foote 23,275,968 127,950 -- 23,403,918
Joseph M. Zuber 23,277,179 126,739 -- 23,403,918
Ratify the appointment of Ernst & Young LLP
as independent auditors of the Company
for the fiscal year ending April 2, 2000 23,384,386 7,702 11,830 23,403,918
The Company has a classified Board of Directors
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.151 - Modification No. 1 to the Loan Agreement and Renewal
Promissory Note dated August 1, 1999 by and among the
Registrant, certain subsidiaries of the Registrant and First
Union National Bank, for the $5 million, unsecured revolving
line-of-credit due December 31, 2000.
(b) None.
25
<PAGE> 26
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 17, 1999 By: /s/ George F. Donovan
-------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: August 17, 1999 By: /s/ John F. Chiste
-------------------------------------
John F. Chiste
Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: August 17, 1999 By: /s/ Anthony M. Puleo
-------------------------------------
Anthony M. Puleo
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
26
<PAGE> 1
EXHIBIT 10.151
--------------
MODIFICATION NUMBER ONE
TO THE LOAN AGREEMENT
First Union National Bank
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
Bluegreen Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts Management, Inc.
f/k/a RDI Resort Services Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Holding Corporation (Texas)
4960 Blue Lake Drive
Boca Raton, Florida 33431
Properties of the Southwest One, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Properties of the Southwest, L.P.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Asset Management Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Carolina Land, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of Montana
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of Tennessee
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of the Rockies
4960 Blue Lake Drive
Boca Raton, Florida 33431
<PAGE> 2
Bluegreen Properties of Virginia, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Communities, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts International, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Carolina National Golf Club, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Leisure Capital Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Properties of the West, Inc.
f/k/a Properties of the West, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
BG/RDI Acquisition Corp.
4960 Blue Lake Drive
Boca Raton, Florida 33431
RDI Group, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Dellona Enterprises, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts of Florida, Inc.
f/k/a Resort Development International, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Vacations Unlimited, Inc.
f/k/a RDI Resources, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
(INDIVIDUALLY AND COLLECTIVELY "BORROWER")
THIS AGREEMENT is entered into as of August 1, 1999 by and between Bank and
Borrower.
<PAGE> 3
RECITALS
Bank is the holder of a Promissory Note executed and delivered by Borrower,
dated September 23, 1998, in the original principal amount of $5,000,000.00 (the
"Note"); and certain other Loan Documents, including a Loan Agreement, dated
September 23, 1998 (the "Loan Agreement"); and
Borrower and Bank have agreed to modify the terms of the Loan Agreement.
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
AGREEMENT
OUTSTANDING BALANCE. The total outstanding unpaid principal balance under the
Note as of August 1, 1999 is $0.00.
MODIFICATIONS. Borrower has applied to Bank for an extension of the loan or
loans (individually and collectively, the "Loan") evidenced by one or more
promissory notes (whether one or more, the "Note") as follows:
Line of Credit - in the principal amount of $5,000,000.00 which is evidenced by
a Renewal Promissory Note dated as of August 1, 1999 ("Line of Credit Note"),
under which Borrower may borrow, repay, and reborrow, from time to time, so long
as the total indebtedness outstanding at any one time does not exceed the
principal amount minus the sum of (i) the amount available to be drawn plus (ii)
the amount of unreimbursed drawings under all letters of credit issued by Bank
for the account of Borrower. The Loan proceeds are to be used by Borrower solely
for working capital and to issue letters of credit from time to time. The total
amount of letters of credit to be issued under the Line of Credit Note shall not
exceed $1,000,000.00 at any time nor have maturities greater than December 31,
2000. Bank's obligation to advance or readvance under the Line of Credit Note
shall terminate if Borrower is in Default under the Line of Credit Note.
ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other
Loan Documents, as amended hereby, are in full force and effect without any
defense, counterclaim, right or claim of set-off; that, after giving effect to
this Agreement, no default or event that with the passage of time or giving of
notice would constitute a default under the Loan Documents has occurred; that
all representations and warranties contained in the Loan Documents are true and
correct as of this date; that Borrower has taken all necessary action to
authorize the execution and delivery of this Agreement; and that this Agreement
is a modification of an existing obligation and is not a novation.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of laws principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement. Terms used in this Agreement
which are capitalized and not otherwise defined herein shall have the meanings
ascribed to such terms in the Loan Documents.
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written.
Bluegreen Corporation
Taxpayer Identification Number: 03-0300793
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Senior Vice President
Bluegreen Resorts Management, Inc.
Taxpayer Identification Number: 65-0520217
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Resorts, Inc.
Taxpayer Identification Number: 65-0520212
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Holding Corporation (Texas)
Taxpayer Identification Number: 65-0796382
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Properties of the Southwest One, Inc.
Taxpayer Identification Number: 03-0315835
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Executive Vice President
Properties of the Southwest, L.P.
By: Properties of the Southwest One, Inc.,
its: General Partner
Taxpayer Identification Number: 65-0796380
<PAGE> 5
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Executive Vice President
Bluegreen Asset Management Corporation
Taxpayer Identification Number: 03-0325365
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Carolina Land, Inc.
Taxpayer Identification Number: 03-0317601
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Montana
Taxpayer Identification Number: 81-0400702
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Tennessee
Taxpayer Identification Number: 03-0316460
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of the Rockies
Taxpayer Identification Number: 65-0349373
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Virginia, Inc.
Taxpayer Identification Number: 52-1752664
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
<PAGE> 6
Bluegreen Communities, Inc.
Taxpayer Identification Number: 65-0484313
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Resorts International, Inc.
Taxpayer Identification Number: 65-0803615
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Carolina National Golf Club, Inc.
Taxpayer Identification Number: 62-1667685
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Leisure Capital Corporation
Taxpayer Identification Number: 03-0327285
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
Bluegreen Properties of the West, Inc.
Taxpayer Identification Number: 59-3300205
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
BG/RDI Acquisition Corp.
Taxpayer Identification Number: 65-0776572
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
<PAGE> 7
RDI Group, Inc.
Taxpayer Identification Number: 59-2504187
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Secretary
Dellona Enterprises, Inc.
Taxpayer Identification Number: 39-1130446
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Secretary
Bluegreen Resorts of Florida, Inc.
Taxpayer Identification Number: 59-2151678
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, Secretary
Bluegreen Vacations Unlimited, Inc.
Taxpayer Identification Number: 65-0433722
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL -------------------------------------------
Patrick E. Rondeau, President
First Union National Bank
CORPORATE By: /s/ JACQUELINE LEDEA
SEAL -------------------------------------------
Jacqueline Ledea, Vice President
<PAGE> 8
(FIRST UNION LOGO)
RENEWAL PROMISSORY NOTE
$5,000,000.00 August 1, 1999
Bluegreen Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts Management, Inc.
f/k/a RDI Resort Services Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Holding Corporation (Texas)
4960 Blue Lake Drive
Boca Raton, Florida 33431
Properties of the Southwest One, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Properties of the Southwest, L.P.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Asset Management Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Carolina Land, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of Montana
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of Tennessee
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Corporation of the Rockies
4960 Blue Lake Drive
Boca Raton, Florida 33431
<PAGE> 9
Bluegreen Properties of Virginia, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Communities, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts International, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Carolina National Golf Club, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Leisure Capital Corporation
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Properties of the West, Inc.
f/k/a Properties of the West, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
BG/RDI Acquisition Corp.
4960 Blue Lake Drive
Boca Raton, Florida 33431
RDI Group, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Dellona Enterprises, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Resorts of Florida, Inc.
f/k/a Resort Development International, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
Bluegreen Vacations Unlimited, Inc.
f/k/a RDI Resources, Inc.
4960 Blue Lake Drive
Boca Raton, Florida 33431
(INDIVIDUALLY AND COLLECTIVELY "BORROWER")
First Union National Bank
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(HEREINAFTER REFERRED TO AS THE "BANK")
<PAGE> 10
RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that
certain Promissory Note dated September 23, 1998, evidencing an original
principal indebtedness of $5,000,000.00 of which $0 is currently outstanding.
This Promissory Note is not a novation.
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Five Million and No/100 Dollars ($5,000,000.00) or such sum
as may be advanced and outstanding from time to time with interest on the unpaid
principal balance at the rate and on the terms provided in this Promissory Note
(including all renewals, extensions or modifications hereof, this "Note").
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the LIBOR Market Index Rate plus 1.5% as that rate
may change from day to day in accordance with changes in the LIBOR Market Index
Rate ("Interest Rate"). "LIBOR Market Index Rate", for any day, is the rate for
1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m.,
London time, on such day, or if such day is not a London business day, then the
immediately preceding London business day (or if not so reported, then as
determined by Bank from another recognized source or interbank quotation).
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective yield by taking the stated (nominal) rate for a
year's period and then dividing said rate by 360 to determine the daily periodic
rate to be applied for each day in the applicable period. Application of the
Actual/360 Computation produces an annualized effective rate exceeding that of
the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on August 23, 1998, and on the same
day of each month thereafter until fully paid. In any event, all principal and
accrued interest shall be due and payable on December 31, 2000.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
DEFINITIONS. LOAN DOCUMENTS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and may include, without limitation,
a commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, any renewals or modifications, whenever any of the
foregoing are executed, but does not include swap agreements (as defined in 11
U.S.C. Section 101). OBLIGATIONs. The term "Obligations" used in this Note
refers to any and all indebtedness and other obligations under this Note, all
other obligations under any other Loan Document(s), and all obligations under
any swap agreements as defined in 11 U.S.C. Section 101 between Borrower and
Bank whenever executed. CERTAIN OTHER TERMs. All terms that are used but not
otherwise
<PAGE> 11
defined in any of the Loan Documents shall have the definitions provided in the
Uniform Commercial Code.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note and the late charge shall be the highest amount allowable under such
laws. If no amount is stated thereunder, the late charge shall be 5% of each
payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. If at any time the effective interest rate under this Note would, but for
this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Bank in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. FALSE WARRANTY. A warranty or representation made or deemed made in
the Loan Documents or furnished Bank in connection with the loan evidenced by
this Note proves materially false, or if of a continuing nature, becomes
materially false. CROSS DEFAULT. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. Section
101, except that the term "debtor" therein shall be substituted by the term
"Borrower" herein; "Subsidiary" shall mean any business in which Borrower holds,
directly or indirectly, a controlling interest). CESSATION; BANKRUPTCY. The
death of, appointment of guardian for, dissolution of, termination of existence
of, loss of good standing status by, appointment of a receiver for, assignment
for the benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against the Borrower, its Subsidiaries or Affiliates, if any,
or any general partner of or the holder(s) of the majority ownership interests
of Borrower, or any party to the Loan Documents. MATERIAL CAPITAL STRUCTURE OR
BUSINESS ALTERATION. Without prior written consent of Bank, (i) a material
alteration in the kind or type of Borrower's business or that of Borrower's
Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the
business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or
guarantor or a material portion (10% or more) of such business or assets if such
a sale is outside the ordinary course of business of Borrower, or any of
Borrower's Subsidiaries or Affiliates or any guarantor or more than 50% of the
outstanding stock or voting power of or in any such entity in a single
transaction or a series of transactions; (iii) the acquisition of substantially
all of the business or assets or more than 50% of the outstanding stock or
voting power of any other entity; or (iv) should any Borrower, or any of
Borrower's Subsidiaries or Affiliates or any guarantor enter into any merger or
consolidation.
<PAGE> 12
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: BANK
LIEN. Foreclose its security interest or lien against Borrower's accounts
without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note
and all other Obligations, and all of the Obligations shall be immediately due
and payable. CUMULATIVE. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to ensure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may
advance and readvance under this Note respectively from time to time until the
maturity hereof (each an "Advance" and together the "Advances"), so long as the
total indebtedness outstanding under this Note at any one time does not exceed
the principal amount stated on the face of this Note minus the sum of (i) the
amount available to be drawn plus (ii) the amount of unreimbursed drawings under
all letters of credit issued by Bank for the account of Borrower. The total
amount of letters of credit to be issued under the Line of Credit Note shall not
exceed $1,000,000.00 at any time. Bank's obligation to make Advances under this
Note shall terminate if Borrower is in Default or a representation in any of the
Loan Documents is false or has become false. As of the date of each proposed
Advance, Borrower shall be deemed to represent that each representation made in
the Loan Documents is true as of such date. 45-DAY PAYOUT. During the term of
the Note, Borrower agrees to pay down the outstanding balance to a maximum of
$100.00 for 45 consecutive days annually.
If Borrower subscribes to Bank's cash management services and such services are
applicable to this line of credit, the terms of such service shall control the
manner in which funds are transferred between the applicable demand deposit
account and the line of credit for credit or debit to the line of credit.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or other Loan Documents and without affecting the liability of Borrower or any
person who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents
<PAGE> 13
shall prohibit Bank from pledging or assigning this Note or any of the Loan
Documents or any interest therein to any Federal Reserve Bank. Borrower shall
not assign its rights and interest hereunder without the prior written consent
of Bank, and any attempt by Borrower to assign without Bank's prior written
consent is null and void. Any assignment shall not release Borrower from the
Obligations. APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other
Loan Documents shall be governed by and construed under the laws of the state
named in Bank's address shown above without regard to that state's conflict of
laws principles. If the terms of this Note should conflict with the terms of the
loan agreement or any commitment letter that survives closing, the terms of this
Note shall control. BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower
grants Bank a security interest in all of Borrower's accounts with Bank and any
of its affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive
personal jurisdiction in the state named in Bank's address shown above.
SEVERABILITY. If any provision of this Note or of the other Loan Documents shall
be prohibited or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note or other such document. NOTICES. Any notices to Borrower shall be
sufficiently given, if in writing and mailed or delivered to the Borrower's
address shown above or such other address as provided hereunder, and to Bank, if
in writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that Borrower changes Borrower's address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice of
said change of address by registered or certified mail, return receipt
requested, all charges prepaid. PLURAL; CAPTIONS. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and the term
"person" shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. BINDING CONTRACT.
Borrower by execution of and Bank by acceptance of this Note agree that each
party is bound to all terms and provisions of this Note. ADVANCES. Bank in its
sole discretion may make other Advances under this Note pursuant hereto. POSTING
OF PAYMENTS. All payments received during normal banking hours after 2:00 p.m.
local time at the office of Bank first shown above shall be deemed received at
the opening of the next banking day. JOINT AND SEVERAL OBLIGATIONS. Each
Borrower is jointly and severally obligated under this Note. FEES AND TAXES.
Borrower shall promptly pay all documentary, intangible recordation and/or
similar taxes on this transaction whether assessed at closing or arising from
time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements. SPECIAL RULES. All arbitration hearings shall be conducted in the
city named in the address of Bank first stated above. A hearing shall begin
within 90 days of demand for arbitration and all hearings shall conclude within
120 days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 ET SEQ. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators
shall be licensed attorneys selected from the Commercial Financial Dispute
Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein. PRESERVATION AND LIMITATION OF
REMEDIES. Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any party
may exercise before or after an arbitration proceeding is brought. The parties
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale or under applicable law by judicial foreclosure
including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful
<PAGE> 14
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable, a judgment by confession of judgment. Any claim or
controversy with regard to any party's entitlement to such remedies is a
Dispute. WAIVER OF EXEMPLARY DAMAGES. The parties agree that they shall not have
a remedy of punitive or exemplary damages against other parties in any Dispute
and hereby waive any right or claim to punitive or exemplary damages they have
now or which may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE
PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE
IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A
DISPUTE.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
Bluegreen Corporation
Taxpayer Identification Number: 03-0300793
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Senior Vice President
Bluegreen Resorts Management, Inc.
Taxpayer Identification Number: 65-0520217
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Resorts, Inc.
Taxpayer Identification Number: 65-0520212
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Holding Corporation (Texas)
Taxpayer Identification Number: 65-0796382
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
<PAGE> 15
Properties of the Southwest One, Inc.
Taxpayer Identification Number: 03-0315835
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Executive Vice President
Properties of the Southwest, L.P.
By: Properties of the Southwest One, Inc.,
its: General Partner
Taxpayer Identification Number: 65-0796380
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Executive Vice President
Bluegreen Asset Management Corporation
Taxpayer Identification Number: 03-0325365
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Carolina Land, Inc.
Taxpayer Identification Number: 03-0317601
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Montana
Taxpayer Identification Number: 81-0400702
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Tennessee
Taxpayer Identification Number: 03-0316460
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
<PAGE> 16
Bluegreen Corporation of the Rockies
Taxpayer Identification Number: 65-0349373
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Corporation of Virginia, Inc.
Taxpayer Identification Number: 52-1752664
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Communities, Inc.
Taxpayer Identification Number: 65-0484313
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Bluegreen Resorts International, Inc.
Taxpayer Identification Number: 65-0803615
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Carolina National Golf Club, Inc.
Taxpayer Identification Number: 62-1667685
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
Leisure Capital Corporation
Taxpayer Identification Number: 03-0327285
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
<PAGE> 17
Bluegreen Properties of the West, Inc.
Taxpayer Identification Number: 59-3300205
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
BG/RDI Acquisition Corp.
Taxpayer Identification Number: 65-0776572
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
RDI Group, Inc.
Taxpayer Identification Number: 59-2504187
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Secretary
Dellona Enterprises, Inc.
Taxpayer Identification Number: 39-1130446
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Secretary
Bluegreen Resorts of Florida, Inc.
Taxpayer Identification Number: 59-2151678
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, Secretary
Bluegreen Vacations Unlimited, Inc.
Taxpayer Identification Number: 65-0433722
CORPORATE By: /s/ PATRICK E. RONDEAU
SEAL ------------------------------------------
Patrick E. Rondeau, President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-02-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> JUL-04-1999
<CASH> 39,046
<SECURITIES> 17,169
<RECEIVABLES> 103,949
<ALLOWANCES> 2,941
<INVENTORY> 146,784
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,325
<DEPRECIATION> 6,704
<TOTAL-ASSETS> 354,203
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 184,957
0
0
<COMMON> 251
<OTHER-SE> 119,437
<TOTAL-LIABILITY-AND-EQUITY> 354,203
<SALES> 62,714
<TOTAL-REVENUES> 70,951
<CGS> 21,724
<TOTAL-COSTS> 25,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 788
<INTEREST-EXPENSE> 2,955
<INCOME-PRETAX> 7,406
<INCOME-TAX> 2,926
<INCOME-CONTINUING> 4,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,424
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.17
<FN>
<F1>THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET.
</FN>
</TABLE>
